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us stock market, stock recommendation
Begin Part 2 of 2
SUBSCRIBER QUESTIONS
Q: Can you give a refresher on deltas? I see a delta of 82 on one play and then a delta of -71 on another. The information is more than other services provide, but please explain why it is important.
A: Deltas relate to options and they show how much the option value will move in relation to movements in the stock or index it is derived from. In other words, if a call option has a delta of 82, that means the option value will move 82 cents for every dollar move in the underlying security. That means either way; the stock goes up $1, the option gains $0.82. If the stock goes down $1, the option falls roughly 0.82. For put options the delta is a negative number; this means that if the stock falls the option gains in value, i.e., an inverse relationship. Thus if a put option has a delta of -71, if the stock falls $1, the option value will RISE $0.71. That is the inverse relationship at work.
When looking at option deltas we like to see a delta at 70 (-70 on a put option) as that gives us very solid movement on the option and allows us to get to our targets faster than a delta of say 50. We have to go a bit deeper in the money to get that delta, and you always have to balance the price you pay versus how far you think the stock will rise or fall; you may not want to pay $15 for an option when the stock is only going to move $2 to your target and net you $1.40 per option. We also have to factor in time. The further out we buy (say October or November during this June expiration period), you will see the delta a bit lower for the same strike price. Not dramatically, but it will be lower and that needs to be factored in.
Deltas improve when the stock moves in your direction. In other words, as the option gets deeper and deeper in the money or moves further in your favor, the delta will improve. Thus, what started as a 70 delta may be an 85 or better delta if the stock moves sharply in your favor. Gains can be even better than expected if the stock generates a lot of momentum. Volatility will be helping price increases at that point as well, but that is another issue on option pricing.
When looking at options for the report plays, we factor all of this in. Sometimes we will take a bit lower delta for a good price, knowing that if the stock hits our target the option delta will have improved to more of what we like at that point.
THE PLAYS:
NEW PLAYS
ERTS (Electronic Arts--$64.3; +1.84; optionable): Game software
http://biz/yahoo.com/p/e/erts.html
STATUS: Cup. After leading the market much of the way up in 2001, ERTS corrected and formed a new base, a 6-month cup. It tested its 200 day MVA in early May and has rallied up off of that level on very strong volume. Early this week it fell back on lower, below average volume, then Thursday jumped higher on rising though still below average volume. While it may still form a handle, it looks strong and we would like to catch it on a strong, high volume breakout. Relative strength has broken out ahead of the stock, indicating that the stock is holding up better than the rest of the market.
Volume: 2.958M Avg Volume: 2.804M
BUY POINT: $66.12 Volume=4M Target=$79.50 Stop=$61.49
POSITION: EZQ IL - Sept. $60 call, delta 70 and/or stock
http://www.investmenthouse.com/ct/erts.html
PBG (Pepsi Bottling--$32.19; -0.34; optionable): Soft drinks
http://biz/yahoo.com/p/p/pbg.html
STATUS: Test 18 day MVA. PBG has enjoyed a strong move up after breaking out in March, climbing the 18 day MVA, reaching a peak two weeks back near 35. The pullback follows a nice run that was a bit long in the tooth. On this move we are not looking for a long run, but with the market ready for a bounce this stock is poised for a nice move up in the short term. After that it may need to test down to the 50 day MVA just below 30. This will be a play we make with options to leverage the move and capture more gain with a smaller move of the stock.
Volume: 1.442M Avg Volume: 1.224M
BUY POINT: $32.75 Volume=1.5M Target=$36 Stop=$30.46
POSITION: PBG IE - Sept. $25 call, delta 98
http://www.investmenthouse.com/ct/pbg.html
CONTINUING PLAYS
Upside:
IMN (Imation-- $29.63; +0.39; optionable): Play Date: 05/25/2002
http://biz/yahoo.com/p/i/imn.html
STATUS: Wedge. Held at the 50 day MVA, showing a big jump in volume as it did. The Wednesday move may have been the shakeout.
Volume: 216.4K Avg Volume: 125.045K
BUY POINT: $31.58 Volume=200K Target=$38 Stop=$28.25
POSITION: Stock and/or IMN JE - Oct. 25c (delta 82) to buy.
http://www.investmenthouse.com/ct/imn.html
MERQ (Mercury Interactive--Mercury Interactive-- $34.65; +1.39; optionable): Play Date: 05/28/2002
http://biz/yahoo.com/p/m/merq.html
STATUS: Rolling. Started the roll up off the 200 day MVA Thursday on a strong volume surge. Close to the buy point. Again, given it is a $5 move we are looking primarily at option positions. This is an aggressive play, but we like the action.
