The Option Investor Newsletter Thursday 11-18-2004 Copyright 2004, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: On The Verge of a Breakout? Futures Wrap: See Note Index Wrap: You may want to consult your accountant first.... Market Sentiment: A Growing Crowd Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 11-18-2004 High Low Volume Adv/Dcl DJIA 10572.55 + 23.00 10585.26 10547.39 1.85 bln 1582/1609 NASDAQ 2104.28 + 4.60 2105.39 2089.48 1.93 bln 1477/1640 S&P 100 565.97 + 0.25 567.12 565.00 Totals 3059/3249 S&P 500 1183.55 + 1.61 1184.90 1180.09 W5000 11608.55 + 7.67 11618.71 11572.94 SOX 445.64 + 5.80 445.94 433.36 RUS 2000 622.06 - 0.91 623.17 618.84 DJ TRANS 3612.22 + 11.80 3618.54 3598.74 VIX 12.98 - 0.23 13.29 12.96 VXO (VIX-O)13.95 + 0.31 14.52 13.87 VXN 18.79 + 0.29 19.03 18.44 Total Volume 4,096M Total UpVol 2,305M Total DnVol 1,735M Total Adv 3552 Total Dcl 3657 52wk Highs 330 52wk Lows 53 TRIN 0.94 NAZTRIN 0.49 PUT/CALL 0.62 ************************************************************ On The Verge of a Breakout? by Jim Brown As OpEx week comes to a close the SPX is poised to move higher after a week of moving sideways. Last Thursday we saw the SPX come to a dead stop just under resistance at 1175. Friday saw a breakout to 1183.50 and after a week of trading the SPX closed today at 1183.75. This completes the third consolidation pause for the current rally. That means Friday could be pivotal for market direction and with the rising underlying bid that direction may be up. Charts Nasdaq Chart SPX Chart The concept of a new leg higher may be in sharp contrast to the economics we saw today. There are some seriously conflicting views of the economy as we rush towards the year end. The Jobless Claims came in as expected and provided no economic jolt with the continuing claims slipping slightly and helping the outlook for new jobs are being created. We are about two weeks away from the November payrolls and the estimates have not yet begun to fly. After last months +337,000 gain it will be hard to beat but investors would be happy with anything in the 200K range or higher. 150K is the minimum acceptable new jobs level because that is the number of new workers entering the labor force each month. We need 150K per month just to break even. Today's economic weakness began with the Conference Boards Leading indicators which fell for the fifth consecutive month. This was an October number at -0.3% and the September drop was revised down to -0.3% also making October the fourth consecutive month of -0.3% declines. This steady stream of progressively lower readings for five months is the first time since 1995 the indicators have posted a five month decline. There are several factors contributing to this meltdown. The ten-year treasury yield has fallen consistently despite the Fed rate hike cycle currently underway. Manufacturing employment numbers are also pushing the index down as hours worked decline and new orders decline. Remember this was an October number and pre election. There has been a spurt in hiring and investment since the election and the November report could show a significant reversal in the trend. Another weak report came from the Philly Fed Survey at 20.7. This was a drop from 28.5 in October and well below the consensus of 23.5. The Philly Fed number has been very volatile recently with a drop to 13.4 in Sept and a bounce to 28.5 in Oct. The return to 20.7 is a continuation of the decline started earlier this year. All production components except for employment fell including New Orders, Shipments, Prices Received and Prices Paid. Delivery Times, Back Orders and Inventory levels all slipped into negative territory. The only component to show a major improvement was the Six Month Outlook which exploded from 27.6 to 52.1. Considering the drops in all the production components it appears just getting past the election has improved spirits dramatically. There are no material economic reports on Friday and we will be left to trade on sentiment and stock news. That stock news will feature tonight's earnings from DIS, ADSK, MRVL, GPS and MSCC. Disney beat estimates by a penny on a +24% rise in profits and projected double digit earnings growth for the next few years. Some say it appears Disney has turned the corner and could be about ready to break resistance at $27. ADSK beat earnings by +3 cents and announced a 2:1 split to kick off a +$4 gain in after hours. They also raised estimates for the current quarter. The Gap announced earnings inline with estimates at 28 cents and said they were going to buy back $750 million in shares. MRVL beat estimates by a penny and projected +5% to +7% growth for the 4Q. DITC beat estimates by +8 cents and SRNA blew away estimates of 21 cents with a 35 cent headline number. That number did include some special items. Not all the earnings were positive with ELBO beating by a penny but warning that revenue and earnings would be below estimates for the 4Q. ELBO dropped more than $3 in after hours but recovered much of it before the session ended. SIRI saw a spike of +$1 after it was announced that Mel Karmazin, former president of Viacom, is joining SIRI as CEO. With Karmazin and Howard Stern making the SIRI commitment the struggling satellite radio company is rapidly gaining respectability. Tough to use the words Howard Stern and respectability in the same sentence but in this case it applies. GOOG dropped -4.96 after warning for the second time this week that revenue growth would probably decline in the fourth quarter because of intensifying competition and the "inevitable" slowdown as the business gets bigger. It also warned that ad revenue would slow as it removed online ads that generate low levels of interest. Two warnings in one week could be a sign that earnings are going to disappoint for the current quarter as the extreme projections generated during the IPO process and the thousands of pages of print hype are tested by reality. The $167 close was the lowest close since Oct-21st. 39.1 million shares were released for trading on the 16th and tripled the prior float of about 19m shares. Another 25 million will be released four weeks from now on Dec-16th, 25 million on Jan-16th and 179 million on Feb-16th. Google Chart Intel continued its upward march after CEO Craig Barrett said Intel was on track for much better operational performance in the first half of 2005 than 2004. This is a positive step up from the 3Q earnings guidance where Intel said 4Q sales would be only "seasonal" and with lower gross margins. Intel spiked +50 cents and helped power the SOX to new breakout