The Option Investor Newsletter Sunday 12-5-99 1 of 5 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 12-03 WE 11-26 WE 11-19 WE 11-12 DOW 11286.18 +297.27 10988.91 - 14.98 11003.89 +234.57 + 64.84 Nasdaq 3520.63 + 72.82 3447.81 + 78.56 3369.25 +148.10 +119.95 S&P-100 767.48 + 13.91 753.57 + 4.27 749.30 + 18.21 + 12.29 S&P-500 1433.30 + 16.68 1416.62 - 5.38 1422.00 + 25.96 + 25.84 RUT 464.58 + 5.64 458.94 - 2.33 461.27 + 11.58 + 7.28 TRAN 2928.80 + 19.64 2909.16 - 67.34 2976.50 -113.07 + 85.58 VIX 20.82 - 2.13 22.95 + 3.32 19.63 - 2.05 - .38 Put/Call .49 .42 .47 .51 ****************************************************************** Irrational Exuberance The market rallied strongly on the employment numbers on Friday and the Nasdaq and S&P-500 both closed at new record highs. The Dow came within only a few points of the previous closing high of 11326. After actually trading as high as 11341 intraday the Dow retreated to a still respectable 11286 at the close. Most of the movement for all the averages came before their 11:00 highs and then faded going into the close. The relief rally, yes I said relief, came after the Nov employment numbers were announced. Unemployment remained at 4.1% and average hourly wages clocked in with only a +$.02 increase. New jobs were created at a +234,000 pace. Not too hot, not too cold. The reason I used the term "relief rally" was simply because there was no bad news in the numbers and the worry about the report and possible Fed reaction is over. The numbers were not good, they just were not bad and the Fed is truly in hibernation until next year. The Nasdaq volume was the fifth heaviest on record again at 1.54 bln and the NYSE was also strong at over 1 bln. With the close at 3520 we are now half way to the next thousand mark of 4000 after only breaking above 3000 twenty trading days ago. Don't worry markets go up forever, right? While you are still unwrapping your early Christmas present from the Goldilocks Economy, you are probably already counting your expected profits from the continuation of this rally. Things could not be better. A true Nirvana exists in the markets. 20 million new jobs have been created since Clinton took office. This is now the longest economic expansion in history. Wages are stagnant. There are no current wars. The Fed has gone into hibernation until spring in fear of Y2K. A recent survey shows they may be the only ones still concerned about a possible Y2K economic event with only 3% of the public expecting any kind of disruptions. With no rate hikes in our near future and the consumer spending money like there was no tomorrow, what could possibly hurt us now? Third quarter earnings came in at a record +22.7%. Fourth quarter earnings are expected to be strong with no Y2K slow downs in sight. Don't get me wrong. I am as optimistic as anyone that the market will continue to go up into the first quarter of next year. BUT, when everything is too good too be true it is usually a sign that trouble is about to blind side us from somewhere. The Nasdaq is on track to post the biggest year on record with a 61% YTD gain. The previous highs were in 1991 for 56.8% (the biotech boom) and 1995/98 both posting 39% gains. Fund managers are buying champagne by the truckload with many funds gaining over 50% for the year and some with over 100% gains. They go to sleep at night with visions of dollar signs dancing in their heads from the expected year end bonuses. Do you think they may be worried a little by the ARMS index showing the Nasdaq is the most overbought since 1982. Do you think they might be ready to take some cash off the table the instant any Y2K weakness develops? Do you think they want to risk millions of dollars in personal bonuses because they hung on a week too long just trying for another couple of percentage points? When is enough, enough? Could the rally on Friday simply have been shorts covering in light of no bad news? I am not saying the market will tank on Monday although some profit taking may appear on Monday or Tuesday after such a tremendous recovery from the lows last Wednesday. What I am saying is that we should not be expecting another +500 points in the last four weeks of 1999. It is entirely possible that we are setting up for a failed rally on the Dow. This is not what we expect but the Dow needs to close above 11326 to confirm this upward move. Lets look at some interesting signals on the Nasdaq using candlestick charts. As you can see from this chart we have received about eleven strong buy signals on the Nasdaq since June 1st. Each is represented by the Hammer indicator. Almost every bottom for the last six months has been represented by this indicator. The reverse of this very bullish indicator is the Star formation. If you look at the chart you will only see a couple star formations. To be a true star the body of the star must not overlap with the body of the day before. The shadows (tails, sticks) may overlap but not the bodies. The distance from the previous day and the length of the stick is important to the strength of the signal. As you can see, the strongest moves are when the shadows on the hammers were longest and protruded into uncharted territory. The closest star to our current position was Friday the 28th, the day before the Nasdaq started its three day decline last week. The Key - if Monday is a down day for the Nasdaq the formation will become an evening star and very bearish. (see the definitions below for a better description) If you only look at the headlines, "Dow up +247 points! Nasdaq sets another record high", you will miss the warnings that technical analysis will give you. How important are these warnings? When you consider that there are over 20 important economic reports due out in just the next two weeks it could be crucial. We have the Productivity report and Unit Labor Costs on Tuesday, Import/Export Prices, and Wholesale Inventories on Thursday and the big one for the week, the PPI on Friday. The very next week we have the CPI, Real Earnings, Retail Sales and Atlanta Fed index on Tuesday, Business Inventories, Capacity Utilization and Industrial Production on Wednesday. In just the next eight days we have a serious minefield to cross. I would be real surprised if the markets just kept setting new highs during this period. However, as long as Ma and Pa investor continue to Christmas shop for stocks, any pull back will be brief. The wild card here is the shorts. I suspect that much of the buying on Friday was based on short covering after the bad numbers did not appear. There are rumors of large hedge funds that are extremely over extended after establishing short positions on every unstoppable wave of record Nasdaq highs. If the market does not relax in the next couple days these funds will be forced to start covering or face margin calls. This forced buying would again fuel the Nasdaq for another round of gains. How long can they hold out? Who knows but every day the Nasdaq stocks gain ground they get closer to their pain threshold. The lack of a Y2K sell off has prompted cautious buyers to come off the sidelines and add their cash to the already incredible fund inflows. The funds received about $34 bln in cash in November although the numbers did slow somewhat last week. A normal month is about $20 bln. My educational article this week is called "Exact Instructions" This is the fifth in the series. Look for it on the website. Have a safe week in the market. Watch for buying opportunities, pick your entry points VERY CAREFULLY and sell too soon. Jim Brown Editor *********************** Candlestick Definitions *********************** Hammer This is a bullish signal if it occurs after a significant downtrend. A Hammer is identified by a small real body (i.e., a small range between the open and closing prices) and a long lower shadow (i.e., the low is significantly lower than the open, high, and close). **** Star Stars indicate reversals. A star is a line with a small real body that occurs after a line with a much larger real body, where the real bodies do not overlap. The shadows may overlap. **** Evening star This is a bearish pattern signifying a potential top. The star indicates a possible reversal and the bearish (filled-in) line confirms this. **** Definitions are from Technical Analysis from A to Z, By Steven B. Achelis, and it is available in the bookstore for $20.95. http://www.OptionInvestor.com/bookstore/index.asp ******************** Y2K Renewal Offer!!! ******************** Announcing the cheapest renewal rate available! $24.91 mo* Long time readers know that each December we offer our subscribers an extra value package as a thank you for their support. The package this year contains (2) of our Y2K Option Expiration Calendar Mousepads and the Millennium Edition of the Stock Traders Almanac, a $50 value. You will receive two mousepads, one for home and another for the office so you have no excuse for not knowing those expiration dates and strike price codes. We are also giving away the Millennium Edition of the Stock Traders Almanac by Yale Hirsch. This almanac has thousands of facts, tips and hard information that a trader cannot live without. Just one of these facts can pay for the newsletter subscription for the entire year and there are thousands of them. This is the serious stock traders bible. And the offer is.....Renew your subscription in December at the annual rate and receive (2) Y2K Option Expiration Calendar Mousepads and the Millennium Edition of the almanac for FREE. This package has a $50 value. Added to the savings you receive on an annual subscription over the monthly rate and it is like getting over four months of the newsletter for free. A $180 value. This lowers the actual price of the newsletter to only $24.91 per month for an annual subscription. The supply of almanacs is limited so don't delay. Click here for more info. http://www.OptionInvestor.com/renewalinfo.asp *********** JIM'S PLAYS *********** QCOM - Dec-400 Naked Puts I am still holding the short position on the Dec-400 naked puts that I sold the previous week for $54. The last trade on Friday was $25. QCOM is having some trouble breaking through the