The Option Investor Newsletter Sunday 6-27-99 1 of 6 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. Emailed three times weekly, Sunday, Tuesday, Thursday evenings. New plays and market wrap updated daily on the website. ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 6-25 WE 6-18 WE 6-11 WE 6-4 DOW 10552.56 -303.00 10855.56 +365.06 10490.50 -309.34 +240.10 Nasdaq 2552.65 - 10.79 2563.44 +115.64 2447.80 - 30.54 + 7.82 S&P-100 671.29 - 12.18 683.47 + 28.60 654.87 - 17.55 + 13.76 S&P-500 1315.31 - 27.53 1342.84 + 49.20 1293.64 - 34.11 + 25.91 RUT 443.11 - 1.94 445.05 + 7.04 438.01 - 4.32 + 3.65 TRAN 3316.11 - 80.23 3396.34 + 51.87 3344.47 -118.26 + 47.03 VIX 22.61 22.34 27.01 23.45 Put/Call .53 .43 .64 .56 ****************************************************************** Where did the relief rally go? If you went to lunch Friday with the Dow up +100 points and the Nasdaq up +30 you were probably smiling. When you got back, indigestion promptly took over. The markets soared at the open on Friday after the existing home sales were announced to have dropped -4% in May. This was much stronger than the .8% drop expected. Also the GDP only gained a slightly higher 4.3% than the 4.1% previous estimate. As you can see by the charts the Dow has been range bound the last several weeks and is currently sitting almost on the bottom of it's trading range. At only 100 points off the bottom we still have room to move in either direction. The Nasdaq however has pulled back slightly from the upper end of it's range. Both appear poised to make a strong move with the right Fed decision on Wednesday. The Dow, sitting near support, could explode with a strong run and cover the 400 points to the top of the range easily. The Nasdaq, which is lingering near it's recent highs could easily execute a breakout run with only a +100 point gain. These ten day charts graphically illustrate our current position. The intraday pullback on Friday was simply due to a lack of buyers and cautious investors selling into the rally to protect profits in front of the Fed meeting this week. The NYSE only traded 612 mln shares which was the lightest volume day this year. Investors are just extremely worried about the possible Fed moves. Here is the possible outcomes when the Fed announces the decision on Wednesday at 2:PM ET. .00% rate increase, leave bias at tighten. About 5% chance. .25% rate increase, reduce bias to neutral. About 25% chance. .25% rate increase, leave bias at tighten. About 55% chance. .50% rate increase, reduce bias to neutral. About 10% chance. .50% rate increase, leave bias at tighten. About 5% chance. No rate increase would cause a brief rally but the lingering fear of an increase in August would be a wet blanket for the market for the next six weeks. The .25% and neutral would be highly desirable. Only .25% would be a token raise and it would normally take two Fed meetings to raise again. The markets would react very positively and we could hit new highs. The .25% and tighten would not be exciting. A token raise but the fear of another rate increase at any time would make any coming economic report a potential disaster. At any sign of inflation the Fed could raise rates on a moments notice. This would keep a lid on any upside potential to the market and cause a very bad summer. It would be one way for the Fed to control the markets without actually slamming interest rates. The .50% and neutral would be good for the market. Many think the .50% increase is already 80% factored into the market and we would not see any significant drop. The larger than expected raise with a reduction to neutral would be seen as a flu shot and nobody would expect another raise unless serious signs of inflation became apparent. It would be a green light for several months of rally unless economic reports started coming in strongly over estimates. The .50% and tighten would be a disaster. A stronger than expected increase and then the specter of another increase at any time would signal the end of this bull market as we know it. Lest we forget, the current rally was started last fall when the Fed "rescued" the market from a serious slide with three back to back rate cuts for a total of -.75%. By taking back two thirds of the cuts and leaving the possibility of more the market would react very negatively. Almost nobody expects the stronger actions with Y2K lingering only six months away. While the actual impact to the markets has yet to be seen, we could start to see some cautious investors withdrawing funds after this earnings period. The real race to cash out will probably not start until after the OCT earnings. Since nobody wants to be the last person in the market the Fed will want to avoid leaning on the prices and rates during the next six months. This is why we think this is the only rate increase we will see this year without RAMPANT inflation in future economic reports. As if the coming Fed meeting was not enough for the market to worry about we got two bad pieces of news on Friday. Campbell Soup issued an earnings warning and said they would miss estimates by eight to ten cents. The reason given was slow soup sales. No kidding. We were expecting slow car sales maybe? The second and most critical was a report by Henry Blodget from Merrill Lynch that Internet sector leader AOL and friends could report results in line with estimates this quarter but still be less than previous projections. Just like Dell cannot report 50% increases in sales forever, Internet companies cannot keep reporting triple digit gains in ad revenue and unique visitors. While everyone understands this principle nobody wants to be left holding over priced Internet stocks when this reality strikes. This report was credited for tanking the Internet sector when it was made public11:30 AM on Friday. Check out these charts and you can see exactly when it was released. Other news that AOL may partner with Microworkz to offer a sub-$199 PC complete with AOL access could not hold up AOL stock which closed down -3.94. The product, called IToaster, would be an entry level device and offer AOL another way to tap the new surfer market. The new devices use a non-windows operating system which could have a serious impact on the DOJ/Microsoft trial currently underway. Since combining with Netscape and partnering with SunMicro, AOL is on track to become a fierce competitor to Microsoft and thereby weaken the DOJ case. To show what a lackluster day we had Friday, AOL only traded 17 mln shares on all the news and typical volume is in the 22-26 mln range. The markets will likely drift aimlessly until after the FOMC meeting. The cash is building up on the sidelines and any rally after the meeting could be strong. There will surely be some bargain hunting this week as the more aggressive traders try to take positions ahead of the Fed decision, just in case. You need to decide before attempting this tactic if you can afford to lose your investment. Yes, it can be very profitable if you pick the right direction but the market is fickle and does not always react in the expected direction. There can always be complications in the Fed speak surrounding the event. More often than not the market has gone down the day after a Fed meeting EVEN when the outcome was positive. Go figure! We do not expect that this Thursday but then a lot happens that nobody expects. We always advise investors to wait until all the factors line up in your favor before risking your capital. Blindly "betting" on market outcomes is like playing financial Russian roulette with only one empty chamber. Every factor you can get on your side takes one more bullet out of the gun. Meeting over, remove one bullet. Market moving up, remove one more. Positive sector and stock moving up, remove two more. Positive advance/declines and ticks, remove one more. Do we get all the factors on our side often? Nope! But every one you remove increases your possibility of profit. After just coming back from Vegas I will aggravate you with one more gambling analogy and then I will stop. If you walk up to any game in Vegas and throw down a $100 bill on any bet, the house has better than a 50% chance of keeping your money. They don't build billion dollar hotels on profits from the room rates. Roulette tables for instance keep 35% of all the money bet. Black jack keeps 22%, Craps 15%. If you stand there long enough they will all keep 100% of your money. If you make "bets" on the market/stocks without taking advantage of every possibility and waiting until the time is right, the market will keep 35% of your money. Continue to make emotional decisions and play whenever the market is open and it will take 100% of your money. I guarantee it. It is the only sure bet. Yes, this is a newsletter night. Yes, there are new plays in the newsletter. Yes, some will go up Monday and some will go down. No, you don't have to start a new position on Monday or Tuesday or Wednesday. You will not make any money if you don't but I can guarantee you will not lose any either. If I could only convince you of one thing it would be, "don't buy options the day after a newsletter." Only buy (sell) options when the timing is right. Otherwise go to Vegas, the result will be the same but you will have more fun losing it. We list new plays in every newsletter so traders can start watching those stocks for an entry point that fits there investing style. How long would you continue to subscribe if we just sent out a blank newsletter that said "wait until after the Fed meeting for picks"? We hope that readers use our newsletter as a starting point for further research and that readers recognize it as that. Just because we look at all the news and events on over 1000 stocks each week, just to bring you a dozen new plays, does not mean you should rush out and buy them at 9:30 Monday morning. Lest you forget, the coast is not clear after the Fed meeting. The June non-farm payrolls are due out Friday. And you thought it was clear sailing into earnings after the Fed meeting.... Wait for an entry point, Sell too soon! Jim Brown Editor PS: If you are only reading the email version and not viewing these sections on the website you are missing out. The imbedded charts and links are provide a much more visual image on the website than is possible in an email format. JIM'S PLAYS ************ Yes, I backed up the truck on Thursday in hopes of a relief rally off 10,470. The good news was the bounce on Friday morning and the bad news was the pull back on Friday as well. I took a chance based on reasonable historical factors and almost succeded. Had the Blodget report on AOL not come out on Friday I would still be loaded from buying the dip and ready for a positive Fed event on Wednesday. By buying on the low of the dip I would have been insured against a negative Fed event to some extent. Had the market stayed in the +100 range on Friday I would have been almost +200 points off the current support and I was planning to wait out the decision. When the Blodget report hit the Internets on Friday and I saw the sector tanking on the news, I bailed and dumped the entire truckload. When making risk plays you MUST be ready to eject on a moments notice. It was not pretty but I knew the risk when I loaded up. Thanks to JWEB I got out alive and with a small profit. I am still short the Yahoo $125 puts and I sold some Ameritrade $80 puts on Monday as well. Ameritrade splits 3:1 next week and I was expecting the potential pre-split run to take me safely out of the money. The drop this week and expecially Friday had me real close to pulling the trigger and bailing on those as well but I continue to hold. Time is on my side if only AMTD would just add another $5 I would breathe a lot easier. My YHOO $125 puts are almost looking bullet proof. They were down as low as $3.75 this week and I have a "buy to close" order in at $1.00. I received $10.25 when I sold them to open the position. The other plays I started on the Thursday dip and closed on Friday were IBM, QCOM, MSFT, VRSN, TXN, JWEB. Bought IBM JUL-115 calls IBM-GC @ 9.50 sold @ 11.00 Bought QCOM JUL-120 calls AAW-GD @15.50 sold @ 13.00 Bought MSFT JUL-80 calls MSQ-GP @ 6.50 sold @ 7.00 Bought VRSN Jul-60 calls YVR-GL @13.25 sold @ 13.63 Bought TXN JUL-125 calls TXN-GE @12.50 sold @ 12.88 Bought JWEB stock @ 23.50 sold @ 27.50 Basically I made money on JWEB and IBM, took a bath on QCOM and broke even on MSFT, VRSN, TXN. I ended up with about a $5,000 profit overall but when I went back and looked at the end of day numbers I would have been down over -$50,000 had I not sold when the market started rolling over. The tendency for most traders, and be honest, is to play the "it will come back" or the "it can't go any lower" game. Sorry but I have been there and done that and I have learned that lesson well. In reality I should have never started the plays with the FOMC meeting next week but the greed factor is alive and well. Fortunately I was able to manage the problem before it got out of control. This was strictly a trading play and not a fundamental play. I have no doubt that I will play these same stocks again next week when the time is right. TXN, MSFT and IBM closed positive for the day but QCOM and VRSN bit the bullet. Current positions: Short YHOO Puts JUL-125 YHU-SE @ $10.25 (current $4.88) Short AMTD Puts Jul-80 TAZ-SP @ $ 7.50 (current $7.75) SEMINAR UPDATE *************** The Boston seminar is over and the Los Angeles seminar is this weekend. There are only two left, Dallas and San Francisco. Remember there is a money back guarantee and you can take a spouse, sibling or friend for free. What more could you ask for? Home Study Course Many have expressed disappointment in the scheduling since they had already planned their vacations. To handle this problem we recomend the Home Study Option. You get the video tapes and the 500 page workbook immediately and are free to attend the seminar , anytime in the future and as many times as you want for free. Seminar Schedule July 18 & 19 DALLAS / Airport Marriott July 25 & 26 SAN FRANCISCO / Crown Planza If you are tired fighting the market and are ready to step up to the next level then we strongly suggest you attend. There is a full money back guarantee and we will allow you to retake the seminar for free as many times as you feel necessary to grasp and implement all the techniques taught. People fly from around the world to hear George speak and you can have two full days of personal attention at the OIN/Optionetics seminars. Go here for details: http://www.OptionInvestor.com/seminar/index.asp We guarantee you will not be disappointed! Market Sentiment ***************** 72 Hours and Counting! Friday's trading day was about as lackluster as you can get. We would expect Monday's trading to be quite similar. Not to beat a dead horse, but all eyes and ears are still on interest rates. If you haven't been trading with one eyeball attached to the long bond, then you have probably lost some money. Hopefully, we can start to focus on the July Earnings reports once the Fed is done raising rates this week. Since Friday of last week, the yield on the 30-year bond rose by 20 basis points (bearish). The long bond has risen 100 basis points since the beginning of January (bearish). Put volume versus call volume on the bond is the highest since February (very bearish sentiment). Fed Funds Contracts have priced in two tightenings by Semptember, and a third by December (extremely bearish). One thing that no one talks about is the Real Yield on the long bond (nominal yield - inflation). The average real yield on the long bond during the 1990's is about 4%, which is where it currently is. What you have here when you look at the above statistics is nothing but bearish sentiment. What you can expect, from a contrarian standpoint, is a nice relief rally later this week. However, if the Fed raises rates by 50 basis points and hints at further hikes, this market could continue to be trading range bound until the focus of interest rates and inflation subside. Bullish Signs: Pinnacle Index: The Pinnacle Index decreased in the amount of overhead resistance (OEX 680-750), and increased in the amount of support (OEX 645-660). Mixed Signs: Market Volatility (VIX): The VIX is still below its 50-day moving average (22.61), but is indicating that the bears are on the prowl. Advance/Decline Line: After checking up last week, the A/D line is beginning to roll over and could prove Bearish if decliners out pace advancers in the week ahead. Russell 2000: Trending above moving averages, yet failed just below the 450 benchmark. This would suggest that the small cap stocks are beginning to roll over just above its 50 day moving average. BEARISH Signs: Interest Rates: Trading ABOVE 200dma and above key 6% benchmark. Investor Intelligence: As a contrarian indicator, the percent of Bullish investors is over 57.50%. Peak Open Interest: The contraian put-call ratio clocking in at 1.40 suggesting bullish sentiment picking up steam. OTM Call Analysis As we move through June's expiration cycle, Pinnacle is tracking the level of call buying (OTM) between 680-750 among option speculators. As we have been documenting, excessive out-of-the- money (OTM) call may serve as overhead resistance. April Expiration Cycle OEX OTM Call Analysis (Open Interest Apr 650-700) Date Open Interest Change % Friday, March 19 35,626 - Friday, March 26 60,266 +69.2% Friday, April 2 70,952 +99.2% Friday, April 9 74,028 +107.8% May Expiration Cycle OEX OTM Call Analysis (Open Interest May 680-750) Date Open Interest Change % Friday, April 16 30,697 - Friday, April 23 53,887 +75.5% Friday, April 30 65,936 +114.8% Friday, May 7 89,736 +192.3% Friday, May 14 97,861 +218.8% Friday, May 21 115,336 +275.0% June Expiration Cycle OEX OTM Call Analysis (Open Interest June 680-750) Date Open Interest Change % Friday, May 28 53,502 - Tuesday, June 1 53,293 -.4% Thursday, June 03 58,515 +9.7% Friday, June 04 61,255 +5% * July Expiration Cycle OEX OTM Call Analysis (Open Interest June 680-750) Date Open Interest Change % Friday, June 19 35,225 - Tuesday, June 22 41,724 +18.4% Thursday, June 24 58,502 +66.1% Friday, June 25 63,342 +79.8% Market Sentiment at a Glance Friday Indicator (6/27) Pinnacle Index (OEX): (680-750) 5.3 Overhead Resistance (680-700) 2.3 Underlying Support (645-660) 2.0 (580-660) 5.1 Put/Call Ratios: CBOE Total P/C Ratio .7 CBOE Equity P/C Ratio .5 OEX P/C Ratio 1.4 Peak Open Interest (OEX): Puts 670 Calls 680 P/C Ratio 1.08 Market Volatility Index (VIX): CBOE VIX 22.61 Investors Intelligence: Bullish 57.50% Bearish 26.50% The Power of Sentiment Analysis It has often been said that the crowd is right during the market trends but wrong at both ends. Measuring and evaluating the sentiment of the crowd, therefore, can give savvy option traders a decided edge. Pinnacle Index OEX Friday Tues Thurs Benchmark (6/25) (6/29) (7/01) (680-750) 5.27 Overhead Resistance (680-700) 2.34 OEX Close 671.29 Underlying Support (645-660) 2.02 (580-660) 5.10 Average ratings: Resistance levels 2.0 / Support Levels .5 What the Pinnacle Index is telling us: Overhead sentiment resistance is building at the OEX 680/695 level while the underlying support is holding at the OEX 645/660 level. Put/Call Ratio Friday Strike/Contracts (6/25) CBOE Total P/C Ratio .65 CBOE Equity P/C Ratio .45 OEX P/C Ratio 1.42 OEX Peak Open Interest Friday Tues Thurs Strike/Contracts (6/25) (6/29) (7/01) Puts 670 / 10,820 Calls 680 / 10,017 Put/Call Ratio 1.08 VIX Market Volatility Major Date Turning Point VIX October 97 Bottom 54.60 July 20, 1998 Top 16.88 October 8, 1998 Bottom 60.63 January 11, 1998 Top 26.38 March 4, 1999 Bottom 