The Option Investor Newsletter Sunday 11-21-99 1 of 6 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 11-19 WE 11-12 WE 11-05 WE 10-29 DOW 11003.89 +234.57 10769.32 + 64.84 10704.48 - 25.38 +259.61 Nasdaq 3369.25 +148.10 3221.15 +119.95 3102.29 +135.86 +149.88 S&P-100 749.30 + 18.21 731.09 + 12.29 718.80 + 1.77 + 31.40 S&P-500 1422.00 + 25.96 1396.04 + 25.84 1370.23 + 7.30 + 61.28 RUT 461.27 + 11.58 449.69 + 7.28 442.41 + 13.77 + 10.22 TRAN 2976.50 -113.07 3089.57 + 85.58 3003.99 - 54.99 +195.83 VIX 19.63 - 2.05 21.68 - .38 22.06 - 2.50 - 0.33 Put/Call .47 .51 .51 .55 ****************************************************************** Nasdaq spell subdues the double witch. It was just last Sunday that we were concerned about the Fed meeting and the possible rate increase. It seems like weeks ago to me. The undercurrent of tension in the market is rising and traders eyes are glazing over. The record Nasdaq run continues to defy gravity and logic. Traders on the floor are finding it harder every day to find something that has not jumped +20% in the last two weeks. But, the buying continues. Even when a dog of the Dow barked out an earnings warning Friday and dropped -12%, the blue chip tech leader, IBM, soared $7.00 and held the Dow to only a minor loss. More to the point the Dow held 11,000 when the advance/decline line was severely negative all day long. The buyers came off the bench on every dip and while volume was not heavy it was strong. The Nasdaq continued it's vertical climb with no hint of being tired. There was a small drop at the open and again shortly after the morning rally but the outcome was never in doubt. This rolling rotation could be taking the pressure off as we move forward. The rally is moving on a different set of leaders every day. This is a good sign but it only prolongs the future and eventual correction. When I was writing about the Nasdaq's +700 point gain on Thursday and the lack of substantial profit taking, I neglected to paint the picture in its entirety. First, I did not say the Nasdaq was going to crash. I only said we were due for some profit taking. You know I like to point to historical trends to forecast future events. The chart below contrasts the Nasdaq from this period in 1998 to the same period today. You can see we have had an identical rally this year compared with 1998. There are some differences. In 1998 we were coming off the lows from October disaster. The Nasdaq had dropped -33% (-660)from the July high of +2000. The Dow had only dropped -21% in the same period. There had been significant and complete capitulation. This year there was only a -300 point drop from the October high. Also note that the angle of ascent is steeper this year. You can see from the charts that we started later this year and moved faster but both appear to have arrived at Thanksgiving week with the same +700 point gains. Also you can see the Nasdaq hit 2000 and went sideways for the first couple weeks of December as prices equalized from the big gains. Also, this week in 1998 we did not have Y2K only 28 trading days away. Now to be fair to the historical picture, the Nasdaq did continue on up to a high of 2510 on Feb 1st for an astounding +1163 point gain from the October lows. After the rocky December period beginning with Thanksgiving week, the index really did not have any serious problems until mid January with a -200 point drop. History never repeats itself exactly but as you can see by the dual charts above the trends are scary. If the trend continues then next week could be a challenge. If you were a fund manager would you place large bets next week? The volume on the Nasdaq was the ninth heaviest on record again Friday with 1.4 bln shares. The index is now up +53% YTD. The divergence between the Nasdaq and its 200 day moving average now exceeds 25%. Only twice this year has the Nasdaq passed this threshold. In July and February and both times it dropped over 10% in the next two weeks. The double witching options expiration Friday could have been choreographed by the tooth fairy for as little volatility as it brought. The money continued to flow into the blue chips but the small caps slowed somewhat. The conventional wisdom going forward has less and less money going into smaller stocks with unknown Y2K risks and moving more into larger stocks due to their apparent liquidity and safety. Even though the Dow was only down slightly the negative adv/decl line could be an omen. The Caterpillar earnings warning was ignored by the market in general. CAT lost -6.75 but it was a yawner in the broader market. IBM however energized the techs with comments to a Soundview analyst that their troubled PC division may be profitable in the fourth quarter. IBM soared +7 on the news and that was on top of large gains Thursday as well. The telecom sector got another boost from the Vodaphone deal. They went hostile with a +$130 billion offer after they were turned down by the Mannesmann board. The combination of the two companies would give Vodaphone over 42 million customers and make it the eleventh largest company in the world. The deal is being rejected by German workers who fear layoffs and cutbacks if Vodaphone is successful. The merger of the two companies would provide a more united front and actually increase the number of cell phone users through better pricing and service. Companies like Motorola and Qualcom would benefit from standardization and increased volume. Here is the list of the other top ten companies and their market cap. General Electric (NYSE:GE) 463.1 bln conglomerate Microsoft (NASDAQ:MSFT) 438.6 bln software Exxon-Mobil (NYSE:XON) 277.3 bln energy Cisco Systems (NASDAQ:CSCO) 277.2 bln communications NTT (TOKYO:9432) 270.6 bln telecom MCI WorldCom-Sprint (NASDAQ:WCOM) 264.7 bln telecom Wal-Mart (NYSE:WMT) 262.0 bln retail Intel (NASDAQ:INTC) 249.7 bln semiconductor Lucent (NYSE:LU) 241.2 bln communications BP Amoco-Arco (ISEL:BPA) 231.1 bln energy VODAFONE-MANNESMANN 225.6 bln telecom Royal Dutch/Shell (AMS:RD) (ISEL:SHEL) 225.3 bln energy Pfizer-Warner Lambert (NYSE:PFE) (NYSE:WLA) 206.8 bln health One of today's market events that will eventually bite us is the oil price increases. With oil trading over $26 a bbl it is hard to remember the $10 oil from earlier in the year. The tech buyers may be ignoring oil prices but the transportation sector is beginning to crumble. Oil is the second biggest expense airlines have and oil futures contracts are now showing strong odds for even higher prices next quarter. The higher oil prices will eventually show up in the inflation numbers and $28-29 oil will not win any friends at the Fed. One of the market movers for Monday will be MSFT. The judge in the Microsoft case, after discussing with both sides, appointed a mediator to help resolve issue. This is a huge step forward. By appointing a mediator and pushing back until February the next phase of the trial, the judge is giving both parties time for a peaceful resolution before the next phase begins. Judge Jackson does not want the MSFT trial to take the rest of his life. He realizes that the best way out is a compromise instead of a judicial ruling that will be appealed for the next decade. There is now light at the end of the Microsoft tunnel. Bill Gates may not like what he sees but at least he has an opportunity to control some of the outcome. MSFT was up strong after the close and should rebound next week even though a resolution could be months away. Y2K melt up? This is the phrase that is being used repeatedly by analysts to describe the lack of a Y2K sell off. According to the Fed only 39% of the public now plans to withdraw extra cash before year end for emergencies. This is down from 62% last march. This represents the dwindling Y2K fears and is setting the tone for the markets. The Fed is out of the way and investors see no Y2K disasters building in the market and purse strings are easing. Investors that had planned to sit on cash for the great buying opportunity in December are now not sure it will happen. This cash is coming back into the market and is not showing signs of fading. We will need to keep close watch on the money flows in/out of mutual funds over the next four weeks to see if the sentiment changes. Funds however are now faced with a dilemma. Many have large gains of 30-50% or better in many tech stocks and there is still uncertainty ahead. Should they move some cash to the sidelines to lock in their gains and prepare for some withdrawals or just sit tight and hope the run continues through December. When you consider the large bonuses that ride on their yearly percentage returns, some may opt for the conservative stance and safety of cash. The next five weeks will be very interesting in the market as each money manager executes his Y2K plan. The VIX closed at 19.63 and is now solidly under 20. This is like waving a red flag at an angry bull. Anything under 22 is cause for concern and under 20 is dangerous. Cautious traders should be moving to the sidelines until it moves back up into at least the 21-22 range. Aggressive traders should continue to examine the market internals before making every trade to determine market direction. If the advances are being beat by the decliners and the ticks are negative then you should be very cautious about going long. Next week is typically light in terms of volume as traders close positions early and prepare for the long weekend. Thin volume could increase the volatility and any directional changes could be magnified. To recap, oil prices are up and fueling inflation. Bond yields were up to 6.18% intraday. Decliners beat advancers. The Dow, S&P-100, S&P-500 were all down slightly but held right at support. The Wilshire Total Market Index for all stocks was down but only slightly at 13,126, -22 for the day. The VIX is at it's lowest level since July-19th, the day before the July correction. Market internals are deteriorating but the major indexes are holding. Caution should be the watchword for the week. Economic reports are very light this week with only Durable Goods on Tuesday and Personal Income/Spending on Friday. The week after Thanksgiving is a problem with nine reports including the critical Nonfarm Payrolls closing the week on Friday. News alert: The famous Wall Street saying, "Buy low, sell high", has been replaced with, "Buy high, sell higher." My educational article this week is called "Pay Check or Lottery Ticket." This is the third in the series. Look for it on the website. Have a safe week in the market. Pick you entry points VERY CAREFULLY and sell too soon. Jim Brown Editor Beginning tonight we have a new column written by a highly successful option trader, who is also a woman. You probably saw her scorching comments to Janar last week in the readers write section. Renee is tired of seeing the investment world presented in male terms and she is coming out to fight. Renee will be writing about options trading from a female viewpoint and will contrast the macho Marine views put forth by Janar in the Traders Corner. Check out Womans World. Give her your support and let her know how you feel about her columns. Good Luck Renee, and welcome aboard! Jim (catch her article in section two of the email) *********** JIM'S PLAYS *********** This was a really exciting week for me but in reality I could almost rename this section as "Jim's Play" since QCOM was almost my total focus for the entire week. I did make a few other plays on the OEX, AOL, EXDS and JDSU but they paled in comparison to the QCOM moves. OEX - Puts At the end of Tuesday's trading the market was up strongly and closed at the high of the day. The Vix was falling to almost 21 and I decided to play the OEX-750 puts for the Wednesday morning open. Wednesday did drop some after the open but good news was still powering the market and I closed the position for a -.50 loss. On Thursday at the close the Vix was even lower and the possibility of a Friday sell off on profit taking was again on my mind. I bought the NOV-750 puts again for $2.88 and sold them late Friday morning for $4.00. Not a big gain but eventually this puppy is going to roll over and I want to be there when it does. As you can see by the chart above we seem to have hit the ceiling at 750. Next week should be interesting. I did not buy puts at Friday's close because I did not want to get caught in the premium evaporation on Monday morning as December options become current month. AOL - Calls When AOL dropped back to $148 on Tuesday after the big run on Friday I was watching to see if it would recover. When it passed $152 moving back up I bought the Nov-150 calls for $6.00. I planed to hold them for several days and capture the final split run. After the jump to $160 near the close on the market surge I decided to take a quick profit in case the market did pull back on Wednesday. I sold for 9.38 and a quick 50%. I tried to play the same position again on Thursday but the drive died shortly after the open and I bailed for a -.25 loss. I did not want to be in AOL on Friday as split traders started leaving the play. EXDS - Calls Exodus caught my attention on Tuesday with the big gain but it was too late to make a play. After the sharp drop on profit taking on Wednesday I watched it recover quickly and bought the NOV-100 calls for $5.13. When it neared the $110 high again on Thursday I sold for $8.13 and watched it drop moments later to only $105. I was VERY LUCKY. My reasoning that $110 could prove resistance was correct and had I sold only ten minutes later I would have gotten $4.50 instead of $8.13. I guess I would rather be more lucky than good anytime. JDSU - Calls (OUCH!) I had been watching JDSU for a recovery from the recent weakness. When it appeared to bottom on Mon/Tue I bought the Nov-190 calls for $8.00. When it started sliding on Thursday I was afraid $203 had become resistance and we were going to range trade some more. I sold for $11.63 and took a quick $3.63 profit. I had Nov calls which expired on Friday so I did not think twice about selling. I DID think twice on Friday when JDSU jumped +10.75 and the calls traded as high as $28. Unbelievable. Hindsight is 20:20 but in retrospect I would do the same thing again. Never fail to take a profit when one is offered and never risk a profit in options expiration week. MSFT - Calls If you remember from last week, I had purchased Nov-95 calls and Nov-85 puts just before the trial announcement. MSFT did not move as far as I expected and even though I sold the puts for a profit I was stuck with Nov-95 calls that were worthless. I even bought more to average down my cost in case MSFT did a quick recovery. The news continued to be bad and I felt the $95 calls would never regain value. Last week I had sold $90 calls against them to break even on the trade. This week started out bad for MSFT and I bought the $90 calls back and sold $85 calls against my $95 calls for another $2.13. When MSFT bottomed at $85 on Thursday and started moving up on Friday I bought them back for $.50 giving me a profit on the trade of $1.63. It was a lot of work but I was able to turn a losing trade into a profitable trade by following the stock price down with lower strikes and using my "worthless" options as collateral. Options are never worthless until the Saturday after expiration. QCOM - The play of the week The law of gravity was not repealed. As I had been commenting on for a week, QCOM had to correct and it was going to be fast and ugly. I lived this stock this week and was rewarded well. When it spiked to $400 on Monday I sold naked calls NOV-400 calls for $20. I bought them back later for $11. I shorted QCOM at $394 and covered at $375 for $19 gain. I sold naked $360 calls at $24 and bought them back at $15. This was just Monday!! I was up +$37 per share and it is only Monday. On Tuesday I gave back $7 with several attempts at trying to anticipate tops to short again. Still up +$30 for the play. On Wednesday I shorted QCOM again at the open for $360 and covered at $343 for a $17 gain. When it bounced at $330 I went long at $331 and sold naked $330 puts for $10. I bought them back later at $4 for a $6 gain. I sold QCOM at the close for $343 for a $12 gain. Again I gave back about $8 jumping in and out during the day but ended up +$37. Now up +$67 for the week. On Thursday I bought QCOM on the dip at the open for $333 and sold it later for $350. Again I gave back $9 trying to daytrade the stock. I sold the $350 covered calls at $40 and bought them back on the Friday morning dip for $35. I decided QCOM was looking like $400 again and did not want to be locked into only a $40 gain. Net gain for the day +$13, +$80 for the week. On Friday I went long QCOM stock again on the morning dip at $350.69. I traded it several times finally closing out at the close for $365. Total for the stock move after trading losses from moving in and out was +$11. On expiration morning I sold naked Nov-$350 puts for $4.63 and bought them back for $1.63 for a $3 profit. As QCOM moved up I also sold the $360 Nov puts for $8.50 and bought them back for $5.00. I would have let both of these expire worthless but with QCOM volatility and the possibility of a significant drop at any time I elected to take small profits and be safe. Late in the afternoon I sold $370 naked puts for $8.00 with the hopes that QCOM would squeak over $370 at the close and they would expire. QCOM dipped slightly just before the close and scared me out of them as well at $5.50 but I still made $2.50 profit. I did close the stock position at the close for $365 even though it was trading at the high of the day. The trend for the last three days was a dip at the open and with the VIX under 20 I did not want to risk a -$10 gap down on Monday. My profit for the week on QCOM - $100 a share, give or take some fractions and commissions. I had 237 fill reports on the stock trades alone, plus the option trades. THIS IS NOT AN EXAMPLE OF THE RIGHT WAY TO TRADE OPTIONS. THIS WAS STRICTLY DAYTRADING TO CAPTURE A MAJOR MOVE AND NOT RECOMMENDED FOR MOST TRADERS. These gains were made possible by living and breathing the stock over the last two weeks. I watched every tick, plotted resistance and support dozens of times. Made many mistakes in trying to predict tops and bottoms exactly but I did get close enough to make a handsome profit. If you only acted on the trading alert on Wednesday then you had a great play. If you missed it on Wednesday then you got another chance on Thursday. Based on the nice "higher low" pattern we have now, I expect QCOM to gain speed soon, assuming the market cooperates. With the 4:1 split coming I am hoping for another run like we had the week before. Please do not trade QCOM if you cannot place stop orders or cannot watch your trades. Recap: A very successful and stressful week. I am totally out of the market and waiting for confirmation of the market direction on Monday. I plan to go long QCOM on any dip and sell covered calls when/if it hits $400. I do not plan to trade as much this week. I need to recover mentally from the stress of last week. I have no targets other than to continuously monitor and trade QCOM. I am concerned about the VIX and the Thanksgiving correction possibilities and do not want to give back my gains from last week. Remember, my trading plan is to trade "only when profitable" and yours should be also. Jim *************** ASK THE ANALYST *************** FOUR to WATCH. From fiber-optics to lasers to conglomerates, we hit four charts you might want to keep an eye on. Welcome to OIN's "Ask the Analyst". You send in the stock symbols and we apply some simple but effective technical analysis. Remember, our goal is educational. Hopefully, you'll be able to pick up on some of the ideas discussed and begin to apply them to your own research. If this is your first time, be sure to check out our previous columns for ASK OIN as well. /members/ask/112199_1.asp ********** STOCK NEWS ********** Return From the Great Beyond By S.P. Brown Continuing a comeback that would put Lazarus to shame, National Semiconductor (NSM) surged ahead another $2.50 Friday to close at $40.63. For the week, the once moribund NSM stock tacked on an additional 15 percent of shareholder value. Remarkably, it was only seven short months ago that NSM was in the midst of its death throws with its stock languishing at $9.00 a share. /members/stocknews/112199_1.asp ***************** MARKET SENTIMENT ***************** Sunday, November 21, 1999 More Highs Coming Soon? The last several weeks have brought a daily dose of record- breaking highs for many sectors. It is almost becoming an expected event to hear that the Nasdaq closed at another new high on record- breaking volume. If the general investing public starts expecting record closings daily, this market may have seen a top. If investors say that this market can't go any higher, it probably will go a lot higher. Anyone can gauge sentiment; all you have to do is ask you coworkers, friends, relatives, whoever, the simple question of where they believe the market is going? If the consensus states that this market is going significantly higher, you may want to run the opposite direction. If they state that they are waiting for a pullback or are negative on the market, watch out above! Our market stance here at Pinnacle Capital remains bullish, but the increased likelihood of profit taking increases every day. The one compelling argument for a pullback soon would be the Volatility Index. The VIX closed Friday at 19.63, suggesting that at overbought condition exists and that lightening up on positions would be prudent. The lowest close for the VIX this year was back on July 16, when the VIX closed at 18.13. This also happened to be the short-term peak of the market. However, rules and records are meant to be broken, and with all the inflows of new money, it wouldn't surprise us to see a new record low for the VIX. Another probable situation would be where the market takes a breather, yet doesn't retrace significantly, and the VIX settles back into the 20's. We have seen this many times, and this may be the most likely scenario, especially ahead of a long holiday weekend. Below is a small list of specialty sectors and their respective put/call ratios. Many of these sectors have had incredible runs over the last month, yet their put/call ratios are still highly pessimistic. From a contrarian stance, this may indicate further upside in these respective sectors and the equities that fall below the index. Disk Drive 0.72 Hardware 0.75 Internet 0.62 Network 0.60 Oil 0.69 Semiconductor 0.76 Software 0.72 Telecommunications 0.65 Finally, the NYSE released their short-interest statistics for the month ending November 15. Short interest is a very good gauge of sentiment, especially from a contrarian viewpoint. This last month saw an increase by 72 MILLION SHARES to a total of 4,061,057,060 shares. What this tells us is that many professionals think this market can't go any higher, even in the face of a strong run-up on huge volume. This is very pessimistic, and will most likely help further upside in the weeks ahead, and bring about more closing highs! BULLISH Signs: Cash Flow: The amount of money being poured into this market continues to be staggering. Volume: There is an old saying, that volume precedes price, and it couldn't be better exemplified that the last two weeks, where the Nasdaq has broken record after record. Short Interest: Short interest for the Nasdaq is at an all-time high, and increased over 5% from the preceding month. Short interest on the New York Stock Exchange rose 72,007,030 shares in the month ending Nov. 15 to a total of 4,061,057,060 shares. Bears have quick triggers: After being beaten up for many years, bears are quick to run & hide, and will cover short positions in a flash. Earnings: The results are in and the quarter ended up solid! Investor Intelligence: As a contrarian indicator, we may have witnessed the bottom in pessimism, and should this prove right, this market has a lot more upside in the months ahead. Interest Rates: The yield on the 30-yr Treasury is now safely off the 52-wk high, and is getting close to being under the 6% benchmark, which is a key psychological number. Advance/Decline Line: The A/D line is looking significantly better than the past 6 months. Mixed Signs: None. BEARISH Signs: Volatility Index (19.63): The VIX continues to prove that the high teens and low 20's are a good exit point for bullish positions. The low close of 18.13 was back on July 16, which was the top of the market at that time. OTM Call Analysis As we move closer to the November expiration cycle, Pinnacle is tracking the level of call buying (OTM) between 720-810 among option speculators. As we have been documenting, excessive out-of- the-money (OTM) call may serve as overhead resistance. November Expiration Cycle OEX OTM Call Analysis (Open Interest November 680-780) Date Open Interest Change % Alert Friday, October 15 39,072 - Friday, October 22 61,250 +56.8% Friday, October 29 75,022 +92.0% Friday, November 05 89,143 +128.1% Friday, November 12 94,610 +142.1% December Expiration Cycle OEX OTM Call Analysis (Open Interest December 720-810) Date Open Interest Change % Alert Friday, November 19 36,165 - The Power of Sentiment Analysis It has often been said that the crowd is right during the market trends but wrong at both ends. Measuring and evaluating the sentiment of the crowd, therefore, can give savvy option traders a decided edge. OEX Pinnacle Index Friday Benchmark (11/19) Overhead Resistance (750-760) 8.93 OEX Close 749.30 Underlying Support (730-745) 1.03 What the Pinnacle Index is telling us: Based on 11/19, overhead is heavy due to the levels of call activity at 760. What this tells us is that we have a good chance of rallying up to this next resistance level (760) before bouncing back. Support is still light, but is picking up. Put/Call Ratio Friday Strike/Contracts (11/19) CBOE Total P/C Ratio .69 CBOE Equity P/C Ratio .33 OEX P/C Ratio 1.41 Peak Open Interest (OEX) Friday Strike/Contracts (11/19) Puts 680 / 5,980 Calls 780 / 4,889 Put/Call Ratio 1.22 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 15, 1999 Bottom? 