The Option Investor Newsletter Tuesday 11-23-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com Published three times weekly, Sunday, Tuesday, Thursday evenings. ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 11-23-99 High Low Volume Advances Decline DOW 10995.60 - 93.90 11101.80 10976.40 926,190k 901 2,187 Nasdaq 3342.87 - 49.69 3411.23 3320.67 1,430,649k 1,513 2,559 S&P-100 746.95 - 7.40 756.33 745.76 Totals 2,414 4,746 S&P-500 1404.64 - 16.30 1424.10 1402.20 33.7% 66.3% $RUT 454.45 - 6.32 461.69 454.17 $TRAN 2980.29 + 25.39 3003.15 2939.89 VIX 21.17 + 0.89 22.18 20.51 Put/Call Ratio .47 ************************************************************* Gobble, gobble, gobble, chop! The Nasdaq turkey, which had grown fat in a feeding frenzy for the last three weeks, paid a visit to the chopping block today in preparation for the Thanksgiving holiday. Trades started taking profits in earnest today as they moved to the sidelines to rest for the next rally. Many market leaders ran for cover at the open as a large sell program attempted to take advantage of the normal pre-Thanksgiving rally. For the last 47 years the markets have been up on the Tuesday/Wednesday before Thanksgiving 76% of the time. The profit taking today broke with tradition but nobody is concerned. The Dow may have lost -94 points but it held 11000 for the fourth day in a row. The volume was moderate and the advance decline line was severely negative at 21:9 but nobody was worried. The Nasdaq took a major hit at the open as a large sell program pushed the Nasdaq futures into limit down mode but the sell off was only temporary. The buyers flooded in off the sidelines and the quick drop was history. However the tone for the market was set and the rest of the day was spent in strong rotation mode. Previous leaders sagged on profit taking while stocks, which had lagged recently, were seen as value plays and received lots of attention. Today was a non-event in market terms after the NASDAQ's record +600 point November gain. The -50 point drop today barely gave back a single days gain from the recent rally. It was just normal profit taking and a buying opportunity for those on the sidelines in cash. As you can see by the charts above, the drop today only put the Nasdaq on the bottom of the regression channel and after the morning drop the Nasdaq had no trouble holding 3340 the rest of the day. While today was a welcome breather in the markets momentum, there is still a lot of profit left on the table and up for grabs. Analysts have been expecting a -5% to -7% pull back in the Nasdaq before the customary December rallies. The January effect this year appears to be growing in anticipated strength. In December funds take advantage of the tax benefits of losing positions to lessen the taxes on their winning positions. By selling the losers in December they raise cash to reinvest in January. They are also making plans for a huge influx of year end retirement contributions. This lump sum buying in January normally causes a rally. The anticipation of this rally causes investors to take positions in December before the funds begin buying. This causes stock prices to rise in December and has been given the name of the "January Effect." This impact has been occurring earlier each year as traders start earlier to beat the rush. With Y2K quickly dropping from investor consciousness as a real threat, the money that accumulated on the sidelines in anticipation of a sell off is going to be spent real soon. The 5-7% sell off may never materialize simply because of the billions in cash that have been stockpiled. Traders on the floor today claim there is no letup in the flow of institutional orders. They claim there are huge orders sitting just under the market hoping for a dip. Look at a chart and see how quickly the dip was bought this morning, AND THIS WAS IN AN EXTREMELY OVER BOUGHT MARKET! Traders also claim the orders are slowly inching up in price as each firm tries to get a sixteenth above everybody else. With cash flowing faster than Iraqi oil the normal dip after Thanksgiving may only be in our imagination. Has everybody forgotten that the bond yields currently at 6.19% are slowly moving up? Did the -.60 drop in the price of oil today convince economists that the oil bubble had burst? No, on both counts. This market is driven by liquidity and nothing else. It is going up because of the wealth effect caused by the market going up. Huh? Because the market has been going up for the entire time that most online investors have been investing, everyone just assumes that it must continue to go up. Don't get alarmed. I am not building a case for a crash. I am simply pointing out that eventually there will be some profit taking and a return to reality. The Internet driven, new prosperity, is making millionaires out of all tech investors and pushing older companies onto the sidelines. Take U.S. Steel. Formerly a Dow stock, US Steel is now barely a midcap. The valuation models today are so much different than just five years ago. The only other time the Nasdaq had a similar run was in 1991 when the biotech boom was hot. You remember biotechs? The Internet stocks of 1991? Just food for thought. I wonder what the next hot sector will be after the Internet starts making a profit and has to stand on a real valuation model? At the San Francisco Money Show I was talking to a couple investment bankers about some of the recent deals they had done. Someone made a comment that they were surprised that somebody like Thestreet.com did not make us an offer we could not refuse just so they could become profitable. (We are profitable, they are not) The banker quickly answered that TheStreet would not do that since they did not want to be profitable yet. Once profitable they would lose their vaunted negative valuation based on pie in the sky forecasts and would have to revert to real world economic models. It would be a serious shock to their stock price. I relate this only to prove a point. Less than 20% of all the current Internet companies will ever turn a profit. If 80% of the current speculative Internet bubble will turn to dust in the next 3-5 years then what happens to the bubble? I think we have about eighteen more months on the outside before we need a new investment sector. Until then, we are going to "go long till we are wrong", and that is what is powering this rally. Wednesday is a toss up. Friday is historically an up day on very light volume. The Personal Income/Spending Report on Friday is the only economic report this week and should not be a problem. There is still a possibility of some profit taking at any time but with the underlying support in the market I think -5% (-167 points) is wishful thinking. Good Luck, Sell Too Soon. Jim Brown Editor ********** STOCK NEWS ********** There is no Stock News article tonight. ************** Market Posture ************** As of Market Close - Tuesday, November 23, 1999 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,750 11,320 10,996 Neutral 11.12 SPX S&P 500 1,315 1,385 1,405 BULLISH 11.12 OEX S&P 100 675 725 747 BULLISH 11.12 RUT Russell 2000 425 445 454 BULLISH 11.12 NDX NASD 100 2,320 2,520 3,000 BULLISH 10.28 MSH High Tech 1,120 1,250 1,570 BULLISH 10.28 XCI Hardware 1,000 1,095 1,169 BULLISH 11.11 CWX Software 770 800 1,182 BULLISH 9.03 SOX Semiconductor 475 525 624 BULLISH 10.29 NWX Networking 550 615 774 BULLISH 10.28 INX Internet 495 525 644 BULLISH 11.05 BIX Banking 635 690 639 Neutral 10.28 XBD Brokerage 395 440 443 BULLISH 11.12 IUX Insurance 610 650 616 Neutral 11.09 RLX Retail 875 910 903 Neutral 11.23 * DRG Drug 375 390 392 BULLISH 11.04 HCX Healthcare 750 790 775 Neutral 11.09 XAL Airline 180 190 149 BEARISH 5.21 OIX Oil & Gas 285 315 299 Neutral 11.23 * Posture Alert Tuesday finally brought out some profit taking, as the broad market sold off on decent volume. Leading sectors were limited to the Internet and Airline industries, while losers included Brokerage (-2.80%), Semiconductors (-2.36%), and Networking (-2.14%). With Tuesday's action, we have lowered both the Oil & Gas and Retail sectors, to Neutral from Bulllish. *************** Market Sentiment *************** Tuesday, November 23, 1999 Turkeys, or Bears? Rumor has it; the Nasdaq actually closed down Tuesday! Yes folks, the index that could do no wrong, finally grasped for a breath of fresh air. This profit taking is actually very positive, and was needed heading into the holiday weekend. Volume was strong Tuesday, but the selling pressure that we witnessed was very orderly, which may indicate that institutional money managers who wanted to lighten-up ahead of Thanksgiving may have now done so. Looking ahead, volume during the turkey days (Wednesday, and half-day Friday) has historically been light and brutally slow, however; they usually are positive days, so enjoy them if you can! From a sentiment standpoint, we continue to see puts coming in on many stocks/sectors that would indicate further upside potential. One stock that has greater put open interest versus call open interest is the QQQ. For those of you who don't know, the QQQ represents the Nasdaq 100. This index represents the 100 largest Nasdaq issues (which are obviously technology dominated), and has had phenomenal returns for investors. Yet, put buyers seem to be trying to call a market top at this point on the QQQ. This may be premature, and may actually give support for the index and those respective stocks. Even though this index has made a major run, and from a contrarian viewpoint, we may see more upside in the Nasdaq 100, thanks to the rampant bearish speculation. The S&P 100 has made a good run over the last 3 weeks as well. One common factor that we witnessed during the entire run-up has been put buying in various stages. This negative sentiment has only helped support the index, and has fueled its rising nature. On Friday, the Pinnacle Index for the OEX (750-760) was 8.93, suggesting a very bullish attitude. However, the PI for this level has now dropped to 1.7, suggesting that the put buyers are coming in to play. This rush of negative sentiment may, once again, help fuel further upside action in this index. If this bearish sentiment continues and helps fuel a further rise in these respective indexes, we then may not be able to tell the difference between the bears and turkeys. Only time will tell. Have a good Thanksgiving! 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! Advance/Decline Line: The A/D line is looking significantly better than the past 6 months. Mixed Signs: Interest Rates: The yield on the 30-yr Treasury is off the 52-wk high, but has moved off the key 6% benchmark. BEARISH Signs: Volatility Index (21.17): 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. Investor Intelligence: The rapid change from bearish to bullish sentiment has been too great, and may indicate a near term top in the market. Energy Prices: With the rapid rise in crude oil, everything from manufacturing to transportation will be affected by higher costs. These higher cost will be felt more 1-2 quarters out, and could put pressure on profit margins. 