28.15 May 14, 1999 Tops 25.01 June 25, 1999 22.61 * Investors Intelligence - Major Percent Percent Date Turning Point Bullish Bearish October 97 Bottom 22.0 48.3 July 20, 1998 Top 52.0 24.0 October 8, 1998 Bottom 38.5 42.7 January 11, 1999 Top 58.3 30.0 March 4, 1999 Bottom 49.1 32.5 January 6, 1999 58.3 30.0 January 13, 1999 60.0 30.0 January 20, 1999 61.7 25.9 January 27, 1999 60.7 28.2 February 3, 1999 60.0 26.7 February 10, 1999 61.7 25.9 February 17, 1999 55.7 28.7 February 24, 1999 54.1 31.5 March 3, 1999 50.9 32.1 March 10, 1999 49.1 32.5 March 17, 1999 52.6 17.6 March 24, 1999 55.9 29.7 March 31, 1999 55.6 31.6 April 07, 1999 56.4 31.6 April 14, 1999 55.9 30.5 April 21, 1999 56.4 30.8 April 28, 1999 56.1 30.7 May 05, 1999 58.1 27.6 May 12, 1999 56.9 31.0 May 19, 1999 60.9 28.7 May 26, 1999 61.6 27.7 June 2, 1999 61.6 27.7 June 10, 1999 58.3 28.7 June 16, 1999 58.8 26.3 June 24, 1999 57.5 26.5 * Market Posture *************** Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert DOW Industrials 10,500 11,000 10,553 Neutral 6.15 SPX S&P 500 1,315 1,355 1,315 Neutral 6.17 OEX S&P 100 660 690 671 Neutral 6.15 RUT Russell 2000 435 450 443 Neutral 6.17 NDX NASD 100 2,110 2,220 2,186 Neutral 6.17 MSH High Tech 1,010 1,080 1,088 BULLISH 6.19 XCI Hardware 890 920 936 BULLISH 6.17 CWX Software 675 700 737 BULLSIH 6.17 SOX Semiconductor 410 425 452 BULLISH 6.10 NWX Networking 525 545 556 BULLISH 6.25 * INX Internet 500 510 473 BEARISH 5.20 BIX Banking 680 720 677 BEARISH 6.24 XBD Brokerage 410 425 395 BEARISH 5.21 IUX Insurance 645 660 642 BEARISH 6.24 RLX Retail 900 910 876 BEARISH 4.29 DRG Drug 385 400 352 BEARISH 4.29 HCX Healthcare 770 800 714 BEARISH 4.29 XAL Airline 180 190 160 BEARISH 5.21 OIX Oil & Gas 285 310 291 Neutral 5.13 Posture Alert Friday was very uneventful as traders and investors alike, wait for the Fed meeting next week. As such, we have changed our opinion on Networking to BULLISH. A detailed description of our Market Posture and its applications can be found at: /members/marketposture Coming Events ************** Monday: Personal Income May Forecast: 0.5% Previous: 0.5% Personal Spending May Forecast: 0.6% Previous: 0.4% Tuesday: BTM Schroders 6/26 Forecast: -- Previous: -0.2% LJR Redbook 6/26 Forecast: -- Previous: -0.4% API Oil Stocks 6/25 Forecast: --- Previous: -5.75M Consumer Confidence June Forecast: 136.4 Previous: 135.8 New Home Sales May Forecast: 954K Previous: 978K Wednesday: APICS Survey June Forecast: -- Previous: 51.7 Chicago PMI June Forecast: -- Previous: 57.9 Leading Indicators May Forecast: 0.3% Previous: -0.1% Thursday: Jobless Claims 6/26 Forecast: 304K Previous: 302K NAPM Index June Forecast: 53.9 Previous: 55.2 Construction Spend May Forecast: 0.9% Previous: -2.4% Money Supply (M2) 6/21 Forecast: --- Previous: $2.8B Friday: Non-Farm Payrolls June Forecast: 209K Previous: 11K Unemployment rate June Forecast: 4.2% Previous: 4.2% Avg Hour Earnings June Forecast: 0.3% Previous: 0.3% Avg Work Week June Forecast: 34.5hr Previous: 34.5hr Factory Orders May Forecast: 0.8% Previous: -1.2% HOW TO SUBSCRIBE **************** We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. The monthly subscription price is $39.95 The quarterly price is $99.95 which is $20 off the monthly rate. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server. You may also call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** This newsletter is a publication dedicated to the education of options traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. The newsletter staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control.
The Option Investor Newsletter 6-27-99 Sunday 2 of 6 Brokers Corner ************************* UNDERSTANDING THE VIX VS. THE S &P 500 Quite a few of the readers have asked me to help interpret the VIX (Volatility Index) and how they can use that to help with timing their purchases. To explain, the VIX is a tool widely used when trading options. Specifically it measures the amount of implied volatility that is priced into options. The history of the VIX is short, since 1993. There is, however, sufficient data available to help you in your trading. As a general rule for broad-based equity index options, (SPX, OEX, or the NDX), a low VIX level usually signals a move to the downside for the index. A high VIX level usually means a short-term bottom has been found. A good way to get a read on the VIX is to look at a chart of the VIX with Bollinger Bands attached to it. If you'll notice, the VIX trades back and forth between the Bollinger Bands. In most cases, when the VIX trades up to and through the upper band, it is usually followed by a move to the downside. In most cases it goes at least to the middle band if not all the way to and through the lower band. Conversely, when the VIX trades down and through the lower band, it is usually followed by a move up to the middle, and again up to and through the upper band. There is a relationship between the VIX and other indices. In this example we will use the S & P 500. Here is a chart with a comparable time frame. To look at specific examples let's look at actual dates (moving from left to right). The far left date on both charts is October 15, 1998, one week after the meltdown on October 8, 1998. The S & P 500 closed that day at 1047. You'll notice the VIX was at a high and closed that day at 42.54. This was an extreme oversold condition in the market. You have probably heard the old saying "when the VIX is high, it's time to buy". The VIX was certainly high at this point. If you had bought the SPX you could have rode it up to 1192 on November 23, 1998 for a 13.84% increase. Again if you'll notice, the VIX crossed through the lower band on November 23,1998 at a level of 20.38 "When the VIX is low it's time to go". This would have been the optimal time to sell the S & P 500. From here the S & P 500 went from 1192 to 1136 on December 14, 1998, a 4.6% decrease in 3 weeks. You can compare similarities in the VIX(with Bollinger Bands) and the S & P 500 all the way until present day. You'll notice that the VIX has been getting lower and lower within the bands. What has the market been doing? Going lower over the past 3 days. The S & P 500 will bottom out when the VIX moves up and at least touches the middle if not the top band. The VIX closed at 21.57 on June 23,1999. On Thursday, June 24 the Dow was down more than 100 points and the S & P 500 closed down more than 16 points. What did the VIX do? It went up! It closed up 2.10 at 23.67. What does all of this mean? The market will go down a bit more. Remember, "when the VIX is high, it's time to buy. When the VIX is low, it's time to go" Matt Ford J. Michael Patrick, Inc. They are a full service, wirehouse firm headquartered in St. Louis with offices thoughout the midwest. He primarily works with retirement planning, pensions, annuities, IRA's etc... for individuals and small businesses. Tech stocks are a speciality that he trades in daily. 1-888-432-5671 Option Clubs ************************* Upon recently emailing all organizers regarding agendas and numbers of attendees, certain states are awaiting patiently for your response. If you are interested learning from other like minded traders about how to avoid and overcome some of the common mistakes often made, along with accelerating your trading skills, please drop us a note of interest: visit@OptionInvestor.com Delaware, Montana, Rhode Island, South Dakota, and West Virginia are still in need of organizers. The only requirement for being an organizer is that you are a current subscriber to the Option Investor Newsletter. A first meeting's agenda may be similar to this: 1) Introductions 2) Group direction - What do the members want from this club? 3) Elect Organizer 4) Decide time and place, etc. for next meeting 5) Discuss recent trades 6) Question and answer O I N is available to help local groups, but each group should be independent and is welcome to be as creative and involved as its members choose. We look forward to watching the groups grow and encourage communication, comments, etc. ********* Orlando, Florida The membership of our Orlando discussion group has grown to about 35. The problem seems to be finding a place large enough with ample parking. We are getting quite a diverse group of people with great knowledge for everyone. Again I would like to thank you all for making this possible. B5706901@aol.com ********* Richmond, Virginia Christine - we had our second meeting. Two people from the tidewater area (75+ miles) drove to Richmond for our meeting. Not as many people showed as we expected, but we had a good meeting. One person talked about using scans in Telechart 2000 and another gave some information on Candlestick charting. We had a roundtable discussion with each person telling about winning and losing trades. Bill Wheeler Richmond, VA firstname.lastname@example.org ********** Portland, Oregon We changed our group meetings to Tues night out of respect for Mr Summer. We had a great meeting last night with many new members. We had a several new members that were relative neophytes and it was hard saying we are not there to teach persay, but to learn. I think they did pick this up though. Our next meeting will have more structure. We are each responsible for 1 winning trade presentation. This presentation should include every factor that led you to trade this stock on this day, i.e. Market psychology, technicals, fundamentals, news or rumor and well as how you felt making the trade before and after, basically the whole process. BTW...TO ALL THOSE WHO DO NOT WANT TO STEP UP TO BE ORGANIZERS, IT REQUIRES 5 MINUTES A MONTH AND YOUR GROUP WILL BE SO APPRECIATIVE, YOU WONT BELIEVE IT!!!! YOU WILL ALSO MEET SOME OF THE NICEST, SMARTEST PEOPLE ON THE FACE OF THE PLANET. RTBS77@aol.com If you are interested in becoming an organizer for your area, please send your inquiry to email@example.com Last weeks change for this weeks picks: *************************************** Index Last Week Dow 10534.83 -303.00 Nasdaq 2553.99 -10.78 $OEX 670.85 -12.18 $SPX 1315.78 -27.53 $RUT 443.16 -2.23 $TRAN 3326.07 -92.95 $VIX 23.67 1.60 Stock Week ELNK 60.75 13.88 Rumors are swirling of GTW buyout VRIO 62.38 7.50 New, recent alliances MMCN 40.00 5.50 New, earnings run PSIX 46.75 4.62 Buying opportunity? EFII 52.00 3.06 New, higher lows...breakout soon? TXN 135.50 2.75 Bounced off $132, split candidate IBM 123.50 2.75 New focus on e-business VRSN 68.50 2.56 Industry leader YHOO 146.88 2.44 Earnings run for July 7th NXTL 46.44 1.69 New, recent upgrades SUNW 64.88 0.81 News pending...for the MSFT trial MSFT 84.94 -0.06 Secret settlement talks? NOK 85.25 -0.88 Still looks strong...just stock cycles SLR 62.81 -1.25 Support at $62. confirm direction GTE 69.88 -1.56 Consolidating, but 20% leverage play TLAB 67.25 -2.88 Dropped, more room to fall. QCOM 126.75 -3.00 Entry point? Timing is everything WCOM 92.19 -3.06 Use caution ahead of FOMC MOT 90.00 -3.13 Two weeks until earnings, split cand. EMC 53.88 -3.69 Strong support at $52 HON 119.68 -4.13 Leverage play on ALD NT 83.44 -4.44 Hesitating before FOMC, split candidate GE 104.44 -4.81 Dropped, lacking direction VOD 204.75 -8.06 New, rumored 4:1 split coming? AOL 102.81 -9.19 Dropped, Blodget downgrade Puts WLP 85.38 -10.69 More downside potential left INKT 106.75 -8.19 New, high risk play (no support) CI 87.31 -8.19 Weak industry MCK 31.00 -5.06 New, still more problems AET 88.94 -4.62 New, broke through 50-dma TMX 74.50 -4.62 New, sinking with rate fears MWD 91.75 -4.00 More interest rate fears, earnings over SWY 47.38 -1.81 New, buyout rumors fading TWX 65.75 -1.00 Broke support again WCII 48.88 -0.81 Resistance at $50 CLX 99.19 4.50 Confirm direction first! PICK SUMMARY ************* SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. TP/P= True premium or Time premium RRR = Risk/Reward/Ratio ITM = In the money ATM = At the money OTM = Out of the money MTD = Move to double - amount stock must move to double option price in one week. ONE WEEK MOVE ONLY ! Numbers within ( ) are the amount of change for the week. Numbers within ( ) may be designated with PxW, like P3W, prior 3 weeks The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. STOCKS ADDED TO THE PICK LIST ***************************** With the bullish trend firmly in place we loaded the deck this weekend. CALLS: VRIO - Verio NXTL - Nextel EFII - Electronics for Imaging MMCN - MMC Networks VOD - Vodaphone UNPH - Uniphase PUTS: Please confirm downward motion before playing. With the market in rally mode any beat up stock starts looking like a value play. INKT - Inktomi TMX - Telmex SWY - Safeway AET - Aetna MCK - McKesson Corp PICKS WE DROPPED THIS WEEK *************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. *************************** CALLS: AOL $102.81 (-9.19) After the turmoil in the market on Thursday, AOL fell again on Friday shedding another $3.97. To add insult to the injury, Blodget downgraded the stock too. We had picked up AOL because it's a favorite bellwether stock that normally leads the rebounds. However, after the behavior of the past two days we must drop it. AOL is now below recent support of $105 and $110 and has slipped under its 10 dma. American Online still has "no comment" on the rumor regarding the acquisition of Juno Online. GE $104.44 (-3.12) GE just hasn't been performing as we had hoped. On Thursday we thought GE might be making a turn around with its +$0.94 gain in a down market. However, on Friday GE headed south from the get go even though the DOW headed higher with some strength in early morning trading. We consider GE's weakness as a bad sign. The company is now resting on its 30 dma but it is below its 10, 15, 50, and 100 dma. Also, rumors are floating around that GE could be interested in acquiring Boeing even though GE's spokesman said that GE had no interest in buying BA (we've been hearing this rumor for months now). We feel that GE's direction is too uncertain to justify keeping it as a play. We are letting GE go. TLAB $65.38 (-2.87) Looking a little like an imperfect soufflé, TLAB deflated a bit. Just like trying to "un-ring" a bell, you can't make a soufflé rise again either. Though TLAB isn't a soufflé, downward movement was accompanied by average volume (Ok, above average by last week's standard), which makes it tough to puff this one up. We think it may have a few more $$$ to fall until it regains its footing, thus we are dropping it for now. PUTS: None Today STOCK SPLIT CANDIDATES *********************** TXN - Texas Instruments NT - Northern Telecom MOT - Motorola YHOO- Yahoo STOCKS WITH UPCOMING SPLITS **************************** We don't list all splits available, only those we feel may have play possibilities. Symbol - Stock Splits/Date KR - Kroger 2:1 06-28-99 ex-date 06-29 PFE - Pfizer Corp 3:1 06-30-99 ex-date 07-01 CL - Colgate 2:1 06-30-99 ex-date 07-01 SCH - Schwab 2:1 07-01-99 ex-date 07-02 TXU - Texas Util 2:1 07-01-99 ex-date 07-02 AMTD - Ameritrade 3:1 07-02-99 ex-date 07-06 TQNT - Triquent Semi 3:2 07-08-99 ex-date 07-09 VRTS - Veritas 2:1 07-08-99 ex-date 07-09 TOM - Tommy Hilfiger 2:1 07-09-99 ex-date 07-12 CC - Circuit City 2:1 07-15-99 ex-date 07-16 IPG - Interpublic Grp 2:1 07-15-99 ex-date 07-16 LUV - Southwest Air 3:2 07-19-99 ex-date 07-20 DISH - EchoStar 2:1 07-19-99 ex-date 07-20 TIF - Tiffany CO. 2:1 07-21-99 ex-date 07-22 LCOS - Lycos 2:1 07-26-99 ex-date 07-27 AIG - American Intl 5:4 07-30-99 ex-date 08-02 For a complete list of all the coming splits check out the "split calendar" on the side of the online edition newsletter page. SPECIAL SHORT TERM SPLIT PLAYS ******************************* We always recommend selling the day of the actual split or earlier. Profit taking will drive down the price on an average of 7 of 10 splitters immediately after the split. They may come back in a week or two but why risk it ! ******************************* None today THE PLAYS OF THE DAY -CALLS- ONLY PLAY IN RISING MARKET ******************************************************* With all the great plays each week we can never decide on just one so take your pick. ******************************************************* IBM -International Business Machines $123.50 (+2.75)(+6.44)(-1.69) Up on a down week! What else do we need to say! See details in sector list Chart = http://quote.yahoo.com/q?s=ibm&d=3m ****** MSFT - Microsoft $84.94 (-0.06)(+6.87)(-1.43) No trial for 90 days, earnings in three weeks See details in sector list Chart = http://quote.yahoo.com/q?s=msft&d=3m ****** TXN - Texas Instruments $135.50 (+2.75)(+5.13)(+8.75) Another winner in a down week See details in sector list Chart = http://quote.yahoo.com/q?s=txn&d=3m Electronics ************* SLR - Solectron $62.81 (-1.25)(+6.37) Founded in 1977, Solectron is the largest OEM electronics contract manufacturer in the world. Throughout a range of industries including avionics, communications, industrial and medical instrumentation, and of course, consumer electronics and computers, Solectron provides product design and prototyping, assembly, packaging and warehousing. Hewlett-Packard, Cisco Systems, and Mitsubishi are among its customers. Solectron is the first company to twice win the Malcolm Baldrige Award, given for manufacturing excellence. SLR lost only -$1.25 this past week. We consider the pull-back minor considering the fact that the DOW lost over 300 points. Keep in mind that this is more of a momentum play. SLR set the ball rolling when it announced its earnings and presented a bullish conference call back on Monday June 14th. It matched First Call estimates of $0.29 and its revenue for the period was up 68%. This seems to be a strong company that could head higher if the Fed raises interest rates by only 25 basis points and returns its bias to "neutral." This electronics maker appears to have some strong support near the $62- $62.50 range. We feel that SLR could pop back to life if the Fed meeting results don't shake up the markets too much. We might even see SLR challenge its all time high of $67.25 reached back on Monday 6/21/99. Definitely wait to see which way the market will head before opening any new positions in SLR. Even a strong stock can be affected by the overall market conditions. No new news. BUY CALL JUL-60 SLR-GL OI=960 at $4.63 SL=2.75 BUY CALL JUL-65*SLR-GM OI=260 at $2.13 SL=1.00 BUY CALL AUG-65 SLR-HM OI= 66 at $4.00 SL=2.50 BUY CALL OCT-65 SLR-JM OI=574 at $5.38 SL=3.75 Picked on June 20th at $64.06 PE = 61 Change since picked -$1.25 52 week low =$19.21 Analysts Ratings 6-6-6-0-0 52 week high=$67.25 Last earnings 06/99 est .20 actual .29 Next earnings 09-14 est .32 versus .23 Average Daily Volume = 1.30 mln Chart = http://quote.yahoo.com/q?s=SLR&d=3m **** MOT - Motorola, Inc. $90.00 (-3.13)(+9.75) Motorola is a communications/electronics giant. It is fighting Nokia and Ericsson for the number one ranking among mobile phone makers. Its cellular products make up close to 40% of its sales. But, Motorola also manufactures and sells other products that range from communications systems, semiconductors, and electronic engine controls to computer systems, two-way radios, and pagers. With operations in approximately 40 countries, it gets close to half of its sales from outside the US. On Friday, it was nice to see MOT bounce off of $89 and finish the day of trading with a gain of $1.00. The trade volume was a little on the light side though. Only 2.35 mln. shares changed hands when the normal trade volume is closer to 3.44 mln. The lightness was probably due to Fed fears. No press releases in particular sparked the positive move. Instead, stock cycling seemed to be cause. Right after it set an all time high back on Tuesday of $96.69, MOT was hit by profit taking and closed with hefty losses for three days in a row. On Friday, bargain hunters appeared to jump into MOT at such a discount. We feel that MOT could continue to recover if the Fed doesn't do anything outrageous with the rates. MOT will report its earnings on July 13th and could be close to beginning its earnings run. We feel that there is the possibility of a split announcement with the numbers. MOT has more than enough authorized shares for a 2:1 stock split. It currently has 1.4 billion shares authorized and only 603,003,474 issued. It previously split near the $120 and $90 levels back in 1/93 and 4/94 respectively. As always, confirm the market's direction before opening any new plays. News: Motorola announced that it will make a decision in July on Iridium, a satellite communications company. MOT currently owns an 18% stake in Iridium and has to decide whether it will invest any more money in the company. Iridium's global wireless communications project hasn't been particularly popular with investors since it has been "beset by troubles."