32.06 November 19, 1999 19.63 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 Oct. 13, 1999 Bottom? 39.2 37.5 November 11, 1999 44.4 35.9 ************** MARKET POSTURE ************** As of Market Close - Friday, November 19, 1999 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,750 11,320 11,004 Neutral 11.12 SPX S&P 500 1,315 1,385 1,422 BULLISH 11.12 OEX S&P 100 675 725 749 BULLISH 11.12 RUT Russell 2000 425 445 461 BULLISH 11.12 NDX NASD 100 2,320 2,520 3,029 BULLISH 10.28 MSH High Tech 1,120 1,250 1,575 BULLISH 10.28 XCI Hardware 1,000 1,095 1,168 BULLISH 11.11 CWX Software 770 800 1,175 BULLISH 9.03 SOX Semiconductor 475 525 654 BULLISH 10.29 NWX Networking 550 615 797 BULLISH 10.28 INX Internet 495 525 598 BULLISH 11.05 BIX Banking 645 690 660 Neutral 10.28 XBD Brokerage 395 450 464 BULLISH 11.12 IUX Insurance 610 650 637 Neutral 11.09 RLX Retail 875 910 918 BULLISH 11.12 DRG Drug 375 390 391 BULLISH 11.04 HCX Healthcare 750 790 780 Neutral 11.09 XAL Airline 180 190 146 BEARISH 5.21 OIX Oil & Gas 285 305 310 BULLISH 11.16 Posture Alert With large inflows of new money, record breaking volume and higher highs continue for technology sectors across the board. Leaders this past week were led by Software, which was up +9.6% for the week alone; followed by Networking (+9.0%), Internet (+8.7%), Morgan Stanley High Tech (+7.0%), and the Nasdaq 100 (+5.0%). Sectors that had a negative week were limited to Banking (-2.5%) and Airlines (-3.0%), which was not helped by the fact that crude oil hit $27 barrel. There are no current changes in posture. ************* COMING EVENTS ************* For the week of November 22, 1999 Monday None scheduled Tuesday Durable Goods Orders Oct Forecast: 0.3% Previous: -1.3% Wednesday Real GDP Q3-pre Forecast: 4.7% Previous: 4.8% Jobless Claims 11/20 Forecast: -- Previous: 287K Help Wanted Index Oct Forecast: -- Previous: 83 Univ Michigan Sentiment Nov-F Forecast: -- Previous: 107.7 Thursday None scheduled Friday Personal Income Oct Forecast: 0.5% Previous: unch Personal Spending Oct Forecast: 0.3% Previous: 0.4% Week of 11/29 11/29 Existing Home Sales - Oct 11/30 Chicago PMI - Nov 11/30 Consumer Confidence - Nov 11/30 Leading Indicators - Oct 12/01 Construction Spending - Oct 12/01 NAPM Index - Nov 12/02 New Home Sales - Oct 12/03 Nonfarm Payrolls - Nov 12/03 Unemployment Rate - Nov 12/03 Factory orders - Oct ****************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "subscribe@OptionInvestor.com" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 *********** DISCLAIMER *********** This newsletter is a publication dedicated to the education of options traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. The newsletter staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control.
The Option Investor Newsletter 11-21-99 Sunday 2 of 6 ************ Womans World ************ Beginning tonight we have a new column written by a highly successful option trader, who is also a woman. You probably saw her scorching comments to Janar last week in the readers write section. Renee is tired of seeing the investment world presented in male terms and she is coming out to fight. Renee will be writing about options trading from a female viewpoint and will contrast the macho Marine views put forth by Janar in the Traders Corner. Check out Womans World. Give her your support and let her know how you feel about her columns. Good Luck Renee, and welcome aboard! Jim November 20, 1999 Why I Sometimes Burn His Toast Hi Ladies! I know I'm supposed to be quiet, demure, laugh at all of their jokes and only speak when spoken to, but I just couldn't take it any longer. I have a hard time relating to the locker room, or the military style of trading. Ahhhh, Men! Don't you just love them? "I'm gonna huff, and I'm gonna puff, and I'm gonna blow your house down", the Big Bad Wolf said to Little Red Riding Hood. Did you ever wonder why she got scared and ran away? What would have happened if she had laughed and said, "Fine. Then I'll collect my insurance and go buy myself another house. I'm financially independent and this house is paid for anyway." ? If Little Red Riding Hood had known how to trade options, fairy tales would have been different and the woman's movement may have occurred 30 years earlier. Have you ever wondered why society tends to brainwash women into believing they aren't capable, or good with numbers, or they're not supposed to be risk takers or independent? We are taught we shouldn't be assertive or outspoken. As an option trader, I can't deny any longer that I am assertive, independent, good with numbers, money, AND I can proudly say I am a risk taker. I evaluate my own odds and I profit or loose my own money. Although part of me is still hiding behind my professional shell, this too is changing. With each winning trade, I become more and more confident. I've learned my lessons the hard way. I have come to feel, that if I tune in to that "woman's intuition" side of me, I can tap in on more winning plays. Also, I found that I learned more from my loosing trades, than I ever did from the ones that tripled....and boy, did I learn a lot last spring & summer!! What a humbling experience! I had just been to a seminar where they stressed to me to start taking money off the table. I didn't want to pull money out, I wanted trade with it. Well, 3/4th of an account LESS later, I finally learned what they meant. I'm well back in the black now, but I promise, I'll never have to learn that lesson twice! As a child, I was always so frightened to be on stage, like giving a speech, or being in a recital or a play. I came to terms with that, studying medicine, where one is forced to read voluminous amounts of material and present on a daily basis. I almost remember the moment I felt I had developed confidence, due solely to the preparation expected of me. Twenty years later, I've rediscovered that feeling, learning to trade options. The reading and studying required to put the odds in your favor, to generate a successful play, take an awesome amount of time. I know I have so much to learn, but now as before, I'm feeling the difference of being prepared. The payoff is obvious. I think more and more women will be discovering option trading. I believe we have an edge, with our sense of intuition, coupled with a little studying. The financial freedom it can create is hard to achieve in another profession in the same time span. I feel fortunate that Jim has asked me to connect with our female audience. How insightful of him to offer us our own voice. I never even thought about it myself. That says a lot about him, don't you think? Hopefully with my articles, we can develop a network of women, who no longer feel like they are out there all alone. Finally, I'll have someone to share with, when my plays go better than I ever dreamed (Qualcomm & AOL) or cry with, when I hold too long (AOL last spring). Perhaps too, I can share my map on land mines. Thanks for the support Jim. Maybe the times really are changing. Renee Renee@OptionInvestor.com Tuesday: Losing Money on Vacation ************** TRADERS CORNER ************** Guide to the Newsletter for New Traders In the last few months, the newsletter has picked up many new subscribers due to presentations at the Money Show and a reinvigorated Bull Market. Here are some pointers for getting maximum value out of OptionInvestor.com: 1. Read the Market Wrap for general direction, especially when Jim notes a powerful point like the inverse relationship between the VIX and the overall markets. For an example of where this kind of call paid off, see the 7/18/99 Market Wrap. 2. Read the Market Sentiment section for important information on internal indicators such as put/ call ratio, the VIX, and bullishness indicators. Realize that these indicators have particular value at reversals. 3. Read the Market Posture section for general market and sector direction, but realize that this is an indicator that often trails the market by a day or two, especially at reversals. If all the indicators are pegged "bullish," the market might be primed to turn around, at least temporarily. 4. Read the specific section for your play strategy. I usually play naked calls. I note the support levels that the write ups specify, and load the stock symbols and the options symbols into different quote sheets in qcharts (www.qcharts.com). I put the support levels in a comment column next to the stock price, and wait for the stock to drop to support before initiating a play on the option. I will be experimenting with using Preferred Trade's "buy to open" with a market order for the option with a "stop on stock" at the target support price. See Jim's write up in last Sunday's newsletter for more information on Preferred. 5. Make Money. Sounds simple. Many traders become obsessed with calculations, formulas, procedures. You make money by taking profits, when you have them, and doing it again. Compounding is magic. Sometimes I set limit sells at 33% profits, sometimes at 100%, and I often change my limit order when I think that a play will not make my limit sell price. I have "seller's remorse" when I take profits at 50% and the play goes to 150%, but I have trained myself emotionally to get over this. I also take losses when the newsletter drops a stock, or it becomes clear that the play is not going anywhere. Sometimes I suffer greater losses, but I try to keep those losses to 15 or 25%. 6. Take Time Off. I shoot for 1 week a month, though this month, it will be 1.5 weeks. I paper trade the short term newsletter plays. I sleep in, I spend some of the money I have made. I learn advanced option trading strategies. I pay bills I have ignored. I get ready to get into the cockpit again. 7. Join a local Optioninvestor Club. Our Bay Area club is invaluable for advice, camaraderie, support, and ideas. 8. Read the 10 rules (left side of home page at the bottom). When you break a rule, know that you are breaking it and make sure you are justified. 9. Have Fun. I like beating the market, finding an edge, feeling like I am taking advantage of my opponent with the newsletter as my trusted local guide in the jungle of option trading. If you are not having fun, you won't succeed, regardless of what you are doing. 10. Be Humble. You will make your worst plays, your biggest mistakes, your most terrible bonehead plays right after your biggest successes. If you make some money, keep it, hang up the gloves for a week, and come back with some respect for Mr. Market... then beat him again. Right now, I am long some OEX Dec Puts, which I think will be profitable next week. I am also long a AMZN Jan Call that I entered in Oct; I am hoping cyber Santa delivers on that play. Otherwise I am all cash. I am planning on target shooting some longer term Jan 2K, and LEAP plays next week. I will also paper trade the Newsletter's short term call plays. But otherwise, I am planning, developing, and enjoying my success as a option trader. PS -- To put my last "Scoreboard!" column in context, I LOST 50% of my ST Option Trading Portfolio in October. But I took a very important week off in the third week of Oct, got back in the game in the 4th week, and had a terrific first half of November. Stay in the game! Janar Joseph Wasito Janar@OptionInvestor.com ***************** READERS WRITE ***************** The Tale of Two Readers Dear Jim, Reading your Market Wrap, Thursday, 11/4, was like having a religious experience... Just like going to church and having the pastor's sermon hit totally home. I've been involved in option trading for 10 months. My spouse encouraged me to attend the local Wade Cook Seminar to learn the techniques for trading options. I had been successful in trading stocks, so why not try this. I admit I was lured by the promise of "easy money" and we were just going through a real rough and rocky financial time with a business investment we had absolutely no business even being involved with. (Already two strikes against success--a buy and hold mentality and being motivated by deep financial insecurity.) Like many of the new readers you interviewed, I didn't understand the real meaning of time decay and the importance that volatility plays in option pricing. I also didn't have a grasp on the real importance of a good entry. I also was doing this alone. None of my friends trade options and are clueless as to what I'm talking about. I would log on to the Wealth Information Network, but got very frustrated because it was full of what HAD been done and not much explanation as to WHY those positions were opened at that level. I was paper trading and when I'd feel good about the success I was having on paper, I'd commit real money and it would go bad. I was about to quit. I had lost a significant amount of money and my self-esteem was pretty shot. I kept telling myself that I'm an intelligent person. Why can't I figure this out? Luckily I happened to come along a link to the Option Investor Newletter site. I won't say that things improved immediately for me. I have still made very stupid mistakes that have been rather costly. I've been a subscriber for about the last 6 months. I admit that I don't understand all the technical information presented, but I'm anxious to learn. I am just now begining to figure some things out. 1. I find that I am much more comfortable in quick trades...in and out in a day. I really am not comfortable holding overnight. As I am understanding the reason a stock is moving and knowing the effect is has on the option, I'm getting more comfortable on the overnighters. Learning one's own tolerance for risk is not easy. 2. I found that after 4 successful trades, the next one was a disaster and lost more than I had made on the 4 before. I think I was sucked in by the success and got careless. I now approach each new trade as though it will so south. It has made me much more careful as to entry point and I've walked away from trades that did indeed go south...of course I've missed some opportunities too. 3. As a beginner keep it simple. I'm only in one open position at a time. Most of that is due to lack of serious trading capital, but is serving me well. I'm hopeful that as I get better my scope will increase. Although I'm in a major financial hole for the year, I'm up 330% since Sept. 10, on 7 consecutive successful trades. My "trading nut" got extremely small due to my mistakes, but because of those mistakes I'm seeing some success. I'll be taking a sizable loss on my taxes this year, but I'm chalking that up to the cost of education. (About the cost of a years tutition in a college) I would love to attend your Seminar (and take a friend with me so I'll have someone to discuss this stuff with!) but due to my trading losses this year it's not in the cards...ironic huh? I've been in contact with Leslie of OI regarding a trading club in my area. Currently there is none but I'm interested in getting the dialogue started. I am looking forward to your "lecture" series starting this Sunday. I AM READY TO LEARN. Thanks Jim, and keep up the good work. Best Regards, LJ **** Jim-- Amen. I've been a subscriber for about a year now and I believe your article(The Tale of Two Readers) will strike home with MANY of us. I've never written in before but this article REALLY got my attention. I have seen my account up 100% and I've seen it down 90%. Currently I'm dead even for the year. I feel extremely lucky to have survived my first year(and part of the learning curve) with my funds still intact. Over the past year I have broken most every rule - and am learning from it. (Entry points, not chasing, holding over earnings, not sticking with stop losses, not taking profits when up even huge amounts, trading against the sector/market, forcing trades, wishing stocks up/down, etc.) I've felt the excitement/elation of huge winners and the despair of total losses(which DO affect your mindset drastically). Sellers remorse ALSO affects your trading decisions in a REAL BAD way!! (was in both CMGI and NetB@nk the days of their initial runs and sold WAY too soon!) For me, sellers remorse affected me more than a worthless expiration. Atleast I knew the maximum amount I would lose on expiration. With sellers remorse, I kept being subjected to a growing amount of missed profits left on the table --almost everyday. BUT...... They were MY bad decisions. MY learning curve. I had to experience it all firsthand. (Hard-headed). I'm still here.... but much more humbled, cautious, disciplined, and open minded to the lessons being taught in each newsletter. I trade when the opportunity presents itself-- I don't force trades. I wait for the entry points. I am much quicker to take profits and losses. And I find myself only trading a few days out of the week. Over the past 2-3 months, I've found myself paying much more attention to the lessons in each newsletter than the plays. So you see why the last paragraph of your article really struck home with me. I've been playing "hooky" from school for the past year -- but am back now to get my degree...... Many thanks---James **** Subject: The Student Was Ready, And The Teacher Did Appear! Dear Mr. Jim Brown, I must write this to let you know, what an impact your one article "The Tale of Two Readers" have on my life. I only have about 7 months and total of 5 trades experience in investing in the stock market. 