The Option Investor Newsletter Tuesday 01-11-2005 Copyright 2005, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: Intel Beats, UPS Warns Futures Markets: See Note Index Trader Wrap: Chippers and shippers Market Sentiment: Not Looking Good Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 01-11-2005 High Low Volume Adv/Dcl DJIA 10556.22 - 64.80 10619.77 10531.54 1.88 bln 1168/2050 NASDAQ 2079.62 - 17.40 2090.62 2072.62 2.25 bln 947/2151 S&P 100 564.68 - 3.59 568.27 563.49 Totals 3115/4201 S&P 500 1182.99 - 7.26 1190.25 1180.43 SOX 396.19 - 10.10 406.09 393.73 RUS 2000 611.53 - 6.21 617.74 609.91 DJ TRANS 3644.26 - 19.00 3662.90 3639.50 VIX 13.19 - 0.04 13.68 13.05 VXO (VIX-O)13.03 - 0.14 13.92 12.90 VXN 19.67 + 0.06 20.30 19.55 Total Volume 4,413M Total UpVol 1,004M Total DnVol 3,368M Total Adv 2457 Total Dcl 4787 52wk Highs 126 52wk Lows 64 TRIN 1.72 NAZTRIN 1.34 PUT/CALL 0.82 ************************************************************ Intel Beats, UPS Warns by Jim Brown Tech holders are breathing a little better tonight after Intel beat street estimates slightly. However, the broader market may focus on dropping package volume at UPS as real evidence the economy is slowing. It is still too early to form any opinions about this earnings cycle from the mix of warnings and guidance but that info is coming soon. Dow Charts Nasdaq Chart SOX Chart The cautiously awaited Intel earnings beat the street by two cents with the highest ever quarterly revenue at $9.6B. Intel projected a slight rise in CapEx spending for Q1 to around $5.1B. Inventory levels had dropped slightly to $2.6B from $3.2B last quarter. They projected slightly lower grow margins around 55% in Q1 as they continue to markdown inventory. Their 2005 margin estimate remains 58% and Intel expects the inventory problem to be reduced over the next several quarters. CEO, Craig Barrett, said they ended the quarter with robust demand across all geographies. Records were set in sales of Microprocessors, Chipsets, Motherboards and WiFi units. There were mixed feelings about the $600 million drop in inventory. Many analysts were hoping for more. This is inventory that in many cases is already 6-12 months old and is becoming more obsolete as each day passes. If Intel could not dump more of it during the Q4 consumer feeding frenzy then they may have to mark down selling prices even more in 2005 or even take a charge to blow it out and get rid of the problem. Intel said the new 64bit Xeon processors had surpassed one million units in the first two quarters of shipments. Intel also announced it was hiring the HP Itanium design team and HP announced it was going to spend $3 billion to drive the development and sales of its Itanium based server systems. Itanium processors now power 83 of the top 500 of the worlds fastest supercomputers with Intel branded processors in 64% of the top 500. The positive Intel earnings came only a day after AMD warned that earnings would be below expectations. The company said that weaker sales of flash memory would cause earnings to be down significantly from the Q3 level of $68.4 million. They claimed that processor sales had continued higher and would be over Q3 levels. AMD did not give a new earnings estimate and analysts had expected a +19 cent profit. On the downside tonight UPS warned after the bell that slower than expected package volume and higher costs would cause it to miss estimates by a dime for Q4. The prior estimate was 85 cents. They said late December shipments dropped significantly more than they previously expected and were only about half the prior rate for the quarter. UPS said that international shipments grew at a double digit rate compared to a +2.5% growth for domestic shipments. The market did not react strongly to the warning with UPS only losing about -$2 in after hours to $81. They maintained their positive outlook for all of 2005 expecting earnings to increase +13% to +17%. All of 2004 UPS grew earnings by +19%. One stock that continues to shock investors is TASR which has finally run out of energy. Problems are now appearing almost daily including SEC investigations, suits by their competitors and now an earnings warning from Taser itself. Taser said it is expecting delays in orders from law enforcement agencies as those agencies test and evaluate products from their competitors. It was also announced that the top insiders sold $105.8 million in stock recently and there were some questionable financial arrangements to insiders. It was disclosed that the company paid $205K in 2004 to lease airplanes from the family that runs the company and entered a 15 year lease to use another plane that is owned by Thomas Smith, the president. In one week in November three family members sold $54 million in stock only days after it was announced the federal government had approved Taser for use on airlines. While all of this dirt being spread by detractors is not illegal activities it does pose questions about the long term prospects if insiders are dumping the stock. With positive news breaking out all over in Q4 the insiders sold stock worth more than 10% of the market cap of the company receiving the equivalent of twice the companies annual sales in proceeds. Those recent buyers who believed the spin were rewarded with a drop from $33 to $14 over the last two weeks of trading. Competitors to Taser claiming to have better products are Stinger Systems (STIY) and Law Enforcement Associates (LENF). LENF claims their guns shoot twice as far and use 1/16th the power making them less dangerous. They have also been around much longer than Taser in the law enforcement community. TASR Chart Economically today was a non-event with Chain Store Sales falling -0.6% but that should be no surprise given the post holiday letdown. The December Richmond Fed Manufacturing Survey rose to zero from a -3 in November. There was no real change in components with shipments and new orders flat. The backlog of orders also returned to nearly flat at -4. The bottom line was no change and no excitement as the year came to a close. Capacity utilization decreased and the only positive was a continued rise in optimism by manufacturers for the next six months. The Richmond district has been lagging the rest of the company in its recovery. The next day for material economic reports is Friday when we get PPI, Industrial Production, Consumer Sentiment and Business Inventories. Oil prices continue to creep higher and closed just shy of $46 today on fears of increasing Iraqi attacks, work stoppages in Nigeria, well problems in the North Sea and the coming OPEC meeting on Jan-30th. $46 has been a new resistance level since Dec-1st but the pressure is building. Traders fear OPEC will ratchet down production again at the coming meeting to offset the potential drop in demand as cold weather ends. During the spring there is less demand for heating oil and the summer gasoline demand has not yet increased. Rumors are that OPEC has decided to support a $45 price now instead of $40. Once addicted to an increasing supply of dollars it is tough to break the habit if you control half the worlds supply of a limited commodity. They have found that the sticker shock has passed and we have become more or less immune to the current $42 bottom. PeopleSoft employees got the bad news today. Oracle said today they would be announcing the first round of layoffs at PSFT as a result of the Oracle takeover. This should come as no shock as rumor has it employees are already leaving in droves on their own accord. The layoff