The Option Investor Newsletter Tuesday 8-17-99 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. ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 8-17-99 High Low Volume Advances Decline DOW 11117.08 + 70.29 11117.08 11011.65 696,656k 1,834 1,151 Nasdaq 2671.22 + 25.94 2680.00 2631.34 902,509k 2,060 1,783 S&P-100 699.28 + 6.61 699.43 691.44 Totals 3,894 2,934 S&P-500 1344.16 + 13.39 1344.16 1328.76 57.0% 43.0% $RUT 436.00 + 2.18 436.00 432.73 $TRAN 3205.51 - 6.66 3234.06 3171.35 VIX 22.53 - 0.42 24.07 22.53 Put/Call Ratio .59 ************************************************************* The great rate debate continues. Good job guys! I left for Seattle after doing the newsletter last Tuesday night and the Dow had just bounced off 10550. I left the market in your hands for five trading days and you added +567 points. Great job! Where would you like me to go next? Sorry, no four letter words ending in "L". Seriously, I am amazed at the market jump. The PPI last week was weak and I could see a nice bump from that. The CPI this morning was exactly as expected and I could see another relief rally today but +567 points from last Tuesday's low? The advance decline line also reversed although not strongly. Actually there are several factors that helped the markets recover. The first of course was the PPI last week. The PPI measures inflation at the wholesale or producer level. Inflation should show up here first but the unexpected drop in the PPI knocked the wind out of the Fed's inflation case. The markets, which had already priced in TWO rate increases, rejoiced and went on a spending spree. Secondly, as you can see by the first chart, the Dow held support at 10,550 on Aug-10th. This level had not been seen since June-24th and we did see a double bottom retest on Aug-5th and Aug-10th. This holding of support put a bottom under the market which had been severely beaten up in recent weeks. Thirdly, we were due for a technical correction. The drop from the July-16th high of 11,250 was pretty steep with only one pause on July-27/28. The Dow had been range bound for about two weeks between 10825 and 10600. The PPI along with the hold at successful support gave us a springboard for the relief rally. There is still trouble on the horizon in the form of the Aug-24th Fed meeting and rate hike but I think the worst is over. With the rate hike already priced into the market we may get through the meeting without any major disaster. The tech sector got some major help today after the close when Dell Computer beat the street by +$.02. The press from Dell was very positive and there was some claims that Y2K was not having as big an impact as previously expected. Unit sales were up a whopping +55% with revenue up to $6.14 bln from $4.33 bln last year. Web sales have soared to $30 mln per day. I can remember just two years ago when they were bragging about passing $1 mln per day. The street should be happy with Dell's numbers and techs should enjoy a boost. Dell was up +$1.88 in after hours trading. Hewlett-Packard however was the goat for the day. Investors hammered HWP for only beating the street by +$.05 when it was discovered that .03 was "unusual interest income" and not normal operations. HWP dropped -5.75 and joined the list of "glad we did not hold over earnings" stocks. Brokers got a boost today from Etrade which announced a deal with Instinet to offer after hours trading to their customers beginning in September. Etrade customers will be able to trade from 4:PM to 6:30 PM eastern time every day on both Nasdaq and NYSE stocks. The CEO was on CNBC after the close today and said this was only the first step and he expects 24 hr trading very soon. Stocks got help from bonds again today with the yields closing at 6.01%. This is significantly better than the 6.26% from last Tuesday. The feeling in the bond market is that the Fed can't justify another increase in October based on the PPI/CPI numbers and bonds have seen their lows. We hope this is true but when it comes to building that wall of worry the bond traders are experts. I fear that the closer we get to next Tuesday's FOMC meeting the more worried they will get. We have had several reports recently that confirmed employment was still rising. However there is no sign of nationwide wage pressures. The Fed will be in a quandary but will probably err on the side of another rate increase after August just to be careful. We have a double witching options expiration on Friday and that will also help hold the markets up. They will need help after gaining +567 points in only five trading days. Remember that nothing goes up or down in a straight line. The markets need to rest after any multi-day move. We did close right at the high for the day and that normally means another jump at the open. I really enjoyed meeting the hundreds of subscribers at the Seattle Money Show and many of you had some good suggestions about how we could improve the newsletter. We have some great plans in the works and we know you will be excited. One of the announcements we will make in the next three weeks will be so incredible it will catapult you into the next level of trading. I spoke with some readers about it at the show and the level of interest was outstanding. You WILL NOT be disappointed! Please, pick your entry points carefully. Good Luck, Sell too soon. Jim Brown Editor *************** Market Posture *************** As of Market Close - Tuesday, August 17, 1999 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,500 11,320 11,117 Neutral 7.20 SPX S&P 500 1,330 1,420 1,344 Neutral 8.17 * OEX S&P 100 675 735 699 Neutral 8.13 RUT Russell 2000 440 465 436 BEARISH 8.06 NDX NASD 100 2,250 2,468 2,337 Neutral 8.13 MSH High Tech 1,125 1,250 1,168 Neutral 8.13 XCI Hardware 920 1,090 1,022 Neutral 7.20 CWX Software 725 844 769 Neutral 8.13 SOX Semiconductor 450 535 512 Neutral 7.20 NWX Networking 555 625 576 Neutral 8.13 INX Internet 500 580 441 BEARISH 7.20 BIX Banking 690 710 668 BEARISH 7.23 XBD Brokerage 410 440 399 BEARISH 7.23 IUX Insurance 645 660 616 BEARISH 7.23 RLX Retail 915 960 869 BEARISH 7.23 DRG Drug 370 400 350 BEARISH 7.20 HCX Healthcare 750 800 719 BEARISH 7.22 XAL Airline 180 190 155 BEARISH 5.21 OIX Oil & Gas 285 310 314 BULLISH 8.10 Posture Alert CPI + PPI = Nice rally! The broad market rallied again thanks to no surprises from the Consumer Price Index. There are now only seven days left until the Fed meets, and with the 30yr bond getting close to breaking below 6%, this market could explode in either way, depending on how Greenspan plays his cards. With Tuesday’s action, we have turned Neutral on the S&P 500. A detailed description of our Market Posture and its applications can be found at: members.OptionInvestor.com/marketposture **************** Market Sentiment **************** 7 days and counting! We are at a key moment in this market! There are only a few trading days left until the Fed meets, and the bond market seems to be shrugging off any indication of future interest rate hikes, beyond this upcoming one. Will the 30yr Treasury break below 6%, or will we see 6.25%+ after next week? Is this the start of the strongest rally of the year, or is this a big HEAD-FAKE? Many questions, and if you have the answer, we would like to know. But after