The Option Investor Newsletter Sunday 10-03-99 1 of 7 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com Entire newsletter best viewed in COURIER 10 font for alignment ******************************************************************* MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ******************************************************************* WE 10-1 WE 9-24 WE 9-17 WE 9-10 DOW 10273.00 - 6.33 10279.33 -524.30 10803.63 -224.80 - 50.02 Nasdaq 2736.85 - 3.56 2740.41 -129.23 2869.64 - 17.32 + 43.85 S&P-100 670.31 - 2.49 672.80 - 32.16 704.96 - 7.83 - 1.10 S&P-500 1282.81 + 5.45 1277.36 - 58.06 1335.42 - 16.23 - 5.59 RUT 423.53 + 6.44 417.09 - 17.37 434.46 - 6.73 + 5.22 TRAN 2868.34 - 10.38 2878.72 -121.07 2999.79 - 91.04 - 66.07 VIX 26.46 - 3.08 29.54 + 5.32 24.22 + 1.87 - .96 Put/Call .68 .74 .67 .52 ******************************************************************* I think we are getting close. Pssst, don't look now but I think a rally may be about to happen. Move slowly and carefully to your PC without drawing attention to yourself and plan some trades for next week. Have you ever been driving in the car and had a cop pull up behind you? You are trying to be nonchalant and appear carefree even though you were driving 15 miles over the limit. When the others in the car ask why you are slowing down, you say "don't look now but there is a cop behind us." What do they do? The jerk around to look so fast they could get whiplash. (do you know that in police circles, when they are bored they pull in behind cars just to see how long it takes for the occupants to pull this trick?) Back to the subject... We had the mother of all NAPM spikes on Friday two days before the FOMC meeting and the market did not crater. Yes, it went down but it recovered nicely. Take a look at the DOW chart. We had a very bad week with several tests of old lows and yet finished the week only six points lower then we started! Take a look at the market info on the top of this page! Every major index except for the Transports finished within 10 points of where it started the week! After trading under 10100 on Tuesday the Dow held a very tight range between 10200 and 10300 the rest of the week. Even after very bad inflation news on Friday! Notice also the flattening of the advance/decline line. This could just be a plateau before the next drop or a real bottom. The Nasdaq chart looks a little more bearish to me with the lower highs all week but still we tested 2700 on three days with a strong rebound each time. We do need to trade above 2780-2800 again to make me comfortable enough to say 2700 was the bottom. A lot of the Nasdaq weakness came from the Taiwan earthquake not from stock weakness. With chips and PC makers taking a bath in downgrades the index is holding up very well. Dell Computer, which makes up a large portion of the Nasdaq, took two huge hits on Friday and survived. Dell was downgraded by C.S. First Boston and Salomon Brothers yet finished the day up. Dell dropped to as low as $39.75, don't you wish you had some $40 limit orders in when it happened, but recovered to close up +.50 at 42.50. MSFT has been hammered but has held $89 for over a week. Dell held very strong at $40. Intel is holding at $74 and CSCO is rebounding off support at $67. QCOM held support at $184. The only major Nasdaq leader that is dropping is WCOM on the Sprint speculation. I don't see the Nasdaq giving up much ground from here. 70% of the Nasdaq stocks are under their 200DMA already and UP is looking like the path of least resistance. Actually I was very surprised at the market on Friday. After the futures closed down -10.50 just before the open I thought -10000 was possible on a bad NAPM report. Boom! The NAPM report showed inflation was gaining speed with a jump from 54.2 in Aug to 57.8 in Sept. The prices paid component, where inflation shows up the most, jumped to 67.6 from 59.8, the highest level in five years! The highest level in FIVE YEARS! Consumer spending jumped from a +.4% in July to a +.9% in August and personal income jumped from +.2% in July to +.5% in August. Good grief! Inflation is rampant, DOW 9500 here we come. You know the rest of the story. The Dow dips to 10211 on the news but promptly rallies right back. It flattens for the rest of the day as bonds go through the floor. Another wave of selling hits at 2:30 and forces another break of the 10200 bottom but only for a couple minutes. Bargain hunting breaks out ON A FRIDAY BEFORE A FED MEETING WITH INFLATION RAMPANT. Can you spell B-O-T-T-O-M? Contrary to any market logic the 10200 held and it looks like a rally is about to breakout. The basis for the rally is two fold. One, the market is terribly oversold and earnings are beginning next week. Two, it appears that nobody is concerned about a Fed rate increase. The telegraphing of an impending rate increase by Fed heads has not happened. Remember the last FOMC meeting? They talked up the rate increase for several weeks before the meeting. It was called the most publicized rate increase in history. This time the Fed heads have been relatively quiet. The last two times Greenspan spoke he did not even mention economic policy. Lawrence Meyers did take a jab at the market on Friday with a "the Fed must be an anchor for sustainable growth" and "the markets are considered in our decisions." Other than that it has been all quiet on the rate front. Unless of course you consider the bond yields at 6.16% intraday on Friday. Still the market did not crater as one would expect. The consensus appears to be that the Fed cannot afford to raise rates this close to Y2K. They do not want to be blamed for a credit crunch and decreased liquidity. If the market tanks on Y2K fears the Fed doesn't want to be the scapegoat. Others have pointed out that the Fed has authorized the printing of $100 billion in extra currency to have plenty of cash available in case there is a run on banks. Would it make sense for the Fed to raise rates and make it harder to use the money? The best guess is the Fed will change the bias back to tightening on Tuesday but leave rates alone. The stronger bias is used to warn the markets that an increase can come at any time, just not today. This leaves their options open and keeps them blameless if the market crashes. Market analysts think there is a win win situation developing here. No rate increase is a tacit blessing of the economy and the market. Since a rate increase is already priced in then a rate increase could be taken in stride without another big drop. The contrarians however believe that the Fed cannot be seen taking back the third rate decrease from last year without a major drop. Another factor in the Feds normal rate decision is the Jobs Report. The Sept report will not be out until Friday. No help there. The Fed appears to have their hands tied which is good in my book. Lets just hope they see it this way also. Another reason I think we may have seen a bottom at 10200 is the bounce in the small/midcaps. Don't look now but there were a lot of small/midcap stocks that recovered lost ground in the last two days. I looked at over 500 charts this weekend and there were hundreds that had an upward spike in the last two days. This means there is money coming back into the market and nibbling on the most depressed sectors. Check out these examples of what I am talking about. Another way of looking at the market direction which I talked about last week was analysis of the Dow 30 stocks. This weekend the number of Dow stocks that are lower than one week ago total only nine. Most have a ski jump on the end of their downhill slide. Here are the Sears and Goodyear charts as an example. For the complete list click here: (/members/misc/dow30.asp) Remember Friday was a down day for the Dow but most Dow stocks were up. The culprits were some big names. MO - Phillip Morris - new trial news PG - Proctor Gamble - Avon and Revlon backlash IP - International Paper - Hurricane Floyd casualty IBM - IBM - Earnings worries - should bounce soon HWP - Hewlett Packard - Earnings warning DIS - Disney - downgraded AXP - American Express - Interest rate worries T - AT&T - Bell Atlantic to sell long distance (MCI/Sprint) KO - Coca Cola - Earnings warning Several of these could bounce soon and could add to the positive momentum from the other 18 Dow stocks. (3 are flat) The earnings warning cycle is almost over with most of the big names already past their warning dates. Earnings start this week with some big names which should help refocus traders away from interest rates and economic reports. If we do get through the FOMC meeting without an increase but with a new bias to tighten then the next hurdle will be the jobs report on Friday. A very bad jobs report could cause Greenspan to use the bias authority to pull the trigger on another increase but the chances are slim. It would have to be a very bad report. I would say the trading light is green if the market is positive and moving up on Monday/Tuesday with positive advance/declines. Cautious traders could wait until after the FOMC meeting before opening new long positions but then you are staring the jobs report in the face. (if trading was easy, everybody would be millionaires) I would start out small and then add to your positions if everything continues to go according to plan. This is October and the bottom could fall out at anytime. Any oversold rally could reverse as soon as the pressure is relieved. Protect your positions with stops and stick to them. So wait until your family is curled up in front of the TV and then ease out of the room and back to your PC. Be quiet, we do not want to give the bears any advance notice as we plan trades for the next week. We may only have a few days before oversold is over and we want to make the most of it. Above all, avoid emotional trading. The herd is always wrong in both directions. If you wait until everything is going your way then it may be too late. If you wait until the Dow is up strong six days in a row to confirm the upward move, then it is already too late. Profit taking could then occur at any time and you bought in at the top. Same with selling. If you do not place stop losses and stick to them, you will eventually find yourself saying "if it drops another -$2 I will sell." Then after it drops $2 you say to yourself, "it has to turn around, I will give it another $1." Then, "well it is almost at support, just another $2." You all know the last sentence. "It is so cheap now, it is not worth selling, I will just keep it and hope for a miracle." Your option has dropped 95% while you talked yourself out of taking action. The bottom of any cycle is when YOU finally sell. That is the key. Sell early with stop losses and let somebody else ride it to the bottom. You can buy theirs much cheaper and ride them back up. Anybody can buy options. The secret is entry/exit points. This separates the winners from the losers. Everybody has losses from things we cannot control. Winners only take small losses. It takes a 200% profit to make up a 100% loss. WAIT FOR AN ENTRY POINT and sell too soon. Jim Brown Editor ******************* FALL SEMINAR SERIES ******************* Time is racing by. The October seminars are almost full and you are on the outside limit of cheap airfares. If you are considering going to a fall seminar, you need to reserve this week! The Chicago seminar is almost full and the New York is closing fast. Don't procrastinate any longer. Lack of education is expensive in the options market. Here are the fall dates: Oct 17/18 Chicago Oct 24/25 New York Nov 8/9 Miami Nov 14/15 San Francisco For complete details http://www.OptionInvestor.com/seminar/ There is a 100% money back guarantee and you can take a friend for free. What else could you ask for? Jim Brown *********** JIM'S PLAYS *********** Week ending 10/1/99 For a week when the Dow finished within six points from where it started, it was an amazingly good week. I was able to increase my options capital by almost +25% in a really choppy market. Like I said above, entry point, entry point, entry point. AMZN - Oct-60 calls YZZ-JL @ 6.75 This was a carryover position from the previous week. I had bought the calls when AMZN rebounded off its lows on the previous Friday. I sold at the open on Monday as planned for $8.50 and was real happy about my 25% return until the announcement on Wednesday about ZSHOPS. The same options traded for over $24. Unfortunately there is no way to know these things in advance and it could just as easily dropped -$18 on bad news. Good play, no complaints. SUNW - OCT-80 CALLS @ $6.25 The Ballmer bomb the previous Friday gave me a perfect entry point into SUNW. As I reported in last Sunday's newsletter I planned to sell on Monday morning and the gap open back to almost $95 was incredible. I was taken out of my limit sell at $10.50 and never looked back. Like I said last week, it dosen't get any better than this. QCOM - Oct-180 calls AAO-JP @ $17 If you remember from last week I was into these calls for more than I wanted and was hoping to get back to even after a disappointing close on the previous Friday. I think QCOM is a great stock with a lot of possibility but the chart looks like an EKG. It has support around $186 but the options are expensive and waiting for a swing can be painful. When you own a lot of contracts it is even more painful. I had 60 contracts and was really hoping for a gap open on Monday to unload. Thank you Lord! QCOM gapped up to about $196 and I got out alive with a nice profit at $19.50. I missed the dip on Thursday or I would have played it again. It is still on my watch list for the next dip under $184. However notice the lower higs pattern developing. If it can't trade over $194 again soon I may start playing the failed rallies by buying puts on every spike instead. YHOO - Oct-160 YHV-JL @$21.00 Another pickup on the Ballmer bomb that came through with flying colors. I owned the Oct-160 @ $21 and the opening jump on Monday took me out at $26.50. As I stated last Sunday my next play on YHOO would be selling calls and buying puts I was waiting for it to roll over. I thought I missed it on Tuesday when it dipped but the late afternoon comeback put me back on target. I had placed a target shooting order for the Oct-200 put at $15 just in case YHOO spiked intraweek. After sitting on it for three days I lowered it on Thursday to $24 thinking maybe YHOO was not going to have an earnings spike. I filled at $24 and then sold Friday at $26 when it looked like the market and YHOO was going to recover. I have replaced my order for $20 in the hopes that YHOO will hit $185 on Mon/Tue before earnings. That one I will ride until expiration. My target for YHOO is $165 or lower by 10/15. VOD - Oct-210 calls VOD-JB @ $18.00 Another Ballmer gift. I sold my calls at the open Monday when VOD started losing ground for $22.00. For the rest of Monday/Tuesday I was congratulating myself but the +$10 gap open on Wednesday had me deep in sellers remorse. BUT, better +25% gain on every play than holding on for the eventual gap down. Do you see the -$10 gap down on Friday and -16 intraday? Post-split depression in advance! Glad I sold early. I am toying with buying some VOD stock on Monday if I can target shoot it at about $43 after the 5:1 split this weekend. XMCM - Oct-$45 calls We added XMCM as a play this week and I was watching for an entry point when it dropped into the high $47 range on the market dip on Friday. I bought 20 of the Oct-45 calls XQM-JI for $5.00 and set a profit stop at $8.00. Less than three hours later I got confirmation of a sell at $8.13. A +62% profit in just half a day because I bought a good stock on a dip. See the big drop right at the end of the day? I am planning to try and steal some more at the open on Monday. I am target shooting the Oct-50 calls at $3.50. AOL - Oct-100 calls AOO-JT I mentioned that we had been waiting for an entry point into AOL all week. We got it on Thursday at the close but I wanted to make sure of the direction on Friday before jumping in. After the gap open I waited all day as the market deteriated until late afternoon. When AOL started firming I bought 50 of the AOL-JT Oct-100 calls at $9.13. AOL is a strong split candidate, a possible winner of the Excite@home takeover battle and surfing a high tide of trader hopes. I am planning to trade these options several times between now and expiration. I am really hoping for another strong market open on Monday to get me solidly out of danger and provide breathing room to make the trading decision. CMGI - Puts over $100 You know we preach that most stocks will roll over and decline after earnings. CMGI is no different except that they had great earnings and great expectations. With the majority of Internet stocks in a slow decline there is nothing to hold CMGI up but the YHOO earnings on Wednesday. I had been waiting for the roll and target shot some CMGI-Oct-110 puts GCB-VB on Thursday for $9.00. I sold them on Friday morning for $10.50 when it looked like CMGI might recover. Bad plan. CMGI continued to fall most of the day. Late afternoon there was some life in CMGI after YHOO also started climbing. I am setup to target shoot them again on any Internet strength before YHOO announces. I am looking for CMGI to hit $85 within two weeks. TMIC - Stock under $14 Trend Micro has been on a sprint the last week. This popped up on my radar screen on Wednesday but the gap open on Thursday scared me off. With another gap open on Friday I jumped into the stock pretty strong. Heck, it cost less than some of the options I trade. Anyway, I am looking to buy more on any dip. Good for the IRA guys that can't play options. TARGETS FOR THIS WEEK VOD stock under $43 TMIC stock under $14 XMCM calls under $50 QCOM calls under $183 CMGI puts over $100 YHOO over $190 to sell naked calls and buy puts. OEX Calls on any Dow break under 10200. My total focus this week will be to buy the YHOO and CMGI puts at the high of the week. Since nobody knows when that will be I will probably try to average into each position by buying 10 contracts everytime I think it is the high. I am bound to get at least one right and the others close. After playing these for several quarters now I am very confident and will take a big position in each. The wild card will be the market. Fortunately the October options expire in two weeks and that should work out nicely. Good luck, sell too soon. Jim ************************************ MONEY SHOW in San Francisco 10-26/31 ************************************ OptionInvestor.com is a major sponsor and exhibitor at the San Francisco Money Show the last weekend in October. At the Money Show we will be hosting a pre-event for our 3000+ California subscribers. Actually any subscriber is invited to attend. The pre-event on Thursday Oct 28th, will consist of a short speech by Jim and an introduction of the OIN staff. On hand will be: Jim Brown, Editor Kimo, Asst editor Ray Cummins, Spreads editor Chris Verhaegh, Options 101 and spreads specialist Buzz Lynn, Research Analyst and asst editor Janar Wasito, Traders Corner writer Tom Gentile, Chief Option Strategist, Optionetics George Fontanills, Author, educator, trader Austin Tanner, President, Pinnacle Capital Advisors After the introductions refreshments will be served and we will breakout into six chalk talk sessions led by the staff. The informal chalk talks were a hit at our Denver seminars and allow the attendees to move around from session to session as the night progresses. The sessions will include: Ray Cummins: Spreads/combos Chris Verhaegh: Covered Calls/Naked puts/Calls on leaps Buzz Lynn: Directional trading with calls/puts Austin Tanner: Skybox/Sentiment Analysis Tom Gentile: Straddles George Fontanills will be signing his new book which comes out on Oct 22nd titled, "Trading Options Online." $!