The Option Investor Newsletter Wednesday 12-22-2004 Copyright 2004, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. In Section One: Wrap: Higher Highs Futures Wrap: See Note Index Trader Wrap: What's under the tree? Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 12-22-2004 High Low Volume Adv/Dcl DJIA 10815.89 + 56.46 10822.68 10739.19 1.75 bln 1694/1129 NASDAQ 2157.03 + 6.12 2163.48 2145.18 1.80 bln 1676/1376 S&P 100 575.34 + 1.98 576.04 571.85 Totals 3370/2505 S&P 500 1209.57 + 4.12 1211.42 1203.81 SOX 424.05 - 0.35 427.13 422.39 RUS 2000 648.46 + 2.26 649.75 645.68 DJ TRANS 3790.62 - 1.47 3803.75 3786.24 VIX 11.45 - 0.10 11.71 11.37 VXO (VIX-O)11.81 + 0.29 12.18 11.58 VXN 17.15 + 0.21 17.38 16.44 Total Volume 3,556M Total UpVol 2,191M Total DnVol 1,306M Total Adv 3370 Total Dcl 2505 52wk Highs 390 52wk Lows 19 TRIN 0.82 PUT/CALL 0.91 ****************************************************************** Higher Highs Jonathan Levinson The Dow and SPX hit new highs for the year as the Nasdaq trailed behind. An unexpected rise in oil inventories saw crude oil drop sharply, a move that was credited by some reporters for the higher high in the Dow and SPX. Breadth was positive, with advancing volume nearly doubling declining volume on the NYSE and the Nasdaq. Volatility remains very low, with the VXO going out at 11.81 and the QQV dropping another 1.46% to close at 15.48 Daily Dow Chart The Dow blasted higher in a move that kicked off at 10AM, reaching a 42 month high at 10822.68 before 11AM and held for a minor correction to 10786 before resuming its upward march to close the day at 10815.89. Support below is at 10780, 10740, 10640 and 10575. While the daily oscillators are vulnerable to a bearish divergent downphase, that will only occur if the Dow reverses hard from here. The more likely scenario would see a minor pullback to one of the supports I've drawn as the bull flag breakout in the Dow continues to play out. A move below 10430- 10440 support would invalidate that bullish scenario. Daily S&P 500 Chart The SPX reached a new year high at 1211.42 on the 10AM runup, and the pullback bounced from a double intraday bottom at 1207 to stall out at 1210, closing the day at 1209.57. Support from 1205-07 is followed by 1189-92 and 1172. As with the Dow, the daily cycle oscillators suggest caution, but only the bears can drill the price below the 1172 level from here. Daily Nasdaq Chart The Nasdaq missed the party, touching a high of 2163.48 on the morning pop, below its Dec. 15th high of 2171.27. The afternoon bounce was weaker as well, failing below 2158 to close at 2157. The bearish divergence is steeper for the Nasdaq as well, but the question remains as to whether it's a bearish divergence or a corrective bullish consolidation. Provided that 2070 doesn't get violated on a closing basis, it should prove to be the latter. Weekly TNX Chart The Mortgage Bankers Association reported that the Mortgage Index was flat at 689.3 for the week ended December 17, following the previous week's 1% decline. The Refinancing Index rose 5.7% to 1958.2 following the previous week's 2% decline, while the Purchase Index declined 3.6% to 471.1 following the prior week's 0.4% decline. The sideways drift of the ten year note yield (TNX) in recent weeks has the weekly cycle upphase faltering. Provided that the 4.0%-4.02% rising wedge support line doesn't fail, the upphase should begin to get traction on a break above 4.26% resistance, above which 4.4% is the next significant confluence. For the day, TNX rose 3.3 bps to close at 4.201%. Interested readers can follow the daily action of the TNX in my nightly Futures Wraps. Weekly chart of Crude oil The Energy Department reported today that crude oil inventories rose by 2.1M barrels, catching analysts off guard on their expectation of an 800K barrel decline. Gasoline inventories rose 1.8M barrels against expectations for inventories to remain unchanged. Distillate supplies rose 600K barrels vs. expectations for a 1.13M barrel decline. The American Petroleum Institute confirmed the increases in supply, reporting increases of 2.9M, 4.2M and 315K barrels for crude oil, gasoline and distillate supplies respectively. Crude oil futures got slammed on the news, dropping from an intraday high of 45.95 to a low of 43.65 before bouncing to a range in the low 44's. On the one-year daily chart, the move kicked off what might prove to be the right shoulder of a head and shoulders top with a horizontal neckline at 40 or a hunchback neckline at 41. Using the 40 neckline, the implied target would be as low as 25. While I would be personally surprised to see levels even approaching 25, that's the implied target of the formation. A move above 50 would invalidate the pattern, but 46 is a confluence that has acted as support and resistance this year, and the failure 5 cents below it fit well with a relatively symmetrical h&s pattern. For the day, crude oil closed lower by 3.17% at 44.30. The big news of the day landed overnight as FNM announced the resignation of CEO Franklin Raines and CFO J.T. Howard, as well as a number of smaller management changes, following last week's announcement that the SEC would require to amend prior accounting "errors". Those errors allegedly resulted in the overstatement of $9B worth of past profit. FNM owns 25% of current US mortgages and is the countries largest GSE. It's currently defendant to a number of class action suits and under criminal investigation by the Justice Department, investigation by the SEC and an ongoing probe by its regulator, the Office of Federal Housing Enterprise Oversight (OFHEO). The company also announced the dismissal of FPMG as its auditors. Raines was replaced by interim CEO Daniel Mudd and Howard was replaced by Robert Levin. The Washington Post reported that the OFHEO alleges that FNM "systematically manipulated accounting estimates, ignored accounting requirements it had lobbied unsuccessfully against and operated with weak internal controls that helped