announcement is scheduled for Friday. The SOX was the index of the day with a drop below 400 on the AMD news and in fear that Intel could stumble after the close. The index held 396 all afternoon despite selling in several chip stocks. After Intel's earnings report the chip sector saw a muted bounce but nothing earth shaking. The analysts community had been making positive comments about expectations for Intel for the last week so much of the good news may have been priced into the market. That news was shaken yesterday with the AMD announcement but support at 22.40 on Intel continued to hold. I was going to title this part tonight as "Danger Will Robinson" after the Dow, Nasdaq and S&P all closed at a new low for the year. After hearing the various spins on the Intel earnings as well as Andy Bryant bubbling over with excitement it is possible the market losses are almost over. Those three key indexes are still well above my critical levels I mentioned on Sunday and are still technically bullish despite closing at the lows for the year. The Dow closed just above its 50-day average at 10556 with the S&P closing drop putting it about -2 points under its 50-day at 1185. The Nasdaq is well under the 50 at 2106 and tested support at 2075 today for the second time this year. For tomorrow that 2075 level would be my key. As long as we stay over that level the market could attract buyers. The SOX should rally back over 400 at the open and it MUST hold that level from now on to avoid a tech meltdown. S&P-500 Chart We have already sold off more than I initially expected but as I stated above the charts are still bullish with only a normal correction at this point. Until the Dow moves under 10425 and the Nasdaq 2000 that bullish bias will remain. Obviously that is a lot lower than our current levels and it would require some serious pain to make that trip. With the Intel news tonight and the potential for further retirement cash to flow into the market I would look for SPX 1175 to be the more critical line on the charts. Nasdaq 2075 for techs and S&P 1175 for the broader market. I would not be a dip buyer under 1175. I would wait for the market to come back to us at that level if you are determined to be long. We are reaching a critical turning point in the markets. There needs to be some attempt to rally very soon or the market sentiment will begin to change rapidly. Bulls are beginning to get nervous and bears are getting bolder. It is time for the 2005 bull market to assert itself and make a stand or it is going to be a long year for investors. Jim Brown Editor "One reason it is so hard to save money is that our neighbors are always buying something we can't afford" ***************************************** Option Investor Renewal Special - Four Days Left ***************************************** Lock in Your Subscription Rate Now! If you have not signed up yet for the 2004 end of year special then your time is running out. Lock in your subscription price for all of 2005 now and protect yourself from any coming rate hikes. https://secure.sungrp.com/05renewal/ *************** 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************************* SEE WARREN BUFFETT'S LATEST DISCLOSED STOCK PORTFOLIO Now you can follow the investment master's actual moves. To get a FREE report that details Warren Buffett's strategy and reveals his most recently disclosed, ACTUAL stock picks, Click HERE! http://www.bigmoneywatch.com/default.asp?aid=626 ************************************************************** ***************** INDEX TRADER WRAP ***************** Chippers and shippers With a market capitalization of $5.45 billion and annual revenues of $4.94 billion, you would have thought Advanced Micro Devices (NYSE:AMD) $14.86 -26.17% had suddenly become the bellwether stock for the semiconductor industry, where the Semiconductor Index (SOX.X) 396.19 -2.47% closed below the psychological 400 level for the first time since late October after AMD warned quarterly results would be "down significantly" from the third quarter. Tomorrow, chip stocks will be active once again after AMD's chief rival Intel (NASDAQ:INTC) $22.54 -1.48%, with a market capitalization of $142.5 billion and annual revenues that totaled just over $33.3 billion, reported quarterly earnings and sales that exceeded Wall Street's estimates. But the market's reaction to AMD's warning, and Intel's quarterly results would depict that the 500-lb gorilla, Intel, has been cutting prices to clear out inventory, and it wasn't sharing much of the banana cream pie with AMD in the most recent quarter. After the closing bell, shares of Intel (INTC) rose to $23.22, a 3% gain from their closing price, after the company said earnings in the fourth quarter that ended December 25 fell to $2.12 billion, or 33 cents a share, compared to a year-earlier profit of $2.17 billion, or 33 cents a share, as profit margins eroded in part due to heightened competition. Sales rose to $9.6 billion from a previous record of $8.74 billion. The results topped analysts' forecast of earnings for 31 cents a share and sales of $9.42 billion. "It's a terrific report. Intel is clearly the bellwether, and this report could easily turn the tech sector," said Stephen Leeb, president of Leeb Capital Management in New York. But turn the market and reverse a losing streak that has had some hibernating bears thinking spring came on January 1? Not so fast..... In after-hours trade, shares of United Parcel Service (NYSE:UPS) $83.30 -0.38% fell to $80.90 after the shipper warned that an "unexpected drop" in shipping activity between Christmas and New Years, as well as severe storms in the Midwest, which raised costs and hurt delivery volume, would negatively impact quarterly results. While UPS backed its 2005 outlook, the news gave thought to economic slowing. Fellow shipper Fedex (NYSE:FDX) $95.41 -0.18% saw its shares sink $1.31 to $94.10 as investors mulled thought over asking "what can brown do for you?" U.S. Market Watch - 01/11/05 Close And just as Jim Brown stated in this evening's Market Monitor, " With UPS warning that package volumes were less than expected in December this would be economically negative. If Intel's guidance is just average or cautious this balloon could quickly deflate even further," Jim's comments will most likely be on the mind of many investors in coming session, where the transports are often looked to as a key sector for economic activity. For those interested in viewing the recent (as of 01/10/05 close) sector bell curve from wwww.dorseywright.com, I posted a 12/31/04 to 01/10/05 comparison in this morning's Market Monitor at 09:26:27 AM EST (see tonight's archive), where I would note that the Semiconductor Bullish % (BPSEMI) had reversed back lower to "bull correction" status from "bull confirmed." As of the 01/10/05 close, the Transportation/Non Air (BPTRAN) was still at "bull confirmed" status at 70.59%, but would turn "bear confirmed" from a high level of bullish risk with a reading of 68%. While there was little "good news" in today's session, the bullish side of me, which begets more bearish profiles in my Market Monitor profiles, the continued flattening of the yield curve begins to feel, and perhaps look like a python constricting around a bull's neck. Each day, the yield curve flattens, stocks sink a little lower. Market Snapshot / Internals - 01/11/05 Close And the "python" may be squeezing harder at the NASDAQ, where new highs and new lows, at times, were almost break even as buyers would appear less willing to press higher, while