The Option Investor Newsletter Thursday 10-14-99 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) ************************************************************ 10-14-99 High Low Volume Advances Decline DOW 10286.60 + 54.40 10343.00 10133.70 882,654k 1,142 1,838 Nasdaq 2806.84 + 5.57 2821.69 2766.46 1,015,492k 1,760 2,051 S&P-100 672.04 + 0.84 675.41 663.07 Totals 2,902 3,889 S&P-500 1283.42 - 2.13 1289.59 1267.75 42.7% 57.3% $RUT 419.31 - 0.01 420.68 416.88 $TRAN 2914.49 - 7.02 2934.55 2894.01 VIX 27.34 - 1.54 30.43 26.53 Put/Call Ratio .76 ************************************************************* A funny thing happened on the way to the PPI report... A rally broke out! The markets tried to rally on the open but the selling was not over. We quickly slid back into the red and dropped below the critical 10200 level. Next support is at 10100 and traders everywhere started holding their breath. The main catalyst for the morning drop was yet another economic report showing a larger increase than expected. The retail sales, core rate, came in at a whopping +.6% and the bond markets went into shock at the open. As you can see by the chart we had a mini-capitulation event as many leaders quickly dropped to new lows propelling the Dow back to levels not seen since the September lows. We did not make it to the 10087 again but came within 50 points to 10133. That brought several technical events into play. At 10133 we were right at the magic -10% correction off the years highs. This is a normal rally point as bargain hunters jump in on the assumption that the "correction" is over. At the sound of the 10% gun the buyers started coming back into the market. The rally however, was short lived. We quickly climbed back to the magic 10300 level which we have had trouble penetrating in the past. After several attempts to move higher, fear of the dark (and Greenspan) gave new life to the sellers and we eased off again. The second less technical buy signal was the expected relief rally syndrome. After a -600 point intraday decline since Monday's high, the overbought conditions had quickly reverted to oversold. Itchy mouse fingers can only stand so much of a drop in their favorite stocks before greed overcomes caution and speculators trying to catch a falling knife jump into action. The following chart shows the third technical which was the retest of previous support/lows. In the last month we have bounced off the 10200 level five times with only one major intraday penetration. Therefore anything under 10200 becomes buyable for the aggressive investor. Same song, second verse with the Nasdaq and 2775. That level served as both support and resistance several times over the last month. Absent any external influences the markets would probably have traded up from here. The key word here was "absent." Sorry! After the close we had some very good earnings announced by SUNW which would have helped the markets tomorrow but they will be overshadowed by two things. The PPI report tomorrow will be the key economic report for the week but after the Greenspan speech tonight it may be a non-event. Estimates are for an increase in the core rate of inflation by +.05% but rumors surfaced all day that it may be much stronger. A strong PPI on top of the speech will simply grease the skids to a sub 10,000 Dow. Lets get to it. After the close tonight Alan Greenspan did what he is famous for and Greenspammed us again. Speaking to a group on Measuring Financial Risks in the 21st Century Mr G. warned that financial institutions about an over reliance on stock values. He also said banks and financial institutions need to do more to prepare for a sharp decline in stock prices. Now, he never said "a decline is imminent" but he kept using terms like "speculative bubble", "eventual selling panic", etc, etc, etc. He did what he does best. Speak in $2 words and imply impending doom without actually forecasting it. Was anybody listening? As evidenced by the S&P futures the entire world was sitting with their finger on the Globex trigger. Futures went from -.80 at the release of the report to -18.00 and dropping fast 30min later. Turn out the lights, the party is over! I could go on and on about the earnings events of the day and the mergers and buyouts but at this point it is immaterial. Short of a negative PPI in the morning the die appear cast. It is totally possible that the spin doctors will convince many traders by morning that this is the same old tired speech with just a few more adjectives and the carnage might not be as bad as expected. Just remember that the Intel missed earnings only tanked the futures less than 10.00 points. Only the master of disaster can knock off almost -20 points with complex sentence structure. Here is the next challenge. The Dow is in a negative formation with little or no chance of breaking out. The down trending line on the top is projected to provide upward resistance ending around 9900 by mid November. The bottom support line, depending on where you count the bottom on Sept 28th, puts lower resistance at 9500 to 9700 in the same time frame. We all know that a break under 10000, which could happen in the morning, or worse a close under 10000, which could also happen tomorrow, would accelerate the decline. It would take a major rally to break out of this channel on the upside and I can't think of any positive event in the near future that would spark such a rally. Now before you start digging for the sleeping pills and Maalox I would remind you that it is always darkest before the dawn. There are many hours of darkness before morning and you know how we traders are. The optimists are already burning up the modem lines looking at chart after chart and preparing for another "buying opportunity." They might get a real buying opportunity if the PPI is stronger than expected. The bond yields today touched 6.33% and some analysts are now calling for a 6.5% yield soon. After hovering around 6% for six months and causing much aggravation in the stock market the bonds have hit lows not seen since Oct-97. If bonds continue to rocket to over 6.5% then the bull market as we know it could be hamburger. Even though the major indexes are only down 9% from their highs the broader markets are in a full bear correction. The Dow is down -9.8% from its high, Transports -22.8%, S&P -9.3%, Nasdaq -3.7% (since Monday), and the Russell-2000 -9.8%. These numbers are masking the fact that 59% of the S&P stocks are below their Jan 1st levels. 70% of the NYSE are below their 200DMA and 30% of the Dow are below the January levels. The advance/decline line hit a three year low this week and even today, with the Dow and Nasdaq finishing positive, was negative with only four advancers for every six decliners. Did you realize the S&P closed negative for the day? This is a very negative environment and we may find every relief rally harder to maintain as the year draws to a close. The game plan for tomorrow? Sleep in. Be skeptical of any rally that does not close above 10300 on good volume until the climate changes. Hopefully you did not buy into the relief rally today and you are still in puts or cash. Did you know there are no stop losses to worry about on cash? I just checked. The futures have rebounded to only -13.00. See, it is not as bad as you thought. Only -13! What was I worried about anyway? New tag line tonight, not the usual "sell too soon". Tonight's admonition is "don't buy too soon!" Good Luck Jim Brown Editor ********** STOCK NEWS ********** Thursday, October 14, 1999 Going Mobile: Wireless Internet Access Offers Massive Growth Investors looking to cash in on tremendous growth in the Internet might take a cue from some of the world's largest technology companies, who moved en masse this week to stake an early claim in one of the sector's most promising areas: wireless Internet access. http://www.OptionInvestor.com/stocknews/101499_1.asp Thursday, October 14, 1999 Death Takes a Holiday Few industries make people as uncomfortable as the funeral industry. http://www.OptionInvestor.com/stocknews/101499_2.asp ************************************ 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, at 5:30PM 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 several 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 14, 1999 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,750 11,320 10,287 BEARISH 9.23 SPX S&P 500 1,350 1,420 1,283 BEARISH 9.16 OEX S&P 