The Option Investor Newsletter Thursday 10-7-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com Published three times weekly, Sunday, Tuesday, Thursday evenings. ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 10-7-99 High Low Volume Advances Decline DOW 10537.00 - 51.30 10604.50 10508.20 878,853k 1,220 1,727 Nasdaq 2860.70 + 3.49 2886.20 2847.18 1,216,890k 1,845 2,019 S&P-100 689.74 - 5.10 696.03 687.96 Totals 3,065 3,746 S&P-500 1317.64 - 7.76 1328.03 1314.13 45% 55% $RUT 428.11 - 1.65 430.72 427.21 $TRAN 3046.92 + 36.89 3066.14 3014.80 VIX 24.88 + 1.35 25.50 23.34 Put/Call Ratio .58 ************************************************************* We held Wednesday's gains, almost! The real key is now the Employment Report at 8:30 Friday morning. After the blowout numbers from Yahoo the Nasdaq, held up by Internet stocks, held up the Dow for most of the morning. The fear of Friday's Employment Report finally swamped the Dow and sent the advance/decline line into the negative column by late afternoon. Since Tuesday the Dow has broken out of it's trading range between 10200-10400 and soared to touch 10600 intraday today. The rally on Wednesday was very broad based but the leaders on Thursday were mostly Internet stocks. Yahoo! fueled the fires, for at least one day, and almost anything with a .com behind it was up strong. The Dow was hampered by continued selling in CHV, IBM, GE, MRK, HWP and Sears (S). Chevron and Exxon sold off again on the possibilities of higher output by some OPEC countries. Oil itself was down -.79 a barrel. The transports cheered and extended their winning streak to four days. IBM got hammered again by another analyst who was concerned about weak hardware sales. IBM was down -2.94. HWP was again sold into the rally with investors taking back -1.38 of the +$5.00 from yesterday. GE beat estimates by a penny with record profits but pulled back -1.81 on the news. (Not an Internet stock) MRK was weak on profit taking after four days of gains. Sears finished down on the list of retail sales producers and gave back -1.31. Not a great day for the Dow but after adding +400 points from Fridays lows you should have expected some profit taking in front of the Employment Report. The Nasdaq however was off to the races at the opening bell this morning after Yahoo! blew away estimates after the bell yesterday. The strong +$.14 actual beat the estimate of $.09 and re-affirmed the web models for hundreds of .com businesses. Unfortunately only a handful will ever do a fraction of the revenue Yahoo does but they all get valued by the same standards. So rejoice Internet stock owners. Some of the big gainers were AMZN +4.88, CNET +3.06, EXDS +3.63, INSP +5.38, NSOL +2.25, ONSL +2.44, RNWK +6.69, VERT +6.13, VRIO +3.13, VRSN +5.25, XMCM +3.72, UBID +7.94 and of course the leader YHOO +14.50. (Yes I did buy puts today but that does not mean a weak jobs report tomorrow will not make it move up some more.) Absent was EBAY -1.56, AOL -1.50, LCOS -1.31. These had been up recently and we feel this was just rotation. The Internet strength helped the Nasdaq stretch it's winning streak to four days. Intraday the Nasdaq moved to within one point of touching it's own record closing high of 2887 but that was at 11:30 and it trended down for the rest of the day. It closed +160 points from last Friday's lows and we are quickly going from oversold to over bought. We could see some profit taking at any time. Volume was very heavy today with over 1.2 bln shares trading. Another cause for concern was the fall from grace for the chip sector. Ironically, the good news that all the earthquake damage had been repaired, was the bullet that knocked them off the leader board. Damages repaired equals prices falling back into the cutthroat range and profits put back under a microscope. Micron (MU) dropped -7.13 on the news that the 100% price premium for memory chips from last week was dissolving. (I ordered some computers for the office last week and my supplier asked if I could wait two weeks since the 128MB chip had gone up +$200 in one week.) Makes you wonder about the security of the "just in time" inventory model if Y2K creates even a small ripple in the supply chain. The bulls and bears lined up on the sidelines today with their view of the Employment Report and the Fed reaction on Friday. It did not help that the European Central Bank took a page from the Fed play book today and failed to raise rates as expected and instead "tightened their outlook" on future rate increases. The sigh you heard was the global markets slumping in pain. The same reply was heard there as here. "Just raise the rates and get it over with." The cloud over the markets makes the future outlook hazy for them as well as us. Abbey Joseph Cohen went on record again today that she thought the S&P was 5-10% under valued. She also sees no inflation growth and does not fear the Fed. Others are jumping up and down on the bearish side and predict the Fed could pull the trigger as soon as Friday if we have a stronger than expected report. 38 of the S&P-500 companies have reported earnings and the results are incredible. 66% beat the estimates, 26% met the estimate and only 8% missed expectations. Announced earnings have averaged +25% over last year. This kind of spectacular performance will overcome almost any negative market events. The Employment Report tomorrow is expected to show +220,000 new jobs and a 4.2% unemployment rate. Jobs over 300k and more important, unemployment under 4.2% or hourly wages up over +.4% may cause the market/Fed to react negatively. I think the possibility is slim but it does exist. The market is strongly bullish right now on the earnings euphoria but that can change in a heartbeat with the right event. So unless the jobs report is really bad the market may shake it off and continue upward. Keep watching your back and take profits promptly. Pick your entry points carefully after the strong gains from last week and definitely sell too soon. Jim Brown Editor ************************************ MONEY SHOW in San Francisco Oct-28/31 ************************************ 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 FREE get acquainted session for our readers. This event will be on Thursday Oct 28th, and will consist of an introduction of the OIN staff and five breakout sessions on various types of option strategies. Refreshments will be served and there will be many gifts for each reader. 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 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 people are going to attend we need you to register before the 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, Undervalued, 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 and 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 Click here to register - it is free! http://www.OptionInvestor.com/sfms *************** Market Posture *************** As of Market Close - Thursday, October 7, 1999 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,750 11,320 10,537 BEARISH 9.23 SPX S&P 500 1,350 1,420 1,318 BEARISH 9.16 OEX S&P 100 675 735 690 Neutral 10.05 RUT Russell 2000 440 465 428 BEARISH 9.14 NDX NASD 100 2,320 2,380 2,532 BULLISH 9.03 MSH High Tech 1,120 1,180 1,278 BULLISH 9.03 XCI Hardware 1,035 1,050 1,072 BULLISH 8.24 CWX Software 750 800 891 BULLISH 9.03 SOX Semiconductor 480 525 530 BULLISH 10.05 NWX Networking 555 585 615 BULLISH 9.17 INX Internet 450 510 545 BULLISH 10.07 * BIX Banking 690 710 599 BEARISH 7.23 XBD Brokerage 410 440 389 BEARISH 7.23 IUX Insurance 645 660 548 BEARISH 7.23 RLX Retail 915 960 871 BEARISH 7.23 DRG Drug 365 390 367 Neutral 10.07 * HCX Healthcare 745 785 731 BEARISH 9.16 XAL Airline 180 190 153 BEARISH 5.21 OIX Oil & Gas 285 305 289 Neutral 9.16 Posture Alert Yahoo led all the technology stocks to strong gains in the morning, but by afternoon, only the Internet sector stayed in positive territory, posting a +1.89% gain. Other winners include Airlines (+1.65%), Drug, & Healthcare. With the gains from the last two days, we have turned BULLISH on the Internet sector, and we have also upped the Drug sector to Neutral from Bearish. On the downside, Semiconductors led the way, posting over a 4% loss. Selling pressure was due to analysts' negative comments on IBM and Micron Technology. A detailed description of our Market Posture and its applications can be found at: /members/marketposture *************** Market Sentiment *************** Thursday, October 7, 1999 Did you Catch the Train? Did anyone catch the Yahoo train? Yahoo used to be "a lock" for a pre-earnings run, and an after earnings sell-off. It used to be great going long the stock/option into numbers, and shorting right after. It was as good as gold, and money in the bank. However, all good trends must come to an end, and the earnings reported last night by Yahoo was just too spectacular, as the portal bellwether crushed even all the whisper numbers. You did have an opportunity to buy the stock/option in the morning and still profit handsomely in the afternoon, but most people (including us) were too speechless to make a move. Yahoo's action was very impressive, and could be a great sign ahead for the rest of the nets. However, should Yahoo have come in at their whisper number (which would still have been a great quarter), there is no doubt you would have seen Yahoo sell-off. We believe the power of the net is like a moving freight train, and you will most likely see many other "dot-coms" run higher into earnings, thanks to the confidence of Yahoo's dominance. But do not get disillusioned, thinking that every internet company will blow away the "whisper number" and run big after earnings, because that will not happen. There are only a small handful of net-stocks with the power of Yahoo, so be careful in what you choose. The correct trade is to lock-in before the numbers, especially if you have a nice profit. You will witness the "buy-the-rumor, sell-the-news" mentality on many stocks over the next couple of weeks, so strap on your seat belt, and get ready for a ride! On a side note to our OEX followers, during the last two days, we have seen a huge increase in puts at the 670 mark. As Pinnacle has noted before, this is a good contrarian indicator, and should serve as excellent support, should the market sell-off. Overall OEX sentiment has increased to the bearish side, which may only help fuel a rally during the next couple of weeks, so stay tuned, and look for another issue of Great Expectations on Sunday. 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. Posture Alert: The Internet Sector (INX) has finally broken resistance, and has joined the four-horsemen as BULLISH sectors in market posture. Earnings Season: Earnings season is still early, but we should have a stellar earnings performance this month. Micron Tech has already beat, and Yahoo absolutely crushed all expectations. Volatility Index: The VIX is below the 25 benchmark, and continues to hold well at 30 when broken. Mixed Signs: NONE 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%. 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 look 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 Tues Thurs Indicator (10/1) (10/5) (10/7) Alert Pinnacle Index (OEX): Underlying Support (680-700) 1.9 2.0 1.4 Underlying Support (650-670) 5.5 5.4 9.5 ** Put/Call Ratios: CBOE Total P/C Ratio .7 .7 .7 CBOE Equity P/C Ratio .6 .4 .4 OEX P/C Ratio .9 .9 1.0 Peak Open Interest (OEX): Puts 650 650 670 Calls 700 700 700 P/C Ratio .87 .94 1.7 Market Volatility Index (VIX): CBOE VIX 24.88 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 Tues Thurs Benchmark (10/1) (10/5) (10/7) Overhead Resistance (680-700) 1.90 2.00 1.38 OEX Close 670.31 682.91 689.74 Underlying Support (650-670) 5.51 5.42 9.52 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 Tues Thurs Strike/Contracts (10/1) (10/5) (10/7) CBOE Total P/C Ratio .69 .68 .68 CBOE Equity P/C Ratio .56 .41 .41 OEX P/C Ratio .93 .94 1.01 Peak Open Interest (OEX) Friday Tues Thurs Strike/Contracts (10/1) (10/5) (10/7) Puts 650 / 10,550 650 / 11,137 670 / 19,343 Calls 700 / 12,141 700 / 12,606 700 / 11,489 Put/Call Ratio 0.87 .88 1.68 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 7, 1999 24.88 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 Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Daily Results Index Last Mon Tue Wed Thu Week Dow 10537.05 128.23 -0.64 187.75 -51.29 264.05 Nasdaq 2860.70 59.12 3.67 57.54 3.49 123.82 $OEX 689.74 12.29 0.39 11.93 -5.10 19.51 $SPX 1317.64 5.45 -3.17 24.05 -7.76 18.57 $RUT 428.11 3.08 -0.61 3.75 -1.65 4.57 $TRAN 3046.92 90.76 20.63 30.30 36.89 178.58 $VIX 24.88 0.00 0.37 -2.54 1.35 -0.82 Calls Mon Tue Wed Thu Week DCLK 131.88 0.38 8.81 6.69 1.63 17.50 Solid gains QCOM 200.56 3.03 4.91 9.56 -3.75 13.75 Show stopper LCOS 62.81 -1.28 4.25 7.63 -1.31 11.84 Nice breakout BRCM 124.06 4.56 3.19 3.75 0.06 11.56 Opportunities AOL 118.50 1.25 4.38 6.50 -1.50 10.63 New prospects AEOS 57.63 2.68 1.88 1.69 1.63 7.88 Posting gains NOK 96.19 4.56 3.19 -0.88 0.06 6.94 New phones RNWK 111.06 -0.44 -2.81 1.38 6.69 4.81 It's booming! VRTY 75.00 -3.44 2.69 4.50 1.00 4.75 Hit pay dirt NT 54.63 3.63 -0.81 0.94 0.81 4.56 New, breakout CMVT 98.63 4.06 -0.31 3.00 -2.38 4.38 Will it split? XMCM 54.41 1.31 -0.38 -0.81 3.72 3.84 Right on track SUNW 94.31 4.53 1.28 -0.25 -3.25 2.31 Taking a break ADBE 115.31 4.63 -3.13 1.88 -1.25 2.13 Recovering SNE 156.88 0.31 -0.19 1.13 0.13 1.38 Pushed by yen EMC 73.63 3.62 -0.50 0.00 -2.38 0.75 Profit-taking ITVU 40.00 0.50 -0.75 -0.25 1.00 0.50 Found support TFSM 40.50 -1.25 1.88 2.50 -3.25 -0.13 Increased 74% Puts WPI 27.31 -0.06 -1.06 -1.19 -0.38 -2.69 Selling off GENZ 39.94 0.41 -10.06 7.31 -0.31 -2.66 Possibilities KO 52.00 -1.50 0.38 4.00 0.06 2.94 Dropped EXDS 73.13 -2.81 2.13 1.06 3.63 4.00 Dropped PSIX 40.56 -2.63 1.75 5.69 1.00 5.81 Dropped YHOO 190.25 -4.25 2.13 2.44 14.50 14.81 High Risk! PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** No dropped calls today. PUTS: ***** KO $52.06 +0.13 (+2.94) It has been an effervescent couple of days for Coke and it looks as though at last the fizz has returned. Okay, enough with the play on words and enough with our play on Coke. On Tuesday, A.G. Edwards upgraded Coke from Maintain to Buy and on Wednesday, Pepsi announced that Q3 profits were just ahead of Wall Street's expectations. Though it was not a lot of news, Coke received just the boost it needed to propel it away from it's 52-week low and toward brighter days. Coke at last has broken through it's 10-dma and looks as though it wants to make a run for it. Could be the real thing. Sorry, couldn't resist. EXDS $73.13 +3.63 (+4.00) EXDS continued the roller coaster volatility ride this week. Lets recap. It started the trading week at $69.13 and then traded as low as $65.00 before bouncing back to close the day at $66.31. The lows of the day on Monday should have provided a nice profit-taking opportunity if you initiated a put position. The news that was reported this week that EXDS and ORCL would team up to sell database and business management software online, combined with the positive sector momentum overall, pushed the shares right through our resistance level of $70. The price surges in the shares just would not let up, although we believe this could be short-lived, depending upon the employment numbers tomorrow. But at this time the risk/reward is no longer in our favor to the downside. We warned on Tuesday to watch for the break in the downtrend backed by strong volume and momentum before calling on your stops to take you out and this is exactly what happened. We could be revisiting the shares in the near future, but at these levels we need to close our position, if you haven't already covered or taken profits. PSIX $40.56 +1.00 (+5.81) Timing is everything and there's no doubt about it in this case. Unfortunately PSIX's dramatic blaze upward yesterday out of a month long descent didn't mesh well with this put play. The company's unveiling of its new virtual storefront with NDC eCommerce and Worldpay PLC rocketed the share price to $39.56, up $5.68 (17%) on more than double the ADV. Today the news got worse as Salomon Smith Barney started new coverage with a Buy rating and the stock advanced another dollar on strong volume. The sudden reversal forces us to drop PSIX tonight. 