The Option Investor Newsletter Thursday 12-2-99 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) ************************************************************ 12-2-99 High Low Volume Advances Decline DOW 11039.10 + 40.70 11070.70 10998.60 900,700k 1,528 1,503 Nasdaq 3452.78 + 99.07 3452.78 3371.85 1,427,093k 2,227 1,842 S&P-100 752.53 + 3.96 753.23 748.21 Totals 3,755 3,345 S&P-500 1409.04 + 11.32 1409.04 1397.72 52.8% 47.2% $RUT 460.44 + 6.77 460.45 453.67 $TRAN 2894.29 + 10.38 2899.34 2879.84 VIX 23.28 + 0.36 23.94 22.72 Put/Call Ratio .52 ************************************************************* EMAIL FORMAT ALERT: Please be advised that we are currently having problems with mail delivery to msn.com, and hotmail.com. (both Microsoft networks) Our Technicians are working with the above companies to get this resolved, as the problem is on their end. We have no ETA as to when these companies will resolve this issue. Many long time readers may remember the bi-monthly problems we used to have with AOL. Somebody changes something that breaks something else and with billions of emails moving through their systems they either don't care or do not have enough staff to handle the problems in a timely manner. We apologize for any inconvenience, and hope to have this problem resolved as soon as possible. OI Tech Support ************************************************************* Did somebody leak the employment numbers in advance? From the strength of the Nasdaq rally today you would think the employment numbers were leaked a day in advance. The Nasdaq is back to setting records again with another record high close at 3452. Was there ever any doubt? While I was actually expecting a little less enthusiasm until after the report tomorrow, I did not have any doubt of the eventual direction. If you took action after my Tuesday entry point article then you should be a happy camper. The Dow however is not as convincing. We did close back over 11,000 again but the strength was just not there. The reason for this is the fear of the Employment Report. Most Dow stocks are more interest sensitive than the tech stocks in the Nasdaq. With Citigroup, JP Morgan and American Express holding back until after the report the Dow pulled back from the days highs and traded in a very narrow range in late afternoon. I could write a book here tonight but the total focus is the Employment Report tomorrow morning. I think every major analyst is expecting a benign report but there are some rumors circulating that unemployment could fall under 4%. The official estimate is for an unchanged 4.1% Stock traders will be watching bond traders after the announcement. If the unemployment comes in too strong the bond market will sink with anticipation of the next Fed meeting on 12/21 and a possible rate hike. Today nobody expects a rate hike in December but bond futures are factoring in a hike at the February meeting. If unemployment drops sharply and the markets are showing no signs of Y2K concerns then the December meeting could take center stage. I personally think that unless the report is very bearish stocks will simply ignore it and charge ahead. Still we wait like kids around the tree on Christmas morning, waiting for the approval of our parents to begin the opening orgy, or in our case the buying frenzy. As you can see from the Nasdaq record today the bubble did not burst. Today was the fourth biggest point gain ever for the Nasdaq and we could see another 10 records before Y2K. There will be a huge pop eventually but traders are simply finding ways to revalue already over valued tech stocks. Take PE (price-to-earnings) for instance. This is a commonly used method for valuing or ranking stocks. This is derived by dividing the stock price by the last twelve months earnings. Several years ago, a PE of 25 would be very high. The tech- Internet revolution has made this number almost obsolete. The PE for some Internet companies is either negative, (no earnings) or astronomical (over 500). Companies that have earnings but do not lend themselves to the Internet hype model have been ignored by investors. Not any more! One analyst upped their price target on CSCO today and rationalized it by applying their current PE of 80 to the expected 2001 earnings. Not 2000 but 2001. So instead of just upping their PE target to 90 or 100 and appear that they were suffering from irrational exuberance, they simply kept the target and applied it to future earnings. To be fair this is not a new practice but I think we will continue to see more creative application as we go forward. Get it quick, YHOO only $6000 and a PE of 20 based on 2019 expected earnings! The NYSE caved in to progress today as they rescinded Rule 390 which prevented its members from trading some of the NYSE's most popular stocks on alternative trading systems. This move will allow the biggest trading firms on Wall Street to trade the stocks of blue chip companies like GE, IBM and AT&T on electronic communications networks, or ECNs, which offer cheaper and faster trading systems. It will also allow big firms to trade the stocks on their own trading floors and bypass the floor of the exchange. This was a major break for the ECNs and gives them just another level of trading access. ECNs have already taken away more than 33% of the trades involving Nasdaq stocks. The more competition, the cheaper the trade. Have to love it! Market breadth is still not exciting. The Nasdaq of course is picking up speed but the NYSE advancers only managed to beat the decliners by a slim 25 issue margin. Some analysts feel the NYSE stocks, mostly non-tech, may be more susceptible to Y2K fears than the aggressive tech stocks that are actually benefiting from the Y2K spending. The new home sales announced today rose +16.3% from September despite rising mortgage rates. This hurt bonds again and sent yields rising back to 6.31%. The retail same store sales also failed to spur the sector and the market as most only hit their estimates and many posted lower than expected due to a lack of cold weather and associated sales of winter clothes. Sears was the standout with a +5.9% increase and shows they may actually have turned the corner in their market recovery. The battle of the Fed bears continues. Fed Gov Lindsey said earlier in the week things that many took as a warning of future rate hikes in the wings. St Louis Fed President, William Poole said today that a rise in wages is not worrisome as long as it is being offset by increased productivity. We need to petition CNBC to interview Poole as a counterweight every time another Fed head says something bearish. It does not appear that anyone can say anything to really put the brakes on this Teflon market. The bears and shorts tried to mount a sell off for over a week now with no success and the tech market just keeps making them run for cover. Put your party hats on if we get a great report tomorrow and start celebrating Y2K early! Good Luck, Sell Too Soon. Jim Brown Editor ********** STOCK NEWS ********** Are You a Trader or an Investor? By S.P. Brown Quite a bit of e-mail has came in lately following my article "A Primer on Taxes and Options." I didn't realize taxes were such a hot issue; therefore, it's probably not a bad idea to do a follow up article to further clarify the differences between a trader and an investor. /members/stocknews/120299_1.asp ****************** OPTION CLUB ALERT ****************** New club forming in Florida The Central Florida OIN Group is going to have an inaugural meeting this Saturday, Dec. 4, at 9 AM at the Bob Evans restaurant right off of I-4 in Lakeland, halfway between Tampa and Orlando. Anyone who wants specifics, please e-mail me at firstname.lastname@example.org. Thanks - Jim Massey *************** Market Posture *************** As of Market Close - Thursday, December 2, 1999 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,750 11,320 11,039 Neutral 11.12 SPX S&P 500 1,340 1,425 1,409 Neutral 11.30 OEX S&P 100 700 755 753 Neutral 11.30 RUT Russell 2000 430 450 460 BULLISH 11.12 NDX NASD 100 2,650 3,150 3,108 Neutral 11.30 MSH High Tech 1,340 1,630 1,629 Neutral 11.30 XCI Hardware 1,075 1,160 1,213 BULLISH 11.11 CWX Software 1,000 1,160 1,214 BULLISH 9.03 SOX Semiconductor 560 660 649 Neutral 11.30 NWX Networking 650 800 788 Neutral 11.30 INX Internet 525 675 648 Neutral 11.30 BIX Banking 645 690 618 BEARISH 11.30 XBD Brokerage 395 450 429 Neutral 11.30 IUX Insurance 625 650 598 BEARISH 11.30 RLX Retail 875 920 925 BULLISH 11.23 DRG Drug 375 395 383 Neutral 11.30 HCX Healthcare 750 790 759 Neutral 11.09 XAL Airline 180 190 146 BEARISH 5.21 OIX Oil & Gas 285 315 298 Neutral 11.23 Posture Alert Technology stocks bounced back with a vengeance, as the Nasdaq broke a new 52-week high. The Dow was able to get back over the 11k mark, however, many of the individual sectors failed to break above previous levels. As such, until we get confirmation on higher highs, many of the postures will remain Neutral. Winners Thursday included the Internet (+5.22%), Semiconductors (+4.57%), and Software (+4.20%) sectors. The downside list was limited to Oil & Gas (-1.52%), and Retail (-1.27%). *************** Market Sentiment *************** Thursday December 2, 1999 Failed Rally, or Higher Highs! The broad market blazed ahead Thursday, and was lead again by (surprise, surprise) the technology sector. The NASDAQ went ahead and broke a new record high, and the Dow got above the ever- important 11K mark. However, many of the individual indexes failed to break new highs, even though many were very close. Tomorrow brings us the important employment data, which can add fuel-to-the-fire, or put the breaks on this latest rebound. From a technical standpoint, we witnessed Shooting-Star patterns in most of the indexes before the break earlier this week. After Tuesday's drop, all of the major indexes (across the board) broke their 10-day moving average, which is the average that many short-term traders use. This break, combined with the negative chart on the long bond, gave us a more cautious and pessimistic stand. However, the Hammer pattern that is now evident may cause us to return to the bullish camp, but there are still issues at hand. The sentiment from