The Option Investor Newsletter Sunday 12-19-2004 Copyright 2004, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: In Section One: Wrap: Drug Overdose Futures Wrap: See Note Index Trader Wrap: Possible double tops to watch Editor's Plays: Living Dangerously - Part 2 Market Sentiment: Only 8 1 / 2 trading Days Left Ask the Analyst: Expensing stock options. Good, bad, and difficult at best. Coming Events: Earnings, Splits, Economic Events Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** WE 12-17 WE 12-10 WE 12-03 WE 11-26 DOW 10649.92 +106.70 10543.2 - 48.99 10592.2 + 69.98 + 65.32 Nasdaq 2135.20 + 7.13 2128.07 - 19.89 2147.96 + 45.99 + 31.34 S&P-100 567.39 + 1.89 565.50 - 1.58 567.08 + 4.43 + 2.96 S&P-500 1194.20 + 6.20 1188.00 - 3.17 1191.17 + 8.52 + 12.31 W5000 11783.36 + 91.38 11692.0 - 43.29 11735.3 + 99.63 +155.01 SOX 423.75 + 1.00 422.75 - 22.53 445.28 + 14.30 - 0.90 RUT 642.08 + 9.84 632.24 - 9.97 642.21 + 11.05 + 17.71 TRAN 3751.07 + 65.04 3686.03 - 40.71 3726.74 + 78.75 + 80.34 VXO 12.71 13.20 13.61 13.35 VXN 18.21 19.57 18.26 17.85 ****************************************************************** Drug Overdose by Jim Brown What a way to end the week! There was a constant barrage of drug news both positive and negative that helped remove any remaining bullish bias. Add in the index re-weighting on the NDX, RUT, S&P 500, Mid-cap and Small-cap and it had investors wishing they were on drugs before the day was over. Dow Chart Nasdaq Chart SPX Chart - Multiple Resistance Lines The Consumer Price Index rose a higher than expected +0.2% despite the drop in oil prices over the reporting period. Core inflation also rose +0.2% and pushed the annual rate of inflation to +2.2% for the last 12 months. The headline inflation rate increased to an annualized +3.5% and the highest since May 2001. With inflation rising the Fed has no reason to really let up on the rate hike scenario despite the current wishful consensus that expects them to pause. Energy prices added to the number despite a drop in crude for the month. The higher energy levels are starting to filter through the system and it will take a prolonged drop to remove the upward pressure. Don't count on it any time soon. The economic news took a back seat to the drug news and there was plenty of it. The headliner for the day was Pfizer and news that at very high levels there was an increased risk of heart attack. The new study released Friday showed at doses 2-8 times the recommended dose there was twice the risk of heart attack. The study was an anti cancer study where very high doses of Celebrex were being tested to see if cancer complications from high levels of inflammation could be improved by removing the inflammation. PFE stock dropped to $22 from $29 on the news but quickly rebounded to close at $26. You would have thought they had found that there was a heart attack in one of every 50 pills. Very few drugs when taken at 4-8 times the recommended dosage will not cause problems and I think Pfizer will recover. However, as we have seen over the last three months the MRK/VIOXX news has caused serious investor flight from these drugs. It could be months or even a year before the daily news stories will fade away. This weekend CNBC is doing a special called the "Death of a Wonder Drug" in relation to the MRK/VIOXX event. This will pose additional questions in the mind of users and investors. I believe PFE is a buy at $25 but I would give it a few more days to settle down. PFE traded 289 million shares on Friday and I suspect there are plenty of investors who did not bail but will soon. Lilly warned that their Strattera drug for A.D.D. had produced liver problems in some patients. LLY fell -1.38 on the news. AstraZeneca fell -7.7%, -$3.11 after it said it's cancer drug Itressa failed to prolong survival in cancer patients. OSIP soared on the news with a +$21 jump to $68. OSIP and DNA just had their anti cancer drug Tarceva approved on Nov-19th. With Itressa out of the picture the OSIP drug which has shown positive benefits should jump to the front of the pack. Deutsche Bank said "Tarceva remains the only EGFR inhibitor to have demonstrated a survival benefit in patients" and maintained a buy on DNA/OSIP. CSFB said it was a clear win for Tarceva. FBR said Tarceva could end up with 100% of the market but Eributux from Imclone could still be a factor in future trials. There were several lesser items of drug news but you get the picture. JNJ powered the Dow higher on Thursday and gave Dow components MRK/PFE a boost as well. Today PFE removed that positive bias and pushed the Dow back to 10650 and a level that appears risky were it any other time of the year. Crude Oil Chart Last Sunday I predicted that the 200-day average would be strong support on crude oil. That average at just over $40 produced a very strong bounce. Oil prices rocketed back over $46 with a gain of +2.10 on Friday and +5.60 for the week. This was a +14% jump in price and the biggest jump in five years. Somebody must have gotten an advance copy of my Oil Crisis Report. (grin) The jump was related to colder weather drawing down supplies of heating oil, the breakup of Yukos, the Osama tape and worries about Nigeria again. Yukos production arm is going to be auctioned this weekend to supposedly satisfy a tax debt. However, it is already beginning to appear as though Russia is trying to regain control of its oil assets. This is troubling for the oil sector as Yukos was the most westernized of the Russian entities. Yukos pumps about 1.5 mbpd and has reserves of nearly 11 billion barrels. That sounds like a lot but it is less than a four month global supply at our current rates. The bidder expected to win is Gazprom, Russia's state controlled gas giant. I say expected to win because only four companies have entered the auction and the other three are previously unknown. Considering it took at $1.77 billion deposit to enter the auction it did not take much research to determine that at least two of the unknowns were actually linked to Gazprom itself and put in the bidding to simulate a real auction. Indications are that the third company may also be a phony. If the government gave an auction with only one government controlled company bidding it would be seen as a complete sham. By adding in three phony bidders it is only a 97% sham. Thus far no western country has appeared to bid because they no longer feel confident in doing business there. With the expected price to be in the $8 billion range and fair value in the $18.5 billion range you would have expected some of the U.S. companies to take a shot. They all fear the current environment and the potential for losing all of their investment. Production is already falling at Yukos since the current battle began and fears are rising that should another Russian company take control the production would slip even further. The problem in Russia is a desire to take all the cash from sales and use it elsewhere and not spend any on new exploration, repairs or even finishing out existing capacity. When the fields begin to decline there is no cash left to rebuild them. Secondly if this is a move by Russia to take back the oil fields for whatever reason then western oil companies are afraid to invest/explore in the region. This also increases the global decline rate because the entire region is taken out of the picture earlier than expected. It normally takes about six years from discovering oil to being in full production of the find. If the discovery phase is being eliminated in Russia then we will always be at least eight years away from seeing any additional production. Two years to restart the discovery process once the political climate changes and six years to drill and start production. This is yet another reason why the world is going to be very short on oil very soon. I explain this all in great detail in my Oil Crisis Report. https://secure.sungrp.com/05renewal/ A new Osama tape that appeared on Thursday calls for attacking oil in Iraq and the entire Middle East to prevent America from getting it. This is yet another problem that will be facing the world in 2005. Osama repeated the claim that the U.S. invasion of Iraq was to take control of some of the largest oil fields in the world. I discarded this accusation over the last two years but after doing research on my oil report I am no longer sure. I initially thought Bush went after Iraq and Saddam for various reasons including Saddam's attempt to assassinate Bush senior. I did not give credence to the oil scenario. Since Bush and Cheney are oilmen fully aware of the coming problem I am finding there could easily have been an ulterior motive that included putting in a new regime that was friendly to the U.S. just before the world oil production begins to decline. I am sure nobody will ever admit to it. It also did not hurt to show some force in the region in anticipation of the coming oil crisis. Makes the other countries a little less vocal about their anti American feelings and tendencies. I have rambled on here but you can see I am becoming passionate about the future of oil. EBAY caught the shopping fever this week and bought Rent.com for $415 million. Rent.com lists home and apartment rentals on the Internet. This is a great deal for EBAY and helps get them another step closer to building out their real estate segment. EBAY is expected to be a major force in real estate sales in coming years. Rent.com listings only generate a fee if the property is rented. The fees are generally much higher than an auction on a Tickle Me Elmo doll so I am sure EBAY will get another shot in the revenue arm once the deal closes in early 2005. There was huge volume across all the indexes Friday and the Dow came close to a top-5 volume day. Volume across all three major exchanges totaled 5.985 billion shares. This is almost a billion shares more than Thursday's 5.005B level. Nearly 700 million shares were in only two companies. News Corp, NWS-a, traded 408 million shares and PFE hit 289 million. News Corp was added to the S&P-500 at the close. The Nasdaq leaders were SIRI 130M, MSFT 129M and CSCO 106M. SIRI has been 2-3% of the daily Nasdaq volume for over a month. According to Ameritrade it is the most heavily traded stock by a wide margin. Unfortunately the majority of this massive volume was down despite the A/D line being nearly flat. For two days now we have seen massive volume and it has been weighted to the sell side. This is very troubling to market analysts given the level of the indexes, the length of the current rally and the season. It is still hard to attribute the losses to any material stock factors. This could just be related to the index events. With the 41 new IPO stocks going into the Russell there was a need to sell a portion of existing positions in thousands of stocks, literally. This would contribute to sell side volume but no real drop in prices. Same with the S&P changes. With News Corp's market cap at $55B this also meant index funds had to buy a lot of NWS stock. Over $7.6 billion in NWS stock was bought on Friday. This literally meant $7.6 billion in other S&P stocks had to be sold to maintain the balance in the index. I believe this index re-weighting has depressed the market over the last couple days and produced an artificial selling bias. Quadruple witching expiration did not help either. Little was said about the FASB option ruling on Friday but you can rest assured it will reappear. A reader emailed me on Friday about the American Jobs Creation Act asking how it would impact the market in 2005. Given the potential downside pressure from the FASB options ruling this is an excellent time to discuss the Act. I had meant to do it several times but there is just never enough space. The American Jobs Creation Act was passed on Oct-22nd and it basically gives American corporations a free pass to the local candy store. Companies with operations in other countries can repatriate up to $500 million per year in cash at a 5.25% tax rate. The current tax rate for bringing overseas profits back into the country is 35%. This nearly free opportunity takes dollars that would have been spent in other countries and brings them back to the U.S. The only catch is that the money must be used for job creation, capital expenditures, pay down debt, buy back stock, increase dividends or fund pensions. All of these uses would be positive for the U.S. economy. According to TrimTabs and Morgan Stanley there could be over $420 billion in profits waiting to be put to work. Of that number TrimTabs estimates $150 billion could be repatriated. Intel has already announced they might bring back $6 billion. Heinz said they were returning $1 billion. These are just the tip of the iceberg given the Act has only recently been signed. Of that $150 billion TrimTabs thinks $50 billion could make its way directly into the market and the rest would support the market by the various other uses. Obviously the largest amount will be in the first year of the program and it will dwindle as the years pass. Is it enough to compensate for the FASB ruling? I doubt it but it should soften the blow. Russell Investment Services released the results of a recent survey of investment managers on Friday. The survey showed that 10.4% thought the market was over valued, 69.8% thought it was fairly valued and only 19.8% thought it was under valued. In general the managers were expecting an 8-11% return in 2005 and felt dividend stocks were the main focus with large cap and growth stocks the next in favor. That is a "return" not an increase. They are expecting a +5-7% market gain and the rest in dividends. Another analyst said dividends had represented 43% of market returns from 1930-1980. Since 1981 dividends had only accounted for 23% of the overall returns. Both analysts felt 2005 would be another year for increased dividends rather than any material increase in stock prices. In periods where the market stagnates those dividends can provide an income to offset the lack of appreciation. With the current tax laws favoring dividends it only makes sense managers would refocus their efforts. For next week we are facing a lot of mixed market indicators. Historically the Santa Claus rally occurs on the last four days of the year and the first two days of the next. The anticipation of this rally normally sees buyers appear the two days before Christmas. For 2004 this gives us a window from Wednesday this week until Tuesday Jan-4th as potentially bullish days. With expiration on Friday we should continue to see settlement issues on Monday. Monday and Tuesday could be a critical days for market sentiment. With the Dow resting on 10650 and the SPX in danger of breaking 1195 we need to see confirmation of the prior underlying bid or the Santa rally could fail. This makes Mon/Tue pivotal for the rest of the year. There is an adage, "If Santa Should Fail To Call, Bears May Come To Broad and Wall." When buyers are hesitant to enter the market during the holiday season it typically suggests trouble ahead. This makes next week a critical sentiment week for all. Everyone will be watching and many will be waiting for somebody else to take the first step. To make it as simple as possible I would continue to watch SPX 1195. We broke back below the 1200 level I was using as an indicator to add to positions on Friday but I am hoping it was due to index balancing. 1195 is still support. Should we fall below that level I would not want to be long. As long as we remain above I would chance small bullish positions until we get confirmation the underlying bid has returned. Mutual fund managers have a lot riding on the next nine days. Many earn their bonuses based on performance through 12/31. They will want to keep painting the tape as much as possible to keep prices high. However, they do not have to remain locked into this program. If the outlook suddenly turns grim they can and will take profits to salvage as much of their bonus as possible. Until a new upward trend appears next week traders and managers will be walking on eggshells in fear of an early breakdown. Let's hope those eggs are petrified. There is only two weeks left in 2004 and the clock is ticking on the End of Year Renewal Special. The potential profits from the "Coming Oil Crisis" report could pay your subscription for years to come. Don't wait, do it now. https://secure.sungrp.com/05renewal/ Only 5 shopping days until Christmas Jim Brown ******************************************** Option Investor End of Year Renewal Special ******************************************** 2005 Is Only Two 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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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 WRAP ************ Futures wrap is not emailed due to the excessive number of charts. It may be read on the website at this address. http://www.OptionInvestor.com/indexes/futureswrap.asp ******************** INDEX TRADER SUMMARY ******************** Possible double tops to watch By Leigh Stevens THE BOTTOM LINE – Possible longer-term double tops may have set up in the S&P 100 (OEX), the Dow (INDU) and the Nasdaq Composite, which makes the Friday reversals in all the indices of greater than average interest as to what comes next – another shallow pullback or the start of a deeper correction. Sentiment readings were at a bearish extreme also this past week – on Thursday. I've exited any remaining index calls as further upside seems limited for a while – we're entering the seasonal slow down period ahead as traders and portfolio managers will tend not to make any major decisions. A lackluster sideways trend will cause time premiums to erode making the further upside potential in calls limited in holding them further in my opinion. FRIDAY'S CLOSING NUMBERS – The S&P 500 (SPX) Index was off 9 points on Friday to close at 1194. The Dow 30 (Industrials) Average (INDU) was down 55 points to 10,649, but up 1% on the week. The Nasdaq Composite (COMP) Index declined 11 points to 2,135, as it was hit by disappointing earnings announcements on some key tech stocks. FRIDAY'S TRADING – The pharmaceutical companies were big losers on Friday beginning and especially with negative news on Pfizer's Celebrex – its use in treating cancer appeared to demonstrate an increased cardiovascular risk. Celebrex is a very big drug for the company and one of the biggest sellers in the world. Pfizer said it has suspended its study while it reviews the new data. Pfizer ended down $3.23 at $25.75, after falling to as low as $22. Other drug stocks hits - AstraZeneca fell nearly 8%, after the U.K.