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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 Thursday 10-7-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. ******************* TRADERS CORNER ******************* Reading the Map One of the hardest things about land navigation is not getting caught up in the microterrain. The same could be said about the signals that the market sends us as traders. When I was a platoon commander at Twentyine Palms (Stumps!) Marine Base, I could see for miles and clearly associate mountains with my map. But when we went to the jungle, it became much harder to navigate because of countless small canyons, and the lack of vision. If you are trying to follow the news on any individual stock, it can seem like you are trapped in a jungle with endless press reports. Last weekend, I spent almost all of my preparation time in studying a few key items -- the VIX, the 30 year bond yield, and their relation to the OEX or S&P 100 Index. Which ever options you chose to trade, these are the compass points you need to stay on course. If 85% of a stock's movement is due to the market, then where should you spend most of your attention? VIX. The volatility index moves contrary to the market. When it is very low (eg, 7/18, below 20), it signaled a top. When it is very high, (eg, 8/5, 8/10, over 30), it signaled a bottom. I crosschecked the VIX with the OEX over the last half of September, and it gave a series of reliable bottom/top signals, that could give you good entry points into OEX calls/ puts. Watch for a sharp spike upward for entry points into calls. TYX. The 30 year bond yield has become one of the main drivers of this interest rate sensitive market. It too moves contrary to the market, though there are significant exceptions, such as the Ballmer Bomb on 9/23. Especially when it gives the same signal as the VIX and there is an economic report pending, the TYX can be a powerful tool to signal entry points. A spike up in the VIX and TYX before an economic report like the CPI or PPI which turns out to be benign can signal a pretty solid entry point which will be followed by a relief rally. The OEX is a basket of the 100 biggest stocks in the S&P. It is very fluid, and is a good proxy for what the overall market is doing. I looked at the options I played in the last earnings cycle, and, together, they represented 10% of the OEX. Using the VIX and TYX (and advance decline lines) as indicators, I identified 22 possible plays on OEX puts or calls that I could have made in the last half of September. The average profit on those plays was 50%. Even if you don't play the OEX puts or calls (see the OEX Skybox), by using the VIX, TYX, and OEX, you can keep a better overall sense of what the market is telling you. Keeping that awareness is key to making good decisions. Good Luck. Janar Wasito Janar@OptionInvestor.com ***************** PICK NEWS - CALLS ***************** NOK $96.19 +0.06 (+6.94) Nokia shares opened down today trading as low as $94.75 before gaining upward momentum and leveling out mid-day. Nokia did a little bouncing in the afternoon session but managed to close on the positive. As we noted on Tuesday, Nokia has made a good move this week, making entry points difficult to find. We would recommend looking for a pullback, much like the one at the opening this morning. Today's bounce at $94.75 is consistent with the $94.00 support that has been holding Nokia all week. Resistance has been stuck at $97.50 for the past few days and it looks like the next resistance after that is $100.00. Nokia unveiled their new 8210 mobile phone at a fashion show in Paris today. The 8210 is geared toward the more fashion conscious mobile phone user with trendy personalization features and seven different colored covers. Nokia also participated in the first mobile call on the GSM frequency band today in Budapest, Hungary. XMCM $54.41 +3.72 (+3.84) We are back on track and making a move with the rest of the Internet sector. Thanks to good earnings reports by several Internet companies, the sector as a whole is running on all cylinders. If the string of good earnings continue expect the NASDAQ to set new highs, which was less than a point away today. If current market conditions persist, XMCM is likely to be a breakout candidate as well. The stock had stalled slightly in the $51-$54 level due to established resistance points. Maybe the recent sector boost is what the stock needs to get us through this stall. XMCM did rally this afternoon and broke through $54 to close near the high despite the markets sinking. Another event that may alter our play is the unemployment numbers that will be released Friday morning. With investors skittish concerning interest rates, if results are below expectations it could mean negative movements for the markets. When placing new trades look for pullbacks to the 200-dma at $52. However, if economic reports work in our favor, helped by strong earnings, XMCM should be propelled to greener pastures. CMVT $98.63 -2.38 (+4.38) Let the earnings run begin. The last quarter of the year started on a good note as several companies reported better than expected earnings. It could be the beginning of a string of similar results for many companies. Despite the impressive beginning, investors remain weary due to the Federal Reserves bias to tighten interest rates. With unemployment numbers being released tomorrow morning, several investors are taking a seat on the bench until then. CMVT, was no exception, investors took some profits today after the stock set a new 52-week high on Monday. This reaction is expected and provides us with buying opportunities. The anticipated shareholder meeting is on tomorrow. Soon thereafter, we should know whether they authorized the increase of common shares from 100 million to 300 million. If they announce a split, look for the stock to make a run to new territories. When placing trades, be in position prior to the meeting on Friday. If profit-takers continue sell, look for entry points at $95, the stocks 10-dma. AEOS $57.63 +1.63 (+7.88) Well! More of the retail sales numbers hit the street today, and most reported okay gains. For example: Federated Dept Stores rose 3.7%, Dayton Hudson's rose 6.9%, Sears rose 4.1%, and the Gap rose 7%. These numbers are riding the back of the numbers that AEOS reported on Tuesday, they reported a whomping 34.2% rise. That would explain the differences from a stellar September for AEOS, and a small gain for the others previously mentioned. Today the street rewarded the stocks accordingly, with the majority of the retail stocks today selling off, AEOS continued to hit new highs backed by strong volume and momentum. Today the shares traded as high as $58.13, before settling down at the end of trading to close at $57.63 ahead of Friday's employment numbers. We have some nice gains for the week