The Option Investor Newsletter Tuesday 11-30-2004 Copyright 2004, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: Passing Time Futures Markets: See Note Index Trader Wrap: S&P 100 and Dow better get a move on Market Sentiment: Good Time for a Dip. Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 11-30-2004 High Low Volume Adv/Dcl DJIA 10428.02 - 47.90 10483.14 10428.02 1.95 bln 1372/1885 NASDAQ 2096.81 - 10.10 2107.45 2096.81 1.91 bln 1395/1754 S&P 100 557.47 - 2.68 560.58 557.46 Totals 2767/3639 S&P 500 1173.82 - 4.75 1178.66 1173.81 SOX 423.87 - 6.00 431.29 423.86 RUS 2000 633.77 - 0.69 635.81 632.53 DJ TRANS 3658.71 + 8.60 3663.30 3638.47 VIX 13.24 - 0.06 13.38 13.07 VXO (VIX-O)13.54 - 0.08 14.17 13.53 VXN 18.88 + 0.01 18.90 18.52 Total Volume 4,214M Total UpVol 1,760M Total DnVol 2,379M Total Adv 3162 Total Dcl 4175 52wk Highs 531 52wk Lows 44 TRIN 1.04 NAZTRIN 1.01 PUT/CALL 0.89 ************************************************************ Passing Time by Jim Brown The markets could not make up their mind today and spent the entire dsession trading in a range and passing time while waiting for Friday. Funds planning on purchases with the Microsoft dividend money likely spent the day adjusting positions and dropping less desirable stocks. The result was a terribly boring range bound day that ended right on support across the board. Dow Chart Nasdaq Chart SPX Chart There was a very confusing mix of economic news and stock traders were unsure which reflected reality. The Chain Store Sales fell -1.5% for the week ended 11/27 and that was the biggest drop since March 27th when the index fell -1.9% for the week. Correct me if I am wrong here but shouldn't Thanksgiving week be one of the strongest weeks of the year? We have already heard that Wal-Mart barely posted a gain over last year due to a bad decision about specially discounted items but some other retailers did well. We heard from the retail sector that many stores saw increases in the +4% range but it looks like those chains were not a significant part of the survey. The ICSC-UBS Index is now resting near its late October low for the year and casts doubt on the strength of the season. ICSC lowered its sales forecast for November sales to 2.5% to 3.0% from the 3.5% to 4% it had previously predicted. Also causing confusion was a drop in Consumer Confidence to 90.5 from 92.9 and fourth consecutive monthly drop. The consensus estimates were calling for a significant increase to 96.3. Obviously somebody forgot to tell the consumers. The present conditions component was slightly higher at 95.2 from 94.0 in October. The expectations component was the culprit as it fell from 92.2 to 87.4. Something weighed on the consumer consciousness and they are becoming worried about the future. We did see oil return to $50 and the market floundered after testing the highs back on Nov-17th. There was also a round of analysts suggesting any end of year rally would find tough sledding once January appeared with much lower growth estimates for 2005. There was a significant drop in buying expectations with those planning on buying a home falling to 2.4% from 3.6%, autos fell to 4.2% from 7.6% and major appliance purchasers fell to 24.2% from 27.8%. The sum of those three components was the lowest since the early 1990s and the auto component was the lowest on record. Expectations of business conditions worsening and fewer jobs also rose. The headline number at 90.5 was the lowest reading since March. The biggest decline in confidence came from households with income under $35K per year. The Chicago PMI fell to 65.2 from last months two decade high at 68.5. No surprise there given the current state of the economy. Just a normal pullback after a strong spike. This may be seasonal more than a drop in the business climate. Products made for the holidays had to be in stores by Thanksgiving and that sent production to the October highs. In November production fell to 68.4 from 79.7 and new orders dropped to 70.0 from 79.4. Order backlogs fell to 52.7 from 60.9. Unbelievably employment soared to 60.8 from 54.1. Production is catching up with demand either from slowing demand or increasing production. This was still a strong report and could just be indicating that the production spike for the holiday season is over. The NY-NAPM rose again to 319.3 from last months 313.7 and continued its multi month march higher. The index is up +40.5% from this time last year. Manufacturing components slowed but non manufacturing numbers rose. The coming bonuses in the financial sector should keep the bloom on the big NYC apple until early next year. The yearlong increase in conditions should then moderate given the potential change in the tax structure in 2005. Another upside surprise came from the GDP with a 3.9% headline number and better than the previously reported +3.7% growth. Conditions were mostly positive with a better trade balance and increases in consumption. The downside was a drop in corporate profits by -2.4% due to hurricane damage and the lag time for insurance payments. Business investments also increased as they tried to capture the accelerated depreciation on new equipment purchased before year end. Inventories were revised down sharply to $31.8B from $47.8B which was previously reported. This should increase GDP in the 4Q as inventory levels are rebuilt. The end of year replacement cycle for computer equipment is well underway as evidenced by Dell's gains in revenue and earnings. HPQ also showed gains in the PC sector and for both companies the gains are due in a large part by the accelerated depreciation for equipment purchased this year. With less than 30 days remaining in this economic stimulant it was not surprising to see the Gartner Group warn that several computer companies may go away soon. Gartner said the accelerated depreciation was keeping several in business and once that ceased any growth in the PC sector was going to be limited to single digits in 2005. According to Gartner we have seen six quarters of double digit growth and that has kept those third string players in the game. Dell, IBM and HPQ are not expected to drop out of the business and Dell was the preferred vendor for the long run. According to Gartner Dell could sell computers for less than it cost others to make them given their scale and buying power. NEC and Toshiba were farther down the list and questionable as future players. Gartner thought the next replacement cycle would begin in 2008 when the new operating system is due out from Microsoft. Wal-Mart continued to drop today with share prices back at $52 and support from the summer. The David Faber, CNBC bounce has been erased due to a miscalculation on the Thanksgiving advertising plan. Seems Wal-Mart believed that consumers would remember they always have low prices on everything all the time without massive advertising. Stores like Target, Mervyns, Kohls, Sears, etc, blanketed mailboxes, papers and airwaves with advertised specials and were successful in attracting consumers for the big holiday cycle. WMT saw only a minimal gain in sales for the weekend and a major drop in market cap as a result of their error. WMT has lost -$13 billion in market cap over the last two days but they assured investors they will rectify the situation very quickly. My guess is the sleeping lion is no longer sleeping and will be roaring and advertised specials will be appearing everywhere over the next five weeks. I hope Target and Kmart enjoyed their weekend because the next five weeks could be a lot tougher. WMT can afford to spend more on advertising than most other retailers have in weekend sales. WMT at $50 sounds like a buying opportunity to me. Tomorrow will be the debut of the QQQ on the Nasdaq as the QQQQ. The AMEX will continue to trade the QQQ but on an unlisted basis and volume is likely to be minimal. The QQQ/QQQQ is the most actively traded ETF in the world with more than 100 million shares traded each day. The QQQ is not the only major change this week. The SOX will have its first major makeover in two years with the addition of three stocks and the removal of two. The SOX index will drop MOT and LSI. Motorola is being dropped because they spun off their chip division into Freescale Semi (FSL) back in July. LSI is being dropped because it no longer reflects leadership in the sector according to the Philadelphia Exchange. Freescale (FSL), Infineon (IFX) and Marvell Technology (MRVL) are being added to the SOX. The changes will be made before the start of trading on Friday. The SOX options are the eighth most traded index options for 2004. After the bell today NVLS gave investors their mid quarter update saying that earnings would be in the upper half of their projected range. They projected earnings in the 24-26 cent