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Enron Mail |
---------------------- Forwarded by Mark - ECT Legal Taylor/HOU/ECT on
01/27/99 04:03 PM --------------------------- Enron Capital & Trade Resources Corp. From: xtrials@optioninvestor.com (Option Investor Newsletter Trials) 01/24/99 06:32 AM Please respond to xtrials@optioninvestor.com To: Option Investor Newsletter Trials <xtrials@optioninvestor.com< cc: (bcc: Mark - ECT Legal Taylor/HOU/ECT) Subject: Sunday - Option Investor Newsletter 5 of 6 (Puts/Combos) The Option Investor Newsletter 1-24-98 Sunday 5 of 6 PUTS Continued ************** Campbell Soup Company (CPB) - $44.31 .25 (-.81) Campbell Soup Company is a global manufacturer and marketer of branded convenience food products operating in three business segments: Soup and Sauces, Biscuits and Confectionery, and Foodservice. Campbell Soup Company is the world's largest maker and marketer of soup with fiscal 1998 sales of $6.7 billion. Warm weather, flat sales, inefficient supply chain, and company's ability to achieve costs savings and capacity utilization are being called into question by analysts. Increased marketing and selling expenses, increased store level inventory levels, encroachment from private label (store brand) products, reduced consumption levels and a recent announce of new cost-cutting initiatives will cause fiscal 1999 earnings to fall short of analysts' estimates by 18 to 23 cents per share. Analysts surveyed by First Call Corp., which tracks such estimates, had expected the company to earn $2.13 a share during the year, which ends July 31. Campbell earned $1.90 a share in the prior year. Campbell Soup Co. said it now expects U.S. soup consumption to rise by only 1 to 2 percent in the second quarter from the previous year, not 4 to 5 percent. Stock recently failed at $59 and then broke key support at $54.00 on news of earnings shortfall. Excessive call buying recently is bearish and may provide continued overhead resistance. Play: Earnings Warnings Update: Stock recovered some last week but still trading below gap price of $45. Could sell off more if broad market comes under pressure. BUY PUT FEB-50 CPB-NJ OI=135 @ $6.00 SL=4.25 BUY PUT FEB-45 CPB-NI OI=593 @ $1.94 SL=1.00 Chart = http://quote.yahoo.com/q?s=cpb&;d=3m ***** DuPont de Nemours (DD) - $54.31 .25 (-2.69) E.I. DuPont de Nemours and Company operates in fiveprincipal industry segments: Chemicals, Fibers, Polymers,Life Sciences, and Diversified Businesses. For the 9 monthsended 9/30/98, total revenues rose 1% to $19.29B. Netincome from continuing operations before extraordinary itemand applicable to Common fell 37% to $859M. Revenuesbenefited from acquisitions. Earnings were offset by a$651M increase in purchased in-process R&D charges. Pricing pressures from overcapacity continue to weigh on the chemical group. Street has been busy cutting the group's earnings estimates for the next couple of quarters, as troubled economies in Asia and Latin America suggest that demand/pricing conditions won't improve any time soon. Commodity chemicals such as ethylene hardest hit, with prices falling by as much as 50% over past year. Stocks have seen some buying interest in recent weeks on hopes that lower interest rates will jumpstart sagging global economy. But gains appear more a function of underlying market strength and light bargain hunting than any sea change in expectations for a sustained earnings recovery. Chemical companies are cutting jobs and reducing production to adjust to challenging conditions. Comparison periods will also become more attractive by mid-CY99. However, until that time there is no reason to suspect the group to do anything but underperform the market. Given existing oversupply, declining earnings growth, slowing worldwide economic growth and the market's preference for momentum over turnaround situations, DD could be under pressure over the near-term. After advancing $7 over the past couple of weeks, DuPont signaled a failed rally at its