sellers get aggressive with annual disappointments that are nearing 52-week lows. Traders can perhaps sense some "capitulation" taking place, but its not the bullish "I can't stand the pain anymore," type of capitulation. Its the "I can't stand the erosion of profits anymore," type of capitulation, where a January effect rally begins to fade with each passing day. I struggle with this too, as I know it can happen. Do I lock in gains on 3M (MMM) $84.71 +0.91% as it suddenly becomes a salmon swimming against the other 29 in the school? A falling 10-year and 30-year treasury yield shouldn't hurt the homebuilders, but here too there are gains that could be washed out to sea if the tide of selling gains further momentum. A put trade I profiled on Adobe Systems (NASDAQ:ADBE) $58.12 -1.19% wasn't because I viewed something overly wrong with the stock, or the software group, but largely on some technical weakness, where HUGE BULLISH gains may have bulls more willing to sell than risk some very handsome profits. In this morning's 09:00 AM EST, you may have noted that the NASDAQ-100 Bullish % ($BPNDX) reversed back lower to "bull correction" status. Let's quickly review the NDX.X point and figure chart (conventional 25-point box), to put things in perspective. On the following chart, I've also added some inflection point NASDAQ-100 Bullish % ($BPNDX) readings from the stockcharts.com bullish % chart, and our own NASDAQ 10-day NH/NL ratio readings. You an I can wonder all we want as to "what is going on?" But one thing that should be obvious is that some bullish risk is being removed, at a higher level of bullish risk. NASDAQ-100 Index (NDX.X) Chart - 25-point box Technical support should be strong above 1,500, where in early November, the NDX.X triggered a triple-top buy signal at 1,525. Remember that the 10-day NH/NL ratios, and the bullish % can only go as high as 100%, and over the past two years, we can see how at higher levels of NH/NL ratio and bullish %, the MARKET has systematically removed "excessive bullish risk." While we can NOT equate PRICE directly to any bullish % reading, we can see that even as recently as this past August (red 8) and September (red 9) how BOTH the Bull % and the NH/NL ratios were signaling a resumption of strength. Where will the strength MOST LIKELY HAVE TO COME FROM? My thoughts continue to be it will "have" to come from the Semiconductors, and or the biotechs. According to Dorsey/Wright and Associates, their Biotech Bullish % (BPBIOM) is still in "bull alert" status at 50% after reversing up from 16% in early August (just after red 8). It would take a higher reading of 58% to achieve "bull confirmed" status, or a reversing lower reading of 44% to turn back lower to "bear confirmed" status. My thought process is this. Money can rotate to the LOWER risk bullish % groups like the Semiconductors and Biotechs. By RISK I mean their sector bullish % readings. This would be a "logical" rotation of capital. Now, that thought becomes challenged right now, when thinking about the YIELD curve flattening. Why is capital flowing into Treasuries? Low inflation? Aversion of RISK? Economic slowing? Which was suddenly realized on January 1? Here's the NASDAQ Composite 52-week High/Low 10-day average chart, so you can see the movements of both the "f"ive-day and 10-day NH/NL readings, then tie them back with the inflection points I noted in the above NASDAQ-100 Index (NDX.X) chart. Where would YOU look for the "f"ive day NH/NL ratio to show some type of stability? NASDAQ NH/NL Chart - 01/11/05 In last Thursday's Index Trader Wrap (01/06/05) we looked at the NYSE NH/NL Chart, and tonight's focus is more NASDAQ related. As an answer to my question of "where would YOU look for the five day NH/NL ratio to show some type of stability," the above chart would suggest 52%. Again, we can NOT make direct PRICE and bullish % correlations, but I could perhaps begin making some plans for an NDX.X trade at/near 1,500 should the 5-day NH/NL ratio reach 52%. Each day, when we post the Market Snapshot, we can measure the day-to-day "rate of change" in the 5-day and 10-day NH/NL ratios. Think of them just like you would a simple moving average. Pivot Matrix - I thought the BIX.X hinted at some strength this afternoon when between 02:10-02:15 PM EST they looked to be leading a late- afternoon comeback. One observation I immediately made in the Market Monitor was that the OEX.X had rebounded from its then session low of 563.49 to trade up to that sliver "zone of resistance" from 566.60-566.79 from the WEEKLY/MONTLY Pivot retracement (see today's 11:00 AM EST Update). For me, the BIX.X has been a sector that has been a pretty good group to signal any type of renewed strength for the OEX/SPX and even the INDU. It would really take something above 375 on a technical basis to have me believing that the MARKET still believes the December highs can be taken out to the upside. Another item of note would be this morning's high VIX.X trade of 13.68. When I think back to past comments of floor traders still viewing VIX.X 14.00 as a low premium that they would be buying calls in, they were perhaps still doing that today. Despite the weakness from AMD, we can perhaps think that SOX.X WEEKLY S1 and MONTHLY S1 held, as traders awaited word from Intel. From here on, that has to be the line in the sand for support. If broken, it could be a looooong summer for the chips. Jeff Bailey **************** MARKET SENTIMENT **************** Not Looking Good - J. Brown January has already been a tough month for stocks. Unfortunately the first day of fourth quarter earnings season did not go well and it does not bode well for the rest of the month either. The market ended the session in widespread decline with internals heading south once again. Declining stocks outnumbered advancers by 2-to-1 on the NYSE and 21-to-9 on the NASDAQ. Down volume swallowed up volume 7-to-2 on the NYSE and 17-to-5 on the NASDAQ. Dow-component Alcoa (AA) started the procession with an earnings miss and biotech giant Genentech (DNA) followed up with an earnings miss of its own. To make matters worse semiconductor maker AMD issued a fourth quarter earnings warning that sent its stock for a 26 percent loss and pushed the SOX to a 2.4 percent decline. After the closing bell AMD's larger rival Intel (INTC) surprised the street with a better than expected earnings report but it remains to be seen if Intel can jump start a rally amidst all of this negativity. Case in point - after Intel's report came out package courier UPS issued a fourth quarter earnings warning. Investors already had cautious expectations for earnings growth going forward but if the lead-off companies are going to turn in disappointing results what can we expect during the rest of earnings season. Granted the real flood of earnings news doesn't hit until next week but we now have a reason to be spooked. Meanwhile oil continues to be an issue as crude prices creep higher amid supply concerns again and the upcoming Iraqi elections, which is bound to bring about even more violence in that part of the world. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10868 52-week Low : 9708 Current : 10556 Moving Averages: (Simple) 10-dma: 10677 50-dma: 10556 200-dma: 10276 S&P 500 ($SPX) 52-week High: 1217 52-week Low : 1060 Current : 1183 Moving Averages: (Simple) 10-dma: 1200 50-dma: 1182 200-dma: 1131 Nasdaq-100 ($NDX) 52-week High: 1635 52-week Low : 1301 Current : 1553 Moving Averages: (Simple) 10-dma: 1584 50-dma: 1578 200-dma: 1465 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 13.19 -0.04 CBOE Mkt Volatility old VIX (VXO) = 13.03 -0.14 Nasdaq Volatility Index (VXN) = 19.67 +0.06 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.86 866,571 741,247 Equity Only 0.65 710,453 464,212 OEX 0.95 28,807 27,597 QQQQ 1.29 59,201 76,830 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 73.7 - 0.3 Bear Correction NASDAQ-100 74.0 - 1 Bull Confirmed Dow Indust. 