Bernie: The Long and Short of It

12/20/2002 12:00 am EST


Bernie Schaeffer

Chairman and CEO, Schaeffer's Investment Research

Bernie Schaeffer, editor of The Option Advisor, has no particular bias towards whether individual stocks rise or fall. His system, which incorporates fundamental, technical, and sentiment indicators, isolates those stocks and their related option plays that are best positioned for profits, on both the upside and the downside. His latest picks include both a long position and a short position. Here's his review.

"Boston Scientific (BSX NYSE) manufactures and distributes minimally invasive medical devices. The company has performed well amid a very difficult economic environment, exceeding Wall Street's earnings estimates for the past five quarters. The shares have been hugging their ten-day and 20-day moving averages since experiencing a bullish gap on October 2. Currently, BSX is sitting on its 20-day trendline. I believe the risk to reward favors the bulls at this point, as the downside is pretty evident. I want to be out if the stock breaks below its 20-day. In addition, sentiment is stacking up favorably, with BSX's Schaeffer's put/call open interest ratio sitting in the 85th percentile. Short interest has grown over the past month to nearly five times the security's average daily volume. Traders should target a move to 46 with a stop-loss on a trade below 41.

"Cisco (CSCO OTC) makes our bear list, with the shares recently experiencing a bearish crossover of their ten-day and 20-day moving averages. The stock has been on a slide since putting in a short-term double top on November 21 and December 2 near the 15.50 mark. Since the beginning of the month, CSCO have been steadily losing ground under the weight of its ten-day trendline. Options players are decisively bullish on the stock in the wake of its falling price. This is reflected in a Schaeffer's put/call open interest ratio that's lower than approximately 80% of all readings from the past year. In addition, call build-ups at the December and January 15 strikes are extremely high, with 88,000 and 148,000 contracts, respectively. Traders should target a move to 12 with a stop-loss on a trade above 14."

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