100 670 725 672 Neutral 10.05 RUT Russell 2000 440 465 419 BEARISH 9.14 NDX NASD 100 2,320 2,380 2,471 BULLISH 9.03 MSH High Tech 1,120 1,180 1,234 BULLISH 9.03 XCI Hardware 1,000 1,025 1,038 BULLISH 8.24 CWX Software 750 800 871 BULLISH 9.03 SOX Semiconductor 470 500 518 BULLISH 10.05 NWX Networking 555 585 608 BULLISH 9.17 INX Internet 450 500 509 BULLISH 10.07 BIX Banking 690 710 575 BEARISH 7.23 XBD Brokerage 410 440 372 BEARISH 7.23 IUX Insurance 645 660 527 BEARISH 7.23 RLX Retail 915 960 861 BEARISH 7.23 DRG Drug 365 390 369 Neutral 10.07 HCX Healthcare 720 785 721 Neutral 10.08 XAL Airline 180 190 146 BEARISH 5.21 OIX Oil & Gas 300 315 291 BEARISH 10.08 Posture Alert The yield on the 30-year treasury continues to make new highs, and as such, this market continues on its roller coaster ride down. With the Producer Price Index due out Friday morning, and such a negative sentiment on the market in general, we would look for another volatile trading session ahead. Leaders today include Semiconductors (+1.57%), Internet (+1.49%), and Brokerage (+1.30%), which have all lost significantly this week and were due for a little relief. Currently, there are no changes in posture, but several sectors are on the verge of breaking down, so stay tuned. A detailed description of our Market Posture and its applications can be found at: /members/marketposture *************** Market Sentiment *************** Thursday, October 14, 1999 The Bears are closing in! All is well that ends well, and this week is not over yet. The bears are pounding on the door, and their camp is getting larger, but we know how quick they retreat and hide. The bulls, however, need some major help in the bond market, as everyday represents a new high for the Treasury. Interest rates/inflation have been the biggest threat to the bulls' big long party, and with the Producer Price Index due out tomorrow, and the Consumer Price Index due out next week, only time will tell who will win the short-term tug-of- war. Once the PPI comes out, look how the bond market reacts, for it seems to be dictating (once again) how stocks will react. The negative sentiment is really building, so to see a rally during the next couple of trading days would be very likely if the bond stays put or rallies. The Investors Intelligence survey came out yesterday, and surprise, surprise; bearishness continues to increase at a robust rate. Bullish investors now stand at 39.2%, while bearish investors stand at a close 37.5%, with the rest at Neutral. Pretty soon, Bearish investors will be greater than bulls. This has not been seen since (a real shocker here), October 8, of 1998, when bears led bulls by 42%/38%. If you look at the chart below of the Nasdaq, we highlighted when bearishness last surpassed the bulls. Boy, we all wish we had bought leaps on our favorite technology stocks back on this date!!! Can you say never work for anybody again! To continue on the bearish sentiment, the Nasdaq broke new highs just this week, with only 39.2% of the people surveyed being bullish. What will happen if, in the next several months, we get back to bullishness of 55% or better? Nasdaq 4000, DOW 13,000? Some other observations we have witnessed this last week is that positive news/earnings is not being rewarded (maybe with the exception of Apple Computer), while bad news is absolutely destroying stocks. Look at Unisys, HI/FN, Abercrombie & Fitch, Tyco Int'l, etc. These stocks just gave 6 months or 1 years' worth of upside away, in just a couple of days. The risk/reward ratio of holding anything into earnings just is not worth it. You are currently not getting rewarded, but will quickly get demolished. So continue on the cautious side, and if inflation stays put, be patient, because bears are known for their quickness when hiding. BULLISH Signs: Pessimism on Earnings: We should see a solid third quarter from many companies, yet their stock prices do not reflect this upside potential. 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 level, but continues to show good support @30, then 32-33. Earnings Season: Earnings season is still early, and we have mixed results so far, with Intel being the negative bellwether for the week. BEARISH Signs: X-Factor: Currently, good news is not rewarded very well, while negative news or even rumors will destroy a stock. We have witnessed this last week with issues such as HI/FN, Abercrombie & Fitch, and Unisys. Interest Rates: The yield on the 30-yr Treasury is breaking new highs, and will need to see a nice rally before stocks can advance. Miscellaneous Uncertainty: Y2K, inflation, higher interest rates, slowing corporate earnings, earthquakes, U.S. Dollar uncertainty, are all leading to an abundance of uncertainty for professionals and investors alike. Advance/Decline Line: The A/D line continues to be poor and is getting worse. Russell 2000 & S&P 500: The RUT and SPX are still very weak, with both breaking support levels. 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 680-780) Date Open Interest Change % Alert Friday, September 17 34,361 - Friday, September 24 84,724 +146.5% Friday, October 1 108,460 +215.6% Friday, October 8 125,019 +263.8% Market Sentiment at a Glance Friday Tues Thurs Indicator (10/8) (10/12) (10/14) Alert Pinnacle Index (OEX): Underlying Support (700-720) 4.2 3.6 5.7 Underlying Support (670-690) 1.9 2.5 1.4 Put/Call Ratios: CBOE Total P/C Ratio .7 .7 .7 CBOE Equity P/C Ratio .5 .6 1.6 OEX P/C Ratio 1.2 1.3 1.1 Peak Open Interest (OEX): Puts 670 Calls 700 P/C Ratio 1.03 Market Volatility Index (VIX): CBOE VIX 27.38 Investors Intelligence: Bullish 39.20% * Bearish 37.50% * 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 (10/8) (10/12) (10/14) Overhead Resistance (700-720) 4.18 3.58 5.73 OEX Close 698.45 686.24 672.04 Underlying Support (670-690) 1.88 2.49 1.40 Average ratings: Resistance levels 2.0 / Support Levels .5 What the Pinnacle Index is telling us: Based on 10/14, overhead resistance is heavy, and underlying support is losing steam. Put/Call Ratio Friday Tues Thurs Strike/Contracts (10/8) (10/12) (10/14) CBOE Total P/C Ratio .69 .69 .68 CBOE Equity P/C Ratio .49 .57 1.57 OEX P/C Ratio 1.22 1.32 1.13 Peak Open Interest(OEX) Friday Tues Thurs Strike/Contracts (10/8) (10/12) (10/14) Puts 670 / 20,807 670 / 23,399 670 / 17,228 Calls 700 / 11,288 700 / 11,235 700 / 16,668 Put/Call Ratio 1.84 2.08 1.03 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 14, 1999 27.38 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 Oct. 6, 1999 41.0 36.8 Oct. 13, 1999 39.2 37.5 Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Daily Results Index Last Mon Tue Wed Thu Week Dow 10286.61 -1.58 -231.12 -184.90 54.45 -363.15 Nasdaq 2806.84 29.38 -43.52 -71.16 5.57 -79.73 $OEX 672.04 -0.69 -11.52 -15.04 0.84 -26.41 $SPX 1283.42 -0.81 -22.17 -27.49 -2.13 -52.60 $RUT 419.31 2.48 -5.51 -5.36 -0.01 -8.40 $TRAN 2914.49 -55.69 -64.53 -39.98 -7.02 -167.22 $VIX 27.34 0.43 2.55 4.28 -1.54 5.72 Calls Mon Tue Wed Thu Week KIDE 54.50 7.00 1.75 1.00 4.50 14.25 New XMCM 60.94 -0.88 0.88 2.25 3.56 5.81 A trooper ADBE 118.19 5.38 -1.94 -1.06 1.19 3.56 Rebounds GTW 55.13 -0.38 -0.63 -0.19 3.81 2.38 Resilient JDSU 132.00 2.19 1.56 -5.69 4.56 2.63 steely-eyed SYMC 40.00 2.50 -1.03 -0.25 1.31 2.53 New TXN 85.00 4.19 -5.19 0.50 -0.50 -1.00 New DELL 44.34 0.06 -0.06 -1.06 -0.09 -1.16 Good buy VOD 48.31 2.13 -0.69 -1.94 -1.19 -1.69 Straddling NT 54.81 -0.19 1.31 -2.13 -1.13 -2.13 Grab some ITVU 42.25 1.00 -3.13 -2.50 2.38 -2.25 Steller TFSM 44.06 1.13 -2.88 -2.13 0.56 -3.31 Dropped NOK 95.38 -0.19 -1.06 -1.00 -1.88 -4.12 Held firm HGSI 80.75 3.88 -1.63 -4.50 -3.25 -5.50 Caution! AOL 114.63 -0.75 -7.06 -2.63 3.94 -6.81 Snap back AXP 142.00 -0.81 -3.63 -3.25 0.00 -7.69 Hanging on QCOM 204.03 8.56 -10.44 -7.72 -0.31 -9.91 High risk! Puts YHOO 173.38 -10.75 -7.50 -5.94 5.81 -18.75 Supported? AMZN 79.59 -0.88 -3.44 -5.00 -0.34 -9.66 Under water CMGI 104.25 -2.88 -5.81 -3.81 4.25 -8.25 Entry point CNXT 68.88 4.03 -5.09 -3.06 -1.94 -6.06 New SNDK 54.00 -1.06 -4.69 -8.00 7.75 -6.00 Dropped WPI 29.00 -0.06 -1.19 1.56 0.31 0.00 Dropped SLB 55.25 1.81 -0.81 0.63 -1.44 0.19 Turned BA 43.63 -0.06 -2.31 0.88 3.13 1.63 Dropped MOB 97.63 0.94 -0.31 0.75 1.19 2.56 Dropped 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: ***** TFSM $44.06 +0.56 (-3.31) Shares of TFSM have drifted sideways to lower for the past two sessions. The rumors concerning the merger or buyout by DoubleClick have all but died out. TFSM continued with a pattern that has grown all to familiar in the past few sessions, of falling to the low of the day in the first 3 hours of the day and recovering into the close. Today 24/7 Media did announce its involvement in a project with IMAKE Software and Services to build a next generation Online Ad Delivery System for TFSM. That may be good for the future of TFSM but today it didn't do much for the price of the stock. TFSM has been a tricky play but did provide us with lots of opportunity to make a profitable trade. It was a trade based entirely on rumor and speculation, which can be explosive but also very risky. We will continue to keep our eye on TFSM, but will drop the play from our list for now. ******************************** DROPS - CONTINUED IN SECTION TWO ******************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "subscribe@OptionInvestor.com" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 DISCLAIMER ********** This newsletter is a publication dedicated to the education of options traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. The newsletter staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control.
