Schaeffer's Midday Options Update Features Honeywell International, Yahoo!, Genzyme, General Dynamics, and QUALCOMM.CINCINNATI -- Today's Schaeffer's Midday Options Update features Honeywell International (NYSE NYSE See: New York Stock Exchange :HON), Yahoo! (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :YHOO YHOO Yahoo! Inc. (NASDAQ symbol) ), Genzyme (NASDAQ:GENZ), General Dynamics General Dynamics Corporation (NYSE: GD) is a defense conglomerate formed by mergers and divestitures, and as of 2006 it is the sixth largest defense contractor in the world[1]. The company has changed markedly in the post-Cold War era of defense consolidation. (NYSE:GD), and QUALCOMM (NASDAQ:QCOM QCOM Qualcomm, Inc. (stock symbol) ). The Midday Options Update contains a brief commentary on the day's most notable activity and a table listing the most-active calls and puts for the day. The Midday Options Update is published every day at www.SchaeffersResearch.com - the home of Bernie Schaeffer and Schaeffer's Investment Research. For additional information about this report or to have it delivered to you free via email every day click on the following link. http://www.schaeffersresearch.com/redirect.aspx?CODE=PRMOU12M&PAGE=1 . Options Update: An Option Strategy for QUALCOMM The market briefly bounced into positive territory this afternoon, but has now rolled back over into the red. The Dow Jones Industrial Average Dow Jones Industrial Average The best known U.S. index of stocks. A price-weighted average of 30 actively traded blue-chip stocks, primarily industrials including stocks that trade on the New York Stock Exchange. (DJIA DJIA See Dow Jones Industrial Averager (DJIA). ) has shed 12 points and the S&P 500 Index (SPX (Sequenced Packet EXchange) The transport layer protocol in the NetWare operating system. Similar to the TCP layer in TCP/IP, it ensures that the entire message arrives intact. SPX uses NetWare's IPX as its delivery mechanism. ) is down two points. Meanwhile, the Nasdaq Composite The Nasdaq Composite is a stock market index of all of the common stocks and similar securities (e.g. ADRs, tracking stocks, limited partnership interests) listed on the NASDAQ stock market, meaning that it has over 3,000 components. It is highly followed in the U.S. (COMP) is holding onto a gain of four points. Consumer Price Index (CPI (1) (Characters Per Inch) The measurement of the density of characters per inch on tape or paper. A printer's CPI button switches character pitch. (2) (Counts Per I ) added 0.4 percent in March. Prices were higher across the board, with only natural gas, new vehicles and education prices declining in the month. Economists were predicting a gain of only 0.3 percent. Meanwhile the core CPI, which excludes food and energy prices, increased 0.3 percent, higher than the 0.2-percent gain expected by the Street and the largest increase in core prices since last March. During the past 12 months, the CPI has risen 3.4 percent and the core rate is up 2.1 percent. Honeywell Profit Up 22 Percent "Honeywell is off to a terrific start in what we expect to be another great year," said Honeywell International (NYSE:HON) Chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. Dave Cote after the company posted first-quarter net of $436 million, or 52 cents a share, with sales up 12 percent to $7.24 billion. Analysts had anticipated earnings of 49 cents per share Cents per share The amount of a mutual fund's dividend or capital gains distributions that a shareholder will receive for each share owned. on sales of $7.18 billion. Prudential reiterated the stock a "neutral," and the stock was down about 1.8 percent at last check, at $43.45. Yahoooooooooooo! Yahoo! (NASDAQ:YHOO) reported first-quarter results today, with strong advertising revenue growth. Profit fell 22 percent on higher operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. and employee stock option costs. Net income fell to $159.9 million, or 11 cents per share, from $204.6 million, or 14 cents, in the year-ago period. The results were in line with analyst estimates. Sales showed a 34-percent jump to $1.57 billion. At last check, the stock was up more than eight percent on the day at $33.82. Genzyme First-Quarter Results Genzyme (NASDAQ:GENZ) posted a first-quarter profit of $101 million, or 37 cents per share, up from a year-ago profit of $95.6 million, or 36 cents per share. Sales for the three-month period rose 16 percent to $730.8 million. On a non-GAAP (generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ) basis, the firm earned $156.5 million, or 59 cents per share, missing the consensus estimate of 63 cents per share. General Dynamics First-Quarter Results General Dynamics (NYSE:GD) posted first-quarter earnings this morning of $374 million, or 92 cents per share, versus its year-ago gain of $336 million, or 83 cents per share. Sales for the quarter climbed 16 percent to $5.57 billion. Analysts had expected earnings of 84 cents per share and sales of $5.25 billion. Most-Active Options Update At 2:19 p.m. Eastern time, the Dow Jones Industrial Average (DJIA - 11,261.8) is down 0.06 percent. The S&P 500 Index (SPX - 1,306.55) has dropped 0.08 percent, and the Nasdaq Composite (COMP - 2,360.9) has advanced 0.19 percent. At 2:19 p.m. Eastern time, 4,190,201 calls have changed hands compared to 2,336,208, equaling a single-day put/call volume ratio of 0.55. The CBOE's equity put/call volume ratio weighed in at 0.58. QUALCOMM April options trade for the last time on Friday of this week, and they expire on Saturday, so there is a flurry of activity this week, as positions are closed out or rolled forward. This makes it harder than usual to interpret options activity, but I notice