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$ VERY IMPORTANT - Because we need to know how many subscribers are going to attend we need you to register before the event. Only SUBSCRIBERS can get into the pre-event. It is free and you will receive several free gifts as well but YOU MUST REGISTER BELOW IF YOU ARE COMING. http://www.OptionInvestor.com/sfms $!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$!$ During the Money Show there are dozens of breakout sessions taught by many different speakers representing many different firms. OptionInvestor.com will be presenting eleven of these and Optionetics presents several more. OIN Money Show breakout sessions: During the next three days the OIN staff will host eleven breakout sessions. Oct 29, 5:05PM Jim Brown - Maximizing Returns with Options Oct 30, 10:10A Ray Cummins - Calendar Spreads, Covered Calls, Zero Cost leaps Oct 30, 1:40P Ray Cummins - Covered Calls, Naked Puts, Triple the S&P Safely Oct 31, 8:55A Buzz Lynn - 15 Things Every Option Trader Should Know Oct 31, 10:10 James Brown - Investing on the Internet, Tools, Who, Where, How Oct 31, 1:40P James Brown - Beginners Guide to Trading Hot Internet Stocks Oct 31, 1:40P Chris Verhaegh - Spreads Strategies for Income, Speculation and Hedging Oct 31, 2:35P Chris Verhaegh - Option Pricing, Overvalued, Underalued, no value. Oct 31, 2:35P Buzz Lynn - Trading, Entry Point, Exit Point, Get to the Point no time yet - Buzz Lynn - Options on Stock Splits no time yet - Chris Verhaegh - Charting, the Key to Technical Analysis Tom Gentile an George Fontanills will also be doing breakout sessions but I do not have the info yet. If you live in California or just want to get away for the weekend then click here for more info. http://www.intershow.com/moneyshow/sfhome.htm ***************** MARKET SENTIMENT LOCATED IN SECTION TWO ***************** ************** MARKET POSTURE ************** As of Market Close - Friday, October 1, 1999 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,500 11,320 10,273 BEARISH 9.23 SPX S&P 500 1,350 1,420 1,283 BEARISH 9.16 OEX S&P 100 675 735 670 BEARISH 9.24 RUT Russell 2000 440 465 424 BEARISH 9.14 NDX NASD 100 2,320 2,380 2,404 BULLISH 9.03 MSH High Tech 1,120 1,180 1,237 BULLISH 9.03 XCI Hardware 1,035 1,050 1,051 BULLISH 8.24 CWX Software 750 800 855 BULLISH 9.03 SOX Semiconductor 480 525 508 Neutral 9.24 NWX Networking 555 585 593 BULLISH 9.17 INX Internet 450 510 493 Neutral 9.24 BIX Banking 690 710 581 BEARISH 7.23 XBD Brokerage 410 440 369 BEARISH 7.23 IUX Insurance 645 660 527 BEARISH 7.23 RLX Retail 915 960 832 BEARISH 7.23 DRG Drug 365 390 354 BEARISH 9.16 HCX Healthcare 745 785 709 BEARISH 9.16 XAL Airline 180 190 135 BEARISH 5.21 OIX Oil & Gas 285 305 296 Neutral 9.16 Posture Alert The bears won the 1st day of October, but as the tug of war continues, the bulls refused to let stocks get too cheap. This was the first time that we can remember such a volatile week, yet no real percentage change in ALL the sectors across the board. Friday's action however, saw good buying in the Drug and Healthcare sectors, as both rose 3.27% and 3.44% respectively. Semiconductors also had a bounce from Thursday's sell-off, closing up 1.88% for the day. A detailed description of our Market Posture and its applications can be found at: /members/marketposture ************* COMING EVENTS ************* Monday: none scheduled Tuesday: FOMC meeting on interest rates Leading Indicators Aug Forecast: -0.1% Previous: 0.3% BTM Schroders 10/2 Forecast: -- Previous: -0.3% LJR Redbook 10/2 Forecast: -- Previous: -0.1% API Oil Stocks 10/1 Forecast: -- Previous: -3.7M NAPM Non-manuf Set Forecast: -- Previous: 59.5 Wednesday: Factory Orders Aug Forecast: 0.1% Previous: 2.1% Thursday: Jobless Claims 10/2 Forecast: 295k Previous: 299K Consumer Credit Aug Forecast: $5.7B Previous: $8.8B Money Supply 9/27 Forecast: -- Previous: $21.9B Friday: Sept Jobs Sept Forecast: 204K Previous: 124K Unemployment rate Sept Forecast: 4.2% Previous: 4.2% Avg Hourly Earns Sept Forecast: 0.3% Previous: 0.2% Wholesale Inventories Sept Forecast: 0.4% Previous: 0.9% Next week's economic releases (preliminary) October 13 Atlanta Fed Index - Sept October 14 Export Prices ex. ag - Sept October 14 Import Prices ex oil - Sept October 14 Retail Sales - Sept October 15 Business Inventories - Aug October 15 PPI - Sept October 15 Capacity Utilization - Sept October 15 Industrial Production - Sept October 15 Michigan Sentiment - Oct ****************** 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 10-03-99 Sunday 2 of 7 ***************** MARKET SENTIMENT ***************** Sunday, October 3, 1999 The Start of Great Expectations! Below is an updated list of equities (that should be reporting their earnings this next week) and our Pinnacle Index for those particular stocks. The Pinnacle Index is a proprietary product that determines current market sentiment and expectations for underlying equities and indexes, which is based upon speculation in the option markets. Also included are their expected earnings, the infamous whisper number (if available), and their estimated earnings release date. What we look for are liquid stocks/options that garner a lot of interest from the investment community. Most of the issues are high tech, and are thus more aggressive. We then filter out many of the equities, only to show stocks with excessive optimism or pessimism. From a contrarian standpoint (a high number is a good indication of extreme optimism, and a low number is a good indication of extreme pessimism) you should buy when its low, and sell when its high. Last quarter, we highlighted some stocks with a Pinnacle Index that were stratospheric (as high as the upper 20's). Needless to say, these stocks had so much pent-up enthusiasm, that after their earnings, they tanked. It is the old adage, buy the rumor - sell the news. There were also numerous companies with a Pinnacle Index less than one. However, once these companies came out with their bad quarter, the stocks rallied due to the oversupply of pessimism. If your favorite stock is not listed, the most common reasons are: 1) there are no options traded on the underlying equity 2) lack of interest by option speculators in the security 3) lack of quality information 4) company already pre-released 5) insufficient data. Also, as we get closer to the heart of earnings season, the list will expand dramatically to reflect companies whose earnings are due out shortly. Company Symbol Pinnacle Expected Whisper#: Estimated Index(PI): Earnings: Date*: Walgreen WAG 3.57 +.16 +.17 10/4 Micron Tech. MU 4.33 -.17 -.15 10/4 Advanced Micro AMD 1.50 -.89 -.84 10/6 Yahoo YHOO 4.41 +.10 +.12 10/6 Biogen BGEN 1.59 +.37 +.37 10/7 We have been noting the increasing bearish sentiment of the overall market for the last several months. However, looking at the few companies above, only AMD and Biogen would come close to qualifying as bearish. The whisper number for BGEN is in-line with expected earnings, and AMD is a nickel higher than expected (of a huge loss). It would not be hard for either of these companies to surpass expectations, which could fuel upside potential in the underlying stocks/options. Yahoo, Micron, and Walgreens are all stuck in Neutral territory with Pinnacle Index's that are slightly bullish, but not extremely. All three of their whisper numbers are higher, and thus, can easily upset Wall Street, should they miss or only come only in-line. Considering that YHOO and MU are high-tech, you can expect big volatility this week. Should they come out with great numbers and actually make a run, overhead (based upon the Pinnacle Index) on Yahoo is 195 and 85 for Micron. A good example (using the Pinnacle Index) that occurred on Friday would be all the negative news surrounding Dell Computer. BancBoston Robertson Stephens analyst Dan Niles and Salomon Smith Barney analyst Richard Gardner warned investors that production disruptions and chip shortages could hurt Dell in the near term. The earthquake in Taiwan would really hurt margins for Dell as well as other PC manufacturers. To make a long story short, Dell Computer currently has a Pinnacle Index of .53, which is extremely bearish. The news broke early Friday morning, with Dell exchanging hands under 40. Currently, there are over 19,000 contracts in open interest for the OCT-40 put (huge pent-up negative sentiment). The stock closed up +23/32 for the day, showing that all the negativity was already built in the stock! It was a lay-up day-trade, especially for us! Have a good week! BULLISH Signs: Investor Intelligence: As a contrarian indicator, the amount of Bullish investors is at a recent low, and bearish investors is at a recent high. Mixed Signs: Volatility Index: The VIX is above the 25 benchmark, but has held ground in the low 30's. BEARISH Signs: Miscellaneous Uncertainty: Y2K, inflation, higher interest rates, slowing corporate earnings, earthquakes, are all leading to an abundance of uncertainty for professionals and investors alike. Interest Rates: The yield on the 30-yr Treasury is above the 6% benchmark and nearing the highs of 6.272%. Market Posture: Many sectors have and continue to trend lower. The bullish sectors have now rolled over, and are on the verge of breaking support. Pre-Earnings Season: September is the start of pre-release season. 9 times out of ten, companies usually let Wall Street know some sort of negative news. We have already started to witness the negative pre-announcements these last several weeks, with Gillette, Hewlett-Packard, and Revlon being the latest casualties. Advance/Decline Line: The A/D line continues to be poor and is getting worse. Russell 2000 & S&P 500: The RUT and SPX continue to break support, and looks to be heading lower, which is a poor sign for the overall market. OTM Call Analysis As we move through the October expiration cycle, Pinnacle is tracking the level of call buying (OTM) between 690-780 among option speculators. As we have been documenting, excessive out-of-the-money (OTM) call may serve as overhead resistance. 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 - Friday, August 27 78,026 +88.7% Friday, September 3 104,700 +153.2% Friday, September 10 144,711 +249.9% October Expiration Cycle OEX OTM Call Analysis (Open Interest October 690-780) Date Open Interest Change % Alert Friday, September 17 34,361 - Friday, September 24 84,724 +146.5% Friday, October 01 108,460 +215.6% Market Sentiment at a Glance Friday Indicator (10/1) Pinnacle Index (OEX): Underlying Support (680-700) 1.9 Underlying Support (650-670) 5.5 Put/Call Ratios: CBOE Total P/C Ratio .7 CBOE Equity P/C Ratio .6 OEX P/C Ratio .9 Peak Open Interest (OEX): Puts 650 Calls 700 P/C Ratio .87 Market Volatility Index (VIX): CBOE VIX 26.43 Investors Intelligence: Bullish 42.90% * Bearish 32.80% * 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 (10/1) Overhead Resistance (680-700) 1.90 OEX Close 670.31 Underlying Support (650-670) 5.51 Average ratings: Resistance levels 2.0 / Support Levels .5 What the Pinnacle Index is telling us: From a contrarian standpoint, underlying support has exploded (650-670) and overhead resistance is light (680-700). Put/Call Ratio Friday Strike/Contracts (10/1) CBOE Total P/C Ratio .69 CBOE Equity P/C Ratio .56 OEX P/C Ratio .93 Peak Open Interest (OEX) Friday Strike/Contracts (10/1) Puts 650 / 10,550 Calls 700 / 12,141 Put/Call Ratio 0.87 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 5, 1999 Bottom? 32.12 October 1, 1999 26.43 Investors Intelligence Major Percent Percent Date Turning Point Bullish Bearish October 97 Bottom 22.0 48.3 July 20, 1998 Top 52.0 24.0 October 8, 1998 Bottom 38.5 42.7 January 11, 1999 Top 58.3 30.0 March 4, 1999 Bottom 49.1 32.5 Sept 1, 1999 42.9 31.9 Sept 8, 1999 44.1 30.5 Sept 15, 1999 41.5 31.4 Sept 22, 1999 42.9 31.6 Sept 29, 1999 42.9 32.8 ************** TRADERS CORNER ************** Intelligence Preparation of the Battlefield A few years ago, Marine General Officers visited the New York Stock Exchange to share insights with experienced traders. The two groups knew each other well because they are in the same game -- using timing, knowledge and experience to manage risk in an uncertain environment. Winning often means taking a small deception position on the opposite side of a trade before a major commitment of assets on the other side. As earnings season starts, I recall monitoring a few radios and dozens of maps in the back of a armored command vehicle. The key to executing was a technique called Intelligence Preparation of the Battlefield, which involved isolating key decision points on maps, noting enemy capabilities, and formulating alternatives. That's what I'll be doing this weekend as I read through the newsletter and load the important details about option positions, key earnings dates, and FED decisions into my qcharts program. When I look at the newsletter, I focus on the Market Wrap for overall market direction. Particularly, when Jim draws out a powerful point about an inverse relationship between the VIX and the overall markets (eg, 7/18), or talks about a possible double bottom (last week), I take special note. I read through the Market Sentiment for indicators to watch. I like the fact that the Bearish sentiment is at a high as of last Thursday. I will scan over the Market Posture section, but note that in major market moves, this is often a contrarian indicator that is a day or two behind a major shift in direction (eg, week of 7/19). I will cross check the market analysis in the newsletter with signalwatch.com, thestreet.com, Barrons or Investor's Business Daily. If Alan Abelson is trying to crucify AOL, I want to know that on Monday morning. Does the explosive performance of tech IPOs indicate a small, small part of the cash that is being built up on the sidelines? Is the VIX going to hold at about 31 on a major capitulation? Is the 30 Year Bond going to over 6.2% before the Fed Decision? Which way will the DOW break out of a 10200 - 10400 consolidation? I can load alerts into qcharts to let me know if these indicators are triggered. Next, I turn to the individual plays listed in the newsletter. I put the call play stocks into one quote sheet, and the option symbols into another quote sheet. Both quote sheets rank according to net gain/ loss, so the winners automatically filter to the top. I place the quote sheets next to hot lists (very short term up, and US Options #Calls) so that I can see when one of my "targets of opportunity" is moving. In the comments next to the options, I note split dates or earnings dates. In the last earnings cycle, I had a very good run by playing NOK, AOL, MSFT, QCOM, SUNW and other newsletter picks with calls up to 7/16, which was right in the heart of the announcement period for the tech leaders. I had entered the plays slightly before the June Fed Meeting, which sparked the rally with a neutral bias. Of course, this time around might not be so easy. Not only does the Fed meet, but there are major economic reports in the next few weeks. And we are in October, traditionally a month prone to big dips. Yet, last Oct 8 was the start of a huge, sustained rally, and the market has been marking time with last year's script (eg, 7/19), as if to sustain it through the uncertainty of Y2K. Anyway, that is the battlefield. Your trading portfolio is as precious to you as Marines are to a General. Choose your risks wisely but don't succumb to paralysis by analysis. On November 1, you will know what the perfect plan would have been, but you won't be able to execute it. Pick your targets, plan your entry points, be patient, and stay aware of the market. You can make money in either direction. Your job is to be reasonably sure of the direction, then execute. Good Luck. Janar Wasito janar@OptionInvestor.com ***** Indicators that Work By Tom Gentile Upon my last look at the software I use for trading, I must have found over 300 types of indicators that have been created by traders alike, looking for the next Holy Grail. Indicators were first created to help filter through all of the mumbo-jumbo of price data, in order to try and spot something that other traders miss. The problem with most indicators is that most rely heavily on a series of back data in order to create the indication desired. Take a moving average, for example. In order to create a moving average, one must have back data equal to the number of the average to view it. To view the moving average line, more data must be compiled. How much data is needed to view a yearly graph of a 200-day moving average? Well, you must have nearly 2 years of data to plot a 1-year graph of a 200-day moving average. (200 trading days to create the first plot, and 200 trading days after that to form a 1-year graph) While looking at the past can help us as traders to forecast future movement, some indicators are clearly what I call "retroactive indicators". This means indicators look at the past to determine the future. 