The Option Investor Newsletter Thursday 10-14-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. ********************************** DROPS - CONTINUED FROM SECTION ONE ********************************** PUTS: ***** BA $43.63 +3.13 (+1.63) Well, we took a chance that Boeing would report bad earnings today and unfortunately it didn't pay off. There was a lot of mis-information out regarding the company's earnings but they cleared it up today. BA reported earnings of $0.56 a share verses expectations of $0.49 per share, beating estimates by $0.07. Investors rewarded the stock for its good report by purchasing shares, driving share prices higher. As a Dow component, Boeing's share increase accounted for a large portion of the rise in the Dow. Because the near-term outlook for the stock has improved dramatically, we have decided to end this play and recommend others with more potential. MOB $97.63 +1.19 (+2.56) We can't seem to get a cap on this gusher! Mobil just will not come down as long as oil prices are going up. Even though Crude was down a tiny -0.60 cents today, Mobil (MOB) charged on up on strong volume. Yesterday news hit that inventories fell more than 7 million barrels last week. The expectations were for 1.25 million so the surprise drove prices higher. Even though today did not continue the ascent, we are dropping Mobil until things shake out and we get a clear direction to the downside. MOB opened down, indicating there was going to be some selling but the buyers stepped in and drove the stock to resistance at $98. Hopefully you waited for the entry point, which never came. SNDK $54.00 +7.75 (-6.00) What a play this turned out to be. With earnings coming out flat and the outlook of future earnings weak due to Taiwan earthquake you would thing Sandisk would have continued down today right? Wrong! The stock opened down but only to turn on a dime and rally. The bottom was hit at 9:40am today. Now if you did not grab a hefty profit yesterday, you definitely should of been stopped out this morning, locking in a nice gain. It appears that the news is out on SNDK and the stock was ready to bounce back after huge declines over the past couple weeks. Due to the huge reversal we have to say this put play is over for now. WPI $29.00 -0.31 (+0.00) We had a nice run in WPI but it is starting to get boring. The drift this week has been settled to the upside. Over the past two weeks, WPI has bounced off of the current resistance point at the $26.50 level twice and does not seem to want to penetrate in the short-term. Although the overall technical pattern remains weak and the volume and moneystream still remain depressed, it is time to move on from this one. There has been no market moving news that has been reported, that would create any interest in the shares. For instance on Tuesday it was announced that the FDA began an inspection of the Watson's Corona, California facility. The FDA informed Watson that the inspection is a follow-up to the agency's last inspection to verify corrective actions taken by Watson to address FDA observations made earlier this year. This had no effect on the shares. At this point it looks like the sellers have taken a break and we will be exiting the play. *************** READERS WRITE *************** I have been a subscriber for quite some time and just want to say that you folks are the best and most sincerely honest advisory service that I have ever known. You are up front with your advice and never hide wrong trades or suggestions which is appreciated. However, I have a question or two in regards to Intel's recent earnings release. It seems that just about everyone is dissappointed but is it really dissappointing? Analysts said that gross profit margins declined and that was troubling. In fact, gross profit margins did decline, from 58.9% to 58.7%, a drop of 2 tenths of 1%! I don't see the significance of this. Revenues were up 9% which more than offset this profit percentage decline if it can be called that, which means that the actual profit dollars were in line with expectations if not slightly higher. In addition, Intel's CFO, Andy Bryant, said they were pleased with 3rd qtr results and said the 4th quarter would be strong with around a 2% increase in profit margins. This is from the horse's mouth so to speak, and in my opinion has a lot more credibility and validity than all of these so called analysts or in laymen's terms, fortune tellers or carnival hucksters. The great companys of this world like Microsoft and GE do not have profit margins anywhere near 60%. AMD, a so called competitor, loses millions every day, year in year out, is greeted warmly when they report lower losses, but losses none the less. It appears to me that those so called experts who are negative to Intel, are either short the stock, own puts, or are looking to buy at lower levels. Thank you for your time and I hope that you have a moment to reply. Rocket **** Thanks for your question, it is one we debated in length on Tuesday after Intel released their report. We also feel that INTC had a good quarter and they have a positive future with the continuing boom in the Internet and thus computer sales. The reason we have heard so much negativity towards INTC's earnings report is what it means to market sentiment. The market is in a consolidation/correction phase that is even more unstable because it is October and we have Y2K quickly approaching. We also have had two interest rate hikes and the potential for one more hanging over our head. To combat all of these fears was the prospect of strong 3rd quarter earnings to drive stock prices. We have seen some reports from a few of the Dow components and Internets like YHOO but Intel is the first of the big names that produce huge profits. If they were unable to meet estimates (and really we want to see them beating estimates), that somewhat eliminates our one catalyst to drive stock prices higher. So analysts and investors are using Intel as the measuring stick to gauge how good other earnings reports might be. I hope that helps with your question. SUNW beat estmates by .02 cents after the close on Today so maybe that will help to reaffirm the outlook for strong 3rd quarter reports. Thanks, Ryan Nelson Asst. Editor **** I love this service, I have made money and I have lost money (through stupid mistakes) and I appreciate your honesty in telling us about your losing trades, so that we may learn in the process. That is what I feel makes this service the best I have seen and used. Thanks again Richard **** Dear Jim, Once again those who really don't get it write to complain to you that Broadvision is not a current pick. I find a great deal of humor in that logic but I really am sorry that you have to deal with those type of letters. I do believe Broadvision was a pick of Option Investor when it was around 90.00 per share. I know this because I read about the play in Option Investor. I rolled the stock buying 500 shares here and there and by selling and buying back naked puts. From August through most of September I played Broadvision and made over 19,000.00. In fact I followed the rules and sold to soon the last time at 122.00. The next day Broadvision took off on its way to 180.00 and has really never looked back. Sure I wish