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HOTS January 2004 (partially open)
Published on December 24, 2003



General Information and Guidelines

Market Overview   Long Calls and Puts   Naked Put Sales   Synthetic Long Stocks   Debit Spreads   Credit Spreads




Market Overview:

Intermediate Term (1-3 months): On the WEEKLY basis, our SuperHornets Trading System are Long most ETFs we follow.

Short Term (1-2 weeks): On the DAILY basis, SuperHornets Trading System is LONG the Key Sectors and the US Market, and Japan ETF.

Breadth and Volume Analysis: Both Breadth and Volume McClellan Oscillators for SPX and NDX came out of a moderately oversold condition (see our Timer chart). During this shortened week, we resumed our march upward.

Bottom line: Our outlook for the First Quarter of 2004 remains very bullish for US equities.




Long Calls and Puts:

NOT OPEN TO THE PUBLIC YET -- we still have position that are ACTIVE -- will open this section on Feb. 25th, when the March Newsletter is posted.




Naked Puts Sales:

Naked Puts Sales

Stock Name Closing Price Option Symbol BUY / SELL PUT /CALL Description Sell Price
GS Goldman Sachs 97.55 GSMS SELL PUT JAN 95 Puts 1.05
GM General Motors 53.35 GMNW SELL PUT Feb 47 1/2 Puts 0.60
IR Ingersroll-Rand 66.67 IRNL SELL PUT Feb 60 Puts 0.65
NEM Newmont Mining 46.37 NEMNV SELL PUT Feb 42 1/2 Puts 0.90


ANALYSIS OF NAKED PUTS SALES

GS    PIC Chart    PCR Chart

Goldman Sachs is a global investment banking, securities and investment management firm. The company recently reported stellar earnings, but sold off on the news. Quarterly profits rose sharply and investment banking is expected to rebound in 2004. Recent bullish dollar weighted put / call ratios indicates that the smart money is positioning themselves for a continuation of the uptrend. The 95 strike is just above the 50 DMA which we expect to support any pullbacks.

SELL THE JANUARY 95 PUTS NAKED (GSMS) at 1.05 or better.


GM    PIC Chart    PCR Chart

General Motors is one of the leading auto manufacturers. The stock recently broke out on expectations of better earnings and an alleviation of pension plan concerns. The company also announced that its pension plan was fully funded, thanks to strong investment returns and a major bond offering this year. While some consolidation of the recent gains would be normal, we expect the stock to remain strong. The 47 1/2 strike is just below the rising 20 DMA and provides room for a retracement.

SELL THE FEBRUARY 47 1/2 PUTS NAKED (GMNW) at 0.60 or better.


IR    PIC Chart

Ingersoll-Rand is a diversified industrial manufacturing company and has been surging higher with the cyclical sector. Demand in the industrial sector is expected to be robust in 2004. Technically, its 50, 100 & 200 DMA's have been rising, and the security remains above all its major short term moving averages. The ADX is rising sharply confirming the strength of the rally. The On Balance Volume has also been rising steadily. We expect the uptrend to remain intact. The 60 strike is just below the 50 DMA and allows room for a retracement.

SELL THE FEBRUARY 60 PUTS NAKED (IRNL) at 0.65 or better.


NEM    PIC Chart    PCR Chart

Gold remains in an uptrend and we expect the bull run in gold to continue. Newmont Mining is the largest component of the Philadelphia Gold and Silver Index and we expect Newmont to remain strong. It's uptrend has been accompanied by numerous bullish dollar weighted put / ratios, indicating that the smart money is betting on further increases in the stock. Technically, the stock has been supported by its rising 50 DMA, which is currently just below the 45 strike. The 42 1/2 strike allows some room for a retracement.

SELL THE FEBRUARY 42 1/2 PUTS NAKED (NEMNV) at 0.90 or better.





Synthetic Long Stocks:

Synthetic Long Stocks

Stock Name Closing Price Option Symbol BUY / SELL PUT /CALL Description Buy Zone Put Sale Price Profit Target
INTC Intel Corp 31.08 INQBZ BUY CALL Feb 32 1/2 Calls 0.90-1.00   50 %
INTC Intel Corp   INQMF SELL PUT Jan 30 Puts   0.45  
YHOO Yahoo Inc. 44.77 YHQBI BUY CALL Feb 45 Calls 2.70-2.80   50 %
YHOO Yahoo Inc.   YHQMH SELL PUT Jan 40 Puts   0.40  


ANALYSIS OF SYNTHETIC LONG STOCKS

INTC    PIC Chart    PCR Chart

Intel is the bellwether for the semiconductor group. The stock recently sold off with end of year profit taking in the semiconductor sector. Support has held at the rising 100 DMA which lies at the 30 strike. A review of our price intensity charts indicate that the momentum oscillator is turning up from an oversold level. The beginning of the year is also a seasonally bullish period. A bounce in the sector could see Intel overtake the 50 DMA which lies just below the 50 DMA. Numerous bullish dollar weighted put / call ratios indicates that the smart money is positioning themselves for a continuation of the uptrend. Aggressive traders can attempt to create a Synthetic Long Stock position by the following COMBINED positions:

BUY THE FEBRUARY 32 1/2 CALLS (INQBZ) at 0.90-1.00 AND SELL THE JANUARY 30 PUTS NAKED (INQMF) at 0.45 or better.


