The Option Investor Newsletter Tuesday 01-18-2005 Copyright 2005, All rights reserved. 1 of 3 Redistribution in any form strictly prohibited. In Section One: Wrap: Two Days Not a Trend Futures Markets: See Note Index Trader Wrap: See Note Market Sentiment: Back to Back Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 01-18-2005 High Low Volume Adv/Dcl DJIA 10628.79 + 70.79 10628.94 10500.58 2.01 bln 2212/1057 NASDAQ 2106.04 + 18.10 2106.19 2078.04 2.01 bln 1994/1188 S&P 100 569.53 + 5.09 569.53 562.01 Totals 4206/2245 S&P 500 1195.98 + 11.46 1195.98 1180.10 SOX 406.55 + 3.40 406.99 399.90 RUS 2000 624.87 + 7.39 625.81 615.29 DJ TRANS 3589.22 + 20.06 3594.07 3559.33 VIX 12.47 + 0.04 13.15 12.30 VXO (VIX-O)12.67 - 0.18 13.66 12.56 VXN 18.75 + 0.18 19.74 18.72 Total Volume 4,281M Total UpVol 2,998M Total DnVol 1,128M Total Adv 4817 Total Dcl 2560 52wk Highs 318 52wk Lows 62 TRIN 0.66 NAZTRIN 0.81 PUT/CALL 0.72 ************************************************************ Two Days Not a Trend by Jim Brown For the first time in 2005 the S&P has posted back to back gains. Bulls are backslapping each other and high fives are evident everywhere. Has the bull returned to 2005? It is too soon to really tell for sure but traders are now breathing easier as the indexes pull back from the brink once again. Two days does not make a trend but it could be a good start. Dow Chart Nasdaq Chart The day started off with a shock as oil prices soared to $49.50 and the NY Empire State Manufacturing Survey fell back to 20.1 from 27.1 for January. The manufacturing activity dropped sharply in New York state in January and the December number was revised down from 29.9 to 27.1. The NY Survey has been volatile of late with activity jumping very erratically between 14-30 over the last eight months. While the headline number was bad the internal components were worse. New Orders dropped from 36.1 to only 20.1 and Shipments backed off to 26.2 from 35.6. Inventories fell into negative territory at -10.9 and Employment fell to 12.7 from 15.7. This was not a positive report but it has been very volatile. Unless a trend develops to the downside it will likely be just watched carefully as a potentially bearish economic indicator forming and a reason for the Fed to not get to aggressive in future rate hikes. The NAHB Housing Index dropped only slightly to 70 from 71 and the recent cycle high made in December. We have been hovering around 70 since August and this continues to indicate that the housing market remains strong. However all three components did pull back slightly but home buying over the holidays is not normally strong. We are heading into the spring buying season and these numbers should continue to be strong. The downside will be higher rates ahead and higher energy prices taking money out of buyers pockets. We are hearing more about speculative excesses in several major markets and that suggests we are nearing a top but buyers continue to appear. The negative Empire survey and the high oil sent the indexes lower at the open but that dip was short lived. Oil prices had risen on worries the current cold front could last up to two weeks and the weather man has now rescinded that outlook. Funds that had speculated on that event causing further shortages took profits on the new announcement. The high for the day at $49.50 was quickly sold and stops were hit taking the price back to $47.72, nearly -$2 off the high before buyers stepped back into the market. Oil closed at $48.45 and up only slightly for the day. Tomorrow's oil inventory report will cause that volatility to continue. Complicating this short-term play was comments from the IEA that demand could increase +500,000 bpd in Q1. The EIA also said they expected demand to increase and their number was +1.4 mbpd or more. The IEA said supply dropped -50K bpd in December even before OPEC said they would cut production by one million bbls. In reality that cut has only seen a drop of -600K bpd and supplies are already running tight. With the OPEC meeting coming on Jan-30th the expectations for a new cutback in production are slipping. With demand increasing and prices hovering near $50 there is no need for OPEC to support prices any further. Support is already priced into the market with the increased demand. Demand from China spiked again in Nov/Dec and could continue to grow +8% to +13% according to IEA analysis today. There should be a drop in price after the inauguration and the Iraq elections as we enter spring and a period where demand temporarily slows. This should be seen as a buying opportunity for oil stocks when it occurs. The Fed has something in the works and their team of speakers hit the road today and will continue to do so this week. Two Fed heads made comments on the economy today and there are seven more speeches later this week. Philly Fed president, Santomero, said inflation risks were balanced but the Fed needed to remain vigilant as the economy continued to expand. Minnesota Fed president, Stern, said the economy was solid and inflation would remain low. If the rest of the speeches continue this train of thought it could be seen as the Fed giving us the all clear signal that rate hikes were going to pause. Very seldom do they mount a strong speaking campaign with the same thread unless they are trying to warn the bond markets of changes ahead. The next Fed meeting is Feb-1st so the timing is right for a message. The inauguration is only a day away and the $40 million extravaganza is going to be a huge target. Besides the actual event there are dozens of sideshows attracting huge crowds. There will be a parade with over 11,000 people just in the parade itself and is expected to attract several hundred thousand in attendees. There are nine formal balls where the rich and want to be rich will mingle and trade business cards in hopes of future dealings. Each of these poses another chance for potential problems. This could weigh on today's rally as we get closer to Thursday. Earnings are breaking out all over and the majority have been very good. IBM was the biggest name after the close and beat the street by a nickel. IBM earned a profit of over $3 billion for the quarter on sales of more than $27B. This huge cash windfall is due mostly to their services division which ended the quarter with an $111 billion backlog of orders. IBM said it was comfortable with analysts estimates of $5.55 per share for the year and $102 billion in revenue. IBM also said they might beat that revenue target. IBM rose only slightly in after hours trading. Yahoo also reported earnings that beat the street by +2 cents and gave guidance only slightly better than analysts had expected. YHOO jumped less than +$1 on the news. YHOO could see some pullback on Wednesday because traders typically expect a really strong outlook from Yahoo and the slightly better guidance may not hold the stock at these levels. AMD announced earnings that missed estimates by -3 cents but that should come as no surprise after last weeks warning. Better chip news came from Motorola, which beat the street by +3 cents and from Freescale (FSL) the MOT spin off which beat the street by a penny. Juniper beat the street by a penny and succeeded in lifting the networkers in after hours. Seagate Technology (STX) beat by a nickel and guided higher. Not all the earnings news was good. JDSU warned that it would miss street estimates because of a $13 million revenue drop