73.3 + 0 Bull Confirmed S&P 500 74.8 - 0.2 Bull Confirmed S&P 100 76.0 + 1 Bull Confirmed Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-dma: 1.42 10-dma: 1.21 21-dma: 1.05 55-dma: 1.01 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 947 922 Decliners 1862 2108 New Highs 47 44 New Lows 21 41 Up Volume 444M 493M Down Vol. 1420M 1745M Total Vol. 1880M 2256M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 01/04/05 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 Not much change in the large S&P futures contracts. Professionals remain net bearish and small traders remain net bullish. Commercials Long Short Net % Of OI 12/07/04 450,072 498,057 (47,985) (5.0%) 12/14/04 502,471 540,494 (38,023) (3.6%) 12/21/04 455,238 502,538 (47,300) (4.9%) 01/04/05 456,255 505,042 (48,787) (5.0%) Most bearish reading of the year: (111,956) - 3/06/02 Most bullish reading of the year: 23,977 - 12/09/03 Small Traders Long Short Net % of OI 12/07/04 187,707 135,776 51,931 16.0% 12/14/04 201,428 164,111 37,371 10.2% 12/21/04 157,015 106,205 50,810 19.2% 01/04/05 159,197 111,900 47,297 17.4% Most bearish reading of the year: (1,657)- 5/27/03 Most bullish reading of the year: 114,510 - 3/26/02 E-MINI S&P 500 Commercial traders have increased their bearish bias just as small traders have increased their bullish bias. Commercials Long Short Net % Of OI 12/07/04 470,553 805,234 (334,681) (26.2%) 12/14/04 556,980 899,616 (342,636) (23.5%) 12/21/04 279,694 554,818 (275,124) (32.9%) 01/04/05 302,339 620,759 (318,420) (34.5%) 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 12/07/04 311,838 66,496 245,342 64.8% 12/14/04 398,915 137,598 261,317 48.7% 12/21/04 227,047 66,140 160,907 54.8% 01/04/05 279,274 71,151 208,123 59.4% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Commercial traders have turned significantly more bearish on the NDX just as the small traders has turned sharply more bullish. Commercials Long Short Net % of OI 12/07/04 57,621 34,313 23,308 25.4% 12/14/04 73,554 50,286 23,268 18.7% 12/21/04 30,614 45,158 (14,544) (19.1%) 01/04/05 27,226 44,600 (17,374) (24.1%) 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 12/07/04 15,489 49,064 (33,575) (52.0%) 12/14/04 26,781 58,159 (31,378) (36.9%) 12/21/04 20,840 9,109 11,731 39.1% 01/04/05 22,227 8,293 13,934 45.6% 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 are increasing their bearish bias on the Dow Industrials but small traders have jumped ahead in their bearish attitude for the index. Commercials Long Short Net % of OI 12/07/04 25,523 27,351 (1,828) (3.4%) 12/14/04 36,960 38,566 (1,606) (2.1%) 12/21/04 24,850 31,920 (7,070) (12.4%) 01/04/05 24,704 32,916 (8,212) (14.2%) Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 12/07/04 5,274 9,507 (4,233) (28.6%) 12/14/04 13,445 19,089 (5,644) (17.3%) 12/21/04 5,637 6,961 (1,324) (10.5%) 01/04/05 5,166 7,596 (2,430) (19.0%) Most bearish reading of the year: (12,106) - 3/09/04 Most bullish reading of the year: 8,523 - 8/26/03 ************************Advertisement************************* Insiders are Buying these 6 Rocket Stocks. In the last few weeks, we have pinpointed insider buying on six stocks that have the potential to deliver stratospheric gains. 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The Option Investor Newsletter Tuesday 01-11-2005 Copyright 2005, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: JCI Dropped Puts: None Call Play Updates: ARLP, BBOX, COF, FRE, PD, RAI, TXI New Calls Plays: None Put Play Updates: ADBE, CAI, FDX New Put Plays: NTES **************** PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** Johnson Controls Inc - JCI - cls: 60.79 chg: -0.76 stop: 60.49 That's it! We're calling it quits on JCI. The failed rally on Monday and follow through decline today was enough to sap any remaining interest in the stock as a bullish candidate. Granted there is still a chance shares could bounce from the $60.50-60.00 region but we don't want to stick around for when it fails. The company did confirm that earnings would be announced on Jan. 18th. Picked on December 29 at $ 63.51 Change since picked: - 2.72 Earnings Date 01/18/05 (confirmed) Average Daily Volume = 669 thousand Chart = PUTS: ***** None ************************Advertisement************************* Trade Smarter Using the latest Insider Trades Is the CEO selling off? Has a key insider loaded up on shares before a big price jump? Find out now. Get your free download of Real Time insider trades: http://www.realtimeinsider.com/default.asp?aid=637 ************************************************************** ******************** PLAY UPDATES - CALLS ******************** Alliance Resource - ARLP - close: 70.43 chg: +0.63 stop: 66.49 ARLP is off to a good start. Shares of this coal producing company bucked the market's downtrend on Tuesday to breakout over the $70 level. This still looks like a bullish entry point for traders to catch a ride toward our target in the $74.50-75.00 region. Picked on January 10 at $ 69.80 Change since picked: + 0.63 Earnings Date 10/28/04 (confirmed) Average Daily Volume = 115 thousand Chart = --- Black Box - BBOX - close: 46.03 change: -0.19 stop: 44.99 Hello Peter Parker, our spider-sense is tingling! The 1.8 percent breakdown in the NWX networking index on Tuesday following its recent crack under the 200-dma does not bode well for networking bulls. There is some hope that the NWX could bounce from the 230 level and its 100-dma but we wouldn't bet on it. Together with the weakness in the NWX and the NASDAQ shares of BBOX didn't have much chance to build on its early morning strength today. Conservative traders may want to exit now and look for a break out from BBOX's short-term trend of lower highs before considering new positions. We're going to hold on a little bit longer just to see if BBOX can bounce again from the $45.35 region. Picked on December 22 at $ 46.15 Change since picked: - 0.12 Earnings Date 02/01/05 (confirmed) Average Daily Volume = 128 thousand Chart = --- Capital One Financial - COF - cls: 82.09 chg: -0.22 stop: 79.95 Hmm.. the action in COF still concerns us. Actually it's the weakness in the banking indices that concerns us but COF is likely to follow the indices lower. Conservative traders may want to exit now and sit out for a couple of days or at least be ready for some volatility and a dip back toward the $80 level. At this time we do expect COF will turn short-term lower and it is a question of whether or not investors buy the dip to $80. In the news today LEH reiterated their "over weight" rating for COF. Picked on December 12 at $ 81.12 Change since picked: + 0.97 Earnings Date 01/19/05 (confirmed) Average Daily Volume = 1.4 million Chart = --- Freddie Mac - FRE - close: 70.99 chg: -0.51 close: 69.49 Traders remain cautious in FRE as the stock continues to suffering from short-term profit taking. The weakness in the broader indices doesn't help matters nor does news out yesterday suggesting that FRE and larger rival FNM will likely face tougher legislation and oversight this year. The company (FRE) did say they plan to issue their 2004 earnings report in March and will hold a mid-quarter