obscure the other problems." The OFHEO has been aggressive in its call for Raines' removal, blaming him for promoting a corporate culture that prioritized "stable" earnings rather than accurate disclosure. The OFHEO stated last night that FNM is "significantly undercapitalized". To get an idea of the potential enormity of that statement, consider that FNM has outstanding debts to bondholders totally 957B and guarantees the principal and interest on 1.9T of mortgage-backed securities. These are significant percentages of the total amount of US debt in circulation, a particularly worrisome situation as the media began to utter names like "Enron" and "Worldcom" in the same breath as "Fannie Mae". Others however, note that FNM aptly qualifies for the phrase "too big to fail". To make up for the 9B shortfall, FNM would likely have to sell part of its portfolio, issue new stock or reduce its dividend. Traders following this story will recall that FNM had previously been ordered by the OFHEO to increase its capital reserves by 5B no later than mid-2005. What's important for traders to note is that while the situation continues to unfold, it is not a new one. Bears have been discussing FNM and FRE for years, and for years the sky has not fallen. Given the size and breadth of FNM's commitments, the issue is, if anything, as political as it is financial. Regardless of the financial outcome, the departure of Raines, a self-made man, a Rhodes scholar and former director of the Office of Management and Budget, raises all the old issues of corporate governance and ethics that continue to plague our markets. FNM gapped higher at the open and traded a high of 73.81, bounced from a low of 71.61 and settled into a range around 72 to close +2.32% at 71.98. On a lighter note, at 8:30, the Commerce Department announced the final Q3 GDP results, which came in at 4% vs. the 3.9% previously reported. The 4% expansion of the economy for Q3 exceeded estimates for an unrevised 3.9% and Q2's 3.3% growth rate. The core personal consumption expenditure index (PCE), which nets out food and energy costs and is the Fed's preferred measure of inflation, rose at a .9% annual rate vs. the .7% expected, the smallest rise since last year's .9% increase, which was a 32 year low. Corporate profits were low as well, however, with domestic profits decreasing by 59.3B in Q3 compared with an increase of 28.3B in Q2. That 59.3B decline was comprised of a 68.7B drop in profits of domestic financial corporations (which dropped 7.9B in Q2) and a 9.4B rise in profits of non-financial corporations (which had increased by 36.2B in Q2). The personal savings rate declined to a low of .5% in Q3, down from 1.3% in Q2 and 1.0% in Q1. In other news, Marketwatch reported that SNE has won injunctions against 2 Hong Kong companies allegedly engaged in producing counterfeit PlayStation products. However, SNE declined to comment on a report in the Financial Times to the effect that investigations have revealed significant networks such counterfeiters- one story covered a container that left one such sub-contracting factory, entered a prison in Shenzen, China loaded with parts and remained for several days, long enough for the inmates to assemble them. The issue of intellectual property between the West and East remains critical and unresolved. SNE lost .66% to close at 37.80. MSFT lost an appeal in the European Union to delay an order requiring it to immediately release a stripped-down version of Windows and amend its business practices. The EU's Court of First Instance had upheld the European Commission's sanctions imposed on MSFT in March, and today's failed appeal leaves the original decision intact, along with the finding that MSFT had abused its monopoly. MSFT's General Counsel Brad Smith said that the company would comply with the decision. Consumer groups applauded the decision, and the fact that MSFT will now be required to share its protocols and offer a version of Windows that contains no multimedia apps, deemed to prejudice competitors such as RealNetworks. The fine upheld totals 497M euro. For the day. MSFT closed lower by .37% at 26.97. For tomorrow, there's a full slate of economic reports as the markets prepare for the long weekend. At 8:30AM, we get November Durable Orders, Personal Income and Personal Spending, as well as initial claims for the week ended 12/18. At 9:45 it's Michigan Sentiment for December and at 10AM, November New Home Sales. Volume should continue to thin out ahead of the weekend, and with the headlines reporting the bullish new highs, we can expect retail traders to adopt that as the theme. After today's dismal intraday downphases following Tuesday's strong rise, the environment should remain decidedly unfriendly for bears even in the shortest timeframes, at least above today's lows. As I watch the hail outside my window, I'd like to take the opportunity to wish everyone a warm and happy, healthy and prosperous holiday season. *************** FUTURES MARKETS *************** Futures wrap is not emailed due to the excessive number of charts. It may be read on the website at this address. http://www.OptionInvestor.com/indexes/futureswrap.asp ************************Advertisement************************* Insiders are Buying these 6 Rocket Stocks. In the last few weeks, we have pinpointed insider buying on six stocks that have the potential to deliver stratospheric gains. Click here for our SPECIAL REPORT on these 6 stocks insiders are buying and why you should too. http://www.insidermoves.com/default.asp?aid=618 ************************************************************** ***************** INDEX TRADER WRAP ***************** What's under the tree? A sharp retreat in oil prices, and a plethora of buy program premiums had the major indices posting gains, but once again traders wills sense some type of pressure building, and wondering just what is under the Christmas tree as several economic reports get unwrapped in tomorrow's session. I went back through