associated with one customer and litigation expenses. KKD said they had ousted their CEO of seven years and hired a turnaround expert to rescue the donut maker from its problems. KKD warned that persistent sales declines in the current quarter may lead to its third quarterly loss for the year. Stephen Cooper, the new guy at the top has 30 years of experience in troubled companies like Enron, Polaroid, TWA, Pegasus Gold and most importantly Boston Chicken. KKD stockholders should be especially aware that BOST shareholders were left out in the cold when it was reorganized. I personally would not want to be a holder with Cooper at the helm. The easiest fix for him is a bankruptcy, close non performing stores and issue new shares to debt holders. He has done it before and as a hatchet man he is not really concerned about being nice and once KKD is back in shape he will move on leaving lots of bodies in his wake. All three of the officers blamed for the KKD problem, CEO, COO and CFO have now departed. As we approach option expiration this Friday the market has put together two days of back to back gains. The S&P closed at 1195 and +20 points off the critical 1175 area we were watching for a breakdown signal last week. With earnings and guidance mostly positive we could continue to see gains although OpEx and the inauguration could now combine to keep us range bound until next week. With the futures barely positive at 7:30 tonight it appears there is some concern already creeping into the market. The earnings were good but the guidance was not good enough for traders to throw caution to the wind and go on a buying spree. There are about 100 companies announcing earnings on Wednesday with EBAY, QLGC, QCOM, SYMC, LU, GM, CIT, COF and CIT leading the list. There has not been any real pre earnings ramp on any of the majors as caution ahead of earnings seems to be the game plan. This is good in the sense that we do not have a lot of expectations built into the market and we remain oversold despite today's bounce. The potential is there for a continued move up next week if the earnings continue to be solid and there are no negative inauguration events. With today's bounce we are in the neutral zone for the Dow. We are just over last weeks congestion range but just under the 10650 resistance and the congestion range from the prior week. This is the nearly perfect place to ride out the rest of the week with a Friday/Monday move over 10650. The Nasdaq is only slightly better off with a close just under the 2010 resistance high for the last two weeks. With positive tech earnings we should continue to press that level and a breakout could setup a new move back to the highs. SOX Chart The SOX stretched its gains for two days now and posted the second consecutive close over 400 and a five day closing high at 406. The 410-resistance level is just above and from the after hours trades in the SMH it appears the positive earnings from MOT/FSL offset the earnings miss by Rambus and there is no bias for the open. The strongest move was by the Russell with a breakout to a two week high at the close at 625. Only the slimmest thread is holding it back from a new move back towards the highs at 660. That would be a big leap of faith and we are far from seeing any confirmation. However, if the Russell is leading the pack it suggests the funds are putting money back to work and maybe the fund flows have finally appeared. For the rest of the week I would be cautiously optimistic ahead of potential event risk and option expiration. We typically see OpEx activity late in the week before and early of OpEx week with the last three days relatively tame. There are probably lots of option hedges in place for the inauguration event risk and Friday could be a major unwind day if nothing happens. While writing this article I was struck with the different world Bush faces over the next four years compared to what he thought he was facing when he took his last oath in Jan 2001. The world as we new it came to an end eight months after his last oath and he is facing an even bigger crisis over the next four years as he attempts to extract the U.S. from Iraq and face the coming energy crisis. Hopefully the war on terror has seen its biggest battle as we continue to mop up the remaining cells still trying to cause trouble. It will never be over but hopefully the lack of funding and the lack of a centralized backbone has weakened the resolve of those Al Qaeda members still in the system. If we get past Thursday without a terror event the country will probably relax even further and we can get back to contemplating the potential for a new bull market. Jim Brown Editor "Men who try something and fail are infinitely better off than those who try nothing and succeed." *************** 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 ***************** Check the Site Later Tonight For Jeff's Index Trader Article http://members.OptionInvestor.com/itrader/marketwrap/iw_011805_1.asp **************** MARKET SENTIMENT **************** Back to Back - J. Brown The bulls are trying to make a comeback and the S&P 500 index put together its first set of back-to-back gains for 2005. Some of the trader talk today discussed how stocks were short-term oversold after two weeks of profit taking and investors were doing some shopping. Stocks actually opened lower as crude oil gapped higher this morning but equities turned around as oil faded. Market watchers might be surprised that oil did not hold its gains given the new report from the IEA who raised their forecast on global demand for oil in 2005. Plus, oil traders are focused on the upcoming OPEC meeting and how any violence surrounding the Iraqi elections could pressure supplies. The markets also shrugged off some disappointing economic data. The NY Empire State manufacturing index fell from 27.1 in December to 20.1 in January, which was less than expected. Overall the market internals were pretty positive with advancing stocks outnumbering decliners 19 to 9 on the NYSE and 19 to 11 on the NASDAQ. Up volume was about three times down volume on the NYSE and more than double down volume on the NASDAQ. The rally in the financial stocks is very good news overall as some market theorists suggest we can't have a prolonged rally without the banking sector on the up swing. The BIX and BKX indices turned in some impressive gains and the brokers outshined the banks with a 1.8 percent rally in the XBD index. A numbered of positive earnings reports helped set the tone today and the good news kept on coming after the bell. IBM beat estimates. JNPR beat estimates. YHOO beat estimates. Overall the mood seems up beat and stocks should have the wind at their backs tomorrow. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 10868 52-week Low : 9708 Current : 10628 Moving Averages: (Simple) 10-dma: 10594 50-dma: 10591 200-dma: 10280 S&P 500 ($SPX) 52-week High: 1217 52-week Low : 1060 Current : 1195 Moving Averages: (Simple) 10-dma: 1186 50-dma: 1188 200-dma: 1133 Nasdaq-100 ($NDX) 52-week High: 1635 52-week Low : 1301 Current : 1573 Moving Averages: (Simple) 10-dma: 1562 50-dma: 1582 200-dma: 1467 ----------------------------------------------------------------- CBOE Market Volatility Index (VIX) = 12.47 +0.04 CBOE Mkt Volatility old VIX (VXO) = 12.67 -0.18 Nasdaq Volatility Index (VXN) = 18.75 +0.18 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.86 1,095,150 946,447 Equity Only 0.67 748,462 503,007 OEX 1.19 39,292 47,001 QQQQ 3.00 29,480 88,686 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 73.3 + 0 Bear Correction NASDAQ-100 73.0 + 0 Bull Correction*** Dow Indust. 