-based company said results of a trial indicated that its key Iressa drug failed to significantly prolong lung cancer patients' survival. Eli Lilly was down around 2.5% on news that the company had added a warning to the product label for Strattera, its attention deficit/hyperactivity medication which indicates the product should be discontinued in patients with jaundice or who show laboratory evidence of liver injury. Adding to the bearish mood was an intraday jump in crude-oil prices to back above 46 dollars a barrel. January crude futures ended up $1.50, closing at $45.7 a barrel on the New York Merc, after trading to as high as 46.20 intraday. TECH HECK – PalmOne fell some 22% the company warned that its fiscal Q3 earnings would be under Street expectations. 3Com Corp., maker of data and voice networking products, fell nearly 5% after reporting falling revenues, that were under expectations. Take-Two Interactive Software fell (-3%) after the company posted fiscal Q4 results that were under consensus estimates. ECON – A closely watched report on U.S. retail inflation didn't move the market. The U.S. Labor Department said that the seasonally adjusted consumer price index (CPI) rose 0.2% in November, after having gone up 0.6% in October. The core CPI, which excludes the more volatile food and energy costs, rose 0.2%, matching October's gain. Both indicators were in line with Street expectations. The Labor Department also reported that real average weekly earnings fell by 0.4% in November. Hey, that's what all those credit cards are for – income short, just borrow! Or so it seems these days. OTHER MARKETS – The benchmark 10-year T-note was down 5/32 to 100 11/32, for a yield of 4.21%. In the FX markets, the greenback was down a half percent against the euro, closing at $1.33 in New York trading and the dollar was down the same (-0.5%) against the Yen, which closed at 104.15. MY INDEX OUTLOOKS – S&P 500 Index (SPX) – Daily chart: What was looking like resistance around 1192, at the top end of the recent weeks' trading range [as highlighted in the S&P 500 (SPX) chart below], should now act as support. A rally that appears to break out above a trading range or "rectangle" in the jargon of technical analysis, then drops back into that range warns of a possible top or at least an interim top. Stay tuned on that. I said last week that SPX needed to break out above its trading range of the prior 3 weeks to suggest a next leg up. Did I mention such an upside breakout also assumes that the Index keeps going higher after the event?! After a strong move and subsequent consolidation, I usually give the benefit of the doubt to the trend and assumed here the next move was also going to be UP. Resistance now has to be assumed for the 1206-1208 area, around the highs of last week. There is tendency, especially after the market has been running for a while, of the even 100 levels to mark "natural" areas of resistance – and support. Notice the rally of fully 100 points when SPX pulled back to the 1100 area. Near SPX support is 1185, key lower support around 1170, at the low end of the recent trading range. We could be due for the long- anticipated correction/pullback, but with the underlying bullish tone to the market, it seems unlikely for more than a shallow correction. When you get these spikes up well into my bearish-extreme zone in my sentiment indicator, it often suggests, not always as can be seen from the FIRST such spike, that traders are getting "too" bullish for the trend to be sustained much longer. This was the case with the spike up in my Call/Put indicator this past Thursday and shown above. Also, when I see a daily volume figure of a million equities calls changing hands on the CBOE, which also occurred Thursday, I know the market is getting frothy and trading fever is at a pitch. In these instances, for my style of decision-making, I tend to want to stop trading and hibernate until things cool down! I figure it's too dangerous to continue to hold calls and equally tricky to buy puts, given that these things – such strong bullishness – can carry the market still higher. S&P 100 Index (OEX) – Daily chart: I talked in my prior weekly commentary about key resistance being at 573, at the prior yearly high. With the apparent reversal from this area it does set up the possibility of a double top, which is one of more reliable technical patterns suggesting a top. Time will tell, but Friday's market news was not the key event – it was rather the S&P 100 (OEX) reversal from a prior high of months back. Whether this is only an interim top remains to be seen of course. But it's sure enough to get me to exit my remaining OEX calls – outtathar! Long-term momentum trends are still bullish. A bearish price/RSI divergence, as prices trended higher without a similar move in the RSI, was not. Usually such divergences forecasts a reversal, but sometimes the lag time before that happens is too much to be useful by itself. However, with this divergence AND the inability for the Index to continue on through the prior high is a pretty good signal. 562 is near technical support as suggested by the minor up trendline. The prior (down) swing lows around 560, then 558, are important, especially on a closing basis. A close under 558, unless reversed the following day, would turn the chart bearish. 573-575 is key overhead resistance – a close or better two consecutive closes, above 573 would suggest a new up leg. Dow 30 Average (INDU) - Daily: The same pattern of a potential double top exists in the Dow 30 (INDU) Average. The double top is a potent formation – sellers come in again in the same key area and this may be where the market is "fairly" valued finally in terms of current PE's and current fundamentals. A trader friend of mine the other day called fundamental market factors the "funny-mentals", a joking word play from a technically oriented trader. However, I always am looking at technical patterns as simply the most objective way to evaluate current market fundamentals. Key resistance now is clear as being in the 10750 area. Support is at 10600, then key support around 10400. If the correction that may have started on Friday is shallow and INDU does not pullback to far – well, old highs are made to be broken. The longer-term Stochastic momentum indicator is neat to a bearish downside crossover. Stay tuned - we are near a key price juncture at the 12-month high, as is the Composite too for that matter. Nasdaq Composite (COMP) Index – Daily chart: Key resistance, especially on a closing basis, was the old high in the 2153 area and prices turned lower Friday after another rally attempt to this area. This might be indicative of a top, but it's too soon to tell. A "confirming" sign of a top would be a close under the prior swing low around 2100. Near support is in the 2100 area, then around 2050 which I would define as a key area, along with more major support at 2000, at the up trendline. Long-term momentum in the Nasdaq Composite (COMP) is up, as especially defined by the 50-day average being above the long- term 200-day average as shown above. However, short-term, momentum indicators (not shown) are on a downward path. I'm watching the 2100 area as a key and defining point. I'm out of any call positions in the NDX based on what I see in the Composite. Nasdaq 100 (NDX) Index – Hourly: I find the hourly chart and the uptrend channel I've outlined on the hourly line (close-only) chart below to be of trading interest. The rally to resistance implied by the upper boundary of the uptrend channel, followed by a sideway move is usually indicative of the beginning stages of a correction with more downside to follow. There is an approximate double top in the hourly chart. I continue to peg near support at the prior closing hourly downswing low at 1580. More key support comes in at 1560, the low end of the hourly uptrend channel in the Nasdaq 100 (NDX) Index. Next resistance above the recently made NDX high around 1635, is probably 1658-1660, at the upper end of the channel. Short-term, NDX is getting oversold based on my hourly RSI, so if 1580 is seen and certainly 20 points under this area, at 1560, I would anticipate a rally and exit any puts and go the other way into calls – assuming these aforementioned support areas, if reached, attract buying interest. At 1560, if seen, tight stops or exit points can be used for calls, as NDX would be at the trendline. A trendline break sets up or suggests a further fall. Nasdaq 100 tracking Stock (QQQ) Daily chart: IN CASE YOUR DAILY CHART LOOKS LIKE THIS – ITS WRONG! While every chart and data service I could check had the Daily low at 37.21, it was in fact, 39.21. Reminding me again of how easy it is for a bad data point to get reported out to all the services and that a chart is only as good as the data that it graphs. Myself, I had a problem with my QQQ data from e-Signal, as the updates stopped coming at the end of last month and I haven't yet been able to figure cause and get it fixed – meanwhile have entered the daily OHLC manually so far in December. Anyway, my ANALYSIS last week was only as good as my out-of-date data, as I was a bit off on suggested resistance being 40. (Corrected) Daily chart, through Friday 12/17/04 – Rather than resistance being around 40 based on my out of date chart, prices had tracked higher than what I was seeing. But QQQ was still hugging the top end of its uptrend channel - resistance suggested by the upper trend channel line was 40.60. The turn lower was from this area. I continue to look for the upper end of its channel as highlighted below, to suggest where resistance may lie if 40.60 is pierced – around 41 in the coming week. QQQ may have made a minor double top but it's too soon to tell. I have been wondering if the bearish price/RSI divergence was going to foretell a deeper correction than what has been seen to date. By this I mean that the RSI has been trending lower on balance since ITS last top. The key on the downside still looks the same – whether prior resistance – the old high – at 39, will now act as support. If so, the chart would maintain its bullish pattern. A daily close under 39, without a recovery the following day, would turn QQQ bearish in its (chart) pattern. And suggest that a fall to the low end of the Q's uptrend channel might develop and the stock wind up down to around 38, which looks like the next key technical support area. NOTE – I discussed in my last week's Trader's Corner the rectangle pattern discussed relative to the S&P (along with another pattern), as being significant chart formations. You can trade off them and base trading decisions when there are trend changes that develop around this pattern. More on that at – http://www.OptionInvestor.com/traderscorner/tc_121604_1.asp Good Trading Success! ************************Advertisement************************* Quit paying fees for limit orders or minimum equity * No hidden fees for limit orders or balances * $1.50 /contract (10+ contracts) or $14.95 minimum. * Zero minimum deposit required to open an account * Free streaming quotes and Dow Jones news Go to http://www.optionsxpress.com/marketing.asp?source=oinvest34 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ************** Editor's Plays ************** Living Dangerously - Part 2 Last week we scripted a play where it would be practically impossible to lose money. I think Murphy decided it was a direct challenge to Murphy's Law and he set out to prove us wrong. I am not going to repeat the entire play from last week but this link will give you all the background. http://members.OptionInvestor.com/editorplays/edply_121204_1.asp The news broke on Tuesday that the Appeals Court had vacated the previous injunction and other rulings made by the district court. This was good news for RIMM and the stock shot up to $103.56 on the news as all the shorts had their buy stops run. The bad news was the Appeals court did rule in favor of NTP on 11 patents. In vacating the prior injunctions it ruled the lower court had acted improperly on some of the process. This means NTP will have to go back to court to get a new ruling on what RIMM will have to pay NTP to continue selling BackBerry's. It will take time and RIMM can continue doing business as usual while the Patent office finishes reviewing the NTP patents. If the Patent office finds as RIMM hopes that the patents were vague and non specific then all the court cases will just fade into history. Meanwhile, RIMM has earnings on Tuesday. Analysts still expect RIMM to settle out of court with NTP and this would be a good place to announce it. Regardless we should get an update on how RIMM sees the future. I would hope it would be bullish for the stock. They should also continue their pattern of beating earnings estimates. I still believe in RIMMs future and that RIMM will soar once the court case is over regardless of the outcome. The mistake I made last week was suggesting a $95 stop on the put option that was protecting our long position. The news spike to $103 blew out the stop on the put and put us back to a naked long on the stock and the LEAP. I am recommending this week to reinitiate the put with the March $80 put RUP-OP currently $6.80 instead of the March $85 we used initially. Based on reader emails most were stopped out on the put between $4.40 and $6.00. The put had opened on Monday between $8.00 and $8.50. By reentering the $80 put at $6.80 it puts you back into the insurance position at about where we were stopped out. We are down a couple dollars on the play but still in position. With the upside much more than a couple dollars we are still in good shape. Oh, and don't put a stop on this put! We now have to wait on the Tuesday earnings and hope for good news. See the link from last week for all the gory setup details. RIMM Chart ************ Open plays: ************ Google Puts $180.00 UNCLE! After acting like it was finally going to crater and break support at $170 the Tuesday announcement added +$10 to the price right in front of the Thursday lockup release of another 25 million shares. Thursday saw selling but buyers came right back in on Friday despite the market drop. I give up, uncle, kings X. There are still 212 million shares to come out of lockup with 25 mil on Jan-16th and 187 mil on Feb-16th but I quit. The shorts are loading up on this stock a week at a time and some announcement comes along and all the stops are run squeezing them out again. I would still bet GOOG will be a lot lower by the end of February but the volatility is too high to peacefully wait it out. Close this one and go on to something else. Of course you realize that once we close our puts the bottom will fall out. It is your decision. I am done. GOOG Chart http://members.OptionInvestor.com/editorplays/edply_110704_1.asp http://members.OptionInvestor.com/editorplays/edply_111404_1.asp *********************** **************** MARKET SENTIMENT **************** Only 8 1/2 Trading Days Left - J. Brown Would you believe we only have eight and a half trading days left in 2004? That means we're approaching one of the most bullish times of year for equities. The traditional Santa Claus rally usually begins around Tuesday or Wednesday this week and runs into the first two trading days of January. As is normally the case market pundits begin asking, "Will the year-end rally appear this year?" We think so. Granted the major stock indices are still overbought but stock funds are expected to see huge inflows and managers need to put that money to work. Part of the year-end rally can probably be attributed to year-end and quarter-end window dressing so your mutual fund statements look good. If for some reason Santa fails to show up it could spell trouble. The old Wall Street maxim "If Santa Claus should fail to call bears may come to Broad and Wall" is true because the lack of a year-end rally in the past usually signaled the beginning of a new bear market or at least a serious correction. Some technicians are worried too. The huge volume recently without any stock market gains could spell a top. The volume on the NYSE this Friday was 3.1 billion shares while the NASDAQ hit 2.49 billion. Jim's wrap suggested that most of this volume was due to the various index rebalancing. Let's hope so! This coming week the U.S. markets are closed on Friday in observance of Christmas. That means all the economic data has been squeezed into Wednesday and Thursday with the final Q3 GDP numbers, chain deflator numbers, November Durable orders, personal income and spending, and the Michigan Sentiment figures for December. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10753 52-week Low : 9708 Current : 10649 Moving Averages: (Simple) 10-dma: 10593 50-dma: 10308 200-dma: 10238 S&P 500 ($SPX) 52-week High: 1207 52-week Low : 1060 Current : 1194 Moving Averages: (Simple) 10-dma: 1193 50-dma: 1157 200-dma: 1125 Nasdaq-100 ($NDX) 52-week High: 1635 52-week Low : 1301 Current : 1596 Moving Averages: (Simple) 10-dma: 1610 50-dma: 1531 200-dma: 1450 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 11.95 -0.32 CBOE Mkt Volatility old VIX (VXO) = 12.71 -0.30 Nasdaq Volatility Index (VXN) = 18.21 -0.39 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.84 1,241,187 1,037,969 Equity Only 0.54 1,002,656 536,541 OEX 1.48 53,842 79,939 QQQQ 2.59 41,366 107,462 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 76.3 + 0 Bear Correction NASDAQ-100 77.0 + 0 Bull Confirmed Dow Indust. 70.0 + 0 Bull Confirmed S&P 500 76.6 - 0.2 Bull Confirmed S&P 100 77.0 + 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: 1.00 10-dma: 1.09 21-dma: 1.01 55-dma: 1.06 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 1387 1482 Decliners 1428 1560 New Highs 203 106 New Lows 16 9 Up Volume 1336M 971M Down Vol. 1768M 1471M Total Vol. 3141M 2493M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 12/14/04 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts at the Chicago Mercantile Exchange and Chicago Board of Trade. COT data can be found at www.cftc.gov. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs tend to be wrong. S&P 500 Commercial traders upped their positions in both longs and shorts with the net result as a decrease in their bearish bias. Small traders did the same but with a net result in a decrease in their bullish bias. Commercials Long Short Net % Of OI 11/23/04 462,408 491,384 (28,976) (3.0%) 11/30/04 462,394 491,813 (29,419) (3.0%) 12/07/04 450,072 498,057 (47,985) (5.0%) 12/14/04 502,471 540,494 (38,023) (3.6%) 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 11/23/04 171,192 150,606 20,586 6.4% 11/30/04 176,031 148,876 27,155 8.3% 12/07/04 187,707 135,776 51,931 16.0% 12/14/04 201,428 164,111 37,371 10.2% 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 Hmm.. we have some interesting movement here. Commercials upped both their longs and shorts but their bearish bias has been slowly decreasing for weeks. Meanwhile the small traders more than doubled their short positions putting a serious dent in the overall bullish bias. Commercials Long Short Net % Of OI 11/23/04 412,724 849,091 (436,367) (34.6%) 11/30/04 439,074 855,440 (416,366) (32.2%) 12/07/04 470,553 805,234 (334,681) (26.2%) 12/14/04 556,980 899,616 (342,636) (23.5%) 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 11/16/04 445,737 70,169 375,568 72.8% 11/23/04 400,995 62,080 338,915 73.1% 11/30/04 386,665 67,926 318,739 70.1% 12/07/04 311,838 66,496 245,342 64.8% 12/14/04 398,915 137,598 261,317 48.7% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 We are seeing some interesting movement here too. Commercial traders significantly raised their positions in both longs and shorts with a serious drop in their bullish bias as the net effect. Meanwhile small traders added a huge chunk of new longs compared to a significant jump in shorts with the net effect being a sharp drop in their bearish bias. Commercials Long Short Net % of OI 11/23/04 58,159 34,104 24,055 26.0% 11/30/04 56,629 30,571 26,058 29.8% 12/07/04 57,621 34,313 23,308 25.4% 12/14/04 73,554 50,286 23,268 18.7% Most bearish reading of the year: (21,858) - 08/26/03 Most bullish reading of the year: 26,058 - 11/30/04 Small Traders Long Short Net % of OI 11/23/04 11,153 39,712 (28,559) (56.1%) 11/30/04 9,902 44,779 (34,877) (63.7%) 12/07/04 15,489 49,064 (33,575) (52.0%) 12/14/04 26,781 58,159 (31,378) (36.9%) Most bearish reading of the year: (34,877) - 11/30/04 Most bullish reading of the year: 19,088 - 01/21/02 DOW JONES INDUSTRIAL Commercial traders added significant amounts to both their long and short positions with a net decrease in their bearish bias. Small traders also poured a lot of new money into both their long and short positions with the net effect as a decrease in their bearishness. Commercials Long Short Net % of OI 11/23/04 22,527 25,537 (3,010) (6.2%) 11/30/04 22,622 25,411 (2,789) (5.8%) 12/07/04 25,523 27,351 (1,828) (3.4%) 12/14/04 36,960 38,566 (1,606) (2.1%) 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 11/23/04 5,833 8,299 (2,466) (17.4%) 11/30/04 5,739 8,536 (2,797) (19.6%) 12/07/04 5,274 9,507 (4,233) (28.6%) 12/14/04 13,445 19,089 (5,644) (17.3%) Most bearish reading of the year: (12,106) - 3/09/04 Most bullish reading of the year: 8,523 - 8/26/03 ************************Advertisement************************* Quit paying fees for limit orders or minimum equity * No hidden fees for limit orders or balances * $1.50 /contract (10+ contracts) or $14.95 minimum. * Zero minimum deposit required to open an account * Free streaming quotes and Dow Jones news Go to http://www.optionsxpress.com/marketing.asp?source=oinvest34 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** *************** ASK THE ANALYST *************** Expensing stock options. Good, bad, and difficult at best. On Thursday, December 16, 2004 the Financial Accounting Standards Board (FASB), which sets U.S. accounting standards, said it ruled that companies must account for granted stock options as expenses on financial statements. The news generated quite a few questions from investors as to what impact the decision may have on equity markets and stock valuations. While opponents of the accounting rule, which include economists as well a corporate leaders, especially those in the high tech industry, vowed to continue their fight against the expensing of stock options, many believe the FASB will eventually stick. Proponents viewed the FASB's new ruling as a win for investors, as it would give greater transparency to the true profitability of a company and its shareholders. Don Delves, a Chicago executive compensation specialist who has been an active proponent of the rule, said he believes the rule will ensure "much better disclosure of an item that has a significant cost to shareholders." The ruling, if implemented, calls for large companies to begin expensing stock options after June 15, 2005, while small business will have until after December 15, 2005 to take the expense. One question from investors was what will this do to the bottom line, or earnings for companies that do grant stock options to their employees, or board members. This has been a difficult number for analysts to nail down, but a study by Credit Suisse First Boston showed that the aggregate earnings of the S&P 500 would have been reduced by 8% in 2003 if companies comprising this benchmark index had expensed stock options. A survey by Bear Stearns found that companies representing more than 40% of the total stock value of the S&P 500 already were expensing stock options. The difficulty in figuring out what impact (positive or negative) might have on a company's bottom line is the variable of what price the granted stock options are for, the expected life of the options, the current stock price, expected dividends, volatility, and risk-free interest rate. These are all variables that the FASB's Statement No. 123 says should be considered when valuating stock options. The Black-Sholes method of valuing stock options utilizes these factors. One can begin to see how complex, and most likely, inaccurate, the expensing of stock option will be. For instance. Let's say John Smith, who works for ABC Company was granted 1,000 stock options (1,000 shares) shares, when he joined ABC Company, at $50 per share. The options were exercisable within 10 years, and after a 5-year vesting period, John could either exercise some or all of his options. On John's date of hire, ABC Company was trading at $60.00. Since John's 1,000 stock options aren't a marketable security, ABC Company "discounts" the granted stock option by 20% to give John a sense of immediate reward, or incentive for joining the company. One problem with the Black-Sholes method of accounting is that it assumes employee stock options are marketable, and the company must record an expense of the then market price of ABC Company ($60.00) and number of options granted (1,000 shares). In essence, the Black-Sholes model immediately overstates the expensing of John's stock options. Another problem that can be encountered is the term, or duration of the stock option. The longer the term of an option, the more valuable the option is. You and I know this to be true. With IBM (NYSE:IBM) trading at $96.20, an IBM Jan06 $95 call (WIB-AS) would cost $9.00. An IBM Jan07 $95 call (VIB-AS) would cost $13.10. An option trader understand the IBM 2006 and 2007 price differential as not only time premium, but VOLATILITY! Now, if you're the accountant ABC Company, you need to try and predict what the price of ABC Company is going to be in 5-years when John's vesting date may have him exercising some, or all of his options. What happens if in 5-year, ABC Company's stock is trading at $40.00? Hasn't ABC Company already expensed John's options at $60.00? Do you see where the expensing of stock options begins to lead us? No? My thoughts, and perhaps those that oppose the expensing of stock options is that the expensing of stock options is only going to be a guessing game. While the expensing of stock options will at some finite point in time give an investor an idea of what the "real" profit or loss is being carried on that quarter's income statement, the multiple variables involved in trying to determine the eventual expense will never be certain. I will be willing to bet that just as financial analysts currently estimate what a company will earn (ex-items), the additional work of figuring out the expensing of options will be lumped into the broader category of "one-time items" each quarter. As time passes, and a stock's price fluctuates, should the price of a stock move below a certain level, in John Smith's case, $60.00, then if ABC Company's stock price were to be trading at $40.00, shouldn't ABC Company now see a financial benefit to earnings? Oh, I know. Let's restate earnings from 5-years ago! ABC Company can go back and adjust their financial statements for all the employees that were granted stock options above $40.00 and reap a financial windfall! "Ex-items" of course. I can see it now. Consensus estimates for Cisco Systems (NASDAQ:CSCO) is for the company to earn $0.89 per share for 2005. Footnote: Plus or minus 10% to account for the expensing of stock options. The biggest question is this. Based on the complexities of trying to figure out how to value, then expense stock options, what we as investors will really be getting is a snapshot view, at a finite point in time (what price is the stock trading at when a company's fiscal quarter ends, relative to all previously granted options), with some added guesswork from the company's accountant, and its auditors, as to what the company's stock price will be valued at as all these granted stock options become exercisable. Even the FASB understands this, and has made no recommendations on the method that companies may use to value options, or on the formulas to assign costs to the options. How does that sound? If companies continue to offer stock options, and have to expense them, then there is no "one" method that has to be used. Let's see. Hewlett Packard (NYSE:HPQ) might use Black-Sholes. eBay (NASDAQ:EBAY) is using the so-called binomial model. Oh, and Sirius Satellite Radio (NASDAQ:SIRI) as well as XM Satellite Radio; maybe they'll be using the orbital-galactic-science model. There have been some concerns that the expensing of options could be a greater negative for technology company, that use stock options to entice highly valued workers (management, scientists, engineers) to work of any given employer. From what I've read (financial statements, industry views) the RISK doesn't appear to be to the dilution of earnings. At least nothing a company's investment banker (plan administrator) can't take care of. Companies often initiate stock repurchase programs for various reasons. Many are designed in part, to compensate for employee stock option programs. If stock options are going to be expensed, then so be it. Have the investment banker buy stock under the company's board approved stock repurchase program, in sufficient amounts to cover any "in the money" stock options, then hedge that basket of quarterly, or annual expensing of options. The RISK that many companies see, is to the smaller, and new innovators, that don't have the capital in early stages of growth, but do use stock options as an incentive to attract "key employees." Does the 2-year engineering genius at IBM that feels like a needle in a haystack, leave their $80,000 per year job to go work for Google, which pays $50,000 per year? Maybe not, even if they really felt that their innovative ideas might be implemented faster at a younger Google. But if there was a 1,000 stock option at $200.00, with a 5-year vesting and 10-year expire they might just take the risk. Jeff Bailey ************* COMING EVENTS ************* ----------------- Earnings Calendar ----------------- *This is not a complete list. We only try and highlight the more significant earnings reports. Symbol Co Date Comment EPS Est ------------------------- MONDAY ------------------------------- AMHC American Healthways Mon, Dec 20 After the market 0.21 ANGO AngioDynamics Mon, Dec 20 After the market 0.05 ARRO Arrow Intl Mon, Dec 20 ----- n/a ----- 0.35 CRDS Crossroads Mon, Dec 20 ----- n/a ----- -0.08 IMGC Intermagnetics Gen. Mon, Dec 20 After the market 0.26 JBL Jabil Mon, Dec 20 After the market 0.31 SMSC SMSC Mon, Dec 20 Before the bell 0.12 ------------------------- TUESDAY ------------------------------ APSG Applied Signal Tech Tue, Dec 21 After the market 0.29 ATYT ATI Technologies Tue, Dec 21 ----- n/a ----- 0.26 BSC Bear Stearns Tue, Dec 21 Before the bell 2.14 CBK Christopher Banks Tue, Dec 21 ----- n/a ----- 0.22 COGN Cognos Tue, Dec 21 ----- n/a ----- 0.33 ECHO Elctrnc Clrg House Tue, Dec 21 After the market 0.09 FDS FactSet Research Tue, Dec 21 ----- n/a ----- 0.49 GIS General Mills Tue, Dec 21 ----- n/a ----- 0.87 GTK GTech Holdings Tue, Dec 21 Before the bell 0.34 MANU Manugistics, Inc. Tue, Dec 21 After the market -0.04 PAYX Paychex Tue, Dec 21 After the market 0.23 PRGS Progress Software Tue, Dec 21 Before the bell 0.29 RIMM Research In Motion Tue, Dec 21 After the market 0.55 SLR Solectron Tue, Dec 21 After the market 0.05 SCOX The SCO Group Tue, Dec 21 After the market -0.18 ------------------------ WEDNESDAY ----------------------------- AGE A.G.Edwards Wed, Dec 22 Before the bell 0.56 CAG ConAgra Foods Wed, Dec 22 Before the bell 0.46 GPN Global Payments Inc Wed, Dec 22 After the market 0.53 MU Micron Technology Wed, Dec 22 ----- n/a ----- 0.22 PSRC PalmSource Inc Wed, Dec 22 After the market 0.04 RHAT Red Hat, Inc. Wed, Dec 22 ----- n/a ----- 0.06 TIBX TIBCO Software Wed, Dec 22 After the market 0.08 ------------------------- THURSDAY ----------------------------- AM American Greetings Thr, Dec 23 ----- n/a ----- 0.70 SUMX Summa Industries Thr, Dec 23 ----- n/a ----- 0.12 ------------------------- FRIDAY ------------------------------- ..none.. ---------------------------------------------- Upcoming Stock Splits In The Next Two Weeks... ---------------------------------------------- Symbol Company Name Ratio Payable Executable CNC Centene Corp 2:1 Dec 17th Dec 20th AIT Applied Industrial Tech 3:2 Dec 17th Dec 20th SAVB Savannah Bancorp 5:4 Dec 17th Dec 17th ADSK Autodesk 2:1 Dec 20th Dec 21st SKT Tanger Factory Outlet 2:1 Dec 28th Dec 29th BEBE bebe stores 3:2 Dec 29th Dec 30th SVBI Severn Bancorp 2:1 Dec 30th Dec 31st LUK Leucadia Ntl Corp 3:2 Dec 31st Jan 3rd NADX National Dentex 3:2 Dec 31st Jan 3rd CLF Cleveland Cliffs 2:1 Dec 31st Jan 3rd O Realty Income 2:1 Dec 31st Jan 3rd BRC Brady Corp 2:1 Dec 31st Jan 3rd NX Quanex Corp 3:2 Dec 31st Jan 3rd SBIT Summit Bancshares 2:1 Dec 31st Jan 3rd ----------------------------------- Economic Reports & Events This Week ----------------------------------- There are a few earnings in the middle of the week and economic reports on Wednesday and Thursday but investors will probably be more focused on the upcoming Christmas holiday than corporate earnings and economic data. ============================================================== -For- ---------------- Monday, 12/20/04 ---------------- Leading Indicators for November ----------------- Tuesday, 12/21/04 ----------------- ..none.. ------------------- Wednesday, 12/22/04 ------------------- Final revision for Q3 GDP numbers Chain deflator guage ------------------ Thursday, 12/23/04 ------------------ Weekly initial jobless claims U.S. bond market has a shortened session Durable Orders for November Personal Income & Spending for November Revised Michigan Sentiment index for December New Homes Sales figures for November ---------------- Friday, 12/24/04 ---------------- Christmas Eve - U.S. markets are closed in observance of Christmas holiday ************************Advertisement************************* Quit paying fees for limit orders or minimum equity * No hidden fees for limit orders or balances * $1.50 /contract (10+ contracts) or $14.95 minimum. * Zero minimum deposit required to open an account * Free streaming quotes and Dow Jones news Go to http://www.optionsxpress.com/marketing.asp?source=oinvest34 Note: Options involve risk. 