The Option Investor Newsletter Sunday 7-11-99 1 of 7 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com Published three times weekly, Sunday, Tuesday, Thursday evenings. New plays and market wrap updated daily on the website. ****************************************************************** Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 7-9 WE 7-2 WE 6-25 WE 6-18 DOW 11193.70 + 54.46 11139.24 +586.68 10552.56 -303.00 +365.06 Nasdaq 2793.07 + 52.05 2741.02 +188.37 2552.65 - 10.79 +115.64 S&P-100 722.88 + 6.66 716.28 + 44.99 671.29 - 12.18 + 28.60 S&P-500 1403.28 + 12.06 1391.22 + 75.91 1315.31 - 27.53 + 49.20 RUT 457.98 + 1.47 456.51 + 13.40 443.11 - 1.94 + 7.04 TRAN 3427.32 - 88.67 3515.99 199.88 3316.11 - 80.23 + 51.87 VIX 19.09 18.85 22.61 22.34 Put/Call .46 .47 .53 .43 ****************************************************************** New high, new high, new high ! Two Fridays in a row we have had new highs for the three major market indexes. Would it be too much to ask for a triple-triple for next Friday? The market is definitely moving in the right direction but the gains for the week were only marginal. The Dow lagged the Nasdaq percentage wise with only a +54 points for the week compared to the +52 for the Nasdaq but considering the +5.6% and +7.4% from last week we should be happy with any forward progress. We did not even get close to our 11,100 support line on Friday and closed at the high of the day. NYSE ticks turned in a very positive +896 at the close and both Nasdaq and NYSE advancers were beating decliners by a wide margin. (+411 Nasdaq, +683 NYSE) While the DOW held its ground for the week and ended on a very positive note, the Nasdaq broke out of its recent trading range and headed for blue sky. It is hard to picture the summer tech wreck, which comes at the end of summer, with techs doing so well now. When the August tech slump starts just remember the tech pullback in May/June when the higher interest rate talk was taking the spotlight. The last two weeks went very well and we should all be grateful to the Fed for giving us another chance for a nice earnings season. Just remember, what the Fed giveth the Fed can take away. Even with the strong earnings cycle upon us the rumblings of the next Fed meeting in August are starting to surface. Interest rates are still hovering around 6% and the bond bears refuse to go into hibernation. I would urge you to make the most out of the next three weeks or so and then be very cautious. The transports refused to confirm the Dow advance and closed down -88 for the week. Oil prices crossed $20 a BBL and oil sensitive stocks have started to react negatively. Airlines are drifting down as well as companies like Airborne Freight and Federal Express. The market was suffering from cheap oil back in the winter but now the other end of the spectrum is coming back to haunt us. Almost everything we do is impacted by oil prices and if prices inch up much more we will see an accelerated impact in the markets. The good news sector for the week had to be the PC makers. Multiple upgrades and lack of weak Y2K sales have reawakened CPQ, DELL and Gateway. IBM just keeps setting new highs every day and is showing no signs of slowing. The semiconductor sector is still hot and Intel is only 6 points away from an all time high. Dell burst out of the earnings gate the last three days and went from a low of 36.63 on Wednesday to close at almost $43 on Friday. This is way too early for a Dell earnings run and the jump was due to multiple upgrades this week. We are adding Dell to our play list tonight but strongly urge you to wait for a pullback to start a position. Dell does not report earnings until mid August and we have a long time to wait. No negative trial publicity is showing up in the results for Microsoft. After struggling recently it is only $2 away from the all time high set back in April. Microsoft reports earnings on the 19th which give us another week to play. Microsoft is under investigation by the SEC for managing their earnings reporting. They literally have billions of dollars in earnings reserves that they may have to reclassify eventually. The talk around the office here is that Microsoft may start releasing some of this earnings treasure to relieve the pressure. This could result in a significant jump over street estimates next week. We will still not recommend holding over but we could get an interesting run. Small caps are starting to cook and several of the researchers here are putting extra money to work in the little stuff. Some of the non-optionable stocks we have been playing are HSAC, PWER, MTIC, INFS, AGY, CXY. We get a lot of requests for stuff like this by email so here were the hot ones from last week. As always, buyer beware. Earnings will take center stage early in the week but the economic calendar this week is about as dangerous as a minefield in Kosovo. Import Prices, Export Prices, PPI, CPI, Business Inventories, Real earnings, Industrial Production. Monday will probably be up but after the open on Tuesday the outlook hinges entirely on the PPI/CPI. These will be viewed as warning signs for the next Fed step and any signs of inflation would be greeted very badly. Tighten your stops on Tuesday and pray for friendly numbers. July options expire on Friday! Good Luck, 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 *********** The vote is in and I should never have doubted. I received 351 emails asking to keep this section and 3 that wanted it cancelled. I read every one and had tears in my eyes on several. The confidence the readers place in OIN is scary and humbling. I created a link for all the emails if you want to see what others said. /charts/jimsplays.html After getting such a strong response we have decided to use the Traders Corner section to highlight the plays of the staff. We will have someone write a recap of a play or two as often as possible so you can benefit from the trading "style" of more than one professional trader. It should be an exciting section since we have a very broad cross section of trading styles represented. From day-trading Internet stocks to complicated spread strategies that routinely locks in nickels to quarters. Look for it to start next Sunday. WOW, what a week. In last weeks column I was loaded with more positions than anyone should really carry. It paid off well, this time. The market rally on Tuesday morning was very strong and broad based but fortunately I was sitting in front on my PC when it rolled over at 1:PM. The long term buy and holders will not like this but when the ticks went negative and the advances started declining I bailed and kept 95% of the profit to that point. If you read my commentary on Sunday and Tuesday you know I was looking for a bout of profit taking to start on Wednesday. With that in the forecast I did not want to risk holding my July options since nobody knows how long the selling will last. I am going to just recap the trades I closed on Tuesday and then describe the new positions. Sold MSFT Calls JUL-80 MSQ-GP @ $11.63 cost $ 8.75 Sold SEPR Calls JUL-80 ERQ-GP @ $ 7.88 cost $ 8.75 Sold NSOL Calls JUL-70 JNQ-GN @ $16.38 cost $14.25 Sold LCOS Calls JUL-90 QWL-GR @ $17.25 cost $12.75 Sold BRCM Calls JUL-125 RDZ-GE @ $19.50 cost $13.25 Sold SFE Calls JUL-60 SFE-GL @ $10.63 cost $ 7.50 Sold TXN Calls JUL-130 TXN-GF @ $13.88 cost $13.13 Sold VOD Calls JUL-190 VOD-GR @ $20.75 cost $16.38 Yes, I could have held some of these for more money given the profit taking only lasted two days but if it had lasted five days my July options would have dropped considerably. Yahoo !!!!!!!!!!!!!!!!!!!!!!!! My Yahoo play could not have worked better than the way we played it. I really hope some of the readers were shadowing me on this one. Going into the week I was up +$13.75 per share on the earnings run plays and the plan was to sell calls at the open after earnings and short the stock. I sold August 170 calls @ $19.38 and shorted YHOO at $172 when it rolled over Thursday afternoon. I covered the short at $160.50 at the close on Friday after it seemed to find support at $160. Remember, sell too soon. The Aug calls are now $12.00 and have almost a 100% chance of expiring worthless. So currently I am now up $13.75 + 11.50 on the short and +7.38 on the calls for a total of $32.63 per share on the play. If the calls expire worthless I will have made $44.63 on a stock that was $130 when I started the play. Please do not take this as bragging. I just get excited and hope that you see the possibilities of using more than one strategy to make money. Here are the two previous earnings runs on which I based the Yahoo play. Refer to the previous weeks columns to get a recap of the previous plays. Last week I bought calls and sold puts on Microsoft in preparation for their earnings run. They announce on Jul-19th. When they sold off on profit taking Tuesday I sold the calls for a nice profit but missed getting back in on the closing dip because I was still expecting the market to be down Wed/Thr. When it was evident on Friday that the market was done selling I re-entered the calls and was very glad to see MSFT close at the high of the day. Monday is looking real good! The Jul-90 Puts I sold at $3.50 are now $.63 and should expire worthless for a total profit. The QCOM puts gave me a scare on Wednesday but after the announcement on Thursday of Qualcom being added to the S&P-500 they are as good as expired. I received $6.88 as premium and they were $2.19 at the close on Friday. Because of the announcement I bought QCOM stock on the midday dip on Friday at $149 as well as July $130 calls at $21.00. I bought deep in the money to get 100% delta and minimum time premium decay as July options expire next week. Micron Technology started bouncing several days ago from a long slide. I don't think I have ever made money on Micron. It always turns over when I buy it. I apologize in advance to any MU holders currently if history repeats itself. When it started up on Friday afternoon on the announcement they were going to give away free PCs to anyone who signed up for their Internet service, I bit the bullet and opened a play. You and I both know that this is a ploy, just like giving away free cell phones. But, how many cell phones are there in circulation now that were not there before the practice became common? Micron has been a distant cousin to Dell and Gateway but I think they are becoming more aggressive and more visible. I bought July $45 calls for $4.50 as the stock crossed $49. My time premium was only $.50. Of course my delta is 100% so any profit taking by Micron will hit me 100% as well. Safegard Scientific had been on my watch list since it started recovering from the slide in late June. After making good money on them last Tuesday I was cussing myself for not getting back in on Wednesday when it bounced off $68. After gapping open on Friday I took advantage of the midday pullback to reopen a call position. I own July-60 calls @14.63. Buyers remorse set in late Friday after it flat lined at $74 all afternoon. Hoping for a pop at the open on Monday again. If you will notice on the bottom chart it gapped up at the open every day last week. ITVU is a stock that some of the guys at the office have been playing in their retirement accounts. It is strictly a momentum play and I bought the July-$45 calls at $7.00 to try and get a quick pop next week. The stock is at $51.50 and my time premium is only $.50, delta 100% again. High Speed Access is a recent IPO and is not optionable. I bought the stock Wednesday at $36.50 and it is kicking butt. Up +$8.56 Friday. Strictly a momentum play! The big loser for the week was MCOM. I bought it on Wednesday at the close and was sitting pretty Friday morning when it gapped open bigtime. Because I was "trading" Friday I did not have any stops set. I left the PC for about 30 minutes and disaster struck. There was absolutely no news and it appears to be just profit taking. It is still up +157% in the last two weeks. Paul Allen is a big investor in MCOM and spoke highly of it at the Sun Valley conference late Friday afternoon. I hope he continues to speak very highly since my $12 options are now $4.50. I feel like the guy in the Etrade commercial that runs to tell his boss he quit after seeing his stock gap up strongly only to come back to the PC to see it in the tank...... (July $40 calls @$12.00) My last position is very generic. When the market started to firm Friday afternoon and the advances started picking up and the ticks started accelerating, I could not resist nibbling at some OEX calls. This time of month the time premium is low enough that I can justify the risk. I am not normally an OEX player. This is just a speculation play based on my belief that the market will be up Monday. I plan on getting a couple points and bailing. July-$710 calls @ $14.25. I am looking for a bottom in VOD to start another position before the shareholder meeting on the 21st. Current positions: Short YHOO Calls AUG-170 YHV-HN @ $19.38 (current 12.00) Short QCOM Puts JUL-140 AAW-SH @ $ 6.88 (current $2.19) Short MSFT Puts JUL-90 MSQ-SR @ $ 3.50 (current $ .63) Long MSFT Calls JUL-80 MSQ-GP @ $12.13 (current 13.00) Long ITVU Calls JUL-45 QYU-GI @ $ 7.00 (current $7.00) Long MCOM Calls JUL-40 MQM-GH @ $12.00 (current $4.50)ouch! Long SFE Calls JUL-60 SFE-GL @ $14.63 (current 14.75) Long MU Calls JUL-45 MU-GI @ $ 4.50 (current 6.00) Long OEX Calls JUL-710 OEZ-GB @ $14.50 (current 15.50) Long HSAC stock @ $36.50 (current $47.69) Long QCOM stock @ 149.00 (current 148.75) ************* Coming Events ************* Monday: Chicago Fed Index May Forecast: -- Previous: 131.4 Tuesday: Atlanta Fed Index Jun Forecast: -- Previous: 9.1 BTM Schroders 7/10 Forecast: -- Previous: 0.1% LJR Redbook 7/10 Forecast: -- Previous: -0.4% API Oil Stocks 7/09 Forecast: -- Previous: -1.924M Import Prices Jun Forecast: -- Previous: 0.7% Export Prices Jun Forecast: -- Previous: unch Richmond Fed Index Jun Forecast: -- Previous: na Wednesday: Producer Price Indx June Forecast: 0.1% Previous: 0.2% PPI ex-food/energy June Forecast: 0.1% Previous: 0.1% Retail Sales June Forecast: 0.3% Previous: 1.0% Retail Sales x-auto June Forecast: 0.4% Previous: 0.5% Thursday: Jobless Claims 7/10 Forecast: 308k Previous: 294K Consumer Price Indx June Forecast: 0.1% Previous: unch CPI ex-food/energy June Forecast: 0.1% Previous: 0.1% Money Supply (M2) 7/05 Forecast: --- Previous: $4.9B Business Inventories May Forecast: 0.2% Previous: 0.2% Phil Fed Survey July Forecast: -- Previous: 5.3 Real Earnings June Forecast: -- Previous: 0.7% Friday: Industrial Prod Jun Forecast: 0.2% Previous: 0.2% Capacity Util Jun Forecast: 80.4% Previous: 80.5% Univ MI Sentiment Jun Forecast: 107.5 Previous: 107.3 ************** MARKET POSTURE ************** As of Market Close - Friday, July 9, 1999 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,500 11,000 11,194 BULLISH 7.01 SPX S&P 500 1,315 1,355 1,403 BULLISH 7.01 OEX S&P 100 660 690 723 BULLISH 6.29 RUT Russell 2000 390 450 458 BULLISH 6.29 NDX NASD 100 2,110 2,220 2,393 BULLISH 6.29 MSH High Tech 1,010 1,080 1,216 BULLISH 6.19 XCI Hardware 900 950 1,051 BULLISH 6.17 CWX Software 675 700 802 BULLSIH 6.17 SOX Semiconductor 410 425 509 BULLISH 6.10 NWX Networking 525 545 601 BULLISH 6.25 INX Internet 500 510 561 BULLISH 7.01 BIX Banking 680 720 715 Neutral 6.29 XBD Brokerage 410 425 437 BULLISH 7.01 IUX Insurance 645 660 657 Neutral 6.29 RLX Retail 900 910 947 BULLISH 6.29 DRG Drug 370 400 373 Neutral 7.01 HCX Healthcare 750 800 765 Neutral 7.01 XAL Airline 180 190 170 BEARISH 5.21 OIX Oil & Gas 285 310 307 Neutral 5.13 Posture Alert Friday's gains capped off a very solid week, as the market posture remains heavily bullish. Numerous indexes continue to break out into new highs (NWX, CWX, XCI). With a large number of corporate earnings due out the next couple of weeks, further upside potential is strong for select indexes. A detailed description of our Market Posture and its applications can be found at: /members/marketposture **************** Market Sentiment **************** The Speculators are Back! Our friends who have been such good indicators of market direction in the past are starting to jump back into the market. Calculating the Pinnacle Index for the July OEX expirations, we saw these speculators buying large quantities of calls between 730-750. When you combine such a short time period until expiration with the fact that some of these speculators are buying options so far out of the money, what you get is a losing trade. These wrong-ways missed the run we just had this last week and a half, and are now trying to join the party. During these last several weeks, you could have blindly picked a stock and made good money, but these speculators have been watching the whole time. Looking at the July and August expirations, the quantity of OTM options tells us is that overhead resistance is becoming stronger and stronger and that the likelihood of a major broad market advancement this next week will be limited most likely to selected stocks. So choose you stocks/options carefully. On the opposite end of this spectrum is the rampant OTM put buying. These opposite thinking wrong-ways are hoping for a major correction in the next 5 days. Nice try, and thanks for your donation. What these speculators are showing us is that even though the broad market has had a huge run-up, any major sell-off is unlikely. The underlying support is only growing larger. For the OEX, we see support building up in the 700-720 area. Due to many requests, the next several (market sentiment) newsletters will concentrate on the Pinnacle Index for individual stocks, so investors may gauge what the overall tone is for companies going into their quarterly report. This should give investors a better indication to buy/sell/hold into earnings. Have a good week. Bullish Signs: OEX Put Buying: From a contrarian standpoint, the amount of puts in the 700-715 range is giving good support for this market and could help fuel additional upside potential. Market Posture: Several indexes breaking into new highs, including the Dow, OEX, networking, software, and semiconductors. Investor Intelligence: As a contrarian indicator, the percent of Bullish investors decreased by over 3% and the percent of Bearish investors increased by 2%. Russell 2000: Trending above both moving average, and also above key 450 benchmark. Mixed Signs: Interest Rates: The 30-yr Treasury is beginning to retrace back under the key 6% level. 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: Peak Open Interest: The contraian put-call ratio clocking in at .5 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 % Alert Friday, June 19 35,225 - Friday, June 25 63,342 +79.8% Friday, July 02 87,833 +149.3% Friday, July 09 99,855 +283.5% Market Sentiment at a Glance Friday Indicator (7/09) Pinnacle Index (OEX): Overhead Resistance (720-750) 7.9 Underlying Support (685-710) 1.3 (650-710) 2.1 Put/Call Ratios: CBOE Total P/C Ratio .5 CBOE Equity P/C Ratio .4 OEX P/C Ratio 1.5 Peak Open Interest (OEX): Puts 600 Calls 730 P/C Ratio 1.01 Market Volatility Index (VIX): CBOE VIX 19.09 Investors Intelligence: Bullish 52.60% Bearish 27.20% 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. OEX Pinnacle Index Friday Benchmark (7/09) Overhead Resistance (720-750) 7.9 OEX Close 722.68 Underlying Support (685-710) 1.3 (650-710) 2.1 Average ratings: Resistance levels 2.0 / Support Levels .5 What the Pinnacle Index is telling us: Overhead sentiment resistance is building at the OEX 725/750 level while the underlying support is holding at the OEX 685/710 level. Put/Call Ratio Friday Strike/Contracts (7/09) CBOE Total P/C Ratio .54 CBOE Equity P/C Ratio .40 OEX P/C Ratio 1.48 Peak Open Interest Friday Strike/Contracts (7/09) Puts 600 / 12,089 Calls 730 / 11,917 Put/Call Ratio 1.01 VIX Volatility Index 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 9, 1999 19.09 * Investors Intelligence Survey 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 July 07, 1999 52.6 27.2 * **************** 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 7-11-99 Sunday 2 of 7 ******************* Next weeks earnings ******************* Day Symbol EPS Company 7/12 ALFA 0.33 ALFA Corp. 7/12 AMTD 0.10 Ameritrade 7/12 GRAN 0.33 Bank of Granite Corp 7/12 ERTS 0.01 Electronic Arts 7/12 HLX 0.02 Halter Marine Group Inc 7/12 HMS 0.14 Host Marriott Services 7/12 IDXC 0.00 IDX Systems Corp. 7/12 JEC 0.63 Jacobs Engineering Group I 7/12 MTMS 0.10 Made 2 Manage Systems 7/12 MTW 0.76 Manitowoc Company Inc. 7/12 SCTC 0.20 Systems & Computer Technology 7/12 WAB 0.50 Westinghouse Air Brake 7/12 WHIT 0.13 Whittman-Hart Inc 7/12 ASO 0.40 AmSouth Bancorp 7/13 AFS 0.49 Associates First Capital Corp. 7/13 CMSB 0.29 Commonwealth Bancorp. 