declining 200-day moving average. Target - $53. Play: Failed Rally Stock moved up fractionally during Friday's (1/22) broad sell off. Stock still below declining moving averages. Tighten protective sell stop to $58.25. BUY PUT FEB-60 DD-NL OI=1907 @ $6.38 SL=4.75 BUY PUT FEB-55 DD-NK OI=1879 @ $2.69 SL=1.75 Chart = http://quote.yahoo.com/q?s=dd&;d=3m ***** Hershey Foods (HSY) - $59.00 1.00 (-2.25) ershey Foods (HSY) manufactures, distributes, and sells a broad line of chocolate and non-chocolate confectionery, pasta and grocery products. For the nine months ended 10/4/98, net sales rose 4% to $3.2 billion. Net income rose 5% to $230.9 million. Revenues reflect higher sales of core confectionery brands and incremental sales from the introduction of new confectionery products. Earnings also reflect reduced marketing costs for existing brands and lower selling costs in foreign markets. Play Description: Stock continues to struggle following analyst downgrades and Q4 weakness. Margins are likely to be under pressure with increased costs. Stock simply seems to be out of favor and relative strength is declining. Likely to test lows at $48. Play: Failed Rally Update: Stock moved higher during Friday's (1/22) broad market sell-off but still trading below key benchmark of $60. Tighten protective stop to $62.25. BUY PUT FEB-65 HSY-NM OI=182 @ $6.38 SL=4.75 BUY PUT FEB-60 HSY-NL OI=425 @ $2.63 SL=1.75 Chart = http://quote.yahoo.com/q?s=hsy&;d=3m ***** Microchip Tech (MCHP) - $30.19 -1.00 (-4.94) Semiconductor Company Description: MCHP develops, manufactures and markets programmable 8-bit microcontrollers, application specific standard products and related specialty memory products for consumer, automotive, office automation, industrial and communications markets. Play Description: Microchip is struggling to restructure its operations to try to eliminate the company's older, less-efficient manufacturing capacity and to manage inventory levels. Analysts recently cut estimates for fiscal '99 and '00. Microchip's December quarter was characterized by continued low order visibility, along with some weakness in end-of-quarter turns order shipments, Stock recently gapped off of failed rally point of $40 and may test prior lows in the $20's Play: Analysts Downgrade Update: Stock still breaking down and nearing key 100 and 200-day moving averages. Could retest $20 if stock breaks under $30. BUY PUT FEB-35 QMT-NG OI= 99 @ $5.88 SL=4.00 BUY PUT FEB-30 QMT-NF OI=257 @ $2.44 SL=1.25 Chart = http://quote.yahoo.com/q?s=mchp&;d=3m ***** Merck (MRK) - $139.00 -7.31 (-8.13) Merck is a pharmaceutical company that discovers,develops, produces and markets human/animal health productsand services. Merck also provides pharmaceutical benefit services. For the 9 months ended 9/30/98, sales rose 11% to$19.37B. Net income rose 14% to $3.85B. Revenues reflecthigher sales of established major products & newer products,and growth from the Merck Medco Managed Care business. Earnings also reflect gains on the sales of businesses. After climbing 38% over the past four months, this leading pharmaceutical company is showing signs of potential failed rally below its 52-week high of $161.75. Retracement target $136-$140. Pinnacle's sentiment indicator is reaching extreme levels (4.7) setting this high tech company up for a precipitous sell-off if expectations don't measure up within the drug sector. Play: Failed Rally Big winner for OI subscribers last week after selling off precipitously on Friday (1/22). Drug sector now begging to roll over. BUY PUT FEB-145 MRK-NI OI=1686 at $6.25 SL= 4.25 BUY PUT FEB-140 MRK-NH OI=1720 at $3.63 SL= 1.75 Chart = http://quote.yahoo.com/q?s=mrk&;d=3m ***** Perkin-Elmer Corporation (PKN) - $91.31 -2.88 (-4.06) Perkin-Elmer Corporation (PKN) develops, manufactures and markets life science systems and analytical instruments for the pharmaceutical, biotech, environmental, agricultural, forensics and chemical industries. For the three months ended 9/98, revenues rose 