this last week, what we do know is that many investors are starting to gain the confidence of old. We’ve talked to many who are buying anything.com, or buying way out of the money (front month that expire in a few days) call options, or margining themselves to the gills because this is the bottom baby and I need to make up my losses! Wrong! This mentality is probably a little early to the party. The sentiment is building too quick and too soon. The party starts at 10pm and it is only 6am. The Interest Rate Game is doing a commercial break, but will be back in 2 minutes and 2 seconds. There are many outcomes that can happen next week, but the LAST THING you want to do is to give back all of the gains that you have made these last couple of weeks. The ace-in-the-hole is truly held by one man, Mr. Greenspan. Anything can still happen at this next meeting (i.e. 50 basis increase, warnings of future hikes, etc), so be careful in what you do. It is very positive to see the long bond at 6%, and would be extremely positive if it can break below this key benchmark and hold. However, to see the long bond back at 6.25% or higher is not out of the question, and most likely. Remember how quick things fall, because it only takes 2 days to wipe out 2 months worth of work. The last thing we want to do is to portray such pessimism, but to buy heavily before this meeting is not the smart play. You may not buy at the bottom, but at least you won’t buy at the top and watch’em drop like a rock. The best thing you can do is to sell to soon, play the market both ways, or at least hedge yourself if you have to go long. If after next week’s meeting, you see the long bond at 5.9%, you better BE LONG OR BE WRONG. But, if you see the bond at 6.3%, hopefully you were prepared. BULLISH Signs: Investor Intelligence: As a contrarian indicator, the percent of Bullish investors decreased 2.2% and Bearish sentiment increased 1.5%. Mixed Signs: Interest Rates: The yield on the 30-yr Treasury is still above key 6% barrier, but off the highs of 6.272%. Market Posture: Several indexes are starting to show signs of bottoming out, including the Dow, Healthcare, Software, Networking, and Internet. BEARISH Signs: Pinnacle Index: The Pinnacle Index for the OEX (715-745) is now reaching levels of extreme optimism. From a contrarian standpoint, resistance is building in this area, and may indicate a short term top. Russell 2000: Broke below both the 50 and 200 day moving averages, proving very bearish. Peak Open Interest: The contraian put-call ratio clocking in at 1.1 suggesting bullish sentiment picking up steam. Market Posture 2: Several indexes continue on their bearish decline, including drugs, healthcare, brokerage, banking, airlines, Russell 2000, Insurance, and Internet. Advance/Decline Line: The A/D line has been rolling over, and will continue to prove Bearish if decliners continue to out-pace advancers in the weeks ahead. OTM Call Analysis As we move through the August expiration cycle, Pinnacle is tracking the level of call buying (OTM) between 690-780 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 +183.5% August Expiration Cycle OEX OTM Call Analysis (Open Interest August 690-780) Date Open Interest Change % Alert Friday, July 16 32,285 Friday, July 23 62,455 +93.4% Friday, July 30 74,895 +131.9% Friday, Aug. 06 113,258 +250.8% Friday, Aug. 13 117,620 +264.3% Market Sentiment at a Glance Friday Tues Indicator (8/13) (8/17) Alert Pinnacle Index (OEX): Overhead Resistance (715-745) 8.0 9.4 Overhead Resistance (680-710) 2.3 1.5 Underlying Support (630-670) 4.4 5.9 Put/Call Ratios: CBOE Total P/C Ratio .7 .6 CBOE Equity P/C Ratio .5 .5 OEX P/C Ratio 1.2 1.1 Peak Open Interest (OEX): Puts 670 650 Calls 700 700 P/C Ratio .9 1.1 Market Volatility Index (VIX): CBOE VIX 22.53 Investors Intelligence: Bullish 50.00% * Bearish 29.30% * 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 Tues Benchmark (8/13) (8/17) Overhead Resistance (715-745) 8.03 9.42 Overhead Resistance (680-710) 2.33 1.51 OEX Close 688.82 699.28 Underlying Support (630-670) 4.36 5.94 Average ratings: Resistance levels 2.0 / Support Levels .5 What the Pinnacle Index is telling us: Overhead sentiment resistance is building at the OEX 715/745 level while the underlying support is holding at the OEX 630/670 level. Put/Call Ratio Friday Tues Strike/Contracts (8/13) (8/17) CBOE Total P/C Ratio .69 .62 CBOE Equity P/C Ratio .49 .48 OEX P/C Ratio 1.21 1.09 (OEX) Peak Open Interest Friday Tues Strike/Contracts (8/13) (8/17) Puts 670 / 13,875 650 / 15,466 Calls 700 / 15,403 700 / 14,381 Put/Call Ratio .90 1.08 (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 16, 1999 Top 18.13 August 05, 1999 Bottom? 32.12 August 17, 1999 22.53 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 July 14, 1999 55.2 26.7 July 21, 1999 54.1 27.9 July 28, 1999 53.6 24.6 Aug 04, 1999 52.2 27.8 Aug 11, 1999 50.0 29.3 * Please view this in COURIER 10 font for alignment ***************************************************** CHANGES THIS WEEK Index Last Mon Tue Week Dow 11117.08 73.14 70.29 143.43 Nasdaq 2671.22 7.47 25.94 33.41 $OEX 699.28 3.85 6.61 10.46 $SPX 1344.16 3.09 13.39 16.48 $RUT 436.00 -0.23 2.18 1.95 $TRAN 3205.51 33.10 -6.66 26.44 $VIX 22.53 0.57 -0.42 0.15 Calls Mon Tue Week BVSN 103.94 1.38 9.06 10.44 New 52-week high LVLT 63.38 5.38 3.50 8.88 New, $ managers buying VRSN 89.25 2.81 3.44 6.25 Picking up speed... NXLK 103.19 0.38 5.19 5.56 Jumped over 5% today MMCN 54.13 4.13 0.13 4.25 Extremely bullish signs SNE 131.38 -0.31 2.25 1.94 Rising Asian markets NOK 87.19 0.00 1.44 1.44 Breaking through 50dma? SLB 66.63 -0.50 1.88 1.38 Interest rate haven. LXK 73.88 1.75 -0.50 1.25 Poised against HP&IBM TXN 75.38 1.25 -0.38 0.88 Dropped, no glory here VISX 95.56 1.63 -1.56 0.06 20 new centers by 2000 HGSI 60.13 -0.06 0.06 0.00 Preparing for bull run INTC 79.00 -1.19 0.44 -0.75 Trend is your friend SLR 72.56 -2.13 0.31 -1.81 Signed mega deal w/IBM LSI 56.50 -0.38 -2.00 -2.38 Pulled down by HWP Puts TBH 72.50 -0.63 -1.25 -1.88 No strength here. TAN 44.50 1.50 -0.81 0.69 Dropped, found its base U 33.56 0.81 0.00 0.81 Caution is the key AHP 41.88 -0.06 1.06 1.00 Regulators approve drug AMR 63.25 1.13 0.25 1.38 American is soaring DH 61.88 1.50 0.63 2.13 Dropped, too strong ATHM 39.63 1.06 1.56 2.63 Dropped, positive tone **************** PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ****** TXN $75.38 -0.38 (+0.44) Learn to say good bye. TXN split after the close Monday. It certainly gave us an opportunity to take some money off the table prior to the split. It started off strong with the dawning of the new week. Texas Instruments made a new high at $153.50 just after 11 a.m. ET. The sellers stepped in and took advantage of the increase $3.19 for the day. TXN drifted lower for the balance of the session, closing down $1 for the day. We must step aside for the time being, and let the post split activity play out. With the semiconductor industry attempting to regain its strength, we will keep our eye on TXN for another opportunity in the near future. PUTS: ****** DH $61.88 +0.63 (+2.13) In a positive market yesterday DH pushed through overhead resistance at the 200-dma ($60) on average volume; likely in anticipation of strong 2Q earnings results. Not to disappoint