this recent drop will not easily be forgotten. There are many investors who bought a stock or option, only to watch them drop significantly in 24 hours. Amazon.com was the hot stock Monday morning, as it gapped up to over $96, yet over the next 48 hours, many people witnessed a 15% drop in the stock as it hit a low of near $81. There are many other stocks that dropped worse than AMZN, but the point is that quick hits like these, tend to be remembered by traders and investors alike, and are not easily shaken off, at least until higher highs are set. Other issues that need to be addressed are the yield on the 30- year Treasury, as well as Volatility Index breaking its 50-day moving average. These issues have not been put to rest by the bounce in the market. Like we mentioned above, many of the individual sectors failed to break new highs or at least recent highs (S&P 500, S&P 100, NASDAQ 100, Networking, Internet). The VIX is still close to its 50-day moving average and the employment data due tomorrow could put a tailspin on the bond market. What this market needs right now is a healthy dose of CONFIRMATION. To see a significant rally in the Treasury market would be very healthy for the continuation in this rally. What this market needs is a rally in Treasuries, followed by higher highs in the leading technology sectors. If we don't get what we ask for, we are most likely to see a significant Failed Rally. BULLISH Signs: Cash Flow: The amount of money being poured into this market continues to be staggering. Short Interest: Short interest for the Nasdaq is at an all-time high, and increased another 1.4% from October. 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. Mixed Signs: Volatility Index (23.28): The VIX broke through its 50-day moving average this week, but has recovered the last several days. If this average is violated again, this may indicate a near term top for the market. BEARISH Signs: Moving Averages: All of the major indexes have broken their 10-day moving averages and have yet to break higher highs. If new highs are not broken soon, this would suggest more short-term selling pressure. Interest Rates: The yield on the 30-yr Treasury broke support, and may soon hit 52-week highs. Advance/Decline Line: The A/D line's continual break does not serve the best interests of the overall market. 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 December 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 - Friday, November 26 55,598 +53.7% 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. Pinnacle Index (OEX) Friday Tues Thurs Benchmark (11/26) (11/30) (12/2) Overhead Resistance (750-760) 1.50 1.15 1.38 OEX Close 753.57 738.74 752.53 Underlying Support (730-745) 1.82 1.98 2.00 What the Pinnacle Index is telling us: Based on 12/2, overhead resistance continues to be light, and underlying support is slowly increasing. Put/Call Ratio Friday Tues Thurs Strike/Contracts (11/26) (11/30) (12/2) CBOE Total P/C Ratio .42 .53 .52 CBOE Equity P/C Ratio .32 .46 .38 OEX P/C Ratio 1.29 1.83 1.67 Peak Open Interest (OEX) Friday Tues Thurs Strike/Contracts (11/26) (11/30) (12/2) Puts 750 / 6,887 750 / 9,394 750 / 8,972 Calls 750 / 6,533 750 / 7,185 750 / 8,477 Put/Call Ratio 1.05 1.31 1.06 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 Top? 19.63 December 2, 1999 23.28 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 Wed Thu Week Dow 11039.06 -40.99 -70.11120.58 40.67 50.15 Nasdaq 3452.78 -26.44 -85.21 17.55 99.07 4.97 $OEX 752.53 -4.28 -10.55 9.83 3.96 -1.04 $SPX 1409.04 -8.79 -18.76 8.65 11.32 -7.58 $RUT 460.44 -1.99 -2.87 -0.41 6.77 1.50 $TRAN 2894.29 -8.97 9.53-25.81 10.38 -14.87 $VIX 23.28 0.74 1.26 -2.03 0.36 0.33 Calls Mon Tue Wed Thu Week YHOO 245.81 -0.75 -13.38 16.13 16.94 18.94 S&P 500! HGSI 128.25 10.69 -14.19 8.88 7.38 12.75 Heats up! CMGI 156.13 8.88 -8.19 2.19 6.63 9.50 Finds a friend STM 126.06 2.31 2.69 0.38 0.63 6.00 Shares hold up MSFT 94.81 -0.94 0.84 2.16 1.63 3.69 On the move! EMC 93.38 -1.81 -4.81 3.50 5.88 3.06 New high! TIF 78.88 0.50 0.88 0.38 1.00 2.75 New IBI 42.50 2.25 2.69 0.75 -0.94 2.13 Holiday harvest MACR 67.50 0.13 -3.63 -4.00 5.75 -1.75 Buyers step up NOK 144.63 3.75 -12.50 1.75 2.88 -2.13 Fills gap VVTV 45.50 1.19 -4.00 -4.44 4.94 -2.31 Classic bounce AOL 80.00 -3.88 -6.69 3.69 3.88 -3.00 New VRSN 194.81 -1.38 -10.81 -2.81 11.81 -3.19 Dropped IMCL 37.81 -3.19 -1.63 0.88 0.56 -3.38 Looking better NT 77.13 -1.69 -6.13 1.56 1.69 -4.56 Look for vol. GMST 113.50 -0.69 -5.06 -2.63 3.38 -5.00 GMST climbs! SNE 180.75 5.81 -7.56 -1.56 -1.88 -5.19 Entry point? GTW 73.00 0.06 -2.75 -1.63 -1.75 -6.06 Dropped BRCM 199.88 -4.19 -23.88 10.94 9.88 -7.25 What a ride! QLGC 116.63 -4.63 -6.38 -0.44 3.94 -7.50 Sector bounce! QCOM 374.00 -13.50 -8.94 1.81 9.88 -10.75 Consolidation! SDLI 167.00 -22.31 -1.69 4.25 0.00 -19.75 Keeps head low JDSU 239.94 -13.88 -23.38 0.81 10.38 -26.06 Great entries! Puts RMBS 71.31 -5.56 -0.75 -0.31 1.06 -5.56 Still weak JCI 52.38 -0.19 -1.00 -1.31 -0.81 -3.31 New EK 61.44 -1.69 -0.94 0.63 -1.06 -3.06 EK exposed? GT 32.50 -0.88 0.50 -0.25 -1.00 -1.63 Goodyear? WLP 59.56 -1.00 -0.50 1.56 0.44 0.50 Entry point? BOW 48.81 0.09 2.03 -1.00 0.81 1.94 Light volume CPTH 67.69 -1.38 -4.94 6.44 5.56 5.69 Dropped ************ WOMANS WORLD ************ A Winning Technique For Me Last time, I told you about learning how to trade options, during an unstable interest rate environment. My first 6 months of trading, was pretty miserable. I became leery, to place more losing trades. Then news came, about a company I knew well. I had an insider's advantage, knowing the company and it's developing product, solely because of my professional background. This gave me confidence to place trades as "no brainer" bets. As I mentioned, they were very successful trades. The lesson I learned was to trade companies you are familiar with, with products you understand. But there was another part of that trade, which later became a fairly consistent money maker for me. Through fine tuning that play over the next 9 months, I developed the Blow & Go Technique, which has been very rewarding to me. It is useful if you do not have a lot of money to invest, want to own stock & play options, without being glued to the screen intra day. This play has allowed me to exercise occasional calls, in order to hold long term, good quality stocks, that I basically got for free. I still use it, when the opportunity presents itself. Soon, I will get free shares of QCOM and YAHOO using this technique. These active plays of course, are not finished. But I already know the probable outcome. Each quarter, I post earnings announcement dates for the stocks I am following on a calendar. I note if they meet expectations, the whisper, or blow out the whisper number. I listen closely to the market sentiment. One blow out alone, does not convince me. I need to see sound reason for the pattern to continue, or a trend that is just starting to become noticed by the market. It is important that the market takes notice, as evidence by a nice run-up, in the stock. Then I just wait for the post earnings depression, to make my move. Basically, it is a 2-4 month play, depending on when you enter. I choose a stock that has had continued strong earnings, which still blows away estimates, even though the analysts continue to raise expectations. That tells me the company is still growing, competing and doing things right, at least for the short term. I note stocks on my calendar, which blew out the whisper number, along with those which had high expectations but only got a luke warm market reaction. I dismiss those. I research the stocks making sure I understand their products, basic financials (debt ratio & what they spend money on), their competitive advantage to their sector and analysts sentiment about the company & its' management. An important aspect of this research is looking at their split history, both the price they tend to split at, along with the run up history into the split. I want a stock that creates excitement. I think about things. Based on all the information, can they do it one more time? If so, could the euphoria push them well into the stock split range this time. Actually, I mostly decide if it has enough potential, so I can get shares free and still have profit money left. I wait for a post earnings slump or sell off, then I buy calls for either the month of their next earnings report, or the month thereafter. I try to buy slightly ITM. This entry is usually well below the high from the run up, of their last earnings. Also, if anything unusual hits the market, like the Asian crises, I try to enter on this dip too. This can be risky since you are buying the down draft and don't know when the draft will end. But, it is also a time when premiums are not inflated and good quality options can be bought relatively cheaply. Remember, good entry points are like wearing thick armor. I buy the month after their next earnings report, in order to do a "no-no" and hold for the split announcement on earnings day. I do not recommend holding over earnings any other time, but sometimes it just feels like a "no brainer" and I have a good entry as a cushion. If no split is announced, I take my money and run, but that has only happened once. If your entry point is taken out, while approaching earnings, re-evaluate the play, re-do your sentiment research and decide if you take a loss & exit, or add to the position. This technique, gave me freedom. It is the way I played while working full time. I did not play the markets in and out. The luxury to me, was the fact that I did NOT have to watch it closely. If the company's dynamics held, the euphoria of another stellar earnings report would push the price back up, a split would be announced and I was already holding the next month's options, which then would take off into a split run. If I was really lucky, the split would occur before that expiration, splitting my contracts, and the strike price of the options. Usually, the profits from the run-up, paid for the shares I kept, with plenty of profit left over for other plays. I consider this, as "getting my shares for free." My Blow & Go "free" holdings include IBM, DELL, AOL, PFE, CPQ and soon, QCOM, SUNW & YHOO. For