16% to $375.8 billion. Net income fell 21% to $17 million. Revenues reflect higher sales of biotech products in the U.S. and Europe. Earnings suffered from higher R&D, merger charges, decreased interest income, a $3.1 million loss at Tecan and a higher tax rate. PKN operates internationally, with manufacturing and distribution facilities in various countries throughout the world and derives approximately 53% of its revenues from countries outside of the United States. Results continue to be affected by market risk, including fluctuations in foreign currency exchange rates and changes in economic conditions in foreign markets. Company is in the process of reorganizing the Company's capital structure to help move Perkin-Elmer toward a market leader in biomedical and genomics information. They are currently evaluating strategic alternatives for our analytical instruments business. Distribution among top institutional shareholders is taking place as stock is likely to trade back into trading range of $65-75. Stock moving up in anticipation of Celera Genomics spinoff but sale of the AI division may be dragging on. Questions also remain about suitable valuation level after spinoff. Today's price action attributable to possible delays in Celera Genomics spinoff. Play: Failed Rally Stock finally breaking down after consolidating between $95-$100. Target is $80. BUY PUT FEB-95 PKN-NS OI=174 @ $6.63 SL=4.00 BUY PUT FEB-90 PKN-NR OI=27 @ $3.75 SL=2.00 Chart = http://quote.yahoo.com/q?s=pkn&;d=3m ***** Warner Lambert (WLA) - $67.94 .94 (-1.88) Warner Lambert is a manufacturer of ethical pharmaceuticals, biologicals, capsules, consumer health care products and confectionary products. Shares of large U.S. drug companies are being hurt by profit taking and concerns about proposed changes to the Medicare payment system. Recently, a Bipartisan Commission opened the door for Medicare to cover prescription drugs for beneficiaries, a recommendation that if adopted, could put pressure on drug companies. Recent inquiries regarding the safety of Rezulin received nationally televised attention and may give rise to investor concern. Also, it may be difficult to sustain the growth rates for Lipitor, Rezulin and Neurontin products that WLA has enjoyed this past year. Top side consolidation since July may be difficult to overcome in extended market conditions. Given that the drug sector has and will continue to be a strong performing sector, we recommend a modest sell-off price targets of $55 to 60. Play: Failed Rally Update: Top side consolidation since July may be difficult to overcome in extended market conditions. Still trading below key 100 and 200-day moving averages and benchmark of $70. Tighten protective sell stop to $71.25. BUY PUT FEB-75 WLA-NO OI=1233 @ $8.00 SL=6.75 BUY PUT FEB-70 WLA-NN OI=2134 @ $4.75 SL=3.00 Chart = http://quote.yahoo.com/q?s=wla&;d=3m *********** COMBO PLAYS *********** U.S. blue chips stocks fell sharply Friday as worries about the Brazilian currency crisis and poor revenues at the world's biggest computer maker drove traders to an aggressive sell-off. The DJIA closed 143 points lower and has shed all of its gains for the year. Concerns that Latin America's economic instability and Brazil's currency devaluation could hurt other countries sent investors out of stocks and into bonds, seeking safety in U.S. government assets. To make matters worse, IBM's earnings were good, not spectacular, and revenues were disappointing due to poor hardware sales. IBM also failed to announce a generally expected stock split, making investors even more unhappy. Analysts are saying the main problem with our current market is that optimistic investors are expecting earnings to come in better than what they're actually going to be and this will probably cause a near-term market downturn. We shall soon find out! Our new spread positions were all available near the recommended entry points. CTXS was the first candidate, and although the stock price continued to