7/13 DJ 0.61 Dow Jones & Co. Inc. 7/13 ENE 0.50 Enron Corporation 7/13 FTBK 0.33 Frontier Financial 7/13 GMGC NA General Magic Inc. 7/13 GGG 0.57 Graco Inc. 7/13 HRZ 0.77 Hertz Corp. 7/13 HI 0.67 Household International Inc. 7/13 INCY -0.21 Incyte Pharmaceuticals Inc. 7/13 LTEK 0.42 Life Technologies Inc. 7/13 MSCA 0.60 M.S. Carriers Inc. 7/13 MAGN -0.36 Magainin Pharmaceuticals Inc. 7/13 MRIS 0.77 Marshall & Ilsley Corp. 7/13 SSTI -0.13 Silicon Storage Technology 7/13 STLD 0.21 Steel Dynamics Inc. 7/13 STI 0.95 SunTrust Banks Inc. 7/13 WFSL 0.51 Washington Federal Savings 7/13 WABC 0.47 Westamerica Bancorporation 7/14 CBH 0.56 Commerce Bancorp Inc. 7/14 CMNT 0.11 Computer Network Technology Corp. 7/14 FFCH 0.34 First Financial Holdings 7/14 FISB 0.38 First Indiana Corp. 7/14 FTEN 0.45 First Tennessee National 7/14 GSE NA Gundle/SLT Environmental Inc. 7/14 HBAN 0.48 Huntington Bancshares Inc. 7/14 IMP 0.33 Imperial Bancorp 7/14 INKT -0.11 Inktomi Corp. 7/14 KLT 0.51 Kansas City Power & Light Co. 7/14 KNT 0.07 Kent Electronics 7/14 ENP 0.56 Kinder Morgan Energy Partners 7/14 MAVK -0.19 Maverick Tube 7/14 MHP 0.44 McGraw Hill Inc. 7/14 ODSI -0.02 Optical Data Systems Inc. 7/14 OMI 0.19 Owens & Minor Inc. 7/14 RDRT -0.45 Read-Rite Corp. 7/14 SOTR 0.63 SouthTrust Corp. 7/14 SMP NA Standard Motor Products Inc. 7/14 TFX 0.63 Teleflex Inc. 7/14 USB 0.54 U.S. Bancorp 7/15 AEIS 0.07 Advanced Energy Ind. 7/15 ADV NA Advest Group 7/15 ANDW 0.16 Andrew Corp. 7/15 ARQL -0.28 ArQule Inc. 7/15 ASPT -0.24 Aspect Telecommunications Corp. 7/15 ASTE 0.50 Astec Industries Inc. 7/15 BA 0.47 Boeing Company 7/15 CORR -0.43 COR Therapeutics Inc. 7/15 CTP NA Central Maine Power 7/15 DR NA Coastal Physician Group 7/15 CNB 0.26 Colonial Bancorp 7/15 CLP 0.78 Colonial Properties Trust 7/15 CMND NA Command Systems 7/15 CBSS 0.47 Compass Bancshares Inc 7/15 CPLY 0.05 Copley Pharm. Inc. 7/15 CBSS 0.10 Cort Business Services Corp. 7/15 CYTO NA Cytogen Corporation 7/15 DWTI NA Dataware Technologies 7/15 DFC 0.37 Delta Financial Corp. 7/15 DOL 0.88 Dole Food Company 7/15 ETW NA E Town Corp. 7/15 ELE NA ENDESA, S.A. (Spain) 7/15 ELN 0.29 Elan Corporation PLC 7/15 EPTO NA Epitope Inc. 7/15 EXPT -0.17 Exabyte Corp. 7/15 FDCC NA Factual Data Corp. 7/15 IT 0.27 Gartner Group 7/15 GSE 0.26 Gillette Company (The) 7/15 GLM 0.15 Global Marine Inc. 7/15 GDT 0.33 Guidant Corporation 7/15 HNCS 0.19 HNC Software Inc. 7/15 HDI 0.43 Harley Davidson Inc. 7/15 HSC 0.59 Harsco Corp. 7/15 HERZ NA Hertz Tech 7/15 IPR NA Inprise Corp. 7/15 INMT 0.58 Intermet Corp. 7/15 ION 0.32 Ionics Inc. 7/15 KAMNA 0.32 Kaman Corporation 7/15 LSTR 0.96 Landstar Systems Inc. 7/15 LUSA 0.22 Life USA Holding Inc. 7/15 LSS -0.21 Lone Star Technologies Inc. 7/15 MMCN 0.11 MMC Networks Inc. 7/15 MYG 0.96 Maytag Corporation 7/15 MDR 0.38 McDermott International Inc. 7/15 MRE 0.28 Medco Research Inc. 7/15 MMGR 0.25 Medical Manager Corp. 7/15 MNTR 0.24 Mentor Corp. 7/15 MRK 0.61 Merck & Co. 7/15 MERQ 0.17 Mercury Interactive Corp. 7/15 MESA 0.17 Mesa Airlines Inc. 7/15 MCOM NA Metricom Inc. 7/15 MLR -0.19 Miller Industries Inc. 7/15 MTX 0.69 MineralsTechnologies Inc. 7/15 NVP 0.26 Nevada Power Company 7/15 NEON 0.12 New Era of Networks 7/15 NFB 0.40 North Fork Bancorporation 7/15 NUE 0.53 Nucor Corporation 7/15 OPTI NA OPTI Inc. 7/15 ODP 0.21 Office Depot Inc. 7/15 OWC 1.29 Owens-Corning Fiberglass 7/15 OXHP -0.19 Oxford Health Plans Inc. 7/15 PMCS 0.19 PMC-Sierra Inc. 7/15 PMCS 0.41 Phillips Petroleum Company 7/15 SIII -0.22 S3 Inc. 7/15 SAWS 0.34 Sawtek Inc 7/15 SEG 0.34 Seagate Technology 7/15 SDTI 0.15 Security Dynamics Inc. 7/15 SUB 0.70 Summit Bancorp 7/15 TMA 0.24 Thornburg Mortgage Asset Corp. 7/15 TGIC 0.49 Triad Guaranty Inc. 7/15 UMBF 0.75 UMB Financial Corp. 7/15 VOLVY NA Volvo AB 7/15 WTNY 0.64 Whitney Holding Corp. 7/15 WL 0.89 Wilmington Trust Corp. 7/15 EGLO -0.06 eGlobe 7/16 BEZ 0.31 Baldor Electric Co. 7/16 CEG NA Baltimore Gas & Electric Co. 7/16 CAT 0.83 Caterpillar Tractor 7/16 DFS 1.09 Department 56 Inc. 7/16 EIX 0.41 Edison International 7/16 ELCO -0.08 Elcom International Inc. 7/16 FCF 0.40 First Commonwealth Financial Corp. 7/16 GME NA General Motors - Class E 7/16 GNV NA Geneva Steel Company 7/16 GTAX 0.03 Gilman and Ciocia Inc. 7/16 GLT 0.28 Glatfelter PH Co. 7/16 GNI NA Great Northern Iron Ore Properties 7/16 GFF 0.20 Griffon Corporation 7/16 GAC 0.90 Gulfstream Aerospace Corp. 7/16 HMK 0.17 HA-LO Industries Inc. 7/16 HCR 0.44 HCR Manor Care 7/16 HQ 0.82 Hambrecht & Quist Group 7/16 HLI 0.78 Hartford Life Inc 7/16 HAS 0.10 Hasbro Inc. 7/16 HSIC 0.40 Henry Schein Inc. 7/16 HPK 0.31 Hollywood Park Inc. 7/16 IBP 0.64 IBP Inc. 7/16 ICF NA ICF Kaiser International 7/16 ICN 0.39 ICN Pharmaceuticals Inc. 7/16 IMR 0.32 IMCO Recycling Inc. 7/16 IDX 0.03 Identix Inc. 7/16 IMUL NA ImmuLogic Pharmaceutical Corp. 7/16 IMMU NA Immunomedics Inc. 7/16 IHK NA Imperial Holly 7/16 IRIC 0.02 Information Resources Inc. 7/16 INSUA 0.23 Insituform Technologies Inc. 7/16 III 0.36 Insteel Industries Inc. 7/16 IART -0.32 Integra LifeSciences Corp. 7/16 IPX 0.36 Interpool Inc. 7/16 J NA Jackpot Enterprises Inc. 7/16 KCLI NA Kansas City Life 7/16 KSU 0.66 Kansas City Southern Ind. Inc. 7/16 KELYA 0.57 Kelly Services Inc. 7/16 KES NA Keystone Consolidated Industries Inc. 7/16 KSTN 0.52 Keystone Financial Inc. 7/16 KRC 0.62 Kilroy Realty Corp. 7/16 LJLB -0.28 LJL Biosystems 7/16 LHO 0.67 LaSalle Hotel Properties 7/16 LDR NA Landaver Inc. 7/16 EMN 0.15 Lawter International Inc. 7/16 LEG 0.37 Leggett & Platt Inc. 7/16 LUK NA Leucadia National Corp 7/16 LBFC 0.25 Long Beach Financial Corp. 7/16 MDSN NA Madison Gas & Electric Co. 7/16 MARSA 0.38 Marsh Supermarkets Inc. 7/16 MAT 0.15 Mattel Inc. 7/16 MRII NA Medical Resources Inc. 7/16 MTL 0.74 Mercantile Bancorp Inc. 7/16 MAIR 0.39 Mesaba Holdings Inc. 7/16 METZ 0.35 Metzler Group Inc. 7/16 MWY 0.05 Midway Games Inc. 7/16 GRO 0.06 Mississippi Chemical Corporation 7/16 MOBI 0.17 Mobius Management 7/16 MODI 0.74 Modine Manufacturing Co. 7/16 MMO NA Monarch Machine Tool Co. 7/16 MGN NA Morgan Products Ltd. 7/16 NAFC NA Nash Finch Company 7/16 FLYR 0.34 Navigant International 7/16 NEWZ -0.25 NewsEdge 7/16 NBL 0.04 Noble Affiliates Inc. 7/16 NVDM NA Novadigm Inc. 7/16 OWLDD NA One World Systems 7/16 OSTE 0.23 Osteotech, Inc. 7/16 OXGN NA Oxigene Inc. 7/16 PAG 0.61 Pacific Gulf Properties Inc. 7/16 PZZA 0.39 Papa John's International Inc. 7/16 PGEO NA Paradigm Geophysical 7/16 PTEN -0.11 Patterson Energy 7/16 SPWY 0.78 Penske Motorsports 7/16 PNU 0.41 Pharmacia & Upjohn Inc. 7/16 REIN 0.09 Recovery Engineering 7/16 RKT 0.28 Rock-Tenn Company 7/16 RT 0.38 Ryerson Tull Inc. 7/16 AOS 0.58 Smith A.O. Corp. 7/16 SWFT 0.25 Swift Transportation Co. 7/16 TRB 0.86 Tribune Company Last weeks change for this weeks picks: *************************************** Index Last Week Dow 11126.89 54.46 Nasdaq 2771.86 51.87 $OEX 718.31 6.60 $SPX 1394.42 12.06 $RUT 454.75 1.47 $TRAN 3451.39 -88.67 $VIX 19.87 1.58 Calls Week EXDS 136.38 17.63 New, earnings run is beginning NXLK 93.00 14.94 New, another buy rating AOL 128.25 13.00 Split candidate, earnings are coming ITVU 51.50 9.00 New, strategic alliance with CNET VRIO 74.75 7.94 Volume and momentum picking up DCLK 102.94 7.69 New, earnings play, Internet is hot BRCM 143.75 6.73 Still climbing higher, split cand. CMGI 121.00 6.63 New, breaking out - popular sector QCOM 148.75 6.50 Transamerica out, Qualcomm in TMCS 34.88 5.75 New, Internet earnings play DELL 42.81 5.69 New, here come the PC makers IBM 137.38 5.13 Box makers seeing sustained growth HWP 106.69 4.94 Ratings confirmed, price target set TXN 146.56 4.88 Still hitting new highs SLR 71.94 4.81 All-time high on Friday ABOV 43.75 4.50 New, leverage play for MFNX VISX 89.50 4.38 Earnings on Wednesday the 14th COST 85.94 4.13 New, strong same-store sales VRSN 89.63 4.06 Dropped, successful play INKT 140.00 3.63 Optimism spreading among Internets BBY 76.00 3.00 Digital revolution is here SUNW 72.94 2.88 Spilt announcement with earnings? INTC 66.25 2.75 And now for the earnings... MSPG 51.13 2.50 Possible takeover by PC maker RNWK 92.38 2.44 New, deals with Microsoft DRIV 35.25 1.69 Looks strong headed into earnings SNE 114.38 1.63 Electronic retail is heating up VOD 207.13 1.63 Possible split announcement coming MOT 97.94 1.38 Dropped, earnings are Tuesday LU 71.94 1.25 Earnings in 9 days MSFT 93.25 1.25 Six trading days from earnings SONE 48.25 1.06 Consolidating for the next move NXTL 50.00 0.81 Reporting earnings on Thursday CSCO 67.06 0.00 Technical indicators looking good CTXS 60.75 0.00 Dropped, performance anemic TOM 76.63 0.00 Dropped, splits on Monday NOK 94.44 -0.13 Final leg of earnings run EFII 54.38 -0.38 Dropped, earnings are soon NT 90.06 -0.50 Strong bounce off 10-dma COF 56.00 -1.32 Dropped, underperforming ICIX 30.00 -1.57 Dropped, stuck in a range? PFE 37.19 -1.63 Dropped, rather play something else CAH 68.63 -1.75 Dropped, too much consolidating SGP 51.75 -2.12 Dropped, needs to regroup JDSU 170.88 -2.37 Dropped, wait for new trend MMCN 48.19 -2.50 Dropped, successful play Puts YHOO 164.44 -18.13 History repeats itself IMNX 119.00 -14.13 New, costs expected to affect earnings SAPE 47.75 -10.38 New, rumored to miss earnings FDX 48.50 -6.43 New, missed whisper, high oil $$ JCP 45.44 -4.19 New, falling behind competition WPI 35.94 -2.25 New, something fishy here? MCK 32.56 -0.07 Dropped, not moving FON 51.00 0.13 Dropped, new support at $50 GBLX 40.03 0.44 Dropped, counter offer possible AT 71.50 2.19 Dropped, broke above $70.50 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 ***************************** CALLS: TMCS - Ticketmaster CMGI - CMGI Inc. ITVU - InterVU NXLK - Nextlink Communications DCLK - Doubleclick Inc. COST - Costco Companies Inc. RNWK - RealNetworks Inc. DELL - Dell Computer EXDS - Exodus Communications ABOV - AboveNet Communications Inc. PUTS: Please confirm downward motion before playing. With the market in rally mode any beat up stock starts looking like a value play. IMNX - Immunex Corp. SAPE - Sapient Corp. FDX - Federal Express Corp. JCP - J.C. Penney Inc. WPI - Watson Pharmaceutical 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: VRSN $89.00 (+4.06) We are dropping VRSN, not for lack of performance, but because of its performance. The stock has been very good to us and is right under its 52 week high. We like this stock, but after such large gains, we feel there are other plays that might produce better going forward. In the two weeks we covered the stock it went up about $17.00 CTXS $59.88 (+0.00) After leaving support at $54 and $56 last month and setting new highs along the way, it appears CTXS is settling down. This week, the stock traded narrowly right around $59-60 on low volume. It showed no enthusiasm as it approaches earnings on July 20th. We're dropping CTXS to make room for better plays. It may still make an earnings run (and probably will because we are dropping it) but last week's performance was too anemic for us. CAH $67.94 (-1.75) Cardinal has been stuck in a range for most of the week. We added it as a call due to the surprising recovery of the drug sector. But instead we’ve gotten a mixed group that is being driven by specific stocks. We still like CAH to advance in the near-term but we want to focus on stocks that are moving right now. So if you are staying in the play, circle July 27 on the calendar. That is the earnings date. But for now we are dropping it from the call list. SGP $52.38 (-2.13) We aren’t getting the action we had hoped for from Schering. Granted this was probably more of a consolidation week after a big move last week but we feel there are too many other stocks to make money on during earnings season. So it’s hard to justify waiting for the stock to move higher. If you are staying with the play, remember earnings are on July 21. PFE $37.00 (-1.63) PFE gained a split-adjusted $4.81 the week before last and it hit $39.25 on Monday. Then it began to drift lower. After PFE lost another $.19 on strong volume on Friday, we decided to drop this play. It's not that $1.63 is such a big loss on the week (especially compared to the gain the week before). It's just that there are other plays that offer a chance for greater profit during this earnings season. If you are in PFE options, the company has told us that they never announce an exact earnings date. However, they expect to announce at the end of the week of July 12th or at the beginning of the following week. After some consolidation this past week to digest the previous week's gains, PFE may now make a nice earnings run, but we are moving on to other plays. MMCN $47.00 (-2.50) MMCN had a little profit taking set in this week. It really hasn't continued up with the strength we would like to have seen. It was a good play (we picked it at $40 and it went to $50), however we feel there are better opportunities available, and earnings are due to be released Thursday. MOT $99.69 (+1.30) MOT had another stellar week, however we don't want to overstay our welcome. MOT made a new 52 week high hitting $100.19 on Friday with good volume, especially for a "Summer Friday". Earnings are to be reported Tuesday, and rather than get caught up in any pre-earnings jitters we will say, "Until we meet Again" to this old friend. JDSU $166.88 (-1.00) Time to say goodbye to another friend. JDSU had an erratic week. With the new merger being completed early last week, JDSU was up and down like a yo-yo, hitting a new high at $177.44 in the matter of a couple of days. JDSU did announce a 2:1 stock split for July 23rd, and we decided maybe we should sit this one out until it finishes consolidating. If it ever reaches its 30 dma or 50 dma (look at the old UNPH char), be sure to look for a bounce upward. COF $55.38 (-1.31) An earnings run, that never really started running. COF did pick up just over a $1 at its high for the week. It basically stumbled into overhead resistance, and couldn't get out of its own way. Earnings come out Friday the 16th, so there still is a little time. With no momentum behind it, we simply feel there are better places to be. [editor's note: some of us feel that COF will still make a run into earnings, but last week's performance didn't give us much ammo to argue their case. - Kimo] Watch your stops. TOM $76.38 (+0.00) Right where we started. Tuesday it looked like we might be good to go, jumping up over $2.00 making a high of $78.50. As the post holiday week dragged on volume and interest in our stock split play seemed to dry up. TOM never went lower, it just never went really anywhere. TOM splits after the close of business Monday, and it will have to do without us this time. EFII $56.06 (-0.38) Earnings are scheduled for Wednesday, July 14 after the close. After last Wednesday's drop from $58, shooting star on Thursday and lack of volume Friday, we're cutting it loose early and moving on. Besides as we've noted, insiders have sold sizable positions in May and June. With investors propensity to sell earlier knowing they will be have rug yanked on earnings, now's the time to exit. ICIX $30.06 (-1.56) Sorry, ICIX is just not performing like a good call during earnings season. So far, the SBC buyout rumor isn't panning out. A loss for the week on low volume while the rest of the market sets records isn't worth keeping. There seems to be no more wind to fill the sails. . .time to motor up and head for shore. PUTS: MCK $32.19 (-.06) We have decided to let MCK go. The stock seems to have built a pretty good base and the odds of its going down any further have evaporated. Though MCK continues to be the receiver of lawsuits and bad news, the stock seems to have drop enough to make it a value play. GBLX $40.44 (+0.44) GBLX played a game of give and take this week. By Friday this stock never offered us any bearish indication that it would break through its apparent bottom resistance of $40 and continue its descent. Without any further evidence of downward movement, we must drop GBLX even though the riches and spoils of the Qwest battle are yet to be known. AT $71.50 (+2.19) Alltel rallied above the resistance level of $70.50 on Friday which signals an end to our play. We were looking for the resistance from the 50-dma to keep the stock down. Instead in moved past that level on decent volume. This is probably related to enthusiasm for the upcoming earnings report on July 21. We don’t expect any kind of upside surprise with the release but this event will likely support AT over the short-term. There was no other news to prompt a rally on Friday. FON $50.25 (+0.13) There is something about the $50 mark on FON that spurs investors to buy. You can see that pattern in the chart. Apparently there are some institutions that were ready to buy at that level. Whatever the reason, we’ve seen support this past week. It may be due to the earnings announcement that is only 9 trading days away. So we are dropping it as a play to focus on some of the main other issues that are actually moving in the market. STOCK SPLIT CANDIDATES *********************** TXN - Texas Instruments NT - Northern Telecom INKT - Inktomi SUNW - SunMicro AOL - America Online VOD - Vodaphone Airtouch (4:1 possible) HWP - Hewlett-Packard QCOM - Qualcom BRCM - Broadcom STOCKS WITH UPCOMING SPLITS **************************** We don't list all splits available, only those we feel may have play possibilities. The number of splits has slowed down considerably but we are sure to get another flood with the earnings announcements. Symbol - Stock Splits/Date 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. ******************************************************* AOL - America Online $128.25 (+13.00) See details in sector list Chart = http://quote.yahoo.com/q?s=aol&d=3m ****** MSFT - Microsoft $93.25 (+1.25)(+7.06)(-0.06)(+6.87)(-1.43) No trial for 90 days, earnings July-19th See details in sector list Chart = http://quote.yahoo.com/q?s=msft&d=3m ****** IBM-Intl. Business Machines $137.38 (+5.13)(+8.75)(P2W+9.19) New 52 week high See details in sector list Chart = http://quote.yahoo.com/q?s=ibm&d=3m Plays continued in section three ****************************** SEE DISCLAIMER IN SECTION ONE ******************************
The Option Investor Newsletter 7-11-99 Sunday Part 3 of 7 ********* Hardware ********* HWP - Hewlett Packard $106.69 (+4.94)(+9.12) Hewlett Packard is best known as the #2 worldwide provider of computers, peripherals, and computer related services standing only behind the "Big Blue". Almost 85% of sales revenue is derived from this aspect of the business. But HWP also makes testing and measurement equipment and medical equipment products which it plans on developing and combining into a separate company. HWP has been a stellar performer. For the last 2 out of 4 days the stock advanced higher into new territory. Overall, this shortened week started off on the right foot. Lehman Brothers, came back on Tuesday with a second reiteration of its "buy" rating and raised the short-term target price to $120 from $105. On Thursday, comments from Richard Chu, analyst at SG Cowen, excited shareholders and gave a boost to the hardware sector in general. He reiterated his "strong buy" rating on HWP and upgraded the target price to $125. He cited expectations of double- digit revenue growth for the company after several quarters of reporting zero growth as his motivating factor. That day HWP tacked on $6.50! Volume was exceptional at 5.63 mln. shares exchanging hands. A new record high was set at $106.38 only to be broken on Friday. HWP hit $106.94 during a late afternoon rally attempt. HWP began charging ahead with its sector at the beginning of July. Its earnings report is only due in mid-August. But to sweeten up the pot, HWP is considered a split candidate. It last split 2:1 back in July of 1996 when it was around $80-85. The stock is well above that level now and has plenty of shares authorized. The possibility of a split announcement near earnings is growing. BUY CALL AUG-100 HWP-HT OI=2552 at $10.25 SL=7.75 BUY CALL AUG-105*HWP-HA OI=1520 at $ 6.88 SL=5.25 BUY CALL AUG-110 HWP-HB OI= 474 at $ 4.38 SL=2.75 BUY CALL NOV-110 HWP-KB OI= 345 at $ 9.63 SL=7.25 Picked on July 1st at $102.00 PE = 29 Change since picked +4.69 52 week high=$106.94 Analysts Ratings 6-10-9-0-0 52 week low =$ 47.06 Last earnings 04/99 est= .80 actual= .88 surprise=10% Next earnings 08-16 est= .79 versus= .58 Average daily volume = 3.33 mln. Chart = http://quote.yahoo.com/q?s=HWP&d=3m ***** SUNW - Sun Microsystems $72.94 (+2.88)(+5.19)(+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." There it is ladies and gentlemen, a new 52-week high. SUNW rallied with the market Friday afternoon and edged out the old mark of $72.50. If you have been following this play, you know we have been anticipating this result for the past week. Sun had been creeping up on it the last three days and used a burst of buying the last hour to move above the old record. In fact, Sun closed right at the high for the day as well. So we have two bullish indicators working in our favor for Monday. Like always, you need to use caution if you are looking to open a new play at this point. You can see from the chart that the stock has been up four weeks in a row. But we are in the midst of an earnings run so there is no reason to abandon the play just yet. Also it is important to keep in mind what happened on March 17 of this year. SUN Micro’s board held a special meeting to vote on only one item. That was to increase the number of authorized shares from 900 K to 1.8 mln. You know what that means. A possible split announcement with earnings. But keep your stops set to lock in your profits in case we get a correction in the markets. In the news on Friday was an article announcing that SUNW has broken two world records for performance in Baan Enterprise Resource Planning (ERP) software applications. And I bet you didn’t even know (ERP) Olympics were going on! Maybe the real news in this story was that this was the third year in a row that SUNW lead its competitors in performance. Just another indication of a bright future outlook. BUY CALL AUG-70*SUQ-HN OI=3781 at $7.00 SL=5.25 ITM 2.94 BUY CALL AUG-75 SUQ-HO OI=4059 at $4.50 SL=2.75 BUY CALL AUG-80 SUQ-HP OI= 487 at $3.44 SL=1.00 very aggressive BUY CALL OCT-70 SUQ-JN OI=3387 at $9.75 SL=7.25 BUY CALL OCT-75 SUQ-JO OI=1726 at $7.38 SL=5.50 Picked on June 20th at $64.06 P/E = 53 Change since picked +8.88 52-week high=$72.94 Analysts Ratings 9-9-4-0-0 52-week low =$19.19 Last earnings 04/99 est= .35 actual= .36 Next earnings 07/22 est= .46 versus= .37 Average Daily Volume = 12.75 mln Chart = http://quote.yahoo.com/q?s=SUNW&d=3m ***** IBM-Intl. Business Machines $137.38 (+5.13)(+8.75)(P2W+9.19) 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. IBM