example I bought QCOM Jan 220 @ 23 in October. I think QCOM was 180-190. I knew they owned the CDMA technology, had great earnings and cell phone technology was growing. I thought, they should be able to blow out again and be in split range. Well, you know the rest. A blow out and the 4:1 split. Those initial contracts have been as high as 190 each, a 726% gain. I have bought & sold several times since, but I still have 2 Jan 220 contracts which I plan to exercise to get my "free" stock. By that time, 100 shares of the Jan 220 will cost only $5,500 with plenty of profits left over, when on the street, they will cost twice that. To me, this is an incredible way to get quality stocks for free, when you couldn't afford to buy them. What a deal!!! Only in America, the land of the FREE!!!!! Renee renee@OptionInvestor.com ************** TRADERS CORNER ************** Fire For Effect! In the Marine Corps, Platoon Commanders write down their on-call mortar targets on laminated sheets of paper as they run through live fire exercises leading their Marines. In one such combined arms exercise, I remember vividly cresting a hill, turning to my radio operator, and calling for fire on my first pre-planned target. When the adjusting round landed smack dab on top of the bunker, I ordered, "Fire For Effect," dropping another 20 high explosive rounds on the target before my platoon moved forward.... ... that's how I feel Tuesday night, having just gotten the word that YHOO will be added to the S&P 500 Index. Last week, I "stuffed the stocking" with YHOO Jan 220 Calls, and today, I backed up the truck on Dec 230 Calls at the newsletter's support level of 218. I thought I was in for it when YHOO continued lower, but now my Calls are looking just fine with YHOO up 22 after hours. Jim had outlined a pullback of 15 - 25% (of the November run) on the Nasdaq as probable support. When the NASDAQ passed the 15% mark, I started calling in targets from my on call list: SUNW @ 129 MACR @ 64 VRSN @ 183 YHOO @ 218 MSFT @ 89 NOK @ 135-40 SNE @ 180 In a volatile day like today, I recall swimming in the surf at Santa Cruz. Big waves break over you and you don't know which way is up, and you just hope you are swimming in the right direction. But making good trades and returning profits to your portfolio is like each individual stroke that a swimmer makes -- each stroke moves a little fluid (capital) to move you forward a little more, setting you up for the next stroke. I thought I was going to take a loss on those YHOOs, but now that will be a positive stroke, which I will try to maximize with a trailing stop exit. My other buys for the day are Dec calls on MACR, VRSN, and NOK. But in the bigger picture, managing your portfolio is like climbing a mountain. At the 12,000 foot mark on the way up Everest, they make a camp so that climbers can acclimate to the thin atmosphere. They do the same thing every few thousand feet so that climbers don't make bonehead decisions and fall to their death. That's why I take at least a week off every month. In November, I made a 59% gain, and set up a base camp half way through the month. Now, fresh, rested, and ready for the next leg (Dec trading), I am on the trail, blazing a path, trying to take as many traders from the local club with me, free climbing (using naked calls) whereas others prefer to be roped in (using spreads, thus limiting risk). As Sun Tzu, the ancient military philospher wrote, the wise general does not commit to every attack. Or, as Jim wrote on Sunday, the wise trader does not commit to every trade. But when you do muster the platoon (the capital in your portfolio) for an attack, and the conditions are right, CHARGE! (Subtitles added for the testosterone impaired) Next time: You're a trader on Nov 5, 1999. Using Black Scholes to analyze the implied volatilities, which January Call should you buy to take maximum advantage of AMZN's cyber-stocking run? Janar Joseph Wasito janar@OptionInvestor.com ************* READERS WRITE ************* No Fool Like an Old Fool Bald on top, gray on the sides, and considered wise by my wife, daughters, son-in-laws and granddaughters, I began believing my own press. I subscribed to OIN and started trading options a year ago. I'd been successful in business and met my retirement objectives so how difficult could making quick money in options trading be? Read on. Last January I opened a brokerage account with TD Waterhouse with $10K from some mutual funds that were showing less growth than passbook savings. I selectively read OIN, picked out 2-3 plays per week from OIN's picks and blindly plunged ahead. I was lucky and doubled my money by April so I took Mamma on a Carribean cruise (while leaving a [relatively] large open position in Walmart just prior to earnings). Great cruise, but when we got home and I fired up the computer, I got a very unpleasant wake-up call. WMT tanked prior to earnings and stayed that way until the options expired. My $20K shrunk to $5K. While it didn't break me or put me in a soup kitchen line, it did make me angry. So I spent the next 6 months single-handedly butting heads with the market because "nobody can do that to me" and "I'm smarter than the market". It didn't work, I broke every one of the 10 Rules (plus a few more, I think), but I have been 'lucky' enough to hang on to the $5K. No growth, but I'm still alive to fight another day. You'd think with wisdom comes humility, but I am living proof that it is not always the case. Now I read the whole OIN, use technical analysis, moved my brokerage account to Preferred Trade (because of the stop loss features that Waterhouse didn't have) and paper-trade, paper-trade, paper-trade before I commit cash.. I now feel like I have a much stronger arsenal to attack the market and can do it without getting my ego in the way. I look forward to a great 2000 trading year. And the recent articles on entry and exit points were invaluable. Kind of makes me fell a little dumb for not recognizing these things myself. But can an 'old dog' learn new tricks? You can bet a wise one can!! Good trading and happy Holidays to all. Grandpa George PS: I use words like 'attack' and 'arsenal' for Janar's benefit. I was an "Old Corps" Marine. And having women contributors to OIN is an excellent idea because ladies are every bit as smart as men. Just ask my wife, 4 daughters, and 3 granddaughters; they'll tell you!! **** Subject: Successful Options Trading. I would like to thank OptionInvestor.com for the advice given to me over the past two years. I have enjoyed the service, and have made a substantial amount of money over the long-term from your information. Recently, I have made some dream trades (you know, that trades that come once in a blue moon). On Oct. 29, I picked up 20 AOL Nov. 125 calls @ 8.5 and sold them @ 15, then on Nov. 4 I bought 30 SUNW Dec. 105 calls @ 9.63 (it seems like I can read your minds because I got in and that evening you listed SUNW as a pick). I got out on Nov. 17 @ 24 for an astounding $43,000.00 profit on one play!! That'll do'er Al! Another great play was when OptionInvestor.com sent out the alert about QCOM bottoming in the 330's (Nov. 17)...it grabbed my attention because optioninvestor doesn't always do that. I thought, "This is unusual?" Sure enough, I took a look at the chart, and I saw the entry point. I jumped on board and before you know it, three days later...$10,000 in my pocket! That paid for optioninvestor for the next 30 years!!! Anyway, I wish the employees at optioninvestor the best of success and to keep up the good work. Reading your information is just as important as watching CNBC! Jason OptionInvestor.com Customer **** Subject: Welcome Renee How nice to have a woman's viewpoint. Jim and his whole staff are wonderful: I couldn't do without them, and I enjoy and appreciate Janar. But you are icing on the cake. I am sixty-six and growing younger every day, at least mentally. The geriatric specialists say that continuing to learn new things and using our brains keeps us young. If true, getting into options is definately keeping me young. All I do anymore is study. There's nothing simple or easy about understanding options. Like you, I began trading options last August. I jumped in with both feet exactly at the top and rode the market all the way down into October. Surprisingly, I did very well. I thought, "Wow, this is pretty simple." I became over confident, had too many options open, most of my option money invested and lost it all. I started over again, did real well and lost it all again and had to crawl back up. Then, someone recommended Optioninvestor. Now, I cringe when I look back a year ago and see how dumb I was. I didn't even know I was in a bear market. I framed the charts from that period and hung them on the wall as a reminder of how far I have come. I read and study every section of the Optioninvestor--it's invaluable. My daughter Liza also became interested in option trading and at the present time we have a joint account, and we are pretty close to breaking even. I'm income-property poor and completely dependent on rents for income. I'm so tired of cleaning and fixing. I'm hoping I can eventually get good enough at options to create a steady income. Then, I will liquidate my properties and invest most of the proceeds in less risky areas. But, I think I'll always trade options just for the fun of it. Again Renee, I will be eagerly looking forward to your column. Thanks to Jim for recognizing the value of a woman's opinion and experience. Frances P.S. I really enjoyed reading the comments you received from readers, and especially your answer to the one who corrected your spelling. **** A while back, Jim Brown described about hearing some bad luck stories; well here is another. I'm not typing this to feel sorry for myself. I truly believe some people will NEVER become successful at this option/stock game!! I've been at this now for 30 months and gotten nowhere. Sure there are successes, but far outweighed but the failures. The key word in "stop losses" is "L O S S" Sure it allows you to play again another day. It only prolonged my agony. After $17,500 sent to an options account, I pulled the remaining $5,000 out to fund our '99 IRA's. A completely boring index