(-AP) MOT has said that the Iridium's financial problems could ultimately result in bankruptcy. BUY CALL JUL-85 MOT-GQ OI=3082 at $7.00 SL=5.25 BUY CALL JUL-90*MOT-GR OI=5480 at $4.00 SL=2.50 BUY CALL JUL-95 MOT-GS OI=4033 at $1.94 SL=1.00 BUY CALL AUG-95 MOT-HS OI= 369 at $4.13 SL=2.50 BUY CALL OCT-95 MOT-JS OI=1008 at $6.63 SL=4.75 Picked on June 20th at $93.13 PE = N/A Change since picked -$ 3.13 52 week high=$96.69 Analysts Ratings 11-13-9-0-0 52 week low =$38.38 Last earnings 04/99 est 0.23 actual 0.28 Next earnings 07-13 est 0.41 versus 0.01 Average Daily Volume = 3.44 mln Chart = http://quote.yahoo.com/q?s=MOT&d=3m ***** UNPH - Uniphase $151.38 (+5.00) Uniphase is most widely known for their fiber-optic telecommunications equipment which accounts for about 60% of their sales. They also make laser subsystems, and laser-based semiconductor wafer inspection and analysis equipment. I guess UNPH is just your basic optoelectronics company. Just kidding, but you will find their products in a number of different fields from bar code scanning to biotech to the printing industry. At the moment, UNPH is merging with Canadian rival JDS FITEL. Uniphase has got to be classified as an investors dream! From its October low of $31.25 it has risen 500%. UNPH's combination of fiber-optics equipment and their laser semiconductor tools has kept investors buying all year long. Not only is their chip equipment used for regular P.C. chips but for communication chips as well. What has been amazing for traders is UNPH's ability to almost always bounce off its 30 dma. We can definitely call UNPH a momentum stock with sales for the 9 months ending 3/99 up 47% and net income up 36%. The goal here for traders is to time your entry points. While UNPH almost always bounces off its 30 dma (right now at $142.18), and for the last 9 months, always bounces off its 50 dma ($134.36) we have a great track record of when to jump in. So why jump in now with UNPH almost $10 above the 30 dma? Look at what the Nasdaq and Dow did last week. UNPH has managed to hold its 10 dma. Some of you may find this a little technical, while the more experienced chart readers might find it a bit risky... but UNPH is still within its ascending channel of higher highs and higher lows. We have yet to reach our higher high. Yes, the stochastics might be saying the stock is a little over bought, and the RSI is just a little negative; but the MACD and UNPH's momentum are both positive. Is that enough tech stuff for you? Of course, none of this matters if the FED decides to raise rates more than .25 point and/or doesn't change they stance back to "neutral". If the market moves South in a hurry, UNPH will join them. At least we have some good news... (see below) NEWS: Uniphase is way past due for a split announcement. It has had (2) 2:1 splits. One in 6/96 and another in 11/97. The last was in the $80 range. Currently they have 100 mln shares authorized while shares outstanding number 40 mln (hmm.. a relatively small float doesn't hurt this play either). The good news is UNPH is holding their 1999 shareholder meeting on Monday at 9:30 am pacific time. On the agenda is a vote to increase shares from 100 mln to 200 mln. A definite sign that they plan to split in the future. With all the shareholder gathered together it would be a simple thing to announce a split on Monday. If they do not, we can hope for a split announcement with earnings in August. The perfect scenario would be to see the split announcement this week with an ex-date near their earnings date. Regular news has been very light for this company but brokerages appear to love it as well. June 17th had one brokerage start the company at a "strong buy" while another reiterated their "strong buy" on the company. At the moment, 10 brokers have a "buy" or "strong buy" on the company and another 3 have an "outperform" rating on UNPH. **We hate to say it, but when things look this good we get skeptical. You should be too. Fortunately, the chart has been proof enough that at least long term UNPH is going to be a stock to watch. BUY CALL JUL-145 UNQ-GI OI= 114 at $12.88 SL=10.75 ITM $6.38 BUY CALL JUL-150*UNQ-GJ OI= 156 at $ 9.88 SL= 7.50 BUY CALL JUL-155 UNQ-GK OI= 128 at $ 7.63 SL= 5.50 BUY CALL SEP-160 UNQ-IL OI=1093 at $15.13 SL=11.75 kinda expensive Picked on June 20th at $151.38 P/E = N/A Change since picked +0.00 52-week high=$157.63 Analysts Ratings 6-9-0-0-0 52-week low =$ 31.25 Last earnings 03/99 est= .32 actual= .36 surprise +12.5% Next earnings 08/05 est= .41 versus= .26 Average Daily Volume = 926.3 K Chart = http://quote.yahoo.com/q?s=UNPH&d=3m ****************************** SEE DISCLAIMER IN SECTION ONE ******************************
The Option Investor Newsletter 6-27-99 Sunday Part 3 of 6 ********* Hardware ********* EMC - EMC Corp. $53.88 (-3.69)(+6.19) EMC can emcee your memory. EMC is the #1 maker (ahead of IBM) of mainframe computer disk memory hardware and software. The company makes RAID (redundant array of independent disks) memory storage and retrieval systems for larger mainframe computers as well as desktop PCs. EMC markets its memory products under the name Symmetrix. Other products let users manage remote data and share information across networks of different computers. EMC continues to boost its presence in software and related services, with an emphasis on overseeing a corporation's Internet data. The moves have helped EMC increase earnings an average of 30% annually for the last half-decade. (profile from Hoover's Online) EMC headed into this week with a full head of steam before IBM knocked them back with a new product announcement. This put a damper on EMC's breakout after a recent consolidation. On Tuesday, IBM announced the release of a new line of storage products to compete with EMC. This may have triggered a sell off but it should only be short-term. EMC is still considered the leader in computer storage and the market is growing at such a fast clip that there will be plenty of room for both companies. So after falling into the $52 range, EMC found support and ended the week on a positive note by finishing back up near $54. We still expect EMC to regain that head of steam into the earnings announcement. But the market this week will be dependant on the Federal Reserve. If the policy shift is favorable though, EMC should be in a good position to rally. Volume continues to come in light ahead of the FOMC meeting but expect that to change on Wednesday when the Fed announces its decision around 2:15pm EST. In a press release last Wednesday, EMC promoted two of their veteran senior executives to new posts. This was more of a ploy to take the focus off of IBM's product release from a day earlier. For instance, in the article EMC's Robert Dutkowsky, Vice-President of marketing, said "A major differentiator between EMC and its competition is customer service." It sounds more like a rebuttal to IBM's new products than a promoting of personnel. BUY CALL JUL-50 EMB-GJ OI=5133 at $5.62 SL=3.75 BUY CALL JUL-55*EMB-GK OI=8895 at $2.62 SL=1.38 BUY CALL AUG-55 EMB-HK OI=1083 at $4.50 SL=2.75 BUY CALL AUG-60 EMB-HL OI= 789 at $2.62 SL=1.38 Picked on June 20th at $57.56 P/E = 62 Change since picked -3.69 52-week high=$67.47 Analysts Ratings 11-4-2-0-0 52-week low =$20.78 Last earnings 04/99 est= .20 actual= .21 Next earnings 07/99 est= .24 versus= .18 Average Daily Volume = 6.54 mln Chart = http://quote.yahoo.com/q?s=EMC&d=3m ***** SUNW - Sun Microsystems $64.88 (+0.81)(+4.38) UltraSPARCs, Netra servers, SPARCstations, and Solaris (for Unix) are all products of Sun Microsystems. Sun is also the creator of the Java, a programming language designed to create software that can run unchanged on any kind of computer. They are known for their saying, "The network is the computer." SUNW managed to survive the beating the market took by closing higher on the week. That makes it more likely that we could see a nice move this week if the Fed cooperates. Alan and friends are set to meet Tuesday to decide the fate of the economy. Or at least decide the fate of the markets this week. There is also the MSFT trial that has essentially ended. Any announcement will have an impact on SUNW so stay tuned for the verdict. But there is a good chance that it may be awhile until we know the outcome. The stock has held near $65 on a closing basis despite giving back most of Monday's $4.50 gains. But volume has been exceptionally light and its obvious that most traders have taken a wait-and-see attitude. This may be the best play. Confirm market direction before opening new plays. This direction will mostly likely come from the FOMC meeting or an announcement from Washington on the MSFT trial. SUNW was in the news all week but most articles were based on product announcements or new alliances that didn't have the strength to drive the stock. This could be a conscience effort by SUNW to take the sting off of a negative verdict in the case against Microsoft. But as you can see from the light volume, traders are awaiting the real story. BUY CALL JUL-60 SUQ-GL OI= 6054 at $6.50 SL=4.75 BUY CALL JUL-65*SUQ-GM OI=11303 at $3.25 SL=1.75 BUY CALL AUG-65 SUQ-HM OI= 557 at $5.75 SL=4.00 BUY CALL OCT-65 SUQ-JM OI=17350 at $8.25 SL=6.25 BUY CALL OCT-70 SUQ-JN OI= 3104 at $5.75 SL=4.00 Picked on June 20th at $64.06 P/E = 47 Change since picked +0.81 52-week high=$72.50 Analysts Ratings 9-8-4-0-0 52-week low =$19.19 Last earnings 04/99 est= .35 actual= .36 Next earnings 07/22 est= .46 versus= .37 Average Daily Volume = 12.76 mln Chart = http://quote.yahoo.com/q?s=SUNW&d=3m ***** IBM -International Business Machines $123.50 (+2.75)(+6.44)(-1.69) Once again, anybody not know what IBM does? No? Good. Just in case, IBM is the granddaddy of the modern-day technology business. They develop, make, and sell new technology, solutions, products including mainframes and PC's, computer services, and software, and they finance all of it. Investors like IBM's new focus on e-business and software. The stock has become a way to invest partly in the Internet in a profitable, well-established company. We added IBM to our list once again 2 weeks ago when we saw an opportunity in the market to capture a quick gain during a relief rally. It has become a good longer term play for us, however, so we decided to keep it. The stock wants to go higher, and has only had small dips in reaction interest worries and earnings warnings from other tech stocks. Volume has remained stronger than the volume in the overall market, and IBM has managed a decent gain in each of the last 2 weeks. IBM continues to trade above its 10 dma, and technical indicators are becoming more positive. This past week, IBM also managed to clear resistance at its previously set high of $123. New resistance is now at $125.75, the intraday high it reached on Monday. IBM should be a good participant in any rally that occurs if the Fed meeting outcome is seen as positive. Be prepared for lower prices if the news is negative. In the news this week: IBM is working to slash the time and cost it takes to make specialized chips. Also, NetObjects, majority owned by IBM, is working with Lotus Development Corp. and IKON Office Solutions on a project that will extend its e-Business applications. In California, IBM is continuing the restructuring of its Storage Systems division with the elimination of 1,100 jobs at its data storage facility in San Jose. Many employees will be offered new jobs, and parts of the division will be transferred outside the country. Finally, a battle is looming between Congress and the White House over a bill being urged by several companies including IBM that would limit Y2K lawsuits. The bill should be completed Tuesday and will face a White House veto if a compromise is not reached. BUY CALL JUL-120 IBM-GD OI= 7107 at $ 6.50 SL=4.75 BUY CALL JUL-125*IBM-GE OI=10747 at $ 3.63 SL=2.00 BUY CALL AUG-125 IBM-HE OI= 1113 at $ 7.38 SL=5.50 BUY CALL AUG-130 IBM-HF OI= 1531 at $ 5.25 SL=3.50 BUY CALL OCT-130 IBM-JF OI= 3805 at $ 8.25 SL=6.50 Picked on June 13th at $114.31 PE = 32 Change since picked +$ 9.19 52 week low =$ 55.06 Analysts Ratings 12-7-4-0-0 52 week high=$127.75 Last earnings 03/99 est .70 actual .77 surprise=10% Next earnings 08-09 est .88 versus .75 Average daily volume = 5.85 mln. Chart = http://quote.yahoo.com/q?s=IBM&d=3m ***** MMCN - MMC Networks, Inc. $40.00 (+5.50) MMCN is in the computer peripherals sector. The company develops and supplies Network Processors. These high- performance, software-programmable processors form the core silicon "engines" of LAN and WAN switches and routers. The PS1000 for Fast Ethernet networks, the ATMS2000 for asynchronous transfer mode networks, and the AnyFlow 5000 modular processors for network flexibility are some of the company's products. Although most of MMCN's sales come from within the US, the company also operates in Asia, Europe, the Middle East, and North America. MMCN's graph is very relieving to look at compared to the majority of stocks in the market as of late. While most companies seem to be affected by investor fears over the outcome of the Fed meetings on Monday and Tuesday, MMCN seems to be oblivious. In fact, MMCN has flourished throughout all of June. The company even set a new all time high in trading this past Friday at the price of $40.13. Moves in MMCN seem to be enhanced by its low float of only 7.60 mln. Supply and demand laws can do marvelous things at times. The company is also nearing earnings. The company will release its numbers on July 15th. (Keep in mind that MMCN reported record revenues and earnings last quarter. Its revenues were up 67%). With earnings around the corner, we feel that MMCN could head even higher. The fact that MMCN surged near the close of trading on Friday could be considered a bullish sign. News: This past Tuesday, Adams Harkness initiated coverage of MMCN with an "accumulate" rating. On Wednesday, Preferred Capital Markets, Inc. gave the company a "buy" rating and a 12 month price target of $45. BUY CALL JUL-35 CMQ-GG OI=334 at $ 6.63 SL=4.75 BUY CALL JUL-40*CMQ-GH OI= 82 at $ 3.50 SL=1.75 BUY CALL OCT-35 CMQ-JG OI=152 at $10.50 SL=8.75 Picked on June 25th at $40.00 PE = 111 Change since picked +$ 0.00 52 week high=$40.13 Analysts Ratings 3-4-0-0-0 52 week low =$ 7.75 Last earnings 04/99 est 0.04 actual 0.10 Next earnings 07-15 est 0.11 versus 0.06 Average Daily Volume = 546 K Chart = http://quote.yahoo.com/q?s=MMCN&d=3m ***** EFII - Electronics for Imaging $52.00 (+3.06) Electronics For Imaging (EFI) makes hardware-and-software systems that link computer networks to color copiers or desktop laser printers, enabling users to create high-quality color documents in their offices. EFI's Fiery line of products includes servers for both the low and high ends of the color printing market, and color controllers that are integrated into copiers and desktop printers to facilitate color printing. The company also makes a system for use with OCE Printing Systems' high-speed black-and- white printers. Copier makers Canon, Xerox, and Ricoh together account for 85% of EFI's sales. More than half its sales are outside the US. (Description form Hoover's) EFII closed at a its high on Friday at $52, matching its previous high of $52, set 2 days before on Wednesday. If a company can do that on a slow volume day (a Friday to boot), its possibilities in a market-wide recovery look pretty good. Also note on Friday's chart that the lows kept getting higher. That's a good sign. Technically, the charts look great too - strong positive. Any increase in volume will likely move EFII up, since they have only 32 mln. shares in float. Helping further, avg. daily volume is 857 K shares. That means big monthly turnover compared to the float. Any market recovery following the Fed meeting should be a big plus. In short, EFII is looking strong even in the face of market weakness and should further benefit when the market gets strong. As always, confirm market direction before starting a new play. In the news, be aware that during the month of May, corporate officers (historically good market timers) have been selling a huge chunk of their holdings (40-60%). While insider selling is a normal course of business, such sizable sales don't look good for the long term. However, it shouldn't immediately effect this play, as this is 2-week-old news. Earnings are July 15, so you certainly won't want to be a holder then either. On June 4, Salomon Smith Barney had them listed as a buy. Prudential rated them a strong buy on June 17. *Note there are 15 total OI listed for all AUG strikes combined, thus we are not recommending them at this time. BUY CALL JUL-45 EFQ-GI OI=223 at $8.00 SL=6.25 BUY CALL JUL-50*EFQ-GJ OI=931 at $4.00 SL=2.50 BUY CALL JUL-55 EFQ-GK OI=426 at $2.13 SL=1.00 Picked on June 27 at $52.00 PE = 47 Change since picked +0.00 52 week low =$13.50 Analysts Ratings 4-2-0-0-0 52 week high=$52.38 Last earnings 04/99 est 0.25 actual 0.31 surprise = 24% Next earnings 07-15 est 0.34 versus 0.14 Average daily volume = 857 K Chart = http://quote.yahoo.com/q?s=EFII&d=3m ********* Internet ********* YHOO - YAHOO! Inc $146.88 (+2.44)(+9.19)(-12.19) Yahoo! Inc is a global Internet media company that offers an online guide to web navigation, a branded network of comprehensive information, communication services, and shopping access to millions of users daily. Yahoo! can lay claim to the top spot among Internet portals. The Web site gets nearly 31 million visitors each month. It's also one of the few Internet players operating in the black. The bulk of Yahoo's revenue comes from its 3800 advertisers and their banners. Presently Yahoo! is working on a deal with Broadcast.com which will give them access to Web-based audio and video. YHOO was up and down throughout the week. Monday was its best day with a double digit gain of $14.44 on strong volume! The days that followed weren't as remarkable in either direction. However, on Wednesday the stock hit a weekly high of $166.13. The sell-off on Friday according to Catherine Skelley of Bluestone Capital Partners, may be simply due to institutions "reluctant to hold any Nets over the week-end". The exception in the sector was Juniper Networks (JNPR) as it tripled its offering price of $35 and traded as high as $106 on Friday. Throughout the week, the daily spreads were between 8 and 16 points providing various opportunities for target shooters. Presently, YHOO is above its 10 dma of about $144, but there's still lots of room left from its heyday back in April. Yahoo! will lead the