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Issue No. 17 – March 14, 2005 Prescott, Arizona Systems@WiserTrader.com

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1.0 Trading

      This issue describes a low risk trade that can return 100% profit.  Less than 3 weeks are left in the Option Alerts free period with a 40% savings on enrollment.

1.1 General Motors Corporation

      General Motors Corporation needs little introduction.  The stock was shorted by purchasing the September 32.50 put option.  For the fiscal year ended 12/31/04, revenues rose 4% to $193.45 billion.  Net income from continuing operations rose 29% to $3.69 billion.  GM has a low PE, a low price to sales and a low price to book. However the stock has declined 23% in the past 52 weeks.  It was downgraded to a sell by Bank of America on February 28^th.  Prices hit new 52 week lows on January 21^st ($35.85), February 28^th ($35.01), March 4^th ($34.77) and again this week on March 9^th ($33.91).   GM prices are shown in Figure 1A.

FIGURE 1A

© 2005 WiserTrader.com, LLC. Members of wisertrader.com are neither licensed brokers nor licensed advisors.   Trades discussed represent trades made by the editor for the wisertrader.com portfolio.  The newsletter and web site are for information only and should not be considered as personal advice.   While it is believed that the posted information is factual, mistakes can be made in transcription.  Investors should trade stocks only after verifying all information and consulting with a licensed broker or adviser

1.2 Inflation and Interest Rates

      Fears of inflation and higher interest rates were momentarily switched on and off this week as the price of oil fluctuated back and forth between $53 and $55.  News of higher than expected oil supplies coupled with an oil price movement lower caused stocks to rise earlier in the week.  This was accompanied by hopeful speculation that OPEC will not reduce output at its next meeting this coming week.   At the end of the week, consumption demand forecasts by IEA were raised to 84.3 million barrels/day as compared with 82 million not too long ago when spare capacity was only 2 million barrels a day.  Oil moved above $54 on Friday bringing on a sell off in stocks.  The markets are likely to remain unstable for a while.

      The oil news coupled with a near record trade deficit caused Treasuries to sell off, as well, with the 10-year note recording its largest weekly decline since last May sending its yield to 4.53%.  The prospects of measured interest rate increases by the Fed are now viewed with alarm. 

      Earlier comments out of Japan regarding the possible diversification out of U.S. debt instruments and continued weakness in the dollar also contributed to the sell off in bonds.  Movement away from the dollar would lower its value and require the Treasury Department to raise interest rates significantly at future bond auctions, thereby reducing the value of bonds currently held.

      Three years ago the ratio of daily trading volume for Currencies, Treasuries and Stocks was approximately 30:7:1.  Assuming that this ratio has not changed too drastically, if we focus only on stocks, we are looking at only 3% of the picture.

· Rising commodity prices (oil) or the dollar losing its value can cause inflation.

· Inflation forces the Fed to raise interest rates.

· Increased interest rates require the Treasury to issue new bonds that yield a higher rate.

· Higher interest rates cause previously issued bond prices to decline (Why hold a low yielding bond when you can own a newly issued one that yields a higher rate?).

· Higher interest rates make newly issued bonds look more favorable compared to stocks, pulling funds out of stocks.

· Higher interest rates make it more expensive for companies to borrow, eating into earnings, and causing stock prices to decline.

· Sustained higher interest rates attract foreign capital, eventually increasing the value of the US dollar and lowering the price of commodities. 

· Sustained higher interest rates slow the economy, reducing demand for energy and commodities, further lowering their prices.

      The high performance of energy and materials stocks over the past few months has been due to the view that economy is firing on all cylinders.  However, the perceived prospect of inflation followed by higher interest rates functions to foul the plugs causing stock market misfires. 

      The chart in Figure 1B shows a 2 year comparison of the CRB Index, the black trace, and the 10 year Treasury yield, the gold trace. The CRB Index is effectively a measure of inflation.  Treasury rates have spiked sharply (up to 4.87%) within the past 2 years due to fears of inflation and settled back when those fears were seen to be unfounded.  It is only within the last month and a half that increases in Treasury rates are correlated with a sharp rise in commodity prices.  Notice the current RSI reading for the CRB Index.  This time the interest rate increase is justified and is more likely to be sustained.

                     Copyright 2005 BigCharts.com

FIGURE 1B

      To limit inflation, the Federal Reserve will continue to raise short term interest rates until the economy slows.  Since the market is forward looking, a slowing economy will occur some time after negative market effects have been well under way.  Measured rate increases of 0.25% in each of the seven remaining FOMC meetings in 2005 are expected to increase the short term rate to 4.25% by December. With a normal yield curve, rates for the 10 year note will be about 6%.  This situation presents a unique trading opportunity that allows us to avoid the choppiness of stocks in the near term while the stock market sorts itself out.