95% of all indicators do this, from the simple to the most complex. So what types of indicators look at present information and don't rely on past data for price forecasting? Well, I look at 2 pieces of information that are as current as today, and don't need any past data to work. These indicators are price and volume. You may think I lost a screw here but stay with me and you may learn something you didn't know about these simple, yet reliable trading tools. Price - What I am talking about here is the current day, not a chart. What's happening in the market today and how is it affecting a daily chart. It has been often said that the amateur traders play the first hour of the day and the professional traders start trading the last hour of the day. Though you may know this information, looking at how it affects a price chart can help determine if the smart money is moving the markets one way or another. The first thing to understand with a price chart is that it currently has 4 critical pieces of information - Open, High, Low, and Close. Ever notice how wide the differences are between the bids and offers during the open of the day. That's the amateur trader getting in or out of positions. Between the Open and Close of the day comes the High and Low. Sometimes the High or Low can come on the Open or Close of the day. This is when things can get exciting. With careful research, looking at today's price action can help you predict short-term direction in the markets with a high success rate. Here is my favorite rule on current price action. Smart Money Price Filter - If the professional traders take the market to close near its low or its high in the last hour of the trading day, there is a high chance that this move will continue. This means that if smart money is bullish in the last hour of the day, buying will ensue, causing prices to rise to the close. If those prices close near the highs of the day, you can expect this action to continue for the short-term. The same is true of down markets. Looking at the optionables we can further limit our risk by using options instead of trading the underlying long or short. Volume - Again, another piece of data that is current to price. Volume just tells me the amount of action in a particular stock. Volume is calculated, as a trader will buy stock to open, and sell stock to close. The reverse is true as well, buy short selling stock to open, and covering short stock to close. All this buying and selling creates volume in the marketplace. Volume is a tough read when looking at a chart, because for the most part, it doesn't change over the long term. Looking at volume on an intra-day basis is a waist of time, because any seasoned trader will know that the majority of the volume occurs in the first and last hour of the day. Volume, over time, has dramatically increased. Back in 1987, the volume exceeded over 500 million shares on Black Monday, the highest volume day on record then. Now, if volume were to close below 500 million shares in a single day, this would be considered a light day. Volume, though as simple as it sounds, is not without its complexity, thanks to the creators of volume indicators. Here is the number one volume move I like to look at when scanning stocks. Volume Spikes - I look for daily volume to be double that of the 30-day average. This is what I consider to be a volume spike. Volume spikes imply that there is excessive buying and selling at certain price levels of a particular stock. These volume spikes usually lead to a change in the direction of the market. I would look at long-term bullish strategies when volume spikes occur to the downside and I would look at long-term bearish strategies when volume spikes occur to the upside. There are many reasons that volume spikes happen, such as upgrades and downgrades by analysts or insider buying or selling, but the biggest contributor to volume spikes is company reports. Companies usually cause the majority of the excessive buying or selling due to a surprise in earnings, or a pre earnings announcement, whether good or bad. Volatility - Yes, another "V" word. Its not a bad word if you use it properly. I look at implied volatility mostly, because it can tell me how cheap or expensive options on a particular stock are. There are many ways of determining if options are cheap or expensive, though here are the most common. The most common way is to place the time value of the option over the price of the stock, do determine how cheap or expensive it is. Covered call writers do this the most, to see if they are getting a good return on their risk. The way that I determine if an option is cheap or expensive is to plot its average implied volatility each day for a number of days, creating a chart of such. I can then look at the chart versus where it is now to determine if it's cheap or expensive. I use this information in the following way. Implied Volatility - Using a past chart of implied volatility, I will look for option credit strategies if the implied volatility is in the upper end of the range, and I will look for option buying strategies if the implied volatility is in the lower end if the range. Because volatility is "mean reverting", it tends to move back to an average, much like a rubber band will pull back to its original state. Using these three indicators above, I can filter down the number of stocks dramatically from the vast majority of them out there. It's not the quantity of stocks you look at to determine option plays on, but the quality of stocks you choose. Filtering these down can make life a lot easier for you when it comes time to research. Isn't it easier to research a dozen stocks than to research a thousand? Good Trading! Tom Gentile Chief Options Strategist Optionetics ************* READERS WRITE ************* Dear Janar I find your column extremely refreshing to read because a trader does not win on all his positions. Your candid tales of what the market has done to you as a fairly sophisticated trader and especially your display of discipline in losing situationss, is a welcome voice in a time of all these get rich schemes. I know that you make more than you lose in the long run, but the last couple of columns has made me realize that even the more experienced guys can get beat up a little. Most of us traders have to choose our positions much more carefully because we don't have a lot of "trading money" for toying with options. I personally have lost a small fortune playing options because I didn't know what I was doing. Recently, I stopped playing pure options, and have been much more successful. Playing options is always speculative because you are trying to time the market. There are way too many variables to factor in considering market movement to produce an super successful model. Anything can happen, its very dynamic and unpredicatable. I mean, who knew that the Steve Ballimars in the world would speak out and cause such a shakeup. These things are just unpredictable. I use this newsletter some for option plays, but only the ones that I really feel secure about. I am "small fish" investor, meaning I have very limited investment funds, about 30K. I work full time, love my job, and like to tinker with the market as a game, but cannot monitor it full time as a profession. I have a family so I don't play pure call or pure put plays often. I use the advice here to narrow my study to a few stocks. The short concise analysis given and reasons to play, along with my Telecharts 2000 account give me more than adequate information to move on a couple of long positions a month. I pick stocks that should have the propensity to go up in the next week to a month. If the trade starts going south, then I hedge my bet with selling call options (particulary in my IRA). I hope that in time, I will develop better reactive skills and more specifically leave my eternal optimism at the door and learn to exhibit trading discipline on losses and learn as you have learned to take it off the table before the tablecloth is pulled from under you. Anyway, I waiver from the point, I appreciate your candidness as well as your expertise and hope that you will have a better month in the historically volatile month of October. Mark **************************** SEE DISCLAIMER IN SECTION ONE ****************************
The Option Investor Newsletter 10-03-99 Sunday 3 of 7 ******************* TRADING CLUB UPDATE ******************* Sunday, October 3, 1999 THE OPTION INVESTOR TRADING CLUBS ARE EXCITING AND FULL OF KNOWLEDGEABLE INVESTORS!! There are now message boards available for the Trading Clubs. Visit them and see what others have to say: http://boards.OptionInvestor.com/tradersclubs/ There are now 89 clubs throughout the United States, Canada, and Europe. Get involved today! If you would like to join contact us at Visit@OptionInvestor.com and Organize@OptionInvestor.com. UPDATE FROM HARTFORD, CT: ****************************** Our fourth discussion group meeting took place last evening. (9/21/99) Eight people were in attendance. Very lively discussions took place, from the OEX Skybox, Option Premiums - intrinsic value & time value. People genuinely enjoy the company of others subscribing to the same newsletter. An excellent explanation from a group member on time decay of an option premium was explained with a chart. Performance of the OIN newsletter was discussed. Overall it was decided the recommendations were very good considering the market over/all. Any guidelines you are able to provide, would be very well received. Our next meeting will take place Tuesday, October 22, 1999. I plan to have a agenda and any tips from you will certainly help. Edwina H. Futtner So. Windsor, CT. 10 miles from the Capital City of Harford firstname.lastname@example.org LAST WEEKS CHANGE FOR THIS WEEKS PICKS: *************************************** Dow 10273.00 -6.33 Nasdaq 2736.85 -3.56 $OEX 670.31 -2.49 $SPX 1282.81 5.45 $RUT 423.53 6.44 $TRAN 928.89 19.96 $VIX 26.43 -3.11 Calls AOL 107.88 10.38 Gaining speed with earnings coming up VRTY 70.25 9.38 New, appears to have strong momentum TFSM 40.63 8.63 New, plenty of help from the analysts GMST 83.63 7.50 New, institutional investor favorite RNWK 106.25 7.19 We managed to reach a new 13-week high XMCM 50.56 6.69 This ones a true winner and it shows SNE 155.50 6.56 Once again seeing the fruits of our play ITVU 39.50 5.25 History indicates a good earnings run LCOS 50.97 4.03 New, stock refuses to be left behind EMC 72.88 3.81 Once again, let the earnings run begin CMVT 94.25 3.56 This ones a potential split candidate AEOS 49.75 3.25 New, energy returning to retail sector SUNW 92.00 1.81 Showed strength this week at new highs NOK 89.25 0.94 Looking for bounce off Nokia's 10-dma VOD 231.00 0.50 Dropped, a fond farewell to a great play DCLK 114.38 -2.38 Forming ascending triangle, bull pattern QCOM 186.81 -2.69 Looking for stronger market sentiment EBAY 138.22 -7.84 Dropped, can't break through 10-dma YHOO 175.44 -7.88 Dropped, turning around for a put play Puts GENZ 42.59 -7.91 Stock continues to drop like a rock YHOO 175.44 -7.88 New, looks like Yahoo is rolling over IBM 117.75 -7.25 New, shows technical short term weakness EXDS 69.13 -5.00 New, a major support level was broken PSIX 34.75 -4.81 New, quesy investors helping our play KO 49.06 -1.06 We believe KO will continue to fizzle WPI 30.00 0.44 Third quarter profit to miss estimates LLY 68.56 3.38 Dropped, the FDA has ended our play DD 63.00 3.88 Dropped, DD claims will meet earnings STOCKS ADDED TO THE PICK LIST ***************************** Yes, there are new calls tonight but Jim strongly recommends not opening a new call position until after the FOMC meeting 10/8. See commentary. Calls AEOS - American Eagle Outfitters, Inc. LCOS - Lycos, Inc. VRTY - Verity, Inc. TFSM - 24/7 Media Inc. GMST - Gemstar International Puts EXDS - Exodus Communications, Inc. YHOO - Yahoo! PSIX - PSINet Inc IBM - International Business Machines *************************** 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 YHOO $175.44 (-7.88) All things must come to an end. YHOO, as a call play is no exception. We were hoping for a better ending for this play however, what goes up must come down. This is the case for Yahoo investors that enjoyed a nice ride to higher price levels but have now experienced the flip side of the coin, the downside. Friday, sellers took advantage of broader market momentum and closed their positions before YHOO earnings announcement this Wednesday. As well, we never hold a position past its earnings date due to profit-taking from earning runs, therefore are officially ending this play. Because we like to play both sides of the market however, we decided to add YHOO as a new put play. Refer to the new puts section for more information about this play. EBAY $138.22 (-7.84) Well, it looks like the down markets got the best of us once again. Friday's trading session has become a familiar sight and unfortunately has altered our objective with EBAY. The bottom line to any play is to make money, lately EBAY has provided us few opportunities in this area so we decided to end the play. We were hoping the announcement that EBAY joining the NASDAQ 100 would give the stock a jolt of energy. The stock made a nice move the day after the announcement but soon relinquished those gains once the market turned. Another hindrance, the 10-dma at $141, has proved to be too difficult for the stock to break through. Therefore, we decided to discontinue the play and concentrate our efforts on those with more potential. VOD $231.00 (+0.50) After providing us with several great opportunities to join in on its split run it is time to say good-bye to VOD for now. VOD had a wild ride Friday as investors positioned themselves for the 5:1 split which takes place Monday. After making a high of $239.25 on Thursday, shares of VOD opened $7.63 lower Friday and traded as low as $225.00 before settling at $231.00 down $6.75 for the session. We will let VOD go for now but will keep our eye on the wireless communications company as they are also expected to release third quarter subscriber numbers on Monday as well. VOD has provided us with many opportunities in the past and we are sure will continue to be there for us in the near future. PUTS LLY $68.56 (+3.38) Hello FDA and so long LLY. It would be nice to know the FDA is planning on making announcements with regard to the approval of drugs but without that possibility we are sometimes left vulnerable. This was the case Friday as word came that The U.S. Food and Drug Administration has allowed Lilly to market Evista. This is their new drug for the treatment of postmenopausal osteoporosis, a condition affecting approximately 23 million American women. As you witnessed on Friday, this is a big event for Eli Lilly. We never had a chance to got out early either as the news was before the open and Lilly spiked to $65.94 on the open, instantly triggering our stops. The rally lasted all day and we are exiting the play in search of stocks with a more negative technical and fundamental picture. DD $63.00 (+3.88)On Thursday, Dupont took a late day dive due to a bit of "window dressing" and a claim hyped by the media claim that they may not meet third quarter earnings estimates. Dupont's Chief Financial Officer Gary Pfeiffer answered loudly, claiming, "There is no change from our previous comments regarding the health of our major businesses or regarding our own third quarter performance." Dupont closed Thursday with no change and made a solid move up on Friday. With positive 10 and 21 day moving average breakouts, it is time to bid farewell to DD and move onto more lucrative plays. STOCK SPLIT CANDIDATES *********************** QCOM - Qualcomm Inc. RNWK - RealNetworks INKT - Inktomi Corp. DCLK - Doubleclick Inc. AOL - America Online, Inc CMVT - Comverse Tech STOCKS WITH UPCOMING SPLITS **************************** We don't list all splits available, only those we feel may have play possibilities. Symbol - Stock Splits/Date HLIT - Harmonic 2:1 10-14-99 ex-date 10-15 TYC - Tyco 2:1 10-21-99 ex-date 10-22 VTSS - Vitesse Semi 2:1 10-21-99 ex-date 10-22 BVSN - Broadvision 3:1 10-25-99 ex-date 10-26 ADBE - Adobe Systems 2:1 10-26-99 ex-date 10-27 CNXT - Conexant 2:1 10-29-99 ex-date 11-01 GIS - General Mills 2:1 11-08-99 ex-date 11-09 JAKK - Jakks Pacific 3:2 11-10-99 ex-date 11-12 SEBL - Siebel Systems 2:1 11-12-99 ex-date 11-15 TMIC - Trend Micro 3:1 11-18-99 ex-date 11-19 SUNW - SunMicro 2:1 12-07-99 ex-date 12-08 JDSU - JDS Uniphase 2:1 12-29-99 ex-date 12-30 For a complete list of all the coming splits check out the "split calendar" on the side of the online edition newsletter page. ******************** THE PLAYS OF THE DAY ******************** With all the great plays each week we can never decide on just one so take your pick. Call plays of the day: ********************** AOL - America Online Inc $107.88 (+10.38) See details in sector list Chart = http://quote.yahoo.com/q?s=AOL&d=3m **** RNWK - RealNetworks, Inc. $106.25 (+7.19)(+5.38) See details in sector list Chart = http://quote.yahoo.com/q?s=AOL&d=3m **** EMC - EMC Corporation $72.88 (+3.81)(-1.94)(+2.88) See details in sector list Chart = http://quote.yahoo.com/q?s=EMC&d=3m Put play of the day: ********************** PSIX - PSINet Inc $34.75 (-4.81) See details in Put List Chart = http://quote.yahoo.com/q?s=EMC&d=3m ************* DEFINITIONS ************* 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. *********** CALLS PLAYS *********** Hardware *********** SUNW - Sun Microsystems $92.00 (+1.81)(+1.50)(+3.00)(P4W +12.69) Sun Microsystems is the largest computer maker that uses its own chips. Probably their most talked about product is "JAVA", a programming language which is intended to create software that can run unchanged on any kind of computer. SUNW is also a leading maker of UNIX-based workstation computers, storage devices and servers. They compete with the biggest on the block in Microsoft, IBM and Compaq. SUNW markets its hardware and software products to primarily in the telecommunications and financial industries. General Electric is on of their better customers and accounts for approximately 14% of their sales. SUNW is our little energizer bunny. A play that began as a straight forward momentum run is now sprinting towards its confirmed earnings date on October 14th. Beyond that we have a potential split run to keep on our radar screen. In regard to the proposed 2:1 stock split, the company announced on Friday they will seek shareholders' approval at the Annual Meeting on November 10th to double the number of authorized shares of common stock from 1.8 bln to 3.6 bln. After the split the number of outstanding shares will be approximately 1.56 bln. The pay date for the 2:1 stock split is tentatively scheduled for December 9th. SUNW showed strength this week at its newer highs. Support has remained firmly established at $91 just below the 10-dma ($92.38) while its near-term resistance is at $95.75, the 52- week record set on Wednesday. Profit-takers have taken some cash off the table at different intervals this week, yet SUNW has quickly rebounded. Volume levels have consistently been above the ADV and at times have gone as high as 65% above the norm. Volume is certainly not lacking in this play. All week analysts have had good things to say about this stock. On Monday, CSFB reiterated a Buy rating citing "the company has become the thought and technology leader in the emerging service provider economy". They also raised the 12-month target price on SUNW to $110 and the fiscal 2001 EPS estimates to $2.15 from $2.03 specifying that "Sun's Network Service Provider division should grow by 30 percent - 40 percent over the next two years as the company partners with network equipment providers and helps wireless carriers converge with the Internet". Sanford Bernstein & Co followed this up on Tuesday with new coverage of a Market Perform. MSDW offered support on Wednesday by reiterating their Strong Buy rating for SUNW. Still please continue to proceed with caution until the aftermath of the formidable FOMC Meeting has cleared. By then we should have a better feel for market sentiment. In other news this week, Sun Microsystems announced they broke their own TPC-C world record for online transaction processing. The TPC-C benchmark is an industry-standard test designed to measure systems' online transaction processing capacity under controlled conditions. The new record of 135,461 transactions per minute beats SUNW's previous record by over 17%. **Caution: only 2 weeks left for October options** BUY CALL OCT-85 SUQ-JQ OI=7765 at $8.25 SL=6.50 BUY CALL OCT-90*SUQ-JR OI=8209 at $4.75 SL=3.00 BUY CALL OCT-95 SUQ-JB OI=6426 at $2.38 SL=1.25 BUY CALL NOV-90 SUQ-KR OI=1261 at $7.75 SL=6.00 BUY CALL NOV-95 SUQ-KB OI=1751 at $5.25 SL=3.50 Picked on Aug 28th at $76.19 P/E = 73 Change since picked +15.81 52 week high=$95.75 Analysts Ratings 9-8-3-0-0 52 week low =$19.19 Last earnings 06/99 est= 0.47 actual= 0.48 surprise +2.1% Next earnings 10-14 est= 0.31 versus= 0.25 Average Daily Volume = 8.82 mln Chart = http://quote.yahoo.com/q?s=SUNW&d=3m **** EMC - EMC Corporation $72.88 (+3.81)(-1.94)(+2.88) At times, we all need someone to back us up. Well EMC makes it their business to back us up. They focus solely on providing the world with leading solutions on information storage and retrieval systems. They are literally the world leaders in this area on every platform. Because of their focus and dedication, they have obtained significant customers in banking, telecommunications, airline, manufacturing, Internet and other industries where the management of massive information is critical. There's a good chance that your information is handled by an EMC system somewhere. They're managed well also with