my notes, or should I say list, and checked it twice, and while I've got a bullish bias headed into the three-day weekend and remainder of the year, I'd sure want to see some green on my screen from the S&P Depository Receipts (AMEX:SPY) by 10:00 AM EST tomorrow morning. Four more "major" economic reports will be released before tomorrow's opening bell, so I'm including some of today's e-mini S&P futures (es05h) intra-day observations with tonight's wrap, and then revisiting the November 18 and 19 dates, where not unlike today, we saw a lot of buy program premiums generated on 11/18 with little intra-day price movement, followed by a rather bearish option expiration trade that following day, which was a November option expiration. With today's decline in oil prices on unexpected inventory builds, and a lot of buy program premiums being generated with not a lot of bullish price action, one has to wonder just what Santa is about to deliver. A bunch of goodies for a bull? Or a lump of coal? Market Snapshot / Internals There was one buy program premium that did have some meaningful impact on today's trade, and that came right at 10:30-10:35 AM EST as today's EIA weekly statistics were released. On the above market snapshot, I went through my $PREM chart on 5-minute intervals and counted the number of times a buy program premium would have been found from 09:00-10:00, then 10:00-11:00 and so on. I've posted the numbers in GREEN just below the VIX.X. One thought to today's active program premium alerts is that there was some end-of-year rebalancing by mutual funds as most managers get ready for an extended vacation, which may well run through the end of the year. In last night's Index Trader wrap, I touched on the somewhat difficult year the Dow Industrials had, relative to the other major indices, and I thought the INDU traded tough or seemed a little more resilient, perhaps a sign that "dividend" stocks were a finding more buying that some of the perceived growth, or smaller dividend yielding tech stocks. Let's take a quick look at a comparison chart of the e-mini S&P futures (es05h) and the S&P Depository Receipts (AMEX:SPY) on an intra-day basis, 5-minute intervals, with the QCharts WEEKLY Pivot levels turned on. As I wrote tonight's Wrap, I then set up a test based on past observation. e-mini an SPY Charts - 5-minute intervals Equity bulls got what they were hoping for as February Crude Oil futures (cl05g) $44.24 -3.32% fell $1.52. My observation is that this news really seemed to bring the buyers into the equity markets, and once the e-mini (upper) cleared its WEEKLY R1, it never came back below. In the lower SPY chart, I once again tabulate the number of buy program premiums, where we can see that after that 10:30-10:35 action, these buy program premiums, which are really just arbitrage, or "out of whack" differences between futures and cash, that they had little impact the remainder of the session. One area of interest to me, was that volume "spike" in the e-mini (selling), where 5-minute later, another volume spike, but this time in the SPY, saw more of a bullish bias during that 5- minutes. Then a "buy program premium" was generated during the 02:00-02:05 interval. What's going on here? I've got to think there was obviously some type of "hedge trade" or "balancing" taking place. Sell some leveraged futures, but come back and buy the basket of stocks. As supply gets eaten up (even on a short-term basis) then some follow through cash buying generates the premium. What I appreciate more than anything, is reviewing other traders trades. Look at tonight's futures monitor archive, count the bullish and bearish trades of those traders that are more active in the futures markets. Did the bull side (long) win or did the bear side (short) win? A lump of coal, or a box of bullish goodies? Tomorrow morning, we'll get a pulse, but my thoughts are a box of bullish goodies as long as futures stay above WEEKLY S1, and should the S&P Depository Receipts bid green at any point early in the session, we could see a sprint to WEEKLY R2 by the close. Here's what a negative trade would most likely look like. Many of the observations, or comments I make in another e-min S&P (December) and SPY comparison, was taken from the intra-day commentary. I'm showing 10-minute intervals with these two comparisons, simply to gather some further proceeding and following session trade, which would surround the Thursday November 18 trade, where we also noted a lot of buy program premiums being generated, but very little PRICE action. e-mini an SPY Charts - 10-minute intervals In the lower SPY chart, I make note that on Wednesday, stocks traded strong as the SOX.X was breaking above its trending lower 200-day SMA. Hmmmm.... the SOX.X was dead flat-to-lower today (12/22/04). Late that Wednesday, it seemed to me that stocks erased gains as OIL found a late bid. Then on Thursday, I noted quite a few buy/sell program premiums and sensed "pressure building" in that evening's Index Trader Wrap. The following session was November options expiration, oil jumped 3.85% to $48.00, and the S&P Depository Receipts never did turn green after the open. A positive or a negative? On November 18, the SOX.X closed at 445.64. Tonight they closed at 424.05, where this group continues to be a negative drag on the QQQQ/NDX. If the QQQQ is going to make a run at its recent highs, the for the QQQQ to rock, it'll need some SOX.X. Pivot Matrix - In PINK I note today's close for the SOX.X at its MONTHLY Pivot. I also note today's close for the BIX.X above its WEEKLY R2. The proverbial "rubber band is stretching at both end... something's got to snap." If the SOX.X can pull itself away higher from the MONTHLY Pivot, then I'm thinking further snap higher. In today's intra-day commentary, I noted that Citigroup (NYSE:C) $48.31 +2.37% had broken out of a huge base, and above 8-month resistance. This action can sway a lot of market theorists to put more money to work in equities, as many investors (including myself) will put great weight as to what this stock's price action says about global economies and business. The KBW Bank Index (BKX.X) 104.23 +0.58% closed at an all-time high, and it two begins to break above 8-month resistance. Some "strength from the bottom" in a big money center bank? You better believe it. In this morning's Market Monitor, just minutes after the EIA weekly inventory figures were released, I profiled a bullish swing trade in the QQQQ at $39.74, stop $39.50, target $40.25. I make some notes in the pivot matrix. If the markets bid early tomorrow morning, I'm thinking I won't have to "worry" about QQQQ $39.50, but on some early morning weakness, I may well adjust my stop just fractionally lower to perhaps $39.45. Jonathan Levinson noted his thoughts regarding some resistance at $39.71 on his intra-day charts. I also made some notes in the 03:15 PM EST update and U.S. Market Watch as some type of intra- day gravitation around $39.72. U.S. Market Watch - 12/22/04 Close In today's Market Monitor at 02:21:28 PM EST, I posted a little Yield curve observation, examining today's bond trade, and impact that it has had on the yield curve for the past 5-days (steepening) and 20-days (still flat). I must say that I'm disappointed in bond traders. They used to be AHEAD of a move for equities, but it would have to be my analysis, that bond traders wait for every piece of "news" (oil, Fed talk, etc.) before they react. If anything, today's steepening curve only confirms what stocks have been saying. Jeff Bailey ************************Advertisement************************* SEE WARREN BUFFETT'S LATEST DISCLOSED STOCK PORTFOLIO Now you can follow the investment master's actual moves. 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The Option Investor Newsletter Wednesday 12-22-2004 Copyright 2004, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. In Section Two: Watch List: Auto parts to Autos and more! Stop Loss Updates: BDK, RAI, UTX Dropped Calls: None Dropped Puts: None New Calls: ACL, BBOX, WFMI New Puts: None Spreads & Straddles: An Early Christmas Present! Premium Selling Plays: Naked Puts & Calls ********** Watch List ********** Auto parts to Autos 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. ___________________________________________________________________ AutoZone - AZO - close: 91.09 change: +1.49 WHAT TO WATCH: Today's 1.66 percent rally through heavy resistance in the 90-91 level looks like a new bullish entry point. AZO's next level of overhead resistance looks like the $97-98 region and technical oscillators are positive for the stock. The P&F chart shows a new ascending triple-top breakout buy signal with a $120 target. Chart= --- Fairfax Financial - FFH - close: 164.44 change: -2.23 WHAT TO WATCH: Aggressive traders may want to look over FFH as a potential bearish play. The stock has been in retreat for the last couple of weeks and shares just broke round-number support at the $165 level. Volume today was exceptionally heavy. This would be a very aggressive play. Not only is FFH prone to volatility but its P&F chart is still bullish with a $220 target. Chart= --- General Motors - GM - close: 40.14 change: +0.60 WHAT TO WATCH: Both bulls and bears may want to watch GM. The stock has been churning sideways the last few weeks. Shares have broken through its simple 50-dma and are testing resistance in the $40-41 region. More importantly GM is testing resistance at the top of its descending channel. A breakout here could be pretty bullish. Bears can look for a failed rally and a drop under the $38 level. Chart= --- ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- QCOM $44.44 +0.46 - QCOM is edging closer to a breakout over resistance at $45.00. SBUX $61.14 +2.18 - Just as we suspected - SBUX recent consolidation has blossomed into another bullish breakout this time over the $60 level. CMI $83.74 +0.62 - CMI continues to be a relative strength winner. TTC $80.55 +0.90 - TTC continues to climb higher little by little and shares have now broken through the $80 level. ************************Advertisement************************* Trade Smarter Using the latest Insider Trades Is the CEO selling off? Has a key insider loaded up on shares before a big price jump? Find out now. Get your free download of Real Time insider trades: http://www.realtimeinsider.com/default.asp?aid=637 ************************************************************** ***************** STOP-LOSS UPDATES ***************** BDK - call play - BDK gapped higher this morning at $86.95 and this hit $87.50 before failing and dropping back toward the bottom of its current four-day trading range. We have been triggered in this play at $87.01 but we're disappointed that BDK could not hold its gains. We would not suggest new positions until BDK traded back above the $87 level. RAI - call play - Tobacco stocks continued to march higher despite losing an appeal over airline smoke-related health issues. RAI broke through the $80.00 level and hit our trigger to go long at $80.11. UTX - call play - UTX is looking strong up another 1.11 percent and closing above the $105 level for a new all-time high. Short-term traders may want to consider doing some profit taking. ************* DROPPED CALLS ************* None ************************Advertisement************************* Get your FREE weekly charts of the NASDAQ! Hot Stix’ stock market report reveals simple, powerful strategies for profiting from the QQQ - whether down or up! http://www.hotstix.com/public/weekly.asp?aid=755 ************************************************************** ************ DROPPED PUTS ************ None ************************Advertisement************************* Insiders are Buying these 6 Rocket Stocks. In the last few weeks, we have pinpointed insider buying on six stocks that have the potential to deliver stratospheric gains. Click here for our SPECIAL REPORT on these 6 stocks insiders are buying and why you should too. http://www.insidermoves.com/default.asp?aid=618 ************************************************************** ********* NEW CALLS ********* Alcon Inc - ACL - close: 81.74 chg: +1.84 stop: 77.85 Company Description: Alcon, Inc. is the world's leading eye care company. Alcon, which has been dedicated to the ophthalmic industry for over 50 years, develops, manufactures and markets pharmaceuticals, surgical equipment and devices, contact lens solutions and other vision care products that treat diseases, disorders and other conditions of the eye. Alcon has been conducting retinal research for more than 15 years and is the world's leading provider of surgical equipment used by vitreoretinal specialists who treat patients with AMD and other retinal diseases. (source: company press release) Why We Like It: The DRG drug index has been rather volatile lately with news hitting drug giant PFE to blame for the recent declines but overall the trend for the sector has been bullish the last four to five weeks. We like ACL as both a relative strength play and a technical breakout play. Shares held up very well during the recent declines in the sector a few days ago and now ACL is breaking out over early October resistance. CSFB named ACL as its favorite play in the specialty pharmaceutical stocks. We also like the bullish P&F chart with its quadruple-top breakout buy signal and $98.00 target. Our plan is to stay long over $80.00 an target a quick run toward the $86-87 region. We are going to be somewhat cautious going forward. ACL looks strong but there are stocks in the drug sector that could be hit with tax loss selling (like MRK and PFE) next week that could be a drag on the index and thus ACL would have to swim upstream without the benefit of a positive sector index. Suggested Options: We are going to suggest the February calls. BUY CALL FEB 80 ACL-BP OI= 594 current ask $4.70 BUY CALL FEB 85 ACL-BQ OI=2001 current ask $2.20 Annotated chart: Picked on December 22 at $ 81.74 Change since picked: + 0.00 Earnings Date 02/09/05 (unconfirmed) Average Daily Volume = 773 thousand Chart = --- Black Box - BBOX - close: 46.15 change: +1.70 stop: 43.40 Company Description: Black Box is the world's largest technical services company dedicated to designing, building and maintaining today's complicated network infrastructure systems. Black Box services 150,000 clients in 141 countries with 117 offices throughout the world. (source: company press release) Why We Like It: It has been a while since we have added BBOX to the play list. We did note the October breakout over resistance at $40.00 and its climb through technical resistance at the exponential 200-dma and then later at the simple 200-dma but shares failed near resistance at $45 in early December. Fortunately for the bulls BBOX didn't fall far. Lending the stock some strength may have been the recent broker comments. At least two analyst firms have upgraded BBOX in the last week. The latest firm put a $52 target on the stock. We would agree. The bullish P&F chart may point to a $64 target but we see resistance in the $50-51 region. That will be our target. Now that shares have broken through resistance at $45.00 and on very strong volume this looks like an entry point. We would like to put our stop under support at $42.00 but that doesn't provide a very economical risk-reward ratio. We opted to put our stop under its simple 200-dma. If shares surprise us with a dip we would buy a bounce near $45. Keep an eye on the NWX networking index and larger rival CSCO as a reference. Suggested Options: We are not planning on holding BBOX past its January earnings date. Aggressive players can trade the January calls. We're going to suggest the Februarys. BUY CALL FEB 45 QBX-BI OI=230 current ask $3.40 BUY CALL FEB 50 QBX-BJ OI= 0 current ask $1.25 Annotated chart: Picked on December 22 at $ 46.15 Change since picked: + 0.00 Earnings Date 01/18/05 (unconfirmed) Average Daily Volume = 128 thousand Chart = --- Whole Foods - WFMI - close: 96.62 chg: +2.00 stop: 91.49 Company Description: Founded in 1980 in Austin, Texas, Whole Foods Market is the world's leading natural and organic foods supermarket and America's first national certified organic grocer. In fiscal year 2004, the company had sales of $3.9 billion and currently has 166 stores in the United States, Canada, and the United Kingdom. The Whole Foods Market motto, "Whole Foods, Whole People, Whole Planet"(TM) captures the company's mission to find success in customer satisfaction and wellness, employee excellence and happiness, enhanced shareholder value, community support and environmental improvement. Whole Foods Market, Harry's Farmers Market®, and Fresh & Wild® are trademarks owned by Whole Foods Market IP, LP. Whole Foods Market employs more than 30,000 team members and has been ranked for seven consecutive years as one of the "100 Best Companies to Work for" in America by Fortune magazine. (source: company press release) Why We Like It: All right. We've had WFMI on the watch list long enough. Today's 2 percent rally on above average rising volume is a breakout over four-week old resistance at the $95 and $96 levels. WFMI actually hit a new all-time high today at $97.48 before paring its gains. Technically the stock looks bullish with stochastics and RSI positive and its MACD nearing a new buy signal. Plus the daily chart is arguably displaying a cup-and- handle formation. We are going to use a TRIGGER over today's high to open the play. Our entry point will be $97.51. Hopefully the $100 level, which is usually round-number, psychological resistance, won't be a barrier for WFMI. The P&F chart currently points to a $112 target but this is likely to grow as WFMI continues to rally. Our initial target will be a move to $105 with a secondary target at $110. Suggested Options: We are going to suggest the February calls. BUY CALL FEB 90 FMQ-BR OI=1274 current ask $9.00 BUY CALL FEB 95 FMQ-BS OI=2254 current ask $5.80 BUY CALL FEB 100 FMQ-BT OI=349 current ask $3.20 BUY CALL FEB 