investors, DH came in today at .49 p/s versus the .46 p/s consensus by First Call. Profits we up 33% - $228 mln. versus $172 mln. same quarter a year ago. The sharp rise in profits was due to a 13% sales increase in snacks and clothing by the Target stores. As a result of the boost from the earnings' announcement, the strong Dow, and the neutral CPI numbers, we're dropping DH as a put play tonight. The more aggressive players may want to hang on...since lately the trend has been down after an earnings announcement - even a good one. ATHM $39.63 +1.56 (+2.63) Here comes the bounce in ATHM. The stock is licking its wounds from last weeks beating and trying to mount a rally with the rest of the sector. So far it has been successful as investors are forgetting the bad news from last week. The stock has rallied both days this week on light volume. This is in part from ATHM delivering press releases with a positive tone to try and improve overall sentiment. On Tuesday they announced an $85 million investment in an online e-commerce site called Tickets.com. There was also some news about the ongoing saga of open-access but nothing trade worthy. But if we have learned one thing over the years, it is that you can't fight the trend and the trend for Internet stocks may be starting to turn. Therefore, we are dropping ATHM from the put list. There are probably not many plays open since the stock spiked up on the open Monday but if you do have an open play, we recommend adjusting both your amount you're willing to sell for a profit and your stop loss. A close above $40 could be dangerous to playing puts. TAN $44.25 -1.06 (+0.44) It is time to go shopping elsewhere. Tandy is still in a near term down trend, and could continue to find its way lower. It did move up to resistance yesterday just under the $46 area and gave back over $1 today. We are letting TAN go at this time because it does seem to be finding a little strength and could be beginning to form a base in the $42-$46 area. The retail index has also found some new strength in the past few sessions, even though it may be short lived. To keep our interest we would need to see further weakness in the sector as well as the stock itself, which isn't happening at this time. ***** Play updates continued in section two ***** ****************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an Email to "subscribe@OptionInvestor.com" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ************************************************************* DISCLAIMER ************************************************************* This newsletter is a publication dedicated to the education of options traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. The newsletter staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control.
The Option Investor Newsletter Tuesday 8-17-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. PICK NEWS - CALLS ***************** SLR $72.56 +0.31 (-1.82) SLR was down most of the trading session today, but finally closed up 0.31 to finish the day at $72.56. Volume was a little on the light side with 1.15 mln shares changing hands. However, despite the anemic gains today, there was a gigantic news released on the company today. It was announced today that SLR was selected as a worldwide manufacturer of IBM's print circuit board (PCB) assemblies in its PC service lines. SLR reported that it has signed a 3-year letter of intent with IBM, and plans to establish a full- service NPI center in Greenock, Scotland. Furthermore, the letter of intent also addresses intellectual property rights with regards to PC motherboards. VISX $95.56 -1.56 (+0.06) It was a pretty tough day for VISX, even on the heels of a positive CPI, and promising industry news. VISX closed down 1.56 to end the trading session at $95.56. However, even on a discouraging day of trading, there are two encouraging pieces of information concerning VISX that were released on Monday. First, competitor Baush and Lomb (B&L) has run into some resistance from the FDA over their new laser Technolas 217. It was reported that there is uncertainty whether the FDA’s Ophthalmic Device Panel would review the laser. Second, Starr Surgical Company announced yesterday that it has formed a wholly owned subsidiary that will be called Laser and Implant Technology Centers (LITC). By the end of their fiscal year in 2000, Starr is planning to open twenty locations nation wide. Starr Laser centers will feature the VISX Star S2 system in each of the 20 location. Today's move appears to be more of a consolidation as it builds support at its 30 dma. However, if VISX closes under its 30 dma, then we would be concerned and we might consider closing the play. LSI $56.50 -2.00 (-2.38) On Monday the stock showed strength as it traded in the proximity of its 52-week high ($58.88 set on Friday) and then managed to close just a fraction away from this mark as the DOW receded in the afternoon in anticipation of the CPI numbers. But now, LSI is settled back to the higher-end of its support level. Even though the sentiment was bullish today, Hewlett- Packard's rapidly falling shares pulled down the hardware and chip sectors. In response LSI gave up a couple of dollars by the closing bell; however, the volume was lower than normal. With this in mind, watch for a bounce on strong volume to confirm direction before starting a new play on this chip maker. VRSN $89.25 +3.44 (+6.25) VRSN is certainly snapping back in tip-top form from the recent Internet bashing. This momentum-driven play picked up more speed as it advanced another 7.5% in the past two days. Needless to say the momentum is continuing and we haven't gotten a pullback yet. Overhead resistance is not too far away at $96.75, the 52-week high set in mid-July. If you are looking for an entry before the stock consolidates (and this could be at any time now), you'll need to use an intraday pullback to jump in. Please act with caution on this play, it is a VOLATILE INTERNET STOCK and can move sharply. SLB $66.63 +1.88 (+1.38) The beginning of this week has been a little bumpy for Schlumberger. Because oil prices fell 30 cents on Monday, the stock was also down fractionally to end the day. Even with the benign CPI report released by the Labor Department today, many investors were shaky about getting back into interest rate sensitive stocks. However, SLB, not affected as much by interest rate changes, closed with a nice gain. Other factors helping the stock was an article released that BP Amoco was fighting a blaze Monday evening at a 125,000 barrel per day unit, which turns crude oil into gasoline. With last weeks oil reserves being lower than expected, Monday’s fire at Amoco, and the gradual increase of oil prices, the stock price reacted accordingly. The stock continues to trade above its 50 dma and 200 dma, making another run at its high at $68.50, which is only a few points away. Even though we see the stock breaking to new levels, use caution since this play is so sensitive to oil prices. NOK $87.19 +1.44 (+1.44) With little help from the labor department, Nokia has slowly but surely worked its way higher. Investors not impressed with today’s CPI figures were hoping for a number lower than analysts expectations. But unfortunately, by matching these