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FNM - $54.95 Fannie Mae ** No Stop **

We were triggered on our short entry on Fannie Mae on Wednesday when FNM spiked through our $55 trigger point to $55.70. There is a gap at just over $56 that was nearly filled on Thursday.

Stronger jobs would mean more home loans for FNM but also higher rates from the Fed. That is not the problem we fear. Regulators are increasing their attack on the entity and Greenspan reiterated his warning on May-5th. He wants Congress to limit the multibillion-dollar holdings of FNM/FRE and warned again that any major problem with either could severely damage the U.S. markets. He favors allowing them to only hold the minimum level of mortgages as required by their charter. This would be a drastic cutback from current levels.

Fannie Mae has been suffering from numerous ailments including accounting problems. The regulator for FNM has asked for more power to dig deeper. We suspect any deeper digging could turn up some more skeletons.

2007 $50 LEAP Put VFN-MJ @ $5.40

Insurance Call
June $55 FNM-FK @ $2.00

Entry $55 (5/04)

APC - $73.81 Anadarko Petroleum ** No Stop **

APC dropped sharply on Tuesday and followed with a continued dip to the 100-day average on Wednesday. That dip to $70.50 triggered our long entry and provided a nearly perfect double bottom with the April 18th dip to within a nickel of the same level. This was about as good an entry as we could have scripted and I know from reader email several of you took advantage of it.

Anadarko has 2.37 billion barrels of proven reserves. They are the largest independent in a field of giants. Buying reserves is cheaper than finding them.

Anadarko has just completed a restructuring program and raised estimates on May-2nd. They expect output to rise +5% in 2005 and costs to be below industry trends. S&P is estimating $8.55 for earnings in 2005 and a price target of $85.

2007 $75 LEAP Call OCP-AO @ $10.10

Insurance Put
June $65 APC-RM @ $0.85

EEntry $70.50 (5/04)

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