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 Tues Benchmark (11/19) (11/23) Overhead Resistance (750-760) 8.93 1.70 OEX Close 749.30 746.95 Underlying Support (730-745) 1.03 1.51 What the Pinnacle Index is telling us: Based on 11/23, overhead resistance has decreased significantly, which is very positive. Currently, however, we have a equal chance of rallying as we do selling off. Put/Call Ratio Friday Tues Strike/Contracts (11/19) (11/23) CBOE Total P/C Ratio .69 .68 CBOE Equity P/C Ratio .33 .38 OEX P/C Ratio 1.41 1.24 Peak Open Interest (OEX) Friday Tues Strike/Contracts (11/19) (11/23) Puts 680 / 5,980 680 / 6,451 Calls 780 / 4,889 750 / 5,885 Put/Call Ratio 1.22 1.10 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 November 23, 1999 21.17 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 18, 1999 52.1 29.9 Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Daily Results Index Last Mon Tue Week Dow 10995.63 85.63 -93.89 -8.26 Nasdaq 3342.87 23.31 -49.69 -26.38 $OEX 746.95 5.05 -7.40 -2.35 $SPX 1404.64 -1.06 -16.30 -17.36 $RUT 454.45 -0.50 -6.32 -6.82 $TRAN 2980.29 -4.33 25.39 21.06 $VIX 21.17 0.65 0.89 1.54 Calls Mon Tue Week JDSU 238.31 14.19 10.31 24.50 "We must pay homage... SDLI 167.50 22.88 0.50 23.38 New, takeover candidate VRSN 187.00 14.69 2.25 16.94 New, split is coming CMGI 137.56 18.38 -5.69 12.69 A possible earnings run? BVSN 109.63 12.13 0.00 12.13 A testimony of strength GMST 112.19 4.50 3.06 7.56 GMST offers solid gains QLGC 119.00 4.00 3.50 7.50 New, it's back!!! MACR 67.56 4.25 0.69 4.94 New, breakout ahead?? MSFT 89.63 3.81 -0.19 3.63 MSFT has determined buyers SNE 180.00 3.94 -0.56 3.38 A great start to the week ICGE 170.13 15.50 -12.31 3.19 Dropped, announces a split NOK 141.00 -2.75 5.75 3.00 Can you say "gap open"? YHOO 221.19 8.06 -5.63 2.44 Definite split candidate VRTY 99.81 6.13 -5.44 0.69 VRTY has good intentions... HLIT 72.56 2.19 -1.69 0.50 Provides tradable entry EMC 87.97 -0.31 -0.56 -0.88 Looking for a breakout NT 79.69 -0.38 -0.81 -1.19 Minimal profit-taking GTW 77.44 0.75 -2.06 -1.56 Bargain buying opportunities SUNW 127.13 -3.00 0.56 -2.44 A little "turkey picking" LSI 61.13 -2.19 -3.13 -5.38 Dropped, taking a break QCOM 360.25 -7.06 0.25 -6.81 Takes a bit of a breather SFE 115.13 -1.50 -7.38 -8.88 Dropped, the party ends CMVT 127.06 -6.44 -8.94 -15.38 Dropped, what happened? Puts KIDE 42.25 -7.75 -7.00 -14.75 Keeps running downhill RFMD 63.50 -3.31 -4.19 -7.50 New, what is going on? RMBS 75.00 -2.94 -4.19 -7.13 What a beautiful chart! ALTR 54.88 -2.63 -2.13 -4.75 New, life was good but... CI 81.16 1.25 -3.75 -2.50 Our put play kicks in AMR 61.19 1.31 2.13 3.38 Dropped, AMR flies high ************** WOMANS WORLD ************** Losing Money On Vacation Thank you for the overwhelming volume of support received, from both men and women. To be honest, there were a few mean emails, but only a few. (samplings of each, at end). To set the record straight, I am not macho, a women's lib-er, a feminists, or a sexist. I am just 100% woman. I believe trading is non-gender, although the approach may be different. The market is the great equalizer. I am not speaking "for" anyone else. I am only expressing my views, which hopefully will help many. I will not tell you what to buy or sell. I am no expert. I may misspell a word or misquote a fairy tale. I will risk sharing both my mistakes and what/how I learned from them. I will discuss wining, losing and learning. I hope to help you think through your own plays. One can't grow unless we know our strengths and weaknesses. Many of you trade larger accounts than mine. The dollar amount is not important. The percentage gain or loss is. We are all learning. To all the supportive men, Thank You, for understanding my tongue & cheek humor. To the others, well, don't take things so personally. Learn from the diversity. Newspapers have both a sports section and a women's section. Most people don't read both. There are fewer opportunities for women to connect in this field, than men. Our goals are the same. How we approach the discussion though, may be unique. Read the message, not the words. There's room for all of us. Now, the article. Are you getting a feeling of Déjà vu? Boy, I'm getting dizzy and I'm doing things differently this time around. Nasdaq is feeling just a little too good to be true, (as of the close on Monday). I've been here before. I want to share with you how I got there, the mistakes I made from feeling indestructible and on Sunday, the lessons learned with the changes I've made to my trading style, to protect against a re-occurrence. Let me tell you a little story about overconfidence. Last year, April 1998, I almost died. A freak medical emergency, landed me in the hospital. Not accepting my unusual situation, I found myself trading online from my hospital bed...as the patient this time. Looking back, that was REALLY stupid. While there, I exited my plays, not knowing it would be a market peak, but by accident because too many doctors & nurses were interfering with my concentration (in my hospital bed). Once discharged, I re-entered my plays, not realizing it was on the dip, but knowing in 3 months (July) I was to have surgery to correct the problem. So, naturally I rode it till early July, exiting again by accident, at the July highs, due to surgery. Taking time off for recovery, I waited to re-enter until early October, unbelievably at the October lows, which I was not even aware of. To some, it could look like great market timing, but I promise you, it was nothing more than pure stupid luck! I was in graduate school (occasionally trading during lectures, like Janar) and maintaining a full time professional job. I paid little attention to day to day market movements because I was juggling so many other things. All I knew was that my account was growing. The luck continued. In October, I entered several AOL positions. Not 10, 20 or 30 contracts, just 1s, 2s, and 3s, here, there and yonder. (more on that another time) AOL started going up daily. Day traders pumped that baby constantly. Then a stock split run up, then entry into the S & P. A false sense of security developed, as it would with ANY naïve option trader who had not learned how to do their own homework. The January rally was next,...well, you get the point. Could nothing stop this rocket??? My account literally doubled from December to January. It was too easy and I began to get concerned, but where do you stop? When is enough, enough? I initially knew little about the Internets. My year had been spent studying science and technology commercialization. Like an idiot not understanding pure luck, by February I had bought a really nice calculator, to calculate out my anticipated retirement. I decided to cut back on my day job to trade more in 1999, just to see where it would take me. The luck continued daily with only little dippies here and there. Just little annoying dips. I held, they always came back. Luck? Didn't know. But do you notice that "luck" is a four lettered word. How prophetic. Hindsight, you know? I saw there was a seminar coming up. I didn't like the timing, occurring in April with earnings, but I realized that I was starting to feel like a car speeding out of control. I was afraid that I could hit a wall. Although I recognized this, I had no idea what to do about it. I did not know how to handle the swings that were starting to occur in my account over night. They were wild, both up and down, as I held during the dips. By this time, I was more of a fundamentalist. I looked at the core competency of the companies I traded, along with their financials. I did not have a quote service, knew little more about technicals other than they looked like something fun to ski, had no exit plan and had a brokerage account that was not trader friendly. Not realizing what it felt like for my trades to REALLY go against me or come back up, I held on to everything and left on vacation for a conference. I knew I had a lot to learn. I left with about a million open positions. I mean, you're supposed to diversify, right? Ho Ho Ho!!! Without going into detail, suffice it to say that AOL lost 35 points while I was there. When I returned home, I did not exit. It looked to be coming back. (just a bigger dip?) Hanging in there lead me into the May/June slump and all my open positions had a massive melt down. I told you last time, eventually I lost 75% of my account from its high, a slow bleed from holding too long, after doing so well. SPLAT !!! I had hit the wall! (This was all before I found OIN) These are the things I now know, I did wrong. 1. Having a false sense, of not being at risk for big losses. Doing too well for too long 2. Believing I knew what I was doing, because I had winning plays, in an up market 3. Not researching my plays 4. Having too many open positions at once, at too many strike prices (the 1s, 2s, and 3s) 5. Playing too many companies 6. Not understanding the value of technical analysis and indicators 7. Not understanding how to correlate the stock with the sector, market, sentiment & vix 8. Not having an exit plan 9. Not buying at good entry points 10.Not knowing markets have historical yearly cycles, when the odds are against you 11.Buying OTM calls when I didn't know why 12.Not following my cost basis, due to #3 & 4 above 13.Not understanding the expense, of not having real time quotes for the full time trader 14.Not taking money off the table, instead playing with all my profits 15.Not having a trader friendly brokerage account 16.Entering shorter term trades and more contracts in a down market, trying to recover my losses 17.Leaving town with many open vulnerable positions 18.Never having ever been taught, "Sell Too Soon" Well, I'm sure there are more. It was a very expensive lesson. One I will not have to learn twice. Thankfully, I am approaching full recovery. At times like today, with recent highs, getting nervous again, I make sure my account is prepared for the worse. Expecting a pull back this week or next, I bought OEX puts last Thursday & evaluated all open positions. I am going on vacation, but this time I feel at peace. Sunday, I'll share with you what changes I've made. Renee renee@OptionInvestor.com *********** Some Email: Pros & Cons *********** Just what we need is another Feminist telling us all how bad men are, how stupid they are, and how the world just can't go on with men around. I hope you find yourself real happy sitting on your pile of money, reading your copy of Ms magazine......alone. Your attitude about men and women is probably a great method of birth control. No one wants to be near you. I hope your "woman intuition" brings you happiness. That's about all you'll have left with that attitude. Your missing the whole point of life here. We were placed on this earth to get along with each other. How much money you make means nothing on your death bed. Remember this....we all leave this earth with the same thing. Only our soul. How many toys you leave behind doesn't do you any good at all. Think about it..... Steve Steve- You obviously know very little about me. Interesting that you feel we were placed here to get along with each other, yet it appears you have perfected taking criticism to a higher level. Regardless, you are entitled to your opinion. Sorry it made you so angry. I can't please everyone. Damn the torpedoes, full steam ahead! Go get 'em ma'am. Good luck. Former Sgt USMC Sarge - I really appreciate your support & humor. I left your name off to protect YOU. -My wife and I just started trading this year...we had great instructors and get excellent advice and I enjoyed your positive, yet humble opening message. We are looking forward to "your" viewpoint! Terry and Linnea -Hi Renee, I enjoyed your options article. You are obviously smart and you write well with insight, attitude, and informed opinion. I look forward to hearing a lot more from you! I also love diversity so having another perspective such as yours is very appealing. Ted Renee.I have made more money listening to smart women than with the "advice" of smart men. The reason is simple...the answer is "balance"...both male & female viewpoints are valid, but if a particular piece of logic fits into my Trading comfort zone, then I use it. Male or Female...who cares as long as it feels right...and stimulates my mind!! I am looking forward to your cut on trading and if it fits into my style ,then that is great! If it doesn't work for me, but has insight, then I still win because it will help my mental process to stay "crisp" .Best Wishes and thanks for putting your two cents into the mix!.....Roger Terry, Linnea, Ted & Roger - Thank you for your encouragement, open minded attitude, and understanding my point. I've learned from men all my life, so I know there's room for both. Hi, I have no problem with a "macho" woman, it's your perogative. But if this site is to become a platform for womans rights then I will forgo renewing my subsription. By the way it's lose not loose! Stan Stan, Stan, Stan. Have you ever heard the saying about people who live in glass houses? I think you misspelled both "prerogative" and "subscription". You must have had your mind on other things. Hi Renee, Looking forward to your articles. Can't wait to see your map on landmines. I too am assertive, independent, good with numbers, money, AND I can proudly say I am a risk taker -- to the point that my husband totally freaks out sometimes (although he's really quite supportive). I've got a lot of learning to do though... So -- I'll be listening intently for any guidance. Regards, Diane Diane - Truly glad to hear of your support. Both with the column and at home. ...Thank God someone recognized that we women are out here (and kicking butt I might add.)