Volume: 4.864M Avg Volume: 4.384M
BUY POINT: $35.35 Volume=6.7M Target=$39 Stop=$32.88
POSITION: RQB JF - Oct. 30 call, 71 delta
http://www.investmenthouse.com/ct/merq.html
XRAY (Dentsply-- $40.26; +0.78; optionable): Play Date: 05/25/2002
http://biz/yahoo.com/p/x/xray.html
STATUS: Ascending wedge. Making the breakout move on strong volume. It did not hold the buy point on the close, but the stock looks very good here. Again, we like these wedges that follow breakouts from patterns such as cup with handles.
Volume: 533.3K Avg Volume: 318.136K
BUY POINT: $40.35 Volume=465K Target=$48.25 Stop=$37.53
POSITION: Stock and/or XEQ JG - Oct. 35c (delta 83)
http://www.investmenthouse.com/ct/xray.html
ZMH (Zimmer Holdings-- $35.17; -0.07; optionable): Play Date: 05/25/2002
http://biz/yahoo.com/p/z/zmh.html
STATUS: Cup w/handle. Another tight doji holding at the 18 day MVA on rising though still below average volume. This is a new issue with its first based since coming to market in August 2001. It looks as if it is ready to try the breakout.
Volume: 465.7K Avg Volume: 668.681K
BUY POINT: $36.95 Volume=1.1M Target=$45 Stop=$34.36
POSITION: Stock and/or ZMH LF - Sept. 30c (delta 87) and/or stock.
http://www.investmenthouse.com/ct/zmh.html
Watchlist plays:
We have put all plays in a summary table that contains the date the stock was put on the report (so you can go back and check out the details of the play) and the other pertinent information. This provides more information than the watchlist summaries and still contains comments when appropriate. VIEW THIS IN COURIER NEW, 12 FOR BEST RESULTS. You can also easily print the table from the website (www.investmenthouse.com) from the 'current reports' section. If you just want to print the table you can cut and paste it to a word document setting the font to Courier New size 12. Just left click on the beginning of the table and drag to the table end. After selecting, right click and select 'copy.' Paste into your word processor. Select it all and choose Courier New, font size 12.
Stock Date Play Close +/- Pivot Tgt Vol AvgV Stop
ABF 05/11 BO 22.99 +0.53 22.23 25.75 988K 654K 20.67
AMHC 05/22 A Wedge 26.8 -0.04 28.05 36 122K 224K 26.09
ATH 05/16 Test 50 70.75 +2.95 68.5 75 1.4M 1.2M 63
BGG 05/11 Put 40.75 +0.06 39.4 35 152K 136K 42
BL 05/21 cup hdl 22.62 -0.18 23.85 27.5 9.5K 14K 22
BLC 05/25 Flat 24.01 -0.04 24.25 30 223K 281K 22.55
BRO 04/22 cup hdl 35.15 +0.35 35.63 42.75 223K 329K 32.95
BYBI 05/23 BO 10.78 -0.21 9.7 12.75 39K 44K 9.02
CACI 05/08 Put 32.86 +3.28 31 27.5 1.5M 718K 32.50
CCMP 05/20 Put 48.35 +1.65 51 45 1.1M 1.4M 53.80
CDI 05/11 Pennant 28 +0.15 30 34.75 44K 56K 27.90
CERN 05/20 A Wedge 54.24 +1.97 56.1 60 368K 458K 53
CTX 05/11 Put 52.68 -0.82 53.5 49 1.2M 1.2M 56
DVN 05/25 A Wedge 50.65 +0.45 50.95 61 1.6M 1M 47.38
ECL 05/23 cup hdl 46.33 -0.72 47.8 57.36 558K 345K 44.45
ELBO 05/11 Put 27.9 +0.37 30.2 26 927K 429K 32.50
ERTS 05/30 Cup 64.3 +1.84 66.12 79.5 3M 2.8M 61.49
FNFG 05/22 Pennant 25.5 +0.06 25.95 31 25K 42K 24.13
FRX 05/16 Put 74.16 -1.46 75.9 71 659K 1.3M 78.50
FSS 05/22 DB hdl 25.54 -0.21 25.8 31 213K 192K 23.99