1.3 Trading Opportunity

      Traders can take advantage of the rise in interest rates by buying call options for the 10 year Treasury note yield on the Chicago Board of Options Exchange.  The 10 year Treasury note interest rate is represented by a tradable index with the symbol TNX.  Options for this instrument are European style.  But they are traded like any other option before expiration.  The option alert below recommends buying the December $45.00 call option with the symbol TNX LI.  The $45.00 strike price corresponds to an interest rate of 4.5%.  The Friday CBOE TREAS YLD 10 YR NOTES IDX closing price was $45.35, representing a yield of 4.535%.   Each dollar of index value corresponds to 10 basis points or 0.10%.

      Interest rates are admittedly difficult to predict.  If the rate on the 10 year note rises by 0.5%, the option will be well in the money.  This can occur after the next two FOMC meetings on March 22^nd and May 3^rd with measured rate increases of 0.25% each.  Rates on the 10 year note rose this past week alone by more than 0.2% and over the past month by 0.5%.   The short term overnight rate is currently 2.5%.  If this rate reaches 4.25% in any of the next 7 FOMC meetings in 2005, the 10 year rate should reach 6% and the trade would net a 100% profit.  The trade should be closed by mid November because the time value of the premium decays exponentially in the final 30 days before expiration.  Otherwise, it is a low risk trade.

Wiser Trader Option Alert No. 9 – 3/14/05

Instrument:                                            CBOE TREAS YLD 10 YR NOTES IDX

Symbol:                                                  TNX

Closing Price:                                        $45.35

Option:                                                   DEC $45.00 CALL

Option symbol:                                     TNX LI

Option closing price:                           $6.20

Option bid price:                                  $6.00

Option ask price:                                  $6.40

Theoretical fair value:                          $3.67

Suggested maximum entry price:       $6.70

Suggested conditions for trade:        None

Maximum Trade Duration:                  Up to 34 weeks
Suggested Money Management:      Use no more than 15% of risk capital
Suggested Trailing Stop:                    -25%

2.0 Market Analysis

      Industry leadership in Table 1 below continues to take a short term view.  Leading industries are ranked from highest to lowest.   The tendency for gold to advance in all the major trading currencies is an indicator of global inflation.

               Table 1

 Market Summary

 Week ending 03/12/05:
 Major Indices:
 Dow Jones     -1.5%
 NASDAQ        -1.4%
 S&P500 Index  -1.8%
 Russell 2000  -2.8%
 
 30 Year Bond 4.81%
 10 Year Note 4.53%
 
 Industry Leaders
 For the Past Week
 Transportation Services 
 Aerospace & Defense 
 Gold Mining 
 Defense 
 Telecommunications Equipment 
 Railroads 
 Tires 
 Trucking 
 Apparel Retailers 
 Financial Administration 
 
 Industry Leaders
 For the Past Month
 Platinum & Precious Metals 
 General Mining 
 Exploration & Production 
 Nonferrous Metals 
 Mining 
 Gold Mining 
 Coal 
 Railroads 
 Oil & Gas Producers 
 Trucking 
 
 Crude Oil $54.43
 
 Gold for the past 30 days:
 USD    +5.97%
 CAD    +3.10%
 CHF    +0.75%
 GBP    +2.63%
 EUR    +1.29%
 JPY    +4.15%

      Indices declined across the board this week as the market's focus moved toward concerns about interest rates and inflation rates, and away from the bullish first quarter earnings reports.  Oil prices played a role as Friday’s close above $55 settled to $54 and some change on Saturday.  The subsequent sell off in bonds affected stocks adversely, as did the higher than expected trade deficit.  The declines this week were concentrated in the sectors that so far this year have been strong.  Energy was down 4.7%, consumer staples 2.2% and materials 1.6%.  Technology, health care, and financials continued to languish, as they have for most of the year.

      The market's concern with inflation will keep oil prices on center stage.  Any economic release that touches on inflation will have market-moving potential.  The 10-year note yield will also be closely watched.  Another risk for the market is that the last half of any calendar quarter is typically a time when earnings warnings are heaviest. 

      The 5 day and 5 week RSI for the DOW, S&P500 and the NASDAQ are all neutral.  Commercial hedge funds (so-called smart money) are net shorts by 19,298, 23,220 and 15,442 contracts for the DOW, S&P500 and NASDAQ, respectively.  Other sentiment indicators are given in Table 2.