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The Option Investor Newsletter Sunday 12-19-2004 Sunday 2 of 5 In Section Two: Watch List: Schools, Shoes, Retail and more! Dropped Calls: FLR, MWD Dropped Puts: none ************************Advertisement************************* Quit paying fees for limit orders or minimum equity * No hidden fees for limit orders or balances * $1.50 /contract (10+ contracts) or $14.95 minimum. * Zero minimum deposit required to open an account * Free streaming quotes and Dow Jones news Go to http://www.optionsxpress.com/marketing.asp?source=oinvest34 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ********** Watch List ********** Schools, Shoes, Retail and more! ___________________________________________________________________ How to use this watch list: Readers can use the candidates below as a springboard for their own research. Many are in the process of breaking support or resistance or in the process of starting new trends or extending old ones. With your own due diligence these could be strong potential plays. ___________________________________________________________________ Apollo Group - APOL - close: 79.51 change: -0.12 WHAT TO WATCH: If you're looking for a put candidate this might be for you. Shares gapped down on Thursday under support at the $82.50 level and its simple 200-dma. The move was a reaction to its earnings report where APOL beat estimates by a penny and guided in-line. Two brokers followed the news with a downgrade. The decline has turned its technical indicators bearish with a new sell signal in its MACD. A 50 percent retracement of its November to December rally would put the current sell-off near $72-73. We would target short-term support at $75. --- Nike Inc - NKE - close: 91.70 change: +5.80 WHAT TO WATCH: NKE soared 6.75 percent on Friday after beating earnings estimates by 10 cents. Volume was heavy and the stock broke through resistance at $88 and $90. We would watch for a pull back either probably around the $90 level as a potential bullish entry point. Look for the bounce to begin before considering new positions. Our target would be $100. --- M G I C Investments - MTG - close: 68.27 change: +0.56 WHAT TO WATCH: MTG has been consolidating under resistance at $69.00 and its simple 200-dma for weeks. Now technicals are positive and its MACD is nearing a new price target. The P&F chart is very close to reversing its sell signal into a buy signal. Watch for a breakout over $69 as a potential entry point. More conservative traders may want to wait for MTG to close over the $70 mark, which could be round-number resistance. --- Kmart Holdings - KMRT - close: 100.28 change: -0.99 WHAT TO WATCH: Hmm... the consolidation in KMRT is narrowing, which means we can look for a breakout one way or the other soon. The fact that shares are narrowing near the $100 mark might make KMRT a decent straddle play or some sort of neutral spread to capture a breakout up or down. The short-term trend of lower highs suggest a breakdown. Meanwhile its long-term trend is still up and shares are nearing support. Definitely be ready to catch the move. ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- ESI $48.25 -1.69 - ESI is another educational stock that is seeing some profit taking. Consider a trigger under $48 and target support near $43.50-44.00. WMT $52.02 -0.73 - WMT is nearing round-number support at $50.00 bolstered by a very long-term trendline of support. CEPH $48.99 +0.93 - We would watch CEPH for a breakout over its simple 200-dma near resistance at $51.00. TZOO $94.00 +2.79 - Aggressive players can watch TZOO for a breakout over $100 or a breakdown under $90. AZO $89.25 +0.57 - AZO is nearing significant resistance in the $90-91 region. The P&F chart is bullish and points to $120. Watch for the breakout. ************************Advertisement************************* Quit paying fees for limit orders or minimum equity * No hidden fees for limit orders or balances * $1.50 /contract (10+ contracts) or $14.95 minimum. * Zero minimum deposit required to open an account * Free streaming quotes and Dow Jones news Go to http://www.optionsxpress.com/marketing.asp?source=oinvest34 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS ^^^^^ Fluor Corp - FLR - close: 53.13 change: -0.08 stop: 52.75 Early morning weakness in FLR was more than expected. Shares slipped to $52.60 before rebounding. That was enough to hit our stop loss at $52.75. Given the recent sell signal in the MACD indicator this may not be a bad thing. Picked on November 22 at $48.51 Change since picked: + 4.62 Earnings Date 10/27/04 (confirmed) Average Daily Volume = 521 thousand --- Morgan Stanley - MWD - close: 54.11 chg: -0.74 stop: 51.50 MWD offered us a round-trip ticket to nowhere. The stock has ended up right back where we started at $54.11. The lack of follow through on the XBD broker-dealer index breakout, MWD's breakout and the LEH earnings news is somewhat disappointing. We are exciting now to avoid any negative surprises when MWD reports earnings next week. Picked on December 12 at $ 54.11 Change since picked: + 0.00 Earnings Date 12/21/04 (confirmed) Average Daily Volume = 4.6 million PUTS ^^^^ None *********** DEFINITIONS *********** OI = Open Interest - the number of open contracts outstanding. Last Trade @ = Indicates where the option traded last. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************************Advertisement************************* Quit paying fees for limit orders or minimum equity * No hidden fees for limit orders or balances * $1.50 /contract (10+ contracts) or $14.95 minimum. * Zero minimum deposit required to open an account * Free streaming quotes and Dow Jones news Go to http://www.optionsxpress.com/marketing.asp?source=oinvest34 Note: Options involve risk. 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The Option Investor Newsletter Sunday 12-19-2004 Sunday 3 of 5 In Section Three: Current Calls: ABK, BIIB, COF, EBAY, IBM, MDC, MHK, OSK, SWN, UTX, ZBRA New Calls: BDK, GOOG Current Puts: GCI New Puts: None ************************Advertisement************************* Quit paying fees for limit orders or minimum equity * No hidden fees for limit orders or balances * $1.50 /contract (10+ contracts) or $14.95 minimum. * Zero minimum deposit required to open an account * Free streaming quotes and Dow Jones news Go to http://www.optionsxpress.com/marketing.asp?source=oinvest34 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ****************** CURRENT CALL PLAYS ****************** Ambac Fincl Group - ABK - cls: 82.20 chg: -1.00 stop: 79.89 Company Description: Ambac Financial Group, Inc., headquartered in New York City, is a holding company whose affiliates provide financial guarantees and financial services to clients in both the public and private sectors around the world. Ambac's principal operating subsidiary, Ambac Assurance Corporation, a leading guarantor of public finance and structured finance obligations, has earned triple-A ratings, the highest ratings available from Moody's Investors Service, Inc., Standard & Poor's Ratings Services, Fitch, Inc. and Rating and Investment Information, Inc. (source: company press release) Why We Like It: Yes, believe it or not we still like ABK. We were not excited to see the gap down on Friday but traders bought the dip near $81.55 and ABK held near the $82 level for much of the session. Stocks are still expected to perform well through the end of the year so traders can evaluate this dip as a potential entry point. If ABK surprises us and dips lower we'll look for support near $80-81. Of course technical traders may want to play it cautious. Short- term oscillators are turning negative and its overbought MACD indicator just produced a new sell signal. We do notice a MACD sell signal a few weeks ago that was quickly reversed so we're not panicking yet. Suggested Options: We are going to suggest the January 2005 calls. Our favorites would be the $80s or $85s. BUY CALL JAN 75 ABK-AO OI= 31 current ask $8.00 BUY CALL JAN 80 ABK-AP OI= 350 current ask $3.80 BUY CALL JAN 85 ABK-AQ OI= 262 current ask $1.15 BUY CALL JAN 90 ABK-AR OI=1348 current ask $0.25 Annotated chart Picked on December 01 at $82.26 Change since picked: - 0.06 Earnings Date 10/20/04 (confirmed) Average Daily Volume = 490 thousand --- Biogen Idec - BIIB - close: 64.80 change: -1.09 stop: 60.99 Company Description: Biogen Idec creates new standards of care in oncology and immunology. As a global leader in the development, manufacturing, and commercialization of novel therapies, Biogen Idec transforms scientific discoveries into advances in human healthcare. (source: company press release) Why We Like It: BIIB may have fallen 1.65 percent on Friday but the stock held up rather well compared to some of its peers in the drug/biotech sectors. The DRG index was hit for a 2.9 percent loss following the volatility in shares of Pfizer and the big gap down in AZN. If you were feeling optimistic one could claim that BIIB is still trading in its short-term range between $64 and $67. However, the action on Friday does look like a potential failed rally. We would expect shares to possibly dip toward the $62-63 levels before bouncing higher. Such a dip could be a new bullish entry point for readers. Short-term technicals don't look so hot so waiting for a dip may work well. Brokers have been active on BIIB lately. Thursday saw BAC upgrade the stock from "neutral" to a "buy" with an $88 target, which coincides closely with the current P&F chart target at $89. On Friday A.G.Edwards reiterated their buy rating on BIIB. Suggested Options: We are going to suggest the January and April calls. Right now our favorites would be the Aprils. BUY CALL JAN 60 IHD-AL OI=21461 current ask $6.20 BUY CALL JAN 65 IHD-AM OI=12347 current ask $2.65 BUY CALL JAN 70 IHD-AO OI=11766 current ask $0.85 BUY CALL APR 65 IHD-DM OI= 3189 current ask $5.20 BUY CALL APR 70 IHD-DN OI= 4767 current ask $3.10 Annotated chart Picked on December 9 at $ 65.25 Change since picked: - 0.45 Earnings Date 01/26/05 (unconfirmed) Average Daily Volume = 3.5 million --- Capital One Financial - COF - cls: 82.04 chg: +0.22 stop: 76.99 Company Description: Headquartered in McLean, Virginia, Capital One Financial Corporation (www.capitalone.com) is a holding company whose principal subsidiaries, Capital One Bank and Capital One, F.S.B., offer consumer lending products and Capital One Auto Finance, Inc., offers automobile and other motor vehicle financing products. Capital One's subsidiaries collectively had 47.2 million accounts and $75.5 billion in managed loans outstanding as of September 30, 2004. Capital One, a Fortune 500 company, is one of the largest providers of MasterCard and Visa credit cards in the world. (source: company press release) Why We Like It: Banking stocks have been a mixed bunch the last few days. This has left COF to trade on its own and thus far the stock has been churning sideways in a relatively tight range. While we are encouraged by COF's relative strength it would not surprise us to see shares retest the $80 level as support. A bounce from $80 would be the preferred entry point for new positions. However, if you look at COF's intraday chart you'll notice that after sliding sideways for most of the session COF broke out to the upside in the last thirty minutes of trading. This is one reason why we would still consider bullish positions at current levels. Our six to eight week target remains the $88-90 region. Suggested Options: We are going to suggest the January and March calls. Our favorites would be the March strikes. BUY CALL JAN 75 COF-AO OI=3544 current ask $7.80 BUY CALL JAN 80 COF-AP OI=6086 current ask $3.70 BUY CALL JAN 85 COF-AQ OI=2116 current ask $1.10 BUY CALL MAR 80 COF-CP OI=1771 current ask $5.60 BUY CALL MAR 85 COF-CQ OI=1428 current ask $2.90 BUY CALL MAR 90 COF-CR OI=1893 current ask $1.25 Annotated Chart: Picked on December 12 at $ 81.12 Change since picked: + 0.92 Earnings Date 01/19/05 (unconfirmed) Average Daily Volume = 1.4 million --- eBay Inc. - EBAY - close: 114.75 chg: -0.95 stop: 113.99 Company Description: eBay is The World's Online Marketplace®. Founded in 1995, eBay created a powerful platform for the sale of goods and services by a passionate community of individuals and businesses. On any given day, there are millions of items across thousands of categories for sale on eBay. eBay enables trade on a local, national and international basis with customized sites in markets around the world. Through an array of services, such as its payment solution provider PayPal, eBay is enabling global e- commerce for an ever- growing online community. (source: company press release) Why We Like It: EBAY made headlines on Friday with its announcement to buy Rent.com for $415 million in cash and stock. Yet we doubt the deal, which is seen as a positive for EBAY, negatively affected the stock price. The pull back in tech stocks and the 0.9 percent drop in the INX Internet index is the more likely culprit. On Thursday we suggested that this was a pivotal spot for EBAY as is toyed with support in the $115.00-114.50 level. Now shares have edged even lower but remains inside this range. We would not suggest new bullish plays as a drop under $114 is likely a precursor to testing the $110 level and/or its simple 40-dma. Hopefully this is the new short-term low and EBAY will quickly rebound toward $120 in time for the holidays. Suggested Options: We are not suggesting new positions at this time although more aggressive traders could use a bounce from $115 as a potential entry point. Annotated chart Picked on November 08 at $103.69 Change since picked: +11.06 Earnings Date 10/20/04 (confirmed) Average Daily Volume = 10.4 million --- Intl Business Mach. - IBM - close: 96.20 chg: -1.25 stop: 95.49 Company Description: IBM is the world's largest information technology company, with 80 years of leadership in helping businesses innovate. Drawing on resources from across IBM and IBM Business partners, IBM offers a wide range of services, solutions and technologies that enable customers, large and small, to take full advantage of the new era of e-business. (source: company press release) Why We Like It: Are you getting a sense of deja vu? We are. Through the second half of November IBM churned sideways in a trading range between $94-$96. Now for the past three weeks this December IBM has been stuck in a range between $96 and $98. Back in November IBM produced a failed rally near the top of the range and then slipped toward the bottom of its range all while looking ready to breakdown. The next day IBM rebounded and quickly broke out. We see a very similar pattern in the last two sessions for IBM with shares failing near the top of its range and slipping toward support looking very weak. Will IBM rebound again? Or will it break support this time? We've been suggesting that readers consider some profit taking for weeks. It is still a viable option today but we're going to let our stop work for us at $95.49 and we'll happily exit if shares can hit the $99 mark. Suggested Options: We are not suggesting bullish positions at this time. Readers may consider doing some profit taking Annotated chart: Picked on October 27 at $90.00 Change since picked: + 6.20 Earnings Date 10/18/04 (confirmed) Average Daily Volume = 4.7 million --- M D C Holdings - MDC - close: 85.30 change: -1.00 stop: 82.00 Company Description: MDC, whose subsidiaries build homes under the name "Richmond American Homes," is one of the largest homebuilders in the United States. The Company also provides mortgage financing, primarily for MDC's homebuyers, through its wholly owned subsidiary HomeAmerican Mortgage Corporation. MDC is a major regional homebuilder with a significant presence in some of the country's best housing markets. The Company is the largest homebuilder in Colorado; among the top five homebuilders in Northern Virginia, suburban Maryland, Phoenix, Tucson, Las Vegas and Salt Lake City; and among the top ten homebuilders in Jacksonville, Northern California and Southern California. MDC also has established operating divisions in Dallas/Fort Worth, Houston, West Florida, Philadelphia/Delaware Valley and Chicago. (source: company press release) Why We Like It: MDC remains a relative strength winner this week but shares did see some profit taking on Friday. We remain bullish on the stock and continue to target the $88.50 level. However, now that shares have surpassed our initial profit target we are not suggesting new bullish positions. Short-term traders may want to strongly consider doing some profit taking. Suggested Options: MDC has already exceeded our short-term target. We are not suggesting new bullish positions. Annotated Chart: Picked on December 12 at $ 81.01 Change since picked: + 4.29 Earnings Date 01/11/05 (unconfirmed) Average Daily Volume = 435 thousand -- Mohawk Industries - MHK - close: 89.40 chg: -1.57 stop: 86.99 Company Description: Mohawk currently operates five facilities in South Carolina located in: Ulmer, Calhoun Falls, Dillon, Landrum and Bennettsville. The company is headquartered in Calhoun, GA and is traded on the New York Stock Exchange. Mohawk is a leader in the floor covering industry with over $5 billion in annual revenues and produces and distributes carpet, ceramic