105 FMQ-BA OI=286 current ask $1.75 Annotated chart: Picked on December 22 at $ xx.xx <-- see TRIGGER Change since picked: +00.00 Earnings Date 02/09/05 (unconfirmed) Average Daily Volume = 880 thousand Chart = ******** NEW PUTS ******** None ******************* SPREADS & STRADDLES ******************* An Early Christmas Present! By Ray Cummins Christmas for the stock market arrived ahead of schedule Wednesday as the major equity averages climbed to multi-year highs. The Dow Jones Industrial Average jumped 56 points to 10,815, with Pfizer (NYSE:PFE) leading the rally as the drug giant continued to recover losses suffered during the recent Celebrex-related slump. The NASDAQ Composite Index rose 6 points to 2,157 amid a surge in networking shares. The S&P 500 Index saw gains in homebuilding, airline, financial, health care, retail, and utility issues as it climbed 4 points to 1,209. Advancers led decliners nearly 3 to 2 on the New York Stock Exchange and by a slightly smaller margin on the NASDAQ. Big Board trading volume was 1.4 billion shares, and 1.8 billion shares changed hands on the technology exchange. Bond prices retreated as share values moved higher. The benchmark 10-year note closed down 9/32 at 100 11/32, to yield 4.19%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 12/19/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 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 CALL-CREDIT SPREADS Stock Pick Last Mon L/C S/C Credit CB G/L Status 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 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Editor’s Note: Due to the Christmas holiday, there will be no Spreads/Straddles section published this Sunday (12/26/04). Happy Holidays! ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ERTS – Electronic Arts $61.71 *** New 2004 High! *** Electronic Arts (NASDAQ:ERTS) develops, markets, publishes and distributes interactive software games that are playable by consumers on platforms, including home videogame machines, such as the Sony PlayStation 2, Microsoft Xbox, Nintendo GameCube and Sony PlayStation consoles; personal computers; handheld game machines, such as the Game Boy Advance, and online, over the Internet and other online networks. The products designed to play on consoles and handhelds, are published under license from the makers of these platforms, such as Sony for the PlayStation and PlayStation 2, Microsoft for the Xbox and Nintendo for the Nintendo GameCube and Game Boy Advance. ERTS – Electronic Arts $61.71 PLAY (less conservative - bullish/credit spread): BUY PUT JAN-55.00 EZQ-MK OI=16835 ASK=$0.40 SELL PUT JAN-57.50 EZQ-MY OI=3925 BID=$0.70 INITIAL NET-CREDIT TARGET=$0.35-$0.40 POTENTIAL PROFIT(max)=16% B/E=$57.15 __________________________________________________________________ PENN - Penn National Gaming $59.87 *** Hot Sector! *** Penn National Gaming (NASDAQ:PENN) is a multi-jurisdictional owner and operator of gaming properties, as well as horse racetracks and associated off-track wagering facilities. The company owns or operates nine gaming properties located in Colorado, Illinois, Louisiana, Mississippi, Ontario and West Virginia that primarily serve customers within driving distance of the properties. The firm also owns racetracks and wagering facilities in Pennsylvania, a racetrack in West Virginia, and a joint-venture racetrack in New Jersey. PENN - Penn National Gaming $59.87 PLAY (conservative - bullish/credit spread): BUY PUT JAN-50.00 UQN-MJ OI=3097 ASK=$0.35 SELL PUT JAN-55.00 UQN-MK OI=154 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.50-$0.60 POTENTIAL PROFIT(max)=11% B/E=$54.50 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BEARISH PLAYS - CREDIT SPREADS All of these positions are favorable candidates for "bear-call" credit spreads, based on the current price or trading range of the underlying issue and its recent technical history or trend. The probability of profit from these positions may be higher than other plays in the same strategy, due to disparities in option pricing. However, current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about its future outcome. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ABC – AmerisourceBergen $57.09 *** A Big "Down" Day! *** AmerisourceBergen (NYSE:ABC) is a wholesale distributor of pharmaceutical products and furnishes related services to healthcare providers and pharmaceutical manufacturers. It also provides pharmaceuticals to long-term care, workers' compensation and specialty drug patients. AmerisourceBergen distributes a line of brand name and generic pharmaceuticals, over-the-counter healthcare products and home healthcare supplies and equipment to a variety of healthcare providers located throughout the United States, including acute care hospitals and health systems, independent and chain retail pharmacies, mail-order facilities, physicians, clinics and other alternate site facilities, as well as skilled nursing and assisted living centers. ABC – AmerisourceBergen $57.09 PLAY (conservative - bearish/credit spread): BUY CALL JAN-65.00 ABC-AM OI=1420 ASK=$0.10 SELL CALL JAN-60.00 ABC-AL OI=6275 BID=$0.50 INITIAL NET-CREDIT TARGET=$0.45-$0.50 POTENTIAL PROFIT(max)=9% B/E=$60.45 __________________________________________________________________ RIMM – Research In Motion $83.49 *** Disappointing Forecast! *** Research In Motion (NASDAQ:RIMM) designs, manufactures and sells wireless solutions for the global mobile communications market. The company provides platforms and solutions for access to time sensitive information, including e-mail, phone, short messaging service, organizers, Internet and intranet-based corporate data applications. RIM also licenses its technology to handset and software vendors to enable these companies to offer wireless data services using the BlackBerry Enterprise Server and BlackBerry Web Client. RIM's products, services and embedded technologies include the BlackBerry wireless platform and the RIM Wireless Handheld product line, and its additional products and services include software development tools, software licensing agreements, technical support contracts and professional services. RIMM – Research In Motion $83.49 PLAY (conservative - bearish/credit spread): BUY CALL JAN-100.00 RUP-AE OI=10754 ASK=$0.60 SELL CALL JAN-95.00 RUP-AS OI=7121 BID=$1.00 INITIAL NET-CREDIT TARGET=$0.45-$0.55 POTENTIAL PROFIT(max)=9% B/E=$95.45 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ STRADDLES AND STRANGLES ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Based on analysis of the historical option pricing and technical background, these positions meet the fundamental criteria for favorable volatility-based plays. _________________________________________________________________ No straddles or strangles today... ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ***************************************** PREMIUM-SELLING PLAYS: NAKED PUTS & CALLS ***************************************** All of these issues have robust option premiums and favorable technical indications. However, current news and events, as well as market sentiment, will have an effect on these stocks so review each position thoroughly and make your own decision about its outcome. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 12/19/04 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 VISG JAN 7.50 7.10 8.05 0.40 7.51% 5.63% RHAT JAN 12.50 12.05 15.54 0.45 6.06% 3.73% 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% Special Tuesday Note: Rambus (NASDAQ:RMBS) is “one to watch” after news emerged earlier this week concerning additional legal issues with Infineon. 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 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% Special Tuesday Note: Select Comfort (NASDAQ:SCSS) is on the "watch" list after the recent upside activity. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Editor’s Note: Due to the Christmas holiday, there will be no Premium-Selling section published this Sunday (12/26/04). Happy Holidays! ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW NAKED-PUT CANDIDATES Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield CTIC 8.35 JAN 7.50 CUC-MU 0.50 64 7.00 31 7.0% 16.4% NEOL 12.78 JAN 10.00 UOE-MB 0.30 777 9.70 31 3.0% 10.3% NAVR 16.69 JAN 15.00 QIG-MC 0.50 183 14.50 31 3.4% 8.9% KFX 15.04 JAN 12.50 KFX-MV 0.30 1580 12.20 31 2.4% 7.8% NTGR 17.07 JAN 15.00 TUD-MC 0.40 101 14.60 31 2.7% 7.6% ARBA 16.77 JAN 15.00 IRU-MC 0.30 182 14.70 31 2.0% 5.6% IDCC 21.99 JAN 17.50 DAQ-MW 0.25 7499 17.25 31 1.4% 5.3% SWFT 21.47 JAN 20.00 SDU-AD 0.35 130 19.65 31 1.7% 4.6% 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. _________________________________________________________________ CTIC - Cell Therapeutics $8.35 *** Drug Speculation #1 *** Cell Therapeutics (NASDAQ:CTIC) develops and commercializes a range of novel treatments for cancer. The company's research and in-licensing activities are concentrated on identifying new, less toxic and more effective ways to treat cancer. The firm markets TRISENOX for the treatment of relapsed or refractory acute promyelocytic leukemia in the United States and in the European Union. In addition, the company has a large number of clinical development trials and/or investigator-sponsored research trials related to potential market expansion for that product. CTI is also developing XYOTAX for the treatment of non-small cell lung cancer and ovarian cancer, and pixantrone, for the treatment of non-Hodgkin's lymphoma. CTIC - Cell Therapeutics $8.35 JAN 7.50 CUC-MU LB=0.50 OI=64 CB=7.00 DE=31 TY=7.0% MY=16.4% _________________________________________________________________ NEOL – NeoPharm $12.78 *** Drug Speculation #2 *** NeoPharm (NASDAQ:NEOL) is a biopharmaceutical company engaged in the research, development and commercialization of drugs for the treatment of various cancers. The company has built its drug portfolio based on its technology platforms, which include the NeoLipid liposomal drug delivery system and a tumor-targeting toxin platform. Neopharm has four cancer product candidates in various stages of clinical development. Its most advanced candidate is IL13-PE38QQR, a tumor-targeting toxin being developed as a treatment for a deadly form of brain cancer, glioblastoma multiforme. NEOL – NeoPharm $12.78 JAN 10.00 UOE-MB LB=0.30 OI=777 CB=9.70 DE=31 TY=3.0% MY=10.3% _________________________________________________________________ NAVR – Navarre $16.69 *** An Entertaining Stock! *** Navarre (NASDAQ:NAVR) publishes and distributes a wide range of home entertainment and multimedia products, including personal computer software, audio and video titles and interactive games. The company's business is divided into two business segments: Distribution, which it operates, and Publishing, which is jointly operated through Encore Software and BCI Eclipse, LLC entities. Navarre continues to expand the number of electronic commerce customers for whom it performs fulfillment and distribution. These services include sales of PC software, prerecorded music and digital video disc/video home system videos and video games. The firm's business-to-business Website offers online ordering and deployment of text and visual product information. NAVR – Navarre $16.69 JAN 15.00 QIG-MC LB=0.50 OI=183 CB=14.50 DE=31 TY=3.4% MY=8.9% _________________________________________________________________ KFX - KFX Inc. $15.04 *** Clean Fossil Fuel? *** KFX Inc. (NASDAQ:KFX) is a clean energy technology company with a patented process, referred to as the K-Fuel technology, which uses heat and pressure to physically and chemically transform high-moisture, low-energy-value coal and other organic feed stocks into a low-moisture, high-energy solid clean fuel. The technology adds value to coal producers and the electric power generation industry by improving the quality of low-grade coal and facilitating the industry's compliance with air emission standards. KFX - KFX Inc. $15.04 JAN 12.50 KFX-MV LB=0.30 OI=1580 