slide, the play (MAR90C/FEB95C) was still favorable at an initial debit of $4.87. RDRT was also lower at the open and the debit for the MAR17C/FEB20C bullish diagonal spread was $1.75. LVLT was a bull-call position with a conservative bias and the price for the MAR37C/MAR45C spread was $4.62. SEPR is our new long-term play and the volatile trading offered a couple of opportunities to enter the position, (JAN00-100/FEB100C) at $19.25. Other activities included a closing play on CIEN as the stock price gapped-up $4 amid speculation it may again be a possible takeover target and rumors it may land a large contract. PCS continues to move higher in the "hot" telecom sector and we are monitoring the positions closely. They are now both deeply ITM and there is always the chance of early exercise. Good Luck! CREDIT SPREAD SUMMARY ********************* Stock Pick Last Position Credit Cost G/L Status AAPL $41.38 $38.75 FEB35P/37P $0.87 $1.00 ($0.12) Open COF $130.43 $128.69 FEB105P/110P $0.62 $0.38 $0.25 Open ELN $68.93 $70.25 FEB80C/75C $0.75 $1.00 ($0.25) Open GMSTF $59.87 $59.00 FEB40P/45P $0.50 $0.50 $0.00 Open SDTI $25.50 $25.81 FEB17P/20P $0.50 $0.38 $0.12 Open SRCM $20.87 $20.88 FEB15P/17P $0.75 $0.75 $0.00 Open Credit spreads are profitable if both positions remain OTM until expiration. The cost-to-close price can be used to compare the initial opening credit to the current spread value. CALENDAR SPREAD SUMMARY *********************** Stock Pick Last Position Debit Value G/L Status ATI $64.93 $93.88 LJAN70/FEB75C $8.50 $9.50 $1.00 Closed BGP $23.19 $18.69 FEB25C $1.38 $0.25 ($1.12) Open CD $19.93 $19.00 LJAN20/FEB20C $3.50 $3.50 $0.00 Open CPQ $42.68 $46.19 APR45C/FEB45C $0.00 $2.00 $2.00 Open CTXS $89.00 $87.25 MAR90C/FEB95C $4.87 $5.00 $0.12 Open DIS $38.00 $34.13 LJAN40/FEB40C $4.00 $3.50 ($0.50) Open GM $71.50 $90.75 MAR70C/FEB75C $4.50 $5.00 $0.50 Open HUM $19.50 $19.38 MAY20C/FEB20C $1.25 $1.25 $0.00 Open NOVL $18.19 $19.19 MAY17C/FEB20C $1.12 $2.50 $1.38 Open OMPT $14.06 $16.00 MAR15C/FEB15C $1.50 $0.75 ($0.75) Open OXHP $20.06 $18.81 MAY20C/FEB20C $0.81 $1.50 $0.68 Open PCS $21.81 $30.88 MAY22C/FEB25C $1.50 $3.50 $2.00 Open PTEK $11.38 $11.00 MAR12C/FEB12C $0.50 $0.62 $0.12 Open RDRT $18.93 $18.31 MAR17C/FEB20C $1.75 $1.56 ($0.19) Open SEPR $99.62 $99.50 LJAN100/F100C $19.25 $19.38 $0.12 Open SUNW $94.50 $98.00 LJAN100/F100C $14.00 $17.50 $3.50 Open WCOM $74.25 $74.88 LJAN75/FEB75C $5.62 $10.50 $4.87 Open The calendar (or time spread) is profitable if the value of the position exceeds the initial debit (or cost-basis) at the end of the expiration period for the long position. However, because we track the plays based on the current closing cost/value, the gains for time spreads will rarely be reflected until the play closes. Each month, as we sell a new call against the long position, the net cost should decline or the position value should increase. DEBIT SPREADS ************* Stock Pick Last Position Debit Value G/L Status ABI $48.87 $48.31 FEB45C/FEB50C $2.87 2.75 -0.12 Open AOL $146.50 $140.44 FEB155C/160C $2.50 $1.25 ($1.25) Open AOL $146.50 $140.44 FEB155C/160C $1.50 $1.25 ($0.25) Open CIEN $18.68 $22.56 FEB12C/FEB17C $3.50 $4.50 $1.00 Closed FTL $18.50 $17.81 FEB15C/FEB20C $1.50 $2.38 $0.87 Closed LEVL $38.00 $39.94 FEB30C/FEB35C $3.25 $4.38 $1.12 Closed LU $107.87 $103.31 FEB105C/110C $1.75 $3.25 $1.50 Closed LUV $26.06 $26.69 FEB22C/FEB25C $1.25 $2.25 $1.00 Closed LVLT $44.19 $45.94 MER37C/MAR45C $4.62 $5.00 $0.38 Open OXHP $20.06 $18.81 FEB17C/FEB20C $1.38 $1.12 ($0.25) Open OXHP $20.06 $18.81 FEB17C/FEB20C $1.00 $1.12 $0.12 Open QNTM $24.87 $24.81 FEB22C/FEB25C $1.25 $1.38 $0.12 Open RHD $17.68 $15.94 MAR15C/MAR17C $1.12 $1.00 ($0.12) Open SCUR $26.75 $26.50 FEB20C/FEB25C $3.75 $3.38 ($0.38) Open A debit-spread is profitable if the value of the position exceeds the initial cost of the spread when the play is closed. However, because we track plays based on the current cost/value, potential gains may not be reflected until both positions