I had stayed in longer but I followed the rules and have a great profit to show for it. I haven't played it since because it has become to rich for my blood. Also I feel it has a huge downside potential after posting such strong upward gains. I completely agree that this stock is not currently a recommendation. One last point. About 25 to 40 percent of the plays I do come from choices I have seen on Option Investor. That leaves me finding the other plays on my own. I have developed my own style and favorites along with your suggestions. Sometimes I think these people who write and complain to you can only play what you suggest because they haven't learned to fend for themselves. I hope they learn to fish before they drown in their own stupidity. Thanks for all the good work you do. Sincerely, Ralph **** I just need to get this off my chest .... I think I'm still in a daze. - From Sunday nights writeup -->Furthermore, bad decisions lead to more bad decisions. When you realize that you are reacting to events instead of planning for them, you have lost the battle. Boy is that right! ... I did a dumb thing .. I've been hovering around up 60 to 70% for the year (started options Aug98(bad timing)) ... Moved to playing only the OEX mid year 20 to 40 contracts usually. The beginning of this week I had 115K ... Then Monday I tripped ... I told myself I wasn't going to trade until the Fed anouncement .. I then end up buying 20 calls (in the spread) about 5 mins to the annoucement (greed I guess) ... another 20 calls... It's already going up and I've already made money .. but I hold ...Bam.. But I hold .. Buy 40 more calls now that it turns around ... The next day (wed) I sell a little early and take a small minor loss... If I'd have held I could have made money .. Now I start stumbling all over myself ...I start trading way too much trying to get back the losses.. 15 orders (20 contracts each) of the same calls/puts buy/sell all at losses about 3/4 of $1 .. So Thursday (the edge of the cliff) I buy 80 puts .. sell them later for about $1 loss. Towards the end of the day I say F#@! IT! and by 120 contracts OEX 705 calls at 3 1/2.. As soon as I do the market starts dropping .. I wait a little .. I say F#@! IT! .. buy another 100 at 3. Way too much emotion by now ... I go to sleep (Almost forgot to set the alarm.....would have been a good thing!) .. Wake up .. Futures are up .. but they came back down and the bonds are selling off ... Maket opens .. CNBC reporting how many downgrades and had bad it looks ... I see the option open at 2 3/8 ... I'll just hold until after at least the first hour or two .. I don't listen to myself and sell 100 at 1 3/4 (saying I just sell half) at 10:00amEDT... 15 minutes later I sell my other 120 at 1 1/4 (the low of the day) .. at 11:19EDT .. I buy 80 puts to try and make up something (anything!!) .. As soon as I do the market starts shooting up again (I'm in total shock by now) .... I sell them for about 1 1/2 point loss at 12:30 ... So what I've done all year is gone and I'm in the red on top of it .. from being up about 60% (115K) in the black to being down 50% (35K) in red just like that! Now I've got to make it up but I don't have much money so I guess it's going to take awhile......... The worse part is I felt before listoning to CNBC that the market would go up and that I would hold through any weakness .. only to not do that then seeing that I was right and could have gotten off at just a fractional loss. Has anyone else done anything this stuipd and was able to turn it around!!? Anyway, Thanks for reading ... Still Dizzy ... (Name Witheld) Dizzy, you made us dizzy just trying to contemplate the sequence of events. Unfortunately almost all of us have lived the exact same scenario just maybe not to the same excess. Rest assured that anyone can come back from a defeat as long as they have two things. Capital and the right attitude. No amount of money will make up for a wrong attitude. Once you have the right attitude you can work miracles with very little money. You just have to absolutely be very strict and avoid emotional trading. (see above) Emotional trading will kill you. We would suggest not trading the OEX. As you know from experience a direction change in the market will knock -1.50 off the spread of an OEX option in a heartbeat. If you have capital restrictions $1.50 can be a lot of money. Stick to stocks with good trends, buy in the money if you can afford it and sell too soon. Jim ***************** PICK NEWS - CALLS ***************** *** ONLY PLAY CALLS WHEN MARKET RECOVERS *** *** ONLY PLAY CALLS WHEN MARKET RECOVERS *** *** ONLY PLAY CALLS WHEN MARKET RECOVERS *** *** ONLY PLAY CALLS WHEN MARKET RECOVERS *** XMCM $60.94 +3.56 (+5.81) This one's a trooper. So far XMCM has weathered the storm, which is amazing considering the severity of the recent decline in the broader markets. Even Intel's lower than expected earnings announcement wasn't enough to keep this bull down. If the broader markets were to turn, imagine the possibilities for XMCM. The stock broke its resistance level at $60, which proved to be just another bump in the road. The next resistance point for the stock is $67, lets see if we can reach this point as easily as the last. When placing new trades, wait for slight dips in the stock. A good entry point at this time would be $58, as we did get small intraday pullbacks during today's trading session. With the bears running wild, its comforting to know you own one of the few remaining bulls. There was no additional news to report at this time that would alter our play. AXP $142.00 +0.00 (-7.69) Thanks to today's comeback by the broader markets we live to play another day. AXP closed the day unchanged despite the rising bond yield, which continues to hurt both the financial sector and our play. Today, bond yields jumped to new two-year highs, luring money into Treasuries and out of stocks. Investors had the same intentions with AXP until it hit its 50-dma at $38. At this point the stock bounced and didn't look back. This is a good sign going into tomorrows trading session, which should pick up right where it left off. However, keep in mind that another piece of our current economic condition will be released tomorrow. The PPI numbers will be released prior to the opening of the market. With unnerved investors flooding the market right now, look for another day of volatile trading. When entering new trades, if possible, wait for a slight pullback in the stock. $140 would be a good entry point however, if the bulls are released by good economic data, go with the flow and enjoy the ride. NOK $95.19 -1.88 (-4.13) It has certainly been a rough couple of days in the market for our cellular stock play. Nokia dipped on Thursday posting big volume and violating its 10-dma. Nokia did manage to maintain support just above $94.50, a support which held firm last week, offering a solid entry point. So, what could possibly be dragging the king of mobile phones down? Well, fears of rising U.S. bond yields have had an adverse effect on the Latin and European markets while adding pressure to ADR's as well. Nokia has had to contend with these fears while trying and stay afloat in a topsy turvy US market. Merrill Lynch has added Nokia to their "Focus One" stock list, stating that they like the fact that Nokia continues to hold a 9-12 month lead over their competition. On Wednesday, Hewlett Packard revealed their wireless strategy along with a list of 24 partners that they will be working with to bring about their e-services initiative, which of course, included Nokia. Nokia issued a statement on Wednesday regarding the licensing of the software used in 3Coms Palm organizer. Nokia has also announced that they will develop a line of cellular devices that will utilize the Palm computer operating system. They will be joining forces with Philips Electronics and Handspring to develop the hand-held computer/cellular phone. Watch for the return of positive momentum before entering a new play. NT $54.81 -1.13 (-2.13) If you are a dedicated CNBC watcher, you will understand what I am referring to when I say that Nortel spent the day trying to "come together". Nortel had some momentum at the opening but took a turn and headed south for a bit, providing some room for a good entry. NT then tried to follow the market up taking a few bounces off of a support set right around $54, closing down just over a dollar and just slightly