has been on a run fueled by last quarter's strong earnings and a new focus on software and e-business applications. Investors see the formerly stodgy Big Blue as a conservative way to invest in the Internet, and that is helping the stock. The computer services industry is expected to grow at a double digit rate for years in this increasingly Internet oriented world, and IBM is positioning itself to take advantage of that growth. In addition, analysts now believe that there is evidence for "sustained growth among the computer makers". HWP (itself also supplying e-services )is soaring, and even Dell and Apple are climbing on positive comments and/or upgrades. The whole sector is strong, as is the Internet sector. IBM set new highs 3 of the 4 trading days last week. On Friday it reached $137.44, and closed only $.06 off its high, thus setting the stage for a strong week next week, as it enters the final lap of its earnings run. The date will be July 19th (company confirmed), a week from Monday. Look for continued gains this week, but plan to be out before IBM reports earnings. In the news, IBM announced that its AS/400e server was able to support 12,000 concurrent users running on BaanERP software. That is 40% more than the closest competitor can muster. Also on Friday, LiquidAudio had an impressive IPO. It competes with a competing digital music format being developed jointly by IBM and Sony Corp. BUY CALL AUG-135*IBM-HG OI=3108 at $8.50 SL=6.50 BUY CALL AUG-140 IBM-HH OI=3477 at $6.00 SL=4.25 BUY CALL AUG-145 IBM-HI OI= 342 at $4.00 SL=2.50 BUY CALL OCT-150 IBM-JJ OI= 996 at $6.25 SL=4.50 Picked on June 13th at $114.31 PE = 35 Change since picked +$ 23.07 52 week low =$ 55.38 Analysts Ratings 13-7-4-0-0 52 week high=$135.50 Last earnings 03/99 est .70 actual .77 surprise=10% Next earnings 07-19 est .88 versus .75 Average daily volume = 5.99 mln. Chart = http://quote.yahoo.com/q?s=IBM&d=3m ***** DELL - Dell Computer $42.81 (+5.68)(+0.19) The one, the only, the amazing. . . Dell! Dell is the direct sales model leader and pioneer of the on-line retail business. They sell PC's notebooks, servers and work stations built to order direct from their factories worldwide. Eager buyers pony-up 18 million e-$$$ daily for their products. Total annual sales for the trailing 12 months were $18.2 bln., excluding their recent foray into direct selling of other manufacturers' software and support products from their gigabuys.com web site. Despite their recent fall from grace, they are growing at an annual rate of 41% with margins that are the envy of the industry. Return on equity is a whopping 79%. Like a phoenix on the desert, Dell has kept on performing no matter how many feathers the analysts try to pluck from it. To get right to it, DELL on Friday pierced the level at which it traded on its last earnings date ($42.31), just prior to the "disappointing" announcement that it grew at less than a 50% rate. Dell closed at $42.81 on over 46 mln. shares traded, making it the most active issue traded on Friday. In a very bullish sign, its 50-dma bounced off its 200-dma in the process. Investors were concerned that that the sub-$1000 category was going to eat Dell alive. Not so. As early as June 9, International Data Corporation announced that they expected worldwide PC shipments to grow by over 21% this year instead of the previously forecast 16.5%. Then analysts squealed about the falling ASP's, or average selling prices. That Dell's least expensive model is $899 compared to competitors in the $300-$500 range doesn't hold water since over 90% of Dell's customers are businesses. A comment from Michael Dell stating "the company earned 55 percent of the PC industry's total profit in the first quarter and that its profit share may increase in the second quarter". Not many noticed that either. Technically, the chart looks outstanding and ready for more growth. Volume, which started up on Wednesday, culminated in over 46 mln. shares trading on Friday. This isn't window dressing and it isn't Ma and Pa Kettle. It's institutional buyers voting with their $$$, as reflected in the volume. In the options business, we go where the money is. Institutions will continue to buy more since it's the last of the 5 generals on the NASDAQ that hasn't had a recent run, even though its growth rate is greater than any of the other 4 (MSFT, INTC, CSCO, and WCOM). We guess fund mangers finally recognized that too. In fact, it was Goldman Sachs who made the first recent public announcement of support for Dell by adding the stock to its private client list. That started the ball rolling Friday morning. However (there's always a catch), following this spike, we need to see the price pullback some. There are big open interests in the JUL-40 calls (64,588), AUG-40 calls (45,824), and AUG-45 calls (45,155), telling us that the current price is exceeding future sentiment - not exactly a great time to buy. Thus, we offer no options listed for you to trade. This is the time for DISCIPLINE and PATIENCE. Plan your entry and wait to get it. You won't be missing any earnings run, since earnings won't be announced until August 18 (company confirmed). The closest support is $40, after that, $37. Plan your entry based on your own risk profile. The point is to wait for it, not chase it. We know. . .this is like putting candy in front of your kid and telling him/her "don't eat it". But we have to ask, was your child better off having learned personal discipline? Or hungrily stuffing it in their gullet only to suffer a stomach ache? 'Nuff said. Picked on July 11 at $(not yet!) PE = 69 Change since picked +0.00 52 week low =$20.38 Analysts Ratings 10-9-12-0-0 52 week high=$55.00 Last earnings 05/99 est 0.16 actual 0.16 Next earnings 08-18 est 0.17 versus 0.13 Average daily volume = 26.13 mln. Chart = http://quote.yahoo.com/q?s=DELL&d=3m ************* Internet ************* DCLK - Doubleclick Inc. $102.94 (+7.69) DoubleClick Inc. provides Internet advertising services for advertisers and Web publishers worldwide. The DoubleClick Network provides fully-outsourced ad sales, delivery, and Related services to publishers of highly trafficked web sites, including AltaVista, The Dilbert Zone, Macromedia, and U.S. News Online. The DoubleClick Network focuses on meeting the advertising needs of Internet advertisers who target users on a national, international, or local basis. The company's DART Service enables Web publishers, advertisers, and ad agencies to control the targeting, delivery, measurement, and analysis of their online marketing campaigns on a real- time basis. Doubleclick is one of many Internet companies that are heading into earnings season with lots of with high expectations. Yahoo got the party off on the right foot with very positive results in both earnings and revenues. This is translating to big moves from some of the second-tier stocks that have more potential to surprise the street. Especially for the search engine companies that analyst feel will do the best. DCLK is one of those companies so we are adding them to the call list for the earnings run. They are scheduled to report on July 20. That means this will be a quick play. Many of the Internet issues are forming a nice pattern on the charts, DCLK included. It is breaking back above the 50 and 100-dmas. So watch for any weakness in the NASDAQ to provide an entry point for a new play. But don’t expect too much downside in this market which has been showing great strength. More proof of DCLK’s strength lies in a Thursday news article about troubles DCLK had with a coding bug. It caused short term technical difficulties for their advertising links. But investors didn’t mind as the stock finished higher both Thursday and Friday. BUY CALL AUG-100*QWE-HT OI=340 at $15.88 SL=12.25 BUY CALL AUG-105 QWE-HA OI=228 at $13.63 SL=11.00 BUY CALL AUG-110 TDU-HB OI=194 at $11.75 SL= 9.50 BUY CALL OCT-110 TDU-JB OI=177 at $19.75 SL=15.50 Picked on July 11th at $102.94 P/E = N/A Change since picked +0.00 52-week high=$176.00 Analysts Ratings 8-3-0-0-0 52-week low =$6.75 Last earnings 04/99 est= -.15 actual= -.13 Next earnings 07/20 est= -.13 versus= -.14 Average Daily Volume = 2.60 mln Chart = http://quote.yahoo.com/q?s=DCLK&d=3m ***** RNWK - RealNetworks, Inc. $92.38 (+2.44) RealNetworks is an established leader in streaming media technology on the Internet. It is helping transform the Internet into the next mass medium by making real-time, or streaming, Internet broadcasting possible and profitable. In four years, RealNetworks software systems have become the most pervasive method of streaming media on the Internet. Like a lot of the Internets, RNWK set an all-time high back in early April, and then dropped like a brick for a couple of months. It has been on the comeback trail since it bottomed in mid-June. The week ended July 2nd was an especially strong one for the stock as it gained 46%. Of course, it benefited from the Fed's change to a neutral rate stance, along with the rest of the market. But this company had big news of its own to drive up the price. First, just before the rate hike, RNWK announced RealSlideShow, a product that allows audio combined with digital images to be sent over the Internet. A distribution agreement for the software was signed with Adobe. It also announced an important upgrade to its RealProducer G2. On the heels of this news, BancBoston Robertson Stephens analyst John F. Powers reiterated his "buy" rating. The "real" news came Friday, however, when it was revealed that RNWK will upgrade Microsoft's WebTV technology to support its new RealAudio format and will also develop a new audio player for Microsoft's Windows CE operating system. (WebTV links TV to the Internet, and Windows CE is used in such things as hand held computers.) This is a powerful acknowledgement of RNWK's leadership, coming from Microsoft(MSFT)! MSFT once owned a stake in RNWK, but sold it to develop MediaPlayer, a competing product. Shares of RNWK rose over 12% the day of this announcement. After a pullback in the middle of last week, the stock is heading up again, and we look for increasing momentum as RNWK heads toward its earnings date in a week and a half. News is contained in the paragraph above. Please remember that this is an Internet stock and is therefore subject to a lot of volatility! BUY CALL AUG- 90 RNW-HR OI= 746 at $14.63 SL=11.50 BUY CALL AUG- 95 RNW-HS OI= 277 at $12.38 SL=10.00 BUY CALL AUG-100*RNW-HT OI=1579 at $ 9.75 SL= 7.25 we are brave! Picked on July 11th at $92.38 PE = n/a Change since picked +$ 0.00 52 week low =$ 7.63 Analysts Ratings 1-7-1-0-0 52 week high=$131.88 Last earnings 03/99 est -.01 actual -.01 surprise=0% Next earnings 07-20 est -.01 versus -.04 Average daily volume = 2.78 mln. Chart = http://quote.yahoo.com/q?s=RNWK&d=3m ***** EXDS - Exodus Communications $136.38 (+17.63) Exodus Communications tries to be the perfect host (the Web type, that is). Founded by Indian immigrants K. B. Chandrasekhar and B. V. Jagadeesh, the company offers services, such as server hosting and Internet connectivity, which let businesses outsource the management of their Internet sites. Exodus has thirteen Internet Data Centers (8 more planned by year-end) where clients store their servers in secure vaults. In addition to providing storage space, the company furnishes services such as maintenance and network connections. Its clients include CBS Sports, eBay, and MSN Hotmail. Exodus is expanding its geographic penetration and security services offerings through acquisitions. (Description from Hoover's) Let's get straight to it. Web server hosting and network maintenance (server farms), though competitive, is a hot market. It's a growing field with growth fueled by large companies preferring to outsource the headaches (think "Exodus = Excedrin"). Let's play it. Like lots of other Internet companies, this one isn't profitable yet either. No matter, technically, this is one fine looking chart, thanks to takeover speculation, which stems from Metromedia Fiber Network's (MFNX) acquisition (for a juicy premium) of AboveNet (ABOV), a no frills competitor. Check out the chart. This is a textbook breakout backed with above average volume, except Friday when it went up and closed on a strong up tick anyway at a new high. Support is at $134, a bit more at $130. Resistance is $138. Dips look buyable, but for conservative types, wait for a break over $138. Earnings are tentatively scheduled July 22. Zack's says July 28. Confirm market direction before playing. From Bloomberg, "investors are factoring in AboveNet, which sold for a nice premium and didn't have many of the value-added services that Exodus has," BancBoston Robertson Stephens analyst Rick Juarez said. "The market is recognizing an industry leader." Also, their chairman and co-founder was named 1999 entrepreneur of the year by Ernst and Young. **these are expensive, but look at the chart. This is a higher risk play (Internet) and not for everyone! BUY CALL AUG-130*EXF-HF OI=150 at $20.88 SL=16.25 high prices! BUY CALL AUG-135 EXF-HG OI= 95 at $18.75 SL=14.50 BUY CALL AUG-140 EXF-HH OI= 56 at $16.38 SL=12.75 BUY CALL AUG-145 EXF-HI OI= 35 at $14.25 SL=11.25 Picked on July 11 at $136.38 PE = N/A Change since picked +0.00 52 week low =$ 7.75 Analysts Ratings 10-3-1-0-0 52 week high=$139.50 Last earnings 4/99 est -0.57 actual -0.55 Next earnings 7-22 est -0.50 versus -0.36 Average daily volume = 2.07 mln. Chart = http://quote.yahoo.com/q?s=EXDS&d=3m ***** ABOV - AboveNet Communications Inc $43.75 (+4.50) AboveNet Communications provides Internet connectivity and co-location solutions for high bandwidth applications. They provide outsourced Internet hosting to companies that depend on the Web for their business. ABOV is the architect of the Internet Service Exchange(TM) AboveNet split 2:1 back on May 10th. It the went south and formed a base in $24-$32 area. In the middle of June ABOV started to move up breaking out of the base it had been in for about three weeks. Then on June 23rd Metromedia Fiber Network (MFNX) announced that they were acquiring ABOV in a stock for stock buyout. ABOV jumped about $4 on the news. Concerning the merger, "By combining Metromedia Fiber Network's virtually unlimited, pure photonic fiber network with AboveNet's high-performance connectivity solutions, Internet traffic is able to low more predictably, far more reliably and at far lower costs," Metromedia Fiber said (-Reuters). What we have is a combination earnings run (for ABOV which announces July 23rd) and a leverage play for MFNX, which has turned around from the initial drop on the announcement of the merger. ABOV is basically resistance free for several points, but ABOV's stock price should be reflective of MFNX's now. If so, MFNX should make it to $44 before resistance slows it down. And at a leverage of 1.175 shares of MFNX for 1 share of ABOV we could get about $4.75 out of ABOV even without any earnings excitement. BUY CALL AUG-40 UBV-HH OI=484 at $6.63 SL=5.25 BUY CALL AUG-45*UBV-HI OI=590 at $4.13 SL=3.00 BUY CALL AUG-50 UBV-IJ OI=423 at $2.38 SL=1.50 BUY CALL NOV-45 UBV-KI OI=133 at $8.38 SL=6.50 Picked on July 10, at $43.75 PE = N/A Change since picked +$ 0.00 52 week high=$75.50 Analysts’ ratings 2-1-1-0-0 52 week low =$ 5.75 Last earnings 3/99 est -0.23 actual-0.22 surprise=+7% Next earnings 6/99 est -0.28 versus N/A Average daily volume 1.89 mln. Chart = http://quote.yahoo.com/q?s=abov&d=3m ***** TMCS - Ticketmaster Online-Citysearch $34.88 (+5.75) Combining online ticket sales with citywide entertainment on the Internet was a no-brainer for Barry Diller, mastermind behind TMCS and chairman of USA Networks, which owns 60% of the company. At TMCS, residents of 25 urban hubs in 12 US states, Washington, DC, and four other countries can access local information on entertainment, business, news, and other activities. If there's something worth seeing, they can buy tickets online from TMCS, with access to events in more than 40 states, Canada, and the UK. After the company's planned merger with Lycos collapsed, it bought online dating service Match.com instead. (from Hoovers) TMCS has made a substantial move over the last month, and the stock chart is showing increasing buying pressure. MACD is positive and volume has picked up substantially over the last ten trading days. TMCS is still well below its 52 week high of $80.50, but with the Internet sector showing strength and TMCS looking very strong, we like the probability of TMCS moving higher. TMCS was at $21.56 just one month ago. We don’t see much resistance until the $39 mark, but watch for profit taking as the stock has gone up for five straight days. Earnings are in a few weeks and the feeling from the street is that Internet stocks will announce very strong earnings. This should benefit TMCS as it moves closer to its earnings date. TMCS recently signed an agreement with the SCI-FI channel to offer a co-branded auction site. This will allow SCI-FI fans the opportunity to bid on memorabilia from their favorite SCI-FI movies and shows. This partnership is being done through TMCS’s CityAuction company. BUY CALL AUG-30*QMF-HF OI= 59 at $7.13 SL=5.50 ITM $4.88 BUY CALL AUG-35 QMF-HG OI= 31 at $4.25 SL=3.25 BUY CALL OCT-35 QMF-JG OI=196 at $6.38 SL=5.00 BUY CALL OCT-40 QMF-JH OI=318 at $4.38 SL=3.25 Picked on July 11th at $34.88 PE = n/a Change since picked +0.00 52 week low =$14.00 Analysts Ratings 1-2-0-0-0 52 week high=$80.50 Last earnings 04/99 est -0.29 actual -0.25 Next earnings 07-28 est -0.28 versus n/a Average daily volume = 673 K Chart = http://quote.yahoo.com/q?s=TMCS&d=3m ***** ITVU - InterVU Inc. $51.50 (+9.00) INTERVU provides Web site owners and content publishers with services for the delivery -- "streaming" or downloading -- of live and on-demand video and audio content over the Internet. INTERVU's services automate the publishing, distribution and programming of video and audio content. INTERVU uses a scalable, patent-pending distribution network comprised of servers strategically located in major Internet hosting centers. INTERVU's customers use its video and audio distribution services to transmit entertainment, sports, news, business to business, advertising and distance learning content. INTERVU's current customers include CNN, House of Blues, Intel, Microsoft, MovieFone, MSNBC, NBC, Onradio.com, RadioWave.com, Saatchi & Saatchi, and Turner Broadcasting. ITVU has a pretty uptrend going and this on increased volume. The stock is showing more and more buying pressure with MACD strong and getting stronger. All the excitement appeared to start when CNET launched new television and video features for their audience back on June 28th. To do so, CNET had to develop a strategic relationship with ITVU. It definitely appeared to bring some new attention to ITVU's stock price. The stock's only resistance is at $54, the stock's recent high. Beware, ITVU could have some profit taking after such incredible gains ($30 to $50). ITVU did trade down slightly on Friday, but did close almost a dollar off its intraday low. Frankly, we are amazed at its apparent strength given its run up. Earnings are at the end of the month and the stock should see some strength from an earnings run. Confirm market direction. **Trading note: In the interest of full disclosure, Jim, our main editor does own options on ITVU. ITVU is in the right sector of the Internet as streaming content companies have been in the news and spotlight. We like the future of this industry and see ITVU benefiting from it. BUY CALL AUG-45*QYU-HI OI= 65 at $10.38 SL=8.00 ITM $6.50 BUY CALL AUG-50 QYU-HJ OI= 69 at $ 7.75 SL=6.00 ITM $1.50 BUY CALL AUG-55 QYU-HK OI= 0 at $ 5.63 SL=3.50 new strike BUY CALL SEP-50 QYU-IJ OI=233 at $ 9.63 SL=7.50 ITM $1.50 BUY CALL SEP-55 QYU-IK OI=182 at $ 7.75 SL=6.00 Picked on July 10th at $51.50 PE = n/a Change since picked +0.00 52 week low =$ 5.13 Analysts Ratings 2-3-0-0-0 52 week high=$82.00 Last earnings 05/99 est -0.42 actual -0.31 Next earnings 07-28 est -0.48 versus -0.28 Average daily volume = 598 K Chart = http://quote.yahoo.com/q?s=ITVU&d=3m ***** CMGI - CMGI Inc. $121.00 (+6.63) It may not be a household name, but CMGI is one of the chief architects of the Internet. What began as a direct marketing firm has become a prolific investor in the future of the Internet. CMGI's venture capital arm, @Ventures, is a savvy trend-spotter boasting a portfolio with stakes in more than 30 Internet companies (Lycos, Raging Bull). It is buying 83% of search engine AltaVista, which it plans to grow into its centerpiece Web property. Its Internet Group includes a string of majority-owned companies (Engage Technologies, Planet Direct) offering services such as Web hosting. About 80% of CMGI's revenue comes from fulfillment and mailing list services. (from Hoovers) CMGI has not been making huge daily gains, but has been a consistent climber over the last week. The stock broke through its 50-dma at the end of June and has held it since. We really like CMGI going forward, even though their earnings are not until September. The stock is considered an Internet blue chip, and as Internet stocks announce stronger and stronger earnings, CMGI should benefit. The company recently bought the Alta Vista search engine from Compaq. This purchase should help solidify CMGI’s core holdings. The deal will also place links and banners to CMGI companies on Compaq’s newer computers. CMGI is still well off its 52 week high of $165. There is some resistance at the $123.50 mark, so watch for this. The big news for CMGI was the recent acquisition of Alta Vista. The street loved this move as CMGI made a strong move on the announcement. This took away fears that CMGI might be classified as a just a mutual fund of Internet companies. CMGI has been very good at spotting upcoming Internet companies, now the street will be anxious to see how it does actually running one. We expect they will do very well. BUY CALL AUG-115 GCB-HC OI=427 at $16.38 SL=12.50 BUY CALL AUG-120*GCB-HD OI=544 at $13.88 SL=11.00 BUY CALL AUG-125 GCB-HE OI=350 at $11.50 SL= 9.00 BUY CALL AUG-130 GCB-HF OI=608 at $ 9.50 SL= 7.50 BUY CALL SEP-130 GCB-IF OI=614 at $15.50 SL=12.00 Picked on July 10th at $121.00 PE = 1210 Change since picked +0.00 52 week low =$ 8.63 Analysts Ratings 2-7-0-0-0 52 week high=$165.00 Last earnings 06/99 est -0.18 actual -0.27 Next earnings 09-11 est -0.18 versus +0.32 Average daily volume = 6.12 mln. Chart = http://quote.yahoo.com/q?s=CMGI&d=3m ***************************** PLAYS CONTINUED IN SECTION FOUR. ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
