|
|
us stock market, top stock pick
Begin Part 2 of 3
Economic Calendar
3-18-03
Housing Starts, February (8:30): 1.755M expected, 1.850M January
Building permits, February (8:30): 1.745M expected, 1.779M January
FOMC one-day meeting (1:15): Expect a bias change but no rate cut.
3-20-03
Initial jobless claims (8:30): 410K expected, 420K prior.
Leading economic indicators, February (10:00): -0.4% expected, -0.1% January
Philly Fed, March (12:00): 4.0 expected, 2.3 February
FOMC minutes (2:00)
Treasury Budget, February (2:00): -$80.0B expected, -$76.1B January
3-21-03
CPI, March (8:30): 0.5% expected, 0.3% February
Core CPI (8:30): 0.2% expected, 0.1% February
SUBSCRIBER QUESTIONS
Q: Thank you for the great service that you provide. I look forward to the daily newsletter and e-mail alerts. I wish I had known about it long ago.
Regarding option strike date selection. You are looking at PRX for a possible play and the pivot was hit but the volume was not there so the buy was not issued. Why select the Aug 30 call which is trading at 8.50-9.00 instead of the May 35 call which is 3.70-4.00. I do not understand the reason to purchase the call with that much intrinsic value or that far out in time.
A: Thank you for the kind comments. You are correct in focusing on the right option to purchase as the price you pay versus the delta and and the time to expiration directly impact your return. You need to get enough movement to cover the spread (the bid versus ask spread is larger on options to take into account some of the time element) and make you money with plenty of time left before expiration. As you get closer to expiration, time value starts to eat the value of your option at a faster and faster pace. It starts about 60 days out, and then really accelarates when you hit 30 days to expiration.
In that respect we prefer slightly in the money options with a minimum of 2 full months to expiration for upside plays where we are looking for an explosive move higher. If the stock is a slow mover, 2 months is not really enough. Typically we prefer more time, balancing that with the cost to acquire more time and any decrease in the delta (the futher from expiration, the lower the delta, i.e., the amount the option price will move for each $1 move in the stock price). Over the years it is clear that we have done better with extra time simply because you don't have to have down to the minute accuracy on entering the play. You hate to be right about the move but just not have enough time to take advantage of it.
As to the specific play, the August expiration is not bad though the May could work as PRX can move up rapidly and we were looking at roughly a 15% move as opposed to 20% or more. PRX can move $6 in short order; a 'typical' 2-week bounce up off the moving average in its uptrend returns that $6. As for the strike price, the $30 strike was a misprint. You are correct that we were looking for the $35 strike; with a buy point of roughly 37, the 35 strike put us just in the money with a sufficient delta (about 65) to make us a nice 65% or so gain ($6 move x .65 delta / $5.70 option cost = .68). Compare that with the August 30 strike: $6 move x .85 delta / $9.40 option cost = .54 or 54%. Even with the higher delta, the extra cost impacted your gain on the move.
Now there are benefits to a deeper in the money (higher intrinsic value) option. If the stock just sits there and does nothing, the option will lose time value. The $35 strike is just $2 in the money. The $30 strike is $7 in the money. At expiration, the $35 strike option is worth $2; you lose $3.70 or 65% of your investment. The $30 strike option at expiration is worth $7 (you could buy the stock for $30 and sell it at the $37 market price). In that instance you lose $2.40 or 25% of your investment. Thus buying more intrinsic value can benefit you if you don't sell the option before it starts to lose value.. Now if the stock tanked, you are going to lose value on both though the deeper in the money option will hold more value and recover faster if the stock recovers.
SEMINARS ON CD
There is an incredible wealth of knowledge, years of experience, and 'how to' plans of action in these seminars. As one graduate put it, "I had no idea how little I knew about market direction and the reasons behind it until I took your course." Our graduates over the past year and one-half have made the bear market in stocks their own private second bull market because they learned how to and when to enter the downside and make dramatic profit from what most investors dread. Have the knowledge to take advantage of any kind of market as well as the confidence to act when you see the action unfold. We cover it all from trends, to accumulation/distribution, patterns, stocks, buying and selling options naked, covered, or creating spreads. Go to
http://www.stockseminarsonline.com
This is Jon Johnson's own site devoted exclusively to seminars designed to teach you what you need to know about the stock market and stock movement and how to take advantage of those moves without incurring the usual high costs of travel and related expenses usually associated with seminars.