above its 10-dma. As long as NT does not violate its 10-dma this could be an ideal time to make an entry. Watch for confirmation of continued positive momentum before making a new play. On Wednesday, Nortel announced the launching of a new high speed network for Staples. Also Nortel announced that Telergy had become their first North American customer for NT's Fraud Solutions System. On Thursday, Nortel was selected by DSLnetworks to provide their Shasta 5000 Subscriber Service System. ITVU $42.25 +2.38 (-2.25) The bullish indicators that were in place for the shares of ITVU have remained steady in the midst of a volatile session for the stock. Profit-takers continue to step to the plate, but support has been strong in the shares, holding up well today at the $42.25 level. The trading pattern in the shares of ITVU remains consistent with the blue chip internet stocks that tracked higher today. There have been no violations of the current positive technical pattern in the shares thus far, so look for higher prices to continue. Short- term support is sitting around the $40 level, with resistance at $43.38. With tomorrow's PPI number to be announced before the trading day begins, and it also being a Triple Witching Friday, expect there to be major volatility in the sector. Look for the momentum in the shares to give you some direction after the first hour of trading to determine whether to enter a new position. Confirm a positive technical pattern in the midst of what could be an up and down day. Keep trailing stops tight to protect profits. QCOM $204.03 -0.31 (-9.91) Volume on this lucrative momentum play has been in continual state of fluctuation and at times has even dipped to as low as 50% of its ADV. So it's hard to interpret this factor when citing the stock's losses over the past three days. QCOM remains strong above the 10-dma ($201.03) - an indicator the stock hasn't sunk below since the play's inception mid-September. And today the Internet sector showed a little spunk towards the end of the day but consider waiting until after the PPI numbers and the market confirms upward direction before using this current level as an entry point. Internets are very HIGH RISK PLAYS AND ALWAYS VOLATILE. Remember what first gave this stock a kick in the pants? - and yes, I know many of the loyal readers already know this. It was the company's announcement that it was proactively seeking a buyer for its mobile phone manufacturing unit. Well today this important proposition resurfaced once again. In an interview at Telecom '99 in Geneva, Chairman and CEO Irwin Jacobs stated that both US and foreign companies have expressed a serious interest in acquiring the unit and some deal is likely to be reached by the end of the year. ADBE $118.25 +1.19 (+3.56) ADBE held up well amid the Internet sector's tailspin on Wednesday and today took back the quick loss. The stock's spread has narrow the past 2 days remaining bound within range of only 4.31 points. Volume was average as ADBE continued to maintain this new price level above near-term support ($114 and $115) and the rising 10-dma ($116.01). This is good news considering the uncertainty of the market and skittish investors. Keep in mind our momentum/split play is quickly coming to an end. ADBE splits 2:1 after the bell on October 26th and you should consider having your positions closed out by then to avoid the risk of any post-split decline. DELL $44.34 -0.09 (-1.16) For the newcomers, our strategy on DELL is to target shoot the stock at different levels of its support between $38 and $44 and then ride up the recovery. On Tuesday we added this play based on the heels of after-hours news that Intel missed its earnings' numbers by 0.02 and thus, would drag down the Nasdaq creating buying opportunities in the hardware sector. Since then volume has been rather light for the stock, but DELL shed $1.15 sending it just a smidgen above its 10-dma ($43.89). It's notable that twice in the past couple months DELL has fallen to its 200-dma ($41.44) prior to a significant rebound. But know that there are no guarantees this is the bottom. Remember if the market turns positive then the techs will be the first to respond so pay close attention to market sentiment. AOL $114.75 +3.94 (-6.81) AOL snapped back today taking in a little more than it gave up in yesterday's strong market decline. Even though AOL recaptured some losses, it has suffered significant profit-taking this week amidst interest rate concerns and worries over 3Q earnings. Technically yes, AOL is showing strength just a hair below near-term support of $112, under the 10-dma ($115). However firm support is visible at $109 and if the PPI numbers are inflationary tomorrow then look out below. Plus recall that unless we hear of a split announcement in the next few days that could drive up the share prices, this play ends when the company reports earnings next week on October 20th. In the news, Motorola (MOT) and AOL announced they with team up to provide instant wireless messaging. Accordingly, they will use AOL's instant messaging application on MOT's advanced wireless devices. If final terms can be reached soon then we could see the new product in early 2000. JDSU $132.00 +4.56 (+2.63) After yesterday's sell-off and ugly close, you'd have had to be a steely-eyed, cold blooded machine (the risk tolerant type) to take a position in JDSU at $126 (today's low) before it closed $6 up from the low. Per Tuesday's update, we hope you got out at $130 and were able to get back in at the low of the day. Stronger than average volume suggests, this is still a favorite of investors and money managers, with strong long-term prospects. Technically, JDSU is getting a bit flat from the last four arduous days on the NASDAQ. However, earnings are scheduled October 28 after the close, into which we could easily see further gains. Support at $125-$126; resistance at $135. Conservative types (relative term for this play) may want to wait for the strong move over $135 with volume. Or for the strong stomached, buy the dips where your risk tolerance allows. Also, remember they have a 2:1 split scheduled further out on December 29. VOD $48.31 -1.19 (-1.69) What the market giveth, it taketh away. As we noted Tuesday, "Be a bit cautious if volume tapers off. It may signal that the big recent move is near an end. Short- term support is at $49.50". Volume continues to taper, the price falls below support. In a down market with as big a price move as VOD has experienced following the 5:1 split, this isn't a surprise. The reason we keep it on the list is that the wireless phone sector is still showing strength (it is the future Internet frontier since there are far more wireless devices worldwide than PC's). Furthermore, after the market's big fall over the last 4 trading days, it's due for a bounce. We're sitting right on the 10-dma at $48 to boot, which should provide added support. Since VOD is walking the fence, we suggest caution. Enter only if the market, sector and stock make a solid bounce. HGSI $80.75 -3.25 (-5.50) We had cautioned that a temporary southern migration of stock prices might ensue and to keep your stops set. Brave souls could target shoot at $81. If you fit that profile, you got your wish and then some as HGSI touched the $77 range today. While it recovered to rest just below its 10-dma support of $81, to be comfortable re-entering this play, we need to see an immediate bounce from here with an increase in volume (it's been well below the ADV of 515K lately). Or else, we'll have the meat wagon and a pine box ready for Sunday. Another reminder: because of the volatility of this issue, the high spreads on bid/ask, and the thin OI, this play is for skilled surgeons only. GTW $55.13 +3.81 (+3.38) There was not as much fallout from the Intel earnings bomb as investors thought might be. GTW never went any further south than $50.31 (which also happens to be the 10-dma) - much more resilient than we thought. Following this really short term hit, GTW's volume and price are on the rise into earnings, scheduled for October 21 after the close (confirmed), just five trading days away. It's time to take a position (so long as the market cooperates); thus we offer strike prices tonight. Given the short time horizon until the announcement, we'll want to be out of the play prior to, since we never recommend holding over earnings. The logic is that if the price swells into the