expectations investors remained weary about future interest rate hikes. Despite these worries, by late afternoon, some sidelined investors headed back into telecommunication stocks helping lift the stock. The stock's turnaround is evident since hitting its August low at $78.75. We expect NOK to continue this upward trend, breaking through its 50 dma. Remember that NOK was named one of the 100 best-managed companies in the world, and investors know it. Because the market is so volatile, be careful and place your stop loss orders. BVSN $103.94 +9.06 (+10.44) Today BVSN was launched to a new 52 week high! What helped this dramatic gain? A combination of things. The outlook for the stock continues to receive good reviews from investors, analysts, and companies associated with Broadvision. Today, an alliance was formed between BVSI and U.S. Interactive, to provide customers with even more creative solutions for e-commerce and communications. The synergies created by the combination have very attractive prospects. The CPI numbers this morning helped jump start the stock, and unlike most of the market, BVSN was able to maintain and hold it's gains throughout the day. Late afternoon the stock regained momentum on good volume, and continued the trend to the new high. Support sits at $84 (which is a long ways down and its 10 dma - be careful here!), and resistance is yet to be seen. Today's stall in the market hints at caution, as investors anticipate a rate increase. Wait for a pull back before initiating a new play. HGSI $60.12 +0.06 (0.00) Are we there yet? How much longer? We're starting to feel like anxious young vacationers wanting to arrive. Today started out, looking like we would get our boost, but the market died on us, and we faltered. What this is doing however, is creating a very strong support base for us. HGSI's 10 dma is now catching up to us, and is at $59. It is arguable that HGSI is forming a bullish ascending triangle. It is just tough to see because the intraday movement has been so tight lately. However, when the break does come, it should be positive. We did get a negative breakout on the MACD, but with HGSI the chart shows that they are usually flat and short. Even though we are preparing technically for the bull run, caution is still advised due to the market and speculative nature of this play (which we consider risky). LXK $73.88 -0.50 (+1.25) The futures this morning had investors excited about the market as a result of the CPI numbers. But, what should have, didn't happen. This creates a bit of concern, and with LXK having participated in some nice gains recently, causes us to advise caution. The stock should continue to gain, as managers take positions in LXK; however, this may not happen until the market uncertainty passes. Charts indicate the momentum is beginning to fade, and the relative strength may be turning. Long term buy signals are improving however, so watch the stock closely before starting a new play, and when the market internals improve, and confirm a bullish trend it may be safe. Good news in an article stating that the company is now poised to go head to head with HP & IBM. Growth, earnings, and high tech solutions to cost reductions have positioned the company to compete with the big two. Protect your profits due to market uncertainty. SNE $131.38 +2.25 (+1.94) Japan's Nikkei market closed higher for the seventh straight day on Tuesday and that helped propel Sony to another 52-week high. In fact the stock closed just under its day-high as well which was at $131.50. A strong market in Japan wasn't the only thing fueling this play either. SNE announced Monday that they would keep pace with Nintendo by lowering the price on their playstation by 25%. On Tuesday Sony announced that their Preferred Customer program increased benefits to their loyal customers by offering better rewards and more discounts. Wall street like these developments and the stock gained ground to hit new highs both days this week. This stock has shown the interest of investors who want to take part in the Asian stock market rebound. MMCN $54.13 +0.13 (+4.25) We expected the broader markets to be quiet on Monday and it was. MMCN didn't let the major markets hold it back however. MMCN gapped up $3.87 at the open and closed up $4.12 for the day. Volume for the session was very strong with 1.9 mln. shares exchanging hands, over 4 times its norm. Near term this is an extremely bullish sign and suggests further moves to the upside. Today MMCN made a new high at $55.13 and fell back to close at $54.13, up just $0.13 for the session. We do need to point out that one week ago MMCN traded at a low of $37.88. Yesterday's high again, was $55.13, that's a move of over 45% in 5 trading days. As we said before we do believe MMCN will move higher, however the folks that bought stock in MMCN last week may decide that 45% is not a bad move. If you entered the play on MMCN, move your stops close in case the bears decide to have their way with MMCN, for a few days. If you didn't enter a play in MMCN yesterday or today, only consider a new play with a strong move up accompanied by strong volume. Mild support should be at $52, but for those willing to handle any volatility stronger support should be found at $50. Set your stops accordingly. INTC $79.00 +0.44 (-0.75) Just another high in the life of Intel. Just when we think INTC may be getting a little "top heavy", it makes a new high. That's not to say that our basic view of the chip maker has changed. As we know "the trend is your friend" and right now our friend is headed north. The further a stock goes up without, a pullback sometimes makes us a little uneasy. Volume in the major markets the past two days has been anemic, and it is worth noting that volume in Intel the past two days has been 25% less than the norm at 16.9 mln. shares. The release of earnings this morning by Hewlett-Packard seemed to knock the air out of the PC stocks and the chip makers. Their earnings came in a nickel ahead of estimates, but simply didn't impress the analysts on Wall Street. The past two sessions Intel has showed a pattern of starting out the day sideways to lower and recovering in the last hour of trading. We do believe that Intel will continue to make its way higher, but move your stops up close, to protect your profits, in case we get a few days when INTC hits that proverbial bump in the road. For those readers who have not yet entered a play in INTC, do so ONLY on a positive move up with better than average volume, combined by a solid move in the chip makers sector and the major indices. NXLK $103.19 +5.19 (+5.56) The bounce continues. Nextlink started out Monday drifting lower to $93.00, down $4.63 for the session. The last 30 minutes of the day the buyers stepped up to the plate driving NXLK back up to close up $0.38 for the day. This morning with the CPI numbers coming in benign, investors put NXLK back on their buy list for another day. NXLK jumped over 5% today, closing at $103.19 on volume of 492K. We are sticking with NXLK, and sticking with our view that at this time the recent recovery is primarily driven by the reduced interest rate "fears", and somewhat technical in nature. Yes it has recovered approximately 70% of its recent decline, but most of the