CB=12.20 DE=31 TY=2.4% MY=7.8% _________________________________________________________________ NTGR - NetGear $17.07 *** Uptrend Intact! *** NetGear (NASDAQ:NTGR) designs, develops and markets networking products that address the specific needs of small business and home users. The firm supplies networking products that provide quality, reliability, performance and affordability for it users. Its suite of approximately 100 products enables users to share Internet access, peripherals, files, digital multimedia content and applications among multiple personal computers and other Internet-enabled devices. Its products are grouped into three primary segments within the small business and home markets: Ethernet networking products, broadband products and wireless networking products. NTGR - NetGear $17.07 JAN 15.00 TUD-MC LB=0.40 OI=101 CB=14.60 DE=31 TY=2.7% MY=7.6% _________________________________________________________________ ARBA – Ariba $16.77 *** Entry Point? *** Ariba (NASDAQ:ARBA) provides unique enterprise spend-management solutions that allow enterprises to manage efficiently the purchasing of all non-payroll goods and services required to run their business. The company's solutions, which include software applications, services and network access, are designed to provide corporations with technology and business process improvements to better manage their corporate spending and, in turn, save money. Ariba Spend Management solutions integrate with and leverage the Ariba Supplier Network. Their Supplier Network is a scalable Internet infrastructure that connects Ariba customers with their business partners and suppliers to exchange product and service information, as well as a range of business documents, such as purchase orders and invoices. ARBA – Ariba $16.77 JAN 15.00 IRU-MC LB=0.30 OI=182 CB=14.70 DE=31 TY=2.0% MY=5.6% _________________________________________________________________ IDCC – Interdigital Commmunications $21.99 *** New Range? *** InterDigital Communications (NASDAQ:IDCC) designs, develops and installs a variety of advanced wireless technologies, systems and products. IDCC, through its involvement in the standards bodies and incubation efforts, monitors emerging technologies being developed to deliver voice/data in a wireless environment. It focuses on its technology and product development on the air interface technology, referred as wideband code division multiple access, which is comprised of two duplexing methods; frequency division duplex and time division duplexing. IDCC – Interdigital Commmunications $21.99 JAN 17.50 DAQ-MW LB=0.25 OI=7499 CB=17.25 DE=31 TY=1.4% MY=5.3% _________________________________________________________________ SWFT - Swift Transportation $21.47 *** On A Roll! *** Swift Transportation (NASDAQ:SWFT) is a truckload motor carrier that transports primarily retail and discount department store merchandise, manufactured goods, paper products, non-perishable and perishable food, beverages and beverage containers and other building materials. Swift operates principally within short to medium-haul traffic lanes and transport in an average length of haul of less than 600 miles. In addition to operations in the continental United States, Swift has a cross-border operation into Mexico that primarily ships through commercial border crossings from Laredo, Texas, westward to California. SWFT - Swift Transportation $21.47 JAN 20.00 SDU-AD LB=0.35 OI=130 CB=19.65 DE=31 TY=1.7% MY=4.6% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ AGIX – AtheroGenics $23.88 *** AGI-1067 Controversy! *** AtheroGenics (NASDAQ:AGIX) is a research-based pharmaceutical company, focused on the development and commercialization of novel drugs for the treatment of chronic inflammatory diseases, including heart disease (atherosclerosis), rheumatoid arthritis, organ transplant rejection and asthma. The firm has developed a vascular protectant technology platform to discover drugs to treat these types of diseases. Based on this platform, it has four drug development programs in the clinic and is pursuing a number of other preclinical programs. AGIX – AtheroGenics $23.88 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JAN 30 AUB-AF 13K+ 0.30 30.30 5.8% 1.0% _________________________________________________________________ EPIX – Epix Pharmaceuticals $17.89 ** Consolidation Underway ** Epix Pharmaceuticals (NASDAQ:EPIX) is a developer of targeted contrast agents that are designed to improve the diagnostic quality of images produced by magnetic resonance imaging. MRI is an imaging technology for range of applications, including the identification and diagnosis of a wide variety of medical disorders. The company is developing two products, MS-325 and EP-2104R, for use in MRI to improve the diagnosis of multiple cardiovascular diseases affecting the body's arteries and veins. EPIX – Epix Pharmaceuticals $17.89 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JAN 20 FCU-AD 243 0.45 20.45 8.0% 2.2% _________________________________________________________________ SWIR - Sierra Wireless $17.94 *** Downtrend Resumes? *** Sierra Wireless (NASDAQ:SWIR) develops and markets a range of products, including wireless data modems for portable computers, embedded modules for original equipment manufacturers, rugged vehicle-mounted modems and mobile phones. In addition, the firm has a number of products under development, including its Voq Smartphone product line. Sierra Wireless' products permit users to access wireless data/voice networks using notebook computers, personal digital assistants, vehicle-based systems and mobile phones. SWIR - Sierra Wireless $17.94 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JAN 20 IYQ-AD 1574 0.50 20.50 8.7% 2.4% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is $49.95. The quarterly price is $129.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "Contact Support" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. 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