3 stock trades with more than 50% loss of capital, and two options trades in last two weeks, recovering all my losses and well into the black. All I did was pick option from your listings, waited for proper entry point like you mentioned in your article, read everything posted on your websight and adjusted my position accordingly. I have tried many other sources, but for options trading there is nothing batter than yours. I read everything over and over again until I grasp the meaning. I was only on trial offer, I will be subscriber for long time to come and hope to meet you in person someday, Until then Thank You Very Very Much. BP **** Thanks for sending out the trading alert on qcom. I wasn't watching it because it was getting too rich for my blood but I took advantage of the pullback and made out like a bandit. I bought calls in my cash account and bought the stock and sold calls in my ira as you suggested. Thanks...GH **** Dear Janar I regularly read your columns in the OIN letter and find them interesting, informative and, above all, well written! I was struck by your What will happen in 3 years musings in the Thursday letter. You wrote about becoming a professional and giving up trading in the middle of next year, after you finish graduate school (I assume). I am a professional (international business lawyer) and have often thought about giving up the profession in order to be a trader. Perhaps fortunately for me, my trading efforts have never been particularly successful, so I've never given up my day job. However, your columns indicate that you have done very well trading this year and you might indeed make more money as a trader than as a professional. Of course, you'd be by yourself a lot of the time, which may not be much fun. And the stress level of trading for me exceeds that of being a lawyer. Keep up those columns. Wish I could trade like you. DH **** Dean Janar Scoreboard was both encouraging and depressing at the same time. I may have just set some sort of record as I have managed 6 straight losing trades. That takes skill especially with so many stocks going up. I believe that I need to go back over ENTRY POINTS in options 101. Losing trades take the wind out of your sails in a hurry and it's hard to get a good attitude back. I think I need to regroup and go after it again.I lost on a VRTS trade a few days ago and I see it's up about 13 this morning . I think this is what hurts so much in trading options. So , it's back to the ENTRY POINTS for me as I can't believe that I can't eventually make money trading options. Have you had bad times trading? Thanks for listening, JK **** Hi Jim, a few nights ago I sent you an e-mail saying I almost dropped the OIN newsletter because I'm just not that active an option trader. I told you I came to my senses and stayed with OIN because it has so much to offer. A perfect example revolves around your alert on QCOM....it got me thinking....I've made a killing recently in my IRA with PSFT, NITE, and PRGN, all of which I bought at bargain prices when no other buyers were around. All have experienced a lot of inflation in the option premiums because of the run up over the last couple weeks...your discussion of inflated premiums got me thinking, so I sold covered calls against NITE and PRGN for January 2000 and LEAPS against PSFT for Jan 2001 and made a killing because of the inflated premiums....even if I get called out my gains will be HUGE! It was like free money and since I'm talking about few thousand shares of stock...it is what I consider to be REAL money. Thanks for the idea. E.B.W. **** I've been a subscriber for some months now and have been wanting to tell you that I have not found a better source of stock and option information anywhere. OptionInvestor would be a value at many times what you charge. But what prompted me to write today was your alert on QCOM. Many times I have agonized over when to get in on one of these big movers. Am I too late? Are the large gains already behind me? If it goes down a bit, how far down do I watch it go before I jump in? A few patches of ripped-out hair and a couple of headaches later, I try to either get an entry point in mind or I get so stressed out, I just give up and turn my attention to other plays. I have been watching QCOM closely, and we did buy some stock for my husband's IRA, but I've been trying to figure out the best time to buy some calls. THANK YOU VERY MUCH for the alert! If you could regularly send out brief alerts on good opportunities, I know that I, for one, would be deeply appreciative. As I said before, your newsletter is fabulous. The fact that you are able to publish three of them a week, along with two updates, is nothing short of amazing to me. Perhaps sending out routine alerts is more than you care to get into. For the record, I, for one, would be perfectly willing to pay an additional fee for this service. Free would be nice--but the alerts could prove so valuable they would be well worth the extra charge. Thanks again for the alert today. Sincerely, CB ******* MAILBAG ******* Date: Saturday, November 20, 1999 11:47 AM Subject: Should this happen ? Janar I look forward to all your commentary. You seem very market savvy and well disciplined. I am a new trader to options and doing very well up until Thursday. I have grown my ST option acct from $5000.00 to $14,000 to two months ( with a lot of help from the newsletter). I have stayed away from the high flyers and trying the minor leagues to gain the experience need to trade the big boys. I have been trading gblx, qwst, awre,covd, ntpa with success. I have missed some great opportunities in nok,sebl, orcl because I was trying to split the bid/ask with limit orders. I have even sat on the ask without a fill. The broker said that you may just want to place a market order so you don't miss the market. She also said that some of the quotes may be wrong and that is why I did not get filled (my data comes from qcharts).Ok, we per see if that works. Thursday mourning, amateur hour (my first mistake) Citrix Systems was upgraded to a strong buy. Opened up 10 points to 90. I watches for 20 minutes,91,92,93. Lets try a little play, nov95 calls were @ 2.25 x 2.5. I placed a market order for 10 contracts. The stock begin to really run 95,96,97,100,105 no fill. the stock runs to 110. 10 minutes later I get a fill on the order @ $10.5 on 10 contracts. What the @#&%. I look up, those same contracts are now @ $8.00. The stock drops from 110 to 105 to 100. This can't be real. I try to call my broker for 45 minutes and can't get through. Finally, I get somebody and they transfer me to the option desk. I ask, "what the hell happened here", the broker says," this must be a misprint, Let me call down to the floor.(the pacific) and see what happened". I had no idea what to do. Oh I still have these 10 contracts @ $10.5. Maybe I should unload this position. Citrix is now @ 95 and the contracts are @ $3.00. I submitted my sell order and they filled my order in 5 seconds @ $3.00. Thats ok, I will get a better fill from my broker and possible break even and move on. One hour later I get a call from them and still do not have the answer to why I got filled @ $10.5, 10 minutes after my order was placed. 3 hours later I get a call from a manager over there. "I talked to our floor broker and he did the best job he could with this execution". Wait, my order was only 10 contracts and should be processed electronically. He says, "no, it was a fast market and all orders are executed by hand". Great, but 10 minutes later is not acceptable " He was really busy, we can give you a fill of $8.5 and that will come out of my pocket". I said that won't work, I had a potential profit of $8000+ if the order was executed properly. Now I have a loss of $5500. That is a $13,000 turn around. "Sorry, but that is all I can do", he says. I said let me call somebody and get back to you. I have no idea of my options and think I should get some advice. I will call you back. Bye. Is this my fault or did I get e-screwed. Please help with any advice. My acct is now in reg T and frozen. Another opportunity cost. Janar, if you can help, great. Thank you in advance for any help. (name witheld) **** Unfortunately you just found out why you should not place market orders during amateur hour. I pulled a time&sales report on the option and it was trading "fast". The price went from $2.88 at 9:43 to $13 at 9:53 and there were hundreds of orders due to the spike in CTXS. What you got was real and it was not the fault of your broker. When a stock opens up +$10 nobody should buy the call options at the open. The premiums inflate so fast and the traffic is so heavy that the chances of getting filled during amateur hour at the high of the day are 100%. If a stock spikes at the open - don't buy it. When a stock spikes the premium sellers jump in to capture the hype. They are selling calls during amateur hour to capture novice traders making market buys. A couple hours later when the excitement wears off they can then buy them back at half price. Your is a textbook example. I am sorry but there is nothing anybody can do. As for sitting on the ask without a fill, there are any number of factors that can cause this. First Qcharts option data is 15 min delayed and that is old news. Second, there may be several exchanges where the option is traded and the exchange with the price you are watching is an old price. The other exchanges, with heavier volume, may have moved on and the first exchange just has not updated their prices yet. The exchanges are not always prompt on updating bid/ask data, especially in a fast market when they are trying to fill orders, not update prices. Jim Brown ******************** OPTIONS 101 - 1 of 1 ******************** Paycheck or Lottery Ticket By Jim Brown Which will you have a better chance of paying your mortgage payment with next week? The paycheck of course. Many people come into options investing with a lottery ticket mentality. They want the big payoff. They open a brokerage account with their life saving of $2,000 and start dreaming. They lose it all on two or three deep out of the money plays and then complain the rest of their life that options are too risky. You know 85% of options expire worthless! That is a common misconception and even if it were true it is not necessarily bad. How many people write covered calls in their IRAs? Millions? These people want the options to expire worthless. Option trading is not risky if done right. Yes, you can lose money but ask Caterpillar or Xerox shareholders if stock ownership is risky. Back to the topic. If you were budgeting your bills for the next six months you would count up the number of paychecks you were going to receive in that period. You would not count the number of lotteries you were going to win. We need to focus on options trading as though it was a weekly paycheck. If you want long-term appreciation then buy stock. If you want short-term income then use options. There is a perfectly good method to turn options trading into cash flow. You know what is coming....Sell Too Soon. But that is not the whole story. Option trading requires research, effort on your part and timing. All the best research in the world is worthless if you are too impatient to wait for the correct entry point. As I have shown before, in any ten day period in a stock cycle there are probably five days that option buyers will be profitable and five days that option buyers will lose money. This is not rocket science. It is simply applying proven principles at the right time. In options trading "cheaper" is not always "better." Nobel prize winners developed the theory for pricing options. They were not dummies and some options are cheap for a reason. Just because a basket of tomatoes costs $10 does not mean a basket of rotten tomatoes is a better buy for only $1. In the money (ITM) options are not cheap but have a high value. They have a very low time premium but higher stock value. At the money (ATM) options are the most expensive. Surprise! At the money options have the most time premium and no stock value. Out of the money (OTM) options are cheap and expensive at the same time. You have the time premium and you also have the distance out of the money. A $2 option that is $10 out of the money has a relative value of $12. A $7 option on the same stock that is $5 in the money has the same $2 premium where an at the money option may be $5 and be all premium. When you buy calls you have to be right about all the factors. Timing, direction, speed and distance. A $2 call, $7 out of the money on a stock that is moving +$2 a week with three weeks to go is not cheap. It is a donation to the covered call writer that sold it. You can have the direction right but the speed and distance will bleed you broke. You can have the speed and distance right and the timing can kill you. ALL OF THE FACTORS MUST LINE UP FOR OUT OF THE MONEY OPTIONS. JC, I love you man but I am going to use you as an example again! A very good friend of mine was in the office last week. After eight winning trades in a row he has hit a losing streak. I was talking to him about his trades and what he was buying. He said, I bought this XYZ call for $.44 and I thought if it would go to $.75 I could make a lot of money. Stop right there! Does anybody else see the problem? For an option to be $.44 it has to be so far out of the money you would have to take a cab to see it. But I can buy a lot of them. SO WHAT? A lot of nothing is still nothing. We had a heart to heart about in the money vs out of the money. Traders that have lost a large part of their bankroll tend to then concentrate on the cheap OTM options because they need a homerun to get back into the game. Sorry, it is a proven fact that homerun hitters strike out more than base hitters. If you only have a small amount of capital you should protect it with high quality plays instead of squandering it on lottery plays. DISTANCE: When you buy an option how far does the stock have to move to get the return you want? Only you know. For an ITM buyer the stock only has to move $3-4 for a good return. For an OTM buyer the stock has to move much farther AND much faster to accomplish the same return. SPEED: When you buy an ITM option the speed of movement in the stock price is not critical. If the stock goes flat or turns into a snail the ITM option will never lose its stock value and the time value decays at a much slower rate than an OTM option. If you have ever owned an OTM option when the fast rising stock corrected then you know the speed of premium decay increases expotentially with the decrease in stock price. You can't sell them fast enough. DIRECTION: This is the simple part but I never cease to be amazed at how many people buy call options on stocks that are going down. Really. The line of thought goes something like this: Last week these option on XYZ were $10.00 and I got them for $1.00. SO? If the stock dropped -$15 in that week and is showing no signs of a rebound, why would you want to buy the calls? TIMING: This is the hardest part. You can have the best stock in the world, moving in the right direction at the speed of light and buy calls at the open on a $10 spike and never see the price you paid for them again. (read the mailbag article tonight and you will see what I mean) Timing stocks is easy compared to options. Stocks are one dimensional compared to options. Stocks go up or down or stay the same. Time has no real importance. Investment horizons are measured in years. Watch option premiums this Monday on any stock that is flat. The premiums will be evaporating before your eyes. Time passes, options decay. The actual formulas for determining the value of options include several greek terms like Delta, Gamma, Theta, etc. The one I am most concerned with is Delta. Delta is the rate of change in the option price for every dollar change in the stock price. Deeper ITM options have higher Deltas and OTM options have lower Deltas. Assume for this example a stock trading at $50. The Delta of an ITM strike price of $45 is .75 The Delta of an ATM strike price of $50 is .50 The Delta of an OTM strike price of $55 is .25 The Delta is the rate of change. For the ITM strike of $45 the option will rise in price +.75 for every dollar the stock price rises. Deeper in the money options have higher Deltas. The OTM strike of $55 will only rise $.25 for every dollar of stock price rise. Sounds simple but in practice many investors fail to estimate what will happen to the option price based on stock price and time passage. Assume a $4 option, $6 out of the money with four weeks to go. (just am example) The premium decay will cost you about $1 per week. ($4 divided by 4 weeks) Actually it is faster than that and accelerates the closer you get to expiration. If the stock goes up +$2 in one week with a Delta of .25 then the option will increase in price +.50 because of the Delta and lose -$1 because of time decay. Your option is now $3.50 and the stock went up. A week later with another $2 move your option will only be worth $3.00. You see where I am going here. The option can lose value while the stock is still moving up. Paycheck Mentality Option traders need to develop a paycheck mentality. An ITM option will go up 75% of the time as long as there is life in the stock. If it is moving +$2 a week the ITM option will increase. If the stock stops moving the ITM option will lose premium much slower than the OTM option. A $5 ITM option which costs $6 will rise +1.50 for a $2 stock move in one week. $1.50 divided by $6.00 equals 25% return. A $5 OTM option will lose $.50 with the same move because of the lower Delta and time decay. Yes, two traders using options on the same stock in the same week can have totally different results. One can gain +25% and the other lose -25%. Trust me, I see it every day. The trader with the paycheck mentality will buy the ITM options and hold them as long as the stock continues moving upward. The farther the stock moves the more Delta the trader gets. They will follow the option price up with stop losses and even liquidate some of their positions as the value increases. This minimizes the risk of a news disaster. Cash flow, cash flow, cash flow. Try this experiment. Calculate what your option capital would be if you compounded only 25% returns every two weeks for a year. The Lottery mentality buys "cheap" OTM options and then holds them for weeks waiting for the premiums to just get back to what they paid for them even when the stock continues to move up slowly. Which investor would you rather be? Critical points: Yes, your return percentage will be greater IF your deep OTM option is successful. However, your percentage of successes will be much lower. Yes, because the Delta is much higher on deep ITM options the leverage works both ways. If the stock drops sharply the premium will also drop sharply. This is why we use stop losses. No, I am not saying "never" buy deep OTM options. I do it all the time but only as speculation plays. Maybe only 1 in 20 and then only with very small amounts of money relative to my total capital. I like the thrill of the possible big payoff too. Most are news related plays like takeover rumors. In every lottery somebody has got to win eventually. Just don't bet with money you really can't afford to lose. Next week: Exit Strategies, Escaping with a Profit Jim Brown **************************** SEE DISCLAIMER IN SECTION ONE
The Option Investor Newsletter 11-21-99 Sunday 3 of 6 ******************* TRADING CLUB UPDATE ******************* Sunday, November 21, 1999 NEW OPTION INVESTOR TRADING CLUBS ARE FORMING EVERYDAY!!! Visit the trading club message boards and see what others have to say: http://boards.OptionInvestor.com/tradersclubs/ The Option Investor Newsletter has over 90 trading clubs globally. The trading clubs were instituted due to the demand of the option trading investor to have a forum, locally, to meet and discuss with other traders their opinions and strategies. The trading clubs bring together the novice investor with the expert. The educational experience that this forum provides is outstanding. New clubs have recently been formed in Sydney, Australia and Tokyo, Japan. There are new trading clubs formed around the United States everyday. If you are looking for a way to increase your potential as an option investor, a trading club may be just what you need. Contact us today to find a club near you. If you would like to join contact us at Visit@OptionInvestor.com and Organize@OptionInvestor.com. LAST WEEKS CHANGE FOR THIS WEEKS PICKS: *************************************** DAILY RESULTS Index Last Week Dow 11003.89 234.57 Nasdaq 3369.25 145.63 $OEX 749.30 18.21 $SPX 1422.00 25.96 $RUT 461.27 11.58 $TRAN 2976.50 -113.07 $VIX 19.63 -2.05 Calls Week CMGI 124.88 23.38 New, an exciting week for shareholders YHOO 218.75 21.81 Yahoo has some e-holiday spirit! CMVT 142.44 21.19 This play just gets better and better JDSU 213.81 13.81 New, this could be your big break HLIT 72.06 13.06 A continuing trend; HLIT on fire! SFE 124.00 11.50 This is a stock that wants to go up NOK 133.50 11.25 What a hard run for Nokia last week SUNW 129.56 10.25 Shares of SUNW pick up some steam AOL 158.19 9.25 Dropped, at last the time has come BVSN 97.50 9.00 New records and extraordinary volume NT 81.25 8.69 The money managers are flocking to NT ICGE 166.94 7.63 New, a firm and steady uptrend EMC 89.38 6.69 Hardware sector has enjoyed nice moves VRTY 99.13 5.81 New, splitting on Dec 3rd GMST 104.63 4.25 Our star is on a nice split run! LVLT 78.06 4.13 Dropped, LVLT has leveled off GTW 78.75 2.50 New, hardware is back in fashion LSCC 46.00 1.00 Dropped, inches toward its 10-dma LSI 66.44 0.94 A great sector, a great stock SNE 176.63 0.13 The bulls are ready to run! JPM 138.63 -0.69 Dropped, who let all of the air out? MXIM 86.38 -1.00 Dropped, time to step aside from MXIM CNCX 32.13 -1.56 Dropped, a hard week for the ISPs SLR 86.13 -1.75 Dropped, a slight decline is one thing MSFT 86.00 -3.19 New, a new deal in the works QCOM 376.06 -10.94 Voila! An instant 20% correction! Puts KIDE 57.00 -19.94 New, investors have found other "toys" RMBS 82.13 -5.88 The descent continues for Rambus! AMR 57.75 -4.25 New, a negative flight pattern EL 43.13 -0.25 Dropped, EL is getting too pretty CI 83.75 0.38 New, looks to have run out of buyers RMDY 38.31 2.00 Dropped, could not resist resistence NKE 49.25 3.13 Dropped, NKE gets kicked off the list STOCKS ADDED TO THE PICK LIST ***************************** Calls ICGE - Internet Capital Group CMGI - CMGI Inc. JDSU - JDS Uniphase MSFT - Microsoft Corp. VRTY - Verity Inc. GTW - Gateway Inc. Puts KIDE - 4Kids Entertainment AMR - AMR Corporation CI - Cigna Corporation *************************** PICKS WE DROPPED THIS WEEK *************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS AOL $158.00 (+9.25) To follow-up on Thursday's update and for those who've been playing this split-run know the time has come. AOL is splitting its stock 2:1 Monday after the bell and so of course we're exiting the play this weekend. We never recommend holding through the ex-date since the odds are stacked for a post-split decline. Therefore if you haven't already, consider closing your positions before the bell on Monday. In other words, why take a heedless chance when you can choose to gleefully take your profits and go shopping? SLR $86.13 (-1.75) Ok hit the alarms! A slight pullback is one thing, but $2.38, or 2.7% when the Nasdaq is setting records is another. We've decided to exit this momentum play this weekend based on Friday's poor performance. The overhead opposition is still just points away at $90, but with SLR now perched on the 10-dma ($86.17) we'd rather not wait for another strong bounce and instead move on to better plays. LVLT $78.06 (+4.13) The shares of LVLT have been a nice stock to trade over the last few trading sessions, but the shares just continue to move very slowly. We were looking for this stock to go up and then back up to fill the gap from normal profit-taking, before the next leg up. Although we are seeing intraday highs, the play has not been ideal for different types of traders. We will choose to take the money off of the table and move on to stocks with more of a consistent trading pattern to the upside. For those aggressive traders that wish to continue this play, we believe that you can continue to make money if your timing is correct. This stock requires a lot of personal attention to be very successful. The uptrend remains in place, and the telecommunications processing systems sector remains a very hot sector, although the volume in LVLT has slowed somewhat. LVLT going forward could possibly continue to be profitable, but we believe there are better opportunities in current market conditions. CNCX $32.13 -0.68 (-1.56) It was a hard end of the week for the ISP's, especially the smaller ones like CNCX, with the major ISP's like AOL having trouble breaking through current resistance levels, because of the big run that they have had in the past few weeks, it was time for them to take a breather, the small ISP's hit a peak earlier in the week and slid some to close the week. We expected CNCX to pullback and fill the gap before it started a new leg up, it doesn't look like it has completed the pullback so we are having second thoughts on the next leg up. Although still possible, with the stock closing the week down almost 2 points, we see better opportunities in the market that we can be taking advantage of. MXIM $86.38 (-1.00) It's time to step aside from MXIM. It's not that we believe the split run won't continue but it may take a breather and consolidate or pullback first. We said Thursday we needed to see the momentum continue through the $88 area and hold on a closing basis. MXIM did make a new high Friday at $88.44 only to fall back and head lower. The pullback may be to get steam to make another run at the overhead resistance and it may be entering a phase of consolidation and profit-taking. The Semiconductor industry has enjoyed a nice move up in the last few weeks and they are due to take a rest anytime now. The ex-date for the 2:1 split announced Thursday, is not until December 21st, so we have plenty of time for