resistance at the previous highs around $392 but I have two weeks left until expiration. I only need a close over $400 to capture the full $55 profit. SUNW - $120 calls SUNW died on Tuesday and I bailed on my $120 calls for a $4.00 profit and was glad I did until the bounce on Thr/Fri. Still a profit is a profit and I can't complain. BVSN - $100 calls Like I said last Sunday, I wish I had sold at the close on Friday the 26th after the big gains. When BVSN started rolling over on Monday I wasted no time in closing the position for a $6.00 profit. Thank goodness. At $90+ on Tue/Wed I would have been toast. Yes, it came back but they don't always do that! Current plays: This is the embarrassing part. After getting out of the market early in the week, I was planning to wait for a confirmation of a bottom before opening new positions. On Wednesday night after the Nasdaq had bounced off 3325 three times I decided that Thursday would be the day. I started to buy at the close on Wednesday but decided against it at the last minute. These were the stocks I had decided to play; NOK @ $142 - NOV-130 call NAY-LF @ $15.00 JDSU @ $230 - NOV-230 call UQD-LJ @ $10.00 CMGI @ $150 - NOV-160 call GCD-LL @ $ 8.63 BEAS @ $ 87 - NOV-85 call BRQ-LQ @ $ 9.13 IMCL @ $ 37 - NOV-37 call QCI-LF @ $ 7.75 I got to bed around 2:AM, tossed and turned, got to sleep around 4:AM. When the alarm went off at 7:00 (30 min before the market opens) I turned off the alarm, turned on CNBC and the next thing I new it was 9:00 and my wife is waking me up with "I thought you were going to trade today". That was a very expensive two hours of sleep. I jumped up and went to the PC to see that everything had jumped considerably at the open but CMGI, JDSU and NOK were off their highs and what would have been good entry points in retrospect looked like weakness at the time. I decided to wait. I convinced myself that with the employment report on Friday that the market would probably pull back in the afternoon. By the time I got to work, handled some problems and looked at the stocks again, it was all over but the crying. Four of the five went on to be strong winners. Only IMCL floundered. This proves a very important point. All the planning and research in the world is worthless if you don't execute your plan at the correct time. I waited three days for the rebound I knew was coming but failed to execute. I can always console myself with the "missed money is better than lost money" axiom but if you are like me, that is a slim consolation. The normal reaction would have been to chase the plays but I have also found that in most cases chasing a missed opportunity is a good way to throw money away. The market will come to me. There will be better entry points. There will be new plays. There is no time decay on cash. I am not mad at myself. I am not mad at myself. I am not mad at myself. Hopefully if I keep repeating that all weekend I will NOT be mad at myself by Monday morning. Be very careful on Monday. Look for buying opportunities during the week instead of rushing into plays just because the market is open. Remember, my trading plan is to trade "only when profitable" and yours should be also. Jim *********** OPTIONS 101 *********** Exact instructions By Jim Brown Hi Jim, You wrote: "I estimate that a trader who will follow instructions EXACTLY can net $50,000 on a $10,000 account every year without fail. Notice I said follows instructions EXACTLY. " If you give me your exact instructions I would follow them. I seem to be floundering in the wind with the worst picks, worst entries, and worst exits. I actually do worse now that I think I know something. So what are those Exact instructions? (sentiments sent by dozens of different readers last week) Now before you read this article, remember I said EXACTLY. To read the rest of this article please visit: http://www.OptionInvestor.com/options101/120599_2.asp ************ STOCK NEWS ************ Meeting the Need for Speed By S.P. Brown Unless you've been stranded on a Russian space station for the past year, you know that the Internet is expanding nearly as rapidly as the universe itself. Cyberspace is expanding so fast in fact that Internet Protocol (IP) data traffic is doubling every 100 days. /members/stocknews/120599_1.asp ******* ASK OIN ******* A handful of technology goes a long way. Welcome back to the "Ask the Analyst" column. I'm back and we've got some great charts to look at today. After the incredible run up in the Nasdaq over the last several weeks, you can imagine that the majority of questions I get are on technology stocks. We've got a few to look at today, but there were a few questions on a bank stock or two as well. /members/ask/120599_1.asp ************** Market Posture ************** As of Market Close - Friday, December 3, 1999 Key benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert DOW Industrials 10,750 11,320 11,286 Neutral 11.12 SPX S&P 500 1,340 1,425 1,433 BULLISH 12.03 * OEX S&P 100 700 755 767 BULLISH 12.03 * RUT Russell 2000 440 460 465 BULLISH 11.12 * NDX NASD 100 2,680 3,150 3,172 BULLISH 12.03 * MSH High Tech 1,340 1,630 1,677 BULLISH 12.03 * XCI Hardware 1,100 1,160 1,244 BULLISH 11.11 CWX Software 1,000 1,160 1,245 BULLISH 09.03 SOX Semiconductor 570 660 658 Neutral 11.30 NWX Networking 670 800 806 BULLISH 12.03 * INX Internet 550 675 567 Neutral 11.30 BIX Banking 645 690 632 BEARISH 11.30 XBD Brokerage 395 450 440 Neutral 11.30 IUX Insurance 625 650 607 BEARISH 11.30 RLX Retail 875 920 937 BULLISH 11.23 DRG Drug 375 395 382 Neutral 11.30 HCX Healthcare 750 790 759 Neutral 11.09 XAL Airline 180 190 149 BEARISH 05.21 OIX Oil & Gas 285 315 299 Neutral 11.23 Posture Alert Favorable employment report has the equity markets surging with several indices reaching new 52-week high. As such, we have turned Bullish across several broad market indices and industry sectors. ****************** Market Sentiment ****************** Buying Climax? After surging close to 250 points, did Friday's (12/3) favorable employment report trigger a classic buying climax that some technicians look for to signal an end of the market rally that began on October 18th? Summarized below are the gains of the respective market indices since October 15th. This seven-week period includes just 34 trading days. Market/Sector Close Close Percent Index Oct 15 Dec 3 Change Change DOW Industrials 10,020 11,286 1,266+ +12.6% SPX S&P 500 1,247 1,433 186+ +14.9% OEX S&P 100 652 767 115+ +17.6% RUT Russell 2000 415 465 50+ +12.0% NDX NASD 100 2,404 3,172 768+ +31.9% Wow! MSH High Tech 1,209 1,677 468+ +38.7% Wow! XCI Hardware 1,017 1,244 227+ +22.3% CWX Software 851 1,245 394+ +46.2% Wow! SOX Semiconductor 513 658 145+ +28.3% NWX Networking 596 806 210+ +35.2% INX Internet 484 567 83+ +17.1% BIX Banking 550 632 82+ +14.9% XBD Brokerage 354 440 86+ +24.3% IUX Insurance 512 607 95+ +18.6% RLX Retail 834 937 103+ +12.4% DRG Drug 358 382 24+ +6.7% HCX Healthcare 699 759 60+ +8.6% XAL Airline 141 149 8+ +5.7% OIX Oil & Gas 288 299 11+ +3.8& These market gains, together with the most recent market sentiment developments, has Pinnacle Capital Advisors on the defensive and we encourage investors to tightly protect their portfolio. First, despite the fact that we are close to the Y2K event, Bullish sentiment, as measured by Investors Intelligence has spiked to 53%. This contrarian indicator is reaching the same levels that presaged market sell-offs in the summer of '98 and '99. Next, our Pinnacle Index is reaching extremely levels again as option speculators buy OTM an deep OTM calls on the S&P 100 calls. Most buying and selling climaxes occur on days with major news events such as Fed meetings, earnings warnings and employment reports, Make careful note at market's activity on Monday (12/6) and Tuesday (12/7). If we see a DECLINE that causes the major indices to close BELOW their recent breakout levels, WATCH OUT. This will confirm that Friday's (12/3) action represented a classic climax and create a powerful reversal signal. Street Signs This section summarizes some of the key street signs that can help track the market's action and likely direction over the near-term. BULLISH Signs: Cash Flow: The amount of money being poured into this market continues to be strong. 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. Mixed Signs: Volatility Index (20.82): The VIX is trading once again near its previous lows. Another quick reversal at this benchmark will likely presage an intermediate top. BEARISH Signs: Pinnacle Index After Friday's (12/3) favorable employment report, OTM call option activity jumped, creating potentially excessive overhead resistance. Interest Rates (6.257%): 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 significant, 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. Higher costs 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% Friday, December 3 66,323 +83.4% 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 Benchmark (12/3) Overhead Resistance (770-800) 35.3 OEX Close 767.48 Underlying Support (730-745) 1.65 What the Pinnacle Index is telling us: After Friday's (12/3) favorable employment report, OTM call option activity jumped, creating potentially excessive overhead resistance. Put/Call Ratio Friday Strike/Contracts (12/3) CBOE Total P/C Ratio .52 CBOE Equity P/C Ratio .38 OEX P/C Ratio 1.67 Peak Open Interest (OEX) Friday Strike/Contracts (12/3) Puts 750 / 9,697 Calls 750 / 8,315 Put/Call Ratio 1.16 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 December 3, 1999 20.82 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 July 14, 1999 Top 55.2 26.7 Oct. 13, 1999 Bottom 39.2 37.5 November 18, 1999 52.1 29.9 November 26, 1999 53.0 28.7 ************* COMING EVENTS ************* For the week of December 6, 1999 Monday None Scheduled Tuesday Non-Farm productivity Q3-Rev Forecast: 4.8% Previous: Unit Labor Costs Q3-Rev Forecast: 0.2% Previous: 4.2% Consumer Credit Oct Forecast: -- Previous: $5.9B Wednesday None Scheduled Thursday Jobless Claims 12/04 Forecast: 291K Previous: 291K Import Prices Nov Forecast: -- Previous: 0.5% Export Prices Nov Forecast: -- Previous: 0.3% Wholesale Inventories Oct Forecast: -- Previous: 0.7% Chicago Fed Index Oct Forecast: -- Previous: $25.7B Friday Producer Price Index Nov Forecast: 0.3% Previous: -0.1% PPI ex. food & energy Nov Forecast: 0.1% Previous: 0.3% Week of 11/29 12/14 Consumer Price Index - nov 12/14 Real Earnings - Nov 12/14 Retail Sales - Nov 12/14 Atlanta Fed Index - Nov 12/14 Current Account Gap - Q3 12/15 Business Inventories - Oct 12/15 Capacity Utilization - Nov 12/15 Industrial Production - Nov 12/16 International Trade - Oct 12/16 Phil Fed Index - Dec 12/17 Building Permits - Nov 12/17 Housing Starts ************************************************************* Tired of waiting on trades to execute? 