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SUBSCRIBER QUESTIONS

Q: Sometimes you give trade with options that are in the same month expiration and in others you have an expiration two or three months out. I have heard you make more money if you buy in the same month expiration as the current month. Thanks for your help

A: The closer an option is to its expiration, the more volatile it is. That means it will move more up or down in value with movements of the underlying stock than an option that has an expiration three months further out for the same strike price on the same stock. The problem with near term options is, you have to be right because there is no time to recover if the stock moves against you. The time value portion of the option is eroding at a high rate once it gets within 30 days of its expiration date. If you are wrong, there is little chance of recovery. When there is a clear downtrend in place we will use nearer term put options though we prefer to get out to the next month if possible. When things are choppy, we tend to buy more time to give us a cushion.

As noted, buying more time means our option won't move as much as a current month expiration option at the same strike price. Therefore we go deeper into the money to get a better delta. We are not paying as much for time when we do this; our money goes more to the intrinsic value of the option making it a better value. We get a better delta (movement per movement of the underlying stock) this way and we have a cushion. Thus we can still make just as much money as near term options yet have more safety because we have more time and are not subject to that fast erosion in time value of near term options.

We discuss how this works in clear detail in the Options You can Use seminar when we kick off another round in late March. Signup information will be coming soon.

PLAYS TO LOOK AT: HTLD continued its breakout move! Other stocks triggering alerts included BAX, NEWP, and JCI, which hit the upside target.

BONUS PLAYS: Nice breakouts by UPS and NCOG, and WTSLA continued up!

OEX (Standard & Poors--$563.09; +0.42; optionable):
STATUS: Hit upper resistance at the 50 day MVA, which the index has failed to break the last few times it has tried since mid-January. Volume was higher Wednesday at 1.37 million (avg. 1.3 million) on an attempt to hold a move above the resistance (which is at 568.68) but the index churned on the move, closing with a doji above the 18 day MVA (561.26). We will look for a break of that support for taking more aggressive positions in addition to those taken today; breakdown in the pattern is below lower support at the 549 range, but for now that is our initial target. We sent out a mid-day alert out on the index, taking profits on the upside play and to an aggressive put.
BUY POINT: Aggressive: 560.50 on continued rising volume.
POSITION: April $570 puts to buy (OEB PN).

QQQ (Nasdaq 100--$34.40; -0.48; optionable): Financial Services
STATUS: The index tapped the 18 day MVA at the 36 range (intraday high was 36.08), our target for the recent upside bounce play. It headed back down from there, holding support on the low at the 34 (a price that has now been hit 4 of the last 7 days, so, the likely the sturdiest support here). However, volume moved slightly higher to 95 million (avg. 72 million) as the Nasdaq distributed. We are looking for the Nasdaq to head lower, so will eye a new downside target at 32, initially. If the index gets below that, 30.
BUY POINT: Aggressive: 33.90 on rising volume.
POSITION: May $43 or $42 puts to buy (QQQ QQ or QP)

SOX (Phili Semi--$527.18; -7.48; optionable):
STATUS: In a descending triangle. For the third day tried to move over the 200 day MVA (which is at 546.86; intraday high was 547.70) but failed and closed below its 50 day MVA (537.98). We are looking for a fall to most recent potential support at 500 (the February low; represents the bottom of the triangle). The index hit 499.13 three times at the January lows as well. The SOX has trended down since early that month when it peaked at 606.88 after the nice fall uptrend off the October lows (346).
BUY POINT: Aggressive: 527.
POSITION: April $530 puts to buy (SJX PF).

APD (Air Products & Chemicals--$48.79; +1.32; optionable): Chemicals.
http://biz.yahoo.com/p/a/apd.html
STATUS: APD has been on the report before, but it dropped back to test its 200 day MVA (44) instead of breaking out of its large cup with handle. It has now recovered and formed a reverse head and shoulders since early December, and today broke out of the pattern with excellent volume (2.35 million; average 1.50 million). Good relative strength and buying. Targeting 54.
BUY POINT: On this move, still a buy up to 50.49, with continued strong volume. Stop: 45.38-46.96.
POSITION: Stock and/or June $45 calls to buy (APD FI).

MARKET FAVORITES: Big gap up and reversal by CHKP could lead to the selling we are looking for.

BRCM (Broadcom--$32.79; -1.86; optionable): Semiconductor.
http://biz.yahoo.com/p/b/brcm.html
STATUS: Put. Returns to the report again, as it is set up for another drop in its downtrend. BRCM reached up over its down trendline with a doji Tuesday, but dropped hard on lower, but continued strong volume (16 million; average 15 million). The drop takes BRCM near the target from our last play (32) when BRCM tanked through its 200 day MVA (38.51), but we are looking at new positions in Nasdaq weakness and a continued drop. Target: 27.
BUY POINT: A move below 32 on continued strong volume.
POSITION: May $40 puts to buy (RCQ QH).

ALTR (Altera--$19.99; -0.82; optionable): Semiconductor.
http://biz.yahoo.com/p/a/altr.html
STATUS: Put. ALTR took a strong drop last week after failing on its last move up to reach the level of its recent highs (26) or its 200 day MVA (24.82). ALTR bounced Monday from support at the December low of 20, but after hitting the 10 day MVA (21.45), ALTR has fallen back the last two sessions. It dropped on very strong volume today (15.4 million; average 6.84 million), closing near last week's low of 19.28. Looking for more downside, targeting 16.
BUY POINT: A drop through 19.50 on continued strong volume.
POSITION: June $25 puts to buy (LTQ RE).