highs at 445. Intel is pressing resistance at $25 and accelerating. The SOX breakout to 445 the day after AMAT said orders could be down -35% is positively amazing. AMAT itself closed up +31 cents at $17.69 after dropping to $16.50 at the open. The bulls are back and bad news is being ignored once again. The SOX recovery after the AMAT news may be the final nail in the coffin for the bears. The SMH shares moved higher in after hours trading to $35 on news from MRVL, MCDT and MSCC. SOX Chart During today's session the Dow crept higher but stalled at 10585 and just under Wednesday's 10600 resistance high. We have a strong pattern of higher lows as the consolidation band narrows and the underlying bids move higher. A break over 10600 would target the high for the year and a three year high at 10750. With the historically bullish Thanksgiving week ahead the odds are good we will see that test soon. The Nasdaq is also slowly pressing higher. The close today over 2100 puts it one step closer to the high for the year and a three year high at the January 26th close of 2153. All the interim highs since January have been surpassed and there is no slowing in the uptrend. We are not making 30-40 point moves but each day is another rung on the ladder. 2250 is the commonly quoted end of year resistance target. The Nasdaq saw support from the SOX today and the new breakout high but the Russell closed negative after a bout of profit taking intraday. A morning sell program knocked the Russell back to 618 and -10 points from its 628 high on Wednesday. The Russell has had a great run and it is only normal to expect some funds to take some profits and shift the money into other issues. I suspect there was some money moving from small caps to chips on the strength of the SOX rebound. With oil still holding at the lows and just over the 100day average at $45.75 there is nothing to keep traders from buying stocks. Yes they are overbought. Yes they are at or near the highs for the year and at key resistance levels but the race is on. The race for mutual fund profits is feeding cash to the markets at a frenzied pace. TrimTabs announced after the bell today that $5B in new cash flowed into funds for the week ended on Wednesday. TrimTabs said cash was flowing into funds at a pace not seen since the tax deposits hit the markets in April. Since funds have to put that money to work they have to keep buying stocks. They can't afford to sit on cash and have to tell their investors in January that they missed another +1000 point Dow gain because the market was overbought. (At least they hope it will be another +1000 point gain.) With 12500 the year end target taking shape in many analyst interviews there is still money to be made in their view. This all assumes the greater fool theory is still alive and well. Everyone buying stocks at the highs for the year are hoping there will be somebody left to sell to in January. Next week is Thanksgiving and it is normally bullish through the Monday after turkey day. Then we move to the January effect rally which actually occurs the first two weeks of December. Normally this is when losing small caps get sold in the last two weeks of December for tax purposes and then bought again the first two weeks of January when new money hits the markets. However, in recent years this process is said to have moved to the first two weeks of December as everybody tries to beat the rush in order to buy the dip ahead of the Santa Claus rally. Confused? In reality the January effect has blurred over the last few years as all of December has turned into a bullish session. But, there I go worrying about the future when all we need to do is get through Thanksgiving rally first then worry about the next step. Those that really want to toss in their sleep tonight could worry if the Thanksgiving rally will appear or will the funds use that historical trend to take profits from the last three weeks. See, you can really drive yourself crazy if you start trying to outwit the market. In my case it is not a very long drive. Sell too soon! Jim Brown Editor ************ 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 ************************Advertisement************************* OptionsXpress has "...a lot of bang for the buck."--Barron's * $1.50 /contract (10+ contracts) or $14.95 Min. No hidden fees * Easy screens for spreads, collars, or covered calls! * Contingent, Stop Loss, Trailing stop, or OCO * 8 different online tools for options pricing, strategy, and charting Go to http://www.optionsxpress.com/marketing.asp?source=oinvest35 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ******************** INDEX TRADER SUMMARY ******************** You may want to consult your accountant first.... It's here! The security gold bugs had been longing for. But the anticipation that I, and many other traders had for the new StreetTracks Gold Trust (NYSE:GLD) $44.38 ETF isn't what many had hoped for. At least not from the trader's perspective. In a June 22, 2003 Ask the Analyst column titled "A new security to grab a gold bugs attention," we reviewed the World Gold Council's proposal of a new ETF that would allow investors and traders to actually get some exposure (long or short) to gold bullion, without having to actually take physical possession. I was disappointed to learn that the Internal Revenue Service (IRS) has decided that despite the StreetTracks Gold (GLD) being a security, any taxes paid will fall under the IRS's "collectibles" tax-rate of 28%, and not the potentially lower tax rates stock investors and traders have become accustomed to. So before you trade this long-awaited security, check with your tax professional, especially you active traders, as the StreetTracks Gold (GLD) might not be suitable for everyone. I can only imagine that one of the reasons it has taken so long for the World Gold Council-sponsored ETF to finally come to market was that the WGC wanted it to be taxed as a capital gain or loss, not a collectible. According to the New York Stock Exchange, investors bought an estimated $550 million in the StreetTracks Gold Trust (GLD) $44.38, where this trust will now hold that amount of gold bullion. Today's offering may well have had some impact on the AMEX Gold Bugs Index ($HUI.X) 239.37 -2.35%, as this non-weighted EQUITY index fell, while Spot Gold in New York $442.10 -0.52% as well as December Gold Futures (gc04) $442.20 -0.15% traded fractionally lower. If you get the feeling, based on observation, that gold bugs decided to move toward the commodity itself, which provides more of a "true" hedge against inflation, or dollar