Table 2

Sentiment Indicators 03/05/05

Sentiment Indicator	Value	Last Week	2 Weeks Ago	Complacent	Cautious
VIX	12.80	11.94	11.49	< 20	> 50
VXN	18.57	18.13	17.34	< 30	> 70
Put/Call Ratio	0.621	0.608	0.573	< 0.6	> 0.7
%Bulls - %Bears	34.1	32.6	32.7	> 29%	< 25%

3.0 Procedure

      The following stock screens were generated with tools from AAII.   The short term trading filter used for Table 3A looks for optionable stocks whose percentage relative strength over the past 6 months is greater than 90%, EPS Growth over the past 12 months is greater than 80% and are within 5% of their 52 week  high  with  a  minimum  price  of  $50.   One exception is BHP, added just recently, that does not really fit the filter but is a promising basic materials play. When a trigger, price gap up or unusually high up volume occurs, call options are supplied. 

Key

Open Trade

Passed Recent Filter

"0"       = No discernable trend

"GAP" = Price gap

"V"      = Higher than average volume

"+T"    = Positive trend

"-T"     = Negative trend

"TT"    = Trigger received

"TTC" = Confirmation received

Table 3A

Short Term Options (Original Stock Candidate Filter) as of   03/12/05

Stock	Reference	% Chg	Company	Sector	Industry	OPTION	Key
AAPL	01/10/05	16.8%	Apple Computer, Inc.	Technology	Computer Hardware	QAA GT JUL 100.00 CALL	+TT
AEOS	02/07/05	6.5%	American Eagle Outfitters	Services	Retail (Apparel)	-	+T
AET	01/03/05	20.3%	Aetna Inc.	Financial	Insurance (Accident & Health)	-	+T
APA	03/10/05	1.2%	Apache Corporation	Energy	Oil & Gas Operations	YWA AL JAN 60.00 CALL	+TT
BHP	02/24/05	0.9%	BHP Billiton Limited (ADR)	Basic Materials	Metal Mining	-	+T
BRY	03/01/05	-7.8%	Berry Petroleum Company	Energy	Oil & Gas Operations	BRY HK AUG 55.00 CALL	+TT
BTU	11/22/04	21.1%	Peabody Energy Corporation	Energy	Coal	BTU IT SEP 100.00 CALL	+TT
BYD	02/21/05	6.1%	Boyd Gaming Corporation	Services	Casinos & Gaming	-	+T
CDIS	03/01/05	-4.1%	Cal Dive International, Inc.	Energy	Oil Well Services & Equipment	KPQ FK JUN 55.00 CALL	+TT
CME	02/14/05	-6.6%	Chicago Mercantile Exchange Holdings	Financial	Investment Services	-	0
CRS	02/14/05	0.9%	Carpenter Technology Corp	Basic Materials	Iron & Steel	CRS IN SEPT 70.00 CALL	+TT
DO	03/04/05	-3.0%	Diamond Offshore Drilling Inc.	Energy	Oil Well Services & Equipment	-	+T
FFIV	02/14/05	6.0%	F5 Networks Inc.	Technology	Computer Networks	-	+T
GGC	02/21/05	4.0%	Georgia Gulf Corporation	Basic Materials	Chemicals - Plastics and Rubbers	-	+T
GMR	02/25/05	-11.4%	General Maritime Corp.	Transportation	Water Transportation	GMR HK AUG 55.00 CALL	+TT
MDC	02/14/05	-5.8%	M.D.C. Holdings, Inc.	Capital Goods	Construction Services	-	0
MGG	12/27/04	4.8%	MGM MIRAGE	Services	Casinos & Gaming	-	0
MON	12/20/04	16.0%	Monsanto Company	Basic Materials	Chemical Manufacturing	-	+T
PCO	02/14/05	6.0%	Premcor Inc.	Energy	Oil & Gas Operations	-	+T
PCU	03/10/05	2.6%	Southern Peru Copper Corp (USA)	Basic Materials	Metal Mining	PCU IL AEP 60.00 CALL	+TT
POT	12/20/04	7.5%	Potash Corp./Saskatchewan (USA)	Basic Materials	Non-Metallic Mining	-	+T
SIE	02/14/05	5.7%	Sierra Health Services, Inc.	Financial	Insurance (Accident & Health)	SIE IL SEP 60.00 CALL	+TT
SM	03/10/05	2.5%	St. Mary Land & Exploration Co.	Energy	Oil & Gas Operations	SM HJ AUG 50.00 CALL	+TT
SUN	03/04/05	-4.0%	Sunoco, Inc.	Energy	Oil & Gas Operations	-	+T
SWN	11/22/04	12.9%	Southwestern Energy Company	Energy	Oil & Gas Operations	SWN IL SEP 60.00 CALL	+TT
TS	01/10/05	34.5%	Tenaris S.A.  (ADR)	Capital Goods	Construction - Supplies and Fixtures	QAA GT JUL 100.00 CALL	+TT
TXI	12/20/04	3.3%	Texas Industries, Inc.	Capital Goods	Construction - Raw Materials	TXI JM OCT 65.00 CALL	+TT
TXU	11/22/04	19.6%	TXU Corporation	Utilities	Electric Utilities	-	+T
VLO	02/07/05	18.2%	Valero Energy Corp.	Energy	Oil & Gas Operations	-	+T
X	12/20/04	8.8%	United States Steel Corp.	Basic Materials	Iron & Steel	X JM OCT 65.00 CALL	+TT
YELL	03/10/05	0.0%	Yellow Roadway Corp.	Transportation	Trucking	YBQ AL JAN 60.00 CALL	+TV