The Option Investor Newsletter 7-11-99 Sunday 4 of 7 ****************** INTERNET CONTINUED ****************** AOL - America Online $128.25 (+13.00) America Online is the world’s leading provider of Internet and online services. It currently has over 17 million subscribers between its two divisions, America Online and CompuServe. AOL Interactive Services product group operates the company's America Online service & manages the AOL Instant Messenger service, the AOL.COM Web site, and AOL NetFind. In 1999 it purchased Netscape Communications which brought the popular Navigator Web browser and the Netcenter Internet portal to AOL. That’s not the only purchase this year either. In May they bought MovieFone Incorporated to add to an already commanding list of services. After a brief pullback Friday morning AOL rallied back with the market to close higher once again. Internets in general were relatively flat on Friday but investors were anxious to jump in near the close. This is because the earnings run is now in full swing. AOL is set to report after the close on July 22, with and expectation of 0.11 cents. They are also a possible stock split candidate. We mentioned on Thursday that there are not enough shares currently authorized to do a 2-for-1 split but they may consider either a shareholder meeting to authorize more shares or do a 3-for-2. Either way we are including them as a split candidate due to past history of such announcements in this price range. Look for momentum to continue this week as most investors still consider the stock cheap relative to its 52-week high which is still over $45 away at $175.50. Plus entry points are becoming extremely important now that premiums are inflating due to recent enthusiasm. Refer to Thursday’s write up if you would like more information on our play of AOL. There was an article out after the close Friday indicating which Web sites were the most popular for Internet users for the week ending June 28. Once again AOL was on the top for users and advertisers. We bring this up because it was after the close in case you missed it and also it should be an indication that all is well heading into earnings. BUY CALL AUG-120 AOO-HD OI=5460 at $16.00 SL=12.50 Higher Delta! BUY CALL AUG-125 AOO-HE OI=5948 at $13.25 SL=10.75 BUY CALL AUG-130*AOO-HF OI=5591 at $10.50 SL= 8.50 BUY CALL AUG-135 AOO-HG OI=4046 at $ 8.63 SL= 6.50 BUY CALL OCT-135 AOO-JG OI=5454 at $15.25 SL=11.75 Picked on July 08th at $127.69 P/E = 156 Change since picked +0.56 52-week high=$175.50 Analysts Ratings 24-12-1-0-0 52-week low =$ 17.25 Last earnings 04/99 est= .09 actual= .11 Next earnings 07/22 est= .11 versus= .06 Average Daily Volume = 12.75 mln Chart = http://quote.yahoo.com/q?s=AOL&d=3m ***** DRIV - Digital River Inc. $35.25 (+1.69)(+8.06) Digital River takes the rough water out of online sales. The company manages online stores for software publishers and retailers, creating and maintaining personalized Web stores that sell software. Online shoppers interested in purchasing software are transferred to the Digital River site (the company replicates client Web sites so that buyers are unaware they've been transferred to Digital River), where they make purchases that Digital River processes and fills. The majority of sales come through software publisher clients. The company also offers merchandising, marketing, and distribution services. Customers include Corel, Cyberian Outpost, Micro Warehouse, and Wal-Mart. (from Hoovers) DRIV had a fairly strong week, though it was lower than the week before. DRIV still looks very strong going into earnings on the 21st and the chart shows increased buying pressure. This is another Internet stock that should benefit from YHOO's performance as investors bid up the net stocks into their earnings dates. The stock is currently sitting right on resistance, so a break upward should clear this problem. Volume continues to be stronger on up days, which is a good sign. DRIV also has strong support at $31.00. On Friday, DRIV announced the acquisition of Universal Commerce. This acquisition will help expand DRIV’s client base to include an additional 1,000 publishers of shareware. BUY CALL AUG-30*DQI-HF OI=287 at $7.50 SL=5.50 ITM $5 BUY CALL AUG-35 DQI-HG OI=134 at $5.13 SL=3.75 BUY CALL AUG-40 DQI-HH OI=100 at $3.00 SL=1.50 BUY CALL SEP-35 DQI-IG OI=395 at $6.75 SL=5.25 BUY CALL SEP-40 DQI-IH OI=421 at $4.75 SL=3.50 Picked on July 3rd at $33.56 PE = n/a Change since picked +1.69 52 week low =$ 5.00 Analysts Ratings 6-2-1-0-0 52 week high=$61.38 Last earnings 04/99 est -0.29 actual -0.27 Next earnings 07-21 est -0.31 versus ????? Average daily volume = 801 K Chart = http://quote.yahoo.com/q?s=DRIV&d=3m ***** VRIO - Verio Inc $74.75 (+7.94)(+4.13)(+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. It appeared VRIO was beginning to consolidate around $67 and $69, then bang! VRIO left its relative support and the 10 dma at $68 and is on the move again. The stock has spiked up $9 in the last 3 days of trading! The volume has picked-up momentum too and this is definitely a bullish indication. For instance on Friday, the trading was very heavy at double its normal volume. VRIO is now in the running to break its overhead resistance at $78, the 52-week high. Be careful of profit-takers at these higher levels. Consider using stops to protect your capital and profits. Earnings are still weeks away on August 20th. This run-up began in June when Verio made software alliances with AOL and MSFT. The investors liked the recent deals and saw how it firmly established Verio's leading-edge position in the Web-hosting business. Plus, on June 23rd, the company surpassed the 250,000 Web-site milestone and more enthusiasm was generated for the stock. The trend may continue through earnings' season. BUY CALL AUG-70 RLQ-HN OI= 666 at $ 9.25 SL=7.00 ITM 4.75 BUY CALL AUG-75*RLQ-HO OI= 212 at $ 6.75 SL=5.00 BUY CALL AUG-80 RLQ-HP OI= 281 at $ 4.50 SL=2.75 BUY CALL NOV-80 RLQ-KP OI=1471 at $11.13 SL=8.75 Picked on June 27 at $62.68 PE = N/A Change since picked +12.07 52 week high=$78.00 Analysts Ratings 6-2-1-0-0 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 = 880 K Chart = http://quote.yahoo.com/q?s=VRIO&d=3m ***** MSPG - Mindspring $51.13 (+2.50)(+9.85 S/A) MindSpring Enterprises relies on acquisitions to spring into the top tier of US ISPs. With more than one million subscribers throughout the US, MindSpring rivals EarthLink for the #4 spot behind industry titan American Online (17 million accounts), the Microsoft Network, and AT&T WorldNet. Dial-up Internet access offerings account for nearly 85% of MindSpring's sales. The company also provides Web hosting (45,000 accounts) and dedicated access lines for business customers. MindSpring, working to maintain its reputation for outstanding customer service as it grows, now offers high-speed cable modem Internet access over leased networks. (Description from Hoover's) MSPG is up on rumors that it may be taken over by a PC box maker ever since it announced to the world that it is looking for alliances and relationships, this following rumors that Gateway may be interested in purchasing Earthlink. Last Thursday, MSPG spiked up over $8, as they cancelled an analyst meeting, citing continuing merger discussions. By the way, the rumor prior to the cancellation was that DELL is the suitor - again, just a rumor until further notice. Anyway, Friday the price fell back $2 on over 2.5 times the normal volume. Intra-day support was at $50, where it bounced after the open. Toward the end of the day, it bounced again off $51, but that wasn't as convincing as it happened too late on Friday, as traders had already headed for the beach. The close was far down from its intra-day high of $54.88. The Euphoria may have further worn off by Monday, which won't be helped at all if the market backs off its record setting ways, something we expect this week after setting 3 new ones last week. Earnings are not until late in the month (tentatively set for July 28). We'll just have to wait for Monday to pick a direction on this one. If the rumor loses speed, the stock may suffer. If there's a buzz around the issue, volume will be the key to taking a position. Confirm market direction first and keep your stops in place if you're already in the play to prevent any further loss. MSPG is volatile, so give your stops some room to jiggle. This is not a "buy the dipper" right now. The news is in the play. But note that 1 analyst went from "hold" to "strong buy" since we picked it. BUY CALL AUG-45 MQD-HI OI= 528 at $10.13 SL=7.50 BUY CALL AUG-50*MQD-HJ OI=1235 at $ 7.50 SL=5.75 BUY CALL AUG-55 MQD-HK OI= 630 at $ 5.50 SL=3.75 BUY CALL OCT-50 MQD-JJ OI= 678 at $11.00 SL=8.75 Picked on June 29th at $48.63 PE = 444 Change since picked +2.50 52 week low =$11.56 Analysts Ratings 7-5-0-0-0 52 week high=$66.50 Last earnings 05/99 est 0.15 actual 0.16 surprise = 6.7% Next earnings 07-28 est 0.17 versus 0.08 Average daily volume = 2.10 mln. Chart = http://quote.yahoo.com/q?s=MSPG&d=3m ********* Software ********* INKT - Inktomi Corp $140.00 (+3.63) Inktomi develops and markets scalable software applications to intensify and strengthen larger networks. Their Internet search engine, which provides a fast and customizable Web search, is used by Yahoo! Other products include a large-scale network caching application for ISPs (like AOL) and corporations that need help addressing capacity constraints in high-traffic network routes; and also, they have an Internet shopping engine. Inktomi has operations in the US and UK. INKT got serious on June 30th and tacked on a double-digit gain of $12.37 for a $131.50 finish. The new "buy" rating that day by Pacific Crest Securities surely had its influence. INKT has so far not returned to its old support of about $112-116 as it rides upward. The earnings' report from YHOO spread optimism and encouragement throughout the Internet sector on Thursday. INKT advanced over $4 on moderate volume. On Friday, INKT was rather flat trading narrowly between $138 and $140. A good entry point if you were willing to forsake a show in volume. The stock faces near resistance of $145.13 (an intraday high hit on Monday) as its earnings' date approaches us next week on July 15th. Beyond that point, the 52-week high is at $159.12 - a height reached back in April around 1Q earnings. You may have to look intraday for an entry point. Remember this is an Internet and experiences volatility and wide intraday swings. This play is HIGH RISK. Be careful! Remember, this play is over in four days. [editor's note: Some of you may have noticed that INKT split 2:1 last January near $150. At the moment they have slightly over 48 mln shares outstanding and 100 mln authorized. We could see a split announcement with earnings. Although I still advise against holding over earnings hoping for a split. If they do, we'll play it for the split run. - Kimo] On Tuesday, Henry Blodget of Merrill Lynch resumed coverage of INKT as an "accumulate" and also reiterated his "long- term buy" rating. His 12-month target price is set at $160. He cited their "most important product, network caching software, is expected to grow from 1.6 bln. in 2000 to more than 4 bln. in 2003" as his primary factor. On Friday, the Chicago Board Options Exchange (CBOE) announced they will list LEAPS on Inktomi Corp. The strike prices will be in multiples of 10 from 110-170, inclusive, with expiration dates in January 2001 and January 2002. BUY CALL AUG-135*KYQ-HG OI= 721 at $20.50 SL=16.00 ITM 5.00 BUY CALL AUG-140 KYQ-HH OI= 565 at $18.13 SL=14.25 BUY CALL AUG-150*KYQ-HJ OI= 172 at $13.88 SL=11.25 Aggressive Picked on July 8th at $139.88 PE = N/A Change since picked +0.13 52 week high=$159.12 Analysts Ratings 5-5-3-0-0 52 week low =$ 19.50 Last earnings 03/99 est= -.10 actual= -.09 surprise=10% Next earnings 07-15 est= -.11 versus= -.13 Average daily volume = 2.21 mln. Chart = http://quote.yahoo.com/q?s=INKT&=3m ***** MSFT - Microsoft $93.25 (+1.25)(+7.06)(-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!) Tap, tap, tap, tap. . .that's the sound of our collective OIN foot waiting for MSFT to start its earnings run. Earnings are July 19 (company confirmed), 1 trading day following expiration of July contracts. Technically MSFT is looking pretty strong as nears its all-time high of $95. Support of $92 seems to be holding too. Also, MSFT closed just $0.06 off its intra-day high - a good sign, especially since it happened on a Friday when traders normally leave early for the Summer weekends. As we've noted in previous write-ups, there are still over 64,000 open interests in the July 95 and 100 strike prices, telegraphing that investors expect MSFT to go higher than its current $93.25. We concur, but also remind our readers that with new NASDAQ records being set daily, there will be a day when we see another pullback. MSFT is the NASDAQ's biggest component and will go with it. That said, earnings season momentum is really strong and the pullback should be short. There are probably a few more points to be garnered from this play. Just don't give back any of your profits while you wait for them. Like last week, if you are sitting on a mountain of profit, keep a tighter reign on your stop order. Otherwise, buy the dip after you see the bounce. As always confirm market direction before starting a new play. You have 6 trading days. Ready. . .go! With the trial relegated to the back burner, there is nothing of significance in the news to move MSFT. The play here is all about earnings. ***Gutsy types can play in-the-money July strikes since the time value is mostly shaken out, but we don't list any here BUY CALL AUG-90*MSQ-HR OI= 8922 at $ 7.00 SL=5.25 BUY CALL AUG-95 MSQ-HS OI= 8283 at $ 4.25 SL=2.50 BUY CALL OCT-95 MSQ-JS OI=14735 at $ 7.25 SL=5.50 Picked on June 20 at $85.00 PE = 73 Change since picked +8.25 52 week low =$43.88 Analysts Ratings 15-13-2-0-0 52 week high=$95.62 Last earnings 04/99 est 0.32 actual 0.35 Next earnings 07-19 est 0.35 versus 0.25 Average daily volume = 24.63 mln. Chart = http://quote.yahoo.com/q?s=MSFT&d=3m ***** SONE - Security First Technologies $48.25 (+1.06)(+10.19) Security First Technologies (S1) lets you do your banking in your pajamas. The company makes software for performing Web-based financial transactions. Its customizable Virtual Financial Manager suite enables bank customers to access accounts, pay bills, transfer money, open deposit accounts, track expenses, and make investments securely online. S1 also offers training, consulting, and data service center outsourcing to customers, which include Citibank and Bank of America. Its products are available directly and through partners such as Andersen Consulting and Hewlett-Packard. S1, which is expanding through acquisitions, has sold the banking operations of its Security First Network Bank to Royal Bank of Canada. (from Hoovers) SONE didn’t have nearly the week it had two weeks ago, but still finished with over a 2% gain. The stock actually consolidated a bit after its big gains the week before. This isn’t all bad, a stock needs to digest gains before it can move further. It was nice to see SONE do this without losing value. A bullish sign has developed for SONE as its up days are on strong volume, and down days on light volume. The stock has some mild support built up the last few days at $47.75. Watch for a bounce off this level for a good buying opportunity. SONE has earnings at the end of the month, and should develop a nice earnings run into this date. With Yahoo! leading the way with strong earnings, we feel many other Internet stocks will benefit and also show strong earnings. BUY CALL AUG-45 QFB-HI OI=124 at $7.00 SL=5.50 ITM $3.25 BUY CALL AUG-50*QFB-HJ OI=250 at $4.50 SL=3.25 BUY CALL OCT-45 QFB-JI OI=122 at $9.63 SL=7.75 ITM $3.25 BUY CALL OCT-50 QFB-JJ OI=295 at $7.63 SL=5.75 Picked on July 3rd at $47.19 PE = n/a Change since picked +1.06 52 week low =$ 4.63 Analysts Ratings 3-5-0-0-0 52 week high=$79.25 Last earnings 05/99 est -0.14 actual -0.13 Next earnings 07-28 est -0.11 versus -0.25 Average daily volume = 624 K Chart = http://quote.yahoo.com/q?s=SONE&d=3m ************** Semiconductors ************** INTC - Intel Corp $66.25 (+2.75)(+8.19) Intel designs, manufactures, and markets microprocessors Its star performer is the Pentium. It has been providing the microcomputer components for IBM-compatible PCs since 1981. With an overwhelming 85% of the market share, Intel is dominant in the semiconductor industry. This is a pure and simple earnings play. Intel announces in two days on Tuesday July 13th. Plan to be out of any open positions by then. Once again for a refresher, OIN never recommends holding over an earnings' date. The risk factor is too high! Take your profits and get out. And this comes with the knowledge that Intel will likely have an excellent report due to its cost-cutting measures. Intel was a steady performer this week making consistent gains. On Tuesday, two analysts had this stock on their hot list. Merrill Lynch raised its rating to "buy" from "accumulate" and reiterated a target price of $86. Then Prudential also pushed up its rating to a "strong buy" from "accumulate". Then sour remarks came from BBRS who maintained a "long-term attractive" rating on INTC, but cut the 2Q and fiscal estimates. The volume was remarkable that day at 28.71 shares being traded. Unfortunately the trading volume fell back to normal levels for the remainder of the week. In the news, Intel announced 94% of Dialogic shares have been tendered under its June 7th offer. They expected the acquisition to be completed by about July 8th (we have not seen anything about it yet). Intel also announced a definitive agreement to acquire Softcom Microsystems, a privately held company, in an all cash transaction. No further details were available. Softcom develops and markets semi-conductor products used to transfer voice and data across the Internet and within traditional networks. BUY CALL AUG-60*INQ-HL OI= 8715 at $7.88 SL=6.25 ITM $6.25 BUY CALL AUG-65 INQ-HM OI=10602 at $4.63 SL=3.00 BUY CALL AUG-70 INQ-HN OI= 9267 at $2.38 SL=1.25 BUY CALL OCT-65 INQ-JM OI= 9768 at $6.88 SL=5.25 BUY CALL OCT-70 INQ-JN OI=10448 at $4.50 SL=2.75 Picked on July 4th at $63.50 PE = 28 Change since picked +2.75 52 week high=$71.87 Analysts Ratings 16-13-7-0-0 52 week low =$34.87 Last earnings 03/99 est= .54 actual= .57 surprise=5.56% Next earnings 07-13 est= .53 versus= .33 Average daily volume = 21.10 mln. Chart = http://quote.yahoo.com/q?s= INTC&d=3m ***** TXN - Texas Instruments $146.56 (+4.87)(+5.69)(+2.75)(P2W+13.88) 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. (from Bloomberg.com) 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. If they announce a split with earnings, it will take a while for it to actually become effective. Even so, semiconductor companies are expected to report strong earnings this quarter. Though TXN showed us the money again this week, volume is slacking off, telling us that that TXN may decide to take this coming week off despite earnings. Technical indicators too confirm the flattening out. TXN believers will point to the nice price bounce off $145.50 to $146, despite Thursday and Friday's low volumes. Believers can also point to Friday's new all-time trading high of $148.13 as a positive factor for the coming week. The fact is TXN has come a long way in a hurry. Also, A new market wide trend is developing that has news pundits remarking that "companies like GE, YHOO and AA are selling off even though they reported strong earnings", leading them to further conclude that good earnings are already priced in. Uh Oh! The secret is out! Pundits further conclude that perhaps investors will begin selling and not hold over earnings. Wow, wish we'd thought of that! That said, watch for profit taking in front of earnings. If you see a return of volume, there are probably a few more points of gain to be had. Don't be greedy. Protect your profits with stops and confirm market direction before taking a new position. In the news, a hot new company, Efficient Networks (proposed symbol EFNT) is scheduled for IPO this coming week is. TXN owns 13% of the company. The hype may rub off on TXN, though we suspect this tail can only wag the Big Dog so far. BUY CALL AUG-140 TXN-HU OI= 633 at $14.13 SL=11.25 BUY CALL AUG-145 TXN-HW OI= 669 at $11.50 SL= 9.25 BUY CALL AUG-150*TXN-HV OI=1671 at $ 9.13 SL= 6.75 BUY CALL OCT-150 TXN-JV OI= 652 at $14.50 SL=11.50 Picked on June 10th at $125.75 PE = 94 Change since picked +20.81 52 week low =$ 45.38 Analysts Ratings 11-8-5-0-1 52 week high=$148.13 Last earnings 04/99 est 0.61 actual 0.65 Next earnings 07-20 est 0.76 versus 0.35 Average daily volume = 2.57 mln. Chart = http://quote.yahoo.com/q?s=TXN&d=3m ***** BRCM - Broadcom Corp. $143.75 (+6.72)(+23.90)(+1.19) Broadcom Corporation is a leading broadband semiconductor company based in Irvine, CA. It develops and manufactures chips that