range and analysts had only projected 21 cents. They also said the business climate remained sluggish but they saw a strong sell through until year end. They are hoping consumer-buying trends will be strong enough to prompt a new wave of component orders in 2005 that result in new equipment from NVLS. Sounds like a strong rendition of "wishing and hoping" by the NVLS chorus. PHG announced on Tuesday that they were cutting their 2005 estimates for global chip growth to ZERO from +5%. They also said they had shipped more than one billion mobile displays and should complete their second billion within six years. They are the leading supplier of cell phone screens and they expect volume to double in value and volume over the next four years. Gold prices hit a high of $456 today and just below the $457 high set on Monday. While the weak dollar may be a motivating force the real reason is the $1.5 billion in new demand to back the GLD ETF. Since the fund is backed by the metal they must buy gold for every share that is purchased. This is new demand that did not previously exist and is taking supplies out of the circulation pipeline. Since this gold will not be used for anything but collateral it will not reappear on the market unless the new gold bugs begin dumping those GLD shares. This has driven the price from $425 to over $455 in the last three weeks. Add in the weak dollar and you have 18 year highs. November is over and despite any concerted month end buying the indexes had a spectacular month. The Russell rose +8.5%, Nasdaq +6.2%, S&P Midcap +5.8%, Transports +4.6% and of course the S&P rounding out the list at +3.9%. The Dow squeaked in with a +4% gain and the Wilshire only slightly better at +4.6%. Considering the weakness since Nov-18th it is surprising the indexes did as well as they did. The SOX tried to make a run for negative territory but found support for a +2.9% gain once the smoke cleared. Those positive numbers above are the probable reason for the negative numbers we have seen for the last week or so. The Thanksgiving rally was very minimal and funds appeared to be taking the first two days this week as an opportunity to lighten up on those stocks they did not want to take into year end. Profits are not profits until they are sold and booked. This is a hurdle week for economics and with the Intel update on Thursday night there is plenty of suspense. We have a heavy economic schedule ahead with the ISM on Wednesday leading the list. The November Jobs report is due out Friday morning only a few hours after Intel confesses. Add in ten other economic reports between tonight and Friday morning and there is ample reason to lighten the load ahead of the Microsoft dividend payable on Thursday. TrimTabs is now estimating that $22B to $25B will be put back into stocks over the week beginning on Friday. This is a huge amount of liquidity and should float the markets for at least two weeks. I personally believe funds are adjusting positions this week to prepare for the liquidity boom. Given the risk from Intel and Jobs I doubt we will see any major gains until Friday or possibly even Monday of next week. Of course if early buyers begin to appear the race could start sooner than expected. That adjustment knocked about -50 points off the Dow today and closed it right on support that has held since 11/22 at 10430. While this would appear to be a critical level we could easily see a dip to 10370 and stronger support with no damage to the long term uptrend. In fact another dip lower would be welcomed by those buyers wanting one last entry point before Friday. The Nasdaq has been much stronger than the Dow and held the 2100 level once again with only a minor -2 point break at the close. The Nasdaq is holding the high ground despite the SOX weakness from the impending Intel update. The positive NVLS news tonight could help support the SOX and in turn hold up the Nasdaq. The Nasdaq has plenty of decent support between 2060-2100 and is not in danger unless we have a real buyer revolt. The SPX is also holding on support at 1175 with stronger support at 1170 and 1165. A worst-case scenario would be for the SPX to drop back to 1165 to clear the stops and then rebound into the liquidity event. I would still be a dip buyer above 1165. My plan for the rest of the week is to try to remain long over SPX 1165 and wait for the cash to begin flowing. If fund managers simply pocket the cash for a rainy day there could be a lot of bulls headed for slaughter. I don't expect this because find managers need to use that money to prop up the market and guarantee returns into the year end. Once we get to January earnings it could be a very different scenario but we will worry about that once the gift wrap hits the trash and the Christmas trees hit the curb. Grab some Maalox and continue buying the dips over SPX 1165. If you have not registered the end of year renewal special this would be a good time to check it out! Bonuses are shipped in the order they are received. Buy the dips until the trend changes. Jim Brown Editor ******************************************** Option Investor End of Year Renewal Special ******************************************** 2005 Is Only Five Weeks Away! We have gone to great lengths this year to provide you with a renewal package that could easily be our best ever. 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If you thought oil at $55 was bad then oil at $75 will really spoil your day unless you are invested in the right stocks well in advance. Guess what? They are not all oil stocks! If your investments in these ten stocks doubles, triples or even quadruples over the next five years then you can smile confidently when your neighbor is complaining about $5 gasoline. Everything is relative and you can afford to spend a little more for gas knowing the high prices are padding your investment account. ******************************** Bonus Number Four! Two 2005 Option Expiration Calendar Mousepads ******************************** Bonus Number Five! The 2005 Stock Traders Almanac The 2005 Stock Traders Almanac retails for $34.95 plus postage. For our End of Year subscribers we are passing our volume savings on to you and are offering the 2005 Almanacs for only $20.00. This is -43% off the retail price and postage inside the U.S. is included! ******************************** Two Choices, Five Bonuses, One great Special! Don't delay, sign up today. Orders are shipped on a first come, first served basis. Click here for more information on this great offer: https://secure.sungrp.com/05renewal/ *************** FUTURES MARKETS *************** Futures wrap is not emailed due to the excessive number of charts. 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Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ***************** INDEX TRADER WRAP ***************** S&P 100 and Dow better get a move on Stocks ended a very bullish month of November on a sour note, where despite a decline in various energy futures contracts and a Treasury trade that had the yield curve steepening, equity bulls never could muster much of a move higher, where consumer confidence readings from the Conference Board was surprisingly weak. Stocks felt "heavy" to me today. And I can't figure out why. Did bulls exhaust themselves in November? The major averages had their most bullish monthly performance of the year in November with the Dow Industrials (INDU) jumping 400 points, or 4.0%. The S&P 500 Index (SPX.X) gained a healthy 43.6 points, or 3.9% and hit a new 52-week high in November. Meanwhile, the SPX's narrower counterpart and the S&P 100 Index (OEX.X) gained 16.8 points, or 3.1%. The also narrow, but tech-heavy NASDAQ-100 Index (NDX.X) surged 84.7 points, or 5.7% for the month, also managing a new 52-week high in November. The small caps as depicted by the Russell 2000 Index (RUT.X) showed the large caps who is boss in November, with the RUT.X gaining just under 50 points, or a bubbling 8.6%. Hey Matt! Are you still here? In the January 18, 2004 Ask the Analyst column, Matt asked about the Stock Trader's Almanac notes regarding the importance of the first 5-days of this years trade, being a potential predictor of full-year market direction. If ALL the major indices are going to finish higher on the year, which was indicated by bullish trade for the first 5 days, then the S&P 100 and Dow Industrials better get a move on! U.S. Market Watch - 11/30/04 Close I should throw the NASDAQ Composite (COMPX) into the mix as a major equity index that is still below its January highs, but holding above its December 31, 2003 close of 2,003.37. Since I discussed the rather bullish seasonal tendency for the COMPX and RUT.X, which historically begins in November, tonight's little recap of November percentage gain does put