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The Option Investor Newsletter 12-5-99 Sunday 2 of 5 Research Analyst Wanted *********************** You can be located anywhere in the world and still work for the successful OIN team. This opening requires a proven track record of successful trading. If you have the ability to screen stocks and not look just at the technicals but actually look behind the news for the real story, then we want you. We need people that can see through the forest of confusion and hype and know when a stock is a play and more important when to pass. Anybody can pick stocks but it takes a pro to pick winning option plays consistently. Compensation is based on many factors and you can telecommute to work via email. If you want to be part of our winning research team then send us your qualifications. You will undergo a trial period where we ask you to recommend plays in real time and the results will speak for themselves. Serious applicants only need apply! Send an email to: research@OptionInvestor.com ************* WOMAN'S WORLD ************* Tweaking for Profits in Dangerous Waters Did you notice the VIX is back down into dangerous territory? We've come too far, too fast....again! My eyes glazed over when I saw the Dow up 300 points Friday!!!! My plays are already in motion for January with good entry points and most of my December calls have been rolled out. Hopefully, most of you know, not to buy on a day like this, at these highs. Usually, I only sell on days like this and wait for the profit taking that tends to follow, before I go shopping. But I am in a buying mood today. I want to tweak my YHOO Blow & Go and evaluate my final position for QCOM as well. I think I have room for a tweak. So, time is of the essence and on a high day like this, I better be right!!! I have held VRSN and it is splitting at the close of Monday. I decided to exit my play on a clear, up market and not risk holding for more gain on Monday, when the market as a whole may be weaker. Last year, when AOL was added to the S & P, it made a dramatic change in my account. With YHOO's history of blow out earnings, I expect the same, plus perhaps a split announcement. I may be wrong, but I feel like I have been here before and know the end of the story. All my other entry points have been good. This one though, is high risk and probably against all rules. After channeling most of the day, I tried to catch YHOO in the afternoon dip, but my limit on VRSN had not been hit. I changed my limit several times, but they would never take it, even though I was between the spread & at times, on the Bid. GRRRRR!!! After a frustrating hour, I realized there was low volume on that option. I'm sure someone was humored playing a game of "tag" with me. It's hard for a seller, when buyers aren't around. It cost me 2 1/2 points on VRSN and the YHOO afternoon dip! I may be wrong, but I think YHOO could gap open on Monday and have further gains. I bounced to my daily YHOO chart, to see how risky this play really is. Wow, it is sitting on its upper Bollinger band, well above its 5 and 10 dma. In other words, it's very high and technically, overbought. Normally, this is NOT the time to buy. This is opposite of what they call a good entry!! This is now a high risk news play. But, my thoughts are this. I had identified it as a play I wanted to use the Blow & Go strategy on. Remember, I want to be "given" free shares of YHOO plus make money. On November 10th, I started buying YHOO for an earnings play. My first purchases were Jan 270s at 3 1/4. These reached a high on Friday of 21 1/2. Every nice dip, I bought more, either ATM or slightly OTM, (230, 260, 270s) Januarys - for the earnings run, and April, in order to catch a potential split. YHOO continued to move, well into its split range and I felt the play working. I knew I still had the December & January rally to go. YHOO reports early in January, so it should be a good December play also. I was caught for a moment, like a deer in the headlights, when they announced YHOO was to be added to the S & P after the close this Tuesday! That means all fund/pension managers who track the S & P must buy it, to balance their portfolios. This was the exact same thing that happened to me last year with AOL!! How could I be this lucky twice?? I then bought December calls too, for a straight momentum play. All three months, will have their own momentum. Based on AOL's experience, YHOO should continue to run up. I was lucky to already be in position, but still wanted more. The best I can hope for was to grab it on any further dip and luckily, it sold off a little into the close on Friday. I bought more January 270s, realizing it was a risk, since profit taking is clearly in the air. Normally, on an up day like this, your risks are much higher entering a successful play. I have narrowed my major plays down to QCOM, YAHOO, AOL. With all the choices out there to choose from, I have narrowed my vision on these 3 heavy hitters, till either they prove me wrong, or something bigger shows up. No more playing 20 companies at once, like I am in a candy store. I've learned from past mistakes. This will help me to focus on these big movers, for maximum gain, with minimum distractions. I can play the rolling movement much more successfully. On an expected pull back this week, from last weeks gains, I will enter more January QCOM, in order to be positioned after its split date is announced and for the run up into the December 20th meeting. A little more about YHOO. Being added to the S & P can add a lot of momentum to an already hot stock. I looked at the outstanding shares in October and realized there were enough for a 2:1 split. But, what if....what if, the inclusion in the S & P ran the price way up, by a greater percentage than normal and they announced a 3:1 split?????? Gee Whiz!! There are enough shares! That has been in the back of my mind and when I saw it mentioned by someone else Friday, I realized I wasn't alone. If they don't announce a 3:1 split, I'll take the 2:1, say Thank You, and take my free shares. But if they do......what a sweet homerun play, on a great stock!!!! So, now I am positioned. I will ride YHOO until it takes a dip into earnings. On signs of weakness (or before), I will take profits and roll out. I am hoping to buy February calls when they open up, because these should capture the split with more momentum. I will hold my April 230 for free shares, for then 100 shares will either cost $11,500 or $7,666 which will be paid for by other YHOO profits. We will see if this works as planned. Keep in mind, joining the S & P is not a panacea for everything. AOL surged from December 1998, into April 1999, then sold off a week or so before earnings in April, only to hiccup, then nose dive into the August lows. Yes, the recovery has been nice. But, I've learned not to be too patient, after it cost me a bundle. I will not be that understanding with this play. If YHOO continues to dip Monday morning, I will exit this play, buy more on the bounce. By mid to late January, if a split is not announced or has already occurred, I will have exited all plays, except the ones I will exercise for shares. If the split is still pending, I will exit most of my remaining shares by split day. I know the company. I understand their business and their position in their sector. I know why I bought the options. I have a plan. I chose my entries carefully, planning ahead. I have planned my exits in the future. I know what my play is and I have narrowed my focus. I have removed all other unnecessary distractions and I will Sell Too Soon! Now, let's just hope it works! Plan your strategy, execute your plan! Renee renee@OptionInvestor.com **** LAST WEEK TURKEY, THIS WEEK BEEF (BULL) Trying to find the perfect circumstance to share this week is like delivering a baby without anesthesia, (hard laborious work for the estrogen impaired). Sorry Janar, I couldn't resist that barb. The strategy I'd like to share this week is what is sometimes called a "bull put spread". This strategy is a conservative, low risk, no think, money in the bank, strategy if you have the patience to let it ride out. It is a bullish strategy and should be used on stocks that you believe are going up. It also provides predictable monthly cash flow for people who need to generate enough cash to buy the groceries and pay the mortgage. One of the reasons I selected this strategy to share, is because many of the readers are new to options investing and might not be able to sell naked puts. While selling naked puts is a favorite strategy of mine, most brokers won't let you do it, or if they do, they have ridiculously high margin limits. The spread strategy can even be done in an IRA account, although the majority of brokerages won't let you. Rules for Conservative Bull Put Spreads * Buy a put far out of the money and sell a put the next strike price up, both in the current month, on the same stock. * Pick a stock that has upward momentum but has dropped down for a dip and just turned back up. * Make sure there is at least 1-2 points to be made on the spread * Make sure your highest strike price is below a strong support level. * Put on both legs of the trade at the same time. * Execute this strategy no longer than 2 to 3 weeks before expiration. * Unwind the spread if the stock goes below your support level I usually trade 10 or 20 contracts using this strategy. It puts cash into my account immediately. On December 1, I was watching one of my favorite stocks