The Option Investor Newsletter Tuesday 7-6-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com Also provided as a service to The Online Investor Advantage Published three times weekly, Sunday, Tuesday, Thursday evenings. ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 7-6-99 High Low Volume Advances Decline DOW 11135.10 - 4.10 11236.80 11104.10 724,025k 1,439 1,588 Nasdaq 2736.80 - 4.20 2787.17 2733.63 1130,000k 2,083 1,951 S&P-100 714.28 - 2.00 725.10 713.67 Totals 3,522 3,539 S&P-500 1388.13 - 3.10 1405.32 1387.14 49.9% 50.1% $RUT 456.55 + .04 459.31 456.51 $TRAN 3477.95 - 38.04 3515.29 3473.24 VIX 20.27 + 1.42 20.69 19.19 Put/Call Ratio .42 ************************************************************* The signal for profit taking was given at 1:10 today. I did not see it OR hear it but it must have happened. The Dow, up +96 at the time, promptly retreated and except for two small pauses moved to sub zero territory by the close. The Nasdaq, which had been soaring on the back of the Internets, struggled valiantly to hold on to some of it's +45 point gain but the drop accelerated near the end of the day and it also finished negative. Was it a bad day? I don't think so. Many issues retained their gains and other were only fractionally negative. Some of the heavyweights did lose some big bucks. Yahoo, which had been up +10.50 to 189.25 on the day before earnings, gave up -$15 in the last hour to close at only $175. Investors who can read charts and remember what happened after the last two earnings reports were fleeing in droves. YHOO traded over 15 mln shares and it looked like better than half occured in the last hour. I warned in the Sunday newsletter that we were due for some profit taking and my target was Wednesday. It looks like investors are becoming more cautious and the party started a couple of hours early. If I had a crystal ball I could tell you where the bottom will be and when to start using this "buying opportunity". Unfortunately I do not and I will be waiting for a clear signal as well. Last Tuesday we were at 10,700 on the Dow. I do not expect a retracement to those levels. With the earnings starting this week, investors will want to be positioned to benefit. We could easily see a simple -100 points or a multi-day drag for even more. AOL powered up +9.50 early on an article in Barrons and a deal with Drkoop.com. They closed up slightly over $5.00 after the sell off. This set the trend for the Internet rally this morning. The trend for tomorrows Internet trading will be set by New Era of Networks (NEON) which warned after the bell today that they would post a serious loss instead of a profit. In after hours trading NEON lost over half of it's value, losing -24.06 to $20. The pending Yahoo earnings after the bell on Wednesday will also worry the Internet market. Got gold? If you don't then there is a great buying opportunity coming. (not yet) Gold hit a twenty-year low today breaking under $258. The Bank of England sold 25 tons of the yellow metal for an average price of $261.20 at auction. Yes, this was a lot of gold but it represented only 3.5% of their reserves which they plan to sell. After they drop 25 tons on the market every month or so for the next couple years and gold may be back at levels not seen in decades. On the other side of the commodity ledger, oil came within $.02 of $20.00. The news that OPEC partners are actually doing the right thing and cutting back as planned should put new life in the oil sector stocks. We don't go there since they are either boom or bust on a daily basis based on the price fluctuations of oil. Ralph Acompora is smoking something funny again. He went on record as saying he now expects the Dow to trade between 12,000 and 12,300 by the end of summer and "if I play with the numbers a bit" (his words) "I can see 12,500 to 13,000 by year end." He cited the low interest rate picture and strong earnings as the motivating factor. Other analysts are more conservative on their year end targets. Peter Canelo 11,500, Tom Galvin 11,000, Abbey Cohen 10,300, Don Hayes 8572, Cliggot 9300. Ralph just got $500k for an advance on a book outlining his Dow 18,000 forecast for 2003. Just shows you bulls have more fun. I hope Ralph is right. I am just more concerned about the looming Y2K thing. Nobody knows what impact it will actually have but I don't see it as positive in any way. In this weeks issue of Bottom Line Personal, a Y2K column is recommending selling bank/financial stocks now. When major names start warning people to sell, there will be some takers. There are no major economic reports this week. The key will be the Alcoa and Yahoo earnings reports tomorrow. Good positive reports could stop the profit taking in mid-drop but missed earnings could accelerate the slide. Keep your powder dry and look for the turnaround. Be wary if we do not get a pull back. We did shift from calls to puts on Yahoo tonight but STRONGLY recommend investors wait until after the earnings to start a PUT position. If they announce a split then all bets are off. I sure wanted to sell calls at the top today but held off due to the uncertainty. There will be a play on Thursday morning. Wait for it! The Dow was up +5.6% last week and the Nasdaq +7.4%. We could easily give back -2%. Wait for an entry point, sell too soon. Jim Brown Editor *************** Market Posture *************** As of Market Close – Tuesday, July 6, 1999 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,500 11,000 11,135 BULLISH 7.01 SPX S&P 500 1,315 1,355 1,388 BULLISH 7.01 OEX S&P 100 660 690 714 BULLISH 6.29 RUT Russell 2000 390 450 457 BULLISH 6.29 NDX NASD 100 2,110 2,220 2,331 BULLISH 6.29 MSH High Tech 1,010 1,080 1,181 BULLISH 6.19 XCI Hardware 900 950 1,005 BULLISH 6.17 CWX Software 675 700 786 BULLSIH 6.17 SOX Semiconductor 410 425 496 BULLISH 6.10 NWX Networking 525 545 593 BULLISH 6.25 INX Internet 500 510 557 BULLISH 7.01 BIX Banking 680 720 717 Neutral 6.29 XBD Brokerage 410 425 443 BULLISH 7.01 IUX Insurance 645 660 654 Neutral 6.29 RLX Retail 900 910 944 BULLISH 6.29 DRG Drug 375 400 376 Neutral 7.01 HCX Healthcare 750 800 767 Neutral 7.01 XAL Airline 180 190 170 BEARISH 5.21 OIX Oil & Gas 285 310 308 Neutral 5.13 Posture Alert Profit taking finally took hold as the broad market sold off during the last 1 hour of trading Tuesday. No major changes occurred in any of the particular sectors. A detailed description of our Market Posture and its applications can be found at: /members/marketposture ***************** Market Sentiment ***************** Tuesday, July 6, 1999 Don't Forget Interest Rates! If you were to look at the corresponding chart below of the 30-year Treasury, you would see that bonds sold off and broke above its short- term moving averages. Technically, a bad sign for stocks. You can also look at the corresponding equity charts below and see how stocks and bonds both rallied hand-in-hand over the last several weeks. The bond market sold off today, which led to equity market selling off during the last hour of trading. Now the main culprit would most likely be investors taking profits. However, we have seen during these last seven weeks how the bond market had been controlling the equity markets, and with short-term tweezer tops on several key indexes, the potential for more downside is starting to grow. With that being said, we continue to view interest rates as a factor in this market, so continue watching Mr. Bond, and if he stays neutral or starts to rally, let the market continue its journey up. Bullish Signs: Market Posture: Several indexes breaking into new highs, including networking, software, and semiconductors. Russell 2000: Trending above both moving average, and also above key 450 benchmark. 