an actual split run to develop and may be able to get a better entry point in the near future. JPM $138.63 (-0.69) Is JPM consolidating or did someone sneak in and let the air out of all the balloons? Whatever it is, we took a hard look at the banking sector and decided to let our JPM play go, at least for now. With the price of oil trading over $26, traders seem to be focused the inflationary implications involved. Most analysts feel we got a reprieve from the FED until early February, but with oil where it is now, traders are concerned it will show up in future CPI numbers, giving the FED one more reason to consider more interest rate hikes. Thus the Financial sectors have began to consolidate from the gains achieved earlier in the week. JPM has not yet given us a good entry point for our call play, so we will stand aside and look for other opportunities. PUTS RMDY $38.31 (+2.00) Here we are on RMDY once again. The stock has stopped right at resistance at the 10-dma at $37.50. As you may recall, the 10-dma has been serving as resistance for our play and has not let us down so far. You can see the top that the stock put in during Friday's afternoon trading. The 10-dma just refused to let it pass through. So why is it on the drop list? Well, because it is not moving very fast and we don't want our time premiums to erode. We still think that if the 10-dma can hold as resistance once again, that a break below support at $35 will produce a drop to $32.50. That would make for a decent return on this play. Therefore, brave souls may want to continue this path but keep your stops set for a break over $38 with good volume, just in case. NKE $49.25 (+3.13) Once again NKE has refused to hold it's trend and is therefore being kicked off the put list. The advantage to playing NKE puts is the overall sector and company weakness that has been apparent for the past couple years. The problem is that it spikes around, betraying the moving averages and technical support. We felt like it was now settling in to a trend after breaking below $50 and was consistently moving down. Sure enough after only one decent day of declines, NKE has spiked up once again. The reason for the spike was a Lehman Bros upgrade and word that the company has replaced their CFO. They hired an ex-Pepsi executive how has a strong reputation. Anyway, you get the picture. Don't expect to see NKE on the put or call list again until it has some real strong catalysts. We forgot how bad it hurt us last time. EL $43.13 (-0.25) Friday was a big day with big volume for Estee Lauder. With the holidays closer than I would like to admit, it is very possible that EL has hit it's bottom and is beginning to trend upward. EL closed smack dab on it's high for the day posting larger than average volume, both indications of renewed and continuing investor interest. EL also managed to breakthrough and close above its 10-dma. It's probably not going much higher but it may not be going much lower so we don't want to sit and watch our premiums deteriorate. STOCK SPLIT CANDIDATES *********************** Current Split Candidates CMVT - Comverse Tech SNE - Sony Corp NOK - Nokia SFE - Safeguard CMGI - CMGI Inc. ICGE - Internet Capitol Group YHOO - Yahoo! Split candidates that are not current plays CHKP - Check Point MEDI - MedImmune DCLK - DoubleClick BRCM - Broadcom Corp FLEX - Flextronics International Ltd. STOCKS WITH UPCOMING SPLITS **************************** We don't list all splits available, only those we feel may have play possibilities. Symbol - Stock Splits/Date DNA - Genentech 2:1 no date set EMLX - Emulex 2:1 11-18-99 vote to aprove AOL - America Online 2:1 11-19-99 ex-date 11-22 AMGN - Amgen 2:1 11-19-99 ex-date 11-22 VRTS - Veritas 3:2 11-19-99 ex-date 11-22 AOL - AmericaOnline 2:1 11-22-99 ex-date 11-23 POWI - Power Integrat 2:1 11-22-99 ex-date 11-23 OCLI - Optical Coating 2:1 11-30-99 ex-date 12-01 cancelled ADVP - Advance Paradigm 2:1 11-30-99 ex-date 12-01 ORBK - Orbotech 3:2 11-30-99 ex-date 12-01 VIGN - Vignette Corp 2:1 12-01-99 ex-date 12-02 OATS - Wild Oats 3:2 12-01-99 ex-date 12-02 BRCD - Brocade 2:1 12-02-99 ex-date 12-03 no optn VRTY - Verity 2:1 12-03-99 ex-date 12-06 SUNW - SunMicro 2:1 12-07-99 ex-date 12-08 AGN - Allergan 2:1 12-09-99 ex-date 12-10 CMTN - CopperMountain 2:1 12-09-99 ex-date 12-10 (KUA) GDW - Golden West 3:1 12-10-99 ex-date 12-13 XLNX - Xilinx 2:1 12-27-99 ex-date 12-28 JDSU - JDS Uniphase 2:1 12-29-99 ex-date 12-30 For a complete list of all the coming splits check out the "split calendar" on the side of the online edition newsletter page. ******************** THE PLAYS OF THE DAY ******************** With all the great plays each week we can never decide on just one so take your pick. Call plays of the day: ********************** HLIT - Harmonic Inc $72.06 (+13.06) See details in sector list Chart = http://quote.yahoo.com/q?s=HLIT&d=3m **** QCOM - Qualcomm Inc. $367.06 (-10.94) See details in sector list Chart = http://quote.yahoo.com/q?s=QCOM&d=3m Put play of the day: ********************** RMBS - Rambus Inc. $82.13 (-5.88) See details in put list Chart = http://quote.yahoo.com/q?s=RMBS&d=3m ************* DEFINITIONS ************* SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. TP/P= True premium or Time premium RRR = Risk/Reward/Ratio ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume MTD = Move to double - amount stock must move to double option price in one week. ONE WEEK MOVE ONLY ! Numbers within ( ) are the amount of change for the week. Numbers within ( ) may be designated with PxW, like P3W, prior 3 weeks The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. *********** CALLS PLAYS *********** Hardware *********** GTW - Gateway Inc $79.00 (-2.50) Gateway is the #2 direct marketer of PCs in the US only behind global leader, Dell Computer. Instead of using resellers, Gateway takes orders via phone or Web site and ships directly to the computer user saving the customer markup costs. They develop, manufacture, and support a broad product line of desktop and portable PCs, digital media PC's, servers, workstations, and other PC-related items. The company has also expanded into the Internet access market (gateway.net) and is continuing to add new Gateway Country showrooms across the US. Its array of customers include individuals, businesses, government agencies, and educational facilities. Chairman and founder, Ted Waitt, still owns 41% of the company. GTW's repeated sweeps to daily lows around $76, a point that just recently marked overhead resistance, and the subsequent upswing late Friday afternoon signals the beginning of an uptrend. Link this technical perspective with the apparent rotation into the hardware sector and we have ingredients for a call play. Take for example Big Blue (IBM) and HWP. Both stocks surged on Thursday following Hewlett Packard's positive Q4 earnings' results and its successful IPO spinoff of Agilent Technologies. The temptation is just too great for the bargain hunters to stay on the sidelines any longer! We see this price level as a solid entry point into a promising momentum play. Trading volume too is strong demonstrating GTW's unwavering appeal to the investor. Usually there's lots of news affecting GTW or the hardware sector and recently it's all been pretty good press. On Friday Gateway announced a three-year alliance with Nickelodeon, the #1 kids TV network which houses Rugrats and Blue's Clues. Under the terms of the agreement these two very popular entertainment franchises will become part of an all-in-one Gateway Astro PC. The deal resulted from research that showed just how influential young children are in purchasing decisions. Earlier in the week Gateway announced an international marketing alliance with Computacenter, the UK's largest computer distributor. They said it will be Gateway's "preferred partner" and sell its PCs to Europe's corporate and government clients over the next 2 years. BUY CALL DEC-75*GTW-LO OI= 661 at $7.75 SL= 6.00 BUY CALL DEC-80 GTW-LP OI= 508 at $5.25 SL= 3.50 BUY CALL DEC-85 GTW-LQ OI= 349 at $3.38 SL= 1.75 BUY CALL JAN-80 GTW-AP OI= 375 at $8.00 SL= 6.25 BUY CALL JAN-85 GTW-AQ OI= 317 at $6.38 SL= 4.75 Picked on Nov 21st at $79.00 P/E = 54 Change since picked +0.00 52 week high=$84.00 Analysts Ratings 12-8-1-0-0 52 week low =$36.13 Last earnings 09/99 est= 0.34 actual= 0.35 surprise +2.9% Next earnings 01-21 est= 0.49 versus= 0.41 Average Daily Volume = 2.61 mln Chart = http://quote.yahoo.com/q?s=GTW&d=3m **** SUNW - Sun Microsystems, Inc. $129.56 (+10.25)(+9.75)(+3.75) Microsystems is the leading provider of high quality hardware, software and services for establishing enterprise wide intranets and expanding the power of the Internet. Sun is the leading maker of UNIX-based, number crunching workstation computers, storage devices, and servers for powering corporate computer networks. With more than $11 billion in annual revenues, the company sells its products to a variety of different markets, and can be found in more than 150 countries. Late in the trading day on Friday, the shares of SUNW began to pick up steam, after a day that saw the stock trading as low as $125. The volume remained steady as traders continue to look for any weakness below recent 52 week highs to get into the stock. Earlier in the week we saw an intra-day high of $131.31, but on Friday the significance of the late day push was we got a closing high of $129.56. We continue to remind you that the momentum in the stock is due to positive news for the company, as well as the computer hardware sector. Also it continues to make a pre-split run. The stock will be splitting on 12/09, that gives us a little less than three weeks to ride this wave. The interesting scenario with SUNW is that whenever it seems like the split run is going to fizzle, it is backed up with a new product being introduced or positive comments from analysts or some story that continues to feed traders with positive news. This combination going forward should push us to new highs in the coming weeks. We continue to look to add to positions above the current intraday high of $131.31, but will not hesitate to nibble on a bounce off of support levels, look for a possible trading support bounce at $125.75. Investors were looking for bargains on Friday as they bid up the shares of other computer hardware stocks like IBM, CPQ. Money began to pour into the depressed stocks in the sector, as well as the favorable stocks which include GTW and SUNW. More and more investors believe that the Y2K scare is overblown and are continuing to put money to work in the sectors that have had major demand. BUY CALL DEC-125*SUX-LE OI=3955 at $11.00 SL= 8.75 BUY CALL DEC-130 SUX-LF OI=2319 at $ 8.00 SL= 6.25 BUY CALL JAN-125 SUX-AE OI=1362 at $14.25 SL=11.50 BUY CALL JAN-130 SUX-AF OI=1702 at $11.88 SL= 9.44 Picked on Nov 7th at $109.69 P/E = 86 Change since picked +19.88 52-week high=$131.31 Analyst Ratings 9-12-3-0-0 52-week low =$ 30.25 Last earnings 10/29 est= 0.31 actual= 0.33 Next earnings 01-20 est= 0.40 versus= 0.34 Average daily volume = 11.5 mln Chart = http://quote.yahoo.com/q?s=SUNW&d=3m **** LSI - LSI Logic Corp. $66.44 (+0.94)(+7.50) LSI Logic, The system on a Chip Company, is a leading supplier of custom high performance semiconductors, with operations worldwide. The company enables customers to build complete systems on a single chip with its CoreWare design program, which increases performance, lowers system costs and accelerates time to market. LSI Logic develops application optimized products in partnership with trend setting customers and operates leading-edge manufacturing facilities to produce submicron geometry chips. Investors were bidding up the likes of National Semiconductor after Lehman Brothers raised there price target, and it was reported that Semiconductors have experienced triple digit gains for the year. This sparked a rally in the overall sector and LSI, after the recent consolidation ended and LSI pressed forward to hit another closing high of $66.44. LSI continues to go higher on the back of comments that are positive for the overall sector going forward. Analyst believe that earnings are going to continue coming in stronger than expected. Sales growth is also growing faster than forecasted. Look to see more money inflowing into the sector as we go forward and look to add to current positions at these levels and again above the 52-week high of $66.94 which is not far off. The Semiconductor sector is volatile as a group. The daily trading ranges will provide traders with entry points on pullbacks. If the sector pulls back on Monday, look for trading support near $63.50. Watch for increasing volume as well to signal an oncoming rally. On Thursday good news was reported that LSI's single chip CDMA baseband processor has been approved by system operators for use in the Japanese market. This is good news for the overall profit picture going forward LSI. BUY CALL DEC-60*LSI-LL OI= 626 at $ 8.25 SL=6.50 BUY CALL DEC-65 LSI-LM OI=1322 at $ 5.13 SL=3.38 BUY CALL JAN-60 LSI-AL OI=2749 at $10.63 SL=7.63 BUY CALL JAN-65 LSI-AM OI=3183 at $ 7.63 SL=5.75 Picked on Nov 14th at 65.50 P/E = 119 Change since picked +0.94 52-week high=$66.94 Analyst Ratings 13-6-3-0-0 52-week low= $15.19 Last earnings 10/29 est= 0.30 actual= 0.35 Next earnings 02-02 est= 0.43 versus= 0.00 Average daily volume = 2.17 mln Chart = http://quote.yahoo.com/q?s=LSI&d=3m **** HLIT - Harmonic Inc $72.06 (+13.06) Harmonic designs, manufactures and markets digital and fiber optic systems that deliver video, voice and data over cable, satellite, telecom and wireless networks. These advanced solutions enable cable television and other network operators to provide a range of interactive broadband services that include high-speed Internet access, telephony and video-on- demand. The company also operates its Harmonic Data Systems subsidiary and an R&D center in Israel. With the uptrend firmly in place, HLIT remains on fire!! When we review the trading picture for Friday it might have been hard getting an immediate trading profit because of the gap open in the morning that saw the shares open up at $72.50, well above the close from Thursday of $69.75. During the day the shares were volatile and provide a number of good opportunities to enter the stock. The stock pulled back to as low as $70 a share during the day, before closing at $72.06. The momentum in the telecom equipment sector remains very bullish, as a number of stocks continue to breakout to the upside. Going forward, patience may pay off with the market at lofty levels but we like the stock at current levels to continue to trend higher. In case of a pullback look for support to hold up at the $68 level. Another possible strategy is to sell your positions if the stock continues to gap up at the open and then look to get back in on a intraday pullback. If the momentum carries HLIT higher, we expect some pretty strong resistance at $80, the 52-week high. That might not be a bad short-term exit point. Warburg Dillon Read hosted a three-day Global telecom conf. in New York City this past week, with the emphasis on the explosive data traffic as a result from the Internet. Warburg is bullish on the outlook for two areas: wireless communications and fiber optic transmission. More specifically they favor the companies that provide the various components that will enable these networks to flourish. They expect companies like ETEK, Terayon Communications, JDS Uniphase and HLIT to be well positioned to take advantage of the business opportunities. BUY CALL DEC-65 LQL-LM OI=454 at $11.50 SL= 9.25 BUY CALL DEC-70*LQL-LN OI=306 at $ 9.00 SL= 6.75 BUY CALL DEC-75 LQL-LO OI=246 at $ 6.88 SL= 5.00 BUY CALL JAN-65 LQL-AM OI=253 at $15.38 SL=11.38 BUY CALL JAN-70 LQL-AN OI=105 at $12.75 SL=10.25 Picked on Nov 18th at $69.75 P/E = 387 Change since picked +2.31 52 week high=$79.00 Analyst Ratings 4-4-0-0-0 52 week low =$ 5.50 Last earnings 11/13 est= 0.15 actual= 0.23 Next earnings 01/19 est= 0.22 versus= 0.03 Average daily volume = 1.03 mln Chart = http://quote.yahoo.com/q?s=HLIT&d=3m **** SNE - Sony Corp $176.63 (+0.13)(+11.81)(+4.94) Sony is a consumer electronics and multimedia entertainment company. It sells products like TVs, VCRs, MiniDisc systems, stereos, digital camcorders, DVD video players, and the Playstation home video game system. It is also in the process of strengthening its position in the music and image-based software markets. Some of Sony's entertainment assets include Columbia TriStar Motion Picture, Columbia TriStar Television, Sony Pictures Studio, and Columbia and Epic record labels. Other high-tech products include flat-screen TVs, digital TVs, CD-ROMs, and digital cellular telephones. The Bulls are ready to run! The profit-takers did their part to hold the market back on Friday as many prepare to head into a shortened holiday trading week. Sony has been experiencing profit-taking throughout the week and looks to have entered into a period of consolidation on Friday which managed to pull Sony up to close at the high of the day and just pennies short of Thursday's close. It looks as though Sony is ready to reclaim it's positive momentum run heading into next week. SNE has support at it's 10-dma of $175.75, which held up well in Friday's session. If Sony does regain momentum, it may very well be time to jump on board with a new play. Sony does have some resistance at $180, but now that the profit-taking could be out of the way, Sony may have the legs to continue running without being pulled back as it was last time. We will definitely want to see a move up backed with good volume to confirm, but Sony is looking well positioned heading into this week. The biggest shopping day of the year is just days away! Can you imagine just how many Playstations grace the lists of children around the world? (Alright, so it's on my list too.) Sony did a bit of flexing at last weeks Comdex convention and looks to be making a splash in the world of digital music players. Some are the size of wristwatches and of course you can find them in a variety of colors. Sony also announced plans on Friday to open a museum in Beijing China to help people learn more about the physical sciences. BUY CALL DEC-170 SNE-LN OI-201 at $11.75 SL=9.25 BUY CALL DEC-175*SNE-LO OI=210 at $ 8.38 SL=6.25 BUY CALL DEC-180 SNE-LP OI=238 at $ 5.88 SL=4.00 BUY CALL JAN-180 SNE-AP OI=184 at $ 9.88 SL=7.00 SELL PUT DEC-175 SNE-XO OI= 55 at $ 6.00 SL=8.00 (See risks of selling puts in the play legend) Picked on Nov 7th at $164.69 P/E = N/A Change since picked +11.94 52-week high=$181.50 Analysts Ratings 0-1-0-0-0 52-week low =$ 65.50 Last earnings 10/99 est= N/A actual= N/A Next earnings 01-00 est= N/A versus= N/A Average Daily Volume = 180 K Chart = http://quote.yahoo.com/q?s=SNE&d=3m **** EMC - EMC Corporation $89.38 (+6.69)(+8.93) Memory hardware and software is their primary focus. EMC Corporation is the #1 maker of mainframe computer disk memory hardware and software. EMC makes memory storage and retrieval systems for larger mainframe computers as well as UNIX and Windows NT systems, using redundant array of independent disks or (RAID). With an emphasis on overseeing a corporation's Internet data, EMC continues to boost its presence in software and related services. About 80 percent of EMC's revenue comes from storage hardware. Over the last 5 years EMC's earnings have increased an average of 30 percent annually. EMC competes in the market place with IBM, Compaq and Hitachi. EMC opened near its high at $89.75 and then dropped to its low of $86.50 in the first thirty minutes of trading Friday morning. For now the $87 area seems to have provided support for our play in EMC, as the hardware company bounced back late in the day to close at $89.38. In the near term we still believe the trend for EMC is higher. If you have a position in EMC, depending on your entry point you probably have some money on the table and we would urge you to protect it. Keep in mind, that in the last thirty days EMC has added almost $30 to the price of its stock, and somewhere along the lines, all that money is going to get a little heavy and some of those folks are going to want to lighten their load and go to the bank. For EMC to remain on our list of potential plays we are going to need to see it continue its upward momentum, with solid volume. Should we see a pullback or some profit-taking set in there are two areas that could be solid re-entry points. A bounce off of the $87 or $83 levels accompanied by strong volume could provide a good entry point. We are not trying to scare anyone off but as you know markets do not go straight up or down and the hardware sector has enjoyed nice moves in the last month. In the news, having completed its acquisition of Data General, EMC said this week it will eliminate the low end of its Aviion server line in an attempt to make the business unit profitable. In the coming months the company will gradually eliminate its desktop PC and low-end and mid-range servers. Elsewhere Soundview Technology Group analyst Gary Helmig downgraded EMC from a Strong Buy to a Buy with a twelve month price target of $115. Wednesday Wendy Abramowitz an analyst at Argus Research Group downgraded EMC from a Buy to a Hold as well. BUY CALL DEC-75 EMB-LO OI=1623 at $15.50 SL=12.00 BUY CALL DEC-80 EMB-LP OI=2575 at $11.13 SL= 8.75 BUY CALL DEC-85*EMB-LQ OI=3143 at $ 7.50 SL= 5.75 BUY CALL DEC-90 EMB-LR OI=2168 at $ 4.50 SL= 2.75 SELL PUT DEC-80 EMB-XP OI= 702 at $ 1.19 SL= 2.50 (See risks of selling puts in the play legend) Picked on Nov 14th at $82.69 P/E = 90 Change since picked +6.69 52-week high=$90.38 Analysts Ratings 16-7-2-0-0 52-week low =$33.00 Last earnings 09/99 est= 0.27 actual= 0.29 surprise +7.4% Next earnings 01-25 est= 0.31 versus= 0.24 Average daily volume = 5.77 mln Chart = http://quote.yahoo.com/q?s=EMC&d=3m **** GMST - Gemstar International $104.63 (+4.25) Gemstar International Group makes videorecording systems. They develop, market and license proprietary technologies and systems under the "VCR Plus+" name. Their VCR Plus+ system lets users program VCR's simply with one-to eight-digit codes published in TV listings worldwide. Gemstar's primary source of revenues are from licensing fees paid by consumer electronics manufacturers and publications for the licensing of the VCR Plus+ technology and the right to print the PlusCode Numbers. Gemstar has signed long-term renewals of license agreements with Sony Corp, and Thomson Consumer Electronics. Recently they launched the system in Mexico, the 40th country in which VCR Plus+ programming is offered. Our Split run play in GMST is beginning to set up nicely. Now if it will just continue with the momentum we saw early last week we will all be happy campers. Thursday GMST announced its second 2:1 split of the year. The first came back in May. GMST dropped back to the $101 area Thursday, but recovered into the close. Friday shares of GMST started out a bit weak again however the $102 area provided support. GMST has began to consolidate from the last week's run up from the $90 area. The primary challenge for our split play is to see if the $100 holds and if the stock can continue to move up and take out the previous high of $110.63 with conviction. If you are considering a position in GMST, we would view a move through the $106 level with solid volume as a potential area to buy calls. We would like to see the major indices leading the way as well, which could be a problem. With the Nasdaq continuing to head into uncharted territory the potential for a retracement or at least a consolidation grows by the day. The strength exhibited after the early declines in each of the last two sessions is promising. GMST closed right on its 5-dma at $104.63. Several other technical indicators have come off the ceiling as well. Volume on the pullback has been light indicating there aren't a lot of people ready to jump ship just yet either. Notice the high Open Interest in the December 115 Calls at 2692. This can be a good indication of where traders expect GMST to run into solid resistance. In considering a new play assess your risk profile and check the direction of the broader markets prior to entering you order. Last week analyst Michael E. Stanek of Lehman Brothers reiterated his Buy rating for GMST and set a twelve month price target of $150. Analysts at Hambrecht & Quist and at Gerard Klauer also reiterated Buy ratings for GMST late last week. BUY CALL DEC-100*GST-LT OI= 530 at $11.63 SL=9.25 BUY CALL DEC-105 GST-LA OI= 785 at $ 8.88 SL=6.75 BUY CALL DEC-110 GST-LB OI= 336 at $ 6.63 SL=4.75 BUY CALL DEC-115 GST-LC OI=2692 at $ 4.88 SL=3.25 SELL PUT DEC- 95 QLF-XS OI= 128 at $ 5.13 SL=7.00 SELL PUT DEC-100 GST-XT OI=2922 at $ 6.25 SL=8.00 (See risks of selling puts in the play legend) Picked on Nov 18th at $104.88 P/E = 140 Change since picked -0.25 52 week high=$110.63 Analysts Ratings 6-0-0-0-0 52 week low =$ 25.31 Last earnings 09/99 est= 0.18 actual= 0.19 surprise +2.5% Next earnings 02-10 est= 0.21 versus= 0.17 Average daily volume = 1.22 mln Chart = http://quote.yahoo.com/q?s=GMST&d=3m ******************************* CALLS CONTINUED IN SECTION FOUR ******************************* SEE DISCLAIMER IN SECTION ONE