Internets into earnings' season on July 7. Keith Benjamin, a noted Net analyst, believes the Internets are "poised to move higher ahead of the quarterly earnings' season". This earnings' play is very HIGH RISK AND VOLATILE and requires your undivided attention. You should consider having your positions closed out by that time. OIN never recommends holding over an earnings' announcement as the odds are not in your favor no matter how promising the outlook. In the news this week, Yahoo! announced a new auction service, Auctions Express, designed for heavy volume sellers. They also reported they will accelerate their current investment in Yahoo Japan, a joint venture with Japan's Softbank, to $8.2 mln. in capital spending through March of 2000. On Friday, Yahoo! filed for the sale of $1.15 mln. shares owned by companies such as Benchmark Capital Partners and Motorola. No other comment was offered. BUY CALL JUL-140*YHV-GH OI=4721 at $17.88 SL=14.00 higher Delta BUY CALL JUL-145 YHV-GI OI=3311 at $15.25 SL=12.00 BUY CALL JUL-150 YHV-GJ OI=5990 at $13.00 SL=10.50 BUY CALL JUL-155*YHV-GK OI=2245 at $10.88 SL= 8.75 Higher Risk BUY CALL AUG-150 YHV-HJ OI= 149 at $20.88 SL=16.25 BUY CALL AUG-160 YHV-HL OI= 93 at $17.13 SL=13.50 Picked on June 13th at $135.25 PE = 1659 Change since picked +11.63 52 week high=$244.00 Analysts Ratings 7-10-6-0-0 52 week low =$ 27.75 Last earnings 03/99 est= .08 actual= .11 surprise=37.50% Next earnings 07-07 est= .08 versus= .01 Average daily volume = 8.26 mln. Chart = http://quote.yahoo.com/q?s=YHOO&d=3m ***** ELNK - Earthlink $60.75 (+13.87)(+3.00) EarthLink Network is an Internet Service provider(ISP) that offers nationwide Internet access and related value-added services to individual and business members. ELNK added its one millionth customer just before the end of 1998. We picked up ELNK just before swirling rumors of a Gateway (GTW) buyout sent the stock price soaring. During the previous two months, it had fallen back to earth following a skyward climb earlier in the year. In fact, the stock lost almost two thirds of its value in only two months, dropping from a high of $99.38 on April 12th to a low of $36.75 on June 15th, as investors dumped Internet stocks. But valuations in this sector are much more reasonable now and many analysts believe they have bottomed and are starting up again. Even before the GTW rumor, ELNK had climbed over $10 in 4 days. As we move into earnings season, more attention will be directed toward these stocks. Although it is still losing money, ELNK is a well- established ISP with a growing customer base and good revenues. Losses stem from acquisitions and costs associated with growth. Its business relationship with Sprint may give it the potential to reach millions of new customers, even if a GTW buyout does not occur. ELNK is always ranked high on lists which rate ISPs, easily beating AOL. A positive market reaction to the coming Fed meeting could be the green light for Internet stocks like ELNK to take off. On Friday, Henry Blodget, an Internet analyst at Merrill Lynch, said that AOL may have trouble exceeding analysts' earnings estimates by the wide margins it has in the past. That comment sent Internet stocks and some technology stocks lower. ELNK lost $1.25, but it is still up $13.87 on the week, as investors await confirmation of the Gateway buyout rumor. In case you missed it, the rumored buyout price is $75/share. Shares of Mindspring (MSPG), another ISP, have also risen on speculation, while many other Internet stocks are down. Funds that may have sold Internets ahead of the Fed meeting might repurchase them if some of the rate fears are dispelled, and the Internets could then have quite a rally. However, if you choose to enter options on ELNK, please keep in mind the EXTREME volatility of Internet stocks and the fact that ELNK's stock price has already risen considerably on an unconfirmed rumor. BUY CALL JUL-60 QKL GL OI=1800 at $7.13 SL=5.50 BUY CALL JUL-65*QKL-GM OI=1304 at $4.50 SL=2.75 BUY CALL AUG-65 QKL-HM OI= 62 at $7.50 SL=5.75 BUY CALL AUG-70 QKL-HN OI= 131 at $5.50 SL=3.75 BUY CALL OCT-70 QKL-JN OI= 426 at $7.50 SL=5.75 Picked on June 20th at $46.88 PE = n/a Change since picked +$13.87 52 week low =$19.50 Analysts Ratings 3-5-1-0-0 52 week high=$99.38 Last earnings 03/99 est -0.15 actual -0.23 surprise=+35% Next earnings 07-15 est -0.19 versus -0.19 Average daily volume = 1.48 mln. Chart = http://quote.yahoo.com/q?s=ELNK&d=3m ***** VRSN - Verisign, Inc. $68.50 (+2.56) VeriSign provides digital IDs (also called digital certificates) with encrypted information to protect access to communications and transactions sent over the Internet, intranets, and extranets. The company has worked with Microsoft and Visa, among other companies, to deploy its cybersafeguards for such online activities as e-mail, home banking, and credit card purchases. Most of its revenues are from the sales of digital IDs. VeriSign also markets its products to large firms and government agencies and provides digital certification services to such companies as Visa (14% of sales). (from Hoovers Online) VRSN gave back some of its gains on Friday, but is still well above its 50-dma at $60. We don't like that VRSN dropped below $71.50, which was prior resistance and we had hoped would be new support. VRSN was due for some profit taking after such nice gains, but we need to make sure this profit taking is over before purchasing new calls. Since the Fed meeting is on the 30th, the market could be quiet until then. VRSN is a leader in its industry, and we feel the stock will fair well once the Fed announces its interest rate stance. If you can't wait... $67.50 should be our nearest support (although its not very strong). Look for a bounce off of this level before Wednesday if you feel like playing. VRSN was rated a new "buy" by Thomas Weisel Partners on Friday. VRSN also closed right on its lows for the day on Friday. This could have some carry over on Monday, so wait for confirmation of a new move up before jumping in. BUY CALL JUL-65 YVR-GM OI 270 at $8.50 SL=6.25 ITM $3.50 BUY CALL JUL-70*YVR-GN OI=953 at $6.00 SL=4.75 BUY CALL JUL-75 YVR-GO OI=241 at $4.25 SL=3.25 BUY CALL AUG-75 YVR-HO OI= 14 at $8.63 SL=6.50 BUY CALL AUG-80 YVR-HP OI= 70 at $7.00 SL=5.50 Picked on June 24th at $72.94 PE = 7300 Change since picked -4.44 52 week low =$ 9.69 Analysts Ratings 5-6-3-0-0 52 week high=$ 94.13 Last earnings 04/99 est -0.03 actual -0.04 Next earnings 07-22 est -0.02 versus -0.12 Average daily volume = 1.13 mln. Chart = http://quote.yahoo.com/q?s=VRSN&d=3m ***** PSIX - PSINet, Inc. $46.75 (+4.63) PSINet is big in the business of linking big business to the Internet. The company offers a variety of access services, Web-site design and hosting, electronic commerce, and security programs. PSINet has operations in 12 countries and serves 26,500 corporate customers. Many Internet service companies are being acquired by large telecommunications companies, but PSINet remains independent, focusing instead on its own expansion. The company is no longer an Internet service provider (ISP) for individual consumers, but it does allow other consumer-based ISPs to use its networks for a fee. IXC Communications owns a 20% stake in the company in exchange for giving PSINet access to IXC's high-speed digital phone lines. (from Hoovers Online) PSIX struggled with the rest of the Internet sector on Friday and closed below its 50-dma. Though this isn't a bullish sign, we still like PSIX going forward. The 50-dma is a key point and sits at $47.50. Wait for a break above this level for the best risk/reward purchase. PSIX has gone up so much the last week, a little profit taking is not a big surprise. Wait for confirmation in the sector. After being strong two weeks ago, the Internet sector was relatively flat last week. The market in general could be a little quiet until the Fed meeting on the 30th. Think of Friday's dip as our buying opportunity - but we are just waiting for the upward confirmation before jumping in. Banc Boston Robertson Stephenson announced Wednesday they feel PSIX has a global carrying capacity that is far better than AboveNet's. Since AboveNet was recently acquired by MetroMedia at a premium, Banc Boston feels PSIX deserves a higher premium. BUY CALL JUL-45*SQP-GI OI=1498 at $5.00 SL=3.75 ITM $1.75 BUY CALL JUL-50 SQP-GJ OI= 911 at $2.94 SL=1.50 BUY CALL JUL-55 SQP-GK OI= 982 at $1.50 SL=0.75 BUY CALL AUG-50 SQP-HJ OI= 13 at $5.25 SL=4.00 BUY CALL OCT-55 SQP-JK OI= 194 at $6.38 SL=5.00 Picked on June 24th at $49.25 PE = n/a Change since picked -2.75 52 week low =$ 8.38 Analysts Ratings 7-3-0-0-0 52 week high=$73.75 Last earnings 04/99 est -1.03 actual -1.11 Next earnings 07-21 est -1.12 versus -0.67 Average daily volume = 1.69 mln. Chart = http://quote.yahoo.com/q?s=PSIX&d=3m ***** VRIO - Verio Inc $62.38 (+7.50) Verio is a national provider of Internet services to primarily small and medium sized business. With a huge wad of cash from a host of venture-capital firms and an IPO, Verio is buying regional and local Internet service providers (ISPs) across the US. It owns or has majority stakes in more than 35 business-oriented providers across the US. Verio is buying ISPs with a large number of dedicated accounts (business accounts with direct lines to the provider). The firm's customers include General Electric, Microsoft, Princeton University, and Ziff-Davis. Brooks Fiber Properties, a unit of MCI WorldCom, owns approximately 17% of Verio (-from Hoover's Online). The recent marketing alliances with AOL and MSFT have fortified Verio's leading position in this very hot Web hosting business. On Monday, VRIO tacked on $3.12 to push it up to $58.00. The stock held its own in this range for the next two days. Then on Thursday, it topped $60 and also hit a weekly high of $64.25 during intraday trading. Friday, the climb continued as VRIO advanced another $1.82 to establish itself back into the support level it found back at the beginning of June. Volume has been less than half of its normal trading behavior; however the gains have been consistent. At these new levels, you may have to look intraday for a solid entry point. A conservative player will look for VRIO to break through $64 as it is also considered old resistance. If VRIO continues to move positive next week, there's plenty of room for profit as the 52-week high is up there at $78.00. Consider using stops to protect your position as there's always profit- takers waiting in the wings. On Tuesday, Verio and Cisco announced a joint promotion to offer high-speed Internet access and Web-hosting to new and existing customers. The promotion will extend throughout the month of July. Then the following day, Verio made headlines as it surpassed the 250,00 Web-site milestone confirming it's place as the "top dog" of business Web- hosting and e-commerce services world-wide. BUY CALL JUL-60*RLQ-GL OI=243 at $5.50 SL=3.75 BUY CALL JUL-65 RLQ-GM OI=962 at $2.94 SL=1.50 BUY CALL JUL-70 RLQ-GN OI=124 at $1.44 SL=0.75 BUY CALL AUG-65 RLQ-HM OI=460 at $6.50 SL=4.75 BUY CALL AUG-70 RLQ-HN OI=442 at $4.63 SL=3.00 Picked on June 27 at $62.68 PE = N/A Change since picked +0.00 52 week high=$78.00 Analysts Ratings 5-2-1-0-0 52 week low =$13.00 Last earnings 03/99 est= -1.31 actual= -1.24 surprise=5.34% Next earnings 08-20 est= -1.30 versus= -1.33 Average daily volume = 955 K Chart = http://quote.yahoo.com/q?s=VRIO&d=3m ************* Construction ************* HON - Honeywell Inc $119.68 (-4.13)(+10.81) Honeywell is a leading maker of control systems and components for the home and industry, including the aerospace and aviation sectors. For example, they develop and supply the advanced- technology products for building automation, safety systems for fire and security, and services designed to conserve energy, protect the environment, and improve productivity. Honeywell operates manufacturing facilities worldwide and international sales account for about 40% of total revenue. This is a leverage play. Allied Signal (ALD), one of the largest and most diversified electronics manufacturers, and Honeywell (HON) announced on June 7th they had signed a merger agreement destined to close by the 4Q 1999. However, the pact still requires shareholders' and regulatory officials' approval. This merger will create a $25 bln. global technology company making its avionics segment a powerhouse. The deal is worth about $15 bln at current prices (HON has 126 mln. shares outstanding) - for every one share of HON, the stockholder will receive 1.875 shares of ALD. In regard to the leverage play, it means that for every $1 ALD moves, HON will move $1.875. Keep in mind this can be in either direction! The investor enthusiasm has been positive since the initial announcement as the cost savings and related synergies of these two companies joining forces will create higher profits. They expect immediate accretion of .17 EPS in 2000 and .32 EPS in 2002. This week's market sentiment has been tough on both stocks. But not so tough that HON couldn't set a new 52-week high of $125.38 on Monday. Nonetheless, the negative market pressure and hefty gains from the previous week have caused consolidation. By the week's end HON was a fraction below its 10 dma of $120. New support seems to now be forming around $120-121. If you look at a 1-month chart you can see the old support from a few weeks ago at $112 and $114. Consolidation is natural and this may prove to be a point of entry, but a conservative player may want to see heavier trading volume before opening a new play. Friday we did see a sign of hope as HON profited $1.69, but only on half its normal volume. Remember this play has leverage, but it's a double edged sword. Consider using stops to protect your profits. The option volume is a little bit low. This just means you need to pay special attention to trades and we strongly recommend limit orders. BUY CALL JUL-115 HON-GC OI= 228 at $7.00 SL=5.25 BUY CALL JUL-120*HON-GD OI= 255 at $4.13 SL=2.50 BUY CALL JUL-125 HON-GE OI= 20 at $2.06 SL=1.00 BUY CALL AUG-115 HON-HC OI=3065 at $9.63 SL=7.25 BUY CALL AUG-120 HON-HD OI= 44 at $7.00 SL=5.25 BUY CALL AUG-125 HON-HE OI= 18 at $4.75 SL=3.00 Picked on June 20th at $123.81 PE = 26 Change since picked -4.12 52 week high=$125.38 Analysts Ratings 3-4-3-0-0 52 week low =$ 58.63 Last earnings 03/99 est= .80 actual= .83 surprise=3.75% Next earnings 07-20 est= 1.07 versus= .89 Average daily volume = 888 K Chart = http://quote.yahoo.com/q?s=HON&d=3m ***************************** PLAYS CONTINUED IN SECTION FOUR. ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
The Option Investor Newsletter 6-27-99 Sunday 4 of 6 Construction ***** HON - Honeywell Inc $119.68 (-4.13)(+10.81) Honeywell is a leading maker of control systems and components for the home and industry, including the aerospace and aviation sectors. For example, they develop and supply the advanced- technology products for building automation, safety systems for fire and security, and services designed to conserve energy, protect the environment, and improve productivity. This is a leverage play. Allied Signal (ALD), one of the largest and most diversified electronics manufacturers, and Honeywell (HON) announced on June 7th they had signed a merger agreement destined to close by the 4Q 1999. However, the pact still requires shareholders' and regulatory officials' approval. This merger will create a $25 bln. global technology company making its avionics segment a powerhouse. The deal is worth about $15 bln at current prices (HON has 126 mln. shares outstanding) - for every one share of HON, the stockholder will receive 1.875 shares of ALD. In regard to the leverage play, it means that for every $1 ALD moves, HON will move $1.875. Keep in mind this can be in either direction! The investor enthusiasm has been positive since the initial announcement as the cost savings and related synergies of these two companies joining forces will create higher profits. They expect immediate accretion of .17 EPS in 2000 and .32 EPS in 2002. This week's market sentiment has been tough on both stocks. But not so tough that HON couldn't set a new 52-week high of $125.38 on Monday. Nonetheless, the negative market pressure and hefty gains from the previous week have caused consolidation. By the week's end HON was a fraction below its 10 dma of $120. New support seems to now be forming around $120-121. If you look at a 1-month chart you can see the old support from a few weeks ago at $112 and $114. Consolidation is natural and this may prove to be a point of entry, but a conservative player may want to see heavier trading volume before opening a new play. Friday we did see a sign of hope as HON profited $1.69, but only on half its normal volume. Remember this play has leverage, but it's a double edged sword. Consider using stops to protect your profits. The option volume is a little bit low. This just means you need to pay special attention to trades and we strongly recommend limit orders. BUY CALL JUL-115 HON-GC OI= 228 at $7.00 SL=5.25 BUY CALL JUL-120*HON-GD OI= 255 at $4.13 SL=2.50 BUY CALL AUG-120 HON-HD OI= 44 at $7.00 SL=5.25 BUY CALL AUG-125 HON-HE OI= 18 at $4.75 SL=3.00 Picked on June 20th at $123.81 PE = 26 Change since picked -4.12 52 week high=$125.38 Analysts Ratings 3-4-3-0-0 52 week low =$ 58.63 Last earnings 03/99 est= .80 actual= .83 surprise=3.75% Next earnings 07-20 est= 1.07 versus= .89 Average daily volume = 888 K Chart = http://quote.yahoo.com/q?s=HON&d=3m Software ********* MSFT - Microsoft $84.94 (-0.06)(+6.87)(-1.43) Introducing the one and only, amazingly huge Microsoft! Really, this company needs no introduction since it dominates the operating system Market with Windows 95, Windows 98 and Windows NT installations in over 90% of PC's shipped. They are also the makers of Word, Excel, and Power Point. (All other inquiries should be directed toward their legal council!) Remember the market runs in cycles. Note that in the last 9 trading days, MSFT was up 5 days in a row, culminating last Monday in a great breakout. 