weakness, then today's trade makes some sense as discussed in the June 22, 2003 Ask the Analyst column. With the StreetTracks Gold Trust (GLD) reflecting the underlying value of gold bullion, traders and investors can use Stockcharts.com's Continuous Gold ($GOLD) point and figure chart, to get a feel for supply/demand of this commodity-based ETF, as if it had been trading for months! Continuous Gold Contract ($GOLD) Chart - $2 box Most institutions will view gold prices on a $2-box chart, show that's what we're looking at above. You can see it gives some very choppy trade, but I'll still use it to at least try and establish some type of trading target, see if it "makes sense" with other observations (dollar, Treasuries, junk bonds, and gold equities). Right now, a GLD trader/investor would equate the current bullish vertical count ($462) in the above $GOLD chart with $46.20. After a powerful triple-top buy signal at $432.00, near-term support for the GLD would be assessed at $43.20. AMEX Gold Bugs Index ($HUI.X) - 4-point box Most institutions will view the 4-point box of the $HUI.X, and while gold itself has broken above its January/March highs of $436.50, the $HUI.X is lagging that type of relative strength price action. Why? Probably because of the dollar weakness, where the STOCKS in the $HUI.X will largely have to be purchased with U.S. dollars, and when they're sold, will also be equated with what the dollar has done. You can see some of the "loss of hedge" that gold itself provides against a currency. I've noted in past bullish gold commentary the Newmont Mining (NYSE:NEM) $48.63 -1.84%, which trades just off its January high of $50.20 is the way I like to trade bullish/bearish in gold. With Dorsey/Wright and Associates Precious Metals Bullish % (BPREC) now rising to a higher level of bullish risk, but still VERY strong at 70.55% (tonight's reading), I think bulls should be looking for some pullback entries. I'm probably going to get some Newmont (NEM) called away tomorrow as I had written some November $47.50 covered calls against the underlying in late October, as I thought NEM would stay under that level, with the HUI.X under 244.00. In a "bull confirmed" environment, those triple-top buy signals are powerful aren't they? Market Snapshot/Internals - 11/18/04 While today's first day of trade for the StreetTracks Gold Trust (GLD) was perhaps the top story for Index Traders, it was the Semiconductor Index (SOX.X) 445.64 +1.32% powering higher after another terrible quarterly earnings report from a bellwether that should grab investor's attention. While Applied Materials (NASDAQ:AMAT) $17.65 +1.78% has some formidable resistance ahead at $18.00, and is not a stock I'm crazy about from the long-side, bulls will most likely want to focus on the chip-makers, which will usually lead a cyclical recovery. Remember the equipment makers are DEPENDENT on the chip makers for their future. After getting my head handed to me on some covered calls in the Semiconductor HOLDRs (AMEX:SMH) $34.80 +1.45% this week (see my Market Monitor profiles) I think I'm back on trend with the semis. After achieving "bull confirmed" status on Friday at 34% bullish, Dorsey/Wright and Associates' Semiconductor Bullish % (BPSEM) has inched up to 38.13% as of tonight's close. U.S. Market Watch - 11/18/04 Close Stocks treaded water for the better part of the day, but got a late bid to their close with the SOX.X and Oil Service (OSX.X) holding the top spot among sector winners. I discussed the Pharmaceutical Index (DRG.X) where finger-pointing at the FDA's may have bulls avoiding the sector on the thought that the FDA has to become even more stringent in how it approves new drugs, and reviews drugs currently available to consumers. Pivot Matrix - Whenever I see a plethora of buy or sell program premiums, and little movement from the major indices, I sense pressure building. While the major indices have gone nowhere this week, the U.S. observed Thanksgiving week tends to be very bullish, especially toward the Wednesday close, and trade-shortened Friday (11/26/04). Nobody's sure why this is, but after having been a broker and consulted for Merrill Lynch, the tendency is for the big money managers (mostly buy side) to do most of their selling/fine tuning the week prior to Thanksgiving, and sometimes early in the Thanksgiving week (Monday or Tuesday) then turn the easy decisions over to their assistants as the big guns get an early start on a four or five-day Thanksgiving weekend. The assistants are usually given the instruction... "don't mess anything up," and a rather bullish bias takes hold. Jeff Bailey **************** MARKET SENTIMENT **************** A Growing Crowd - J. Brown It would seem that just as "everyone" predicted a post-election rally now "everyone" is waiting for the overdue pull back. Normally, when "everyone" is expecting something to happen odds are it fails to show up or at least fails to show up in the same form that "everyone" was looking for. I believe this year's post-election rally to be a valid exception considering all the worries that were surrounding the Presidential election. Yet now that everyone is looking for the dip it may not appear. I know that sounds improbable and I wouldn't bet on it but it is a possibility. This time I happen to agree with "everyone". I do believe stocks are extremely overbought and way overdue for a correction. How deep will the correction be? I don't know but I suspect it will be a lot more shallow than you or suspect it will be given the growing crowd of investors looking to buy the yet to occur dip. So what's holding the market up? I don't know that either other than a lack of willing sellers. If investors feel that stocks will closer higher before the year-end there isn't much reason to sell now. Several days ago Jim did an excellent job explaining the predicament that many fund managers are probably facing right now as the grapple with the issue of buy now or hope for a pull back. Plus, we have a little historical trend going for us. The Stock Trader's Almanac reports that the week before Thanksgiving week has been up eleven years in a row. Furthermore the Almanac states that the options expiration Friday (that's tomorrow) has been up 7 out of the last 12 years. I'm not sure I'd bet on that last statistic but the Industrials do look set to end up on the week. It bears noting that the volatility indices, which have been flashing the market-top warning signal for days are still trading near multi-year extremes. Plus, the ARMS index or TRIN's moving averages are trading at or near bearish reversal levels. This is a very tough spot to consider new bullish positions. Do so carefully. Personally, I'd still rather wait for the dip before opening new long positions. Next week, before Thanksgiving, looks like a good spot for the market to pause. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 9585 Current : 10572 Moving Averages: (Simple) 10-dma: 10471 50-dma: 10158 200-dma: 10245 S&P 500 ($SPX) 52-week High: 1170 52-week Low : 1031 Current : 1183 Moving Averages: (Simple) 10-dma: 1174 50-dma: 1131 200-dma: 1121 Nasdaq-100 ($NDX) 52-week High: 1559 52-week Low : 1301 Current : 1580 Moving Averages: (Simple) 10-dma: 1545 50-dma: 1463 200-dma: 1439 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 12.98 -0.23 CBOE Mkt Volatility old VIX (VXO) = 13.95 +0.31 Nasdaq Volatility Index (VXN) = 18.79 +0.29 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.63 1,161,751 726,699 Equity Only 0.50 911,558 454,881 OEX 1.06 36,439 38,534 QQQ 0.37 40,777 15,170 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 72.2 + 0.75 Bear Correction NASDAQ-100 76.0 + 5 Bull Confirmed Dow Indust. 63.3 + 0 Bull Confirmed S&P 500 73.0 + 0.8 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: 0.80 10-dma: 0.88 21-dma: 0.89 55-dma: 0.99 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 1377 1454 Decliners 1415 1574 New Highs 128 95 New Lows 10 15 Up Volume 980M 1068M Down Vol. 854M 856M Total Vol. 1860M 1943M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 11/09/04 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts at the Chicago Mercantile Exchange and Chicago Board of Trade. COT data can be found at www.cftc.gov. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs tend to be wrong. S&P 500 The difference between longs and shorts on the commercial side continues to narrow suggesting no bias one way or the other. Small traders are also somewhat neutral with a mild bullish bias. Commercials Long Short Net % Of OI 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%) 11/09/04 447,779 449,171 ( 1,392) (0.1%) Most bearish reading of the year: (111,956) - 3/06/02 Most bullish reading of the year: 23,977 - 12/09/03 Small Traders Long Short Net % of OI 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% 11/09/04 148,415 136,325 12,090 4.2% Most bearish reading of the year: (1,657)- 5/27/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 Commercials traders appear to be trying to capitalize on the S&P's overbought status. Short positions soared and the latest data is one of the most bearish readings of the year. As is usually the case the small traders is on the opposite side of the play with one of the most bullish readings of the year. Commercials Long Short Net % Of OI 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%) 11/09/04 337,164 672,903 (335,739) (33.2%) 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 10/19/04 353,903 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% 11/09/04 392,253 58,999 333,254 73.8% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Commercial traders remain bullish on the NASDAQ. Meanwhile small traders upped their positions on both longs and shorts but hit a new bearish extreme as far as net short positions. Commercials Long Short Net % of OI 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% 11/09/04 54,509 33,016 21,493 24.5% 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 10/19/04 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%) 11/09/04 10,213 38,251 (28,038) (57.8%) Most bearish reading of the year: (28,038) - 11/09/04 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Not much action in the commercials as they remain evenly divided between longs and shorts. The same can be said for small traders this past week with a split between bulls and the bears. Commercials Long Short Net % of OI 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% 11/09/04 22,863 22,463 400 0.8% 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% 11/09/04 6,165 6,483 ( 318) ( 2.5%) Most bearish reading of the year: (12,106) - 3/09/04 Most bullish reading of the year: 8,523 - 8/26/03 ************************Advertisement************************* Insiders are Buying these 6 Rocket Stocks. In the last few weeks, we have pinpointed insider buying on six stocks that have the potential to deliver stratospheric gains. 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The Option Investor Newsletter Thursday 11-18-2004 Copyright 2004, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: None Dropped Puts: None Call Play Updates: COP, DHR, EBAY, EOG, FDX, GDW, IBM, LEH, MUR, OSK, PTR, QCOM, SLB, SUN New Calls Plays: None Put Play Updates: FRX New Put Plays: None **************** PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** None PUTS: ***** None ************************Advertisement************************* OptionsXpress has "...a lot of bang for the buck."--Barron's * $1.50 /contract (10+ contracts) or $14.95 Min. No hidden fees * Easy screens for spreads, collars, or covered calls! * Contingent, Stop Loss, Trailing stop, or OCO * 8 different online tools for options pricing, strategy, and charting Go to http://www.optionsxpress.com/marketing.asp?source=oinvest35 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ******************** PLAY UPDATES - CALLS ******************** ConocoPhillips - COP - close: 86.26 change: -0.46 stop: 81.99 We are growing a little perplexed here. COP seems to be under performing some of its peers and the OIX oil index the last few days. That's not to say we're not still bullish on the stock but rivals XOM and CVX may look more appealing if you're looking for a mega-cap player in the group. Yesterday COP held their annual analyst meeting and the company reaffirmed their production forecasts. COP also raised its capex spending schedule from $4.5 billion this year to $5.1 billion in 2005 and $5.2 billion in 2006 as the company plans to spend more on exploration and production. What readers may find interesting is news that COP is basing their projections on crude oil falling to $28 a barrel in 2005, $26 a barrel in 2006 and to $24 a barrel beyond 2006. This doesn't seem to line up with everything we've read regarding the peak in oil production yet oil companies have been consistently under reporting where they think oil will trade. Plus, the West Texas crude that COP quotes tends to trade under imported crude prices. Regarding the current bullish play in COP we would still watch for a bounce above $85.00 or a new rally over the $88 level. Picked on November 03 at $85.50 Change since picked: + 0.76 Earnings Date 10/27/04 (confirmed) Average