fund can certainly do better than I have! Retirement now 10 yrs. away instead of 5 yrs. To those of you who find yourself in similar situations,look at yourself real hard and ask yourself how proud you are! Some of us were not destined to be winners at this "game". Half of me feels very envious of all the success stories printed in the newsletter, the other half of me wants to just puke! After spending more than $50,000 on books,tapes, seminars, numerous subscriptions to newsletters and fax recommendations,including and beginning with Wade Cook [you don't know how much I wish I never heard his radio ads!!!!!!] and losses to MR. MARKET, I am now ready to admit to out and out failure! Something nobody wants to do! If it was not for my wife insisting on not touching our core 'T' and 'RBOC' holdings,I would have lost the proceeds to that too. Information overload, analysis paralysis,lack of study time, dual committment to work and the market, ?????? who knows maybe a little of them all. I find I cannot concentrate on both without one of them getting neglected because they both take place at the same times of the day. Well enough of this spleen vent. THOSE OF YOU IN THE SAME BOAT HAD BETTER BUY A BIGGER BILGE PUMP OR DRY DOCK BEFORE YOU SINK!!!!!!!! As for me,I'm done. LEN (editor - Len, it takes a strong person to admit defeat. I sincerely wish you good luck in whatever you do. We get many of the success letters but very few of the failure letters. The human ego is fragile and sharing failures is not what causes most people to burst into print. George Fontanills and I will be the first to admit that we ran several accounts to zero when we were learning to trade. Option trading is not something you pick up casually. Many stock investors have tried and failed. Those that eventually learn become very successful but the battlefield is littered with casualties. Again, good luck in your future endeavors. - Jim) 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: ***** GTW $73.00 -1.75 (-6.06) GTW just couldn't hang at its $76 support level and continued in the downtrend started on Tuesday. The stock was already dangerously below the 10-dma (then at $78.78 and lower today at $77.50) and is now perched on the 30- dma (72.72) - an indicator it hasn't seen the likes of since the rocky market of mid-October. The only recent news specific to Gateway was the announcement on Tuesday that CEO and Chairman Ted Waitt may be stepping down from office by year's end. And today it was reported that he filed with the SEC to sell 1.5 mln shares of common stock with an approximate value of $121.5 mln. Technically, we've lost sight of any rebound and are exiting the play this evening. VRSN $194.81 +11.81 (-3.19) A $15 bounce off mild support and almost a break through overhead resistance at the 52-week high ($202.50) today and I bet you want to know why we're dropping VRSN tonight. It's really quite simple. For starters tomorrow is the Jobs Report and this usually makes traders a bit jittery which isn't a good thing when playing VOLATILE Internets. Second and of utmost importance is the upcoming stock split. VRSN will split 2:1 after the bell on Monday and honestly you should be out of your positions by then. Typically most stocks will suffer post-split depression and a particular a big risk in VRSN's case. After last summer's 2:1 stock split VRSN's share price declined for a few weeks. It's been a good play but it is time to start heading for the door. PUTS: ***** CPTH $67.69 +5.56 (+5.69) Quick play? We never had a chance. Bullish investors didn't even wait until the share price sunk to support at $51. Instead they jumped on the bandwagon and fired CPTH upward an incredible 21.5% over two trading sessions! Needless to say, this put play is a definite drop tonight. ************************************************************* 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 Thursday 12-2-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. ***************** PICK NEWS - CALLS ***************** SNE $180.75 -1.88 (-5.19) The neighbors must have finally started complaining and asked SNE to turn it down, down, down. Sony has been gapping down at the open for the last three sessions. Today, for the first time since the end of October, Sony violated it's 10-dma. So why are we keeping it as a play? Entry points! Sony does this to us, or rather, for us, all of the time. Sony will drop down and offer some rather attractive points of entry before once again picking up the pace. Sony made a nice come back at the end of today's session, closing above the $180 level, which has provided resistance for Sony in the past. Sony's 10-dma is at $182 and once SNE breaks through and begins trading above this level, we should be set to continue on with the positive momentum run. Look for $180 to hold as support. But we want to see the bounce occur soon or we will turn Sony off for better plays. BRCM $199.88 +9.88 (-7.25) You can't find a ride this good at any amusement park that I know of! Broadcom did us a favor by providing us with some awesome points of entry at the beginning of the week. Since then, BRCM has offered a gain of up to $26.50. Not bad at all! BRCM managed a breakthrough of it's 10-dma of $195, which could serve as support going forward. Resistance looks to be at $200, which we are just pennies away from. BRCM did trade above this level for a bit this morning but quickly pulled back to a more "comfortable" level, right around $197 and spent the day gradually working it's way back up to flirt with $200. Once again, timing a new entry has become the challenge. A breakthrough of $200 backed by strong volume will be good indications of continuing positive momentum. At that point, waiting for pullbacks (which as we have definitely seen this week, and can be rather dramatic) will probably be your best bet for a new entry once we have confirmation. Today, Morgan Stanley Dean Witter raised their price target on BRCM from $180 to $250 and up'd the earnings per share estimate from $1.25 per share to $1.35 per share. HGSI $128.25 +7.38 (+12.75) HGSI's shares have heated up once again. You may recall that the Biotechs suffered a rough day on Tuesday thanks to some negative comments about Amgen. But it was a one-day event as we had suspected and HGSI bounced nicely on support at $110. After a positive review of the company on CNBC on Thursday, HGSI rallied quite strongly and closed near the high of the day. The rally was encouraging and a follow through above resistance at $130 could possibly indicate an assault on the old high. A strong market on Friday could be just what the doctor ordered for a breakout to occur. There was some good news announced yesterday. HGSI has entered into a broad pact with Abgenix Inc. to identify drug candidates based on human antibodies for development and commercialization. The multi-year agreement will allow HGSI to use Abgenix's technology, a mouse which can generate fully human antibodies. Using mice to generate human antibodies is the cutting edge of new drug research. Support is at $125, $120 and $110. IMCL $37.81 +0.56 (-3.38) ImClone's stock performance this week continues to be unimpressive. By taking out yesterday's trading high of $38.13 today things may be looking better for the stock. Unfortunately, IMCL was only able to hold on to a small gain today, despite the strength in other Biotechs. IMCL did have a little good news today announcing that they have expanded their Phase III trials of their primary cancer fighting drug C225 into Spain. The trials are being conducted in conjunction with a Merck subsidiary. The companies also announced the triggering of a $6 million milestone payment to ImClone. Although ImClone's stock is looking a little stronger, be very careful if it should drop below $36. If the trading range continues to narrow look for the stock to break out to one side or the other of the "wedge". The 10-dma at $37.25 is support and IMCL better hold or it will find its way off the call list. STM $126.06 +0.63 (+6.00) Prompted by the announcement that STM would be added to the Morgan Stanley Capital International indices France (MSCI), and the favorable report in the latest issue of "The Wall Street Transcript", the shares sky rocketed on Tuesday. The shares have been trading in a range for the last two trading sessions, as traders try to digest the information about the stock. It has been rumored that the stock's sharp rise was due to an error in a buy order, but there have been no reports to cancel any orders so we will assume this information is false. We are pleased to see the shares hold up during this consolidation stage, good support has held up in the $124-$125 range. Late in the day, with the Semiconductor Index soaring to close up $28.36 points, STM closed at the high end of the range as well at $126.06 on average volume. The outlook going forward for the sector remains bullish and this recent consolidation should settle to the upside. There is some resistance at the $127.50 level, and then again at $130. Look to add to positions above current resistance levels or on dips to support levels previously mentioned. In case of an unfavorable economic report tomorrow, and a sell-off, aggressive traders can look to jump back in on a bounce from the $120 level. MACR $67.50 +5.75 (-1.75) MACR announced today that the company has entered into an agreement for $44 million in funding for the company's online entertainment business-Shockwave.com. This new funding should fuel growth in the shockwave.com content. Along with building the next generation of this popular site that already claims over six million members. This endorsement of the Web's leading entertainment destination had the shares soaring as traders rushed into MACR, bidding it up to as high as $69.50, before settling in to close the day at $67.50. This week the low end of the trading range has been $61.56 and the high end of the range has been $71.06 which is a 52-week high. So depending on your entry points, you may have had a chance to profit on this play. It is also a lesson in stops if you bought in at the high end. The favorable or unfavorable digestion of tomorrow's economic report will dictate where MACR goes from here. A breakout