recent gains have come on average or lower volume, which does make us somewhat suspect. A gain is still a gain and a profit is still a profit, regardless volume. With fears of inflation and interest rates waning somewhat, NXLK could continue its recovery. We are still awaiting the ex-date for the 2:1 split. We would suggest if you haven't taken your money off the table on this recovery, be careful and sell too soon. PICK NEWS - PUTS **************** TBH $72.50 -1.25 (-1.88) It was another great day for TBH put players. The stock was down 1.25 to close the trading session at $72.50. Volume today was below average with 1.27 mln shares changing hands. On Monday, many Latin American ADR's dipped before the shadow of the upcoming U.S. CPI report. Trading was light on Monday as investors used the economic report as an excuse to sit the session out. Today was a different story. Several of the ADR's rallied on the good news of the CPI report this morning. However, TBH was not one of them. A normally very responsive stock, TBH failed to show any strength while the U.S. Dow rallied into the close. On the contrary, TBH slipped further south and closed near the low of the day. Its 10 dma, currently near $73.75, has been acting as resistance for the stock price. Until we get a significant rally above this resistance, TBH will continue to remain a put play. AHP $41.88 +1.06 (+1.00) Looking for some direction. That seems to be the theme for American Home Products this week. Despite some good news for AHP yesterday, it was not enough to help the stock, which ended the day on the downside. News was released that US Regulators approved its drug Sonata for adult insomnia. The drug was designed to take on its competitor Monsanto Co’s top-selling sleep aid Ambien. The approval of the new drug has been a ray of light for a company that has been under gloomy skies lately. Looming overhead is the trials that persist to haunt AHP. Several people have filed lawsuits against the company claiming that Pondmin and Redux, dietary supplements, caused heart valve damage. This dispute has continued to hurt the stock price that is close to its 52-week low of $40.50. Breaking to a new low is foreseeable considering the approval of Sonata minimally helped the stock today. This may be a good entry point, however, continue to use caution with this play since the stock has fallen so far so fast. U $33.50 +0.00 (+0.81) Well it may be looking like time to say goodbye to our play of USAir but here is why we are not convinced. First of all, this rally has been minimal. It has only taken us back to the 10-dma but has failed to move us above that level. Second, the volume on the rally has been terrible. This is a classic indicator of a bounce, not a new trend. Third, oil prices continue to be very strong. Everyday that oil stays above $20-$21 dollars is another day that USAir will have to dip into future earnings to pay for fuel. But we do want to be cautious here and use patience in picking entry points. The stock should begin a new trend lower anytime since it has failed to move higher. In all cases, stops will enhance your plays and preserve your capital. AMR $63.25 +0.25 (+1.38) Despite higher oil prices, American is soaring this week. Well soaring is a little strong maybe but it's much better than the sentiment of late. AMR started the week on a positive note by sending letters to all frequent flyers apologizing for delays and including 2500 free sky miles as an apology. This is a step in the right direction for a company that has lost the faith of its customers. But the big news this week will be labor talks that are going on with the company's pilots. Any resolution to this issue will be considered a positive for AMR's stock. But more problems with a new salary structure is bound to translate into losses on Wall Street. So keep an ear tuned to the news wire for any recent developments and use stops to avoid a rally sparked by the two sides reaching an agreement. NEW CALL PLAYS ************** LVLT - Level 3 Communications, Inc. $63.38 +3.50 (+8.88) Level 3 Communications, Inc., is a communications and information services company that is building the first international network optimized for Internet Protocol technology. The Level 3 network combines local, long distance, and undersea networks, connecting customers end-to-end across the U.S. and in Europe and Asia. The company expects to complete its planned network construction in phases beginning in the first quarter of 2000. In the interim, Level 3 is offering service in the U.S. and Europe using a combination of company owned facilities and leased network connections. LVLT is a spin-off of construction mammoth, Peter Keiwit and Sons' of Omaha, Nebraska. LVLT is back on our call list thanks to renewed buying interest. Based on increasing volume over the last 3 trading days, it looks like money managers are accumulating the issue again, following its descent from $100 in April. After 3 long months, it too has finally traded on the positive side of its 30-dma. It does have a bit of that "spikey" look to it on the chart, indicating that the play may be short lived if the volume dries up. But its move has been accompanied by successively increasing daily volume above its average of 1.47 mln. shares (1.86 mln., 2.29, mln., and 2.40 mln. on Friday, Monday, and today, respectively). Closing near its high of the day is another good sign, signaling that the buying should continue. Of course that all depends on the market cooperation. Currently, we don't have LVLT figured to remain a long-term play, but for the next few days, with the markets cooperation, more fund buying could propel it higher. We caution you about picking the right entry point. These last few days have not allowed for much intraday swings (except upward) and it may be due for a pullback. However, LVLT did just break above its 50 dma which is a positive sign. These next two days will be important as we see if LVLT can hold above its 50 dma and whether the stock price consolidates at this new level or continues higher. USB Piper Jaffray began coverage of LVLT with a "strong buy" rating on August 5. That rating was reiterated today with a new price target of $85. BUY CALL SEP-60 QHN-IL OI=856 at $7.00 SL=5.25 BUY CALL SEP-65*QHN-IM OI=886 at $4.38 SL=2.50 BUY CALL SEP-70 QHN-IN OI=518 at $2.50 SL=1.25 BUY CALL DEC-65 QHN-LM OI=227 at $9.75 SL=7.25 BUY CALL DEC-70 QHN-LN OI=169 at $7.75 SL=5.50 Picked on August 17 at $63.38 PE = N/A Change since picked 0.00 52 week low =$ 22.38 Analysts Ratings 1-6-2-0-0 52 week high=$100.12 Last earnings 07/99 est -0.41 actual -0.37 surprise = 9.76% Next earnings 10-29 est -0.51 versus -0.15 Average daily volume = 1.47 mln Chart = http://quote.yahoo.com/q?s=LVLT&d=3m NEW PUT PLAYS ************* none today PLAY OF THE DAY *************** SNE - Sony Corp $131.38 +2.25 (+1.94 for week) Sony is a consumer electronics and multimedia entertainment company. It sells products like TVs, VCRs, MiniDisc systems, stereos, digital camcorders, DVD video players, and the Playstation home video game system. It is also in the process of strengthening its position in the music and image-based software markets. Some of Sony’s entertainment assets include Columbia TriStar Motion Picture, Columbia TriStar