THE PLAYS
Good moves: EBAY; JEC; STN; ZMH; ZQK
In each report we prepare full write-ups for those that look ready to move. If the move has been made already we discuss the play in the summary table. The purpose is to focus on the next good movers.
NEW PLAYS: Additional plays can be found in Pre-Announcements, Pre-Splits, and Post-Splits.
Upside:
Play Date: 03/15/2003
ADI (Analog Devices--$28.76; -0.35; optionable): Semiconductors
http://biz.yahoo.com/p/a/adi.html
STATUS: Testing breakout/ascending triangle. ADI just made a higher low at the 50 day MVA (26.60) and blasted higher Thursday with the market. Friday it gapped higher but then eased back on lower though still above average volume. Money flow is solid. ADI was one of the chips that continued to work more or less laterally during the market selling, building for a move. We are going to let ADI ease back early this week toward 28 and then pick it up on a move off that level. We will also look for it over the recent resistance as it breaks free.
Volume: 4.037M Avg Volume: 2.986M
BUY POINT: Aggressive: Test of 28, then 28.35 on the way back up. Clear resistance: $29.65 Volume=4.5M Target=$34 Stop=$27.57
POSITION: ADI FE - June $25c (79 delta) &/or Stock
http://www.investmenthouse.com/cs/adi.html
Play Date: 03/15/2003
NSM (National Semiconductor--$17.85; -0.6; optionable): Semiconductor
http://biz.yahoo.com/p/n/nsm.html
STATUS: Testing the 200 day. Similar to ADI, NSM held up when the market was selling, even to a greater degree than ADI. It gapped over the 200 day MVA (17.59) Thursday on another volume spike and then tested that level on the Thursday low as volume backed way off, coming in well below average. That indicates there are not many wanting to sell NSM. Volume was excellent as the stock moved up in February against a declining market. This looks as if it could be an excellent entry point for a stock showing much better relative strength and money flow than most of the market.
Volume: 2.306M Avg Volume: 2.263M
BUY POINT: $18.28 Volume=3M Target=$21.45 Stop=$16.94
POSITION: NSM HW - Aug. $17.50c (59 delta) &/or Stock
http://www.investmenthouse.com/cs/nsm.html
Play Date: 03/15/2003
QLGC (Qlogic--$38.52; -0.41; optionable): Storage networks
http://biz.yahoo.com/p/q/qlgc.html
STATUS: Testing the breakout. QLGC moved laterally for 4 weeks as the market sold, riding just below the 200 day MVA (36.45). Thursday it blasted over the 200 day, and Friday it tested up toward the November to January down trendline (39.50) and just stalled around with the rest of the market. We are looking for QLGC to test back early this week as the market takes a breather before trying a follow through move (& on more war uncertainty). After the test back toward 38 we will look at positions on the next strong move up.
Volume: 9.705M Avg Volume: 8.642M
BUY POINT: Test back to 38 to 37.50, then $38.25 on the way up. Volume=11M Target=$44.88 Stop=$35.94
POSITION: QLC GU - July $37.50c (60 delta) &/or Stock
http://www.investmenthouse.com/cs/qlgc.html
Play Date: 03/15/2003
QQQ (QQQ Options--$25.72; +0.1; optionable): Nasdaq 100 Trust
http://biz.yahoo.com/p/q/qqq.html
STATUS: Breakout. Nasdaq has been holding up the market, and after the short double bottom it blasted higher Thursday on massive volume. Friday it continued the move slightly, but ran into the November/January down trendline and showed a doji, closing right at that trendline. We expect the Nasdaq to pullback some early in the week to test toward the moving averages at 25. After that test we are going to look for positions on the move back up. We really like to play stocks (up or down) after they make the break and come back to test the move. If the test holds, that 'proves up' the move, and we can get in with much more confidence.
Volume: 89.814M Avg Volume: 70M
BUY POINT: After a test of the 25 level, $25.26 on the way back up. Volume=90M Target=$28 Stop=$23.49
POSITION: QAV EX - May $24c (78 delta)
http://www.investmenthouse.com/cs/qqq.html
Downside:
Play Date: 03/15/2003
JCI (Johnson Controls--$74.4; -1.98; optionable): Auto controller systems
http://biz.yahoo.com/p/j/jci.html
STATUS: Put. JCI is a stock that has made us consistent downside money, and after a bounce up off the bottom trough of the continuing downtrend, JCI hit the 18 day MVA (76.53) and then rolled over on a huge volume increase. The woes of Ford and other auto makers is hammering the stock. We are looking for a drop to the October low just below 70.