some emphasis on the larger-cap INDU and OEX components to carry their weight if the other major indices are to hold onto, or build gains into the end of the year. Has anyone been following the 01/18/04 Ask the Analyst column, where Matt lost his mind and was thinking way outside the box? Believe it or not Matt, I've been amazed, and my thoughts are this. If the Dow Industrials (INDU) 10,428.02 -0.45% are going to have a shot at the January highs (10,753), then 10,384 needs to hold support on the close for at least the next 2 Fridays. That's 5-DRT thinking anyway. Dow Industrials (INDU) Chart - 5-DRT from 01/02/04 In the 01/18/04 Ask the Analyst column, we used a weekly interval bar chart of the INDU with Matt's "5-DRT" thoughts. Here's a closer look using daily intervals. The premise of the first 5- days, is if the markets trade up the first 5-days of the year, then it should "predict" a bullish year for equities. Let's scroll forward to past and current trade. I can't get all of this year's trade in a daily interval bar chart for the INDU, but as it stands at tonight's close, the INDU is now roughly 26 points for the year. No bull will proclaim victory if the INDU closes up 1-point this year. But Matt's thoughts regarding the 5-DRT might prove helpful near-term. I've also overlaid the newly calculated MONTHLY Pivot analysis levels. Dow Industrials (INDU) Chart - Daily Intervals (5-DRT) While a higher high from the MACD oscillator is encouraging to bulls, the recent bearish MACD crossover below its Signal does suggest a near-term loss of bullish momentum. My bottom line for support would be the newly calculated MONTHLY Pivot. The one bullish pattern of change that I take away from the 5-DRT, is that for the first time this year, the INDU has managed to close above four (4) levels after a trade at Red #5 (9,710.89). Blue #1 is a sticking point of resistance. That was the January 8 high, or 5th session high of 2004. When reviewing our Pivot Matrix, this WEEK's WEEKLY R2 is pretty close to that level at 10,610.32. S&P 100 Index (OEX.X) Chart - Daily Intervals In the 11/09/04 Index Trader Wrap, I thought OEX bulls would "thrive above 545." I'm going to raise that limit to 555. Obvious overlap at the WEEKLY S2 and MONTHLY Pivot. My "key stock" for both the INDU and OEX is 3M (NYSE:MMM) $79.59 -0.51%, and the MARKET had better wake up and smell the coffee it is to agree with my thoughts of weaker dollar and lower oil being the positive catalyst for this deep cyclical. Prior to this morning's open, Credit Suisse initiation coverage of MMM with an "outperform" rating and bullish target of $92. As it might relate to the above chart of the OEX, MMM would be sitting right at my old OEX "cheater's downward trend" (dashed red), roughly OEX MONTHLY S1. Speaking of oil prices, it is that time of week again. Tomorrow, we get weekly crude oil, distillate and unleaded gas inventory numbers. In today's Market Monitor at 12:38:37 I made comment benchmarking the Jan Crude Oil futures (cl05f) at their WEEKLY Pivot. Then at 02:00:10 I quickly showed the Jan. Heating Oil futures (ho05f) with WEEKLY pivot levels. Then at 02:05:57, the Jan Unleaded Gas futures (hu05f), which suggested to me a lower trade coming for energy, with heating oil weaker in its WEEKLY Pivot. January Crude Oil futures (cl05f) - Daily Intervals We've been following the Point and Figure chart of $WTIC, and 30- minute interval charts of Crude Oil futures. I continue to work with technical analysis tools and techniques I've taught traders and investors in the past. Tonight I wanted to "step back" a little and look at the daily interval chart of Crude Oil, using conventional (blue) and the "fitted 38.2%" retracement technique I've taught traders and investors. Using this technique, I colored a "yellow zone" that results, which isn't identical to the zone first identified with the PnF chart, but we can perhaps see how futures traders are trading off these retracement. The $46.20 level should be tied with the bullish support trend that held support on the PnF chart. That's a BIG level of technical support still and should define the longer-term upward trend still being in tact. I placed this week's WEEKLY Pivot levels on the chart. It would look to me that this week's WEEKLY S1 and WEEKLY R1 really tie in nicely with the retracement work above, and thus become "key levels" the remainder of the week. MACD traders! You'll pick up on some DIVERGENCE from the past, where MACD actually went below zero, now rises back toward zero. On a daily interval chart, MACD traders would most likely be selling oil against $50.52, with stops just above, looking for MACD to roll back lower from zero, and accelerating a downward move below $46.00 in coming weeks of trade. That's a test. A continued test traders will implement with each passing day, week, and month. Market Snapshot / Internals - 11/30/04 Close Last fall, the NYSE NH/NL indications stayed at very bullish readings of 98% until March. While the number of new highs at both the NYSE and NASDAQ were not impressive, new lows have been very modest, giving some sign of "strength" from the bottom. This "strength" from the bottom as I'll call it can be sign of short-covering from bears that aren't willing to press their luck, but still eager to take profits in weak stocks. Of late, VIX.X readings close to 14.00 seem to be "high premiums" that option traders seem to be selling out the money puts against, but low enough premiums to be buying calls on, with thought of another pullback seeing a higher high. MONTHLY Pivots may be key if this pattern is to continue. Pivot Analysis Matrix - New MONTHLY Levels I'm running late with tonight's update, but quickly highlighted some correlative support/resistance levels in the matrix. The BIX.X struggled all session, but clawed back to a fractional gain as the 10-year yield ($TNX.X) faded from a session high yield of 4.382%. Jeff Bailey **************** MARKET SENTIMENT **************** Good Time for a Dip. - J. Brown After an incredible run in the markets from late October through mid-November stocks are finally beginning to see some profit taking. We've been warning about a possible consolidation for a couple of weeks but the best (or worst) stocks could do was trade sideways. Today the technical indicators on the major indices have finally turned into bearish signals. Short-term traders looking at gains over the past month should strongly consider doing some profit taking of their own. Yet don't run far. We're not expecting the pull back to be very deep. If you're a Fibonnaci trader watch the Industrials for a dip back toward 10,250. This would be a 38.2% retracement of its October- November run. Coincidentally this is also just above its simple 200-dma, which should offer technical support. The rest of the major indices look equally vulnerable to some profit taking. After all the month of November saw the Industrials gain 4%, the S&P 500 added 3.9% and the NASDAQ Composite soared for a 6.2% gain. A dip this week with the host of economic reports would make sense. Disappointing or not traders could use the economic news as an excuse to sell. They certainly have their pick of reports to blame. Wednesday brings the ISM index, Fed's Biege book, construction spending, Personal Income and spending, Auto and truck sales. Thursday will bring the factor orders. Friday hosts the November jobs report, the ISM services index and more! On top of all the economic news we have the Intel mid-quarter update to watch on Thursday evening. Confidence is not running high as Intel and many in the semiconductor sector are heading south. Fortunately, as Jim mentioned in the wrap tonight, analysts expect a large chunk of the multi-billion dollar Microsoft cash dividend to find its way back into stocks. The dividend is paid late this week so we can probably expect all this money to hit stocks next week just in time for a Santa Claus rally. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 9585 Current : 10428 Moving Averages: (Simple) 10-dma: 10499 50-dma: 10188 200-dma: 10240 S&P 500 ($SPX) 52-week High: 1188 52-week Low : 1031 Current : 1173 Moving Averages: (Simple) 10-dma: 1178 50-dma: 1138 200-dma: 1122 Nasdaq-100 ($NDX) 52-week High: 1581 52-week Low : 1301 Current : 1571 Moving Averages: (Simple) 10-dma: 1569 50-dma: 1483 200-dma: 1442 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 13.24 -0.06 CBOE Mkt Volatility old VIX (VXO) = 13.54 +0.08 Nasdaq Volatility Index (VXN) = 18.84 +0.01 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.89 597,404 529,019 Equity Only 0.69 480,231 331,968 OEX 0.71 18,722 13,328 QQQ 4.52 15,970 72,181 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 74.2 + 0.7 Bear Correction NASDAQ-100 74.0 - 1 Bull Confirmed Dow Indust. 