3 down days of mild profit taking followed in which MSFT got beat up by press coverage. Friday, word "leaked out" that MSFT was in settlement talks with the DOJ. Usually that's good for volume. Not Friday. We got a small gain, but no volume. Traders were asleep at the switch, as MSFT traded only 12 mln. shares, less than half its average daily volume! Nothing drastic is going to happen in either direction unless we get VOLUME! Anyway, the basis for the play continues to be the end of the trial phase, and more recently, talk of settlement before the Judge Jackson announces the verdict in the Fall. Earnings are on July 21, so we should see signs of an earnings run any day. Technically, MSFT is looking positive. The 30-DMA is on the rise and should provide support for MSFT at $83.50. Target shooting will work well here. Resistance is $89. Pray for volume and confirm market direction first. In the most recent leaks about settlement talks, MSFT has been portrayed as the boy who got caught with his hand in the cookie jar. The DOJ has warned that MSFT is jeopardizing its negotiating position if it continues to leak information. That's the spin - here's the news taken from Reuters. "Settlement talks began during a recess in the trial earlier this year, but there is a gulf between the positions of the two sides. The Justice Department agreed with Microsoft to a consent decree in 1995, and alleged two years later that the company had violated the agreement. Experts expect the department to be cautious about a remedy in the future dependent on Microsoft's promises to change its ways. An alternative would be to restructure the company, perhaps breaking it up into two or more units. But the judge has not yet decided whether Microsoft is at fault, much less what the remedy should be and some antitrust lawyers question whether he would go that far." (Reuters) BUY CALL JUL-80 MSQ-GP OI=31013 at $ 6.38 SL=4.50 BUY CALL JUL-85*MSQ-GQ OI=35089 at $ 3.00 SL=1.50 BUY CALL JUL-90 MSQ-GR OI=32047 at $ 1.25 SL=0.50 BUY CALL AUG-85 MSQ-HQ OI= 1604 at $ 5.50 SL=3.75 BUY CALL AUG-90 MSQ-HR OI= 2044 at $ 3.38 SL=1.75 BUY CALL OCT-90 MSQ JR OI= 8791 at $ 5.88 SL=4.25 Picked on June 20 at $85.00 PE = 66 Change since picked -0.06 52 week low =$42.95 Analysts Ratings 15-12-3-0-0 52 week high=$95.62 Last earnings 04/99 est 0.32 actual 0.35 Next earnings 07-16 est 0.35 versus 0.25 Average daily volume = 25.84 mln. Chart = http://quote.yahoo.com/q?s=MSFT&d=3m Semiconductors ************** TXN - Texas Instruments $135.50 (+2.75)(+5.13)(+8.75) Texas Instruments Incorporated provides semiconductor products worldwide, as well as designs and supplies digital signal processing solutions and analog integrated circuits. The Company's semiconductor products include standard logic, application-specific integrated circuits, reduced instruction- set computing microprocessors, and microcontrollers. Up, down, up, down, up. That's last week's daily price pattern. Fortunately, TXN ended up $2.75 net for the week. TXN will report earnings on July 20 (company confirmed) and is also a split candidate. Their last split (2:1) was in November 1997 at about $100. They do not currently have enough shares to make it happen and thus will require shareholder approval. There is no proxy filed for a shareholder approval meeting yet either. If they announce a split with earnings, it will take a while for it to actually become effective. Technically, even after a choppy week, TXN is still in the positive section of the chart. TXN bounced nicely up from $132 last week on 3 different occasions, hence new support at that level. $140.63 is new resistance, set intra-day last week. If the market cooperates by injecting a bit more trading volume, TXN should make another run for a new closing high (currently $138.56), especially if institutions continue to buy this stock. Fidelity owns 11%. Other institutions own another 70%. Target shooting will provide a better entry until we get a firm trend following the Fed meeting Tues. and Wed. Not much in the news last week, but TXN was reiterated a "buy" by analyst William C. Conroy at Sanders Morris Mundy Inc.. The 12- month target price is $160.00 per share. Last weeks news still applies: From a TheStreet.com article, Investments notes, "The PC market drove semiconductors in prior years, and I think for the next few years it will be communications that drives it," he says. "This will be a multiyear expansion; there is a tremendous amount of infrastructure being built and a tremendous amount of bandwidth being added." From the same article, "The companies that make communications devices are benefiting from the growth of the Internet, but they are less risky than the higher-profile Net plays. 'The growth rates aren't nearly as high as Internet stocks, but they are supported by earnings,' says Ned Brines, portfolio manager with Roger Engemann & Associates." BUY CALL JUL-130 TXN-GF OI=1941 at $ 9.88 SL= 7.25 BUY CALL JUL-135*TXN-GG OI=1248 at $ 7.00 SL= 5.25 BUY CALL JUL-140 TXN-GU OI=2281 at $ 4.88 SL= 3.00 BUY CALL OCT-135 TXN-JG OI= 445 at $17.00 SL=13.25 BUY CALL OCT-140 TXN-JU OI= 89 at $14.38 SL=11.25 Picked on June 10th at $125.75 PE = 84 Change since picked +9.75 52 week low =$ 45.38 Analysts Ratings 10-7-5-0-1 52 week high=$140.63 Last earnings 04/99 est 0.61 actual 0.65 Next earnings 07-20 est 0.76 versus 0.35 Average daily volume = 2.78 mln. Chart = http://quote.yahoo.com/q?s=TXN&d=3m Telecom ******* NXTL - Nextel Communications Inc $46.44 (+1.69) Nextel is a digital and analog wireless communications service company. They are increasing their presence in the industry with the help of equipment provider Motorola, who has a 24% stake, and wireless pioneer Craig McCaw, who has about a 20% stake. The company is setting itself apart from its cellular competitors by undercutting its prices. NXTL started picking up its real momentum the previous Friday when CBIC World Markets upgraded the stock from a "buy" to a "strong buy". Trading volume was nearly triple at $15.64 mln. shares exchanging hands. Earlier that week, Deutsche Banc Alex Brown had raised its target price on NXTL to $55 from $51. With momentum building and analysts' remarks to boot, the stock continued to ascend higher this week on strong volume. As the stock was venturing in new territory, NXTL has developed a support level around $44-46 and flew above its 10 dma at the $43 mark. On Thursday, it set its newest 52-week high when it peaked at $47.75 during intraday trading! Big news hit the press mid-week when a major stakeholder, Craig McCaw announced he would invest another $315 mln. into Nextel increasing his stake upwards to $1.16 bln. Craig McCaw will exercise company options to acquire 17 mln. shares (at a predetermined price of course). The deal will be partially financed by selling off about 7% of existing shares at a rate of 150 K per day over a 200 day period (this will also help reduce an earlier investment in Nextel). Perhaps complicated to some degree, but certainly a positive means for Craig McCaw to promote additional interest in Nextel. BUY CALL JUL-40 FQC-GH OI=3751 at $6.88 SL=5.25 BUY CALL JUL-45*FQC-GI OI=1122 at $3.00 SL=1.50 BUY CALL JUL-50 FQC-GJ OI=1405 at $0.94 SL=0.00 BUY CALL AUG-45 FQC-HI OI=2972 at $4.63 SL=3.00 BUY CALL AUG-50 FQC-HJ OI=1749 at $2.44 SL=1.25 Picked on June 27 at $46.44 PE = N/A Change since picked +0.00 52 week high=$47.75 Analysts Ratings 11-4-6-0-0 52 week low =$15.37 Last earnings 03/99 est= -1.43 actual= -1.37 surprise=4.20% Next earnings 07-15 est= -1.36 versus= -1.45 Average daily volume = 5.35 mln. Chart = http://quote.yahoo.com/q?s=NXTL&d=3m ***** NT - Nortel Networks Corporation $83.44 (-4.44)(+4.00) Nortel Networks, formerly Northern Telecom, pretty much does it all when it comes to digital telecommunications products. The company designs, develops, manufactures, markets, sells, finances, installs and services telecommunications systems. It is second in the world only to Lucent. NT had a shaky week if you focus only on its -$4.44 performance. However, if you add in the fact that the DOW was down over 300 points in the same amount of time, NT's pullback is more understandable. On Friday, NT scraped up its first gain of the week - a mere +$0.19. On Friday, NT's trade volume was only half of its average. Only 909 K shares were traded. Normally the number is 1.80 mln. Since the loss for the week wasn't backed by an above average trade volume, we feel that NT is still a keeper. As long as it doesn't close below $82 we will keep it. Keep in mind that NT will announce its earnings on July 27th. We believe that the company could also announce a split at that time. The company split 2:1 in January of 1998 when it was close to the $100 level. With unlimited authorization and 668,051,483 shares issued, the company could be due for another one. Look for NT to recover this week but make sure to confirm both market and stock direction before opening any new plays. News: On Friday, NT and Avici (a communications equipment maker) mutually agreed to end their marketing and distribution partnership. This wasn't a surprise since their relationship had been strained since Nortel acquired Bay Networks. NT said that it wanted to develop next-generation high-capacity router equipment by itself. In other news, Hong Kong's mobile phone service operator announced that it plans to sign a deal with NT in which the two will work to deploy general packet radio services. On Wednesday June 30th, further details will be released to the media. BUY CALL JUL-80 NT-GP OI=2860 at $5.63 SL=3.75 BUY CALL JUL-85*NT-GQ OI=1333 at $2.81 SL=1.50 BUY CALL SEP-80 NT-IP OI= 547 at $9.38 SL=7.25 BUY CALL SEP-85 NT-IQ OI= 556 at $6.88 SL=5.25 Picked on May 23rd at $79.94 PE = N/A Change since picked +$ 3.50 52 week high=$88.00 Analysts Ratings 7-13-4-0-0 52 week low =$26.81 Last earnings 04/99 est 0.27 actual 0.33 Next earnings 07-27 est 0.50 versus 0.41 Average Daily Volume = 1.80 mln Chart = http://quote.yahoo.com/q?s=NT&d=3m ***** NOK - Nokia Corp $85.25 (-.88)(+4.13)(+3.62) Nokia is the world's leading mobile phone supplier and a leading supplier of mobile and fixed telecom networks including related customer services. Nokia also supplies solutions and products for fixed and wireless datacom, as well as multimedia terminals and computer displays. We added Nokia 2 weeks ago on the strength of its current run, which started at this beginning of this month. On Tuesday it hit a new high of 91.50 before it fell with the market on Interest rate fears. Technical indicators still look mostly positive for Nokia and it is trading above its 10 dma again after a small bounce on Friday. Nokia regularly announces new products and contracts for those products. Earlier this year, it rose to the leadership position among the wireless phone makers, and it now sells more wireless phones than any other company. Nokia's current focus is on developing the "Mobile Information Society", as company president Ala Pietila put it. Nokia is combining the Internet with wireless communication. Although Nokia just split on April 12th, 1999, it is near the level at which it traded just before the split. Another split is a possibility with earnings July 22. Most of the ADRs were just as jittery as American stocks last week ahead of the Fed meeting. Once that event is behind us, strong stocks like NOK should see resumed buying, if multiple rate hike worries are eased. BUY CALL JUL-80 NAY-GP OI=5199 at $7.00 SL=5.25 BUY CALL JUL-85*NAY-GQ OI=3075 at $3.88 SL=2.00 BUY CALL JUL-90 NAY-GR OI=1779 at $1.81 SL=1.00 BUY CALL AUG-90 NAY-HR OI= 166 at $4.00 SL=2.50 BUY CALL OCT-90 NAY-JR OI= 688 at $9.75 SL=7.25 Picked on June 15th at $82.00 PE = 40 Change since picked +$ 3.25 52 week low =$29.53 Analysts Ratings 9-4-0-0-0 52 week high=$91.50 Last earnings 03/99 est 0.48 actual 0.38 surprise=+26% Next earnings 07-22 est 0.49 versus 0.35 Average daily volume = 2.10 mln. Chart = http://quote.yahoo.com/q?s=NOK&d=3m ***** GTE - GTE $69.88 (-1.56)(+5.13) With 1998 revenues of more than $25 billion, GTE is a leading telecommunications provider with a broad array of products and services. In the United States, GTE provides local service in 28 states and wireless service in 17 states, as well as nationwide long-distance, directory, and internetworking services ranging from dial-up Internet access for individuals and small-businesses to Web-based applications for Fortune 500 companies. In the rapidly changing telecommunications industry, those companies that offer a full range of local and long distance, voice, and data services will be the best competitors. Hence, the flurry of mergers we have seen in this industry. The Bell Atlantic (BEL) buyout of GTE has been billed as a "merger of equals," and is seen by analysts as a good fit for both companies. The $52.8 billion acquisition may save the combined company as much as $52.7 million annually and make it one of the leading telecommunications companies. In the deal, shareholders of GTE will receive 1.22 shares of stock in the combined company for each share of GTE stock now owned, making this a good leverage play for GTE options. GTE's current run began about 3 weeks ago when the stock traded in the low 60s. After just topping the December 31st all time high of $71.81 on Monday, the stock dropped a little for 3 days in a row before turning up again Friday with an $.81 gain. During the same period, BEL's chart has looked much like GTE's. In the news: New Jersey approved the GTE/BEL merger last week. Overseas, GTE Singapore Telecom and SingTel have agreed to interconnect IP fax networks. This will allow both companies to gain better worldwide IP connectivity and more features for international fax services without having to invest in each individual company's systems. GTE stalled a bit last week while investors wait for the Fed meeting outcome. If it is positive, this stock should do well. BUY CALL JUL-65 GTE-GM OI= 250 at $5.63 SL=4.00 BUY CALL JUL-70*GTE-GN OI=1978 at $2.00 SL=1.00 BUY CALL AUG-70 GTE-HN OI= 22 at $3.50 SL=1.75 BUY CALL SEP-70 GTE-IN OI=1937 at $4.25 SL=2.75 BUY CALL SEP-75 GTE-IO OI=1003 at $2.00 SL=1.00 Picked on June 20th at $69.88 PE = 20 Change since picked -$ 1.56 52 week low =$46.56 Analysts Ratings 9-6-4-0-0 52 week high=$71.88 Last earnings 03/99 est 0.75 actual 0.74 surprise=-1% Next earnings 07-20 est 0.80 versus 0.69 Average daily volume = 1.68 mln. Chart = http://quote.yahoo.com/q?s=GTE&d=3m ***** VOD - Vodaphone Group $204.75 (-8.06) The vote is in, and Vodafone Group is the UK's #1 mobile telecommunications company, serving about four million customers. It operates analog and digital cellular networks offering voice communications, messaging, paging, and mobile data services. Vodafone sells its cellular phone services through three distribution businesses: Vodafone Retail, Vodafone Connect, and Vodafone Corporate. The company provides cellular services in 12 countries outside the UK; international operations account for 28% of total revenues. Vodafone will nearly double its size with the purchase of US-based AirTouch Communications. We are adding VOD as a new call play this week. VOD and Air Touch will be closing its merger on June 30th and the rumor is that VOD will soon after announce a stock split. Rumors say this could be as high as a 4-1 split. VOD is trading near new highs and is well above prior split levels. VOD has split twice in the past, once was a 20-1 split, the other was a 3-1 split in 1994. Remember that VOD is an ADR and will often gap up or down. Only news is the FCC clearance to have VOD and ATI merge. The 30th is a key day, as the Fed will announce their interest rate decision also. BUY CALL JUL-200 VOD-GT OI=4311 at $10.50 SL=8.00 ITM $4.75 BUY CALL JUL-210*VOD-GB OI= 582 at $ 5.75 SL=4.25 BUY CALL JUL-220 VOD-GD OI= 830 at $ 2.63 SL=1.25 BUY CALL AUG-210 VOD-HB OI= 51 at $11.13 SL=8.50 Picked on June 26th at $204.75 PE = 73 Change since picked +0.00 52 week low =$ 94.00 Analysts Ratings 4-2-1-0-0 52 week high=$216.44 Last earnings 04/99 est ? actual ? Next earnings 07-02 est 1.56 versus ? Average daily volume = 806 K Chart = http://quote.yahoo.com/q?s=VOD&d=3m ***** WCOM - MCIWorldcom $92.19 (-3.06)(+6.75)(-1.25) Formed in 1998 when WorldCom bought MCI Communications, WCOM is now second only to AT&T in the US long-distance market. With a fiber-based diet (fiber-optic networks, that is), MCI WorldCom has taken healthy bites of local and international telecom and Internet markets in more than 65 countries. Its UUNET unit offers Internet access to businesses over a massive Internet backbone, while MCI WorldCom provides consumer Internet service through an alliance with America Online's CompuServe unit. The company also plans to offer high-speed Internet access via wireless cable, and it is buying wireless messaging provider SkyTel. Revenue potential in this sector is significant and margins should increase as networks are completed and utilized. Furthermore, Moody's thinks WCOM's cash flow will improve significantly so as to improve their ability to self- finance operations in the future. Fund mangers must have missed the announcement as reflected in volume that could only be described as "lower than an ant's underbelly", signifying lack of sellers (only 58% of normal). "WCOM has been up 5 days in a row and is due for some profit taking. . . nothing goes up in a straight line." Boy, that was an understatement from last week's letter. WCOM traded in choppy fashion, and sadly, finished with a loss near their daily low on both Thursday and Friday. That's reason enough to be cautious until Greenspan gets the inevitable rate hike out of the way on Tues. and Wed. Still, near term support is $90-$92 following the breakout, which also happens to be it's 30-DMA (more support). WCOM is likely to bounce from here if the market cooperates. Their earnings report is tentatively scheduled for July 30. Target shoot according to your risk profile to get the best entry and confirm market direction before playing. In the news, MCI WorldCom said it sold its 25 percent stake in Clear Communications, New Zealand's No. 2 phone company, to British Telecommunications. Terms were not disclosed. Also, WCOM's debt rating was raised by Moody's, who cited, "The rating upgrade reflects the expectation that the company will be able to demonstrate strong operating performance and to improve its financial position in an business environment that will continue to be highly competitive." Funds love this stuff and should become bigger buyers in the near term. BUY CALL JUL-90*LDQ-GR OI=3775 at $4.63 SL=2.75 BUY CALL JUL-95 LDQ-GS OI=8664 at $1.94 SL=1.00 BUY CALL AUG-90 LDQ-HR OI=1110 at $6.88 SL=5.00 BUY CALL AUG-95 LDQ-HS OI= 325 at $4.25 SL=2.50 Picked on June 20 at $95.25 PE = N/A Change since picked -3.06 52 week low =$39.00 Analysts Ratings 20-5-3-0-0 52 week high=$96.75 Last earnings 04/99 est 0.34 actual 0.36 surprise=5.8% Next earnings 07-23 est 0.44 versus 0.21 Average daily volume = 11.25. Chart = http://quote.yahoo.com/q?s=WCOM&d=3m ***** QCOM - Qualcomm $126.75 (-3.00)(+21.00) Qualcomm is the inventor of CDMA technology, the new industry standard for mobile communications used in cellular phones, wireless telephone system equipment, and satellite ground stations. Its OmniTRACS global positioning system is used by the trucking industry to monitor traveling truckers. In a joint venture with several companies, including Loral, QUALCOMM is developing the Globalstar system of low-orbiting satellites, which will offer telecommunications services around the world (and should smoke Iridium like a pork chop, we might add). QUALCOMM also publishes the popular Eudora e-mail software. Following 6 days of straight gains from the previous weeks, QCOM took a breather and gave some of those gains back last week. As we noted in last Sunday's write up, the play carries high volatility, thus high risk. Be careful. That said, QCOM is about to run smack-dab into its 30-DMA average, where it has consistently found support in the past. There is also mild support at $124. If QCOM breaks south of that, the next stop is $116. With really sluggish trading volume late last week accompanied by only small price drops, any volume increase should move QCOM in a positive direction, though the parking brake is likely to remain on until Alphonso the Great (Greenspan) releases it. Earnings are tentatively scheduled for July 21. Risk tolerant types (and you should be if you enter this play) can target shoot on weakness, otherwise wait for a clear break north over $128 with volume before starting the play. Do you like math? Even if you don't, here's some you'll understand. Deutsche Banc Alex. Brown analyst Brian Modoff anticipates QCOM's CDMA royalties alone will garner about $1.50 a share in 1999. That works out to roughly $112.50 per share at a multiple of 75 time earnings. We've received a few requests for more on CDMA technology. Check out the news link for more: http://cbs.marketwatch.com/archive/19990625/news/current/qcom.htx ?source=blq/yhoo&dist=yhoo [great article...but be wary of the rampant enthusiasm. As option traders, recognize that even great companies go through corrections and pullbacks - timing is everything. - Kimo] * Odd $5 strike prices are not listed since