      Stocks selected by the down-market filter are listed in Table 3B.  This filter looks for stocks having the potential to decline in a down market.  They are optionable stocks priced above $30 having less than 20% year over year EPS growth, a 26 week %Rank Relative Strength of less than 20% and are within 5% of their 52 week lows.  IP was removed because its percent rank relative strength rose above 25%.  The performance of this experimental filter is discussed in Section 4.

Table 3B

Experimental Down-Market Filter as of   03/12/05

Stock	Reference	% Chg	Company	Sector	Industry	OPTION	Key
BUD	02/21/05	-0.9%	Anheuser-Busch Companies, Inc.	Consumer Non-Cyclical	Beverages (Alcoholic)	-	-T
CPS	03/04/05	6.2%	ChoicePoint Inc.	Services	Business Services	CPS VG OCT 35.00 PUT	-TT
DJ	02/24/05	-1.2%	Dow Jones & Co.	Services	Printing & Publishing	DJ UH SEP 40.00 PUT	-TTC
FITB	02/21/05	-3.4%	Fifth Third Bancorp	Financial	Regional Banks	YJF MI JAN 54.00 PUT	-TTC
GM	02/07/05	-9.2%	General Motors Corporation	Consumer Cyclical	Auto & Truck Manufacturers	-	-T
MIL	02/07/05	-0.4%	Millipore Corporation	Technology	Scientific & Technical Instruments	-	-T
MTG	02/21/05	-0.4%	MGIC Investment Corp.	Financial	Insurance (Property & Casualty)	-	0
NBIX	02/21/05	-8.1%	Neurocrine Biosciences, Inc.	Health Care	Biotechnology & Drugs	UOT TG AUG 35.00 PUT	-TV
NYT	02/21/05	-2.7%	The New York Times Company	Services	Printing & Publishing	NYT SH JUL 40.00 PUT	-TV
SSP	02/07/05	1.4%	The E.W. Scripps Company	Services	Printing & Publishing	-	0
WL	02/24/05	4.1%	Wilmington Trust Corp.	Financial	Regional Banks	-	0

      The stock filter resulting in Table 3C is for the potential to write covered call options.  The filter looks for optionable stocks whose percentage relative strength over the past 6 months is greater than 90%, EPS Growth over the past 12 months is greater than 80% and are within 5% of their 52 week high  with  a  maximum stock price is $20.   SON and SIGM were removed due to weak percent rank relative strength.

Table 3C

Short Term Covered Call Writing Screen as of   03/12/05

Stock	Reference	% Chg	Company	Sector	Industry	Covered Calls	Key
AES	02/24/05	1.1%	The AES Corporation	Utilities	Electric Utilities	-	+T
AKS	12/20/04	-9.9%	AK Steel Holding Corporation	Basic Materials	Iron & Steel	-	0
BEV	02/14/05	-2.5%	Beverly Enterprises	Health Care	Healthcare Facilities	-	0
GLBL	02/24/05	-9.5%	Global Industries, Ltd.	Energy	Oil Well Services & Equipment	GQO DV APR 12.50 CALL	+TT
MDRX	02/07/05	31.3%	Allscripts Healthcare Solutions, Inc.	Technology	Software & Programming	MXQ DC APR 15.00 CALL	+TV
MXT	12/20/04	-5.4%	Metris Companies Inc.	Financial	Consumer Financial Services	-	0
OS	12/20/04	26.8%	Oregon Steel Mills, Inc.	Basic Materials	Iron & Steel	OS DG APR 35.00 CALL	+TTV
RETK	03/04/05	23.1%	Retek Inc.	Technology	Software & Programming	-	+T
SGR	02/07/05	19.4%	The Shaw Group Inc.	Basic Materials	Misc. Fabricated Products	-	+T
SID	12/20/04	30.9%	Companhia Siderurgica Nacional (ADR)	Basic Materials	Iron & Steel	SID DF APR 30.00 CALL	+TT
TIWI	02/14/05	-0.7%	Telesystem International Wireless (USA)	Services	Communications Services	-	+T
WFR	03/04/05	-0.6%	MEMC Electronic Materials	Technology	Semiconductors	-	+T
XXIA	01/02/05	12.0%	Ixia	Technology	Electronic Instruments & Controls	-	+T