QCOM. The stock had put in a bottom above support at 350 and had turned back around. I called my broker and told her to buy the December 330 puts and sell the December 340 puts for a net credit of $2. QCOM was trading at 360 and I got filled at 11.75 on the Dec 340 puts (cash in) and 9.75 on the December 330 puts (cash out). The difference is a positive $2 per contract into my account. Since I entered 20 contracts, $4000 was put into my account ($2 times 20 contracts). The amount of money I had to tie up was $20,000 or the difference between the two strike prices times 20 contracts. In this case, 340 minus 330. Now I don't know about you but $4000 today on $20,000 for 2 weeks is a pretty good return. You may say, gee that's only a 20% return, but we're talking 2 weeks! The annualized return is over 500%. Tell your fund manager to put that in his pipe and smoke it. QCOM has to stay above 340 to keep the entire $4000. The actual break even is 338, the 340 strike price less the $2 premium you took in. Remember it is very important to have your higher strike price below a strong support level. In the case of QCOM, there is very strong support at 350, and I still have another 10 points of cushion down to 340! Believe me, if QCOM closes below 350 I would unwind this position fast. Now you may say, "how do I do that?" UNWINDING THE SPREAD: If QCOM goes down to 340, the cost of the puts would go up. While that sounds bad, you have to remember that you SOLD one strike and BOUGHT the other. Remember that time value is melting away each day, so the value of the options become more a function of the intrinsic value (the difference between the strike price and the stock price) and implied volatility. Even though the cost of the puts has increased significantly in price, you will not lose your shirt if the worst happens. As the stock drops the puts increase in value. Put spreads are larger when the option is at or in the money. While my spread was only $2 it was far out of the money by 20 points. If QCOM drops to 340 the spread would now be at the money and would probably be 3 to 3 1/2 points. You can calculate this by looking at the bid and ask on the "at the money" spreads when are looking to enter the trade. That way you can see your risk exposure. To unwind the spread, you would tell your broker you want to close the credit spread with a debit spread of 3 or 3 ½ points. Don't push it at this point. Remember you are buying at the ask and selling at the bid. In my case, I would be buying back the 340's and selling the 330's. My out of pocket cost would be about 3.50 points times 20 contracts or $7000, but I took in $4000 to begin with so my maximum loss is realistically $3000. How many of you would like to put $3000 at risk for a highly probable $4000 gain in 2 weeks? The actually maximum loss you could incur is 8 points, 340 minus 330 plus the $2 premium you took in. QCOM would have to fall out of the sky to somewhere around 280 to 300 in the next two weeks and someone would have to put the stock to you at the same time before you could unwind your position, which is very unlikely. I have been trading options for years and never have had the stock put to me. I hope this strategy becomes part of your trading portfolio. I know it is not easy to understand, but I have broken it down to bite size pieces and told you my entry and exit strategy. Before you attempt to bring home the bacon on this one, have some patience and paper trade this strategy. Learn what stocks have nice premiums and learn which stocks have good solid support, that way you can derive some nice steady monthly income. Good luck in your options trading. Lynda Schuepp lynda@OptionInvestor.com **** Follow the Funds A lot of people are not fully aware of the extent to which mutual funds influence stock prices. The heavy volume and strong upward momentum in the Nasdaq has been attributed to on line traders, but its actually propelled in part by the huge cash flows into the stock market by mutual funds. Americans have a love affair with funds, and the baby boomers continue to pour cash into funds at a phenomenal rate, which has been one of the key drivers fueling this long bull market. The huge population bubble born after World War 2 are now in their peak earning and investing years, and you can see this when you look at money flows. The Investment Company Institute tracks weekly flows to stock and bond funds, and on an average month in 1999 U.S. stock funds took in approximately 10 to 20 billion dollars in cash. For an individual fund at a large well known fund family such as Fidelity this works out to as much as 25 - 50 million dollars a day in cash during peak periods. Imagine yourself as a fund manager receiving 25 million dollars a day in cash into your fund. What would you buy? The choices may actually be more limited than you might think. There are thousands of publicly traded stocks out there, but how many large capitalization, liquid stocks with consistent earnings increases are there? Are you going to be able to buy and sell huge amounts of stock, for example 10 million dollars at a time without affecting the stock price? If you were to buy 10 million dollars of a 200 million market capitalization stock in the open market this would have a phenomenal effect on the price. You probably wouldn't be able to fill the order in one block unless you knew an institutional block trader who had that much to sell, so as your order was filled the price would be pushed up. A lot of funds which buy smaller stocks do so in secondary offerings so they can get large blocks at a time. Similarly, as you sell, the last block you sell will be executed at a significantly lower price than the first. A 10 million-dollar order for Cisco or Intel could be easily absorbed. Smaller cap companies are also more vulnerable to downgrades and market swings. For example, there are analysts who will take a short in a stock, then issue a sell recommendation in order to get the price down. This could hurt a micro cap company. The average daily trading volume of a stock can be indicative of the liquidity. A stock with an average daily volume of 10 million shares a day is an example of a highly liquid stock. This means stocks like Microsoft, Cisco, Intel, Dell, GE, and many of the other big stocks you see recommended on the newsletter or discussed frequently on the television. The same big companies seem to be favorites among many of the big funds. This phenomenon is what John Bogle identifies in his most recent book as reversion to the mean. The bigger the fund the more likely it is to mimic the various major averages. It's a mathematical certainty. A 100 billion-dollar fund is in fact less likely to have performance, which differs from the major averages than a smaller, more, specialized one. There are just not that many mega- capitalization liquid stocks to buy so many funds end up buying the same stocks. This is one of the reasons why the Nasdaq is up over 50% and the Nasdaq 100 is up over 60%. The funds keep buying, and the big stocks just keep getting bigger. When you look at options on a particular stock, look at the market capitalization as one of the primary institutional criteria. Nowadays anything under one billion is considered small cap, and even 10 billion at some funds. Once a company reaches 10 billion market cap the funds can buy and sell more readily, and its really the very big companies, 100 billion or more which attract the largest institutional holdings. The options on these stocks are usually more liquid, and a large institutional holding can provide a lot of support. There is a consistent pattern of investing among individuals who buy funds which is important to watch since it can give you an idea of the best time to buy options. The ICI did a study of a 50 year pattern of investments in mutual funds, and, surprisingly enough, people don't redeem their funds en masse when the market goes down, even during periods of severe market downturns the likes of which most traders of our generation have never experienced. Even after the crash of 1987, there was no large-scale redemption of stock funds. More recently, in the summer of 1998 when the Dow hit 7500 there was only a small percentage redemption. People did not sell, they just didn't buy any more shares. Generally speaking, net inflows will increase during periods of expansion and decrease during periods of economic contraction. People are scared to buy when the market is bad, and feel compelled to buy when things are good. Now for this week's trading. In last Sunday's NY Times there was an article about CMGI, Softbank and ICGE as stocks for people who want a safe way to invest in the emerging Internet market. Monday started out with a bang. The stock was up a few points in the mornings, nothing spectacular, then I almost fell out of my chair when it popped up over 12 points in the first half-hour of trading. The 160 call purchased last week at 38 I closed at 49. I immediately bought a 180 leap at 44, sold it later in the day at 48 when the stock hit a high of 170 and bought it back at 46 at the end of the day for a total one day 17 point profit. On Tuesday the stock dropped to 145 in the morning, rebounded up to 158 and spent the rest of the day flip flopping around looking for a place to settle. It bounced off 148 five or six times and the new daily trading range seems to be 148-152.On Wednesday the NAPM report and the fact that Yahoo was added to the S&P 500 helped the internet stocks. I closed the 180 call at 40 and bought a 190 call at 37. The total profit for the week on this position was 14 points, or approximately 35%. I plan to hold on to the 190 call as the employment report is due out tomorrow and could cause a wide swing in the market one way or the other. The 190 call is a deep out of the money leap, which means it has a very low delta, or percentage change in the option price compared to percentage change in the stock price. CMGI is scheduled to report earnings on December 13, and I think there is still strong upward momentum for this stock. However, I don't want to buy an in the money option right before the employment report and risk losing the