Daily Volume = 3.0 million Chart = --- Danaher - DHR - close: 58.64 change: +0.23 stop: 55.95 Yesterday (Wednesday) shares of DHR experienced some strong follow through from Tuesday's intraday bounce. DHR powered through resistance at $58.00 to hit new all-time highs. The move was fueled by the Kmart-Sears merger. Sears is a big customer for DHR and if the merger is completed the new bigger entity could/should be a much larger customer for DHR. This close to our target at $60.00 we are not suggesting new bullish positions. Readers can prepare to exit as DHR moves into the $59.50-60.00 range. Yesterday we raised our stop loss to $55.95. Picked on October 27 at $54.99 Change since picked: + 3.63 Earnings Date 10/21/04 (confirmed) Average Daily Volume = 1.3 million Chart = --- eBay Inc. - EBAY - close: 110.50 chg: +1.13 stop: 102.49 *new* The dip never got very deep in shares of EBAY. The pull back from $110 to $107.50 was it. If you're a technical trader it looks like the simple 5-dma as very short-term support. Brave momentum traders may want to consider positions here but do so with a tighter stop than ours. We're raising our stop loss to $102.49. We have a wide stop because we want to give shares room to maneuver as we hold EBAY through the end of December. Yes, it's still okay to consider some profit taking at current levels. Picked on November 80 at $103.69 Change since picked: + 6.81 Earnings Date 10/20/04 (confirmed) Average Daily Volume = 10.4 million Chart = --- EOG Resources - EOG - close: 69.29 change: +1.29 stop: 63.99 We don't see any new news to report on but EOG is going to let that slow it down. The MACD recently produced a new buy signal and shares have rallied past short-term resistance near $68.50. EOG is currently testing the descending trendline of lower highs dating back to its peak in October. We expect the stock will breakout over $70 soon. Readers can look to buy a dip/bounce near $68 or buy a breakout over $70. Picked on November 14 at $ 68.37 Change since picked: + 0.92 Earnings Date 10/26/04 (confirmed) Average Daily Volume = 1.1 million Chart = --- Fedex Corp - FDX - close: 94.78 change: +0.33 stop: 89.99 We have nothing to complain about here. The dip wasn't very deep and FDX continues to climb using its simple 10-dma as immediate support. Yes, the Dow Transportation index and FDX remain severely overbought and yes we still suggest readers, especially short-term traders, take profits here; but the trend is your friend. Conservative traders could tighten their stops. We have a wide stop because we want to hold FDX through the year end. However, we may get cold feet and chicken out (exit) at $97-98 since the P&F target is only $97. Picked on October 21 at $89.45 Change since picked: + 5.33 Earnings Date 09/22/04 (confirmed) Average Daily Volume = 1.5 million Chart = --- Golden West Fncl - GDW - cls: 118.66 chg: -2.31 stop: 114.99 Financials hit some minor profit taking today and shares of GDW slipped under the $120 level and its simple 10-dma. Fortunately, the $118.00 level held up as support. This could end up being a new bullish entry point but we'd want to see some signs of a bounce first. Watch for a move back over the $120 level. Picked on November 10 at $118.15 Change since picked: + 0.51 Earnings Date 10/21/04 (confirmed) Average Daily Volume = 583 thousand Chart = --- Intl Business Mach. - IBM - close: 95.10 chg: -0.36 stop: 89.99 Last chance! IBM has been holding on to its gains but the recent action is beginning to look like a short-term top. We've been suggesting that short-term traders do some profit taking now and consider re-entering on a dip. We plan to hold IBM through the end of the year but that means enduring all the ups and downs. Right now IBM is overdue for some "downs". We're looking for a dip into the $92-93 range. Picked on October 27 at $90.00 Change since picked: + 5.10 Earnings Date 10/18/04 (confirmed) Average Daily Volume = 4.7 million Chart = --- Lehman Brothers - LEH - close: 83.34 chg: -0.26 stop: 79.95 LEH continues to consolidate sideways. It's hard to see on the daily chart but shares of LEH are consolidating into a pennant formation with higher lows and lower highs over the past two and a half weeks. We would not suggest new positions until we saw LEH trade above the $85.00 level. The XBD broker-dealer index remains significantly overbought and due for a correction. Picked on October 26 at $80.60 Change since picked: + 2.74 Earnings Date 09/21/04 (confirmed) Average Daily Volume = 2.0 million Chart = --- Murphy Oil - MUR - close: 80.11 change: +0.76 stop: 77.49 Kudos to any of the brave traders who bought the recent dip. We expected MUR to rebound from the $77.50 level and traders jumped in at the $78.00 mark to buy the dip. Officially the newsletter is more conservative and we're waiting and watching for MUR to breakout over resistance at $82.00. Our suggested entry point to go long is at $82.25. Fortunately, the MACD indicator continues to improve and flirt with a new buy signal. 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 Chart = --- Oshkosh Truck - OSK - close: 62.98 change: -0.09 stop: 57.00 OSK continues the sideways consolidation between $62 and $64. Shares are now testing technical support at the 10-dma but if the market pulls back we expect OSK to correct as well. Right now we're suggesting readers watch for a pull back toward the $60 level as the next entry point. Picked on November 07 at $ 62.16 Change since picked: + 0.82 Earnings Date 10/28/04 (confirmed) Average Daily Volume = 205 thousand Chart = --- PetroChina Co - PTR - close: 55.10 change: -0.08 stop: 52.49 PTR is one of the new bullish candidates we added on Wednesday. The stock recently broke out over significant resistance at the $55.00 level. Readers looking for a little more confirmation can watch for a move over $55.50 before initiating bullish positions. There is no new news and no change in our strategy. Picked on November 17 at $55.18 Change since picked: - 0.08 Earnings Date 00/00/04 (confirmed) Average Daily Volume = 288 thousand Chart = --- Qualcomm - QCOM - close: 41.24 change: +0.43 stop: 37.50 The rebound continues for shares of QCOM and the stock is confirming yesterday's breakout over minor resistance near $40.50 and the cloud of moving averages. Technicals continue to improve and the MACD is now into its second day of a new buy signal. This looks like another bullish entry point to us. Picked on November 15 at $ 40.51 Change since picked: + 0.73 Earnings Date 11/03/04 (confirmed) Average Daily Volume = 13.9 million Chart = --- Schlumberger - SLB - close: 65.28 change: +0.73 