in AEOS and we want to protect them so if you have not already taken profits, tighten your stops or take profits according to your comfort level and goals. The uptrend remains firmly in place and should continue to run to higher highs but an interest rate hike will cause the profit-takers to enter the picture. The shares have been up for 7 straight trading sessions, we remain positive, but cautious at these levels. LCOS $62.81 -1.31 (+11.84) After an earnings announcement from portal rival YHOO, which said that income more than tripled as it attracted more users and advertisers. The Internet bell-weather stocks traded higher for most of the day across the board. At the end of the trading day they closed mixed, ahead of tomorrow's Employment report. LCOS was one of the stocks that closed down slightly, in what was to be expected, profit-takers stepping up to the plate to go into Friday's trading session without holding long positions. Hopefully you have taken advantage of this major run in the shares of LCOS this week, that currently has the shares up over 11 points. If there is any questions left about the leading internet companies making money, it is obvious after YHOO's report that these companies are very profitable. LCOS going forward will continue to benefit from increased traffic, ads and commerce as we go into the holiday season. The shares currently have experienced a nice breakout to the upside, and we remain positive on the stock, as long as the volume and momentum remain strong. Support sits way down at the $57 level, so protect your gains if you are still holding a position and have not taken profits. Be cautious in the trading session tomorrow, we don't want to get wipsawed. We are expecting volatility with the Employment numbers to be reported. SNE $156.88 +0.13 (+1.38) We got a push from behind, by the rise in the Nikkei to over 18,000, helping SNE continue our play expectations on the Japanese recovery. The consolidation of the Japanese Yen to around 107.70, it's lowest level in two weeks helped fuel the Nikkei's strength, which in turn helped SNE move higher. After reaching a high of $157.63 today, we got a bit of a re-trace as investors move to safety ahead of tomorrow's employment report. Sitting nicely above support at $153, investors can use these dips as buying opportunities. This outlook was confirmed today by Tom Marisco of Denver's Marisco Capital Management, who recently added SNE to his focus list of 30 stocks. It was added due to the positive outlook of the Japanese Economy as reported by The Street.com. Investors Business Daily reported that SNE is expected to be a major player in the online stock brokerage market in Japan. This is a new market and one that will greatly benefit SNE's bottom line. In the news, SNE hopes to have a product that will be as successful as it's Walkman. The new Glasstron eye wear was announced today as being ready to release to market in November. The Glasstron will allow wearers to experience a virtual 52" big screen entertainment system in a pair of LCD glasses. The next level in entertainment! Chip makers announced they are cutting back on production of the new direct Rambus chips which may effect SNE. The chip is heavily used in Sony's playstation product, and the Playstation accounts for 11% of SNE's sales. NEC stated that this would not have an effect on the industry, however, we should keep it in mind as investors, so we can adjust to any change. Sony looks poised to continue it's upward trend. Be mindful of SNE's morning gaps and spikes when playing. Caution is advised going into Friday's economic reports! RNWK $111.06 +6.69 (+4.81) We are riding on the back of a Whale! With the positive earnings news on Yahoo, RNWK gapped up nicely this morning and continued a very positive trend to a high of $113.88 today, before Investors protected gains and prepared for tomorrow's employment report in the last hour. This move was important to us as the recent consolidation to support is now confirmed as being strong, and our earnings run potential verified as alive and well. The stocks 9% price rise to it's high today, confirms the potential energy RNWK has into earnings. RNWK is developing a very nice upward trend, with a channel range of close to $10 as it rises. What this means is that the stock is using the 10 dma as support and then rising off of support to an average $10 gain before repeating the cycle. This has been characteristic since our current trend started on August 30th. Use this info to time your entry points as it will help you capitalize on your gains. RNWK is still forging ahead to it's earnings announcement, scheduled for Oct 19th, after the market close. To give you an idea of RNWK's potential, an article yesterday reported there potential as being one of the four core Internet companies. Already a dominant player, with 80,000 downloads of the RealPlayer per day, they are looking to greatly expand as the music industry grows on the Internet. Today RNWK was initiated by Solomon Smith and Barney, with an outperform rating. Be cautious of a pull back with tomorrow's reports and protect your profits with stops. EMC $73.63 -2.38 (+0.75) Taking a breather. A look at EMC's chart shows that it has been on it's upward trend for quite some time now. Our current trend since August 10th. Even the best runners need to take time for a breather and that's what EMC is doing. Today it consolidated back to our 10-dma support at $73. A lot of today's retreat was due to investors taking profits ahead of the employment report tomorrow. IBM's news today from Bank Boston, expecting weak server business affects EMC also as it is indirectly related and part of the hardware group. Today's move is having an effect however on our momentum, showing a negative break in the stochastic. A need to advise caution. At this point we could see a dip to the 10-dma at $72.75, followed by a rebound up through support, which would signal a buying opportunity. Although affected by today's weakness from IBM and semiconductors, Lehman Brothers said that EMC is "on target to meet or exceed expectations." Referring to earnings which are scheduled before the market open on Oct 20th. Louis Rukeyser's October newsletter had a very positive article for EMC, stating that it is now part of 90% of the Fortune 100 companies. They also expect EMC to have a 45% market growth for the next few years, and an analyst at Brown indicated that the price should double with in a year. This news bodes well for EMC however, as mentioned above, we are at a critical point for our play. Wait for a bounce of the 10-dma and a positive Employment report before playing. ITVU $40.00 +1.00 (+0.50) As an investment contractor, our specifications for the ITVU play are being followed very well. No change orders to date. As we continue to climb on our current trend which started Sept 21st, we are the fortunate recipients of support from the 10-dma. It is currently at $38.50. It is much closer now from when our trend started so we will see how strong it becomes but, yesterday we dipped to it and today it gave us a nice bounce to end higher. Although quite shallow, we are arguably forming a right ascending triangle and any break out to the upside would be very bullish, and likely have the momentum to take ITVU to $45. The flip side to our triangle argument is the fact that we are seeing a great deal of resistance at $40. This is a sign of caution. This is causing a slowing of our momentum as indicated by the narrowing of our MACD, and stochastic however, this appears to be in accordance with the market and caution into the employment report tomorrow. Since we have experienced a $5.75 gain since our pick, use stops to protect your efforts. Don't let the market