Volume: 1.129M Avg Volume: 547.909K
BUY POINT: $73.96 Volume=700K Target=$70 Stop=$75.25
POSITION: JCI SO - July $75p (-49 delta)
http://www.investmenthouse.com/cs/jci.html
CONTINUING LEADER PLAYS
Upside:
Play Date: 03/04/2003
ADVP (AdvancePCS--$28.84; +0.21; optionable): Health services
http://biz.yahoo.com/p/a/advp.html
STATUS: Cup w/handle. Edging closer and closer to a strong breakout, ADVP was up Thursday and Friday, crowding the top of the pattern. With the market needing a bit more time for some lateral rest and consolidation ADVP could test the 10 and 18 day MVA back at 28 before making a really definitive breakout. That is fine; ADVP is in a strong pattern with solid accumulation and money flow.
Volume: 1.328M Avg Volume: 1.214M
BUY POINT: New: $29.25 (orig. $28.55). Volume=1.8M Target=$32.84 Stop=$26.55
POSITION: QVD FY - June $27.50c (57 delta) and/or Stock
http://www.investmenthouse.com/cs/advp.html
Play Date: 02/15/2003
ARRO (Arrow Intl.--$41.95; +0.25; optionable): Medical instruments
http://biz.yahoo.com/p/a/arro.html
STATUS: Flat. ARRO continues to work laterally in its 3-month base, using the 50 day MVA (40.79) as its support. Friday ARRO was stronger than the rest of the market, rallying to the top of the pattern on a solid shot of volume. Accumulation in the short but solid base is 3 up weeks on rising volume to 0 down weeks on rising volume. Money flow is leading the way & ARRO looks ready to make its move with the next market break higher.
Volume: 26.764K Avg Volume: 30.727K
BUY POINT: $42.25 Volume=55K Target=$48.42 Stop=$39.65
POSITION: QRO HH - Aug. $40c (64 delta, low OI) and/or Stock
http://www.investmenthouse.com/cs/arro.html
Play Date: 02/04/2003
CGNX (Cognex--$23.18; +0.59; optionable): Scientific & technical instruments
http://biz.yahoo.com/p/c/cgnx.html
STATUS: Ascending triangle. We debated entering CGNX Friday as it was showing much better strength than the overall market, rising past the buy point on a solid shot of above average volume. It hit 23.74 on the high, however, and backed way off. It was not making a strong move late, so we held off entering. May have waited too long, but if it starts moving early Monday we will look at opening some positions; if volume builds well again we will move in toward the close with more. Very solid pattern looks ready to finally yield the breakout.
Volume: 554.787K Avg Volume: 351.045K
BUY POINT: $23.09 Volume=525K Target=$26.88 Stop=$21.47
POSITION: QCG ED - May $20c (65 delta, low OI) and/or Stock
http://www.investmenthouse.com/cs/cgnx.html
Play Date: 03/06/2003
ELAB (Eon Labs--$24.29; +0.29; no options): Drug manufacturers
http://biz.yahoo.com/p/e/elab.html
STATUS: Reverse head and shoulders. ELAB was again trying the breakout Friday after the big surge
Thursday failed to hold. Volume was lower but still very solid and well above average. Once again ELAB could not hold all of the move. We are going to watch for another test of 24 and then another breakout attempt. If ELAB makes another run with volume we will use that to open some positions. When we see the move holding toward the close we can complete the position. Strong accumulation at 4 up weeks on rising volume to 1 down week on rising volume. A new issue back in May.
Volume: 403.576K Avg Volume: 190.318K
BUY POINT: New: $24.55 (orig. $24.06) Volume=325K Target=$28.88 Stop=$22.38
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/cs/elab.html
Play Date: 03/05/2003
ICST (Integrated Circuit System--$23.69; -0.22; optionable): Integrated semiconductor circuits
http://biz.yahoo.com/p/i/icst.html
STATUS: Double bottom w/handle. ICST is still trying to make the breakout from its 4-month base sporting solid accumulation and money flow. Thursday ICST blasted higher with the market, but it could not attract any strong volume. Friday ICST tapped at 24 and then faded some on continued below average volume. We are looking for a high volume move over 24 that signals buyers jumping on board this stock. A great pattern during the selling, and this is the kind of base that can help ICST lead in a further rally.