tile, rugs, laminate, hard wood and home accessories. (source: company press release) Why We Like It: Uh-oh! Thursday's dip to $90.40 was okay with us. A chance to buy a bounce above $90 looked attractive. Friday's drop under round-number, psychological support/resistance at $90.00 is another story. The recent MACD buy signal appears to be in jeopardy. We would not suggest new bullish positions until MHK traded back above the $90 level. Aggressive traders might look for a bounce from $88, which is where we expect MHK to find its next level of support. Suggested Options: We are going to suggest the February calls. Januarys are available. BUY CALL FEB 85 MHK-BQ OI= 376 current ask $6.20 BUY CALL FEB 90 MHK-BR OI=1345 current ask $3.20 BUY CALL FEB 95 MHK-BS OI= 243 current ask $1.40 Annotated Chart: Picked on December 14 at $ 91.00 Change since picked: - 1.60 Earnings Date 02/05/05 (unconfirmed) Average Daily Volume = 319 thousand --- Oshkosh Truck - OSK - close: 66.90 change: +0.82 stop: 63.49*new* Company Description: Oshkosh Truck Corporation is a leading manufacturer of specialty trucks and truck bodies for the defense, fire and emergency, concrete placement and refuse hauling markets. Oshkosh Truck is a Fortune 1000 company with products marketed under the Oshkosh®, Pierce®, McNeilus®, Medtec®, Geesink, Norba and Jerr-Dan® brand names. The company is headquartered in Oshkosh, Wis., and had annual sales of $2.3 billion in fiscal 2004. (source: company press release) Why We Like It: OSK is getting closer to our target near $67.50. The stock displayed some relative strength on Friday bucking the broader market weakness with a 1.24 percent gain. We are suggesting that readers prepare to exit as OSK nears our target. We are not suggesting new bullish positions. We are going to raise our stop loss to $63.49. Suggested Options: We are not suggesting new bullish positions this close to our target. Annotated Chart: Picked on November 07 at $ 62.16 Change since picked: + 4.74 Earnings Date 10/28/04 (confirmed) Average Daily Volume = 205 thousand -- Southwestern Energy - SWN - close: 51.05 chg: +0.06 stop: 49.50*new* Company Description: Southwestern Energy Company is an integrated natural gas company whose wholly-owned subsidiaries are engaged in oil and gas exploration and production, natural gas gathering, transmission, and marketing, and natural gas distribution. (source: company press release) Why We Like It: Honestly we're a little bit disappointed. As we expected crude oil prices rebounded strongly this week but SWN failed to follow. The long-term trend for SWN is still in place and the stock looks poised to move higher but now we have to deal with a possible pull back in oil from its sharp rise. Brave readers can still watch for a dip to $50.00 but we would definitely look for the bounce before committing any capital. We are going to raise our stop loss to $49.50 just under rising technical support at the simple 40-dma. Suggested Options: We are going to suggest the January and March calls. BUY CALL JAN 50 SWN-AJ OI=223 current ask $3.40 BUY CALL JAN 55 SWN-AK OI=334 current ask $1.25 BUY CALL MAR 50 SWN-CJ OI=345 current ask $4.70 BUY CALL MAR 55 SWN-CK OI=306 current ask $2.60 Annotated Chart: Picked on December 14 at $ 51.05 Change since picked: + 0.00 Earnings Date 00/00/04 (confirmed) Average Daily Volume = 557 thousand --- United Tech. - UTX - close: 103.90 change: +1.90 stop: 98.95*new* Company Description: United Technologies Corp., based in Hartford, Connecticut, is a diversified company that provides a broad range of high technology products and support services to the building systems and aerospace industries. (source: company press release) Why We Like It: The Dow Industrials losses would have been worse on Friday if it had not been for strength in UTX. The stock added another 1.8 percent on above average volume. The move pushed UTX to a new all-time high over the $103 level. We don't know whether this move was a delayed reaction to the merger news on Thursday (UTX buying British Kidde for $2.8 billion) or news out on Friday that UTX won a $734 million contract from the U.S. Air Force to work on the F119 engines in the F/A-22 Raptor fighter jet. Whatever the case is we are not complaining. The P&F chart has produced a new double-top breakout buy signal with a $123 target. We continue to believe that UTX is a stock split announcement candidate since shares last split 2:1 in May of 1999. Our short- term target remains the $110 level. We are going to raise our stop loss to $98.95. Suggested Options: We like the January 2005 calls. BUY CALL JAN 95 UTX-AS OI=3112 current ask $9.50 BUY CALL JAN 100 UTX-AT OI=7406 current ask $5.10 BUY CALL JAN 105 UTX-AA OI=3725 current ask $1.80 BUY CALL JAN 110 UTX-AB OI=1221 current ask $0.45 Annotated chart Picked on December 1 at $100.15 Change since picked: + 3.75 Earnings Date 10/20/04 (confirmed) Average Daily Volume = 1.8 million -- Zebra Technologies - ZBRA - close: 55.47 chg: -0.45 stop: 51.99 Company Description: Zebra Technologies Corp. delivers innovative and reliable on- demand printing solutions for business improvement and security applications in 100 countries around the world. More than 90 percent of Fortune 500 companies use Zebra-brand printers. A broad range of applications benefit from Zebra-brand thermal bar code, smart label, receipt, and card printers, resulting in enhanced security, increased productivity, improved quality, lower costs, and better customer service. The company has sold nearly four million printers, including RFID printer/encoders and wireless mobile solutions, as well as software, connectivity solutions and printing supplies. (source: company press release) Why We Like It: This looks like a new bullish entry point in ZBRA. The stock slipped to $54.59 before traders jumped in to buy the dip near its simple 50-dma. The bounce back above the $55 level is also encouraging. Per our original play description traders can buy the breakout over $54 or look for a move through the November highs near $56. The P&F chart has a very positive pattern with a bullish triangle breakout and a $66 target. Our initial target is a move into the $60-62 range. Suggested Options: We are going to suggest the January and February calls. BUY CALL JAN 50 ZBQ-AJ OI=111 current ask $5.90 BUY CALL JAN 55 ZBQ-AK OI=677 current ask $2.50 BUY CALL JAN 60 ZBQ-AL OI=296 current ask $0.80 BUY CALL FEB 55 ZBQ-BK OI=2210 current ask $3.90 BUY CALL FEB 60 ZBQ-BL OI= 581 current ask $1.70 Annotated chart: Picked on December 15 at $ 55.21 Change since picked: + 0.26 Earnings Date 02/09/05 (unconfirmed) Average Daily Volume = 709 thousand ************** NEW CALL PLAYS ************** Black & Decker - BDK - close: 85.66 chg: -0.35 stop: 83.49 Company Description: Black & Decker is a leading global manufacturer and marketer of power tools and accessories, hardware and home improvement products, and technology-based fastening systems. (source: company press release) Why We Like It: We have been following BDK on the watch list for weeks. The stock has been a consistent relative strength winner for months as investors continue to buy each dip. Currently BDK has been consolidating sideways in a trading range between $82 and $86.50 since early November. Now that shares are trying to bounce from its rising 40 and 50-dma's and its technicals oscillators are edging higher with its MACD indicator nearing a new buy signal we are going to put BDK on the play list with a TRIGGER. Our plan is to catch a year-end rally as BDK breaks out from its trading range. Our entry point will be $87.01. If we're triggered we'll target a six to eight week move to $96-$100 range, which seems somewhat conservative compared to its bullish P&F chart with its $114 target. Suggested Options: We are going to suggest the February calls. BUY CALL FEB 85 BDK-BQ OI=510 current ask $4.20 BUY CALL FEB 90 BDK-BR OI=218 current ask $1.85 BUY CALL FEB 95 BDK-BS OI= 0 current ask $0.75 Annotated Chart: Picked on December xx at $ xx.xx <-- see TRIGGER Change since picked: + 0.00 Earnings Date 01/24/05 (unconfirmed) Average Daily Volume = 656 thousand --- Google Inc - GOOG - close: 180.08 change: +3.61 stop: 174.99 Company Description: Google's innovative search technologies connect millions of people around the world with information every day. Founded in 1998 by Stanford Ph.D. students Larry Page and Sergey Brin, Google today is a top web property in all major global markets. Google's targeted advertising program, which is the largest and fastest growing in the industry, provides businesses of all sizes with measurable results, while enhancing the overall web experience for users. Google is headquartered in Silicon Valley with offices throughout North America, Europe, and Asia. (source: company press release) Why We Like It: Love it or hate it GOOG is starting to look bullish. The stock has spent the last seven weeks consolidating if meteoric rise from $100 to $200. The recent dip toward the $170 region has put in a short-term higher low and its MACD indicator is nearing a new buy signal. Yet before we continue we need to urge caution to our readers. Volatile stocks like GOOG are not for everyone. The intraday swings can be enormous and the volatility in the options even worse. This needs to be played with risk capital only since odds are higher one could lose all of their investment. Bulls would be fighting against a bearish P&F chart. Plus, there are the lock up periods to deal with. Thus far the markets have quickly absorbed mammoth amounts of stock from GOOG's numerious lock up expirations. There is another one for 24.9 million shares on January 15th and the last major lock up expires on February 14th for 176.8 million shares. We do not want to hold over February 14th lock up giving us a set time frame for this play to work. Our plan is to use a TRIGGER at $183.01 to capture the breakout from its current consolidation. Our target will be the $199-200 level. Suggested Options: January strikes are available but we are going to suggest the March calls. BUY CALL MAR 180 GOU-CP OI=7325 current ask $19.00 BUY CALL MAR 190 GOU-CR OI=3972 current ask $14.60 BUY CALL MAR 200 GOU-CT OI=5688 current ask $11.00 Annotated Chart: Picked on December xx at $ xx. xx <-- see TRIGGER Change since picked: + 0.00 Earnings Date 01/20/05 (unconfirmed) Average Daily Volume = 10 million ************************Advertisement************************* Quit paying fees for limit orders or minimum equity * No hidden fees for limit orders or balances * $1.50 /contract (10+ contracts) or $14.95 minimum. * Zero minimum deposit required to open an account * Free streaming quotes and Dow Jones news Go to http://www.optionsxpress.com/marketing.asp?source=oinvest34 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ***************** CURRENT PUT PLAYS ***************** Gannett Co Inc - GCI - close: 79.26 chg: -0.41 stop: 82.51 Company Description: Gannett Co., Inc. is a leading international news and information company that publishes 101 daily newspapers in the USA, including USA TODAY, the nation's largest-selling daily newspaper. The company also owns more than 600 non-daily publications in the USA and USA WEEKEND, a weekly newspaper magazine. Gannett subsidiary Newsquest is the United Kingdom's second largest regional newspaper company. Newsquest publishes more than 300 titles, including 17 daily newspapers, and a network of prize-winning Web sites. Gannett also operates 21 television stations in the United States and is an Internet leader with sites sponsored by its TV stations and newspapers including USATODAY.com, one of the most popular news sites on the Web.(source: company press release) Why We Like It: So far so good. GCI has tried to bounce back above the $80 level twice in as many days without success. Friday's action was the most impressive with an early dip lower on big volume quickly followed by a rally attempt that failed at $80. This looks like a bearish entry point for new positions. More conservative traders may want to wait for the drop under $79.00 that will produce a spread quintuple-bottom sell signal on its P&F chart. Our short-term target is only $75 but the P&F chart points to $72 and is likely to fall even lower. Suggested Options: We are going to suggest the January puts and the April puts. BUY PUT JAN 80 GCI-MP OI=1877 current ask $2.15 BUY PUT JAN 75 GCI-MO OI= 480 current ask $0.60 BUY PUT APR 80 GCI-PP OI= 812 current ask $3.60 BUY PUT APR 75 GCI-PO OI= 397 current ask $1.60 Annotated chart: Picked on December 16 at $ 79.39 Change since picked: - 0.13 Earnings Date 01/31/05 (unconfirmed) Average Daily Volume = 1.0 million ************* NEW PUT PLAYS ************* None ************************Advertisement************************* Quit paying fees for limit orders or minimum equity * No hidden fees for limit orders or balances * $1.50 /contract (10+ contracts) or $14.95 minimum. * Zero minimum deposit required to open an account * Free streaming quotes and Dow Jones news Go to http://www.optionsxpress.com/marketing.asp?source=oinvest34 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 12-19-2004 Sunday 4 of 5 In Section Four: Leaps: Down to Fighting Weight Spreads and Straddles: Tis' The Season To Be Profitable ... Fa-la-la-la-la, la-la-la-la ************************Advertisement************************* Quit paying fees for limit orders or minimum equity * No hidden fees for limit orders or balances * $1.50 /contract (10+ contracts) or $14.95 minimum. * Zero minimum deposit required to open an account * Free streaming quotes and Dow Jones news Go to http://www.optionsxpress.com/marketing.asp?source=oinvest34 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ***** LEAPS ***** Down to Fighting Weight We dropped a couple more entries this week that had been with us for quite sometime. Juniper hit our stop and I could not pass up the profit on XMSR that was offered on its inclusion in the QQQQ/NDX. We are going to reopen a position on an old friend and at levels that provide very little risk. That is of course Symantec. The decision to add the oils back into the portfolio last week with crude at the 200 day average appears to have been the right decision. Oil prices jumped +14% last week and the largest weekly jump in five years. The stocks have not reacted as strongly as you would have expected because I believe most traders think this is just a news spike in crude. It may be but the long term trend is still up until that 200 day average is broken. There is some serious market weakness developing and while I hope it is just due to the various index shuffling this week I am going to raise some stops again. The FASB ruling on options last week will eventually come back to haunt us and it could be serious. By raising the stops on those plays without insurance we could get knocked out on some end of year volatility but we will be out with a profit and that is always a good plan. No reason to let "volatility" turn into a loss just because we thought it was only volatility. I am going to be really picky about new entries until the end of January and we will probably add in a few leap puts if the market starts looking weak. For the next two weeks the historical trend is usually up but on years Santa does not come it usually means trouble ahead. We will watch the signs and see it that is light at the end of the tunnel or a train heading our way. We were stopped out of Adobe last week at $61 and it rallied back this week to a new high at $64.80. But, by the end of the week it was back to $60. Profit taking by funds and the ORCL/PSFT, SYMC/VRTS deals took the bloom off the software stragglers. If you have any comments or suggestions about the leaps section please email them to: leaps @ OptionInvestor.com ******************* New Plays ******************* SYMC - $25.37 Symantec/Veritas ******************* Dropped Plays ******************* XMSR - XM Satellite Radio $40.14 ** Dropped ** JNPR - Juniper Networks $28.13 **Stopped $27.50** TYC - Close 2005 $30 LEAP only ****************************** New Watch List Plays Triggered ****************************** None **************************** Current Portfolio: **************************** Position Summary Table ******************* New Plays ******************* SYMC $25.37 Symantec - Veritas ** no stop ** Welcome back! I am sure everyone heard the news about Symantec buying Veritas for $13B on Thursday. The news should have been met with excitement but with the amount of profit in Symantec from the strong run over the last year there were too many traders selling now without asking questions later. The stock dropped to $25 on the news and a dead stop on the 200 day average. This is very strong support and after two days of holding at that level the options have had time to compress from that drop volatility. I believe that the SYMC/VRTS merger is a match made in heaven and analysts will come to that view as more plans are announced. The companies have no overlapping products but all their products are perfect fits for the others. With one company having anti-virus, data security, backup, recovery and storage management it puts the other stand alone companies in a very difficult position. EMC and QLGC both fell in the storage sector and Mcafee got crushed in the ant-virus sector. There is no stop on this position. With the 2007 LEAP Call any minor dips will not result in a material drop in the leap. The April $22.50 insurance put will protect us from any potential disaster. For me this is a buy and forget play. BUY LEAP 2007 $25 LEAP Call OBL-AE currently $6.30 Insurance Put BUY APR-2005 $22.50 PUT SYQ-PX currently $1.15 Entry $25.37 (12/19) SYMC Chart **************************** Play Updates **************************** XLE - S&P Energy SPDR $36.08 ** No Stop ** The XLE rebounded to $36.65 on Wednesday but the Yukos news caused several of the big oil stocks with operations in Russia to weaken. As long as oil prices continue higher the XLE will eventually follow. Crude Chart The XLE SPDR is composed of 27 energy stocks and represents about 8% of the SPX. This is the 8% that helped push the SPX to the current levels with the rise in oil over the last year. In fact the XLE has far exceeded the SPX in performance over the past year. I am not putting a stop loss on this play. I am suggesting an insurance put to offset against any material drop. Because I believe oil is in a long term up trend I do not want to get jerked out of this position. If we see that oil is not moving higher by March I will reevaluate the position. 