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: Interest Rates: With the help of the FED, the 30-yr Treasury is beginning to retrace back under the key 6% level. Investor Intelligence: As a contrarian indicator, the percent of Bullish investors is over 55.0%. 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. BEARISH Signs: Investor Intelligence: As a contrarian indicator, the percent of Bullish investors is over 55.0%. Peak Open Interest: The contraian put-call ratio clocking in at 1.18 suggesting bullish sentiment picking up steam. OTM Call Analysis As we move through July'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. July Expiration Cycle OEX OTM Call Analysis (Open Interest July 680-750) Date Open Interest Change % Friday, June 19 35,225 - Friday, June 25 63,342 +79.8% Friday, July 02 87,833 +149.3% Market Sentiment at a Glance Friday Tues Indicator (7/02) (7/06) Pinnacle Index (OEX): (680-750) 3.5 3.6 Overhead Resistance (680-700) 1.2 1.4 Underlying Support (645-660) 2.5 2.4 (580-660) 6.6 6.5 Put/Call Ratios: CBOE Total P/C Ratio .5 .5 CBOE Equity P/C Ratio .3 .3 OEX P/C Ratio 1.1 1.0 Peak Open Interest (OEX): Puts 670 600 Calls 680 680 P/C Ratio 1.10 1.18 Market Volatility Index (VIX): CBOE VIX 19.19 20.27 Investors Intelligence: Bullish 55.80% Bearish 25.70% 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 Benchmark (7/02) (7/06) (680-750) 3.5 3.6 Overhead Resistance (680-700) 1.2 1.4 OEX Close 716.28 714.28 Underlying Support (645-660) 2.5 2.4 (580-660) 6.6 6.5 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 Tues Strike/Contracts (7/02) (7/06) CBOE Total P/C Ratio .48 .48 CBOE Equity P/C Ratio .33 .33 OEX P/C Ratio 1.13 .97 OEX Peak Open Interest Friday Tues Thurs Strike/Contracts (7/02) (7/06) (7/08) Puts 600 / 10,820 600 / 12,345 Calls 670 / 10,017 680 / 11,046 Put/Call Ratio 1.10 .92 Volatility Index VIX 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 Top 25.01 July 6, 1999 20.27 * 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 June 30, 1999 55.8 25.7 * Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Index Last Tue Week Dow 11135.12 -4.12 -4.12 Nasdaq 2736.78 -4.42 -4.42 $OEX 714.28 -2.00 -2.00 $SPX 1388.12 -3.10 -3.10 $RUT 456.55 0.04 0.04 $TRAN 3477.95 -38.04 -38.04 $VIX 20.19 1.34 1.34 Calls Tue Week UNPH 172.50 4.63 4.63 Star performer but symbol chg BBY 72.25 4.25 4.25 Five days = 5 new highs VOD 209.25 3.75 3.75 Seven dollars from a new high VRSN 88.06 3.13 3.13 Traded intraday to $92.75 VISX 87.94 2.81 2.81 Earnings on July 14th BRCM 138.88 1.84 1.84 Internet + Chips = volatility EFII 57.75 1.69 1.69 Strong technical indicators SONE 48.36 1.19 1.19 Stayed strong today NT 91.69 1.13 1.13 New all-time high CTXS 60.94 1.06 1.06 Earnings on July 20th NOK 95.25 0.69 0.69 Buy on the dip SLR 67.81 0.69 0.69 Moving against the market NXTL 49.56 0.38 0.38 Consolidating? INTC 63.88 0.38 0.38 Two analyst upgrades TXN 142.00 0.31 0.31 Selling pressure ahead? TOM 76.51 0.13 0.13 Still moving higher COF 56.63 -0.06 -0.06 Gave back intraday gains DRIV 33.43 -0.13 -0.13 Time to start earnings run SGP 54.29 -0.19 -0.19 Strong relative to sector ICIX 32.38 -0.25 -0.25 Confirm before playing CSCO 66.69 -0.38 -0.38 Strong volume today CAH 69.25 -0.44 -0.44 Creating opportunities MSPG 48.19 -0.44 -0.44 Entry Point? Looked strong. MMCN 48.94 -0.56 -0.56 Tried to push above $50 LU 70.06 -0.63 -0.63 New deals announced PFE 37.94 -0.69 -0.69 No post-split depression VRIO 65.75 -1.06 -1.06 Holding above support IBM 131.00 -1.25 -1.25 New intraday high HWP 100.38 -1.38 -1.38 New price target of $120 MOT 96.94 -1.38 -1.38 Market triggered pullback SNE 111.13 -1.63 -1.63 Possible entry point SUNW 68.31 -1.75 -1.75 Moving with NASDAQ NSOL 81.75 -1.75 -1.75 Caution! Use stops QCOM 142.25 -2.00 -2.00 Pullback with the market MSFT 89.56 -2.44 -2.44 Gave way to profit-taking YHOO 175.13 -3.00 -3.00 Dropped, moved to put Puts YHOO 175.13 -3.00 -3.00 New, profit-taking time AET 87.63 -1.63 -1.63 Broke support at $88 AT 68.63 -0.69 -0.69 Weak sector, weak stock WLP 82.12 -0.44 -0.44 Still searching for support FON 50.26 0.13 0.13 New marketing alliance MCK 32.94 0.69 0.69 Channel trading GBLX 42.13 2.13 2.13 The battle is heating up **************** PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ****** YHOO $175.13 -3.00 (-3.00) This earnings' call play has reaped profits of almost $40 since we first picked it on June 13th! But this play as a call is over. Yahoo! will report earnings tomorrow and OIN never recommends holding over an announcement. However, there's another side of the coin with this particular stock. We decided to switch YHOO over to a put play. Please see the write-up in our put section for further details. PUTS: ****** None Today ***************** PICK NEWS - CALLS ***************** IBM $131.00 -1.25 (-1.25) Stock in IBM gained 45% in the second quarter, and it is still going. It actually set a new intraday high today of $133.88, but then dropped with the rest of the market in the last hour of trading. The market was due for a pullback after such a strong move up last week and the sell-off was not unexpected. Tomorrow may be a good time to buy options on IBM, but first wait for the pullback to end. In the news, Toshiba and IBM have ended their agreement to jointly produce memory chips. Over the last couple of weeks, www.wimbledon.org, a website designed, developed, and powered by IBM, was a great success. And finally, IBMHungary says it expects a 30% increase in sales for 1999. NOK $95.25 +.69 (+.69) Nokia set a new high today of $97.63, but fell with the market near the end of the day. It did manage to close up $.69, however, while the major indices slipped into negative territory. With such a big run in the stock over the last week, it is due for profit-taking. If NOK sees more correction tomorrow, consider buying the dip, once the stock starts moving up again. If you can't watch it, try target shooting. Nokia announced another deal today. It has agreed to supply Singapore's M1 with a mobile data package, including Nokia's GPRS network solution, its WAP platform, and a partnership in developing the wireless data applications. BBY $72.25 +4.25 (+4.25) Can it do it again? YES, BBY has set a new all-time high for the fifth day in a row! And it set a new closing high as well! Volume was 2.74 mln. compared to the average 1.71 mln. CF First Boston added fuel to the fire when it raised its price target for BBY to $88. The analyst believes that the high-growth stock can support a higher multiple, and bases his growth expectations on consumer enthusiasm for all those digital products. BBY will continue to be supported by S&P Index fund buying, but at some point, we expect some profit-taking. VISX $87.94 +2.81 (+2.81) Visx set a new high today