73.3 + 0 Bull Confirmed S&P 500 74.6 + 0 Bull Confirmed S&P 100 76.0 + 0 Bull Confirmed Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-dma: 0.96 10-dma: 1.15 21-dma: 1.06 55-dma: 1.00 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 1936 1929 Decliners 910 1119 New Highs 131 78 New Lows 20 10 Up Volume 1480M 1263M Down Vol. 458M 594M Total Vol. 1968M 1966M M = millions ----------------------------------------------------------------- Commitments Of Traders Report: 01/11/05 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 There was very little movement in the latest data leaving commercials slightly bearish and small traders bullish on the large S&P futures contracts. Commercials Long Short Net % Of OI 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%) 01/11/05 457,383 509,892 (52,509) (5.4%) 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 12/14/04 201,428 164,111 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% 01/11/05 157,131 110,174 46,957 17.5% 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 slightly increased their bullish positions but everything else remained pretty much flat with the new data. Commercials Long Short Net % Of OI 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%) 01/11/05 322,800 622,509 (299,709) (31.7%) 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 12/14/04 398,915 137,598 261,317 48.7% 12/21/04 227,047 66,140 160,907 54.8% 01/04/05 279,274 71,151 208,123 59.4% 01/11/05 277,808 73,288 204,520 58.2% Most bearish reading of the year: (77,385) - 09/02/03 Most bullish reading of the year: 449,310 - 06/10/03 NASDAQ-100 Commercials upped both their longs and shorts for a minor decrease in bearishness. Small traders upped their longs for a bump in bullishness. Commercials Long Short Net % of OI 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%) 01/11/05 31,984 49,244 (17,260) (21.2%) 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 12/14/04 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% 01/11/05 27,186 8,470 18,716 52.4% 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 There isn't much movement in the commercials' positions but small traders significantly reduced their short positions. Commercials Long Short Net % of OI 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%) 01/11/05 25,254 32,568 (7,314) (12.6%) 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 12/14/04 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%) 01/11/05 5,141 5,389 ( 248) ( 2.3%) 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 01-18-2005 Copyright 2005, All rights reserved. 2 of 3 Redistribution in any form strictly prohibited. In Section Two: Dropped Calls: None Dropped Puts: ZMH Call Play Updates: AET, ARLP, AMGN, BBOX, CMI, FRO, KBH, PD, PHM, RAI, TXI New Calls Plays: GOOG, PIXR, WFMI Put Play Updates: ADBE, CAI, FDX New Put Plays: None **************** PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** None PUTS: ***** Zimmer Holdings - ZMH - close: 80.76 chg: +1.99 stop: 80.26 Wow! The reversal in ZMH has been pretty fast. It looks like the high-volume breakdown last week was nothing but a bear trap and we were suckered right in. Today's 2.5 percent rally back above the $80 mark and its 200-dma could cause even more short- covering tomorrow. We're thankful to be stopped out at $80.26. Picked on January 13 at $ 77.16 Change since picked: + 3.60 Earnings Date 01/31/05 (unconfirmed) Average Daily Volume = 1.6 million Chart = ************************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 ******************** Aetna Inc - AET - close: 126.53 change: -1.37 stop: 119.99 Hmm... seeing AET slip backwards on a day where the rest of the market is making gains and the IUX insurance index is breaking out is normally not a good sign. However, AET was showing relative strength last week and was due for a dip. Look for a bounce from the $125 region as a potential entry point. Picked on January 13 at $127.61 Change since picked: - 1.08 Earnings Date 02/10/05 (confirmed) Average Daily Volume = 2.2 million Chart = --- Alliance Resource - ARLP - close: 73.35 chg: +0.87 stop: 67.49 ARLP is getting closer to our initial target in the $74.50-75.00 range. The stock added another 1.2 percent and its MACD is nearing a new buy signal. Short-term traders can prepare to exit for a gain. We're going to hold on and see if shares can breakout over the $75 level. Picked on January 10 at $ 69.80 Change since picked: + 3.55 Earnings Date 10/28/04 (confirmed) Average Daily Volume = 115 thousand Chart = --- Amgen Inc - AMGN - close: 64.16 change: +0.35 stop: 62.00 Strength in the markets and the BTK biotech index helped AMGN turned in a positive day. Yet we're disappointed that AMGN didn't add more on the session, especially given the fact that BAC reiterated their "buy" rating on the stock this morning. The lack of leadership from AMGN could be an issue. We're suggesting that readers wait for shares to trade back over $65.25 before initiating positions. Of course we also have to keep the upcoming earnings report in mind as well. We do not want to hold over the event and we're running out of time. Picked on January 13 at $ 65.05 Change since picked: - 0.89 Earnings Date 01/26/05 (confirmed) Average Daily Volume = 7.3 million Chart = --- Black Box - BBOX - close: 46.91 change: +0.54 stop: 44.99 Our patience in BBOX just might pay off. Shares closed at new two-week highs and the technical oscillators are improving. This looks like a new bullish entry point for a run toward the $50 region. Given the strong earnings report from rival JNPR tonight we could see BBOX perform well tomorrow. Picked on December 22 at $ 46.15 Change since picked: + 0.76 Earnings Date 02/01/05 (confirmed) Average Daily Volume = 128 thousand Chart = --- Cummins Inc - CMI - close: 77.21 chg: +0.81 stop: 73.99 Bulls bought the early morning dip to $75.25 and CMI was positive the rest of the session. We feel CMI continues to look attractive for a rebound play from rising technical support and price support at the $75 mark. Picked on January 16 at $ 76.40 Change since picked: + 0.81 Earnings Date 02/01/05 (confirmed) Average Daily Volume = 785 thousand Chart = --- Frontline Ltd - FRO - close: 47.87 chg: -0.88 stop: 43.49 Whoops! After showing strength earlier in the session shares of FRO sank this afternoon in profit taking. After two weeks of gains we're not too surprised, especially with FRO testing overhead resistance at the 100-dma and the $50.00 mark. We suggested in the MarketMonitor this afternoon that short-term traders consider taking profits. The question now is where will bulls buy the dip? FRO could retrace back toward the $45 level but we hope not. Be patient and wait for the bounce. Picked on January 12 at $ 46.06 Change since picked: + 1.81 Earnings Date 02/00/05 (unconfirmed) Average Daily Volume = 1.1 million Chart = --- KB Home - KBH - close: 109.55 change: +0.14 stop: 99.50 We're surprised that KBH held up so well today. Normally when the market begins to turnaround it's tempting for traders to rotate out of their recent winners (like homebuilders) and rotate into something else. We remain bullish on the stock and its MACD supports us with a new buy signal from Friday. If KBH does dip we'll look for support in