      For the screen in Table 3D, the number of selections is reduced by eliminating stocks having P/E’s greater than 30.  SYT was removed due to weak relative strength.

Table 3D

Growth Momentum (Intermediate Term) Screen as of   03/12/05

Stock	Reference	% Chg	Company	Sector	Industry	Leaps
ELBO	12/13/04	3.4%	Electronics Boutique Holdings Corp.	Services	Retail (Technology)	-
ELK	02/24/05	1.9%	ElkCorp	Capital Goods	Construction - Supplies and Fixtures	-
KBH	01/10/05	12.3%	KB Home	Capital Goods	Construction Services	OHK AX JAN07 130.00 CALL
MT	02/24/05	0.0%	Mittal Steel Company N.V. (ADR)	Basic Materials	Iron & Steel	-
MTH	12/13/04	24.2%	Meritage Homes Corporation	Capital Goods	Construction Services	-
OSK	03/12/05	0	Oshkosh Truck Corporation	Consumer Cyclical	Auto & Truck Manufacturers	-
PTRY	02/07/05	-0.3%	The Pantry, Inc.	Services	Retail (Grocery)	-
SPF	02/14/05	0.4%	Standard Pacific Corp.	Capital Goods	Construction Services	-
USNA	02/21/05	2.0%	USANA Health Sciences, Inc.	Consumer Non-Cyclical	Personal & Household Products	-
ZQK	03/12/05	0	Quiksilver, Inc.	Consumer Cyclical	Apparel/Accessories	-

      For the Peter Lynch screen in Table 3E, again the number of selections for this screen is reduced by eliminating stocks having P/E’s greater than 30.   TKS was removed due to negative EPS growth.

Table 3E

Peter Lynch Value (Intermediate Term) Screen as of   03/12/05

Stock	Reference	% Chg	Company	Sector	Industry	Leaps
BLSC	12/13/04	-3.8%	Bio-Logic Systems Corp.	Health Care	Medical Equipment & Supplies	-
CAJ	01/31/05	2.6%	Canon Inc. (ADR)	Technology	Computer Peripherals	-
CSLMF	12/13/04	1.4%	Consolidated Mercantile (USA)	Basic Materials	Containters & Packaging	-
GMK	03/04/05	-2.8%	Gruma S.A. de C.V. (ADR)	Consumer Non-Cyclical	Food Processing	-
IMY	02/21/05	-6.8%	Grupo IMSA S.A. de C.V. (ADR)	Basic Materials	Iron & Steel	-
KEP	12/13/04	10.1%	Korea Electric Power Corporation (ADR)	Utilities	Electric Utilities	-
LFL	12/13/04	11.5%	Lan Airlines S.A. (ADR)	Transportation	Airline	-
MBT	01/10/05	14.9%	Mobile TeleSystems OJSC (ADR)	Services	Communications Services	OVD AI JAN07 45.00 CALL
MKTAY	02/07/05	7.3%	Makita Corporation (ADR)	Consumer Cyclical	Appliances & Tools	-
NOLD	12/13/04	11.3%	Noland Company	Capital Goods	Misc. Capital Goods	-
PCU	12/13/04	29.8%	Southern Peru Copper Corp (USA)	Basic Materials	Metal Mining	-
SHI	12/13/04	27.6%	Sinopec Shanghai Petrochemical Co. (ADR)	Energy	Oil & Gas Operations	-
SKM	02/07/05	3.6%	SK Telecom Co., Ltd. (ADR)	Services	Communications Services	-
TM	12/13/04	5.1%	Toyota Motor Corporation (ADR)	Consumer Cyclical	Auto & Truck Manufacturers	-
TMIC	02/21/05	3.9%	Trend Micro Incorporated (ADR)	Technology	Software & Programming	-
UGP	12/13/04	-16.7%	Ultrapar Participacoes SA (ADR)	Energy	Oil & Gas Operations	-
VCP	12/13/04	-4.2%	Votorantim Celulose e Papel S.A (ADR)	Basic Materials	Forestry & Wood Products	-
VLCCF	12/13/04	1.0%	Knightsbridge Tankers Limited	Transportation	Water Transportation	-

      The filter for Warren Buffet style stock picking in Table 3F is for the intermediate to long term.  Two requirements were added.  One was to include only optionable stocks in order to find LEAPS opportunities.  The other requirement was to include only those stocks having a PE of 17 or less.  HELE, HRH and THO were removed due to declines below their 52 week highs.