of $89.63, before setting a new closing high of $87.94, defying the markets, which saw losses instead of gains. VISX will announce earnings in just 8 days, on July 14th, after the close--company confirmed. We should see a nice run into its earnings, but please remember that this can be a very volatile stock. Buy on a dip, if you can. (Tomorrow may be an opportunity since the market is likely to see some profit-taking.) No new news. BRCM $138.88 +1.84 (+1.84) Sounding like a broken record now, this stock also set a new high today of $148.50. Although it dropped nearly $10.00 at the end of the day when the market sold off, it still closed in positive territory. Remember we told you that "BRCM has one foot in the Internet and the other in the chip sector, so it can see a LOT of volatility"? Well, today it was volatile! A good entry is essential with this stock. More correction is possible, as BRCM had huge gains last week. However, it will likely rocket higher before it reports earnings, and it is a split candidate to boot. We are expecting an earnings date around the end of the third week in July, but the company has yet to confirm it. They asked us to call back at the end of the week. Hopefully, we can let you know by this weekend so you can better plan your trades. No new news. PFE $37.94 -.69 (-.69) PFE was looking great today until the market tanked. PFE tanked right along with it and turned a positive day into a negative one. We called the company to confirm earnings and this is exactly what they read to us: earnings will be released "the week of July 12th or earlier the following week. They are usually released in the late morning or early afternoon." We got the same reading from a different person on a second call. PFE is more affordable in price since its 3:1 split, and should attract more buyers. In a CBS Market Watch article today, Jeff Clabaugh quotes a few PFE analysts in his notes. One analyst believes PFE will be at 50 by the end of August, while another sees it at 55. Yet another hopes it hits 50 in a couple of weeks. One analyst was quoted saying, "Pfizer is a no brainer. Anyone who would sell a pharmaceutical company of this magnitude at 38 a share would have to be out of their mind." The only fear seems to be fear of what the Clinton Medicare proposals could do to the industry. INTC $63.68 +0.38 (+0.38) INTC traded upwards in the $65 range for the majority of the day aided by analyst upgrades. Merrill Lynch raised its rating to a buy from accumulate and reiterated its 12-month target price of $86. Merrill Lynch commented on its upgrade stating "Intel's lagging stock price performance relative to the semiconductor sector now presents investors with an attractive opportunity". Prudential also pumped up their rating on INTC to a strong buy from an accumulate. Their analyst, Hans Mosesmann, believes Intel has "worked out the kinks in the new chips" and "bottom line, the show will go on". Not everyone was as optimistic. BBRS maintained a long-term attractive rating on the stock, yet cut their 2Q and fiscal estimates citing "less-than-expected unit volume in 1Q and other factors". The 2Q p/s earnings was trimmed to .52 from .53. With all the press today, the volume was exceptional at 28.71 mln. shares. being traded. This could be interpreted as a bullish indication of interest. Unfortunately, the market reversed late afternoon and INTC managed to keep only a fractional gain. This downdraft may provide another entry point for traders. This is a pure and simple earnings' play and the date is quickly approaching us. Intel will report July 13th. Just a reminder, we never recommend holding over an earnings date. Also in the news today, Intel announced 94% of Dialogic shares have been tendered under its June 7th offer. They expect the acquisition to be completed by about July 8th. HWP $100.38 -1.38 (-1.38) HWP rallied for the first part of the day to flirt with its 52-week high at $103. Unfortunately as market sentiment took a downturn, HWP followed and was unable to break through its new resistance. This pull-back offers a solid entry point. Remember, the earnings' report is due mid-August and the possibility of split announcement is certainly growing. HWP's last split was a 2:1 in July of 1996 when it was around $80-85. The stock is well above that level now and has enough shares authorized. For the second consecutive trade day, Lehman Brothers reiterated its "buy" rating on HWP today it raised its short-term target price to $120 from $105. They named future events such as the "pending spin-off of Hewlett's Test and Measurement business and the naming of a new chief executive" as positive factors in their decision. CTXS $60.94 +1.06 (+1.06) CTXS spiked up $3.25 this morning to set a new 52-week high at $63.13. The stock showed strength as it proceeded to trade around $62 for the better part of the day. Trading volume was much better at 1.46 mln. nearer its ADV of 2.01 mln. Late afternoon CTXS surged again and tried to break its new resistance, but succumbed to negative market pressure. This stock has been reaching new heights since last week and profit-takers are always a factor to take into account. Consider using stops to protect your profits. Earnings are expected July 20th. NXTL $49.56 +0.38 (+0.38) It appears NXTL is consolidating at $48 and $50 just after setting its newest 52-week high of $50.75 last Wednesday. The stock was flat for most of the morning then on a surge in volume it tested resistance just over the $50 mark. Technically, NXTL is above its 10 dma of about $47. A conservative player will wait for a solid bounce with good volume before opening a new position on this momentum play. ***** Play updates continued in section two ***** ****************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. 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. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "subscribe@OptionInvestor.com" with your credit card information,(number, exp date, name) or you may 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 Tuesday 7-6-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. ******************************************************* PICK NEWS - CALLS (continued) ******************************************************* NSOL $81.75 -1.75 (-1.75) For the most part NSOL performed very well today. It opened high and began its climb upward. NSOL peaked at $87.50 then settled into a narrow trading range right around $86 until it took a nose-dive during the last hour of trading and closed on its daily low. This is not a good indication for a call play. But, we did expect the market to pull back and this may be our opportunity to pick an entry point. Markets and stocks move swiftly and without any relent. We recently picked up this stock when it rallied with its sector last week. After months of decline, NSOL had bottomed out in the mid- 50's at the beginning of June and has demonstrated a steady revival. It's now bypassed its 10 dma at $75. Earnings are due at the end of July. VRIO $65.75 -1.06 (-1.06) Trading volume reached normal levels today, but looking at an intraday chart you can easily see where the volume spiked. Right off the starting line, VRIO escalated to its daily high at $69.13 and