a 52% return in net income. EMC is an earnings run candidate, that has been consolidating while the market sinks. This has hindered the play somewhat but we are still seeing a very good trend emerge. Friday we saw some light as the stock is attempting a break out. Since midday on Thursday we have gone nowhere but up. Resistance at $72 had been holding us down but Friday we broke through and ended right near the high for the day. Volume was average as can be expected before an FOMC meeting and our next target for resistance is the 52-week high at $75.63. We don't expect to see this until after the FOMC meeting, but if the Fed doesn't kill the market, we should be off on the earnings run. Remember that storage is the hot spot among computer hardware lately so investors could bid the stock up in anticipation. The strength and momentum are encouraging on EMC. Despite the negative comments on HP and DELL Friday, EMC held up well, trending higher throughout the day. Currently support lies at the 10-dma at $71.50. This could be a good entry point if we get there but make sure we bounce with volume before buying. As mentioned in Thursday's update, the company confirmed the earnings date as being 10-20 before the market open. Price- wise, EMC is in split range however the company would need authorization from shareholders to make it happen. Place stops on your existing positions, as the FOMC meeting on Tuesday will cause uncertainty as to interest rate direction. The PC and hardware industry has been under some pressure due to recent earnings warnings and downgrades from Hewlett Packard and Dell. Erik Gustafson cited EMC as one of the places for fund managers to be, indicating our societies transition from the industrial phase to the information phase. The report indicated that these fund managers are currently moving back into EMC, as these types of stocks are ones that held up mutual funds third quarter results. **Caution: only 2 weeks left for October options** BUY CALL OCT-65 EMB-JM OI= 3348 at $8.75 SL=6.50 BUY CALL OCT-70*EMB-JN OI=14525 at $4.63 SL=2.75 BUY CALL OCT-75 EMB-JO OI= 8245 at $1.88 SL=0.75 BUY CALL NOV-70 EMB-KN OI= 997 at $7.13 SL=5.25 BUY CALL NOV-75 EMB-KO OI= 1998 at $4.38 SL=2.75 Picked on Sep 12th at $68.13 P/E = 80 Change since picked +4.75 52 week high=$75.63 Analysts Ratings 14-9-1-0-0 52 week low =$20.81 Last earnings 07/99 est= 0.24 actual= 0.27 Next earnings 10-19 est= 0.27 versus= 0.19 (whisper=$0.31) Average daily volume = 5.4 mln Chart = http://quote.yahoo.com/q?s=EMC&d=3m **** SNE - Sony Corporation $155.50 (+6.56)(+1.75) Sony is one of the world leaders providing electronic equipment such as video, televisions, information and communication devices and other electronic components. In fact you can find Sony's signature on almost any type of electronic device you use. Their world growth and market penetration has allowed them to diversify into a true conglomerate, now with interests in software, finance and insurance. Despite Japan's challenges, the company managed to increase revenues by 1% in the fiscal year ending 3/99. As Japans recover continues, SNE is poised to benefit from the turnaround. We are again seeing the fruits of our play on SNE. SNE is a on the move again after what is becoming a routine period of short-term consolidation. Despite the U.S. market retreat on Friday, Sony powered ahead. Most of Japan's ADR's were up Friday and it was due to a lot of buying from investment trust funds. Investors are forecasting Japan's "tankan" data (which is a survey of corporate sentiment) to show that Japan's economy is improving. The "tankan" gives investors information on the direction of Japan's currencies, equities, and bonds. Forecasts are good for the data and this helped investors put new money in the market. With renewed inflation fears here in the U.S., it is easy to see why investors are continuing to send money to Japan where the economy is in the early stages of recovery. Friday's interest in SNE increased our momentum indicator 13%, gave us a technical break out in our stochastic, MACD, and 10-dma, which now sits at $152.50. SNE closed right at the high for the day which bodes well for Monday. Opening new positions in SNE can be tricky since it typically gaps open one way or the other. Use this to your advantage when planning out trades. We remain cautious ahead of Tuesday's FOMC meeting so use stops to protect your gains from Friday. But barring any collapse in the dollar, SNE could see further upside. Next resistance is at $160 which was the new 52-week high from September 21st. Sony's main rival Sega Enterprises was in the news on Friday as they announced plans to spin off its Dreamcast Network business. This is a strategic move to try and focus on the growth in the Internet. It also allows the core business to focus on the new Sony Playstation due out in March. Sony is still the leader in this area but this news signals Sega's commitment to try and challenge Sony. Needless to say, investors shunned the news and sent Sony higher. This may be because Sega has consistently trailed Sony in this market. **Caution: only 2 weeks left for October options** BUY CALL OCT-150*SNE-JJ OI=164 at $ 8.63 SL= 6.50 BUY CALL OCT-155 SNE-JK OI=105 at $ 5.63 SL= 3.75 BUY CALL OCT-160 SNE-JL OI=161 at $ 3.38 SL= 1.75 BUY CALL NOV-155 SNE-KK OI= 7 at $10.13 SL= 7.50 low OI Picked on Sep 23rd at $152.19 P/E = 50 Change since picked +3.31 52 week high=$160.50 Analysts Ratings 0-1-0-0-0 52 week low =$ 60.25 Last earnings 06/99 est= ?? actual= 0.34 Next earnings 10-27 est= ?? versus= ?? Average daily volume = 211 K Chart = http://quote.yahoo.com/q?s=SNE&d=3m *************** Internet *************** DCLK - Doubleclick Inc, $114.38 (-2.38)(+0.50)(+8.50) Doubleclick provides comprehensive global Internet advertising solution. With headquarters in New York, the online firm uses its DART technology that measures Web traffic and ad effectiveness and in turn provides data to both the Web publishers and the advertiser. With over 1300 sites in its network Doubleclick delivers ads in such search engines as AltaVista, Egghead.com and U.S. News Online. Two of its bigger advertisers include AT&T and IBM. Doubleclick has agreements to buy consumer-purchasing data information provider Abacus Direct and software firm NetGravity. DCLK competes primarily with America Online, 24/7 Media and Flycast Comm. DoubleClick is forming an ascending triangle which is typically a bullish pattern. For most of the last 2 weeks DCLK has traded between $110 and $120. We have seen a couple of futile attempts to break through the $120 area only to be pushed back down. The number of players in the Internet advertising industry is dwindling. Thursday CMGI announced it had agreed to buy Flycast Communications Corp. in a stock deal worth about $559 million. Investors apparently viewed the CMGI-Flycast deal as an attempt to dethrone DCLK . Friday shares of DCLK fell to a low of $111.75, before bouncing once again to close at $114.38. Rumors are also circulating on the Street that DCLK will make a bid for 24/7 Media (TFSM) as well. Since being selected to our play list, DCLK has provide us with a few opportunities to jump on board and make a profit. If you are playing the channel between $110 and $120, there has been lots of room to profit. We believe the near term outlook for DCLK is still bullish. DCLK is also scheduled to release earnings on October 14th and we are looking for DCLK to possibly break out of the recent trading pattern and make an earnings run in the next week. We would urge caution as well when considering a play in DCLK. All eyes will be on the FOMC meeting Tuesday. However, there will be a lot of Internet investor attention focused on YHOO's earnings on Wednesday as well. DCLK may very well rise and fall with YHOO's fortunes. More than likely, DCLK may rise with YHOO and if YHOO announces strong earnings then DCLK may continue its rise into its own earnings. In other news this week, DCLK announced it had added seven new Websites to its shopping and services program and signed an agreement with Internet Stock News. **Caution: only 2 weeks left for October options** BUY CALL OCT-110*TDU-JB OI= 986 at $8.50 SL=$6.50 BUY CALL OCT-115 TDU-JC OI=1106 at $5.75 SL=$4.00 BUY CALL OCT-120 TDU-JD OI=1834 at $3.75 SL=$2.25 BUY CALL OCT-125 TDU-JE OI=2013 at $2.25 SL=$1.25 Picked on Sep 18th at $116.25 P/E = N/A Change since picked -1.88 52 week high=$176.00 Analysts' ratings 8-8-0-0-0 52 week low =$ 6.75 Last earnings 07/99 est -0.13 actual -0.13 Next earnings 10-14 est -0.13 versus -0.14 Average daily volume = 2.90 mln Chart = http://quote.yahoo.com/q?s=DCLK&d=3m **** LCOS - Lycos, Inc. $50.97 (+4.03) Lycos is one of the fastest-growing companies moving down the Information superhighway, Lycos remains an independent player on the portal playground. The Lycos Network (a family of Web sites including Lycos, HotBot, and Tripod) is visited by more than 29 million people each month and offers Web searching, Chat rooms, e-mail, news, auctions, and home pages. About 75% of Lycos revenue comes from advertising, but it also receives revenue through e-commerce and licensing agreements with partners such as Bertelsmann. Internet investment firm CMGI owns 18% of the company. Lycos is forming an Internet investment partnership (Lycos Ventures) with several entities including Paul Allen's Vulcan Ventures and Bear Stearns. Cyber dealmaking activity and a deepening conviction that browsers are turning into buyers has helped a few Net stocks stand out amongst the crowd in the last few weeks. Lycos is one of those stocks that refuses to be left behind. Lycos chief operating officer, Edward Philip said the web portal will launch an online shopping mall called LYCOShop in November. The mall will be similar to Amazon.com's newly announced shopping mall in that Lycos will charge a monthly rental fee to tenants wishing to sell on the site. Lycos brand awareness is up over 200 percent in the past six months, and Lycos Europe is set to go public early next year. From a technical standpoint, the the volume in the shares is now above the daily average for the past week and should continue to pick-up going into the upcoming earnings season. Lycos reports their earnings on November 19th. Look for the price action to follow the surge in volume and moneystream. Be careful to determine the sector momentum and stock direction before entering a new play. The next resistance for LCOS is at $55. Finally, there have been rumors, that in the next two weeks the CEO of Lycos will be announcing more positive information about the company's future and plans for growth in the web portal division of the Internet. This should provide more positive movement in the shares of the stock. **Caution: only 2 weeks left for October options** BUY CALL OCT-45 QWL-JI OI=2708 at $6.88 SL=5.25 BUY CALL OCT-50*QWL-JJ OI=5570 at $3.25 SL=1.75 BUY CALL OCT-55 QWL-JK OI=3599 at $1.31 SL=0.63 BUY CALL NOV-50 QWL-KJ OI=1356 at $6.38 SL=4.50 BUY CALL NOV-55 QWL-KK OI= 740 at $4.00 SL=2.50 Picked on Oct 3rd at $50.97 P/E = N/A Change since picked +0.00 52 week high=$72.69 Analyst Ratings 8-13-2-0-0 52 week low =$11.25 Last earnings 09/99 est= 0.00 actual= 0.01 Next earnings 11-19 est= 0.01 versus=-0.03 Average daily volume = 2.3 mln Chart = http://quote.yahoo.com/q?s=LCOS&d=3m ******************************* CALLS CONTINUED IN SECTION FOUR ******************************* SEE DISCLAIMER IN SECTION ONE
The Option Investor Newsletter 10-03-99 Sunday 4 of 7 CALLS CONTINUED *************** VRTY - Verity, Inc. $70.25 (+9.37) VRTY is committed to helping business' stay organized by efficiently retrieving and utilizing their information through Internet, Intranet, and ISV's. With companies like Cnet and AT&T trusting VRTY for this application, it shows that they are successful at providing this organization and information dissemination. Their products simplify application solutions by searching, indexing and classifying more efficiently than the competition. As the online card catalog continues to grow, VRTY is positioned to profit due to their specialization. Have you ever wished you could have bought in it back when? Sure you have, we all have. Well VRTY just may be one of those stocks you say that about. With incredible gains of 40% since Sep 9th, we wish we had. Well it appears to have the momentum to continue. VRTY's chart may put it in the record books for having post earnings runs. It's gains definitely make this a momentum play. If that's not enough, volume has been following momentum, steadily increasing to 544K shares. All this has allowed VRTY to power to consecutive new 52-week highs, currently at $70.75. O.K., so what's causing all this great movement? It appears to be the fact that VRTY's success gives investors 40% earnings surprises, Strong Buy ratings and upgrades from analysts, and the outlook of continued success due to the Internet communication revolution. Just think of how many Internet related stocks have financial statements like VRTY's. They are an impressive company! VRTY has no history of a stock split but, it could be in the cards at these price levels. Currently they have 30 million shares authorized, and 12 million outstanding, so it is possible. We're not predicting this however, just making you aware of the fact. Be cautious of some profit-taking due to recent appreciation and ahead of the FOMC meeting. Use VRTY's 5 or 10 dma as support ($66 and $63, respectively) and gauge your entry accordingly. You may need to confirm a continuation of the stocks upward move, as well as a market confirmation before buying. Verity received another positive piece of news in an article where John Skeen gave it rave reviews as a stock to participate in as part of the communication revolution. In other words, it was directly related to the Internet rave. **Caution: only 2 weeks left for October options** BUY CALL OCT-65 YQU-JM OI=320 at $7.13 SL=5.25 BUY CALL OCT-70*YQU-JN OI=180 at $3.25 SL=1.50 BUY CALL NOV-65 YQU-KM OI= 13 at $9.00 SL=6.75 low OI BUY CALL NOV-70 YQU-KN OI= 5 at $7.25 SL=5.25 low OI (no 75s yet) Picked on Oct 3rd at $70.25 P/E = 62 Change since picked +0.00 52 week high=$70.75 Analysts Ratings 7-1-0-0-0 52 week low =$ 5.13 Last earnings 08/99 est= 0.20 actual= 0.32 Next earnings 12-15 est= 0.32 versus= 0.18 Average daily volume = 269 K Chart = http://quote.yahoo.com/q?s=VRTY&d=3m **** TFSM - 24/7 Media Inc. $40.63 (+8.63) They do business in the rapidly growing Internet advertising industry. 24/7 Media is an Internet advertising and direct marketing firm. The company generates revenues primarily by selling advertising and promotions for their Affiliated Web sites. 24/7 customizes solutions to allow advertisers and direct marketers to tailor their advertising to reach a specified target market. They also provide sophisticated tracking and reporting functions for their Affiliated Web sites. Some of 24/7's more well known customers include Ameritech, Dell and Prodigy. 24/7 Media competes with some pretty heavy hitters including CMGI, Double Click, and Flycast Communications. It's amazing what a Buy rating and rumors will do to the price of a company's stock. Shares of 24/7 Media started the week out at $32.00. On Monday TFSM got a bit of a boost from analysts when C.E. Unterberg, Towbin initiated coverage of the Internet advertising company with a Buy rating. They indicated that perhaps the company's stock was undervalued since it is trading below levels of many of its peers in the industry. Those comments seemed to give TFSM a nice boost closing up $1.63 for the day. Let the rumors begin! Thursday industry giant CMGI announced it had agreed to by Flycast Communications, a competitor in the Internet advertising business. Rumors started circulating that 24/7 could be the next takeover target for either CMGI or DoubleClick. Over the next two days shares of TFSM jumped 18%, to close the week at $40.63. Many analysts seem to believe that the Internet advertising industry is consolidating and when its over we will see one or two giants in control. The next question is can TFSM continue its climb to higher levels. We believe it probably can. Some analysts have projected a $45 price target for TFSM. We may see a pullback or consolidation from the current levels first. If the rumors persist and TFSM is up strong again Monday, you can test your luck riding the momentum wave but use caution ahead of the FOMC. As always consider your risk profile before entering any new play. In other news this week, 24/7 Media announced it had entered into an agreement with Naviant, a premier precision marketing company. Naviant selected TFSM as its exclusive advertising network partner. TFSM also signed a deal with LCS Golf to represent its newsletter to major advertisers. 