enable high-speed transmission of data over existing wires not originally designed for digital transmission. It has developed integrated circuits for cable modems, high speed networking, satellite and terrestrial digital broadcast, and xDSL(digital subscriber line) application. BRCM dominates the broadband cable set-top box and the cable modem markets. Customers include 3Com, Bay Networks, Cisco Systems, General Instruments, Motorola, and Scientific Atlanta. The recent acquisition will make it a leader in home networking. BRCM continues its earnings run with only a week and a half to go before it announces. Last week BRCM added $6.72 and that was after gaining $23.90 the week before! BRCM has more than quadrupled since it went public April 17th of last year, and it gained 135% in the 3 month period ended June 30th. BRCM's products are at the cutting edge of technology in the communications and data transmission arena, a hot stock area. BRCM just split in February when it traded around $120 and it is well over that price now. This stock trades at a HUGE PE, but it is growing at a phenomenal rate and its price is based on growth. The company told us it will release earnings on the 21st after the close. It has easily beat earnings estimates in previous quarters, and investors are expecting more of the same. [editor's note: We are adding BRCM to our split candidate list as well. They last split in the $120 area and after their latest run the beginning of April, they are due to split again. They have plenty of shares authorized to do a split or two. - Kimo] BRCM saw a bit of profit taking Wednesday and early Thursday, but its 10 dma provided support. We must warn again that BRCM has one foot in the Internet sector and the other in the chip sector, so it can see a LOT of volatility. Look for a good entry and stay on top of any BRCM positions you initiate. No new news. BUY CALL AUG-140*RDZ-HH OI=648 at $16.38 SL=12.75 BUY CALL AUG-145 RDZ-HI OI=186 at $14.00 SL=11.25 BUY CALL AUG-150 RDZ-HJ OI=211 at $11.88 SL= 9.50 Picked on July 4th at $137.03 PE = n/a Change since picked +$ 6.72 52 week low =$ 23.50 Analysts Ratings 3-7-1-0-0 52 week high=$148.50 Last earnings 03/99 est .14 actual .19 surprise=36% Next earnings 07-21 est .17 versus .08 Average daily volume = 2.22 mln. Chart = http://quote.yahoo.com/q?s=BRCM&d=3m ***** SLR - Solectron $71.94 (+4.81)(+4.31) 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 seems to have regained its recently misplaced momentum. It posted a new 52 week high on Friday at $71.94, closing up $4.81 for the week. It seems to jump up early in the day, make a new high and then trade sideways for a couple of days and then repeat itself all over again. Volume has been averaging just over 1.1 mln shares on its up days recently and around 800K-900K on its sideways days. Technically it has formed a nice channel to the upside, since early June, coming down to touch its 10dma twice. MACD is still strong. SLR looks as though it should continue its overall upward ways. Support is at $70.00 and $68.00. We hope you have already moved your stops up accordingly to protect current profits. We are looking for the current earnings euphoric environment to keep this momentum play going. Deutsche Banc Alex. Brown initiated coverage of SLR with a buy rating on Thursday. The California State Labor Commissioner said last week that it plans to form a task force of state and federal labor officials, to investigate a newspaper's report that SLR and other Silicon Valley high-tech companies have paid Asian immigrant’s low wages to assemble electronic parts at home. Stay Tuned. BUY CALL AUG-70*SLR-HN OI=220 at $5.50 SL=4.25 BUY CALL AUG-75 SLR-HO OI= 33 at $3.13 SL=2.50 Low OI BUY CALL OCT-70 SLR-JN OI= 71 at $7.13 SL=5.75 BUY CALL OCT-75 SLR-JO OI= 85 at $5.75 SL=3.50 Picked on June 20th at $64.06 PE = 61 Change since picked +$ 7.88 52 week high=$71.94 Analysts’ ratings 6-6-6-0-0 52 week low =$26.81 Last earnings 6/99 est 0.20 actual 0.29 surprise=+7% Next earnings 9/99 est 0.32 versus 0.23 Average daily volume 1.30 mln. Chart = http://quote.yahoo.com/q?s=slr&d=3m ****************************** SEE DISCLAIMER IN SECTION ONE ******************************
The Option Investor Newsletter 7-11-99 Sunday 5 of 7 ********************************* Telecom/Communications/Networking ********************************* CSCO - Cisco Systems $67.06 (+0.00)(+5.75)(+2.81 SA) Cisco's the big kid on the network block. The leading supplier of products that link LANs and WANs, Cisco Systems controls about 85% of the global market for routers and switches, which direct information on a network. The company's other products include dial-up access servers and network management software. Cisco is using acquisitions (more than 30 since 1993) to broaden its product line and is licensing products to widen the influence of its Cisco Internetwork Operating System (Cisco IOS) software, hoping to make it an industry standard. Strategic relationships with the industry's biggest players (including Alcatel, Microsoft, Qwest, and U S WEST) are boosting Cisco's influence on the networking industry. (Description from Hoover's) Still a great looking technical chart, but no change for the week doesn't make us any money. In fact we lose some thanks to time value erosion of current month strike prices. After a strong run, CSCO just took the week off. However, this is earnings season and the overall market is advancing. CSCO doesn't report earnings until August 10 (company confirmed), so it may take another week of consolidation before it finds its legs. Despite slacking volume on Wednesday, Thursday, and Friday, the lows were getting higher - a good sign. It confirms the consolidation. Friday, support jumped up to $66.50, where buyers propped up the price on 3 occasions - another good sign. For options traders of quality issues, consolidation can be viewed as generally a good thing since it deflates option premiums, creating buying opportunities for the patient investor in anticipation of predictable breakouts. In short, scaling into an August position will likely yield the highest gains in anticipation of earnings. Target shoot your entry in anticipation of a quick NASDAQ correction if your risk profile allows it. Otherwise confirm market direction before starting a new play. No news right now that will move the stock. BUY CALL AUG-60 CYQ-HL OI= 3718 at $9.00 SL=6.75 BUY CALL AUG-65 CYQ-HM OI= 9170 at $5.50 SL=3.75 BUY CALL AUG-70*CYQ-HN OI=13130 at $2.81 SL=1.50 feeling lucky? BUY CALL OCT-70 CYQ-JN OI=10579 at $5.50 SL=3.75 Picked on June 29th at $62.50 PE = 115 Change since picked +4.56 52 week low =$20.56 Analysts Ratings 19-12-0-0-1 52 week high=$69.25 Last earnings 05/99 est 0.37 actual 0.38 surprise = 2.7% Next earnings 08-10 est 0.40 versus 0.32 Average daily volume =14.97 mln. Chart = http://quote.yahoo.com/q?s=CSCO&d=3m ***** NXTL - Nextel Communications Inc $50.00 (+0.81)(+2.75)(+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. There are only a few more days to play this stock. NXTL is reporting earnings this Thursday on July 15th. This week has not been spectacular. It traded relatively flat and the momentum tapered off too. The stock formed a comfortable support level at $49. Since it set its newest 52-week high ($50.75) a week ago last Wednesday, NXTL has been unable to break through this point of opposition. If you do decide to open a new position for a quick play, look for a bounce off $49 or a breakthrough of $50 on strong volume first. And remember, holding over an earnings' announcement is much too risky. Nextel and Sprint Corp (PCS) got unwanted publicity this week. They are two of the wireless companies that begin charging airtime the moment a caller presses the "send" key. It's irrelevant whether or not the call actually makes a connection. The policy is perfectly legal, but consumer advocates are up in arms. BUY CALL AUG-45 FQC-HI OI=3106 at $6.75 SL=5.00 ITM $5 BUY CALL AUG-50*FQC-HJ OI=2438 at $3.50 SL=1.75 BUY CALL AUG-55 FQC-HL OI=1001 at $1.63 SL=0.75 Picked on June 27 at $46.44 PE = N/A Change since picked +3.56 52 week high=$50.75 Analysts Ratings 11-5-4-0-0 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 = 4.79 mln. Chart = http://quote.yahoo.com/q?s=NXTL&d=3m ***** NT - Nortel Networks Corporation $90.06 (-$.50)(+7.13) 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. Nortel started the week on a positive note, adding $1.00 to to its pre-holiday close. Wednesday it stayed on track making a new 52 week high at $93.50 early in the session. That apparently got the markets attention, as profit takers stepped in. From that point until midday on Friday, the sellers managed to shave $5.00 off the price of NT shares, taking it to a low of $88.50. At that point NT bounced off its 10dma, and regained $2.75 to close at $90.06, down $.50 for the week. At this point the 10dma has provided support for NT, and it has regained its composure. Again what concerns us here is that the move down has been on better than average volume, where the move back up was on lighter than average volume, although it was a somewhat typical "Summer Friday". Earnings are to be released July 27th and we should see NT get back on track next week, however keep an eye for any close below Fridays low. Adjust your stops accordingly. Don't forget, NT is a split candidate. News: Not really much to report. Talks between Nortel and Avici Systems failed on Wednesday. NT had considered buying the startup company, which it already owns a 20% stake. Warburg Dillon Read Inc. upgraded NT from a hold to a buy. BUY CALL AUG-85 NT-HQ OI=423 at $8.38 SL=6.50 ITM $5 BUY CALL AUG-90*NT-HR OI=361 at $5.75 SL=4.25 BUY CALL AUG-95 NT-HS OI=518 at $3.38 SL=2.50 BUY CALL SEP-90 NT-IR OI=149 at $7.25 SL=5.75 (Low Volume) BUY CALL SEP-95 NT-IS OI=148 at $4.75 SL=3.50 (Low Volume) Picked on May 23rd at $79.94 PE N/A Change since picked +$10.12 52 week high=$93.50 Analysts’ ratings 7-11-6-0-0 52 week low =$26.81 Last earnings 4/99 est 0.27 actual 0.33 surprise=+7% Next earnings 7/99 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 $94.44 (-.12)(+9.31)(-.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. Nokia paused last week before the final leg of its earnings run to take a breather after gaining $9.31 the week before and setting 3 consecutive new highs in a row. A sympathy move down following the unexpected resignation of rival Ericsson's chief executive made Thursday afternoon a great entry point, as it bounced off its 10 dma. We expect the stock to move up from here with only 8 trading days to go before it announces earnings. The company has told us that it will announce on July 22nd before the open. Something to watch is the earnings report due out from Motorola early this week. Nokia may react to any surprises from this rival as well. Nokia continues to focus on developing the "Mobile Information Society" by combining the Internet with wireless communication. The company is working hard to get its WAP standard accepted for wireless data communication. No new news. BUY CALL AUG- 90*NAY-HR OI=453 at $8.50 SL=6.50 ITM $5 BUY CALL AUG- 95 NAY-HS OI=892 at $6.25 SL=4.50 BUY CALL AUG-100 NAY-HT OI=535 at $3.75 SL=2.25 BUY CALL OCT-100 NAY-JT OI=446 at $6.88 SL=5.25 Picked on June 15th at $82.00 PE = 44 Change since picked +$12.44 52 week low =$29.53 Analysts Ratings 9-4-0-0-0 52 week high=$97.63 Last earnings 03/99 est 0.39 actual 0.48 surprise=+26% Next earnings 07-26 est 0.49 versus 0.35 Average daily volume = 2.17 mln. Chart = http://quote.yahoo.com/q?s=NOK&d=3m ***** LU - Lucent Technologies, Inc. $71.94 (+1.25)(+7.00)(+3.00) LU is spun (off) gold. The company, which was spun off from telecommunications giant AT&T, is North America's leading maker of telecom equipment and software, including business communications systems, switching and transmission equipment, and wireless networks. LU also makes integrated circuits and telecommunications power systems and is a major supplier to the personal communications services market. Technology developed by Bell Labs provides the basis for many of LU's products, but the company has become a force in the broadband (voice, data, and video) networking market through acquisitions. Most of LU's customers are telecom network operators such as AT&T. (from Hoovers) LU didn’t reach a new 52 week high on Friday intraday, but did close at one. This last week was actually a bit quiet on the Lucent front. The stock never lost much, but never gained much either. For the week, volume was very average, except for Friday, which was fairly low. Earnings are around the corner for LU and we expect to see a solid run into LU’s earnings date of July 22nd. MACD is still very strong and LU is in a very popular industry. One in which the spotlight seems to be shining at the moment. LU should continue to see strength from being mentioned in Salomon’s “Ten Exceptional Names” list. A little steam might have been let out on Thursday as AG Edwards cut it to a “maintain” position. BUY CALL AUG-70*LU-HN OI= 5896 at $5.38 SL=4.00 ITM $1.94 BUY CALL AUG-75 LU-HO OI= 7190 at $2.88 SL=1.50 BUY CALL OCT-70 LU-JN OI= 7732 at $8.00 SL=6.25 ITM $1.94 BUY CALL OCT-75 LU-JO OI= 3464 at $5.50 SL=4.25 Picked on June 29th at $66.69 PE = 56 Change since picked +5.25 52 week low =$26.72 Analysts Ratings 10-12-10-0-0 52 week high=$73.13 Last earnings 04/99 est 0.15 actual 0.17 Next earnings 07-22 est 0.23 versus 0.16 Average daily volume = 9.67 mln Chart = http://quote.yahoo.com/q?s=LU&d=3m ***** VOD - Vodaphone Group $207.13 (+1.63)(+.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. (from Hoovers) VOD has been playing the up a few days down a day game. Recently the stock went up four straight days, but since has come down the last two. A bullish indicator is the fact that the down days are not equaling the up days in amount or number. VOD is expected to announce a stock split at its meeting on July 21st and as this is more and more publicized, the stock should benefit. VOD’s recent drop should be about over as it has just about retraced 50% of its gain. We see $205 being the approximate bottom. Watch for a bounce near this level if the stock does drop any further. Unfortunately, since VOD is an ADR, it tends to gap up or down at the open. Overall, we see VOD moving up and eclipsing previous highs as it gets closer to its meeting. VOD had a few reiterations this last week which should help keep interest in the stock also. Goldman Sachs maintained VOD on its recommend list, showing they feel VOD is still a top stock. BUY CALL AUG-200 VOD-HT OI= 233 at $15.75 SL=12.50 ITM $7.13 BUY CALL AUG-210*VOD-HB OI=1304 at $10.63 SL= 8.00 BUY CALL AUG-220 VOD-HD OI= 914 at $ 6.50 SL= 5.00 braver BUY CALL OCT-210 VOD-JB OI= 182 at $17.88 SL=14.75 BUY CALL OCT-220 VOD-JD OI= 216 at $13.38 SL=10.50 Picked on June 26th at $204.75 PE = 73 Change since picked +2.38 52 week low =$ 94.00 Analysts Ratings 4-2-1-0-0 52 week high=$216.44 Last earnings 04/99 est ? actual ? Next earnings ? est 1.56 versus ? Average daily volume = 1.09 mln Chart = http://quote.yahoo.com/q?s=VOD&d=3m **** NXLK - Nextlink Communications, Inc. $93.00 (+14.94) Nextlink Communications is a local exchange carrier that provides telecommunication services via its own fiber-optic network. They provide switched local and long distance services to primarily small to medium-sized businesses. This fast growing broadband telecommunication provider has 26 networks in 15 states and services in 41 markets. Just this week they began offering commercial service in Northern and Central New Jersey. This company is proving itself to be one of the fastest growing end to end broadband providers in the industry. On Thursday, Nextlink announced they will team up with Westbank Projects Corp of Vancouver, BC and Microsoft to create a "smart" community (a state-of-the-art technology environment) in the Lincoln Square development of Bellevue Washington. NXLK stock responded by advancing $6.25 - a 7.6% increase. Friday the volume was also strong and the stock tacked on another $4.75! I'm sure the "buy" rating from Fahnestock certainly helped too. NXLK had broke out of support ($75-78) on Tuesday when it popped over its 10 dma of $80. Definitive confirmation of upward movement came on the above-mentioned Thursday and Friday. Of course the most realistic reason NXLK took off on Thursday was a comment in the "Heard on the Street" column for the Journal. The article mentioned that SBC Communications would have to partner up or acquire companies that offer local phone services in key cities due to requirements in their deal to acquire Ameritech. The FTC is asking SBC to offer local phone services in 30 markets outside SBC's home territory. How does NXLK fit in the picture? They were mentioned as a possible partner (a.k.a. takeover target)with SBC. (-theStreet.com) Earnings are due in a couple weeks on July 30th. Also in the news, Pacific Crest had reiterated a "strong buy" on NXLK back on June 29th. Analyst, Brent Bracelin, had set the target price at $120. BUY CALL AUG-90 QNF-HR OI=88 at $ 9.88 SL= 7.50 BUY CALL AUG-95*QNF-HS OI= 0 at $ 7.13 SL= 5.25 newest strike BUY CALL OCT-90 QNF-JR OI=61 at $15.13 SL=12.00 BUY CALL OCT-95 QNF-JS OI= 0 at $12.38 SL=10.00 newest strike **caution, the AUG calls have low volume. Picked on July 11th at $93.00 PE = N/A Change since picked +0.00 52 week high=$94.43 Analysts Ratings 7-0-4-0-0 52 week low =$10.56 Last earnings 03/99 est= -2.28 actual= -2.17 surprise=4.82% Next earnings 07-30 est= -2.43 versus= -1.42 Average daily volume = 535 K Chart = http://quote.yahoo.com/q?s=NXLK&d=3m ***** QCOM - Qualcomm $148.75 (+6.50)(+17.50)(-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. Well, that was fun! What would have otherwise been a down week turned out to be a barn-burner, as the S&P announced it will add QCOM into the S&P 500 in place of TransAmerica. This was a great added bonus for those already in the play. The main reason for the play though is that earnings are July 20, 1999 at approx. 1:30 p.m. PST (company confirmed). How about the possibility of another split then too? While not guaranteed, QCOM last announced a 2:1 split on April 14, when it traded at $157. With the help of earnings season and the addition to the S&P, QCOM could be there again by earnings and announce another 2:1 split. There are 300 mln. shares authorized. There are 150.646 mln. shares issued - slightly too many to pull off a split without a shareholder vote. Still no special proxy yet. We'll keep watching and let you know when we see it. Technically, QCOM looked strong again after its spike on Friday, as it closed at a new high, but nowhere near its spike to $153.63 at the open following the S&P announcement. Friday, support was good at $148 and should hold, barring any market weakness (which unfortunately, following 9 days of gains, if you don't count the 1-day -4 point hiccup, we are due for one). Still looks good to us. Just exercise caution since QCOM's volatility makes it a bit riskier play. Confirm market direction before jumping in. Announced on CNBC last week before the market opened, they noted QCOM had gained 600 K new customers in Korea during the month of May and they are expected to announce a major equipment sale to Sprint in the next 2 weeks. Not only that, but Lehman Bros. was "pounding the table" on QCOM while they raised earnings estimates by another $0.02. We've just learned too that 4 more Globalstar satellites were launched this Saturday morning, which will allow them to provide satellite-based CDMA telephone service starting this Fall. QCOM is one of the founders of Globalstar. Iridium pork chop, anyone? BUY CALL AUG-145*AAW-HI OI= 806 at $17.50 SL=13.75 BUY CALL AUG-150 AAW-HJ OI=1095 at $15.50 SL=12.00 BUY CALL AUG-155 AAW-HK OI= 377 at $13.50 SL=11.00 BUY CALL OCT-150 AAW-JJ OI= 608 at $23.00 SL=18.00 Picked on June 22 at $130.63 PE = 406 Change since picked +13.62 52 week low =$ 18.88 Analysts Ratings 7-7-3-0-0 52 week high=$153.63 Last earnings 04/99 est 0.49 actual 0.21 surprise = 41.38% Next earnings 07-20 est 0.55 versus 0.17 Average daily volume = 3.51 mln. Chart = http://quote.yahoo.com/q?s=QCOM&d=3m **************** Retail **************** COST - Costco Companies Inc $85.94 (+4.13) Costco is the largest "wholesale" club operator in the U.S. They operate about 288 membership warehouse stores. They are located Canada, the United Kingdom, Korea, Japan and in Mexico. The company also operates Costco Online, an E-commerce Website. They offer discounts on everything from food to pharmaceuticals, and tires to computers. The retail industry perked again this week with the release of the June sales report. Many of the heavy hitters scored increases of 6% to 10% compared to the same period last year. COST reported net sales of $2.72 billion, up 13% from last year. For the first 42 weeks of their fiscal year Costco has enjoyed a 9% increase over last year for comparable warehouse sales. In early October of 1998 COST started a run from $41.25 that went virtually uninterrupted until April 7th when it made a high of $93.75. COST retreated to $70 area, to form a base for about a month. June 29th COST broke out of that basing pattern and has been on the move since. Volume has been solid on the most recent advance as well. Technically MACD has turned positive and a new channel pointing north has formed. This is primarily a strong industry play, with a solid company. Support is at $83.00-$84.00, so pick your entry point on positive directional movement, with good volume. There is little news other than the retail sales report that came out Thursday. Deutsche Banc Alex. Brown also resumed coverage Thursday with a strong by rating and a 12-month target of $100. BUY CALL AUG-80 PRQ-HP OI=124 at $ 9.00 