managed to stay near that mark even as the volume dissipated. The end of the day spike temporarily held up VRIO, but with market sentiment and sellers looking for profits the stock had an unfortunate free-fall. Nonetheless, VRIO is above its 10 dma of $64 which is a good sign. It's still difficult to determine a new support level - the gap has been about 5 pts (between $65 and $70) the last four trading days. Overhead resistance is at $78, its 52-week high. This run- up is the result of the leading-edge alliances Verio has established with AOL and MSFT. VRSN $88.06 +3.13 (+3.13) VRSN had a good day today, though at one point it was great. The stock traded as high as $92.75, but like many stocks, gave back some of its gains by days end. The stock just missed reaching its all time high of $94.13. The company has a tentative earnings date of July 22nd, and has consistently beat earnings estimates over the last year. VRSN also has a consensus growth rate of 57.67%. VRSN's only resistance will be its 52 week high of $94.13. We could see a pullback in the Internet sector on Wednesday, and we would view any pullback as a good buying opportunity. VOD $209.25 +3.75 (+3.75) VOD continued to rise today as the stock gained 1.81%. VOD did trade as high as $210.81, but held up fairly well considering the drop the markets took to end the day. Libertal, a company majority owned by VOD, announced it added 288,000 customers in the 2nd quarter. Libertel is the Netherlands' second-largest mobile phone company and has a 34% market share. VOD has the equivalent of an Annual Shareholders Meeting on July 21st. The Annual Group Meeting(AGM) is where the directors intend to propose a 4-1 capitalisation bonus. Basically, a 4-1 split. The new shares would be allotted to shareowners on the register on September 30, 1999. VOD is just $7 from its 52 week high. LU $70.06 -.63 (-.63) After trading positive for most the day, LU couldn't hold its gains and lost less than 1%. Though LU closed lower, it did reach a new 52 week high intraday. The stock reached a high of $72.50. LU made a couple of deals today when Dacom Corporation chose LU's Kenan system for billing and customer care software. Telstra also announced a deal with LU and award the company a $150 million contract for Telstra's first phase of its Data Mode of Operation(DMO). The deal will be spread over 5 years. LU was also happy to see the US and Japan finish negotiations dealing with Nippon Telegraph and Telephone's procurement procedures. LU has a large business association with Nippon and conclusion of negotiations will allow Nippon to build their new structure, of course, benefiting Lucent. SONE $48.38 +1.19 (+1.19) SONE stayed strong today and closed up 2.52%. SONE did reach an intraday high of $50.25. SONE's earnings are still over three weeks away, but as other Internet companies announce strong earnings, we feel SONE will benefit. The company has a 52.4% consensus 5-yr growth rate and has historically surpassed earnings estimates. SONE's support is at the site of its 50-dma, which is $44. Though we don't see this coming into play, a bounce off this intraday would be a great entry point. SONE is still $21 from its 52 week high, though on a closing basis its high is $70, not $79. DRIV $33.44 -.13 (-.13) DRIV started the day out strong as it reached an intraday high of $35.50. Unfortunately, the stock couldn't hold and it ended up closing down just an eighth. DRIV has earnings scheduled for July 22nd tentatively, and could see an earnings run as this date approaches. DRIV is another Internet stock that has a growth rate better than 50%. DRIV had a nice earnings run in April as the stock went from $35.50 to $43.88 in the three days preceding its earnings announcement. DRIV has some resistance at $35 and we would like to see this mark broken on strong volume. DRIV got above $35 today, but on light volume and it couldn't hold. Support is at $29. SUNW $71.00 -1.75 (-1.75) The NASDAQ looked like it would continue to steam ahead to new highs and take SUNW along for the ride. The stock was up for most of the morning and was very close to a new all-time high of its own before the afternoon sell-off. There wasn't any particular news to spur the rally and the pullback may be nothing more than a little profit taking after a steep run. This may be a good time to tighten down your stops if you don't feel like weathering the dip tomorrow. Everyone else should look for an entry point for new plays during the pullback. The stock may have another push left to try for a 52-week high before the week is over. SGP $54.31 -0.19 (-0.19) Schering got its first pullback in a week today as the market paused for air after the steep run. But it was still strong relative to the drug sector which got hit with a decent bout of profit taking. SGP is showing the most resilience in the drug sector thanks to the pre-announced earnings outlook from the company CEO. Investors are now willing to wait for earnings to see how much upside the results will include. That gives us a couple weeks to enjoy an earnings run. Use the dips to your advantage. CAH $69.25 -0.44 (-0.44) Cardinal had an interesting day of trading today. The stock opened lower only to claw its way back to a high of $70.25. Then, while the market was still strong, CAH fell to an intraday low of $67.88. But as the afternoon wore on and the broad markets faltered, CAH reversed course again to end the day down only $0.44. This is a strong showing despite a weakening sector. We suspect this is only a pullback and it creates opportunities to open new plays. Cardinal should move back above $70 when the sector and market rebound. TXN $142.00 +0.31 (+0.31) As noted Sunday, 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 have yet to issue a proxy statement to shareholders for approval. With markets closed yesterday, there isn't much to talk about today. After reaching $144.50 in the morning, a steady decline ensued this afternoon. The daily chart shows that every time volume came into the stock (about once every 3 minutes) the price dropped indicating selling pressure. Volume was average, at 2.6 mln. shares, though even with today's (meager) gain of $0.31, technicals indicators are flattening out signaling that some air is about to come out of the sails. After the strength exhibited last week, it's due for a down day. With earnings season upon us, TXN should resume upward once profit- takers have their day. Wait for the dips and target shoot your way in. Support is $139. Resistance is $145. Risk averse types should wait for the decline and then reversal back up before opening a new position. Confirm market direction. MSFT $89.56 -2.44 (-2.44) Remember this from Sunday? "MSFT has traded up 6 days in a row, and in another day or 2, will likely see profit taking, especially since its up $7 in this current trend." Well, here it is. We noted too that support is around $90. MSFT currently sits just below it. Most of the selling volume came late in the afternoon, then faded toward the close. We could see more market-wide selling tomorrow, which will carry MSFT too. But we think this is only temporary. The market and MSFT just can't go up forever without taking a day off. $89 offers small support, then $87 - the same price as before Greenspan's announcement on rates last week. Now, there are over 64,000 open interests in the July 95 and 100 strike prices, telegraphing that investors expect MSFT to go higher. We think this is classic case where it will pay to buy the dip. Just make sure it fits your risk profile. As always confirm market direction before starting a new play. QCOM $142.25 -2.00 (-2.00) Nothing in the news to report today - just good old-fashioned profit taking on slightly higher than average volume. QCOM held pretty well at $149 until the last hour and a half of trading, then the bottom fell out, causing QCOM to fall $7 to $142. Its trading range today was from $141.50 to $150.25. A small spurt of buying at the closing bell propped it off its low - a bit too late to confirm $141 support. Tomorrow may be a down day on a market wide basis, and QCOM will likely follow suit. If not, consider today's bounce off $141 a gift/buying opportunity. Earnings are July 20, 1999 at approx. 