The Option Investor Newsletter Sunday 8-22-99 1 of 6 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. Entire newsletter best viewed in COURIER 10 font for alignment ******************************************************************* MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ******************************************************************* WE 8-20 WE 8-13 WE 8-6 WE 7-30 DOW 11100.61 +126.96 10973.65 +259.62 10714.03 + 58.88 -255.81 Nasdaq 2648.33 + 10.52 2637.81 + 89.84 2547.97 - 90.52 - 53.91 S&P-100 696.59 + 7.77 688.82 + 14.69 674.13 - 9.16 - 15.59 S&P-500 1336.61 + 8.93 1327.68 + 27.39 1300.29 - 28.43 - 28.22 RUT 434.38 + 0.33 434.05 + 6.01 428.04 - 16.73 - 3.61 TRAN 3150.73 - 28.34 3179.07 - 40.96 3220.03 -113.21 - 48.25 VIX 24.06 + 1.68 22.38 - 4.98 27.36 25.83 Put/Call .69 .72 .72 .72 ******************************************************************* Who's afraid of the big, bad Fed? Obviously nobody! With the Fed meeting only two days away, the market looks like it is celebrating in advance. Contrary to all market logic the markets should not be going up. The week before a Fed meeting is reserved for worry warts and vacations. If you were on vacation this week you are probably going to be surprised when you see the Dow only -150 points from its all time high only two days before a rate increase. Before you get too excited check out the advance/decline line in the first chart. Yes, the market is going up but the line is only going sideways. Granted the steep drop was halted but I am still not convinced. Also, on Friday, a good day in the markets, there were only 57 new highs compared to 72 new lows on the NYSE. Not earth shaking but the broader market is still not participating in the rally. Volume was also very light in front of the Fed meeting with the NYSE only posting 662 mln shares compared to the Nasdaq with 792 mln shares. The NYSE went from the 2nd lowest volume day of the year to about tenth in the last five minutes. The same was true of the Nasdaq, jumping from 3rd lowest to about tenth in the last five minutes. Many analysts felt the options expiration Friday was the reason for the last minute surge. Speculation that many traders were caught unprepared for the unexpected market rally and were caught short and had to cover at the close. After almost two weeks of gains the Nasdaq finished the week flat, even with the +26 gain at the close. Stocks within the index were really mixed with some Internets up, some down, and some stocks up strong like QCOM +10. The four horsemen were split with DELL and MSFT down and INTC and CSCO up. There is no pattern and it appears that rotation is taking place within the tech sector. Investors should be cautious in trading during a rotation cycle. Stocks in favor one day are thrown out the next. Some traders are still taking advantage of the rally to lighten up on their positions in an orderly manner. Two sectors hard hit were semiconductors and telecom. Sprint got hammered after analysts turned down on the outlook for the sector. They feel the profit potential is slipping with increased competition. After AMAT and MU had some cautious things to say this week the reports showing the decreasing book to bill ratios falling just added further worries to semi stocks. The wildcard this week was the dollar/yen war with the dollar losing the battle. With the dollar dropping, rumors that Japanese investors are starting to pull dollars out of the market and treasuries, abound. Must be a slow news week! Seriously, if they did start repatriating money from the U.S. to Japan it would impact our markets dramatically. Japanese investors own more than 10% of our stock market and more than 33% of our treasury bonds. There was even a popular fiction novel several years ago where Japan declared war on the U.S. by dumping their investments and causing a run on our markets. We won in the end, but it was only fiction. If Japan was dumping bonds it was well hidden as the yield on the long bond dropped to 5.98%. This is the number one reason why the stock market is gaining ground. The bond market is widely seen as the best forecaster of Fed policy and dropping yields seem to be saying that the Fed is not going to raise rates again. This is good news for stocks but we will hold our opinion until AFTER the Fed meeting on Tuesday. All in all, I am impressed with the market strength last week. We are getting close enough to the expected Labor Day rally that anxious investors appear to be buying early. The market recovered over +225 points from the bottom of the drop on Thursday, 10875, on the strength of the bargain hunters. Where to from here? We need to retest the 11,250 high to confirm an upward direction. If we fail on Monday from here, 11100, we could have a "lower high" scenario and drop back to our recent trading range. The reasons we could fail are a pullback from the options related close on Friday and Fed worry. If we can just hold our ground here until after the Fed meeting then things will be looking up. My market view is still up after Labor Day and into the first week of October. Between now and Labor day we will suffer from weaker and weaker volume as traders try to squeeze remaining vacations in before summer expires worthless. Weak volume means high volatility and possible wide market swings. The gamblers among us will probably roll the dice before the Fed meeting but those of us that have been burned by unexpected Fed results in the past will be comfortable in waiting for a sure thing before risking capital. We could be setting up for a "buy the rumor, sell the news" event after the results are known. I am hoping for at least one more downdraft before Labor Day to open positions for the next earnings cycle coming in September. (Yes, Sept. Earnings are in October but the rally should be in September.) Remember, expectation causes the gains, not the announcement. To paraphrase Spock in a Star Trek movie, "expectation of an event is sometimes better than the event. It is not logical but it is true." Live long and prosper by selling too soon. Jim Brown Editor *********** JIM'S PLAYS *********** Nothing to report this week. I closed my QCOM $150 puts before I left for the Seattle Money Show two weeks ago for $4.00 and then kicked myself almost daily since then. I am in cash and on vacation (really). Like I said above, I am hoping to target shoot some stocks AFTER the Fed meeting and hold for the expected post Labor Day rally. I am thinking maybe Gateway for the split on 9/7 and Vodaphone for the 5:1 split on Sept 30. VOD has to hold support at $184 but it looks like a possible bottom. It is still early yet but keep VOD on your radar screen. Jim ************* COMING EVENTS ************* Monday: None Scheduled Tuesday: FOMC - Fed meets to consider rate hike. Decision at 2:PM EST BTM Schroders 8/21 Forecast: -- Previous: 0.2% LJR Redbook 8/21 Forecast: -- Previous: 0.8% API Oil Stocks 8/20 Forecast: -- Previous: -3.24M Wednesday: Durable Goods July Forecast: 0.7% Previous: 0.4% Existing Home Sales July Forecast: 5.35M Previous: 5.53M Thursday: Jobless Claims 8/21 Forecast: 290k Previous: 287K Real GDP Q2-Pre Forecast: 2.3% Previous: 2.3% APICS Survey Aug Forecast: -- Previous: 50.8 Money Supply (M2) 8/16 Forecast: -- Previous: -$4.4B Help Wanted Index July Forecast: -- Previous: 84 Friday: Personal Income July Forecast: 0.4% Previous: 0.7% Personal Spending July Forecast: 0.5% Previous: 0.3% Univ of Mich Sentiment Aug Forecast: -- Previous: 106.0 ************** MARKET POSTURE ************** As of Market Close - Friday, August 20, 1999 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,500 11,320 11,100 Neutral 7.20 SPX S&P 500 1,320 1,420 1,337 Neutral 8.17 OEX S&P 100 675 735 697 Neutral 8.13 RUT Russell 2000 440 465 434 BEARISH 8.06 NDX NASD 100 2,250 2,468 2,315 Neutral 8.13 MSH High Tech 1,125 1,250 1,159 Neutral 8.13 XCI Hardware 920 1,090 1,015 Neutral 7.20 CWX Software 725 844 767 Neutral 8.13 SOX Semiconductor 450 535 501 Neutral 7.20 NWX Networking 555 625 566 Neutral 8.13 INX Internet 500 580 435 BEARISH 7.20 BIX Banking 690 710 666 BEARISH 7.23 XBD Brokerage 410 440 398 BEARISH 7.23 IUX Insurance 645 660 617 BEARISH 7.23 RLX Retail 915 960 863 BEARISH 7.23 DRG Drug 370 400 362 BEARISH 7.20 HCX Healthcare 750 800 739 BEARISH 7.22 XAL Airline 180 190 154 BEARISH 5.21 OIX Oil & Gas 285 310 314 BULLISH 8.10 Posture Alert Who's Buying? Friday's market action was very lackluster even though the indexes rallied to end the week on a positive note. Most of the indexes are still stuck in a tight trading range, with no breakouts or breakdowns to be mentioned. The Drug and Healthcare stocks put in a good showing for the week, and are showing more strength than they have in many weeks. Both indexes posted +3.2% gains on Friday. No changes to the Posture Board. A detailed description of our Market Posture and its applications can be found at: members.OptionInvestor.com/marketposture **************** MARKET SENTIMENT **************** Y2K is upon us? We cannot decipher whether all of the Sep-OEX put buying, that is occurring way out of the money, is due to the Fed meet on Tuesday or because the speculators are betting that the Y2K stock market crash will occur sometime before the third week in September? Anyway, it seems that people are really starting to fret about Y2K. I am also sure that as we get closer to the big date, we will have a better grasp on the psychology of our friends/relatives/co-workers and anyone else who thinks that the end of the world is just around the corner. I know it won't be that big of a deal when I read that all the 7-11's across the country will be stocking up on Y2K materials for the big day. I sure can't wait for Jan 1, 2000, so I can run down to the local 7-11, pick up some Y2K supplies, some donuts, a loaf of bread, the newspaper (so I can read about all the crazy people) and a 64 ounce raspberry Slurpee. Oh, the way the new millennium should begin! Now back to the OEX. Several trading patterns that are starting to pick up that haven't been around for the last 5 or 6 weeks has been speculation in the OEX. In comparison to the lackluster volume at the NYSE lately, we are starting to nice volume in way out of the money puts. From a contrarian standpoint, this is a good sign that the worst may be over. However, not to be outdone, there are a lot of people betting that OEX will be at record highs in the next couple of weeks. To make a long story short, what we see based on the OEX option speculators, is a market that may be trading-range bound for awhile, with strong overhead resistance at 710. Pinnacle Capital Advisors A SIGN THAT THE APOCOLYPSE IS UPON US: A young golfer in New Jersey hit a hole-in-one at a local golf outing, winning him a brand new Lexus. The officials gave him the keys to the new ride, only to state later that they put the prize on the wrong hole. It was suppose to be on another par-three. Officials took the Lexus back. BULLISH Signs: Investor Intelligence: As a contrarian indicator, the percent of Bullish investors decreased 4.2% and Bearish sentiment increased 2.0%. Mixed Signs: Interest Rates: The yield on the 30-yr Treasury is below 6% thanks supposedly to Japan, but could prove bearish if gets back above 6.2%. 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 (725-755) 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 contrarian put-call ratio clocking in at 1.1 suggesting bullish sentiment picking up steam. Advance/Decline Line: The A/D line has already rolled over, and has slowed down, but is still in negative territory. VIX: The volatility index bounced off it's 50 day moving average, and could prove bearish should it break to higher ground. OTM Call Analysis As we move through the September expiration cycle, Pinnacle is tracking the level of call buying (OTM) between 700-800 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 700-800) 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% September Expiration Cycle OEX OTM Call Analysis (Open Interest September 690-780) Date Open Interest Change % Alert Friday, August 20 41,346 - Market Sentiment at a Glance Friday Indicator (8/20) Alert Pinnacle Index (OEX): Overhead Resistance (725-755) 60.0 Overhead Resistance (690-720) 1.8 Underlying Support (630-680) 2.8 Put/Call Ratios: CBOE Total P/C Ratio .7 CBOE Equity P/C Ratio .6 OEX P/C Ratio 1.1 Peak Open Interest (OEX): Puts 650 Calls 710 P/C Ratio 1.6 Market Volatility Index (VIX): CBOE VIX 24.06 Investors Intelligence: Bullish 45.80% * Bearish 31.30% * 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 Benchmark (8/20) Overhead Resistance (725-755) 60.00 Overhead Resistance (690-720) 1.78 OEX Close 696.59 Underlying Support (630-680) 2.76 Average ratings: Resistance levels 2.0 / Support Levels .5 What the Pinnacle Index is telling us: Overhead sentiment resistance is building at the OEX 725/755 level while the underlying support is holding at the OEX 630/680 level. Put/Call Ratio Friday Strike/Contracts (8/20) CBOE Total P/C Ratio .67 CBOE Equity P/C Ratio .56 OEX P/C Ratio 1.08 (OEX) Peak Open Interest Friday Strike/Contracts (8/20) Puts 650 / 9,547 Calls 710 / 5,828 Put/Call Ratio 1.64 (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 20, 1999 24.06 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 Aug 18, 1999 45.8 31.3 *** ****************** 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 8-22-99 Sunday 2 of 6 OPTION CLUB UPDATE ****************** IF YOU AREN'T INVOLVED WITH A TRADING CLUB, YOU'RE MISSING OUT!!! If you would like to join contact us at Visit@OptionInvestor.com and Organize@OptionInvestor.com. UPDATE FROM EVERETT, WA: ************************ We continue to meet every other Monday at 7:00pm at the Everett Public Library. Our attendance has been low due to summer activities, but the members have exchanged Email addresses and phone numbers and periodically write or call each other for encouragement and to bounce trading strategies and ideas around with each other even if not attending the meetings. Several of the club members were able to attend the Seattle Money show and met Jim Brown, Tom Gentile, and others from OIN. What a fun event that was! We picked up a few extra items (mousepads and computer programs) and gave out "door prizes" at last night's meeting. The free stuff was well received. We are going to begin sharing "book reports" on investment books that we are reading. We encourage everyone to read "Trading for a Living" by Elder to start. Another project is to read George Fontanills' book and study guide. We are considering whether the group is interest in working through the Optionetics Home Study Course at the meetings. There are several members who are unable to attend the evening meetings so will trial additional daytime meetings to accommodate their schedules. The targeted time would be on Thursday mornings. Let me know if you are interested in attending. In conjunction with the Seattle group, we were able to negotiate a group discount purchase of SuperCharts 4.0 from Omega Research. We have established a SuperCharts Users sub-group that is Emailing hints and suggestions to each other on how to benefit from it, or curse the "incomprehensible" EASY Language. We hope this will improve our learning curve and anticipate that we will start making more money than the rest of you guys very soon!! If you are in our area and use SuperCharts, join us! Ruth Brandal Everett, WA LAST WEEKS CHANGE FOR THIS WEEKS PICKS: *************************************** Index Last Week Dow 11100.61 126.96 Nasdaq 2648.33 10.52 $OEX 696.59 7.77 $SPX 1336.61 9.36 $RUT 434.38 0.33 $TRAN 3150.73 -28.34 $VIX 24.06 1.68 Calls Week GTW 90.50 8.75 Split anticipation driving the stock EXDS 75.38 8.13 New, leading the way for the Internets LVLT 61.63 7.13 Holding strong in a weak sector SNE 136.25 6.81 Wow, what a rebound, future looks strong ERTS 65.50 5.75 New, nice breakout on big volume VRSN 86.94 3.94 Volatility making it great for options MMCN 52.88 3.00 A brief pullback and up we go! LXK 75.25 2.63 Still waiting for $ managers to make move BVSN 95.75 2.25 Bounced off the 10-dma once again UIS 43.94 2.25 New, solid uptrend, nearing new highs SLB 67.44 2.19 Amazing oil prices fueling the stock ATML 39.88 2.13 New, strong chart and a new high HGSI 62.13 2.00 Remember, this is a speculative play IDPH 126.00 1.25 Shaping up to be a split candidate INTC 79.94 0.19 Proof that Intel is still the leader NXLK 95.94 -1.69 Will we see a stock split this week?? NOK 83.88 -1.88 Dropped, underperforming the markets SLR 71.69 -2.69 All quiet on the news front, confirm move LSI 56.00 -2.88 Dropped, get out while you're still ahead Puts NVLS 54.44 -7.25 New, orders are seen slowing down AMR 59.00 -2.88 Lots of problems ailing this stock T 46.88 -2.38 Price wars are killing profits TBH 73.00 -1.38 Interest rate play, Fed meets Tuesday U 31.56 -1.19 A possible strike on the horizon AET 78.13 -0.19 The sector woes continue to hurt IP 54.38 0.38 Channeling play, plan your entry 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 ADV = Average Daily Volume 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: ATML - Atmel Corp. ERTS - Electronic Arts, Inc. EXDS - Exodus Communications, Inc. UIS - Unisys Corp. PUTS: Please confirm downward motion before playing. With the market in rally mode any beat up stock starts looking like a value play. NVLS - Novellus Systems, Inc. 