event, investors will then be free to take a profit, which they generally do once the news is out, especially if the company just meets the Street estimates or (God forbid) falls short. One more point to bolster our outlook for GTW: It climbed steadily throughout the day, cutting through market noise to close near its high of the day on volume 38% over its ADV. Of course, the market should be in our favor before we enter. No news right now to inspire the play - just earnings. BUY CALL NOV-50 GTW-KJ OI=1141 at $7.88 SL=6.00 BUY CALL NOV-55 GTW-KK OI= 554 at $5.13 SL=3.25 BUY CALL NOV-60 GTW-KL OI= 405 at $3.13 SL=1.50 **************** PICK NEWS - PUTS **************** YHOO $173.38 +5.81 (-18.75) Another wild ride on the markets continue to confuse investors whether to buy or sell. Yahoo investors were no exception to this current trading pattern. The stock finished the trading session on a higher note however, did traded lower at one point in the day. Even though the stock closed the day on the upside we feel this is only a slight stall to even lower levels. With so much uncertainty within the broader markets, another down day is inevitable, it's just a question of when. Tomorrow, Producer Price Index numbers will be released, which should influence the market and our play one way or another. If the numbers are above expectations, expect a negative reaction by investors. Continue to use caution with this play. The possibilities of lower levels exist for YHOO, however, keep your stops tight to be safe. Support is sitting at $165 where it bounced twice this week. SLB $55.25 -1.44 (+0.19) The upgrade from Monday has finally worn off for SLB and the stock has rolled over. This is what we suspected on Tuesday and we had some nice entry points. The overall weak market has produced a severe lack of buyers in all areas. We are likely to see the weakness continue. Oil prices ended lower today and SLB is nearing short-term support at $54. This level is where you may want to close up your positions to lock in profits but, before you do, check the market sentiment and oil prices. Poor performance in both areas could mean that $54 won't hold and you may want to stay in the play. After $54, mild support is at $53 before more strength at $50. CMGI $104.25 +4.25 (-8.25) Today the Internet blue chippers pushed there way higher, though rising interest rates kept the mood somewhat cool toward the rest of the Net sector. The bounce back today in the shares of CMGI was due to this stock being down well over 10 dollars intraday for the week, as well as the news that AdForce (ADFC) surprised Wall Street when the online advertising services company came in with a narrower than expected loss of 34 cents vs. projections of 38 cents. What seems to be good for AdForce is good for its proposed new owner: CMGI, which is buying Adforce. With the fear of more interest rate hikes and an overall market that just cannot wait to sell off and go lower with any sneeze of negative news, we believe this was a one day event for CMGI. This price surge today has provided us another possible entry point for another move to the downside. The shares traded up today but there was no real conviction. Until the $106 level is broken, the risk reward to the downside remains in our favor. Going forward we expect the selling to continue in CMGI. But as always confirm momentum and direction in the market before taking a position. Especially tomorrow, with a PPI announcement and a Triple Witching expiration. ********************************************* PICK NEWS - PUTS - CONTINUED IN SECTION THREE ********************************************* SEE DISCLAIMER IN SECTION ONE
The Option Investor Newsletter Thursday 10-14-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. ********************************************* PICK NEWS - PUTS - CONTINUED FROM SECTION TWO ********************************************* AMZN $79.59 -0.34 (-9.66) As other Internets (YHOO, AOL, CMGI) came up for air today with some nice gains, AMZN is still under water. Though it found support around $78.50 on two occasions today, the highs got lower throughout the day indicating that the trend is likely to remain down. This put play is working out nicely, even as C.E Unterberg Towbin began coverage with a Buy rating in yesterday's downdraft. While support remains at $75, today was the second day that AMZN has failed to close above its 10-dma of 81.94, even as its volume has squeaked back up to match its ADV. Until Internet analyst and investors alike get the great news (Christmas will again occur in December this year - a tongue and cheek comment we credit to briefing.com) and the earnings run gets started (scheduled for October 28), AMZN could go lower. However, we need to exercise a bit of caution since we noted on Tuesday that this would be a short-term play based on sector weakness. Tomorrow is option expiration day, which tends to hold up stock values. Couple that with a semi-recovering Internet sector and we have a road map that could lead us out of the jungle rather quickly. Keep those stops set if AMZN decides to join the rest of the sector in the upward movement. ************** NEW CALL PLAYS ************** KIDE - 4Kids Entertainment $54.50 +4.50 (+14.25 this week) *** ONLY PLAY CALLS WHEN MARKET RECOVERS *** 4Kids Entertainment is a vertically integrated entertainment based company. KIDE provides a wide range of services. KIDE designs, develops, and produces toys. It also handles international merchandise licensing media buying and planning, television distribution and production. KIDE is responsible for the licensing of World Championship Wrestling and the very popular Pokemon. This is a simple momentum run that has shown resistance to the recent market declines and no signs of tiring. Saying that KIDE has been in a short-term uptrend would be an understatement. KIDE has been a mover and a shaker, reaching a new 52-week high on what has seemingly become a daily basis. KIDE has been closing at or near the high of the day and this, combined with big volume, is indicative of continuing strong investor demand. There is no resistance in sight for KIDE, however, with such a big move lately, we must note the possibility of future profit- taking. If this does happen it could potentially create an ideal situation for making an entry ahead of an earnings run. We believe there is support right around $50 which would also make for a good solid entry point. We expect earnings to be announced November 11th and will confirm this with the company as we get closer. What is making KIDE so hot? Analysts are pointing their fingers at the Japan born Pokemon toy craze. For an expert opinion, I turned to my eight year old nephew who at once began spouting off more information on Pokemon then is currently available anywhere on the Internet. KIDE distributes the animated tv show, Pokemon of which, the success seems to be endless. Shares of KIDE appear to be along for the ride. Many expect the popularity of Pokemon to continue well into next year. BUY CALL NOV-45 IUK-KI OI= 70 at $14.13 SL=11.25 Strong vol today BUY CALL NOV-50*IUK-KJ OI=210 at $11.38 SL= 8.75 BUY CALL NOV-55 IUK-KK OI= 67 at $ 9.00 SL= 6.75 Strong vol today Picked on Oct 14th at $54.50 PE = 38 Change since picked +0.00 52 week high=$54.50 Analysts Ratings 0-0-0-0-0 52 week low =$ 1.67 Last earning 08/99 est= N/A actual= 0.36 Next earning 11-11 est= N/A versus= N/A Average Daily Volume = 682K Chart = http://quote.yahoo.com/q?s=KIDE&d=3m **** SYMC - Symantec Corporation $40.00 +1.31 (+2.53 this week) *** ONLY PLAY CALLS WHEN MARKET RECOVERS *** Symantec's grip on the software security market is as tight as Network Associates; the two continually duke it out for the #1 status. Its Norton utility software (more than half of sales) for individual and networked PCs helps computer users perform housekeeping functions, such as controlling viruses and restoring, backing up, and organizing files. The company also makes products that help PC users work from remote locations. Symantec is spinning off its Internet tools business. Distributor Ingram Micro accounts for 33% of sales. Symantec is using acquisitions and technology pacts to mount a push further into the corporate computing market. Symantec announced yesterday that BUY.COM, a leading Internet retailer and e-commerce portal site, had named them vendor of the year. The vendor of the year award is a tribute to a company that places