over $70 on strong volume would be a bullish sign. Just make sure it is over $70 and not at $70 where MACR will find some resistance. VVTV $45.50 +4.94 (-2.31) Whoa, what happened to VVTV during the closing minutes on Wednesday? Ouch, is an understatement. But in today's afternoon surge in the Nasdaq, the shares of VVTV bounced back nicely off the intraday lows to close the day very strong, up almost 5 points. Wednesday now looks like a capitulation event and the buyers have returned. VVTV is now back above the 10-dma of $44.50. This has convinced us to keep VVTV around as we could see higher prices from here. Traders who have not currently taken a position in the stock could enter at current levels if the market confirms it wants to go higher tomorrow. The trading pattern is volatile, and during the day you should be able to find a favorable entry point on a pullback. Resistance sits at $50.50, which would be major breakout territory. YHOO $245.81 +16.94 (+18.94) Yesterday, Yahoo's share price powered higher $16.13, or 7.6% on news of being added to the S&P 500 Index. YHOO is the 2nd Internet stock to be selected for the Index joining American Online (AOL). Those gains extended into today's trading session with buyers once again returning to the Internet sector, advancing the stock another $16.94, or 7.4%. This two-day surge has placed YHOO well above the 5 and 10-dma at $228.09 and $225.21, respectively. Near- term support is at $225-$230, then at $220 for this split candidate. At these higher trading levels, a return to the proximity of $225 could be a great entry for the very gutsy OR a reversal/flat-line signal. Tomorrow is the Jobs Report and this data can easily shift the market sentiment so be careful of a sudden drop if you have open positions. This is especially important considering the stock's recent gains - plus today marks a new 52-week high. YHOO shot upwards during the last hour of trading peaking at $250 and closing strong at $245.81 to unequivocally squash last April's record of $244! Today it hit the press that New World Development, one of the four hard-line telephone companies in Hong Kong, entered into a partnership with Yahoo! to deliver Internet related services to its wireless users when suitable handsets become available in the year 2000. In other news, Yahoo! launched its new automatic "spam" filtering system yesterday designed to stop unsolicited bulk e-mail from evading their user's mailboxes. MSFT $94.81 +1.63 (+3.69) MSFT is on the move! This powerhouse broke out yesterday and extended its decisive advance in today's trading session on moderate volume. The real battle is now at hand. MSFT faces strong resistance at $95 and $96. For visual confirmation take a look at a six-month chart and find the peaks in this range. Therefore it's reasonable to assume that earth- shattering news will be required to power the upward momentum needed to overcome this opposition and make a run for the 52- week high ($100.75 set in July). Conservatively, it'd be wise to confirm a bounce and close above these levels before opening new plays. The news surrounding Microsoft was mixed over the past two days. On Wednesday, the company announced its Windows 2000 operating system would be released by the end of the year and the official worldwide launch is scheduled for February 7th. Also, they are releasing a trial version of Internet Explorer 5.5 creating more competition for Netscape's slower 5.0 browser. Today it hit the press that another class-action suit was filed against Microsoft. This time by Israeli lawyers on behalf of 250K consumers for $125 mln alleging Y2K and monopoly issues. EMC $93.38 +5.88 (+3.06) Last July a federal judge filed a preliminary injunction against Hewlett-Packard, barring HP from infringing on trademarks registered to storage maker EMC. Today that injunction was made permanent, and the price of EMC stock jumped over $5. Yesterday EMC bounced off the $83 support level we mentioned Tuesday gaining $3.81 for the session on decent volume of 4.6 mln. shares. With the announcement of the permanent injunction, traders gapped the price of EMC up at the open and didn't look back. EMC made a new high at $93.50 and closed near the high indicating there may be more room to go. The volume was about average at 5.8 mln. shares. If you re-entered a play yesterday and didn't take some money out of the trade today, we would suggest keeping your stops close, with the jobs report due out in the morning. The Nasdaq and EMC have regained all of the recent losses and then some, but a negative jobs report could wreak havoc with our play. As for entering a new play, we would suggest watching to see how traders react to the news in the morning, prior to placing a new order. QLGC $116.63 +3.94 (-7.50) We mentioned Tuesday that QLGC could find support near the $110 level and at this point it has. The low Tuesday and Wednesday was $110.88 before QLGC began to bounce back. This could be a short-term low as the volume increased yesterday to just under 1.2 mln. shares. Today saw the Semiconductor sector bounce back by about 4.5% on the news that Hambrecht & Quist added KLA-Tencor to its focus list and set a three-to-six month price target of $100 with a Buy rating. The real question for our play in QLGC is rather it can sustain the buying of the past two days. The volume has been a bit light and we will need to see it pick up for us to continue to have confidence in our play. We will look at the $115 area for support. Tomorrow traders will get the November jobs report at 8:30am ET and the fate of the markets will be determined at that time. A bad jobs report could knock the legs out from the Nasdaq and the Semiconductor sector. If you entered a new play in QLCG yesterday or today on the bounce, keep your stops near. GMST $113.50 +3.38 (-5.00) On Wednesday shares of GMST continued to slide as investors took some money off the table. Depending on one's trading style GMST gave us a good place to target shoot late yesterday and early this morning. Wednesday GMST bounce off $110 and began to climb again. The one fly in the ointment for our play is the light volume of the past two days, with each day totaling just over 800K. ADV for GMST is about 1.2 mln. Yesterday afternoon's bounce came on the news that France's Thomson Multimedia had produced and shipped 1.3 mln television sets that incorporate the Gemstar interactive electronic program guide. They estimated a total of 1.5 mln sets will be shipped by the end of January 2000. Again the key to our split run play in GMST is whether or not it can continue its momentum to the upside after the recent pull back. GMST splits 2:1 on December 13th, so if its going to kick back into gear, now is the time. If you re-entered our play, keep your stops close with the jobs report due out in the morning. CMGI $156.13 +6.63 (+9.50) CMGI found a friend today in analyst Ryan B. Alexander of Wit Capital Corporation. Alexander revised operating estimates and raised his 12-18 month price target to $225. According to Alexander, "We are revising our projected enterprise value for CMGI from $20.7 billion to $30.6 billion". The Wit Capital Internet analysts believes that CMGI is well positioned to benefit from its vital and growing network of public and private Internet companies. At this point it would appear as the $145 area has provided good support for our play in CMGI. CMGI began to bounce early in the session today and continued strong into the close. We see resistance at $160 and again at $170 (the all-time high). IBI $42.50 -0.94 (+2.13) This morning Intimate Brands reported a 15% increase in same store sales for November and traders rewarded them by hitting the sell button on their computers. Several of the National chain stores, reported increases in same store sales and traders took back recent gains from most of the sector. At this point the selling doesn't appear to be anything serious as IBI and many its cohorts in the retailing industry have enjoyed nice gains in the last couple of weeks. IBI picked up $0.56 yesterday and gave back $0.94 today. The volume was not heavy on the day which leads us to believe the pullback is ordinary profit-taking. The one other positive for today's session was the bounce IBI showed of the $42 area late in the day. IBI is not a fast mover but could be a profitable play, as the holiday season for retailers is their harvest and most are expecting a solid holiday selling season. As for entering a new play, we would keep our eye on the $42 level and look for continued strength. Should we see a negative jobs report in the morning, the major indices and the retail sector could head lower so be careful. NT $77.13 +1.69 (-4.56) The upgrades always help, but the fact is volume slacked off today from its ADV, indicating that the big buyers may be taking a break from this Canadian issue. Yes, NT is a leader in the optical networking industry ahead of Lucent and looks to exceed the Street expectations in margins and revenue growth in 2000. However, from the chart, technically it may be hitting a roadblock in trying to get back over its gap- down price from Tuesday. The 2-day recovery while nice, hasn't been that strong for NT. We're not saying you can make money buying the dips here. It's just that without volume, we won't see the same kinds of gains we've become accustomed to in the past with NT. Support is at $75, but we'd sure like to see volume come back. That is something to keep your eyes on if you enter a play. With the tenuous chart, keep your stops set if you are already in the play - you don't want to give back the profits that have been hard to come by this week. So who gave the upgrade mentioned above? CSFB to a Strong Buy. NOK $144.63 +2.88 (-2.13) Filling the gap again, Nokia has rebounded nicely from the Tuesday sell-off. However, as we noted last week, slower trading volume in Europe could portend slower trading volume here, and that's just what happened over the last 2 days. Particularly, traders should note the lack of opening volume the last 2 days, which tells us that there likely have not been as many buyers at the open as there were in the past few weeks. Are buyers going away? We don't know for sure, but support remains intact