PRE-ANNOUNCEMENTS: XL shot up but pulled back intraday, so we could see more of a drop. BMS also looks like a pullback, as does LSTR (classic run up on decreasing volume). GTK continued up with a stronger move.

DRYR ($44.20; +0.71): Working on a split date (next earnings 4/25). Hit the buy point on the breakout from its small 'flying w' with handle, moving on the volume we were looking for (693,700; average 246,600). However, it pulled back with the market from 44.88 to close. Still looking strong, so we will see if it can hold the prior highs at 44, and on this move is still a buy up to 46.50, with stock.

MUR ($85.90; +0.44): Working on a new date. MUR made an excellent move this week, but we need to watch for a test back here. Today MUR tapped 86.73 (high is 87.85), pulling back to close with a smaller gain on smaller, but still strong, volume of 323,300 (average 252,000). We will look for the former tops in the 85 range to hold support, and will look for MUR to set up again and take out the high. With that move, stock and/or July $85 calls to buy (MUR GQ).

CYN ($50.30; -0.12): Researching a split date for this stock. Made an intraday move to 51.25 but pulled back wit the market. Like many of the stocks that experienced the late selling, CYN is at a key level and needs to continue to hold support at the 18 day MVA (50.07). If so, we are still looking for a breakout, which is 51.75 on volume of 260,000, and stock and/or May $45 calls to buy (CYN EI - under 100 open interest).

ESI ($43.57; +0.57): Working on a date. ESI moved up a bit from support at the 10 day MVA (42.97) in the handle, but volume was down at 99,400 (average 138,500). Still looking good, with the breakout 44.35 on volume of 200,000. Stock and/or July $40 calls to buy (ESI GH - no open interest as yet).

INVN ($39.40; +0.37): Forecast to announce a split on 2-28-02 in conjunction with a special meeting to increase authorized shares. Looking at the special meeting tomorrow morning for an announcement, and INVN is hanging in on low volume at the short-term MVA's (18 day at 38.51). Looking for a strong move out of the recent pattern. The aggressive play is over 40 on volume near the average (2.9 million; today down to 523,000), with stock and/or July $35 calls to buy (FQQ GG). Over the recent high is 42.74 on above average volume, with stock and/or July $40 calls to buy (FQQ GH).

PRE-SPLITS: Carefully watching DF, which could pull back.

GILD ($69.41; +0.48): Splits 2:1 effective March 8. Has run up nicely, but like many stocks today, got caught up in the run and pullback. GILD hit an intraday high of 71.64, but dropped back to close, moving on strong volume (3.06 million; average 2.18 million). The loose "tombstone" doji on high volume signals a pullback, and with pre-splits we heed the warning of topping signs. Support is below at 66.50-67.50 at the 50 day and short-term MVA's (50 day at 66.50).

PMI ($71.10; +0.70): Splits 2:1 with the effective date to be determined. Hit the buy point today on the bounce from the 18 day MVA (70.49), but pulled back from an intraday high of 71.98 as volume remained strong (521,000; average 242,000). Looking for PMI to hold with our current positions, and to another try that it can hold. On a move over 72, with stock and/or June $70 calls to buy (PFI FN).

CONTINUING CANDIDATES: AZO pulled back hard to the 50 day MVA, and DHR showed some concerning volume on its pullback. TGH bounced on big volume from the 50 day, so we will see if we get a strong bounce back. MI hit the buy point but volume was not there and it pulled back.

HB ($60.05; +0.18): Volume has been very strong the last two sessions, slightly down to 292,900 today (average 140,600) as HB tightens in its pennant pattern. The breakout is a move over 60.95 on continued strong volume, with stock and/or June $55 calls to buy (HB FK - under 100 open interest).

ETH ($39.83; +0.53): After the big move through resistance on Tuesday, ETH continued up today, but closed with a very loose doji on much lower volume (197,100; average 198,400). ETH could be resting here after the nice jump, so we will see if it holds up (50 day MVA is below at 38.48). Looking for a break over the highs in the right 'shoulder.' 40.36 on continued strong volume, with stock and/or May $35 calls to buy (ETH EG).

POST-SPLITS: VAR continued up, but we are wary of the need for a rest. ACS continued up, but still has the 50 day to deal with at 48.

MGAM ($28.80; +0.15): Split 3:2 on February 12. MGAM is setting up in a pennant, today showing a second consecutive doji on low volume (174,200; average 234,200). Looking for volume to kick in a drive MGAM to a breakout. The more aggressive buy point is a move over 30 on volume of 320,000, with the new high at 30.91 on volume of 320,000, with stock and/or July $25 calls to buy (QMG GE - no open interest).

XRAY ($34.01; +0.10): Split 3:2 effective February 1. Moving on low volume, drifting laterally over its 10 day MVA (33.68). Today it again reached up to 34.36 but pulled back for a doji. Looking for XRAY to hold the 10 day and break over the high of 34.69 on above average volume (289,600; today 258,900), with stock and/or July $33.38 calls to buy (RHE GX).

Good Investing!
Jon L. Johnson and the Stock Split Report Staff.

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 of 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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