value on creativity, revenue growth and overall quality of the relationship. Also the S&P Wealth Web site, named Symantec there "Stock of the Week", and have called the stock a compelling value in the software industry. Thanks to a big push to sell its software online there revenues increased 166 percent for the June quarter. Looking forward to this month's earnings report to be announced on Oct 20th (next Wednesday), the shares have surged there way to a 52-week high this week at $40.18 and currently sits right under that level at $40. The volume has picked up tremendously with all of the positive news and with a positive outlook anticipated for next week's earnings. With the positive technical pattern firmly in place, we want to position ourselves for the probable push to new highs ahead of the earnings report. That gives us 4 more trading days to play this one. The positive momentum, accompanied by the strong volume in the shares should give the shares a boost. Confirm continued momentum before entering a new position. The current resistance level is $40.18, support is at $38.50. BUY CALL NOV-35*SYQ-KG OI=178 at $4.88 SL=3.13 BUY CALL NOV-40 SYQ-KH OI=257 at $3.00 SL=1.50 BUY CALL NOV-45 SYQ-KI OI= 55 at $1.19 SL=0.00 High Risk! BUY CALL JAN-35 SYQ-AG OI=525 at $7.38 SL=5.63 BUY CALL JAN-40 SYQ-AH OI=167 at $5.00 SL=3.25 Picked on Oct 14th at $40.00 P/E = 34 Change since picked +0.00 52-week high=$40.13 Analyst Ratings 5-1-0-0-0 52-week low =$ 8.69 Last earnings 07/99 est= 0.44 actual= 0.45 Next earnings 10-20 est= 0.42 versus= 0.19 Average daily volume = 896 K Chart = http://quote.yahoo.com/q?s=SYMC&d=3m **** TXN - Texas Instruments $85.00 -0.50 (-1.00 for the week) *** ONLY PLAY CALLS WHEN MARKET RECOVERS *** Texas Instruments is a global semiconductor company and a leading designer and supplier of digital signal processing solutions. TXN has a 45% share of the market for digital signal processors. DSPs convert signals such as sound and light into digital form and are used in cellular phones, VCRs, camcorders, cars and modems. The company also makes analog chips, logic chips, microprocessors and micro controllers. It's pioneering digital light processor uses tiny mirrors to create an ultra sharp display for TVs, PCs and movie theaters. Here we go again with this winner! It seems we are adding this stock on a regular basis. Just can't keep a good profit down. TXN touched down on support today and rallied back up as investors snapped up tech stocks after Apple Computer's (AAPL) great numbers. With earnings coming up on Tuesday, Oct 19th, this would be a good time to catch a run into the announcement which is after the bell. TXN has been in a nice rolling pattern lately and today it did a classic bounce off support. We expect TXN to reach the $90 level into earnings, PPI willing. There was a good amount of volume pushing down on the stock but bargain hunters looking for the next deal jumped on TXN and pushed the stock back up to the highs of the day. Techs in general have been holding up nicely in the face of the recent sell-off and TXN flexed its muscles today. Keep a watchful eye on tomorrow's PPI report before jumping on this call play. If we get a low number we could expect a sharp rally from here. If not look out below! This play is mainly momentum/earnings run related so keep your stops tight and listen for sideswipes (bad news) at any turn. And, as always, OIN does not recommending holding over earnings so plan your exits well. BUY CALL NOV-80 TXN-KP OI= 696 at $8.38 SL=$6.25 BUY CALL NOV-85*TXN-KQ OI= 836 at $5.25 SL=$3.75 BUY CALL NOV-90 TXN-KR OI=2413 at $3.50 SL=$1.75 BUY CALL NOV-95 TXN-KS OI=1302 at $2.00 SL=$1.00 Picked on Oct 14th at $85.00 P/E = 76 Change since picked +0.00 52-week high=$94.13 Analysts Ratings 5-3-4-0-0 52-week low =$24.88 Last earnings 07/99 est=0.83 actual= 0.92 Next earnings 10-19 est=0.43 versus= 0.20 Average daily volume = 3.36 mln Chart = http://quote.yahoo.com/q?s=TXN&d=3m ************* NEW PUT PLAYS ************* CNXT - Conexant $68.88 -1.94 (-6.06 this week) Spun off from Rockwell International's semiconductor operations in 1998, Conexant Systems supplies analog PC and fax modem chipsets. Their other product divisions provide chips for personal imaging, wireless communications digital infotainment and network access. Its main business has been the PC modem chip business, which recently has been in somewhat of a slump. Their continued expansion into the other product divisions seems to be helping pull the company out of the hole. Customers include Compaq, Ericsson, Thomson, and Cabletron Systems. Industry competitors include the likes of Lucent, Siemens, and Texas Instruments. Last Thursday a company called Hi/fn(HIFN) knocked the legs out from underneath the semiconductor industry after they announced lower than expected first-quarter revenues. If you owned stock in just about any company in the SOX (semiconductor index) you probably took quite a bath. CNXT wasn't left out. Shares of the chip maker closed last Thursday at $79.88 and Friday morning CNXT opened over $5 lower and hit $70.13 before rebounding into the close. Monday CNXT continued its rebound back towards the $80 mark and then promptly began to deteriorate. Most of the recent decline seems to have come on interest rate and earnings worries, as their has been no negative news on CNXT. At least not any that has been reported yet. Today the SOX managed a 1.5% increase while shares of CNXT lost just under $2. The decline this week in CNXT has come on better than average volume at 2.6 mln shares per day. Technically there are a couple of other important points. Up until today the $70 area has provided good support for CNXT and it has also closed under its 10 and 30-dma at $75.64 and $76.53 respectively. The next area of support for CNXT is in the $63 area and the chart doesn't look good. One thing to keep in mind in considering a new put play in CNXT is they are scheduled to release earnings October 20th. They did beat their earnings estimates last quarter by about 42%. Analysts are looking for $0.29 this quarter. The stock could turn around from here and make an attempt at an earnings run, but at this time it doesn't look very likely. As always assess your risk profile before entering a new play. BUY PUT NOV-75 QXN-WO OI=262 at $11.13 SL=8.75 BUY PUT NOV-70*QXN-WN OI=561 at $ 7.88 SL=6.25 Average Daily Volume = 1.58 mln Chart = http://quote.yahoo.com/q?s=CNXT&d=3m ********** PLAY OF THE DAY ********** AMZN - Amazon.com $79.59 -0.34 (-9.66 this wk) Amazon.com comprises the Internet's #1 music, #1 video, and #1 book retailer. Amazon.com opened its virtual doors on the World Wide Web in July 1995 and today offers Earth's biggest selection with online auctions, toys, electronics, free electronic greeting cards and more than 4.7 million book, music-CDs, video, DVD, and computer-game titles. Amazon.com seeks to be the world's most customer-centric company, where people can find and discover anything they may want to buy online. As part of its efforts to provide the best shopping experience for customers, Amazon.com provides secure credit- card payment, personalized recommendations, streamlined ordering through 1-Click technology, and hassle-free auction bidding with Bid-Click. Now, if they could just turn a profit! Tuesday's Write Up It used to be "as goes GM, so goes the country". Now it's "as goes YHOO, so goes the Internet sector". YHOO took a $10 nosedive yesterday following blow out earnings last week. It was only a matter of time before other issues, including AMZN came to the same party. It doesn't help that a jittery bond market can also sway this interest-rate-sensitive issue just waiting to get nailed by Greenspan's passing car. In short, the Internets are on the move. It won't help either that Intel's earnings will cast a long shadow in the technology market over the next few days. The good news is that AMZN will report earnings on Oct 28th. Thus we may see an earnings run after the hand-wringing and despair runs its course. But until then we have a good put play opportunity. Support is at $75. Technically speaking, we are in the positive, but RSI just gave the sell signal. Volume, though a little low compared to the ADV, should step up tomorrow in the down direction, drafting behind Intel. This play should be good for only a few days as a result. Buy this one on any strength in tomorrow's action. Or don't buy it all if your stomach