Television, Sony Pictures Studio, and Columbia and Epic record labels. Other high-tech products include flat-screen TVs, digital TVs, CD-ROMs, and digital cellular telephones. Sunday’s Write Up Last week we said Sony was poised to spring higher and it did not disappoint us. It was one of the few stocks that was moving up since Monday and therefore was in a great position when the market started to move on Wednesday. We had lots of positive news to help fuel the stock as well, starting with an upgrade from Merrill Lynch. They raised their price target for SNE due to cost-cutting efforts and restructuring that will help the company’s bottom line. There was also a report on Thursday that Sony will work with Nippon Zeon to develop plastic disks for computer hard drives which helped drive the stock but the good news doesn’t end there. Friday morning Sony had a press release stating they would start selling music on the Internet in Japan. The new site would feature music from Japan’s top producers and singers. So what do you get if you combine all this news together? A new 52-week high! It broke above the old high of $126.88 on Friday and closed at $129.44, just under the day-high. These are all bullish signs but it will be interesting Monday to see if the market can hold its gains. Don’t commit to any new plays if the market seems jittery. We mentioned all the pertinent news above but wanted to expand on the plastic hard drive news. The press release states that the cost of making plastic disks with a storage capacity of five gigabytes would be 30 to 40 percent lower than other conventional aluminum disks. SNE is in talks with Castlewood Systems Inc, among others, on commercialization of hard disk drives using plastic based disks. Leave it to Sony to find a better and cheaper way to improve electronic products. Tuesday’s Write Up Japan's Nikkei market closed higher for the seventh straight day on Tuesday and that helped propel Sony to another 52-week high. In fact the stock closed just under its day-high as well which was at $131.50. A strong market in Japan wasn't the only thing fueling this play either. SNE announced Monday that they would keep pace with Nintendo by lowering the price on their playstation by 25%. On Tuesday Sony announced that their Preferred Customer program increased benefits to their loyal customers by offering better rewards and more discounts. Wall street like these developments and the stock gained ground to hit new highs both days this week. This stock has shown the interest of investors who want to take part in the Asian stock market rebound. BUY CALL SEP-125*SNE-IE OI= 73 at $10.13 SL=7.50 BUY CALL SEP-130 SNE-IF OI= 27 at $ 7.00 SL=5.25 BUY CALL OCT-125 SNE-JE OI= 63 at $12.00 SL=9.50 BUY CALL OCT-130 SNE-JF OI=349 at $ 9.25 SL=7.00 Picked on July 2nd at $125.19 P/E = 31 Change since picked +6.19 52-week high=$131.38 Analysts Ratings 0-0-0-0-0 52-week low =$ 60.25 Last earnings 07/29 est= N/A actual= N/A Next earnings 10/99 est= N/A versus= N/A Average Daily Volume = 190 K Chart = http://quote.yahoo.com/q?s=SNE&d=3m STRADDLES ********* Markets Breakout while Fundamentals Consolidate Amazing how the markets seem to get wider and wider in terms of price movement, while the news gets more and more non-eventful. The latest PPI report issued last Friday, along with today’s CPI report, was about as eventful as watching paint dry. Yet the markets seem to get a jump-start in terms of price movement. Today’s movement in the market averages confirms this price movement. For those of you who feel like you missed the earnings boat, don’t fret. A new batch of indecision, greed, and fear will be along in about 4-6 weeks. So what do we concentrate on in straddleville when there are no fundamentals? Well there are continued government fundamentals which do show themselves nearly every week. If you must buy options, than at least find markets with options that have low implied volatility. The sector that is currently at the bottom of the option premium pile is a surprise. The computer services sector looks to be making a bottom. When comparing this sector currently with what the options were trading for at the beginning of the year, anyone would claim them cheap. Straddle Mailbag for this Week I received a question, which I found needed more than just an answer. Some explanation and perhaps an example would help as well. “Can you explain how you look at a chart to determine if a stock is straddle worthy?” Well, I cannot guarantee that anything is “straddle worthy” but here is what I look at to determine if I feel that a stock is going to breakout to one side or another. The number one thing that I like to see is if the market is tightening. That means the daily range of the stock is getting smaller and smaller. You may refer to this consolidation on the chart as wedge formations. Now some of these wedges as I like to call them are very viewable to the naked eye. I have taken an example from an earlier write-up, and will point out the wedge formation for you to see. Take a look at the chart of Exxon that was in Sunday’s Straddle write-up, Notice that over the last several months how the market just started to drift from low to high and back. The highs were getting lower, and the lows were getting higher. This is what I am talking about. This is a classic wedge that most technical analysts will tell you to stay away from. That’s because most technicians only know two words in their vocabulary; BUY and SELL. What I am betting on is that this consolidation will lead to a breakout one way or another. As the market gets closer and closer to the center of the wedge, I can just hear the fight announcer on ESPN just before a major battle yelling “LETS GET READY TO RUMBLE!!! This fight, however, is to determine who is right, the bulls or the bears. I must admit, consolidation is easier to see on some charts than on others. Sometimes you can see a wedge on a chart as plain as day. Other times, its there, but either a bullish wedge or a bearish one. To conclude, consolidation usually precedes a move in one direction or another. As straddle traders, we really don’t care which way it goes, as long as it gets going! ****************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $10 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an Email to "subscribe@OptionInvestor.com" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ************************************************************* DISCLAIMER ************************************************************* This newsletter is a publication dedicated to the education of options traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. The newsletter staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control.