conference on January 18th. Right now we expect FRE to continue to slip lower. A test of round-number, psychological support at the $70.00 level seems almost imminent. We would watch for the bounce from the $70 level but we're not suggesting new plays at this time. Conservative traders may want to exit now and wait for the bounce. Picked on December 21 at $ 71.80 Change since picked: - 0.81 Earnings Date 00/00/05 (unconfirmed) Average Daily Volume = 2.8 million Chart = --- Phelps Dodge - PD - close: 95.71 change: -1.54 stop: 92.00 There is still a lot of talk about how commodities could out perform stocks again this year. That may be true but we're betting on the consistent up trend in shares of PD. Right now the stock is seeing a little bit of profit taking but not much. Readers can use a dip/bounce above the $92.50 level as a new entry point for bullish positions. We're not going to change our stop loss at this time but upon closer inspection some traders may want to adjust theirs to $91.49. Picked on January 09 at $ 97.65 Change since picked: - 1.94 Earnings Date 01/27/05 (unconfirmed) Average Daily Volume = 2.2 million Chart = --- Reynolds American - RAI - close: 78.32 change: -1.03 stop: 75.99 Tobacco stocks helped lead stocks higher on Monday with Dow- component Altria Group (MO) breaking out over resistance at $62 to hit new all-time highs. This lead RAI to challenge resistance at the $80 level but RAI didn't have enough gas to push through it. Unfortunately both MO and RAI failed to show any strength today and both succumbed to profit taking again. There is a short-term trend of higher lows for RAI but we would wait for a breakout over the $80 level before considering new bullish positions at this time. Picked on December 22 at $ 80.11 Change since picked: - 1.79 Earnings Date 01/24/05 (unconfirmed) Average Daily Volume = 1.0 million Chart = --- Texas Industries - TXI - close: 60.95 change: -0.93 stop: 58.00 TXI got off to a strong start this week wit a rally $62.76 on Monday afternoon. It's too bad TXI was unable to hold much of those gains today with 1.5 percent decline. The key level to watch is the rising simple 50-dma (currently 58.65). This is support. A dip towards $60 could be used as a new entry point although we'd probably wait to see that the bounce has begun before committing capital. After the closing bell today TXI announced a cash dividend of 7.5 cents per share payable on February 25th, 2005 to shareholders on record as of February 4th. Picked on January 09 at $ 60.18 Change since picked: + 0.77 Earnings Date 12/16/04 (confirmed) Average Daily Volume = 238 thousand Chart = ************** NEW CALL PLAYS ************** None ************************Advertisement************************* SEE WARREN BUFFETT'S LATEST DISCLOSED STOCK PORTFOLIO Now you can follow the investment master's actual moves. To get a FREE report that details Warren Buffett's strategy and reveals his most recently disclosed, ACTUAL stock picks, Click HERE! http://www.bigmoneywatch.com/default.asp?aid=626 ************************************************************** ******************* PLAY UPDATES - PUTS ******************* Adobe Systems - ADBE - close: 58.12 change: -0.70 stop: 61.51*new Weakness in the tech sector is good news for ADBE bears. Monday's meager early morning rally proved to be another entry point to buy puts and ADBE continued to slip on Tuesday. Some suspect that Google's recent introduction of their Picasa photograph and image-handling software could impact sales of ADBE's low-end products. Picasa allows users to manage photos on their computer, remove red-eye from images, etc. The package used to sell for about $29 but Google is now offering it for free, which could impact ADBE. We are going to lower our stop loss on ADBE from $62.26 to $61.51. Picked on January 06 at $ 58.99 Change since picked: - 0.87 Earnings Date 03/17/05 (unconfirmed) Average Daily Volume = 2.3 million Chart = --- CACI Intl - CAI - close: 60.61 change: -1.16 stop: 64.11*new* The weakness in CAI continues as the stock falls another 1.87 percent to test the $60.00 level. At this point we'd probably expect some sort of oversold bounce and the question is where will the bounce fail? The $64 level has already been established as new short-term resistance so we're lowering our stop loss to $64.11. Readers looking for new entries might consider a failed rally under $62.50 or a breakdown under $60.00. Picked on January 05 at $ 61.95 Change since picked: - 1.34 Earnings Date 01/19/05 (unconfirmed) Average Daily Volume = 348 thousand Chart = --- Fedex Corp - FDX - close: 95.41 change: -0.18 stop: 96.01*new* Big news for the air courier business tonight! After the bell UPS issued an earnings warning for Q4 and lowered its guidance from 83-87 cents per share to 75-76 cents per share on slowing domestic package volume and higher operating costs (Reuters). This sent both UPS and FDX reeling in after hours session with FDX trading down to $92.40 at the time of this update. FDX is trying to defend itself by reaffirming its own Q3 estimates tonight telling the wires that the company had a strong holiday season. Put option values should spike higher tomorrow and readers may want to consider exiting near the open to capture the initial shock. Our original target was the $90 level and/or the 100-dma. Now the 100-dma is up to $90.85. We are going to officially set our target at $90.85 to capture a quick exit. We're not suggesting any new positions and we're lowering our stop loss to $96.01. Picked on January 07 at $ 94.95 Change since picked: + 0.46 Earnings Date 03/17/05 (unconfirmed) Average Daily Volume = 1.6 million Chart = ************* NEW PUT PLAYS ************* Netease.com - NTES - close: 49.97 chg: -1.88 stop: 52.65 Company Description: Through our subsidiaries and contracts with our affiliates, NetEase operates a leading interactive online and wireless community in China and is a major provider of Chinese language content and services through our online games, wireless value- added services and Internet portal businesses. As of June 30, 2004, we had approximately 232 million accumulated registered accounts, and our average daily page views for the month ended September 30, 2004 exceeded 264 million. We generate revenues from fees we charge users of our online games and wireless value- added and other fee-based premium services, as well as from selling online advertisements on the NetEase Web sites. Basic service offerings are also available on the NetEase Web sites without charge to our users. (source: company website) Why We Like It: We have been noticing the breakdown in the Internet holders (HHH) and the INX Internet index and wanted a way to play it. Thus far NTES had held off much of this January's profit taking to the confines of its trading range. Yet now that shares have broken its 50-dma and the $50.00 mark we're tempted to buy puts. Technicals are bearish and there's a big bearish divergence between the stock price and the MACD over the last couple of months. We're willing to buy puts now with Tuesday's close under the $50 level and target a drop towards the $45 region. More conservative traders may want to be patient and wait to see if NTES has any support near $48.50 before initiating positions. Suggested Options: This is a relatively short-term play that we hope to close in a couple of weeks. We're going to suggest the February puts. BUY PUT FEB 50 NQG-NJ OI=1466 current ask $3.40 BUY PUT FEB 45 NQG-NI OI= 257 current ask $1.45 Annotated Chart: Picked on January 11 at $ 49.97 Change