24/7 Media recently was reiterated a Buy by analyst Dan Mackeigan at Friedman, Billings, Ramsey & Co. with a twelve month price target of $60. BUY CALL OCT-35*BMQ-JG OI=1292 at $6.50 SL=$4.75 BUY CALL OCT-40 BMQ-JH OI=1397 at $3.13 SL=$1.50 BUY CALL OCT-45 BMQ-JI OI=1066 at $1.19 SL=$0.00 High Risk! BUY CALL NOV-35 BMQ-KG OI= 254 at $8.75 SL=$6.50 BUY CALL NOV-40 BMQ-KH OI= 210 at $6.13 SL=$4.50 Picked on Oct 3rd at $40.63 P/E = N/A Change since picked +0.00 52-week high=$69.63 Analysts Ratings 7-2-0-0-0 52-week low =$ 5.00 Last earnings 07/99 est= -0.37 actual= -0.37 Next earnings 11-08 est= -0.52 versus= -0.50 Average Daily Volume = 537 K Chart = http://quote.yahoo.com/q?s=TFSM&d=3m **** XMCM - Xoom Inc. $50.56 (+6.69) Xoom is a rapidly growing Internet-based direct marketing company that offers its 10 million subscribers a variety of free services, including e-mail, chat rooms, auctions, and homepages. In return, Xoom.com sends advertisements, retail offers, and newsletters to its members via e-mail. The offers include proprietary and third-party products such as computer software, consumer electronics, and DVDs. The company, which generates sales primarily from advertising and electronic commerce, is merging with several of NBC's Internet operations as well as NBC and CNET's jointly owned Snap.com portal services. It was the appropriate ending for a week plagued with ups and downs. Friday the markets closed on a lower note, which was the main theme of the markets for the week. Despite major setbacks for some stocks, others managed an impressive feat, ending the week in the black. One of these impressive stocks was our very own momentum play, XMCM. After stalling slightly during the week, yesterday the stock broke through another resistance level at $50. If you look at Friday's trading information you will see the stock reached an intraday high of $54.50. Yes, the stock ended the day under that level however, the fact remains it broke its resistance convincingly. If Internet stocks can make another run this week, expect XMCM to be a participant. With the Federal Reserve meeting on Tuesday, questions remain whether they will raise interest rates. If they decide not to raise rates, Internets should react positively. Considering earnings are just around the corner its good timing for beginning some runs. For individuals placing new trades, look for entry points around $50, what was once a resistance should now act as support. In the news, on Thursday evening XOOM.com and Cybergold Inc announced that Cybergold's proprietary payment system will enable XOOM.com's more than 10.2 million members to buy and sell high quality digital content from the XOOM.com Web site. BUY CALL OCT-45 XQM-JI OI=536 at $7.00 SL=5.25 BUY CALL OCT-50*XQM-JJ OI=300 at $3.75 SL=1.75 BUY CALL OCT-55 XQM-JK OI-152 at $1.63 SL=0.75 BUY CALL NOV-45 XQM-KI OI= 5 at $8.75 SL=7.00 low OI BUY CALL NOV-50 XQM-KJ OI=172 at $6.75 SL=5.00 Picked on Sep 27th at $46.50 P/E = NA Change since picked +4.06 52-week high=$98.50 Analysts Ratings 1-3-1-0-0 52-week low =$21.13 Last earnings 07/99 est= -0.16 actual= -0.16 Next earnings 10-20 est= -0.43 versus= -0.44 Average Daily Volume = 669 K Chart = http://quote.yahoo.com/q?s=XMCM&d=3m **** AOL - America Online Inc $107.88 (+10.38) AOL is the world's #1 provider of online services with over 17 million subscribers. It's acquisitions in 1998 and 1999 have given the company a 60% market share and diversity. CompuServe, an online service geared more to professionals, added its 2 million users to the AOL portfolio in 1998. This year AOL brought the Web navigator, Netscape, to its organization and is also using DIRECTV to launch an interactive TV service. The recent announcement of a proposed merger between EarthLink (ELNK) and MindSpring (MSPG) and the new wave of companies offering free Internet access is certainly heating up the competition for AOL. AOL is an earnings' play we just added on Thursday evening. Since last Friday AOL has been advancing and gaining momentum ahead of 3Q earnings confirmed for October 20th. Even though intense news events have influenced the stock's recent movements they are not the basis for this play. Again this is a pure and simple earnings' run. For instance last Friday AOL jumped up $10 in response to Microsoft's action to raise its access rates to match AOL's. For months investors have been exiting ISP stocks because of very strong competition with free ISP services. This bold move by MSFT gave solid confirmation for the pay ISP business model and put confidence back into the stocks. Other news events that accelerated AOL's climb last week were the positive analyst ratings. Jefferies & Co started coverage with a Buy rating on September 23rd and the following day Brokerage William Blair upgraded AOL from a Long-term Buy to a Strong Buy. That same day a dissenting vote did come from Raymond James who downgraded the stock from a Buy to an Accumulate, yet it was obviously disregarded by investors. After AOL gained $11.75, or 12% in the first three days of trading this week. We finally got a pullback and entry point on Thursday. You would have expected the upward momentum to continue considering the rising market that day, but a negative news event blessed us with a decent entry level into this monster play. The opinion of Bill Burnam, a general partner of Softbank's venture capital firm, Softbank Capital Partners, adamantly stated that ISP's like AOL, ELNK, and MSPG are simply "over-valued". He went on to explain that he believes the future of these companies will be solely contingent upon "revenue from advertising and e-commerce" and not from charging customers for Internet access. That press release and likely some good ol' fashion profit-taking was behind the stock's pullback. On Friday AOL rebounded nicely spiking up at the opening however, the relative mild intraday trading still presented good entry points into the play. The near-term resistance is at $113.50 (a daily high hit Wed afternoon) and support should hold strong at its 200 dma (@ $104) where it held during Thursday's sell off. On Friday AOL was reiterated a Strong Buy at CIBC World Markets and analyst John M. Segrich issued a $135 price target. In other news this week, AOL announced that over 11 mln of its subscribers now shop online. This figure is double from what it was in June 1998. Overseas AOL is fighting back and flexing some muscle. After taking a beating from New Britian's Freeserve PLC, it's finally slashing prices to get a better foothold in the market and in Germany they just announced a new flat rate fee to compete with T-Online. AOL Europe is also negotiating with PC makers about offering customers rebates in lieu of using their Internet service. (Editor's note: AOL has a shareholder meeting on Oct 28th where they will vote to increase shares from 1.8 bln to 6.0 bln. Even though they are slightly under historical split levels ($120), it is worth noting the possibility. Look for further details in the weekly updates.) **Caution: only 2 weeks left for October options** BUY CALL OCT-105*AOO-JA OI=24057 at $7.00 SL=5.25 BUY CALL OCT-110 AOO-JB OI=24582 at $4.25 SL=2.75 BUY CALL OCT-115 AOO-JC OI=20930 at $2.50 SL=1.25 BUY CALL NOV-110 AOO-KB OI= 6957 at $9.13 SL=6.75 BUY CALL NOV-115 AOO-KC OI= 4039 at $7.25 SL=5.50 Picked on Sep 30th at $104.25 P/E = 169 Change since picked +3.63 52 week high=$175.50 Analysts Ratings 23-16-3-1-0 52 week low =$ 20.62 Last earnings 06/99 est= 0.11 actual= 0.13 surprise +18.2% Next earnings 10-20 est= 0.13 versus= 0.05 Average Daily Volume = 19.2 mln Chart = http://quote.yahoo.com/q?s=AOL&d=3m **** ITVU - InterVU, Inc. $39.50 (+5.25)(+4.88) InterVU gets Internet media from point A to B. InterVU has become the leader in providing this management of streaming technology to their customers. They are able to handle low bands of 28.8 to 100 Kbps, and broad-bands of 300 Kbps and higher. Allowing providers to deliver near television quality at higher bands. The formats are compatible with all the popular players such as RealPlayer and Windows Media Player. As popularity increases in viewing information online, ITVU's market increases. Friday ITVU recovered quite nicely from Thursday's profit-taking due to recent gains in the stock price. This play is based on the historical chart data pointing to good earnings run potential. Although we have a momentum stall due to Thursday, and a temporary break in our trend, late day trading on Friday showed renewed interest as investors anticipate a continuation of the run. (The Internet audio/video group is still one of the better performing sectors in the market). Due to stall, we would advise cautious investors to wait for a break in resistance through $41 before playing, indicating a continuation of the trend. We saw support at $37 hold up well when ITVU tested it twice on Friday. Friday's rebound provided breakouts on our stochastic and MACD. We would advise caution ahead of the FOMC on Tuesday but if Alan and friends let the markets be, we should start a new rally. Reiterating Thursdays information, ITVU confirmed their earnings announcement on Oct 28th at 2 p.m. The market is whispering a 40% surprise which should push the stock higher. Given that we are uncertain of the FOMC outcome, use caution and confirm a resistance break and positive market. Friday gave us a drought on ITVU news although several articles continued to refer to the companies participation with Microsoft in the broadband streaming issues. This appears to be helping stock price as well, as many of these participants have advanced on the news. **Caution: only 2 weeks left for October options** BUY CALL OCT-35*QYU-JG OI=334 at $5.25 SL=3.25 BUY CALL OCT-40 QYU-JH OI=492 at $2.38 SL=1.25 BUY CALL NOV-35 QYU-KG OI=325 at $7.38 SL=5.75 BUY CALL NOV-40 QYU-KH OI= 35 at $4.88 SL=3.25 low OI Picked on Sep 26th at $34.25 P/E = N/A Change since picked +5.25 52 week high=$82.00 Analysts Ratings 3-3-0-0-0 52 week low =$ 5.75 Last earnings 07/99 est=-0.48 actual=-0.34 Next earnings 10-21 est=-0.52 versus=-0.32 Average daily volume = 265 K Chart = http://quote.yahoo.com/q?s=ITVU&d=3m **** RNWK - RealNetworks, Inc. $106.25 (+7.19)(+5.38) In our increasingly mobile society, convenience is a must, so it is nice when you can turn on your computer and have all the conveniences of TV, Radio, and CD's at your fingertips. RealNetworks is a leader in providing real time streaming media to users over the Internet. Attracting most major broadcasters, RNWK is growing fast as online users download News, Sports, Music, at the rate of 175,000 new users a day. These numbers confirm acceptance of their products and software, that's a 270% increase since 1997. Along with multi-media comes advertising. RNWK is benefiting greatly from it's unique niche and presentation. RNWK is ready for launch, and the boosters are warmed up as indicated by Friday's movement in the stock. RNWK is an incredible earnings run candidate. Many investors remember the fantastic run we experienced in March of this year, with over a 200% increase in the stock price. RNWK is showing signs of participating in a similar run. Helping to push shares higher is the possibility of a split announcement. 2:1 is most likely considering the shares authorized and historical data. Friday the market was the only thing that held RNWK back as it wanted to go higher. Still, it managed a new 13-week closing high. The movement Friday provided a good entry sign for all the technicians out there as it broke above recent resistance at $104. The support of $101.50 (the 10-dma) is holding very well, and any pull back to this level could be buyable. Volume was a little below average as investors are cautious ahead of Tuesday's FOMC meeting. Hopefully Fed worries will provide one last pullback for those wanting to open new plays but, with Friday's breakout, we may be asking too much. Any negative news, or interest hike could temporarily kill our run, so protect your profits. Finally, yet another analyst came out positive on RNWK this week. Josephthal & Lyon started coverage with a Buy rating. This is just one more in the long list of positive ratings for RNWK dating back to the start of the year. Pretty quite on the wires for RNWK. They are participating in the worlds largest business to business trade show called Fall Internet World. It sold out with 750 businesses participating this year, anticipating the growth of e-commerce. **Caution: only 2 weeks left for October options** BUY CALL OCT-100 RNW-JT OI=1540 at $ 9.63 SL= 7.25 BUY CALL OCT-105*RNW-JA OI= 614 at $ 6.74 SL= 4.75 BUY CALL OCT-110 RNW-JB OI=1097 at $ 4.38 SL= 2.75 BUY CALL NOV-105 RNW-KA OI= 581 at $12.88 SL=10.50 BUY CALL NOV-110 RNW-KB OI= 873 at $10.50 SL= 7.50 Picked on Sep 26th at $99.06 P/E = N/A Change since picked +7.19 52 week high=$131.88 Analysts Ratings 1-14-1-0-0 52 week low =$ 11.06 Last earnings 07/99 est=-0.01 actual= 0.00 Next earnings 10-19 est= 0.04 versus=-0.03 Average daily volume = 1.9 mln Chart = http://quote.yahoo.com/q?s=RNWK&d=3m ******* Telecom ******* QCOM - Qualcomm Inc $186.81 (-2.69)(-0.44) Qualcomm develops and manufactures communications technologies and products. It's best known for its CDMA (code division multiple access) technology which is the industry standard for mobile communications. This technology and is used in cellular phones, wireless telephone system equipment, and satellite ground stations. QCOM also provides the trucking industry with a monitoring system call OnmiTRACS and is currently in a joint venture to develop a low-earth-orbit satellite communication system call Globalstar. They are also the #2 supplier of digital cell phones following Nokia. On September 14th the company's renewed consideration to seek a buyer for its mobile phone manufacturing unit and its emphatic report that it'd meet or beat 4Q estimates first sparked investors' interest. The 11% jump of $17.12 that day certainly caught our attention! After confirming its trend we decided to add it to our call list last Sunday as a momentum play. But another reason we liked this stock was the possibility of a split announcement around its earnings date confirmed for November 2nd after the bell. QCOM had recently become a split candidate after soaring above $155 last month. By Tuesday evening we got the word. Qualcomm announced it would be seeking shareholders' approval to increase the number of authorized shares at its next Shareholders' Meeting. According to Julie Cunningham, VP of Investor Relations "February 2000 would be our earliest opportunity to have more shares authorized" especially considering QCOM just split 2:1 in May. So the bottom line is that QCOM is still a momentum play that for the most part has been moving on trading volumes as low as 50% of the ADV. QCOM has established a comfortable support level at $185 and $186 which is just a smidgen below the daily 10-dma ($188.75). Now we're looking for a stronger market sentiment next week to launch QCOM through its stubborn opposition at $199, the 52-week high set on September 23rd. If the spreads continue to be wide intraday (10+ points at times last week) then players would again be afforded a variety of entries into this momentum play. Of course remember this a high-flying Internet is not for everyone and comes with lots of RISK! Plus beware of the Fed Meeting which could easily send the markets into a spin. The week was filled with news events revolving around Qualcomm. Let's get the bad news over first. AG Edwards downgraded QCOM from a Buy to an Accumulate, but offered no explanation. Then on Thursday, Qualcomm announced that they are reviewing their investment in Metrosvyaz of Russia since Leap Wireless International withdrew its support due to "serious financial irregularities". QCOM has approximately $50 mln (net book value) in relation to this venture. What it comes down to is that they may have to take a one-time write down in the fourth fiscal quarter of 1999. Still the company adamantly assured investors it still expects to meet or beat 4Q analyst consensus at $0.88 p/s. On Friday, the recommendations hit the press. Kevin Landis, portfolio manager at Firsthand Technology Funds, said on "Wall Street Week with Louis Rukeyser" that he recommends QCOM because of its CDMA technology and this is in line with his "picking stocks that will move on the market's appetite for faster computer and telecommunications systems". Along those same lines (no pun intended) Mark McKechnie, senior research analyst covering wireless equipment companies for Banc of America Securities, also listed QCOM as a top pick because in his opinion the company has "the fastest growing wireless technology and is the choice for wireless data", and further added that "the demand for wireless Internet access, through digital technologies such as personal communications services (PCS), will help the industry maintain its explosive growth. **Caution: only 2 weeks left for October options** CALL OCT-185*AAO-JQ OI=1302 at $ 9.50 SL= 7.25 BUY CALL OCT-190 AAO-JR OI=2270 at $ 7.00 SL= 5.25 BUY CALL OCT-195 AAO-JS OI=1670 at $ 5.13 SL= 3.25 BUY CALL NOV-190 AAO-KR OI= 274 at $15.63 SL=12.25 BUY CALL NOV-195 AAO-KS OI= 98 at $13.50 SL=11.00 low OI Picked on Sep 23rd at $186.63 P/E = 97 Change since picked +0.18 52 week high=$199.00 Analysts Ratings 8-8-2-0-0 52 week low =$ 18.87 Last earnings 06/99 est= 0.63 actual= 0.75 surprise +19.1% Next earnings 11-02 est= 0.88 versus= 0.27 Average Daily Volume = 9.10 mln Chart = http://quote.yahoo.com/q?s=QCOM&d=3m **** NOK - Nokia $89.25 (+0.94) Nokia is a supplier of telecommunication systems and equipment and works to develop, manufacture and deliver operator driven infrastructure solutions and end-user driven mobile phones. Nokia dominates the GSM and the TDMA markets and is touted as the technological leader in cellular phones. Nokia is also known as the swiftest and the strongest, unveiling new phones every 12 months versus the industry standard of 18 months and was voted the 11th most valuable brand name in the world, atop such notables as BMW and American Express. Nokia seemed to have good support at its 10-dma throughout the week and held support above $90 all day Friday except for a late day decline. We expect a bounce off of its 10-dma as has been customary as of late and move up next week. Of course with the FOMC meeting on Tuesday, we don't expect much until the interest rate fears are either validated or disappear. This should also keep volume light for the beginning of the week. Wait for a confirmation of the bounce off the 10-dma before making an entry. It is likely that Friday's final 30 minute dip was a fluke and NOK should pop back above $90. The next resistance level was established at $92 this week. Cautious investors will want to wait until after the FOMC and after NOK moves above that price. In all cases, stops will be required for protection in this market environment. In a report issued last week, Nokia was named the number one supplier of U.S. mobile phone handsets by marketing firm Dataquest with Nokia claiming 31.7% of the market share for the quarter. Nokia has recently agreed to sell its battery charger unit for approximately $163 million to EQT, a Nordic Venture Capital Company. The Telecom '99 conference begins October 10 in Geneva, Switzerland, where Nokia is expected to do a little flexing and remind everyone just who is king. **Caution: only 2 weeks left for October options** BUY CALL OCT-85 NAY-JQ OI=2629 at $6.25 SL=4.25 BUY CALL OCT-90 NAY-JR*OI=8599 at $2.75 SL=1.25 BUY CALL OCT-95 NAY-JS OI=4445 at $1.00 SL=0.00 High Risk! BUY CALL NOV-90 NAY-KR OI=1339 at $6.13 SL=4.25 BUY CALL NOV-95 NAY-KS OI= 42 at $4.13 SL=2.50 low OI Picked Sep 28th at $90.75 P/E = N/A Change since picked -1.50 52-week high=$99.38 Analyst Ratings 13-9-0-0-0 52-week low =$29.53 Last earnings 07/99 est= 0.49 actual= 0.51 Next earnings 10/21 est= 0.51 versus= 0.44 Average Daily Volume = 2.80 mln Chart = http://quote.yahoo.com/q?s=NOK&d=3m **** CMVT - Comverse Technology Inc. $94.25 (+3.56) Technology makes enhanced telecommunications systems and is the third-largest firm in the voice mail market. Its TRILOGUE Infinity and Access NP product lines supply voice and fax messaging, automated personal assistant, and call answering services. TRILOGUE is marketed to telecom network operators and gives multiple telephone users access to integrated digital information and messaging services. Comverse's AUDIODISK and ULTRA lines are communications monitoring systems used by police and surveillance agencies, correctional institutions, emergency 911 services, financial institutions and tele-marketers. Thursday brought about hopes that maybe the bottom was near for the markets. The hope soon faded as unnerved investors entered the picture and took control on Friday. When all was said and done CMVT ended the day down fractionally, which is understandable when taking into consideration the strength of the bears. We initially started this play on Thursday because it was brought to our attention that CMVT was scheduled to hold their annual shareholders meeting on October 8th. One of the items on the agenda is to vote to authorize the increase of common shares from 100 million to 300 million. Seeing that CMVT is a potential split candidate, we are hoping for an announcement during this time period. Historically speaking, stocks have a tendency to make a quick run once the information is released to the public. Recently the Board of Directors for Broadvision announced a 3-1 split. The stock increased over 12 percent in the last two days. Unfortunately we haven't found an entry to BVSN however, these are the potential returns we are looking for CMVT. We are playing the stock as a split play and feel comfortable doing so because of the technical strength to back it. For investors entering new plays watch for entry points at $90-$91 range, the stock's 10-dma is at this level. Remember the FOMC meeting is this Tuesday which may alter investors' perspective in the short-term. There was no additional news to report this week. To reiterate last weeks, Oscar Gruss & Son initiated coverage on Comverse Technology with a Buy rating and a 12 month price target of $111. **Caution: only 2 weeks left for October options** BUY CALL OCT- 90*CQV-JR OI=1187 at $6.38 SL=4.25 BUY CALL OCT- 95 CQV-JS OI= 815 at $3.38 SL=1.00 BUY CALL OCT-100 CQV-JT OI= 81 at $1.50 SL=0.00 Higher Risk! BUY CALL NOV- 90 CQV-KR OI- 55 at $9.50 SL=6.75 low OI BUY CALL NOV- 95 CQV-KS OI= 21 at $6.75 SL=5.00 low OI Picked on Sep 30th at $94.31 P/E = 47 Change since picked -0.06 52-week high=$97.63 Analysts Ratings 9-3-0-0-0 52-week low =$19.58 Last earnings 08/99 est= 0.52 actual= 0.52 Next earnings 11-30 est= 0.52 versus= 0.41 Average Daily Volume = 929 K Chart = http://quote.yahoo.com/q?s=CMVT&d=3m ******************************* SEE DISCLAIMER IN SECTION ONE