...Kaye ... I could hardly wait to email my encouragement to you and look impatiently forward to your commentary! I am a single 42 year old postal carrier...Kathie ... I am ready to be taught by a woman at long last....Julie ... It will be great to see a column by a woman. We women need all the role models for success that we can get....Patricia There is room for all of our views - Renee PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** CMVT $127.06 -8.94 (-15.38) What happened?! CMVT was cruising along in an indestructible state. Well, all good plays have to come to an end and with a run up like we saw in CMVT, it did have room to fall. The trigger was a downgrade from Salomon Smith Barney. They dropped the stock from a Buy to Outperform. We haven't yet seen the reasoning but it was likely due to valuation after the incredible move. We were planning to be out of the play by Tuesday the 30th but with today's drop, we can't imagine anyone who is not stopped out and we don't want to re-initiate positions this close to the end. This is not to say that it won't bounce back some but we got what we wanted out of CMVT when we picked it at $102 so we are replacing it with other plays that don't have as short of time frame. LSI $61.06 -3.19 (-5.38) Investors have not been bidding up the majority of the semiconductor stocks this week. The Philadelphia Semiconductor Index has been down strong for the last two days. Monday down 14.86 points, Tuesday down 15.10 points, and it has been dragging the majority of the stocks down with it. LSI's support held up nicely on Monday, but the follow through of selling today was too much, the shares continued to slide, closing out the day at the lower end of the range at $61.06. There has been no bad news that was reported on LSI, it is simply profit-taking. For the near- term it looks as though the stock is going to take a break, so we will look to close out the position at this point. ICGE $170.13 -12.31 (+3.19) After the bell on Monday we got the news that we were looking for, ICGE announced a stock split. The stock was on a strong movement upward the whole day on Monday, but it did provide us many entry points, the follow through today only lasted for a few moments, so hopefully you were in and out with a quickly if you played ICGE, because the post-split announcement depression set in fast. We will choose to walk away from this play at this level, the stock closed at the lower end of the range with no sign of a recovery. The trading range today was a high of $191.75 and a low of $169.50, before closing out the day at $170.13. It was a wild ride that ended quickly. We will look at it again once we get closer to the ex-date and the investor interest returns. SFE $115.13 -7.38 (-8.88) The party is over. Time to go home. SFE broke south of $120 support and never did recover today. Volume pick up later in the day as the price was falling and was most pronounced at the close, where SFE finished at the low of the day. The signs were there on Friday with volume and the price flattening out on an otherwise strong day. As we noted in Sunday's write-up, "cut your losses quickly if it moves south of $120...the ice is thin." No news here. SFE just got tired. PUTS: ***** AMR $61.13 +2.06 (+3.38) AMR has been flying high, along with the rest of the airline sector. Oil prices were down slightly, fares are on the rise and the holidays are just around the bend. Not to mention a new service being offered by AMR between San Jose and Honolulu as of May 1st. Okay so that last one was most likely not a factor in AMR's recent move up but the fact of the matter is AMR has taken off in the wrong direction, the wrong direction for our put play anyway. The time has come to grab our chutes and jump from this play. Monday's rise in the airline sector despite record high oil prices was our first sign this play was going to fly. ******************* TRADERS CORNER ******************* None Tonight ***************** PICK NEWS - CALLS ***************** EMC $88.50 -0.56 (-0.88) EMC continues to consolidate or perhaps a better term would be struggle to continue its upward momentum. Monday EMC opened higher but traders came back from the weekend ready to take some money off the table pushing the stock down to an intraday support level near $88. This morning the buyers re-entered at the open, bidding the price of EMC back to a high of $89.94 at the opening bell only to see the sellers return to the market. As we mentioned Sunday, for EMC to continue to be a viable call play, we are going to have to see the momentum return to this stock. EMC has made three attempts to take move toward the highs set last week only to succumb to profit-taking. But a period of consolidation or a pullback to support is healthy for the over all trend of this stock. Should you still have a position in EMC, we would keep your stops close under the support levels of $87 depending on your entry point to protect any profits. If EMC can re-start a new rally, a breakout over $90 would be buyable. GMST $112.19 +3.06 (+7.56) We mentioned Sunday that our split run play was beginning to set up nicely. Since being selected last Thursday, GMST has given us a couple of good entry points into our play. On Friday GMST pullback to $101 and bounced back into the close at $104.63. Monday shares of GMST continued the move and started the week off in positive territory, closing up $4.50 at $109.13. This morning GMST gapped up to $110.75 at the open and sold off. The impressive part of the day is two- fold. First, after the sellers stepped in and drove the price of GMST down late this morning, the $106 level of support held just like clockwork. The second impressive part of the trade today was the buyers that stepped up to the plate and drove GMST to a new high at $114. GMST finished the day with solid gains at $112.19 up $3.06 for session. The stock was a bit volatile this morning but at this point couldn't be working out better, had we scripted the moves of the last three days. The open interest in the December 115 Calls increased by about 2000 yesterday. The volume behind today's move was rather light at 745 K. For the rest of the week if you entered a position, in GMST assess your risk profile and adjust your stops accordingly. If we get a pullback we would look for a bounce off the intraday support areas of $110, $108, and $106 respectively as a possible entry point to a new play. CMGI $137.56 -5.69 (+12.69) Depending on your trading style and risk tolerance, CMGI gave us a very good entry point for our new play. CMGI gained $18.38 on the day which was news filled. CMGI which invests in, and develops and operates a number of funds focused on the Internet, announced they were launching a new business to business venture fund. The fund is expected to reach up to $1 bln in capital. The new fund will build on the success of the current funds and their strong track record in B2B investments. Investors must have agreed as the volume behind yesterday's increase was a strong 7.2 mln shares. Other items concerning CMGI was the rumors surrounding a merger with 24/7 Media. Rumors have been circulating for months concerning the on again off again potential deal for 24/7 to be picked up by either CMGI or DoubleClick. It's back to CMGI now. In recent months CMGI has beefed up its holdings in online advertising companies, with stakes in Adsmart, Engage Technologies, Adforce and Flycast Communications. As is customary neither company would comment on the rumors. CMGI gave back only $5.69 of yesterday's gains, which leaves our play in good shape for a holiday week. Intraday support for CMGI lies near $137 and again between $132 and $133. If CMGI retraces and bounces, those would be levels to consider a new play, as long as the bounces are supported by good volume. Although it may be a bit premature, CMGI announces earnings on December 15th, we could see a run to new highs in anticipation of their earnings report. SNE $180.00 -0.56 (+3.38) Sony had a great Monday session, breaking through the rather elusive $180 level with strong volume and a close just pennies short of the high for the day. Tuesday, SNE followed the rest of the market down and fought yet another round of profit-taking as many traders are closing out positions before the holiday. Sony bumped its head on $180 in late day trading and finally opted to just to hang out there for the night. Before entering a new play, we will definitely want to see some consistent trading above $180, since SNE has really struggled with this level. Sony has tested and bounced from it's 10-dma, which is currently at $178 and until we see a breakdown, we are not convinced that Sony is relinquishing any of it's positive momentum. Japanese financial markets were closed on Tuesday for Labor Thanksgiving Day with trading resuming on Wednesday. SUNW $127.13 +0.56 (-2.44) Today the profit-taking finally put a dent in the tech-heavy Nasdaq and the technology stocks were whipped. The Nasdaq was down 49.68 points today, this had the bellwether stocks like SUNW seeing lower prices today, but not a major sell-off, just some pre-Thanksgiving "turkey picking." SUNW actually ended up $0.56 but down for the week a little over two points. We remained focused on the stock holding above major support points, and when the profit-takers step up during the last few trading sessions, buyers continue to step in and buy on any dips. Going forward profit-taking could continue, but we believe not very heavily ahead of the 2:1 stock split on Dec 9th. The overall picture in SUNW from a fundamental, technical, news, etc continue to look very positive. Be mindful that as we look towards the next few trading days, the market in the past has trading on light volume around the Thanksgiving holiday, and moves to the upside or downside could be exaggerated. We recommend that you use any dips to the downside as buying opportunities. Major support is at the $123 level. HLIT $72.56 -1.69 (+0.50) The trading pattern in HLIT was consistent with our recent recommendations. The stock continued to gap up on the open Monday and Tuesday. The stock opened the day on Monday up over 2 points at $74.50, before closing the day $74.25. The shares commenced to pulling back to as low as $70.13, we had recommended that support would hold up at the $70 level. That was a good tradable entry point. Once again today the shares gapped up at the open at $76.63, before