take it away from you. $75.00 +1.00 (+4.75) We hit the motherload yesterday with VRTY! Bouncing off of support at $64 on Tuesday, we have powered to a 13% gain since. Hat's off to all you successful investors. Even going into tomorrow's employment report, VRTY investors showed interest as the stock took off again in the last fifteen minutes to close at a new 52-week high of $75. This is bullish people! We could get a pullback here according to our history of price gains. The stock has a tendency to give investors a 10% gain and then a quick pull back to support, at $68 right now. It's almost as if Verity anticipated the Internet surge from Yahoo's earnings a day early. $4.50 yesterday, $1.00 today. We have confirmed our play profile, that of VRTY being a momentum play, fueled by the Internet and e-commerce boom we are experiencing. Expect this momentum to continue, especially as we approach the big e-commerce season into the holidays. An interesting note due to the lack of news. Although not specific, it is good news for investors. Protect your profits! We have accumulated $14.25 since our pick. The market tomorrow could give us a buying opportunity with a pullback, so use caution and only play with a positive market and stock direction. DCLK $131.88 +1.63 (+17.50) The breakout we saw Tuesday has continued nicely the past two days. Investors seemed to have put the inflation and interest rate worries on hold at least for a couple of days. Today DCLK held up pretty well considering the negative tone in the broader markets. Many of the stocks in the Internet index showed solid gains today as well. We believe DCLK will continue higher as they are due to announce earnings next Thursday. After hitting a high of $136.00 today, shares of DCLK did begin to consolidate with some traders taking some money off the table in the last 30 minutes of the session. As we have mentioned before, DCLK can be a volatile stock. Should any profit-taking begin in earnest, we would like to see shares of the Internet advertising company stay above the $126-$127 area on a closing basis. Keep your stops close just in case the bears do decide to jump on board. In the news, DCLK was reiterated a Strong Buy today by analyst Tara Long at CE Unterberg Towbin. She projected a twelve month price target of $190.00. TFSM $40.50 -3.25 (-0.13) Well the rumors and speculation concerning who might make a run at TFSM couldn't hold the price of the company's stock today. Shares of TFSM fell right from the opening bell. The decline would appear at this point to be profit-taking from the recent run up. Shares of TFSM have increased just over 74% since the low of $26.13 made in the middle of September. If TFSM is going to remain a viable call play we would like to see TFSM stay above its 10-dma of $37.50 on a closing basis. With the continued consolidation in the Internet advertising industry, we do believe the speculation and rumors surrounding the company will probably continue until someone makes a bid for the company, as it really is too good of a company for either DoubleClick or CMGI not to make a run for. We would use caution in entering a new play on 24/7 Media. We would only consider a new play if TFSM bounces from current levels or its 10-dma. But make sure it's a legitimate bounce supported by solid volume before entering a new play. Today CE Unterberg Towbin did downgrade TFSM from a buy to a long- term Buy. If you didn't already get stopped out, please move your stops up to prevent any losses. BRCM 124.06 +0.06 (+11.56) Broadcom did gap up at the open yesterday but it did give us a good entry point for our earnings play. It gave us an opportunity to make a small profit as well. Considering the fact that the semiconductor industry took it on the chin today loosing over 4%, BRCM held up pretty well. Although we believe BRCM has a good chance of continuing its earnings run, we would suggest keeping your stops close as we have the employment report due out in the morning, which will determine the direction of the broader markets, the semiconductor industry and BRCM. Investors seem to have put the fear of inflation and Allen Greenspan in the back of their minds the past two days, but if the employment report comes out too strong we will likely see a rough day. On the other end of the spectrum, if the numbers are less that what the street is expecting we could see some great opportunities to jump on board BRCM for the balance of its run to earnings. We believe the outlook for BRCM is still bright in the near term and long term, but this is a short-term play as BRCM will release earnings after the close of business next Thursday. ADBE $115.31 -1.25 (+2.13) ADBE recovered nicely after the late afternoon sell-off on Tuesday. It appears new support may be forming around $115 as the stock consolidates after reaching its latest 52-week record high at $121.94. There's still plenty of time left for another breakout before ADBE splits 2:1 on October 23rd so look for an intraday bottom to get an entry into this split play. In the news yesterday, Adobe announced it has globally re-launched Adobe.com across some 19 sites for the purpose of collectively bringing its Web, Print, Motion, and ePaper communities together. QCOM $200.56 -3.75 (+13.75) What a showstopper! Yesterday QCOM surged past its overhead resistance at $199 like a hot knife slices through butter. The stock closed up $9.56, or 5% on news it had won regulatory approval on four continents including the United States' FCC, the British Approvals Board for Telecommunications, the European Community, and from Industry Canada for use of its satellite-based telephones. Qualcomm also has pending applications in Brazil and South Korea. Today share prices held their new level and once more touched $208.50, the new 52-week high set yesterday. Quite naturally after reaching fresh new heights some investors took a small piece of the pie. Even with all this energy propelling the stock upwards, volume still remains below the ADV. This momentum play could easily turn into an earnings run. The earnings' date is fast approaching and confirmed for Nov 2nd. SUNW $94.31 -3.25 (+2.31) Our little energizer bunny is taking a breather just above the 10-dma ($93.99) and just below its old resistance at $95. Overhead it'll face opposition at the new 52-week high of $99.44 set on Tuesday. The million-dollar question is, of course, will it break through the $95 mark again. Time is decaying quickly for our momentum turned earnings run play. The company will report earnings on October 14th, after the bell and this leaves us with only 5 trading days left. So please if you're considering opening new positions be very careful. In the news today MSDW rated SUNW a Strong Buy and issued a price target of $125. They cited the company's willingness to make the Solaris source code available to software developers "will enable SUN to take market share away from IBM, Hewlett Packard (HWP), Compaq Computer (CPQ), and the smaller Unix vendors". AOL $118.88 -1.13 (+10.63) Yes sir'ee AOL has officially reached historical split levels ($120)!! Our earnings play has now taken on a new light. Recall the earnings' date is confirmed for October 20th and there is a Shareholders' Meeting scheduled for October 28th to vote to increase the number of authorized shares from 1.8 bln to 6.0 bln. So without a doubt, now that AOL has reached this price level the possibility of a split announcement is even more likely. The driving force of the Internets is also a behind AOL's strong gains this week; and today, Yahoo's positive 3Q results certainly had positive implications for AOL. AOL peaked at $124.13 today with volume levels reaching 24.4 mln shares exchanging hands. This is definitely a bullish indication. Take note there was a last minute sell-off and the stock closed on its daily low of $118.88. And remember, tomorrow the Jobs Report data will be released so wait to see what the market sentiment proves to be before you open any new positions. Between the last minute sell-off and a jittery market you may be afforded some great buying opportunities. In the news yesterday, AOL announced it will develop a real-time messaging service for Lycos users. ***************************** SEE DISCLAIMER IN SECTION ONE