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: LSI $56.00 (-2.88) On Friday the DOW rallied 136 points and LSI failed to respond. The #1 custom semiconductor maker remained firmly positioned at its recent support level of $56 at the 10-dma while others in its sector like Intel (INTC), were reaching new highs. LSI may have been lucky to even hang on to support with monthly reports on Friday showing slowing semiconductor orders. This lack of response to the bullish market coupled with its lackluster performance during the week places it on our week-end drop list. NOK $83.88 (-1.88) Though ending the day barely positive thanks to a last minute volume spurt, NOK couldn't climb back to its middle of the week highs. We suspect it was a result of being lumped in with the weak telecom sector, born of $0.05 long distance rates and how they will affect revenues of Sprint, AT&T and MCIWorldcom. Never mind that NOK is a Finnish wireless product manufacturer and communications software/equipment provider. Technically, it exhibits a head and shoulder pattern and has just formed the right shoulder, which is a dangerous indicator of future losses ahead. Though still a great company with tremendous long-term prospects, we have to cut it loose for now. PUTS: none today STOCK SPLIT CANDIDATES *********************** IDPH - IDEC Pharmaceutical (current play) SNE - Sony Corp. (current play) HWP - Hewlett-Packard (not a current play) STOCKS WITH UPCOMING SPLITS **************************** We don't list all splits available, only those we feel may have play possibilities. Symbol - Stock Splits/Date CLX - Clorox 2:1 08-23-99 ex-date 08-24 SAWS - Sawtek Inc 2:1 08-23-99 ex-date 08-24 IMNX - Immunex 2:1 08-26-99 ex-date 08-27 NXLK - Nextlink Comm 2:1 08-27-99 ex-date 08-30 (current play) TER - Teradyne 2:1 08-31-99 ex-date 09-01 AMZN - Amazon.com 2:1 09-01-99 ex-date 09-02 GTW - Gateway Comp 2:1 09-07-99 ex-date 09-08 (current play) LSCC - Lattice Semi 2:1 09-16-99 ex-date 09-17 VOD - Vodaphone 5:1 09-30-99 ex-date 10-01 TYC - Tyco 2:1 10-21-99 ex-date 10-22 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 ! NXLK - Nextlink Communications $95.94 (-1.69)(+14.13)(-28.63) Splits 2:1 on 08/27 See details in sector list Chart = http://quote.yahoo.com/q?s=NXLK&d=3m ***** GTW - Gateway Inc $90.50 (+8.75) Splits 2:1 on 09/07 See details in sector list Chart = http://quote.yahoo.com/q?s=GTW&d=3m THE PLAYS OF THE DAY ******************** With all the great plays each week we can never decide on just one so take your pick. Call play of the day: IDPH - IDEC Pharmaceutical $126.00 (+1.25) The rumors are swirling, will IDPH split their shares?? See details in sector list Chart = http://quote.yahoo.com/q?s=IDPH&d=3m ****** Call play of the day: INTC - Intel Corp $79.94 (+0.19)(+8.19)(+2.56) Someone forgot to tell Intel we were in a correction as they hit another 52-week high on Friday. See details in sector list Chart = http://quote.yahoo.com/q?s=INTC&d=3m ****** Put play of the day: T - AT&T $46.88 (-2.38) What's next, free long-distance?? See details in sector list Chart = http://quote.yahoo.com/q?s=T&d=3m ****** Put play of the day: U - USAir Group Inc. $31.56 (-1.19)(+0.31)(-3.19)(-2.56)(P2W-6.81) Here we go again, more labor problems on the horizon this week. See details in sector list Chart = http://quote.yahoo.com/q?s=U&d=3m CALLS ***** Hardware ********* GTW - Gateway Inc $90.50 (+8.75) Gateway is the #2 direct marketer of PCs in the US only behind global leader, Dell Computer. Instead of using resellers, Gateway takes orders via phone or Web site and ships directly to the computer user saving the customer markup costs. They develop, manufacture, and support a broad product line of desktop and portable PCs, digital media PC's, servers, workstations, and other PC-related items. The company has also expanded into the Internet access market (gateway.net) and is continuing to add new Gateway Country showrooms across the US. Its array of customers include individuals, businesses, government agencies and educational facilities. Chairman and founder, Ted Waitt, still owns 41% of the company. GTW is running up in anticipation of its 2:1 stock split set for September 7th. On August 10th the company announced the split and on relatively strong volume, the stock has continued to make advances. Mid-week GTW got a boost from Dell's great earnings' report and the multitude of upgrades given to the sector bellwether. Then on Wednesday GTW surged ahead $5.75 and peaked at $91.25 to set another 52-week high. Presently, the stock has retreated slightly, offering solid entry points as we go into next week. However, you'll want to pay close attention if the consolidation continues. GTW's next support is at about $82 and this is quite a drop. If for whatever reason, the stock cannot hold these recently established trading levels it will likely pullback to this mark so use caution. Generally speaking, watch for strong volume and this split play should pick up its momentum once again. The pay date for the stock split is only a couple of weeks away on September 7th. In the news on Wed, Gerard Klauer Mattison & Co reiterated a buy rating on GTW with a 12-month target price set at $100. BUY CALL SEP-85 GTW-IQ OI=1300 at $ 8.75 SL=6.75 BUY CALL SEP-90*GTW-IR OI=1145 at $ 5.75 SL=4.00 BUY CALL SEP-95 GTW-IS OI=1656 at $ 3.38 SL=1.75 BUY CALL DEC-95 GTW-LS OI= 93 at $ 9.88 SL=7.50 Picked on Aug 19th at $89.25 PE = 35 Change since picked +1.25 52 week high=$91.25 Analysts Ratings 13-7-1-1-0 52 week low =$36.12 Last earnings 06/99 est= .55 actual= .56 surprise=1.82% Next earnings 10-21 est= .68 versus= .51 Average daily volume = 1.61 mln Chart = http://quote.yahoo.com/q?s=GTW&d=3m ***** LXK - Lexmark International $75.25 (+1.31)(+2.63) Ever wanted someone to see things your way? Well LXK has made a business of it! By understanding customers needs and perceptions, they have become one of the leaders in providing printing solutions, such as Laser, Ink Jet, Dot matrix and all types of printers. They develop, manufacture and supply their extremely high quality products to 150 countries. They have taken their revenues to more than 3 billion in 1998. LXK just has success in their genes, since they are a spin off of IBM, and have retained innate values that contribute to their success. Values that focus on customer value, relations, service and response. The company is continually seeking to raise the level of their markets playing field, by providing firsts in quality and standards for the home and business printing industry. As an example, they were the ones to introduce the first 1200x1200 dpi for laser and ink-jet printers. As LXK keeps up on their high resolution standards, we'll all be seeing and reading a little clearer. LXK continues to meet our expectations, as it closed close to its 52-week high and is establishing new break-out patterns on the MACD. Friday was an good opportunity day! Because LXK had run up in price, many were cautious to enter new plays at the higher levels. The late afternoon dip down to the 10-dma of $71, provided the entry point we were looking for. Investors rushed in creating a late day rally. There did appear to be some larger than normal share purchases, which indicates that some money managers may be making their move. Either that or the triple witching day, which can also be characteristic of this type of move. Since it was not that convincing of volume, we will go with the later and continue to look for the institutional buying to come. Use caution at this point, since Monday may be profit taking into the FOMC meeting. Use the support of $71 for opportunities of entry on confirmed market direction. All is quiet on the news front for LXK. Watch for news on increased volume and possibly more institutional buying later in the week. BUY CALL SEP-70*LXK-IN OI=263 at $7.75 SL=5.50 BUY CALL SEP-75 LXK-IO OI=260 at $4.63 SL=3.00 BUY CALL SEP-80 LXK-IP OI= 87 at $2.63 SL=1.25 BUY CALL OCT-80 LXK-JP OI= 39 at $3.13 SL=1.50 Picked on Aug 12th at $66.75 PE = 37 Change since picked +8.50 52 week low =$25.38 Analysts Ratings 4-5-1-0-0 52 week high=$75.50 Last earnings 06/99 est 0.49 actual 0.55 Next earnings 09/99 est 0.55 versus 0.41 Average daily volume = 984 K Chart = http://quote.yahoo.com/q?s=LXK&d=3m ***** SLR - Solectron $71.69 (-2.69)(6.50)(1.50) Solectron is a provider of customized manufacturing services to OEM manufacturers. Solectron's services encompass product design, systems assembly, software duplication and warehousing. Solectron's client base currently includes Hewlett-Packard, Cisco Systems and Mitsubishi. For the first 3 quarters of 1999's physical year, net sales rose 67% to $6.01 bln and net income expanded by 44% to $205.1 mln. These results reflect higher sales volume and the acquisitions from Ericsson, NCR and IBM's ECAT. SLR is beginning to put the squeeze on its 52-week high. On Friday, SLR gained $1.31 to end the session at $71.69. This is only $3.06 from its yearly high of $74.75. Volume on Friday was on the light side with only 527 K shares changing hands. As reported on Thursday, SLR was sitting at the 10-dma level and it was assuring to see the stock take a bounce on Friday. Obviously, we are still noticing a correlation between the overall market sentiment and SLR. This is due to a lack of new company related news. But the developments for SLR over the past few weeks should be enough to carry the stock. The alliance with IBM solidifies there position and future in the industry. This is why we keep finding buyers along the 10 and 50-dmas. These 2 key support lines is the place to look for new entry points. As a reminder, (if you already didn't know) there is a FOMC meeting on Tuesday so we can anticipate more volatility over the next few trading sessions. Conservative investors may want to wait until the Fed's announcement before entering new plays. Friday in the news, there was a great deal of reiteration of the outsourcing contract signed between SLR and IBM. SLR will manufacture printed-circuit-boards and revenue expectations from the deal will be in excess of $200 mln. Furthermore, it has been reported that all intellectual property rights from the motherboard design and manufacturing will be transferred to SLR from IBM. In addition, SLR still plans to establish a production center in Scotland. BUY CALL SEP-70*SLR-IN OI=282 at $5.13 SL=3.25 BUY CALL SEP-75 SLR-IO OI=376 at $2.69 SL=1.50 BUY CALL OCT-75 SLR-JO OI=557 at $4.88 SL=3.25 Picked on Aug 24th at $74.38 PE = 70 Change since picked -2.69 52 week high=$74.75 Analysts Ratings 6-11-5-0-0 52 week low =$19.41 Last earning 06/99 est=0.29 actual=0.29 Next earning 09-13 est=0.32 versus=0.23 Average Daily Volume = 1.30 mln Chart = http://quote.yahoo.com/q?s=SLR&d=3m ***** UIS - Unisys Corp $43.94 (+2.25) Unisys designs, manufactures and markets information technology solutions focusing on systems integration and related support services which represents almost 70% of its sales. The company competes in the global market and has clients such as Huntington Bancshares, BellSouth, Eli Lilly and the US government. Friday the 13th may have been bad luck for some but not for UIS's stock. After a 100,000 share block trade at $39.94 reported at 9:50am, momentum kicked into gear and UIS broke out and closed above its 10-dma at $40. The momentum carried over into this week and UIS advanced 5.4% in a rocky market. The trading volume fluctuated between 75% and 100% of its ADV as UIS made its gains. Technically, UIS is above its 10-dma (now at $41) but the 30-dma at $42 seems to be the better level for this play. Take a look at a 6-month chart with a 30-dma line. This indicator acts as benchmark support. In other words, if it slips under this point you may want to tighten any stops and practice caution. The stock's current momentum is carrying it towards overhead resistance at its 52-week high of $46.18 set just last month. You may have to look for a daily bottom during intraday trading for an entry point. Unisys announced a record-breaking event on Monday. In trial Tests, Unisys servers supported the largest number of concurrent PeopleSoft users ever recorded in a MS Windows NT operating environment. The City of Tallahassee will utilize this system solution developed by Unisys to streamline all administrative operations. On Tuesday, Brown Brothers Harriman reiterated its "short-term buy" rating for UIS. BUY CALL SEP-40*UIS-IH OI= 551 at $4.88 SL=3.25 BUY CALL SEP-45 UIS-II OI= 507 at $1.63 SL=0.75 BUY CALL OCT-45 UIS-JI OI=1645 at $2.88 SL=1.50 BUY CALL OCT-50 UIS-JJ OI= 333 at $1.00 SL=0.00 very aggressive Picked on Aug 22nd at $43.94 PE = 31 Change since picked +0.00 52 week high=$46.18 Analysts Ratings 8-2-2-0-0 52 week low =$17.62 Last earnings 06/99 est= .34 actual= .38 surprise=11.76% Next earnings 10-15 est= .36 versus= .26 Average daily volume = 1.42 mln Chart = http://quote.yahoo.com/q?s=UIS&d=3m Software ******** ERTS - Electronic Arts, Inc. $65.50 (+5.75)(+3.13) Electronic Arts, headquartered in Redwood City, is the world's leading interactive entertainment software company. Founded in 1982, Electronic Arts posted revenues of more than $1.2 billion for fiscal 1999. The company develops and publishes approximately 100 games and distributes over 1000 software titles worldwide for personal computers and video game systems. Electronic Arts markets its products under seven brand names: Electronic Arts, EA SPORTS(TM), Maxis(TM), ORIGIN(TM), Bullfrog(TM) Productions, Westwood Studios(TM) and Jane's Combat Simulations. Sony Playstation software accounts for about 40% of its sales. EA has distribution centers in 75 countries and derives nearly half its sales internationally. ERTS has a good, old-fashioned solid chart. Technicals, MACD, momentum and RSI are all positive. To boot, strong volume had been driving the price up for the last 8 days, following a 2-week basing, which began at earnings on July 23. Money managers have definitely been showing ERTS the love and ERTS has been showing them the money. Aside from volume stabilizing near its ADV on Thursday and Friday (which should be no surprise in front of the FOMC meeting), Friday's volume spike at the close caused a price spike, setting a new closing high of $65.50 at its high of the day - another technical plus. Not only that, ERTS won't suffer a seasonally tough third quarter, thanks to a business cycle that has it selling during the back to school season and selling to vendors that sell at Christmas, a seasonal revenue and profit gainer. Fundamentally, ERTS has a strong balance sheet reflecting zero debt and $324 mln in cash. So long as the market cooperates, ERTS should remain strong, especially after the FOMC meeting and the return of buyers. Support is way back at $60; short-term, it's more like $64. Plan your entry according to your risk tolerance. Don't be afraid to wait until for Fed meeting if it suits you better. In the news, ERTS is shipping product like Santa's best elf in the toyshop. Within the last 2 weeks, they began shipping Sled Storm and Madden NFL 2000 for Playstation and launched EA SPORTS fantasy football. Following earnings back in July, DB Alex Brown upgraded ERTS to a "strong buy". Other than that, the news is pretty sparse. BUY CALL SEP-60*EZQ-IL OI=175 at $7.63 SL=5.75 BUY CALL SEP-65 EZQ-IM OI=118 at $4.50 SL=2.75 BUY CALL SEP-70 EZQ-IN OI= 0 at $2.50 SL=1.25 Wait for OI BUY CALL DEC-65 EZQ-LM OI=329 at $9.25 SL=7.00 BUY CALL DEC-70 EZQ-LN OI= 0 at $7.25 SL=5.50 Picked on Aug 22nd at $65.50 PE = 56 Change since picked +0.00 52 week low =$33.25 Analysts Ratings 8-3-1-0-0 52 week high=$66.50 Last earnings 7/99 est 0.01 actual 0.04 surprise = 300% Next earnings 10-22 est 0.25 versus 0.17 Average daily volume = 660 K Chart = http://quote.yahoo.com/q?s=ERTS&d=3m SEE DISCLAIMER IN SECTION ONE ******************************
The Option Investor Newsletter 8-22-99 Sunday Part 3 of 6 CALLS CONTINUED *************** Internet ******** BVSN - Broadvision, Inc. $95.75 (+2.25) What happens when you develop great relationships? Chances are you make friends and doing business with friends is fun, secure, and long term. This is the business of BVSN. They provide Internet software applications that focus on business relationships. These application solutions address issues such as company business processes, secure online transactions, improving speed and performance and Internet communications. These solutions are directed specifically to a companies customers, employees and partners. Another key advantage of Broadvision applications is that they can integrate into a company's existing system. These software applications are finding great success in the e-commerce and financial markets which have attracted over 275 customers such as American Airlines, Ernst & Young, Fingerhut, Hartford, HWP, Oracle, Toyota and Visa, among others. With friends like these, you can see that Broadvision's strategies are working. Revenues grew 83% last year to $18.5M and the company is now in the earnings black at $2.9M. Are we losing steam, or creating a buying opportunity? We think that this may be forming an entry point on support based on the patterns that the stock has shown. In the past when BVSN has approached its 10-dma, if the following day resulted in a negative close, it commenced a sell off. When the next day provided a gain, it renewed it's trend. You may want to confirm this on a daily chart. Notice 8-10-99 and 6-25-99 in particular. Remember that past results are not indications of future events but it does help increase our odds and give us a sense of direction. We also want to see the market lend support with positive sentiment. We should be cautious at this point however, realizing that the gain on Friday could have been due to options activity on the expiration date. We have also turned negative on our Stochastic and MACD. As always, make sure the stock is confirmed in the direction you want it to go before buying. BVSN has been holding a range on Friday between $94 and $97, another reason to believe we are consolidating. Tread lightly on Monday and Tuesday due to the FOMC meeting and set your stops. A reminder that last week several analysts downgraded BVSN so we could see some follow-through. We did get news that US Interactive is joining forces with BVSN to provide customers with better products from the synergies between the two companies. These partnerships help re-enforce the fact that BVSN is attractive to others and leading the industry technology. BUY CALL SEP- 90 QVB-IR OI= 42 at $11.75 SL=9.50 BUY CALL SEP- 95*QVB-IS OI=214 at $ 9.00 SL=6.75 BUY CALL SEP-100 QVB-IT OI= 93 at $ 6.63 SL=4.75 NO October options yet and December's are too expensive. Picked on Aug 15th at $93.50 PE = 234 Change since picked +2.25 52 week low =$ 9.25 Analysts Ratings 7-11-1-0-0 52 week high=$105.13 Last earnings 06/99 est 0.11 actual 0.12 Next earnings 09/99 est 0.13 versus 0.07 Average daily volume = 572 K Chart = http://quote.yahoo.com/q?s=BVSN&d=3m ***** EXDS - Exodus Communications $75.38 (+8.13)(+16.75) EXDS offers server hosting and Internet connectivity, among other services, which let businesses outsource 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. Often, these are called "server farms". In addition to providing storage space, the company furnishes connections and maintenance of its clients' networks. Its client list includes CBS Sports, eBay, and MSN Hotmail and is growing at an average rate of 2 major customers per day. Exodus is expanding its geographic penetration. Their growth comes from acquisitions and development of new server farms or data centers. We want to warn you up front that EXDS is inherently risky, thanks to its high volatility. To play it requires your best cat-herding skills, not to mention a watchful eye and lightning- quick reflexes. Technically, moving averages don't mean much for this play, as it's based mostly on momentum, born of explosive growth. Exodus is benefiting from a boom in World Wide Web sites as companies contract services instead of spending millions to build their own data centers to house computer servers. Here's the deal. EXDS underwent a 2:1 split on Friday, August 13 (no bad luck here, thanks to friendly PPI data), wherein it proceeded to rise with absolutely no post- split depression (perhaps because it had no pre-split run). Now, with 82 mln shares outstanding, it's a bit more stable than it used to be but still highly susceptible to interest rates jitters in front of the Tuesday FOMC meeting. On a 5-day chart, support is around $72. Though EXDS was up on a volume spike at Friday's close (it closed at its high of the day - a good sign), we expect to see more volatile action all day Monday and Tuesday morning in front of the Fed meeting, which could provide us an entry point. Our best suggestion to play EXDS is to target shoot at $72. Be aware that it may go lower, which will immediately cause you to question your decision to get in. If you are so inclined, you could set the target even lower but then you risk not getting filled. Our intent with this play is to take advantage of what we expect to be a relief rally following the Fed meeting. Predictable Fed-speak and action should alleviate inflation fears, causing interest rate sensitive stocks to rise. Those not tolerant of risk should steer clear of this play. Use risk capital only or wait until favorable news from the Fed prior to starting the play. We aren't predicting another split yet but prior to its split on August 13, its previous split announcement came January 27, 1999 when the stock traded at $86. Since there are enough shares authorized for another 2:1 split, you'll want to keep your ears open if EXDS approaches $90 (maybe by October earnings but we are just daydreaming for now). This will stretch the memory of a trader but back in June, B of A Securities issued a buy rating at a split adjusted price target of $85. Last week, Paine Webber reiterated its "buy" rating and $100 price target. Hambrecht and Quist also reiterated its "buy" rating last week. BUY CALL SEP-70 EXF-IN OI= 298 at $11.25 SL= 9.00 BUY CALL SEP-75*EXF-IO OI= 440 at $ 8.63 SL= 6.50 BUY CALL SEP-80 EXF-IP OI= 477 at $ 6.63 SL= 4.75 BUY CALL DEC-75 EXF-LO OI=3291 at $16.75 SL=13.00 BUY CALL DEC-80 EXF-LP OI= 19 at $14.75 SL=11.50 Picked on Aug 22nd at $75.38 PE = N/A Change since picked +0.00 52 week low =$ 3.88 Analysts Ratings 12-5-1-0-0 52 week high=$79.62 Last earnings 7/99 est -0.52 actual -0.51 surprise = 1.92% Next earnings 10-29 est -0.55 versus -0.45 Average daily volume = 2.31 mln Chart = http://quote.yahoo.com/q?s=EXDS&d=3m ***** VRSN - VeriSign Inc $86.94 (+3.94)(+12.75) VeriSign provides Internet-based trust services that will authenticate and protect data so secure transactions and communications can be conducted over the Internet, intranet and extranets. Websites, enterprises, government agencies and even individuals use VeriSign's digital ID's (digital certificates) with the encrypted information as cyber- safeguards for such activities as e-mail, home banking and credit card transactions. Visa represents 14% of total sales. This momentum play went for 7 straight days making immense gains ($22.75 or 35%) until it pulled back to consolidate on Thursday. Nonetheless, even during this consolidation period VRSN still offers potential for profit. The stock's volatile daily movements give investors opportunities to get and in out as VRSN bounces back and forth. This is especially evident Wednesday through Friday of last week. If we get a positive FOMC meeting on Tuesday, VRSN could break out. With the rate hike in the past, the Internets may boldly rally once again out of sheer relief. If VRSN does surge, look out for overhead opposition at the 52-week high of $96.75 set during mid-July trading. For the new readers, this is a HIGH RISK VOLATILE PLAY and not for everyone. In the news this week, VeriSign announced the Canadian Imperial Bank of Commerce will be the preferred financial services affiliate in Canada. CIBC will provide the full spectrum of digital certificate trust services for Canadian companies, Web sites, and individuals. BUY CALL SEP-80*YVR-IP OI=456 at $12.75 SL=10.00 BUY CALL SEP-85 YVR-IQ OI=294 at $10.00 SL= 7.50 BUY CALL SEP-90 YVR-IR OI=227 at $ 7.63 SL= 5.75 BUY CALL DEC-90 YVR-LR OI=337 at $17.75 SL=14.00 Picked on Aug 15th at $83.00 PE = N/A Change since picked +3.94 52 week high=$96.75 Analysts Ratings 5-6-3-0-0 52 week low =$ 9.69 Last earnings 06/99 est= -.02 actual= .00 Next earnings 10-22 est= .02 versus= -.09 Average daily volume = 1.16 mln Chart = http://quote.yahoo.com/q?s=VRSN&d=3m Semiconductors ************** ATML - Atmel Corporation $39.88 (+2.13)(+1.13) Remember the six million dollar man of the seventies? He's here! Only in semiconductor chips. Atmel is really making things smarter, stronger, faster and smaller. ATML designs, manufactures and distributes semiconductor and memory chips that are focused in niche markets such as communications, networking, instrumentation, military, automotive and yes, computers. By focusing on niche markets, the company is able to specialize better than the competition. This has allowed ATML to be profitable every year since their inception in 1984! The companies engineers are able to use their patented technology and apply it to specific customer needs. This allows Atmel to sell their products at above average prices, develop loyalty to their nonvolatile memory technology and boost the bottom line. They're simply working smarter. As part of their growth strategy, the company purchased Temic Semiconductor of Europe to aid in the European growth of the telecommunications market. With offices now in North America and Europe, ATML is poised to continue growing and earning profits. It is very refreshing to find charts that look like ATML's. Long, steady and moving in a positive trend. The reason is because of Atmel's business strategy. Their niche market approach allows them to take charge of their direction and minimize typical effects of the market and business cycles. Remember in Economics, when the professor said that companies who specialized and catered to niches would not be as affected by the general market? Because ATML specializes and sells their products at a premium, they have not been as affected as the general semiconductor stocks (like: AMAT, NVLS). Compare ATML to the Dow and you will notice ATML's positive slope in comparison to the Dow's range. Currently ATML is following its 10-dma support very nicely. The stock is technically bullish, setting new highs and appears to be in a breakout pattern. A positive market will provide us an entry here. However, with the FOMC on Tuesday, we may see a pull-back to around $38 so watch the movement and confirm direction before jumping in. There is not a lot of recent news on Atmel but an article on Aug 9th confirms our play direction, stating that chip makers have faired nicely in the recent market sell-off. Analysts see PC sales into the school and Christmas season continuing to help boost chip sales. Also Bank of America initiated coverage of ATML with a strong buy on August 10th. BUY CALL SEP-35*AQT-IG OI=1448 at $6.13 SL=4.50 BUY CALL SEP-40 AQT-IH OI= 250 at $2.88 SL=1.88 BUY CALL NOV-35 AQT-KG OI=1071 at $8.13 SL=6.25 BUY CALL NOV-40 AQT-KH OI= 533 at $5.50 SL=3.75 Picked on Aug 22nd at $39.88 PE = 102 Change since picked 0.00 52 week low =$ 6.00 Analysts Ratings 6-5-3-0-0 52 week high=$40.00 Last earnings 7/99 est= 0.13 actual= 0.13 Next earnings 10/21 est= 0.17 versus= 0.04 Average daily volume = 2.58 mln Chart = http://quote.yahoo.com/q?s=ATML&d=3m ***** INTC - Intel Corp $79.94 (+0.19)(+8.19)(+2.56) Its best customers are Compaq, Dell, and IBM. Intel is the world's #1 chip maker. The powerful Pentium and low-end Celeron are Intel's claim to fame. These microprocessors have provided the brains for IBM-compatibles since 1981. Recently INTC has began a major push into communications products such as servers and networking devices. Their microcontrollers and flash memories are used in products for communications, industrial equipment, and military markets. Intel closed at a new 52-week high Friday. After trading in a narrow range of $3.25 for most of the last six sessions, shares of INTC stock finally found a little strength in the last 30 minutes of trading Friday afternoon. Volume for the week has been light, averaging just 16.8 mln shares per day. Most