commencing to trade identically to our fore-mentioned strategy, hopefully you sold immediately and looked to get back into the stock at the pullback low for the day, which incidentally today was near the $70 level, before closing out the day off of the lows at $72.56. Hopefully you have made some quick in and out trades on this one, and are looking for more opportunities going forward. There is anticipation as we close out this holiday shortened week that the volume is going to slow and the profit-taking is going to pick up in the overall market, so be cautious. Be disciplined and use the intraday price swings to your advantage. Look for another trading bounce off of the $70 level. YHOO $221.19 -5.63 (+2.44) YHOO is a definite split-candidate especially now that the stock has moved above the historical split announcement levels of $200 to $220. The stock is just $22.81, or 9.3% from last April's peak of $244! A new 52-week may just be in the cards. Yesterday YHOO tagged $230 near the close on rising volume setting the mark for future opposition. Despite holiday profit-taking in today's market, YHOO appears to be establishing a newer near-term support at $218, the daily low of the past two trading sessions. Last week entries into this play were attainable in the $205 to $210 range, but if the upward direction remains intact you may have to target shoot for an intraday bottom. In company news, Yahoo! signed a marketing agreement with 1-800-FLOWERS.com providing subscribers with direct access to the popular flower and gift site. In the industry, Lycos announced it's acquiring Gamesville.com, a gaming and marketing company in a $207 mln stock deal to extend its exposure on the Internet and increase advertising revenues. GTW $77.44 -2.06 (-1.56) GTW swept upwards to $80.63 on Monday trading consistently in what appears to be the first line of opposition. The dips to newly established near-term support of $76 and $77 then offered entries into this potentially profitable technical and momentum play. We added GTW this weekend on the basis of its repeated moves to daily lows at near-term support, which presented bargain buying opportunities in consideration of an apparent rotation into the hardware sector. The volume has dissipated somewhat the past two days, but most likely it's a reflection of the slow week in the markets and not investor interest. The next step in this play is for GTW to break $80 and make a charge towards $84, the new 52-week high set last Monday. In the news, Fidelity Investments announced a cooperative agreement with Gateway today. Existing and potential Fidelity clients will receive discounts on Gateway PCs to enhance the benefits of the Web and fidelity.com as a user friendly investing alternative. Also in the news today, Mike Mata, VP of e-commerce and Business Development for Gateway announced the launch of Esource, customized Web sites for large institutions, educational buyers, and corporate customers to track and choose their purchases. Many believe this move is overdue when compared to Dell's existing Premier Page service. VRTY $99.81 -5.44 (+0.69) Churning stocks was the name of the game in today's market, but VRTY managed to hold on a fractional portion of yesterday's profit. We reported this weekend that VRTY was poised to break through that psychological $100 barrier and make a run for a reasonable $110. On Monday VRTY showed its intent and opened strong. The stock traded for a good part of the day near $105 while still offering enough volatility for entry into this split play. VRTY also managed to peak at $107 heading into the close indicating there may be more to come. If you got into the play yesterday and had a limit sell set for today's open you may have caught some profits as the stock spiked to $109.25 - setting the newest 52-week record - before holiday profit-taking went into full swing. The market downdraft has placed VRTY back at strong support. There is no newsworthy event to report that would affect trading, but of course, remember VRTY splits 2:1 on Dec 3rd. We expect another upswing ahead of this date and will be looking for another bounce to confirm our play. PICK NEWS - CALLS - CONTINUED IN SECTION TWO ******************************************** advertisement ************************************************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millineum with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** 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 Tuesday 11-23-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. ***************************** PICK NEWS - CALLS - CONTINUED ***************************** MSFT $89.63 -0.19 (+3.63) MSFT investors were determined to buy in a market that was selling off. They pushed up the share price to $91.38 before a last minute plunge cost a fractional loss. Yes, we were on the money when we added MSFT to our call list this weekend citing the stock's dip to $86 as a relative bottom and yes, we knew we'd have potential entry difficulties. Well, we got the whole basket when MSFT open up at $89.63; but honestly it now appears this level (at $89 to $90) may be evolving as near-term support and the intraday volatility will extend different points of entry. Recall our play is based on the recent move by US District Judge Thomas Penfield Jackson to appoint a mediator, Richard A. Posner, Chief Judge of the 7th US Circuit Court of Appeals in the government's antitrust case against Microsoft to negotiate an out-of-court settlement. Jackson didn't want "divergent views" to destroy the current rapport "between the states and the Justice Department so far has been, I think enormously helpful. And I would like to see it continue. I would not like to have to deal with divergent points of view." That news prompted investors to start putting their money back into MSFT on Friday. This week more news surrounding this monster trial hit the press. On Monday three lawyers filed class-action suits against Microsoft for essentially price- fixing its Windows 95 and 98 citing they used their monopoly position to charge an over-inflated cost for the software. Since that issue was never dealt with in the trial it's unlikely the civil action will reap benefits for individual consumers. Then Consumer Group of Technology voiced their opinion today claiming MSFT should be required to divest its Internet Explorer Web browser since a good chunk of the recent trial concerned software to surf the Web, in particular with AOL's Netscape. Of course, MSFT is adamant their browser is an integral part of its Windows system. On a different front, MSFT along with AOL, AT&T, and other Internet companies are pressuring trade negotiators to push the WTO for the permanent extermination of tariffs on electronic commerce at the Seattle meeting next week. BVSN $109.63 +0.00 (+17.13) That BVSN did not crater with the rest of the NASDAQ is testimony to its strength. Yesterday, Business week ranked BVSN number 2 in the "InfoTech 100" survey, up from #70 when it made its debut on the list back in June. You'd think that moving up from $83.50 just two short weeks ago would make BVSN susceptible to some profit-taking. However, volume has remained huge in this issue (two times the ADV today), which helps explain today's stability, despite an overall loss for the market. In fact, yesterday's volume increase and price rise into the close convinced us to make it the play of the day. While it gained nothing today, it predictably fell back to support (about $100) where we could have made a great entry from which it traded as high as $113 - a $13 swing in one day. Congratulations to the agile who were able to make this play. For those wanting to try it again, watch for the landmines of market wide profit-taking, and target shoot in the support area of $100. After that - $96, then $90. Remember to use a trailing stop to protect your profits. BVSN is a fast mover and carries a high amount of risk. NT $79.69 -0.81 (-1.56) Well, it had to happen sometime since "nothing goes up forever in a straight line". That's okay. The profit-taking was minimal anyway as NT found support at last Friday's low around $78.50, from which it again bounced up today. Perhaps helping to stem the bleeding was SoundView's reiteration of their Strong Buy rating and price target of $110 (up from $75). Optical networking business growth is the driver. And we have the prospect of another split if the price can get up toward $90. While in the long run, NT is a winner, volume is starting to fall back to the ADV indicating funds may have completed their buying binge on this one. Wait to see volume picking back up before initiating a play. The price may have more to fall if volume can't keep the sails filled. If so, be ready to exit with a stop in place, or at least know your exit. $75 is the next support. NOK $136.50 +5.75 (+3.00) Right on the money, support came at $130 yesterday, giving us the perfect buying opportunity. Little did we know that Morgan Stanley Dean Witter would up their rating to a Strong Buy before today's open and simultaneously up their price target to $180 from $125. Can you say "Gap Open"? Sure, we knew you could. NOK closed at a new high, however encountered textbook resistance at $139 ($130-$139 is the channel we noted on Sunday). Our inclination at this point is to wait for the market to digest its gains and let NOK go with it, though with today's upgrade, we could get more mileage out of the current play. Even so, support is mild at $135, and strong at $130. You can target shoot according to your risk profile, or wait until a breakout over $139 with volume. NOK becomes a split candidate again at $140. Just be aware that NOK still likes to gap up and down. A skipping target can be tough to hit. So be comfortable with the risk since the opening direction is a bit more out of our hands. QCOM $360.25 +0.25 (-6.81) QCOM appears to be taking a breather. Volume has remained substantially below the ADV over the last 3 trading days while the price has nonetheless remained stable (a relative term when a company is priced at $350 per share). That's an indication that investors are comfortable in this price range and no longer desperate to part with the shares at any price - looks like the fire sale is over. That's not to say that it can't fall further should the market suffer a meltdown, just that it looks like the major damage is done. In fact in the face of today's losses, following the initial opening selloff, QCOM gained ground all day. With an agreement once again shaping up to sell equipment in the development of China's new wireless system, the 4:1 split at the end of December, and the prospect of announcing a buyer for their handset manufacturing business by the end of the year, the future still looks good. Support came today at $345, but generally can be found at $350, then $330. These provide good targets for shooting, or you can wait for a breakout over $370. We favor the target shooting approach since there is plenty of time until the end of December. Pick your entry carefully and keep your stops on place to protect your profits. Though subject to wild swings, QCOM still provides many profit opportunities for the nimble, even on down days. JDSU $238.31 +10.31 (+24.50) As Cramer says, "We must pay homage and glory in its greatness." Friday's breakout powered on at the rate of $1.88 per trading hour. That $222 resistance we noted Sunday was obliterated first thing Monday morning. Support was at $227, $222, then $217. Hmmm...anyone notice those $5 increments? Don't bet the farm on it, but look for $237 and $232 to also provide some intraday support. $252 is resistance so there's lots of room to run. Volume remains strong following news that one of George Soros' funds owns about 440K shares - it's the equivalent of a strong upgrade. JDSU will be splitting 2:1 on December 30 too. As long as volume remains strong and the market is willing, look for the rise to continue. Target shoot to your own risk tolerance. For those so inclined, you may want to consider this one for your long-term portfolio. As we've noted, JDSU is to photons what Intel is to electrons. It's in the same league as QCOM. **************** PICK NEWS - PUTS **************** CI $81.25 -3.75 (-2.50) After a slight bounce Monday, our put play in CI finally kicked in late this afternoon. Our play got the nudge it needed when a group of attorneys led by anti- tobacco lawyer Richard Scruggs, filed a national lawsuit seeking class action status against 5 health maintenance organizations (HMOs) charging them with violating U.S. anti racketeering laws. The defendants are some of the nation's largest HMO operators, and CIGNA topped the list. Whether there is any merit to the suit at this point didn't matter to traders as they dumped shares of CI late in the day. CI which had been drifting lower for most of the session and lost $$2.95 in the last 2 hours of trading. With the weakness in the broader markets today, we could see CI continue south for the balance of the holiday week as the sector has now rolled over as well and doesn't look to inviting for buyers to step in at this point. CI could find support near the $80 area, but technically there is still a gap that could be filled all the way down to the $75 area. If you did not join in on this play we would consider further weakness as an opportunity to do so. Should we see a bounce back up CI could struggle between the $83 and $84 area, and any decline from those levels would also be a potential entry point. As always, prior to entering any new play assess the potential for profits and risks involved. KIDE $42.19 -7.13 (-14.75) Do you remember running down a hill as a child and gaining so much momentum, that it was difficult to stop without taking a good tumble? Welcome to KIDE's recent trading pattern. KIDE's downward slide continues as KIDE has taken back nearly $15 in the first two sessions this week. Today, KIDE ran down to tag a new 6-week low and has entered territory where it must seek support at the "psychological" levels, i.e., next stop, $40. KIDE continues to close the day near the bottom of its trading range. One interesting thing to note is the large volume posted in the last two sessions. There seems to be many looking to jump ship. Keep in mind, this is a high-risk play! There is a lot of investor interest out there and being that we have seen such a substantial decline in a short period of time, it is possible that KIDE will make a turn around at any time. We are expecting a bounce, most likely a pretty decent one, right around $38-$40 and would look to exit this play around that level. So tighten your stops to protect profits. RMBS $75.00 -4.19 (-7.13) What a beautiful chart! Well, it is as long as you are playing RMBS as a put! It was a rough session for the Semis, which made it a downright grueling day for RMBS. RMBS broke through it's 50-dma in today's session and has widened the gap from it's 10-dma to $9.50. $75 managed to hold Rambus up throughout the day, minus a brief drop to $74.50, and we will want to see some trading below this level to confirm the continuing downward trend. We see some resistance forming at $76 and further, more substantial resistance at $80. Watch for breakthroughs at these levels as possible indications of trend reversal. We have seen an increase in volume for the last two sessions which is indicative of lots of sellers in the market. We may be reaching the bottom of this play, which is why it is so important to confirm direction from $75. ************** NEW CALL PLAYS ************** SDLI - SDL, Inc. $167.50 +0.50 (+23.38 this wk.) SDL's products power the transmission of data, voice and Internet information over fiber optic networks to meet the needs of telecommunications, dense wavelength division multiplexing (DWDM), cable television and satellite communications applications. They enable customers to meet the bandwidth needs of increasing Internet, data, video and voice traffic by expanding their fiber optic communications networks much more quickly and efficiently than would be possible using conventional electronic and optical technologies. SDL's optical products also serve a variety of non-communications applications, including materials processing and printing. Move over JDSU. Make room for your scrappy neighbor who competes with you in the semiconductor laser business, who also makes necessary component level products for optical networking equipment. As we've noted in the past, this industry is consolidating fast with CSCO sifting to the top by making it known that they want to be in the optical networking business too. SDLI might make a great target. Their recent price move coincides with CSCO's announcement of interest last week. The chart is looking strong as SDLI has set new highs every day since last Wednesday, reaching as high as $174.56 today. Volume remains slightly over the ADV, though not the four times ADV experienced last Wednesday. Earnings looked good too with a 22% surprise in an industry now known to be bursting at the seams. However, because the gains have been so rapid from the rumors and sympathy play with JDSU (A Soros fund disclosed that it owned 440K shares), support is tough to find. However, intraday, $160 looks to be a solid bottom; $150 after that with nothing in between. Entering this play should only should only be contemplated if you are fast on the trigger and quick to nail a bounce. Target shooting here is tricky. You'll likely want to keep a trailing stop in place too so you don't give back the gains on any profit-taking moves. Gruntal affirmed its Outperform rating today (unimpressive, but perhaps a contrary indicator that more appreciation will follow). At the end of October, Warburg, Dillon, Reid issued a Buy rating. The last 2:1 split was announced when the stock traded at $72, wherein the split executed at $93. We're way past that now. With only 42 mln shares authorized and over 35 mln issued, there is no room to split the shares again without a shareholder vote. To date no proxy has been filed, indicating management is in no hurry for another split. Their next earnings release (a typical time to announce a split) isn't until February. Even so, SDLI could surprise us - the price screams for it. ***High time value risk*** Like QCOM, this play may fit your profile for covered calls too. Selling the DEC-165 produces a 10.6% return through December 17 if called. Just watch the downside if the speculative frenzy ends. BUY CALL DEC-150 YSL-LJ OI= 26 at $27.25 SL=21.25 BUY CALL DEC-155 YSL-LK OI= 0 at $24.38 SL=19.00 wait for OI BUY CALL DEC-160 YSL-LL OI= 0 at $21.63 SL=16.75 wait for OI BUY CALL DEC-165 YSL-LM OI= 0 at $19.63 SL=15.25 wait for OI Picked on Nov 23rd at $167.50 P/E = 249 Change since picked +0.00 52-week high=$174.56 Analysts Ratings 8-9-0-0-0 52-week low =$ 10.69 Last earnings 10/99 est= 0.18 actual= 0.22 surprise = 22% Next earnings 02-09 est= 0.25 versus= 0.14 Average Daily Volume = 799 K Chart = http://quote.yahoo.com/q?s=SDLI&d=3m **** QLGC - QLogic Corporation $119.00 +3.50 (+7.50 this week) The competition in their industry is very stiff, yet they lead the market in Fibre Channel host bus adapter market. Located in Costa Mesa, California QLogic Corporation makes integrated circuits and adapter boards that connect peripheral devices to computers. Their input/output subsystems handle data flow between computers and peripheral devices such as hard disk, tape, and CD-ROM drives. QLogic has expanded its product line to include the higher-performance fibre channel standard. They also make chips for the mass storage and server markets. Sun Microsystems is one of QLGC's better known customers, although about 40% of their sales are outside the U.S. It's Back, and in more ways than one. We looked at QLGC about 10 days ago as a call play just as the Semiconductor industry hit a peak and began to consolidate. That's exactly what happened to QLGC as well. At that time, shares of QLGC were trading near the $130 level. Since then QLGC has traveled all over the map, making a low last Thursday at $104.63. QLGC re-tested the lows of last week early this morning, hitting $106.88 and then surged ahead to close at $119, up $3.50 for the session. The strength QLGC exhibited impressed us enough to take another look at QLGC. One of the original reasons we were attracted to QLGC was the anticipation of a split announcement. Stockholders recently voted to approve the number of authorized shares from 50 mln. to 150 mln. If you'll remember QLGC has split twice this year already in February and again in early August. QLGC made over a $12 recovery from its lows, on a down day in the broader markets, on day when the semiconductor industry fell 2.0%, and there was really no major news for the stock. That is what got our attention. We are adding QLGC as a call play again primarily in anticipation of a split announcement, and the number of buyers that stepped in to drive the stock back up today. As we have mentioned QLGC is volatile and is not a play for everyone. If you consider a play in QLGC, it is one where you may want to keep your stops close. Intraday support can be found near $114-$115. Should we see a bounce off those levels or continued strength in the stock we would look to jump on board. As always consider the risks, the rewards, and your own risk profile prior to entering any new play. In other news QLGC announced today that its ISP2200 intelligent Fibre Channel processors and FAS466 Fast Architecture SCSI Processors have been implemented in the Digi-Data Fibre Sabre Family of RAID Controllers. BUY CALL DEC-115*QLC-LC OI=312 at $12.75 SL=10.75 BUY CALL DEC-120 QLC-LD OI=416 at $10.25 SL= 7.75 BUY CALL DEC-125 QLC-LE OI=515 at $ 8.00 SL= 6.25 BUY CALL DEC-130 QLC-LF OI=389 at $ 6.25 SL= 4.50 Picked on Nov 23rd at $119.00 P/E = 109 Change since picked +0.00 52-week high=$135.63 Analysts Ratings 3-4-1-0-0 52-week low =$ 23.25 Last earnings 10/99 est= 0.31 actual= 0.35 surprise +12.9% Next earnings 01-20 est= 0.36 versus= 0.19 Average daily volume = 830 K Chart = http://quote.yahoo.com/q?s=QLGC&d=3m **** MACR - Macromedia Inc. $67.56 +0.69 (+4.94 this week) Macromedia is a leading provider of Web authoring and production software for professional Web developers. Its products range from Dreamweaver, the market-leading professional Web authoring environment, to Flash, the industry standard for high-impact, vector-based Web sites that deliver motion, sound, interactivity and graphics. The company recently announced a new corporate strategy known as the Macromedia eBusiness Infastructure, which will provide developers and companies with the first comprehensive, integrated solution for creating, managing, personalizing and analyzing Web content. It looks as though the Multimedia and Graphics division of the computer Software and Services sector are attracting investors. Lets look into it- Today Robertson Stephens reiterated its Buy rating on shares of Pixar ahead of the company's release of its next film, "Toy Story 2". It was pointed out that this screening will be the most ever for a animated film. The film will debut on 5,000 screens. In other animated news MACR, who develops Flash animation software, is an investor in what the media is calling the Amazon.com for comic books from the creators of Spiderman, the X-Men, and the Fantastic Four comes StanLee.Net a comic website. The site set to be launched in January has said that this project is going to involve a tremendous amount of animation. Looking at the charts the