1:30 p.m. (company confirmed). Also, since they announced their last split at $157, we may get another 2:1 split announcement at that time, though shareholders will need to vote on the issue (anyone object?). Just a reminder VOLATILITY = HIGH RISK! Confirm market direction first. EFII $57.75 +1.69 (+1.69) Wow! 38% greater volume spurred the price of EFII today, though it still followed the up-in-the- morning,-down-in-the-afternoon trend to yet another new high. You want maximum positive technicals? You've got it. Volume is the key. With only 32 mln. shares in float, it moves big in either direction. EFII has earnings scheduled July 14 at 1:10 p.m., Pacific (company confirmed), which may be the cause of today's rise. With a day of profit taking excepted, the price should continue to run. Don't get lulled into a false sense of security though. Insiders have sold sizable positions in May and June. You do not usually, if ever, want to be a holder over earnings, especially with that knowledge. Keep stops set to protect profits and start a new play only after you confirm market direction. CSCO $66.69 -0.38 (-0.38) 78% greater than average shares changed hands today mimicking is behavior from last Thursday, which caused us to note "the price wanted to fall, but the volume wouldn't allow it. As sellers stepped in, buyers took it all and then some. Since individual investors can't move a market like this, we suspect that institutional money is leaving the sidelines to be put to work in Cisco." Same story, different day. We consider this a bullish sign, however note that CSCO closed near its low of the day (generally a bearish sign). Then again so did most everything else, so don't put a lot of faith in the latter. There may be a bit more profit taking market-wide tomorrow, in which CSCO will not be immune. Note too the following Reuters report: Some 17,000 call spreads in Cisco Systems Inc. involving the October 60 and January 70 strikes were traded directly between two firms, CBOE traders said." The specifics of the play were not available, but should not affect July and August strikes for the current play. Earnings are scheduled for August 10 (company confirmed). There is still a lot of technical strength and dips should be buyable. Just make sure you see the bounce. As always, confirm direction before starting a new play. MSPG $48.19 -0.44 (-0.44) From Sunday, "The technical chart is maximum positive after showing 6 straight days of gains. Of course we have an obligation to remind you that nothing goes up in a straight line and some taking of the profit is due." It's hard to call -$0.44 "profit taking", but with volume 45% above average today, buyers demonstrated willingness to support the price every time sellers showed up. Were it not for the last 5 minutes of trade, MSPG would have closed in the black. By the way, another gap-up opening and sell-off close. . .anybody see a pattern? Still, do the homework and play according to your risk profile. Technicals still look good, volume still strong, but market-wide profit taking is due. After that, dips are buyable, just make sure you confirm that the market is again on the rise before starting a new position. Near-term support is $45-$46. ICIX $31.38 -0.25 (-0.25) Flat as a pancake with no volume - only 40% of its average volume of 1.2 mln. shares changed hands today. It certainly isn't behaving like an SBC buy-out candidate, as was rumored by the WSJ last week. ICIX needs volume to continue moving up. If tomorrow is a down day, the rumor deflates and volume remains low, expect further decline. Wait for a reversal before getting in. Technicals are very strong; thus target shooting at $30 may be lucrative if this fits your risk profile. Otherwise, wait for volume to rise and the price to get back over $31.75 and hold before starting a new play. Earnings are tentatively scheduled on July 28. (for those of you who are a bit more optimistic, ICIX did have a pretty good intraday bottom, but the volume question is mysterious). COF 56.62 -0.06 (-$0.06) COF started the day on a positive note. It ran up to resistance at $57.75 and spent all but the last two hours of the day in that area and fell back to close down $0.06 on the day. The lack of profit taking is a real sign of strength. Let us hope it continues to remain strong tomorrow. The industry has shown decent strength lately and there is no news on COF, or in the industry that would alter our original opinion. With Today's action in the Dow, we would look for a pullback tomorrow and Thursday could provide an excellent point to enter this play. COF could be affected by profit taking in the broader markets, however this is an earnings play, and earnings are due out July 16th. TOM $76.50 +0.13 (+$0.13) Watch this one! Tom splits on July 12th. This is a Split Play. TOM started up this morning, and when profit taking in the Dow started, TOM stalled and pulled back to $76.50, closing on its low of the day. The $76.00 area should provide good support for TOM. We may see profit taking continue in the broader markets tomorrow, however this could provide a better entry point for the split run if you didn't enter this play today. If you are already in this play, examine your own risk profile, however we believe TOM should continue upward, as the split takes place in less than one week. The company is strong and the industry is strong and as of now there is nothing that would change our original position. SNE $111.13 -1.63 (-$1.63) After hitting an all-time high on Friday, the market greeted SNE with a round of profit taking Tuesday morning. SNE dropped $1.00 at the open and stayed in a narrow range for most of the session. SNE was up $8.56 last week. We would expect some profit taking in this area. The $108.00 - $110.00 should provide support. If SNE does drop to those levels and consolidates, wait for movement back up on good volume before initiating any new positions There is really no news on SNE to report at this time. JDSU (UNPH) $173.88 +4.63 (+4.63) The symbol has changed but not the trend. UNPH got its new symbol, and a new burst of energy. JDSU opened over $1.00 high and headed north. It didn't stop until it had added over $9.00 to its pre-holiday close. The high on the day was $177.44. All of the