Table 3F

Warren Buffett Value (Long Term) Screen as of   03/12/05

Stock	Reference	% Chg	Company	Sector	Industry	Leaps
ABFS	02/07/05	8.4%	Arkansas Best Corporation	Transportation	Trucking	-
COLM	01/10/05	-1.2%	Columbia Sportswear Company	Consumer Cyclical	Apparel/Accessories	-
DHI	12/27/04	5.0%	D.R. Horton Inc.	Capital Goods	Construction Services	VEI AH JAN07 40.00 CALL
DSPG	02/07/05	4.2%	DSP Group, Inc.	Technology	Communications Equipment	-
ELBO	01/31/05	12.5%	Electronics Boutique Holdings Corp.	Services	Retail (Technology)	-
HOV	12/27/04	12.6%	Hovnanian Enterprises	Capital Goods	Construction Services	OZW AL JAN07 60.00 CALL
LNCR	12/27/04	-4.9%	Lincare Holdings Inc.	Health Care	Healthcare Facilities	OUN AI JAN07 45.00 CALL
PGR	12/27/04	5.2%	The Progressive Corp.	Financial	Insurance (Property & Casualty)	-
RS	12/27/04	14.7%	Reliance Steel & Aluminum	Basic Materials	Misc. Fabricated Products	-
RS	02/24/05	0.3%	Reliance Steel & Aluminum	Basic Materials	Misc. Fabricated Products	-
STLD	02/07/05	6.2%	Steel Dynamics, Inc.	Basic Materials	Iron & Steel	VJM AJ JAN07 50.00 CALL
VLCCF	02/21/05	-10.2%	Knightsbridge Tankers Limited	Transportation	Water Transportation	-

      The stocks from Benjamin Graham’s style of utility investing are listed in Table 3G.  A requirement was added to include only those stocks having a PE of 17 or less.

Table 3G

Benjamin Graham Value (Long Term) Screen as of   03/12/05

Stock	Reference	% Chg	Company	Sector	Industry	Leaps
KEP	01/10/05	18.9%	Korea Electric Power Corporation (ADR)	Utilities	Electric Utilities	-
PGN	01/10/05	-3.4%	Progress Energy, Inc.	Utilities	Electric Utilities	OPM AJ JAN07 50.00 CALL
PNW	01/10/05	-1.9%	Pinnacle West Capital	Utilities	Electric Utilities	-
SRE	01/10/05	10.6%	Sempra Energy	Utilities	Natural Gas Utilities	-
WPS	02/07/05	2.3%	WPS Resources Corp	Utilities	Electric Utilities	-

4.0 Results

4.1 Trades This Week

      The SWN September 60.00 Call was stopped out for a loss of 23.1%. 

      The GM September 32.50 Put remains open.  The trade is down 9.1%.

      The BHP August 30.00 Call remains open.  The trade is up 11.1%.

4.2 Trading History

The portfolio trading history in Table 4A lists all trades since the newsletter’s inception.