The Option Investor Newsletter Thursday 10-7-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. **************** PICK NEWS - PUTS **************** YHOO $190.25 +14.50 (+14.81) Our play is under way! This one's not for the faint-hearted, those that placed trades before the announcement would have to agree. We recommended that investors wait to place trades until after the numbers were released in case the company posted better than expected earnings. Yahoo posted earnings of 14 cents per share while markets expected 9 cents per share, the difference of 5 cents was enough to send the stock soaring in after hours trading and into today. These are impressive numbers and investors have rewarded the stock because of it. It's now time to take advantage of the situation and the recent run up in the stock. We are now bearish on the stock, however, stress the need for caution with the play. Before placing new trades, confirm negative direction on the stock. Tomorrow's unemployment numbers may alter our play slightly depending upon the results of the numbers. The stock is showing resistance at $192 and should show support at its 10-dma at $183.00. If the markets continue moving to the south, expect Yahoo to follow. ***HIGH-RISK INTERNET PLAYERS ONLY*** GENZ $39.94 -0.31 (-2.66) The week of volatility for GENZ has given us some great put possibilities and we expect more of the same ahead. The massive selling we saw on Tuesday finally subsided on Wednesday when the company put out a press release to clarify its position among their pipeline drugs. This was followed with an upgrade from Merrill Lynch with a near-term Buy rating and a relief rally commenced. We came right back to resistance at $41 and have started to turn down once again. This was a bear trap rally because with the amount of damage that has been done to GENZ, it will take a long time to regain shareholder confidence so don't be surprised to see investors keep dumping their shares. The trend is still in tact so look for entry around resistance at $40.50 and possible support at $37 although it shouldn't be that strong. WPI $27.31 -0.38 (-2.69) Today, with the market full of volatility ahead of the September Employment report which is due out tomorrow, WPI with no new news to report just continued to follow the same pattern. DOWN!!. Dropping once again to another 52-week low of $26.50, before bouncing off of the lows to close at $27.31. Once again the sell-off in the shares was accompanied by volume that was above the normal average. This volume increase that has developed this week was not due to uncertainty in the overall market, it is clearly shareholders dumping the stock. The shares now have been down 5 straight trading days, and over 3 points for this week alone. Be careful not to lose profits at these levels, tighten up your stops. Although we are still bearish going forward, the shares are due a bounce, so be cautious. After the downtrend has been confirmed again, look to raise trailing stops, or enter a new position. The resistance from the 10-dma now stands at $29.25. ************** NEW CALL PLAYS ************** NT - Northern Telecom $54.63 +0.81 (+4.56 this week) Northern Telecom is a leading supplier of telecommunications products around the world. They deal in service and support of switching networks, broadband technology, wireless networks and other products and services. They merged with Bay networks in 98 to create Nortel networks. Nortel has a global presence in 150 countries around the world. Northern Telecom reached a new 52-week high today trading up to $54.69. NT has been stuck at $54.00 for the past few days but finally managed to break through even though the market was headed down. Now that NT has traded above resistance, $54 should serve as a good short-term support with the 10-dma at $51.00 serving as a back up should we experience market correction. We like NT's momentum as it heads towards their earnings report. NT is scheduled to report earnings on Oct 28th, a date we will confirm with the company shortly. You may remember we were playing NT a few weeks ago but had to drop it for violating it's 10-dma during the market correction. Now that the broader markets are back on track, NT has picked up where it left off. Entry points will depend on the Jobs report in the morning. An unfriendly report would have us waiting for a pullback before entering but an inflation friendly report would open the door for new positions on an intraday dip. NT has just signed an agreement to build a high performance wireless network in Mexico. This $480 million dollar deal with Unefon will eventually provide telephone service to approximately 1.5 million people. Nortel has also recently been selected by Prism Communication Services for a $460 mln dollar deal and will provide service and support for the introduction of Prism's new high-speed data, voice and Internet service. BUY CALL OCT-45 NT-JI OI=6138 at $9.88 SL=6.75 heavy vol today BUY CALL OCT-50*NT-JJ OI=2511 at $4.88 SL=2.75 BUY CALL OCT-55 NT-JK OI= 256 at $1.25 SL=0.50 BUY CALL NOV-50 NT-KJ OI= 967 at $6.50 SL=4.75 heavy vol today Picked on Oct 7th at $54.63 P/E = 158 Change since picked +0.00 52 week high=$54.69 Analysts Ratings 11-16-2-0-0 52 week low =$33.16 Last Earnings 7/99 est= 0.25 actual= 0.28 Next Earnings 10-26 est= 0.26 versus= 0.21 Average Daily Volume = 2.54 mln Chart = http://quote.yahoo.com/q?s=NT&d=3m ************* NEW PUT PLAYS ************* No new put plays today. ********** PLAY OF THE DAY - CALL ********** ITVU - InterVU, Inc. $40.00 +1.00 (+0.50 for week) 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. Sunday's Write Up 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. Tuesday's Write Up ITVU is showing signs of gaining momentum in it's trend. Monday's move at the open, with a $2spike, helped to fuel our trend line on the 10-dma and widen our MACD. Also considering the Fed's change today, and ITVU's ability to react to news, we held up very well only dropping $0.75. ITVU is poised well to participate in it's earnings run to be announced on October 28th. Look for a breakout over $40 based on historical earnings runs and be cautious of the pre-announcement dip that occurs right at the date. ITVU partnered with Dr.Drew.com to provide the Internet with Web casts of the popular health and life styles show. ITVU also expanded it's customer base in an alliance with BRS media which brings radio to the Internet. ITVU continues to position itself to capture the expanding streaming market. We could experience some market pullback, as a flow over from today's sell-off. Use caution and protect your profits with stops. We expect a recovery to occur late Wednesday to Thursday as buyers rush in to get bargains. Confirm market direction and stock strength before starting any new plays. Thursday's Write Up As an investment contractor, our specifications for the ITVU play are being followed very well. No change orders to date. As we continue to climb on our current trend which started Sept 21st, we are the fortunate recipients of support from the 10-dma. It is currently at $38.50. It is much closer now from when our trend started so we will see how strong it becomes but, yesterday we dipped to it and