The Option Investor Newsletter 11-21-99 Sunday 4 of 6 CALLS CONTINUED *************** *************** Internet *************** ICGE - Internet Capital Group $166.94 (+7.63) Internet Capital Group is an Internet holding company actively engaged in business to business e-commerce through a network of partner companies. It provides operational assistance, capital support, industry expertise, and a strategic network of business relationships intended to maximize the long-term market potential of more than 40 business to business e-commerce partner companies. This recent IPO has been on a firm, steady uptrend ever since it went public back in early August. The stock tacked on 7.63 points in a sector that has most of the recent action, Internet stocks. Many in the sector have upcoming splits. Stocks set to split in the very near future in the sector are: AOL, VIGN, BRCD, SCNT just to name a few. For the new companies like ICGE the rumor is that they will be following the leaders and will be announcing a stock split soon, and with investors believing that they are getting something for nothing it should help the stocks sky rocket even higher. Going forward on the back of this rumor we should see continued momentum in the new Internet software and services stocks. We would look to enter positions at this level in ICGE, being mindful that the stock is volatile and has a wide intra-day trading range. Look for pullbacks to trading support near $160. Resistance is above at $180. This stock has pulled back off of recent highs and we look to see another push to new highs, we are looking for a possible stock split announcement and want to be in position for a run up in anticipation. An acquisition was recently made by ICGE to help to build the company as the leader in Web-based procurement. ICGE bought Purchasing Solutions, Inc., an e-commerce purchasing service that helps companies reduce total procurement costs. As companies seek new opportunities to enhance productivity and reduce costs, supply chain management, particularly the corporate procurement process, is emerging as a huge opportunity. BUY CALL DEC-165 EUG-LM OI= 60 at $18.50 SL=15.75 BUY CALL DEC-170*EUG-LN OI= 101 at $16.63 SL=14.00 Best OI BUY CALL DEC-175 EUG-LO OI= 78 at $14.25 SL=11.50 BUY CALL JAN-170 EUG-AN OI= 31 at $23.75 SL=21.25 BUY CALL JAN-175 EUG-AO OI= 15 at $18.38 SL=15.63 Picked on Nov 21st at $166.94 P/E = N/A Change since picked +0.00 52-week high=$195.56 Analyst Ratings 0-2-1-0-0 52-week low =$ 14.00 Last earnings 11/11 est= 0.17 actual= -0.13 Next earnings 02-01 est= 0.18 versus= N/A Average daily volume = 1.37 mln Chart = http://quote.yahoo.com/q?s=ICGE&d=3m **** CMGI - CMGI Inc. $124.88 (+23.38) They invest in the future of the Internet. CMGI develops and operates Internet and direct marketing companies as well as venture funds focused on the Internet. They assist in the internal development and the operation of their majority owned subsidiaries within the CMGI Internet Group. CMGI has a stake in more than 40 Internet Companies including Lycos and Raging Bull. They also own 83% of search engine AltaVista. They have a majority interest in Engage Technologies, ADSmart, NaviSite and MyWay.com. Services include Web Hosting, ad serving, and traffic analysis. Located in Andover, MA, CMGI competes in the marketplace with Safeguard Scientifics, SOFTBANK, and ideally. Shareholders of CMGI had quite an exciting week. CMGI started out the week trading near the $100 dollar mark. By the close of business Friday CMGI had seen a high of $135.25 and traded back to close at $124.88 up over $23 for the week. The excitement for CMGI shareholders came mostly on the news of China signing an agreement Monday with the U.S., which will pave the way for China to enter the World Trade Organization. So why all the excitement for CMGI? CMGI recently signed a deal with Pacific Century Cyberworks Ltd., a Hong Kong Internet company, which will allow CMGI to expand into the lucrative Chinese Internet market. If you noticed this week's trading, just about any stock that had anything to do China enjoyed a positive move. We are looking for CMGI to continue to move higher and a solid move through the $130 area would be viewed as an opportunity to participate in our call play. The only fly in the ointment at this point would be the concern over interest rates that seems to have returned to the markets. The bond market is beginning to say there's inflation and the stock market could start to believe the folks in the bond pits sooner or later. If that's the case then the financial stocks and interest rate sensitive firms could find the going a bit tough. Obviously CMGI can exhibit volatility, and this play may not be for everyone. Prior to entering a new play consider the volatility of the stock and your own risk profile. For those with nerves of steel this could be a great play. Wednesday analysts at Goldman Sachs initiated coverage of CMGI with a rating of Market Outperform. Prudential's Paul Merembloom rated CMGI as a strong buy and raised his price forecast to $186 citing the U.S./China agreement as a lucrative opportunity for CMGI, as well as other new ventures coming to market. BUY CALL DEC-120 GCB-LD OI=3366 at $13.75 SL=11.00 BUY CALL DEC-125 GCB-LE OI=1436 at $12.00 SL= 9.50 BUY CALL DEC-130*GCB-LF OI=1797 at $ 9.25 SL= 7.00 BUY CALL DEC-135 GCB-LG OI= 914 at $ 7.25 SL= 5.50 BUY CALL DEC-140 GCB-LH OI=2141 at $ 6.00 SL= 4.25 Picked on Nov 21st at $124.88 P/E = 31 Change since picked +0.00 52-week high=$165.00 Analysts Ratings 3-6-0-1-0 52-week low =$ 16.34 Last earnings 08/99 est= 4.08 actual= 4.24 surprise +3.9% Next earnings 12-15 est=-0.17 versus= 0.38 Average daily volume = 4.32 mln Chart = http://quote.yahoo.com/q?s=CMGI&d=3m **** SFE - Safeguard Scientific Inc $124.00 (+11.50)(+9.00) Safeguard is an Internet-centric holding company that finds, acquires, operates and manages business-to-business companies engaged in e-commerce, e-communications, and e-business software and services and has interests in several private equity funds. Safeguard generally acquires ownership interests in companies that allow it to have a significant influence over their direction and management over the long-term. Safeguard assigns a dedicated team to each partner company and actively assists its partner companies in their management, operations and finances. Safeguard seeks to maximize shareholder value by actively providing operational assistance and expertise to help its partner companies grow and develop and by giving its shareholders the opportunity to participate in the initial public offerings of its partner companies while retaining a significant ownership interest after the initial public offering. SFE had a great week, but on Friday showed signs of weakness despite a gain on the day. To get to the point, volume was low and the price was flat. That's an unusual combination on a low float, high visibility, and volatile issue. By itself, it doesn't mean much, but is certainly not indicative of a stock that wants to go up. In fact, the last three days of trading saw the trend flattening out in comparison to the previous two weeks. The short-term channel shows a trading range of $121 to $127. SFE is right in the middle. However, the breakout over its old April high of $120 is a good sign, though the low volume scares us a bit. Nonetheless, we think the best target shooting entry is around $120 ($120 is where the chart shows old resistance and new support) as long as the volume keeps up (picks up), and the rest of the NASDAQ keeps away from reclaiming some of the 600 points it's gained in the last 15 trading days. Plan your entry carefully and cut your losses quickly if it moves south of $120 - the next stop is $112-$115. Profit potential is good, but the ice is thin. Run if you hear a crack. There isn't much news to move the price. Since SFE has really been carried up in price on no news of its own, it becomes an easy target for bad news, especially when you consider that the market is at historical levels over its moving average. If you target shoot, be sure to use a trailing stop on the downside. Otherwise, don't leave your computer. As for a split, SFE has had the ability to split for some time since the price has been well above historical split levels. Though, it's possible, We don't think we'll hear an announcement any time soon - maybe February when they announce earnings. ***No January strikes available yet*** BUY CALL DEC-120 SFE-LD OI= 590 at $12.00 SL= 9.50 BUY CALL DEC-125*SFE-LE OI=1061 at $ 9.50 SL= 7.25 BUY CALL DEC-130 SFE-LF OI= 5 at $ 7.38 SL= 5.50 low OI Picked on Nov 11th at $118.75 P/E = 50 Change since picked +6.25 52-week high=$127.75 Analysts Ratings 8-4-1-0-0 52-week low =$ 24.50 Last earnings 10/99 est= 0.14 actual= 0.26 surprise= 85.7% Next earnings 02-17 est= 0.16 versus=-0.23 Average Daily Volume = 442 K Chart = http://quote.yahoo.com/q?s=SFE&d=3m **** YHOO - Yahoo! Inc $218.75 (+21.81) Yahoo! Inc is a global Internet media company that offers an online guide to web navigation, plus a branded network of comprehensive information, communication services, and shopping access to millions of users daily. Over 32 mln users visit the Web site each month. Yahoo! operates in the black with the bulk of its revenues derived from advertisements commissioned by its list of about 3800 clients. YHOO is a split-candidate play powered by e-holiday momentum and the general excitement that surrounds this high-flying Internet at this price level. Historically, the company has announced stock splits when the share price reaches $200 to $220. Recall YHOO recently split 2:1 on February 5th. For another split to become reality this calendar year, a shareholder meeting would be required to increase the number of authorized shares. We saw investor enthusiasm catch hold after the stock broke through overhead resistance at $203. From that point on YHOO has provided entry points between $205 and $210, a level that's evolved as near-term support this week and the 10-dma ($203.59) is now just a dot in the rear-view mirror. For players who jumped right into the game, they reaped instant rewards as YHOO stretched even higher on Friday just missing the $220 mark. Earlier, First Union Securities gave YHOO a boost when they started coverage on Thursday with a Strong Buy rating and also issued a bullish price target of $240. In the spirit of the holiday season, the company announced Yahoo! Gift Registry. A service that provides a place for users to develop a "wish list" of goods from its over 7500 merchants and then e-mail choices to friends and family. And Yahoo! already has events in place for this Spring. On Tuesday, Yahoo! Internet Life magazine announced its first annual Online Film Festival to be held on March 22nd and 23rd. Their goal is to magnify the importance of film via the Internet. Yahoo! has deals with online and offline communities including Amazon.com and Roger Ebert to help promote this event. In international news, the landmark trade agreement between the US and China should prove beneficial for Yahoo! who already has presence in the China economy with its Yahoo! China, a Chinese-language site launched in September. It's predicted that Chinese Internet users will increase from the anticipated 8 mln in year 2000 to over 30 mln by 2003 putting this Internet content provider in quite a lucrative position. BUY CALL DEC-210*YMM-LB OI=3132 at $18.50 SL=14.50 BUY CALL DEC-220 YMM-LD OI=2392 at $13.38 SL=10.75 BUY CALL DEC-230 YMM-LF OI=1776 at $ 9.38 SL= 7.00 BUY CALL JAN-220 YMM-AD OI=6838 at $22.00 SL=17.25 BUY CALL JAN-230 YMM-AF OI=4800 at $17.75 SL=14.00 Picked on Aug 15th at $212.56 P/E = 1033 Change since picked +6.19 52 week high=$244.00 Analysts Ratings 13-15-4-0-0 52 week low =$ 9.69 Last earnings 09/99 est= 0.09 actual= 0.14 surprise +55.6% Next earnings 01-12 est= 0.15 versus= 0.07 Average Daily Volume = 7.90 mln Chart = http://quote.yahoo.com/q?s=YHOO&d=3m **** BVSN - Broadvision $97.50 (+9.00)(+5.00)(+9.94) Broadvision's software helps companies become e-commerce powerhouses. Their depth in One to One Internet software provides the tools for all facets of the online transaction, including ordering, payment, fulfillment, customer service and billing. It also allows users to collect, track and manage customer visits, then create customer profiles accordingly. Trophy Customers include Oracle, American Airlines, Credit Suisse, Ernst and Young, Hewlett Packard, Home Depot, Motorola, Vodafone and Wal-Mart. Insiders own 46% of the company. Once again, here's an issue where volume has overtaken intelligence. Mind you, we're not complaining about a profit, just noting that there is no substitute for volume when it comes to moving a stock's price. Friday's stellar gain came during amateur hour and is considered highly unusual, except on option expiration Friday when contracts get exercised. The action puts immediate buying pressure on the stock, as thousands of contracts were exercised following the recent run. In the process, BVSN broke $96 resistance and held it to set yet another new high. On the theory that old resistance becomes new support, $96 appears to be a new support level with new resistance at $99 (a new intraday high). With share value up over 1500% this year, BVSN just executed their first split (3:1) in October. The announcement came when the stock traded at $133. We're getting there, but not yet. The first hurdle will be clearing resistance at $99, then the psychological barrier of $100. If that's not enough, consider that the NASDAQ has risen over 600 points in the last 15 trading days, setting 12 new records on extraordinary volume along the way, without any correction. Anyone see a red flag here? Charting history and a good story are things we see in the rear view mirror that would spur us to take a new position. However, instead, we would encourage you to look through the windshield this week. Confirm market direction before making the play. GDP and jobless claims are reported on Wednesday. In the news, Friedman, Billings, Ramsey reinstated their Buy rating with no other details. Careful. GEOCapital, Lou Navellier and Pilgrim Baxter (all large institutional holders of BVSN) have sold over 3 mln shares according to September filings and declined comment on their moves. Navellier was a bit more forthcoming: "It's frothy; I trimmed it and stand ready to trim more. I'd like its earnings momentum to pick up. It's officially a Hold on my system." Piper Jaffrey also reiterated their Buy rating this week. ***No January strikes available yet*** BUY CALL DEC- 90*BDV-LR OI=1419 at $14.50 SL=11.50 BUY CALL DEC- 95 BDV-LS OI= 401 at $11.75 SL= 9.25 BUY CALL DEC-100 BDV-LT OI= 720 at $ 9.50 SL= 7.25 Picked on Nov 7th at $83.50 P/E = 615 Change since picked +14.00 52-week high=$99.00 Analysts Ratings 5-16-1-0-0 52-week low =$ 4.81 Last earnings 09/99 est= 0.13 actual= 0.16 Next earnings 01-27 est= 0.16 versus= 0.08 Average Daily Volume = 1.4 mln Chart = http://quote.yahoo.com/q?s=BVSN&d=3m ********* SOFTWARE ********* MSFT - Microsoft Corp $86.00 (-3.19) Microsoft is the #1 software company in the world. They develop, manufacture, license, and support a broad range of software products including Windows operating systems, server applications, the popular MS Office suite, and a Web Browser. The company is presently involved in anti-trust issues with the government. CEO and co-founder, Bill Gates still owns 15% of Microsoft. Our Microsoft play is based on the recent move by US District Judge Thomas Penfield Jackson to appoint a mediator in the government's antitrust case against Microsoft to negotiate an out-of-court settlement. Both sides assented to the appointment of Richard A. Posner, Chief Judge of the 7th US Circuit Court of Appeals and a free-market advocate. Investors were pleased too that talks would likely resume and started to put their money back into MSFT on Friday. By the end of Friday's session MSFT was showing signs of a renewal and traded up $1.06 (1.3%) on strong volume. Take a look at a chart and you can visually confirm the stock's downfall after the courts declared the company a monopoly and bully just two weeks ago. It's evident MSFT lots its trading legs and began to play tag with the 200-dma (now at $86.45). We believe this price level is the bottom and thus, an awesome buying opportunity. The first step of opposition is just overhead at $90 and $91 then its onward to break the barriers at $95 and $96. As the Nasdaq rages on to newer heights and the end of the monopoly battle seems to be coming to a timely close, MSFT is no doubt poised to go higher in the near-term. The only problem is entry points. Instinet already showed MSFT above $90 after-hours on Friday. Don't chase MSFT if the stock is overly euphoric. BUY CALL DEC-80 MSQ-LP OI= 2756 at $7.75 SL=6.00 BUY CALL DEC-85 MSQ-LQ OI= 8457 at $4.25 SL=2.50 BUY CALL DEC-90*MSQ-LR OI=20212 at $1.94 SL=1.00 BUY CALL JAN-85 MSQ-AQ OI=32958 at $6.38 SL=4.75 BUY CALL JAN-90 MSQ-AR OI=34321 at $4.25 SL=2.50 SELL PUT DEC-85 MSQ-XQ OI=15296 at $2.88 SL=4.75 (See risks of selling puts in the play legend) Picked on Nov 21 at $86.00 P/E = 91 Change since picked +0.00 52-week high=$100.75 Analysts Ratings 14-17-3-0-0 52-week low =$ 54.62 Last earnings 09/99 est= 0.34 actual= 0.38 surprise +11.8% Next earnings 01-19 est= 0.42 versus= 0.36 Average Daily Volume = 26.5 mln Chart = http://quote.yahoo.com/q?s=MSFT&d=3m **** VRTY - Verity Inc $99.13 (+5.81) Verity develops knowledge retrieval software products for corporate internet and extranets, online publishers and e- commerce providers, OEMs and independent software vendors. Verity makes software capable of accessing information stored in multiple formats and locations. The company's software simplifies data management information to index, classify, search, and retrieve data. Verity has a large corporate clientele ranging from chip makers to Internet publishers which include Cigna, Toshiba, CNET, and EDGAR online. This one's simple. We're adding VRTY as a split run play ahead of the 2:1 paydate on December 3rd. Earlier this month we watched VRTY break out on the upside after being added to the S&P 600 Small-Cap Index on November 5th and begin trading well above October's $75 resistance level, but unfortunately on dissipating volume. Now granted volume has yet to reflect the typical enthusiasm which usually earmarks a profitable split run, but we believe that confirmation will present itself as the split date quickly approaches in just two short weeks. Putting the trading volume issue aside, VRTY is poised to break through that psychological $100 mark and charge towards a reasonable target of $110, a mere 10% climb!. With the bullish sentiment intact, technical indicators such as the MACD and STO in positive mode, and the 10-dma ($93.34) tucked under the near-term support level at $95 we see prospective gains for VRTY as a definite possibility. An entry shouldn't be too difficult to navigate. This HIGH-RISK Internet play offers enough volatility and point spread intraday to target shoot for a daily bottom near support even on a climb, but again look for a show of volume to further validate your decision. BUY CALL DEC- 95*YQV-LS OI=347 at $11.00 SL= 8.75 BUY CALL DEC-100 YQV-LT OI=216 at $ 8.38 SL= 6.50 BUY CALL DEC-105 YQV-LA OI= 21 at $ 6.38 SL= 4.75 low OI BUY CALL MAR-100 YQV-CT OI= 3 at $15.50 SL=12.00 low OI BUY CALL MAR-105 YQV-CA OI= 0 at $12.63 SL=10.25 low OI SELL PUT DEC-100 YQV-XR OI= 10 at $ 3.63 SL= 5.50 (See risks of selling puts in the play legend) Picked on Aug 24th at $99.13 P/E = 390 Change since picked +0.00 52-week high=$104.00 Analysts Ratings 4-1-0-0-0 52-week low =$ 15.62 Last earnings 08/99 est= 0.21 actual= 0.32 Next earnings 12-15 est= 0.23 versus= 0.18 Average Daily Volume = 304 K Chart = http://quote.yahoo.com/q?s=VRTY&d=3m ******* Telecom ******* CMVT - Comverse $142.44 (+21.19)(+7.50)(+18.50 previous 3 weeks) Comverse makes enhanced telecommunications systems and is the 3rd largest firm in the voice mail market. Its TRILOGUE Infinity and Access NP product lines supply voice and fax messaging, automated personal assistant, and call answering services. TRILOGUE is marketed to telecom network operators and gives multiple telephone users access to integrated digital information and messaging services. Comverse's AUDIODISK and ULTRA lines are communications monitoring systems used by police and surveillance agencies, correctional institutions, emergency 911 services, financial institutions and tele-marketers. This just keeps getting better and better, doesn't it? Well, unless you passed up or forgot to enter the play, in which case it leaves a knot in your stomach every time you get a quote on CMVT. Believe me, I've been there. This week we saw a gain of over $20 in CMVT. That combined with, once again, numerous entry points has made trading in CMVT profitable and fun. We talked about the clock ticking away at us on Thursday and it is true. We are really starting to run out of time on our CMVT play. The earnings are set to be released after the close on Nov 30th. That means this week will be the last of the plays and we need to close up shop on CMVT by Monday or Tuesday of next week. Truthfully, you have to wonder how much strength CMVT has left. It is up over $40 since we