chip equipment companies had a tough go of it Friday after monthly data for North American semiconductor equipment makers showed the recent momentum had slowed for the month of July. Orders for July softened by 8% from the month before according to the trade group (SEMI) Semiconductor Equipment and Materials International. The semiconductor equipment stock index dropped just under 2% for the day on the news. Earlier in the week Advanced Micro Devices put Intel on notice, they are going after the top spot with the release of its new Athlon processor. The chip is apparently testing faster than Intel's top of the line Pentium III. But several analysts expressed doubt as to AMD's ability to make a dent in the market share of Intel. Intel then drifted sideways to lower for most of the week. Late Thursday morning INTC began to form a base in the $77 area, until about 1:30 ET Friday afternoon. In the last two hours Friday the momentum and volume picked for INTC as well as the broader markets. Most of the increase can be attributed to options expiration. The real test for Intel and major indices will come Tuesday after the FOMC meets and makes their announcement as to the future direction of interest rates. We would still urge readers to exercise caution when entering a new play on INTC. Let the Greenspan and company have their meeting Tuesday, then assess the market's reaction. If you must participate Monday only enter new plays on positive movement on solid volume and keep your stops close. In case you missed it earlier, Soundview Technology Group's analyst Scott Randall reiterated his strong buy rating of INTC. There is not much other news at this time. BUY CALL SEP-75*INQ-IO OI=16263 at $6.88 SL=5.25 BUY CALL SEP-80 INQ-IP OI=14545 at $3.63 SL=2.25 BUY CALL SEP-85 INQ-IQ OI= 5986 at $1.63 SL=0.50 BUY CALL OCT-80 INQ-JP OI=17843 at $5.38 SL=4.00 BUY CALL OCT-85 INQ-JQ OI= 5094 at $3.25 SL=1.50 Picked on July 31st at $69.00 PE = 36 Change since picked +10.94 52 week high=$80.06 Analysts' ratings 15-15-7-0-0 52 week low =$34.88 Last earnings 6/99 est 0.54 actual 0.51 surprise=-5.56% Next earnings 10-13 est 0.56 versus 0.44 Average daily volume = 23.1 mln Chart = http://quote.yahoo.com/q?s=INTC&d=3m Telecom/Communications/Networking ********************************* LVLT - Level 3 Communications, Inc. $61.63 (+7.13)(+8.88) Level 3 Communications, Inc., is a communications and info 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. Thankfully, the market appears to have made a distinction between LVLT and the big long-distance (now data, ISP, and Internet backbone) phone companies like AT&T, Sprint and MCIWorldcom; all of which were hammered on Friday from fear that revenues are falling thanks to $0.05/ minute phone calls. The fact is LVLT is in the data transport business where voice revenue is meager in comparison, thus it wasn't hurt. Friday's chart shows the last 45 minutes of trade with rising volume and increasing price - a good sign. Trading volume which was only one third of normal confirms that there weren't any sellers willing to dump shares at this level. Recall when we started the play on Tuesday that institutions were again taking positions in LVLT. The lack of movement is directly related to lack of overall volume. Institutions are simply waiting (though maybe not patiently) on the sidelines for Tuesday's FOMC meeting before getting in. If there is a caution flag here, it's revealed in the chart showing LVLT sitting right on its 50-dma. We would not recommend entry if it falls below that key level on significant volume, especially prior to the FOMC meeting. Still, keep this on your radar. If it moves above the 50-dma, it will likely do so with conviction so long as Greenspan doesn't negatively surprise us Tuesday. For you risk takers that laugh in the face of danger, consider any price weakness on Monday or Tuesday morning as an entry point in anticipation of a relief rally Tuesday. Just remember to use risk capital in case Greenspan and Murphy (Murphy's law) form a new alliance. LVLT can move in sympathy with the new generation of phone companies like QWST, WCOM, GBLX, or MFNX. However, Williams Communications (WMB), though smaller is more similar to LVLT. Keep that on your radar screen too as another sign of guidance. There is no other news to report this week. Remember that USB Piper Jaffray began coverage of LVLT with a "strong buy" rating on August 5. That rating was reiterated August 17 with a price target of $85. BUY CALL SEP-55 QHN-IK OI=1455 at $ 8.75 SL=6.50 BUY CALL SEP-60*QHN-IL OI= 965 at $ 5.88 SL=4.25 BUY CALL SEP-65 QHN-IM OI=1209 at $ 3.38 SL=1.75 BUY CALL DEC-65 QHN-LM OI= 261 at $ 8.50 SL=6.50 Picked on Aug 17th at $63.38 PE = N/A Change since picked -1.75 52 week low =$ 22.38 Analysts Ratings 2-6-1-0-0 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 = 1.50 mln Chart = http://quote.yahoo.com/q?s=LVLT&d=3m ***** MMCN - MMC Networks, $52.88 (+3.00)(+9.38) MMCN is in the computer peripherals sector. The company develops and supplies network processors. These high- performance, software-programmable processors form the core silicon engines of LAN and WAN switches and routers. The PS1000 for Fast Ethernet networks, or the ATMS2000 for asynchronous transfer mode networks and the AnyFlow 5000 modular processors for network flexibility are some of the company's products. Although most of MMCN's sales come from within the US, the company also operates in Asia, Europe, the Middle East and North America. MMCN was able to finish the week on an up note. After making a 52-week high of $55.13 on both Tuesday and Wednesday, investors decided to take back part of the recent 38% move. The selling for the week only lasted about three hours but did drop MMCN back to $46.81 before the network processor company regained its composure. Monday volume started out strong at 1.9 mln shares but declined throughout the balance of the week, which leads us to believe that the pullback is a consolidation before a move to higher prices. The recent run up in the price of MMCN stock can be partially attributed to the improved visibility and confidence in the network- processor market. Last week A.G. Edwards analyst Peter Andrew raised his rating on MMC Networks, citing continued confidence and signs that the network processing market is a new, emerging growth market with an estimated compound annual growth rate of over 40% from 1998 to 2001. MMCN has also recently outperformed the computer technology index which peaked in mid July but has regained its momentum in the last two weeks. Technically MMCN bounced off its 10-dma Thursday at its low and the MACD rolled over, turning positive on Tuesday. Before entering a new play on MMCN, look for a positive move with new buyers and don't forget the FOMC meeting Tuesday. The outcome will dictate the direction of not only the broader markets but probably MMCN as well. On Thursday Kaufman Brothers analyst Alvin Kressler reiterated his buy rating on MMC Networks and increased his price target to $65.00. BUY CALL SEP-45 CMQ-II OI=81 at $9.63 SL=$7.50 BUY CALL SEP-50*CMQ-IJ OI=94 at $6.38 SL=$5.00 BUY CALL SEP-55 CMQ-IK OI=63 at $3.88 SL=$2.75 BUY CALL OCT-55 CMQ-JK OI=59 at $5.38 SL=$4.00 Picked on Aug 14th at $49.88 PE = 136 Change since picked +3.00 52 week high=$55.13 Analysts Ratings 4-7-1-0-0 52 week low =$ 7.75 Last earnings 6/99 est 0.11 actual 0.12 surprise=+9.09% Next earnings 10-15 est 0.13 versus 0.09 Average daily volume = 501 K Chart = http://quote.yahoo.com/q?s=MMCN&d=3m ***** NXLK - Nextlink Communications $95.94 (-1.69)(+14.13)(-28.63) Nextlink communications provides local facilities-based telecommunication services with a focus on delivering switched services to commercial customers. They compete with some big names such as US West, Bell Atlantic, and SBC Communications. Providing services in 38 major U.S. markets, NXLK offers access services to long-distance carriers and automated call centers. They build fiber-optic rings in cities to provide local and long-distance phone service mainly to smaller businesses. We are looking for NXLK to split August 27th. The approval To increase the shares of common stock from 154.5 mln to 460.0 mln is expected to come from their annual stockholders meeting being held Wednesday in Bellevue, Washington. If we are going to get a split run it needs to start soon. NXLK also needs to overcome the recent industry developments and the inflation and interest rate woes. We aren't asking for the world, just a nice pre-split run. Speaking of developments in the industry, first we had the regulatory changes. They are reforming the access charges that long distance carriers pay, making it more difficult for the smaller companies to compete. Next, Sprint fired up the "nickel" price wars, within the industry, which may be good for consumers, but will ultimately increase pressure on earnings. As a result, analysts are now cutting estimates for projected earnings. Friday, Lehman Brothers downgraded Sprint from a buy to an outperform. Shares of Sprint fell about 8% Friday. Shares of AT&T and MCIWorldCom struggled as well. Throw in some inflation and interest rate concerns and you can see why the Telecomm industry has had a tough week. NXLK only lost $1.69 for the week which isn't bad with all the news and confusion going on with the phone companies. What is in store for next week? We have the FOMC meeting Tuesday. If the FED, bumps interest rates it may be viewed with a sigh of relief and we may get a relief rally in the broader markets which could spill over into the Telecomm industry. With the stockholder approval expected to come at Wednesday's meeting, we are looking for NXLK to move higher by the end of next week. The ex-date should be announced Wednesday as well. Enter this split play ONLY on a positive direction with good volume, set your stops accordingly and remember this will be a short-term play as NXLK is scheduled to split Friday. There is no other news at this time. BUY CALL SEP- 90 QNF-IR OI=293 at $12.25 SL=$ 9.75 BUY CALL SEP- 95*QNF-IS OI=121 at $ 9.25 SL=$ 7.00 BUY CALL SEP-100 QNF-IT OI=365 at $ 7.00 SL=$ 5.25 BUY CALL OCT- 95 QNF-JS OI= 94 at $12.50 SL=$10.00 Picked on Aug 7th at $83.50 PE = N/A Change since picked +12.44 52 week high=$115.38 Analysts' ratings 8-2-3-0-0 52 week low =$ 10.56 Last earnings 6/99 est-2.41 actual -2.24 surprise=+7.05% Next earnings 10-22 est-2.61 versus -1.57 Average daily volume = 608 K Chart = http://quote.yahoo.com/q?s=NXLK&d=3m Biotechnology/Pharmaceuticals ***************************** HGSI - Human Genome Sciences, Inc. $62.13 (+2.00)(+1.63) If you think there are a lot of Jeans on the market (Levis, Guess CK etc.), wait until you see what HGSI is discovering. The company started in 1992 and has a passion for discovering Genes; only, Human genes. Since their inception they have Been first in the discovery of many of our genes, over 6,300. The great thing is that they then use this knowledge and apply it to form gene and protein based medications and treatments. This is exciting technology and tends to bring us full circle! HGSI just may be the ones to show us that the answers to our medical problems actually do lie within us. The company already has three of their products undergoing human clinical trial. These products hope to aid in vascular regeneration, treatment of breast and ovarian cancers, tissue repair and more. This appears to be a very promising company, that will be able to provide natural solutions to humanity. Friday renewed our interest in HGSI with a good gain in the stock price. Remember the reason we are playing this stock is for the market's recent interest in it and the chances that they are very close to some great breakthrough in gene medical technology. The gain Friday pushed us ahead to close above our previous resistance of $61, a bullish indication. The movement over the last two days also shows technical momentum picking up. We hit our 52-week high and have a MACD breakout. Now what we need is some confirmation so look for that on Monday. If we get a sell-off, then it tells us that the interest was only due to double-witching Friday. In that case wait until after the FOMC meeting to get in. If we get a good gain, then it could be the start of the next run up. We are looking for $65-$66 as the next level. As mentioned before, use the stocks interval pattern to help you. HGSI usually gets a bump in the morning and then again in the afternoon so buy when the stock is drifting lower. Friday's gain in the stock really followed the trend of the general market. When we first recommended this stock, that wasn't the case, because it was moving on news. With no news as of late, HGSI is headed back to the general market trend, so caution is advised. Remember, we started this as a speculative play because of the amazing volatility and the stock price moving news releases. This still carries a higher risk than some of our other call plays. Our prayers have not been heard yet. All is quiet on the news wires for HGSI for now. Any announcement from HGSI relative to new developments should send the stock soaring. Caution: low OI! BUY CALL SEP-55 HQI-IK OI=47 at $9.25 SL=7.00 BUY CALL SEP-60*HQI-IL OI=73 at $5.75 SL=4.00 BUY CALL SEP-65 HQI-IM OI=83 at $3.25 SL=1.75 BUY CALL OCT-65 HQI-JM OI=18 at $5.00 SL=3.25 Picked on Aug 8th at $60.50 PE = N/A Change since picked +1.63 52 week low =$22.75 Analysts Ratings 1-3-2-0-0 52 week high=$64.63 Last earnings 05/99 est -0.20 actual -0.10 Next earnings 09/99 est -0.30 versus -0.09 Average daily volume = 379 K Chart = http://quote.yahoo.com/q?s=HGSI&d=3m ******************************* PLAYS CONTINUED IN SECTION FOUR ******************************* SEE DISCLAIMER IN SECTION ONE *******************************