YHOO    PIC Chart    PCR Chart

Yahoo has been one of the leading stocks in the internet sector. The stock has been trending higher since March and has been consolidating those gains. The rising 50 and 100 DMA continue to support the stock. On the price intensity charts, the CI momentum indicator has turned positive and the On Balance Volume is rising. On the weekly chart the uptrend remains intact with the stock being supported by the rising short term moving averages. Aggressive traders can attempt to create a Synthetic Long Stock position by the following COMBINED positions:

BUY THE FEBRUARY 45 CALLS (YHQBI) at 2.70-2.80 AND SELL THE JANUARY 40 PUTS NAKED (YHQMH) at 0.40 or better.





Debit Spreads:

Debit Spreads

Stock Name Closing Price Option Symbol BUY / SELL PUT /CALL Description Net Credit Net Debit
BBH Biotech Holdrs Tr 135.90 BBHAG BUY CALL Jan 135 Calls   2.35
BBH Biotech Holdrs Tr   BBHAH SELL CALL Jan 140 Calls    
EBAY Ebay Inc 64.02 XBAAM BUY CALL Jan 65 Calls   1.00
EBAY Ebay Inc   XBAAU SELL CALL Jan 67 1/2 Calls    


ANALYSIS OF DEBIT SPREADS

BBH    PIC Chart    PCR Chart

The Biotech Holders Tr represents a basket of biotech companies. The biotech sector also represents a significant portion of the NASDAQ 100. After a pullback in October, the biotech sector has bounced and has broken back above its 50 and 100 DMA's. Our Superhornet system for swing trading is also on a buy signal for the BBH. A review of our price intensity charts indicate that the CI momentum indicator has turned up from an oversold level and is now positive. The ADX is rising and the On Balance Volume has also turned up and is rising. Traders can employ the following Bullish Debit Call Spread:

BUY THE JANUARY 135 CALLS (BBHAG) AND SELL THE JANUARY 140 CALLS (BBHAH) for a net debit of 2.35 or better.


EBAY    PIC Chart    PCR Chart

EBAY operates a web based market place and is one of the leading stocks in the internet commerce sector. The stock recently pulled back and found support at its 200 DMA. A strong Christmas shopping season has raised expectations for the company and it is now hitting new 52 week highs. It is a bit stretched and may digest these gains before embarking on another leg up in the new year. On the price intensity charts, the ADX has turned up and the On Balance Volume is rising. Traders can employ the following Bullish Debit Call Spread:

BUY THE JANUARY 65 CALLS (XBAAM) AND SELL THE JANUARY 67 1/2 CALLS (XBAAU) for a net debit of 1.00 or better.





Credit Spreads:

Credit Spreads

Stock Name Closing Price Option Symbol BUY / SELL PUT /CALL Description Net Credit Net Debit
HUI Amex Gold Bugs Index 230.01 HUIMB BUY PUT Jan 210 Puts 1.00  
HUI Amex Gold Bugs Index   HUIMC SELL PUT Jan 215 Puts    
LEN Lennar Corp 98.55 LENMR BUY PUT Jan 90 Puts 0.75  
LEN Lennar Corp   LENMS SELL PUT Jan 95 Puts    


ANALYSIS OF CREDIT SPREADS

HUI     PIC Chart

The Amex Gold Bugs Index represents a basket of gold stocks. The gold sector has been in a bull market for the last year and the prospects for gold going higher are appealing. The index recently pulled back and found support at its 50 DMA. Weakness in the US Dollar along with global terrorism concerns create an environment that should see continued demand for gold and subsequently higher prices. We expect the uptrend to resume shortly. Traders can employ the following Bullish Credit Put Spread:

BUY THE JANUARY 210 PUTS (HUIMB) AND SELL THE JANUARY 215 PUTS (HUIMC) for a net Credit of 1.00 or better.


LEN     PIC Chart

Lennar is one of the nation's largest homebuilders and has two core businesses, homebuilding and financial services. The homebuilding sector has been among the strongest due to the low interest rate environment. The stock recently pulled back and found support at its rising 50 DMA. The company recently announced a 2 for 1 stock split and a cash dividend. On the price intensity charts, the CI momentum indicator has turned up and the On Balance Volume is rising. Traders can employ the following Bullish Credit Put Spread:

BUY THE JANUARY 90 PUTS (LENMR) AND SELL THE JANUARY 95 PUTS (LENMS) for a net Credit of 0.75 or better.



FAQs (updated 2/1/04) -- Have other questions? E-Mail us at: HOTS@HamzeiAnalytics.com


Chat with Fari on TradeStation.com Fari Hamzei writes for CBOE Options Hub on event-deriven basis       Futures & Options for Stock Indices
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