The Option Investor Newsletter Tuesday 8-17-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. COMBOS ****** Market Rallies On Favorable Economic Report.. U.S. stocks finished higher Tuesday, following a session of very volatile trading, on news that inflation in consumer prices was about what most experts expected last month. Another rally in blue chip stocks led markets to a higher close on Monday ahead of the next important economic report; the July Consumer Price Index. The Dow rose 73 points to 11,047 while the the Nasdaq composite rose 7 points to 2,645. The S&P 500 stock index gained 3 points to 1,330. Declining issues led advances by 1,548 to 1,392 on the New York Stock Exchange and the rise in the Dow came on moderate volume of 581 million shares on the NYSE. The long Treasury bond rose 3/32 to yield 6.09%. Portfolio plays: Our big winner today came in the form of merger news as Nielsen Media Research (NMR) jumped $4.50 to $37 after Dutch publisher VNU launched a $2.5 billion offer for the company. The bullish debit spread is trading near maximum profit after only one week. Another recovering issue; Medtronic (MDT), moved higher after Deutsche Bank Alex Brown reported that a preliminary injunction against Tyco International's (TYC) unit, U.S. Surgical, could add about $0.04 a share to the earnings of Medtronic. We expect the positive announcement to boost prices in the short-term and will use the movement to roll forward the LEAPS/CC’s play into September. Other hi-tech stocks performed well in today’s rally including: BroadCom (BRCM), EMC Corporation (EMC), ExciteAtHome (ATHM) and Sun Microsystems (SUNW); which was rolled forward to September in both of our calendar positions. Emulex (EMLX) was up almost $12 to $117 in the bullish activity and some of that movement may have been due to the appointment of Michael Smith to vice president of the company’s Worldwide Marketing division. Many of our smaller issues continue to rebound. Positions that have now moved back into profitability include the bullish debit spread on Entremed (ENMD), which traded at a $0.50 profit during the morning session; Novell Networks (NOVL), a recently adjusted NOV30C/SEP30C calendar spread that has a new debit of $1.00 and Network Associates (NETA), which rebounded to a high near $17.68 in today’s trading; allowing a small positive return on both the debit and calendar spreads. Tommy Hilfiger (TOM) moved above $40, a recent resistance area, and boosted our long-term LEAPS/CC’s play into a credit position with an overall profit of $4.00. General Electric (GE) is once again showing strength near $105 and the current rally should provide enough positive support to hold the bullish diagonal position above our break-even price of $109.38. Those of you currently in the play may consider closing it prior to the Fed’s interest rate announcement for the existing profit. Gemstar (GMST) investors have finally started to exhibit some buying pressure with the stock trading near support at $50. The August credit strangle (AUG80C/52P) appears to be comfortably OTM with only four days until expiration. Tuesday, August 17 U.S. stocks finished higher Tuesday, following a session of very volatile trading, on news that inflation in consumer prices was about what most experts expected last month. The Dow was up 70 points at 11,117 after a late day rally while the Nasdaq index of technology stocks gained another 25 points to close at 2,671. In the broader market, advancing issues beat declines 1,834 to 1,144 on moderate volume of 689 million shares on the NYSE. The 30-year bond rose a full point, with the yield falling to 6.01%. Portfolio plays: What started out to be a terrible month has rebounded into a very profitable period and today’s late market rally boosted many of our plays into positive territory. One of the best performers was Medtronics (MDT), up $2 to $73 providing an excellent opportunity to roll the long-term position into September. Costco (COST) was another previously negative play (we closed at a small loss) that moved safely into profitability near $79. Gemstar (GMST) added $5 to rise above $60 for the first time in weeks and Qualcomm (QCOM) tacked-on almost $12 to finish near $173, over $30 above our sold position in the August (bullish) debit spread. Doubleclick (DCLK) moved $7.50 higher to $92 with the rebounding Internet issues and Excite@home (ATHM) continues to recover, trading as high as $40 today after a report they purchased a large stake in tickets.com. International Paper (IP) was another positive mover, finishing a few cents short of our sold strike at $55. The current calendar position can now be rolled forward to September for $1.38 credit, reducing the overall cost of the long option (OCT-55C) to $0.37. One of the few losers was Motorola (MOT), down $2 to finish just below $90. Many of the brokerage stocks rebounded and two of our recently under-performing issues; Lehman Brothers (LEH) and Merrill Lynch (MER) made solid gains. Both long-term positions were candidates for roll-outs; the MER AUG80C/SEP80C at $2.38 credit and the LEH AUG60C/SEP60C at $1.75 credit. Oil stocks were also positive in today’s broad market rally and our current positions in Halliburton (HAL), Noble (NE), Diamond Offshore (DO) and Baker Hughes (BHI) all moved higher. The BHI calendar spread is trading exactly at the sold strike ($35) and we are considering an early move to September. The current credit for the AUG/SEP roll-out is $1.25, which would bring the overall cost of the OCT-35 call to $0.25. There are many other positions to move forward this week and a complete summary of monthly plays will be posted after Friday’s monthly expiration. Good Luck! Questions & comments on spreads/combos to ray@OptionInvestor.com ****************************************************************** - NEW PLAYS - I had a great time at the Seattle Money Show, the highlight of which was meeting with all of the readers (current and future) that chose to attend. Most of the traders that I spoke to were very happy with the products that the OIN offers and we also received some excellent suggestions for new sections and other improvements. As far as the Spreads/Combos Section, most of you favored time selling strategies such as calendar spreads and LEAPS with Covered-Calls. A large compliment of readers were interested in out-of-the-money credit spreads while slightly fewer wanted more in-the-money debit spreads. The final group favored neutral positions such as straddle combinations and credit strangles and there were just a few that indicated an interest in the complex and exotic arbitrage plays. I hope that we can continue to improve all of the newsletter products and we look forward to meeting more of you at the next show in San Francisco, October 29-31. ************** PRD - Polaroid $25.37 LEAPS/Covered-Calls Polaroid Corporation and its subsidiaries, designs, manufactures and markets a variety of products used primarily in instant image recording fields. Its products are used in amateur & professional photography, graphic arts, science, medicine, government, and education. Polaroid is approaching monopoly status in their industry with a huge percentage of the worldwide market for instant imaging. They are well known in international manufacturing sectors and they're also one of the biggest patent holders in the United States. They also have tremendous technological expertise in the area of new research. Polaroid is beginning to offer a number of new products. These include a disposable instant camera and a pocket-size instant camera that creates images the size of large postage stamps, with adhesive backs. These new cameras could double Polaroid's sales to nine million this year. They also plan to have branded film with popular cartoon characters on it