66.6 + 0 Bull Confirmed S&P 500 72.4 - 0.6 Bull Confirmed S&P 100 72.0 + 0 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: 0.82 10-dma: 0.97 21-dma: 0.95 55-dma: 1.10 Extreme readings above 1.5 are bullish, and readings below .85 are bearish. These signals don't occur often and tend be early, but when they do, they can signal significant market turning points. ----------------------------------------------------------------- Market Internals -NYSE- -NASDAQ- Advancers 1244 1365 Decliners 1595 1671 New Highs 175 143 New Lows 8 7 Up Volume 825M 826M Down Vol. 1101M 1029M Total Vol. 1957M 1883M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 11/23/04 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 Commercials are growing more bearish despite upping both their long and short positions. As usual the small traders are headed the opposite direction by growing more bullish. Commercials Long Short Net % Of OI 11/02/04 446,192 441,676 ( 4,516) (0.4%) 11/09/04 447,779 449,171 ( 1,392) (0.1%) 11/16/04 452,149 468,048 (15,899) (1.7%) 11/23/04 462,408 491,384 (28,976) (3.0%) Most bearish reading of the year: (111,956) - 3/06/02 Most bullish reading of the year: 23,977 - 12/09/03 Small Traders Long Short Net % of OI 11/02/04 136,290 132,040 4,250 1.5% 11/09/04 148,415 136,325 12,090 4.2% 11/16/04 166,862 156,751 10,111 3.1% 11/23/04 171,192 150,606 20,586 6.4% Most bearish reading of the year: (1,657)- 5/27/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 Commercials have been consistently bearish on the e-minis but they've reached a new yearly high in their bearish bias. Small traders remain staunchly net bullish. Commercials Long Short Net % Of OI 11/02/04 307,053 580,081 (273,028) (30.7%) 11/09/04 337,164 672,903 (335,739) (33.2%) 11/16/04 371,282 796,279 (424,997) (36.4%) 11/23/04 412,724 849,091 (436,367) (34.6%) Most bearish reading of the year: (436,367) - 11/23/04 Most bullish reading of the year: 133,299 - 09/02/03 Small Traders Long Short Net % of OI 11/02/04 395,029 63,746 331,283 72.2% 11/09/04 392,253 58,999 333,254 73.8% 11/16/04 445,737 70,169 375,568 72.8% 11/23/04 400,995 62,080 338,915 73.1% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 No change here. Commercials remain net bullish. Small traders remain net bearish, although they've reached a new yearly high in their bearish attitudes. Commercials Long Short Net % of OI 11/02/04 53,002 31,231 21,771 25.0% 11/09/04 54,509 33,016 21,493 24.5% 11/16/04 55,737 33,683 22,054 24.6% 11/23/04 58,159 34,104 24,055 26.0% 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 11/02/04 8,886 36,621 (27,735) (61.3%) 11/09/04 10,213 38,251 (28,038) (57.8%) 11/16/04 10,533 37,660 (27,127) (56.2%) 11/23/04 11,153 39,712 (28,559) (56.1%) Most bearish reading of the year: (28,559) - 11/23/04 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Both professional traders and small traders are growing more bearish on the Industrials. Commercials Long Short Net % of OI 11/02/04 25,319 24,261 1,058 2.0% 11/09/04 22,863 22,463 400 0.8% 11/16/04 22,004 23,744 (1,740) (3.8%) 11/23/04 22,527 25,537 (3,010) (6.2%) 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 11/02/04 7,952 6,306 1,261 8.8% 11/09/04 6,165 6,483 ( 318) ( 2.5%) 11/16/04 5,937 6,533 ( 596) ( 4.7%) 11/23/04 5,833 8,299 (2,466) (17.4%) Most bearish reading of the year: (12,106) - 3/09/04 Most bullish reading of the year: 8,523 - 8/26/03 ************************Advertisement************************* Insiders are Buying these 6 Rocket Stocks. In the last few weeks, we have pinpointed insider buying on six stocks that have the potential to deliver stratospheric gains. 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The Option Investor Newsletter Tuesday 11-30-2004 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: ABK, COP, DHR, EBAY, EOG, FDX, FLR, IBM, ITT, MUR, OSK, PTR, QCOM, SLB, SUN New Calls Plays: None Put Play Updates: 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************************* Transfer your account to optionsXpress...We'll cover your fee! * optionsXpress rated "Best" by Barron's, SmartMoney and Forbes * Trade options as low as $1.25/contract, or $12.95 Minimum --NO Hidden Fees! * Access to options specialists via email, phone or live chat online * Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oinvest32 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ******************** PLAY UPDATES - CALLS ******************** Ambac Fincl Group - ABK - close: 81.33 chg: -0.38 stop: 77.99 If you missed Monday's newsletter we added ABK last night with a trigger to go long/buy calls at $82.26. Until ABK can breakout and hit our entry point we'll be happy to sit out and watch. More aggressive traders can watch for a dip to $80 and buy a bounce. Picked on November xx at $xx.xx <-- see TRIGGER Change since picked: + 0.00 Earnings Date 10/20/04 (confirmed) Average Daily Volume = 490 thousand Chart = --- ConocoPhillips - COP - close: 90.99 change: +0.96 stop: 84.99 COP managed to out perform the broader market indices and the OIX oil index on Tuesday. We're encouraged because it looks like traders are still buying the dips. COP managed to close at a new all-time high given today's one percent gain. No change in strategy or stop loss. Short-term traders can still take profits here. Picked on November 03 at $85.50 Change since picked: + 5.49 Earnings Date 10/27/04 (confirmed) Average Daily Volume = 3.0 million Chart = --- Danaher - DHR - close: 56.88 change: -0.60 stop: 55.95 We've been expecting a pull back in DHR for days now and it's finally starting. Technicals are turning bearish, which is normal. We would not suggest any new plays until we see if DHR can bounce from the $55 or $56 levels. Of course we have a stop loss at $55.95 to minimize our risk. Picked on October 27 at $54.99 Change since picked: + 1.89 Earnings Date 10/21/04 (confirmed) Average Daily Volume = 1.3 million Chart = --- eBay Inc. - EBAY - close: 112.30 chg: -0.35 stop: 104.99 EBAY continues to show relative strength by managing a mere 35- cent loss on Tuesday's market decline. This is even more impressive when you consider the news that Standard & Poor's downgraded the stock to fairly valued this morning. If shares of EBAY do dip we'd expect the stock to find strength in the $108- 110 range. Short-term traders can still do some profit taking here. Picked on November 80 at $103.69 Change since picked: + 8.61 Earnings Date 10/20/04 (confirmed) Average Daily Volume = 10.4 million Chart = --- EOG Resources - EOG - close: 75.07 change: -0.23 stop: 69.85 Merrill Lynch downgraded EOG to "neutral" this morning and shares of EOG gapped lower on the news. Yet traders stepped in to buy the dip at $74.00 pushing EOG back toward the highs for the day. We do expect EOG to consolidate lower as it digests the previous two weeks of gains but today's action shows a lot of strength. Watch for a bounce from the $72.50 region. Picked on November 14 at $ 68.37 Change since picked: + 6.70 Earnings Date 10/26/04 (confirmed) Average Daily Volume = 1.1 million Chart = --- Fedex Corp - FDX - close: 95.03 change: -0.40 stop: 93.95 FDX is holding up pretty well considering how overbought and extended the stock is. We've been suggesting that readers do some profit taking for days now. If you're thinking about it decide fast. FDX looks ready to test minor support at $94 again. Volume has been somewhat heavy the last couple of sessions suggesting some distribution. Picked on October 21 at $89.45 Change since picked: + 5.58 Earnings Date 09/22/04 (confirmed) Average Daily Volume = 1.5 million Chart = --- Fluor Corp - FLR - close: 51.90 change: -0.25 stop: 48.51 FLR continues to consolidate sideways as it digests its gains from last week. We're impressed that FLR is actually holding those gains since they came so suddenly. The lack of profit taking is impressive. Even so, if FLR does dip lower we'd watch for a bounce from the $50.00 region. Picked on November 22 at $48.51 Change since picked: + 3.39 Earnings Date 10/27/04 (confirmed) Average Daily Volume = 521 thousand Chart = --- Intl Business Mach. - IBM - close: 94.24 chg: -1.26 stop: 89.99 We have been suggesting that IBM has been vulnerable and ready to consolidate lower for the past two weeks. This time we really mean it! Yesterday's failed rally near $96.50 is the second one in two weeks. Now IBM is testing minor support near $94. We expect it to fail. Readers can do some of their own profit taking now if they have not already. We will be expecting IBM to dip back toward the $90-93 region. Picked on October 27 at $90.00 Change since picked: + 4.24 Earnings Date 10/18/04 (confirmed) Average Daily Volume = 4.7 million Chart = --- ITT Industries - ITT - close: 85.12 change: -1.28 stop: 83.70 ITT is one of our newly added momentum candidates given yesterday's breakout