excitement appears to be over the recent merger between Uniphase and JDS Fitel, which finally was completed last week. JDSU closed up $4.63 on the day, which considering how the broader market fell apart late in the day on Tuesday, is impressive. We would suggest moving your stops up, and would be cautious about initiating any new positions, only because this has jumped so far so fast. MMCN $48.94 -0.56 (-$0.56) Earnings for MMCN come out July 15th. The profit taking that appeared to begin in the broader markets today, appears to be just that, "Profit Taking", not a reversal of trend. Volume for MMCN was a little light at 439K. MMCN started out and stayed flat until late morning when it simply started to drift lower, rather than falling with any conviction. As we have mentioned, MMCN is due for a pullback, since it picked up over 25% in two days last week. When it comes it could happen quickly. It is possible that it could resume an earnings run and not look back, however we would suggest caution before entering any new positions on this one, and if you do keep your stops tight if you are already profitable unless you can stomach the expected drop tomorrow. MOT $96.94 -1.38 (-1.38) As we suggested earlier we expected a pullback in MOT. The setback today came on 1.9 mln shares, which is just over half its normal volume. Look for $94.00 - $95.00 to provide support. we are looking for MOT to resume its earnings run, as earnings are due out July 13th. We are still looking fore a split announcement and looking for MOT to take out its 52 week high of $99.13 that it made on Friday. The company also announced Tuesday it would hire 1,400 people to speed the development of its wireless Internet devices. Wait for positive direction, with good volume behind it before entering any new plays on MOT. NT $91.69 +1.13 (+1.13) Nortel started the day strong, made a new 52 week high of $92.88 and fell back to $91.69 to close up $1.13 for the day. The long week-end was good to NT, as it was greeted with a strong buy reiteration from Yorkton Securities, with a target price of $150.00 per share. Volume was impressive at 2.6 mln shares. Even NT fell back slightly towards the close but it still managed to close higher on the day which considering the action DOW and NASDAQ today is impressive as well. NT announces earnings July 27th and is closing in on split territory as well. SLR $67.81 +0.69 (+$0.69) SLR jumped up and finally broke through the $67.25 mark, making a new 52 week high at $69.88. Then it went south falling over $2.00 to $67.81 closing up $0.69 for the day. Again this was a momentum play to start with and it will be necessary for the old high of 67.25 to provide support for SLR. This would be one to move your stops up on. Falling from its new high like it did in Tuesday session could be simply profit taking, but we would like to have seen it hold its momentum rather than fall back like it did, late in the session, but alas, the selling pressure was too much. SLR may dip tomorrow so be patient and look for an entry point. ******************************************************* PICK NEWS - PUTS ******************************************************* GBLX $42.13 +2.13 (+2.13) This put play is purely based on the fierce competition Global Crossing faces with its rival, Qwest, to acquire US West and Frontier. A very detailed write-up of the recent events surrounding this battle can be found in Sunday's newsletter. However today, GBLX did announce they will file documents with the SEC. The company is presently in a "quiet period" and needs to take the next step with the SEC so they can begin talking with Frontier stockholders. In other words, they need to convince them that they have the better offer. Qwest has been taking advantage of GBLX's "quiet period". Two other news events had positive impact on the stock today. GBLX announced the completion of its $850 mln. acquisition of Cable & Wireless Global Marine, the world's largest and most experienced undersea cable installer and maintainer. The company presently controls one-third of the undersea cables. GBLX will certainly benefit as it now has control over its own installation and maintenance. Also another noteworthy event hit the press. GBLX landed a $80 mln. customer today. Ireland has entered into a long- term agreement with GBLX to develop an advanced undersea cable system connecting Ireland to Europe and other countries around the Globe. The bad news is most of the big long distance companies that deal in undersea cable are being investigated for anti-trust violations and GBLX is a big one. These new positive events may very well have pumped up the price of the stock and offered a nice entry point; however, a conservative player may want to wait for downward confirmation over the next day or two before opening a new position. MCK $32.94 +.69 (+.69) MCK made modest gains today, but again got rejected at the $33.50 mark. The stock is in somewhat of a channel, and is trading on light volume. We are a little discouraged that the stock rose today, when its sector lost ground, but it seems to just be a technical bounce. If we don't see the stock drop to new lows in the next few days, we will have to assume a bottom has been reached. If the stock again hits near $33.50 and starts to go lower, this could be a nice buying opportunity. Make sure the stock doesn't break through this resistance first. FON $50.25 +0.13 (0.13) Sprint was able to close higher on Tuesday but still did poor relative to the broad markets in the morning. Also FON had two interesting press release on Tuesday which may have impacted the stock. The first was an announcement of a new alliance with PageMart. Under the terms of the 5-year agreement, Pagemart will offer its paging services through Sprint's retail stores. The other article was from an independent consulting firm that stated the 'Big 3' phone companies still have the upper hand in long- distance. This is from their reputation for reliable and friendly service. So despite the good news the stock remains relatively weak. WLP $82.13 -0.44 (-0.44) Wellpoint was fairly quiet on Tuesday as volume was lower than recent activity. It stayed in its current range as it tries to hold support in the low $80's. The 50-dma at $80.50 is still the key point on our play. No new news to report either as we've only had one market day this week due to the holiday. So pick your entry points carefully based on the short-term trading patterns. Even if we stay range bound you can make money trading the puts from top to bottom within the range. AT $68.63 -0.69 (-0.69) Alltel is continuing to sink as the downtrend takes a firm hold on the stock. After breaking through its 50-dma late last week we are seeing more selling on above average volume. The stock drifted lower all day on Tuesday. Pick your entry points wisely as we've seen more than a week of selling. You may want to wait for a bounce before opening new plays. AET $87.63 -1.63 (-1.63) AET has finally broken its range. The stock opened higher before spending most of the day down over a dollar. It had been bouncing between $88 and $90 for the past week. But AET pushed through the bottom end of the range on Tuesday despite the morning rally. Now that we got the move