stop: 61.00 SLB continues to rebound as we expected it would but the ascent has been a bit slower than we suspected. Shares are back over round-number resistance at $65.00 but are still struggling under the 40 and 50-dma's near $66.00. This looks like a bullish entry point to us but more conservative traders can wait for a move over $66. Picked on November 12 at $ 65.05 Change since picked: + 0.23 Earnings Date 10/22/04 (confirmed) Average Daily Volume = 3.9 million Chart = --- Sunoco Inc - SUN - close: 78.44 change: +0.89 stop: 72.99*new* Well that didn't take very long. We've been following SUN on the watch list recently and finally decided to add it to the play list on Wednesday. The stock has been out performing some of its oil-related fellows and managed to breakout over resistance at $78.00 to hit new all-time highs. We had a TRIGGER to go long at $78.25 that was hit today. The MACD is in a new buy signal and everything looks ready for another leg higher. We are raising our stop loss to $72.99. Picked on November 18 at $78.25 Change since picked: + 0.19 Earnings Date 10/21/04 (confirmed) Average Daily Volume = 1.2 million Chart = ************** NEW CALL PLAYS ************** None ************************Advertisement************************* Trade Smarter Using the latest Insider Trades Is the CEO selling off? Has a key insider loaded up on shares before a big price jump? Find out now. Get your free download of Real Time insider trades: http://www.realtimeinsider.com/default.asp?aid=637 ************************************************************** ******************* PLAY UPDATES - PUTS ******************* Forest Labs - FRX - close: 40.93 change: +0.25 stop: 44.01 We added FRX to the play list on Wednesday as a relative strength loser. The stock's consistent downtrend and series of negative news events have produced numerous high-volume declines. Yesterday was one such event. Surprisingly shares experienced very strong volume today as buyers defended the stock near the $40.00 level. That's why we have a TRIGGER to buy puts at $39.95. Until FRX breaks support at $40.00 we'll sit on the sidelines. More aggressive traders can look for another failed rally under $44.00 as a bearish entry point. Picked on November xx at $xx.xx <-- see TRIGGER Change since picked: + 0.00 Earnings Date 10/18/04 (confirmed) Average Daily Volume = 2.8 million Chart = ************* NEW PUT PLAYS ************* None ************************Advertisement************************* Get your FREE weekly charts of the NASDAQ! Hot Stix’ stock market report reveals simple, powerful strategies for profiting from the QQQ - whether down or up! http://www.hotstix.com/public/weekly.asp?aid=755 ************************************************************** ********** 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 Thursday 11-18-2004 Copyright 2004, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Watch List: A brief watch list this evening. Traders Corner: Elliott Wave principles basics; part 2 Combos/Straddles: Staying Positive While We Weather The Storm ********** WATCH LIST ********** A brief watch list this evening. ___________________________________________________________________ How to use this watch list: Readers can use the candidates below as a springboard for their own research. Many are in the process of breaking support or resistance or in the process of starting new trends or extending old ones. With your own due diligence these could be strong potential plays. ___________________________________________________________________ 3M Co - MMM - close: 82.37 change: +0.14 WHAT TO WATCH: Dow-component MMM has been under performing some of its peers as the DJIA index soars to new monthly highs. Bulls should be encouraged by MMM's breakout over its four-month trendline or resistance two weeks ago. Yet the stock has churned virtually sideways the past two weeks. We suspect the Dow will pull back soon. Watch MMM for a dip toward round-number support at $80.00. Chart= --- Vimpel Communications - VIP - close: 126.75 change: +7.96 WHAT TO WATCH: VIP soars for a 6.7 percent gain and new all-time highs after reporting earnings today. The stock broke through resistance in the $122.50 region on very strong volume. We would probably not chase it here but look for a pull back to consider bullish positions. Chart= --- Mobile Telesys - MBT - close: 147.22 change: +8.04 WHAT TO WATCH: Wow! MBT has produced a huge bounce from the $139 level and the rising trendline of support dating back to mid- September. Volume was above average on today's bounce and shares cleared round-number resistance at $145 and several significant moving averages. MBT looks ready to rally toward the $155-156 range. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- SYMC $61.81 +0.57 - SYMC is nearing resistance at $62.00 and looks ready to breakout! AHC $81.45 +1.63 - Almost there. AHC has broken out over the $80.00 level and is almost over the $81.50 mark we suggested as an entry point. APC $68.13 +0.61 - APC continues to look like a bullish candidate. We see today's move as an entry point. ATH $97.60 +0.95 - From $72 to $97 in just four weeks, shares of ATH are extremely overbought. Watch for resistance at $100 and a sizeable pull back before considering bullish positions. ************************Advertisement************************* OptionsXpress has "...a lot of bang for the buck."--Barron's * $1.50 /contract (10+ contracts) or $14.95 Min. No hidden fees * Easy screens for spreads, collars, or covered calls! * Contingent, Stop Loss, Trailing stop, or OCO * 8 different online tools for options pricing, strategy, and charting Go to http://www.optionsxpress.com/marketing.asp?source=oinvest35 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ************** Traders Corner ************** Elliott Wave principles basics; part 2 By Leigh Stevens I started this series back on 10/26 (04) and part 2 carries on from it and reading part 1 is helpful if not necessary. See – http://www.OptionInvestor.com/traderscorner/tc_102604_1.asp But, FIRST, a word from our sponsor ... no! Rather two Subscriber e-mail Questions that either relate to the wave topic directly or where my answer has some relevance to it - SUBSCRIBER QUESTION: "In your example of the Weekly S&P500 chart, you show wave 4 violating the price territory of wave 1. Everything I have read and even the EW software that I use (Advanced Get) states that if W4 drops into W1 territory, the chart is renumbered, in your example, W3 now becomes W1 and W4 becomes W2 and so on. Just curious why you numbered the way you did?" NOTE: Our questioner