the $105-107 region. Picked on January 13 at $106.00 Change since picked: + 3.55 Earnings Date 03/17/05 (unconfirmed) Average Daily Volume = 1.1 million Chart = --- Phelps Dodge - PD - close: 101.00 change: -0.66 stop: 92.00 The action in PD was mixed. Shares started the session lower and fell to $99.50 before traders bought the dip. Unfortunately, the afternoon rally could not push through the $102 level. No change in our strategy. Picked on January 09 at $ 97.65 Change since picked: + 3.35 Earnings Date 01/27/05 (confirmed) Average Daily Volume = 2.2 million Chart = --- Pulte Homes - PHM - close: 66.01 chg: +0.02 stop: 61.00 The buying in the homebuilders took a pause today as investors threw money at the rest of the market. We remain bullish on PHM and expect to see some follow through on Friday's breakout over he $65 level. Picked on January 16 at $ 65.99 Change since picked: + 0.00 Earnings Date 02/02/05 (confirmed) Average Daily Volume = 1.5 million Chart = --- Reynolds American - RAI - close: 80.90 change: +1.16 stop: 76.75 Tobacco stocks were strong on Tuesday and RAI rally strong with a 1.45 percent gain to breakout over the $80 level and the December highs near $80.50. This is a new all-time high for RAI and looks like a new bullish entry point. Unfortunately, we don't have much time left. Keep an eye out for its earnings report near Jan. 24th. Picked on December 22 at $ 80.11 Change since picked: + 0.79 Earnings Date 01/24/05 (unconfirmed) Average Daily Volume = 1.0 million Chart = --- Texas Industries - TXI - close: 63.91 change: +0.63 stop: 59.00 Target achieved! TXI has hit our initial profit target in the $64.50-65.00 range this afternoon. Over the weekend we suggested that readers consider exiting for a gain given the rise in option values. We're going to make that suggestion again today. However, given the turnaround in the major indices we're going to hold on to TXI with the expectation that shares can breakout over resistance at $65.00. Picked on January 09 at $ 60.18 Change since picked: + 3.73 Earnings Date 12/16/04 (confirmed) Average Daily Volume = 238 thousand Chart = ************** NEW CALL PLAYS ************** Google Inc - GOOG - close: 203.90 change: +3.93 stop: 190.00 Company Description: Google's innovative search technologies connect millions of people around the world with information every day. Founded in 1998 by Stanford Ph.D. students Larry Page and Sergey Brin, Google today is a top web property in all major global markets. Google's targeted advertising program, which is the largest and fastest growing in the industry, provides businesses of all sizes with measurable results, while enhancing the overall web experience for users. Google is headquartered in Silicon Valley with offices throughout North America, Europe, and Asia. (source: company press release) Why We Like It: Buckle your seat belt. We're going to try trading GOOG again. Last time we successfully caught a wave from the $180 region toward resistance at $200. Now it looks like GOOG is poised to breakout. Shares actually hit a new all-time high today at $205 with volume coming in above average. We like GOOG for multiple reasons. First is the technical pattern. GOOG has painted a cup-and-handle formation. We just need to see shares break through the $205 level. Technical oscillators are positive and its MACD has produced a new buy signal. GOOG's P&F chart is very bullish as well with a bullish triangle breakout - one of the most successful patterns to play in an up trending market. Secondly, we like GOOG because shares are likely to trend higher as investors anticipate a strong earnings report. Rival Yahoo (YHOO) beat estimates tonight with profits soaring on a new online-advertising boom. GOOG will benefit from the rise in online advertising too so momentum traders will likely bid up shares before its February 1st earnings report. We are going to use a TRIGGER at $205.51. Once GOOG trades at this level or above we'll go long and target a run into the $215-220 range before its earnings report. We don't have much time and that makes this a higher-risk play than normal. Suggested Options: This is a short-term play and we're only suggesting the February calls. We would suggest the 200's or 210's. BUY CALL FEB 200 GOU-BT OI=4701 current ask $14.00 BUY CALL FEB 210 GOU-BB OI=2262 current ask $ 9.00 BUY CALL FEB 220 GOU-BD OI=9233 current ask $ 8.00 Annotated chart: Picked on January xx at $ xx.xx <-- see TRIGGER Change since picked: + 0.00 Earnings Date 02/01/05 (confirmed) Average Daily Volume = 11.3 million Chart = --- Pixar - PIXR - close: 88.24 change: +2.25 stop: 84.00 Company Description: Pixar Animation Studios combines creative and technical artistry to create original stories in the medium of computer animation. Pixar has created and produced six of the most successful and beloved animated films of all time: Academy Award®-winning Toy Story (1995); A Bug's Life (1998); Golden Globe-winner Toy Story 2 (1999); the Academy Award®-winning Monsters, Inc. (2001); the Academy Award®-winning Finding Nemo (2003); and The Incredibles (2004). Pixar's six films have earned more than $3 billion at the worldwide box office to date. The Northern California studio's next film release is Cars (June 9, 2006). (source: company press release) Why We Like It: We like PIXR for its technical breakout on Tuesday. Shares have been churning sideways between $83 and $88 for the last six weeks. Today's rebound in the NASDAQ helped push PIXR through resistance at the $88.00 level. This technical breakout is supported by a bullish RSI and stochastics oscillators and a new buy signal in the MACD. Plus, the point-and-figure chart shows a fresh triple-top breakout buy signal point to a $97 target. We do anticipate the top of the December gap down being resistance but PIXR looks poised to make a run back toward the $95 level. Suggested Options: This is a short-term play. We want to be out before PIXR's Feb. 10th earnings report. BUY CALL FEB 85 PQJ-BQ OI= 195 current ask $5.40 BUY CALL FEB 90 PQJ-BR OI= 467 current ask $2.60 Annotated chart: Picked on January 18 at $ 88.24 Change since picked: + 0.00 Earnings Date 02/10/05 (confirmed) Average Daily Volume = 934 thousand Chart = --- Whole Foods - WFMI - close: 97.50 change: +2.61 stop: 93.00 Company Description: Founded in 1980 in Austin, Texas, Whole Foods Market (http://www.wholefoodsmarket.com) 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 167 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 eighth 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: Last month we tried to play a breakout in WFMI but shares never made it over resistance at the $97.50 level and thus never hit our trigger point to go long. Now after a few more weeks of consolidating shares of WFMI look ready to try again and so are week. The strength in the two-day bounce from the 50-dma is encouraging and its technical indicators have turned positive. Plus, the bullish P&F chart points to a $112.00 target. We want to use a TRIGGER at $98.01 to catch a breakout and target a run into the $105-110 range before its Feb. 9th earnings report. Suggested Options: This is a short-term play and we do not want to hold past WFMI's February earnings report. BUY CALL FEB 95 FMQ-BS OI=3060 current ask $5.10 BUY CALL FEB100 FMQ-BT OI= 614 current ask $2.55 BUY CALL FEB105 FMQ-BA OI= 431 current ask $1.05 Annotated chart: Picked on January xx at $ xx.xx <-- see TRIGGER Change