picked in on Oct 21st. And with the market also looking over- extended, we may be in for a bout of profit-taking. This is just speculation though because CMVT still looks technically strong. We issue a profit-taking warning purely on common sense, although that sometimes doesn't mean a lick on Wall Street. The strong technical picture stems from a bullish close over $140 on Friday. The volume was average but it has been average all along and CMVT keeps trucking higher. The word is probably leaking that a split may be coming with earnings. We have said all along that it is quite likely but we still don't want to risk holding over earnings. That brings in to play a possible disappoint in earnings, no split announcement, or a post-announcement and/or post-earnings sell-off. That is just too many factors to pull CMVT down. So for those looking to enter a play, support is at $140, $135 and at the 10-dma at $125 (not likely to hit this without a stiff market downdraft). We will call the outlook for this week cautiously optimistic but will keep the stops tight to avoid giving back any of our gains. Let's determine who the veteran's of the this play are. Do you think there was any new news on CMVT this week? If you answered no, then you may be a play veteran. Most likely a profitable one as well. As we have said before, CMVT rarely has press releases and this week was no exception. We will keep watching for them anyhow. We know there will be one after the close on Tuesday the 30th. BUY CALL DEC-130 CQV-LF OI=935 at $18.00 SL=14.00 BUY CALL DEC-135*CQV-LG OI=154 at $14.00 SL=11.25 BUY CALL DEC-140 CQV-LH OI= 83 at $12.00 SL= 9.50 low OI SELL PUT DEC-115 CQV-WC OI= 9 at $ 1.25 SL= 2.50 low OI (See risks of selling puts in the play legend) Picked on Oct 21st at $102.13 P/E = 78 Change since picked +40.31 52-week high=$142.50 Analysts Ratings 9-3-0-0-0 52-week low =$ 24.50 Last earnings 08/99 est= 0.49 actual= 0.52 Next earnings 11/30 est= 0.53 versus= 0.41 Average Daily Volume = 1.3 mln Chart = http://quote.yahoo.com/q?s=CMVT&d=3m **** NT - Nortel Networks $81.25 (+8.69)(+3.75)(+6.88) Here come 'Ol Flat Top; he come groovin' up slowly. What does this has to do with the new era of communications, we don't know. But the bandwidth enabling capability of NT equipment is causing the Internet to "Come Together" (the Beatles song used in NT's TV commercials) with PC's, TV's, LANs, plus wireless and fiber data/voice communications systems everywhere. NT makes the equipment that makes the electronic convergence possible. With over $19 bln in sales, they are number #2 behind competitor Lucent in size. Canadian Telecom owns 40%. The U.S. accounts for over 50% of sales. Recall from Thursday's write-up that a new study released earlier in the week ranks NT as the number one producer of optical networking gear worldwide, outpacing Lucent by a 32% to 27% market share. NT has been on fire ever since. It's also much more attractively priced than LU, which has money managers flocking, as indicated by volume far surpassing the ADV. They are also garnering business away from one-time leader, Newbridge Networks, which may help explain why Newbridge has fallen on hard times. Anyway NT expects to sell $10 bln worth of optical gear next year, and grow revenue 21%, while expanding their margins in the process - again, money managers salivate. Though they last split in August (2:1), the announcement came earlier in July when the price was $88. We're almost there. However, since their authorized shares are unlimited and they are Canada based, NT is not required to file proxy statements with the SEC. Thus, we don't have the typical evidence available, which would indicate a pending split announcement. Consider it gravy, but don't bank on it. True to form, old resistance at $75 became new support, from which NT has continued its ascent. Thursday and Friday's charts are truly a thing of beauty, with support forming (barely) at $77.25 and $80.50. Resistance is $81.38. NT's close within $0.13 of the high gives a strong sign that the trend should continue. Dips have been minimal. So long as the market remains friendly, target shooting here will likely get you the best entry. Volume weakness would be a sign to stay away as would negative market conditions - market wide profit-taking for instance. Confirm market direction. Here's some contrarian good news. Brokerage firm Griffiths, McBurney maintains their Accumulate rating, while RCB Dominion reiterated its Outperform rating. One Buy or Strong Buy rating from a large firm would likely spark another wave of retail, if not institutional buying. BUY CALL DEC-75*NT-LO OI= 648 at $8.63 SL=6.50 BUY CALL DEC-80 NT-LP OI=1300 at $5.63 SL=4.00 BUY CALL DEC-85 NT-LQ OI= 441 at $3.50 SL=1.75 BUY CALL JAN-80 NT-AP OI= 188 at $8.50 SL=6.50 BUY CALL JAN-85 NT-AQ OI= 80 at $6.13 SL=4.25 low OI Picked on Nov 7th at $68.81 P/E = 490 Change since picked +12.44 52-week high=$81.38 Analysts Ratings 12-12-3-0-0 52-week low =$22.06 Last earnings 10/99 est= 0.26 actual= 0.28 surprise=7.7% Next earnings 01-26 est= 0.44 versus= 0.36 Average Daily Volume = 3.8 mln Chart = http://quote.yahoo.com/q?s=NT&d=3m **** NOK - Nokia $133.50 (+11.25)(+6.38) Finnish Phone Firm, Nokia is the world's number one maker of wireless cellular phones, ahead of Motorola, Ericsson and Qualcomm. In addition they make wireless networking equipment, PC monitors and workstations, digital satellite and cable network systems and set-top boxes. However mobile phones make up 80% of their $18.5 bln in annual sales. Return on equity is an industry smokin' 43%, and they currently sit on $3.3 bln cash, or slightly over $3 per share. Only a hunch, but do you think they'd make a great candidate to purchase QCOM's handset business? Wow! What a hard run NOK had this week, especially Thursday, where it gapped up $6 from Wednesday's close. Gaps like that (no news) beg to be filled, and the pleas were answered on Friday in a round of profit-taking that whacked $3 from the price. Even so, it didn't fall out of the channel, which ranges from $125 to $137. Under the "old resistance = new support" theory, $130 in fact proved to be support in the first 20 minutes of trading, followed early in the afternoon by support at $131. We would be inclined to target shoot the $130-$131 range. Support after that? $127. Volume remains solid and well above the ADV. It looked particularly good going into Friday's close following the bounce off $131. If it can hold this level and move up over $140, we will have a split candidate too, though foreign company splits are a bit tougher to predict since they don't leave a trail of SEC filings to sniff out. We should exercise some caution though as tech stocks (mostly NASDAQ) have come a long way in a hurry. With over 600 points in gain and no substantial pullback, keep your guard up by using a trailing stop. Remember too that a gapping stock can skip right over your limit, making this play inherently more risky. Again, support is $130; resistance is $139. There have been no major announcement this week from NOK, while trading volume in Europe has been trailing off slightly, portending that the same may soon happen here. If so, we could be in for a pullback. Make sure the volume is there before you make a trade. BUY CALL DEC-125 NAY-LE OI=2158 at $11.75 SL=9.25 BUY CALL DEC-130*NAY-LF OI=2909 at $ 8.63 SL=6.50 BUY CALL DEC-135 NAY-LG OI= 284 at $ 6.13 SL=4.25 BUY CALL DEC-140 NAY-LH OI= 881 at $ 4.00 SL=2.50 BUY CALL JAN-135 NAY-AG OI= 185 at $ 9.75 SL=7.25 BUY CALL JAN-140 NAY-AH OI= 184 at $ 7.25 SL=5.50 Picked on Nov 14th at $122.25 P/E = 119 Change since picked +11.25 52-week high=$140.00 Analysts Ratings 13-8-0-0-0 52-week low =$ 44.25 Last earning 10/99 est= 0.52 actual= 0.57 surprise = 9.6% Next earning 01/28 est= 0.66 versus= 0.58 Average Daily Volume = 2.7 mln Chart = http://quote.yahoo.com/q?s=NOK&d=3m **** QCOM - Qualcomm Inc. $367.06 (-10.94) QUALCOMM Incorporated is a leader in developing and delivering innovative digital wireless communications products and services based on the Company's CDMA digital technology. The Company's major business areas include CDMA phones; integrated CDMA chipsets and system software; technology licensing; and satellite-based systems including OmniTRACS® and portions of the Globalstar(TM) system. Headquartered in San Diego, Calif., QUALCOMM is included in the S&P 500 Index and is a 1999 FORTUNE 500 company. The $10.94 loss last week doesn't tell the whole story. It was down to $328 from a high of $406 on Monday. Voila', instant 20% correction - Hello, entry point! Support is quite strong at $330, a bit less so at $350, and merely stable from Friday's trading at $358 to $360. While the finish was strong with lots of volume (compared to the rest of Friday) pushing up the price into the close, the overall daily volume fell all week to roughly half its ADV on Friday. Where have all the buyers gone? The company has a great story to tell. Every time Nokia, Ericsson, Motorola, Samsung, or anybody else sells a CDMA phone (VOD, PCS), QCOM collects a royalty (Microsoft method). Even though the "per unit" fee isn't as high, handsets are outselling PCs and will soon outstrip PC penetration worldwide. Hello, revenue stream! How about this from their 10-K? " QUALCOMM has set an objective of completing discussions and entering an agreement before the end of the 1999 calendar year [with regard to their handset business], which may result in a non-recurring charge to earnings. [They want to sell it and may incur selling expenses]" On December 20 at 7:30 am PT (when the market opens), there is a special shareholder meeting with three items on the agenda: first and second, to approve an authorization to increase the share count from 300 mln to 3 bln in order to effect the 4:1 stock split (still enough shares for another 2:1 after that); third, "to transact such other business as may properly come before the meeting or any adjournment or postponement thereof." That would be the perfect venue to announce the buyer of their handset business, in addition to approving the split. The news is contained above. Still, with the NASDAQ up over 600 points, there could be a substantial correction in the market before December 20. Gunslingers should feel free to trade in the range of support and resistance ($330-$390), while the rest of us perhaps wait for more of a market wide pullback. With $40 moves possible for QCOM, it's important to keep your stops in place and adjust them upward to keep from giving them back in a quick round of profit taking. It goes without saying, confirm market direction first. HIGH PREMIUM ALERT !! Another good strategy for this play would be to go long the stock and write covered calls at or out of the money. The premiums are so inflated that even a $20 out of the money contract can yield an extra $25 of profit. BUY CALL DEC-350 AAF-LJ OI=1854 at $45.00 SL=35.00 BUY CALL DEC-360*AAF-LL OI=1039 at $38.50 SL=30.00 BUY CALL DEC-370 AAF-LN OI=1540 at $35.00 SL=27.50 BUY CALL DEC-380 AAF-LP OI=1480 at $31.00 SL=24.00 BUY CALL JAN-370 AAF-AN OI= 483 at $53.63 SL=42.00 BUY CALL JAN-380 AAF-AP OI= 523 at $48.00 SL=37.50 SELL PUT DEC-300 AAF-XT OI=2038 at $ 8.75 SL=11.00 (See risks of selling puts in the play legend) Picked on Nov 16th at $330.00 P/E = 265 Change since picked +37.06 52-week high=$406.13 Analysts Ratings 6-8-4-0-0 52-week low =$ 24.50 Last earnings 11/99 est= 0.88 actual= 0.91 Next earnings 02-00 est= N/A versus= N/A Average Daily Volume = 10.1 mln Chart = http://quote.yahoo.com/q?s=QCOM&d=3m **** JDSU - JDS Uniphase $213.81 (+13.81) Uniphase Corporation is a fully integrated optical electronics company that designs, develops, manufactures and markets fiber optic telecommunications components and modules and laser subsystems. The Company's telecommunications products include semiconductor lasers, high-speed external modulators, transmitters, fiber Bragg gratings and optical modules for fiber optic networks in the telecommunications and cable television industries. Based in the Silicon Valley, California, they employ approximately 6260 people worldwide. Customers include Lucent, Nortel, Cisco and Ciena. American Express owns 10% of the common shares "Dear God, please let there be one more company like Intel to invest in, and I promise not to mess it up this time". Here's your big break. UNPH makes the laser modules and pumps (in addition to other components) that split a fiber optic strand into many different, potentially unlimited channels. Effectively they do for light what Intel does for electrons. Their components are critical to the development of optical networks. You might think that George Soros is responsible for the recent price spurt if you were watching CNBC on Friday. Not so. While a fund managed by Soros disclosed that it owned about 440K shares, the trend was already in place. Higher lows had been converging with resistance of $204 for the last 2 weeks - a perfect ascending triangle or pennant. We got the breakout with volume at twice the ADV on Friday. Though reaching as high as $222, JDSU encountered some profit-taking (down to $213) in the late afternoon before recovering to $214 into the close. Support is near at $213, then $210, then $207, then finally $204 (the old resistance/new support theory). Depending on your risk tolerance, you can target shoot in this range, though we don't really expect $204 again unless there is drastic market wide profit taking (not unlikely give the recent run). Though not helping the immediate play, the December 30th 2:1 split will be a catalyst for price movement in mid-December. Pick your entry carefully and keep your stops set so you don't give your profits back to Mr. Market. For investors who still like to see earnings growth, we have the following from a Reuters report: The fiscal Q2 (December) revenue estimate was raised by $5 million to $270 million, but the $0.31 EPS estimate was left unchanged. The fiscal 2000 revenue estimate was raised by $25 million to $1.140 billion. The EPS estimate was raised $0.02 to $1.33. The fiscal 2001 revenue estimate was raised by $57 million to $1.790 billion and the EPS estimate was raised $0.05 to $2.00. The strong buy rating was maintained. ***No January strikes available*** BUY CALL DEC-210*UQD-LB OI=1197 at $19.38 SL=15.00 BUY CALL DEC-220 UQD-LD OI=1196 at $14.50 SL=11.50 BUY CALL DEC-230 UQD-LF OI= 626 at $10.50 SL= 9.25 SELL PUT DEC-200 UTQ-XT OI= 290 at $ 9.75 SL=12.00 (See risks of selling puts in the play legend) Picked on Nov 21st at $213.81 P/E = N/A Change since picked + 0.00 52-week high=$222.00 Analysts Ratings 13-13-0-0-0 52-week low =$ 23.75 Last earnings 10/99 est= 0.25 actual= 0.29 surprise = 16% Next earnings 01-24 est= 0.30 versus= 0.14 Average Daily Volume = 2.5 mln Chart = http://quote.yahoo.com/q?s=JDSU&d=3m ******************************* SEE DISCLAIMER IN SECTION ONE
The Option Investor Newsletter 11-21-99 Sunday 5 of 6 ***** LEAPS ***** Everything looks good in our leaps portfolio after another incredible week for the markets. So let's revisit our question from last week, Are we embarking on an incredible three month run in the NASDAQ similar to last year? Since we never really answered that last week, let me say...not without a breather. The main reason is that the NASDAQ has already come too far, too fast. Therefore, let's use caution buying leaps and perhaps take some money off the table. You will notice some nice gains already shaping up in the current plays. So "Cautiously Optimistic" will be our buzz word for the week. In reality, a quick, painful NASDAQ dip (the kind that causes our hearts to skip a beat) would be just what the doctor ordered to open some new plays. Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED PRICE EMC 11/07/99 JAN-2001 $80 ZOH-AP at $26.38 $15.38 JAN-2002 $90 WUE-AR at $30.13 $19.00 DELL 11/07/99 JAN-2001 $50 ZDE-AJ at $ 7.25 $ 7.00 JAN-2002 $50 WDQ-AJ at $11.50 $11.25 GPS 11/07/99 JAN-2001 $40 ZGS-AH at $ 8.00 $ 5.75 JAN-2002 $45 QGS-AI at $ 9.25 $ 7.88 IBM 11/07/99 JAN-2001 $100 ZIB-AT at $21.63 $13.63 JAN-2002 $110 WIB-AB at $25.00 $16.50 WMT 11/07/99 JAN-2001 $70 ZWT-AN at $ 6.00 $ 6.50 JAN-2002 $75 WWT-AO at $10.00 $ 9.75 LU 11/14/99 JAN-2001 $80 ZEU-AP at $15.88 $12.88 JAN-2002 $90 WEU-AR at $19.25 $16.13 CSCO 11/14/99 JAN-2001 $80 ZCY-AP at $23.13 $19.13 JAN-2002 $90 WIV-AR at $22.25 $22.00 SLR 11/14/99 JAN-2001 $85 ZSR-AQ at $20.75 $21.75 To review the play description on any of our current plays, go to the LEAPS section for the date the play was added New Plays GE - General Electric $137.69 Here it is. The biggest of the big conglomerate companies. After spending most of the year stuck between $100 and $120, GE has now broken out. This move has been fueled by positive analyst comments, good earnings expectations and a recovering Asia. This makes it a prime candidate for a LEAP play. Also with the consolidation that has occurred in 1999, we don't think we have missed much of the move. That fact that we are adding GE to our LEAP section is indicative of its future potential. As you know, we typically are looking for tech stocks with big potential. Like we mentioned in this week's summary above, we do expect a market pullback. Therefore, let's look to enter GE at support near $135. Or for those even more patient you may get $130 (but it may not come back that far). Either way, we are expecting to head higher. BUY LEAP JAN-2001 $150.00 ZGR-AU at $16.25 BUY LEAP JAN-2002 $150.00 WGE-AU at $25.50 http://www.OptionInvestor.com/playimages/ge112199.gif **** GTW - Gateway $78.75 Gateway is now being called the next Dell when it comes to cornering the computer market. They have followed down a similar path in taking business away from the big boys (AKA IBM, CPQ, and HWP). As long as they stay on this path, we will be able to profit from a well planned leap play. That plan is going to consist of the right contracts with the ever elusive entry point. The contracts are listed below and the entry point looks like $75 if we get a small pullback and $70 in a stronger Nasdaq correction. To help drive GTW is the continuing strong demand for PCs during the 4th quarter. This is typically the strongest for box makers. Even Intel has said the demand is stronger than they can supply chips right now. Apple said the same thing 2 months ago. All of this evidence signals further strength and no Y2K meltdown. BUY LEAP JAN-2001 $ 90.00 ZWB-AR at $17.75 BUY LEAP JAN-2002 $100.00 WGB-AT at $22.50 http://www.OptionInvestor.com/playimages/gtw112199.gif Drops Why drop calls now?? Let the momentum carry us where it may. But I do have my stops very tight! PUTS, PUTS, PUTS ***************** Put plays can be very profitable but have a larger risk than call plays. When a stock is falling the entire investment community (except the shorts) is hoping it will reverse and start back up. The company management is also doing everything they can to shore up their stock price. The company issues press releases, brokers talk it up, analysts try to put a positive spin on everything. Then of course there is the death knell, the "buy recommendation" simply because the price has dropped to some level that analysts feel attractive again. Buyers who like the stock wait until it appears a bottom has been reached and then jump on it in a feeding frenzy. They may already have a large position and are averaging down. Many factors can stop a free falling stock in mid drop. **** RMBS - Rambus Inc. $82.13 (-5.88) Rambus Inc. develops and licenses high-performance, chip- to-chip interface technology that enables semiconductor memory devices to keep pace with faster generations of processors and controllers. Rambus technology is incorporated onto dynamic random access memory (DRAM) chips and the logic devices that control them to deliver more than ten times the performance of conventional DRAMs. A single Rambus(R) DRAM, referred to as RDRAM(R), transfers data at speeds up to 800MHz over the Rambus Channel to Rambus-compatible ICs. The descent continues! RMBS opened with a bounce on Friday, offering some rather attractive possible points of entry, and then began to trend downward for the remainder of the session. RMBS closed very near the low of the day while posting approximately half of it's average daily volume. We would like to see better volume but the lower-highs and lower-lows continue to appear on a seemingly daily basis, propelling us toward the support level at $80. We are still looking for a breakthrough of this level, because after that support is going to be harder to come by, leaving room for a good potential plunge. RMBS still has resistance at its 10-dma of $88. RMBS is illustrating weak relative strength against the Semis as the SOX was up 4.55 in trading on Friday and yet Rambus was unable to participate in much of the climb. Wait for any intraday run ups, like the few we witnessed on Friday, for possible new entry points. Another negative note in the news for Rambus as a recent article on CNET noted the higher latency of Rambus memory, resulting in a slower response time. Therefore, the memory is unable to "reach the capabilities that severs need." We should see this play come to life if a market correction will ever arrive. BUY PUT DEC-85*BNQ-XQ OI= 320 at $9.13 SL=6.75 BUY PUT DEC-80 BNQ-XP OI=3220 at $6.75 SL=4.75 Average Daily Volume = 1.81 mln Chart = http://quote.yahoo.com/q?s=RMBS&d=3m **** KIDE - 4Kids Entertainment $57.00 (-19.94) 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. Though the world-wide Pokemon craze continues on, investors have found other "toys" to play with in the market and apparently have lost some interest in KIDE. KIDE, which had nearly tripled in the month of October, traded up to a high of $93.25 on November 9th and sunk to a low of $55 just one week later, a difference of $38.25. Ouch! KIDE needs more then a band-aid for that one! So why the dramatic and rapid decline? One reason has been a simple post-earnings announcement depression. Another, is that many investors were looking for a stock-split announcement with KIDE's earnings report on November 15th, which did not occur. The Pokemon movie is already out, so no more hype there. The market in general has been recovering well, thus offering many other attractive opportunities for investors, whereas throughout much of November, KIDE was one of the few consistently hot stocks (if you remember, we played KIDE all the way up in November, and dropped it for this very reason.) KIDE has posted weak volume in the last two trading sessions and has closed near the low of the day, both good indications of a continuing lack of investor interest. KIDE bid farewell some time ago to it's 10-dma and continues to sink, looking for any kind of support. The 50-dma is at $55. After that, more support at $50 and $40. Because KIDE has been so flamboyant in it's moves, it rarely takes the time to establish any other type of formidable support, therefore, KIDE could very well continue it's downward trend toward this level. Keep in mind, we have seen a substantial loss in a short amount of time, therefore, this is a very QUICK and HIGH-RISK play! BUY PUT DEC-60*IUK-XL OI=579 at $10.13 SL=7.50 BUY PUT DEC-55 IUK-XK OI=293 at $ 7.50 SL=5.75 Average Daily Volume = 1.17 mln Chart = http://quote.yahoo.com/q?s=KIDE&d=3m **** AMR - AMR Corporation $57.75 (-4.25) American is the #2 airline in the United States behind UAL's United Airlines. AMR is a leader in air transportation, in the development and application of information technology for aviation, and travel and tourism. American serves about 180 destinations in the Americas and Europe with hubs in Chicago, Dallas/Fort Worth, Miami, and San Juan, Puerto Rico. They offer a wide range of other aviation-related activities, including management services, training and consulting. AMR also provides commuter service through American Eagle and owns Reno Air, which operates primarily in the western US. AMR spent last week flying low and crashing through support levels. AMR managed to violate its 10-dma in late day trading on Wednesday, and has continued its steady descent, minus a brief afternoon rally on Thursday. With investors turning away from Transports as high oil prices continue to plague the sector, AMR has certainly been feeling the heat. AMR has been beset with continuing weak volume throughout November showing an overall lack of buyer interest. The airlines in general are struggling as the cost of fuel is causing many companies to make cut backs on the number of flights available, particularly those that may not sell enough seats to merely cover the cost of fuel. This also has potential to bite into the holiday travel season profit. Until we see a turnaround in this situation, AMR's descent could continue. AMR has some support at it's 50-dma of $57.50. Should AMR trade below this level, which is only $0.25 away, AMR could very well be cleared for a fall to $54. AMR's 10-dma of $60.75 should serve as resistance. AMR has done a nice job in the past of providing brief rallies for potential entries, so keep an eye out for these. The current oil future contracts for the front month are more expensive than later months. This is rare and signals that traders think oil will rise more rapidly in the short-term. Watch the price of oil to help dictate where the Airline sector is going. BUY PUT DEC-60*AMR-XL OI=161 at $4.00 SL=2.50 BUY PUT DEC-50 AMR-XK OI=180 at $1.38 SL=0.50 Average Daily Volume = 933 K Chart = http://quote.yahoo.com/q?s=AMR&d=3m **** CI - Cigna Corporation $83.75 (+0.38) They are one of the largest investor-owned insurers in the United States. CIGNA is also one of the premier companies in the financial services industry. Its primary segment is health care. Although the trend in the industry leans towards managed care, about half of the premiums come from indemnity insurance. The CIGNA Healthcare unit has about 6 million HMO members. The company also sells group life, accident, and disability coverage, insurance and retirement plans. Connecticut General Life and Insurance Company of North America are CIGNA's major subsidiaries, and are among the oldest insurance companies in the United States. Since the end of October CIGNA has put in a nice run from the $65 area all the way up to $87.25. Wednesday it seemed as though the proverbial worm may have turned for CI and the stocks in the Insurance and Financial sectors. Late Tuesday and early Wednesday morning shares of CI continued to climb as a result of the FOMC meeting. Wednesday afternoon it was looked like CI started to run out of gas. CI has not experienced any strong selling, but seems to have run out of buyers. Again if the buyers dry up there is only one way a market can go, and that would be south. That is the primary reason CI has joined our list of Put plays. The whole sector appears to be positioning itself to rollover. With the inflation, interest rate, oil saga facing investors it may not be long before they click the sell button on their computer screens and send the price of CI, the Nasdaq, and the broader indices lower. Technically, CI closed below a support level of $84 on Friday. The next point of support for CI is near $82 followed by $80. Another interesting technical point is CI has a rather large gap between $73 and $78 in its chart, which will probably get filled sooner rather than later. If the markets continue to focus on interest rates and oil it won't be long before we see a consolidation at best or a bit of a correction and the financial and interest rate sensitive stocks will lead the way. The chart looks ugly and we would view any further declines as a chance to buy Puts. Should we see a bounce back over the $85-$86 area we would want to reconsider our stance. As always assess the profit potential and the risks prior to entering a new play. This past Monday CIGNA lost a $210 million tax fight, as the U.S. Supreme Court rejected an appeal. The court left intact an appeals court decision which upheld a $62 million deficiency notice assessed against CI and several of its units in 1992. Tuesday analyst Robert J. Hoehm at ING Barings raised his rating for CI from a Buy to a Strong Buy. BUY PUT DEC-85*CI-XQ OI=3 at $4.00 SL=2.50 low OI BUY PUT DEC-80 CI-XP OI=1 at $1.94 SL=1.00 low OI Average daily volume = 990 K Chart = http://quote.yahoo.com/q?s=CI&d=3m ************************ SPREADS/STRADDLES/COMBOS ************************ Another Incredible Week.. Friday, November 19 Equity markets ended mixed Friday as blue-chips faltered while technology issues continued their winning ways. The Dow Jones Industrial Average closed down 31 points at 11,003 but for the week, the Dow was up 234 points. The Nasdaq composite climbed 22 points to 3,369 and another record, its 13th in 16 sessions. The S&P 500 index ended the week at 1,422 after setting a new all-time high on Thursday. Market breadth continues to be poor as declining issues led advances 1821 to 1197 on heavy volume of 877 million shares traded on the NYSE. The 30-year Treasury bond was flat with the yield remaining at 6.17%. Thursday's new plays (positions/opening prices/strategy): Shop-At-Home SATH FEB15C/DEC15C $1.12 debit calendar Adobe Systems ADBE JAN80C/DEC85C $14.50 debit LEAPS/CC's Proctor & Gamble PG JAN100C/D100C $18.50 debit LEAPS/CC's Our new plays were an active group during the double-witching session of futures and options expirations. All three issues fell at the open with PG moving the furthest. Within twenty minutes, the stock traded down $1.31 and the suggested target was easily achieved. ADBE traded in a smaller range during the morning session and was relatively stable throughout the day. There were numerous times when the observed quotes were within $0.25 of our target (on a simultaneous basis) and with a $15 position, the relatively small difference should have been easily overcome. SATH performed no better than our other new issues, falling quickly to the $12.50 range. We adjusted our target $0.06 lower and the spread traded near that price at various times during the day. Portfolio plays: Friday's volatile activity capped an incredible month for the Spreads/Combos portfolio and the main section (calls/puts) of the OI newsletter as well. The technology sector continued to dominate the market with investors flocking to the large-cap issues after Hewlett-Packard's (HWP) incredible $17 rally on Thursday. International Business Machines (IBM) picked up the momentum today, jumping $7 on one analyst's comments that the computer maker's PC unit should return to profitability this quarter. Favorable earnings were behind many of the rallies earlier in the month and today's big winner was Nvidia (NVDA). The stock priced jumped $7 after the maker of graphics chips reported better-than-expected third-quarter income. Revenues almost doubled, climbing to $97 million from just $52 million a year ago. They also beat the consensus analyst estimate by $0.03 a share. Our bullish debit spread has moved almost $20 in-the-money since the play was offered two weeks ago. Aware (AWRE) was the other big mover in the mid-cap group, climbing $4.31 to close near an all-time-high at $49. The only option available (to remain in the bullish January position) was a roll-up to the Dec-$40 call for a debit of $4. The remaining position (JAN30C/DEC40C) would have a cost basis of $8.25. Much of today's activity centered on the final adjustments for the (short) November positions. The most exciting issue was Computer Associates (CA). The stock rose almost $5 after Warburg Dillon Read initiated coverage of the company with a "buy" rating and a target price of $75. The favorable chart and a breakout above the old trading range $60 dictated that we move to a bullish outlook in the LEAPS/CC's play. Johnson & Johnson (JNJ) required a move to December and with the stock comfortably established near the $100 mark, we decided to stay neutral, rolling forward to the DEC-$100 strike with a $1.75 credit. Toys-R-Us (TOY) cooperated nicely with our adjustment to December, finishing just below the short option at $17.50. The credit for the move to DEC-$17.50 calls was $1.00. Other stocks that were on our hit list included Echelon (ELON) and Micron (MUEI). ELON required a buy-to-close at the $10 strike with a $1.12 credit for next month's options and the DEC-$12.50 calls on MUEI were offered at $0.50 during morning trading. Two of our best volatility plays; Monsanto (MTC) and C.R. Bard (BCR) moved into profitable territory today as the sold (short) November options expired worthless. Monsanto was one of the top plays of the month returning 40% profit in less than two weeks. Aggressive traders may have chosen to sell the December options against the current long position (JAN-$50 calls) to reduce the cost basis. Our choice was simply to close the January options for market value ($2.75) at the end of the session (and we will track the spread with both outcomes). Our remaining position in C.R. Bard was worth $2.25 at the close, a $0.38 profit on $1.88 invested. Excite@Home (ATHM) rallied to a blazing finish, ending the week up $7.25 and closing at maximum profit in both of our bullish spreads. Unfortunately, we were unable to post the most recent gains, having exited (and rolled forward) our positions on Thursday. One of Friday's losers was 3dfx (TDFX). The stock price slumped $1.38 after the company announced quarterly results that failed to impress investors. The company lost money on operations and their entry into the board manufacturing business now appears to be an impediment to success. The neutral calendar spread can be closed for a small profit however, if you still have hope in the future outcome of the company's plan, the current long (Mar-$10) position has relatively little downside at a cost of only $0.75. We are also closing one of long-term positions that has yet to perform as expected. The Limited (LTD) has failed to recover in the recent market rally and we have decided to recommend an exit of the remaining position. Questions & comments on spreads/combos to ray@OptionInvestor.com ********* NEW PLAYS ********* ATHM - Excite@Home $51.31 *** Bandwidth Giant *** Excite@Home is a global media company offering media services through Excite (www.excite.com) and broadband subscription services. A subsidiary, MatchLogic (www.matchlogic.com) offers marketers industry leading digital advertising capabilities including media production, email services, user profiling and targeting, database analysis, and management all integrated in a complete solutions package. Prior to the excite merger, ATHM was a leading provider of Internet services to consumers and businesses over the cable television infrastructure. The @Home service, allows residential subscribers to connect their PC's via cable modems to the company's high-speed parallel Internet. ATHM currently has 72 million cable homes in the consumer base to deliver its vision of new age personalized content. Excite@Home rallied last week after the Federal Communications Commission ruled that the large regional telephone companies must now share their existing phone lines with companies that sell digital subscriber line equipment exclusively. Previously, consumers who wanted DSL service from an independent supplier needed a second data line added. They now will be entitled to share the already existing copper lines. The decision reflects the FCC's stance on fair bandwidth competition, giving the consumer a choice of high-speed Internet providers. Excite@Home is also planning the use of wireless transmission boxes to shrink installation costs and give the customer high speed Internet access regardless of the location of the cable connection in their home. The boxes plug into a cable line and send signals to a television or PC. Customers would be able to buy the cable boxes in retail stores, reducing the installation time. The wireless technology is expected to be available next year. The company is closely followed and Friday's break-out should bring a number of new upgrades. The current list of October's recommendations (six "strong buys") includes: Schroder & Co. reiterating a BUY with a target of $55; Jefferies, initiating coverage with a BUY, target $57; Bear Stearns reiterating BUY, after ATHM beats 3rd quarter revenue and subscriber estimates; Deutsche Banc Alex Brown reiterating BUY, subscriber growth and Ad revenue highlight solid quarter with increased estimates for 2000; Hambrecht & Quist reiterating BUY, on 220,000 subscribers versus a 160,000 estimate in the quarter; Prudential Securities reiterating STRONG BUY, with accelerating subscriber growth and higher revenues. Keep in mind these were posted before the most recent FCC news and the technical change in character. We rate this issue as one of the better short-term investments and the excellent option premiums will allow us to participate in the new trend with favorable, limited-risk spread positions. PLAY (conservative - bullish/debit spread): BUY CALL DEC-35 AHQ-LG OI=1096 A=$16.88 SELL CALL DEC-45 AHQ-LI OI=4082 B=$8.12 INITIAL NET DEBIT TARGET=$8.62 ROI(max)=42% B/E=$43.62 - or - PLAY (aggressive - bullish/diagonal spread): BUY CALL JAN-37.50 AHQ-AS OI=347 A=$15.62 SELL CALL DEC-55.00 AHQ-LK OI=2511 B=$3.25 INITIAL NET DEBIT TARGET=$12.25 TARGET ROI=42% Chart = http://quote.yahoo.com/q?s=ATHM&d=3m **** UIS - Unisys $29.25 *** On The Rebound? *** Unisys is a major supplier of information services and solutions on a worldwide basis. Through its business units; Information Services, Computer Systems, and Global Customer Services, Unisys provides systems and solutions designed to enhance productivity, competitiveness and responsiveness of its clients. They operate mainly in the information services and systems segment providing solutions that can help clients with technology, improving the performance of their business-critical systems. Shares of Unisys have suffered recently, losing half their value in a severe October plunge that followed the most recent earnings report. UIS beat analyst estimates by $0.07 a share in the third quarter, but its shares plunged $20 because total sales improved only 4% compared to the year-ago quarter. Making matters worse, Unisys said revenue growth will be sluggish in the fourth quarter though it will likely meet the earnings estimates. Lawyers moved quickly to avenge shareholders losses, filing complaints of false claims and reckless misrepresentations and omissions of material facts. The litigants contend that, as a result of this wrongful conduct, the price of Unisys common stock traded at artificially inflated levels. The lawsuits will go on for years but the important issue is that UIS is getting back on track. Thursday they announced initiatives to focus worldwide sales and services on delivering a wide array of targeted Unisys e-@ction Solutions. The plan will enhance the way the company serves its customers and capitalize on the market opportunities presented by the acceleration of E-commerce. Morgan Stanley Dean Witter favors the new outlook and the broker raised its rating to "outperform" with a target price of $37. Here are the current earnings estimates and analyst ratings: Upcoming Earnings - 1/14/00 Quarterly EPS Estimates - 0.45 Last Qtr Surprise - 11% Previous Qtr. Surprise - 15% Long-Term Growth - 18% Analyst Recommendations - 6,5,4,0,0 We favor this issue from a conservatively bullish viewpoint and will participate in the rebound with an ITM diagonal spread. The position has favorable short-term potential (if the stock moves quickly through the sold strike) and also allows for reasonable consolidation during the recovery. PLAY (conservative - bullish/diagonal spread): BUY CALL APR-22.50 UIS-DX OI=425 A=$8.75 SELL CALL DEC-30.00 UIS-LF OI=1426 B=$1.75 INITIAL NET DEBIT TARGET=$6.88 TARGET ROI=50% For those of you that favor the short-term trend, there is a small disparity in the front-month (ITM) options. Aggressive traders only - not a portfolio play. PLAY (aggressive - bullish/debit spread): BUY CALL DEC-25.00 UIS-LE OI=3706 A=$4.88 SELL CALL DEC-27.50 UIS-LY OI=0 B=$2.93 INITIAL NET DEBIT TARGET=$1.88 ROI(max)=32% B/E=$26.88 Chart = http://quote.yahoo.com/q?s=UIS&d=3m **** AWEB - AutoWeb.com $9.68 *** Internet Speculation *** Autoweb.com is a leading consumer automotive Internet service. With an extensive collection of automotive related community, content and commerce offerings, Autoweb.com guides consumers through every stage of vehicle ownership from browsing and buying, to enjoying, maintaining or selling. As a trusted intermediary, the Autoweb.com process connects mass market consumers to buying alternatives through the most extensive network of Member Dealers and other commerce partners, and ensures the consumer experience is faster, better and easier. A number of partnerships announced by Autoweb.com in the last couple of weeks have bolstered the company's initiatives to increase growth through alliances and acquisitions. AWEB has recently signed an agreement with Infiniti, a luxury division of Nissan North America. The deal implements and executes a comprehensive, joint sales and marketing program allowing the Infiniti network of dealers to join Autoweb.com's 5,000 Member Dealers. The plan represents the first time that an automobile manufacturer has aligned with an Internet company to promote the membership of its dealers nationwide. Autoweb.com has also signed agreements with Intuit's InsureMarket services and with GE Financial Assurance Auto Warranty Services to offer discount online vehicle service contracts. The post-IPO sell off appears to have finally abated and the issue is forming a base near $9. An upward move from this area is likely in the next few months and we will construct a spread to take advantage of any future rally. The favorable disparity in option premiums allows us to open this play with a small theoretical edge. Those of you with a neutral - bullish outlook can sell the DEC-$10 call for a lower cost-basis (and slightly greater upside risk). PLAY (speculative - bullish/diagonal spread): BUY CALL MAY-10.00 UWB-EB OI=15 A=$2.93 SELL CALL DEC-12.50 UWB-LV OI=80 B=$0.62 INITIAL NET DEBIT TARGET=$2.12-2.19 TARGET ROI=50% Chart = http://quote.yahoo.com/q?s=AWEB&d=3m **** ITVU - InterVu $64.50 *** Internet Video *** InterVU is a specialized service company seeking to establish a leadership position in the Internet video delivery market. The company utilizes a proprietary software system for routing and distributing high quality video over the Internet at rapid speeds. Their unique system moves the video delivery mechanism to a network of specialized servers strategically situated on the Internet. In the last quarter, ITVU reported record levels of revenues, customer growth, events and content stored on their network. In the past three months, revenues have doubled and their direct customer base has grown 55%. This favorable performance is the result of the rapid adoption of streaming media as a viable entertainment medium and a strategic business tool. Intervu continues to focus on the growing opportunities in the entertainment and business communications segments and recently, Time Warner's CNN News Group announced plans to buy $20 million of the company as part of a three-year agreement. InterVu will provide its services for stations of TNT and the TBS along with three years of on-air/online advertising for CNN's properties. This play originated in the weekly research for the Naked-Puts section. The small disparity in the put-option premiums offers a favorable edge in a limited risk position for those who are bullish on the issue. PLAY (conservative - bullish/credit spread): BUY PUT DEC-40 QYU-XH OI=44 A=$0.56 SELL PUT DEC-45 QYU-XI OI=35 B=$1.25 INITIAL NET CREDIT TARGET=$0.81 ROI=19% Chart = http://quote.yahoo.com/q?s=ITVU&d=3m SEE DISCLAIMER IN SECTION ONE *****************************