The Option Investor Newsletter 10-03-99 Sunday 5 of 7 ************* Miscellaneous ************* AEOS - American Eagle Outfitters, Inc. $49.75 (+3.25) American Eagle Outfitters has grown into a retailer that now sells collegiate-style casual apparel and accessories (shirts, pants, shorts, sweaters, skirts, footwear, belts, and bags) aimed at men and women ages 16-34. Virtually all the company's wares bear its private label brand names: American Eagle Outfitters, AE, and AE Supply. AE operates nearly 400 mall- based stores in about 40 states, primarily east of the Rockies, and it is expanding. We are seeing a bit of energy returning to the Retail sector that is now worth paying attention too. The stocks have bounced back nicely from the August lows. Fears of interest-rate hikes have had momentum investors, who had piled into the stocks for its hyper same-store sales growth taking profits. They had been trimming positions as the companies warned that sales at stores open at least a year were slow. This consolidation seems to have ceased, and the momentum players have now returned to the sector. In the sector AEOS has good financial ratios when it comes to sales per square foot, inventory turns and return on investment. Looking at the technical picture for the stock it has consolidated nicely over the month of September and it looks like the consolidation is now being settled to the upside. It has bounced nicely off of the 10-dma $47.50 and broken out of a month long range. The uptrend has now started to resume. Moneystream and Volume is now very strong and should continue to get stronger as we approach the holiday season and the shoppers invade the stores. With this resurgence in the sector look for continued strength, and price increases in AEOS. Confirm the direction and momentum in the stock before taking a new position. **Caution: only 2 weeks left for October options** BUY CALL OCT-45*AQU-JI OI= 890 at $5.88 SL=4.25 BUY CALL OCT-50 AQU-JJ OI= 837 at $2.63 SL=1.38 BUY CALL NOV-45 AQU-KI OI=2315 at $6.75 SL=5.00 BUY CALL NOV-50 AQU-KJ OI= 474 at $4.50 SL=2.75 Picked on Oct 3rd at $49.75 P/E = 34 Change since picked +0.00 52 week high=$52.38 Analyst Ratings 7-4-0-0-1 52 week low =$13.69 Last earnings 09/99 est= 0.31 actual= 0.35 Next earnings 11-18 est= 0.38 versus= 0.29 Average daily volume = 688 K Chart = http://quote.yahoo.com/q?s=AEOS&d=3m **** GMST - Gemstar International $83.63 (+7.50) Gemstar International Group makes videorecording systems. They develop, market and license proprietary technologies and systems under the "VCR Plus+" name. Their VCR Plus+ system lets users program VCR's simply with one-to-eight digit codes published in TV listings worldwide. Gemstar's primary source of revenues are from licensing fees paid by consumer electronics manufacturers and publications for the licensing of the VCR Plus+ technology and the right to print the PlusCode numbers. Gemstar has signed long-term renewals of license agreements with Sony Corp, and Thomson Consumer Electronics. Recently they launched the system in Mexico, the 40th country in which VCR Plus+ programming is offered. Since releasing its first quarter results in the middle of August shares of GMST have been on a roll. At that time GMST was trading near $50. Since that time the price of the audio and video equipment makers stock has made a new 52-week high at $85.13. GMST is a company that doesn't get a lot of coverage in the news. It seems to sit back in its own little niche that it has carved out and goes about its own business - a business that is growing. Revenues are increasing at a rate of 27%, and the bottom line is even better with an increase of 39%. Late last week shares of GMST jumped on the news that a five year long legal battle with TV Guide was close to being settled. The dispute began when Starlight Telecast Inc, which was later bought by Gemstar filed a patent-infringement lawsuit against TV Guide, formally known as United Video Satellite Group. Analysts and investors both believe a favorable settlement could empower both companies to pursue more aggressively into the introduction of their interactive program guides. Gemstar would be better able to compete in the cable market, which TV Guide now dominates. Gemstar is also a favorite among institutional investors with 270 institutions or over 52% having a piece of the pie. At this point GMST has shaken off the fear based sentiment seen in the broader markets. If the legal battle between GMST and TV Guide is settled in the next week or two, we should see the price of GMST, continue to climb to higher levels. As always before considering a new play confirm market direction and assess your risk profile. **Caution: only 2 weeks left for October options** BUY CALL OCT-75 QLF-JO OI=1788 at $11.63 SL=$ 9.25 BUY CALL OCT-80*QLF-JP OI=1007 at $ 8.50 SL=$ 6.50 BUY CALL NOV-75 QLF-KO OI=2712 at $16.38 SL=$13.00 BUY CALL NOV-80 QLF-KP OI= 214 at $13.88 SL=$11.00 Picked on Oct 3rd at $83.63 P/E = 119 Change since picked +0.00 52-week high=$85.13 Analysts Ratings 6-0-0-0-0 52-week low =$19.25 Last earnings 07/99 est= 0.16 actual= 0.17 surprise=6.25% Next earnings 11-08 est= 0.19 versus= 0.14 Average Daily Volume = 753 K Chart = http://quote.yahoo.com/q?s=GMST&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. **** GENZ - Genzyme Corp $42.59 (-7.91)(-4.88) Genzyme Corp has one of the largest and most diverse gene therapy programs in the world. The company began its gene therapy program in 1991 to develop treatments for cystic fibrosis. Since then, Genzyme's gene therapy efforts have expanded to target cardiovascular disease, cancer, and lysosomal storage disorders. The company's gene therapy researchers have achieved a number of important scientific and regulatory "firsts" in gene therapy studies and vector development and have designed more than 200 viral and lipid vectors for use in experiments. Unfortunately for Genzyme shareholders, the stock is dropping at a faster than expected pace but for us it's perfect. GENZ took another beating this week and the outlook continues to dim. Despite a broad rally in the Drug and Biotech sector on Friday, GENZ accelerated its losses on heavy volume. It ended the day right at the low despite a comeback in the Dow and Nasdaq. Volume, which has been steadily increasing, came in at a more than twice the average. As we mentioned originally, the catalyst for this play is unclear. There are lots of possibilities but none that should have signaled this kind of sell-off. Some reasons are major insider selling recently, problems related to their recent alliance with Genovo, rumors of an earnings shortfall (Q3 ended Sep 30) and, most likely, problems with the phase III trial of alpha-galactosidase. Referring to the later, this drug has potential but stiff competition. It is also one of the drugs in the pipeline for Genzyme that analysts and investors are betting on. If there has been a setback, we should know about it shortly. Technically, we are expecting GENZ to hit $40 where the stock has support and we may get a bounce. This sell-off has been severe since it began above $60 and support could provide a relief rally. If $40 doesn't hold, we should hit $35, where the next support line is. Either way, this has been a great momentum play and we will continue to ride the wave. Due to the dramatic dip and our current profits, we recommend tightening down the stops for protection. **Caution: only 2 weeks left for October options** BUY PUT OCT-45*GZQ-VI OI=227 at $3.88 SL=2.50 BUY PUT OCT-40 GZQ-VH OI=145 at $1.13 SL=0.50 Average Daily Volume = 1.15 mln Chart = http://quote.yahoo.com/q?s=GENZ&d=3m **** WPI - Watson Pharmaceuticals, Inc. $30.00 (+0.44)(-3.44) Watson Pharmaceuticals makes generic and branded drugs, which focus on niche pharmaceuticals. It offers generic versions of brand-name products such as cardiovascular drugs Lopressor and Inderal, Analgesics Vicodin and Lortab, and asthma drugs Proventil and Ventolin. Watson's branded drugs are focused primarily in dermatology (acne drugs), women's health for use as contraceptives and hormone regulators, and neuropsychiatry (epilepsy drugs), but it also makes antihypertensives Dilacor (the company's top seller) and Microzide. Watson has grown its branded business through acquisitions and plans further expansion via joint ventures. It owns half of Somerset Pharmaceuticals and ANCIRC Pharmaceuticals. As we reported last week Watson Pharmaceuticals Inc, recently said third-quarter profit will miss forecasts after a court order barred the generic drug-maker from distributing copyright protected educational materials with its new smoking-cessation gum. The company will miss estimates by 6 cents to 7 cents a share, said Watson spokesman Jim Byers. Watson was expected to earn 45 cents, the average estimate of nine analysts surveyed by First Call Corp. On Friday it was announced that the company was reacquiring its wholly-owned subsidiary, TheraTech, Inc., from Proctor and Gamble Co.. Developed by TheraTech, Alora is a female hormone replacement therapy (HRT) product. Watson can now participate in the branded estrogen market in North America. Strategically this is a good move for the long-term business plan, but in the short-term the stock remains under pressure. The shares have managed to bounce off of the recent lows at the $28 dollar level, which was a new 52-week low. We remain bearish on the shares at this level and believe the drift to new lows will continue. Look for new entry points off of a bounce from the 10-dma, currently at $30.50 We saw the 10-dma knock back the shares of WPI on Thursday so we may be at the beginning of another decline. **Caution: only 2 weeks left for October options** BUY PUT OCT-35 WPI-VG OI= 280 at $4.75 SL=3.25 BUY PUT OCT-30 WPI-VF OI= 62 at $1.31 SL=0.88 low OI Average Daily Volume = 917 K Chart = http://quote.yahoo.com/q?s=WPI&d=3m **** KO - Coca Cola, Inc. $49.06 (-1.06) Anybody not know what Coca-Cola is or does? Good. But just in case you've been in a cave for the last 100 years, they are the world's largest manufacturer of soft drinks including Coke, Diet Coke, Cherry Coke, Mr. Pibb and Sprite. They also own the brand name called Birds Eye, who produces that frozen juice concentrate in your freezer. We have been successful thus far riding the downward momentum and KO does continue to trade below its 10-dma. We are a bit concerned about the late rally on Friday and if the Fed does not throw us any curve balls next week, this rally could continue. It is time to exercise caution and tighten up your stops to protect your profits and it may be time to temporarily exit and wait for another good entry point such as resistance from the 10-dma at $51. In our favor, recent news is not helping KO move up. Coke is involved in a discrimination lawsuit and was accused of shredding potential evidence. Coke issued a statement denying the claim on Friday, but did admit to discussing the possibility of placing a shredder in a room containing case documents. The plaintiff's attorney cleverly responded that the defense was the equivalent of "I didn't inhale." The $48 level should good support so any move below this could be a sign of more weakness ahead. **Caution: only 2 weeks left for October options** BUY PUT OCT-55*KO-VK OI=5815 at $6.00 SL=3.75 BUY PUT OCT-50 KO-VJ OI=6674 at $1.69 SL=0.75 Average daily volume = 3.72 mln Chart = http://quote.yahoo.com/q?s=KO&d=3m **** EXDS - Exodus Communications, Inc. $69.18 (-5.00) Exodus Communications, Inc offers services (such as server hosting and Internet connectivity) that let businesses outsource the management of their Internet sites. Exodus has eight Internet Data Centers where clients store their servers in secure vaults. In addition to providing storage space, the company furnishes services such as maintenance and network connections. Its clients include CBS Sports, eBay, and MSN. Exodus is expanding its geographic penetration and security services offerings through acquisitions. With little exception, the Internet stocks fell back on Friday which was an extension of Thursday's late-day declines amid a broader market drubbing. This downtrend is profit-taking from the rebound that started back in early August, when many of the Internet stocks bounced off their lows. This is not surprising seeing that interest rates are up and the market in general is down. EXDS coming off of a recent split and a mid August surge falls right in line with this trend. It has slowly drifted lower as volume has continued to evaporate. The stock closed the week at $69.18 down $5. From a technical standpoint, EXDS seemed to be consolidating, until a major support level was broken at the $69.25 level. That is enough to trigger a put play at this time. Watch for a follow through this week of the current downtrend. We don't see support for EXDS until the 100-dma at $60. Watch out for a change of sentiment if the FOMC decides to leave interest rates alone. Or in other words, use stops. **Caution: only 2 weeks left for October options** BUY PUT OCT-70*EXF-VN OI=1050 at $5.13 SL=3.38 BUY PUT OCT-65 EXF-VM OI= 856 at $3.13 SL=1.50 Average Daily Volume = 2.84 mln Chart = http://quote.yahoo.com/q?s=EXDS&d=3m **** YHOO - Yahoo! $175.44 (-7.88) Yahoo! Inc. is a global Internet media company that offers a branded network of comprehensive information, communication and shopping services to 80 million users worldwide. As the first online navigational guide to the Web, YHOO is the leading guide in terms of traffic, advertising, household and business user reach and is one of the most recognized brands associated with the Internet. The company's global Web network includes 19 World properties. Yahoo has offices in Europe, the Asia Pacific, South America, Canada and the United States and is headquartered in Santa Clara. Some of you may have noticed that our new put play was one of last weeks call plays. Like any good investor, we decided to take advantage of both sides of the market and now play YHOO as a put. Three weeks ago we chose YHOO as an earnings run candidate and sure enough it performed like a real winner. The stock was up over twenty points during this time period. Unfortunately, the last few sessions for our call play marked the beginning of what looks like a turnaround for the stock. As the actual earnings date (October 6th) approaches, many investors are getting sell happy and taking profits. In addition, Tuesday, the Federal Reserve will meet and announce whether they will raise interest rates giving investors one more reason to sell early. Looking at a historical chart for YHOO you can see a good example of this whole process. Notice the last earnings run during the last part of June into July, there is a very similar pattern between June-July and September-October. We are currently approaching the downside of the graph once again and if history is any representation of the present we should see a nice retreat. We have decided not to list the available strike prices for put options due to a potential last minute earnings run before Wednesday. The strike prices will be listed on Tuesday's write up. ***NO OPTIONS LISTED YET*** Average daily volume = 9.05 mln Chart = http://quote.yahoo.com/q?s=YHOO&d=3m **** PSIX - PSINet Inc $34.75 (-4.81) PSINet provides high-speed Internet access and other value- added solutions to businesses throughout the US, Canada, Europe, and Asia. Their services include Web-site design and hosting, e-commerce and security programs, and remote user access services. IXC Communications presently has a 20% stake in the company and in exchange the deal is that PSINet has access to IXC's high-speed digital phone lines. PSINet is expanding globally and over the long-term this may very well open up new channels to magnify revenues however, short-term investors are getting queasy about how many dollars will literally be flowing out of the company. The company does have about $2 bln cash in hand, but their acquisition rate is startling. On average they're managing about 15 deals a quarter! Recently they announced a $720 mln stock and cash deal to buy Transaction Network Services (TNI). Then last Monday the heat got turned up and PSINet announced it will acquire three more ISPs including Montreal's TotalNet, Brazil's TBA Internet, and Internet Network Technologies which is based in Sacramento, California. Perhaps this alone wouldn't have thrust PSIX below its 200-dma (then at about $41.50), but this news event supervened the company's previous announcement just a week earlier to buy three other foreign ISPs: Spain's Infase Comunicaciones and its Ciberia Internet as well as Brazil's ServNet Servicos de Informatica e Communicacao. Plus they are adding Vision Network Ltd, a Hong Kong ISP, to their portfolio! The list could go on. Yes, PSINet obviously is taking big steps to solidify its global presence but at what cost? No financial terms have yet to be disclosed regarding these latter proposals. Now for the most part, the stock's share price was comfortable at a bottom support of about $45 then it seems investors got a bad case of the jitters and it hasn't let up. The technical MACD and MOM are both in negative mode and PSIX steadily lost $4.81, or 12% this week. Trading volume was strong on the descent so confirm continued downward movement with a show of volume before opening any new positions. **Caution: only 2 weeks left for October options** BUY PUT OCT-40*SQP-VH OI=622 at $6.25 SL=4.50 BUY PUT OCT-35 SQP-VG OI=929 at $2.63 SL=1.50 Average Daily Volume = 1.33 mln Chart = http://quote.yahoo.com/q?s=PSIX&d=3m **** IBM - International Business Machines $117.75 (-8.25) IBM is a leader in the creation, development and manufacturing of information technology. Besides just making computers, this includes networking and computer systems, microelectronics and storage devices. IBM is the #2 maker of software and peripherals. IBM currently focuses a great deal on expanding its image and becoming a large contender in Internet business. A report issued Friday showing unanticipated strength in the US Manufacturing sector, combined with a considerable increase in consumer spending, worked to confirm fears that the fed may be raising rates on Tuesday, thus pushing US stocks and bonds lower. Though we believe this news was a factor in the descent in the IBM share prices, we also see significant technical short-term weakness. The hardware sector has been falling since Merrill Lynch analysts cutting revenue growth expectations on IBM a week ago. They are now only expecting 4% growth instead of 6% top line growth. Other sector participants like DELL and HWP have also been hit with analyst worries. On Friday, IBM broke below its long time support of $120. IBM is now below all major moving averages except the 200-dma at $108. IBM has definitely been losing ground as of late and appears to be gaining momentum in the current downtrend. We could easily see $110 on IBM in the short-term. The wild card