SL=7.00 BUY CALL AUG-85*PRQ-HQ OI= 54 at $ 5.75 SL=4.50 BUY CALL AUG-90 PRQ-HR OI= 49 at $ 3.63 SL=1.75 BUY CALL OCT-80 PRQ-JP OI=165 at $11.88 SL=9.50 BUY CALL OCT-85 PRQ-JQ OI=154 at $ 8.88 SL=6.75 Picked on July 10th at $85.94 PE = 39 Change since picked +$ 0.00 52 week high=$93.75 Analysts’ ratings 5-7-6-0-0 52 week low =$41.25 Last earnings 5/99 est 0.44 actual 0.46 surprise=+5% Next earnings 8/99 est 0.76 versus 0.66 Average daily volume 2.15 mln. Chart = http://quote.yahoo.com/q?s=cost&d=3m ***** BBY - Best Buy $76.00 (+3.00)(+9.56)(+3.44) Best Buy Company sells personal computers and other home office products, consumer electronics, entertainment software, major appliances and related accessories nationwide through its retail stores. It is one of the fastest growing retail specialty companies in the country. Best Buy has been on a tear for some time, following a record first quarter. It moved up fairly steadily until last Thursday, when it finally saw 2 days in a row of profit-taking after setting new all-time highs for 7 days in a row. Like its competition, Circuit City, BBY has managed to thrive in the cut-throat competition in the discount electronics business, even as others have fallen by the wayside. The company is capitalizing on the digital revolution, as consumers spend big bucks on everything digital. It operates 314 "superstores" in 36 states with plans to open 45 to 50 new stores each year. In fact, BBY plans to double its size and sales in the next 5 years. (Sales were just over $10 bln. last year.) In addition to more stores, the company will add new products and services and further develop its Internet strategy, where it currently offers music and movies online. BBY beats earnings estimates quarter after quarter. It has even surpassed its own sales projections for digital products, and while PC prices are declining, high volume is making up for lower per unit revenue. Technically, the stock looks great as well. Last, but by no means least, BBY was added to the S&P 500 on June 29th, replacing Airtouch, which was bought out by Vodaphone, another OI pick. That means that every S&P 500 index fund MUST BUY shares of BBY. On Friday when the stock lost $1.50 for the second day in a row, volume was only slightly more than normal, but it occurred on a typical summer Friday, with somewhat low market volume. BBY also closed almost at its low of the day. This suggests that profit taking may not be completely over. Watch the stock for a good entry. No new news. P.S. don't be surprised if BBY announces another split with earnings in September. BUY CALL AUG-70 BBY-HN OI=317 at $10.25 SL=7.50 BUY CALL AUG-75*BBY-HO OI=186 at $ 7.50 SL=5.75 wait for dip! BUY CALL AUG-80 BBY-HP OI=159 at $ 5.13 SL=3.50 BUY CALL SEP-80 BBY-IP OI= 79 at $ 7.25 SL=5.50 Picked on July 1st at $68.81 PE = 51 Change since picked +$ 7.19 52 week low =$15.97 Analysts Ratings 8-5-0-0-0 52 week high=$80.50 Last earnings 05/99 est .20 actual .22 surprise=10% Next earnings 09-15 est .29 versus .21 Average daily volume = 1.79 mln. Chart = http://quote.yahoo.com/q?s=BBY&d=3m ***** SNE - Sony Corp $114.38 (+1.63)(+8.56) Established in 1946 in Japan, Sony is engaged in the development, design, manufacture, and sale of various kinds of electronic equipment, instruments and devices for the consumer and professional markets. Sony's principal manufacturing facilities are located in Japan, North America, Europe and Asia. In addition Sony is engaged in leasing, credit card business, satellite distribution services. The company is also actively engaged in the worldwide music and image-based software markets. SNE has formed a nice channel to the upside since early June, when it started from its base of around $90.00 and began its accent upward. Confidence of an economic recovery in Japan has really sparked the recent move. Friday Sony made another 52 week high at $114.75 on strong volume of 344K,(196K is average). If SNE holds true to its most recent pattern it could retrace $1.00 - $2.00 and then start a new move up. We would view any pullback to $112.00 -$113.00 as a potential buying opportunity until the market tells us different (-that or a bounce off its 10 dma). If profit taking does begin in earnest the 10dma is at $110.00 and should provide some support. The Japanese electronic stocks have been doing very well lately and there is no reason at this time to believe the overall trend won't continue. As always consider your individual risk profile and set your stops accordingly. Sony did announce Wednesday it plans to stop selling mobile phones in North America. They want to concentrate their resources on the development of next-generation digital mobile phones. About 200 employees will lose their jobs as a result of this move. SNE said they will try to find jobs at other U.S. subsidiaries for those involved. **Volume and OI in AUG Options very low. Be careful** BUY CALL AUG-110 SNE-HB OI= 94 at $8.13 SL=6.25 BUY CALL AUG-115*SNE-HC OI= 24 at $5.13 SL=3.25 BUY CALL OCT-115 SNE-JC OI=150 at $8.13 SL=6.25 (115s are the highest strikes at the moment) Picked on June 29th at $108.19 PE = 26 Change since picked +$ 10.12 52 week high=$114.75 Analysts’ ratings 1-0-0-0-0 52 week low =$ 26.81 Last earnings 3/99 est N/A actual N/A surprise=+0% Next earnings 3/00 est N/A versus N/A Average daily volume = 196K Chart = http://quote.yahoo.com/q?s=sne&d=3m ******************** Drugs/Biotech ******************** VISX - Visx, Inc $89.50 (+4.37)(+4.38)(+8.69) Visx is a leader in the development of refractive laser technology, with a $5 billion market cap. It designs and makes surgical systems that re-contour the front surface of the cornea of the human eye in order to correct vision problems. It claims about 75% of the laser vision correction market, its only business. VISX systems are available worldwide. We are covering VISX to take advantage of its earnings run. A change in Fed interest rate stance made it more friendly to high growth stocks. That was the catalyst for VISX to take off again, following a correction in second half of May caused by investor's fears of a negative outcome in an FTC case against the company. The ruling went in favor of the company, however, and an appeal by the FTC will take at least a year or more and have no effect on operations of the company in the meantime. The laser vision correction market is expected to more than triple from 425,000 procedures done in 1998 to 1.3 mln in 2000 and the company sees earnings growth of between 25 and 35% annually. Earnings increased 700% over the last 8 months. The soaring price of this stock is a result of that incredible growth. Be forewarned, this is a very volatile stock. It can rise AND fall a great deal within a trading day. VISX saw some profit-taking on Friday as it lost $3.50 and closed near its low. However, it was a summer Friday, and the stock had been up the previous 5 days in a row, so we're not too worried. The company has told us that it will release earnings Wednesday, July 14th after the close. We will therefore be dropping VISX in Tuesday's letter. Sometimes a stock sells off before the earnings day, be sure to protect your profits with stops if you can't watch the stock. This stock is not for everyone due to its high volatility. Note: July options expire in 5 days!!! (They are included ONLY because investors should be out of VISX options before the July 14th close anyway.) BUY CALL JUL-85*VFS-GQ OI= 957 at $ 6.75 SL= 5.00 BUY CALL JUL-90 VFS-GR OI=1205 at $ 3.88 SL= 2.25 BUY CALL AUG-90 VFS-HR OI=1221 at $ 8.75 SL= 6.75 BUY CALL SEP-90 VFS-IR OI= 131 at $12.13 SL=10.25 Picked on Jul 4th at $85.13 PE = n/a Change since picked $ 4.37 52 week low =$10.50 Analysts Ratings 5-3-2-0-0 52 week high=$93.25 Last earnings 03/99 est 0.27 actual 0.29 surprise=+7% Next earnings 07-14 est 0.29 versus 0.14 Average daily volume = 1.63 mln. Chart = http://quote.yahoo.com/q?s=VISX&d=3m ****************************** SEE DISCLAIMER IN SECTION ONE ******************************
The Option Investor Newsletter 7-11-99 Sunday 6 of 7 ***************** 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 **************** YHOO - Yahoo! Inc $160.00 (-18.13) 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. Because of Yahoo's history around its earnings' date we switched it to a put play on Tuesday evening, the day before its earnings' announcement. Historically, YHOO has an immediate sell-off (no matter what the numbers or possibility of a split announcement) and declines for a few weeks after it reports. We'd been reminding our readers that OIN never recommends holding any call positions over an earnings' date for at least a week prior to this switch. Your call positions should have all been closed. History, so far, is repeating itself and YHOO has lost over $18 this week. Earnings were beat as they came in on July 7th at a whisper number of .11 versus the official estimate of .08, but it was no blowout and there was no split announcement. Still all the components of the report were positive. The next day analysts came out of the woodwork reiterating their "buy" positions on YHOO. CSFB even raised its fiscal estimates for the stock. We recommended caution at this precarious point even though YHOO had had 3 days of steady losses. YHOO followed its pattern and fell again on Friday. It dipped as low as $159 and shed $4.44 by the bell! Re-confirm direction before you jump into this game. This is a VERY HIGH RISK INTERNET PLAY and NOT for everyone. BUY PUT AUG-150*YHV-TJ OI=946 at $10.25 SL= 7.75 we are brave! BUY PUT AUG-155 YHV-TK OI=242 at $12.88 SL=10.50 BUY PUT AUG-160 YHV-TL OI=651 at $15.50 SL=12.00 Average daily volume = 8.38 mln. Chart = http://quote.yahoo.com/q?s=YHOO&d=3m ******** NEW PUTS ******** IMNX - Immunex Corporation $119.00 (-14.13) Immunex is biopharmaceutical company that develops and manufactures products to fight cancer, immunological disorders, and infectious diseases. Some of its better known drugs include Leukine (used to treat bone marrow transplant patients), Novantrone (used for leukemia or prostate cancer patients), and Enbrel (for rheumatoid arthritis). American Home Products owns a 54% stake in Immunex. IMNX suffered this week due to a downgrade from analyst Adams Harkness. It was only one analyst from a smaller firm but when you’re trading at a 1000 P.E., you don’t have a lot of room for error. According to Adams Harkness, the stock has hit their price-target already for the year. They also cited higher research and development costs along with higher selling, general and administrative costs. This is expected to cut into earnings over the next six months. We will soon find out if they are right since IMNX is set to report on July 20. The way it has been trading ahead of earnings is not what you would want to see if you own the stock. So we are recommending puts based on the high valuation and fears of an earnings shortfall. IMNX broke the 50-dma today and would need to fall to $100 before finding support. So look for an entry point intraday. But remember we are only seven days from earnings. Stocks can go up for no reason except they are closing in on the reporting date. BUY PUT AUG-120*IUU-TD OI=21 at $10.63 SL=8.00 BUY PUT AUG-115 IUU-TC OI=23 at $ 8.13 SL=6.25 Average Daily Volume = 939 K Chart = http://quote.yahoo.com/q?s=IMNX&d=3m **** SAPE - Sapient Corp. $47.75 (-10.38) Sapient Corporation provides management consulting services, Internet commerce solutions, and systems implementation services. Their integrated management consulting services involve helping clients create and implement business strategies that enable them to create value through the use of information technology, particularly the Internet. Sapient also develops custom software applications, integrates existing third-party applications, or integrates its own solutions. And Sapient provides implementation services for Oracle enterprise resource planning systems. You know your stock is in trouble with you have coverage started with a buy rating and you still fall over 4 dollars. That is what happen on Friday to SAPE. The stock has taken a beating this week on heavy volume. Most of it has to do with rumors floating around that they will miss their EPS estimate. They also have apparently moved their earnings date back by one week to the July 22. These may all be signs that something is wrong. Maybe the huge short interest is there for a reason. But we are including it as a put due to the volatility and poor technical outlook. Some of the above factors may be helping but it’s difficult to pin down the precise reason. That makes this a high risk play. Now that it is under the 200-dma, there isn’t a lot of support. We don’t see support again until the low $40 range. You can see what happened when the stock did this last July on a longer term chart. It was quite awhile before it stopped dropping. Use caution when picking your entry point and expect lots of action. [editor's note: We were going to pick them as a put on Thursday, but we need more time to investigate why the stock was falling. sorry. - Kimo] BUY PUT AUG-50 QPE-TJ OI= 0 at $ 6.50 SL=4.75 just opened BUY PUT AUG-45*QPE-TI OI= 0 at $ 4.00 SL=2.50 new, vol=140 Average Daily Volume = 237 K Chart = http://quote.yahoo.com/q?s=SAPE&d=3m **** FDX-Federal Express Corp. $48.50 (-6.43) Headquartered in Memphis, TN, FedEx is the world's largest express shipping company. Its 192,000 employees ship over 3.2 million packages daily to 210 countries around the world. In addition to air freight, FDX offers business-to-business delivery through its RPS ground shipping unit. Its entire hub and spoke shipping system (not just its airplanes and trucks) operates like finely tuned, well-oiled machine. On May 30th, FedEx delivered record fourth quarter earning of $.73/share versus $.57/share for the prior year's Q4, beating analysts' estimates of $.71. It benefited from lower fuel costs (with some hedging), strict cost controls, and productivity gains. Earnings were up 30%. So why are we recommending puts on FDX?? Simply because MARKET expectations (the whisper numbers) had grown so high for the stock that it was unable to exceed them, let alone meet them, and FDX lost altitude on the stellar earnings report. It did climb slightly after the Fed moved to a neutral interest rate stance, but last week FDX went into a tailspin, descending further each day. Compounding the problem, oil has recently reached price levels not seen in more than a year and a half. The rising cost of fuel (a large portion of expenses for an airline) will tend depress FDX share price. Then on Friday, June 8th, Airborne Freight (ABF) pre-warned that it expects earnings to be 12% below analysts' estimates, and FDX could drop further in sympathy. ABF cited lack of growth in domestic shipping. Domestic shipping happened to be the area of lowest growth for FDX last quarter--that segment of its business grew only 4%. It has been suggested that after the Christmas season, Internet related shipping has not risen as quickly as stockholders expected it would, and they don't like to be disappointed. Long term, FedEx is a healthy and strong company, but in the short term, we expect it to fall lower, especially if oil prices remain high. Caution: a significant drop in oil prices would hurt this play. BUY PUT AUG-45 FDX-TI OI= 84 at $1.44 SL= .75 BUY PUT AUG-50*FDX-TJ OI=471 at $3.88 SL=2.50 Picked on July 11th at $48.50 PE = 23 Change since picked +$ 0.00 52 week low =$61.88 Analysts Ratings 3-1-7-0-0 52 week high=$21.81 Last earnings 05/99 est .69 actual .73 surprise=+6% Next earnings 09-24 est .56 versus .50 Average daily volume = 1.36 mln. Chart = http://quote.yahoo.com/q?s=FDX&d=3m **** JCP - J.C. Penney $45.44 (-4.19) J. C. Penney Company, Inc. main business consists of providing merchandise and services to consumers through department stores that include catalog departments. The company markets apparel, accessories, home furnishings, jewelry and shoes. To boost sales at its JCPenney stores, the company is expanding that chain's private-label brands (Arizona Jean Co., Hunt Club, Worthington) and plans to feature them in special boutiques within the stores. The Company also has several direct marketing insurance subsidiaries which market life, health, accident and credit insurance as well as a growing portfolio of non-insurance products. J.C. Penney is struggling in the one area that most other retail stores are enjoying healthy growth. That area is same- store sales. Otherwise known as the key indicator of future profits. Retail is a great sector to invest in for the simple reason of monthly same-store sales numbers. They are announced in the first week of each month and they help give you an idea of which way earnings may be headed. They should do this for all companies. Nevertheless J.C.Penney, despite the money they have spent to renovate their stores to compete with other major retailers, continues to have negative results. This while other companies are taking advantage of a booming economy and some times double-digit gains in year over year sales. Our feeling is that they will continue to fall behind other retailers. The stock broke below support on heavy volume this week as investors have apparently decided the wait is over for a turn around. The stock is right at the 200-dma and may bounce first before going lower. This should help us in getting a decent entry point for our play. Like always, use caution but any move under $45 should be another sell signal to stock holders. BUY PUT AUG-50*JCP-TJ OI=640 at $5.50 SL=3.75 BUY PUT AUG-45 JCP-TI OI=671 at $2.19 SL=1.13 Average Daily Volume = 844 K Chart = http://quote.yahoo.com/q?s=JCP&d=3m **** WPI- Watson Pharmaceutical $35.94 (-2.25) Watson Pharmaceuticals manufactures and markets generic and proprietary drugs, focusing on hard-to-make niche pharmaceuticals. The company makes generic versions of brand- name products, including anti-hypertensives Tenex and Dilacor, analgesics Vicodin and Lortab, and asthma drugs Proventil and Ventolin. Watson's proprietary drugs include Microzide, an anti-hypertensive, Loxitane, an anti-psychotic drug, and Norco, an analgesic. The company markets its products to drug distributors, wholesalers, drugstore chains, hospitals, and HMOs. Watson is a company that has been plagued with troubles over the past six months. It started when the FDA announced its concerns over quality and manufacturing problems. This sent the stock plummeting from its lofty levels. It's now about 50% off its highs but a new batch of problems has been ignited. On Wednesday, it was rumored from a DLJ analyst that WPI would miss their earnings numbers for this quarter. Although the company denied that on Thursday, the stock still fell and ended the week nearing the 52-week low. These are just a few of the problems that plague WPI. Technically, there is something very fishy about the way it has been trading also. You'll notice the stock has failed to get above the 50-dma. It has the appearance of heavy selling or possibly shorting going on at that level. That has been the best entry point over the past six months. From here we expect the stock to retest its year lows near $30. Earnings are on August 3rd and that may shed some light on the current situation but by the way the stock is trading, it doesn't look good. Use stops on all your plays to protect against an earnings surprise. BUY PUT AUG-40 WPI-TH OI= 759 at $5.63 SL=3.75 BUY PUT AUG-35*WPI-TG OI=1647 at $2.63 SL=1.25 Average Daily Volume = 578 K Chart = http://quote.yahoo.com/q?s=WPI&d=3m ****** Combos ****** Another Week Of Records.. U.S. stocks climbed back into record territory on speculation of positive corporate earnings announcements in the coming weeks. Friday, July 9 U.S. stocks climbed back into record territory on speculation of positive corporate earnings announcements in the coming weeks. The Dow industrial average closed up 66 points at a new high of 11,193. The Nasdaq index of technology stocks also vaulted to its third consecutive record close, up 21 points to end at 2,793. The S&P 500 stock index gained 8 points to close at a record 1,403. In the broader market, advancing issues outnumbered decliners by more than three to two on 703 million shares traded on the NYSE. Thursday's new plays (positions/prices): Johnson & Johnson (JNJ) LJAN100C/J100C $12.12 debit Medtronic (MDT) LJAN75C/JUL80C $17.50 debit Solectron (SLR) LJAN70C/JUL75C $18.00 debit Sun Microsystems (SUNW) LJAN75C/JUL75C $19.50 debit Most of these long term positions were available at-or-below the suggested entry debit. Some of the more aggressive traders legged into the spreads at significantly better prices; SUNW at $18.87 debit was about the best of the day. The initial opening price for Solectron (SLR), was adjusted lower based on the change in option prices and Johnson & Johnson (JNJ) was unavailable at the recommended target. All of these plays are covered-calls on 2001 LEAPS and we will track them on a monthly basis. Portfolio plays: DuPont (DD) was a big contributor to the Dow rally today; the stock price rose $3 after the company announced terms for the spinoff of its remaining Conoco holdings. Our long-term calendar spread benefited from the bullish move and it is now $0.50 ITM with 6 months time value left on the long position. With only one week to go, we have started to close (or adjust) many of the profitable plays. In the calendar spreads portfolio, these positions currently offer a positive return; Agco (AG), Baan Company (BAANF), C-Cube (CUBE), Novell (NOVL), Quantum (QNTM) and Silicon Graphics (SGI). Our bullish diagonal spreads are performing fairly well; Auto Protection (APCO) is $1.00 ITM, Apria (AHG) is in a recovery mode, General Electric (GE) is still holding on to the edge of the