The Option Investor Newsletter 8-22-99 Sunday 4 of 6 CALLS CONTINUED *************** Biotechnology/Pharmaceuticals ***************************** IDPH - IDEC Pharmaceutical $126.00 (+1.25) IDEC Pharmaceuticals focuses on the commercialization and development of targeted therapies for the treatment of cancer and autoimmune diseases. The company's only approved product, the best-selling Rituxan, treats non-Hodgkin's lymphoma which afflict approximately 240,000 patients in the United States and rheumatoid arthritis, which afflicts almost 2 million people in the United States. IDEC's antibody products act chiefly through immune system mechanisms, exerting their effect by binding to specific, readily targeted immune cells in the patient's blood or lymphatic systems. The biotech and drug sector soared on Friday moving IDEC to within a fraction of a new high. The old high is $126.31 and IDPH topped out at $126.13 but it is in good striking distance to wipe out that mark early next week. The strong showing from IDPH is from recent sales for the popular drug, Rituxan which they developed. The sales for Rituxan grew by 112% to over $68 million in the second quarter. Also they get royalties for sales of Rituximab which IDEC discovered but is marketed by Genetech. The bottom line is that sales are booming as the drug is now widely accepted. Another big catalyst for the stock is rumors of a stock split. Although there is no confirmed news, it is reasonable to believe that the company must be considering it. The stock is up over 300% on the year and they do need to increase their float from 12.8 million to aid institutions in beginning to accumulate positions. So Monday will likely produce a new high, barring any unforeseen negative market or stock news. This stock is volatile and should provide intraday dips to open new plays. There is not much in the way of news to report this week but for those investors that want a glance at IDEC's future, here is a list of their current pipeline. They have Rituxan on the market and doing very well. Plus they have IDEC-Y2B8, IDEC-151, IDEC-131 and IDEC-114 which are currently all in different stages of trial but have huge potential. BUY CALL SEP-120 IDQ-ID OI=1126 at $11.75 SL=9.50 BUY CALL SEP-125*IDQ-IE OI= 278 at $ 8.63 SL=6.50 BUY CALL SEP-130 IDQ-IF OI= 1 at $ 6.50 SL=4.75 low OI BUY CALL OCT-125 IDQ-JE OI= 6 at $11.75 SL=9.50 low OI Picked on Aug 19th at $123.25 P/E = 80 Change since picked +2.75 52-week high=$126.31 Analysts Ratings 6-5-1-0-0 52-week low =$ 17.25 Last earnings 07/22 est= .79 actual= .80 Next earnings 10/20 est= .41 versus= .08 Average Daily Volume = 446 K Chart = http://quote.yahoo.com/q?s=IDPH&d=3m Oil Services ************ SLB - Schlumberger Limited $67.44 (+2.19)(+1.94) Schlumberger is one of the world's largest and most diversified oil services firms, operating in more than 100 countries. Its Oilfield Services unit provides practically everything needed for finding oil, including interpreting seismic data, drilling rigs and services, wireline logging, constructing wells and project management. Its Measurement & Systems unit, which makes smart cards and other measurement and transaction systems, is a world leader in gas, water, and electric meter manufacturing. After reaching a new 52-week intra-day high of $68.88 shortly after the opening on Friday, SLB slid back the rest of the day against the upward grain of the market. Early in the week, there was speculation that oil prices may have peaked. But that turned out to be just jabber. OPEC is adhering to their quota rather well, which should continue to support the price of oil, currently around $22. Technically, SLB had 2 excellent mid-week recoveries, where it bounced off its 10-dma. But its close at the low of the day on Friday's option expiration day raises a caution flag, despite eking out a $0.19 gain on the day. MACD is still positive while Stochastic shows an over- bought situation, which in our opinion is incidental as long as oil prices remain strong. If you take a position, the last three days of trading indicate that buying late in the day will yield the best entry. Dips on low volume days will also represent good entry points. Medium-term support of $65 should hold, barring a Greenspan related meltdown. For the more conservative player, wait for a breakout over $69, with volume (don't fall for buying in during amateur hour). From a Reuter's report on August 17, they state the following: Schlumberger Ltd. and Transocean Offshore Inc. said Tuesday the regulatory waiting period for the proposed merger of SLB's offshore contract drilling business with Transocean ended early, a result of early termination of the waiting period of the Hart-Scott-Rodino Antitrust Improvements Act. SLB said in July it would spin-off Sedco Forex Offshore and merge it with Transocean Offshore, with SLB stockholders to own about 52% of the new company, called Transocean Sedco Forex. And from a Business wire report on Thursday, SLB Oilfield Services announced that Fortum Petroleum of Oslo, Norway chose GeoQuest, a product line of Schlumberger, to be Fortum's primary supplier of exploration and production (E&P) software technology. It allows Fortum to streamline its E&P workflow. BUY CALL SEP-65*SLB-IM OI=1480 at $4.38 SL=2.75 BUY CALL SEP-70 SLB-IN OI=3924 at $1.75 SL=0.75 BUY CALL NOV-65 SLB-KM OI=4043 at $7.13 SL=5.25 BUY CALL NOV-70 SLB-KN OI=9395 at $4.38 SL=2.75 Picked on Aug 10th at $66.38 PE = 79 Change since picked +1.06 52 week low =$40.06 Analysts Ratings 9-9-8-0-0 52 week high=$68.88 Last earnings 07/99 est 0.25 actual 0.63 Next earnings 10-22 est 0.26 versus 0.13 Average daily volume = 2.64 mln Chart = http://quote.yahoo.com/q?s=SLB&d=3m Electronics *********** SNE - Sony Corp $136.25 (+6.81)(+9.44)(-5.19)(+8.19) 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. The dollar was thrust into the spotlight this week as our currency was sliding versus the yen. This obviously had an impact on our play of Sony since this would hurt exports from Japan and therefore weigh on Sony's stock price. But in reality this is usually a short-term distraction. Neither government wants to see the yen fall in relation to the dollar and would be ready to intervene any time it started to get serious. What this really means is that the market is running out of news to discuss when the focus turns to dollar/yen prices. But on Thursday when we said this was a buying opportunity, we didn't know how right we were going to be. Sony did bounce Friday and in a big way but the real news was from Morgan Stanley who reiterated a strong buy on Sony saying an upward earnings revision is likely. They cited inventory adjustments and business reform programs that will benefit Sony in the year 2000 and beyond. That is what propelled SNE to close up $8.38 and shatter the old high of $131.50. This jump may be overdone but at the same time Morgan Stanley left the door wide open for a near-term earnings revision announcement. This may keep the sellers at bay until the new estimates are released. With the sentiment looking good, search for an entry point on a intraday dip. Although the dollar/yen shouldn't be a major factor, it is worth keeping an eye on. The dollar did recover from a seven month low versus the yen on Friday but the recovery was mild. The markets are now looking towards the FOMC on Tuesday so any changes in the currency will be light until then. Barring any surprises by Alan and friends, we should see the dollar start to stabilize. Caution: OI is light. BUY CALL SEP-130*SNE-IF OI= 55 at $ 9.75 SL=7.50 BUY CALL SEP-135 SNE-IG OI= 10 at $ 6.50 SL=4.75 BUY CALL OCT-130 SNE-JF OI=335 at $12.00 SL=9.50 BUY CALL OCT-135 SNE-JG OI= 5 at $ 9.25 SL=6.75 Picked on July 2nd at $125.19 P/E = 32 Change since picked +11.06 52-week high=$136.63 Analysts Ratings 0-0-0-0-0 52-week low =$ 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 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 **************** AET - Aetna Inc. $78.13 (-0.19) Aetna is a leader in the managed health care industry. Their products are centered around three different areas, healthcare, retirement services and international business. AET provides group and individual health care products, life and health insurance and financial services. There retirement services include investment products, along with administrative and pension plan services. In an attempt to solidify their position in the Insurance and financial services industry Aetna has recently purchased U.S. Healthcare, New York Life's NYLCare, and Prudential Healthcare. The slide in Aetna's stock continues. AET managed to make its way lower on Friday, making a low for the day and the week at $76.63 on just about average volume. We are keeping AET as a put, although it did recover somewhat to close near Its high of the day on Friday. Again we must point out, the Reason for Jim's rule of "not playing during the first hour" of trading as AET put in both its high and low in the first 30 minutes Friday morning. Wall Street has recently turned its back on the healthcare company. It started back in the middle of June when investors became nervous over Aetna's planned acquisition of Prudential Healthcare, fearing that "PruCare" might drag down Aetna's potential profitability. At that time Salomon Smith Barney analyst Jim Lane wrote a brief research report indicating "PruCare's first quarter 1999 results were much worse than trends at the end of 1998". Lane lowered his 12-18 month price target for Aetna from $114 per share to $106. Last week AET denied rumors it was planning to purchase Oxford Health Plans, a rival managed-care company, which has reported quarterly losses for the past two years. Earlier on July 29th AET reported second quarter profits of $1.10 per share versus $0.95 a share for the same period in 1998, beating street estimates by a penny. Technically, the initial support for Aetna is at $74-75. We may see AET try to bounce back to the $80-$81 area but at this time we simply see nothing that would help prop up the stock. Should we see a bounce or consolidation, followed by further weakness, we would view that as an opportunity to buy puts. If after the FOMC meeting Tuesday we get a relief rally in the broader markets, AET could certainly go along with the crowd, however we believe it would only be a bounce. Assess your risk profile and wait for the FED decision before entering a play in AET. BUY PUT OCT-75 AET-VO OI=141 at $2.88 SL=$1.75 BUY PUT OCT-80*AET-VP OI=260 at $5.38 SL=$3.75 BUY PUT OCT-85 AET-VQ OI=114 at $8.63 SL=$6.75 Average daily volume = 570 K Chart = http://quote.yahoo.com/q?s=AET&d=3m **** AMR - AMR Corporation $59.00 (-2.88)(-0.06)(-2.94) American is the #2 airline in the United States behind UAL's United Airlines. AMR is a leader in air transportation, in the development and application of information technology for aviation, and travel and tourism. American serves about 180 destinations in the Americas and Europe with hubs in Chicago, Dallas/Fort Worth, Miami, and San Juan, Puerto Rico. They offer a wide range of other aviation-related activities, including management services, training and consulting. AMR also provides commuter service through American Eagle and owns Reno Air, which operates primarily in the western US. Another week goes by without the pilots and AMR management able to reach a deal. It was apparent mid-week that the talks were not working to settle the long standoff between the two sides over compensation for the new pilots from Reno Air. You may recall that AMR has agreed to buy Reno Air in a deal set to close on August 31. This rift has been going on for months as you may remember the American Air pilots sick-out earlier this year before President Clinton sent them back to work and into mediation. But time is of the essence now with the merger deadline approaching. AMR has said that they will go ahead with the merger even without a deal. In any case it has been good for our put play of AMR as the stock lost ground for the third straight week. The trend looks bad and unless AMR can gain support at $58, which is the low from two weeks ago, the stock could be in trouble. The wild card in this play is oil prices that continue to soar which will pressure AMR's profits. Oil spent most of the week above $21 a barrel and finished the week just shy of $22. For investors looking to open new plays, you may want to look at oil for an indication of where AMR's stock is heading. Now that it is under the 200-dma there is no clear support. Speaking of the 200-dma, we got a nice technical bounce off that resistance point this week which just reconfirms the down trend. BUY PUT SEP-65*AMR-UM OI=293 at $6.75 SL=4.75 BUY PUT SEP-60 AMR-UL OI=502 at $3.00 SL=1.50 Average Daily Volume = 940 K Chart = http://quote.yahoo.com/q?s=AMR&d=3m **** IP - International Paper Co. $54.38 (+0.38) International Paper has helped provide paper and associated paper products to the world for over 100 years. Despite the fact that the "electronic age" has come, diversification and combinations are allowing IP to stay competitive. Diversifying by providing several forest products such as lumber, photo- sensitive films, and chemicals, and combination through merger and acquisition with companies like Union Camp which they recently purchased. This business strategy has allowed IP to realize a 2% revenue gain, despite the recent "hard times" experienced in the paper and forest products industry. IP is committed to providing their global clients with value added products and ideas on a continuing basis. IP is almost like a long volley in a tennis match. Bouncing almost consistently between $55 at the high and $50 at the low for the last three months. We feel this play will continue to channel based on the anticipated market conditions. The stock is currently close to the high in the channel at $54. If the market continues to correct into the FOMC meeting on Tuesday, we think IP will provide investors a put play as it channels down to around $50. Then as the market turns positive again, we will adjust positions to calls and ride the channel to $55. Keep in mind that this play is based on past patterns and we may need to adjust as we go. But for now we expect IP to once again hit $50 in the short-term. This is the kind of play that you will want to map out your exit and stop loss orders as soon as you enter the play. Friday's action was merely disappointing, but in reality it confirms our suspicions. If the market rallies over 100 points and IP can only squeeze out 38 cents, then it has some serious resistance problems. We are concerned that a relief rally after the FOMC meeting might catapult IP up and out of its recent channel if we don't hit $50 first before Greenspan gives us the news. We do not recommend holding over the meeting. Do so at your own risk. Confirming IP's commitment to providing the industry with new ideas and products, the company announced the introduction of a product called LamMate. This product will provide users with a more cost effective solution to the commonly used high pressure laminates. Costs are reduced in the new product due to improved and innovative manufacturing processes. IP also announced the acquisition of Argentina's Bolsaflex company. The company is involved in the flexible packaging market and allows IP, through Union Camp, to capture this market area. BUY PUT SEP-50*IP-UJ OI=159 at $0.88 SL=0.00 higher % change BUY PUT SEP-55 IP-UK OI=317 at $2.81 SL=1.50 BUY PUT SEP-60 IP-UL OI= 59 at $6.63 SL=4.75 higher delta Average daily volume = 1.79 mln Chart = http://quote.yahoo.com/q?s=IP&d=3m **** T - AT&T $46.88 (-2.38) AT&T furnishes voice, video and data services which includes cellular phone and Internet services. AT&T targets businesses, private consumers and most government entities. In its quest toward telecom market dominance, AT&T has bought the #2 cable operator TCI (now AT&T Broadband & Internet Services). The company intends to use cable to dramatically expand its customer base by offering local as well as long distance phone services. Currently, AT&T serves more than 90 mln consumers, and is now forming a partnership with British Telecomm that will solidify a strong global position. It was a bad day for T's stockholders on Friday, but it was a profitable day for our put players. T fell more than $1.31 to close the trading session at $46.88. The volume was active as well with 11.8 mln shares changing hands. The Telecomm sector was under fire on Friday as Sprint was downgraded and had their earnings estimates lowered by multiple analysts. The concerns stem from the recent price wars being waged by both large and small long-distance carriers. Analysts are no longer comfortable with revenue and earnings projections. These recent developments are casting