since picked: + 0.00 Earnings Date 02/09/05 (unconfirmed) Average Daily Volume = 880 thousand Chart = ************************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: 58.38 change: +0.15 stop: 60.11*new* We would be very careful here. ADBE broke down this morning and fell under support to hit $56.60. Unfortunately, with the market rebounding traders bought the dip in ADBE just as quickly. While ADBE is still showing relative weakness today has the potential to be a bullish reversal. We're going to lower our stop loss to $60.11. Picked on January 06 at $ 58.99 Change since picked: - 0.61 Earnings Date 03/17/05 (unconfirmed) Average Daily Volume = 2.3 million Chart = --- CACI Intl - CAI - close: 60.80 change: +1.41 stop: 62.51*new* We suggest caution on CAI too. Our gut says that today's 2.3 percent rally and close back above the $60 level is a good excuse to exit before shares rally any further. Yet looking deeper we see that the early morning strength was fueled by a broker upgrade (to a "buy"). The rally failed under the $62 level producing another lower high. We are not suggesting new positions and conservative traders may want to exit now. We're going to hold on and lower our stop loss to $62.51. Picked on January 05 at $ 61.95 Change since picked: - 1.15 Earnings Date 01/24/05 (unconfirmed) Average Daily Volume = 348 thousand Chart = --- Fedex Corp - FDX - close: 93.85 change: +0.53 stop: 95.51*new* The action in FDX was interesting today. We can't find any news to account for the sharp spike higher this morning but the rally failed under the $95 level, which should be round-number resistance. Rival UPS failed to rally at all today and broke down under its simple 200-dma so this could be weighing on FDX. Meanwhile we're a little concerned about the Transportation index. The $TRAN shows a similar spike higher this morning but while the rally failed for FDX the $TRAN held on to its gain and the index looks poised to break higher. Readers need to be careful. We're gong to lower our stop loss to $95.51. Picked on January 07 at $ 94.95 Change since picked: - 1.10 Earnings Date 03/17/05 (unconfirmed) Average Daily Volume = 1.6 million Chart = ************* NEW PUT PLAYS ************* None ************************Advertisement************************* Get your FREE weekly charts of the NASDAQ! Hot Stix’ stock market report reveals simple, powerful strategies for profiting from the QQQ - whether down or up! http://www.hotstix.com/public/weekly.asp?aid=755 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Tuesday 01-18-2005 Copyright 2005, All rights reserved. 3 of 3 Redistribution in any form strictly prohibited. In Section Three: Watch List: Coffee, Biotech and more Spreads & Straddles: Buyers Save The Day! Premium Selling Plays: Naked Puts & Calls ********** WATCH LIST ********** Coffee, Biotech 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. ___________________________________________________________________ Starbucks - SBUX - close: 57.95 change: +1.74 WHAT TO WATCH: Aggressive bulls may want to give this bounce in SBUX a second look. Shares had retreated from $65 to $55 over the last four weeks and were due for a bounce. Now short-term oscillators are turning positive and it wouldn't surprise us to see a small earnings run ahead of its Jan. 26th report. Chart= --- Biogen Idec - BIIB - close: 67.80 change: +1.22 WHAT TO WATCH: We continue to watch the five-week consolidation in shares of BIIB. The stock has been digesting the breakout over the $65 level long enough and technical oscillators are suggesting BIIB is ready for another leg higher. We would keep one eye on the BTK biotech index and the other for a breakout over $68.50 in BIIB as a potential entry point. Chart= --- Lehman Brothers - LEH - close: 90.57 change: +0.89 WHAT TO WATCH: The broker-dealer stocks turned in a very solid session with the XBD index adding 1.8 percent. LEH helped lead the way with a one-percent rally through resistance at $90.00 to close at new all-time highs. We will confess that the stock looks a little extended to us but momentum traders may want to consider positions here. Use the 40 & 50-dma's for support. Chart= ----------------------------------- RADAR SCREEN - more stocks to watch ----------------------------------- GS $105.00 +0.78 - GS is another broker-dealer we're watching. A breakout over $106.00 could be a bullish entry point. RE $90.80 +1.75 - The sharp rally in RE has pushed shares through resistance at $90.00 to hit new all-time highs. PGR $86.73 +2.84 - We noticed the IUX insurance index broke out today and the sharp rally in PGR looks like a potential double- bottom. ************************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 ******************* Buyers Save The Day! By Ray Cummins The major equity averages soared Monday as investors ignored the potential effects of rising oil costs and focused instead on a gaggle of positive earnings reports. Stocks were due for a bounce after a two-week slump and analysts noted that market momentum has likely shifted to the upside in the near-term. The Dow Jones Industrial Average closed up 70 points at 10,628 on strength in American International Group (NYSE:AIG), SBC Communications (NYSE:SBC), Hewlett-Packard (NYSE:HPQ) and JP Morgan Chase (NYSE:JPM). The NASDAQ Composite Index climbed 18 points, to 2,106 amid bullish activity in disk drive, telecom, and computer hardware shares. Among the broader market sectors, gains in brokers, biotech, airline, health care, drugstores and utility shares propelled the S&P 500 Index 11 points higher to 1,195. Advancers outpaced decliners by a 2 to 1 on the New York Stock Exchange, and by a 3 to 2 margin on the NASDAQ. Trading volume was around 1.6 billion on the Big Board and 2.0 billion on the technology exchange. In the bond market, treasury prices ended higher after Federal Reserve members assured traders that inflationary pressures in the U.S. economy remain under control. The benchmark 10-year note finished up 4/32, yielding 4.19%. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SUMMARY OF CURRENT POSITIONS - AS OF 01/14/05 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 34.89 JAN 25.0 27.5 0.40 27.10 0.40 Open CFC 33.21 36.75 JAN 27.5 30.0 0.30 29.70 0.30 Open EBAY 112.20 105.20 JAN 95.0 100.0 0.60 99.40 0.60 Open? LEND 46.85 49.06 JAN 35.0 40.0 0.50 39.50 0.50 Open LEN 50.11 57.53 JAN 42.5 45.0 0.30 44.70 0.30 Open PHM 59.65 65.99 JAN 50.0 55.0 0.75 54.25 0.75 Open MRVL 34.89 34.89 JAN 27.5 30.0 0.30 29.70 0.30 Open VRTS 27.38 26.94 JAN 22.5 25.0 0.45 24.55 0.45 Open ERTS 61.71 59.84 JAN 55.0 57.5 0.35 57.15 0.35 Open PENN 59.87 62.27 JAN 50.0 55.0 0.50 54.50 0.50 Open YHOO 37.90 36.70 JAN 32.5 35.0 0.30 34.70 0.30 Open ANF 47.28 50.33 JAN 42.5 45.0 0.35 44.65 0.35 Open MRVL 34.50 34.89 JAN 30.0 32.5 0.30 32.20 0.30 Open PIXR 86.36 85.99 FEB 75.0 80.0 0.70 79.30 0.70 Open CECO 42.05 41.00 FEB 30.0 35.0 0.65 34.35 0.65 Open CVS 47.11 47.00 FEB 42.5 45.0 0.30 44.70 0.30 Open L/P = Long Put S/P = Short Put CB = Cost Basis G/L = Gain/Loss The position in Kmart Holdings (NASDAQ:KMRT), which is currently profitable, and the Navteq (NYSE:NVT) spread, have previously been closed to limit potential losses. Ebay (NASDAQ:EBAY) is the most prominent candidate on the "watch" list with its earnings report due this week. CALL-CREDIT SPREADS Stock Pick Last Mon L/C S/C Credit CB G/L Status SINA 37.93 30.00 JAN 50.0 45.0 0.60 45.60 0.60 Open LLY 