are closed. DEBIT STRADDLES *************** Stock Pick Last Position Debit Value G/L Status JMED $35.19 $34.25 MAR35C/35P $5.62 $4.62 ($1.00) Open NXTL $29.68 $30.63 MAY30C $0.00 $2.12 $2.12 Closed A debit-straddle is profitable when the value of the position exceeds the initial cost of the spread. NEW PLAYS ********* MRK - Merck Company Inc. $139.00 *** Earnings Slam *** Merck is the #1 drugmaker in the US and is tied for first in the world with Glaxo Wellcome in prescription drugs. They develop products for both humans and animals; almost two-fifths of its sales come from treating ailments associated with American eating habits, (high cholesterol, hypertension, and heart failure). In addition, Merck has the top-selling US drugs for hypertension as well as newer, promising drugs for AIDS treatment, male balding and migraine headaches. Also under development is a new arthritis drug. The drug developer fell $7.31 on Friday after it said it will stop testing its MK-869 drug for use as an antidepressant. The company hoped to develop the drug, which it will still test as a treatment for nausea in cancer patients, as a hedge against the impending loss of 4 major patents in 2001. The split run (2/16/98, 2-1) may have some effect but the SOR date is Monday (after the close) and we see this one falling short of the sold strike in mid-February. PLAY (conservative/credit spread): BUY CALL FEB-160 MRK-BL OI=3366 A=$1.25 SELL CALL FEB-155 MRK-BK OI=3539 B=$1.93 NET CREDIT TARGET=$0.81 ROI=19% PLAY (bearish momentum only): BUY PUT FEB-150 MRK-NJ OI=885 A=$8.50 SELL PUT FEB-145 MRK-NI OI=1686 B=$6.00 NET DEBIT TARGET=$2.38 ROI(max)=110% Chart = http://quote.yahoo.com/q?s=MRK&;d=3m ***** EMC - EMC Corp. $98.50 *** Technical/Disparity Play *** EMC Corp. and its subsidiaries design, manufacture, market and support a wide range of storage-related hardware, software and service products for the open systems, mainframe and network attached information storage and retrieval system market. The company is the #1 maker of many of these components. EMC markets its memory products under the name Symmetrix. Other products let users manage remote data and share information across networks of different computers. EMC continues to broaden its product line, strengthen alliances, and expand its global presence to create more platform-independent systems. We just like the chart and the small disparity for a (relatively) free-money play. PLAY (conservative/credit spread): BUY PUT FEB-75 EMC-NO OI=502 A=$1.12 SELL PUT FEB-80 EMC-NP OI=1157 B=$1.50 NET CREDIT TARGET=$0.50 ROI=11% Chart = http://quote.yahoo.com/q?s=EMC&;d=3m ***** SKYT - Skytel $26.38 *** Telecom *** SkyTel Communications (formerly Mobile Telecom Tech.) is one of the leading providers of worldwide wireless messaging services, marketing primarily to business users. The company offers a wide range of messaging services to its users. Subsidiary SkyTel Corp. provides paging and messaging services including pagers, two-way alphanumeric text messaging and two-way interactive messaging. SkyTel also provides messaging services in in Central and South America through its Mtel Latin America subsidiary. SKYT recently added more specialized content to its information services with the addition of Asian market updates, real-time stock quotes, sports scores, company news, ski reports and horoscopes. Coverage was initiated early this month by ABN AMRO with an "Outperform" rating and we like the long-term outlook for the chart. PLAY (conservative/long-term play): BUY CALL JUN-25 MMQ-FE OI=249 A=$4.75 SELL CALL FEB-25 MMQ-BE OI=3012 B=$2.38 NET DEBIT TARGET=$2.25 TARGET ROI=60% PLAY (very conservative/debit spread): BUY CALL FEB-22.50 MMQ-BY OI=50 A=$4.38 SELL CALL FEB-25.00 MMQ-BE OI=3012 B=$2.38 NET DEBIT TARGET=$1.87 ROI(max)=33% Note: In the long-term calendar spread, we are reducing the net cost of the long option by the amount of credit from the sale of the nearer-term option. If the near-term call expires worthless, we will sell