uptrend is firmly in place, MACR has recently hit a 52-week high at $70.31, not far from today's close at the $67.56 level. Volume is trading at higher than normal levels, the stock took a breather earlier in the month before resuming this current uptrend. As we go into the holiday season we look to see higher highs in this sector and MACR. We like the stock at current levels and will look a favorable entry point going forward. Major support seems to be holding up at or near $62.50. The higher-lows are pointing to a possible breakout over $68 soon, market willing. MACR has recently selected "Fallon McElligott" as there new Ad Agency to help to establish their brand name. This is the same company that manages advertising for the likes of Qualcomm, Starbucks, and Drugstore.com just to name a few. Positive sentiment is definitely with MACR, looking at the DEC 70 out of the money calls, 1,066 contracts exchanged hands today alone, which is more than 3 times the open interest (319). That is a bullish indication. BUY CALL DEC-65*MRQ-LM OI= 203 at $ 7.13 SL= 5.38 BUY CALL DEC-70 MRQ-LN OI= 319 at $ 4.50 SL= 2.75 BUY CALL JAN-65 MRQ-AM OI= 0 at $10.25 SL= 7.75 low OI BUY CALL JAN-70 MRQ-AN OI= 24 at $ 7.63 SL= 5.88 low OI Picked on Nov 23rd at $67.56 P/E = 113 Change since picked +0.00 52-week high=$70.31 Analyst Ratings 5-4-1-0-0 52-week low =$24.25 Last earnings 11/13 est= 0.31 actual= 0.19 Next earnings 01-26 est= 0.15 versus= 0.12 Average daily volume = 896 K Chart = http://quote.yahoo.com/q?s=MACR&d=3m **** VRSN - Verisign Inc $187.00 +2.25 (+16.94 this week) VeriSign provides Internet-based trust services that authenticate and protect data so secure transactions and communications can be conducted over the Internet, intranet, and extranets. Websites, enterprises, government agencies and even individuals use VeriSign's digital ID's (digital certificates) with the encrypted information as cyber- safeguards for such activities as e-mail, home banking, and credit card transactions. Visa represents 14% of total sales. Sheer momentum followed stellar earnings on Oct 21st, driving VRSN upwards to new levels. Today VRSN reached its latest record achievement peaking at $194.75 on strong volume. You'd expect a little back-filling today after such an enormous leap ($14.69) during yesterday's Internet upsurge and today's respite. Quite the contrary, VRSN is powering higher ahead of its 2:1 stock split. The split date is just 8 trading sessions away scheduled to go ex-div on Tuesday, on December 7th! Today's support established at $180 with the 10-dma underneath at $170.09, marking the firm support level. In other words, it's difficult to determine a solid entry level considering the recent spike. Nevertheless, this HIGH-RISK and VOLATILE Internet generally offers enough point spread intraday for a player to target shoot an entry in line with their risk tolerance. For those searching for an analyst view point, last Thursday David Zale of Sands Brothers & Co reiterated a Strong Buy rating for VRSN and issued a price target of $250! Let's bring the news up-to-date. On November 11th when the Board of Directors announced the 2:1 stock split, the company also announced separately a partnership with Telia, Sweden's largest telecommunications company, to provide digital certificate and public key infrastructure (PKI) services in the Nordic and Baltic regions. Also that day and along with Intuit (INTC), Verisign reported they had completed the first round of private financing for ezlogin.com, a Web organizing company, totaling more than $4.3 mln. Recently pertinent to the e-commerce industry, the US Senate past legislation allowing digital signatures to have the same legal standing as those written on paper. BUY CALL DEC-185 XVR-LQ OI= 60 at $18.13 SL=14.25 BUY CALL DEC-190*XVR-LR OI=120 at $15.63 SL=12.25 BUY CALL DEC-195 XVR-LS OI= 72 at $13.50 SL=11.00 Picked on Nov 23 at $187.00 P/E = N/A Change since picked +0.00 52-week high=$194.75 Analysts Ratings 5-13-3-0-0 52-week low =$ 9.69 Last earnings 09/99 est= 0.02 actual= 0.03 surprise +50.0% Next earnings 01-25 est= 0.05 versus=-0.06 Average Daily Volume = 1.34 mln Chart = http://quote.yahoo.com/q?s=VRSN&d=3m ************* NEW PUT PLAYS ************* RFMD - RF Micro Devices $63.50 -4.19 (-7.50 this week) RF Micro Devices Inc, an ISO 9001 certified manufacturer, designs, develops, manufactures and markets proprietary RFICs for wireless communications applications such as cellular and PCS phones, cordless phones, wireless LANs, wireless local loop handsets, industrial radios, wireless security systems and remote meter readers. The Company offers a broad array of products - including amplifiers, modulators/demodulators, mixers and single-chip receivers, transmitters and transceivers that represent a substantial majority of the RFICs required in wireless subscriber equipment. If Telecom has been the hot sector right now, then what is going on at RF Micro Devices? That is a question that shareholders probably want an answer to. We are doing our due diligence on RFMD and don't find much of anything. The company and analysts have been relatively quiet but there is no debating the trend which has been lower, on good volume, with little or no bounces. This signifies selling and lots of it. The institutions have, in fact, been selling on a regular basis and there is no sign that is ending. RFMD made a great run when it broke out above $55 in early November, climbing as high as $80. Once the momentum ended though, the sellers came out in full force. The main concern seems to be competition which is fierce in the component business. It is easy to go from the leader of the pack to bringing up the rear. Whether or not that is the only reason or if there is some lingering bad news, we like the technical play here. The return to $55 where the breakout occurred seems likely, it just may not come tomorrow. That is because RFMD is already down $7.50 on the week. Logic says it must be due for a bounce but, at the same time, if you had said that a week ago you would have missed a major move. Therefore, we are listing it as a put play for higher risk players. If the momentum continues (and to this point the volume is signaling that it will) then $55 is the next support level and it should be ample. Otherwise, in a Nasdaq rebound, resistance at $70 would be a tempting entry point. So go with the momentum but use your stops too. BUY PUT DEC-70 RFZ-XN OI= 401 at $9.38 SL=7.00 BUY PUT*DEC-65 RFZ-XM OI=1161 at $6.00 SL=4.25 BUY PUT DEC-60 RFZ-XL OI= 50 at $3.50 SL=1.75 low OI Average Daily Volume = 1.75 mln Chart = http://quote.yahoo.com/q?s=RFMD&d=3m **** ALTR - Altera Corp. $54.88 -2.13 (-4.75 this week) Altera Corporation was founded in 1983 and is a leader in high performance, high-density programmable logic devices and associated computer-aided engineering (CAE) logic development tools. Programmable logic devices are semiconductor chips that offer on-site programmability to customers. The chips are programmed with tools that run on personal computers or engineering workstations. Altera products serve a broad range of market areas including telecommunications and data communications, as well as computers and industrial applications. Altera sells its chips worldwide, with approximately one-half of its business in geographic areas outside the United States. Life was good for Altera heading into November as ALTR managed to gain $20 from Nov 1st to the 11th. ALTR was trading well above it's 10-dma and was in a sector that as a whole was performing very well. Then the Semi's began to lose their footing and the decline began. ALTR began to pull back and the big volume that had accompanied ALTR on the rise began to dwindle. We saw a brief rally thanks to a healthy price target increase from Credit Suisse First Boston last Thursday, but ALTR seemed all to eager to settle back into it's downward trend and has worked its way down to take back another $8 since. ALTR violated its 10-dma mid-month and is trading over $6 below that level. ALTR looks to have its eyes on the 50-dma, which is all the way down at $50.50 and there is no formidable support blocking the way. ALTR hit its head on $55 in trading today, which could hold as resistance heading into tomorrow's session. We see more formidable resistance at $60. Lower-lows, lower- highs, struggling sector, a good divergence from support, dwindling volume...ALTR seems to have put play written all over it. BUY PUT DEC-55*LTQ-XK OI=850 at $3.38 SL=1.75 BUY PUT DEC-50 LTQ-XJ OI=863 at $1.50 SL=0.75 Average Daily Volume = 4.13 mln Chart = http://quote.yahoo.com/q?s=ALTR&d=3m ********** PLAY OF THE DAY ********** GMST - Gemstar International $112.19 +3.06 (+7.56 this week) 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. Sunday's Write Up 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. Tuesday's Write Up We mentioned Sunday that our split run play was beginning to set up nicely. Since being selected last Thursday, GMST has given us a couple of good entry points into our play. On Friday GMST pullback to $101 and bounced back into the close at $104.63. Monday shares of GMST continued the move and started the week off in positive territory, closing up $4.50 at $109.13. This morning GMST gapped up to $110.75 at the open and sold off. The impressive part of the day is two-fold. First, after the sellers stepped in and drove the price of GMST down late this morning, the $106 level of support held just like clockwork. The second impressive part of the trade today was the buyers that stepped up to the plate and drove GMST to a new high at $114. GMST finished the day with solid gains at $112.19 up $3.06 for session. The stock was a bit volatile this morning but at this point couldn't be working out better, had we scripted the moves of the last three days. The open interest in the December 115 Calls increased by about 2000 yesterday. The volume behind today's move was rather light at 745 K. For the rest of the week if you entered a position, in GMST assess your risk profile and adjust your stops accordingly. If we get a pullback we would look for a bounce off the intraday support areas of $110, $108, and $106 respectively as a possible entry point to a new play. BUY CALL DEC-105 GST-LA OI= 891 at $12.63 SL=10.00 BUY CALL DEC-110 GST-LB OI= 635 at $ 9.88 SL= 7.25 BUY CALL DEC-115 GST-LC OI=4507 at $ 7.25 SL= 5.50 SELL PUT DEC-105 GST-XA OI= 124 at $ 2.75 SL= 4.50 (See risks of selling puts in the play legend) Picked on Nov 18th at $104.88 P/E = N/A Change since picked +7.31 52 week high=$114.00 Analysts Ratings 6-0-0-0-0 52 week low =$ 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 = 1.23 mln Chart = http://quote.yahoo.com/q?s=GMST&d=3m ************************ COMBOS/SPREADS/STRADDLES ************************ Markets Tumble As Turkey Day Approaches.. Monday, November 22 U.S. markets climbed higher Monday as blue chips and technology issues ignored fears of inflation and higher interest rates. The Dow Jones Industrials rose 85 points to 11,089 while the Nasdaq composite moved up 23 points to 3,392, the 14th record close in 17 sessions. The S&P 500 index showed some weakness in the broad market performance, down slightly to 1,420, after setting a new all-time-high last week. There were 256 stocks at new lows and only 65 at new highs and declining stocks beat advances 2,190 to 908 on 866 million shares traded on the NYSE. The 30-year U.S. Treasury bond dropped 13/32, driving the yield up to 6.19%. Sunday's new plays (positions/opening prices/strategy): Excite@Home ATHM JAN37C/DEC55C $13.25 debit diagonal Excite@Home ATHM DEC35C/DEC45C $9.12 debit bull-call Unisys UIS APR22C/DEC30C $7.12 debit diagonal InterVu ITVU DEC40P/DEC45P $0.62 credit bull-put AutoWeb AWEB MAY10C/DEC12C $2.38 