53.33 57.25 JAN 65.0 60.0 0.65 60.65 0.65 Open NVLS 26.94 26.80 JAN 32.5 30.0 0.35 30.35 0.35 Open CCU 33.15 32.00 JAN 40.0 35.0 0.50 35.50 0.50 Open UVN 29.06 27.92 JAN 35.0 30.0 0.80 30.80 0.80 Open ADI 36.42 35.64 JAN 45.0 40.0 0.50 40.50 0.50 Open KOSP 35.13 33.12 JAN 45.0 40.0 0.55 40.55 0.55 Open TTWO 33.45 34.84 JAN 40.0 37.5 0.30 37.80 0.30 Open MSTR 56.22 58.16 JAN 70.0 65.0 0.65 65.65 0.65 Open ABC 57.09 57.27 JAN 65.0 60.0 0.45 60.45 0.45 Open RIMM 83.49 76.39 JAN 100.0 95.0 0.45 95.45 0.45 Open PKZ 32.99 37.44 JAN 40.0 35.0 0.85 35.85 (1.59) Closed UHS 44.51 44.33 JAN 50.0 45.0 0.60 45.60 0.60 Open JNPR 25.80 26.60 JAN 30.0 27.5 0.35 27.85 0.35 Open DNA 51.75 50.10 JAN 57.5 55.0 0.35 55.35 0.35 Open BJS 43.09 45.71 FEB 50.0 47.5 0.30 47.80 0.30 Open MERQ 41.25 40.68 FEB 47.5 45.0 0.50 45.50 0.50 Open IMCL 42.70 41.16 FEB 55.0 50.0 0.45 50.45 0.45 Open NTES 49.97 51.17 FEB 60.0 55.0 0.80 55.80 0.80 Open L/C = Long Call S/C = Short Call CB = Cost Basis G/L = Gain/Loss The speculative position in PetroKazakhstan (NYSE:PKZ) has been closed to limit potential losses. Netease.com (NASDAQ:NTES) is 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? IIVI 39.91 40.13 JAN 40.0 40.0 2.75 2.50 Open Beazer Homes (NYSE:BZH) came up just short of the "break-even" point in the position with the bearish portion of the straddle nearly paying for the entire play during it's recent slide to $134. Now the issue seems destined to climb to new highs and traders who used the sell-off to unload the JAN-$145 puts are holding nearly "risk-free" calls. II-VI is scheduled to post its second quarter earnings on Thursday, January 20. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ CTX - Centex $60.85 *** Homebuilding Stocks Soar! *** Centex Corporation (NYSE:CTX) is a multi-industry company with operates in six principal business segments. Conventional Homes operations involve the construction and sale of single-family homes, town homes and low-rise condominiums, and the purchase and development of land. Investment Real Estate operations involve the acquisition, development and sale of land, and the development of industrial, office, retail and mixed-use projects. Financial Services operations involve the financing of homes, home equity and sub-prime lending, and the marketing of insurance coverage. Construction Products involves cement production and distribution, and the production, distribution and sale of gypsum wallboard, concrete, aggregates and recycled paperboard. Contracting and Construction Services involves the construction of buildings. Centex HomeTeam Services is involved in pest and termite control, lawn and landscape care, electronic security, alarm monitoring and home-wiring services. CTX - Centex $60.85 PLAY (conservative - bullish/credit spread): BUY PUT FEB-50.00 CTX-NJ OI=547 ASK=$0.35 SELL PUT FEB-55.00 CTX-NK OI=587 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.50-$0.55 POTENTIAL PROFIT(max)=11% B/E=$54.50 __________________________________________________________________ UPL - Ultra Petroleum $50.61 *** Oil Sector Hedge *** Ultra Petroleum (NYSE:UPL) is an independent oil and gas company engaged in the development, production, operation, exploration and acquisition of oil and gas properties. The firm's operations are focused mainly in the Green River Basin of southwest Wyoming and Bohai Bay, offshore China. Ultra Petroleum also has working interests in Texas and Pennsylvania. UPL - Ultra Petroleum $50.61 PLAY (conservative - bullish/credit spread): BUY PUT FEB-40.00 UPL-NH OI=267 ASK=$0.30 SELL PUT FEB-45.00 UPL-NI OI=646 BID=$0.80 INITIAL NET-CREDIT TARGET=$0.55-$0.60 POTENTIAL PROFIT(max)=12% B/E=$44.45 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ CCMP - Cabot Microelectronics $36.51 *** In A Trading Range? *** Cabot Microelectronics (NASDAQ:CCMP) is a global supplier of high performance polishing slurries used in the manufacture of advanced integrated circuit (IC) devices, within a process called chemical mechanical planarization (CMP). CMP is a polishing process used by IC device manufacturers to planarize or flatten many of the multiple layers of material that are built upon silicon wafers and necessary in the production of advanced ICs. Planarization is a polishing process that levels, smoothes, and removes the excess material from the surfaces of these layers. CMP slurries are liquid formulations that facilitate and enhance this polishing process and generally contain engineered abrasives and proprietary chemicals. CMP enables IC device manufacturers to produce smaller, faster and more complex IC devices with fewer defects. CCMP - Cabot Microelectronics $36.51 PLAY (less conservative - bearish/credit spread): BUY CALL FEB-45.00 UKR-BI OI=222 ASK=$0.25 SELL CALL FEB-40.00 UKR-BH OI=1461 BID=$0.90 INITIAL NET-CREDIT TARGET=$0.70-$0.75 POTENTIAL PROFIT(max)=16% B/E=$40.70 __________________________________________________________________ MMM - 3M Company $82.02 *** Post-Earnings Slump! *** 3M Company (NYSE:MMM) is a diversified technology company with a global presence in markets such as: healthcare, industrial, display and graphics, consumer and office, safety, security services, electronics, telecommunications and electrical and transportation. 3M has substantial inter-company cooperation in research, manufacturing and marketing of products and sells its products through numerous distribution channels including wholesalers, retailers, jobbers, distributors and dealers in a wide variety of trades in many countries. MMM - 3M Company $82.02 PLAY (conservative - bearish/credit spread): BUY CALL FEB-90.00 MNZ-BR OI=1247 ASK=$0.15 SELL CALL FEB-85.00 MNZ-BQ OI=8682 BID=$0.60 INITIAL NET-CREDIT TARGET=$0.50-$0.55 POTENTIAL PROFIT(max)=11% B/E=$85.50 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ STRADDLES AND STRANGLES ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Based on analysis of the historical option pricing and technical background, these positions meet the fundamental criteria for favorable volatility-based plays. _________________________________________________________________ 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 01/14/05 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 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 7.85 0.40 7.51% 5.63% RHAT JAN 12.50 12.05 11.83 (0.22) 0.00% 3.73% NCRX JAN 25.00 24.40 30.50 0.60 4.78% 2.46% NTGR JAN 15.00 14.65 16.06 0.35 4.58% 2.39% RMBS JAN 17.50 17.10 21.14 0.40 4.87% 2.34% TLCV JAN 10.00 9.65 9.10 (0.55) 0.00% 0.00% WITS JAN 15.00 14.55 16.80 0.45 5.38% 3.09% IDCC JAN 17.50 16.95 17.90 0.55 6.62% 3.24% MSO JAN 17.50 17.05 28.13 0.45 5.62% 2.64% MSO JAN 20.00 19.60 28.13 0.40 5.28% 2.04% ACF JAN 22.50 21.65 24.45 0.85 6.54% 3.93% USNA JAN 30.00 29.00 33.18 1.00 6.12% 3.45% DHB JAN 15.00 14.35 15.54 0.65 10.38% 4.53% GTOP JAN 12.50 12.05 15.68 0.45 8.45% 3.73% CMVT JAN 22.50 22.05 22.72 0.45 3.93% 2.04% RMBS JAN 20.00 19.35 21.14 0.65 8.12% 3.36% IDCC JAN 17.50 17.05 17.90 0.45 6.77% 2.64% NFLD JAN 17.50 17.05 21.02 0.45 6.15% 2.64% NCRX JAN 25.00 24.55 30.50 0.45 4.60% 1.83% RMBS JAN 20.00 19.45 21.14 0.55 7.18% 2.83% NKTR JAN 17.50 17.05 18.61 0.45 5.64% 2.66% ALXN JAN 20.00 19.65 22.65 0.35 4.51% 1.78% AMLN JAN 20.00 19.65 23.59 0.35 4.07% 1.78% SWFT JAN 20.00 19.65 19.84 0.19 2.50% 1.78% NEOL JAN 10.00 9.70 11.09 0.30 10.31% 3.09% KFX JAN 12.50 12.20 12.91 0.30 7.80% 2.46% NAVR JAN 15.00 14.50 16.76 0.50 8.94% 3.45% IDCC JAN 17.50 17.25 