GMP 04/25 cup hdl 18.35 -0.08 18.85 22.62 17K 7.2K 17.75
GMRK 04/20 Test 50 42.1 -0.19 44.63 55 99K 65K 41.75
GNSS 05/15 BO 16.7 -6.66 28.1 34 20M 3.7M 26.90
GNTA 05/04 Put 9.77 -0.02 11.75 9 867K 1.4M 12
GRTS 05/16 Test 50 31.1 -0.7 34.9 44.5 151K 156K 32.46
HAR 05/13 Test 18 56.35 -0.05 58.55 64 210K 209K 54.45
HGR 05/20 Test 50 14.23 -0.02 12.6 19 169K 104K 11.72
HI 05/20 Put 51.65 -1.15 53.45 48.5 4.1M 2.9M 56
HLT 05/06 Put 13.88 -0.16 14.3 12 1.7M 2.2M 15.80
HOV 05/28 Put 30.58 +1.13 26.45 22 931K 343K 29.25
HSIC 05/15 BO 49.95 +0.41 49.4 56.9 288K 329K 46.50
HZO 05/04 A Wedge 12.42 -0.58 14.5 17.4 24K 80K 13.75
IMDC 05/20 Put 33.07 +0.94 29.9 26 114K 204K 32
IMN 05/25 A Wedge 29.63 +0.39 31.58 38 216K 125K 28.25
IRM 05/01 A Wedge 30.85 -0.32 32.6 39.25 446K 190K 30.75
ITN 05/13 DB hdl 13.1 -0.1 13 16.5 30K 111K 11.75
IWM 05/21 Put 97.22 +0.35 97.85 94 2.3M 0 101
KLAC 05/25 BO 52.82 -0.18 55.25 60 15M 12M 51.38
KROL 06/06 BO 22.93 +0.83 20.2 24 1M 276K 19.50
LNCR 05/16 cup hdl 29.85 +0.29 32.7 39 933K 976K 30.41
MERQ 05/28 A Wedge 34.65 +1.39 35.35 39 4.9M 4.4M 32.88
MMC 05/25 Put 99.75 -2.5 101.95 97.75 1.1M 897K 105
NFB 04/13 BO 39.35 +0.1 36.55 43.5 838K 644K 37
OMX 05/28 Test 18 6.75 -0.42 7.65 11 5.7M 1.3M 6.60
OSI 05/29 Test BO 38.58 -0.11 39.05 46.94 915K 486K 36.32
OSIP 05/25 Put 31.15 -0.2 31 27.25 447K 611K 34.25
PBG 05/30 Test 18 32.19 -0.34 32.75 36 1.4M 1.2M 30.46
PCLE 05/06 cup hdl 10.9 -0.1 10.27 13 1.1M 527K 9.40
RAH 05/08 Test 18 28.32 -0.48 29.1 35 83K 95K 27.06
SGR 05/11 A Wedge 32.73 -1.65 34.32 40.75 766K 605K 31.92
SLVN 03/27 cup hdl 27.46 +0.23 27.05 32 216K 302K 26.55
SOTR 05/02 cup hdl 25.73 +0.09 27.42 32.96 746K 1M 25.50
TEVA 05/15 BO 67.1 +0.65 62.1 67 622K 1M 60.50
UVN 05/04 Put 39.65 -0.23 39.95 35.5 819K 1.1M 42
VMC 05/11 Put 46.9 +0.2 45.9 41.5 159K 172K 47.50
WFC 03/28 A Wedge 52.36 -0.08 50.85 60.52 3.8M 3.8M 50
WL 04/25 Put 62.57 -0.05 65.6 62 78K 76K 67
WYE 05/23 Put 56.13 +0.32 57.5 54 4.1M 3.8M 59.50
XRAY 05/25 A Wedge 40.26 +0.78 40.35 48.25 533K 318K 37.53
XTO 03/27 A Wedge 20.01 -0.53 20.98 25.98 596K 511K 19.75
ZMH 05/25 cup hdl 35.17 -0.07 36.95 45 466K 669K 34.36
Good Investing!
Jon L. Johnson and your Technical Traders Report Team
All of the foregoing is commentary for informational purposes only. All statements and expressions are the opinion of Online Investment Services, LP. or its paid consultants and are not meant to be a solicitation or recommendation to buy, sell, or hold securities. We are not licensed or registered in the securities industry. The information presented herein and on our related web site has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The security portfolio of Partners in Online Investment Services, LP. or its paid consultants may, in some instances, include securities mentioned herein and on our web site. Estimates, assumptions and other forward-looking information are subject to the limits of forecasting. Actual future developments may differ materially due to many factors.
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us stock market
stock recommendation
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