2006 $35 LEAP Call WHA-AI @ $3.60 2007 $40 LEAP Call ORJ-AN @ $2.65 Drop insurance: March $34 Put XLE-OH @ $1.00 Entry $35.55 on 12/12 Components of the XLE http://www.OptionInvestor.com/charts/1218200414332AM_8.asp XLE Chart ******************** COP - Conoco Phillips $87.00 ** Stop 83.00 ** I raised the stop on COP to $83 from $79. COP just bought several billion in assets in Russia and the Yukos problem is setting up a potential problem for western oil companies. I believe Bush would lean on Putkin if we saw him looking at western assets but it is still a risk until the Yukos deal blows over. COP remains in the top three recommended investments in the energy sector and it is racing to acquire new properties. Conoco has been on a permanent uptick since October 2002. That up trend accelerated in December 2003 and topped out at $80 this August. The stock took a dive in early August when Conoco released earnings that almost doubled but said they were selling some assets to reduce $1.5B in debt. Investors decided to take profits and see what Conoco had for future plans. COP, along with AHC, MRO and OXY, is working with Libya to get assets frozen in 1986. This would be a favorable event but would require some updating to return to full production. At least that production would not need to be bought or bid on as any new leases in Libya currently on the auction block. I am recommending a stop for COP at $83 and just under the 100 day average as well as an insurance put because the leaps are so expensive. If stopped the put will reduce any loss on the leaps. Current position: Jan-2006 $90 LEAP Call YRO-AR at $5.90 Jan-2007 $90 LEAP Call OJP-AR at $9.10 Insurance Put: Feb $80 PUT COP-NP at $1.75 Entry $84.74 Dec-12th COP Chart ************************* MRO - $37.31 Marathon Oil ** No Stop ** Marathon was one of the dew oils not to show a decent bounce this week. We still have strong support at the 200dma and it appears to be consolidating with an upward bias. MRO is engaged in the worldwide exploration and production of crude oil and natural gas, the domestic refining, marketing, & transportation of petroleum products, and other energy related businesses. For the 9 months ended 9/30/04, revenues rose 18% to $35.6B. Currently MRO is purchasing Ashland's 38% interest in the Marathon Ashland Petroleum refining venture. Marathon is trying to consolidate assets and acquire more. Banc of America just initiated coverage with a Buy. Marathons chart shows strong support at the 200-day average which has been tested three times over the past year. The potential for the next spike on MRO would be a price target in the $45 range. BUY 2006 $40.00 LEAP Call WXM-AH currently $2.45 BUY 2007 $40.00 LEAP Call VXM-AH currently $3.80 Insurance Put: April $35 PUT MRO-PG currently $1.50 Entry $36.67 (12/12) MRO Chart **************************** ETR - Entergy Corp. $65.20 ** Stop $63.00 ** ETR recovered nicely over the last week and was very strong on Friday. ETR is back near its highs and the trend is good after taking a couple nuclear plants offline for refueling. Entergy Corporation is an integrated company engaged primarily in electric power production, retail distribution operations, energy marketing and trading and gas transportation. ETR also manages nuclear power plants and with the current and coming energy crisis they will be hired to run/manage any new plants coming online. This is a long term play and one that could be a strong performer. The LEAPs are very cheap. Current position: 2007 $70 LEAP Call ODF-AN @ $5.20 Entry (11/22) $65.51 ETR Chart **************************** FDX - Federal Express $99.90 **Stop $95.00** Entry $91.93 (11/5) FDX dropped to $95.32 on Thursday after announcing profits nearly quadrupled on its freight business. The problem was analyst estimates. FDX had said earnings would be between $1.10 and $1.20 and they hit $1.15 on the nose. Analysts, greedy people that they are were guessing $1.17. Margins dropped slightly due to higher fuel costs bit FDX stole market share from UPS to make up for the added cost. It is already back at the highs again but if oil hits $50 again this could be a rough ride. I am leaving the stop at $95 this week and we will see what happens. CLOSE the Jan-$95 put we sold on entry into this play. The put is selling for 75 cents now and that gives us a $3.65 profit. That put offset the cost on our LEAP calls and worked out exactly as planned. Federal Express announced it was going to expand Kinkos across Asia and said it could be worth $1.5 billion on an annual basis. That is a huge shot in the arm for FedEx and shows they are on the right track with their acquisition. China shipping volume grew +52% last quarter and the addition of the Kinkos stores could increase that as well. 2006 $ 95 LEAP Call WFX-AS @ $8.00 2007 $100 LEAP Call VFX-AT @ $10.60 SOLD 2005 Jan $95 Put FDX-MS @ $4.60 Closed (Closed at $.75 +$3.65 profit 12/19) (selling the put initially offset the price of the call) Insurance Put: Jan $95.00 PUT FDX-MS $1.25 FDX Chart ********************** TYC - Tyco Intl. $34.87 **Stop $33.50** Tyco is trying VERY hard to break $35 resistance. Once it does we should see some serious short covering and buyers come back into the stock. We currently have a 2005 $30 LEAP Call that needs to be closed. I am going to close it for record purposes today @ $4.80. Our entry was $2.15 back in May for a +123% gain. If you want to gamble on gains over the next four weeks on that LEAP I believe it would be a good bet but that is up to you to decide. It is $4.87 in the money and there is no time premium. Any gain or loss in the stock will be immediately reflected in the LEAP. The 2006 $30 LEAP will remain open. 2005 $30 LEAP Call TYC-AF @ $2.15 12/19 $4.80 +2.65 123% 2006 $30 LEAP Call WPA-AF @ $4.00 July $25 insurance put - expired - cost $.55 Entry 5/18 $28.32 http://members.OptionInvestor.com/leaps/Lp_051604_1.asp Tyco Chart ********************** JNPR - Juniper Networks $26.56 **Stopped $27.50** Juniper broke our stop on Tuesday and broke the 50 dma on Thursday. Siemens sold off 30% of their stock in Juniper over the last two weeks and it looks like it attracted some other sellers as well. Still a 100% gain so we can't complain. 2006 $25 LEAP Call WBW-AE cost $3.50 closed at $7.10 Insurance = Sept-$17.50 Put (expired) cost 50 cents. Entry $20.19 (8/16) http://members.OptionInvestor.com/leaps/Lp_081504_1.asp JNPR Chart **************************** XMSR - XM Satellite Radio $40.14 ** Dropped ** I couldn't take the pressure. The spike at the close on Friday over $40 convinced me to take profits. XMSR has been trading on anticipation of its inclusion in the QQQQ for over a week and I view this closing spike as a climax top. I am taking profits today and we will look to reenter the next time it pulls back. It has been moving higher in stops and starts for some time and I just feel it should be getting tired. Current position: 2006 JAN-$30 LEAP Call YLX-AF @ $6.60 closed $12.80 94% 2006 JAN-$32 LEAP Call YLX-AZ @ $5.60 closed $11.10 98% 2006 JAN-$35 LEAP Call YLX-AG @ $4.60 closed $9.70 111% Entry $29.15 on 10/4 http://members.OptionInvestor.com/leaps/Lp_100304_1.asp XMSR Chart ****************************** LLL $75.75 L-3 Communications ** Stop $72.50 ** L3 closed at a new all time high on Friday at $75.75 and is showing no weakness. This stock could be a favorite of funds going into 2005 and looking for a niche play in defense and homeland security. I raised the stop to just below the last dip at $73. L3 itself is on an acquisition binge with four acquisitions in just the last eight weeks. There was a $185 million cash purchase of the propulsion systems business unit of General Dynamics, a $90 million purchase of the electron dynamic devices business of Boeing, a $42 million purchase of the commercial infrared business of Raytheon, and a $225 million purchase of the marine controls division of CAE. LLL is a maker of bomb detection systems and has a strong backlog of contracts for the airlines. They have several product lines besides these systems but explosives detection has become a worldwide market. The company is enjoying the strong demand for secure communications and intelligence, surveillance, and reconnaissance (ISR) systems, aircraft modernization and aviation products. Entry $71 (11/24) 2007 $75 LEAP Call OOY-AO @9.50 Insurance put: Jan $70 PUT LLL-MN $0.75 (12/12) LLL Chart **************************************** HIG - Hartford Financial Services $67.40 ** Stop $64.50 ** Hartford is nearing resistance at $69 but a breakout there could really get things moving. I raised the stop to $64.50 just in case disaster strikes. The Hartford Financial Services Group, Inc. is a diversified insurance co. that provides property & casualty insurance and life insurance. For the 9 months ended 9/30/04, revenues rose 19% to $16.59B. Net income totaled $1.52B. Hartford took a serious hit when Elliott Spitzer started attacking insurance companies but it has rebounded to resistance at $64 once again. This strength in the face of several obstacles and the market suggests we could see a breakout soon. That breakout occurred on Dec-1st and HIG is moving higher with next resistance in the $69 range. Entry $65 (12/1) 2007 $70 LEAP Call OZJ-AN @ $6.20 (No insurance put) HIG Chart **************************** DIA $106.51 Dow Diamonds Trust **Stop 105.50** ****** Profit stop 107.50 ****** After coming very close to getting stopped out over the last two weeks I am getting really nervous about this last spike. I raised the stop loss to $105.50 and put on a profit stop at $107.50. We are up nearly 100% on all the leaps below and I am worried about a market event the first couple weeks of January. 2006 $100 LEAP Call YGF-AV @ $6.30 2006 $104 LEAP Call YGF-AZ @ $4.20 2006 $108 LEAP Call YGF-AD @ $2.90 2006 $112 LEAP Call YGF-AH @ $2.00 Entry 10/14 @ $99.00 DIA Chart **************************** QQQQ $39.47 Nasdaq 100 **Stop $39.00** I am getting really nervous on the QQQQ at $39.47. With the stop at $39 it is not worth an early exit and we could still rally on Monday. The NDX/QQQQ was rebalanced on Friday and that always involves selling stocks in the index. On Monday we should see a rebound but we are very close to an exit if that rebound does not appear. The QQQQ is down over a buck from Wednesday's high at $40.68. Entry $36.50 (10/27) 2006 $35 LEAP Call YWZ-AI @ $5.10 2006 $37 LEAP Call YWZ-AD @ $3.90 QQQ Chart **************************** LEAPS Watch List **************************** Witch Hunt I looked at several hundred charts this week trying to find something that would be immune to any January dip, had a decent chart and LEAPS. You would have thought I was looking for a coven of witches at the Vatican. I had a very tough time finding anything that was not either already at new highs and very extended or did not have leaps. KMI which I mentioned last week as a possible gained +2 and broke out to a new high again. I just have a real problem about buying new highs. I tripped over STN, Station Casinos, which had fallen off its vertical ramp at $59 back on Dec-6th and finally found some buyers at $54 this week. I could not find any news to account for the drop but I did see it has one of the most bullish analyst ratings I have seen in a long time. Of the 21 analysts rating the stock 13 are a buy (7 strong buy) and 8 are a hold. I am not yet convinced the rebound is for real. Secondly casinos may be inflation proof but if I am going that route I would rather play HET or MGG but they are already blowing through the roof after the Sands IPO. HET is buying Caesars (CZR) and MGG is buying Mandalay Bay (MBG). The charts on these stocks are literally vertical since the Sands deal. MGG has already outpaced the strikes on its LEAPS and the highest strike is already $5 in the money. Harrah's could be a play. I would like to buy it on a pullback to the 21 day average currently at $62. I would really like to play RIMM again but I can't justify the expensive options. Insurance is simply too expensive and I would not touch them without an insurance put. I have probably run a chart on ADSK 20 times over the last six months but they don't have leaps. Each time I look up the option chain I keep expecting them to have added LEAPS but not yet. Meanwhile it just keeps going up. There are plenty of oil stocks going up but we already have our oil quota. If you have some suggestions for plays please do us all a favor and send me an email. I could use another 100 pairs of eyes doing research! leaps @ OptionInvestor.com *********************** Dropped Entries *********************** None *********************** New Watch List Entries *********************** HET - $65.89 Harrah's Entertainment (I know this chart is vertical but until the market picks a direction in late January I am not interested in buying weak stocks) ************************* Current Watch list ************************* HET $65.89 Harrah's Entertainment HET operates hotel casinos in Reno, Lake Tahoe, Las Vegas and Laughlin, Nevada and Atlantic City, New Jersey. The company also operates riverboat, dockside and Indian reservation casinos. Harrah's Entertainment, owns or manages 28 casinos in the United States, primarily under the Harrah's and Horseshoe brand names. http://www.harrahs.com Caesars Entertainment, (CZR) is an international gaming company which owns, operates or manages 27 casino properties in the United States, Australia, Uruguay, Canada, South Africa and at sea HET has agreed to pay $9.4 billion for Caesars and will be the largest casino company in the world when complete. I would look to go long on HET with a pullback to the 21 day average currently around $63.00 Buy 2006 $65 LEAP Call WBI-AM currently $7.30 Buy 2007 $70 LEAP Call VKH-AN currently $7.80 Insurance Put Buy Feb-2005 $60 Put HET-NL currently $0.80 cents HET Chart ************************* ************************Advertisement************************* Quit paying fees for limit orders or minimum equity * No hidden fees for limit orders or balances * $1.50 /contract (10+ contracts) or $14.95 minimum. * Zero minimum deposit required to open an account * Free streaming quotes and Dow Jones news Go to http://www.optionsxpress.com/marketing.asp?source=oinvest34 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ******************* SPREADS & STRADDLES ******************* Tis' The Season To Be Profitable ... Fa-la-la-la-la, la-la-la-la By Mike Parnos "Caution" was the word for the December expiration cycle. "Profit" was the result of the "caution." Isn't it interesting how "caution" and "profit" go hand in hand in the trading business? All of our positions expired worthless for the December cycle – the best possible outcome for option sellers. With the market trending up, it wasn't prudent to place the bear call spreads on top of our bull put spreads to complete our Iron Condors. As it turns out, the market paused a bit, and the Iron Condors would have worked out, but it simply wasn't worth the risk. We're back on the right track. We've made some subtle changes to our Iron Condor strategy. After all, we should never stop learning or honing our trading skills. Life, and trading, is a work in progress. After November's debacle, we pulled in the reins a little and became more conservative. We learned that, as a defensive measure, we should limit the size of our spreads. Some CPTI traders had 15, 20 or 25-point spreads - and paid a price for it. When the mierde hit the fan, and we had to close our bear call spreads, the value of the long calls did little to defray the cost of buying back our short calls. The result was heavier losses than necessary. If you're treating your trading as a business (which you should be), losses are a cost of doing business. Money is your inventory. You have to preserve your inventory or you'll be out of business. That's why the smaller the size of your credit spreads, the more the long call will be able to help when the time comes to close the position. Below is a summary of the December positions. A profit of $3,080 may not seem like a lot compared to some of our "big" months last year, but it's a start -- a good start. November was the first month of our third year. In November we lost $4,665. In December, we made $3,080. We still have $1,585 to make up. By January expiration we'll be in positive territory again. Patience, my students. Patience. If the market gives us an indication of slowing, we may even complete our Iron Condors by putting the topside (bear call spreads) on some of our bull put spreads for January. ___________________________________________________________ December Trade Summary SPX - 1125/1120 Bull Put Spread - Profit: $1,000 SPX - 1135/1130 Bull Put Spread - Profit: $700 SPX - 1165/1140 Sure Thing Credit Spread - Profit: $1,380 TOTAL DECEMBER RESULTS: Profit: $3,080 ____________________________________________________________ A Few Reminders January is a five-week trading cycle. Well, you can't tell by the option premiums. With volatility ($VIX) hovering near an all time low, there isn't a great deal of premium to be had. When will the volatility return to the markets? Who knows? As premium sellers, we just have to do the best we can. Marry or Merry? A little boy was attending his first wedding. After the service, his cousin asked him, "How many women can a man marry?" "Sixteen," the boy responded. His cousin was amazed that he knew the answer so quickly. "How do you know that?" "Do the math, dude!" the little boy said. "Like the preacher said - 4 better, 4 worse, 4 richer, 4 poorer." _________________________________________________________________ JANUARY CPTI POSITIONS January CPTI Position #1 - SPX Iron Condor (Part 1) - 1194.20 Sell 20 January SPX 1125 puts Buy 20 January SPX 1110 puts Credit of about $.50 ($1,000) Profit potential $1,000. Maintenance: $30,000. I know I said I prefer not to use anything larger than five or ten-point spreads, but this is almost 80 points out of the money that I'm going to make an exception. This seems incredibly safe, but then we've thought that before, didn't we? January CPTI Position #2 - SPX Sure Thing Credit Spread - 1194.20 We're still in an up-trend and we might as well try to take advantage of it. Our "sure thing" spread worked to perfection for the December cycle. So, until the market tells us otherwise, we're going to continue with the strategy. Again, remember that this strategy is for only those who have a lot of maintenance dollars available, because you may need them. Eventually, we'll be right, but you may need that staying power (money). You have to be able to withstand being whipsawed back and forth. In Thursday's column I suggested initiating the "hypothetical" position by placing the January 1195/1170 bull put spread for a credit of $6.30. However, on Friday, the SPX headed down in the morning. When it leveled out, we put on a two contract SPX 1190/1165 bull put spread instead and we were able to take in $6.80 ($1,360). We are still mildly bullish for the next month, but we couldn't pass up an opportunity to lower our short strike to 1090 -- plus get a little more premium. Maintenance (initially): $5,000. January CPTI Position #3 - MSH Iron Condor (Part 1) - 496.05 This is the Morgan Stanley High Tech Index. We haven't traded it before, so now is as good a time as any. Maybe it will turn out to be a usable replacement for the RUT. We're going to continue to be conservative. Sell 15 MSH January 550 puts Buy 15 MSH January 540 puts Credit and potential profit of about $.55 ($825) Maintenance: $15,000. January CPTI Position #4 -- SPX Iron Condor (Part 1) - 1194.20 Put on two weeks ago -- and a wise choice it was (so far). 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 (now over 90 points) 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 ____________________________________________________________ REVIEW OF DECEMBER CPTI POSITIONS December Position #1 -- SPX Iron Condor (Part 1) - 1194.20 We sold 20 December SPX 1125 puts and bought 20 December SPX 1120 puts for a credit of $.50 ($1,000). Maintenance: $10,000. Result: Profit of $1,000. December Position #2 -- SPX Sure Thing Credit Spread - 1194.20 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. Result -- Profit: $1,380 December Position #3 - SPX Iron Condor (Part I) - 1194.20 We would 20 SPX December 1135 puts and bought 20 SPX December 1130 puts for a credit of about $.35 ($700). Maintenance: $10,000. 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. Result -- Profit: $700 ___________________________________________________________ ONGOING POSITIONS QQQ ITM Strangle - Ongoing Long Term -- $39.47 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. We rolled out the Dec. $34 calls at break even and then sold the January $40 puts for $.80 ($800). Our new total premium is about $14,200. 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 good conservative cash flow generating strategy. ZERO-PLUS Strategy. OEX - 567.37 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 Adjustment 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). New cash total: $11,175. The December bull put spread expired worthless. We put on a five contract OEX 545/535 bull put spread for a credit of $.70. If all goes well, we can, at January expiration, add another $350 to our cash total. Happy Trading! Remember the CPTI credo: May our remote batteries and self- discipline last forever, but mierde happens. Be prepared! In trading, as in life, it's not the cards we're dealt. It's how we play them. Mike Parnos, Your Options Therapist and CPTI Master Strategist Couch Potato Trading Institute Disclaimer All results reported in this section are hypothetical. While the numbers represented here may have been achieved or beaten by our readers, we make no representation that any individual investor achieved these exact results. The tracking for the plays listed in this section uses closing prices for the day the newsletter is published and it is not meant to imply that any reader actually received those prices or participated in these recommendations. The portfolio represented here is hypothetical and for investment education purposes only. It is only an illustration of what type of gains a knowledgeable investor might receive utilizing these strategies. ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 12-19-2004 Sunday 5 of 5 In Section Five: Covered Calls: CONSERVATIVE STOCK OWNERSHIP: COVERED-CALLS Spreads and Straddles: Pfizer Fouls Year-End Rally! Premium-Selling Plays: Naked Puts and Calls ************************Advertisement************************* Quit paying fees for limit orders or minimum equity * No hidden fees for limit orders or balances * $1.50 /contract (10+ contracts) or $14.95 minimum. * Zero minimum deposit required to open an account * Free streaming quotes and Dow Jones news Go to http://www.optionsxpress.com/marketing.asp?source=oinvest34 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ************** COVERED CALLS ************** ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ CONSERVATIVE STOCK OWNERSHIP: COVERED-CALLS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Many investors find that writing "in-the-money" covered-calls fits their criteria for a conservative, easy-to-manage options strategy. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW COVERED-CALL CANDIDATES ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The following group of issues is a list of potential candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. _________________________________________________________________ Editors Note: This week's positions range from very conservative to speculative in a variety of market sectors and industry groups. However, all of the sold calls "in-the-money," thus providing a reasonable (statistical) potential for profit even with a small, post-holiday decline in equity values. Sequenced by Target Yield (monthly basis/no margin) Stock Last Option Option Last Open Cost Days Target Symbol Price Series Symbol Bid Int. Basis Exp. Yield FXEN 10.32 JAN 10.00 IWQ-AB 1.35 1319 8.97 34 10.3% CTIC 8.20 JAN 7.50 CUC-AU 1.25 3427 6.95 34 7.1% STSI 6.05 JAN 5.00 QSE-AA 1.35 404 4.70 34 5.7% TWTI 8.35 JAN 7.50 QIT-AU 1.25 6 7.10 34 5.0% BRCD 7.99 JAN 7.50 BQB-AU 0.85 34K+ 7.14 34 4.5% VISG 8.05 JAN 7.50 TUN-AU 0.90 1657 7.15 34 4.4% RMBS 25.26 JAN 20.00 BNQ-AD 6.10 15K+ 19.16 34 3.9% PLXT 10.90 JAN 10.00 PIU-AB 1.30 324 9.60 34 3.7% DSCO 9.02 JAN 7.50 AQW-AU 1.80 132 7.22 34 3.5% HEPH 11.44 JAN 10.00 QGQ-AB 1.80 257 9.64 34 3.3% NFLD 20.18 JAN 17.50 DHQ-AW 3.30 471 16.88 34 3.3% IMAX 8.50 JAN 7.50 IMQ-AU 1.25 462 7.25 34 3.1% SIFY 6.14 JAN 5.00 SUY-AA 1.30 20 4.84 34 3.0% ZEUS 25.18 JAN 22.50 SBQ-AX 3.40 426 21.78 34 3.0% AMTD 14.01 JAN 12.50 TQA-AV 1.90 6687 12.11 34 2.9% CRIS 5.65 JAN 5.00 UUX-AA 0.80 235 4.85 34 2.8% DUSA 13.73 JAN 12.50 FDU-AV 1.60 1037 12.13 34 2.7% ******************* SPREADS & STRADDLES ******************* Pfizer Fouls Year-End Rally! By Ray Cummins Stock retreated sharply Friday amid a slump in pharmaceutical shares after Pfizer (NYSE:PFE) announced that its widely-used arthritis painkiller Celebrex can increase heart problems. The drug sector was hit hard by the news, which came only two months after Merck's announcement that it would pull Vioxx from the market due to increased risk of heart attack and stroke. Now investors are concerned that undiscovered health problems might adversely affect leading drug products, and the share values of the companies that manufacture them, in the future. The Dow Jones Industrial Average fell 55 points to 10,649 with retail, energy and financial components also drifting lower. The NASDAQ Composite index slid 10 points to 2,135 amid renewed selling pressure in the computer hardware segment. Standard & Poor's 500 index ended down 9 points at 1,194 with homebuilding, casino, and airline shares among the notable losers. Big board volume was 1.8 billion, while the NASDAQ crossed 2.5 billion shares on a quadruple-witching options expiration. Decliners outpaced advancers by a small margin on both exchanges. Bond prices were slightly lower in a mildly active session. The 10-year note fell 5/32, with its yield climbing to 4.20%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 12/17/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 WLP 113.90 115.28 DEC 100.0 105.0 0.50 104.50 0.50 Closed CECO 35.00 36.51 DEC 25.0 30.0 0.60 29.40 0.60 Closed EYET 45.64 45.50 DEC 30.0 35.0 0.45 34.55 0.45 Closed XMSR 36.13 40.20 DEC 30.0 32.5 0.25 32.25 0.25 Closed OIH 84.45 84.80 DEC 75.0 80.0 0.60 79.40 0.60 Closed DWA 39.58 36.45 DEC 30.0 35.0 0.50 34.50 0.50 Closed DRIV 38.31 39.62 DEC 30.0 35.0 0.35 34.65 0.35 Closed MRVL 31.53 35.38 JAN 25.0 27.5 0.40 27.10 0.40 Open CFC 33.21 36.05 JAN 27.5 30.0 0.30 29.70 0.30 Open EBAY 112.20 114.75 JAN 95.0 100.0 0.60 99.40 0.60 Open LEND 46.85 48.09 JAN 35.0 40.0 0.50 39.50 0.50 Open LEN 50.11 54.88 JAN 42.5 45.0 0.30 44.70 0.30 Open PHM 59.65 63.67 JAN 50.0 55.0 0.75 54.25 0.75 Open MRVL 34.89 35.38 JAN 27.5 30.0 0.30 29.70 0.30 Open VRTS 27.38 27.75 JAN 22.5 25.0 0.45 24.55 0.45 Open L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss The losing position in Vimplecom (NYSE:VIP), as well as profitable plays in Piper Jaffray Companies (NYSE:PJC), Cymer (NASDAQ:CYMI), Nabors Industries (NYSE:NBR) and Nucor (NYSE:NUE), has previously been closed to limit potential losses. CALL-CREDIT SPREADS Stock Pick Last Mon L/C S/C Credit CB G/L Status SEPR 45.44 56.97 DEC 55.0 50.0 1.00 51.00 (4.00) Closed TTWO 33.24 32.46 DEC 40.0 37.5 0.30 37.80 0.30 Closed GM 39.97 38.62 DEC 45.0 42.5 0.30 42.80 0.30 Closed BSX 34.70 35.47 DEC 40.0 37.5 0.30 37.80 0.30 Closed MXIM 42.50 41.48 DEC 50.0 45.0 0.70 45.70 0.70 Closed INSP 49.17 47.83 DEC 65.0 60.0 0.40 60.40 0.40 Closed AMZN 38.55 40.01 DEC 45.0 42.5 0.30 42.80 0.30 Closed OSIP 58.16 68.38 DEC 70.0 65.0 0.55 65.55 (2.83) Closed LXK 84.82 86.81 DEC 95.0 90.0 0.45 90.45 0.45 Closed MBT 135.99 130.90 DEC 155.0 150.0 0.55 50.55 0.55 Closed TASR 23.50 27.22 DEC 28.8 27.5 0.15 27.65 0.15 Closed SINA 37.93 31.75 JAN 50.0 45.0 0.60 45.60 0.60 Open LLY 53.33 56.02 JAN 65.0 60.0 0.65 60.65 0.65 Open NVLS 26.94 27.27 JAN 32.5 30.0 0.35 30.35 0.35 Open CCU 33.15 33.72 JAN 40.0 35.0 0.50 35.50 0.50 Open UVN 29.06 30.23 JAN 35.0 30.0 0.80 30.80 0.57 Open ADI 36.42 36.59 JAN 45.0 40.0 0.50 40.50 0.50 Open KOSP 35.13 37.44 JAN 45.0 40.0 0.55 40.55 0.55 Open TTWO 33.45 32.46 JAN 40.0 37.5 0.30 37.80 0.30 Open MSTR 56.22 59.70 JAN 70.0 65.0 0.65 65.65 0.65 Open L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss The bearish position in Sepracor (NASDAQ:SEPR) should have been exited earlier in the week for a smaller-than-published loss. Electronic Arts (NASDAQ:ERTS) and Biogen-Idec (NASDAQ:BIIB), which expired profitable, have previously been closed to limit losses. Univision (NYSE:UVN) is a candidate for early exit on any move above $30.75. DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status DE 69.26 73.02 DEC 70.0 70.0 4.50 4.25 Closed TK 54.45 45.05 DEC 55.0 55.0 3.75 10.25 Closed BTU 79.17 81.43 DEC 80.0 80.0 5.50 6.95 Closed GS 109.40 103.75 DEC 110.0 110.0 3.10 6.75 Closed Speculative positions in Goldman Sachs (NYSE:GS), Teekay Shipping (NYSE:TK) and Peabody Energy (NYSE:BTU) offered favorable gains during the December options-expiration period. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ACL - Alcon $80.60 *** CFSB Favorite! *** Alcon (NYSE:ACL) develop, makes and markets pharmaceuticals, surgical equipment and devices and consumer eye care products that treat eye diseases and disorders and promote the general health and function of the human eye. It has operations in over 70 countries and its products are sold in more than 180 countries around the world. The company conducts its global business through two business segments, each of which markets and sells products principally in three product categories of the ophthalmic market: pharmaceutical (prescription drugs); surgical equipment and devices (cataract, vitreoretinal and refractive), and consumer eye care (contact lens disinfectants and cleaning solutions, artificial tears and ocular vitamins). ACL - Alcon $80.60 PLAY (very conservative - bullish/credit spread): BUY PUT JAN-70.00 ACL-MN OI=115 ASK=$0.35 SELL PUT JAN-75.00 ACL-MO OI=522 BID=$0.75 INITIAL NET-CREDIT TARGET=$0.45-$0.50 POTENTIAL PROFIT(max)=9% B/E=$74.55 __________________________________________________________________ SSYS - Stratasys $32.31 *** New Contract! *** Stratasys (NASDAQ:SSYS) develops, manufactures, markets and services a family of three-dimensional printers and other rapid prototyping systems that enable engineers and designers to create physical models, tooling and prototypes out of plastic and other materials, directly from a computer-aided design workstation. The firm's computerized modeling systems utilize its technology to make models and prototypes from a designer's 3D CAD in a matter of hours. Stratasys' product offerings are Dimension, Prodigy Plus, FDM Titan and Vantage. SSYS - Stratasys $32.31 PLAY (conservative - bullish/credit spread): BUY PUT JAN-25.00 QQG-ME OI=100 ASK=$0.25 SELL PUT JAN-30.00 QQG-MF OI=60 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.60-$0.65 POTENTIAL PROFIT(max)=14% B/E=$29.40 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ MERQ - Mercury Interactive $43.87 *** Consolidation Underway *** Mercury Interactive (NASDAQ:MERQ) is a provider of integrated performance management solutions that enable businesses to test and monitor their Web-based applications. Its software products and hosted services help Global 2004 companies enhance the user experience by improving performance, availability, reliability and scalability in their Web-based applications. Its many hosted services provide its customers with a cost-effective solution that quickly meets business needs without dedicating significant time and internal resources. Its integrated performance management solutions enable customers to more quickly identify and correct problems before users experience them. The company also provides outsourced load testing and Web performance monitoring services that complement its software products. MERQ - Mercury Interactive $43.87 PLAY (less conservative - bearish/credit spread): BUY CALL JAN-50.00 RQB-AJ OI=2586 ASK=$0.35 SELL CALL JAN-47.50 RQB-AR OI=5679 BID=$0.65 INITIAL NET-CREDIT TARGET=$0.40-$0.45 POTENTIAL PROFIT(max)=19% B/E=$47.90 __________________________________________________________________ STRA - Strayer Education $109.56 *** In a Trading Range? *** Strayer Education (NASDAQ:STRA) is a for-profit, post-secondary education services corporation. The company offers a variety of academic programs through Strayer University, both in traditional classroom courses and through Strayer University Online. Founded in 1892, Strayer University is an institution of higher learning offering undergraduate and graduate degree programs in business administration, accounting, information technology, education and public administration at campuses in the Eastern United States. Strayer University is accredited by the Middle States Commission on Higher Education, an accrediting agency recognized by the U.S. Secretary of Education. The company also offers classes via the Internet through Strayer University Online. STRA - Strayer Education $109.56 PLAY (conservative - bearish/credit spread): BUY CALL JAN-125.00 SDQ-AE OI=151 ASK=$0.55 SELL CALL JAN-120.00 SDQ-AD OI=50 BID=$1.00 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$120.50 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. _________________________________________________________________ BZH - Beazer Homes $144.85 *** A Reader's Play! *** Beazer Homes USA (NYSE:BZH) designs, builds and sells single family homes in the following states: Florida, Georgia, North Carolina, South Carolina, Tennessee, Arizona, Nevada, Texas, California, Colorado, Maryland, New Jersey/Pennsylvania and Virginia. Beezer designs most of its homes to appeal mainly to entry-level