referred to this chart from my 10/26 article and how the bottom of the sharp decline labels "4" was lower than the top of the advance ending at "1" – [NOTE: The question is really how can corrective wave 4 overlap ALL of the prior advance, wave 3, and still be labeled correctly?] RESPONSE: What you say is the case most of the time in Elliott Wave terms. I was trading and writing on the market during this period. The powerful advance ending where I labeled it "3", certainly "felt" like a three wave which is typically a very strong and powerful advance. What I labeled corrective wave 4 was very fast and also felt like the correction to the preceding up wave 3 that preceded it. I knew also that "portfolio insurance" selling added the additional amount for the extension of wave 4 that caused the overlap and was a one- time event - the portfolio insurance concept and method (of automatic shorting of index futures at pre-determined, successively lower levels) lost its wide following after that sharp fall. The next rally or advancing wave that followed had the characteristic and feel of a final wave (5) up and was followed by a major A-B-C correction - all in all, the whole period shown above offered an example of a 5 wave bull market followed by an A-B-C bear market. Now, about wave 4 "canceling" all of wave 3 and retracing all of the prior advance, getting into the territory covered by the first advance. (Per my earlier article; see it by clicking on the link above – the 3 up moves of a bull market are labeled 1, 3 and 5; the two intervening corrections are labeled 2 and 4.) I would probably note in the future that corrective wave 4 does not usually retrace all of up move (3), or corrective wave 2 that preceded it. I would also note the limitations of software, where only ONE rule can be programmed into the rules of the program; i.e., in this case, how waves can be labeled. In his own words, R.N. Elliott wrote: "As a general rule, it may be assumed that wave three will reach a higher level than wave one, and that wave five will go higher than wave three. (There can be fifth wave "failures" - L.S.) Likewise, wave four should not carry to as low as attained by wave two. Wave two rarely cancels all the ground gained by wave one, and wave four rarely cancels all of the ground gained by wave three." You'll notice that Elliott himself is not "dogmatic" in his interpretations of how market action sometimes unfolds by his use of the words "general" and "rarely". SUBSCRIBER QUESTION (2): "Leigh, the last two weekends you mention 39 as the upside target for the Q's. Has the price of oil and or other conditions changed your thinking here? Are we screaming overbought here?" RESPONSE: I had $39 as an upside target for QQQ because I thought that this current market move, as strong as it's been, would at least re-test the prior intraday high. I also noted that if QQQ closed ABOVE 39 and then especially had a follow through close the following day, then higher objectives were implied – I didn't say what those higher target possibilities were actually. Sorry, dear readers. There are a couple of points I can make – one pertains to when does the market get the most "overbought"? – Answer: when it's in a 3 wave advance. The second advance in a bull market move (the first advance being "wave 1"; the second advance or "wave 3" follows after a corrective pullback "wave 2) is usually the strongest and the ascent is typically STEEP – pullbacks are shallow and the market usually gets the most overbought by conventional measurements of overbought/oversold; e.g., by use of the RSI Indicator – The steepness of the rate of ascent can be seen by the angle of the second trendline going from point 2 at the bottom of the downturn following the first big rally off the August bottom – and which is extended up toward an imagined end of wave 3. This is the power move so to speak and is the rally where an indicator like RSI gets the most extreme. As measured by the RSI, this market is way overbought as you suggest but that does not necessarily mean to automatically exit calls for example. It may mean to not take any or many NEW call positions as too high risk. NOTE: In the chart above, the strong OBV trend is a confirming secondary indicator that this is a power move. Just looking at the volume bars is not enough as the daily volume levels are not huge. As to how we can judge where a top might come in, I rely on price patterns – there is no double top or anything like that but prices are trading within a trend channel on the hourly chart and the top end of it may be the next objective, say around 41 – RECAPPING BASIC ELLIOTT WAVE PRINCIPLES – A bull market or a basic up trend tends to break down into 3 advancing "impulse" waves, with 2 intervening counter- trend corrections or downswings and that these all together make up a 5-wave structure. The END of a wave is where we put the number or letter. A "typical" look to this is can be seem from a chart from a prior market – A bull market move, designated by the 5-wave structure or pattern is followed by a down-up-down correction or 3-part structure designated by the Letters A, B and C as can be seen in the current Dow 30 (INDU) weekly chart – The back and forth, up and down price swings between the major top made in early-2000 top (top of wave 5) and the next major low at "A" was a complex move - but this was followed by a simple structure in the advance culminating at "B". Wave 5 was also relatively simple. This is another characteristic of the market in wave terms. If a wave has been "complex", the next will be simple. This can also be seen in the simplicity of up wave 3, which was followed by complex wave 4. What this characteristic of the pattern made by the various rallies and declines helps tell is WHERE we are? Is this correction likely to have a lot of wide-ranging price swings and which is good for traders? Is this advance we're in likely to be strongly in ONE direction? If so, you may want to get into puts or calls and stay positioned and do less trading in and out. LAST BUT NOT LEAST – FOR OPTION TRADERS Having an idea of the wave pattern as it unfolds is very valuable to option traders, but we need to look at intraday charts, especially hourly charts – If the Nasdaq Composite is in a strong uptrend characteristic of a 3 wave and that was apparent when the earlier corrections were shallow and short-lived, then a strategy of trading in and out of options will NOT be as profitable as staying in a position and would warrant going out to an expiration that is not the next one coming up. AND, you note that the bigger