weekly gains, as the stock may drop to 137 if the report is particularly bad. Mary Redmond mary@OptionInvestor.com ************** TRADERS CORNER ************** Exploitation & Pursuit Phase of the Attack In the exploitation & pursuit phase of the attack, Marines continue pursuing the enemy units with fire, but begin to set up a hasty defense to prevent being thrown off their gains by a quick counterattack. That's what I am doing on Friday morning. I am closing out positions when they hit my limit sells, or when they trigger my trailing stops: NOK Dec 140. Bought at 6.5 when NOK dipped to the newsletter support target of 136. Sold at 16 1/8, the high of the day on a strong open. Still long half of this play, which I am trailing with a stop order. NT Dec 80. Bought at 1 3/4 when NT sold off with the rest of the tech sector earlier in the week, and the newsletter said the fundamentals of the play were still intact. Sold at 3 3/4 and 4 3/4 on a strong open. VRSN Dec 190. Bought at 13.5 when VRSN dipped to the newsletter indicated support target of 180 - 185 (could have got it at 177 if I was really patient). Sold half of position at a limit sell of 17.75 yesterday; sold rest of position at 27 today with a trailing stop which I converted into a limit sell when I saw VRSN hit 215, then start coming back down. Great company, great market, good LT hold, by the way. I bought the stock in my core LT Stock portfolio and IRA in Oct at 116.5. Here, I echo Renee's comments about trading companies you know. YHOO Dec 230. Bought at 7 1/8 when YHOO dipped to the newsletter indicated support target of 218 on Tuesday. Sold today at 27. Planning on buying January Calls on mid week weakness next week. Earnings, split expectations supported by S&P 500 hype? What could be better? Currently long Jan Calls in JDSU (bought on newsletter indicated support Wed morning when stock was at 225), QCOM (bought at newsletter indicated support Wed morning when stock was at 365); Dec Calls in MACR (bought on newsletter indicated support Tues at 64... glad for the comeback after dipping as low as 61... trailing with a stop order). Despite the huge up move today, I also decided to open new positions in the following: SNE. Both December and January Calls. Jim pointed out an interesting trading pattern in SNE in one of his weekly trading recaps a week or two ago -- the stock lags moves in the American market since the Japanese market moves in reaction to the SP 500 a day AFTER big moves. Therefore, I expect that SNE will follow the rest of the liquidity driven rally higher on Monday & Tuesday. AOL. I opened a new position on AOL on Wednesday when it looked like the post split depression was over. I got confirmation of my decision with last night's news letter. I opened more January contracts today since I think that this stock has room to run even higher. The holidays are upon us and the cyber shopping season will be big. Bigger than we expect, I think. Jan Calls will give me coverage for a large part of a January earnings run, though I might trade in and out of AOL contracts several times between now an then. At least buying Jan calls gives me the potential of maintaining a smaller longer term position for this run. Overall, I have far less "Value at Risk" (a common term which wall street firms use to evaluate open positions, including derivatives) than I did yesterday. I am more "dug in" with defenses like stop loss orders. As money continues to flow in, I have shot a couple of deeper targets (AOL & SNE Jan plays), but not with anything like the same scale of capital which I had at risk even yesterday. I expect a pullback next week, maybe on Tuesday, Wednesday, or Thursday. Jim writes about normal market cycles in a trending market -- up 3 or 4 days, down 2 or 3 days. When that pullback occurs, I will be buying January Calls at the support levels which the newsletter recommends. I have made a 70% gain so far in my ST Options Portfolio in December. I need to be very cautious about not getting overconfident and making stupid plays. I need to gather my strength, humility, and judgment to just barely drop a few more balls in the corner pockets in the upcoming weeks. Janar Joseph Wasito janar@OptionInvestor.com ***************** READERS WRITE ***************** Hi Janar, A short note to say i really enjoy your writings complete with macho Marine metaphors. Trading IS a battle and anyone who thinks different will sooner or later discover that truth. I spent over a year on a border kibbutz in Israel, where people still respect strong masculinity. Wonder who they will be wanting to lead should we ever need to defend our soil. I have read somewhere that the best option traders are Marines. I'll look for the article and send it to you if possible. Brilliant writing the past few days! Keep up the good work. David **** Dear Skybox, I have been trading on the Skybox since August. I allocated $10,000 which has grown to $35,000. I have had 25 total trades with 8 losses for a total of -$17,500 and 17 gains for a total of +$42,400. about 3 of the losses have been total goofs on my part - where I have misinterpreted the Skybox triggers - particularly in the beginning. Unfortunately, I missed the Oct 19th 662 trigger and missed a great play - I have to say with affirmation that I have been greatly rewarded by following your plays and am extremely pleased and grateful! One of the most difficult parts of option trading for me has been knowing which option to buy, based on the volatility and based on price. Your direction and analysis, done by obviously talented and knowledgeable people, has greatly simplified this process for me. Thanks again for your timely and profitable advice - looking forward to more successful trading with the OEX Skybox in the future! Sincerely, Rob C. ************************ TRADING CLUB UPDATE ************************ Sunday, December 5, 1999 OPTION INVESTOR TRADING CLUBS - THEY ARE FOR EVERYONE!!! It has been a positive week for the Option Investor Trading Clubs. In speaking with several club organizers, I had one organizer tell me that she wouldn't be trading if she did not have the club to discuss her ideas and strategies. It made me wonder, how many people out there don't trade simply because they don't have the support and encouragement of other investors. I began posing this question to some of our organizers and found that indeed, this is not only a common feeling among club attendees but this is obviously the main reason for the overwhelming interest and success of the OIN Trading Clubs. There are, of course, very experienced and confident investors involved with the clubs also. It seems to be a fulfilling and beneficial avenue for all investors to relate, discuss, strategize and ponder the current market and its climate. Whether a novice or experienced investor, if you are looking for a way to increase your potential as an option investor, a trading club may be just what you need. Contact us today to find a club near you. Leslie Hamilton Trading Club Coordinator Option Investor Newsletter Visit the trading club message boards and see what others say: http://boards.OptionInvestor.com/tradersclubs/ If you would like to join contact us at Visit@OptionInvestor.com and Organize@OptionInvestor.com. LAST WEEKS CHANGE FOR THIS WEEKS PICKS: *************************************** Index Last Week Dow 11286.18 297.27 Nasdaq 3553.56 72.82 $OEX 773.86 13.91 $SPX 1447.42 16.68 $RUT 467.70 5.64 $TRAN 2937.92 19.64 $VIX 21.29 -2.13 Calls Week YHOO 258.75 26.13 Split candidate rewards handsomely HGSI 133.00 13.81 One cannot deny the phenomenal momentum CMGI 165.03 13.44 Shareholders meeting Dec 17th. Split? VISX 87.75 12.25 New, their vision looks to improve STM 133.63 11.31 Things are looking good for the Semis ANSR 33.50 10.63 New, strong moves light the fire! NOK 156.00 9.31 Talk about a recovery! +11.44 on Fri! MXIM 93.31 7.94 New, looking like filet mignon! MACR 77.50 7.38 MACR has definitely been one to watch MSFT 97.13 5.00 MSFT is a news driven momentum play EMC 95.25 4.94 A nice five day gain from EMC! TIF 80.69 3.56 Tiffany gets the stamp of approval IBI 43.75 1.88 Dropped, IBI sees a mild sell off MEDI 131.50 0.75 New, a star of the Biotech community VOD 49.44 0.69 New, has some catching up to do BRCM 207.75 0.63 BRCM didn't even bother with $200 QCOM 384.44 -0.31 We couldn't have scripted this better GMST 118.50 -1.38 Gemstar splits December 13th! NT 80.19 -1.50 Nortel makes a very nice recovery VVTV 46.06 -1.75 Upbeat with positive technical picture SNE 184.75 -2.81 See? There was no reason to worry! SDLI 184.38 -3.75 Setting a nice ascending triangle IMCL 38.13 -4.63 Dropped, IMCL gets left behind AOL 78.13 -5.25 In the midst of e-holiday excitement! QLGC 121.13 -7.94 Dropped, loses some of its luster JDSU 257.13 -14.81 Splitting in 4 weeks Puts KIDE 49.44 -13.69 New, the gift that keeps on giving RMBS 74.25 -5.38 Dropped, participates in Semi rally EK 60.13 -4.38 Could this be the picture perfect put? JCI 53.19 -3.25 JCI maintains its ever steady decline GT 33.50 -1.31 We don't think GT has bottomed just yet BOW 49.13 1.13 BOW tries to get its head above water WLP 60.63 1.25 Dropped, color returns to WLP's cheeks STOCKS ADDED TO THE PICK LIST ***************************** Calls VISX - Visx Inc ANSR - AnswerThink Consulting Group MEDI - MedImmune MXIM - Maxim Integrated Products VOD - Vodafone Group Puts KIDE - 4Kids Entertainment *************************** PICKS WE DROPPED THIS WEEK *************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS IMCL $36.56 (-4.63) Biotechnology stocks had a very good week. Unfortunately ImClone was left behind. At times, IMCL seemed like it could not even get out of its own way. In hindsight (we wish we could trade in the past!) a good indicator that IMCL might struggle was the less than ringing endorsement by Merrill Lynch. The brokerage giant started coverage of IMCL on Monday with an Accumulate rating. Considering that Merrill had participated in the recent secondary offering of IMCL, the market probably would have liked to have seen at least a Buy rating from them. If IMCL trades down to its secondary offering price of $32, it might be