that QUALCOMM (NASDAQ:QCOM) saw some heavy trading on its April 52.50 call (AAO AAO American Association of Orthodontists; American Academy of Ophthalmology; American Academy of Otolaryngology; American Academy of Osteopathy. AAO DX) and May 55 call (AAO EK) this morning. Before the day began, open interest on these contracts was 63,003 and 17,394 contracts, respectively. Today, by the time we grabbed our figures, 18,496 of the April 52.50 calls had changed hands and 18,128 of the May 55 calls had found new homes. These trading volumes are strikingly similar, and the shift in strike price almost exactly matches the stock's gain during the month. The largest blocks crossed the tape shortly before 1 p.m. Eastern time. For the April 52.50 call we saw 4,500 contract cross on the CBOE CBOE See: Chicago Board Options Exchange CBOE See Chicago Board Options Exchange (CBOE). at the ask price, suggesting they were most likely bought. At almost the same time, 4,500 of the May 55 calls crossed on the CBOE, midway between the ask price and the bid price. The stock has been in an uptrend for three years, although it paused in early 2005 to check its foothold at the 35 level. The 10-week and 20-week moving averages have been firm friends since July 2005. Also, I notice that the 20-day moving average is highly supportive. Quick Facts on QCOM: -- Percent of analysts tracked by Zacks who rate the stock with a "buy" or better: 68% -- Number of analysts tracked by Zacks: 25 -- Short interest as a percent of float: 1.11 % -- Short-interest ratio short-interest ratio A ratio that is used for market analysis and is calculated by dividing short interest by average daily volume. Technicians use the short-interest ratio as a tool to determine market direction. : 1.30 -- Schaeffer's put/call open interest ratio (SOIR SOIR Schaeffer's Put/Call Open Interest Ratio SOIR Simultaneous Operations on Intersecting Runways ): 0.68 -- SOIR percent rank: 62% -- Overall Schaeffer's Equity Scorecard rating: 7.0 The 18 million shorted QCOM shares would take just 1.3 days to cover at the equity's current average daily trading volume, so a short-covering rally is unlikely. Just 1.1 percent of the stock's float is sold short. The Schaeffer's put/call open interest ratio (SOIR) for QCOM is in the middle of the road, so it does not help our analysis of the stock greatly today. Of the 25 covering brokerages listed by Zacks, none are shouting "sell" but 13 advise a "strong buy," suggesting that sideline money might not be plentiful. With all this information in mind, it is pick time on Options Update. The Schaeffer's Equity Scorecard reading for QCOM is 7.0, indicating that he upside still beckons. QCOM is approaching the 50-percent retracement Retracement A reversal in the movement of a stock's price, countering the prevailing trend.  Notes: An example might be market risk causing a stock's price to pull back. level between its January 2000 high at 100.00 and its August 2002 low at 11.60. That retracement level lies at 55.80, by my calculations. QCOM has a great deal of momentum, and there's a possibility that it will smash clean through that potential layer of resistance. If it does, we'll be celebrating. But even if it doesn't, the stock, which was trading at $52.05 at last check, still has $3.75 of headroom before it pauses. A May 50 call (AAO EJ) could be yours for $3.10. If the stock moves to 55.80, that call will have $5.80 of intrinsic value Intrinsic Value 1. The value of a company or an asset based on an underlying perception of the value. 2. For call options, this is the difference between the underlying stock's price and the strike price. , plus whatever time value is left. I'm going to paper trade a May 50 call in QCOM today, and see where it goes. This is the great benefit of paper trading Paper trading (sometimes also called "virtual trading") is a simulated trading process in which would-be investors can 'practice' investing without committing real money. ; you get to experiment in a laboratory that's entirely safe. As always, keep in mind that playing options is far from an exact science, and that any positions could garner losses. However, with the leverage of options on your side, you stand to make more than your potential losses. Just remember to use sound judgment when entering any trade, set your stop-loss where you feel most comfortable, and never invest more than you can afford to lose. Until next time, good luck trading! Monthly chart of QCOM since April 2003 with 10-week and 20-week moving averages: http://www.schaeffersresearch.com/wire?ID=15827 . The best way to take advantage of the timely Schaeffer commentaries is to sign up to receive their free e-newsletters -- Opening View, Market Recap and Monday Morning Outlook. Click here to have the Schaeffer's commentaries delivered to you free via email every day. http://www.schaeffersresearch.com/redirect.aspx?CODE=PRMOU12M&PAGE=1 . About Schaeffer's Investment Research (www.SchaeffersResearch.com) Schaeffer's Investment Research, founded by Bernie Schaeffer in 1981, is a financial information and trading resources company. It publishes Bernie Schaeffer's Option Advisor, the nation's leading options subscription newsletter. The firm's contrarian approach focuses on stocks with technical and fundamental trends that run counter to investor expectations. The firm's website, http://www.SchaeffersResearch.com , is recognized as one of the leading information sources for stock and options traders and was cited as the top options website by both Forbes and Barron's. Click here for more details about Schaeffer's trading methodology: http://www.SchaeffersResearch.com/method . |
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