a dark shadow and poor sentiment over the industry. With the shadow of the Fed's tightening monetary policy on Tuesday and T's bearish momentum lingering over the short-term, we see opportunities for new plays. Our one point of caution would be that we have entered the oversold indicator so we may be due for a bounce. If so, confirm that the volume is light on any such recovery and that AT&T doesn't break above the 10-dma which is currently at $48.50. BUY PUT T-UI SEP-45 IO=2124 at 1.19 SL=0.50 BUY PUT T-UJ*SEP-50 IO=5427 at 4.00 SL=2.50 Average Daily Volume = 9.55 mln Chart = http://quote.yahoo.com/q?s=T&d=3m **** TBH - Telebras $73.00 (-0.62)(-9.06)(-9.38) Telebras is a holding company for the telecommunications sector in Brazil. On September 21, 1998 the company spun off its telecommunications business into 12 new holding companies. This security is a receipt which represents ownership in the 12 companies. (Bloomberg.com) It was a tough day for those of you participating in this put play. TBH gained 3.38 points Friday to close the day at $73.00. Volume on Friday was on the heavy side with 2.4 mln shares changing hands. It might seem a little surprising to our readers that this is still an active play. However, TBH closed down four consecutive days in a row last week before Friday's gain. Its 10 dma seems to be impeding any sustainable bullish support at this time. One reasonable explanation for the dramatic movement on Friday is the unscheduled auction of domestic debt by Brazil's Central Bank. This action is intended to relieve some of the pressure off the troubled Brazilian real, which is their local currency. The auction was also the catalyst for a rally by the Bovespa Index, which erased most of the losses incurred earlier this week. Furthermore, the real hit a five month low against the dollar, and had depreciated even further during Friday morning's trading before news of the auction hit the wire. It should be made clear that the risk factor on TBH just jumped after the move by the Central bank on Friday. It is imperative that traders confirm downward movement in TBH before trying to initiate any new put plays. For conservative investors, waiting until after the Fed's meeting on Tuesday is recommended. BUY PUT SEP-75*TBH-UO OI=2119 at $5.25 SL=3.50 BUY PUT SEP-70 TBH-UN OI=4031 at $3.00 SL=1.50 Average Daily Volume = 1.77 mln Chart = http://quote.yahoo.com/q?s=TBH&d=3m **** U - USAir Group Inc. $31.56 (-1.19)(+0.31)(-3.19)(-2.56)(P2W-6.81) As one of the top 10 airlines in the U.S., US Airways Group is the holding company for US Airways, Inc., Shuttle, Inc., Allegheny Airlines, Inc., Piedmont Airlines, Inc., and PSA Airlines, Inc. As a certified air carrier, they are engaged primarily in the business of transporting passengers, mail, and property. USAir is still trying to emerge from a rough decade which has included low-fare competition, labor disputes, and early retirement by more than 300 pilots. Currently one of their more popular routes comes from Shuttle, Inc. which operates the US Airways Shuttle between New York and Washington. Ahh, back to the selling. After last week's fraction gain made us wonder if a bottom was forming, USAir returned to form by posting another losing week. The rollover off the 10-dma was right on schedule. In fact rolling over is the perfect term to describe this week. USAir was up Monday, unchanged on Tuesday and lost ground the final 3 days to end just a tad off the day and week low on Friday. In other words, the trend is still in place. One catalyst continues to be oil prices which closed just under $22 a barrel. You can make a strong case for a correlation between oil's rise and USAir's fall. This is no secret either as it is commonly known to all investors that higher oil means higher fuel prices for the airlines. And we haven't gotten to the good news yet! The main catalyst is Friday's development in labor talks with USAir employees. It was announced on Friday that more than 10,000 gate, ticket and reservation agents voted to join the CWA union. This will give them a stronger stance in bargaining for a better salary. But the best news came after the close of trading on Friday. The union representing 7,000 machinists at USAir said Friday that it plans to ask federal mediators to release it from labor negotiations, a step that would clear the way for a 30-day countdown to a strike. This should hurt the stock at on Monday. Technically we reiterate what we said on Thursday which is that U should retest the recent lows of $30.63. With the kind of developments stated above, it could be very soon. BUY PUT SEP-35*U-UG OI=297 at $4.75 SL=2.75 BUY PUT SEP-30 U-UF OI=661 at $1.63 SL=0.75 Average Daily Volume = 859 K Chart = http://quote.yahoo.com/q?s=U&d=3m ****************************** PUTS CONTINUED IN SECTION FIVE ****************************** SEE DISCLAIMER IN SECTION ONE ******************************
The Option Investor Newsletter 8-22-99 Sunday 5 of 6 PUTS CONTINUED *************** NEW PUTS ******** NVLS - Novellus Systems Inc $54.44 (-7.25) Novellus is a leading supplier of semiconductor production equipment, including the high productivity chemical vapor deposition systems used in the making of integrated circuits. The company sends most of the production of major subassemblies to other companies, allowing Novellus to minimize fixed costs and capital expenditures and to concentrate on product design. NVLS's strategy is to focus on major semiconductor manufacturers and now the world's top 20 leading manufacturers all own their products. News of slowing orders for semiconductor equipment has taken its toll on select semi's last week. NVLS was one stock hit unusually hard as it dropped nearly 12%. The monthly data released on Friday showed that orders had declined by 8% in July from June according to the trade group SEMI (Semiconductor Equipment and Materials International). The bad news though is that analysts expect slowing orders for the rest of the year due to product cycles. A recovery should then occur in the year 2000 but investors are not likely to wait around for that to occur. That is why we've seen the rash of selling this week which on Wednesday knocked NVLS below its 200-dma. It has in recent history fallen below this key support only to quickly recover but this time may be different. That is because we are now $5 below that mark and are seeing weak sentiment for the stock. We do see some oversold indicators though after last week's thrashing so be patient on an entry point. We may get some sort of relief bounce first. Then confirm direction and use your stops. BUY PUT SEP-55*NLQ-UK OI=320 at $4.88 SL=3.25 BUY PUT SEP-50 NLQ-UJ OI=373 at $2.50 SL=1.25 Average Daily Volume = 1.58 mln Chart = http://quote.yahoo.com/q?s=NVLS&d=3m COMBOS ****** Stocks Recover As Bond Prices Move Higher.. Equity markets rallied on Friday as the yield on the U.S. 30-year treasury bond ended below the 6% level for the first time since late July. The Dow industrials climbed 136 points to 11,100 and finished the week up 126 points. The Nasdaq index of technology stocks gained 26 points to 2,648. In the broad market, advancing issues led declining issues 1,714 to 1,197 on moderate volume of 658 million shares on the NYSE. Thursday's new plays (positions/opening prices/strategy): Chiron Corp. CHIR OCT25C/SEP30C $3.37 debit diagonal Unocal Corp. UCL JAN45C/SEP45C $2.25 debit calendar Exxon Corp. XON LJAN85/SEP85C $9.87 debit LEAPS/CC's Chiron (CHIR) opened higher but soon fell back and traded most of the morning near $29. A limit order of $3.25 was very aggressive but the options were active and bullish positions were filled on both sides of our target. The initial debit will be recorded as $3.37. Unocal (UCL) traded quietly in various trends throughout the day and volatility was somewhat subdued. Our target entry of $2.25 was easily achieved. Exxon (XON) also moved through a small range during the session and the recommended position was offered at a $10.00 debit on more than one occasion with a large (bid/ask) spread on the JAN-2001 LEAP. An opening price of $9.87 should be a reasonable estimate for the overall cost of the play. Portfolio plays: Friday's rally provided an excellent close to a very profitable month and many of our spread positions finished the August strike period at maximum profit. All of the OTM credit spreads expired safely and the majority of our debit positions earned favorable returns. The calendar (horizontal) spreads portfolio was the most successful section and many of the short-term volatility plays out-performed our highest expectations. A complete summary of the current Spread & Combo positions will be posted in Tuesday's OIN. Good Luck! Questions & comments on spreads/combos to ray@OptionInvestor.com ****************************************************************** - NEW PLAYS - ****************************************************************** CHV - Chevron $95.06 *** Oils Are Still Bullish *** Chevron is a major international oil company that provides a wide range of administrative, financial and management support for, and manages its investments in, domestic and foreign subsidiaries and affiliates, which engage in integrated petroleum operations, chemical operations, real estate development and mineral & energy related activities in the United States and other countries around the world. Chemical operations include the manufacture & marketing of a wide range of chemicals for industrial uses. Oil stocks moved higher Friday week on bullish investor sentiment after the market had previously discounted a small increase in gasoline that brought values down earlier in the week. Traders and analysts remained confident about the oil sector's recent rally, based on the speculation that major producers would continue to adhere to their output cuts, and reduce the global supply glut. Recent large draws on crude stocks in the latest weekly data also boosted the positive outlook for the sector. We continue to like the oil sector as a hedge for intermediate downturns in the market. The favorable option pricing and bullish technicals on the underlying issue make this play an excellent position for low risk portfolios. PLAY (conservative - bullish/debit spread): BUY CALL SEP-80C CHV-IP OI=137 A=$15.62 SELL CALL SEP-90C CHV-IR OI=1334 B=$6.50 INITIAL NET DEBIT TARGET=$8.87 ROI(max)=12% B/E=$88.87 Chart = http://quote.yahoo.com/q?s=CHV&d=3m ********************* MCHP - Microchip Technology $52.31 ** Chip Sector Is Strong *** Microchip develops, manufactures and markets field programmable 8-bit microcontrollers, application-specific standard products and memory products for high-volume embedded control applications in the consumer, automotive, office automation, communications and industrial markets. They provide cost effective in-the-field programmability for high-volume applications and its PIC product family is a performance leader in the worldwide microcontroller market. Microchip recently announced that it has settled its year-long patent infringement litigation with The Chamberlain Group and Sears Roebuck & Co. The litigation emerged last August over a patent involving Microchip's "rolling code" technology for secure data communications used in garage door openers & other keyless remote entry systems. Under the settlement, Chamberlain has become a licensee of Microchip's technology and the pending actions in the U.S. District Court will be dismissed. In addition to the settlement news, Microchip also rolled out a new line of 12-bit analog-to-digital converters (ADCs) which offer high performance, low cost and powerful development tool support for embedded control applications. MCHP's new ADCs will complement several recent product introductions, including 2.7V op amps and system supervisor ICs, marking Microchip's move into providing high performance stand-alone analog components for its traditional customer base of digital designers. New applications include data acquisition, instrumentation and measurement, multi channel data loggers, industrial PCs, motor control, robotics, industrial automation, smart sensors, portable instrumentation, home medical appliances, smoke detectors, automotive navigation and CD motor control. The important issue is this case is sector performance and the semi-conductor group has been on a rampage recently. This deep ITM position offers a favorable risk/reward for those of you with an interest in technology stocks. PLAY (conservative - bullish/debit spread): BUY CALL OCT-35 QMT-JG OI=15 A=$18.25 SELL CALL OCT-45 QMT-JI OI=76 B=$9.87 INITIAL NET DEBIT TARGET=$8.12 ROI(max)=23% B/E=$43.12 Chart = http://quote.yahoo.com/q?s=MCHP&d=3m ********************* HQ - Hambrecht And Quist Group $42.25 *** Hot Broker! *** Hambrecht & Quist is one of the leading underwriters of public offerings for emerging growth companies. The company has handled offerings for about 400 companies, including technology firms such as Apple Computer, Genentech, Netscape Communications, and Convergent Technologies. Hambrecht & Quist's services include investment banking, mergers and acquisitions, private placements, research, and sales and trading. The firm's main strength has been the early identification of trends and industries that have potential to become major forces of economic growth and change. Hambrecht & Quist shares surged last week on renewed takeover speculation and estimates that the stock could cost a potential acquirer as much as $50 a share. Merrill Lynch (MER) was the #1 candidate, rumored more than a year ago to be eyeing H&Q, and once again interested, now that the IPO market appears to have dried up. Implied volatility increased Friday as volume grew in the call options and we can use the new interest to enter a favorable speculation play on this technically bullish merger target. PLAY (conservative - bullish/debit spread): BUY CALL NOV-25 HQ-KE OI=20 A=$17.87 SELL CALL NOV-40 HQ-KG OI=769 B=$6.00 INITIAL NET DEBIT TARGET=$11.50 ROI(max)=30% B/E=36.50 PLAY (aggressive - bullish/debit spread): BUY CALL SEP-35 HQ-IG OI=2 A=$8.00 SELL CALL SEP-40 HQ-IH OI=373 B=$4.25 INITIAL NET DEBIT TARGET=$3.62 ROI(max)=33% B/E=$38.62 Chart = http://quote.yahoo.com/q?s=HQ&d=3m ********************* RX - IMS Health $28.19 *** Sickness In Health Services? *** IMS Health is a world's leading provider of information solutions to the pharmaceutical and healthcare industries. RX's key products and services integral to customer day-to-day operations include: market research for prescription and retail pharmaceuticals; sales management information to optimize sales force productivity; and technology enabled selling solutions for sales & marketing; and technology systems and information services that support managed care organizations. Even though the sector remains bearish, there has been some very positive news for this issue over the past few weeks and yet the stock refuses to make any significant challenge at the current resistance level near $30. The long-term (150 day) moving average is clearly defining the trend for the issue and this four-week play to close below $33 offers a high probability of a favorable profit with reasonable (and limited) risk. PLAY (aggressive - bearish/credit spread): BUY CALL SEP-35.00 RZX-IG OI=2 A=$0.50 SELL CALL