over resistance to a new all-time high. Shares had been consolidating sideways for the last three weeks and looked ready to turn higher. Now we suspect that ITT may retest the $84 region as support once more. Aggressive traders can watch for a bounce from $84 as a new entry point. The rest of us can wait for ITT to trade back above $86.40 again. Picked on November 29 at $86.40 Change since picked: - 1.28 Earnings Date 10/21/04 (confirmed) Average Daily Volume = 502 thousand Chart = --- Murphy Oil - MUR - close: 85.31 change: +0.21 stop: 79.85 It looks like the momentum in MUR's rally is fading. Traders bought the early dip to $84.00 on Monday but it wouldn't surprise us to see MUR slip back toward support at $82.00 again. Plan your trades carefully. We would obviously prefer to see the $84 level hold up as more significant support. No change in strategy. Picked on November 22 at $ 82.25 Change since picked: + 3.06 Earnings Date 10/26/04 (confirmed) Average Daily Volume = 500 thousand Chart = --- Oshkosh Truck - OSK - close: 62.82 change: -1.43 stop: 59.00 Hmm... after last week's breakout higher it looks like OSK has reversed course. Monday's action was a clean failed rally at the $65 level and Tuesday is a 2.2 percent follow through to the downside. Traders can wait to see if the $62 level holds up since it has been support for the past three weeks. If not we can wait and watch for a bounce from the $60 mark, which should be stronger support. Picked on November 07 at $ 62.16 Change since picked: + 0.66 Earnings Date 10/28/04 (confirmed) Average Daily Volume = 205 thousand Chart = --- PetroChina Co - PTR - close: 56.35 change: -0.24 stop: 52.49 We don't have much to report on for PTR. The stock has been trading sideways between $56.00 and $57.00 the last few days. Patient traders can wait and watch for a possible dip toward $55.00 and buy the bounce. Picked on November 17 at $55.18 Change since picked: + 1.17 Earnings Date 00/00/04 (confirmed) Average Daily Volume = 288 thousand Chart = --- Qualcomm - QCOM - close: 41.62 change: +0.03 stop: 37.99 Bulls aren't getting very far in QCOM these days. The path of least resistance seems to be up for QCOM but it's not moving very fast. Patient traders can probably get another chance to buy a dip towards $40.00 later this week. Picked on November 15 at $ 40.51 Change since picked: + 1.11 Earnings Date 11/03/04 (confirmed) Average Daily Volume = 13.9 million Chart = --- Schlumberger - SLB - close: 65.63 change: -0.43 stop: 61.99 Hmm... we've been expecting a possible pull back toward the $65.00-65.50 region. Of course now that it (the pull back) is here shares of SLB don't look so hot. The four-week up trend is still in place but technicals are definitely fading. Better wait for signs of a bounce before considering new positions. Watch the OSX oil services index for sentiment on the industry. Picked on November 12 at $ 65.05 Change since picked: + 0.58 Earnings Date 10/22/04 (confirmed) Average Daily Volume = 3.9 million Chart = --- Sunoco Inc - SUN - close: 82.56 change: +0.13 stop: 75.95 SUN continues to be a relative strength winner. There has been very little profit taking, if at all, on its two-week rally. Yet in spite of its strength we'd probably look for a dip anyway. A pull back to round-number support/resistance at $80.00 would probably be healthy. Of course in doing so SUN's technicals would take a turn for the worse. In the news SUN okayed a $5.5 million discrimination settlement. Picked on November 18 at $78.25 Change since picked: + 4.31 Earnings Date 10/21/04 (confirmed) Average Daily Volume = 1.2 million Chart = ************** NEW CALL PLAYS ************** None ************************Advertisement************************* SEE WARREN BUFFETT'S LATEST DISCLOSED STOCK PORTFOLIO Now you can follow the investment master's actual moves. To get a FREE report that details Warren Buffett's strategy and reveals his most recently disclosed, ACTUAL stock picks, Click HERE! http://www.bigmoneywatch.com/default.asp?aid=626 ************************************************************** ******************* PLAY UPDATES - PUTS ******************* Forest Labs - FRX - close: 38.97 change: +0.45 stop: 42.01 FRX continues to inch higher in an oversold bounce but it is struggling with resistance at the $39.50 level. Traders have a choice. They can wait for the potential failed rally under $40.00, which means that FRX would have to fill the gap first. Or watch for the next drop under the $38.50 level as a new entry point. Picked on November 22 at $39.07 Change since picked: - 0.10 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 Tuesday 11-30-2004 Copyright 2004, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Watch List: Potential Entry points for bullish and bearish plays. Spreads & Straddles: Retailers Lead The Retreat! Premium Selling Plays: Naked Puts & Calls Combos/Straddles: And On The Seventh Day He Rested . . . ********** WATCH LIST ********** Potential Entry points for bullish and bearish plays. ___________________________________________________________________ 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. ___________________________________________________________________ Toro Co - TTC - close: 72.50 change: +1.21 WHAT TO WATCH: This is it! This is the breakout we've been waiting for. TTC has been coiling in a pattern of higher lows for months under resistance at the $72.00 level. Now shares are breaking out on above average volume. The bullish P&F chart points to an $85 target. If it weren't for our expectation that the market will dip soon we'd buy this breakout. More aggressive traders may want to chase this one anyway. Chart= --- Maxim Integrated Products - MXIM - close: 40.96 change: -0.76 WHAT TO WATCH: By all accounts MXIM breakdown today looks like a bearish entry point to short/buy puts on the stock. Yet we're feeling cautious given Intel's mid-quarter update on Thursday night. More aggressive traders may want to jump in on today's 1.8 percent loss anyway following the previous three days of failed rallies near $43.00. The P&F chart has turned bearish with a $36 target but this target will most likely be revised lower. Conservative traders can wait until after Intel's update and/or watch for a drop under $40.00. Chart= --- Eli Lilly & Co - LLY - close: 53.33 change: -0.99 WHAT TO WATCH: If you prefer to buy puts on stocks showing relative weakness then LLY is a candidate for you. Shares have been sliding for months. The most recent bounce from October failed near $58.00 and has been sliding lower under its simple 40-dma ever since. Technicals have rolled over again and its MACD has produced another sell signal. The P&F chart points to a $44.00 target. This looks like an entry point but watch for round-number support at $50.00. Chart= --- Zimmer Holdings - ZMH - close: 81.60 change: +1.11 WHAT TO WATCH: ZMH is bucking the market's downtrend today with a 1.37 percent rally. More importantly the technicals are turning positive with another buy signal in ZMH's MACD indicator. The P&F chart is very bullish with a $110 target. We would watch for a breakout over the $82.00 level as an entry point to go long/buy calls. There is some resistance at $85 but we'd target the $90 level. Chart= ************************Advertisement************************* Transfer your account to optionsXpress...We'll cover your fee! * optionsXpress rated "Best" by Barron's, SmartMoney and Forbes * Trade options as low as $1.25/contract, or $12.95 Minimum --NO Hidden Fees! * Access to options specialists via email, phone or live chat online * Real-Time Buying Power, Account Balances or Cancels Go to http://www.optionsxpress.com/marketing.asp?source=oinvest32 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ******************* SPREADS & STRADDLES ******************* Retailers Lead The Retreat! By Ray Cummins U.S. equities slumped Tuesday amid a surprise decline in consumer confidence and data suggesting mediocre demand during the first week-end of the holiday shopping season. The Dow Jones Industrial Average closed down 47 points at 10,428, despite trading in positive territory for much of the session. Wal-Mart (NYSE:WMT) and Home Depot (NYSE:HD) were among the most prominent losers in the blue-chip group. The NASDAQ Composite fell 10 points to 2,096, with Intel (NASDAQ:INTC) deflating the chip segment ahead of its mid-quarter update. The S&P 500 Index dropped 4 points to 1,173 as selling pressure emerged in retail, financial, consumer staples, and utility shares. Trading volume was 1.55 billion on the NYSE and 1.85 billion on the technology exchange. Breadth favored bearish stocks 3 to 2 on the Big Board and 5 to 4 on the NASDAQ. Bonds prices dipped amid expectations of future interest rate increases. The benchmark 10-year note finished