17.90 0.25 5.28% 1.45% NTGR JAN 15.00 14.60 16.06 0.40 7.61% 2.74% CTIC JAN 7.50 7.00 8.00 0.50 16.41% 7.14% FXEN JAN 10.00 9.30 14.88 0.70 20.65% 7.53% NTMD JAN 22.50 22.25 23.70 0.25 4.52% 1.12% ELN JAN 25.00 24.45 28.25 0.55 7.06% 2.25% VRX JAN 25.00 24.55 24.80 0.25 3.21% 1.83% IDCC JAN 20.00 19.75 17.90 (1.85) 0.00% 0.00% * MSO JAN 25.00 24.60 28.13 0.40 7.12% 1.63% SONC JAN 30.00 29.65 31.21 0.35 5.15% 1.18% ALVR JAN 12.50 12.15 12.69 0.35 12.44% 2.88% NFLD JAN 20.00 19.65 21.02 0.35 8.66% 1.78% BCSI JAN 17.50 17.20 19.09 0.30 8.29% 1.74% HLEX JAN 15.00 14.75 16.60 0.25 7.47% 1.69% FLML JAN 17.50 17.25 18.13 0.25 7.05% 1.45% CTIC JAN 7.50 7.25 8.00 0.25 22.85% 3.45% FXEN JAN 12.50 12.20 14.88 0.30 15.53% 2.46% INTV JAN 12.50 12.20 12.40 0.20 9.74% 2.46% NTGR JAN 15.00 14.70 16.06 0.30 13.00% 2.04% VTIV JAN 20.00 19.60 20.81 0.40 11.61% 2.04% IFLO JAN 17.50 17.25 17.91 0.25 9.03% 1.45% PDLI JAN 20.00 19.75 19.62 (0.13) 0.00% 0.00% BLUD JAN 25.00 24.70 28.07 0.30 7.20% 1.21% GLBC FEB 15.00 14.35 20.52 0.65 9.34% 4.53% TSRA FEB 30.00 29.50 38.31 0.50 4.41% 1.69% ELN FEB 25.00 24.50 28.25 0.50 4.59% 2.04% ZGEN FEB 20.00 19.60 22.10 0.40 4.31% 2.04% NCRX FEB 27.50 26.90 30.50 0.60 4.76% 2.23% CVC FEB 22.50 22.05 24.35 0.45 4.33% 2.04% CYBX FEB 15.00 14.50 23.44 0.50 7.53% 3.45% The "watch-list" position in Interdigital (NASDAQ:IDCC) should have been closed Thursday when the stock plunged after Nokia (NYSE:NOK) filed a lawsuit to invalidate some of IDCC's 3G mobile phone patents. A number of other issues are potential "early-exit" candidates. Redhat (NASDAQ:RHAT) and TLC Vision (NASDAQ:TLCV) are among the most obvious, however Comverse Technology (NASDAQ:CMVT), DHB Industries (NYSE:DHB), KFX Inc. (NYSE:KFX) and Swift Transportation (NASDAQ:SWFT) remain on the "watch" list with a slew of newcomers. Positions in Ariba (NASDAQ:ARBA), Adolor (NASDAQ:ADLR), Jupitermedia (NASDAQ:JUPM), MGI Pharma (NASDAQ:MOGN), and Novatel Wireless (NASDAQ:NVTL) 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 26.52 0.50 3.96% 1.52% PLAY JAN 35.00 36.05 24.51 1.05 12.22% 2.91% AFCO JAN 22.50 22.80 20.26 0.30 3.92% 1.32% SYMC JAN 32.50 33.00 24.51 0.50 6.06% 1.52% PDII JAN 30.00 30.30 19.09 0.30 4.64% 0.99% AGIX JAN 30.00 30.30 20.14 0.30 5.80% 0.99% EPIX JAN 20.00 20.45 10.67 0.45 8.03% 2.20% SWIR JAN 20.00 20.50 15.47 0.50 8.74% 2.44% CTAS JAN 45.00 45.45 43.33 0.45 3.30% 0.99% SPW JAN 42.50 42.90 38.67 0.40 3.47% 0.93% FHRX JAN 22.50 22.75 19.10 0.25 5.97% 1.10% MACR JAN 30.00 30.35 27.73 0.35 6.71% 1.15% NOI JAN 35.00 35.25 35.96 (0.71) 0.00% 0.00% TASR JAN 25.00 25.75 19.64 0.75 23.22% 2.91% SINA JAN 30.00 30.50 30.00 0.50 15.11% 1.64% X JAN 50.00 50.30 50.45 (0.15) 0.00% 0.00% RIGL JAN 40.00 40.35 21.77 0.35 12.22% 0.87% ASKJ FEB 30.00 30.60 30.04 0.56 7.27% 1.96% Ask Jeeves (NASDAQ:ASKJ) quickly became an exit candidate when the issue rallied Wednesday afternoon despite a lack of public news. National Oilwell (NYSE:NOI) and U.S. Steel (NYSE:X) were also closed in the wake of unexpected bullish activity. Select Comfort (NASDAQ:SCSS) and Celgene (NASDAQ:CELG) have previously been closed to limit potential losses. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW POSITIONS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any new investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your personal skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any trading techniques in which you are not completely comfortable with the potential capital loss, the necessary adjustments, and the common entry-exit strategies. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered puts entails considerable financial risk, far more than the initial margin or collateral required to open a position. The maximum financial obligation for the sale of a naked put is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of puts should have the cash or collateral equivalent of the sold strike price in reserve at all times. In addition, there is one very important rule when using this strategy: Don't sell puts on stocks that you don't want to own! Why? Because stocks occasionally experience catastrophic declines, exponentially increasing the margin maintenance and possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock's price falls. Many professional traders suggest closing the position when the underlying share value moves below the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ NEW NAKED-PUT CANDIDATES Stock Last Option Option Last Open Cost Days Simple Max Symbol Price Series Symbol Bid Int. Basis Exp. Yield Yield GERN 9.17 FEB 7.50 GQD-NU 0.40 532 7.10 32 5.4% 15.9% FXEN 15.98 FEB 12.50 IWQ-NV 0.30 285 12.20 32 2.3% 8.2% BCSI 21.69 FEB 17.50 IYU-NW 0.40 145 17.10 32 2.2% 7.8% CREAF 16.89 FEB 15.00 RFQ-NC 0.40 273 14.60 32 2.6% 7.2% MYGN 25.88 FEB 22.50 GSQ-NX 0.45 160 22.05 32 1.9% 5.8% MAY 32.31 FEB 30.00 MAY-NF 0.50 50 29.50 32 1.6% 4.3% TRMB 32.82 FEB 30.00 TUH-NF 0.40 47 29.60 32 1.3% 3.6% 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. _________________________________________________________________ GERN - Geron $9.17 *** Speculation Only! *** Geron (NASDAQ:GERN) is a biopharmaceutical company focused on developing and commercializing therapeutic and diagnostic products for cancer. The company's products are based on its telomerase technology and cell-based therapeutics using its human embryonic stem cell technology. Geron is working to create anti-cancer therapies based on telomerase inhibitors, telomerase therapeutic vaccines and, through its collaborators, telomerase-based oncolytic (cancer-killing) viruses. It also intends to continue the development and commercialization of its products using telomerase as a marker for cancer diagnosis, prognosis, patient monitoring and screening. GERN - Geron $9.17 FEB 7.50 GQD-NU LB=0.40 OI=532 CB=7.10 DE=32 TY=5.4% MY=15.9% _________________________________________________________________ FXEN - FX Energy $15.98 *** Rally Mode! *** FX Energy (NASDAQ:FXEN) is an independent oil and gas company focused on exploration, development and production opportunities in the Republic of Poland, in association with the Polish Oil and Gas Company and others. The company's ongoing activities in Poland are conducted in five project areas: Fences I, II and III, Pomeranian and Wilga. It is working almost exclusively on these project areas, where the gas-bearing Rotliegendes sandstone reservoir rock in Poland's Permian Basin may be a direct analog to the Southern North Sea gas basin, offshore England. FXEN - FX Energy $15.98 FEB 12.50 IWQ-NV LB=0.30 OI=285 CB=12.20 DE=32 TY=2.3% MY=8.2% _________________________________________________________________ BCSI - Blue Coat Systems $21.69 *** Bottom-Fishing Only! *** Blue Coat Systems (NASDAQ:BCSI) designs, develops, markets and supports proxy appliances. Based on Blue Coat SGOS, a custom, object-based operating system with integrated caching, these proxy appliances leverage existing authentication systems to enable flexible policy enforcement down to the individual user. The Blue Coat ProxySG appliances combine proxy support of most Web protocols with integrated uniform resource locator (URL) filtering, content security, Web-virus scanning, instant messaging control, peer-to-peer control and streaming control. BCSI - Blue Coat Systems $21.69 FEB 17.50 IYU-NW LB=0.40 OI=145 CB=17.10 DE=32 TY=2.2% MY=7.8% _________________________________________________________________ CREAF - Creative