today it gave us a nice bounce to end higher. Although quite shallow, we are arguably forming a right ascending triangle and any break out to the upside would be very bullish, and likely have the momentum to take ITVU to $45. The flip side to our triangle argument is the fact that we are seeing a great deal of resistance at $40. This is a sign of caution. This is causing a slowing of our momentum as indicated by the narrowing of our MACD, and stochastic however, this appears to be in accordance with the market and caution into the employment report tomorrow. Since we have experienced a $5.75 gain since our pick, use stops to protect your efforts. Don't let the market take it away from you. **Caution: only 1 week left for October options** BUY CALL OCT-35*QYU-JG OI=369 at $5.50 SL=3.75 BUY CALL OCT-40 QYU-JH OI=492 at $2.19 SL=1.25 BUY CALL OCT-45 OYU-JI OI=192 at $0.69 SL=0.00 High Risk! BUY CALL NOV-35 QYU-KG OI=344 at $7.88 SL=5.75 BUY CALL NOV-40 QYU-KH OI= 73 at $5.13 SL=3.25 low OI Picked on Sep 26th at $34.25 P/E = N/A Change since picked +5.75 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 ************************ COMBOS/SPREADS/STRADDLES ************************ More Economic Data On The Way.. Wednesday, October 6 U.S. markets rallied on Wednesday as financial and tech stocks surged in anticipation of third quarter earnings reports. The Dow Jones industrial average closed up 188 points at 10,588, the day's high. The Nasdaq composite index also closed at its high for the day, up 57 points at 2857. The S&P 500 index was above the technically important 1300 level for the second day in a row. Advancing stocks led decliners 1,752 to 1,256 with 893 million shares traded on the NYSE by late afternoon. There were 162 stocks setting new lows while 49 set new highs. The 30-year U.S. Treasury bond was unchanged with a yield of 6.18%. Tuesday's new plays (positions/opening prices/strategy): E*trade EGRP APR25C/JAN30C $3.75 debit diagonal Legato LGTO NOV50C/OCT50C $0.75 debit calendar Global Crossing GBLX JAN17C/JAN22C $4.75 debit bull-call All three of our new positions were significantly higher at the open, making it difficult to decide how much to adjust the entry prices. Based on the best observed quotes, the EGRP spread was available for $0.25 above the target. In the GBLX bull-call play, a five contract position traded at $4.75 debit near 9:50 AM. The LGTO calendar spread was our last candidate and the position was observed at $0.75 near 11:40 AM. Portfolio plays: Wednesday was a banner day for equities as the markets rallied just one session after the Fed delayed any interest rate hike. All of the major industries participated and well-known stocks in our portfolio also made huge gains. Here is a list of the most outstanding performers; Qualcomm (QCOM) up $10, American Express (AXP) up $6, Hewlett-Packard (HWP), CMG Incorporated, (CMGI), Sprint (FON) and Gemstar (GMST) all moved up $5 and Philips Electronics (PHG) gained over $3. Yahoo (YHOO) didn't make much headway during the session but traded $8 higher in the "after-hours" session on news of positive earnings. This issue will be one to watch tomorrow as investors decide what the new share value of the company should be. In our calendar spreads portfolio, C.R. Bard (BCR) moved up today, closing just above $50 and our sold position in both of the January calendar spreads. The newest play is trading in the maximum profit area and we hope the stock price will remain in a small range (resistance is near $52) for the next week. The recently adjusted spread is in danger if the issue moves above the $50 range so will keep a close watch on this one and plan on making another adjustment to limit losses if it moves higher. Another of our calendar plays; Viatel (VYTL), also made a bullish move, climbing $3 to end at $30, the sold strike in our short-term neutral position. The overall play is at $1.50 credit and you should consider an early exit as the spread profit is well beyond the target return. One of our recent slumping issues made a nice recovery today. Tut Systems (TUTS) climbed $2.56 to $27.50 at midday and gave us a closing opportunity on the bullish spread at $2.00 credit. Another position that appears to be fairly safe for now is CMG Incorporated (CMGI), the stock price moved over $5 higher and is now above recent resistance near $103. The current price of Case Corporation (CSE) appears to be comfortable at $50, just below the buy-out offer of $55 by equipment maker New Holland. Our long-term portfolio is starting to recover after almost a month of downward trends. One of the plays that we have been watching since Monday is starting to show real signs of a new change in character. The Limited (LTD) had broken through the trend-line and price resistance near $40 and appears to be in a solid rally. A recent move to the NOV-$45 call cost us some additional capital but it may allow us to eventually put this play back in a profitable position. The long-term plays that continue to plague our portfolio (and show little or no signs of improvement) are Exxon (XON) and Philip Morris. Thursday, October 7 Stocks closed mixed Thursday as many investors avoided new positions while awaiting Friday's jobs report. The Dow ended 51 points lower while the Nasdaq managed a small gain on the heels of Yahoo's giant rally. The S&P 500 index fell 7 points to 1,317. In the broader market, declining issues led advances 1,727 to 1,220 on moderate volume of 801 million shares on the NYSE. Portfolio plays: Yahoo (YHOO) dominated the markets with a giant rally to $190 after news of their blow-out earnings. Previous resistance was near $185 so this one has room to run. Our bear-put spread is in danger with the sold strike at $200 but there is plenty of daily movement to make an adjustment if necessary. You might consider using a credit spread roll-out if you think YHOO is destined for the $200 range. C.R. Bard (BCR) was active again today, climbing to resistance near $53. Our newest calendar spread; JAN50C/OCT50C, was easily closed at a 25% profit (for ten days) but the recently adjusted play; JAN55C/OCT50C is being pummeled because of a poor trading judgment. The original spread would have been closed by now with a nice profit if it weren't for our greed and haste. That's part of the game I suppose. Bell Atlantic (BEL) fell lower on news it is planning to buy $550 million of Metromedia Fiber Network's (MFNX) optic infrastructure. Also, Bell Atlantic will buy about $975 million in debt securities, boosting their potential equity investment in MFN to about 19% of the company. Our April spread is in good shape with the stock near the sold strike at $65. The Viatel (VYTL) spread moved to a $2 credit today, a 100% profit for the position. Many of this month's bullish debit spreads have been closed with the recent rally to protect profits (or limit losses). One that we have commented on almost daily; Starbucks (SBUX) gave us an excellent opportunity for exit this morning with a small profit. The position traded as high as $0.93 during the day and our exit was at $0.88. Gemstar (GMST) investors appear to be comfortable with the TV Guide takeover as the stock is now recovering nicely. Global Crossing (GBLX) continued to shine today, up over $3 to a recent trading range near $32. A one day profit of $1 on the position doesn't seem so bad. Dell Computers (DELL) moved higher in anticipation of an upbeat management/analyst conference. One of our long-term positions; Biogen (BGEN), rallied even in the wake of the market consolidation. A roll-out to November is now trading at $2.50 credit and we favor the downside protection that the adjustment offers. Another of the recent bullish issues, Computer Associates (CA) consolidated