at $140, a level tested two times yesterday with a confirming bounce. Today, NOK tested $141 before lunch, followed by a strong recovery with increasing volume all the way through the close where it finished near its high of the day. It gained another $1 to $145.63 after hours. As long as volume doesn't die and take the price with it, NOK is back in split announcement territory, which could fuel further gains. Also note from a briefing.com article, "Following positive presentation at CSFB's technology conference, CSFB raises price target to $160 and expects to revise estimates on Friday, seeing upside potential their forecasts, most notably for 2000 and 2001; have $2.76 est for 2000." Tomorrow could be good for NOK, but don't take eye off the ball. Be ready to get out if the trade moves against you. QCOM $374 +9.88 (-10.75)) Up almost $10 today on only half the ADV - talk about a great consolidation! Yesterday we got a $355 buying opportunity, and today another one at $363. Support continues to move up, while resistance continues at $390. As we noted, QCOM is forming a nice ascending triangle, which usually portends a breakout. That it's happening on unusually low volume tells us that buyers are hesitant to jump in, but sellers are even more reluctant to sell. QCOM has fallen off the active traders' radar screens keeping the price "reasonable" for us to make an entry. What will put it back on traders' radar, drive the volume and increase the price? How about that shareholders meeting on Dec 20th to vote an authorized share increase (the catalyst that makes the 4:1 split possible), or an announcement that QCOM has found a buyer for their handset business? Those would do nicely, thank you. Get ready. Assuming the market doesn't roll over on us in the next 2 weeks, this is shaping up to be a great play. Some words of caution though: DEC strike time premiums will eat us alive because they are still huge and they expire in 2 weeks. Don't buy these and sit on em. If you can stomach the price, look at and consider the JAN strikes so you don't get the stuffing knocked out of your account from the rapid time decay. For the intestinally fortified, selling ATM puts could produce a turbo-charged return, but also carries nitroglycerin-like risk. JDSU $239.94 +10.38 (-26.06) What great entry points we saw yesterday - $225 at the open with a $15 spike, all in the first hour of trade, followed by four re-tests of the $222-$225 range throughout the day. Today, $233 provided support, as JDSU (like QCOM) consolidated in low end of the channel, exhibiting higher lows. Though 40% of today's gain was a result of a gap up, Dain Rauscher Wessels issued a Strong Buy rating with a price target of $300, which helped a bunch. That follows yesterday's reiteration by SoundView of their Buy rating. JDSU too is a splitter (2:1) on Dec 30th, but it's a bit early for a serious split run to begin. Even so, as the primary producer of passive and active optical components used in NT, CSCO, LU, and TLAB's optical components, it won't stay down for long. Nonetheless, with any market correction, JDSU will likely move with it. There is strong historical support at $225 (yesterday's 10 mln shares plus confirms that), whereas channeling support is more like $227-$230. Target shoot to your own level of risk tolerance. With an almost $18 recovery since Tuesday, remember to protect your profits with stop loss orders, or at least be disciplined enough to get out and buy it back later if the trade heads south on you. While a potentially great play, it still carries above average risk. P.s. - don't be alarmed to read the Furukawa Electric of Japan sold 1.8 mln shares of JDSU (a big chunk of yesterday's volume); they did it to pare down some debt and still have 36.2 mln shares left. SDLI $167.00 +0.00 (-19.75) Like its optical brethren, SDLI kept its head pretty low (volume wise) from Tuesday's sell-off, but has only managed to recover $4.25 since then - not an inspiration. Two-week historical and channel support is at $160; near-term support is $165. Target shooting is okay, but we'd like to see more volume before taking a position. There have been no recent utterances of buyout rumors (either as acquirer or acquiree), though Dain Rauscher Wessels initiated coverage with a Strong Buy rating and price target of $200, while CSFB started coverage with a Buy rating and $210 target. Other than that, news is pretty sparse, though they did win an achievement award from an industry trade group today for designing a better amplification process (Raman amplification vs. erbium-doped amplification - Raman is better. We leave the scientific particulars to others). Wait for volume and confirm market direction before playing. **************** PICK NEWS - PUTS **************** WLP $59.56 +0.44 (+0.50) Could this be an area for entry? WLP has been up in the last two sessions, gaining $2 and is up $0.50 for the week so far. We are at a very critical point for our put play on WLP. WLP did manage a breakthrough of it's 50-dma at $58 and is inching toward it's 10-dma of $61. Should WLP breakthrough this level, it may very well be time to turn this play loose. $59 did hold WLP up for the majority of today's session and we will want to see WLP reverse and move below this level before we entertain the thought of entering a new play. One thing in favor of our put play is the continuing lack of volume. There just does not seem to be enough investor interest to maintain the momentum needed to propel WLP through the next resistance level. Time will tell. RMBS $71.31 +1.06 (-5.56) Rambus indulged in an up day thanks to the overall bullish mood of the sector with the SOX up over 28. This was in spite of some rather bleak news from the ever-Rambus-plaguing Intel. Intel announced that they have located a bug in a small number of their chips in the Pentium III family. This has been a factor in the delay of the Pentium III family launch because of problems with the 820 chipset and therefore, has caused problems with it's use of RMBS' memory enhancing technology. RMBS did a nice job of offering some potential points of entry today, giving us a trading range of nearly $4. We do not view this up day as a trend reversal being that RMBS still posted weak volume and has so much resistance yet to conquer. RMBS continues to have resistance looming above, as it bumped its head several times at $72 in the afternoon session. RMBS also has further resistance at its 50-dma of $74.50 and its 10-dma of $75.50. We would still like to see a drop below $70 to confirm downward trend and at this point would recommend waiting for this drop to occur before entering a new play. GT $32.50 -1.00 (-1.63) "It was your classic love story, boy meets girl...girl gets killed in horrible blimp accident." "Goodyear?" "No, it was the worst." (from the movie Naked Gun) That must be how GT is feeling lately as it moved down today to hit yet another new 52-week low. There seems to be nothing that can stall GT's continuing negative momentum. GT closed very close to the low of the day, positioning us well heading into tomorrow's session. GT's 10-dma is now at $35, which is still providing resistance. As the psychological levels continue to provide the only notable support, it will be important to tighten your stops and exercise caution as we approach $30. We mentioned that the volume level that GT posted on Tuesday was a point of interest, being that it was so high. As expected, we have seen a drop off in the volume, indicating a continuing lack of investor interest. EK $61.44 -1.06 (-3.06) Has Eastman Kodak been exposed? With the stock falling below support today it is very possible the shares could get weaker. The downtrend is clearly visible and intact. EK announced today that they will be expanding their presence in Times Square by updating their Kodarama display just in time for the Millennium celebration. The increased exposure is helpful but it will probably have little impact on the price of the stock. Besides, we hope to have made our profits long before the end of the year. Any trading below today's low of $61 could indicate a continuation of the downtrend but we may need to wait for a move below $60 before initiating new plays. Resistance is at $62 and $64. BOW $49.06 +1.06 (+1.94) Bowater has changed its pattern of trading contrary to the market. Could value investors be entering the market? Are there any value investors left? It is time to watch this stock very closely. It traded briefly above its resistance of $50 today. A close above $50 tomorrow might indicate more to the upside. Volume on this rally has been a little lighter than average so it is possible that BOW is just enjoying a little bounce and could resume a downtrend. A break below $48.50 could indicate a resumption of the downtrend and time to start new plays. ************** NEW CALL PLAYS ************** TIF - Tiffany & Co. $78.88 +1.00 (+2.75 this week) Tiffany & Co. sells fine jewelry, timepieces, silver, china, Crystal, stationery, and other luxury items through about 130 Tiffany & Co. stores and boutiques worldwide. They also sell via catalog. Tiffany also sells corporate gifts directly to businesses. The shares of Tiffany & Co. hit a 52-week high today, trading as high as $79.25, before settling in to close the day slightly off of the high at $78.88. The robust thanksgiving weekend sales helped some of the retailers to rebound, and other to continue to soar. TIF has "Wall Street" in awe, because if you just focus on the fundamentals, and did not look at the name of the company you would think you were looking at an Internet stock. Although TIF is not an Internet company, the bottom line grew by 71% in the most recent quarter, and they have re-launched tiffany.com just in time for the very critical holiday shopping season. The third quarter that just recently ended saw profits 16% above First Call estimates. Going forward analyst are increasing their quarterly and yearly estimates. The price surges in the stock are not a big surprise with these type of numbers. We look for higher-highs with the technical picture looking very bullish as we get closer to Christmas. We will look to enter positions at current levels $78.88, and on any pullbacks to trading