through $88, it is a very bearish indicator. Our next target for support is from the 200-dma down at $82. And no other news or volume activity to report after the holiday shortened week. ******************************************************* NEW CALL PLAYS ******************************************************* None today ******************************************************* NEW PUT PLAYS ******************************************************* YHOO - YAHOO! Inc $$175.13 -3.00 (-3.00 for the week) 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. The earnings' call play has reaped profits of almost $40 since we first picked it on June 13th! But as the saying goes...all good things must come to an end - well almost. Because of Yahoo's history around its earnings' date we're switching it to a put play. But this write-up comes with warnings and requires your patience and undivided attention. Yahoo! will report tomorrow on July 7th after the bell. Officially they're expected to come in at $0.08, but whisper numbers are for $0.10 to $0.11 and rumors run as high as $0.15, or almost double the consensus. No matter, we still do not EVER recommend holding over an announcement. Your call positions should be closed out. Now to get to the switch over. Historically, YHOO has an immediate sell- off (no matter what the numbers or split announcement) and declines for a few weeks after it reports. But hold-up. We're not recommending to go out and buy puts tomorrow - we haven't even listed any option contracts. Plus, remember there's the possibility of a split announcement and this could temporarily push up the stock price. However, if a split announcement does come into the scenario, the split date will be far enough away that YHOO could still descend for a couple weeks. Therefore, we highly recommend that you wait until Thursday or Friday and confirm the direction first before you even contemplate opening new positions. If YHOO misses its estimates or the whispers then they will really take a hit and bring the Internet sector down with it. For those of you holding calls, pay very close attention. The day of an earnings announcement YHOO tends to be up in the morning and then sell off all day. There are no guarantees and it may be down all day if the market decides to consolidate (Again, wait to buy puts until after the announcement). Be careful! THIS IS A RISKY PUT PLAY and NOT for everyone. Average daily volume = 8.48 mln. Chart = http://quote.yahoo.com/q?s=YHOO&d=3m **************** PLAY OF THE DAY **************** (Check the website daily for the play of the day.) VISX - Visx Inc. $87.94 +2.81 (+2.81 this week)(+4.38) Tuesday's Write up Visx set a new high today of $89.63, before setting a new closing high of $87.94, defying the markets, which saw losses instead of gains. VISX will announce earnings in just 8 days, on July 14th, after the close-company confirmed. We should see a nice run into its earnings, but please remember that this can be a very volatile stock. Buy on a dip, if you can. (Tomorrow may be an opportunity since the market is likely to see some profit-taking.) No new news. Comments We are playing VISX as the 'Play of the Day' because it is in the midst of an earnings run. They are set to report on July 14. Also they showed considerable strength compared to the broad markets during today's afternoon sell-off. This does not mean one should jump out and buy calls tomorrow if you didn't purchase any today. But, look at its performance tomorrow and see if it offers us a profitable entry point. BUY CALL JUL-80 VFS-GP OI=1111 at $9.88 SL=7.50 BUY CALL JUL-85*VFS-GQ OI= 826 at $6.38 SL=4.75 BUY CALL JUL-90 VFS-GR OI= 752 at $3.88 SL=2.50 BUY CALL AUG-90 VFS-HR OI=1151 at $8.00 SL=6.25 Picked on JUL 4TH at $85.13 PE = n/a Change since picked $2.81 52 week low =$10.50 Analysts Ratings 5-3-2-0-0 52 week high=$89.63 Last earnings 3/99 est 0.27 actual 0.29 surprise=+7% Next earnings 07-14 est 0.29 versus 0.14 Average daily volume = 1.62 mln. Chart = http://quote.yahoo.com/q?s=VISX&d=3m ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
The Option Investor Newsletter Tuesday 7-6-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. ***************************************************** COMBINATION PLAYS ***************************************************** Markets Take A Breather After Holiday Rally... Monday, July 5 Holiday - Equity Markets Closed Tuesday, July 6 U.S. stocks consolidated after big gains last week to end down on Tuesday. Analysts say the market may be exhibiting some signs that it is in need of a breather after a very bullish run in the first half of 1999. All of the major indexes finished lower; the Dow at 11,135, the Nasdaq at 2,736 and the S&P 500 at 1,388. In the broader market, declining issues led advances by 1,588 to 1,439 on volume of 718.5 million on the NYSE. Sunday's new plays (positions/prices): ALLC NOV22C/NOV22P $3.00 debit (5 contracts at $3.00 near 10 AM) BRL NOV40C/NOV40P $8.50 debit (priced at 10 AM; Bid/Ask $8.62) VMC NOV50C/NOV50P $6.50 debit (easy entry at the target price) BTY JUL165P/170P $1.00 credit (stock price up $5 by midday) BTY JUL185C/180C $1.12 credit (slightly less than target) CMVT JUL65P/JUL66P $0.25 credit (stock price up at the open) The British Telecom (BTY) spread was our primary interest and as expected, there was very little activity in the stock or options. By 9:45, only 500 shares had been traded in the underlying issue and the option prices were adjusted downward. The butterfly debit straddle was unavailable but both of the credit positions were playable near the target price. The bull-put spread was slightly lower than quoted, bringing the overall credit for the entire position to $2.12. All of the remaining debit straddles were at or near the suggested entry prices at some point during the day. Comverse Technologies (CMVT) started moving up right away and the best available price for the credit spread was $0.25. That is a relatively small amount but remember, it was against a collateral of $1.38, almost $10 OTM and for only 10 days. Portfolio plays: In the calendar spreads portfolio, Unocal (UCL) continued to move higher, even in the wake of a market-wide consolidation. The stock price is now approaching our sold strike; perfect for the monthly roll-out (to August positions). One of our diagonal time spreads, General Electric (GE), is also performing very well. The profit in this play will surface as we move into next month's options. Global Marine (GLM) and Micron (MU) continue to be the standouts in our bullish, debit-spreads section and Intimate Brands (IBI), is making a nice a recovery in the LEAPS/Covered-Calls portfolio. This week, I had two requests for plays on stocks that are in the main section of the newsletter. While looking through some of the more common issues, I came across a few conservative positions. ********** NEW PLAYS ********** INTC - Intel Corp. $63.88 *** New Upgrades! *** Intel Corporation and its subsidiaries operates predominantly in one industry segment. They design, develop, manufacture and market microcomputer components and related products at various levels of integration. The Company's major products include microprocessors and related board-level products, chip-sets, embedded