here is the FOMC meeting. Be careful ahead of the announcement. We could see a major market move if Alan Greenspan doesn't raise rates or change the bias towards raising rates. On Friday, the Washington Post reported that IBM is currently under investigation for a $2.3 billion agreement made with Cisco Systems for the sale of IBM's router and switcher technology. It is believed that the sale may have violated antitrust laws. It was also announced this week that IBM had entered into an agreement with Dell Computers to provide an approximate $6 billion worth of basic and extended warranty, installation and high-availability services to Dells notebook, server, desktop and storage customers. One final note, IBM was dropped from Merrill Lynch's top ten tech stock list. **Caution: only 2 weeks left for October options** BUY PUT OCT-125 IBM-VE OI=11191 at $8.38 SL=6.25 BUY PUT OCT-120*IBM-VD OI=11893 at $5.13 SL=3.25 BUY PUT OCT-115 IBM-VC OI= 9288 at $2.88 SL=1.25 Picked on Oct 3rd at $117.75 P/E = 28 Change since picked +0.00 52-week high=$137.88 Analyst Ratings 7-7-4-0-0 52-week low =$ 58.41 Last earnings 07/99 est= 0.88 actual= 0.91 Next earnings 10/99 est= 0.90 versus= 0.78 Average daily volume = 6.33 mln Chart = http://quote.yahoo.com/q?s=IBM&d=3m ************************ SPREADS/STRADDLES/COMBOS ************************ Continued Economic Strength Pressures Policy Makers.. U.S. equity markets ended lower Friday as investors crowded the sidelines awaiting the FOMC's meeting next Tuesday. The Dow fell 63 points to 10,273 and the Nasdaq composite index fell 9 points to 2,736. Declining issues outnumbered advancing issues by 1,796 to 1,251 on volume of 892 million shares. The 30-year Treasury bond fell 1-6/32, pushing the yield near its highest level since August, and finishing at 6.14% Thursday's new plays (positions/opening prices/strategy): Micron Technology MU OCT47P/OCT50P $0.25 credit bull-put Micron Electronics MUEI APR10C/NOV10C $1.00 debit calendar Micron Technology (MU) was our first new play and it remained in a relatively small range for the first fifteen minutes of trading. There was very little activity in the options until the stock started moving higher so we have no way of knowing how flexible the market-makers might have been. The initial credit will be listed at the best observed (bid/ask) quote. Micron Electronics (MUEI) was our other new position and its volatile movement allowed numerous opportunities to achieve the suggested target throughout the session. Portfolio plays: The majority of stocks slumped today after one of the more reliable forward-looking economic reports by the National Association of Purchasing Management said new manufacturing activity boomed in September, with prices paid, orders and production all making strong gains. That immediately led the long bond back into the danger zone above 6%. When bonds go down, their interest rates go up and they become attractive to investors, taking money out of stocks and moving it into fixed income. With that kind of pressure and the upcoming Fed meeting next Tuesday, the market was lucky to end where it did. The biggest surprise in our calendar spreads portfolio was C.R. Bard (BCR). As Murphy's Law would have it, the day after we made an adjustment to our position, the stock moved $1.50 higher. The good news is that volatility in the spread has contracted slightly in our favor and both positions now have an excellent probability of a profitable outcome. PeopleSoft (PSFT) made a nice move during the session, climbing $0.50 to our sold strike at $17.50. Another long-term position, Zoltek (ZOLT), has remained comfortably near $8 since we opened the original spread. We will need at least another two weeks of inactivity (preferably with a downward trend) to roll the play forward into October with a profitable outlook. The positions in our debit spread portfolio are performing reasonably well considering the bearish market. The issues that concern us most are Starbucks (SBUX) at $24, slightly above the sold strike; and IDT Corpororation (IDTC), in a downtrend now that the excitement of their recent spin-off (Net2Phone) has subsided. Biogen (BGEN) enjoyed a nice rebound today, up almost $5 on rumors they will surprise with better-than-expected earnings when they report later this month. Solectron (SLR) also moved higher, climbing $2 after Goldman Sachs initiated new coverage of the company with a "buy" rating. Friday's big losers were Medtronics (MDT) and Computer Associates (CA). Medtronics fell $2.50 to $33 on concerns of a possible recall of one of their new medical products while Computer Associates consolidated after big gains earlier in the week. Hewlett-Packard (HWP) was also down today, falling almost $5 after the company's chief executive warned that revenue growth is going to be lower than expected after recent disruptions resulting from the earthquake in Taiwan. Questions & comments on spreads/combos to ray@OptionInvestor.com ************* NEW PLAYS ************* GMST - Gemstar $83.63 *** On A Rampage! *** Gemstar International develops, markets and licenses proprietary technologies & systems aimed at making technology user-friendly for consumers. Gemstar is also leading developer of proprietary technologies that simplify and enhance consumers' television viewing experience. Their VCR Plus+ instant programming system is now a world standard for VCR programming. GMST is off and running again, racing to a new 52-week high on Friday. The recent rally is based on a combination of issues but it's safe to say that this issue is still a favorite among many investors. Last month, BancBoston Robertson Stephens reiterated their "Strong Buy" rating on the company based on Gemstar's new and existing relationships with many leading consumer-electronic manufacturers; a position that will help extend their reach into new platforms. They also commented on GMST's risk/reward profile, with advertising revenue creating the potential for significant upside earnings surprises, while the company's core licensing business provides ample downside protection. We think the chart speaks for itself and this conservative play offers favorable profit potential even with the current market conditions. PLAY (conservative - bullish/debit spread): BUY CALL NOV-62.50 QLF-KZ OI=611 A=$24.38 SELL CALL NOV-70.00 QLF-KN OI=2492 B=$18.25 INITIAL NET DEBIT TARGET=$6.00 ROI(max)=25% B/E=$68.50 Chart = http://quote.yahoo.com/q?s=GMST&d=3m **** DELL - Dell Computers $42.53 *** Just Not The Old Dell ** Dell designs, develops, manufactures, markets, services and supports a wide range of computer systems, including desktops, notebooks and network servers, and also markets software, peripherals and service and support programs. They are the world's leading direct computer systems company and one of the top five computer vendors in the world. Dell shares have fallen recently after analysts' warnings that last week's earthquake in Taiwan troubled the computer makers supply chain and could limit revenue growth in the current quarter. Ten days after a massive earthquake rocked Taiwan, a key manufacturing hub for the computer industry, several analysts said Dell's revenue growth may suffer due to an expected shortage in PC components. Analysts commented that the timing of Dell's quarter creates a very significant risk of a revenue shortfall, which may be up to 5% below the current forecast. The bearish sentiment was echoed by Salomon Smith Barney analyst Richard Gardner, who said a worst case scenario could pull Dell's quarterly profits short of estimates. On Friday, BancBoston Robertson Stephens cut its rating on Dell Computer to "long-term attractive" from "buy", lowering the calendar year 1999 EPS estimate to $0.74 from $0.77. They also commented that margins may be under tremendous pressure given the price premiums being paid for components. PLAY (conservative - bearish/debit spread): BUY PUT NOV-55.00 DLQ-WK OI=742 A=$12.75 SELL PUT NOV-45.00 DLQ-WI OI=20272 B=$4.50 INITIAL NET DEBIT TARGET=$8.00 ROI(max)=25% B/E=$47.00 Chart = http://quote.yahoo.com/q?s=DELL&d=3m ******************************** SPREADS CONTINUED IN SECTION SIX ******************************** SEE DISCLAIMER IN SECTION ONE **************
The Option Investor Newsletter 10-03-99 Sunday 6 of 7 ***************** SPREADS CONTINUED ***************** YHOO - Yahoo! $175.44 *** Earnings Are Coming *** Yahoo! is a global internet media company that offers a network of branded World Wide Web programming that serves millions of users daily. As the first online navigational guide to the Web, WWW.YAHOO.COM is the single largest guide in terms of traffic, advertising, household and business user reach, and is one of the most recognized brands associated with the Internet. The company provides targeted internet resources and communications services for a broad range of audiences, based on demographic, key-subject and geographic interests. The major even next week will be the YHOO earnings and as Jim said on Friday, the fortunes of many of the Internet stocks will be painted by the same brush. Their third quarter earnings are expected to be in the +20% range but we don't think Yahoo has a chance at $200 without a blow-out announcement. Read the daily market summary in the main section of the OIN for further news on this volatile issue. PLAY (conservative - bearish/credit spread): BUY CALL OCT-210 YMM-JB OI=3747 A=$1.38 SELL CALL OCT-200 YHV-JT OI=9635 B=$2.38 INITIAL NET CREDIT TARGET=$1.12 ROI=12% (2 weeks) Chart = http://quote.yahoo.com/q?s=YHOO&d=3m **** AW - Allied Waste $11.37 *** Bottom Fishing *** Allied Waste Industries is one of the largest, non-hazardous solid waste management company's in the United States. The company's business consist of operating vertically integrated non-hazardous solid waste service businesses with a high rate of waste internalization, managing businesses locally with a strong focus on operations, maintaining a high rate of growth through acquisitions and development in existing and selected markets, and maintaining the financial capacity. It hasn't been a great year for waste-haulers and Allied's acquisition of Browning-Ferris Industries did little to help the company's bottom line. At least their new configuration benefits from a giant geographic presence in 46 states. The company reports that current favorable industry conditions, together with the excellent asset base of the new combined company, will give them the necessary means for sustainable growth and a transition to a profitable entity. Uh huh.. Allied Waste has been certainly been punished enough and the bottom is fast approaching. This low cost position offers an excellent potential for profit over the next six months. PLAY (speculative - bullish/calendar spread): BUY CALL MAR-12.50 AW-CV OI=314 A=$1.81 SELL CALL NOV-12.50 AW-KV OI=205 B=$0.56 INITIAL NET DEBIT TARGET=$1.12 TARGET ROI=50% Chart = http://quote.yahoo.com/q?s=AW&d=3m *********** STRADDLES *********** The big winner this week in the straddles section was United Healthcare (UNH). Friday the position traded at a $17 credit when the stock reached lows near $41. The current value of the straddle is approximately $15.38 and that is the price we will record in the closing play. Donaldson, Lufkin and Jenrette (DLJ) is back in a down-trend and the credit for the bearish option is slightly less than the debit for the entire position. Lycos (LCOS), Fed-Ex (FDX), Phelps Dodge (PD) and Union Carbide (UK) have all moved into profitable positions and William Companies (WMB) is poised for a change of character after the recent news. WMB's spin-off, Williams Communications Group (WCG) climbed $5 after their Wall Street debut on Friday amid heavy trading that made it the most active stock on the New York Stock Exchange. WCG also initiated a $2 billion bond deal seen by many as a new benchmark issue for the junk bond market. The deal was upped in size twice on Thursday, from an original $1.3 billion. This may give the underlying issue the jump-start it needs to become a profitable straddle. Most of the other plays are still retaining a comfortable amount of time value and none of them are in danger of a (losing) early exit as of yet. Here are the current positions and their prices: Long-term plays: Stock Pick Last Position Debit Value ALT $16.44 $16.69 APR17C/15P $2.50 $2.50 AMES $31.63 $31.22 JAN30C/30P $8.88 $8.00 AVI $22.81 $20.81 DEC22C/22P $4.38 $4.00 CAL $36.43 $32.63 MAR35C/35P $8.62 $7.38 DLJ $50.13 $37.75 JAN50C/50P $13.25 $14.00 FDX $35.19 $38.19 APR35C/35P $9.75 $10.50 MYL $18.63 $18.75 APR17C/17P $4.56 $4.38 WMB $40.75 $37.88 JAN40C/40P $8.12 $8.12 Short-term plays: Stock Pick Last Position Debit Value EGRP $22.43 $23.22 JAN22C/22P $9.12 $8.75 GM $65.06 $62.25 JAN65C/65P $10.00 $9.43 LCOS $44.43 $50.97 JAN45C/45P $15.75 $16.25 PD $58.00 $53.06 JAN60C/60P $9.38 $10.25 UK $52.69 $56.00 JAN50C/55P $10.50 $11.00 UNH $60.93 $45.75 DEC60C/60P $10.50 $15.38 XON $74.81 $74.63 JAN75C/75P $9.25 $9.00 Tom Gentile recently mentioned that seats are almost gone for this year's remaining OptionInvestor/Optionetics seminars. If you would like to learn more about delta-neutral trading, as well as many other option strategies, then join him in the new round of classes. They now include shorter-term segments such as trading the earnings reports, stock splits, and momentum plays. Many of these techniques are based on Jim Brown's daily trading methods and you can learn about them with satisfaction (100%) guaranteed. Find out more at: http://www.OptionInvestor.com/seminar/ *********** New Plays *********** These positions are based on the current price of the underlying issue and the recent technical history or trend. The probability of profit from these positions is higher than other plays in the same strategy but current news and market sentiment will have an effect on this play so review it carefully and make your own decision about the future outcome of the stock price. **** U - U.S. Air $25.62 *** Volatile Transports *** U.S. Airways Group's primary business activity is ownership of the common stock of US Airways, Allegheny Airlines, Piedmont Airlines, PSA Airlines, USAir Fuel Corporation, USAir Leasing and Services, and Material Services Company. U.S. Airways is a certificated air carrier, engaged primarily in the business of transporting passengers, mail, and property. PLAY (conservative - neutral/debit straddle): BUY CALL MAY-25 U-CE OI=55 A=$4.62 BUY PUT MAY-25 U-OE OI=157 A=$3.12 INITIAL NET DEBIT TARGET=8.00 TARGET ROI=50% Chart = http://quote.yahoo.com/q?s=U&d=3m **** All - Allstate 24.50 *** Where's The Bottom? *** Allstate is engaged in the property-liability insurance and life insurance and annuity businesses. They are the country's second largest property-liability insurer and are a major life insurer. Allstate's life insurance and annuity operations are conducted through Allstate Life Insurance Company and through various ALIC subsidiaries. Their primary business is the sale of private passenger automobile and homeowners insurance through its personal property and casualty unit. PLAY (conservative - neutral/debit straddle): BUY CALL APR-25 AAL-DE OI=108 A=$2.93 BUY PUT APR-25 AAL-PE OI=156 A=$2.93 INITIAL NET DEBIT TARGET=5.62 TARGET ROI=50% Chart = http://quote.yahoo.com/q?s=ALL&d=3m ********** SEE DISCLAIMER IN SECTION ONE **********
The Option Investor Newsletter 10-03-99 Sunday 7 of 7 ************* COVERED CALLS ************* Technical Indicators Explained... This week we will discuss one of the most important concepts of technical analysis; Support and Resistance. Understanding these terms and their uses can be an excellent resource for analyzing almost any potential trade or position. Support and resistance is commonly used to determine and describe the trading range of an issue or index. When the price of a stock falls to a level where buying demand increases significantly and it appears that investors won't let it go lower, a support area is formed. In contrast, when the price of an issue rises to an area where demand decreases and buyers are no longer willing to pay a premium for the stock, a resistance level is formed. Technicians use historical price charts to find areas of support and resistance. The general trading range of an issue is defined by a series of low points (support) and high points (resistance) within which the stock price moves. The more times that an issue successfully tests a support level or fails near resistance, the more significant that area becomes. When either of these levels are violated, there is a potential for significant movement as investors adjust their positions based on the new character of the issue. One technique that many investors use for well-defined trading ranges is "rolling" the stock. They buy and sell positions as the issue reaches historically low or high levels, based on its long-term pattern. This technique works well with options, far better than a "buy and hold" approach, and positions with a short-term outlook generally produce the best results for the majority of traders. The reason this method works is because investors tend to remember the past history of the stock and these psychological barriers can last for months at a time. A "break-out" occurs when the stock penetrates and closes well above or below a defined price support or resistance area. This type of character change has greater meaning when the violation is accompanied by large trading volume. Most experts agree that when a break-out occurs with significant investor interest, the new technical pattern can be considered quite reliable. Other patterns such as ascending and descending triangles are useful variations of price support and price resistance patterns. They are so named because the direction of the breakout is generally indicated in advance by the shape of the triangle. Understanding the concept of support, resistance, and trading ranges is a must for successful traders. Learn more about chart analysis in "How to Profit in Bull and Bear Markets" by Stan Weinstein, available in the OIN bookstore. SUMMARY OF PREVIOUS PICKS ************************* Stock Price Last Mon Strike Opt Profit ROI Monthly Sym Picked Price Price Bid /Loss ROI DUSA 14.50 13.81 OCT 12.50 2.75 *$ 0.75 6.4% 9.2% GETY 24.50 24.75 OCT 22.50 3.25 *$ 1.25 5.9% 8.5% MOGN 13.13 12.88 OCT 12.50 1.63 *$ 1.00 8.7% 7.6% CCBL 32.88 28.25 OCT 25.00 8.88 *$ 1.00 4.2% 6.0% TALK 12.00 12.56 OCT 10.00 2.50 *$ 0.50 5.3% 5.7% BNBN 18.38 19.94 OCT 17.50 1.75 *$ 0.87 5.2% 5.7% ASMI 8.44 8.50 OCT 7.50 1.31 *$ 0.37 5.2% 5.6% DCTM 17.13 23.63 OCT 15.00 3.00 *$ 0.87 6.2% 5.4% NMSS 13.81 13.50 OCT 12.50 1.88 *$ 0.57 4.8% 5.2% SOFN 26.25 26.25 OCT 22.50 5.00 *$ 1.25 5.9% 5.1% OIL 13.19 13.88 OCT 12.50 1.38 *$ 0.69 5.8% 5.1% COMS 25.69 29.16 OCT 25.00 2.50 *$ 1.81 7.8% 4.8% NRES 25.69 26.50 OCT 22.50 4.13 *$ 0.94 4.4% 4.7% HELX 34.25 32.84 OCT 30.00 5.50 *$ 1.25 4.3% 4.7% GCTI 40.38 45.13 OCT 35.00 6.38 *$ 1.00 2.9% 4.3% ASDV 25.50 25.25 OCT 22.50 3.63 *$ 0.63 2.9% 4.2% BRKT 15.88 14.44 OCT 15.00 2.25 $ 0.81 5.9% 3.7% CIEN 39.75 35.50 OCT 35.00 6.13 *$ 1.38 4.1% 3.6% PLCM 45.88 45.63 OCT 40.00 7.13 *$ 1.25 3.2% 3.5% PCTL 5.69 4.63 OCT 5.00 1.19 $ 0.13 2.9% 1.8% CS 18.06 15.75 OCT 17.50 2.00 $ -0.31 -1.9% 0.0% NTMV 7.19 5.94 OCT 7.50 1.00 $ -0.25 -4.0% 0.0% HTCH 31.00 26.88 OCT 30.00 2.75 $ -1.37 -4.8% 0.0% RDRT 5.88 4.25 OCT 5.00 1.31 $ -0.32 -7.0% 0.0% ENER 13.88 10.25 OCT 12.50 2.31 $ -1.32 -11.4% 0.0% NVDA 26.00 19.13 OCT 25.00 3.38 $ -3.49 -15.4% 0.0% EGHT 5.00 4.69 NOV 5.00 0.88 $ 0.57 13.8% 