support at $74-$75 levels. The chart pattern is on a favorable climb and we are expecting a breakout to occur at any time. Look for a move above $79.50 on strong volume to confirm the move. In the news recently, Amazon.com is in a deal with luxury retailer Ashford.com, so there customers will have a place to buy diamonds and other luxury goods. This recent focus on the luxury item space on the Web has shined a brighter light on the traditional retailers that have developed an online presence like Tiffany & Co., and Neiman Marcus Group Inc. BUY CALL DEC-75 TIF-LO OI= 320 at $5.63 SL=3.88 BUY CALL DEC-80*TIF-LP OI= 96 at $2.63 SL=1.38 BUY CALL JAN-75 TIF-AO OI= 84 at $8.75 SL=6.63 BUY CALL JAN-80 TIF-AP OI= 107 at $6.00 SL=4.25 SELL PUT DEC-75 TIF-XO OI= 65 at $1.63 SL=3.00 (See risks of selling puts in the play legend) Picked on Dec 2nd at $78.88 P/E = 49 Change since picked +0.00 52-week high=$79.25 Analyst Ratings 1-13-5-0-0 52-week low =$19.06 Last earnings 11/99 est= 0.24 actual= 0.29 Next earnings 03-08 est= 0.87 versus= 0.74 Average daily volume = 556 K Chart= http://quote.yahoo.com/q?s=TIF&d=3m **** AOL - America Online Inc $79.88 +3.75 (-3.88 for the week) AOL is the world's #1 provider of online services with over 21 mln subscribers. It's acquisitions in 1998 and 1999 have given the company a 60% market share and diversity. CompuServe, an online service geared more to professionals, added its 2 million users to the AOL portfolio in 1998. This year AOL brought the Web navigator, Netscape, to its organization and is also using DIRECTV to launch an interactive TV service. The decline was typical following AOL's 2:1 stock split on November 22nd. Share prices dipped over $10, surfing levels near the 30-dma indicator before recovering the past two days. The strong rebound combined with a powerful show of volume signals a much anticipated momentum run in the midst of the e-holiday excitement. This price level is an excellent entry point as it marks firm support. However, if you're a more conservative player, you'll look for another bounce on volume before beginning a play. Overhead opposition is just a stone's throw away at $85, just under the new 52-week high, but still be prepared for resistance. Today, America Online announced a 4-year, $100 mln agreement with Monster.com, a career Web site, making the company the exclusive job search provider AOL sites. Also in the news, AOL formed a 3-year pact with Net2Phone enabling user's Instant Messages to be placed and received via PCs, fax machines, or telephones. BUY CALL DEC-75*AOO-LO OI=33319 at $7.38 SL=5.75 BUY CALL DEC-80 AOO-LP OI=33881 at $4.38 SL=2.75 BUY CALL DEC-85 AOO-LQ OI=23281 at $2.38 SL=1.25 BUY CALL JAN-80 AOO-AP OI=36102 at $8.38 SL=6.50 BUY CALL JAN-85 AOO-AQ OI=29257 at $6.38 SL=4.75 SELL PUT DEC-75 AOO-XO OI=16294 at $2.00 SL=3.75 (See risks of selling puts in the play legend) Picked on Dec 2nd at $79.88 P/E = 220 Change since picked +0.00 52-week high=$87.75 Analysts Ratings 24-15-3-0-0 52-week low =$20.37 Last earnings 10/99 est= 0.13 actual= 0.15 surprise +15.4% Next earnings 01-27 est= 0.14 versus= 0.08 Average Daily Volume = 17.1 mln Chart = http://quote.yahoo.com/q?s=AOL&d=3m ************* NEW PUT PLAYS ************* JCI - Johnson Controls, Inc. $52.38 -0.81 (-3.31 this week) Johnson Controls is a global market leader in automotive systems and facility management and control. In the automotive market, it is a major supplier of seating and interior systems and services, and batteries. For non-residential facilities, Johnson Controls provide building control systems and services, energy management and integrated facility management. What is wrong with Johnson Controls? They have some solid fundamentals, a solid dividend record and they sport a very low P/E of 10.96. Despite these positives, the stock has been in a steady decline ever since its August high of $73.88. Surely, the October comments that earnings momentum may slow in 2000, have hurt the stock. The explanation for JCI's decline is two-fold. First of all, JCI is a manufacturing giant, making it a cyclical stock subject to a lot of pain in an environment of a rising Nasdaq market. Secondly, Johnson Control's stock is a victim of that annual event, "window dressing". At the end of the year money managers purge their under-performing stocks and gorge on the highest flying stocks. This behavior confirms trends in both directions. Certainly value investors will eventually step up to the plate and start buying downtrodden cyclicals like JCI and CAT but until then, the trend is your friend. A good entry point for a put position on JCI would be below today's low of $52.38. However, after four consecutive lower days, any intraday rally might be a good place to jump in. A rally above $56.50 might indicate that JCI has made a short-term bottom. BUY PUT DEC-55 JCI-XK OI= 2 at $3.50 SL=1.75 low OI BUY PUT JAN-55*JCI-MK OI=38 at $4.25 SL=2.50 Average Daily Volume = 284 K Chart = http://quote.yahoo.com/q?s=JCI&d=3m ********************** PLAY OF THE DAY - CALL ********************** TIF - Tiffany & Co. $78.88 +1.00 (+2.75 this week) Tiffany & Co. sells fine jewelry, timepieces, silver, china, Crystal, stationery, and other luxury items through about 130 Tiffany & Co. stores and boutiques worldwide. They also sell via catalog. Tiffany also sells corporate gifts directly to businesses. The shares of Tiffany & Co. hit a 52-week high today, trading as high as $79.25, before settling in to close the day slightly off of the high at $78.88. The robust thanksgiving weekend sales helped some of the retailers to rebound, and other to continue to soar. TIF has "Wall Street" in awe, because if you just focus on the fundamentals, and did not look at the name of the company you would think you were looking at an Internet stock. Although TIF is not an Internet company, the bottom line grew by 71% in the most recent quarter, and they have re-launched tiffany.com just in time for the very critical holiday shopping season. The third quarter that just recently ended saw profits 16% above First Call estimates. Going forward analyst are increasing their quarterly and yearly estimates. The price surges in the stock are not a big surprise with these type of numbers. We look for higher-highs with the technical picture looking very bullish as we get closer to Christmas. We will look to enter positions at current levels $78.88, and on any pullbacks to trading support at $74-$75 levels. The chart pattern is on a favorable climb and we are expecting a breakout to occur at any time. Look for a move above $79.50 on strong volume to confirm the move. In the news recently, Amazon.com is in a deal with luxury retailer Ashford.com, so there customers will have a place to buy diamonds and other luxury goods. This recent focus on the luxury item space on the Web has shined a brighter light on the traditional retailers that have developed an online presence like Tiffany & Co., and Neiman Marcus Group Inc. BUY CALL DEC-75 TIF-LO OI= 320 at $5.63 SL=3.88 BUY CALL DEC-80*TIF-LP OI= 96 at $2.63 SL=1.38 BUY CALL JAN-75 TIF-AO OI= 84 at $8.75 SL=6.63 BUY CALL JAN-80 TIF-AP OI= 107 at $6.00 SL=4.25 SELL PUT DEC-75 TIF-XO OI= 65 at $1.63 SL=3.00 (See risks of selling puts in the play legend) Picked on Dec 2nd at $78.88 P/E = 49 Change since picked +0.00 52-week high=$79.25 Analyst Ratings 1-13-5-0-0 52-week low =$19.06 Last earnings 11/99 est= 0.24 actual= 0.29 Next earnings 03-08 est= 0.87 versus= 0.74 Average daily volume = 556 K Chart= http://quote.yahoo.com/q?s=TIF&d=3m ************************ COMBOS/SPREADS/STRADDLES ************************ Investors Show No Fear.. Wednesday, December 1 Blue-chip stocks led the markets higher Wednesday after positive data from the NAPM offered relief from interest rate fears. The Dow closed up 120 points at 10,998 and the Nasdaq composite rose 17 points to 3,353. The S&P 500 index was up 8 points at 1,397. Declines outpaced advances by a 17 to 14 margin on heavy volume of 868 million shares on the NYSE. Only 30 stocks achieved new highs while 268 made new lows. The 30-year Treasury lost 4/32, driving the yield up to 6.30%. Tuesday's new plays (positions/opening prices/strategy): Silicon Graphics SGI FEB10C/DEC10C $0.93 debit calendar Revlon REV JAN7C/JAN10C $1.50 debit bull-call Both of our new spread candidates traded in a small range during the morning session and then fell lower as the day moved on. SGI was first to offer an entry opportunity with the calendar spread debit moving to the target price near midday. The position traded as low as $0.88 during the session. The REV play was unavailable in early trading but was easily achieved in the afternoon, when the stock dropped to the day's lows near $9.75. Portfolio plays: Market-leading stocks rallied today and the Nasdaq reclaimed some of its losses from Tuesday's drubbing after a number of positive news announcements. Mergers and earnings dominated the headlines and the market drew support from bonds' recovery following a drop in the NAPM prices index. Analysts said the manufacturing activity index for November was 56.2% versus an expected 56.3%. The report temporarily allayed fears the economy was growing at an explosive pace and investors exploited the news, moving quickly into bullish issues. Large gains in chip equipment, personal computer and other consumer products issues helped spur a broad-market rebound from recent declines. Oil companies were in the news and one of our long-term positions made the leader board. Share value in Exxon-Mobil (EXOM) rose $3 to $82.43 on the first day of trading after the industry giants merged to become the world's largest publicly traded oil company. Market bellwether Proctor & Gamble (PG) gained $4 to $112 as new money poured back into the leading conglomerates. Large companies received support from the trio of economic reports that suggested the Federal Reserve's efforts to slow the economy may be working. Solectron (SLR) bounded $4.25 to $86.75 after Merrill Lynch raised its intermediate-term rating to "buy" with a new 12-month target of $120. Analysts said SLR offers investors a diversified play on technology at a discount to other industry companies with a higher earnings growth projection. Leading