debit calendar Excite@Home opened up $2.75 at $54 after the company said that it would establish a tracking stock for the media assets of its business. The stock will track the economic performance of its narrowband portal, broadband portal, advertising and targeting services. Near 10:00 AM, the stock fell to $52.50, offering the first of very few entry opportunities in our bullish positions. Those of you that legged into each spread achieved much better prices as the stock closed up $5.68 at $57. Unisys moved higher in early trading but fell near mid-morning. Our target was not available (on a simultaneous order basis) but a favorable debit was offered during the session. InterVu was the only issue that started lower and by 10:15 AM, it was down $0.88 at $63.62. The observed credit was $0.62. AutoWeb moved in a small range until 10:00 AM, but the quoted option prices were not as favorable as Friday's closing numbers. The best observed entry was $2.38, a position with almost no upside potential. The sold option will need to be closed in the event of any large short-term rally. Portfolio plays: Market-leading stocks rallied to open the Thanksgiving Day week and a new index of investor optimism showed a growing number of traders are turning bullish on stocks. The survey reported that 73% of investors say now is a good time to invest in the market. A public majority of bullish sentiment is usually not good news and another problem is that indices are moving higher on narrow leadership. Strong performances from a few key issues have drove the Dow higher and many of the top-tier technology issues are now falling from recent lofty prices. The lack of conviction in many of the current rallies will eventually set the stage for a major correction. Most of our portfolio reflected the recent profit-taking among high flying technology stocks but there were some lower-priced issues that performed well. Echelon (ELON) moved $2.12 higher to $13.25, offering the first early exit of the expiration period. The position credit traded as high as $2.18 during the session, a profit of $0.88 on $1.25 invested for three weeks. We plan to track the position for a (bullish) move to a diagonal spread in the next few days. Micron Electronics (MUEI) rallied $1.12 to a recent high near $12. The move provided another early exit with a profit of $0.62 (100% return in two months). Peoplesoft (PSFT) recovered some of Friday's losses, rebounding $1.38 to close at $21.50. Our bullish diagonal spread achieves the maximum profit above $20 thus, it's encouraging to see the stock successfully test support near that price. MessageMedia (MESG) rose $1 after falling significantly on Friday. The stock appears comfortable in the $17-$18 range and the (bullish) December position will return a profit of 66% above $15. Talk.com (TALK) and Zoltek (ZOLT) also made positive moves, both climbing to recent highs after consolidating during the last week. A few mid-cap stocks participated in the rally. Pixar Animation (PIXR) climbed $2.50 higher (to $50) on bullish anticipation of the upcoming release of Toy Story II. The stock is now $15 above the sold options in our combination (Covered-Call/Naked Put) position. In our long-term portfolio, market bellwethers were the leaders as Proctor & Gamble (PG) and General Motors (GM) moved to recent highs during the session. Both of these issues are now trading above the current sold (short) options so we must monitor the technical indicators for signs of further upside movement and make the necessary adjustments. Cabletron Systems (CS) rallied to a recent high near $24 and this position is a candidate for roll-up to the next strike at $20.00. Our current spread has no upside risk but we can increase the profit potential with a move to the higher strike. Most of the other issues consolidated on profit-taking and the worst of the bunch, Polaroid (PRD), began a secondary downtrend from a short-term range near $20. If the stock price falls through this support, the long-term position will be closed to limit future losses. We were disappointed in the performance of a few issues but one of the most obvious short-term losers appears to be Mellon Bank (MEL). The stock price has failed to hold above the recent range on last week's breakout and now the issue is plunging back to a short-term support level near $36. There should be a successful test at that price but it's doubtful that the issue will rebound through the new resistance at $39. The original play was offered as a short-term momentum position but the up-trend is faltering. Conservative investors should close the spread position at $1.00 credit to preserve capital. Aggressive traders should consider leaving the short-term option open with a buy-to-close stop for protection. This method offers a better than break-even exit for the play with limited upside risk. Tuesday, November 23 Stocks were battered across the board as investors gave thanks for the recent rally by reaping profits in a massive sell-off. The Dow dropped 93 points to 10,995 and the Nasdaq tumbled 49 points to 3,342. The S&P 500 index slipped 16 points to 1,404. In the broader market, decliners outpaced advancers by a more than 2 to 1 margin on 920 million shares traded on the NYSE. Leadership was horrid with 317 stocks at new lows and only 43 at new highs. The long bond fell 1/32 while the yield remained at 6.19%. Portfolio plays: There was little to be thankful for in today's market-wide melee. The majority of our portfolio stocks suffered losses as traders sold shares to capture profits from the market's recent strength. The market overlooked the Commerce Department's bullish report on durable goods. The report suggested the economy has begun to slow with orders for long-term items declining by 1.3% last month to a seasonally adjusted $200 billion. Analysts had expected orders to rise by 1% and this change in pace may subdue the Federal Reserve in its current inflation-limiting stance. Even with the favorable news, technology issues suffered the first major decline in three weeks with big losses from a handful of lesser-known companies as investors exited positions ahead of the Thanksgiving holiday. The markets will close on Thursday and operate for half a session on Friday and analysts expect volume to taper off during the week. The leaders were few and far between and the color crimson filled the quote page at the end of the session. Rather than focus on the long list of losers, we decided to look upon the session as simply a consequence of the recent incredible rally and move on to the monthly summary and research for new plays. Summary Of Monthly Positions: ********************* CREDIT SPREAD SUMMARY ********************* Stock Pick Last Position Credit Cost G/L Status CHA $61.38 $59.88 NOV50P/55P $0.68 $0.00 $0.68 Closed CHA $60.12 $59.88 NOV50P/55P $0.38 $0.00 $0.38 Closed EDS $50.18 $63.19 NOV65C/60C $1.00 $1.12 ($0.12) Closed QLTI $34.80 $44.00 NOV47C/45C $0.31 $0.25 $0.06 Closed VISX $70.00 $79.06 NOV95C/90C $0.62 $0.00 $0.62 Closed * QLTI and EDS were closed early to limit potential losses. Credit spreads are profitable if both positions remain OTM until expiration. The cost-to-close price can be used to compare the initial opening credit to the current spread value. *********************** CALENDAR SPREAD SUMMARY *********************** Stock Pick Last Position Debit Value G/L Status ABTE $10.81 $10.19 MAR10C/DEC10C $1.00 $0.88 ($0.12) Open AW $11.38 $8.31 MAR12C/NOV12C $1.12 $0.75 ($0.38) Closed BCR $51.25 $56.50 JAN55C/NOV55C $1.43 $1.75 $0.31 Closed BCR $56.25 $56.50 DEC60C/NOV60C $1.88 $2.25 $0.38 Closed BEL $64.13 $64.81 APR65C/DEC65C $0.75 $3.12 $2.38 Open CYCH $11.88 $11.81 MAR15C/DEC15C $1.12 $0.88 $0.25 Open ELON $9.00 $11.00 MAY10C/DEC10C $1.25 $2.12 $0.88 Open GTS $23.00 $33.56 DEC27C/NOV27C $0.62 $1.25 $0.62 Closed LGE $22.69 $20.38 MAR22C/DEC22C $0.88 $0.50 ($0.38) Open LGTO $45.44 $73.00 DEC50C/NOV50C $0.75 $1.62 $0.88 Closed LOR $18.00 $18.69 APR20C/DEC20C $1.81 $1.88 $0.06 Open MLTX $17.81 $28.13 MAY17C/DEC20C $3.00 $4.00 $1.00 Closed MUEI $10.50 $10.94 APR10C/DEC10C $0.62 $1.00 $0.38 Open MTC $44.38 $47.19 JAN50C/NOV50C $1.93 $2.75 $0.81 Closed NSTA $8.94 $15.38 JAN12C/DEC12C $0.31 $0.62 $0.31 Closed OXY $21.69 $23.44 JAN22C/DEC22C ($0.50) $0.12 $0.62 Open PILL $13.62 $11.00 APR15C/DEC15C $1.31 $1.00 ($0.31) Open PR $26.25 $25.13 FEB30C/NOV30C $1.38 $0.75 ($0.62) Closed PSFT $16.19 $20.38 JAN17C/DEC20C $0.38 $2.00 $1.62 Open SATH $13.00 $12.38 FEB15C/DEC15C $1.12 New Play Open TALK $13.75 $18.38 JAN15C/DEC17C $1.38 $2.12 $1.00 Open TDFX $8.50 $9.06 MAR10C/DEC10C $0.75 $0.88 $0.12 Open TOY $16.62 $17.19 JAN17C/DEC17C $0.12 $0.50 $0.38 Open WFC $41.69 $47.50 JAN42P/NOV40P $2.00 $1.75 ($0.25) Closed ZOLT $7.68 $11.44 APR7C/DEC10C $2.62 $2.38 ($0.25) Open The calendar (or time spread) is profitable if the value of the position exceeds the initial debit (or cost-basis) at the end of the expiration period for the long position. However, because we track the plays based on the current closing cost/value, the gains for time spreads will rarely be reflected until the play closes. Each month, as we sell a new option against the long position, the net cost should decline or the position value should increase. ************************ COVERED-CALLS WITH LEAPS ************************ Stock Pick Last Position Debit Value G/L Status ADBE $76.13 $75.63 JAN80/DEC85C $14.50 New Play Open BGEN $83.81 $75.94 JAN90/NOV90C $13.38 $8.50 ($4.88) Closed CA $53.56 $66.75 JAN60/DEC65C $7.62 $14.00 $6.38 Open CS $16.80 $23.00 JAN15/DEC17C $2.38 $4.12 $1.75 Open GM $71.68 $69.75 JAN75/DEC70C $8.25 $7.00 ($1.25) Open GM $71.68 $69.75 JAN75/DEC70C $5.50 $7.00 $1.50 Open JNJ $95.68 $105.19 JAN100/D100C $4.62 $11.00 $6.38 Open LTD $45.68 $39.00 JAN50/NOV45C $5.50 $3.00 ($2.50) Closed MDT $39.38 $38.69 JAN37/DEC40C $4.75 $6.50 $1.75 Open MO $38.68 $25.63 JAN35/NOV37C $5.38 $3.00 ($2.38) Closed MOT $100.00 $125.38 JAN105/D110C $18.38 $19.00 $0.38 Open PG $109.50 $110.50 JAN100/D110C $18.00 New Play Open PRD $25.38 $20.00 JAN25/NOV25C $4.88 $2.88 ($2.00) Open SLR $71.25 $86.13 JAN70/DEC80C $13.12 $18.50 $5.38 Open SUNW $71.75 $129.56 JAN75/DE115C $36.75 $45.25 $8.50 Open XON $81.94 $79.69 JAN85/NOV80C $5.38 $5.50 $0.12 Open *********************** DIAGONAL SPREAD SUMMARY *********************** Stock Pick Last Position Debit Value G/L Status ATHM $48.06 $51.31 JAN40C/DEC50C $5.50 $7.88 $2.38 Open AMTD $21.93 $28.13 JAN21C/DEC25C $2.88 $3.00 $0.12 Open AWRE $31.00 $49.00 JAN30C/NOV35C $4.25 $6.00 $1.75 Closed COMS $25.31 $43.31 JAN27C/DEC30C $0.38 $2.38 $2.00 Open CSCO $73.50 $88.13 DEC65C/NOV75C $8.25 $10.00 $1.75 Closed CYOE $6.38 $5.19 DEC5C/NOV7C $1.50 $1.75 $0.25 Closed DBCC $11.50 $10.75 DEC10C/NOV12C $1.88 $2.25 $0.38 Closed EGRP $24.94 $35.69 APR25C/JAN30C $3.75 $5.12 $1.38 Open NETS $25.06 $23.25 FEB22C/DEC25C $2.88 $2.75 ($0.12) Open NTBK $21.75 30.13 JAN22C/DEC25C $2.00 $2.25 $0.25 Open PGEX $24.38 $19.25 JAN15C/NOV22C $6.75 $4.75 ($2.00) Closed The diagonal spread is profitable if the value of the position exceeds the initial debit (or cost-basis) at the expiration of the long position. However, because we track the plays based on the current closing cost/value, the gains for diagonal spreads will rarely be reflected until the play closes. Each month, as we sell a new option against the long position, the net cost should decline or the position value should increase. ************* DEBIT SPREADS ************* Stock Pick Last Position Debit Value G/L Status APOL $24.00 $25.06 NOV20C/22C $2.12 $2.25 $0.12 Closed ATHM $48.06 $51.31 NOV45C/50C $2.62 $3.50 $1.38 Closed COMS $31.50 $43.31 JAN30C/32C $1.31 $2.31 $1.00 Open CMGI $97.93 $124.88 NOV85C/95C $6.50 $9.62 $3.12 Closed DELL $42.50 $41.31 NOV55P/45P $8.00 $9.62 $1.62 Closed FON $51.12 $74.81 NOV40CC/40NP $39.12 $40.00 $0.88 Closed GBLX $25.19 $45.44 JAN17C/22C $4.75 $5.00 $0.25 Closed GMST $83.63 $104.63 NOV62C/70C $6.00 $7.25 $1.25 Closed IDTC $22.62 $23.69 DEC17C/DE25C $3.38 $4.50 $1.12 Closed JDSU $129.38 $213.81 NOV100C/110C $8.93 $9.88 $0.93 Closed LTD $41.81 $39.00 NOV50P/45P $4.00 $4.88 $0.88 Closed MEL $39.19 $38.19 DEC37C/40C $1.38 $1.12 ($0.25) Open MESG $13.38 $17.50 DEC10C/12C $1.50 $1.75 $0.25 Open NETA $19.80 $28.00 DEC12C/17C $3.62 $4.50 $0.88 Open NVDA $28.25 $42.88 DEC20C/25C $3.50 $4.50 $1.00 Open PIXR $40.50 $47.50 DEC35CC/35NP $32.62 $35.00 $2.38 Open PSFT $17.81 $20.38 JAN15CC $14.12 $15.00 $0.88 Open QCOM $183.75 $367.06 JAN140C/150C $7.25 $9.75 $2.50 Closed TWE $16.63 $19.13 DEC12C/15C $2.12 $2.00 ($0.12) Open TWLB $9.72 $9.69 FEB10C/12C $0.75 $0.62 ($0.12) Open * The majority of these positions finished at maximum profit but many were closed early to protect profits or prevent losses. A debit-spread is profitable if the value of the position exceeds the initial cost of the spread when the play is closed. However, because we track plays based on the current cost/value, potential gains may not be reflected until both positions are closed. *************** DEBIT STRADDLES *************** Stock Pick Last Position Debit M/V C/V Status ALL $24.50 $28.06 APR25C/25P $5.50 $7.25 $6.62 Open ALT $16.44 $14.94 APR17C/15P $2.50 $2.25 $2.25 Open AMES $31.63 $25.88 JAN30C/30P $8.88 $9.62 $7.00 Open AOL $120.38 $158.63 DEC120C/120P $18.75 $41.00 $40.50 Closed AVI $22.81 $20.19 DEC22C/22P $4.38 $4.88 $3.00 Closed CAL $36.43 $37.44 MAR35C/35P $8.62 $9.00 $6.75 Open CFR $29.69 $28.81 MAR30C/30P $3.06 $3.50 $3.38 Open DJX $102.79 $109.98 NOV102C/102P $8.12 $8.25 $7.88 Closed DLJ $50.13 $52.88 JAN50C/50P $13.25 $14.00 $10.50 Open FDX $35.19 $42.19 APR35C/35P $9.75 $13.12 $11.00 Open HIG $41.13 $48.81 MAR40C/40P $7.31 $11.50 $10.00 Closed MYL $18.63 $22.56 APR17C/17P $4.56 $6.12 $6.00 Open STN $25.25 $23.50 JAN25C/25P $3.75 $3.88 $2.62 Open U $25.62 $28.31 MAY25C25P $8.00 $10.75 $7.50 Open UVN $85.75 $87.81 MAR85C/85P $14.75 $14.00 $13.50 Open WMB $40.75 $35.94 JAN40C/40P $8.12 $8.00 $6.50 Open SHORT-TERM PLAYS EBAY $142.62 $145.94 JAN145C/145P $41.00 $38.00 $32.00 Closed GNET $55.88 $80.56 JAN55C/55P $17.88 $28.25 $28.00 Closed GM $65.06 $69.75 JAN65C/65P $10.00 $9.00 $8.75 Closed LCOS $58.94 $55.00 JAN70C/70P $14.62 $14.00 $13.88 Open UK $52.69 $62.13 JAN50C/55P $10.50 $12.25 $9.00 Closed XON $74.81 $79.69 JAN75C/75P $9.25 $8.00 $7.88 Closed M/V = Maximum Value C/V = Current Value A debit-straddle is profitable when the value of the position exceeds the initial cost of the spread. **************** CREDIT STRANGLES **************** Stock Pick Last Position Credit Cost G/L Status BRCM $118.63 $196.50 NOV150C/140C $0.88 $1.50 ($0.62) Closed BRCM $118.63 $196.50 NOV85P/95P $1.25 $0.12 $1.12 Closed * BRCM was closed early to protect profits and limit losses. A credit-strangle is profitable if the cost to close the position is less than the initial credit from the spread. Note: We trade the Spreads portfolio just as we would trade our personal account and the ongoing narrative is a service we provide to help novice traders understand how various positions might be opened and closed. It is not intended as a substitute for your own trading techniques nor does it replace your duty to manage the positions in your portfolio. We post a list of the current plays once a month (after expiration) and the summary is a reasonable representation of the positions and prices that were available. Questions & comments on spreads/combos to ray@OptionInvestor.com ********* NEW PLAYS ********* T - AT&T $50.81 *** A New Look? *** AT&T is a premier voice and data communications company, serving more than 90 million customers, including consumers, businesses and government. AT&T has the world's largest, most powerful long distance network and a giant digital wireless network in North America. The company is a leading supplier of data and Internet services for businesses and the nation's largest direct Internet service provider to consumers. This week, T announced plans to create a tracking stock for its wireless unit. The issue would give T a new currency to pursue wireless acquisitions and expand its network without affecting the parent company's earnings. The wireless subsidiary would be a solid competitor with a national network, strong brand name, excellent revenues and improving profitability over the course of the next few years. The issue might be worth as much as $75 billion and the minimum value is estimated at $20 a share. The share value of AT&T has fallen on hard times recently but the company is soon to be the largest cable television operator and expects to gain momentum from an optimistic outlook during the annual meeting with industry analysts in early December. The company is prepared to reassure investors that its plans remain on track to improve revenues with lower costs and provide phone service over cable television lines. The buyout of MediaOne has been a major concern to core shareholders and AT&T will focus on convincing analysts the eventual structure will be a success. T is also expected to provide new plans for its slumping Internet business. AT&T's WorldNet remains a minor player in the industry and only a significant change in the subscriber strategy will produce a favorable, long-term outcome. The new technical character of this issue combined with a demand for call options has provided us with two excellent opportunities to participate in the current recovery. PLAY (aggressive - bullish/debit spread): BUY CALL JAN-46.62 TZ-AV OI=5854 A=$5.62 SELL CALL JAN-50.00 T-AJ OI=30184 B=$3.50 INITIAL NET DEBIT TARGET=$2.00 ROI(max)=62% - or - PLAY (conservative - bullish/diagonal spread): BUY CALL JAN-46.62 TZ-AV OI=5854 A=$5.62 SELL CALL DEC-50.00 T-LJ OI=18475 B=$2.38 INITIAL NET DEBIT TARGET=$3.00 TARGET ROI=25% Chart = http://quote.yahoo.com/q?s=T&d=3m - TECHNICALS ONLY - These plays are based on the current price or trading range of the underlying issue and the recent technical history or trend. Current news and market sentiment will have an effect on these positions so review each play individually and make your own decision about the future outcome of the stock price. **** ETEK - E-Tek Dynamics $73.12 *** On The Move! *** E-TEK Dynamics is a leader in the design and manufacturing of high quality passive components and modules for fiber optic networks. E-TEK offers a broad product line in many markets for several key passive components required by manufacturers of telecommunications equipment. E-Tek Dynamics is in a strong stage II climb. Today's bounce off the 30 dma (exp) was supported by heavy volume. BOP is reflecting strong buying pressure (since the start of November). The stock is coming off the bottom of its regression channel (6 month daily) and several short-term oscillators are indicating an oversold condition. PLAY (conservative - bullish/credit spread): BUY PUT DEC-55 EVU-XK OI=49 A=$0.62 SELL PUT DEC-60 EVU-XL OI=71 B=$1.18 INITIAL NET CREDIT TARGET-$0.68 ROI=15% Chart = http://quote.yahoo.com/q?s=ETEK&d=3m **** KNT - Kent Electronics $23.75 *** A New 52-Week High *** Kent Electronics is a leading national specialty distributor of electronic products and a manufacturer of custom-made electronic assemblies. The company distributes electronic connectors, wire and cable, and other passive and electromechanical products and interconnect assemblies used in assembling and manufacturing electronic products. Today an analyst from Merrill Lynch raised his short-term rating on the stock after issuing a report saying that Kent's components distribution business is benefiting from an improving unit demand for passive electronics, which has reduced pricing pressures. The analyst said that the company's contract manufacturing business, K-Tec, moved above the break-even point in the second quarter of fiscal 2000 and he expects improvement in the coming months. His report added that Kent has completed several niche acquisitions in recent months that will have a positive effect on the future financials of the parent company. The break-out of the recent trading range was preceded by strong indications of new interest as volume and accumulation had moved higher over the past few weeks. There is a fair possibility that the issue will "fill the gap" before moving significantly higher but support should exist near the $21 range, offering fair risk for a favorable reward. PLAY (very aggressive - bullish/debit spread): BUY CALL DEC-20.00 KNT-LD OI=412 A=$4.00 SELL CALL DEC-22.50 KNT-LX OI=86 B=$2.18 INITIAL NET DEBIT TARGET=$1.62 ROI(max)=54% Chart = http://quote.yahoo.com/q?s=KNT&d=3m ******************** INDEX OPTION SPREADS ******************** As a trader, you may be familiar with options on individual stocks where you have the right to buy (call option) or the right to sell (put option) a particular stock at some predetermined price within some predetermined time. The buyer has the rights and the seller the obligations. With index options the basic ideas are the same. Index options allow you to make investment decisions on a specific market industry or on the market as a whole. Spread strategies can be made with index options similar to those made with individual stock options. Many professional traders employ index spreads as a hedge strategy. We favor debit positions on the SPX for momentum and hedge or longer-term plays and OTM credit spreads on the OEX when the risk/reward is favorable. Low ROI disparity spreads will be listed (when available) for the conservative index trader. **** OEX - S&P 100 Index $746.95 OTM Credit-Spreads The Standard & Poor's 100 Index is a capitalization-weighted index of 100 stocks from a broad range of industries. The component stocks are weighted according to the total market value of their outstanding shares. The impact of a component's price change is proportional to the issue's total market value, which is the share price times the number of shares outstanding. OBSERVATIONS: For OTM credit spread trades, we like to use the actively-traded S&P 100 Index options because they contain much more premium than options on individual stocks and provide an underlying instrument less prone to huge, gapping moves. Review the 'Market Sentiment' section for specific technical information on the S&P 100 Index. Conservative... PLAY (bullish/low ROI): BUY PUT DEC-690 OEY-XR OI=2909 A=$2.38 SELL PUT DEC-700 OEY-XT OI=5976 B=$3.00 NET CREDIT TARGET=$0.62 ROI=6% (3 weeks) Aggressive... PLAY (Bearish): BUY CALL DEC-790 OEZ-LR OI=3544 A=$1.43 SELL CALL DEC-780 OEZ-LP OI=5594 B=$2.62 NET CREDIT TARGET=$1.18 ROI=13% (3 weeks) By combining the two credit spread positions, you can participate in a popular (neutral) strategy known as the Long Iron Condor. It is often used with the S&P 100 options and offers a limited risk, limited profit strategy that gives you a wide range for success. The probability of the OEX remaining in the maximum profit range (700-780) is slightly better than 70% and in this case, the play is weighted heavily to the upside in regard to the recent rally. The play is based solely on the current price and trading range of the OEX and the recent technical trend. Market sentiment will have an effect on this position so review the overall outlook in main section of the newsletter and make your own decision about the future outcome of the index. CHART= http://quote.yahoo.com/q?s=^oex&d=b ************ See Disclaimer in section one ************
Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.
Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.
To ensure you continue to receive email from Option Investor please add "email@example.com"
Option Investor Inc