waves break down into smaller sub- sets; e.g., wave 1 consists of 5 waves up and corrective wave 2 breaks down into the a-b-c pattern of ALL corrections. More on this to follow in another article on wave patterns and theory. Good Trading Success! **************** Combos/Straddles **************** Staying Positive While We Weather The Storm By Mike Parnos What going to happen first? Is the market going to run out of steam or are we going to run out of money? Just kidding, sort of. This month the market has taken its toll on our brokerage account, but we controlled our losses, and we live to trade another day. We preserved our trading capital and that's the secret to effectively running a business. From the emails I've received, some CPTI students got out earlier and experienced smaller losses. Others, however, held on too long and are taking severe hits. I can only hope that something is learned from the experience. What we've experienced this month happens very seldom, but this is the "mierde" I talk about in the CPTI credo. We have to be prepared for any occurrence. Now What? Good question. The market is trending -- not the ideal situation for the Iron Condor strategy. It has taken little, if any, rest on its way up. The S&P 500 has gone up 90 points in the last four weeks. There are those of you who may choose to sit out until the trend becomes a more defined. That is understandable -- and even advisable. A little innocent voyeurism never hurt anyone. Watching other short traders getting abused might even be entertaining -- especially after the month we experienced. For the newsletter, however, the only way we're going to learn is to put on trades. I'm going to place some "hypothetical" trades tomorrow and then wait until next week to possibly put on a few more. I'm going to be ultra-conservative. The dollar amounts aren't going to be impressive, but they will provide you a slightly different approach to a few of our strategies. What Did We Learn? Aside from the self-discipline to take a loss when necessary, it became painfully apparent that the spreads in our Iron Condors were too wide. When the time came to close our positions, we bought back our short options only to discover that our long positions had little value to help defray the costs. For example -- if we had the November 1180/1200 bear call spread (20-points), a week ago it would have cost us about $9.00 to buy back the 1180 call. The 1200 call might have had a value of only $1.00. We would have had to pay a net $8.00 to close a spread that was only about $1.00 in-the-money. What we're going to try to accomplish in the future is to create smaller spreads (5-points and 10-points). To generate reasonable premiums, we will take in less per spread and simply trade more contracts. Then, if we get into trouble (which will happen sooner or later), the long option will have some value to make the unwinding process less painful. ____________________________________________________________ DECEMBER CPTI POSITIONS December Position #1 -- SPX Iron Condor (Part 1) - 1183.55 We are mildly bullish on the market and this bull-put spread still gives us about a 40-point cushion on the downside with the short strike near what should prove to be a support level. Sell 20 December SPX 1145 put Buy 20 December SPX 1140 put Approximate credit: $.80 ($1,600) Notice that, as of Thursday's closing price, the "natural" posted price shows only $.30 of premium. The rest of our premium is going to come from negotiating between the bid and ask spread. Strike Bid Ask 1140 Put $3.30 $3.70 1145 Put $4.00 $4.70 You'd be surprised how much you can get if you just ask. We'll try to get $.30 from the 1145 $.70 bid/ask spread. Then, we'll try and get $.20 from the 1140 $.40 bid ask spread. Add that $.50 to the $.30 posted prices and we have our $.80. Asking for $.80 may be a little aggressive, but in life you're not going to get anything unless you ask for it. You can always modify it lower if you don't get filled in a reasonable amount of time. This is just the bull-put portion of our Iron Condor. We're going to wait until the smoke clears a little before looking at our bear- call spread. Besides, Monday, the SPX should open up a lot more strike prices to select from. It will give us a lot more flexibility. If the market shows no sign of topping, there's nothing wrong with just having the bull-put spread. We have to take what the market gives us. When we get greedy, we get hurt. December Position #2 -- SPX Sure Thing (Almost) Credit Spread – 1183.55 Here we go again. But, if you noticed, our Sure Thing fiasco may be our only profitable trade to close this month. It's best used in a trending market -- and there's no denying that we're in a trend. It cost us a bunch to find out. Maybe we can take advantage of it. Sell 2 SPX December 1180 puts Buy 2 SPX December 1180 puts Credit $7.50 ($1,400) ___________________________________________________________ The Last Man Standing Our SPX 1185/1200 position is till going. As you know, since the SPX is a European option, trading ceased today (Thursday). However, we are still exposed to the Friday opening settlement price. The SPX closed at 1183.55. That means we have a small 1.45 cushion to help us in case the SPX opens higher. At this point we are at the mercy of the market. The November SPX options do not trade. It's a helpless feeling, so you can a) light a candle, b) pray to God, Buddha, Allah or the Tooth Fairy (or all of the above), or c) have a few stiff drinks and watch Gilligan's Island reruns until you fall asleep. The settlement symbol for the SPX will be SET or $SET. It will be available about noon on Friday. You can always call 1-888-OPTIONS and ask for the Nov. SPX settlement number. They'll have it as soon as it's released. Good luck!! ____________________________________________________________ NOVEMBER CPTI POSITIONS November Position #1 - SPX Iron Condor - 1183.55 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 - 1183.55 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 - 565.97 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 - 622.06 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 -- $39.29 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 - 565.97 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 - 1183.55 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. ************************Advertisement************************* Trade Smarter Using the latest Insider Trades Is the CEO selling off? Has a key insider loaded up on shares before a big price jump? Find out now. 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