today, falling to our sold strike at $60. Sun Microsystems (SUNW), came back to earth with the technology sector but it should have some support just below the current price at $92. Questions & comments on spreads/combos to ray@OptionInvestor.com ********** NEW PLAYS ********** This week, I had a request from a reader for a new (bullish) play on AtHome Corporation. I am thankful the subscriber sent me the suggestion, I only wish it had come sooner. These plays are based on the current price or trading range of the underlying issue and the recent technical history or trend. Current news and market sentiment will have an effect on these positions so review each play and make your own decision about the future outcome of the stock price. ATHM - AtHome Corporation $48.06 *** Reader's Request *** At Home Corporation is a leading provider of Internet services to consumers and businesses over the cable TV infrastructure. Their primary offering, the @Home service, allows residential subscribers to connect their personal computers via cable modems to the company's new high-speed parallel Internet. Internet stocks are "HOT" and companies like ATHM got a boost Thursday after Yahoo's positive earnings gave analysts more incentive to upgrade the sector. Warburg Dillon Read started coverage of ExciteAtHome (ATHM) with a "buy" rating, citing a belief that the high-speed Web access company is poised to take the lead in the cable Internet access market. They also commented that the company's broadband access and connectivity offerings combined with its "Excite" assets, will create new opportunities on the Internet. They issued a 12-month price target of $65. A few small disparities exist in the call options for this issue and we will use them to open some new bullish spreads at a discount. PLAY (conservative - bullish/diagonal spread): BUY CALL JAN-40 AHQ-AH OI=2783 A=$12.25 SELL CALL NOV-50 AHQ-KJ OI=3159 B=$4.25 INITIAL NET DEBIT TARGET=$7.81 TARGET ROI=50% UPSIDE (BREAK-OUT) ROI=28% PLAY (aggressive - bullish/debit spread): BUY CALL NOV-45 AHQ-KI OI=3769 A=$6.62 SELL CALL NOV-50 AHQ-KJ OI=3159 B=$4.25 INITIAL NET DEBIT TARGET=$2.25 ROI(max)=120% B/E=$47.25 Chart = http://quote.yahoo.com/q?s=ATHM&d=3m **** PILL - Proxymed $13.62 *** Cheap Speculation! *** ProxyMed, Inc. is a healthcare information systems company providing clinical and financial electronic data interchange transaction processing services to physicians and healthcare providers. The company offers various valued added clinical products that it believes differentiates itself from its competitors and are designed to increase physician usage. The company's subsidiary, ProxyCare, is a pharmacy business operated by the company that dispenses and delivers unit dose oral prescription drugs to patients residing in long term care facilities. Something is up with this issue and the tape doesn't lie.. To add fuel to the fire, implied volatility in options moved higher Thursday and volume swelled as the stock firmed amid a lack of news about the company. Options volume has increased significantly, as much as three to four times the average and most of the activity is in the calls. The chart history and favorable option pricing make this long-term position favorable. PLAY (conservative - bullish/calendar spread): BUY CALL APR-15 OI=5 A=$3.12 SELL CALL NOV-15 OI=251 B=$1.43 INITIAL NET DEBIT TARGET=$1.50 ROI TARGET=50% Chart = http://quote.yahoo.com/q?s=PILL&d=3m ********************* INDEX OPTION SPREADS ********************* As a trader, you may be familiar with options on individual stocks where you have the right to buy (call option) or the right to sell (put option) a particular stock at some predetermined price within some predetermined time. The buyer has the rights and the seller the obligations. With index options the basic ideas are the same. Index options allow you to make investment decisions on a specific market industry or on the market as a whole. Spread strategies can be made with index options similar to those made with individual stock options. Many professional traders employ index spreads as a hedge strategy. We favor debit positions on the SPX for momentum and hedge or longer-term plays and OTM credit spreads on the OEX when the risk/reward is favorable. Low ROI disparity spreads will be listed (when available) for the conservative index trader. **** OEX - S&P 100 Index $689.74 OTM Credit-Spreads The Standard & Poor's 100 Index is a capitalization-weighted index of 100 stocks from a broad range of industries. The component stocks are weighted according to the total market value of their outstanding shares. The impact of a component's price change is proportional to the issue's total market value, which is the share price times the number of shares outstanding. OBSERVATIONS: For OTM credit spread trades, we like to use the actively-traded S&P 100 Index options because they contain much more premium than options on individual stocks and provide an underlying instrument less prone to huge, gapping moves. Review the 'Market Sentiment' section for specific technical information on the S&P 100 Index. Conservative... PLAY (bearish/low ROI): BUY CALL NOV-750 OEZ-KJ OI=2685 A=$1.75 SELL CALL NOV-740 OEZ-KH OI=2324 B=$2.75 NET CREDIT TARGET=$1.00 ROI=11% PLAY (bullish/low ROI): BUY PUT NOV-630 OEY-WF OI=1134 A=$5.75 SELL PUT NOV-640 OEY-WH OI=5364 B=$6.62 NET CREDIT TARGET=$0.88 ROI=9% By combining these two positions, you can participate in a popular neutral strategy known as the Long Iron Condor. It is often used with OEX positions and is a limited risk, limited profit, credit spread strategy that gives you a wide range for success. CHART= http://quote.yahoo.com/q?s=^oex&d=b ********** STRADDLES ********** Another great week for the straddle section as the recent market rebound has boosted many of the portfolio plays into profitable territory. The big winner continues to be Lycos (LCOS) and that straddle was officially closed at $24.00 credit. Federal Express (FDX) has also been on the move recently and the APR-35C/APR-35P straddle traded near $12.50 credit on Thursday. Another transport issue; US Air (U) is rebounding with the sector and the position is already in profitable territory. An overall return of $2 on an opening debit of $8 was available during today's session. Union Carbide (UK) is struggling near a resistance area near $57 but the straddle is profitable at $1.00 credit. If the test is unsuccessful, the stock will fall back into the low 50's, so you may consider taking profits before that occurs. In merger news, Asarco agreed to be purchased by Phelps Dodge for $1.1 billion in cash and stock. This is nowhere near the $115 billion merger of Sprint and MCI Worldcom but it does create the world's largest copper producer. The speculation may have gone out of the Phelps Dodge (PD) position and it is a candidate for early exit at $0.50 credit. E*trade (EGRP) has made a nice move in the past two days and this straddle is also in the black at $1.38 credit. There is plenty of upside room on this issue so we will wait for a signal that the rally is fading before making any closing decisions. Other positions that are still rangebound include General Motors (GM) and Exxon (XON). Both of these short-term plays should be considered exit candidates when they reach a 25% loss or by the third week in October, if they haven't performed as expected. Tom Gentile Of Optionetics sent me a note from a seminar in Las Vegas. He promised us some more of his great straddle candidates this weekend and 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. Find out more at: http://www.OptionInvestor.com/seminar/ ************ See Disclaimer in section one ************
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