Internet stocks made big gains during the session and Lycos (LCOS) participated in the rally. The stock rebounded $2.12 to $58, recovering some of the losses from recent profit-taking. One of the stocks that has failed to rally in any of the bullish market moves is Polaroid (PRD). The issue is now approaching yearly lows and our gracious exit is long overdue. The LEAPS/CC"S position was closed to preserve existing capital. The majority of our portfolio stocks did not perform well during the session but the pull-back offered some favorable opportunities. Echelon (ELON) gave us another chance for exit today as the stock price fell closer to the sold strike at $10. The neutral calendar spread traded at $2.38 credit, a $1.12 profit after one month. A $10 drop in Verity (VRTY) provided a new entry point in the short term (bullish) credit spread. The DEC80P/DEC85P traded as high as $1.25 credit. AT&T (T) was also in the news, falling $1.50 during the session after the company said it would offer new residential phone service in New York State. Our recent debit spreads traded near the original (previously unachievable) price targets. There were other issues that offered new entry opportunities including Excite@home (ATHM), E-tek Dynamics (ETEK), Peoplesoft (PSFT), TV Guide (TVGIA), and Unisys (UIS). Thursday, December 2 Equity markets continued higher Thursday and the Nasdaq resumed its record-breaking rally as inflation fears subsided. The Dow rose 40 points to 11,039 and the S&P 500 index climbed 11 points to 1,409. The technology-heavy Nasdaq composite index rocketed 99 points to 3,452, a new all-time-high. Declining issues paced the advances on active volume of more than 895 million shares on the NYSE. There were 240 stocks at new lows and 51 at new highs. The 30-year Treasury bond sank 13/32, driving the yield up to 6.33%. Portfolio plays: The stock market blasted off again today, led by telecom stocks and computer makers on new optimism that year 2000 problems will be minimal. The Dow rebounded above 11,000 and the Nasdaq rose on gains from a wide range of leading issues as investors once again embraced technology shares. With many companies posting excellent sales and record growth, traders are finding few reasons to stay away from the market. Our portfolio had its share of winners. The upcoming split for Verity (VRTY) helped the issue recover $10 of recent losses to close near $104, $20 above the sold strike price in our bullish credit spread. Another of our bull-put positions, E-tek Dynamics (ETEK) posted a $7 gain to finish near $84. Lycos (LCOS) bounced over $6 with the Internet rally, trading at a recent high in the process. Both of the bullish debit positions are now comfortably in-the-money. Excite@home (ATHM) managed a $3.75 move, climbing into the previous trading range above $50. We have a number of bullish positions on ATHM and they will all finish profitably if the stock remains in this range. Intervu (ITVU) had the smallest gain of the "new plays" group, moving up $1.43 to close at $64, and $18 above the strike price of the sold (short) option. Issues in our long-term group also moved higher. Sun Microsystems (SUNW) led the way with a $5.75 gain to finish at $136. Solectron (SLR) wasn't far behind, posting a $3 move to close at $90. Both of these plays are diagonal positions and limited upside movement is favorable. Medtronics (MDT) had great day, ascending $2 after a recent consolidation near support at $38. This position is also bullish with the sold strike at $40 and the outlook is starting to pay rewards. Motorola (MOT) managed a decent rebound, climbing-up to the $118 mark after a battle with profit-taking from the rally over the past month. Even Adobe Systems (ADBE) joined the party, recovering $2 of this weeks' losses to close at $68. Our neutral position is at the $80 strike thus we have little downside margin remaining in this correction. Our expectation is the stock price will begin to firm in the area near $65. Many of the small-cap technology stocks came back to life today. Nvidia (NVDA) was the best performer, adding $2.75 to close near $39. 3Com (COMS), Kent Electronics (KENT), MessageMedia (MESG), Net@Bank (NTBK), Peoplesoft (PSFT), Youth Networks (NETS), and Unisys (UIS) also participated in the rally. One of our negative issues was Able Telecom (ABTE). The stock price closed $3 lower after announcing that the U.S. Securities & Exchange Commission has concerns regarding the accounting of its acquisition of MFS Network Technologies from MCI/WorldCom. The company claims that it is working to resolve the SEC's concerns but a regional broker posted a news item suggesting the alleged problems were much more serious. The announcement from Asensio & Company claims this was not the first time that their audited statements reflected false earnings and suggested the company is intentionally misleading its shareholders. The neutral calendar position at $10 has very little downside but a break-even exit was available in the play during the morning session. Without more knowledge of the issue, that's probably the safest way to go. Questions & comments on spreads/combos to ray@OptionInvestor.com ********* NEW PLAYS ********* Internet ticket and travel agencies have become second nature to the vacation industry and this year's Holiday season is expected to demonstrate the awesome potential of the industry. Here are two candidates in this group of E-tailers that will benefit from the growth of Online commerce. **** PCLN - Priceline.com $65.06 *** Name Your Price! *** Priceline.com Inc. has pioneered a unique new type of e-commerce known as a "demand collection system" that enables consumers to use the Internet to save money on a wide range of products and services while enabling sellers to generate incremental revenue. Using the simple and compelling consumer proposition, "name your price," the company collects consumer demand, in the form of individual customer offers guaranteed by a credit card, for a particular product or service at a price set by the customer. Lehman Brothers recently released a list of companies that it believes will deliver the success of the new online economy while protecting investors from volatile Internet stocks. Lehman says it chose the stocks after looking at potential market size, competitive factors and value creation. It also tracked a group of trends it thinks will benefit the big-cap Internet stocks, including a migration of advertising dollars to the Internet and growth in online retail sales. PCLN was in that elite group with a couple of the heavy hitters like American Online, Yahoo and eBay. Today coverage of Priceline was initiated by Prudential with a "buy" rating based on agreements with three new airlines. Prudential is the most recent to join the long list of brokers that have upgraded the stock in recent months. From a technical viewpoint, Priceline.Com continues to show solid improvement with positive divergences in several indicators. The bounce today (Wednesday's close touched the bottom of a 14-day regression channel) was supported by heavy volume and strengthens the support above $60. The probability of a positive resolution out of the current stage I base is increasing and we are going to participate in the bullish trend with a deep ITM diagonal spread. If the stock price closes above $65 in two weeks, the short call will be assigned and the play will net a 16% return. PLAY (conservative - bullish/diagonal spread): BUY CALL JAN-50 PUZ-AJ OI=762 A=$17.88 SELL CALL DEC-65 PUZ-LM OI=2241 B=$4.75 INITIAL NET DEBIT TARGET=$12.88 TARGET ROI=16% Chart = http://quote.yahoo.com/q?s=PCLN&d=3m **** CTIX - Cheap Tickets $19.12 *** Discount Online Travel *** Cheap Tickets is a leading retail seller of discount tickets for domestic leisure air travel. The company sells airline tickets through call centers, retail stores and their Internet site at "www.cheaptickets.com." The company also offers a full complement of regularly published fares, affording customers a breadth of choice in favorably priced leisure travel that is unmatched in the industry. Cheap Tickets reported incredible growth in the last quarter with net earnings of $2.6 million and their third consecutive quarter of record gross bookings in the company's history. Net revenues increased 118% to $110 million, compared to $50 million in the third quarter of 1998. The company believes that in this quarter, continued strong demand for leisure travel, a high sales mix of non-published fares and the positive effects of higher levels of advertising, all helped contribute to the record gross bookings. The company also reported that its board of directors authorized a plan to buy-back $20 million of the company's common stock as the financial outlook and market conditions, including the recent prices of the shares, make this an attractive time to repurchase a portion of the outstanding equity. In the case of CTIX, a bullish character change is emerging from the tape as the issue enters a stage I base. The period for IPO selling is coming to a close and several oscillators are creating a positive divergence with price which bodes well for the future. The middle of November indicates an accumulation phase has begun and the recent high should be taken out fairly soon. There are two easy ways to participate in the future movement, depending on your risk/reward tolerance. The bullish calendar spread has less upside potential but also profits with the stock price relatively unchanged while the diagonal position will perform better with a significant positive move in the short-term. Both plays benefit from the time-value erosion in the sold (short-term) call option. PLAY (conservative - bullish/calendar spread): BUY CALL JAN-22.50 UEY-AX OI=88 A=$1.93 SELL CALL DEC-22.50 UEY-LX OI=64 B=$0.62 INITIAL NET DEBIT TARGET=$1.12 TARGET ROI=25% - or - PLAY (conservative - bullish/diagonal spread): BUY CALL JAN-20.00 UEY-AD OI=155 A=$2.88 SELL CALL DEC-22.50 UEY-LX OI=64 B=$0.62 INITIAL NET DEBIT TARGET=$2.00 TARGET ROI=25% Chart = http://quote.yahoo.com/q?s=CTIX&d=3m ************************************************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? 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