time to take a look at the stock again. Offering prices tend to provide excellent support. QLGC $116.19 (-7.94) The major indices got a boost Friday by the tame jobs report. The Dow and Nasdaq surged and the Semiconductor index showed gains of over 2 percent. So what happened to QLGC? We aren't exactly sure, however the chip maker seems to be loosing some of its luster. QLGC gapped up over $4 at the open, made a high of $121.13 and drifted lower for the balance of the day, closing down $0.44 for the session. There was no major news dragging the stock down, just a lack of buyers. The $115 level we mentioned Thursday did provide support, but on a day when there was a huge influx of money entering the markets, we feel QLGC should have been able to attract its share and move higher. QLGC could find its footing again and move higher but for now we will stand aside. IBI $42.25 (+1.88) Rumors have been circulating this week that IBI is considering jumping into a pool of advertisers that will spend approximately $3 mln for a 30 second ad, during this year's Super Bowl. Perhaps investors consider spending money this way is foolish, and have decided to pull some money out of the IBI's stock. Actually we think its probably just profit- taking as IBI lost $0.25 Friday to close at $42.25. The retail sector managed to gain 1.25 percent after then the release of a benign jobs report. Several national retailers this week reported increases in same store sales, but came in under analysts expectations and we've seen a mild sell off in the shares of their stock. At this point IBI seems to be losing its momentum. For now we will step back and look for stocks moving more quickly. IBI does have support at $42 for those remaining in the play. The break below this support would be bearish. PUTS RMBS $71.50 (-5.38) It looks as though investors are feeling a bit better about Rambus as of late. This could be because Intel has finally managed to locate the chip bug that has been plaguing Rambus' memory enhancing technology, and therefore can now deal with the problem. The Semis in general had a good week and Rambus seems to be participating in the sector rally. New all time highs set last week by AAPL, EMC and LSCC helped to recharge the group. Rambus has once again begun to flirt with its 10-dma and did actually manage a breakthrough of the 50-dma in Friday's session. We had a good run with RMBS, but believe the momentum may be turning and therefore are bidding RMBS farewell. WLP $60.31 (+1.25) Whatever the doctor prescribed seems to be working! The color has returned to the cheeks of Wellpoint and WLP looks to be on the road to recovery. WLP began to make a move up on Tuesday and continued to maintain positive momentum for the remainder of the week. WLP managed to find higher support each day and closed Friday smack dab on it's 10-dma. We mentioned in last Thursday's write up that the continuing lack of substantial volume was a good indication in favor of our put play. We have seen the volume picking up ever so slightly, indicating that investors are timidly stepping back into the ring. Therefore, we are stepping out. STOCK SPLIT CANDIDATES *********************** Current Split Candidates: HGSI - Human Genome Sciences SDLI - SDL Incorporated BRCM - Broadcom SNE - Sony Corp CMGI - CMG Information Services NOK - Nokia YHOO - Yahoo MEDI - MedImmune STM - STMicroElectronics Split Candidates that are not current plays QLGC - Q-Logic DCLK - DoubleClick CMVT - Comverse Tech. CHKP - Check Point STOCKS WITH UPCOMING SPLITS **************************** We don't list all splits available, only those we feel may have play possibilities. Symbol - Stock Splits/Date VRSN - Verisign 2:1 12-06-99 ex-date 12-07 SUNW - SunMicro 2:1 12-07-99 ex-date 12-08 AGN - Allergan 2:1 12-09-99 ex-date 12-10 CMTN - CopperMountain 2:1 12-09-99 ex-date 12-10 (KUA) NTRS - Northern Trust 2:1 12-09-99 ex-date 12-10 GDW - Golden West 3:1 12-10-99 ex-date 12-13 GMST - Gemstar Intl 2:1 12-13-99 ex-date 12-14 EXDS - Exodus Comm 2:1 12-14-99 ex-date 12-15 EMLX - Emulex Corp 2:1 12-15-99 ex-date 12-16 DTM - Dataram 3:2 12-15-99 ex-date 12-16 no optn BWE - BancWest 2:1 12-15-99 ex-date 12-16 ATML - Atmel 2:1 12-17-99 ex-date 12-20 ARBA - Ariba 2:1 12-17-99 ex-date 12-20 TVGIA- TV Guide 2:1 12-17-99 ex-date 12-20 IDPH - IDEC Pharma 2:1 12-20-99 ex-date 12-21 BEAS - BEA Systems 2:1 12-20-99 ex-date 12-21 NTAP - Network Appliance2:1 12-20-99 ex-date 12-21 MRCY - Mercury Computer 2:1 12-20-99 ex-date 12-21 PPRO - PurchasePro.com 3:2 12-20-99 ex-date 12-21 MXIM - Maxim Integrated 2:1 12-21-99 ex-date 12-22 UNFY - Unify Corp 2:1 12-21-99 ex-date 12-22 CMRC - Commerce One 3:1 12-23-99 ex-date 12-27 XLNX - Xilinx 2:1 12-27-99 ex-date 12-28 ICGE - Internet Capital 2:1 12-27-99 ex-date 12-28 JDSU - JDS Uniphase 2:1 12-29-99 ex-date 12-30 HD - Home Depot 3:2 12-30-99 ex-date 12-31 WCOM - MCIWorldcom 3:2 12-30-99 ex-date 12-31 INSP - Infospace 2:1 01-04-00 ex-date 01-05 JNPR - Juniper Netwk 3:1 01-14-00 ex-date 01-18 For a complete list of all the coming splits check out the "split calendar" on the side of the online edition newsletter page. ******************** THE PLAYS OF THE DAY ******************** With all the great plays each week we can never decide on just one so take your pick. Call plays of the day: ********************** MEDI - MedImmune $131.50 (+0.75) See sector list for details Chart = http://quote.yahoo.com/q?s=MEDI&d=3m **** TIF - Tiffany & Co. $79.69 (+3.56) See sector list for details Chart = http://quote.yahoo.com/q?s=TIF&d=3m Put play of the day: ******************** EK - Eastman Kodak Company $60.13 (-4.38) See put list for details Chart = http://quote.yahoo.com/q?s=EK&d=3m ******************** Y2K Renewal Offer!!! ******************** Announcing the cheapest renewal rate available! $24.91 mo* Long time readers know that each December we offer our subscribers an extra value package as a thank you for their support. The package this year contains (2) of our Y2K Option Expiration Calendar Mousepads and the Millennium Edition of the Stock Traders Almanac, a $50 value. You will receive two mousepads, one for home and another for the office so you have no excuse for not knowing those expiration dates and strike price codes. We are also giving away the Millennium Edition of the Stock Traders Almanac by Yale Hirsch. This almanac has thousands of facts, tips and hard information that a trader cannot live without. Just one of these facts can pay for the newsletter subscription for the entire year and there are thousands of them. This is the serious stock traders bible. And the offer is.....Renew your subscription in December at the annual rate and receive (2) Y2K Option Expiration Calendar Mousepads and the Millennium Edition of the almanac for FREE. This package has a $50 value. Added to the savings you receive on an annual subscription over the monthly rate and it is like getting over four months of the newsletter for free. A $180 value. This lowers the actual price of the newsletter to only $24.91 per month for an annual subscription. The supply of almanacs is limited so don't delay. 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The Option Investor Newsletter 12-05-99 Sunday 3 of 5 ************* DEFINITIONS ************* SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. TP/P= True premium or Time premium RRR = Risk/Reward/Ratio ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume MTD = Move to double - amount stock must move to double option price in one week. ONE WEEK MOVE ONLY ! Numbers within ( ) are the amount of change for the week. Numbers within ( ) may be designated with PxW, like P3W, prior 3 weeks The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. *********** CALLS PLAYS *********** Hardware *********** EMC - EMC Corporation $95.25 (+4.94)(+0.93)(+6.69)(+8.93) Memory hardware and software is their primary focus. EMC Corporation is the #1 maker of mainframe computer disk memory hardware and software. EMC makes memory storage and retrieval systems for larger mainframe computers as well as UNIX and Windows NT systems, using redundant array of independent disks or (RAID). With an emphasis on overseeing a corporation's Internet data, EMC continues to boost its presence in software and related services. About 80 percent of EMC's revenue comes from storage hardware. Over the last 5 years EMC's earnings have increased an average of 30 percent annually. EMC competes in the market place with IBM, Compaq and Hitachi. Shareholders of EMC stock enjoyed a nice gain the last five days. EMC won a permanent injunction against Hewlett-Packard (HWP), barring HP from infringing on trademarks registered to the storage maker. In a lawsuit filed this summer, HP released the SureStore E Disk Array MC256 to compete against similar products from EMC but referred to it as the "E MC256". On July 8th a preliminary injunction was issued, and Thursday it became permanent. That announcement drove the price of EMC shares over $5 higher. Friday EMC tacked on another $1.88 with the release of the government's November jobs report. We could see traders take some money off the table early next week. EMC did make a new high at $96.81 but pulled back to close at $95.25, near its low of the session. From the low of the week made on Tuesday at $82.50, EMC has gained $12.75. If you re-entered a play in EMC Wednesday or Thursday, we would suggest assessing your profit objectives and moving your stops close. Remember if you get stopped out, you can always buy it back. As for entering a new play in EMC, we would do so cautiously, as EMC has surged higher for the last three days. A retracement to the $90 support level, which is near its 10-dma at $89.54, followed by a bounce with solid volume would be viewed as a good buying opportunity. In other news the volume and volatility in the options pits in Chicago dropped back to near average Friday with a turnover over just 9800 contracts. The volatility for the December 95 Calls was roughly 46 percent which was little changed from Thursday, when over when over 20,000 contracts exchanged hands. ***December contracts expire in two weeks*** BUY CALL DEC- 90*EMB-LR OI=4354 at $ 7.13 SL= 