doesn't like roller coasters. It is volatile, making it an inherently risky play. Thursday's Write UP As other Internets (YHOO, AOL, CMGI) came up for air today with some nice gains, AMZN is still under water. Though it found support around $78.50 on two occasions today, the highs got lower throughout the day indicating that the trend is likely to remain down. This put play is working out nicely, even as C.E Unterberg Towbin began coverage with a Buy rating in yesterday's downdraft. While support remains at $75, today was the second day that AMZN has failed to close above its 10-dma of 81.94, even as its volume has squeaked back up to match its ADV. Until Internet analyst and investors alike get the great news (Christmas will again occur in December this year - a tongue and cheek comment we credit to briefing.com) and the earnings run gets started (scheduled for October 28), AMZN could go lower. However, we need to exercise a bit of caution since we noted on Tuesday that this would be a short-term play based on sector weakness. Tomorrow is option expiration day, which tends to hold up stock values. Couple that with a semi-recovering Internet sector and we have a road map that could lead us out of the jungle rather quickly. Keep those stops set if AMZN decides to join the rest of the sector in the upward movement. BUY PUT NOV-85 YQN-WQ OI=1400 at $11.00 SL=8.75 BUY PUT NOV-80 YQN-WP OI=1674 at $ 8.00 SL=6.25 BUY PUT NOV-75 YQN-WO OI-1969 at $ 5.38 SL=3.25 Average daily volume = 12.14 mln Chart = http://quote.yahoo.com/q?s=AMZN&d=3m ************************ COMBOS/SPREADS/STRADDLES ************************ Spread Strategies.. Over the past few weeks, I have received numerous requests for explanations of the most common spreads (or combination plays) and the basic strategies/techniques that are used in position trading. Today we will review the primary spreads and some definitions that are relevant to this type of option trading. Spreads - An Overview: In option markets there are many ways to trade for profit. One strategy involves speculating on the direction in which the underlying security will move. If a trader correctly predicts the market direction and takes the appropriate position he can expect to make a profit. But even when the market moves in the predicted direction, owning the correct position (CALL or PUT) in an option market will not necessarily be profitable. The reason is, over short periods of time, (while the trader is waiting for the option price to move towards the theoretical value) the position is at risk from a variety of changes in the market which threaten his potential profit. The majority of successful option traders engage in some form of combination, position or spread trading and many investors use spreads in an attempt to reduce the effects of short-term volatility that goes with any option position. The techniques benefit from the law of probability by enabling an investor to hold option positions over longer periods of time and most of these methods help maintain profit potential while reducing the short-term risk. While there is no perfect position for option traders, most successful investors learn to hedge their risk in as many ways as possible, minimizing the effects of adverse, short-term market movements. Premium Disparities In Option Pricing: A spread is a technique which involves the buying and selling of simultaneous but opposing positions in different option series. An experienced trader knows there is an identifiable relationship between the different series and when the relationship appears to be temporarily mispriced, the spread trader will try to buy the underpriced position and sell the overpriced position. The trader expects to maximize his profits as the prices of the instruments return to a linear relationship. Another type of spread involves the price relationship between different time periods or strike dates. In its simplest form, it is called a calendar spread. When this relationship is violated in the marketplace, a potential opportunity again exists by selling the overpriced contract and buying the underpriced contract. In its most basic form, position trading provides investors with methods to benefit from mispriced options, while at the same time reducing the effects of short-term changes in market conditions. Common Spreads: Bull-Call (or call-debit) Spread: The bull-call spread involves the purchase of one call and the sale of a higher priced call. An investor who initiates the bull spread using out-of-the-money calls for each leg of the spread is extremely aggressive. The more conservative investor will establish the spread with the lower call in-the-money and the higher call at-the-money, where the greatest amount of (sold) time premium exists. An investor can use this strategy when the outlook for the underlying issue is bullish but a reasonable amount of downside protection is required. In the newsletter, we prefer deep-in-the-money plays for maximum downside protection while still retaining a small but favorable profit potential. The most successful bull-call plays this month were Newmont Mining (NEM), Barrick Gold (ABX) and 3Com Corporation (COMS). Bull-Put (put-credit) Spread: The bull-put spread consists of the purchase of one put, and the sale of another put with a higher strike price. An investor would use this strategy when he believes that the stock price will remain above the strike price sold at the end of the strike period. The position will yield a credit and this is the maximum amount of profit the investor can earn with this strategy. Because the spread is a "credit" spread, a broker will require the investor to provide collateral for the transaction. We generally favor short-term, out-of-the-money positions for low risk, conservative returns. Recently, we offered successful bull-put plays with American Express (AXP), Philips Electronics (PHG) and Micron (MU). Bear-Call (call-credit) Spread: The bear-call spread involves the purchase of one call (higher strike) and the sale of a lower strike price call. This spread also produces a credit and the amount is the maximum profit gained in the play. The spread remains profitable if the underlying security closes below the lower strike price and the objective is for both options to expire worthless. This position requires the same collateral as the bull-put spread. Some examples of this type of play are the recent bearish spreads in Yahoo! (YHOO), PMC Sierra (PMCS) and Sapient (SAPE). Bear-Put (put-debit) Spread: The bear-put spread involves the sale of one put with a lower strike price and the purchase of another put with a higher strike price. The sale of the lower strike put reduces the amount of the initial debit but also limits the maximum profit potential of long position. This is a viable option trading strategy for investors who are bearish on a particular equity. In the aggressive bear-put spread, an out-of-the-money put is sold because the investor believes the stock price is going down significantly. Our favored technique involves the use of in-the-money options for both positions. This month's best (bear-put) spread was the Sealed Air (SEE) position, a $1.50 profit on $3.50 invested. Calendar (Time) Spread: This spread can be created by selling an option at a specific strike price and buying a longer term option with the same strike price. The investor profits most when the stock price is near the strike price at expiration. The investor can then close the spread for a small profit by selling the long position or continue the play by selling a new (short) option against the current long position. He can also hold the contract until expiration hoping the value of the option will increase. The philosophy for using calendar spreads is that time will erode the value of the short term option at a faster rate than it will the long term option. This type of spread play is one of the most conservative and profitable positions available to novice traders and we offer many candidates for this strategy each month. The most recent calendar spread winners were Viatel (VYTL) and Legato (LGTO). There are many other types of spreads and position trading strategies but they require a much more extensive explanation. We will try to cover some of these complex positions on an individual basis at a later time. Good Luck! ************ See Disclaimer in section one ************
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