profit envelope near $117 and Comp USA (CPU) needs a small rebound to transition to a positive play. The bullish debit spreads are performing very well and all but one of the July positions can be closed early at maximum profit. These include; Global Marine (GLM), Micron (MU), Revlon (REV) - the ITM play and Earthlink (ELNK). The straddles and strangles are a mixed lot. British Telecom (BTY) is inside the maximum profit range and Torchmark (TMK) has been an outstanding butterfly, moving only $4 in the past 6 weeks. Spacelabs Medical (SLMD) is currently inside both short positions but Mastec (MTZ) has moved above the sold call at $30. The bearish position was closed one week early to lock-in profits and avoid a potential loss. The worst performers in the straddle group are Gaylord (GET) and Robert Half (RHI). With any luck, their range-bound trend will end soon. Questions & comments on spreads/combos to ray@OptionInvestor.com ****************************************************************** - NEW PLAYS - ****************************************************************** CEXP - Corporate Express $8.38 *** New Outlook *** Corporate Express is a leading supplier of essential office and computer products and services to corporations that value innovative procurement solutions. Corporate Express currently operates in nearly 300 locations, including 89 distribution centers, and employs approximately 15,000 people around the world. A subsidiary, CEXP Document & Print Management, is a leading national designer and provider of custom business forms, pressure-sensitive label products and forms management systems that enable customers to enhance productivity and reduce costs associated with managing information. The company recently reported favorable earnings on net sales that increased 6% to $972,059,000. The International division was a standout with sales up 18% on acquisition related revenue and growth from 11 new office product companies. Net sales for the company's desktop software segment increased 25% on new enterprise agreements and added software sales. The current focus of the company is their Document & Print Management segment and that group just announced an alliance that offers easy-to-use, cost-effective solutions for customer's print-on-demand needs through the integration of XYAN's national network of digital production centers. XYAN's distribute & print capabilities will complement the document management services that Corporate Express currently provides to large customers through its Odyssey Integrated Services® program. The new print centers will communicate electronically with Corporate Express' Odyssey Network (TM) software. With the new investor interest, implied volatility has increased on the front-month call options and that's just the edge we need to open a conservative, low cost calendar spread. PLAY (bullish - calendar spread): BUY CALL OCT-10 XQP-JB OI=2033 A=$0.75 SELL CALL AUG-10 XQP-HB OI=590 B=$0.38 INITIAL NET DEBIT TARGET=$0.31 TARGET ROI=100% It is generally best to establish this type of spread at least 2 - 3 months before the long option expires, capitalizing on the ability to sell another option against the longer-term position. That is the basic idea in this spread play; selling 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=CEXP&d=3m ****************************************************************** OC - Orion Capital $40.75 *** Volatility Play *** Orion Capital Corporation is a leader in the specialty property and casualty insurance business through subsidiaries, which include DPIC Companies, EBI Companies, OrionAuto (formerly Guaranty National), and Orion Specialty. This stock has been on the move lately, climbing $10 in two weeks on the continued speculation of a possible takeover or divestiture of the various company segments. Shares of the Connecticut-based insurer have risen by nearly a third since late June and experts say these types of companies are undervalued. On Friday, Allstate agreed to buy workplace insurance distributor American Heritage Life Investment for $1.1 billion and that could be fueling the rumors that Orion is next in line. Insider buying was apparent over the last few months and implied volatility and volume recently increased as investors moved into speculative positions. The July options, which will lose value quickly as Friday's monthly expiration approaches, are very expensive. This is a very aggressive, one week play based on the large premium disparity in the July $40 (call) options. The stock price will need to remain in a fairly small trading range for this position to profit. PLAY (speculative/neutral time spread): BUY CALL AUG-40 OC-HH OI=556 A=$4.25 SELL CALL JUL-40 OC-GH OI=1080 B=$2.62 INITIAL NET DEBIT TARGET=$1.50 TARGET ROI=25% 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 this type of spread is that time will erode the value of the near-term option at a faster rate than it will the far-term option. The 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. Chart = http://quote.yahoo.com/q?s=OC&d=3m ****************************************************************** WWCA - Western Wireless $30.62 *** AT&T Merger/Buyout *** Western Wireless is a leading provider of wireless communications services in the western United States. The communications company currently offers cellular service marketed with the 'Cellular One' name in 17 Western states. Shares of Western Wireless starting moving in early July amid rumors that the company may be acquired by AT&T Corp. WWCA has been seen as a prime target since they made plans to spin off VoiceStream Wireless. AT&T has said they want to expand their wireless network and would be willing to make acquisitions. Experts say the deal fits into T's strategy to have a nationwide system with all of its wireless traffic on its own network. AT&T recently closed another acquisition of a wireless phone company, Vanguard Cellular Systems, which helped expand its coverage in the northeastern United States. Western Wireless serves mostly rural areas in the western U.S. but they have over 8 million potential customers. A small disparity in the August ITM call options will allow us speculate on the outcome of the recent rumors in a conservative, low-cost, debit position. PLAY (bullish/debit spread): BUY CALL AUG-22.50 WRQ-HX OI=1002 A=$9.00 SELL CALL AUG-25.00 WRQ-HE OI=139 B=$7.12 INITIAL NET DEBIT TARGET=$1.75 ROI(max)=42% B/E=$24.25 Chart = http://quote.yahoo.com/q?s=WWCA&d=3m ****************************************************************** - TECHNICALS ONLY - These plays are based on the current price or trading range of the underlying issue and the recent technical history or trend. Current news and market sentiment will have an effect on these positions so review each play individually and make your own decision about the future outcome of the stock price. ****************************************************************** WRC - World Color Press $29.81 *** Up, Up And Away *** World Color Press is a leader in the management and distribution of print and digital media information. The company specializes in the production and distribution of content for customers in the commercial, magazine, catalog, direct mail and directory markets. World Color employs over 16,500 employees and operates 58 facilities with a network of sales offices nationwide. A recent acquisition of privately held Metroweb Corporation, a high quality publication and commercial printer with annual revenues of approximately $20 million and the establishment of a new stock ownership plan are the only news items of interest. The key to the recent movement is probably speculation on a buyout/merger with Quebecor Printing (PRW). Regardless of the outcome, the chart is bullish with excellent support just below the cost basis of the position. PLAY (aggressive - bullish/debit spread): BUY CALL AUG-22.50 WRC-HX OI=56 A=$8.50 SELL CALL AUG-30.00 WRC-HF OI=396 B=$3.87 INITIAL NET DEBIT TARGET=$4.37 ROI(max)=71% B/E=$26.87 Chart = http://quote.yahoo.com/q?s=WRC&d=3m ****************************************************************** DTPI - Diamond Tech. Partners $25.75 *** Disparity Play *** Diamond Technology Partners is a management-consulting firm that helps clients develop and implement digital strategies; business strategies for the digital age. The company serves clients across the United States and internationally in the financial services, consumer products, consumer services, communications, utilities, insurance and health care industries. Not much news recently but a very strong technical pattern and positive fundamental outlook. The options are thinly traded but the disparity is quoted at two different exchanges. First one in gets the prize (if the market-makers don't adjust the prices before Monday morning). PLAY (conservative - bullish/debit spread): BUY CALL AUG-20.00 DUP-HD OI=0 A=$6.25 SELL CALL AUG-22.50 DUP-HX OI=0 B=$4.37 INITIAL NET DEBIT (at market)=$1.87 ROI(max)=33% B/E=$21.87 Chart = http://quote.yahoo.com/q?s=DTPI&d=3m ***************************************************** 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 7-11-99 Sunday 7 of 7 COVERED CALLS ************** Value Investing - Choosing Fundamentally Sound Stocks... There has been lots of discussion recently about stock valuation and the return to fundamental analysis in long-term investing. Warren Buffett of Berkshire Hathaway explains the concept best; Evaluating securities and businesses for investment purposes has always involved a mixture of qualitative and quantitative factors. At one extreme, the analyst exclusively oriented to qualitative factors would say, "Buy the right company (with the right prospects, inherent industry conditions, management, etc.) and the price will take care of itself". On the other hand, the quantitative spokesman would say, "Buy at the right price, and the company (and stock) will take care of itself". In the world of the stock market, money can be made with either approach and a combination of both may offer the best balance in a portfolio. The first step in examining the fundamental factors in a company (net asset value, working capital, price-to-earnings ration, debt to equity ratio etc..) is to identify the minimum criteria that determines a favorable characteristic in each specific category. A well known expert on fundamental analysis, Benjamin Graham, made the following list of attributes of an undervalued stock. In his list, criteria 1 through 5 measure risk; while 6 and 7 establish financial soundness; and 8 through 10 show a history of stable earnings. Any company that meets 7 out of the 10 criteria is considered undervalued. 1. An earnings-to-price yield (reverse of P/E ratio) double the current AAA bond yield. If the AAA bond yield is 6%, the earnings yield should be 12%. 2. A price-to-earnings ratio that is 40% of the highest average P/E ratio achieved by the shares in the most recent 5 years. 3. A dividend yield of 2/3 the AAA bond yield. Stocks that lack either a dividend or current profits are eliminated here. 4. A stock price that is 2/3 the tangible book value per share. 5. A stock price that is 2/3 the net current asset value or the net quick liquidation value. 6. Total debt that is lower than the tangible book value. 7. A current ratio of 2 or more. This is a measure of liquidity, or a company's ability to pay its debts from income. 8. Total debt of no more than the net quick liquidation value. 9. Earnings that have doubled in the most recent 10 years. 10.Earnings that have declined no more than 5% in 2 of the past 10 years. Some of the criteria in Graham's list are more important to certain types of investors than others. Depending on a trader's risk/reward attitude (income, safety, growth), he can select those elements that best achieve future goals and give heavier weighting to those valuation attributes that primarily define his investing style. Good Luck! SUMMARY OF PREVIOUS PICKS ************************* Stock Price Last Mon Strike Opt Profit ROI Monthly Sym Picked Price Price Bid /Loss ROI DIMD 5.06 5.56 Jul 5.00 0.63 *$ 0.57 12.9% 14.0% MRL 13.50 13.81 Jul 12.50 1.63 *$ 0.63 5.3% 11.5% SQNT 13.75 17.44 Jul 12.50 2.38 *$ 1.13 9.9% 10.8% GISX 18.25 19.69 Jul 17.50 1.88 *$ 1.13 6.9% 10.0% NMSS 8.13 11.00 Jul 7.50 1.38 *$ 0.75 11.1% 9.7% VVTV 19.00 24.63 Jul 17.50 2.56 *$ 1.06 6.4% 9.3% FIBR 14.00 14.38 Jul 12.50 2.00 *$ 0.50 4.2% 9.1% NETG 25.25 29.63 Jul 22.50 3.63 *$ 0.88 4.1% 8.8% FFD 16.38 16.63 Jul 15.00 2.50 *$ 1.12 8.1% 8.8% SQNT 16.94 17.44 Jul 15.00 2.50 *$ 0.56 3.9% 8.4% PRGN 26.38 27.94 Jul 25.00 2.25 *$ 0.87 3.6% 7.8% FIBR 12.63 14.38 Jul 10.00 3.25 *$ 0.62 6.6% 7.2% SAVLY 15.75 14.25 Jul 12.50 4.00 *$ 0.75 6.4% 6.9% TKLC 12.06 12.00 Jul 10.00 2.75 *$ 0.69 7.4% 6.4% ENZN 16.88 23.75 Jul 15.00 2.50 *$ 0.62 4.3% 6.2% PERI 15.13 18.75 Jul 12.50 3.13 *$ 0.50 4.2% 6.0% LWIN 20.06 18.63 Jul 17.50 3.25 *$ 0.69 4.1% 5.9% PRGN 24.75 27.94 Jul 22.50 3.13 *$ 0.88 4.1% 5.9% CAST 15.94 15.94 Jul 15.00 1.88 *$ 0.94 6.7% 5.8% SKYC 17.06 20.75 Jul 15.00 2.63 *$ 0.57 4.0% 5.7% AMES 47.50 46.50 Jul 45.00 4.75 *$ 2.25 5.3% 5.7% PILL 13.88 14.94 Jul 12.50 2.13 *$ 0.75 6.4% 5.5% KMET 20.88 24.34 Jul 20.00 2.06 *$ 1.18 6.3% 5.4% AVIR 22.75 28.38 Jul 20.00 4.13 *$ 1.38 7.4% 5.4% GSTX 14.00 14.97 Jul 12.50 1.94 *$ 0.44 3.6% 5.3% AAC 7.69 8.19 Jul 7.50 0.69 *$ 0.50 7.1% 5.2% NSM 25.00 28.00 Jul 22.50 3.25 *$ 0.75 3.4% 5.0% CBTSY 16.50 21.88 Jul 15.00 2.44 *$ 0.94 6.7% 4.8% CPU 8.38 7.38 Jul 7.50 1.44 $ 0.44 6.3% 4.6% ARTT 14.69 14.00 Jul 12.50 2.75 *$ 0.56 4.7% 4.1% THNK 17.19 14.19 Jul 12.50 5.13 *$ 0.44 3.6% 4.0% DUSA 9.75 11.94 Jul 7.50 2.56 *$ 0.31 4.3% 3.7% THNK 17.19 14.19 Jul 15.00 3.25 $ 0.25 1.8% 1.9% -------------------------------------------------------------- SNRS 13.06 18.75 Aug 10.00 4.38 *$ 1.32 15.2% 9.4% FRTE 11.63 10.50 Aug 10.00 2.75 *$ 1.12 12.6% 7.8% IRF 13.19 13.25 Aug 12.50 1.63 *$ 0.94 8.1% 5.0% Previous Closed: * PTEK; failed support at $11.00 * CYOE; bullish trend reversed, downgraded * VLNC; broke 150 dma, now positive * NOVT; broke 150 dma, holding above $20 Unplayable (and very positive): * MCOM...Wow, a $35 rally! -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). ********* 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 SDTI 22.56 Jul 20.00 QSD GD 3.50 1280 19.06 4.9% 4.9% ---------------------------------------------------------------- BNBN 19.25 Aug 17.50 BEU HW 3.13 255 16.12 8.6% 8.6% DGN 17.81 Aug 15.00 DGN HC 3.50 526 14.31 4.8% 4.8% LIPO 20.88 Aug 20.00 LPQ HD 2.38 326 18.50 8.1% 8.1% MESG 19.75 Aug 15.00 MUG HC 5.88 178 13.87 8.1% 8.1% PAMC 33.69 Aug 25.00 QMC HE 10.63 49 23.06 8.4% 8.4% SQNT 17.50 Aug 15.00 SQQ HC 3.88 1046 13.62 10.1% 10.1% WSTL 8.97 Aug 7.50 QLW HU 2.00 835 6.97 7.6% 7.6% Sequenced by Return Called ************************** Stock Price Mon Strike Option Opt Open Cost RC RNC Sym Price Symbol Bid Intr Basis SDTI 22.56 Jul 20.00 QSD GD 3.50 1280 19.06 4.9% 4.9% ---------------------------------------------------------------- SQNT 17.50 Aug 15.00 SQQ HC 3.88 1046 13.62 10.1% 10.1% BNBN 19.25 Aug 17.50 BEU HW 3.13 255 16.12 8.6% 8.6% PAMC 33.69 Aug 25.00 QMC HE 10.63 49 23.06 8.4% 8.4% MESG 19.75 Aug 15.00 MUG HC 5.88 178 13.87 8.1% 8.1% LIPO 20.88 Aug 20.00 LPQ HD 2.38 326 18.50 8.1% 8.1% WSTL 8.97 Aug 7.50 QLW HU 2.00 835 6.97 7.6% 7.6% DGN 17.81 Aug 15.00 DGN HC 3.50 526 14.31 4.8% 4.8% Company Descriptions ********************* SDTI - Security Dynamics $22.56 *** One Week Play *** SDTI provides enterprise network and data security solutions, helping companies to conduct business securely, protect corporate assets & facilitate electronic commerce. Its SecurID, ACE/Server, and ACM access-control software work with UNIX and Windows NT operating systems. SDTI started its recent run on news that its subsidiary, RSA Data Security, launched RSA Consulting Services, a full-service, experienced consulting group for secure application development. Earnings are expected on July 15. Jul 20.00 QSD GD Bid=3.50 OI=1280 CB=19.06 RC=4.9% RNC=4.9% Chart = http://quote.yahoo.com/q?s=sdti&d=3m ***** BNBN - BarnesandNoble.com inc. $19.25 *** IPO Speculation *** BNBN is an online retailer of books and complementary information, entertainment and intellectual property-based products. It is increasing its customer base through pacts with portals like AOL and Microsoft's MSN. On Wednesday, BNBN announced the launch of its Music Store featuring the All-Music Guide database, the most authoritative online source for recorded music. Look out Amazon! BNBN isn't worried about the competition, they are fast becoming the competition. Aug 17.50 BEU HW Bid=3.13 OI=255 CB=16.12 RC=8.6% RNC=8.6% Chart = http://quote.yahoo.com/q?s=bnbn&d=3m ***** DGN - Data General Corp. $17.81 *** Very Conservative *** DGN designs, manufactures, markets and supports a family of open computer systems including servers and mass storage products that provide solutions for high performance customer applications. On June 23, Data General introduced its next-generation high-end enterprise NT server, the AViiON® AV 8900. DGN has rebounded off its April low and remains bullish. This is a relatively low ROI (3.5% return, monthly basis) which could be doubled using margin. The cost basis is near technical support. Earnings are expected on July 19. Aug 15.00 DGN HC Bid=3.50 OI=526 CB=14.31 RC=4.8% RNC=4.8% Chart = http://quote.yahoo.com/q?s=dgn&d=3m ***** LIPO - Liposome Company, Inc. $20.88 *** Stage II *** Liposome is a biopharmaceutical company engaged in the discovery, development, manufacturing and marketing of proprietary lipid and liposome-based pharmaceuticals, primarily for the treatment of cancer and other life-threatening illnesses. LIPO's current stage II climb started after reporting 1Q earnings in April (its second consecutive quarterly profit). On Wednesday, Liposome announced it has filed a New Drug Submission for marketing approval of Evacet in Canada (they already have filed with the USF&DA and Europe). Breaking resistance near $26.00 would move Liposome into blue sky territory. Aug 20.00 LPQ HD Bid=2.38 OI=326 CB=18.50 RC=8.1% RNC=8.1% Chart = http://quote.yahoo.com/q?s=lipo&d=3m ***** MESG - MessageMedia Inc. $19.75 MESG is a services company which provides e-mail based customer relationship management and direct marketing services, which enables companies to integrate sales and marketing functions into e-mail messages to their customers. MessageMedia started moving in June after announcing plans to acquire closely-held Revnet Systems (to gain e-mail database-software technology) and Decisive Technology (provider of continuous customer feedback solutions). The chart appears bullish as MESG is just shy of breaking above the April high. Aug 15.00 MUG HC Bid=5.88 OI=178 CB=13.87 RC=8.1% RNC=8.1% Chart = http://quote.yahoo.com/q?s=mesg&d=3m ***** PAMC - Provident American Corp. $33.69 *** Technical Buy? *** Provident American through its subsidiaries, Provident Indemnity Life Insurance and HealthAxis.com Inc., markets and underwrites medical (a majority of their sales) and life insurance under ordinary and group plans. They also have agreements with America Online and others to offer health insurance online. PAMC broke above its recent consolidation area, moving $11 in 7 days, but there has been no news. Hmmmm. Several buy signals have been triggered on increasing volume...can a new high be far behind? If not, we still like the support area near $25. Aug 25.00 QMC HE Bid=10.63 OI=49 CB=23.06 RC=8.4% RNC=8.4% Chart = http://quote.yahoo.com/q?s=pamc&d=3m ***** SQNT - Sequent Computer Systems $17.50 *** IBM Take Over? *** Sequent, the leader in Intel-based solutions for the data center, designs, manufactures, and markets high performance symmetric multiprocessing and CC-NUMA computer systems and operating environment software. Sequent supports more than 10,000 installations worldwide, including many of the world's largest and most sophisticated OLTP, DSS and RDBMS applications. Still waiting on news that IBM will acquire Sequent...the silence is deafening. A speculative play with a favorable cost basis. Earnings are expected on July 23. Aug 15.00 SQQ HC Bid=3.88 OI=1046 CB=13.62 RC=10.1% RNC=10.1% Chart = http://quote.yahoo.com/q?s=sqnt&d=3m ***** WSTL - Westell Technologies Inc. $8.97 Westell Technologies designs, manufactures, markets and services a range of digital and analog products used by phone companies to deliver services primarily over existing copper telephone wires that connect end users to a phone company's central office. Lots of news in May and June (partnerships, products, upgraded). WSTL is fairly bullish, climbing up and out of a stage I base. The recent trend is to move up sharply then consolidate laterally. Earnings are expected on July 23. Aug 7.50 QLW HU Bid=2.00 OI=835 CB=6.97 RC=7.6% RNC=7.6% Chart = http://quote.yahoo.com/q?s=wstl&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. Volume was not available from CBOE at press time. Stock Price Month Strike Symbol Price PctRtn OpnInt SNRS 18.75 Aug 20.00 RNUHD 3.38 18.00 3880 GEMS 5.00 Aug 5.00 GQMHA 0.88 17.50 320 NCSS 5.00 Aug 5.00 NQWHA 0.88 17.50 71 TSEMF 7.13 Aug 7.50 TWQHU 1.19 16.67 47 FIBR 14.38 Aug 15.00 QFWHC 2.38 16.52 1292 INPR 5.00 Aug 5.00 BLQHA 0.81 16.25 142 CHMD 10.00 Aug 10.00 HQCHB 1.63 16.25 88 GTRC 9.69 Aug 10.00 GURHB 1.50 15.48 30 BYND 29.50 Aug 30.00 QYDHF 4.50 15.25 310 NETG 29.63 Aug 30.00 NUGHF 4.50 15.19 59 GBTVK 7.44 Aug 7.50 GBQHU 1.13 15.13 200 OXGN 9.19 Aug 10.00 QYOHB 1.38 14.97 87 COOL 9.81 Aug 10.00 QOOHB 1.44 14.65 249 NEON 17.50 Aug 17.50 QNOHW 2.56 14.64 238 RACN 7.38 Aug 7.50 MCQHU 1.06 14.41 104 NETS 19.56 Aug 20.00 NTUHD 2.81 14.38 175 ADACE 7.13 Aug 7.50 QABHU 1.00 14.04 139 MESG 19.75 Aug 20.00 MUGHD 2.75 13.92 87 PPRT 4.94 Aug 5.00 QPNHA 0.69 13.92 108 ITIG 