5.25 BUY CALL DEC- 95 EMB-LS OI=2831 at $ 4.00 SL= 2.50 BUY CALL DEC-100 EMB-LT OI=1288 at $ 1.81 SL= 1.00 BUY CALL JAN- 95 EMB-AS OI=1054 at $ 7.38 SL= 5.75 BUY CALL JAN-100 EMB-AT OI= 896 at $ 5.25 SL= 3.50 Picked on Nov 14th at $82.69 P/E = 95 Change since picked +12.56 52-week high=$96.81 Analysts Ratings 15-8-3-0-0 52-week low =$33.00 Last earnings 10/99 est= 0.27 actual= 0.29 surprise=+7.4% Next earnings 01-25 est= 0.31 versus= 0.24 Average daily volume = 5.75 mln Chart = http://quote.yahoo.com/q?s=EMC&d=3m **** GMST - Gemstar International $117.13 (-1.38)(+13.88)(+4.25) Gemstar International Group makes videorecording systems. They develop, market and license proprietary technologies and systems under the "VCR Plus+" name. Their VCR Plus+ system lets users program VCR's simply with one-to eight-digit codes published in TV listings worldwide. Gemstar's primary source of revenues are from licensing fees paid by consumer electronics manufacturers and publications for the licensing of the VCR Plus+ technology and the right to print the PlusCode Numbers. Gemstar has signed long-term renewals of license agreements with Sony Corp, and Thomson Consumer Electronics. Recently they launched the system in Mexico, the 40th country in which VCR Plus+ programming is offered. Our focus in Gemstar is a 2:1 split on December 13th. After making a high at $122, shares of Gemstar fell victim to profit- taking until late Wednesday afternoon. Buyers stepped in near the $110 level of support and began to bid shares of GMST higher. Selling was orderly on the way down with the volume on the average to light side. Friday with the broader markets exploding after the release of the employment report, GMST joined in. Volume on Friday was still less than average at 1.01 mln. GMST ran into overhead resistance at $118.50, closing in the middle of its range for the session. The next challenge for our play is to continue the upward momentum. Traders will have basically just the next five trading days to kick this split run back into high gear. We are not giving up on this play as many times the week prior to a split is when the excitement begins to boil and the stock runs to new highs. Should we see a pullback in the broader markets, GMST could retreat to the area of $112-$113. Should you want to consider a new play or adding to existing positions, enter only on continued moves higher supported by better than average volume, or a bounce off the previously mentioned support levels, again supported by strong volume. ***December contracts expire in two weeks*** BUY CALL DEC-110 GST-LB OI= 477 at $10.88 SL=8.75 BUY CALL DEC-115*GST-LC OI=3884 at $ 8.13 SL=6.25 BUY CALL DEC-120 GST-LD OI=1043 at $ 5.00 SL=3.25 BUY CALL JAN-120 GST-AD OI=3491 at $ 9.13 SL=6.75 BUY CALL JAN-125 GST-AE OI=1523 at $ 7.38 SL=5.50 SELL PUT DEC-105 GST-XA OI= 828 at $ 1.81 SL=3.50 (See risks of selling puts in the play legend) Picked on Nov 18th at $104.88 P/E = 157 Change since picked +12.25 52-week high=$122.00 Analysts Ratings 7-0-0-0-0 52-week low =$ 25.31 Last earnings 10/99 est= 0.18 actual= 0.19 surprise +2.5% Next earnings 02-10 est= 0.21 versus= 0.17 Average daily volume = 1.22 mln Chart = http://quote.yahoo.com/q?s=GMST&d=3m **** BRCM - Broadcom, Corp. $207.75 (+0.63)(+10.63) Broadcom Corporation is a leading provider of highly integrated, silicon solutions that enable broadband digital transmission of voice, data and video content to and throughout the home and within the business enterprise over existing communications infrastructures, most of which were not originally intended for digital transmission. Using proprietary technologies and advanced design methodologies, Broadcom designs, develops and supplies integrated circuits for some of the most significant broadband communications markets, including the markets for cable set-top boxes, cable modems, high-speed office networks, home networking, direct broadcast satellite and terrestrial digital broadcast, and digital subscriber line ("DSL"). BRCM decided not to even bother with the $200 resistance level but rather gapped up to open at $205 on Friday. $200 is now serving as support and BRCM has further support at its 10-dma, currently at $198.50. Though BRCM did manage to trade above $210 early on, it did struggle late day. This looks to be our next level of resistance and we will want to see a breakthrough of this level to confirm continuing momentum (with the new price target of $250 from Dean Witter on Thursday, this may not be too hard!). BRCM set a new 52-week high in November of $215.25 and this will serve as resistance once we make it through $210. Again, as far as making a new entry, waiting for pullbacks will be your best bet. BRCM does a nice job of providing these on a regular basis so just keep an eye out. BRCM has strong momentum and consistently good volume, just the kind of indications we like to see for a solid call play. BRCM received the Fabless Semiconductor Association's top award for the 2nd year in a row. Analyst Alvin Kressler of Kauffman Brothers noted BRCM's intimate knowledge of the system along with the ability to anticipate emerging market needs and therefore, deliver before competitors. The report went on to note that BRCM is moving towards doubling it's net sales from 1998, one of the fastest moves in history for of the chip industry. Another report out last week cited BRCM as being the leader in the Home Networking Chip arena. Jeff Thermond, Vice President and General Manager of BRCM's Home Network Unit, stated that BRCM cannot keep up with demand. Hopefully, shares of BRCM will encounter the same dilemma! There seems to be plenty of optimism out there to fuel our run. ***December contracts expire in two weeks*** BUY CALL DEC-200*RDZ-LT OI=1311 at $17.88 SL=14.00 BUY CALL DEC-210 RDZ-LB OI= 438 at $12.88 SL=10.25 BUY CALL DEC-220 RDZ-LD OI= 485 at $ 8.88 SL= 6.50 BUY CALL JAN-210 RDZ-AB OI= 400 at $25.38 SL=20.00 SELL PUT DEC-180 RDZ-XP OI= 964 at $ 3.00 SL= 5.00 (See risks of selling puts in play legend) Picked on Nov 28th at $207.13 P/E = 258 Change since picked +0.63 52-week high=$215.25 Analysts Ratings 6-13-1-0-0 52-week low =$ 42.50 Last earning 10/99 est= 0.21 actual= 0.26 Next earning 01-26 est= 0.27 versus= 0.13 Average Daily Volume = 2.06 mln Chart = http://quote.yahoo.com/q?s=BRCM&d=3m **** SNE - Sony Corp $183.13 (-2.81)(+9.31)(+0.13)(+11.81)(+4.94) Sony is a consumer electronics and multimedia entertainment company. It sells products like TVs, VCRs, MiniDisc systems, stereos, digital camcorders, DVD video players, and the Playstation home video game system. It is also in the process of strengthening its position in the music and image-based software markets. Some of Sony's entertainment assets include Columbia TriStar Motion Picture, Columbia TriStar Television, Sony Pictures Studio, and Columbia and Epic record labels. Other high-tech products include flat-screen TVs, digital TVs, CD-ROMs, and digital cellular telephones. See? No reason to worry! Admittedly, I did a bit of head scratching on Friday morning as I watched Sony pullback while the market soared up over 200 points. Apparently, there were a few investors out there that needed a little extra holiday shopping money. Once profit-takers were satisfied, Sony made a good move up, taking a little time to dance along $180 before closing up nearly $2.50. Sony posted strong volume, a good indication of rejuvenated investor interest. Sony broke above it's 10-dma of $182.75, which is now serving as support. Sony has further support at the ever present $180 (if you have been playing Sony, I am sure you understand why I refer to this level in this fashion). Sony has some resistance to conquer right around its 5-dma of $184.50 however, we do not see this as being much of an obstacle, being that SNE has had no real trouble trading consistently above this level in the past. The big hurdles in the road look to be at $185 and $190. Hopefully, everyone who wanted in was able to make an entry last week, since we had some good points of entry offered. If you are still looking to hop on the Sony train, your best bet is to wait for intraday dips on any profit-taking pullbacks, but be sure to look for support levels to hold before entering. An article released on Friday noted the amazing and enduring success of the Sony PlayStation, which may very well be on track to sales in the neighborhood of 1 million. Sony plans to allocate nearly one quarter of its 2000 capital budget to the development of the PlayStation 2. The article went on to say that Sony's game operations are most likely the leading factor in the more than doubled stock price for the last year. ***December contracts expire in two weeks*** BUY CALL DEC-175 SNE-LO OI=212 at $14.00 SL=11.25 BUY CALL DEC-180*SNE-LP OI=379 at $10.25 SL= 7.50 BUY CALL DEC-185 SNE-LQ OI= 47 at $ 7.25 SL= 5.25 BUY CALL JAN-180 SNE-AP OI=193 at $15.00 SL=11.75 SELL PUT DEC-175 SNE-XN OI= 53 at $ 1.25 SL= 2.50 (See risks of selling puts in the play legend) Picked on Nov 7th at $164.69 P/E = 55 Change since picked +18.44 52-week high=$192.00 Analysts Ratings 0-1-0-0-0 52-week low =$ 65.50 Last earnings 10/99 est= N/A actual= N/A Next earnings 01-00 est= N/A versus= N/A Average Daily Volume = 176 K Chart = http://quote.yahoo.com/q?s=SNE&d=3m **** STM - Stmicroelectronics $131.38 (+11.31) STMicroelectronics is a global independent semiconductor company, that designs, develops, manufactures and markets a broad range of semiconductor integrated circuits and discrete devices used in a wide variety of microelectronics applications, including telecommunications systems, computer systems, consumer products, automotive products and industrial automation and control systems. STM gapped higher today at the open on what has been a theme of sorts for the stock this week. Tuesday shares were halted after the announcement of being added to MSCI France index, when they reopened the price had gapped up sharply from $122 to $127. The shares then consolidated for a couple days after the healthy spike, but did not sell-off. That is always a bullish sign. Well, on Friday traders seemed refocused and ready for action, after a favorable economic report