down 9/32 at 99 1/16, while its yield rose to 4.35%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 11/28/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 VIP 40.50 39.22 DEC 35.0 36.7 0.23 36.43 0.23 Open WLP 113.90 122.22 DEC 100.0 105.0 0.50 104.50 0.50 Open CECO 35.00 38.31 DEC 25.0 30.0 0.60 29.40 0.60 Open PJC 48.95 45.57 DEC 40.0 45.0 0.60 44.40 0.60 Closed EYET 45.64 41.00 DEC 30.0 35.0 0.45 34.55 0.45 Open XMSR 36.13 37.61 DEC 30.0 32.5 0.25 32.25 0.25 Open OIH 84.45 87.00 DEC 75.0 80.0 0.60 79.40 0.60 Open DWA 39.58 38.20 DEC 30.0 35.0 0.50 34.50 0.50 Open DRIV 38.31 42.53 DEC 30.0 35.0 0.35 34.65 0.35 Open NBR 52.72 52.75 DEC 47.5 50.0 0.40 49.60 0.40 Open L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss Special Tuesday Note: Dreamworks Animation (NYSE:DWA) is on the "watch" list and should be closed on further downside activity. CALL-CREDIT SPREADS Stock Pick Last Mon L/C S/C Credit CB G/L Status SEPR 45.44 45.91 DEC 55.0 50.0 1.00 51.00 1.00 Open TTWO 33.24 33.49 DEC 40.0 37.5 0.30 37.80 0.30 Open ERTS 46.97 47.76 DEC 55.0 50.0 0.65 50.65 0.65 Open GM 39.97 39.23 DEC 45.0 42.5 0.30 42.80 0.30 Open BSX 34.70 34.32 DEC 40.0 37.5 0.30 37.80 0.30 Open MXIM 42.50 42.20 DEC 50.0 45.0 0.70 45.70 0.70 Open BIIB 58.31 58.43 DEC 70.0 65.0 0.50 65.50 0.50 Open INSP 49.17 45.25 DEC 65.0 60.0 0.40 60.40 0.40 Open AMZN 38.55 39.09 DEC 45.0 42.5 0.30 42.80 0.30 Open OSIP 58.16 50.49 DEC 70.0 65.0 0.55 65.55 0.55 Open LXK 84.82 85.49 DEC 95.0 90.0 0.45 90.45 0.45 Open MBT 135.99 136.33 DEC 155.0 150.0 0.55 150.55 0.55 Open L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status DE 69.26 73.14 DEC 70.0 70.0 4.50 4.25 Open ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ CFC - Countrywide Financial $33.21 *** Recovery Underway? *** Countrywide Financial (NYSE:CFC), formerly Countrywide Credit Industries, is a holding company that originates, purchases, sells and services mortgage loans through its major subsidiary, Countrywide Home Loans. The company's mortgages are principally prime credit first-lien mortgage loans secured by single one- to four-family residences (prime credit first mortgages). The firm also offers home equity loans and sub-prime credit loans. CFC, through its other wholly owned subsidiaries, offers products and services that are largely complementary to its mortgage banking business, including lender-placed mortgage insurance, insurance brokerage, mortgage-backed securities brokerage and underwriting, brokerage of bulk servicing transactions, loan processing and servicing in foreign countries, and retail banking. The company conducts its business through four segments: Insurance Segment, Capital Markets Segment, Global Segment and Banking Segment. CFC - Countrywide Financial $33.21 PLAY (less conservative - bullish/credit spread): BUY PUT JAN-27.50 CFC-MY OI=5192 ASK=$0.35 SELL PUT JAN-30.00 CFC-MF OI=13174 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.30-$0.40 POTENTIAL PROFIT(max)=14% B/E=$29.70 __________________________________________________________________ EBAY - eBay $112.30 *** Another All-Time High! *** eBay (NASDAQ:EBAY) is a web-based community in which buyers and sellers are brought together to browse, buy and sell items such as collectibles, automobiles, high-end or premium art items, jewelry, consumer electronics and a host of practical and other miscellaneous items. The eBay trading platform is an automated, topically arranged service that supports an auction format in which sellers list items for sale and buyers bid on items of interest, and a fixed-price format in which sellers and buyers trade items at a fixed price established by sellers. Through its wholly owned and partially owned subsidiaries and affiliates, the Company operated online trading platforms directed towards the United States, Australia, Austria, Belgium, Canada, France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand, Singapore, South Korea, Spain, Sweden, Switzerland and also the United Kingdom. EBAY - eBay $112.30 PLAY (conservative - bullish/credit spread): BUY PUT JAN-95.00 XBA-MS OI=5809 ASK=$1.00 SELL PUT JAN-100.00 XBA-MT OI=5866 BID=$1.55 INITIAL NET-CREDIT TARGET=$0.60-$0.70 POTENTIAL PROFIT(max)=14% B/E=$99.40 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ LLY - Eli Lilly $53.33 *** Downtrend Intact! *** Eli Lilly and Company (NYSE:LLY) discovers, develops, makes and sells pharmaceutical products. The company's largest category of products is the neurosciences group, however it also makes endocrinology products, oncology products, animal health products, cardiovascular products, anti-infectives and other pharmaceutical products. Most of Lily's pharmaceutical products are distributed through wholesalers that serve pharmacies, physicians and other healthcare professionals, and hospitals. LLY - Eli Lilly and Company $53.33 PLAY (speculative - bearish/credit spread): BUY CALL JAN-65.00 LLY-AM OI=36455 ASK=$0.35 SELL CALL JAN-60.00 LLY-AL OI=27198 BID=$0.95 INITIAL NET-CREDIT TARGET=$0.65-$0.75 POTENTIAL PROFIT(max)=15% B/E=$60.65 __________________________________________________________________ NVLS - Novellus Systems $26.94 *** Sector Slump! *** Novellus Systems (NASDAQ:NVLS) manufactures, sells and services semiconductor processing equipment. The company's products are comprised primarily of advanced systems used to deposit thin conductive and insulating films on semiconductor devices, as well as equipment for preparing the device surface prior to these deposition processes. Novellus is a supplier of high productivity deposition and surface preparation systems used in the fabrication of integrated circuits. Chemical Vapor Deposition systems employ a chemical plasma to deposit all of the dielectric (insulating) layers and certain of the metal (conductive) layers on the surface of a semiconductor wafer. Physical Vapor Deposition systems are used to deposit conductive metal layers by sputtering metallic atoms from the surface of a target source via high DC power. Electrofill systems are used for depositing copper conductive layers in a dual damascene design architecture using an aqueous solution. NVLS - Novellus Systems $26.94 PLAY (conservative - bearish/credit spread): BUY CALL JAN-32.50 NLQ-AZ OI=1185 ASK=$0.25 SELL CALL JAN-30.00 NLQ-AF OI=7069 BID=$0.55 INITIAL NET-CREDIT TARGET=$0.35-$0.40 POTENTIAL PROFIT(max)=16% B/E=$30.35 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ STRADDLES AND STRANGLES ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Based on analysis of the historical option pricing and technical background, these positions meet the fundamental criteria for favorable volatility-based plays. _________________________________________________________________ No straddles or strangles today... ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ***************************************** PREMIUM-SELLING PLAYS: NAKED PUTS & CALLS ***************************************** All of these issues have robust option premiums and favorable technical indications. However, current news and events, as well as market sentiment, will have an effect on these stocks so review each position thoroughly and make your own decision about its outcome. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 11/28/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 MYGN DEC 17.50 17.05 18.74 0.45 5.52% 2.64% VTIV DEC 17.50 17.05 19.04 0.45 5.46% 2.64% IFLO DEC 15.00 14.55 19.31 0.45 6.89% 3.09% SEAC DEC 17.50 16.95 16.59 (0.36) 0.00% 0.00% * ADLR DEC 12.50 12.10 13.92 0.40 6.88% 3.31% UTHR DEC 25.00 24.05 45.51 0.95 9.03% 3.95% RIGL DEC 20.00 19.70 24.40 0.30 4.02% 1.52% NFLD DEC 15.00 14.45 17.49 0.55 8.24% 3.81% RMBS DEC 17.50 16.75 22.17 0.75 9.88% 4.48% AGIX DEC 20.00 19.60 24.71 0.40 4.83% 2.04% ATI DEC 20.00 19.35 22.93 0.65 7.37% 3.36% MRVL DEC 25.00 24.60 31.53 0.40 5.17% 1.63% ELN DEC 22.50 22.15 27.96 0.35 4.93% 1.58% TSRA DEC 25.00 24.35 37.75 0.65 7.97% 2.67% VTS DEC 20.00 19.65 23.64 0.35 4.84% 1.78% ERICY DEC 30.00 29.60 33.11 0.40 3.44% 1.35% RMBS DEC 17.50 16.95 22.17 0.55 10.12% 3.24% TSRA DEC 30.00 29.65 37.75 0.35 4.12% 1.18% NCRX DEC 25.00 24.25 28.06 0.75 8.18% 3.09% IFLO DEC 17.50 17.00 19.31 0.50 7.38% 2.94% NTGR DEC 15.00 14.60 16.29 0.40 6.54% 2.74% ENZ DEC 17.50 17.05 18.47 0.45 6.32% 2.64% CECO DEC 30.00 29.30 38.31 0.70 7.67% 2.39% CRA DEC 12.50 12.20 13.67 0.30 6.11% 2.46% DDS DEC 22.50 22.25 26.69 0.25 4.06% 1.12% SRNA DEC 20.00 19.60 20.55 0.40 5.87% 2.04% RAE DEC 7.50 7.25 9.20 0.25 10.80% 3.45% FXEN DEC 7.50 7.05 10.15 0.45 17.57% 6.38% NVDA DEC 17.50 17.10 19.86 0.40 6.91% 2.34% IDCC DEC 17.50 16.85 20.63 0.65 11.05% 3.86% MCIP DEC 17.50 17.05 19.21 0.45 7.70% 2.64% PLMO DEC 30.00 29.60 36.93 0.40 5.49% 1.35% TINY DEC 12.50 12.15 14.80 0.35 9.97% 2.88% IDCC DEC 17.50 17.20 20.63 0.30 6.57% 1.74% ADLR DEC 12.50 12.25 13.92 0.25 6.86% 2.04% NANO DEC 15.00 14.70 16.44 0.30 6.80% 2.04% ISRG DEC 30.00 29.50 35.47 0.50 6.08% 1.69% DHB DEC 17.50 17.20 20.46 0.30 6.59% 1.74% AMED DEC 30.00 29.35 33.27 0.65 7.53% 2.21% HNT DEC 25.00 24.60 27.34 0.40 5.37% 1.63% The position in Seachange International (NASDAQ:SEAC) has been closed to limit potential losses. NAKED CALLS Stock Strike Strike Break Current Gain Max Simple Symbol Month Price Even Price (Loss) Yield Yield MNST DEC 30.00 30.60 27.45 0.60 4.91% 1.96% FOSL DEC 30.00 30.50 27.90 0.50 4.16% 1.64% SLAB DEC 35.00 35.55 30.11 0.55 4.84% 1.55% APPX DEC 35.00 35.60 29.80 0.60 7.73% 1.69% DIGE DEC 25.00 25.30 23.85 0.30 6.05% 1.19% MDCO DEC 30.00 30.35 25.16 0.35 5.01% 1.15% BOBJ DEC 25.00 25.40 23.44 0.40 5.96% 1.57% ENZN DEC 20.00 20.55 14.18 0.55 14.84% 2.68% TACT DEC 25.00 25.40 22.16 0.40 8.50% 1.57% AMLN DEC 25.00 25.25 20.92 0.25 5.35% 0.99% ATMI DEC 25.00 25.40 23.40 0.40 5.74% 1.57% CELG DEC 30.00 30.45 27.39 0.45 6.31% 1.48% JBLU DEC 25.00 25.30 23.65 0.30 4.99% 1.19% AGIX DEC 30.00 30.35 24.71 0.35 8.24% 1.15% JUPM DEC 20.00 20.20 16.00 0.20 6.98% 0.99% There was no position available in Connetics (NASDAQ:CNCT) due to the "gap" down in the underlying issue on the day after the play was published. Digene (NASDAQ:DIGE) is now on the "watch" list. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW POSITIONS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW NAKED-PUT CANDIDATES Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield MSO 23.62 DEC 20.00 MSO-XD 0.40 3396 19.60 18 3.4% 10.9% NKTR 18.68 DEC 17.50 QNX-XW 0.35 101 17.15 18 3.4% 8.9% NANO 16.26 DEC 15.00 QNK-XC 0.25 56 14.75 18 2.9% 7.7% VISG 8.07 JAN 7.50 TUM-MU 0.40 222 7.10 53 3.2% 7.5% SHOP 30.62 DEC 25.00 QSK-XE 0.30 80 24.70 18 2.1% 7.3% ELAB 26.96 DEC 25.00 ESQ-XE 0.35 941 24.65 18 2.4% 6.4% RHAT 14.48 JAN 12.50 RCV-MV 0.45 5739 12.05 53 2.1% 6.1% GIVN 33.31 DEC 30.00 QPG-XF 0.35 2423 29.65 18 2.0% 5.7% 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. _________________________________________________________________ MSO - Martha Stewart $23.62 *** Rally Mode! *** Martha Stewart Living Omnimedia (NYSE:MSO) is an unique content and commerce company that creates "how-to" content and domestic merchandise for homemakers and other consumers. The company's products are generally sold under brand labels incorporating the Martha Stewart brand name, which it leverages across a range of media and retail outlets. MSO primarily focuses on the domestic arts, providing consumers with ideas, information, merchandise and other resources. MSO - Martha Stewart $23.62 DEC 20.00 MSO-XD LB=0.40 OI=3396 CB=19.60 DE=18 TY=3.4% MY=10.9% _________________________________________________________________ NKTR - Nektar Therapeutics $18.68 *** A Big Day! *** Nektar Therapeutics (NASDAQ:NKTR) makes drug delivery products based on its portfolio of technologies and expertise designed to improve drug performance throughout the drug development process. The company has developed three distinct technology platforms: Nektar Molecule Engineering, which uses advanced PEG (polyethylene glycol)ylation and PEG-based delivery systems to enable drug performance, Nektar Particle Engineering, which uses the company's expertise in pulmonary particle technology and supercritical fluids technology to design and manufacture optimal drug particles and Nektar Delivery Solutions, which uses advanced systems for pulmonary drug administration to improve therapeutic outcomes. NKTR - Nektar Therapeutics $18.68 DEC 17.50 QNX-XW LB=0.35 OI=101 CB=17.15 DE=18 TY=3.4% MY=8.9% _________________________________________________________________ NANO - Nanometrics $16.26 *** A New "Nano" Craze? *** Nanometrics (NASDAQ:NANO) designs, manufactures, markets and supports the thin film metrology systems for the semiconductor, flat panel display and magnetic recording head industries. The company's measurement systems use microscope-based, non-contact spectroscopic reflectometry. Some of the firm's systems provide complementary spectroscopic ellipsometry to measure the thickness and optical characteristics of films on a variety of substrates. In addition, the firm has both integrated and standalone optical critical metrology systems to measure critical dimensions of the patterns on semiconductor wafers. The company also manufactures a line of optical overlay registration systems that are used to determine the alignment accuracy of successive layers of chip patterns on wafers in the photolithography process. NANO - Nanometrics $16.26 DEC 15.00 QNK-XC LB=0.25 OI=56 CB=14.75 DE=18 TY=2.9% MY=7.7% _________________________________________________________________ VISG - Viisage Technology $8.07 *** Own This One! *** Viisage Technology (NASDAQ:VISG) delivers technology identity solutions for governments, law enforcement agencies and other businesses concerned with enhancing security, reducing identity theft, providing access control and protecting personal privacy. The company's business involves two related segments: secure credentials and biometrics. The secure credentials solutions segment involves the design, development, sale and utilization of integrated software and hardware solutions that produce identification credentials utilizing face recognition and other biometric technologies. The focus of the biometric technology solutions segment is primarily on applications designed to deter criminal and terrorist activities, including government research and development contracts. VISG - Viisage Technology $8.07 JAN 7.50 TUM-MU LB=0.40 OI=222 CB=7.10 DE=53 TY=3.2% MY=7.5% _________________________________________________________________ SHOP - Shopping.com $30.62 *** Internet Retail *** Shopping.com (NASDAQ:SHOP) is an online comparison-shopping service. It helps consumers make informed purchase decisions by enabling them to find the items they are looking for, compare products, prices and stores and buy from among thousands of online merchants. The company gathers product and merchant data from across the Internet, organizes and structures it into a comprehensive catalog and presents the resulting information to consumers in a user-friendly interface at its flagship destination, www.shopping.com, and its consumer reviews Website, www.epinions.com. SHOP - Shopping.com $30.62 DEC 25.00 QSK-XE LB=0.30 OI=80 CB=24.70 DE=18 TY=2.1% MY=7.3% _________________________________________________________________ ELAB - Eon Labs $26.96 *** Another Entry Point? *** Eon Labs (NASDAQ:ELAB) is a generic pharmaceutical firm engaged in developing, licensing, manufacturing, and marketing a range of prescription pharmaceutical products primarily in the United States. The company focuses primarily on drugs in a broad range of solid oral dosage forms, using both immediate and sustained release delivery, in tablet, multiple layer tablet, film-coated tablet and capsule forms. Eon Labs obtains new generic products primarily through internal product development and from strategic licensing or co-development arrangements with Hexal AG, as well as with other companies. ELAB - Eon Labs $26.96 DEC 25.00 ESQ-XE LB=0.35 OI=941 CB=24.65 DE=18 TY=2.4% MY=6.4% _________________________________________________________________ RHAT - Red Hat $14.48 *** Bottom-Fishing Only! *** Red Hat (NASDAQ:RHAT) provides an enterprise operating system and related systems management services based on open source technology for the information technology infrastructure requirements of large enterprises. The company developed an enterprise operating system, Red Hat Enterprise Linux AS, which it introduced in May 2002. In March 2003, the company launched three additional technology solutions in the Red Hat Enterprise Linux line: Red Hat Enterprise Linux ES, Red Hat Enterprise Linux WS and Red Hat Network. Red Hat also offers a range of professional services relating to the development, deployment, and use of Red Hat Enterprise Linux and related technology-based systems management services. RHAT - Red Hat $14.48 JAN 12.50 RCV-MV LB=0.45 OI=5739 CB=12.05 DE=53 TY=2.1% MY=6.1% _________________________________________________________________ GIVN - Given Imaging $33.31 *** On The Rebound? *** Given Imaging (NASDAQ:GIVN) is an Israeli company established to develop, produce and market a platform technology for diagnostics and therapy of the gastrointestinal (GI) tract. The company was founded to commercialize a minimally invasive, disposable imaging capsule for diagnosing small intestine disorders and diseases. Given has submitted a number of patents worldwide for the unique technologies employed in the Given Diagnostic Imaging System, and for new capsules to be developed using the basic technological platform. Future generations of the Given Diagnostic Imaging System will be developed to