SEP-32.50 RZX-IZ OI=24 B=$1.12 INITIAL NET CREDIT TARGET=$0.68 ROI=37% B/E=$33.18 Chart = http://quote.yahoo.com/q?s=RX&d=3m ********************* SEE - Sealed Air Corp. $60.68 *** Technicals Only *** Sealed Air Corporation is engaged primarily in a single line of business: the manufacture and sale of protective and specialty packaging products to a diverse group of customers throughout the world. The Company's principal protective packaging products are its engineered products and its surface protection and cushioning products. Many of these products are non-packaging applications. The company's principal specialty packaging products are its food storage division. With the recent "less-than-outstanding" performance of the their stock, the company decided to issue a statement confirming its sales growth and earnings outlook for the year. They commented that the recent share value is not reflective of their outlook for the business. While fundamentals are important, technical analysts would say that the current value of a given issue is usually priced into the market regardless of the future financial outlook. In this case, it appears that $65 is the maximum value that investors are willing to pay under the existing conditions and we will use that resistance area along with favorable option prices to open a conservative, low-cost position. PLAY (conservative - bearish/debit spread): BUY PUT OCT-70 SEE-VN OI=50 A=$9.75 SELL PUT OCT-65 SEE-VM OI=955 B=$6.00 INITIAL NET DEBIT TARGET=$3.50 ROI(max)=42% B/E=$66.50 Chart = http://quote.yahoo.com/q?s=SEE&d=3m STRADDLES ********* What a trend-less week! Straddles are designed to take advantage of both a rising and falling market. It seems as if that is all we are getting lately. The DOW's see-saw effect has most traders caught in a freeze. For straddle traders to make a profit, the Straddle buyer would need to sell his straddle at a higher price than he originally paid for it. Prices of Straddles rise 2 ways. First, the underlying asset could make a big move that is greater than the price of the entire straddle, forcing it to gain value. Second, the Straddle can gain value by higher demand of the actual strike prices held. This means that the prices of both the call and put increase in value because of more buyers than sellers. This is called a volatility increase. The risk of holding a straddle is that time decay will set in causing the price of the straddle to drop in value. One of the best ways of looking for low risk straddles is by looking for stocks that have options with a low implied volatility. Lets look at the cheap options by sector for a moment to determine where the value lies in inexpensive options. Oil Machinery / Services / Drilling sectors have fallen drastically over the last few weeks due to the consolidation of Oil prices. Not too long ago, these markets were exploding in price and options volatility, but lately have lagged due to an uncertain future. Thanks to this lag, options premiums have experienced what is referred to traders as the volatility crush. Beverage Industry. It seems that, in good times and in bad, the beverage industry will always flourish. When I use to work on the American Stock Exchange, I noticed that most traders, whether having a good or bad day, retire to the local bar for a drink. In some states, beer is actually cheaper than water. Whether the economy strengthens or weakens, beer will always be the cheapest form of entertainment in America. Options in the beverage industry have begun to cheapen as well. Air Transportation. Please put your seats up and your tray tables in their upright and locked position. We have been cleared to land in Low-Vol airport. It looks like the Air Transportation stocks have all decided to fly around the outer markers waiting from further instructions. Option premiums have dropped thanks in part to a drop in the price of most airline stocks. Many times a drop in the stock price can also lead to a drop in option volatility. Remember again, that when scanning optionable stocks, we are looking for the cheapest options premiums by looking at implied volatility lows relative to their high and low ranges over time. The great thing about buying options premiums when the implied volatility is lower is that you are further reducing your time risk over the life of the trade. Once this is determined, we do a little more homework to determine if the trade is ripe for a breakout. Here are the trades that fit this category for the following week. DOW - Dow Chemical Corp. LAST 127.125, IV RANGE 19.07 - 44.00 CURRENT : 24.90 DOW manufactures and sells chemicals, plastic materials, agricultural and other specialized products and services. Products include: adhesives, sealants, fabricated products, metals, and other specialty products. DOW's 3-month range has a high of 137 and a low of 117. Implied volatility is quite low when looking at the HI/LO range above. Dow just named a new CEO lately, and these type of changes usually lead to some kind of stock move. BPA LAST 117.625, IV RANGE 21.55% - 38.58%, CURRENT : 23.00 BP-Amoco p.l.c. produces and markets crude oil and petroleum products worldwide, is engaged in exploration and field development throughout the world, and is engaged in the manufacture and sale of various petroleum-based chemical products. Another oil company merger with post-cheap options. Looks like a 60-day price consolidation too. As I stated above, all these stocks are consolidating and offering a great breakout opportunity. Chevron - CHV LAST 95.062, IV RANGE 18.42 - 41.94, CURRENT : 20.00 Chevron Corp. provides administrative, financial and management support for its U.S. and foreign affiliates, which engage in petroleum, chemical and coal mining operations. This stock has close to a 20 point range in the last few months. Options are cheap. Remember that when looking at stocks that have a high probability of a breakout, look to buy the 60-90 day options. ARC LAST 93.00, IV RANGE 44.26 - 14.67, CURRENT : 25.10 Atlantic Richfield Co. and its subsidiaries are engaged in the worldwide exploration, development, production, transportation and refining of petroleum, including petroleum and natural gas liquids. Same story, different company. ARC sports a 3 month range of 15 points. If oil gets going, so will this stock price. XON LAST 82.562, IV RANGE 23.00 - 38.55, CURRENT : 23.80 Once again this stock has turned up as a breakout. Consolidation for the last several months. Also, the last 6 months range has been from 62 to nearly 90 per share. Look at the options implied volatility folks. Its on the lows of the year. Now it CAN go lower, but for how long. For XON to really move, it would mean a new high or a nice pullback of Oil prices. That could be a possibility in the near-term. STRADDLES TO DROP This is easy. Using exit rules for straddles, I like to exit any positions that have less than 30 days to expiration. This can be as easy as looking at any front month options on expiration Friday to exit. Right now, I would look to exit any straddles that have a September expiration. This is due to the theta decay that happens in the last 30-days. The best thing about Straddles is that they have nearly a zero percent chance of maximum loss. Using this exit strategy will eliminate a maximum loss because a 30 day straddle always has time value left in it. SEE DISCLAIMER IN SECTION ONE ******************************
The Option Investor Newsletter 8-22-99 Sunday 6 of 6 COVERED CALLS ************* Another Long Month Comes To An End.. The mid-summer blues faded Friday as stocks rallied from a recent slide to finish the week on a positive note. Struggling equities made gains across the board after a drop in the yield of the 30 year bond. Today's rebound was also boosted by a double witching expiration of stock options and futures, which generally creates a positive market bias as traders roll-forward into new positions. Our Covered-Calls portfolio benefited from the bullish activity and the majority of the portfolio positions were profitable. Two of our previously closed plays recovered to positive status with the market-wide rally; Data General (DGN) on the EMC buyout and Activision (ATVI) on last Friday's technical reversal. Even with the market-wide rebound, a large number of stocks that slumped to 52-week lows couldn't overcome the effects of the recent bearish market. As the market attempts to recover, we thought it would be helpful to analyze the remaining August positions that failed to get called away. Here is a summary of the current issues in our portfolio along with some basic observations and suggested alternatives for future trades: MESG - $14.00, original cost basis (OCB)=$13.87. The SEP15C=$1.38 New Cost Basis (NCB)=$12.50, more conservative - SEP12.5C=$2.56; NCB=11.31, Support(S)~$12, up-trend still intact. CIEN - $32.25, OCB=$32.75, SEP30C=$4.00, NCB=$28.75, conservative roll out, S~$29, heavy downside volume on Friday is a worry. NFLD - $11.75, OCB=$12.00, SEP12.5C=$0.75, NCB=$11.25, the trend is currently a lateral consolidation. NTPA - $20.75, OCB=$21.56, SEP20C=$3.00, NCB=$18.56, BOP positive, S~$19, Internets are risky... GLFD - $13.63, OCB=$14.38, DEC12.5C=$2.75, NCB=$11.63, S~$11.50 - at the top of previous base, might use the current rally to exit? COOL - $8.88, OCB=$9.50, NOV7.5C=$2.62, NCB=$6.88, S~8.00, the weakness in Internet issues may warrant cutting losses. AVL - $12.94, OCB=$14.56, DEC12.5C=$2.50, NCB=$12.06, S~$12.25, may test the neckline of OCT-FEB double bottom. SYNM - $7.50, OCB=$8.94, JAN10C=$1.94, NCB=$7.00, S~$7.00, long term speculation on gas-to-liquid (GTL) stock. SUMMARY OF PREVIOUS PICKS ***** Stock Price Last Mon Strike Opt Profit ROI Monthly Sym Picked Price Price Bid /Loss ROI CYLK 5.06 5.88 Aug 5.00 0.56 *$ 0.50 11.1% 16.1% OCLR 18.50 18.56 Aug 17.50 1.50 *$ 0.50 2.9% 12.8% FRTE 11.63 17.00 Aug 10.00 2.75 *$ 1.12 12.6% 7.8% SQNT 17.50 16.63 Aug 15.00 3.88 *$ 1.38 10.1% 7.3% FUSE 5.69 6.56 Aug 5.00 1.00 *$ 0.31 6.6% 7.2% NEWZ 8.13 7.75 Aug 7.50 1.06 *$ 0.43 6.1% 6.6% BNBN 19.25 18.81 Aug 17.50 3.13 *$ 1.38 8.6% 6.2% LIPO 20.88 25.44 Aug 20.00 2.38 *$ 1.50 8.1% 5.9% FRTE 13.69 17.00 Aug 12.50 1.81 *$ 0.62 5.2% 5.7% WSTL 8.97 8.38 Aug 7.50 2.00 *$ 0.53 7.6% 5.5% CS 14.81 14.06 Aug 12.50 3.00 *$ 0.69 5.8% 5.1% IRF 13.19 16.63 Aug 12.50 1.63 *$ 0.94 8.1% 5.0% IDTC 22.50 18.81 Aug 17.50 5.88 *$ 0.88 5.3% 4.6% LIPO 22.00 25.44 Aug 20.00 2.75 *$ 0.75 3.9% 4.2% NOVT 22.75 20.75 Aug 20.00 3.50 *$ 0.75 3.9% 4.2% NPIX 19.13 17.69 Aug 15.00 4.75 *$ 0.62 4.3% 3.7% MESG 19.75 14.00 Aug 15.00 5.88 $ 0.13 0.9% 0.7% CIEN 37.13 32.25 Aug 35.00 4.38 $ -0.50 -1.5% 0.0% NFLD 13.25 11.75 Aug 12.50 1.25 $ -0.25 -2.1% 0.0% NTPA 27.19 20.75 Aug 22.50 5.63 $ -0.81 -3.8% 0.0% GLFD 16.44 13.63 Aug 15.00 2.06 $ -0.75 -5.2% 0.0% COOL 12.63 8.88 Aug 10.00 3.13 $ -0.62 -6.5% 0.0% AVL 16.75 12.94 Aug 15.00 2.19 $ -1.62 -11.1% 0.0% SYNM 9.44 7.50 Aug 10.00 0.50 $ -1.44 -16.1% 0.0% WSTL 7.75 8.38 Sep 7.50 1.25 *$ 1.00 15.4% 11.1% OLS 9.94 10.56 Sep 10.00 1.00 *$ 1.06 11.9% 10.3% MXTR 5.03 6.38 Sep 5.00 0.63 *$ 0.60 13.6% 9.9% IDTI 14.69 18.69 Sep 15.00 1.31 *$ 1.62 12.1% 8.8% TMAR 7.63 8.81 Sep 7.50 0.81 *$ 0.68 10.0% 7.2% TIE 11.19 9.94 Sep 10.00 2.13 $ 0.88 9.7% 7.0% IMNR 5.63 6.31 Sep 5.00 1.00 *$ 0.37 8.0% 6.9% PR 19.25 20.06 Sep 20.00 0.94 *$ 1.69 9.2% 6.7% PXD 12.69 12.44 Sep 12.50 1.13 $ 0.88 7.6% 6.6% NTAI 14.88 14.75 Sep 15.00 1.00 $ 0.87 6.3% 5.4% IRF 16.00 16.63 Sep 15.00 1.81 *$ 0.81 5.7% 5.0% MRVC 14.50 14.81 Sep 12.50 2.63 *$ 0.63 5.3% 4.6% MAK 13.69 12.88 Sep 12.50 1.81 *$ 0.62 5.2% 4.5% PESC 23.88 28.13 Sep 22.50 2.69 *$ 1.31 6.2% 4.5% PENN 9.88 9.69 Sep 10.00 0.75 $ 0.56 6.1% 4.4% USAI 45.94 45.88 Sep 45.00 3.50 *$ 2.56 6.0% 4.4% NETA 17.56 16.31 Sep 15.00 3.50 *$ 0.94 6.7% 4.2% RNBO 13.88 12.38 Sep 12.50 2.19 $ 0.69 5.9% 3.7% SBGI 20.31 17.88 Sep 20.00 1.69 $ -0.74 -4.0% 0.0% Previously Closed Positions: CATP ANET RRRR PAMC MESG(17.50C) SNRS CCCG UBET ARM DGN ATVI 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 ATML 39.88 SEP 40.00 AQT IH 2.63 250 37.25 7.4% 7.0% FLC 13.13 SEP 12.50 FLC IV 1.19 5486 11.94 4.7% 4.7% IDTC 18.88 SEP 15.00 IQJ IC 4.50 453 14.38 4.3% 4.3% IDTI 18.88 SEP 17.50 ITQ IW 2.13 554 16.75 4.5% 4.5% MOGN 11.88 SEP 10.00 QOG IB 2.31 60 9.56 4.6% 4.6% MRVC 14.88 SEP 12.50 VQX IV 3.00 95 11.88 5.3% 5.3% OMQP 13.25 SEP 10.00 OJQ IB 3.75 439 9.50 5.3% 5.3% PCYC 29.13 SEP 22.50 QPY IX 7.88 8 21.25 5.9% 5.9% RIGS 19.81 SEP 17.50 RNQ IW 3.00 47 16.81 4.1% 4.1% VTS 19.25 SEP 17.50 VTS IW 3.25 387 16.00 9.4% 9.4% Sequenced by Return Called ***** Stock Price Mon Strike Option Opt Open Cost RC RNC Sym Price Symbol Bid Intr Basis VTS 19.25 SEP 17.50 VTS IW 3.25 387 16.00 9.4% 9.4% ATML 39.88 SEP 40.00 AQT IH 2.63 250 37.25 7.4% 7.0% PCYC 29.13 SEP 22.50 QPY IX 7.88 8 21.25 5.9% 5.9% MRVC 14.88 SEP 12.50 VQX IV 3.00 95 11.88 5.3% 5.3% OMQP 13.25 SEP 10.00 OJQ IB 3.75 439 9.50 5.3% 5.3% FLC 13.13 SEP 12.50 FLC IV 1.19 5486 11.94 4.7% 4.7% MOGN 11.88 SEP 10.00 QOG IB 2.31 60 9.56 4.6% 4.6% IDTI 18.88 SEP 17.50 ITQ IW 2.13 554 16.75 4.5% 4.5% IDTC 18.88 SEP 15.00 IQJ IC 4.50 453 14.38 4.3% 4.3% RIGS 19.81 SEP 17.50 RNQ IW 3.00 47 16.81 4.1% 4.1% Company Descriptions ***** ATML - Atmel Corporation $39.88 *** Hot Sector *** ATML designs, develops, manufactures, and markets high performance non-volatile memory and logic integrated circuits using its metal- oxide semiconductor technologies. The downgrade by Needham & Co. on August 6 did little to stop ATML's stage II climb. And then, a couple days later, Banc of America Sec initiated coverage with a "strong buy". Atmel appears poised to make a run for a new all time high above $47.00. SEP 40.00 AQT IH Bid=2.63 OI=250 CB=37.25 RC=7.4% RNC=7.0% Chart = http://quote.yahoo.com/q?s=atml&d=3m ***** FLC - R&B Falcon Corp. $13.13 *** Hedge With Oils *** FLC operates a fleet of marine-based drilling rigs servicing the international oil and gas industry. Its fleet is composed of 135 marine-based drilling units including barge and jackup rigs, and a fleet of semisubmersibles and drillships. FLC also provides turnkey and integrated services and operates mobile production units, internationally based land drilling rigs and an offshore towing business. FLC has received several upgrades this month as the oil services sector moves into overdrive. SEP 12.50 FLC IV Bid=1.19 OI=5486 CB=11.94 RC=4.7% RNC=4.7% Chart = http://quote.yahoo.com/q?s=flc&d=3m ***** IDTC - IDT Corporation $18.88 *** Undervalued? *** IDT Corporation is a telecommunications company which offers a broad range of integrated long-distance telephone, Internet access services, and prepaid calling cards. Tuesday, IDTC announced an agreement with Northpoint Communications to deliver SDSL services to major metropolitan areas nationwide. IDTC tanked after its NTOP IPO (bad timing?) but moved up strongly on the broadband news and NTOP's rally. This may provide a little revenge for August losers. SEP 15.00 IQJ IC Bid=4.50 OI=453 CB=14.38 RC=4.3% RNC=4.3% Chart = http://quote.yahoo.com/q?s=idtc&d=3m ***** IDTI - Integrated Device Tech. $18.88 *** Hot Sector *** Integrated Device designs, develops, manufactures and markets a broad range of high-performance semiconductor products for the communications, PC, office automation and workstation/server markets using