and both of these products are marketed primarily to the younger age groups, to give PRD a different area of distribution. The new disposables will be sold in outlets like Toys 'R' Us, 7-Eleven, hotels, liquor stores and entertainment areas. Another future plan currently on the drawing board is the possibility of putting an instant film back in the digital camera. Polaroid is negotiating with some major producers of digital cameras to license their instant technology to them. With new management and the ongoing possibility of a potential merger with industry-leading candidates like Sony, the next few months are expected to be positive for the share value. The December quarter is usually their best one. They could earn as much as $1.50 a share this year, against a loss in 1998 and next year's earnings could be as high as $2 to $3. This new outlook has produced a short-term rally in the stock price and the option prices are favorable. We will protect the downside for the first few months by selling ATM positions. PLAY (conservative - neutral/calendar spread): BUY CALL JAN01-25 ZRD-AE OI=252 A=$6.62 SELL CALL SEP99-25 PRD-IE OI=1124 B=$1.62 INITIAL NET DEBIT TARGET=$4.75 TARGET ROI=100% (17 months) Chart = http://quote.yahoo.com/q?s=PRD&d=3m ************** DISH - Echostar Comm. $72.50 *** Personal Preference *** Echostar Communications through its subsidiaries, is a leading manufacturer & worldwide distributor of direct-to-home satellite television (DTH) products. DTH products allow reception, direct to the end user, of video, audio, data and other information via satellites positioned in geostationary orbit. The company is also developing a digital direct broadcast satellite (DBS) system for the United States. Echostar rose $7 to $72.75 today after analysts Dennis Leibowitz and Karim Zia at Donaldson, Lufkin & Jenrette raised the company from a “buy” to a “top pick.” This comes just one week after DISH reported a 42% increase in total quarterly revenue; $350 million for the three months ended June 30, 1999. EchoStar also reported pre-marketing cash flow of $129 million, almost twice as high as the previous period. The company also experienced strong network subscriber growth during the second quarter, adding 332,000 new customers, an increase of 84%. The company is rumored to be working on a new up-link technology where they can provide satellite Internet services. You may have seen Hughes' DirecTV/DirecPC, which broadcasts Internet content via satellite directly to a PC but the most widely used platform is still the TV. Echostar is now working on that technology and most experts believe the company is now positioned to become the premier provider in the industry. I am offering this play because I like the current bullish outlook on the stock (from the analysts that follow the industry) and the current technical trend. In addition, I just installed DISH in my front yard (a five foot dish on a ten foot pole) and in my opinion, any company that can produce a perfect digital picture in Chugiak, Alaska (my home town) is worthy of my vote. PLAY (aggressive - bullish/diagonal spread): (Market/stock price opens higher) BUY CALL DEC-65.00 QHS-LM OI=89 A=$16.62 SELL CALL AUG-75.00 UAB-HO OI=521 B=$1.37 INITIAL NET DEBIT TARGET=$15.00 TARGET ROI=50% (Market/stock price opens lower) BUY CALL DEC-65.00 QHS-LM OI=89 A=$16.62 SELL CALL AUG-72.50 UAB-HV OI=187 B=$2.31 INITIAL NET DEBIT TARGET=$14.00 TARGET ROI=50% Plan to sell another ITM call option next week, after the August expiration. Chart = http://quote.yahoo.com/q?s=DISH&d=3m ************** PGEX - Pacific Gateway $22.87 *** Volatility Play *** Pacific Gateway’s goal is to provide global Internet and high bandwidth services by expanding its network to provide companies with all facets of connectivity. In addition, the company is a diversified facilities-based international telecommunications carrier serving a wide array of domestic & international service providers and retail customers. PGEX and its subsidiaries are a party to 44 operating agreements providing landing rights in 28 countries and have ownership interests in 19 digital undersea fiber optic cable systems. In addition, PGEX has a U.S. network spanning twelve major metropolitan cities and is developing additional offshore markets. PGEX reported favorable quarterly earnings in mid-July with revenues increasing 27% on 49% volume growth. The company now has five years of profitable operations and a current backlog of $73 million in new contracts expected to yield $1.30 - $1.50 in future EPS. Over 65,000 customers now utilize PGEX’s retail services and their new business venture, PGExpress, is planning to open a slew of global Internet Data Centers in 1999. Implied volatility remained at extreme levels today in the call options on PGEX although trading volume was fairly low. One of the market-makers noted that a regular retail customer likes to open positions with a bias towards long volatility. That can be a bonus to us if the stock trades in a reasonable ($3-$5) range for the next few days. This is a ten week bottom-fishing position based on the favorable disparity in front month options. We expect to move to a diagonal spread (one direction or the other) when the short option expires this Friday. PLAY (aggressive - bullish/calendar spread): BUY CALL OCT-25 QAE-JE OI=213 A=$3.00 SELL CALL AUG-25 QAE-AE OI=401 B=$0.31 INITIAL NET DEBIT TARGET=$2.50 TARGET ROI=25% (two months) Chart = http://quote.yahoo.com/q?s=PGEX&d=3m ************** OMQP - Omniquip $12.06 *** Technicals Only *** Omniquip International is the largest North American producer of telescopic material handlers, marketed under the SKY TRAK and LULL brand names. The company also manufactures a line of skid steer loaders and other material handling equipment. Omniquip's products are used in a wide variety of applications by commercial and residential building contractors, as well as by customers in other construction, military, industrial & agricultural markets. The company reported record third quarter results in early August with a 25% increase in sales. The incredible third quarter sales reflects strong markets for OmniQuip's products, especially the telescopic material handlers, and higher than anticipated sales of Snorkel aerial work platforms, as the result of an aggressive inventory reduction program. The new Snorkel sales force reduced inventory by $14 million in the third quarter and recorded the highest sales month (June) in Snorkel's history. The earnings are old news but the stock price continues to move higher and the last two days have been extreme. The technicals are favorable and traders drove the implied volatility higher today. We will use the new call option interest to open a low cost speculation play on this unique issue. PLAY (aggressive - bullish/diagonal spread): BUY CALL SEP-10.00 OJQ-IB OI=664 A=$3.00 SELL CALL AUG-12.50 OJQ-HV OI=547 B=$0.50 INITIAL NET DEBIT TARGET=$2.38 TARET ROI=15% Chart = http://quote.yahoo.com/q?s=OMQP&d=3m ****************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $10 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an Email to "subscribe@OptionInvestor.com" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. 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