The Option Investor Newsletter 11-21-99 Sunday 6 of 6 COVERED CALLS ************* The Mentality Of The Market... When successful traders discuss their common traits, you will often hear how important it is to understand the fundamentals of technical analysis and basic market timing. Unfortunately, new investors are so overwhelmed by the incredible number of chart- patterns and indicators, they overlook the most common rules for consistent profits. The dilemma facing many investors is simple; they want to own good stocks but yet they are afraid to buy at the highs. The emotion of the moment generally dictates the issue, causing the majority of typical traders to enter new positions near the top, when the stock is finishing the rally. At that point, everybody who is bullish on the issue already has it and there is no one left to support the price. The professionals are the first to exit, quietly closing out their positions while the public is overwhelmed by glowing earnings reports and bullish forecasts. As the stock struggles to hold its gains, trading volume drifts lower and the three major groups trading the issue; the technical group, the fundamentalists and the public, compete to determine the next trend. When the historical pattern exhibits the first signs of failure, the technical traders begin to sell in earnest. Analysts and brokerages raise their targets to buttress the price, but when the issue no longer responds to good news, the outcome is clear. Soon the public becomes nervous and as the correction takes shape, closing orders increase in number. The fundamentalist is the last to go, generally after a full-scale downtrend is in effect. With this type of psychological analysis, it obvious how human nature determines our actions in the stock market. Hope leads to fear, and then to panic, and the few that remain through it all (the amateurs), eventually unload their positions for significant losses. (Continued in the Naked-Puts section..) SUMMARY OF PREVIOUS PICKS (Final Summary for November) Stock Price Last Mon Strike Opt Profit ROI Monthly Sym Picked Price Price Bid /Loss ROI CYOE 5.56 5.19 NOV 5.00 1.06 *$ 0.50 11.1% 16.1% SATH 11.06 12.38 NOV 10.00 2.31 *$ 1.25 14.3% 12.4% LIPO 7.56 12.50 NOV 7.50 0.75 *$ 0.69 10.1% 11.0% FLAS 9.63 10.75 NOV 7.50 2.63 *$ 0.50 7.1% 10.3% EGHT 5.00 4.81 NOV 5.00 0.88 $ 0.69 16.7% 9.1% MRVT 11.38 11.00 NOV 10.00 2.13 *$ 0.75 8.1% 8.8% ITIG 8.06 15.88 NOV 7.50 1.25 *$ 0.69 10.1% 8.8% LTXX 15.19 19.69 NOV 15.00 1.25 *$ 1.06 7.6% 8.3% ZIXI 33.00 41.50 NOV 25.00 9.88 *$ 1.88 8.1% 7.1% COOL 8.53 13.13 NOV 7.50 1.88 *$ 0.85 12.8% 6.9% CNCX 26.50 32.13 NOV 22.50 5.25 *$ 1.25 5.9% 6.4% SFSK 8.44 12.38 NOV 7.50 1.25 *$ 0.31 4.3% 6.2% RRRR 11.44 30.88 NOV 10.00 2.25 *$ 0.81 8.8% 5.5% PILT 12.69 21.13 NOV 10.00 3.38 *$ 0.69 7.4% 5.4% NPIX 23.25 37.25 NOV 17.50 6.75 *$ 1.00 6.1% 5.3% COOL 9.06 13.13 NOV 7.50 2.06 *$ 0.50 7.1% 5.2% BNYN 8.72 13.88 NOV 7.50 1.63 *$ 0.41 5.8% 5.0% ASMI 8.50 16.00 NOV 7.50 1.56 *$ 0.56 8.1% 5.0% ELON 8.91 11.00 NOV 7.50 1.88 *$ 0.47 6.7% 4.8% PAIR 13.44 17.88 NOV 12.50 1.81 *$ 0.87 7.5% 4.6% ABTL 15.13 14.75 NOV 12.50 3.13 *$ 0.50 4.2% 4.5% DRYR 17.13 17.00 NOV 15.00 3.13 *$ 1.00 7.1% 4.4% MAPX 9.06 8.56 NOV 7.50 2.06 *$ 0.50 7.1% 4.4% EGGS 9.38 13.50 NOV 7.50 2.31 *$ 0.43 6.1% 4.4% NPIX 23.00 37.25 NOV 17.50 6.50 *$ 1.00 6.1% 4.4% GBLX 35.38 45.44 NOV 30.00 6.75 *$ 1.37 4.8% 4.2% NVDA 22.63 42.88 NOV 20.00 4.62 *$ 1.99 11.0% 4.0% NPNT 22.13 36.63 NOV 17.50 5.25 *$ 0.62 3.7% 4.0% IRF 17.44 21.75 NOV 15.00 3.00 *$ 0.56 3.9% 3.4% BNBN 20.00 18.38 NOV 17.50 3.38 *$ 0.88 5.3% 3.3% PRGY 21.75 32.13 NOV 17.50 4.88 *$ 0.63 3.7% 3.2% LCBM* 14.06 12.06 NOV 12.50 2.50 $ 0.50 4.3% 2.7% CS 16.69 23.00 NOV 15.00 2.38 *$ 0.69 4.8% 2.1% NEM 23.25 21.81 NOV 22.50 2.25 $ 0.81 3.9% 2.1% LCBM* 14.88 12.06 NOV 12.50 3.00 $ 0.18 1.5% 1.1% PILL 13.88 11.00 NOV 12.50 2.75 $ -0.13 -1.2% 0.0% PILL 14.88 11.00 NOV 12.50 2.88 $ -1.00 -8.3% 0.0% FSII 10.44 10.06 DEC 10.00 1.81 *$ 1.37 15.9% 13.8% ITIG 10.00 15.88 DEC 10.00 1.25 *$ 1.25 14.3% 8.9% ABTE 10.75 10.19 DEC 10.00 1.63 *$ 0.88 9.6% 8.4% ALGO 15.25 13.88 DEC 12.50 3.75 *$ 1.00 8.7% 7.6% WSTL 8.00 10.81 DEC 7.50 1.06 *$ 0.56 8.1% 7.0% BTOB 18.38 20.81 DEC 15.00 4.63 *$ 1.25 9.1% 6.6% AND 8.38 7.56 DEC 7.50 1.38 *$ 0.50 7.1% 6.2% CYCH 8.38 11.81 DEC 7.50 1.44 *$ 0.56 8.1% 5.8% CRUS 13.94 14.38 DEC 12.50 2.19 *$ 0.75 6.4% 5.5% PILT 18.50 21.13 DEC 15.00 4.38 *$ 0.88 6.2% 5.4% RRRR 14.75 30.88 DEC 12.50 3.25 *$ 1.00 8.7% 5.4% WAVX 13.19 15.25 DEC 10.00 3.88 *$ 0.69 7.4% 5.4% DRIV 22.75 29.88 DEC 20.00 4.25 *$ 1.50 8.1% 5.0% DIGE 14.44 17.69 DEC 12.50 2.75 *$ 0.81 6.9% 5.0% PILT 15.94 21.13 DEC 12.50 4.25 *$ 0.81 6.9% 5.0% PRGY 25.38 32.13 DEC 22.50 4.50 *$ 1.62 7.8% 4.8% LTXX 16.00 19.69 DEC 15.00 2.06 *$ 1.06 7.6% 4.7% TOPP 9.81 10.63 DEC 7.50 2.75 *$ 0.44 6.2% 3.9% DGII 13.56 14.88 DEC 12.50 1.69 *$ 0.63 5.3% 3.8% JDAS 11.63 14.75 DEC 10.00 2.13 *$ 0.50 5.3% 3.8% Ticker* = Position closed early for profit. *$ = Stock price is above the sold striking price. Comments/Observations: Lifecore Biomedical (LCBM) managed to stay above the sold strike, though we show a lower return due to closing the position early. Coyote Network (CYOE) traded momentarily below $5 but did manage to finish the month above the sold strike. 8x8 Inc. (EGHT) has moved back above its 150 dma. Though December strikes are not yet available, a FEB-$5 call is available for $0.75. Newmont Mining (NEM) appears to be strengthening with the DEC-$20 call offering a credit of $2.62. Rolling down to the DEC-$10 call ($1.56) is an option, but with Proxymed's (PILL) recent technical weakness, it may not be enough to make the play favorable. November positions previously closed were Youbet.Com Inc. (UBET) and Beyond.Com Corp. (BYND). NEW PICKS ********* Definitions: OI - Open Interest CB - Cost Basis (Price paid - Prem rec'd, the break-even point) RC - Return Called RNC - Return Not Called (Stock Price Unchanged) Sequenced by Return Not Called Stock Price Mon Strike Option Opt Open Cost RC RNC Sym Price Symbol Bid Intr Basis MESG 17.63 DEC 15.00 MUG LC 3.63 418 14.00 7.1% 7.1% SATH 12.44 DEC 10.00 SQR LB 3.00 558 9.44 5.9% 5.9% MOGN 13.44 DEC 12.50 QOG LV 1.63 265 11.81 5.8% 5.8% FLAS 10.75 DEC 7.50 UFL LU 3.63 94 7.12 5.3% 5.3% ICGX 20.50 DEC 17.50 QIG LW 3.88 518 16.62 5.3% 5.3% BEAM 20.13 DEC 17.50 BAQ LW 3.38 1706 16.75 4.5% 4.5% IVIL 28.38 DEC 22.50 IIU LX 6.75 76 21.63 4.0% 4.0% Company Descriptions BEAM - Summit Technology $20.13 *** FDA Approval *** Summit Technology and its subsidiaries consist of two operating segments: Laser vision correction which includes manufacturing, selling and servicing laser systems and related products to correct vision disorders and collecting per procedure license fees from users of its systems; and Contact lenses and related products which are sold via mail order through its wholly-owned subsidiary, Lens Express. Recent FDA approval of Summit's Apex Plus Excimer Laser Workstation (for the treatment of hyperopia) and favorable earnings resulted in an upside exit out of a four- month base. We favor selling the strike price within this recent consolidation, as it is now support. DEC 17.50 BAQ LW Bid=3.38 OI=1706 CB=16.75 RC=4.5% RNC=4.5% Chart = http://quote.yahoo.com/q?s=BEAM&d=3m **** FLAS - FlashNet Communications $10.75 *** PRGY Merger *** FlashNet is a nationwide provider of consumer Internet access and business services, offering high speed Internet access and related services that enable customers to outsource Internet and electronic commerce activities. Well the news is out.. after record revenues for this quarter, FlashNet entered an agreement to merge with Prodigy (PRGY). This ties Flashnet's share price to Prodigy (which is in a strong stage-two climb). FlashNet also has support near our cost basis (just in case the deal falls through). DEC 7.50 UFL LU Bid=3.63 OI=94 CB=7.12 RC=5.3% RNC=5.3% Chart = http://quote.yahoo.com/q?s=FLAS&d=3m **** ICGX - ICG Communications $20.50 *** Stage I *** ICG Communications is one of the nation's fastest-growing providers of broadband services to the ISP community. Through its nationwide communications network that serves more than 700 cities, ICG provides access for approximately 10% of the nation's dial-up Internet traffic. In addition, ICG provides high-quality telecom services, including local, long distance and data communications, to businesses nationwide, as well as direct connectivity to interexchange carriers. The downgrade after earnings near the end of October appears to have been a buying opportunity. Though ICG reported a greater loss, access lines increased sequentially by 18% and revenues increased 64%. We favor a cost basis within support, now that the share price has moved back above its 150 dma (near $19) on heavy volume. DEC 17.50 QIG LW Bid=3.88 OI=518 CB=16.62 RC=5.3% RNC=5.3% Chart = http://quote.yahoo.com/q?s=ICGX&d=3m **** IVIL - iVillage Inc. $28.38 *** Technicals Only *** iVillage provides an easy-to-use, comprehensive online network of sites tailored to the interests and needs of women using the Internet. iVillage.com consists of 15 content specific channels organized by subject matter and several shopping areas. This quarter's earnings showed a 30% increase in membership and 150% increase in revenue from last year. Wit Capital has started coverage on iVillage with an Outperform, stating a price target of $31 to $35. Favorable speculation on an improving technical picture: Buying pressure reversal; successful test of $22.50 intraday lows in November (short term "W"); a rally on increased volume. We prefer a conservative entry below the November lows, taking advantage of the overpriced option premium. DEC 22.50 IIU LX Bid=6.75 OI=76 CB=21.63 RC=4.0% RNC=4.0% Chart = http://quote.yahoo.com/q?s=IVIL&d=3m **** MESG - MessageMedia $17.63 *** Revenues Up 750% *** MessageMedia is a leading provider of e-mail-based customer relationship management and direct marketing services. MESG offers a comprehensive suite of outsource messaging services for information delivery, e-commerce services, permission-based direct marketing, ongoing customer communications and real-time customer feedback solutions using industry standard Internet protocols. A strong earnings report at the end of October initiated the current rally. The launch of SupportView, a real- time web-based customer survey and decision support system spurred a price jump on Thursday. MESG's overall uptrend has remained intact with the July high becoming the next target. DEC 15.00 MUG LC Bid=3.63 OI=418 CB=14.00 RC=7.1% RNC=7.1% Chart = http://quote.yahoo.com/q?s=MESG&d=3m **** MOGN - MGI Pharma $13.44 *** Long-Term Play *** MGI Pharma is a pharmaceutical company that acquires, develops and markets differentiated specialty pharmaceutical products for therapeutic markets of unmet needs. MOGN's product portfolio is comprised of products that address specific needs in the fields of cancer and rheumatology. MOGN's profitability continued this quarter with a 30% increase in revenues due primarily to growth in sales of Salagen® Tablets. MOGN's is conducting three phase II human clinical trials, studying irofulven (A World Cancer Conference topic) and its effectiveness on prostate, pancreatic and ovarian cancers. Technicals reflect a steady 2-year uptrend on a profitable company with potential products under research. DEC 12.50 QOG LV Bid=1.63 OI=265 CB=11.81 RC=5.8% RNC=5.8% Chart = http://quote.yahoo.com/q?s=MOGN&d=3m **** SATH - Shop At Home, Inc. $12.44 *** New Uptrend? *** SATH sells specialty consumer products, primarily collectibles, through interactive electronic media including broadcast, cable and satellite television and, increasingly, over the Internet. Shop At Home Network reaches over 56 million unique cable and satellite households and is the Nation's 15th largest television broadcaster with stations in San Francisco, Boston, Houston, Cleveland, Raleigh and Bridgeport, which is licensed to the New York market. Shop At Home reported record revenues this quarter and on Friday announced a new weekday sales record. The technical picture has turned bullish as Shop At Home has moved above this Summer's consolidation (head-n-shoulders bottom?). Can a new all-time high be far behind? DEC 10.00 SQR LB Bid=3.00 OI=558 CB=9.44 RC=5.9% RNC=5.9% Chart = http://quote.yahoo.com/q?s=SATH&d=3m NAKED PUT SECTION ***************** Successful Stock Ownership: A Few Rules To Live By... Here are just a few of the most common guidelines that may help you avoid the pitfalls of stock ownership. While we can't take credit for these rules (many are as old as the market itself), it's important to use this knowledge to improve your success in this vicious game that is the stock market. Before opening any position: Check the overall market indicators for direction. Analyze the sector and industry in which your issue resides. Study the performance of similar groups and make sure it coincides with your outlook. Choose only those stocks with the most favorable technical formations. Once you have a candidate in mind, do your homework! Know the company and the calendar; upcoming events, earnings dates, and scheduled announcements. Before entering your order: Double-check the chart! Make sure you are absolutely ready to own the issue at the target price. Don't buy a stock that's in a downtrend (Stage 4) and never open a position right after good news, especially if the chart shows a significant advance prior to the announcement. Never buy a stock just because it appears cheap after a big sell-off. Always use simple proven techniques. Develop target prices for potential plays and take the human factor out of trading by using LIMIT and GTC orders. When news or events change the character of the play, make the necessary adjustments. After you have established the position: The #1 rule: Know your exit and use a mental or mechanical stop. Stay informed by monitoring all the news and announcements affecting your position. Never hold a stock in an established downtrend no matter how fundamentally sound the company appears to be...(Hope is an expensive emotion). Closing the position: Determining when to exit a play is a matter of personal preference and you are the only one who can decide how you will trade. The best advice is, be consistent. If you find that you're often buying and selling in similar situations, something is wrong with your system. The most painful lesson comes when you close losing positions. It's very difficult to learn to exit losing plays early but the simple fact is: There is no reason to hang on to a losing position when there are so many other profitable plays that deserve your time and money. Accept your losses, learn from your mistakes (evaluate each one critically) then move on! Success will come when you create a favorable balance between hard work and patience. Too many traders give up after a few losing plays, long before they have time to learn (and absorb!) the various methods required for profitable trading. *** WARNING!!! *** Occasionally a company will experience catastrophic news causing a severe drop in the stock price. This may cause a devastatingly large loss which may wipe out all of your smaller gains. There is one very important rule; Don't sell naked puts on stocks that you don't want to own! It is also important that you consider using trading STOPS on naked option positions to help limit losses when the stock price drops. Many professional traders suggest closing the position when the stock price falls below the sold strike or using a buy-to-close STOP at a price that is no more than twice the original premium from the sold option. SUMMARY OF PREVIOUS PICKS (Final Summary for November) Stock Price Last Mon Strike Opt Profit ROI Monthly Sym Picked Price Price Bid /Loss ROI NPLS 15.56 18.00 NOV 12.50 0.31 *$ 0.31 8.9% 19.4% NVX 7.94 6.13 NOV 5.00 0.56 *$ 0.56 26.0% 16.2% ICIX 28.75 32.00 NOV 22.50 0.44 *$ 0.44 7.1% 15.4% DUSA 14.94 15.63 NOV 12.50 0.50 *$ 0.50 12.4% 13.4% HELX 40.31 44.38 NOV 35.00 1.00 *$ 1.00 8.5% 12.3% DRIV 22.75 29.88 NOV 20.00 0.56 *$ 0.56 8.1% 11.7% SUPG 26.56 27.94 NOV 22.50 0.75 *$ 0.75 10.3% 11.1% ENMD 24.75 24.25 NOV 20.00 0.75 *$ 0.75 12.7% 11.0% NPIX 23.00 37.25 NOV 15.00 0.81 *$ 0.81 15.0% 10.8% PRGY 21.63 32.13 NOV 17.50 0.50 *$ 0.50 10.0% 10.8% NSPK 12.44 16.38 NOV 10.00 0.44 *$ 0.44 14.8% 10.7% CPTH 61.38 77.38 NOV 45.00 0.63 *$ 0.63 4.9% 10.6% TALK 14.94 18.38 NOV 12.50 0.38 *$ 0.38 9.7% 10.5% USIX 35.00 66.25 NOV 25.00 0.75 *$ 0.75 9.7% 10.5% TFSM 49.75 50.88 NOV 40.00 0.50 *$ 0.50 4.7% 10.2% DUSA 14.38 15.63 NOV 10.00 0.44 *$ 0.44 13.3% 9.6% NPIX 23.25 37.25 NOV 15.00 0.56 *$ 0.56 10.7% 9.3% LTXX 15.56 19.69 NOV 12.50 0.38 *$ 0.38 10.7% 9.3% SUPG 24.38 27.94 NOV 20.00 0.63 *$ 0.63 10.5% 9.1% IRF 19.63 21.75 NOV 17.50 0.38 *$ 0.38 6.2% 9.0% KIDE 40.44 57.00 NOV 25.00 1.13 *$ 1.13 12.3% 8.9% NEWZ 9.47 10.75 NOV 7.50 0.31 *$ 0.31 14.1% 8.7% SPGLA 12.00 10.50 NOV 10.00 0.38 *$ 0.38 11.9% 8.7% VERT 39.75 98.94 NOV 30.00 1.25 *$ 1.25 13.6% 8.4% BNYN 9.91 13.88 NOV 7.50 0.31 *$ 0.31 13.5% 8.4% CNCX 26.50 32.13 NOV 20.00 0.44 *$ 0.44 7.7% 8.3% RMDY 43.00 38.31 NOV 35.00 0.50 *$ 0.50 5.2% 7.5% RMBS 89.38 82.13 NOV 65.00 0.63 *$ 0.63 3.4% 7.4% RMDY 29.00 38.31 NOV 22.50 0.50 *$ 0.50 7.9% 6.9% SUPG 22.50 27.94 NOV 17.50 0.56 *$ 0.56 11.1% 6.9% TALK 12.63 18.38 NOV 10.00 0.31 *$ 0.31 10.9% 6.8% NPIX 23.88 37.25 NOV 15.00 0.31 *$ 0.31 6.1% 6.6% ZOMX 34.63 38.00 NOV 25.00 0.69 *$ 0.69 9.1% 6.6% EXTR 80.31 98.06 NOV 60.00 0.75 *$ 0.75 4.5% 6.5% ZIXI 33.00 41.50 NOV 20.00 0.50 *$ 0.50 7.0% 6.1% LGE 22.44 20.38 NOV 20.00 0.56 *$ 0.56 7.9% 5.7% TUTS 34.69 46.19 NOV 25.00 0.38 *$ 0.38 5.2% 5.6% NPIX 19.13 37.25 NOV 12.50 0.38 *$ 0.38 9.0% 5.6% HRBC 17.00 17.88 NOV 12.50 0.31 *$ 0.31 8.4% 5.2% CPTH 44.19 77.38 NOV 30.00 0.56 *$ 0.56 6.0% 5.2% FLAS 10.06 10.75 DEC 7.50 0.75 *$ 0.75 27.2% 19.7% STRX 7.63 6.88 DEC 5.00 0.44 *$ 0.44 22.3% 13.9% NSPK 15.50 16.38 DEC 12.50 0.50 *$ 0.50 13.5% 11.7% BNYN 12.75 13.88 DEC 10.00 0.38 *$ 0.38 13.0% 11.3% MSGI 16.94 19.50 DEC 12.50 0.50 *$ 0.50 12.9% 11.2% COOL 9.56 13.13 DEC 7.50 0.31 *$ 0.31 14.0% 10.1% NVDA 32.00 42.88 DEC 22.50 0.75 *$ 0.75 10.5% 9.1% MLTX 16.19 28.13 DEC 12.50 0.50 *$ 0.50 13.4% 8.3% XCED 31.63 28.25 DEC 22.50 0.63 *$ 0.63 9.1% 7.9% MTSN 15.56 16.94 DEC 12.50 0.31 *$ 0.31 8.9% 7.8% IONA 21.38 32.63 DEC 15.00 0.56 *$ 0.56 11.6% 7.2% TUTS 39.69 46.19 DEC 30.00 0.81 *$ 0.81 9.3% 6.7% NPIX 37.44 37.25 DEC 20.00 0.50 *$ 0.50 6.3% 5.4% LTXX 18.56 19.69 DEC 15.00 0.31 *$ 0.31 7.4% 5.4% *$ = Stock price is above the sold striking price. Comments/Observations: Comments and questions received on the Data Broadcasting (DBCC) play have prompted us to list the position as unplayable. Monday's pre-open news of a merger with FTAM, the Financial Times group, left investors in a quandary with speculation on the eventual ownership of the issue and the value (and composition) of the listed options. Those traders who chose to participate (even in light of the announcement) were well aware that any remaining potential related directly to the fiscal condition of the combined business; an entirely new entity with vastly different valuations and fundamental issues. Baxter International's buy-out of North American Vaccine (NVX) rescued our position just in time. Remedy (RMDY), which managed to stay above the $35 strike, appears ready to resume its uptrend. All positions managed to remain above the sold strike. Ardent Software (ARDT) fooled us in the end (Murphy's Law in play again), as it was previously closed, along with Theglobe.Com (TGLO). NEW PICKS ********* Definitions: OI - Open Interest CB - Cost Basis (break-even point if put exercised) ROI - Return On Investment Sequenced by ROI Stock Price Mon Strike Option Opt Open Cost ROI Opt Sym Price Symbol Bid Intr Basis Expired NSPK 16.38 DEC 12.50 NNQ XV 0.50 120 12.00 13.2% DGII 14.88 DEC 12.50 DGQ XV 0.50 10 12.00 12.3% PILT 21.31 DEC 15.00 PTU XC 0.56 75 14.44 11.6% ONSL 24.00 DEC 17.50 QOL XW 0.63 246 16.87 11.6% ITVU 64.50 DEC 45.00 QYU XI 1.38 35 43.62 9.7% CTIX 20.13 DEC 15.00 UEY XC 0.38 5 14.62 8.6% AMTD 28.19 DEC 20.00 TQA XD 0.44 1211 19.56 7.2% MRVC 31.00 DEC 22.50 VQX XX 0.38 0 22.12 5.8% Company Descriptions AMTD - Ameritrade $28.19 *** New Partners *** Ameritrade Holding Corporation is a pioneer in the discount and online brokerage industry. They provide brokerage and clearing services to self-directed individual investors and institutions. Shares of Internet brokers T.D. Waterhouse (TWE) and Ameritrade rallied last week after Charles Schwab (SCH) said the three will combine to form a giant online investment bank. Together, these three online brokers have access to more than half of all U.S. online customers and assets. This may be the last chance to own this one at a reasonable price, or at least get paid to try. DEC 20.00 TQA XD Bid=0.44 OI=1211 CB=19.56 ROI=7.2% Chart = http://quote.yahoo.com/q?s=AMTD&d=3m **** CTIX - Cheap Tickets $20.13 *** On The Rebound! *** Cheap Tickets is a leading retail seller of discount tickets for domestic leisure air travel. The company sells airline tickets through call centers, retail stores and their Internet site; www.cheaptickets.com. They also offer a full complement of regularly published fares, affording customers a breadth of choice in leisure travel at attractive prices including cruise tickets, auto rentals and hotel reservations. Reported record gross bookings in a favorable earnings announcement last month. Recently authorized a $20 million share buy-back and heavy accumulation is evident in the short-term chart history. DEC 15.00 UEY XC Bid=0.38 OI=5 CB=$14.62 ROI=8.6% Chart = http://quote.yahoo.com/q?s=CTIX&d=3m **** DGII - Digi International $14.88 *** Own This One! *** Digi International is a leading ISO 9001-compliant provider of data communications hardware and software delivering seamless connectivity solutions for open systems, server-based remote access, and LAN markets. DGII markets its products through an international network of distributors and resellers, system integrators, and original equipment manufacturers. Thursday's earnings report of $0.18 a share topped First Call's estimate of $0.13, courtesy of improving gross margins. DIGI expects to ramp-up its new RAS product line to fuel growth in the future. DEC 12.50 DGQ XV Bid=0.50 OI=10 CB=12.00 ROI=12.3% Chart = http://quote.yahoo.com/q?s=DGII&d=3m **** ITVU - Intervu $64.50 *** Internet Video *** InterVU is a specialized service company seeking to establish a leadership position in the Internet video delivery market. The company utilizes a proprietary software system for routing and distributing high quality video over the Internet at rapid speeds. Their unique system moves the video delivery mechanism to a network of specialized servers strategically situated on the Internet. Time Warner's CNN News Group plans to buy $20 million in InterVu as part of a three-year agreement, in which ITVU will provide its services for stations of TNT and the TBS. A great chart history with recent support near the cost basis. DEC 45.00 QYU XI Bid=1.25 OI=35 CB=43.75 ROI=8.8% Chart = http://quote.yahoo.com/q?s=ITVU&d=3m **** MRVC - MRV Communications $31.00 *** New Technology *** MRV Communications designs, manufactures, markets and sells semiconductor laser diodes, light emitting diodes and fiber optic transmitting and receiving modules for the transmission of large amounts of information at high speeds and over long distances. They company integrates these devices into other components that are sold to manufacturers in the fiber optic market. The company is developing a group of new fiber optic products and Gruntal recently raised their target price to $27 with a "market outperform" rating. DEC 22.50 VQX XX Bid=0.38 OI=0 CB=22.12 ROI=5.8% Chart = http://quote.yahoo.com/q?s=MRVC&d=3m **** NSPK - Netspeak $16.38 *** A Second Opportunity *** NetSpeak develops, markets, licenses, and supports a suite of intelligent software modules which enable real-time, concurrent interactive voice, video and data transmission over packetized data networks such as the Internet and local-area and wide-area networks. In addition to marketing its technology, services and systems to new strategic partners, NSPK has begun to sell those products directly to end-users. Recent upside earnings surprise and a solid technical history with a 52-week high on Thursday. DEC 12.50 NNQ XV Bid=0.50 OI=120 CB=12.00 ROI=13.2% Chart = http://quote.yahoo.com/q?s=NSPK&d=3m **** ONSL - Onsale $24.00 *** Egghead Deal Approved *** Onsale is an electronic retailer pioneering a new sales format, the interactive 24-hour online auction, designed to serve as an efficient and entertaining marketing channel. They specialize in selling computers, consumer electronics and wide range of other products over the Internet. Egghead (EGSS) shareholders approved the merger with ONSL and the new company will have a much larger stake in the online auction industry. A recent reversal in the technical outlook with support above the cost-basis. DEC 17.50 QOL XW Bid=0.63 OI=246 CB=16.87 ROI=11.6% Chart = http://quote.yahoo.com/q?s=ONSL&d=3m **** PILT - Pilot Network Services $21.31 *** Still Going! *** Pilot Network Services, the Security Utility pioneer, is the only e-business network service provider of highly secure subscription based e-business services. For companies of all sizes, in every industry, Pilot enables secure e-business by providing a wide range of services with built-in security to protect enterprise networks. Pilot recently announced earnings with revenues up 89% and reached an agreement with Greyrock Capital for $8 million in financing. Very strong technically and the recent break-out has left us few entry opportunities. This is a conservative attempt to profit from the upward movement. DEC 15.00 PTU XC Bid=0.56 OI=75 CB=14.44 ROI=11.6% Chart = http://quote.yahoo.com/q?s=PILT&d=3m ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
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