the MAR call to further reduce our debit. If your short-term position is ITM on the last day of the strike, you need to buy it back so that you DON'T have to exercise the long term position. In that case, your long position is going up in value also and on the last day of the strike period, the short call will shrink down to intrinsic value so you should be ahead in the play even after you buy it back. Chart = http://quote.yahoo.com/q?s=SKYT&;d=3m ***** PLCM - Polycom $26.75 *** Telecom *** Polycom makes long-distance teleconferencing products for use on regular telephone networks. The ShowStation data-conferencing system enables people in different locations to view and edit documents on a simultaneous, interactive basis. Its SoundStation audio-conferencing system, provides two-way voice communication without typical speakerphone distortion. Subsidiary ViaVideo Communications offers ViewStation, a Web-based videoconferencing system that features a voice-tracking camera. Reported awesome earnings last week, net revenues grew 140% for the year to over $100 million. Technically, an outstanding chart with some recent support around $21 but it may need to consolidate before moving higher. That will be just the thing we need to benefit from this time spread. PLAY (conservative/calendar spread): BUY CALL MAR-25 QHD-CE OI=0 A=$4.38 SELL CALL FEB-25 QHD-BE OI=163 B=$3.15 NET DEBIT TARGET=$1.00 TARGET ROI=40% Chart = http://quote.yahoo.com/q?s=PLCM&;d=3m ***** NRC - NAC RE Corp $48.56 *** Technical Time Spread *** NAC Re is a holding company whose subsidiaries offer property and casualty reinsurance. Subsidiaries NAC Reinsurance, Greenwich Insurance Company, Indian Harbor Company, and NAC Re International Holdings provide both treaty reinsurance for categories of risk and facultative individual risk reinsurance to primary insurers of casualty risk. Most U.S. commercial property-casualty insurers, battered by an unrelenting price war and increases in catastrophe losses, were expected to post flat to lower earnings in the fourth quarter. This may also be the case for NRC but we think the stock price will hold near the current range for the next few weeks. Technically, NRC is making feeble attempts to break-out of it's stage III top but with little volume support. Its 150 dma is the current resistance (around $49) with support around $45. It will take some work to exit the current sideways trend and that's just what we need to make this play profitable. PLAY (conservative): BUY CALL MAR-50 NRC-CJ OI=160 A=$4.87 SELL CALL FEB-50 NRC-BJ OI=289 B=$3.62 NET DEBIT TARGET=$1.00 TARGET ROI=50% Chart = http://quote.yahoo.com/q?s=NRC&;d=3m ***** CNTO - Centocor $39.93 *** Butterfly Spread *** Centocor makes therapeutic, diagnostic drugs for cardiovascular problems, cancer and other diseases. Three of their products are approved for sale in the US: ReoPro prevents blood clots during angioplasty, Remicade treats the bowel disorder Crohn's disease (and is being tested for efficacy against rheumatoid arthritis), and Panorex treats cancer. ReoPro is sold in the US and Europe by Eli Lilly. Centocor's drug Avakine is in the final US testing stages for treatment of Crohn's disease. The company owns the US and Canadian marketing rights for Retavase, a cardiovascular drug developed by Roche Holding. Centocor is also selling its oncology diagnostics business to focus on therapeutics. Recently, Morgan Stanley Dean Witter cut its rating on the firm to "outperform" from "strong buy" and adjusted its 12-month price target to $51 per share from $62 per share. We think that's a bit optimistic as CNTO has been trading around $35 to $45 for almost two years and has a very long term base with no immediate signs of a significant character or trend change. The volatility of the holiday bull-run seems to have dissipated and the sideways trend is now resuming. We are going to start this play as a "butterfly" but plan to roll-out of each spread as the stock price moves about the $40 range. PLAY (conservative/long-term): BUY CALL APRIL-35 COQ-DG OI=364 A=$7.50 SELL CALLS APRIL-40 COQ-DH OI=507 B=$4.38 BUY CALL APRIL-45 COQ-DI OI=1227 A=$2.68 NET DEBIT TARGET=$1.00 TARGET ROI=50% The butterfly spread is generally a neutral position that is a combination of both a BULL spread and a BEAR spread. This spread is designed primarily for the stock that will not experience much of a net rise or decline by expiration. It generally requires only a small investment and has a limited risk but profits are limited as well. It can also be costly in terms of commissions so you should consider playing these combination strategies with a low cost (discount) broker. There are three strike prices involved in a butterfly spread. With calls, (and it can also be done with puts) the butterfly spread consists of buying one call at the lowest strike price, selling two calls at the middle strike price and buying one call at the highest strike price. Next week, we will run the complete strategy narrative again to help the beginning traders with the technique. Chart = http://quote.yahoo.com/q?s=CNTO&;d=3m INDEX OPTION SPREADS ******************** As a trader, you may be familiar with options on individual stocks where you have the right to buy (call option) or the right to sell (put option) a particular stock at some predetermined price within some predetermined time. The buyer has the rights and the seller the obligations. With index options the basic ideas are the same. Index options allow you to make investment decisions on a specific market industry or on the market as a whole. Spread strategies can be made with index options similar to those made with individual stock options. Many professional traders employ index spreads as a hedge strategy. We favor debit positions on the SPX for momentum and longer-term plays and OTM credit spreads on the OEX when the risk/reward is favorable. Low ROI disparity spreads will be listed (when available) for the conservative index trader. ***** OEX - S&P 100 Index $610.38 OTM Credit-Spreads The Standard & Poor's 100 Index is a capitalization-weighted index of 100 stocks from a broad range of industries. The component stocks are weighted according to the total market value of their outstanding shares. The impact of a component's price change is proportional to the issue's total market value, which is the share price times the number of shares outstanding. OBSERVATIONS: For OTM credit spread trades, we like to use the actively-traded S&P 100 Index options because they contain much more premium than options on individual stocks and provide an underlying instrument less prone to huge, gapping moves. Remember however, that you can always be exercised early so monitor your positions daily. TECHNICALS: While the overall market seems likely to remain in a wide trading range over the next few weeks, the probabilities are quite strong that we have reached a short-term top and the current outlook is somewhat unfavorable. The DOW has found some support just above a key level around 9085 and a close below that number confirmed by a S&P 500 close below 1205 would signal a more serious correction. The long-term pattern is in a neutral but weakening condition with the NYSE survey starting to slip and the NYSE momentum index at its worst level in years. Review the Pinnacle Hedge-Section for more specific technical information on the S&P 100 Index. PLAY (very conservative/disparity-low ROI): BUY PUT FEB-550 OEW-NJ OI=3944 A=$4.50 SELL PUT FEB-555 OEW-NK OI=1265 B=$4.87 NET CREDIT TARGET=$0.38 ROI=8% PLAY (conservative/bearish): BUY CALL FEB-670 OEY-BN OI=6374 A=$1.19 SELL CALL FEB-660 OEY-BL OI=6738 B=$2.12 NET CREDIT TARGET=$0.93 ROI=10% PLAY (aggressive/bullish): BUY PUT FEB-565 OEW-NM OI=2357 A=$6.38 SELL PUT FEB-570 OEW-NN OI=3851 B=$7.25 NET CREDIT TARGET=$0.87 ROI=21% CHART= http://quote.yahoo.com/q?s=oex&;d=b????HOW TO SUBSCRIBE?****************??We would like to have you as a subscriber. 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