Volume: 1.252M Avg Volume: 1.539M
BUY POINT: New: $24.06 (orig. $23.65) Volume=2M Target=$27 Stop=$21.99
POSITION: IUY GX - July $22.50c (60 delta, low OI) &/or Stock
http://www.investmenthouse.com/cs/icst.html
Play Date: 03/01/2003
IMCL (Imclone--$14.99; -0.2; optionable): Biotechnology
http://biz.yahoo.com/p/i/imcl.html
STATUS: Testing the breakout. Remains in the breakout test, holding above the 10 day MVA (14.81) on lower, below average volume. Still a nice test and we are waiting for it to make its move off this level. Good money flow. Just time to be patient.
Volume: 1.028M Avg Volume: 1.695M
BUY POINT: New: $15.55 (orig. $14.60). Volume=2M Target=$16.72 Stop=$14.05
POSITION: QCI HV - Aug. $12.50c (65 delta) &/or Stock
http://www.investmenthouse.com/cs/imcl.html
Play Date: 03/13/2003
MXIM (Maxim Integrated--$37.53; -0.68; optionable): Semiconductor
http://biz.yahoo.com/p/m/mxim.html
STATUS: Breakout. MXIM blasted higher Thursday over the April/December 2002 down trendline and then took a breather Friday as the market had to take a blow after such a strong move. We would like to see it come back and test near 36 as the market consolidates its gains the next few sessions, then pick it up on the move back up. Accumulation since December is 3 up weeks on rising volume to 0 down weeks on rising volume. Outstanding money flow leading the stock higher.
Volume: 13.37M Avg Volume: 7.379M
BUY POINT: Test of 36: 36.55. Break recent highs: $38.55 Volume=10M Target=$44.55 Stop=$35.85
POSITION: XIQ EG - May $35c (72 delta) &/or Stock
http://www.investmenthouse.com/cs/mxim.html
Play Date: 03/08/2003
NDC (NDC Health--$21.98; -0.27; optionable): Management services
http://biz.yahoo.com/p/n/ndc.html
STATUS: Saucer. NDC continues to hold in its short 7-week pattern showing accumulation at 2 up weeks on rising volume to 1 down week on rising volume. Very nice lower volume as it moved through the bottom of the pattern, and now volume is starting to slightly swell. Friday volume moved above average as NDC came back to test 22. Like the pattern but need to see the strong breakout.
Volume: 292.6K Avg Volume: 238.09K
BUY POINT: $22.22 Volume=300K Target=$25 Stop=$20.66
POSITION: NDC HD - Aug. $20c (70 delta, low OI) &/or Stock
http://www.investmenthouse.com/cs/ndc.html
Play Date: 02/27/2003
RNBO (Rainbow Technologies--$9.4; -0.28; optionable): Security software
http://biz.yahoo.com/p/r/rnbo.html
STATUS: Double bottom w/handle. Big breakout Thursday on huge volume and then came back some Friday as everything needed a rest. It may come back to test support at 9 over the next few sessions as the market continues its consolidation. That would be fine and give a great entry point when RNBO jumped back up on strong volume.
Volume: 231.7K Avg Volume: 123.909K
BUY POINT: New: Test of 9, then 9.22 on the way back up (orig. $8.45) Volume=161K Target=$10.25 Stop=$8.45
POSITION: BQO GU - July $7.50c (67 delta, low OI) and/or Stock
http://www.investmenthouse.com/cs/rnbo.html
Play Date: 02/22/2003
WFR (Memc Electronic--$9.45; -0.05; no options): Integrated semiconductor circuits
http://biz.yahoo.com/p/w/wfr.html
STATUS: Cup w/handle. WFR gave some volume Thursday as it moved through the buy point, and then held steady Friday on lower, below average volume. It may come back to test 9 over the next few sessions as the market takes a breather, and a stronger volume move up off that level would be an excellent entery point.
Volume: 92.8K Avg Volume: 124.954K
BUY POINT: Test of 9: 9.25 on the way back up. From here: $9.65 (orig. $9.35) Volume=217K Target=$11.25 Stop=$8.59
POSITION: - Stock (no option chain)
http://www.investmenthouse.com/cs/wfr.html
End Part 2 of 3
|
us stock market
top stock pick
|