7.5% COOL 8.53 8.41 NOV 7.50 1.88 *$ 0.85 12.8% 6.9% NEM 23.25 26.56 NOV 22.50 2.25 *$ 1.50 7.1% 3.9% *$ = Stock price is above the sold strike price. Comments/Observations on current positions: Several stocks are correcting with the general Market malaise. Picturetel (PCTL) violated $4.00 on Wednesday but rebounded nicely on Thursday with a carry-through on Friday. Cabletron (CS) is still looking weak and could be rolled down to NOV-$15 calls; buy back the OCT-17C calls for $0.63 and then sell the NOV-$15 calls for $2.38, a new cost basis of $14.31 (current cost basis is $16.06). Netmoves (NTMV) rebounded strongly in midweek which may offer a chance to resell the October calls (repurchased last week) if it follows through on the rally. I am planning to roll down to the NOV-$5 calls. Hutchinson Tech (HTCH) is weakening but is at support. Read-Rite (RDRT) may be another candidate to roll forward to January (or April) though you may consider closing the position if it breaks the August low. Energy Conversion Devices (ENER) has turned for the worse and exiting the play should be considered. Nvidia (NVDA) is now extremely oversold and the position could have been closed near break-even on Wednesday. Newmont Mining (NEM) gapped-up on Monday, but our recommended cost basis could have easily been obtained by legging-in during the morning session. Positions closed: Computer Task Group (TSK). NEW PICKS ********* Definitions: OI - Open Interest CB - Cost Basis (Price paid - Prem rec'd, the break-even point) RC - Return Called RNC - Return Not Called (Stock Price Unchanged) Sequenced by Return Called Stock Price Mon Strike Option Opt Open Cost RC RNC Sym Price Symbol Bid Intr Basis UBET 7.25 NOV 7.50 BUB KU 1.13 0 6.12 22.5% 18.5% RRRR 11.44 NOV 10.00 RRU KB 2.25 597 9.19 8.8% 8.8% LCBM 14.06 NOV 12.50 OLQ KV 2.50 284 11.56 8.1% 8.1% ASMI 8.50 NOV 7.50 IQB KU 1.56 0 6.94 8.1% 8.1% PAIR 13.44 NOV 12.50 PQG KV 1.81 150 11.63 7.5% 7.5% DRYR 17.13 NOV 15.00 DYQ KC 3.13 70 14.00 7.1% 7.1% MAPX 9.06 NOV 7.50 RQQ KU 2.06 149 7.00 7.1% 7.1% BNBN 20.00 NOV 17.50 BEU KW 3.38 317 16.62 5.3% 5.3% Company Descriptions ASMI - ASM International N.V. $8.50 *** Semiconductor *** ASM International designs, manufactures and markets equipment and materials used to produce semiconductor devices. They provide producing solutions for semiconductor water processing, assembly and packaging through its facilities in the United States, Europe, Japan and South East Asia. Monday's news that S&P cut ASMI's credit rating from B to B- has not effected share price. The technical strength of ASM International remains strong and we favor the technical support at the sold strike. NOV 7.50 IQB KU Bid=1.56 OI=0 CB=6.94 RC=8.1% RNC=8.1% Chart = http://quote.yahoo.com/q?s=ASMI&d=3m **** BNBN - Barnesandnoble.com Inc $20.00 *** E-commerce *** Since launching its online business, barnesandnoble.com has become one of the world's largest Web sites and is the fourth largest e-commerce retailer, according to Media Metrix. Focused largely on the sale of books, music and related products, the company has capitalized on the recognized brand value of the Barnes & Noble name to become the second-largest, and one of the fastest growing, online distributors of books. BNBN is trending up towards the top of its trading range as more investors appear to be "finding" this sleeper. A great Internet play with a bricks and mortar foundation. NOV 17.50 BEU KW Bid=3.38 OI=317 CB=16.62 RC=5.3% RNC=5.3% Chart = http://quote.yahoo.com/q?s=BNBN&d=3m **** DRYR - Dreyer's Grand Ice Cream $17.13 *** Ice Cream *** Dreyer's manufactures and distributes premium ice cream (Dreyer's Grand Ice Cream), reduced fat ice cream (Dreyer's Grand Light), frozen yogurt, fat-free ice cream, coffee-flavored ice cream (the Starbucks Ice Cream line), and ice cream specialties (Dreyer's Sundae Cones, Ice Cream Bars, and Fruit Bars). The products are sold under the Dreyer's brand name in 14 western states and portions of the Far East, and under the Edy's brand name in the rest of the country. Dreyer's hopes to freeze competition as it offer products in the high-margin superpremium segment. Technical strength is improving and the support above our cost basis makes this a favorable entry point. Earnings are due around October 15. NOV 15.00 DYQ KC Bid=3.13 OI=70 CB=14.00 RC=7.1% RNC=7.1% Chart = http://quote.yahoo.com/q?s=DRYR&d=3m **** LCBM - LifeCore Biomedical, Inc. $14.06 *** Stage II *** LifeCore Biomedical develops, manufactures and markets medical and surgical devices through its two divisions, the Hyaluronate Division and the Oral Restorative Division. LCBM's Hyaluronate Division's primary development project involves LUBRICOAT 0.5% Ferric Hyaluronate Gel, that reduces the incidence of postsurgical adhesions. Though last quarter's earnings increased, Lifecore was downgraded by USB Piper Jaffray. Shortly after, Lifecore's share price began climbing and has moved above its recent trading range. With the January high the next target, we favor the support near our cost basis. Monitor news for any FDA impact. NOV 12.50 OLQ KV Bid=2.50 OI=284 CB=11.56 RC=8.1% RNC=8.1% Chart = http://quote.yahoo.com/q?s=LCBM&d=3m **** MAPX - Mapics, INC. $9.06 *** Stage I *** Mapics is the world's leading provider of enterprise resource planning application software for mid-sized discrete and batch process manufacturers. Through affiliate relationships, Mapics provides solutions to customers in more than 70 countries. Mapics recently announced the availability of MAPICS XA Release 5.5, providing customers with advanced planning & scheduling, workflow, and advanced reporting functionality. Mapics is in a 5 month basing formation with support above our cost basis. Technicals, slowly improving, suggest the trend will continue. NOV 7.50 RQQ KU Bid=2.06 OI=149 CB=7.00 RC=7.1% RNC=7.1% Chart = http://quote.yahoo.com/q?s=MAPX&d=3m **** PAIR - PairGain Technologies $13.44 *** Speculators Only *** PairGain Technologies is a provider of telecommunications products based on High bit rate Digital Subscriber Line ("HDSL") technology. PairGain manufactures, markets and supports products that allow telecommunications carriers and private network owners to more efficiently provide high speed digital service to end users over the large existing infrastructure of unconditioned copper wires. OK, PairGain warns of a third quarter shortfall but the stock continues to climb. Let's see: lower the estimates and then beat them? Something is pushing this tape higher as PairGain looks to break topside of a year-long base formation. Definitely a candidate for due diligence! Earnings are due around October 12. NOV 12.50 PQG KV Bid=1.81 OI=150 CB=11.63 RC=7.5% RNC=7.5% Chart = http://quote.yahoo.com/q?s=pair&d=3m **** RRRR - Rare Medium Group, Inc. $11.44 *** Solid Growth *** Rare Medium Group is an Internet business services firm, helping clients develop Internet strategies, improve business processes and develop interactive content using Internet-based technologies. Rare Medium develops Internet and web-based solutions primarily for large and medium-sized corporations, including Microsoft, The New York Times, Epson, Pfizer, Hotel Reservation Network and the Federal Reserve Bank, among other leading companies. Rare Medium just opened offices that will focus on IBM Net.Commerce and Sun- Netscape (iplanet) ECXpert commerce solutions, as well as Java and key open-source technologies, such as the Linux operating system. The correction appears over as Rare Medium's technical outlook improves with the recent spike in price on heavy volume. NOV 10.00 RRU KB Bid=2.25 OI=597 CB=9.19 RC=8.8% RNC=8.8% Chart = http://quote.yahoo.com/q?s=RRRR&d=3m **** UBET - Youbet.com, Inc. $7.25 *** Bottom Fishing! *** Youbet.com Inc. intends to establish itself as the leading global brand name for online live event wagering. Youbet.com's initial product, the You Bet Network, is a PC-based system which allows a subscriber to transmit information and thereby facilitate wagers. Though their advertising campaign produced slightly less results than hoped, Youbet.com did double the number of its subscribers since last quarter. We favor the improvement of the technical picture combined with an oversold condition. NOV 7.50 BUB KU Bid=1.13 OI=0 CB=6.12 RC=22.5% RNC=18.5% Chart = http://quote.yahoo.com/q?s=UBET&d=3m NAKED PUT SECTION ***************** Option Trading Terms; Market-Makers... Based on the emails we receive, many of our readers that do not understand the concept of the floor specialist or market-maker. Here are some of the basic concepts. In the stock market, specialists are required to make a market in a stock when public orders to buy or sell the stock are absent. They will buy and sell from their own inventory to keep a position liquid. They also keep the public book of orders (limit and stop orders to buy and sell). When option trading started, the Chicago Board of Options Exchange (CBOE) introduced a similar method of trading; the market-maker and board broker system. Market makers are floor traders who either are exchange members or rent their seats from exchange members. Their goal is to trade without risk of price movement in the underlying stock. The CBOE has several market-makers for each optionable stock. They provide bids and offers in the absence of public orders. These traders do not participate in the retail trading, they buy and sell for their own accounts only. A separate specialist, the board broker, keeps the book of limit orders. The board broker cannot do any trading but he manages the book so other floor traders can see how many orders to buy and sell are near the current market (the highest bid and lowest offer). The CBOE system is very efficient because several market-makers compete to create the market in a single security. The "open book" method of public orders also provides a very orderly trading forum. In contrast, the American Stock Exchange (AMEX) uses specialists for option trading, but it also has floor traders who function similarly to market-makers. Most of the regional option exchanges use various combinations of the two systems. To learn more about the market-maker system (and how your trades are actually executed), go to: http://www.cboe.com/exchange/tradeflr.htm Good Luck! *** WARNING!!! *** Occasionally a company will experience catastrophic news causing a severe drop in the stock price. This may cause a devastatingly large loss which may wipe out all of your smaller gains. There is one very important rule; Don't sell naked puts on stocks that you don't want to own! It is also important that you consider using trading STOPS on naked option positions to help limit losses when the stock price drops. Many professional traders suggest closing the position when the stock price falls below the sold strike or using a buy-to-close STOP at a price that is no more than twice the original premium from the sold option. SUMMARY OF PREVIOUS PICKS ***** Stock Price Last Mon Strike Opt Profit ROI Monthly Sym Picked Price Price Bid /Loss ROI COOL 8.53 8.41 OCT 7.50 0.38 *$ 0.38 13.8% 19.9% NVX 7.19 7.63 OCT 5.00 0.38 *$ 0.38 21.0% 18.2% TALK 12.00 12.56 OCT 10.00 0.38 *$ 0.38 11.9% 17.3% DUSA 15.50 13.81 OCT 12.50 0.88 *$ 0.88 21.6% 16.0% SUPG 21.44 22.50 OCT 17.50 0.50 *$ 0.50 9.7% 14.1% ENMD 23.50 22.19 OCT 20.00 0.81 *$ 0.81 12.1% 13.1% CYBX 18.69 17.06 OCT 15.00 0.69 *$ 0.69 15.4% 11.4% ASPT 15.44 16.97 OCT 12.50 0.38 *$ 0.38 10.5% 11.4% HELX 31.00 32.84 OCT 25.00 0.94 *$ 0.94 12.8% 11.1% MYGN 11.88 16.50 OCT 10.00 0.50 *$ 0.50 14.8% 11.0% IDTC 23.38 21.06 OCT 17.50 0.63 *$ 0.63 11.9% 10.3% CS 18.06 15.75 OCT 15.00 0.50 *$ 0.50 10.7% 9.3% AFCI 20.06 23.56 OCT 17.50 0.50 *$ 0.50 8.4% 9.1% NETA 20.00 18.72 OCT 17.50 0.50 *$ 0.50 8.3% 9.1% CY 26.50 23.38 OCT 22.50 0.44 *$ 0.44 6.3% 9.1% CEPH 20.44 17.88 OCT 17.50 0.44 *$ 0.44 7.8% 8.4% HLTH 34.94 36.31 OCT 25.00 0.69 *$ 0.69 9.0% 7.8% GCTI 40.38 45.13 OCT 30.00 0.44 *$ 0.44 5.2% 7.5% PRTL 23.06 19.00 OCT 17.50 0.50 *$ 0.50 9.8% 7.3% MK 10.81 10.38 OCT 10.00 0.31 *$ 0.31 8.1% 7.0% USWB 28.50 34.06 OCT 22.50 0.50 *$ 0.50 8.1% 7.0% CSE 49.25 49.88 OCT 45.00 0.75 *$ 0.75 4.6% 6.7% HELX 30.25 32.84 OCT 22.50 0.50 *$ 0.50 7.6% 5.7% AFFX 100.50 96.81 OCT 75.00 0.75 *$ 0.75 3.6% 5.2% PR 22.88 24.25 OCT 20.00 0.31 *$ 0.31 4.7% 5.1% KING 32.81 35.44 OCT 25.00 0.44 *$ 0.44 6.3% 4.7% CIEN 39.75 35.50 OCT 30.00 0.44 *$ 0.44 5.2% 4.6% AMAT 78.94 78.25 OCT 65.00 0.56 *$ 0.56 3.1% 4.5% ORTL 18.88 14.75 OCT 15.00 0.44 $ 0.19 4.5% 3.3% INTU 34.33 29.19 OCT 28.38 0.44 *$ 0.44 1.8% 2.0% REV 24.81 12.00 OCT 17.50 0.50 $ -5.00 -91.6% 0.0% *$ = Stock price is above the sold striking price. Comments/Observations on current positions: Inuit (INTU) has been adjusted for the 3-1 split. The current technical outlook is very weak; you may own this stock. Revlon (REV) not only warned of future losses and of its struggle with debt, but mentioned it was unable to sell the company. OUCH! The buy-out speculators fled Thursday (inside information?) and Friday as did one of our editors. Closing a play early hurts, but is necessary to preserve capital. Ortel (ORTL) is holding support and should be watched closely for any further weakness. Ciena (CIEN) is also consolidating but it's still well above our recommended strike price. Keep an eye on Primus Telecom (PRTL), Cephalon (CEPH), Cypress Semiconductor (CY), and Cabletron (CS); unless you don't mind owning them. NEW PICKS Definitions: OI - Open Interest CB - Cost Basis (break-even point if put exercised) ROI - Return On Investment Sequenced by ROI Stock Price Mon Strike Option Opt Open Cost ROI Opt Sym Price Symbol Bid Intr Basis Expired NVX 7.94 NOV 5.00 NVX WA 0.56 20 4.44 26.1% NEWZ 9.47 NOV 7.50 QBE WU 0.31 0 7.19 14.1% BNYN 9.91 NOV 7.50 QYN WU 0.31 10 7.19 13.6% VERT 39.75 NOV 30.00 UER WF 1.25 38 28.75 13.6% SUPG 22.50 NOV 17.50 UQG WW 0.56 0 16.94 11.1% TALK 12.63 NOV 10.00 QQK WB 0.31 50 9.69 10.9% NPIX 19.13 NOV 12.50 XMQ WV 0.38 120 12.12 9.0% HRBC 17.00 NOV 12.50 BQ WV 0.31 10 12.19 8.4% Company Descriptions BNYN - Banyan Systems $9.91 *** On The Move! *** Banyan Systems designs, develops and markets standards-based networking directory and messaging products that help people communicate across enterprise networks and the Internet. The company is a pioneer in the computer networking field, and offers a wide range of software products and services. They were recently awarded a patent to a system for controlling the frequency of advertisement serving on the Internet and their subsidiary, Switchboard Inc., is now a leading on-line directory company. NOV 7.50 QYN WU Bid=0.31 OI=10 CB=7.19 ROI=13.6% Chart = http://quote.yahoo.com/q?s=BNYN&d=3m **** HRBC - Harbinger Corporation $17.00 *** Up, Up And Away! *** Harbinger is a leading provider of business-to-business (B2B) Electronic Commerce software, services and solutions. They maximize business potential with comprehensive E-Commerce solutions that streamline operations, increase profitability and build electronic trading communities. HRBC's objective is establish harbinger.netSM as the preferred transaction portal for E-Commerce information and mission-critical transactions. A clean break above recent highs makes this play technically favorable. NOV 12.50 BQ WV Bid=0.31 OI=10 CB=12.19 ROI=8.4% Chart = http://quote.yahoo.com/q?s=HRBC&d=3m **** NEWZ - NewsEdge $9.47 *** Information Services *** NewsEdge Corporation is a leader in providing global news and current awareness solutions for business and is the world's largest independent news integrator. Products offered range from filtered, real-time news to editorially enhanced news briefings presented by topic, industry or company. NewsEdge supports its products with a complete range of direct sales, service and consulting professionals. At NewsPage.com, you can scan the most individualized, finely tuned portfolio of news, information and services available on the Internet. NOV 7.50 QBE WU Bid=0.31 OI=0 CB=7.19 ROI=14.1% Chart = http://quote.yahoo.com/q?s=NEWZ&d=3m **** NPIX - Network Peripherals $19.13 *** Industry Leader *** Network Peripherals designs, develops, manufactures, markets and supports client/server LAN solutions with leading edge networking technologies. Its integrated solutions incorporate high performance network adapters, network operating system software drivers, concentrators, client/server switching hubs and network management software. Recently began shipping the market's first stackable, wire speed, non-blocking Gigabit Ethernet switches to prospective customers and revenues will benefit significantly from new orders for the technology. NOV 12.50 XMQ WV Bid=0.38 OI=120 CB=12.12 ROI=9.0% Chart = http://quote.yahoo.com/q?s=NPIX&d=3m **** NVX - North American Vaccine $7.94 *** Speculation Only *** North American Vaccine is engaged in the research, development, production and marketing of vaccines for the prevention of infectious diseases in children and adults. Their first product is a patented, monocomponent acellular pertussis vaccine for the prevention of whooping cough. It's been combined with diphtheria and tetanus toxoids for use in an all-in-one pediatric booster. The Company has other vaccines in various stages of development. Speculation on negotiations involving strategic initiatives and product development has created some short-term volatility and higher option premiums. Don't play this one without researching! NOV 5.00 NVX WA Bid=0.56 OI=20 CB=4.44 ROI=26.1% Chart = http://quote.yahoo.com/q?s=NVX&d=3m **** SUPG - SuperGen $22.50 *** New Drugs *** SuperGen is a pharmaceutical company dedicated to developing products intended to treat life-threatening diseases; cancer and blood cell disorders, and other serious conditions such as obesity. SuperGen is developing a portfolio of anti-cancer drugs with the development of generic and proprietary products. SUPG has a favorable outlook from analysts and capital from a recent private placement. Solid technicals on this issue and support near the cost basis but with any drug stocks, success usually depends on new products. NOV 17.50 UQG WW Bid=0.56 OI=0 CB=16.94 ROI=11.1% Chart = http://quote.yahoo.com/q?s=SUPG&d=3m **** TALK - Talk.com $12.63 *** No News But Climbing! *** Talk.com, Inc. is a provider of long distance telecommunication services to small and medium-sized businesses and residential customers in the United States, primarily through its E-commerce platform. The Internet/telephone competition is heating up and TALK is showing signs of a potential breakout. The bullish move above its 150 dma supported by volume suggests that this one has further to go and technical support exists above the cost basis. NOV 10.00 QQK WB Bid=0.31 OI=50 CB=9.69 ROI=10.9% Chart = http://quote.yahoo.com/q?s=TALK&d=3m **** VERT - VerticalNet Inc. $39.75 *** Own This One! *** VerticalNet owns and operates industry-specific Internet sites designed as business-to-business (B2B) communities, and known as vertical trade communities. These websites provide users with comprehensive sources of information, interaction and e-commerce. The primary advantage of these websites is their ability to aggregate massive numbers of business buyers and sellers in a centralized marketplace. Bank Boston Robertson Stephens and Wachovia both started VERT with a "buy" rating and analysts say the company is one the more promising plays in the B2B group. NOV 30.00 UER WF Bid=1.25 OI=38 CB=28.75 ROI=13.6% Chart = http://quote.yahoo.com/q?s=VERT&d=3m ********** SEE DISCLAIMER IN SECTION ONE **********
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