Technology $16.89 *** Multi-Year High! *** Creative Technology (NASDAQ:CREAF) is a provider of personal digital entertainment products and products for personal computers. Its products include digital media players and other products used in a wide array of solutions for PC entertainment, education, music, Internet applications and services, and productivity tools markets. Creative's product line includes a wide array of PDE products, such as the MuVo and Zen line of portable digital media players, DC-CAM/PC-CAM and Webcam digital cameras, and PC upgrades, such as Sound Blaster audio cards, multi-channel speakers and a mix of other products, including three-dimensional graphics cards, modems, software, musical instruments, computer mice and keyboards. CREAF - Creative Technology $16.89 FEB 15.00 RFQ-NC LB=0.40 OI=273 CB=14.60 DE=32 TY=2.6% MY=7.2% _________________________________________________________________ MYGN - Myriad Genetics 25.88 *** "Hot" Drug Stock! *** Myriad Genetics (NASDAQ:MYGN) is a biopharmaceutical company focused on the development of novel therapeutic products and the development and marketing of predictive medicine products. The company's researchers have made important discoveries in the fields of cancer, Alzheimer's disease, viral diseases (such as HIV), depression and obesity. Myriad is conducting a human clinical trial for the evaluation of Flurizan for the treatment of Alzheimer's disease. MYGN - Myriad Genetics $25.88 FEB 22.50 GSQ-NX LB=0.45 OI=160 CB=22.05 DE=32 TY=1.9% MY=5.8% _________________________________________________________________ MAY - May Department Stores $32.31 *** CEO Down - Stock Up! *** May Department Stores (NYSE:MAY operates six department stores divisions in the United States. The department store divisions are Lord & Taylor; Filene's and Kaufmann's; Robinsons-May and Meier & Frank; Foley's, and Famous-Barr, L.S. Ayres and The Jones Store; and Hecht's and Strawbridge's. May National Bank of Ohio, an indirect subsidiary, extends credit to customers of May's six department store divisions. May Merchandising Company, an indirect subsidiary, works closely with its six department store divisions and merchandise vendors to identify emerging fashion trends and to develop merchandise assortments. MAY - May Department Stores $32.31 FEB 30.00 MAY-NF LB=0.50 OI=50 CB=29.50 DE=32 TY=1.6% MY=4.3% _________________________________________________________________ TRMB - Trimble Navigation $32.82 *** Target An Entry Point! *** Trimble Navigation (NASDAQ:TRMB) provides positioning product solutions to commercial and government users in a large number of markets. These markets include surveying, construction, agriculture, urban and resource management, transportation and telecommunications. The company is organized into four segments encompassing its various applications and product lines: Engineering and Construction, Field Solutions, Component Technologies and Mobile Solutions. Trimble also operates in other business areas such as military and inertial integration technologies. TRMB - Trimble Navigation $32.82 FEB 30.00 TUH-NF LB=0.40 OI=47 CB=29.60 DE=32 TY=1.3% MY=3.6% TS ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ BEARISH PLAYS - NAKED CALLS Based on analysis of option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for bearish "premium-selling" strategies. Each issue has robust option premiums, a well-defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL! The sale of uncovered calls entails considerable financial risk, far more than the initial margin or collateral required to open the position. The maximum financial obligation for the sale of a naked option is the strike price (of the underlying stock) that is sold. Although this obligation is reduced by the premium from the sale of the option, a writer of options must have the cash or collateral equivalent of the sold strike price in reserve at all times. The simple fact is: stocks often experience large price swings, exponentially increasing the margin maintenance and very possibly causing a devastating shortfall in your portfolio. It is also important that you consider using trading stops on naked option positions to help limit losses when a stock price moves in a volatile manner. Many professional traders suggest closing the position when the underlying share value moves beyond the sold strike, or using a "buy-to-close" stop order at a price that is no more than twice the original premium received from the sold option. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ GP - Georgia-Pacific $33.99 *** Mediocre Profit Outlook! *** Georgia-Pacific (NYSE:GP) has been engaged in the manufacture of four principal products: tissue products, including bath tissue, paper towels and napkins, and disposable tabletop products, including cups, plates, cutlery and containers; containerboard and packaging, bleached pulp and paper, and the manufacture and distribution of building products such as plywood, oriented strand board, various industrial wood products and softwood and hardwood lumber, as well as some non-wood products, including gypsum board, chemicals and other products. GP - Georgia-Pacific $33.99 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL FEB 35 GP-BG 176 0.75 35.75 5.3% 2.1% _________________________________________________________________ MBT - Mobile TeleSystems $33.42 *** Consolidation Underway *** Mobile TeleSystems (NYSE:MBT) is a provider of mobile cellular communications services in the Russian Federation and Ukraine, employing technology based primarily on Global System for Mobile Communications. In addition to standard voice services, the company offers its subscribers value-added services, including voice mail, short message service, general packet radio service, various other information and entertainment services (including multimedia messaging service), and data and fax transmission. It also offers its subscribers the ability to roam automatically throughout Europe and in much of the rest of the world. MBT - Mobile TeleSystems $33.42 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL FEB 36.25 MBT-BR 316 0.60 36.85 5.1% 1.6% _________________________________________________________________ TTWO - Take-Two Int. Software $33.84 *** ERTS Wins Again! *** Take-Two Interactive Software (NASDAQ:TTWO) is an integrated developer, marketer, distributor and publisher of interactive entertainment software games and accessories for the personal computer, PlayStation, PlayStation2, Nintendo Game Boy Color, Nintendo GameCube, Nintendo Game Boy Advance and the Xbox. The company publishes and develops products through various wholly owned subsidiaries including Rockstar Games, Rockstar Studios, Gathering of Developers, TalonSoft, Joytech, PopTop, Global Star and under the Take-Two brand name. The company maintains sales and marketing offices in Cincinnati, New York, Toronto, London, Paris, Munich, Vienna, Copenhagen, Milan, Sydney and Auckland. TTWO - Take-Two Int. Software $33.84 PLAY (sell naked call): Action Month & Option Open Last Cost Max. Simple Req'd Strike Symbol Int. Price Basis Yield Yield SELL CALL FEB 35 TUO-BG 2056 0.90 35.90 6.4% 2.5% ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ SEE DISCLAIMER - SECTION 1 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ************************Advertisement************************* Get your FREE weekly charts of the NASDAQ! 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