Table 4A

Option Portfolio Trading History as of 03/12/05

Stock	Buy Date	Buy Price	Last	Action	P/L(%)	Option
URBN	11/23	11.50	$9.00	Sold 11/30	-21.7%	URQ FG JUN 35.00 CALL
TXU	11/23	11.30	$6.30	Sold 12/2	-44.2%	TXU DK APR 55.00 CALL
USG	11/23	8.40	$12.80	Sold 12/15	52.4%	MAY 25.00 CALL
ADSK	12/20	8.20	$9.20	Sold 12/23	12.2%	ADQ GN JUL 70.00 CALL
MON	12/20	3.80	$4.80	Sold 12/23	26.3%	MON GJ JUL 50.00 CALL
POT	12/20	7.00	$8.00	Sold 12/23	14.3%	POT FP JUN 80.00 CALL
TXI	12/20	5.50	$9.00	Sold 12/23	63.6%	TXI GL JUL 60.00 CALL
AET	1/7	5.70	$7.10	Sold 01/19	24.6%	AET GX JUL 135.00 CALL
CLF	1/7	7.30	$9.20	Sold 01/19	26.0%	CLF GJ JUL 50.00 CALL
MTH	1/21	6.80	$9.20	Sold 02/01	35.3%	MTH FZ JUN 62.50 CALL
BZH	1/31	13.70	$17.30	Sold 02/01	26.3%	BZH HJ AUG 150.00 CALL
KBH	1/31	9.20	$11.10	Sold 02/01	20.7%	KBH GU JUL 110.00 CALL
BHP	1/28	2.25	$2.70	Sold 02/01	20.0%	BHP HE AUG 25.00 CALL
X	1/25	5.30	$4.90	Sold 02/02	-7.5%	X GK JUL 55.00 CALL
SFI	1/24	0.75	$0.30	Sold 02/04	-60.0%	SFI PH APR 40.00 PUT
EBAY	2/7	6.80	$5.60	Sold 02/08	-17.6%	XBA SO JUL 75.00 PUT
CCJ	2/4	6.60	$10.20	Sold 02/11	54.5%	CCJ IG SEP 35.00 CALL
MON	2/4	8.00	$8.20	Sold  02/15	2.5%	MON GJ JUL 50.00 CALL
TOL	1/2	7.10	$7.30	Sold 02/17	2.8%	TOL IR SEP 90.00 CALL
BZH	2/9	14.60	$16.90	Sold 02/17	15.8%	BZH HN AUG 170.00 CALL
KBH	2/7	11.10	$10.40	Sold 02/18	-6.3%	KBH GC JUL 115.00 CALL
VLO	2/24	6.98	$8.70	Sold 03/02	24.6%	VLO IN SEP 70.00 CALL
TXU	2/25	3.55	$4.70	Sold 03/04	32.4%	TXU GP JUL 80.00 CALL
SWN	3/3	6.50	$5.00	Sold 3/11	-23.1%	SWN IL SEP 60.00 CALL
BHP	2/24	2.25	$2.50	Long	11.1%	BHP HF AUG 30.00 CALL
GM	3/9	2.20	$2.00	Long	-9.1%	GM UZ SEP 32.50 PUT

Overall Average Profit = 10.6% per trade.

4.3 Experimental Filter Results

      The goal of the filter tracking experiment is to observe the use of stock candidate filters to buy call options and write covered calls in rising and sideways markets and the down-market filter for use in buying put options in declining and sideways markets.  So far we have not had a significant sustained down market environment in which to test the down-market filter.  Essential features of the 3 filters are described in Table 4B.

Table 4B

Filter Criteria

Description	(1) Stock Candidate	(2) Down-market	(3) Stock Candidate
Purpose	Buy Calls & Puts	Buy Put Options	Write Covered Calls
Market direction	All	Down, Sideways	All
Price	> $50	> $30	< $20
12 m EPS growth	> 80%	< 20%	> 80%
Relative Strength	26 wk >90%	26 wk < 20%	26 wk >90%
Price within	5% of 52wk high	5% of 52 wk low	5% of 52wk high
Exchanges	NASDAQ, NYSE	NASDAQ, NYSE	NASDAQ, NYSE

      The relative average filter performance for the three groups of filtered stocks is compared with proxies for the major averages in Table 4C.  Filter 1 stocks are those listed in Table 3A and filter 2 stocks, for the experimental filter, are listed in Table 3B.  Filter 3 stocks are listed in Table 3C.  Filter 2 stocks did not decline as much as filter 1 and 3 stocks for the past week.

Table 4C

Average Filter Performance as of 03/12/05

Instrument	Past month	1 Week ago	2 weeks ago	3 weeks ago	4 weeks ago
SPY (S&P500)	-0.3%	-1.9%	1.1%	0.9%	-0.3%
DIA (DOW)	-0.2%	-1.6%	1.1%	0.5%	-0.3%
QQQQ (NASDAQ)	-1.4%	-0.9%	-0.3%	0.7%	-0.9%
IWN (Russell 2000)	-1.2%	-2.8%	1.3%	1.2%	-0.8%
Filter 1 > $50	5.1%	-4.1%	1.7%	4.6%	3.0%
Filter 2 > $30	-3.8%	-0.9%	-0.3%	-1.0%	-1.7%
Filter 3 < $20	10.7%	-3.3%	4.0%	4.3%	5.5%

5.0 Conclusion

      The fact that so many of the stocks in the short term options watch list have triggered an oversold condition for the Williams %R is a result of a general market pull back.  A wait and see strategy is used at the beginning of the week by avoiding new stock trades while making a lower risk trade in Treasury interest rate call options.