capture images of the rest of the upper GI tract and the large intestine. GIVN - Given Imaging $33.31 DEC 30.00 QPG-XF LB=0.35 OI=2423 CB=29.65 DE=18 TY=2.0% MY=5.7% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ARO - Aeropostale $28.50 *** Bearish Retailer? *** Aeropostale (NYSE:ARO), together with its subsidiary, Aeropostale West, is a mall-based specialty retailer of casual apparel and accessories that target both young women and young men aged 11 to 20 years. The firm provides its customers with a selection of active-oriented, fashion basic merchandise. Aeropostale maintains control over its proprietary brand by designing and sourcing all of its merchandise. The company's products can be purchased only at its stores or organized sales events at college campuses. The company plans to open approximately 95 new stores in fiscal 2004. ARO - Aeropostale $28.50 "SPECULATIVE" PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL DEC 30 ARO-LF 666 0.55 30.55 8.9% 1.8% _________________________________________________________________ KYPH - Kyphon $24.06 *** In A Trading Range? *** Kyphon (NASDAQ:KYPH) develops medical devices to restore spinal anatomy using minimally invasive technology. The firm's initial marketing focus is on surgeons who repair spine fractures caused by osteoporosis. Kyphon's first commercial products, comprising its KyphX instruments, utilize its proprietary balloon technology. Surgeons use those tools to help repair fractures during minimally invasive spine surgeries. Its instruments have also been used in open surgical procedures. The firm sells various instruments for use in spine fracture procedures including: Bone Access Systems, Inflatable Bone Tamps, Inflation Syringes, Bone Filler Devices and Bone Biopsy Devices. Quarterly earnings are due on 8/4. KYPH - Kyphon $24.06 "SPECULATIVE" 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 QYQ-LE 858 0.50 25.50 9.2% 2.0% _________________________________________________________________ MAY - May Department Stores $28.12 *** Sector Slump! *** The May Department Stores Company (NYSE:MAY) operates regional department stores with the following names: Lord & Taylor; Filene's and Kaufmann's; Robinsons-May and Meier & Frank; Hecht's and Strawbridge's; Foley's, and Famous-Barr, L.S. Ayres and The Jones Store. May National Bank of Ohio, an indirect subsidiary, extends credit to customers of May's six department store divisions. May Merchandising, an indirect subsidiary, works closely with its department store divisions and merchandise vendors to communicate emerging fashion trends and to develop merchandise assortments. MAY - May Department Stores $28.12 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL DEC 30 MAY-LF 4869 0.25 30.25 4.4% 0.8% TS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ **************** COMBOS/STRADDLES **************** And On The Seventh Day He Rested . . . By Mike Parnos I guess the market had a lot more stamina. It powered straight up from October 25th to November 18th before it decided to take a breather. The market didn't create the earth, the sun, man or woman, or Sears & Roebuck. It just created a heapin' helpin' of grief for bear-call spread holders. But that's in the past. We lost a few bucks, but we kept the lesson. And, what did we learn? Keep the spreads small. To generate more premium, trade a few more contracts. Maybe the almighty market simply ran out of steam and is recharging its batteries, preparing for another leg up. Maybe the market will come back and retrace a bit. Regardless, it's the pause that refreshes. It almost makes one want to trade. So, that's what we did today. There are only 2 1/2 weeks left to December expiration, and a lot of (seemingly) solid support at 1170, 1160, and 1145. At least we can be sure of one thing -- Bush won't get elected again. If we were to put on a bear call spread to complete our Iron Condor, you know that, with our luck, they'll find Osama Bin Laden just before expiration. So, let's look at a "hypothetical" trade that I put on today. I'm still being conservative, but, with a large chunk of the month gone, I couldn't resist. The market finished at, or near, its low for the day. So, it's possible that these "hypothetical" prices may also be available tomorrow. CPTI December Position #4 - 1173.82 Sell 20 SPX December 1135 puts Buy 20 SPX December 1130 puts Credit of about $.35 ($700) Compared to the profit we're used to making, this doesn't seem like a lot. But, we're going to work our way back into the black a little at a time -- with a large degree of safety. _________________________________________________________________ Put On A Happy Face In our continuing search for ways for CPTI students to spend their profits, we learned that a clinic in Cleveland says it has recently received approval (after much debate) to do a facial transplant. No more nip here and tuck there. We're talkin' about the whole thing -- ear to ear and chin to roots. Some of us really need a serious overhaul. Apparently, we'll soon be able to start fresh. To practice, they'll work on people who have been severely disfigured. Where will they get the skin to use? I'll leave that to your imagination. They estimate that it could take up to two years before they get the kinks out (of the procedure) and conquer some other problems they'll be facing. Just think -- in the future, everyone will look like Heather Locklear and George Clooney. I hope I live that long. Regardless of what they can do to my face, it's a pretty good bet that I won't be doing a Hanes underwear commercial anytime soon. Just in case, though, I better start getting my body in shape. I better tell Dominos to cut back 10% on the pepperoni. ____________________________________________________________ DECEMBER CPTI POSITIONS December Position #1 -- SPX Iron Condor (Part 1) - 1173.82 This bull-put spread still gives us about a 45-point cushion on the downside with the short strike near a support level. We sold 20 December SPX 1125 puts and bought 20 December SPX 1120 puts for a credit of $.50 ($1,000). Maintenance: $10,000. When you're looking for your new position, the concept of getting much your profit from negotiating the bid/ask spread still applies. (see the Thursday, Nov. 18 column). This position is just the bull-put portion of a potential Iron Condor. We're going to wait until the smoke clears a little before looking for bear-call spread possibilities. When the time comes to put on the bear call spread, as long as we create a 5-point spread, there will be no additional maintenance requirement. December Position #2 -- SPX Sure Thing (Almost) Credit Spread – 1173.82 We sold two SPX December 1165 puts and bought two SPX December 1140 puts for a $6.90 credit ($1,380). Here we go again. We saw an opportunity to sell the 1165 puts and buy the 1140 puts for a credit of $6.90. We're still in a bullish trend and want to position ourselves to take advantage of it. A quick reminder -- only do this strategy if you have a LOT of maintenance available. You might need it. December/January Position #3 -- SPX Iron Condor (Part 1) - 1173.82 I've become very conservative -- even more so after our unpleasant experience in the November cycle. I saw an opportunity to put some serious distance between a bull put spread and where the SPX was trading. With the SPX at 1179, I noticed the January 1100/1090 bull put spread would yield about $.70. Being still somewhat bullish for the next few months, I was willing to go out to January. I like that almost 80-point cushion and I'm willing to wait the eight weeks. When the opportunity presents itself, we can always add the other side of the condor. We sold 15 SPX January 1100 puts and bought 15 SPX January 1090 puts for a credit of about $.70 ($1,050). Maintenance: $15,000 ___________________________________________________________ ONGOING POSITIONS QQQ ITM Strangle - Ongoing Long Term -- $39.12 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 took in $.45 ($450) rollout. We rolled to the November. $34 calls and $37 puts for $.70 ($700). Last week we rolled in the December $34 calls and $37 puts for a total of $.50 ($500). New total: $13,400. 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 - 557.47 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 about 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 $10,675. Zero-Plus Position For December Prior to expiration, we bought back our Nov. 555 calls and rolled it to six contracts of the January 580 calls for a credit of about $100. We also put on five contracts of a December 540/530 bull-put spread for an $.80 credit ($400). 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************************* 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
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