advanced CMOS process technology. The August 10 news that Intel will pay IDTI $20.5 million as part of their cross-license agreement, spurred the jump in price the next day. The technicals remain strong as the semiconductor sector rallies. SEP 17.50 ITQ IW Bid=2.13 OI=554 CB=16.75 RC=4.5% RNC=4.5% Chart = http://quote.yahoo.com/q?s=idti&d=3m ***** MOGN - MGI Pharma, Inc. $11.88 *** Slow Climber *** MGI Pharma, Inc. is a human pharmaceutical company that acquires, develops and markets differentiated, specialty pharmaceuticals and medical products for therapeutic markets of unmet need. In July, MGI Pharma reported a 46% increase in revenues, posting a 2Q EPS of $0.04 vs. Nil. MOGN, in a long-term uptrend since late '97, is a favorable, low risk play. SEP 10.00 QOG IB Bid=2.31 OI=60 CB=9.56 RC=4.6% RNC=4.6% Chart = http://quote.yahoo.com/q?s=mogn&d=3m ***** MRVC - MRV Communications, Inc. $14.88 *** Hot Sector *** MRV designs, manufactures and sells computer networking products, primarily Ethernet local area network switches, hubs and related equipment, and fiber optic components for voice, video and data transmission. MRV returned to profitability on increasing revenues during the second quarter. Technicals remain bullish and the cost basis is just above the 150 dma. SEP 12.50 VQX IV Bid=3.00 OI=95 CB=11.88 RC=5.3% RNC=5.3% Chart = http://quote.yahoo.com/q?s=mrvc&d=3m ***** OMQP - OmniQuip International $13.25 *** What's Up? *** 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. The company reported record third quarter results in early August with a 25% increase in sales. The earnings are old news but the stock price continues to move higher and the last few days have been extreme. Up sharply on heavy volume and call buying with no news. Hmmm.. SEP 10.00 OJQ IB Bid=3.75 OI=439 CB=9.50 RC=5.3% RNC=5.3% Chart = http://quote.yahoo.com/q?s=omqp&d=3m ***** PCYC - Pharmacyclics Inc. $29.13 Pharmacyclics is a company developing energy-potentiating drugs to improve radiation therapy and chemotherapy of cancer, and to enable or improve the photodynamic therapy of certain cancers, atherosclerotic cardiovascular disease and diseases of the eye. PCYC dropped slightly in August on news of a new public offering and further loss in earnings. Cost increases were related to the development of the company's XCYTRIN(TM), LUTRIN® and ANTRIN® products. We favor the cost basis below support. SEP 22.50 QPY IX Bid=7.88 OI=8 CB=21.25 RC=5.9% RNC=5.9% Chart = http://quote.yahoo.com/q?s=pcyc&d=3m ***** RIGS - Riggs National Corp. $19.81 Riggs National Corporation, the largest banking holding company headquartered in the nation's capital, has 53 branches in the Washington, DC metropolitan area, as well as three locations in London, England. The technical outlook for RIGS is improving after consolidating for the last two months and rebounding off the April-May bottom. A favorable long-term speculation play in a rebounding issue with a cost basis at technical support. SEP 17.50 RNQ IW Bid=3.00 OI=47 CB=16.81 RC=4.1% RNC=4.1% Chart = http://quote.yahoo.com/q?s=rigs&d=3m ***** VTS - Veritas DGC Inc. $19.25 *** Hot Sector *** Veritas DGC is a leading provider of seismic data acquisition, data processing and multi-client data surveys to the oil and gas industry in selected markets worldwide. Veritas' shareholders will vote September 21-22 on the proposed buy-out of Enertec, a similar company based in Calgary. VTS will release earnings on Sept 8 with a conference call the next day. As the price of oil continues to climb, oil companies will fund exploration for new resources. Favorable speculation as VTS trends laterally with improving technicals. SEP 17.50 VTS IW Bid=3.25 OI=387 CB=16.00 RC=9.4% RNC=9.4% Chart = http://quote.yahoo.com/q?s=vts&d=3m ***** NAKED PUT SECTION ***************** Market Bears Find Shelter In Negative Indicators.. Economists say the current market fundamentals are now decidedly bearish with Y2K approaching and the possibility of more interest rate increases by the inflation-fighting Federal Reserve. Many of of the technical experts are also pointing-out negative trends in the most widely used indicators. One of the best (overall) gauges of market health is the Advance-Decline Line. The Advance-Decline line is a cumulative total of the number of advancing issues minus the number of declining issues. The common interpretation of advances and declines uses those figures from the NYSE trading on a daily basis. A cumulative advance-decline line can then be calculated by first subtracting the number of NYSE declining issues (declines) from the number of advancing issues (advances) daily and then keeping a running sum of those numbers. The advance-decline numbers are an effective gauge of the general trend in the majority of issues but they can also be quite subjective in interpretation. Most technical experts just try to examine any large divergences in the indicator to help form an opinion or forward-looking bias about upcoming market moves. If you examine a chart comparing the performance of the S&P 500 Index with the cumulative NYSE advance-decline line, you will notice the divergence has once again reached extreme proportions. The S&P is near recent highs while the A/D line has fallen to new lows. This type of activity is usually viewed as a very negative indication but most analysts agree that divergences can exist for a long time before the market shows signs of significant retreat. Comments/Observations on August (ITM) Positions: RNBO - $12.38, original cost basis(OCB)=$12.25, SEP12.5C=$0.81, new cost basis(NCB)=$11.44, uptrend intact, outcome favorable?!? PTVL - $16.81, OCB=$16.69, SEP15C=$3.00, NCB=$13.69, support(S) ~$14.62, current trading range $14~$25. PZX - $9.13, OCB=$9.31, SEP10C=$0.56, NCB=$8.75, weak but now oversold, at support but sector also weak, time to cut losses? DRIV(22.50C) - $21.69, OCB=$22.00, SEP17.5C=$4.75, NCB=$17.25, which offers a break even exit, SEP20C offers chance at profit but with less downside protection. PRIA - $27.69, OCB=$29.00, NOV25C=$5.75, NCB=$23.25, good S~$24, good sector, a coin toss on this one. SUMMARY OF PREVIOUS PICKS ***** Stock Price Last Mon Strike Opt Profit ROI Monthly Sym Picked Price Price Bid /Loss ROI ADAP 22.63 30.75 Aug 17.50 0.44 *$ 0.44 8.9% 12.8% MGCX 28.00 23.75 Aug 20.00 1.13 *$ 1.13 16.8% 12.2% PSSI 12.00 10.13 Aug 10.00 0.44 *$ 0.44 13.6% 11.8% NETS 19.56 23.69 Aug 15.00 0.75 *$ 0.75 16.1% 11.7% PCYC 27.75 29.13 Aug 22.50 0.69 *$ 0.69 10.6% 11.5% LYNX 14.63 13.50 Aug 12.50 0.31 *$ 0.31 7.7% 11.1% NETS 23.50 23.69 Aug 17.50 0.25 *$ 0.25 5.1% 11.0% QNTM** 24.56 24.63 Aug 17.50 1.00 *$ 1.00 16.9% 10.5% GISX 20.25 18.69 Aug 17.50 0.56 *$ 0.56 9.5% 10.3% AFCX 37.06 35.63 Aug 30.00 0.38 *$ 0.38 4.7% 10.1% ZRAN 24.50 33.50 Aug 20.00 0.38 *$ 0.38 6.7% 9.7% NETA 17.56 16.31 Aug 15.00 0.31 *$ 0.31 6.5% 9.4% GISX 21.13 18.69 Aug 17.50 0.56 *$ 0.56 10.4% 9.0% PMRY 14.50 13.88 Aug 12.50 0.25 *$ 0.25 6.2% 8.9% CDNW 19.94 15.50 Aug 15.00 0.56 *$ 0.56 12.3% 8.9% CLEC 27.00 27.75 Aug 22.50 0.56 *$ 0.56 8.2% 8.9% PERI 21.50 23.69 Aug 17.50 0.38 *$ 0.38 7.6% 8.3% LIPO 20.88 25.44 Aug 17.50 0.63 *$ 0.63 11.3% 8.1% ALKS 30.63 33.50 Aug 25.00 0.25 *$ 0.25 3.6% 7.9% HNCS 37.44 36.50 Aug 30.00 0.56 *$ 0.56 6.9% 7.5% PTVL 23.38 16.81 Aug 15.00 0.25 *$ 0.25 5.1% 7.3% MIPS 43.94 36.88 Aug 30.00 0.75 *$ 0.75 7.9% 6.8% VSTR 38.13 43.00 Aug 30.00 0.50 *$ 0.50 6.2% 6.7% CIEN 37.13 32.25 Aug 30.00 0.63 *$ 0.63 7.5% 6.6% ADAP 23.19 30.75 Aug 17.50 0.44 *$ 0.44 8.7% 6.3% MCOM 35.38 27.75 Aug 20.00 0.44 *$ 0.44 5.9% 5.1% RNBO 13.88 12.38 Aug 12.50 0.25 $ 0.13 2.9% 4.3% PTVL 23.63 16.81 Aug 17.50 0.81 $ 0.12 2.2% 1.6% PZX 10.94 9.13 Aug 10.00 0.69 $ -0.18 -4.4% 0.0% DRIV 32.44 21.69 Aug 22.50 0.50 $ -0.31 -4.4% 0.0% PRIA 38.63 27.69 Aug 30.00 1.00 $ -1.31 -15.0% 0.0% CRUS 8.88 9.38 Sep 7.50 0.38 *$ 0.38 14.9% 13.0% MCOM 25.56 27.75 Sep 17.50 0.88 *$ 0.88 14.7% 12.8% NETG 22.25 24.19 Sep 17.50 0.63 *$ 0.63 12.4% 10.8% ADAP 22.88 30.75 Sep 17.50 0.75 *$ 0.75 14.1% 10.2% NMR 33.50 37.31 Sep 25.00 0.63 *$ 0.63 8.6% 7.5% PESC 23.88 28.13 Sep 17.50 0.50 *$ 0.50 9.5% 6.9% CORR 22.50 22.38 Sep 17.50 0.44 *$ 0.44 8.9% 6.5% BOBJ 47.19 45.13 Sep 35.00 0.75 *$ 0.75 7.4% 6.4% SBGI 20.50 17.88 Sep 17.50 0.38 *$ 0.38 6.8% 5.9% PLMD 17.88 23.38 Sep 15.00 0.31 *$ 0.31 6.8% 5.9% CSE 48.06 49.00 Sep 40.00 0.75 *$ 0.75 6.3% 5.5% USAI 45.94 45.88 Sep 40.00 0.81 *$ 0.81 6.1% 4.4% TDW 34.44 34.31 Sep 30.00 0.56 *$ 0.56 5.7% 4.1% DD 74.75 72.19 Sep 65.00 1.00 *$ 1.00 4.7% 3.4% ** With the retirement of QNTM, Quantum shareholders will receive one-half share of HDD ($8.25) and one share of DSS ($20.50) for each share of QNTM (equals $24.63). Previously Closed: AMTD PAMC CDNW(17.50P) RMII BYND IDTC RSLC SNRS DRIV(25.00P) NEW PICKS ********* Definitions: OI - Open Interest CB - Cost Basis (break-even point if put exercised) ROI - Return On Investment Sequenced by Company ***** Stock Price Mon Strike Option Opt Open Cost ROI Opt Sym Price Symbol Bid Intr Basis Expired ADAP 30.75 SEP 25.00 CQI UE 0.88 80 24.13 11.8% CLTR 29.13 SEP 20.00 QCE UD 0.63 280 19.38 9.7% KING 28.63 SEP 25.00 QBK UE 0.69 10 24.31 8.1% PAX 15.31 SEP 12.50 PAX UV 0.44 370 12.06 11.7% PCYC 29.13 SEP 20.00 QPY UD 0.69 0 19.31 10.6% RIGS 19.81 SEP 17.50 RNQ UW 0.63 20 16.88 10.0% SCMM 47.88 SEP 35.00 SIU UG 0.75 63 34.25 7.3% VTS 19.25 SEP 15.00 VTS UC 0.38 40 14.63 8.9% Sequenced by ROI ****** Stock Price Mon Strike Option Opt Open Cost ROI Opt Sym Price Symbol Bid Intr Basis Expired ADAP 30.75 SEP 25.00 CQI UE 0.88 80 24.13 11.8% PAX 15.31 SEP 12.50 PAX UV 0.44 370 12.06 11.7% PCYC 29.13 SEP 20.00 QPY UD 0.69 0 19.31 10.6% RIGS 19.81 SEP 17.50 RNQ UW 0.63 20 16.88 10.0% CLTR 29.13 SEP 20.00 QCE UD 0.63 280 19.38 9.7% VTS 19.25 SEP 15.00 VTS UC 0.38 40 14.63 8.9% KING 28.63 SEP 25.00 QBK UE 0.69 10 24.31 8.1% SCMM 47.88 SEP 35.00 SIU UG 0.75 63 34.25 7.3% Company Descriptions ***** ADAP - Adaptive Broadband $30.75 *** Onward And Upward *** Adaptive Broadband manufactures & markets sophisticated systems and products used worldwide in satellite/wireless communications for the transmission of voice, data, facsimile and video. ADAP provides industry-leading solutions for satellite-based data communications and terrestrial wireless telemetry networks. New orders booked in the quarter were up 20% over last year, to a record $53.8 million. Recently signed a $100-million contract to sell AB-Access(TM) broadband wireless services to I3S Inc. SEP 25.00 CQI UE Bid=0.88 OI=80 CB=24.13 ROI=11.8% Chart = http://quote.yahoo.com/q?s=ADAP&d=3m ***** CLTR - Coulter Pharmaceutical $29.13 *** FDA Approval? *** Coulter Pharmaceutical is engaged in the development of novel drugs and therapies for the treatment of people with cancer. The company currently is developing a family of cancer therapeutics based upon two platform technologies: conjugated antibodies and tumor-activated peptide pro-drugs. The company's most advanced product candidate, the "B-1 Therapy," consists of a monoclonal antibody conjugated with a radioisotope. Recent controversy and concerns over Coulter's FDA filing for cancer antibody Bexxar has caused some new volatility in this issue. Speculation Only! SEP 20.00 QCE UD Bid=0.63 OI=280 CB=19.38 ROI=9.7% Chart = http://quote.yahoo.com/q?s=CLTR&d=3m ***** KING - King Pharmaceuticals $28.63 *** More Drugs *** King is a vertically integrated pharmaceutical company that manufactures, markets, and sells branded & generic prescription products. King seeks to capitalize on niche opportunities in the pharmaceutical industry created by cost containment initiatives and consolidation among large global pharmaceutical companies. King's strategy is to acquire branded pharmaceutical products and increase sales by focused promotion and marketing, as well as by developing product line extensions and through product life cycle management. Recently completed an acquisition of the antibiotic Lorabid® (loracarbef) from Eli Lilly. SEP 25.00 QBK UE Bid=0.69 OI=10 CB=24.31 ROI=8.1% Chart = http://quote.yahoo.com/q?s=KING&d=3m ***** PAX - Paxson Communications $15.31 *** Broadcasting Sector *** Paxson operates three business segments: (1) the Infomall TV Network; (2) Paxson; and (3) Paxson Network-Affiliated Television. Paxson said it had hired Salomon Smith Barney to explore its options following a landmark FCC decision that allows a single company to own more than one TV station in a local market. NBC is reportedly negotiating a deal to buy part of Paxson. We feel our cost basis offers a favorable point from which to speculate. SEP 12.50 PAX UV Bid=0.44 OI=370 CB=12.06 ROI=11.7% Chart = http://quote.yahoo.com/q?s=pax&d=3m ***** PCYC - Pharmacyclics Inc. $29.13 Pharmacyclics is a company developing energy-potentiating drugs to improve radiation therapy and chemotherapy of cancer, and to enable or improve the photodynamic therapy of certain cancers, atherosclerotic cardiovascular disease and diseases of the eye. PCYC dropped slightly in August on news of a new public offering and further loss in earnings. Cost increases were related to the development of the company's XCYTRIN(TM), LUTRIN® and ANTRIN® products. We favor the cost basis below support. SEP 20.00 QPY UD Bid=0.69 OI=0 CB=19.31 ROI=10.6% Chart = http://quote.yahoo.com/q?s=pcyc&d=3m ***** RIGS - Riggs National Corp. $19.81 *** Consolidation *** Riggs National Corporation, the largest banking holding company headquartered in the nation's capital, has 53 branches in the Washington, DC metropolitan area, as well as three locations in London, England. The technical outlook for RIGS is improving after consolidating for the last two months after rebounding off an April-May bottom. A favorable long-term speculation play in a rebounding stock with a cost basis at technical support. SEP 17.50 RNQ UW Bid=0.63 OI=20 CB=16.88 ROI=10.0% Chart = http://quote.yahoo.com/q?s=rigs&d=3m ***** SCMM - SCM Microsystems, Inc. $47.88 *** Bottom Fishing! *** SCM Microsystems designs, develops and sells standards-compliant hardware, firmware and software products and technologies used in smart card and other token-based network security and conditional access systems. The Company markets, sells and licenses its products through a direct sales and marketing organization primarily to OEMs and also through distributors, value-added resellers, system integrators and resellers worldwide. Deep OTM speculation that SCMM has found a new technical base. SEP 35.00 SIU UG Bid=0.75 OI=63 CB=34.25 ROI=7.3% Chart = http://quote.yahoo.com/q?s=scmm&d=3m ***** VTS - Veritas DGC Inc. $19.25 *** Hot Sector *** Veritas DGC is a leading provider of seismic data acquisition, data processing and multi-client data surveys to the oil and gas industry in selected markets worldwide. Veritas' shareholders will vote Sept 21-22 on the proposed buy-out of Enertec, a similar company based in Calgary. VTS will release earnings on Sept 8 with a conference call the next day. As the price of oil continues to climb, Oil companies will fund exploration for new resources. Favorable speculation as VTS trends laterally with improving technicals. SEP 15.00 VTS UC Bid=0.38 OI=40 CB=14.63 ROI=8.9% Chart = http://quote.yahoo.com/q?s=vts&d=3m ***** SEE DISCLAIMER IN SECTION ONE *****************************
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