there are fewer open interests, and exiting these strikes on a volatile stock can result in poorer fills. ** Normal selection of August calls are not listed due to high premiums and few open interests, however they are available. Buy them only if it fits your strategy and pocket book. BUY CALL JUL-120 AAW-GD OI=1510 at $12.25 SL= 9.75 BUY CALL JUL-130*AAW-GF OI=1847 at $ 7.00 SL= 5.25 BUY CALL JUL-140 AAW-GH OI=1219 at $ 3.88 SL= 2.25 more risky BUY CALL AUG-140 AAW-HH OI= 88 at $ 9.88 SL= 7.00 low OI Picked on June 22 at $130.63 PE = 365 Change since picked -3.88 52 week low =$ 18.88 Analysts Ratings 6-8-2-0-0 52 week high=$140.63 Last earnings 04/99 est 0.49 actual 0.21 surprise = 41.38% Next earnings 07-21 est 0.55 versus 0.17 Average daily volume = 3.81 mln. Chart = http://quote.yahoo.com/q?s=QCOM&d=3m PUTS, PUTS, PUTS ***************** Put plays can be very profitable but have a larger risk than call plays. When a stock is falling the entire investment community (except the shorts) is hoping it will reverse and start back up. The company management is also doing everything they can to shore up their stock price. The company issues press releases, brokers talk it up, analysts try to put a positive spin on everything. Then of course there is the death knell, the "buy recommendation" simply because the price has dropped to some level that analysts feel attractive again. Buyers who like the stock wait until it appears a bottom has been reached and then jump on it in a feeding frenzy. They may already have a large position and are averaging down. Many factors can stop a free falling stock in mid drop. Recommended Puts **************** WLP - Wellpoint Health $85.38 (-10.69)(+8.25) Wellpoint Health Networks serves about 32 million individuals in the U.S. through HMOs, PPOs, and special networks such as dental, vision and mental health plans. The company operates as Blue Cross in California and UNICARE through the rest of the nation. Wellpoint also sells life insurance and third party administration to self-employed businesses. In 1997, they acquired the group health and related life business of John Hancock Mutual. WLP continues to be plagued by a steep run and a weak group. We mentioned on Thursday about the big move up due to the company's inclusion into the S&P 500. WLP is now suffering the aftermath of that spike as investors are selling the artificially inflated valuation as the sector weakens. The stock is still over $6 dollars above the 50-dma. We bring this up because most other stocks in the industry have fallen through that level already. Even industry leader AET broke that support level on Friday. So look for WLP to continue to make lower-highs and lower-lows as money rotates from this group. WLP hasn't had any company specific news either this week to trade on, leaving it to move with the industry. Look for more market jitters ahead of the Fed meeting on Tuesday. You may want to set your stops in case the Fed announces market friendly news. But more likely any bounce will be short-lived and provide a new entry point. BUY PUT JUL-90 WLP-SR OI= 27 at $6.62 SL=4.75 BUY PUT JUL-85*WLP-SQ OI=210 at $4.12 SL=2.50 Average Daily Volume = 317 K Chart = http://quote.yahoo.com/q?s=WLP&d=3m *************************************** RECOMMENDED PUTS CONTINUED IN SECTION 5 *************************************** SEE DISCLAIMER IN SECTION ONE ******************************
The Option Investor Newsletter 6-27-99 Sunday 5 of 6 **************** Puts - Continued **************** CI - Cigna Corp. $87.31 (-8.19)(+2.19) Cigna provides insurance and financial services throughout the world. Some of their main products include group life and healthcare, managed care products, individual life and health, annuities, and property & casualty insurance. Its primary segment is health care, which accounts for about half of their premiums. In January 1999, Cigna sold some of its property and casualty business to ACE Limited. The healthcare sector continues to get rocked as investors sold the group again on Friday. CI has now dropped over 8% on the week. This recent sell-off has been prompted by many earning warnings from other companies in the sector. It appears that the government's new rules for healthcare may have reduced compensation for providers, thus hurting earnings. CI has also cited increased competition for pulling out of the healthcare market in certain cities. And there was no new news from CI to end the week. From a trading stand point, we could see support at the 100-dma at $86. So use caution as you enter new plays. It is common to see these downward spikes to be followed by a bounce. But market willing, this group should remain weak over the short-term. That makes this a play of managing your entry and exit points. Keep in mind that CI's premiums are low. That makes a small move in the stock translate into the bottom line on the options. BUY PUT JUL-90*CI-SR OI=127 at $4.00 SL=2.50 BUY PUT JUL-85 CI-SQ OI= 78 at $1.58 SL=0.75 Average Daily Volume = 677 K Chart = http://quote.yahoo.com/q?s=CI&d=3m ***** WCII - Winstar Communications $48.88 (-0.81)(-1.69) Winstar markets comprehensive voice and data communications products and services to businesses and individuals. It is building a national network of local and long-distance telephone services, Internet access, and information services. Winstar transmits these services through high-frequency radio waves that are as reliable as underground fiber cable and much less expensive. It also owns several wireless licenses in the radio spectrum which covers over 125 markets and switching facilities in 21 major cities. They also sell broadband wireless communications services to other carriers. Winstar has bounced up to the $50 resistance but has yet been unable to push through. It appeared on Wednesday that the recent selling from those upset with the dilution from the recent preferred stock issue was subsiding. The stock bounced up to the key $50 level. It proved to be as tough as resistance that it was as support. And WCII trended lower of Friday after being unable to move higher. The strength in which the resistance held is a plus for our play. But we want to caution any new plays without confirming market direction first. This is because WCII has their annual shareholder meeting on Thursday. We all know how the CEO loves to get up before shareholders and analysts to tell them how great business is. So watch your play closely early in the week and trail those stops to lock in your profits. There was no news to report this week other than the $300 million preferred stock placement. BUY PUT JUL-50*WQS-SJ OI= 241 at $3.75 SL=2.25 BUY PUT JUL-45 WQS-SI OI=2560 at $1.56 SL=0.75 Average Daily Volume = 1.19 mln Chart = http://quote.yahoo.com/q?s=WCII&d=3m **** TWX - Time Warner Inc. $65.75 (-1.00)(+2.44) Time Warner is the world's largest media and entertainment company. It operates in three segments of the media market. It provides entertainment which includes Warner Bros. and Warner Music group. It provides news and information through CNN, Time magazine and others. It also provides tele- communications through cable system networks. And its this conglomerate, run by Ted Turner, that also owns the Atlanta Braves baseball team. This week ended just like last for TWX with a break of key support near the close on Friday. You may remember from last week that the stock fell through support at the $68 mark late on Friday. Well it duplicated that feat except this time it was the $66 level that gave way. All week we watched TWX bounce between $66 and $68. Most of the buying was spurred by Merrill Lynch who made Time Warner their Focus One stock on Tuesday. That pushed TWX right up to resistance but it was unable to push through. Instead it moved sideways all week before breaking support. The already forgotten Merrill recommendation and late week falter is a positive for our play. But we need to use caution as the 'open access' issue in Oregon is still in the spotlight. If AT&T wins their appeal, it could signal strength for cable operators like TWX. So trail your stops to lock in profits. The only other news to mention was a Thursday rumor that TWX would make an offer for Lycos. That seems highly unlikely and, like the Focus One recommendation, it's already forgotten. BUY PUT JUL-70*TWX-SN OI=1184 at $5.12 SL=3.50 BUY PUT JUL-65 TWX-SM OI=1247 at $2.00 SL=1.00 Average Daily Volume = 3.09 mln Chart = http://quote.yahoo.com/q?s=TWX&d=3m **** MWD - Morgan Stanley Dean Witter $91.75 (-4.00) MWD is the #2 retail broker in the US only after Merrill Lynch. The 1997 merger of Morgan Stanley and Dean Witter created an investment banking and retail brokerage powerhouse. The company is now a global financial service firm with three primary business segments: securities, asset management, and credit services. Its Discover unit has been one of the leading credit card issuers. MWD has more than 430 branches in the US and some 30 more abroad. Its clients include both individuals and institutions. MWD had blowout earnings Thursday morning. They reported $1.95 p/s versus First Call's estimate of $1.56! The 25% increase was primarily a result of trading securities and revenue gained from fixed income sources. The same day Schroder & Co upgraded MWD to "significantly outperform" and Goldman Sachs reiterated its "recommend list" rating. Nonetheless, the broad market decline and the negative sentiment of the brokerage sector pulled MWD into negative territory. The stock lost $1.94 (2%) by the close. This was no surprise as others in its sector had also went south after reporting exceptional earnings (please see our evening commentary from Wednesday). This is why we decided to add MWD to our put list. From a technical standpoint, MWD is at the low end of its recent support in $90 and $94 range. The stock does have bottom resistance around $85- 86. Now MWD has bypassed its 50 dma of $97, but first needs to break through the bottom resistance before it can slip under the 200 dma of $81. Such a move would certainly provide a more "bearish" disposition. On Friday morning, the DOW rallied and the financial sector did enjoy some recovery resulting from the Bond market recapturing some balance; however it didn't last. By the end of trading MWD closed right in the proximity of its daily low only keeping a fractional gain. In the news, MWD announced they have no plans to sell off any shares of its Discover Brokerage Online unit like others in its business have done to make that "quick buck". BUY PUT JUL-85 MWD-SQ OI=2380 at $1.81 SL=1.00 BUY PUT JUL-90*MWD-SR OI=3700 at $3.75 SL=2.25 BUY PUT JUL-95 MWD-SS OI=1423 at $6.38 SL=4.75 Average daily volume = 2.43 mln. Chart = http://quote.yahoo.com/q?s=MWD&d=3m **** CLX - Clorox Company $99.19 (+4.50)(-6.56)(-4.75) Clorox is most known as the maker of the number one bleach in the world. However, CLX also makes several other laundry, cleaning, and household products. Pine-Sol, Soft Scrub, Tilex, and Glad trash and sandwich bags are just a few other Clorox goods. In 1999, CLX acquired First Brands to increase its hold in the cat litter and car care business as well as extend its reach into the plastic wrap market. Over 80 countries sell Clorox products. Even though it is up +$4.50 on the week, we are holding onto CLX as a put play. CLX has unsuccessfully tried to break $100 dollars 5 times in the past week of trading. If you look at a graph of CLX, you will see why we feel that this level provides some strong overhead price resistance for the company. If the Fed behaves next week and doesn't surprise the markets with an excessive rate hike, companies like CLX could suffer from sector rotation. Investors may leave CLX in order to invest their $$ in other beaten up sectors (for example- techs, Internets, drugs, and financials). We therefore believe that CLX has the potential to head back downhill. Its temporary rally this week should be considered a gift and a possible entry point if CLX confirms that its direction is down. News: Keep in mind that we added CLX as a put since many consumer product companies are showing lackluster sales. A lot of traders consider CLX a "defensive" play BUY PUT JUL-100*CLX-ST OI=132 at $3.25 SL=1.75 BUY PUT JUL- 95 CLX-SS OI=108 at $1.38 SL=0.00 Daily Volume = 508 K Chart = http://quote.yahoo.com/q?s=CLX&d=3m ******** MCK - McKesson Corp. $31.00 (-5.06) First, you get your pills. Next, you need some water. MCK delivers both, along with the technology to help your doctor track your medication. McKesson HBOC was formed when McKesson, North America's top distributor of pharmaceuticals and health care products, bought HBO & Company (HBOC), the world leader in health care information systems and technology. Other subsidiaries distribute medical and surgical products to the health care industry and distribute bottled water (Sparkletts, Alhambra, Crystal). MCK is the US's #3 bottled-water supplier, behind Nestle and Suntory. Prior to the HBOC purchase employees owned about 21% of McKesson through profit-sharing. (from Hoovers) MCK is in a tailspin after revenue reporting discrepancies and the eventual firing of key executives. On Friday, a NY pension group brought a lawsuit against MCK because the pension fund lost $250 million from the stocks drop. We have noticed that when these type of problems occur, a company's stock will struggle for quite a while. MCK is at a new 52 week low and doesn't have any support. As more information comes out about the revenue problems, we feel we will see more and more downgrades. Uncertainty does not bode well for a company or its stock. BUY PUT JUL-35*MCK-SG OI= 841 at $4.50 SL=3.50 ITM $4.00 BUY PUT JUL-30 MCK-SF OI=1124 at $1.00 SL= .50 Average daily volume = 3.53 mln. Chart = http://quote.yahoo.com/q?s=MCK&d=3m ***** AET - Aetna $88.94 (-4.62) Aetna is traditionally known as one of the leading providers of insurance in the U.S. It has also diversified to become one of the largest financial services, health insurance, and managed-care providers. Aetna's products include retirement services, variable life annuities, long-term care insurance, and pension administration just to name a few. These products and services are offered in countries all over the world. AET is another in a string of major healthcare stocks to drop below support this week. The rolling over trend has turned into the theme for healthcare issues. It stems from what appears to be a heavy amount of companies warning about earning shortfalls. AET is still considered to be the group leader and they haven't made any such warning but its more apparent these days that profits have been shrinking. The trigger came on Friday June 18 when Salomon cut earnings estimates for AET based on its recent acquisition of Prudential. They cited much worse trends in PruCare and reduced earnings visibility going forward. Most of the problems are due to more strict government regulations and increased competition. The stock had been drifting lower all week and broke support on Friday. Wait for an entry point as the stock had a big drop Friday and use your stops for protection from a FOMC induced rally. BUY PUT JUL-90*AET-SR OI=1054 at $3.50 SL=1.75 BUY PUT JUL-85 AET-SQ OI= 264 at $1.25 SL=0.75 Average Daily Volume = 722 K Chart = http://quote.yahoo.com/q?s=AET&d=3m **** TMX - Telefonos de Mexico $74.50 (-4.62) TMX is Mexico's equivalent to AT&T. It has more than 9 million phone lines and 250,000 public phones in their network. Just like AT&T, Telefonos de Mexico lost its monopoly in the long distance service arena. But it continues to dominate local service. They have also begun issuing calling cards and Internet access to add to its product lines. Telmex has also signed a joint venture with Sprint to begin to exploit the U.S.-Mexico long distance market. Telmex is sinking further as investors are taking a wait-and- see attitude with the Federal Reserve. The stock sank all week on anemic volume as the yield on the 30yr bond rose to the highest level in almost a year. Most traders have said that their clients have taken to the sidelines until the end of the quarter. This gives us a chance for a quick play on TMX. But the news hasn't been entirely quiet as Telmex finally inked a deal with AT&T over connection rates that TMX will charge AT&T on international calls. This deal had been in the works for two years before an agreement was formalized in March and signed on Monday. This could generate over $170 million in revenues for Telmex. Although it was already largely factored in to TMX's stock price. We are looking for the stock to re-test the lows of a couple weeks ago, which was at $69. The Fed will decide the interest rate policy on Wednesday afternoon. So look for an entry point on TMX and trail the play with stops to lock in profits ahead of Wednesday. Confirm market direction Monday and expect volume to continue to be light. BUY PUT JUL-75 TMX-SO OI=1262 at $3.12 SL=1.75 BUY PUT JUL-70*TMX-SN OI= 927 at $1.31 SL=0.50 Average Daily Volume = 1.95 mln Chart = http://quote.yahoo.com/q?s=TMX&d=3m **** SWY - Safeway $47.38 (-1.81) Safeway is one of the largest food retailers in the nation. Only Kroger and Wal-Mart are larger. Safeway has approximately 1,400 stores concentrated in the western areas of the US and Canada. Two of Safeway's largest possessions are The Vons Companies and Casa Ley, two large supermarket chains. Safeway also manufactures and sells private-label merchandise. Safeway is continually building bigger stores and upgrading their older possessions. Safeway's stock had shined bright this past week as rumors swirled that they might be buying Kmart. The news hit on Friday, June 18, in an article in Business Week magazine. It stated that Kmart may be worth as much as $30 a share in a buyout from likely candidates like Kroger or Safeway. This source is, like usual, from an unnamed money manager. This caused SWY to rise up to its 50-dma at $50. But apparently investors are just using this as an opportunity to sell stock because it was unable to go higher. Last year K-mart did announce that they were searching for some sort of partnership deal with a major supermarket chain. But it was more likely that K-mart would be doing the buying. Its hard to say at this point what the outcome will be over the long-term. But over the short-term, it is more likely that the rumor will fade and SWY will return to its previous down trend. We are looking for the stock to drop back to the $44 area and then continue to trend lower. This play is based on an overdone bounce caused by a long shot rumor. So use caution in case any other unnamed source decides to fuel the story further. BUY PUT JUL-50*SWY-SJ OI=237 at $3.50 SL=1.75 BUY PUT JUL-45 SWY-SI OI=720 at $0.81 SL=0.00 Average Daily Volume = 1.56 mln Chart = http://quote.yahoo.com/q?s=swy&d=3m **** INKT - Inktomi $106.75 (-8.19) Inktomi's Internet search engine provides fast, customizable Web search services. The application is used by Yahoo!, one of the top sites on the Web, and by Wired's HotBot. Inktomi's Traffic Server is a large-scale network caching application licensed to Internet service providers (America Online, Digex) and corporations to address capacity constraints in high-traffic network routes. The company's scalable network applications are based on cluster technology developed at the University of California-Berkeley. With operations in the UK and the US, Inktomi also makes online comparison shopping software. (Description from Hoover's online) Welcome to Risk-O-Rama, where the action is fast and the risk is, well, high! Our first contestant is INKT. Can it continue to fall before a Yahoo! earnings run takes hold (due July 7)? Let's