and first time "move-up" homebuyers. The firm's objective is to provide its customers with homes that have quality and value while seeking to maximize its return on invested capital. BZH - Beazer Homes $144.85 PLAY (very speculative - neutral/debit straddle): BUY CALL JAN-145.00 BZH-AI OI=425 ASK=$6.30 BUY PUT JAN-145.00 BZH-MI OI=193 ASK=$6.20 INITIAL NET-DEBIT TARGET=$12.00-$12.25 INITIAL TARGET PROFIT=$4.25-$6.50 ************************Advertisement************************* Quit paying fees for limit orders or minimum equity * No hidden fees for limit orders or balances * $1.50 /contract (10+ contracts) or $14.95 minimum. * Zero minimum deposit required to open an account * Free streaming quotes and Dow Jones news Go to http://www.optionsxpress.com/marketing.asp?source=oinvest34 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ***************************************** PREMIUM-SELLING PLAYS: NAKED PUTS & CALLS ***************************************** ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 12/17/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 23.21 0.45 5.52% 2.64% VTIV DEC 17.50 17.05 20.34 0.45 5.46% 2.64% IFLO DEC 15.00 14.55 18.52 0.45 6.89% 3.09% ADLR DEC 12.50 12.10 15.75 0.40 6.88% 3.31% UTHR DEC 25.00 24.05 44.74 0.95 9.03% 3.95% RIGL DEC 20.00 19.70 24.35 0.30 4.02% 1.52% NFLD DEC 15.00 14.45 20.18 0.55 8.24% 3.81% RMBS DEC 17.50 16.75 25.26 0.75 9.88% 4.48% AGIX DEC 20.00 19.60 24.30 0.40 4.83% 2.04% ATI DEC 20.00 19.35 22.09 0.65 7.37% 3.36% MRVL DEC 25.00 24.60 35.38 0.40 5.17% 1.63% ELN DEC 22.50 22.15 26.35 0.35 4.93% 1.58% TSRA DEC 25.00 24.35 37.24 0.65 7.97% 2.67% VTS DEC 20.00 19.65 20.78 0.35 4.84% 1.78% ERICY DEC 30.00 29.60 32.00 0.40 3.44% 1.35% RMBS DEC 17.50 16.95 25.26 0.55 10.12% 3.24% TSRA DEC 30.00 29.65 37.24 0.35 4.12% 1.18% NCRX DEC 25.00 24.25 29.88 0.75 8.18% 3.09% IFLO DEC 17.50 17.00 18.52 0.50 7.38% 2.94% NTGR DEC 15.00 14.60 17.75 0.40 6.54% 2.74% ENZ DEC 17.50 17.05 18.73 0.45 6.32% 2.64% CECO DEC 30.00 29.30 36.51 0.70 7.67% 2.39% CRA DEC 12.50 12.20 13.53 0.30 6.11% 2.46% DDS DEC 22.50 22.25 26.02 0.25 4.06% 1.12% SRNA DEC 20.00 19.60 21.44 0.40 5.87% 2.04% RAE DEC 7.50 7.25 7.90 0.25 10.80% 3.45% FXEN DEC 7.50 7.05 10.32 0.45 17.57% 6.38% NVDA DEC 17.50 17.10 23.06 0.40 6.91% 2.34% IDCC DEC 17.50 16.85 20.69 0.65 11.05% 3.86% MCIP DEC 17.50 17.05 20.14 0.45 7.70% 2.64% PLMO DEC 30.00 29.60 33.11 0.40 5.49% 1.35% TINY DEC 12.50 12.15 14.47 0.35 9.97% 2.88% IDCC DEC 17.50 17.20 20.69 0.30 6.57% 1.74% ADLR DEC 12.50 12.25 15.75 0.25 6.86% 2.04% NANO DEC 15.00 14.70 15.09 0.30 6.80% 2.04% ISRG DEC 30.00 29.50 36.11 0.50 6.08% 1.69% DHB DEC 17.50 17.20 18.07 0.30 6.59% 1.74% AMED DEC 30.00 29.35 32.20 0.65 7.53% 2.21% HNT DEC 25.00 24.60 28.75 0.40 5.37% 1.63% UTHR DEC 40.00 39.60 44.74 0.40 4.64% 1.01% ELAB DEC 22.50 22.30 27.11 0.20 4.07% 0.90% CTMI DEC 12.50 12.25 14.93 0.25 8.20% 2.04% DUSA DEC 12.50 12.25 13.73 0.25 8.26% 2.04% MCIP DEC 17.50 17.25 20.14 0.25 6.11% 1.45% RMBS DEC 20.00 19.65 25.26 0.35 7.55% 1.78% ZEUS DEC 20.00 19.70 25.18 0.30 6.48% 1.52% VISG JAN 7.50 7.10 8.05 0.40 7.51% 5.63% GIVN DEC 30.00 29.65 36.00 0.35 5.71% 1.18% RHAT JAN 12.50 12.05 15.54 0.45 6.06% 3.73% MSO DEC 20.00 19.60 27.60 0.40 10.85% 2.04% NKTR DEC 17.50 17.15 18.96 0.35 8.90% 2.04% NANO DEC 15.00 14.75 15.09 0.25 7.69% 1.69% ELAB DEC 25.00 24.65 27.11 0.35 6.45% 1.42% SHOP DEC 25.00 24.70 25.07 0.30 7.32% 1.21% NCRX JAN 25.00 24.40 29.88 0.60 4.78% 2.46% NTGR JAN 15.00 14.65 17.75 0.35 4.58% 2.39% RMBS JAN 17.50 17.10 25.26 0.40 4.87% 2.34% TLCV JAN 10.00 9.65 10.31 0.35 6.91% 3.63% WITS JAN 15.00 14.55 16.14 0.45 5.38% 3.09% IDCC JAN 17.50 16.95 20.69 0.55 6.62% 3.24% NVTL JAN 17.50 17.20 21.48 0.30 3.95% 1.74% MSO JAN 17.50 17.05 27.60 0.45 5.62% 2.64% MSO JAN 20.00 19.60 27.60 0.40 5.28% 2.04% ACF JAN 22.50 21.65 23.09 0.85 6.54% 3.93% USNA JAN 30.00 29.00 32.74 1.00 6.12% 3.45% DHB JAN 15.00 14.35 18.07 0.65 10.38% 4.53% MOGN JAN 25.00 24.05 27.91 0.95 7.47% 3.95% GTOP JAN 12.50 12.05 17.10 0.45 8.45% 3.73% CMVT JAN 22.50 22.05 24.36 0.45 3.93% 2.04% RMBS JAN 20.00 19.35 25.26 0.65 8.12% 3.36% IDCC JAN 17.50 17.05 20.69 0.45 6.77% 2.64% NFLD JAN 17.50 17.05 20.18 0.45 6.15% 2.64% ADLR JAN 12.50 11.85 15.75 0.65 13.38% 5.49% NCRX JAN 25.00 24.55 29.88 0.45 4.60% 1.83% RMBS JAN 20.00 19.45 25.26 0.55 7.18% 2.83% NKTR JAN 17.50 17.05 18.96 0.45 5.64% 2.66% ALXN JAN 20.00 19.65 24.90 0.35 4.51% 1.78% AMLN JAN 20.00 19.65 22.73 0.35 4.07% 1.78% Positions in Seachange International (NASDAQ:SEAC), which is currently profitable, and Pan American Silver (NASDAQ:PAAS), have previously been closed to limit potential losses. TLC Vision (NASDAQ:TLCV), Witness Sytems (NASDAQ:WITS) and Nektar Therapeutics (NASDAQ:NKTR) are on the "watch" list. NAKED CALLS Stock Strike Strike Break Current Gain Max Simple Symbol Month Price Even Price (Loss) Yield Yield FOSL DEC 30.00 30.50 24.97 0.50 4.16% 1.64% SLAB DEC 35.00 35.55 34.28 0.55 4.84% 1.55% DIGE DEC 25.00 25.30 26.31 (1.01) 0.00% 0.00% MDCO DEC 30.00 30.35 28.78 0.35 5.01% 1.15% BOBJ DEC 25.00 25.40 24.74 0.40 5.96% 1.57% ENZN DEC 20.00 20.55 13.65 0.55 14.84% 2.68% TACT DEC 25.00 25.40 23.09 0.40 8.50% 1.57% AMLN DEC 25.00 25.25 22.73 0.25 5.35% 0.99% ATMI DEC 25.00 25.40 23.85 0.40 5.74% 1.57% CELG DEC 30.00 30.45 27.01 0.45 6.31% 1.48% JBLU DEC 25.00 25.30 23.14 0.30 4.99% 1.19% AGIX DEC 30.00 30.35 24.30 0.35 8.24% 1.15% JUPM DEC 20.00 20.20 19.77 0.20 6.98% 0.99% CYBX DEC 22.50 22.85 20.82 0.35 11.25% 1.53% PLAB DEC 20.00 20.30 16.79 0.30 8.40% 1.48% ARO DEC 30.00 30.55 29.75 0.55 8.89% 1.80% KYPH DEC 25.00 25.50 24.62 0.50 9.20% 1.96% MAY DEC 30.00 30.30 27.79 0.30 5.24% 0.99% TACT DEC 25.00 25.30 23.09 0.30 10.43% 1.19% OSIP DEC 55.00 55.65 68.38 (12.73) 0.00% 0.00% XLNX JAN 32.50 33.00 29.33 0.50 3.96% 1.52% SCSS JAN 17.50 18.05 16.85 0.55 7.68% 3.05% PLAY JAN 35.00 36.05 25.16 1.05 12.22% 2.91% AFCO JAN 22.50 22.80 21.21 0.30 3.92% 1.32% SYMC JAN 32.50 33.00 25.37 0.50 6.06% 1.52% PDII JAN 30.00 30.30 22.80 0.30 4.64% 0.99% Positions in American Pharmaceutical Partners (NASDAQ:APPX), Sonic Solutions (NASDAQ:SNIC), Monster Worldwide (NASDAQ:MNST), and Kyphon (NASDAQ:KYPH), which would have expired profitably, have previously been closed to limit potential losses. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 NFLD 20.18 JAN 17.50 DHQ-MW 0.60 396 16.90 34 3.2% 9.0% DUSA 13.73 JAN 12.50 FDU-MV 0.45 270 12.05 34 3.3% 8.5% PMTI 22.38 JAN 20.00 HKQ-MD 0.60 15 19.40 34 2.8% 7.5% NCRX 29.88 JAN 25.00 QNY-ME 0.50 321 24.50 34 1.8% 5.9% BOBJ 24.74 JAN 22.50 BBQ-MX 0.50 794 22.00 34 2.0% 5.5% ARTC 32.39 JAN 30.00 ARU-MF 0.60 20 29.40 34 1.8% 4.8% SONO 33.98 JAN 30.00 UZS-MF 0.50 20 29.50 34 1.5% 4.4% CRK 21.95 JAN 20.00 CRK-MD 0.30 0 19.70 34 1.4% 3.8% 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. _________________________________________________________________ NFLD - Northfield Labs $20.18 *** Rally Mode! *** Northfield Laboratories (NASDAQ:NFLD) is engaged in the production of a safe and effective alternative to transfused blood for use in the treatment of acute blood loss. Its PolyHeme blood substitute product is a solution of chemically modified hemoglobin derived from human blood. PolyHeme simultaneously restores lost blood volume and hemoglobin levels and is designed for rapid, massive infusion. PolyHeme requires no cross-matching and is therefore immediately available and compatible with all blood types. It has an extended shelf life compared to blood. Northfield Labs purchases indated and outdated blood from The American Red Cross and Blood Centers of America for use as the starting material for PolyHeme. It uses a proprietary process of separation, filtration and chemical modification to produce PolyHeme. NFLD - Northfield Labs $20.18 JAN 17.50 DHQ-MW LB=0.60 OI=396 CB=16.90 DE=34 TY=3.2% MY=9.0% __________________________________________________________________ DUSA - DUSA Pharmaceuticals $13.73 *** Acquisition Target? *** DUSA Pharmaceuticals (NASDAQ:DUSA) is a pharmaceutical company developing drugs in combination with light devices to treat or detect conditions in processes known as photodynamic therapy or photodetection. The firm is engaged primarily in the research, development and marketing of its first drug, Levulan brand of aminolevulinic acid HCl (ALA), for use in a range of medical conditions. When the company uses Levulan and follows it with exposure to light to treat a medical condition, it is known as Levulan photodynamic therapy (Levulan PDT). DUSA - DUSA Pharmaceuticals $13.73 JAN 12.50 FDU-MV LB=0.45 OI=270 CB=12.05 DE=34 TY=3.3% MY=8.5% __________________________________________________________________ PMTI - Palomar Medical $22.38 *** Entry Point? *** Palomar Medical Technologies (NASDAQ:PMTI) is a researcher and developer of light-based systems for hair removal and other cosmetic procedures. The company researches, develops, makes, markets, sells and services light-based products that perform procedures addressing medical and cosmetic concerns. Palomar offers a range of products based on its technologies including hair removal; non-invasive treatment of facial and leg veins and other benign vascular lesions, such as rosacea, spider veins, port wine stains and hemangiomas; removal of benign pigmented lesions, such as age and sun spots; tattoo removal; treatment for acne; pseudofolliculitis barbae, and other skin treatments. PMTI - Palomar Medical $22.38 JAN 20.00 HKQ-MD LB=0.60 OI=15 CB=19.40 DE=34 TY=2.8% MY=7.5% __________________________________________________________________ NCRX - NeighborCare $29.88 *** Next Leg Up? *** NeighborCare (NASDAQ:NCRX), formerly Genesis Health Ventures, is a provider of institutional pharmacy services in the United States. The company provides pharmacy services for beds in long-term care facilities in the U.S. and the District of Columbia. Its pharmacy operations consist of 62 institutional pharmacies, 32 community-based professional retail pharmacies and 20 on-site pharmacies, which are located in customers' facilities and serve only customers of that facility. In addition, NeighborCare operates 16 home infusion, respiratory and medical equipment distribution centers. NCRX - NeighborCare $29.88 JAN 25.00 QNY-ME LB=0.50 OI=321 CB=24.50 DE=34 TY=1.8% MY=5.9% __________________________________________________________________ BOBJ - Business Objects $24.74 *** Bullish Sector! *** Business Objects S.A. (NASDAQ:BOBJ) is a worldwide provider of business intelligence solutions. The company develops, markets and distributes software that enables organizations to track, understand and manage enterprise performance. The company's products include data integration, query, reporting, online analytical processing, information broadcasting, company alerts, analytical application frameworks and pre-packaged analytic applications. Its products also include administration tools that enable information technology professionals to set up and deploy its products across an enterprise. BOBJ - Business Objects $24.74 JAN 22.50 BBQ-MX LB=0.50 OI=794 CB=22.00 DE=34 TY=2.0% MY=5.5% __________________________________________________________________ ARTC - ArthroCare $32.39 *** Another 2004 High! *** ArthroCare (NASDAQ:ARTC) is a medical device firm that develops, manufactures and sells products based on its patented Coblation technology, which offers a variety of options for physicians performing soft-tissue surgery. The company's products allow surgeons to operate with a high-level of precision and accuracy, limiting damage to surrounding tissue and thereby potentially reducing pain and speeding recovery for the patient. ArthroCare applies its Coblation technology to soft-tissue surgical markets: arthroscopy, spinal surgery, neurosurgery, cosmetic surgery, ear, nose and throat surgery, gynecology, urology, general surgery and various cardiac applications. ARTC - ArthroCare $32.39 JAN 30.00 ARU-MF LB=0.60 OI=20 CB=29.40 DE=34 TY=1.8% MY=4.8% __________________________________________________________________ SONO - SonoSite $33.98 *** New 2004 High! *** SonoSite (NASDAQ:SONO) is global developer of high-performance, hand-carried ultrasound imaging systems for use in a variety of clinical applications and settings. The company's products include the SonoSite TITAN system, for general imaging and cardiology applications, the SonoSite 180PLUS system, for general ultrasound imaging, and the SonoHeart ELITE, configured for cardiovascular applications. The iLook 25 imaging tool is designed to provide visual guidance for physicians and nurses while performing vascular access procedures and the iLook 15 imaging tool is designed to provide visual imaging of the chest and abdomen for physicians and nurses while performing other procedures and examinations. SONO - SonoSite $33.98 JAN 30.00 UZS-MF LB=0.50 OI=20 CB=29.50 DE=34 TY=1.5% MY=4.4% __________________________________________________________________ CRK - Comstock Resources $21.95 *** Oil Sector Hedge *** Comstock Resources (NYSE:CRK) is an independent energy company engaged in the acquisition and development of oil and natural gas properties. Comstock's oil and natural gas operations are concentrated in the Gulf of Mexico, east Texas/north Louisiana, southeast Texas and south Texas regions. In addition, Comstock has properties in the Illinois Basin region in Kentucky and the Mid-Continent regions located in the Texas panhandle, Oklahoma and Kansas. CRK - Comstock Resources $21.95 JAN 20.00 CRK-MD LB=0.30 OI=0 CB=19.70 DE=34 TY=1.4% MY=3.8% TS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BEARISH PLAYS - NAKED CALLS Based on analysis of option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for bearish "premium-selling" strategies. Each issue has robust option premiums, a well-defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered calls entails considerable financial risk, far more than the initial margin or collateral required to open the position. The maximum financial obligation for the sale of a naked option is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of options must have the cash or collateral equivalent of the sold strike price in reserve at all times. The simple fact is: stocks often experience large price swings, exponentially increasing the margin maintenance and very possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock price moves in a volatile manner. Many professional traders suggest closing the position when the underlying share value moves beyond the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SINA - Sina Corporation $31.75 *** Pure Premium-Selling! *** Sina (NASDAQ:SINA) is an online media company and value-added information services provider in China and for its communities worldwide. The company provides an array of services to its users such as region-focused online portals, mobile value-added services, search and directory, interest-based and community building channels, free and premium e-mail, online games, virtual Internet service provider, classified listings, fee based services, e-commerce and enterprise e-solutions. Sina provides its services through SINA.com, SINA Mobile, SINA Online, SINA.net and SINA E-Commerce. SINA - Sina Corporation $31.75 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JAN 40 NOQ-AH 29 0.40 40.40 5.3% 1.0% _________________________________________________________________ TELK - Telik $19.35 *** Drug Trial Woes? *** Telik (NASDAQ:TELK) is a biopharmaceutical firm that discovers, develops and commercializes small molecule drugs for serious diseases. The firm discovered all of its product candidates using its proprietary technology, Target-Related Affinity Profiling. The technology exploits a fundamental property of all drugs, which is their selective interactions with proteins. By developing a profile of how small molecule chemicals interact with a reference panel of proteins, the company may identify compounds active against disease-related protein targets much faster than by alternative technologies. Telik concentrates its efforts on three therapeutic areas: cancer, diabetes and inflammatory diseases. TELK - Telik $19.35 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JAN 22.5 ZUL-AX 446 0.30 22.80 5.5% 1.3% _________________________________________________________________ PLMO - palmOne $33.11 *** Warning = Sell-Off! *** palmOne (NASDAQ:PLMO) develops, builds and sells Palm-branded, hand-held devices, accessories and the Palm operating system (Palm OS). The company was historically organized into two operating segments: the Solutions Group and PalmSource. The Solutions Group develops and markets hand-held devices and accessories to provide the user with a simple, elegant and useful productivity tool. PalmSource developed and licensed the Palm OS and related software, which is referred to as the Palm platform. The Palm platform is the foundation for Palm devices, as well as for devices manufactured by third-party licensees. PLMO - palmOne $33.11 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JAN 40 UPY-AH 3633 0.60 40.60 7.4% 1.5% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ************************Advertisement************************* Quit paying fees for limit orders or minimum equity * No hidden fees for limit orders or balances * $1.50 /contract (10+ contracts) or $14.95 minimum. * Zero minimum deposit required to open an account * Free streaming quotes and Dow Jones news Go to http://www.optionsxpress.com/marketing.asp?source=oinvest34 Note: Options involve risk. 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