      Average fractional profit for 26 trades, F_P = 10.61% per trade.

      Fraction of trades chosen in the correct direction, F_C = 69.2%

      Average fractional gain for 18 winning trades, F_G = 25.85% per trade.

      Average fractional loss for 8 losing trades, F_L = -23.71% per trade.

      The dollar profit goal D_G is set equal to the average capital used per trade C such that
N = 1 / F_P = 9.4 becomes the average number of trades to earn the average traded amount.

The Profit Factor for the trading system, F_G F_C / [F_L (1 - F_C)] = 2.04
      Gross Profits divided by Gross Losses (includes 1% commission)

Appendix

Investment Conference Schedule

      Below are links to conference registration sites where you can sign up.  

• 03-17-05 San Jose , CA "INSEAD Presents Growth Ventures in Emerging Markets: Seizing the Opportunity"
• 03-20-05 San Jose , CA "6th Annual Mid-Market March Madness - M&A & Buyouts"
• 04-10-05 Calgary, Alberta "Calgary Resource Investment Conference"
• 04-10-05 Calgary, Alberta "Calgary Resource Investment Conference"
• 05-02-05 Chicago, IL "2005 Healthcare M&A & Corporate Development"
• 05-03-05 Acapulco, Mexico "SRI Conference on Foreign Investment Opportunities in Mexico's New Consumer and Small Business Lending Industry "
• 05-04-05 Atlanta, GA "Global Debt Collection Summit"
• 05-11-05 Minneapolis , MN "Medtech Investing Conference (4th Annual)"
• 05-11-05 New York, NY " IIR's Inaugural Forum on IP Rights Protection in Financial Services - Strategies for Building Patent Portfolios and Managing IP Risk "
• 05-17-05 London, United Kingdom "Corporate Venturing & Spinouts Conference "
• 05-17-05 New York, NY "Hedge Funds Regulation and Compliance 2005 - Gain Advanced Operational, Legal and Accounting Strategies to Achieve full Compliance in Today's Regulatory Environment "
• 05-23-05 New York, NY -Both professional and sophisticated private investors meet with the world's leaders in gold, silver, precious metals, copper and oil and gas exploration and production "New York Institutional Gold Conference"
• 06-01-05 San Francisco, CA "Venture Capital Investing Conference"
• 06-12-05 Vancouver, BC "World Gold, PGM & Diamond Investment Conference" Resource Investment Conferences featuring small cap opportunities in gold, diamonds, oil & gas, industrial and emerging growth situations are being presented in Canada. Pre-registration is complimentary to: investors who are clients of sponsoring firms which include discount and full service brokerage houses; subscribers of participating newsletters, sponsoring media and sponsoring internet investment services; shareholders of participating exhibitors; accredited investment advisors and investors who take an interest in managing their own personal portfolios.
• 09-07-05 Las Vegas, Nevada "Gold and Precious Metals Investment Conference" The gold and metal resource market has demonstrated its strength and longevity, achieving sustained growth and multi-decade highs in the last year. Explore the shining prospects of gold, silver, copper, uranium and other fast-rising commodities. Realize your full potential in this sustained bull market, with Natural Resources the clear profit leaders.
• 09-29-05 Las Vegas, Nevada  "Tradestation World Users Conference" Trade Station World Conference and Expo, the premier conference for TradeStation users, is coming to the Venetian Hotel in Las Vegas, September 29 - October 2, 2005. Here's where you learn about how to design your personal trading strategies, and to test those strategies against historical data.
• 10-02-05 Toronto, Ontario "Toronto Resource Investment Conference"
• 10-30-05 New Orleans, LA "New Orleans Investment Conference"
• 11-10-05 Millbrae, CA "Biotech Investing Conference" Continuing advances in genomics, proteomics and enabling technologies makes the Biotech sector a favorite among private equity investors and venture capitalists. The Biotech Investing Conference is an industry gathering of the leading private equity investors, venture capitalists, biotech companies, pharmaceutical companies, corporate investors and institutional investors. 
• 11-27-05 San Francisco, CA "Gold and Precious Metals Conference"
  Both professional and sophisticated private investors meet with the world's leaders in gold, silver, precious metals, copper and oil and gas exploration and production. The Natural Resource industry's newest opportunities are presented, together with educational seminars, executive panels and investment workshops led by top finance specialists, economic analysts and newsletter editors. Admission is complimentary with pre-registration.

Conference Search

• By Date, Category, Country and Organizer
  
• By Topic and Region
  
• Financial reporting and corporate news - "Corporate News Announcements"

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