processors and microcontrollers, flash memory products, network and communications products and conferencing products. Intel-designed board-level products are used as basic building blocks for many consumer, technical and commercial computing applications. Intel climbed through a recent resistance level to a high near $65 today after both Merrill Lynch and Prudential raised their ratings on the chip-maker. Prudential raised its recommendation to 'strong buy' from 'accumulate' with a price target of $98, based on product momentum after the company fixed problems that had delayed introduction of its Coppermine processor. Merrill upgraded Intel to short-term 'buy' saying the stock's lagging performance relative to the semiconductor sector makes it an attractive purchase at these levels. It seems like most option traders agreed as they also opened new bullish positions just one week before Intel is due to report second-quarter earnings. Because of the positive activity over the last few days, the volume has been very heavy in the short to mid-term call options. Implied volatility on Intel options has climbed about 10% in the past week and the overpriced front-month options will allow us to enter a favorable, long-term play at a small discount. PLAY (conservative/calendar spread): BUY CALL OCT-65 INQ-JM OI=9121 A=$5.75 SELL CALL JUL-65 INQ-GM OI=30645 B=$1.56 INITIAL NET DEBIT TARGET=$4.00 TARGET ROI=40% Time spreads (horizontal spreads) involve the sale of one option and the purchase of a more distant option, both with the same strike price. The philosophy for using calendar spreads is that time will erode the value of the near-term option at a faster rate than it will the far-term option. The calendar spread that is established when the underlying stock is at or near the strike price of the options used is a neutral spread. If the stock price remains relatively unchanged until the near-term option expires, the neutral spread will make a profit. It is generally best to establish such a spread at least 2 - 3 months before the near term option expires, capitalizing on the ability to sell another option against the longer-term position. That is the basic idea in a long-term play; selling the time value in the options when they are overpriced (high implied volatility) and buying it back, if necessary, when they return to intrinsic value. Ideally, the spreader would like to have the stock finish just below the sold strike when the near-term option expires. If the short options are in-the-money at expiration, he will have to buy them back to preserve the long-term position. Chart = http://quote.yahoo.com/q?s=INTC&d=3m ***** AOL - American Online $121.13 *** The Biggest, The Best? *** America Online is the most widely known provider of online services to consumers all over the world. The company offers subscribers a wide variety of services, including electronic email, conferencing, news, sports, weather, stock quotes, software, computing support and online classes. These products can be accessed from a range of personal computers using the company's proprietary software. American Online shares ended over $5 higher today after the Internet giant was featured in a lengthy article in Sunday's New York Times. AOL says it plans to double its subscriber base in the next five years. The article commented that America Online, "confounding the skeptics, has emerged over the last two years as the biggest, most powerful company on the Internet". It went on to outline AOL Chairman Steve Case's plan to make the company a regular part of every American's home life with a daily target of three hours for online usage. (I am personally way above that!) This stock is covered regularly in the main section of the OIN and although it has taken a beating with other major Internet issues over the past few months, the current technical breakout above resistance at $115 may be just the move necessary to bring this stock back into public favor. The company is due to report quarterly results later in the month and that should also help produce a favorable rally. We will use a small disparity in the August ITM options to open a bullish, low risk debit spread. PLAY (conservative/debit spread): BUY CALL AUG-105 AOO-HA OI=2300 A=$21.12 SELL CALL AUG-110 AOO-HB OI=2549 B=$17.50 INITIAL NET DEBIT TARGET=$3.38 ROI(max)=47% Chart = http://quote.yahoo.com/q?s=AOL&d=3m ***** GM - General Motors $71.68 *** LEAPS/Covered-Calls *** GM is the world's #1 maker of cars and trucks, including Buick, Cadillac, Chevrolet, GMC, Oldsmobile, Pontiac, and Saturn brands. GM also produces cars through its Holden and Opel and Vauxhall units, and through affiliations with Isuzu, Saab, and Suzuki. Its GMAC unit also provides financing and insurance services. The company's major subsidiaries include Hughes Electronics, Allison Transmissions, and GM Locomotives. General Motors moved up significantly today after an analyst's upgrade and speculation that its undervalued stock could get an eventual boost from a spinoff of its Hughes Electronics unit. Warburg Dillon Read said Tuesday it raised its rating on GM to a 'strong buy' with a target price of $91. The firm also raised its estimate on fiscal 2000 earnings to $8.76 per share. GM's sales were up 0.5% in June and 1% for the first half of 1999. That compares to a 2.3 percent industry gain for the month, and 7% so far in 1999. Warburg said it expects U.S. sales to remain strong in the coming months and GM's share should exceed 30% for 1999. Their North American operations are expected to report earnings in 2000 that equal or better 1999 results. The healthy domestic economy should also keep GM sales aloft and the auto maker is producing a better mix of vehicles and further slashing costs, which will likely bolster the bottom line. GM is also getting attention after article in Barron's magazine suggested the company might reconsider a spin-off of its Hughes satellite subsidiary and increase its share buyback program. The company had previously ruled out a spin-off of Hughes, operator of the popular DirecTV satellite service, but some analysts and investors believe the company might revisit the issue at the end of the year. In either case, it appears that GM is finally back on the road to recovery and we want to start the 2001 LEAP plays with a stock that has historically mirrored the market and the economy. Lets hope the long-term prosperity continues into the next year. PLAY (conservative/long-term): BUY CALL JAN-2001-75 ZGM-AO OI=131 A=$12.25 SELL CALL JUL-1999-75 GM-GO OI=539 B=$0.50 INITIAL NET DEBIT TARGET=$11.50 TARGET ROI=150% (18 months) Chart = http://quote.yahoo.com/q?s=GM&d=3m ****************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $10 off the monthly rate. 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. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "subscribe@OptionInvestor.com" with your credit card information,(number, exp date, name) or you may 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.
Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.
Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.
To ensure you continue to receive email from Option Investor please add "firstname.lastname@example.org"
Option Investor Inc