since picked: - 0.00 Earnings Date 02/15/05 (unconfirmed) Average Daily Volume = 1.0 million Chart = ************************Advertisement************************* Get your FREE weekly charts of the NASDAQ! Hot Stix’ stock market report reveals simple, powerful strategies for profiting from the QQQ - whether down or up! http://www.hotstix.com/public/weekly.asp?aid=755 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Tuesday 01-11-2005 Copyright 2005, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Watch List: Bullish and Bearish candidates to watch Spreads & Straddles: The Sell-Off Continues... Premium Selling Plays: Naked Puts & Calls ********** WATCH LIST ********** Bullish and Bearish candidates to watch ___________________________________________________________________ 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. ___________________________________________________________________ Cummins Inc - CMI - close: 75.28 change: +0.98 WHAT TO WATCH: After a very sharp sell-off this month shares of CMI are trying to find support near the $74 level and its 100- dma. Technicals are short-term oversold and its stochastics and RSI are already trying to turn positive. Aggressive traders may want to watch it for a rebound back toward the $80 level. Chart= --- KB Home - KBH - close: 103.90 change: +0.90 WHAT TO WATCH: We are still watching KBH and the homebuilding sector. KBH shrugged off the market weakness today but has yet to break its four-week trend of lower highs. A move over $105 could be a new entry point for momentum traders as the whole pattern is starting to look like a bull flag. Chart= --- Garmin Ltd - GRMN - close: 49.26 change: -2.67 WHAT TO WATCH: The sell-off in GRMN has been very sharp this month with the stock breaking support at the 50-dma and the $55 level and now the $50 level. We are watching to see if GRMN will bounce from the 100-dma or continue to breakdown. Actually a failed rally under the $52 level might be a potential bearish entry point. Chart= --- MGIG Investment - MTG - close: 67.11 change: -1.89 WHAT TO WATCH: If it wasn't for MTG's earnings report due out in a couple of days we would consider today's failed rally at the $70 level and the 200-dma as a bearish entry point. The close under the 50-dma today also makes today's turnaround look like a short. Watch for a drop under the $67 level and wait for investor reaction to earnings. Chart= ************************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 ************************************************************** ******************* SPREADS & STRADDLES ******************* The Sell-Off Continues... By Ray Cummins Stocks retreated Tuesday as mediocre earnings from Alcoa (NYSE:AA) combined with a slew of profit warnings in the technology sector to start another round of selling in the equities. The Dow Jones Industrial Average fell 64 points to 10,556, with only 3M Company (NYSE:MMM) and United Technologies (NYSE:UTX) ending the session in positive territory. The NASDAQ Composite Index slid 17 points to 2,079 as investors sold for profits in the wake of a disappointing sales forecast from Advanced Micro Devices (NYSE:AMD) earnings. The S&P 500 Index fell 7 points to 1,182 amid losses in steel, brokerage, chemical and drug shares. Decliners led advancers 2 to 1 on the New York Stock Exchange more than 5 to 2 on the NASDAQ. Big Board volume was about 1.5 billion shares while some 2.2 billion shares changed hands on the technology exchange. Treasuries were nearly unchanged with the benchmark 10-year note closing up 3/32nds, yielding 4.25%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 01/09/05 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 34.50 JAN 25.0 27.5 0.40 27.10 0.40 Open CFC 33.21 35.32 JAN 27.5 30.0 0.30 29.70 0.30 Open EBAY 112.20 106.58 JAN 95.0 100.0 0.60 99.40 0.60 Open LEND 46.85 46.14 JAN 35.0 40.0 0.50 39.50 0.50 Open LEN 50.11 53.87 JAN 42.5 45.0 0.30 44.70 0.30 Open PHM 59.65 61.40 JAN 50.0 55.0 0.75 54.25 0.75 Open MRVL 34.89 34.50 JAN 27.5 30.0 0.30 29.70 0.30 Open VRTS 27.38 26.23 JAN 22.5 25.0 0.45 24.55 0.45 Open ERTS 61.71 58.94 JAN 55.0 57.5 0.35 57.15 0.35 Open PENN 59.87 59.81 JAN 50.0 55.0 0.50 54.50 0.50 Open YHOO 37.90 35.96 JAN 32.5 35.0 0.30 34.70 0.30 Open ANF 47.28 49.50 JAN 42.5 45.0 0.35 44.65 0.35 Open KMRT 101.35 93.71 JAN 90.0 95.0 0.55 94.45 (0.74) Closed L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss Kmart Holdings (NASDAQ:KMRT) plunged Wednesday due to widespread selling pressure and weakness in retail issues. Traders who used the move as an entry opportunity were likely out of the position by Friday afternoon, when the stock closed below the break-even point near $94.50. The bullish position in Navteq (NYSE:NVT) has previously been closed to limit potential losses. CALL-CREDIT SPREADS Stock Pick Last Mon L/C S/C Credit CB G/L Status SINA 37.93 30.45 JAN 50.0 45.0 0.60 45.60 0.60 Open LLY 53.33 56.26 JAN 65.0 60.0 0.65 60.65 0.65 Open NVLS 26.94 25.88 JAN 32.5 30.0 0.35 30.35 0.35 Open CCU 33.15 31.89 JAN 40.0 35.0 0.50 35.50 0.50 Open UVN 29.06 27.37 JAN 35.0 30.0 0.80 30.80 0.80 Open ADI 36.42 35.55 JAN 45.0 40.0 0.50 40.50 0.50 Open KOSP 35.13 33.52 JAN 45.0 40.0 0.55 40.55 0.55 Open TTWO 33.45 32.25 JAN 40.0 37.5 0.30 37.80 0.30 Open MSTR 56.22 56.31 JAN 70.0 65.0 0.65 65.65 0.65 Open ABC 57.09 57.90 JAN 65.0 60.0 0.45 60.45 0.45 Open RIMM 83.49 74.30 JAN 100.0 95.0 0.45 95.45 0.45 Open PKZ 32.99 35.30 JAN 40.0 35.0 0.85 35.85 0.85 Open? UHS 44.51 44.00 JAN 50.0 45.0 0.60 45.60 0.85 Open JNPR 25.80 25.46 JAN 30.0 27.5 0.35 27.85 0.85 Open DNA 51.75 54.25 JAN 57.5 55.0 0.35 55.35 0.85 Open? L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss Genetech (NYSE:DNA) and the speculative spread in PetroKazakhstan (NYSE:PKZ) are on the "watch" list. DEBIT STRADDLES Stock Pick Last Exp. Long Long Initial Max Play Symbol Price Price Month Call Put Debit Value Status BZH 144.85 137.20 JAN 145.0 145.0 12.00 11.25 Open Beazer Homes (NYSE:BZH) approached the "break-even" point during Wednesday's slide to $134, however the straddle has yet to earn a profit on a simultaneous order basis. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW POSITIONS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BULLISH PLAYS - CREDIT SPREADS These candidates are based on the underlying issue's technical history or trend. The probability of profit in these positions may also be higher than other plays in the same strategy, due to small disparities in option pricing however, each play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ CECO - Career Education $42.05 *** Next Leg Up? *** Career Education (NASDAQ:CECO) is a provider of private, for-profit, post-secondary education, with 82 campuses throughout the United States, Canada, France, the United Kingdom and the United Arab Emirates. The company also offers online education through its Online Education Group, which includes American InterContinental University Online and Colorado Technical University Online. The company's schools offer degree and diploma programs within its core curricula of business studies, culinary arts, information technology, visual communication and health education. CECO - Career Education $42.05 PLAY (conservative - bullish/credit spread): BUY PUT FEB-30.00 CUY-NF OI=1451 ASK=$0.35 SELL PUT FEB-35.00 CUY-NG OI=1342 BID=$0.95 INITIAL NET-CREDIT TARGET=$0.65-$0.75 POTENTIAL PROFIT(max)=15% B/E=$34.35 __________________________________________________________________ CVS - CVS Corporation $47.11 *** New "All-Time" High! *** CVS Corporation (NYSE:CVS) sells prescription drugs and a wide variety of general merchandise, including over-the-counter drugs, greeting cards, film and photo finishing services, beauty products and cosmetics, seasonal merchandise and convenience foods through its CVS/pharmacy retail stores and online through CVS.com. The company also provides a range of prescription benefit management services to managed care and other organizations. In addition, CVS has a Specialty Pharmacy unit, which operates as a retail and mail provider of specialty pharmacy services in the United States. CVS - CVS Corporation $47.11 PLAY (conservative - bullish/credit spread): BUY PUT FEB-42.50 CVS-NV OI=721 ASK=$0.20 SELL PUT FEB-45.00 CVS-NI OI=3859 BID=$0.45 INITIAL NET-CREDIT TARGET=$0.30-$0.35 POTENTIAL PROFIT(max)=14% B/E=$44.70 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ IMCL - ImClone Systems $42.70 *** Downtrend Intact! *** ImClone Systems (NASDAQ:IMCL) is a unique biopharmaceutical firm involved in advance oncology care by developing a portfolio of targeted biologic treatments designed to address the needs of patients with cancer. It focuses on three major strategies for treating cancer: growth factor blockers, angiogenesis inhibitors and cancer vaccines. Their lead product, ERBITUX (Cetuximab), is an antibody which has been approved by the United States Food and Drug Administration for use in combination with irinotecan in the treatment of patients with a specific type of colorectal cancer. IMCL - ImClone Systems $42.70 PLAY (very conservative - bearish/credit spread): BUY CALL FEB-55.00 QCI-BK OI=4946 ASK=$0.40 SELL CALL FEB-50.00 QCI-BJ OI=9447 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.45-$0.55 POTENTIAL PROFIT(max)=9% B/E=$50.45 __________________________________________________________________ NTES - Netease.com $49.97 *** Premium-Selling Only! *** NetEase.com (NASDAQ:NTES) is an Internet technology firm that supports the interactive online and wireless community in China. The company's content channels offer users a range of local, regional and international Chinese language content, Web-based communication services and sophisticated search capabilities and provide a destination for Chinese Internet users to identify and access resources, services, content and additional information on the Internet. In addition, the NetEase wireless value-added services offer timely information, community interaction and games via wireless short messaging service. NTES - Netease.com $49.97 PLAY (less conservative - bearish/credit spread): BUY CALL FEB-60.00 NQG-BL OI=100 ASK=$0.65 SELL CALL FEB-55.00 NQG-BK OI=1469 BID=$1.40 INITIAL NET-CREDIT TARGET=$0.80-$0.85 POTENTIAL PROFIT(max)=19% B/E=$55.80 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 01/09/05 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 8.27 0.40 7.51% 5.63% RHAT JAN 12.50 12.05 12.15 0.10 1.35% 3.73% NCRX JAN 25.00 24.40 30.35 0.60 4.78% 2.46% NTGR JAN 15.00 14.65 16.50 0.35 4.58% 2.39% RMBS JAN 17.50 17.10 21.42 0.40 4.87% 2.34% TLCV JAN 10.00 9.65 10.05 0.35 6.91% 3.63% WITS JAN 15.00 14.55 16.98 0.45 5.38% 3.09% IDCC JAN 17.50 16.95 20.32 0.55 6.62% 3.24% MSO JAN 17.50 17.05 28.75 0.45 5.62% 2.64% MSO JAN 20.00 19.60 28.75 0.40 5.28% 2.04% ACF JAN 22.50 21.65 23.58 0.85 6.54% 3.93% USNA JAN 30.00 29.00 33.53 1.00 6.12% 3.45% DHB JAN 15.00 14.35 15.96 0.65 10.38% 4.53% MOGN JAN 25.00 24.05 27.00 0.95 7.47% 3.95% * GTOP JAN 12.50 12.05 15.14 0.45 8.45% 3.73% CMVT JAN 22.50 22.05 23.04 0.45 3.93% 2.04% RMBS JAN 20.00 19.35 21.42 0.65 8.12% 3.36% IDCC JAN 17.50 17.05 20.32 0.45 6.77% 2.64% NFLD JAN 17.50 17.05 22.15 0.45 6.15% 2.64% NCRX JAN 25.00 24.55 30.35 0.45 4.60% 1.83% RMBS JAN 20.00 19.45 21.42 0.55 7.18% 2.83% NKTR JAN 17.50 17.05 19.19 0.45 5.64% 2.66% ALXN JAN 20.00 19.65 23.73 0.35 4.51% 1.78% AMLN JAN 20.00 19.65 23.10 0.35 4.07% 1.78% SWFT JAN 20.00 19.65 19.93 0.28 3.68% 1.78% NEOL JAN 10.00 9.70 11.90 0.30 10.31% 3.09% ARBA JAN 15.00 14.70 13.53 (1.17) 0.00% 0.00% KFX JAN 12.50 12.20 12.88 0.30 7.80% 2.46% NAVR JAN 15.00 14.50 18.08 0.50 8.94% 3.45% IDCC JAN 17.50 17.25 20.32 0.25 5.28% 1.45% NTGR JAN 15.00 14.60 16.50 0.40 7.61% 2.74% CTIC JAN 7.50 7.00 8.65 0.50 16.41% 7.14% FXEN JAN 10.00 9.30 13.80 0.70 20.65% 7.53% NTMD JAN 22.50 22.25 25.85 0.25 4.52% 1.12% ELN JAN 25.00 24.45 27.70 0.55 7.06% 2.25% VRX JAN 25.00 24.55 25.22 0.45 5.78% 1.83% JUPM JAN 20.00 19.65 19.65 (0.00) 0.00% 0.00% IDCC JAN 20.00 19.75 20.32 0.25 4.84% 1.27% MOGN JAN 25.00 24.75 27.00 0.25 3.59% 1.01% * MSO JAN 25.00 24.60 28.75 0.40 7.12% 1.63% SONC JAN 30.00 29.65 31.42 0.35 5.15% 1.18% ALVR JAN 12.50 12.15 13.33 0.35 12.44% 2.88% NFLD JAN 20.00 19.65 22.15 0.35 8.66% 1.78% BCSI JAN 17.50 17.20 18.31 0.30 8.29% 1.74% JUPM JAN 20.00 19.60 19.65 0.05 1.16% 2.04% HLEX JAN 15.00 14.75 16.24 0.25 7.47% 1.69% FLML JAN 17.50 17.25 19.34 0.25 7.05% 1.45% Special Tuesday Note: The MGI Pharma (NASDAQ:MOGN) position was closed Tuesday after shares of the cancer-products maker slumped on a weaker-than-expected earnings forecast. Comverse Technology (NASDAQ:CMVT), DHB Industries (NYSE:DHB), Interdigital (NASDAQ:IDCC), KFX Inc. (NYSE:KFX), Jupitermedia (NASDAQ:JUPM), Redhat (NASDAQ:RHAT), Swift Transportation (NASDAQ:SWFT), and Valeant Pharmaceuticals (NASDAQ:VLNT) are among the most obvious issues on the "watch" list. Positions in Ariba (NASDAQ:ARBA), Novatel Wireless (NASDAQ:NVTL) and Adolor (NASDAQ:ADLR) have previously been closed to limit potential losses. NAKED CALLS Stock Strike Strike Break Current Gain Max Simple Symbol Month Price Even Price (Loss) Yield Yield XLNX JAN 32.50 33.00 27.33 0.50 3.96% 1.52% SCSS JAN 17.50 18.05 17.00 0.55 7.68% 3.05% * PLAY JAN 35.00 36.05 22.00 1.05 12.22% 2.91% AFCO JAN 22.50 22.80 19.24 0.30 3.92% 1.32% SYMC JAN 32.50 33.00 23.79 0.50 6.06% 1.52% PDII JAN 30.00 30.30 20.07 0.30 4.64% 0.99% AGIX JAN 30.00 30.30 19.01 0.30 5.80% 0.99% EPIX JAN 20.00 20.45 16.30 0.45 8.03% 2.20% SWIR JAN 20.00 20.50 16.00 0.50 8.74% 2.44% CTAS JAN 45.00 45.45 43.77 0.45 3.30% 0.99% SPW JAN 42.50 42.90 38.75 0.40 3.47% 0.93% FHRX JAN 22.50 22.75 19.27 0.25 5.97% 1.10% MACR JAN 30.00 30.35 27.23 0.35 6.71% 1.15% CELG JAN 27.50 27.85 27.23 0.35 7.31% 1.26% * Special Tuesday Note: The Select Comfort (NASDAQ:SCSS) position was closed Tuesday after the issue rallied on news that fourth quarter results would exceed expectations due to a rebound in sales during December. The "watch-list" position in Celgene (NASDAQ:CELG) became a potential exit candidate when it moved through the sold (call) strike at $27.50 on positive earnings guidance. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 GLBC 17.04 FEB 15.00 GQC-NC 0.65 51 14.35 39 3.5% 9.3% CYBX 23.41 FEB 15.00 QAJ-NC 0.50 517 14.50 39 2.7% 7.5% NCRX 30.46 FEB 27.50 QNY-SE 0.60 505 26.90 39 1.7% 4.8% ELN 28.35 FEB 25.00 ELN-NE 0.50 2080 24.50 39 1.6% 4.6% TSRA 36.09 FEB 30.00 TJQ-NF 0.50 35 29.50 39 1.3% 4.4% CVC 24.75 FEB 22.50 CVC-NX 0.45 1209 22.05 39 1.6% 4.3% ZGEN 21.93 FEB 20.00 GZU-ND 0.40 0 19.60 39 1.6% 4.3% 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. _________________________________________________________________ GLBC - Global Crossing $17.04 *** In A Trading Range? *** Global Crossing (NASDAQ:GLBC) is a provider of telecom services to carriers and commercial enterprises around the world. The principal services the company offers to its customers include voice, data and conferencing services. Global Crossing offers these services using a global Internet protocol-based network that directly connects more than 300 cities in over 30 countries and delivers services to more than 500 major cities in over 50 countries around the world. The firm also provides installation and maintenance services for subsea telecommunications systems through its subsidiary, Global Marine Systems Limited. GLBC - Global Crossing $17.04 FEB 15.00 GQC-NC LB=0.65 OI=51 CB=14.35 DE=39 TY=3.5% MY=9.3% _________________________________________________________________ CYBX - Cyberonics $23.41 *** Speculation Only! *** Cyberonics (NASDAQ:ANSI) designs, develops, manufactures and markets the Cyberonics VNS (Vagus Nerve Stimulation) Therapy System, an implantable medical device for the treatment of epilepsy and other debilitating chronic disorders. The VNS Therapy System consists of the VNS Therapy Pulse Generator, the Bipolar Lead, the programming wand and software and the tunneling tool. The company has been approved by the FDA to market the VNS Therapy System in the United States, as an adjunctive therapy for reducing the frequency of seizures in patients over 12 years of age with partial onset seizures that are refractory or resistant to drugs. CYBX - Cyberonics $23.41 FEB 15.00 QAJ-NC LB=0.50 OI=517 CB=14.50 DE=39 TY=2.7% MY=7.5% _________________________________________________________________ NCRX - Neighborcare $30.46 *** A Healthy Stock! *** 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 $30.46 FEB 27.50 QNY-SE LB=0.60 OI=505 CB=26.90 DE=39 TY=1.7% MY=4.8% _________________________________________________________________ ELN - Elan Corporation $28.35 *** Consolidation Complete? *** Elan Corporation (NYSE:ELN) is an integrated biopharmaceutical firm engaged in research and development in Alzheimer's disease, Parkinson's disease, multiple sclerosis, pain management and autoimmune diseases. The company's objective is to discover and develop products that will fulfill the unmet medical needs of patients. Elan conducts its global business, including research, development, manufacturing and marketing, through subsidiaries incorporated in Ireland, the United States, the United Kingdom and other countries. ELN - Elan Corporation $28.35 FEB 25.00 ELN-NE LB=0.50 OI=2080 CB=24.50 DE=39 TY=1.6% MY=4.6% _________________________________________________________________ TSRA - Tessera Technologies $36.09 *** Uptrend Resumes? *** Tessera Technologies develops semiconductor-packaging technology that meets the ongoing demand for miniaturization and increased performance of electronic products. It licenses its technology to customers, enabling them to produce semiconductors that are smaller and faster and incorporate more features. These chips are utilized in electronics products, including digital cameras, MP3 players, personal computers, personal digital assistants, video game consoles and wireless phones. The firm's technology enables multiple semiconductors to be stacked vertically in a single three-dimensional, multi-chip package that occupies almost the same circuit board area as a chip-scale package. TSRA - Tessera Technologies $36.09 FEB 30.00 TJQ-NF LB=0.50 OI=35 CB=29.50 DE=39 TY=1.3% MY=4.4% _________________________________________________________________ CVC - Cablevision Systems $24.75 *** New Trading Range? *** Cablevision Systems (NYSE:CVC) is a cable operator in the U.S. The company also has investments in cable programming networks, entertainment businesses and telecommunications companies. Through its wholly owned subsidiary, Rainbow Media Holdings, the company owns interests in, and manages, numerous national and regional programming networks, the Madison Square Garden sports and entertainment business and cable tv advertising sales companies. Through Cablevision Lightpath, CSC provides switched telephone services and high-speed Internet access to the business market. The company also owns or has interests in a number of other businesses. CVC - Cablevision Systems $24.75 FEB 22.50 CVC-NX LB=0.45 OI=1209 CB=22.05 DE=39 TY=1.6% MY=4.3% _________________________________________________________________ ZGEN - ZymoGenetics $21.93 *** Own This One! *** ZymoGenetics (NASDAQ:ZYGN) focuses on the discovery, development and commercialization of therapeutic proteins for the treatment of human disease. Two of the firm's advanced internal products, rhThrombin & rFactor XIII, are recombinant versions of proteins that are marketed in forms derived from human or cow blood. ZymoGenetics has also participated in the development of five recombinant protein products marketed by other companies for the treatment of various diseases, including diabetes, hemophilia, diabetic ulcer, gastrointestinal motility and hypoglycemia in diabetic patients treated with insulin and myocardial infarction or heart attacks. ZGEN - ZymoGenetics $21.93 FEB 20.00 GZU-ND LB=0.40 OI=0 CB=19.60 DE=39 TY=1.6% MY=4.3% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ASKJ - Ask Jeeves $25.29 *** Next Leg Down? *** Ask Jeeves (NASDAQ:ASKJ) is a provider of Internet-wide search, providing consumers with authoritative and fast ways to find relevant information to their everyday searches. Ask Jeeves deploys its search technologies on Ask Jeeves (Ask.com and Ask.co.uk), Teoma.com, and Ask Jeeves for Kids (AJKids.com). In addition, to its internet sites, Ask Jeeves syndicates its monetized search technology and advertising units to a network of affiliate partners. The company is based in Emeryville, California, with offices in New York, Boston, New Jersey, Los Angeles, London and Dublin. ASKJ - Ask Jeeves $25.29 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL FEB 30 AUK-BF 2022 0.60 30.60 7.8% 2.0% _________________________________________________________________ RIGL - Rigel Pharmaceuticals $22.99 *** Trading Range? *** Rigel Pharmaceuticals (NASDAQ:RIGL) is engaged in the discovery and development of a range of small molecule product candidates for unmet medical needs. The company develops a portfolio of product candidates and takes these product candidates through Phase II clinical trials, after which, it seeks partners for completion of clinical trials, regulatory approval and sale. The company is conducting research efforts that are focused primarily in the areas of immunology/inflammation, virology and oncology. RIGL - Rigel Pharmaceuticals $22.99 "SPECULATIVE" 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 QRG-AE 853 0.35 40.35 12.2% 0.9% _________________________________________________________________ X - United States Steel $46.34 *** Sector Sell-Off! *** United States Steel (NYSE:X) is an integrated steel producer with major production operations in the United States and central Europe. An integrated producer uses iron ore and coke as primary raw materials for steel production. U. S. Steel is also engaged in several other businesses, most of which are related to steel manufacturing. These include the production of iron-bearing taconite pellets in the United States and coke in both the United States and central Europe; transportation services; real estate operations, and engineering and consulting services. X - United States Steel $46.34 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL JAN 50 X-AJ 12K+ 0.30 50.30 5.5% 0.6% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ************************Advertisement************************* Get your FREE weekly charts of the NASDAQ! Hot Stix’ stock market report reveals simple, powerful strategies for profiting from the QQQ - whether down or up! http://www.hotstix.com/public/weekly.asp?aid=755 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
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