find out! Question #1: Is the market going to catch fire first thing tomorrow with the threat of greater than expected rate increases from the Fed? Answer: not likely. Question #2: Are Internet issues really strong right now? Answer: not even close. Question #3: Where is support for INKT? Answer: mild intra-day from Friday at about $104; after that, none in site until $90. Are you ready to play? A few more questions first - Can Yahoo! drag this sector up in a hurry? Can the Fed say something by Tuesday that might change the market sentiment to the positive? How strong is $104 support? With 32 mln. shares in float, what will likely happen to the price if volume picks up. What if Zack's is right about an earnings release on July 8 and INKT makes a run for it? If you agree with the answers to the first 3 questions and can accurately assess the risk with the last 5, you too could be a winner (market willing)! If not, sorry, there is no consolation prize. You know the rules at Risk-O-Rama! (Translation: this is a HIGH RISK play and you must be prepared to exit FAST if the play moves against you, or reaches your profit target. If you can't find a good entry, don't play.) P.S. First Call has INKT's earnings scheduled for 7/15. BUY PUT JUL-110 QYK-SB OI=189 at $11.25 SL=9.00 BUY PUT JUL-105 QYK-SA OI=132 at $ 8.50 SL=6.50 BUY PUT JUL-100*QYK-ST OI=478 at $ 6.25 SL=4.50 aggressive play! Average daily volume = 2.21 mln. Chart = http://quote.yahoo.com/q?s=INKT&d=3m ****** Combos ****** Ray Cummins, the spreads editor is away from the market on vacation until next week. There will be no 'portfolio updates' or 'new plays' until he returns. He is submitting educational pieces from the road. What dedication!! Bullish With A Safety Net... This conservative spread trading strategy works well with the 'call plays' in the main section of the newsletter. ******************** Spread Strategies... ******************** Each week, I receive numerous requests for basic explanations of the most common spread-trading strategies. As you can tell from the format of the 'combos' section, it is written primarily for the novice trader; about 75% of our readership. With this in mind, it is obvious why we focus on the simplest techniques available. One of the most conservative spread trading strategies works well with the call-option plays in the main section of the newsletter. The BULL-CALL (call-debit) spread consists of the purchase of one call and the sale of another higher priced call. This technique is a less aggressive strategy than the outright purchase of a CALL. It will actually outperform the simple call purchase when the stock price advances slowly to expiration. A bull-call spread also involves lower risk, as it requires less capital to establish initially. The most common call-debit spread is established when the stock price is fairly close to the lower strike price at the time the spread is opened. This position is often called an 'at-the-money' play. This type of spread is low cost, low risk with substantial profit potential. If the stock price advances to the sold strike, the play will reach maximum profit; the difference in the strike prices less the initial debit. The downside break-even point is equal to the strike price of the lower option plus the initial debit to open the play. A more-aggressive type of bull spread is the 'out-of-the-money' position. This spread generally has a very small initial debit and it resembles the 'lottery ticket' approach to trading. The overall position is misleading because the play can lose even when the underlying stock advances moderately. The least aggressive bull spread is the 'in-the-money' spread. It offers a large probability of realizing the maximum profit potential and although that potential will be much smaller, it can be improved by opening positions with pricing disparities. Suppose we are interested in doing a BULL-CALL spread. Our choices are; buy a JUL95 call and sell a JUL100 call, or buy a JUL100 call and sell a JUL105 call. It may appear that the 100/105 spread is a better value since it is less expensive. Obviously, this should not be the sole basis for determining the correct spread. The probability of profit is far more important than the initial cost of the position. One method to help the selection process is to avoid any positions where the maximum profit price is too far from the current stock price. If you don't use probability software, another simple formula of allowing for the underlying stock's movement might be to assume that the stock could, at expiration, advance by an amount equal to twice the time value in the at-the-money call. This is basically a laymen's method of incorporating volatility into position analysis and also allows for larger movements during a longer time period. Another important concept that can't be overlooked is implied volatility. As in all spreads, the option trader's goal is to create a position with a positive theoretical edge; purchasing high value at a low price or selling low value at a high price. With most types of spreads, it is necessary for some time to pass for the spread to become significantly profitable; even if the underlying stock moves in the correct direction. The spread relationship changes mainly as a function of time and small changes in the underlying issue are far less apparent in the price of the spread. This can be an advantage when risk is considered because the spread is less susceptible to time value erosion. That means the longer it takes the underlying stock to advance, the more the advantage swings to the spread. Even when the stock price falls, the spread will have a smaller loss than the outright purchase of a call. After the position is opened, there is generally very little follow-up activity prior to expiration. If the underlying stock advances substantially, the spread may be closed early for a smaller (but guaranteed) profit. If the stock price falls, the trader may want to purchase the spread in order to limit losses. The order to liquidate would be a credit and should be entered as a spread transaction. In the unlikely event the short side of the spread is assigned, the obligation may be satisfied through the exercise of the long position. Some traders prefer to buy back the short call if the stock drops in price to lock in the profit on that side of the spread. They will then hold the remaining call in hopes of a rebound in the stock, making the long side of the spread profitable as well. This method is often called 'legging-out' of the spread. In most cases, it should be avoided unless the short position can be re-purchased for a very small amount. At 1/8 or 1/16, the trader will be giving away virtually nothing when buying back the short call in exchange for significantly increasing the profit potential of the play. There are many advanced exit techniques available to the experienced trader such as 'roll-out' and 'ratio' positions. They are not required to profit consistently from this strategy. The call-debit spread is a very simple and widely used form of combination trading and it can be an extremely useful tool in a variety of situations. If the owner of a call option finds that he has an unrealized loss, he may be able to sell another call at the next higher strike price (creating a bull spread) in an attempt to recover some of his profit. Bull-call spreads may also be used as a substitute (or even a repair strategy) for covered-call writing. This spread position and the profit characteristics are very much like a covered-write since the long call simulates the purchase of a stock when the long option is deep in-the-money. An investor may achieve a favorable risk/reward compromise by investing a smaller amount of money in the bull-call spread rather than in the covered call. The position generally offers a higher return on investment, the same break-even point and less potential risk. Now that you understand the basic concept of the strategy, here is a practical explanation the actual trading technique from one of our most respected broker affiliates... The Bull Call Spread... *********************** For many, the idea of spread strategies is foreign and boring. Some might say that holding a position longer than a few days is way too long. I admit, spreads are usually slow. However, I have learned that slow and steady wins the race. I plan on discussing in further detail the Price Spread. Specifically, the Bull Call Spread. The Bull Call Spread (Call-Debit Spread) is simply achieved by buying the lower and selling the higher strike price with the same expiration. As the name suggests, pick a stock/index that you are bullish on. For Example: Date 7-7-99 XYZ is trading at 79 JUL 75 Calls are trading at 5.125 to 5.5 JUL 80 Calls are trading at 2.125 to 2.375 For this example, buy the JUL 75 call and sell the JUL 80 call for a debit of 3.375 (Sometimes it doesn't hurt to bid and offer for a little less and a little more, respectively, in order to decrease the debit). It is not necessary to initiate a position for the current month. In addition, it is not required to have a spread of 5 points between the two strike prices. The Basics... A long call (buying) option gives the buyer the right, not the obligation, upon exercising to purchase the stock at the specific strike price before expiration of the option contract. A short call (selling) option states that the seller, upon assignment, must sell the underlying stock at the specific strike price before expiration of the option contract. Now comes the part where you make money. This example is on a stock that is only 1 point from being in the money on the short side (the JUL 80's) and expires in two weeks. This trade states that you are speculating that the stock/index will increase from 79 to above 80 points by the time the options expire. The first way to make money is by the stock closing above 80 upon expiration. This will cause the stock to be sold in your account (short). Then it is your responsibility to exercise that JUL 75 call so that you buy the stock at 75. Therefore, you sell the stock at 80 and buy it at 75. Profit of 5 points per share. But wait, you established a 3.375 debit on this trade. Therefore, you profit 5.0 - 3.375 or 1.625 in two weeks. Now that didn't take too long. The second way to make money is if the stock trades much higher than the strike prices. This places the options deep in the money, which provides intrinsic value. Or an investor could initiate the trade when the stock is much less than the example. For instance, at-the-money on the long call or even out-of-the-money on the long call. If the stock advances, you can close the trade out. You would probably make money on the long call and lose on the short. By closing out the spread, you reduce your exposure. Furthermore, the main purpose to this type of position is to lower your risk or exposure. This is achieved buy locking in the maximum profit and maximum loss. That brings me to the downside. In option trading, there is always the risk of losing everything invested. It is important to develop a strict 'Stop-Loss' strategy for all trades. I can't tell you what amount you should use. That is up to you. You may decide to use a percentage of the debit or a dollar amount. Don't convince yourself that it will come back if it goes to you desired stop loss. Take the human element out of the equation. Note: Spreads must be done in margin accounts and not all investors are considered suitable for this type of strategy. Ask your broker what requirements he/she has. Robert Ogilvie... He is an Investment Broker and Registered Options Principal with Baxter, Banks & Smith, Ltd., a full service firm in Sarasota, FL. He specializes in various portfolio hedging and option trading strategies using both equity and index options. Especially the OEX and SPX. He enjoys educating investors on the many facets of options trading, concentrating his efforts to client's needs and objectives. Phone: 1-800-982-2119 Email: RJOgil@aol.com **** Please send questions and comments to: ray@OptionInvestor.com ****************************** SEE DISCLAIMER IN SECTION ONE ******************************
The Option Investor Newsletter 6-27-99 Sunday 6 of 6 ************** COVERED CALLS ************** Volatility Basics... In order to gain an understanding of implied volatility, you must first be knowledgeable of the basic components of option valuation. There are 4 major factors that determine the price of an option: The price of the underlying stock The strike price of the option itself The time remaining until the option expires The volatility of the underlying stock There are 2 less important factors that also affect the price of an option: The current risk free interest rate (usually the 90 day T-Bill is used for this calculation) The dividend rate of the underlying stock The primary influence on an option's price is the movement of the underlying security. The next important factor is time value. An option's price decays each day it is in existence. The closer the option gets to expiration, the faster it decays. The volatility component of option valuation is a measure of the range the underlying security is expected to change over a given period of time. The measurement of volatility is the standard deviation of the daily price changes in the security. In simpler terms, the more volatile the stock, the greater the price of the option. There are two different kinds of volatility; historical volatility and implied volatility. Historical volatility estimates volatility based on past prices. Because it can be so erratic from one day to the next, moving averages are generally used in pricing models to determine the fair value of an option. In most cases, the larger the statistical volatility, the more an option is worth. Implied volatility starts with the current option price and works backward to calculate the theoretical value of volatility that is equal to the market price minus intrinsic value. It is a computed value that has more to do with the option price rather than the underlying asset. The plain English definition: implied volatility is the volatility value that makes an option's fair value equal to its actual market price. Most traders refer to implied volatility as premium even though the the word premium refers to the option price relative to the price of the underlying security. What the trader is really referring to is the implied volatility. The moral of the story: when the implied volatility is low, options are effectively under priced. When the implied volatility is high, options are effectively overpriced. Our next topic...How can we use this knowledge to our advantage? Good Luck! SUMMARY OF PREVIOUS PICKS (3 Weeks to July expiration) ****************************************************** Stock Price Last Mon Strike Opt Profit ROI Monthly Sym Picked Price Price Bid /Loss ROI SQNT 13.75 13.63 Jul 12.50 2.38 *$ 1.13 9.9% 10.8% NMSS 8.13 9.81 Jul 7.50 1.38 *$ 0.75 11.1% 9.7% FFD 16.38 16.25 Jul 15.00 2.50 *$ 1.12 8.1% 8.8% THNK 17.19 15.88 Jul 15.00 3.25 *$ 1.06 7.6% 8.3% FIBR 12.63 12.13 Jul 10.00 3.25 *$ 0.62 6.6% 7.2% SAVLY 15.75 13.69 Jul 12.50 4.00 *$ 0.75 6.4% 6.9% TKLC 12.06 10.31 Jul 10.00 2.75 *$ 0.69 7.4% 6.4% CAST 15.94 16.19 Jul 15.00 1.88 *$ 0.94 6.7% 5.8% PILL 13.88 13.25 Jul 12.50 2.13 *$ 0.75 6.4% 5.5% KMET 20.88 21.81 Jul 20.00 2.06 *$ 1.18 6.3% 5.4% AVIR 22.75 25.44 Jul 20.00 4.13 *$ 1.38 7.4% 5.4% AAC 7.69 7.75 Jul 7.50 0.69 *$ 0.50 7.1% 5.2% CBTSY 16.50 16.56 Jul 15.00 2.44 *$ 0.94 6.7% 4.8% ARTT 14.69 13.38 Jul 12.50 2.75 *$ 0.56 4.7% 4.1% THNK 17.19 15.88 Jul 12.50 5.13 *$ 0.44 3.6% 4.0% CPU 8.38 7.31 Jul 7.50 1.44 $ 0.37 5.3% 3.9% AMES 47.50 44.25 Jul 45.00 4.75 $ 1.50 3.5% 3.8% DUSA 9.75 9.56 Jul 7.50 2.56 *$ 0.31 4.3% 3.7% DIMD 5.06 4.38 Jul 5.00 0.63 $ -0.05 -1.1% 0.0% PTEK** 15.44 11.38 Jul 12.50 3.75 $ -0.31 -2.7% 0.0% ** Again, you may consider closing PTEK if it finishes below $11 (150 dma) - next short-term support is at $10. Dropped Plays: CYOE, VLN - Now positive and showing strength (Murphy's Law). NOVT - Holding near $20 after breaking through 150 dma. Note: Neither of the MCOM plays were available; the stock gapped-up at the open on Monday. We will not take credit for picking the stock! -ROI is equal to the profit (or loss) divided by the cost-basis. Monthly ROI represents the return on a monthly basis. Example: a 10% return in 20 days equals 15.2% ROI for a month). -Margin is not used in any calculations. -Profit/Loss Column: Asterisk indicates stock price above strike price and should be called. Stock that will not be called is assumed sold at current price (for tracking purposes). *** LOSING PLAYS *** Determining when to exit a play is a matter of personal preference but we strongly recommended closing any play that falls more than 20% below the initial cost-basis. Some positions may eventually become profitable but it is generally more productive to exit a losing play and move your capital into another prospective trade. ********* NEW PICKS ********* Definitions: OI - Open Interest CB - Cost Basis (Prc pd - Prm rec'd = CB, the break-even point) RC - Return Called RNC - Return Not Called (Stock Price Unchanged) Sequenced by Company ********************* Stock Price Mon Strike Option Opt Open Cost RC RNC Sym Price Symbol Bid Intr Basis ENZN 16.88 Jul 15.00 QYZ GC 2.50 66 14.38 4.3% 4.3% GISX 18.25 Jul 17.50 GQC GW 1.88 295 16.37 6.9% 6.9% GSTX 14.00 Jul 12.50 QGS GV 1.94 742 12.06 3.6% 3.6% LWIN 20.06 Jul 17.50 UIN GW 3.25 264 16.81 4.1% 4.1% NSM 25.00 Jul 22.50 NSM GX 3.25 7935 21.75 3.4% 3.4% PERI 15.13 Jul 12.50 HQS GV 3.13 241 12.00 4.2% 4.2% PRGN 24.75 Jul 22.50 GQP GX 3.13 81 21.62 4.1% 4.1% SKYC 17.06 Jul 15.00 KQF GC 2.63 10 14.43 4.0% 4.0% VVTV 19.00 Jul 17.50 UVR GW 2.56 435 16.44 6.4% 6.4% Sequenced by Return Called *************************** Stock Price Mon Strike Option Opt Open Cost RC RNC Sym Price Symbol Bid Intr Basis GISX 18.25 Jul 17.50 GQC GW 1.88 295 16.37 6.9% 6.9% VVTV 19.00 Jul 17.50 UVR GW 2.56 435 16.44 6.4% 6.4% ENZN 16.88 Jul 15.00 QYZ GC 2.50 66 14.38 4.3% 4.3% PERI 15.13 Jul 12.50 HQS GV 3.13 241 12.00 4.2% 4.2% LWIN 20.06 Jul 17.50 UIN GW 3.25 264 16.81 4.1% 4.1% PRGN 24.75 Jul 22.50 GQP GX 3.13 81 21.62 4.1% 4.1% SKYC 17.06 Jul 15.00 KQF GC 2.63 10 14.43 4.0% 4.0% GSTX 14.00 Jul 12.50 QGS GV 1.94 742 12.06 3.6% 3.6% NSM 25.00 Jul 22.50 NSM GX 3.25 7935 21.75 3.4% 3.4% Company Descriptions ********************* ENZN - Enzon, Inc. $16.88 *** New High! *** Enzon is a biopharmaceutical company that develops, manufactures and markets enhanced therapeutics for life-threatening diseases through the application of its proprietary technologies in the areas of oncology, genetic diseases and blood substitutes. ENZN reported 3Q loss of $0.04 (vs. $0.06 loss) in May and recently had coverage initiated by Sutro & Co (Buy) on June 8. The tape is very bullish (Thursday ENZN closed at a new multi-year high). Jul 15.00 QYZ GC Bid=2.50 OI=66 CB=14.38 RC=4.3% RNC=4.3% Chart = http://quote.yahoo.com/q?s=enzn&d=3m ***** GISX - Global Imaging Systems $18.25 Global Imaging Systems is a provider of office imaging solutions, which includes the sale and service of automated office equipment, electronic presentation systems, document imaging management systems, and network integration and management services. In May Global announced that revenues and net income continued to set new record highs through the fourth quarter. In news Friday, GISX acquired Lewan & Associates, Inc., an independent copier/network services company in Denver. Global is in an up-trend and the cost basis is below the 30 dma. Jul 17.50 GQC GW Bid=1.88 OI=295 CB=16.37 RC=6.9% RNC=6.9% Chart = http://quote.yahoo.com/q?s=gisx&d=3m ***** GSTX - GST Telecommunications $14.00 *** Hot Sector *** GSTX provides a broad range of integrated telecommunications products and services, primarily to business customers located in the western continental United States and Hawaii. GST reported record 1Q revenues at the end of April and continues to expand its broadband delivery capability in the local and long haul networks. Monday GST gapped up on news that Williams Cos Inc, has agreed to buy multiple conduits on GST's California network for about $62.5 million. Tuesday GST announced a strategic agreement with Covad Communications for DSL services and on Thursday both Deutsche Banc and Alex Brown upgraded GSTX to a 'strong buy'. Jul 12.50 QGS GV Bid=1.94 OI=742 CB=12.06 RC=3.6% RNC=3.6% Chart = http://quote.yahoo.com/q?s=gstx&d=3m ***** LWIN - Leap Wireless Intl. $20.06 *** Strong Sector *** Leap Wireless Intl. manages, supports, operates and otherwise participates in Code Division Multiple Access based wireless telecommunications businesses and ventures located in emerging international markets and the United States. On Tuesday, Leap reported its 3Q results which included strong subscriber growth in both its Mexican PCS project and U.S. service (Cricket), completion of the purchase of 100% of Chilesat PCS, and commercial launch of a wireless local loop system in the Saint Petersburg region of Russia. Jul 17.50 UIN GW Bid=3.25 OI=264 CB=16.81 RC=4.1% RNC=4.1% Chart = http://quote.yahoo.com/q?s=LWIN&d=3m ***** NSM - National Semiconductor $25.00 *** Chips Are Hot! *** NSM designs, develops, manufactures and markets a variety of semiconductor products, including microprocessors for the personal computer industry, and a line of integrated circuits for a variety of industries. Lots of news on NSM, new products, upgraded, down- graded, the AMD warning, etc. The semiconductor sector is hot and has been in a strong up-trend. NSM completed a long term double bottom and recent support (the May high) is at our cost basis. Jul 22.50 NSM GX Bid=3.25 OI=7935 CB=21.75 RC=3.4% RNC=3.4% Chart = http://quote.yahoo.com/q?s=NSM&d=3m ***** PERI - Periphonics Corporation $15.13 *** Break-Out! *** PERI develops, markets, and supports high performance interactive voice response systems, open architecture computer hardware and operating system software. For the nine months ended 2/28/99, revenues increased 16% and net income increased 20%. PERI is expecting to report a strong 4Q and has been announcing a string of new orders. Periphonics is in a strong up-trend and recently moved above the neckline of a long term head-n-shoulders bottom. Jul 12.50 HQS GV Bid=3.13 OI=241 CB=12.00 RC=4.2% RNC=4.2% Chart = http://quote.yahoo.com/q?s=Peri&d=3m ***** PRGN - Peregrine Systems Inc. $24.75 PRGN is a provider of IT infrastructure management solutions through the development, marketing and supporting of the ServiceCenter and AssetCenter product lines. Peregrine recently announced a technology integration alliance with SERENA Software, Inc to deliver an automated solution for identifying and resolving desktop configuration problems. PRGN's ServiceCenter® 3.0, was selected as an "Editors' Choice" in Call Center Solutions magazine. PRGN reversed its recent downtrend, has moved back above the 150 dma and may make a run for a new high. Jul 22.50 GQP GX Bid=3.13 OI=81 CB=21.62 RC=4.1% RNC=4.1% Chart = http://quote.yahoo.com/q?s=prgn&d=3m ***** SKYC - American Mobile Satellite $17.06 *** Up, Up, Up! *** American Mobile Satellite, through its subsidiaries, provides nationwide wireless communications services, including data, dispatch, and voice services, primarily to business customers in the United States. May 24, AT&T extended its contract with SKYC to 5 years and on June 8, SKYC announced it had acquired the remaining stake of XM Satellite Radio Inc. of Washington, DC (100 channels of digital audio service coast to coast). SKYC also announced a multi-year contract with UPS. The chart remains bullish with recent support at $15. Jul 15.00 KQF GC Bid=2.63 OI=10 CB=14.43 RC=4.0% RNC=4.0% Chart = http://quote.yahoo.com/q?s=skyc&d=3m ***** VVTV - Valuevision International Inc $19.00 *** New High! *** ValueVision International is an integrated direct marketing company which markets its products directly to consumers through print and electronic media. ValueVision started the recent uptrend after shareholders approved the Company's strategic alliance with NBC and GE Equity which will help expand their cable distribution across the US. On Tuesday, Craig-Hallum Capital Group initiated coverage with a 'buy'. The chart is very bullish and the price is now in 'blue sky' territory (new all time high). Jul 17.50 UVR GW Bid=2.56 OI=435 CB=16.44 RC=6.4% RNC=6.4% Chart = http://quote.yahoo.com/q?s=VVTV&d=3m ****************************** CALLS STRICTLY PERCENTAGE LIST ****************************** These Pct are not calculated using margin. These are pure returns. Margin will increase the percentages. No recommendation is made on these plays. This is only a numerically produced list of the options with the highest percentage of return for dollars invested. If you want to do your own research this is where to start. Stock Price Month Strike Symbol Price PctRtn Vol OpnInt BYND 26.75 Jul 27.50 QYDGY 3.13 11.68 51 501 APOS 6.88 Jul 7.50 QAPGU 0.69 10.00 110 113 BYND 26.75 Aug 27.50 QYDHY 5.00 18.69 41 220 CEXP 7.00 Aug 7.50 XQPHU 1.06 15.18 110 198 ENZN 16.81 Aug 17.50 QYZHW 2.50 14.87 350 909 ROSI 7.31 Aug 7.50 QRSHU 1.06 14.53 85 182 PTVL 21.13 Aug 22.50 QUTHX 3.00 14.20 170 735 VLNC 7.38 Aug 7.50 VHQHU 1.00 13.56 27 255 CMTO 16.69 Aug 17.50 CQHHW 2.25 13.48 270 1 SQNT 13.63 Aug 15.00 SQQHC 1.75 12.84 73 111 CATP 17.25 Aug 17.50 TQPHW 2.19 12.68 32 169 PAGE 4.56 Aug 5.00 PGQHA 0.56 12.33 150 50 XCED 19.63 Aug 20.00 XCUHD 2.38 12.10 120 363 CPU 7.31 Aug 7.50 CPUHU 0.88 11.97 220 4589 QMDC 7.63 Aug 10.00 QCDHB 0.88 11.48 42 643 CKFR 26.50 Aug 30.00 FCQHF 3.00 11.32 160 522 NCDI 5.00 Aug 5.00 NQKHA 0.56 11.25 51 10 NSM 24.88 Aug 25.00 NSMHE 2.75 11.06 380 1079 HLYW 18.75 Aug 20.00 HWQHD 2.06 11.00 20 70 NR 8.56 Aug 12.50 NRHV 0.94 10.95 550 15 NETA 15.00 Aug 15.00 CQMHC 1.63 10.83 96 475 SGI 14.56 Aug 15.00 SGIHC 1.56 10.73 130 5707 DGN 14.00 Aug 15.00 DGNHC 1.50 10.71 10 72 CYCH 11.75 Aug 15.00 KBQHC 1.25 10.64 100 256 AMD 17.25 Aug 17.50 AMDHW 1.81 10.51 180 91 ESST 12.00 Aug 12.50 SEQHV 1.25 10.42 85 56 ASDV 17.06 Aug 17.50 QDVHW 1.75 10.26 5 150 DBCC 9.75 Sep 10.00 BQDIB 1.56 16.03 17 371 BEAM 19.81 Sep 20.00 BAQID 3.13 15.77 10 1128 UBS 9.13 Sep 10.00 UBSIB 1.31 14.38 10 1948 AFCI 14.44 Sep 15.00 AQFIC 2.00 13.85 31 1755 MDM 7.00 Sep 7.50 MDMIU 0.94 13.39 300 5428 MMWW 22.31 Sep 25.00 EQBIE 2.81 12.61 2 1305 TWMC 11.13 Sep 12.50 TQTIV 1.38 12.36 100 451 AEN 17.38 Sep 17.50 AENIW 2.13 12.23 100 56 IDC 4.50 Sep 5.00 IDCIA 0.50 11.11 170 4772 SYBS 9.81 Sep 10.00 SBQIB 1.06 10.83 4 987 NN 28.25 Sep 30.00 NNIF 2.88 10.18 100 463 ***************** NAKED PUT SECTION ***************** More On Market Cycles... Traders use technical indicators to generate signals when specific buy or sell parameters are met. Cycle analysis; the study of historically repetitive rhythms in price action, can also be helpful in initiating technical trades. The stock market historically moves in identifiable cycles. To be a successful investor, you must be able to determine the current phase of activity. Historical bottoms or cyclic lows are the most common signals that analysts attempt to uncover. These downside support areas are more reliable and take longer to develop than the cyclic highs. Using a long-term, monthly chart of the DOW, it is relatively easy to spot the current four year rhythm. The most recent bottoms occurred in 1990, 1994 & 1998. In any type of long-term technical analysis, it is important to understand that market cycles usually precede economic cycles. The many facets of our economy that determine the overall financial health of the nation are anticipated by the emotion of the market. Any study that compares key historical events with the movement of a major index will demonstrate how war, recession, or a presidential election can influence the current cycle. It is also important to be familiar with the common investment indicators used to determine the overall movement of the market and apply this knowledge as a practical part of your trading strategy. Here are three timing strategies work well with cycle analysis: KEY REVERSALS; A daily price range with a high that is above the previous day's high and a low that is below the previous day's low. Often referred to as an 'outside trading range' day. Most analysts agree that a close above previous day's final price is a bullish signal. If this type of price action occurs during a bottom in the cycle, a reversal is likely in progress. DIVERGENCE; Buy and sell signals are often developed using oscillators such as RSI, MACD, Stochastic, and other types of momentum indicators. Divergence signals often occur at cyclic turning points. An example might be when an issue makes a substantial move then has a small short-term reaction, which is followed by a new low or high for the trend. The last price appears to perpetuate the overall trend but the actual outcome is often a major reversal. CHANNELS; These patterns, including multiple bottoms and tops, define markets that are established in trading ranges. They can make it easier to observe rhythms and establish opening prices more effectively. For example, a bullish trading signal will be apparent when an issue breaks-out above the high of a recent channel while a cyclic low is occurring. There are many other useful indicators and the successful trader will learn how to utilize every available tool and resource to gain an accurate sense of the current market cycle. Good Luck! ------------------------------------------------------------------ Selling naked-puts offers an attractive method of generating small profits on portfolio collateral. A premium is received for the obligation to buy the underlying security at a specific price. A successful outcome is achieved if the stock remains above the sold strike at expiration. It is also one of the best ways to achieve a technically correct entry position for owning a stock. SUMMARY OF PREVIOUS PICKS (3 Weeks to July expiration) ****************************************************** Stock Price Last Mon Strike Opt Profit ROI Monthly Sym Picked Price Price Bid /Loss ROI PILL 13.88 13.25 Jul 12.50 0.81 *$ 0.81 16.3% 14.1% SBTK 27.25 21.00 Jul 20.00 0.94 *$ 0.94 14.7% 12.8% PCYC 21.13 26.63 Jul 17.50 0.81 *$ 0.81 14.4% 12.5% ANAD 31.31 33.13 Jul 25.00 0.63 *$ 0.63 9.1% 9.9% STII 25.00 29.13 Jul 20.00 0.50 *$ 0.50 9.1% 9.9% CIEN 30.50 30.06 Jul 25.00 0.81 *$ 0.81 10.8% 9.4% NE 20.00 17.88 Jul 17.50 0.50 *$ 0.50 8.3% 9.1% REV 30.38 28.94 Jul 22.50 0.69 *$ 0.69 10.2% 8.9% BOBJ 37.00 35.00 Jul 30.00 0.69 *$ 0.69 8.1% 8.8% CNTO 50.94 46.00 Jul 40.00 0.81 *$ 0.81 7.4% 8.0% SUGN 22.75 29.19 Jul 17.50 0.44 *$ 0.44 8.8% 7.7% NRES 20.25 20.81 Jul 17.50 0.50 *$ 0.50 8.5% 7.4% CUBE 32.00 31.06 Jul 25.00 0.56 *$ 0.56 8.0% 7.0% CUBE 32.00 31.06 Jul 25.00 0.44 *$ 0.44 6.4% 7.0% TDW 28.75 27.81 Jul 25.00 0.50 *$ 0.50 6.1% 6.6% AMES 47.50 44.25 Jul 40.00 0.69 *$ 0.69 5.7% 6.1% EGRP 37.81 36.44 Jul 25.00 0.56 *$ 0.56 6.9% 6.0% -ROI is equal to the profit (or loss) divided by the original investment requirement (varies broker to broker). -Monthly ROI represents the return on a monthly basis. Example: a 10% return in 20 days equals 15.2% ROI for a month). -Profit/Loss Column: Asterisk indicates stock price above strike price and put option should expire - not be exercised. Stock to be exercised assumed sold at current price.(for tracking) ********** NEW PICKS ********** Definitions: OI - Open Interest CB - Cost Basis (break-even point if put exercised) ROI - Return On Investment - formula: premium received divided by the collateral required by the broker (the greater of 40% of the current price of the stock plus the premium, minus the difference between the cost of the stock and the strike price; or 20% of the current price of the stock plus the premium.) As you move further from the stock price, the 20% requirement will take precedence. ROI may vary based on equity required by each individual broker. Sequenced by Company ********************* Stock Price Mon Strike Option Opt Open Cost ROI Opt Sym Price Symbol Bid Intr Basis Expired CACS 35.00 Jul 25.00 UCN SE 0.75 5 24.25 9.7% CUST 50.06 Jul 35.00 HQU SG 1.13 148 33.87 10.1% GALT 41.00 Jul 35.00 QFG SG 0.75 42 34.25 6.7% MERQ 35.38 Jul 30.00 RQB SF 0.88 120 29.12 9.1% NLC 42.81 Jul 35.00 NLC SG 0.56 320 34.44 5.7% PRD 27.50 Jul 22.50 PRD SX 0.38 265 22.12 6.0% PWAV 30.50 Jul 25.00 VFQ SE 0.44 53 24.56 6.2% RIGS 20.63 Jul 17.50 RNQ SW 0.44 85 17.06 7.9% SGI 14.63 Jul 12.50 SGI SV 0.25 411 12.25 6.3% Sequenced by Return on Investment ********************************* Stock Price Mon Strike Option Opt Open Cost ROI Opt Sym Price Symbol Bid Intr Basis Expired CUST 50.06 Jul 35.00 HQU SG 1.13 148 33.87 10.1% CACS 35.00 Jul 25.00 UCN SE 0.75 5 24.25 9.7% MERQ 35.38 Jul 30.00 RQB SF 0.88 120 29.12 9.1% RIGS 20.63 Jul 17.50 RNQ SW 0.44 85 17.06 7.9% GALT 41.00 Jul 35.00 QFG SG 0.75 42 34.25 6.7% SGI 14.63 Jul 12.50 SGI SV 0.25 411 12.25 6.3% PWAV 30.50 Jul 25.00 VFQ SE 0.44 53 24.56 6.2% PRD 27.50 Jul 22.50 PRD SX 0.38 265 22.12 6.0% NLC 42.81 Jul 35.00 NLC SG 0.56 320 34.44 5.7% Company Descriptions ********************* CACS - Carrier Access Corp. $35.00 *** Ready to Move? *** Carrier Access is a provider of multi-service Digital Access equipment to competitive telecommunications carriers, including competitive local exchange carriers, wireless carriers, Internet service providers and others. Basically, the company's products connect a carrier's end user to the appropriate digital access lines. Carrier Access recently announced solutions to increase bandwidth and the expansion of copper pairs. CACS has fallen over 50% from its March high and has recently established a support area above $30. Several bullish divergence's (TSV,BOP) suggest upward movement may follow. Jul 25.00 UCN SE Bid=0.75 OI=5 CB=24.25 ROI=9.7% Chart = http://quote.yahoo.com/q?s=cacs&d=3m ***** CUST - CustomTracks Corporation $50.06 *** Speculative! *** CustomTracks is currently developing an Internet transaction payment system which is expected to be operational by the third quarter of 1999. They are also working on a digital signature system that also has uses in e-commerce and other areas where security is needed over the Internet. CUST rocketed up to $80 on rumors a brokerage had issued a $230 price target. The recent correction bounced-off support near our sold strike and CUST is showing signs of resuming the uptrend. Not for the faint of heart. Jul 35.00 HQU SG Bid=1.13 OI=148 CB=33.87 ROI=10.1% Chart = http://quote.yahoo.com/q?s=cust&d=3m ***** GALT - Galileo Technology Ltd. $41.00 *** Hot Sector *** Galileo Technology defines, develops and markets advanced digital semiconductor devices that perform critical functions for network systems. Since taking a post earnings dip in April, Galileo has been upgraded by both Deutsche Banc and Alex Brown, with coverage initiated on Monday. Galileo has been stair-stepping upward with BOP increasing. Recent selling has been met with bullish buying. The sold strike is near a (early June) technical support area. Jul 35.00 QFG SG Bid=0.75 OI=42 CB=34.25 ROI=6.7% Chart = http://quote.yahoo.com/q?s=galt&d=3m ***** MERQ - Mercury Interactive Corp. $35.38 Mercury Interactive develops, markets and supports a suite of automated software testing solutions that allow for the testing of complex software applications throughout the enterprise by anticipating problems and identifying issues. Prudential initiated coverage with a 'strong buy' at the end of May and in early June, Mercury introduced the first load testing tool with support for Linux (a fast growing "free" operating system). Our cost basis is below the 150 dma. Jul 30.00 RQB SF Bid=0.88 OI=120 CB=29.12 ROI=9.1% Chart = http://quote.yahoo.com/q?s=merq&d=3m ***** NLC - Nalco Chemical Company $42.81 *** Merger? *** Nalco Chemical Company provides services, chemicals, technology, equipment, and systems (monitoring and surveillance) used in water treatment, pollution control, energy conservation, steel making, paper making and mining and mineral processing. After announcing that they are in discussions about a possible merger, NLC exploded upward for over $5 in two days. There are several candidates: BASF, AZX, CYT, and GLK; with an expected share range of $45 to $50. We like the support area at $35...in case it doesn't happen. Jul 35.00 NLC SG Bid=0.56 OI=320 CB=34.44 ROI=5.7% Chart = http://quote.yahoo.com/q?s=nlc&d=3m ***** PRD - Polaroid Corporation $27.50 *** Break-Out! *** Polaroid supplies instant photographic cameras and films; digital imaging hardware, software and media; secure identification systems; graphics imaging systems; sunglasses and polarizers to markets worldwide. With annual sales of more than $1.8 billion in 1998, PRD is the worldwide leader in instant imaging. A slew of recent lawsuits have plagued this historic company and yet the stock price continues to rebound under volatile buying pressure. The stock has moved above a six month base (and 150 dma) on heavy volume . We like the solid support area from $20 to $23. Jul 22.50 PRD SX Bid=0.38 OI=265 CB=22.12 ROI=6.0% Chart = http://quote.yahoo.com/q?s=prd&d=3m ***** PWAV - Powerwave Technologies $30.50 Powerwave designs, manufactures and markets ultra-linear radio frequency power amplifiers (which increase signal strength while reducing interference) for use in the wireless communications market. On Thursday, Powerwave entered into a purchasing agreement with GTE Wireless Service Corp. They will supply their ultra-linear multi-carrier RF power amplifiers for installation in designated new and certain existing cellular base stations in GTE Wireless' operating areas. PWAV resumed its up-trend after a recent correction. The support (at $26) and the sold strike are both below the 150 dma. Jul 25.00 VFQ SE Bid=0.44 OI=53 CB=24.56 ROI=6.2% Chart = http://quote.yahoo.com/q?s=pwav&d=3m ***** RIGS - Riggs National Corp. $20.63 *** Buyout? *** RIGS, a bank holding company, whose primary subsidiary is Riggs Bank National Association, runs over 50 branches in Washington, DC, Virginia, and Maryland. They also have offices in London, Miami, and the Bahamas. Riggs offers traditional retail services, commercial services, and international services. No news explains the recent run-up. The only recent item mentioned Riggs' plan to issue $200 million in variable rate trust preferred securities. The tape rarely lies...something is up (the stock price!). If you like to speculate, our cost basis offers a reasonable entry point. Jul 17.50 RNQ SW Bid=0.44 OI=85 CB=17.06 ROI=7.9% Chart = http://quote.yahoo.com/q?s=rigs&d=3m ***** SGI - Silicon Graphics, Inc. $14.63 *** Break-Out! *** Silicon produces workstations and graphics servers that deliver advanced 3D graphics and computing capabilities for engineering and creative professionals. SGI's visual workstations are a driving technology behind the attractions at Disney's indoor interactive theme park, DisneyQuest® Chicago. Several positive reports were out this week and SGI has broken out of a 3 month base on heavy volume. We think $0.25 is sufficient reward to 'target shoot' an entry point. Jul 12.50 SGI SV Bid=0.25 OI=411 CB=12.25 ROI=6.3% Chart = http://quote.yahoo.com/q?s=sgi&d=3m ***** SEE DISCLAIMER IN SECTION ONE *****
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