6.75 Aug 7.50 ITUHU 0.94 13.89 30 KNDL 15.00 Aug 17.50 KQRHW 2.06 13.75 118 SKI 5.00 Aug 5.00 SKIHA 0.69 13.75 271 ZDZ 24.56 Aug 25.00 ZDZHE 3.38 13.74 26 ASTX 20.56 Aug 22.50 AUTHX 2.81 13.68 23 HMK 5.94 Aug 10.00 HMKHB 0.81 13.68 70 IDTC 22.25 Aug 22.50 IQJHX 3.00 13.48 579 IRID 8.81 Aug 10.00 QAKHB 1.19 13.48 1234 MRVC 14.88 Aug 15.00 VQXHC 2.00 13.45 394 WRC 29.81 Aug 30.00 WRCHF 4.00 13.42 396 NVX 6.56 Aug 7.50 NVXHU 0.88 13.33 23 TIER 6.56 Aug 7.50 QTIHU 0.88 13.33 77 VICR 19.75 Aug 20.00 VIQHD 2.63 13.29 36 ONSL 20.75 Aug 22.50 QOLHX 2.75 13.25 44 CDNW 19.88 Aug 20.00 NWQHD 2.63 13.21 1787 FVCX 7.13 Aug 7.50 FXQHU 0.94 13.16 343 ALSI 24.00 Aug 25.00 AIUHE 3.13 13.02 10 QMDC 9.63 Aug 10.00 QCDHB 1.25 12.99 1286 TLSP 7.25 Aug 7.50 QBAHU 0.94 12.93 66 PHYC 5.81 Aug 7.50 PQHHU 0.75 12.90 35 DGN 17.50 Aug 17.50 DGNHW 2.25 12.86 1691 TGLO 18.06 Aug 20.00 GLUHD 2.31 12.80 237 MTSN 12.25 Aug 12.50 QQMHV 1.56 12.76 94 PTVL 23.56 Aug 25.00 QUTHE 3.00 12.73 1019 REGI 7.38 Aug 7.50 QRGHU 0.94 12.71 282 CYBX 11.88 Aug 12.50 QAJHV 1.50 12.63 70 WSTL 8.91 Aug 10.00 QLWHB 1.13 12.63 534 DRMD 15.00 Aug 15.00 DUQHC 1.88 12.50 73 MWHS 15.00 Aug 15.00 MQRHC 1.88 12.50 183 PCOP 10.00 Aug 10.00 PQAHB 1.25 12.50 116 KLOC 6.56 Aug 7.50 KCUHU 0.81 12.38 206 BEST 16.38 Aug 17.50 BUTHW 2.00 12.21 8 VVTV 24.63 Aug 25.00 UVRHE 3.00 12.18 192 FIBR 14.38 Aug 17.50 QFWHW 1.75 12.17 161 OH 12.38 Aug 12.50 OHHV 1.50 12.12 5 MGCX 27.88 Aug 30.00 MGUHF 3.38 12.11 16 CAO 24.88 Aug 25.00 CAOHE 3.00 12.06 10 USWB 24.88 Aug 25.00 QWBHE 3.00 12.06 1030 TSFW 22.06 Aug 22.50 SUWHX 2.63 11.90 302 GSNX 14.25 Aug 15.00 GQSHC 1.69 11.84 20 MCRE 6.88 Aug 7.50 MQZHU 0.81 11.82 792 PTEC 15.88 Aug 17.50 PKQHW 1.88 11.81 244 GLFD 14.88 Aug 15.00 GQFHC 1.75 11.76 11 TGX 7.44 Aug 7.50 TGXHU 0.88 11.76 330 KERA 26.63 Aug 30.00 KVQHF 3.13 11.74 233 EXCA 11.75 Aug 12.50 XQAHV 1.38 11.70 52 TSP 21.44 Aug 22.50 TSPHX 2.50 11.66 294 EPIC 5.38 Aug 7.50 PQSHU 0.63 11.63 71 DUSA 11.94 Aug 12.50 QDUHV 1.38 11.52 49 SQNT 17.44 Aug 17.50 SQQHW 2.00 11.47 1596 LDW 7.13 Aug 7.50 LDWHU 0.81 11.40 10 SBTK 23.06 Aug 25.00 XQYHE 2.63 11.38 689 MRVT 8.81 Aug 10.00 SQDHB 1.00 11.35 20 SNRS 18.75 Aug 22.50 RNUHX 2.13 11.33 217 SPLH 7.19 Aug 7.50 QRXHU 0.81 11.30 69 SCUR 4.44 Aug 5.00 UQUHA 0.50 11.27 257 CPLY 10.00 Aug 10.00 LXQHB 1.13 11.25 45 STNR 30.00 Aug 30.00 QFRHF 3.38 11.25 10 APOS 6.13 Aug 7.50 QAPHU 0.69 11.22 28 MYLX 8.94 Aug 10.00 MJQHB 1.00 11.19 295 SCSWF 12.38 Aug 12.50 QSOHV 1.38 11.11 52 SIII 12.38 Aug 12.50 SQIHV 1.38 11.11 1746 SVE 22.00 Aug 22.50 SVEHX 2.44 11.08 766 OSTE 24.88 Aug 25.00 OQQHE 2.75 11.06 205 FNF 19.81 Aug 20.00 FNFHD 2.19 11.04 70 RURL 9.06 Aug 10.00 QWMHB 1.00 11.03 32 ARDT 19.88 Aug 20.00 KQVHD 2.19 11.01 258 GIFI 12.50 Aug 12.50 QIFHV 1.38 11.00 370 PQT 8.00 Aug 10.00 PQTHB 0.88 10.94 453 DLTK 9.75 Aug 10.00 DSQHB 1.06 10.90 27 NSPK 11.50 Aug 12.50 NNQHV 1.25 10.87 261 BEAM 19.63 Aug 20.00 BAQHD 2.13 10.83 342 MANU 15.00 Aug 15.00 ZUQHC 1.63 10.83 208 CERN 17.50 Aug 17.50 CQNHW 1.88 10.71 20 AGS 11.69 Aug 12.50 AGSHV 1.25 10.70 47 IMRS 16.38 Aug 17.50 QIQHW 1.75 10.69 262 SGE 6.44 Aug 7.50 SGEHU 0.69 10.68 101 ANET 15.88 Aug 17.50 QTEHW 1.69 10.63 306 RWAV 7.06 Aug 7.50 RQRHU 0.75 10.62 10 MRCY 29.50 Aug 30.00 QYRHF 3.13 10.59 287 CVD 22.44 Aug 22.50 CVDHX 2.38 10.58 297 FFTI 9.50 Aug 10.00 QFOHB 1.00 10.53 88 CMTO 18.47 Aug 20.00 CQHHD 1.94 10.49 303 NOVT 20.88 Aug 22.50 QOHHX 2.19 10.48 25 FLH 10.75 Aug 12.50 FLHHV 1.13 10.47 95 NEON 17.50 Aug 20.00 QNOHD 1.81 10.36 293 CLEC 24.75 Aug 25.00 QFUHE 2.56 10.35 60 CLPA 13.31 Aug 15.00 QJCHC 1.38 10.33 45 TDFX 14.56 Aug 15.00 FQHC 1.50 10.30 204 PRST 7.31 Aug 7.50 PQKHU 0.75 10.26 74 WIND 14.63 Aug 15.00 QWVHC 1.50 10.26 255 AFLX 3.66 Aug 5.00 XFQHA 0.38 10.26 491 EFAX 18.38 Aug 20.00 FUWHD 1.88 10.20 73 TSFW 22.06 Aug 25.00 SUWHE 2.25 10.20 373 PCTL 6.75 Aug 10.00 PTQHB 0.69 10.19 43 COOL 9.81 Aug 12.50 QOOHV 1.00 10.19 286 PCYC 27.00 Aug 30.00 QPYHF 2.75 10.19 22 ROSI 6.75 Aug 7.50 QRSHU 0.69 10.19 886 RMII 13.50 Aug 15.00 RMUHC 1.38 10.19 389 CGZ 7.38 Aug 10.00 CGZHB 0.75 10.17 41 FC 7.38 Aug 7.50 FCHU 0.75 10.17 10 MESG 19.75 Aug 22.50 MUGHX 2.00 10.13 800 Z 9.88 Aug 10.00 ZHB 1.00 10.13 3564 FRTE 10.50 Aug 12.50 RQFHV 1.06 10.12 97 ICO 12.38 Aug 12.50 ICOHV 1.25 10.10 101 PLMD 9.94 Aug 10.00 PMHB 1.00 10.06 60 PILL 14.94 Aug 15.00 PQQHC 1.50 10.04 188 CATP 16.81 Aug 17.50 TQPHW 1.69 10.04 540 DSP 29.94 Aug 30.00 DQCHF 3.00 10.02 549 GSTX 14.97 Aug 15.00 QGSHC 1.50 10.02 363 CHMD 10.00 Aug 12.50 HQCHV 1.00 10.00 140 MWHS 15.00 Aug 17.50 MQRHW 1.50 10.00 320 MSM 10.00 Aug 10.00 MSMHB 1.00 10.00 20 NCSS 5.00 Aug 7.50 NQWHU 0.50 10.00 182 SGI 17.50 Aug 17.50 SGIHW 1.75 10.00 13250 WTHG 15.00 Aug 15.00 WTQHC 1.50 10.00 202 PPRT 4.94 Sep 5.00 QPNIA 1.44 29.11 113 LUK 23.88 Sep 27.50 LUKIY 6.75 28.27 59 GEMS 5.00 Sep 5.00 GQMIA 1.25 25.00 694 NVX 6.56 Sep 7.50 NVXIU 1.50 22.86 199 ETV 6.31 Sep 7.50 ETVIU 1.38 21.78 363 WND 14.63 Sep 15.00 WNDIC 3.13 21.37 588 PRXL 12.00 Sep 12.50 VBQIV 2.56 21.35 20 APOS 6.13 Sep 7.50 QAPIU 1.25 20.41 184 CEGE 4.94 Sep 5.00 QIIIA 1.00 20.25 284 MAXI 4.75 Sep 5.00 MQHIA 0.94 19.74 95 IDTC 22.25 Sep 22.50 IQJIX 4.38 19.66 239 ANIC 9.91 Sep 10.00 NIQIB 1.88 18.93 985 ROSI 6.75 Sep 7.50 QRSIU 1.25 18.52 419 FMXI 6.13 Sep 7.50 FQXIU 1.13 18.37 130 ZDZ 24.56 Sep 25.00 ZDZIE 4.50 18.32 351 CFN 4.44 Sep 5.00 CFNIA 0.81 18.31 199 BYND 29.50 Sep 30.00 QYDIF 5.25 17.80 1274 HCIA 10.00 Sep 10.00 ZHQIB 1.75 17.50 203 ASDV 20.94 Sep 22.50 QDVIX 3.63 17.31 1 MMWW 21.50 Sep 22.50 EQBIX 3.63 16.86 207 DUSA 11.94 Sep 12.50 QDUIV 2.00 16.75 83 VVTV 24.63 Sep 25.00 UVRIE 4.00 16.24 305 MCHM 6.56 Sep 7.50 QQIU 1.06 16.19 228 GHV 3.50 Sep 5.00 GHVIA 0.56 16.07 1032 DRMD 15.00 Sep 15.00 DUQIC 2.38 15.83 4735 PGA 9.88 Sep 10.00 PGAIB 1.56 15.82 122 PCYC 27.00 Sep 30.00 QPYIF 4.25 15.74 20 NUS 19.88 Sep 20.00 NUSID 3.00 15.09 370 ASMI 7.47 Sep 7.50 IQBIU 1.13 15.06 206 CERN 17.50 Sep 17.50 CQNIW 2.63 15.00 159 VRC 10.00 Sep 10.00 VRCIB 1.50 15.00 810 CATP 16.81 Sep 17.50 TQPIW 2.50 14.87 1202 EAII 24.06 Sep 25.00 QNEIE 3.50 14.55 214 ONSL 20.75 Sep 22.50 QOLIX 3.00 14.46 125 KOPN 23.50 Sep 25.00 KQOIE 3.38 14.36 157 KMAG 3.06 Sep 5.00 KMQIA 0.44 14.29 935 GSTX 14.97 Sep 15.00 QGSIC 2.13 14.20 450 MRVT 8.81 Sep 10.00 SQDIB 1.25 14.18 320 FA 12.38 Sep 12.50 FAIV 1.75 14.14 60 IONA 17.25 Sep 17.50 YWQIW 2.44 14.13 88 BEAM 19.63 Sep 20.00 BAQID 2.75 14.01 1437 EGGS 11.81 Sep 12.50 EGQIV 1.63 13.76 1267 GNSS 22.75 Sep 25.00 QFEIE 3.13 13.74 51 GLFD 14.88 Sep 15.00 GQFIC 2.00 13.45 116 TGX 7.44 Sep 7.50 TGXIU 1.00 13.45 895 SKYC 20.75 Sep 22.50 KQFIX 2.75 13.25 9 VNTV 10.38 Sep 12.50 QTZIV 1.38 13.25 145 IDTC 22.25 Sep 25.00 IQJIE 2.94 13.20 619 TLXN 8.56 Sep 10.00 TNQIB 1.13 13.14 201 OH 12.38 Sep 12.50 OHIV 1.63 13.13 328 SEV 3.81 Sep 5.00 SEVIA 0.50 13.11 669 PAGE 5.73 Sep 7.50 PGQIU 0.75 13.08 3673 TDFX 14.56 Sep 15.00 FQIC 1.88 12.88 312 DGN 17.50 Sep 17.50 DGNIW 2.25 12.86 1852 ZRAN 18.00 Sep 20.00 ZUOID 2.31 12.85 120 GADZ 13.63 Sep 15.00 EQKIC 1.75 12.84 10 GLIA 22.50 Sep 25.00 QGLIE 2.88 12.78 188 GLIA 22.50 Sep 22.50 QGLIX 2.88 12.78 83 ICGX 23.50 Sep 25.00 QIGIE 3.00 12.77 687 TWMC 11.75 Sep 12.50 TQTIV 1.50 12.77 576 CFN 4.44 Sep 7.50 CFNIU 0.56 12.68 322 WERN 19.78 Sep 20.00 WQXID 2.50 12.64 38 MSCC 10.00 Sep 10.00 QMSIB 1.25 12.50 55 VIRS 16.50 Sep 17.50 VQPIW 2.06 12.50 95 RURL 9.06 Sep 10.00 QWMIB 1.13 12.41 293 ENER 10.13 Sep 12.50 EQIIV 1.25 12.35 184 CYCH 12.81 Sep 15.00 KBQIC 1.56 12.20 463 BEV 7.19 Sep 7.50 BEVIU 0.88 12.17 6257 UBS 9.25 Sep 10.00 UBSIB 1.13 12.16 1850 CERN 17.50 Sep 22.50 CQNIX 2.13 12.14 422 ADLT 7.75 Sep 10.00 LQYIB 0.94 12.10 23 OCA 15.00 Sep 15.00 OCAIC 1.81 12.08 299 PSUN 23.88 Sep 25.00 PVQIE 2.88 12.04 13 PPOD 8.88 Sep 10.00 QPPIB 1.06 11.97 853 PTEC 15.88 Sep 17.50 PKQIW 1.88 11.81 10 NPTH 4.25 Sep 5.00 DQWIA 0.50 11.76 215 ESA 11.25 Sep 12.50 ESAIV 1.31 11.67 114 NWK 11.25 Sep 12.50 NWKIV 1.31 11.67 83 DBCC 10.75 Sep 12.50 BQDIV 1.25 11.63 623 ESV 19.38 Sep 20.00 ESVID 2.25 11.61 1114 CSGS 29.13 Sep 30.00 QGAIF 3.38 11.59 274 RAYS 15.31 Sep 17.50 RQYIW 1.75 11.43 110 NETA 16.44 Sep 17.50 CQMIW 1.88 11.41 3232 MAST 17.63 Sep 20.00 QACID 2.00 11.35 145 ORB 22.13 Sep 22.50 ORBIX 2.50 11.30 145 SEM 8.88 Sep 10.00 SEMIB 1.00 11.27 11 GZTC 5.00 Sep 5.00 GEQIA 0.56 11.25 143 ZDZ 24.56 Sep 30.00 ZDZIF 2.75 11.20 261 GCTI 28.00 Sep 30.00 QHFIF 3.13 11.16 652 ONSL 20.75 Sep 25.00 QOLIE 2.31 11.14 742 IDX 9.00 Sep 10.00 IDXIB 1.00 11.11 1436 VSIO 29.56 Sep 30.00 VQJIF 3.25 10.99 76 OCN 8.00 Sep 10.00 OCNIB 0.88 10.94 56 FINL 11.44 Sep 12.50 FQNIV 1.25 10.93 352 PRGY 27.50 Sep 30.00 PUYIF 3.00 10.91 268 PAGE 5.73 Sep 10.00 PGQIB 0.63 10.90 112 IHS 6.31 Sep 10.00 IHSIB 0.69 10.89 528 IHS 6.31 Sep 7.50 IHSIU 0.69 10.89 784 VLNC 6.94 Sep 7.50 VHQIU 0.75 10.81 1219 CATP 16.81 Sep 20.00 TQPID 1.81 10.78 1302 SVGI 16.88 Sep 17.50 VQQIW 1.81 10.74 498 CYGN 11.06 Sep 12.50 YNQIV 1.19 10.73 143 CCBL 28.00 Sep 30.00 LQEIF 3.00 10.71 45 HBI 5.88 Sep 7.50 HBIIU 0.63 10.64 701 CRUS 8.84 Sep 10.00 CUQIB 0.94 10.60 724 AFCI 16.63 Sep 17.50 AQFIW 1.75 10.53 25 FLC 9.50 Sep 10.00 FLCIB 1.00 10.53 7330 BEAS 27.50 Sep 30.00 BRQIF 2.88 10.45 64 TSX 8.38 Sep 10.00 TSXIB 0.88 10.45 71 ASYT 28.75 Sep 30.00 QQYIF 3.00 10.43 231 PRXL 12.00 Sep 17.50 VBQIW 1.25 10.42 5 TWTC 27.25 Sep 30.00 TTUIF 2.81 10.32 111 RMDY 26.38 Sep 30.00 LRQIF 2.69 10.19 26 AVI 29.69 Sep 30.00 AVIIF 3.00 10.11 96 NBTY 6.81 Sep 7.50 NBQIU 0.69 10.09 4392 NH 16.81 Sep 17.50 NHIW 1.69 10.04 134 DRMD 15.00 Sep 17.50 DUQIW 1.50 10.00 1214 ***************** NAKED PUT SECTION ***************** Market Terms And Definitions - Stock Types... Over the past few weeks, there have been numerous news articles about the group of stocks known as "cyclicals". I received lots of email requesting a definition of that term and I think it is important for the new investor to understand the different types of stocks in the market and the way they are classified. The basic categories are: Blue Chip stocks, Growth stocks, Income stocks, Cyclical stocks, Defensive stocks and Speculative stocks. Blue Chip stocks are historically the best long-term investments. These companies are well established, quality issues like Dupont, General Electric, IBM, and Proctor & Gamble. They generally pay good dividends and are considered the bellwethers of the market. Growth stocks are those companies which have a high probability of capital appreciation. They retain most of their earnings and usually don't pay dividends. All of their available funds are plowed back into the company for future expansion and acquisition or research. These stocks are more volatile and are generally considered speculative investments. Income stocks are conservative issues that have yields comparable with corporate bonds. These companies can pay competitive returns because their products or services are superior to others in the industry and they also have the possibility of price appreciation. A cyclical company is one whose earnings fluctuate with changes in a particular business or industry cycle. When the economic conditions are favorable, the company's stock and earnings rise. As the cycle ends, the company's revenues and stock value falls back to its previous position. Defensive or safety stocks are those which remain stable even in declining markets. These stocks usually include utilities, drug manufacturers, and consumer non-durables or food companies. They hold their value in recessions because their products are always in demand regardless of the economic climate. In the past, speculative stocks were generally identified by P/E ratios. These issues were considered aggressive when they had price to earnings ratios in the multiples of 50 to 100. Now most Internet stocks have P/E's well into the hundreds and this long term fundamental indicator may no longer be an accurate measure for gauging investment risk. Another type of high risk stock is the 'new issue', now commonly known as the IPO - Initial Public Offering. These stocks usually have incredible volatility when they begin trading and can move from just a few dollars up into the $100's over the course of one day's activity. Some examples of recent blockbuster IPO"s include Liquid Media (LQID) and Koop.com (KOOP). Good Luck! SUMMARY OF PREVIOUS PICKS ************************* Stock Price Last Mon Strike Opt Profit ROI Monthly Sym Picked Price Price Bid /Loss ROI BYND 27.81 29.50 Jul 22.50 0.56 *$ 0.56 8.8% 19.1% SEEK 55.88 51.50 Jul 45.00 0.88 *$ 0.88 7.1% 15.5% CUST 50.06 41.94 Jul 35.00 1.13 *$ 1.13 10.1% 14.7% PILL 13.88 14.94 Jul 12.50 0.81 *$ 0.81 16.3% 14.1% CACS 35.00 41.50 Jul 25.00 0.75 *$ 0.75 9.7% 14.0% MERQ 35.38 38.25 Jul 30.00 0.88 *$ 0.88 9.1% 13.2% NTBK 39.00 35.75 Jul 30.00 0.50 *$ 0.50 6.0% 13.1% SBTK 27.25 23.06 Jul 20.00 0.94 *$ 0.94 14.7% 12.8% PCYC 21.13 27.00 Jul 17.50 0.81 *$ 0.81 14.4% 12.5% SBA 27.38 27.69 Jul 25.00 0.50 *$ 0.50 5.5% 12.0% RIGS 20.63 19.94 Jul 17.50 0.44 *$ 0.44 7.9% 11.5% SPLN 34.31 37.31 Jul 25.00 0.38 *$ 0.38 5.2% 11.4% ICGX 23.13 23.50 Jul 20.00 0.31 *$ 0.31 4.8% 10.5% ANAD 31.31 36.00 Jul 25.00 0.63 *$ 0.63 9.1% 9.9% STII 25.00 29.25 Jul 20.00 0.50 *$ 0.50 9.1% 9.9% GALT 41.00 54.25 Jul 35.00 0.75 *$ 0.75 6.7% 9.7% CIEN 30.50 34.06 Jul 25.00 0.81 *$ 0.81 10.8% 9.4% EGRP 39.94 39.75 Jul 32.50 0.38 *$ 0.38 4.3% 9.3% SGI 14.63 17.50 Jul 12.50 0.25 *$ 0.25 6.3% 9.1% NE 20.00 20.50 Jul 17.50 0.50 *$ 0.50 8.3% 9.1% PWAV 30.50 34.16 Jul 25.00 0.44 *$ 0.44 6.2% 8.9% REV 30.38 28.25 Jul 22.50 0.69 *$ 0.69 10.2% 8.9% BOBJ 37.00 36.81 Jul 30.00 0.69 *$ 0.69 8.1% 8.8% PRD 27.50 28.69 Jul 22.50 0.38 *$ 0.38 6.0% 8.6% CNTO 50.94 48.94 Jul 40.00 0.81 *$ 0.81 7.4% 8.0% SUGN 22.75 30.25 Jul 17.50 0.44 *$ 0.44 8.8% 7.7% NRES 20.25 21.19 Jul 17.50 0.50 *$ 0.50 8.5% 7.4% CUBE 32.00 33.28 Jul 25.00 0.56 *$ 0.56 8.0% 7.0% CUBE 32.00 33.28 Jul 25.00 0.44 *$ 0.44 6.4% 7.0% TDW 28.75 30.50 Jul 25.00 0.50 *$ 0.50 6.1% 6.6% AMES 47.50 46.50 Jul 40.00 0.69 *$ 0.69 5.7% 6.1% EGRP 37.81 39.75 Jul 25.00 0.56 *$ 0.56 6.9% 6.0% -------------------------------------------------------------- QNTM 24.56 24.69 Aug 17.50 1.00 *$ 1.00 16.9% 10.5% Unplayable (and very positive): * NLC - Merger/Buyout announced before the market opened. -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 ADAP 23.19 Aug 17.50 CQI TW 0.44 100 17.06 8.7% AMTD 38.19 Aug 25.00 TAZ TE 0.75 635 24.25 8.9% BYND 29.50 Aug 20.00 QYD TD 0.75 1522 19.25 11.3% CDNW 19.94 Aug 15.00 NWQ TC 0.56 735 14.44 12.3% DRIV 35.31 Aug 25.00 DQI TE 0.88 47 24.12 11.1% LIPO 20.88 Aug 17.50 LPQ TW 0.63 185 16.87 11.2% MGCX 28.00 Aug 20.00 MGU TD 1.13 3 18.87 16.8% NETS 19.56 Aug 15.00 NTU TC 0.75 30 14.25 16.1% PAMC 33.69 Aug 20.00 QMC TD 0.56 10 19.44 7.7% PTVL 23.63 Aug 17.50 QUT TW 0.81 39 16.69 14.6% Sequenced by Return on Investment ********************************* Stock Price Mon Strike Option Opt Open Cost ROI Opt Sym Price Symbol Bid Intr Basis Expired MGCX 28.00 Aug 20.00 MGU TD 1.13 3 18.87 16.8% NETS 19.56 Aug 15.00 NTU TC 0.75 30 14.25 16.1% PTVL 23.63 Aug 17.50 QUT TW 0.81 39 16.69 14.6% CDNW 19.94 Aug 15.00 NWQ TC 0.56 735 14.44 12.3% BYND 29.50 Aug 20.00 QYD TD 0.75 1522 19.25 11.3% LIPO 20.88 Aug 17.50 LPQ TW 0.63 185 16.87 11.2% DRIV 35.31 Aug 25.00 DQI TE 0.88 47 24.12 11.1% AMTD 38.19 Aug 25.00 TAZ TE 0.75 635 24.25 8.9% ADAP 23.19 Aug 17.50 CQI TW 0.44 100 17.06 8.7% PAMC 33.69 Aug 20.00 QMC TD 0.56 10 19.44 7.7% Company Descriptions ******************** ADAP - Adaptive Broadband $23.19 *** An Old (New) Favorite *** Adaptive Broadband, formerly known as California Microwave (CMIC), designs, manufactures and markets sophisticated systems and products used worldwide in satellite and wireless communications for the transmission of voice, data, facsimile and video. ADAP also provides industry-leading solutions for satellite-based data communications and terrestrial wireless telemetry networks. Aug 17.50 CQI TW Bid=0.44 OI=100 CB=17.06 ROI=8.7% Chart = http://quote.yahoo.com/q?s=ADAP&d=3m ***** AMTD - Ameritrade $38.19 *** E*trade Challenger? *** Ameritrade Holding Corporation is a pioneer in the discount and online brokerage industry with brokerage and clearing services to individual consumer investors and other financial institutions. Subsidiaries of Ameritrade Holding include: Ameritrade, Accutrade, AmeriVest, OnMoney, and Advanced Clearing. Some say this company is poised to topple E*trade; the leader in discount Internet brokerages. The cost basis near $24 is a good place to start. Aug 25.00 TAZ TE Bid=0.75 OI=635 CB=24.25 ROI=8.9% Chart = http://quote.yahoo.com/q?s=AMTD&d=3m ***** BYND - Beyond.com Corp. $29.50 *** Internet Commerce *** BYND is a leading online re-seller of commercial off-the-shelf computer software to the consumer, small business and large enterprise markets. Through its online store, BYND offers a comprehensive selection of software, customer service and competitive pricing. BYND is the undisputed brand leader in category (selling software in a digital downloaded form) and is still rumored to be a takeover target of AMZN. Aug 20.00 QYD TD Bid=0.75 OI=1522 CB=19.25 ROI=11.3% Chart = http://quote.yahoo.com/q?s=BYND&d=3m ***** CDNW - CdNow $19.94 *** Internet Commerce *** CdNow is one of the most popular e-commerce sites, especially among teens, and is the largest retailer of custom music tracks on the Internet. CDNW offers over 500,000 music-related items; album recommendations, custom CDs, music samples, and a vast library of interviews & news from top music writers. An alliance with Atlantic Records and Microsoft may vault this company to the top of the heap. Aug 15.00 NWQ TC Bid=0.56 OI=735 CB=14.44 ROI=12.3% Chart = http://quote.yahoo.com/q?s=CDNW&d=3m ***** DRIV - Digital River, Inc. $35.31 DRIV provides comprehensive electronic commerce outsourcing solutions to software publishers and online retailers. DRIV derives its revenue primarily from sales of 3rd party software by managing online stores for software publishers and retailers. DRIV has completed a short-term W formation after an upgrade in June and several partnerships. On Friday, Digital announced the acquisition of Universal Commerce, Inc., which should expand their client base to include an additional 1,000 publishers of shareware. Earnings are expected around July 21. Aug 25.00 DQI TE Bid=0.88 OI=47 CB=24.12 ROI=11.1% Chart = http://quote.yahoo.com/q?s=driv&d=3m ***** LIPO - Liposome Company, Inc. $20.88 *** Stage II *** Liposome is a biopharmaceutical company engaged in the discovery, development, manufacturing and marketing of proprietary lipid and liposome-based pharmaceuticals, primarily for the treatment of cancer and other life-threatening illnesses. LIPO's current stage II climb started after reporting 1Q earnings in April (its second consecutive quarterly profit). On Wednesday, Liposome announced it has filed a New Drug Submission for marketing approval of Evacet in Canada (they already have filed with the USF&DA and Europe). Breaking resistance near $26.00 would move Liposome into blue sky territory. Aug 17.50 LPQ TW Bid=0.63 OI=185 CB=16.87 ROI=11.2% Chart = http://quote.yahoo.com/q?s=lipo&d=3m ***** MGCX - MGC Communications, Inc. $28.00 *** Break Out? *** MGC provides local phone service, custom calling features, long distance and Internet services to small business and residential customers in Las Vegas, Atlanta, Chicago, southern Florida and selected areas of southern California, including Los Angeles and San Diego. MGC announced on Wednesday that their 2Q revenues, lines sold/installed, and lines provisioned increased to record levels. Recent bullish signals and Friday's move broke the current downtrend indicating a possible change of character. Aug 20.00 MGU TD Bid=1.13 OI=3 CB=18.87 ROI=16.8% Chart = http://quote.yahoo.com/q?s=mgcx&d=3m ***** NETS - YouthStream Media Networks $19.56 YouthStream Media owns and operates a proprietary national network of theaters on college campuses which deliver entertainment and educational events via satellite for display through high resolution video projectors on movie theater sized screens. They serve about 40 colleges and universities. NETS started climbing in June on news about its exclusive online partner, CommonPlaces and its August IPO mybytes.com. Thursday, YouthStream announced they are now part of the Russell 2000. Aug 15.00 NTU TC Bid=0.75 OI=30 CB=14.25 ROI=16.1% Chart = http://quote.yahoo.com/q?s=nets&d=3m ***** PAMC - Provident American Corp. $33.69 *** Technical Buy? *** Provident American through its subsidiaries, Provident Indemnity Life Insurance and HealthAxis.com Inc., markets and underwrites medical (a majority of their sales) and life insurance under ordinary and group plans. They also have agreements with America Online and others to offer health insurance online. PAMC broke above its recent consolidation area, moving $11 in 7 days, but there has been no news. Hmmmm. Several buy signals have been triggered on increasing volume...can a new high be far behind? If not, we still like the support area near $25. Aug 20.00 QMC TD Bid=0.56 OI=10 CB=19.44 ROI=7.7% Chart = http://quote.yahoo.com/q?s=pamc&d=3m ***** PTVL - Preview Travel $23.63 *** Internet Commerce *** Preview Travel is a provider of branded online travel services for leisure and small business travelers providing a full-service travel agency online through its own web site and travel services via AOL, Excite, and Lycos. Recently completed a short-term W formation in June after announcing a #1 ranking by Gomez Advisors, pacts with American Airlines and Carnival Cruise Lines, and the launch of its "adventure" travel site). PTVL has moved above its 150 dma as the secondary Internet issues heat up. Aug 17.50 QUT TW Bid=0.81 OI=39 CB=16.69 ROI=14.6% Chart = http://quote.yahoo.com/q?s=PTVL&d=3m ***************************** SEE DISCLAIMER IN SECTION ONE
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