sparked a rally in all markets. The SOX Semiconductor Index gained 8.28 points, but closed off the highs of the day. Looking at the chart for STM, it is almost a mirror of the SOX. A good help for tracking direction of the sector on a daily basis. STM hit a new 52-week high today at $133.63, only to give back some of the gains late in the trading day to close at $131.38. The recent consolidation was definitely settled to the upside as both of our resistance points were taken out nicely $127.50 and $130. With the bright outlook for the Semiconductor stocks, we look to see higher prices in the short-term. Keep in mind the volatility, keep stops tight, and take profits accordingly. Volume is going to have to increase for us to see a major break above current highs, it seems to be lagging slightly. A move above the old high of $133.63 would be a nice confirmation of Friday's breakout. Economics for the so-called "system on a chip" (SOC) players is looking brighter each day. We are hearing rumors that STM's flash chips will soon replace DRAM. We don't know how true that is. One thing that is true, the move towards SOC is allowing the silicon suppliers to capture more of the value and better profits. ***December contracts expire in two weeks*** BUY CALL DEC-125*STM-LE OI=67 at $ 9.75 SL= 7.25 BUY CALL DEC-130 STM-LF OI= 9 at $ 6.75 SL= 5.00 low OI BUY CALL JAN-125 STM-AE OI=85 at $15.00 SL=11.75 BUY CALL JAN-135 STM-AG OI= 0 at $ 9.75 SL= 7.25 just opened! Picked on Nov 30th at $125.06 P/E = 76 Change since picked +6.31 52-week high=$133.63 Analyst Ratings 12-2-2-0-0 52-week low =$ 31.88 Last earnings 10/99 est= 0.43 actual= 0.46 Next earnings 01-25 est= 0.56 versus= 0.42 Average daily volume = 1.02 mln Chart = http://quote.yahoo.com/q?s=STM&d=3m *********** BIOTECH *********** VISX - Visx Inc $87.75 (+12.25) Visx is engaged in the design, marketing, and sales of its Star S2 excimer laser correction unit. This was the first FDA approved laser eye surgery machine that is used to correct near-sightedness, astigmatism, and far-sightedness. Surgeons to correct other defects and diseases of the cornea in an outpatient procedure also use this machine. Their vision for the future looks to be improving! VISX seems to be embarking on a positive momentum run, fueled by overall investor and analyst confidence in the company. VISX hit the bottom of a rather lengthy downward trend at $57.25 on Nov 1st. Since then VISX has been moving up steadily, in a nearly picture perfect upward trend, gaining nearly $27 so far while posting good volume all the way. VISX experienced what looks to be a brief period of profit-taking and consolidation mid-month. A new FDA approval (see below) helped VISX to regain it's momentum. VISX has solid support right around $80 with the 10-dma poised to catch at $79.50. Though VISX may encounter some resistance at $90, we see the formidable resistance being $100, which did manage to hold VISX back in September. Obviously, we have some room here, but make note to tighten your stops as we approach this level. VISX does a nice job of providing some room for entry with regular intraday dips, so keep an eye out for these. VISX was plagued for some time by a lawsuit filed by NIDEK, which appears to be nearing resolution. Many are expecting a ruling in favor of VISX based on previous rulings in similar cases. Admittedly, news is somewhat difficult to dig up at this point, but we will certainly keep you posted as it becomes available. On the Nov 21st, VISX announced that the FDA had approved their laser used for the treatment of nearsightedness, which helped the shares to make a healthy climb and reclaim positive momentum. ***December contracts expire in two weeks*** BUY CALL DEC-80 VFS-LP OI=2010 at $12.63 SL=10.00 BUY CALL DEC-85*VFS-LQ OI=2579 at $ 9.75 SL= 7.25 BUY CALL DEC-90 VFS-LR OI=2945 at $ 7.25 SL= 5.50 BUY CALL DEC-95 VFS-LS OI= 948 at $ 5.38 SL= 3.50 Picked on Dec 5th at $87.75 P/E = 70 Change since picked +0.00 52-week high=$103.88 Analysts Ratings 7-4-3-0-0 52-week low =$ 17.13 Last earning 10/99 est= 0.34 actual= 0.36 Next earning 01-20 est= 0.38 versus= 0.18 Average Daily Volume = 1.92 mln Chart = http://quote.yahoo.com/q?s=VISX&d=3m **** HGSI - Human Genome Sciences, Inc. $129.31 (+13.81)(+16.13) Human Genome Sciences develops drugs and diagnostic products based on human genes. The company also researches non-human genes, including those of bacteria, fungi, and viruses, which could prove useful in the creation of vaccines and antibiotics. Although HGS has no marketable products, it has several in clinical testing. HGS has formed collaborations with SmithKline Beecham, Takeda Chemical Industries, Merck and The Institute of Genomic Research. these firms pay HGS to develop products for cancer, heart disease, arthritis and Lou Gehrig's disease. HGS has one-third of a joint venture developing gene therapy for vascular diseases, and has discovered a protein that could treat AIDS and other immune disorders. As of mid June 1999, HGS had filed patent applications that describe the medical uses of more than 6,450 newly discovered human genes. What is driving up the price of HGSI? Good question. One cannot deny the phenomenal momentum of this stock. The most significant news item occurred on October 27th. The Board of Directors called for a special shareholders meeting seeking the authorization to increase the number of common shares from 50 mln to 250 mln. The meeting is scheduled for Dec 16th. The implication of such a large increase in common stock is probably a stock split. Visions of sugar plums are dancing in the heads of investors. Even though, as we all know, a stock split changes absolutely nothing about the fundamentals and prospects of a company. With potential for more than a 2:1 split, investors are lining up for all of that potential holiday cheer. Who are we to fight them? After all, emotions drive markets and with potential blockbuster discoveries and a pending split, HGSI is creating a lot of warm fuzzies. Last week HGSI was the recipient of a lot of good press. CNBC focused on HGSI when it talked about the potential blockbuster drugs that may come out of the NIH's human genome project. HGSI founder, Dr. William Hazeltine was quoted, "One or two drugs can drive the success of a pharmaceutical company." The bet on Wall Street is that HGSI has a better chance than most to capture the prize of a blockbuster new drug. The Biotechnology Index has doubled in the last year and HGSI has been leading the way. Last week was no exception. We had a scare on Tuesday when short-term profit- taking drove HGSI's shares down to support at $110 but it made a nice bounce. The rest of the week was much better for those long HGSI, with the stock closing on Friday up nearly $14 for the week. New positions can be placed for aggressive investors when HGSI takes out its high of $133. ***December contracts expire in two weeks*** BUY CALL DEC-125 HQI-LE OI=12 at $10.25 SL= 7.25 low OI BUY CALL DEC-130*HQI-LX OI=72 at $ 7.25 SL= 5.25 BUY CALL JAN-130 HQI-AX OI= 8 at $14.13 SL=11.25 low OI BUY CALL JAN-135 HQI-AW OI=26 at $11.75 SL= 9.25 Picked on Nov 28th at $115.50 P/E = N/A Change since picked +13.71 52-week high=$133.00 Analysts Ratings 1-4-2-0-0 52-week low =$ 28.75 Last earning 10/25 est=-0.42 actual=-0.42 Next earning 02-11 est=-0.68 versus=-0.55 Average Daily Volume = 403 K Chart = http://quote.yahoo.com/q?s=HGSI&d=3m **** MEDI - MedImmune $131.50 (+0.75) MedImmune, located in Gaithersburg, Maryland, is a biotech company focused on developing and marketing products that address medical needs in areas such as infectious disease, transplantation medicine, autoimmune disorders and cancer. MEDI markets three products through its hospital-based sales force and has five new product candidates in clinical trials. MedImmune's stock has been one of the stars of the Biotech community. Synagis, their major drug, is a humanized monoclonal antibody marketed for the prevention of serious lower respiratory tracy disease. Sales for all of their products for the nine months ended 10/99 increased a whopping 74% and get this, they actually showed a profit of $23.6 million versus a loss of $16.4 mln (Profits can to be a rarity in this market for stocks that have quadrupled from their lows). Take a look at the Biotechnology Index (BTK). It is clearly one of the strongest industries technically in the market. The index took out its September high last week to form a very bullish cup-and-handle pattern. MedImmune has been trading right along with the index. The excitement for MEDI may lie more in their pipeline than in their current products. Including a possible treatment for graft-versus-host disease, vaccines for human papillomavirus (HPV), an anti-cancer compound, and a drug for urinary tract infections. MEDI has had a nice run, but the shares still offer appeal for the speculative trader. MEDI's share price is very volatile. The last time it traded in the low $130's it pulled back to $116, forming a nice bottoming pattern. The pullback was healthy and probably shook out some of the short-term speculators. It is possible that a break to new highs could result in several days of advancing stock prices. Therefore, a good entry point would be to buy if MEDI trades above $132. $120 has proven to be pretty decent short-term support, so less aggressive investors may want to wait for a test of that support before initiating a bullish position. ***December contracts expire in two weeks*** BUY CALL DEC-125 MEQ-LE OI= 312 at $10.25 SL=7.50 BUY CALL DEC-130*MEQ-LF OI=1251 at $ 7.38 SL=5.75 BUY CALL DEC-135 MEQ-LG OI= 77 at $ 4.88 SL=2.75 BUY CALL JAN-135 MEQ-AG OI= 149 at $10.88 SL=8.75 Picked on Dec 4th at $131.50 P/E = 80 Change since picked +0.00 52-week high=$132.00 Analysts Ratings 10-3-0-0-0 52-week low =$ 33.25 Last earning 10/20 est= 0.10 actual= 0.10 Next earning 01-27 est= 0.69 versus= 0.59 Average Daily Volume = 951 K Chart = http://quote.yahoo.com/q?s=MEDI&d=3m *************** Internet *************** ANSR - AnswerThink Consulting Group $33.50 (+10.63) AnswerThink Consulting Group is a leading integrated e-business solutions provider. With its recent merger with THINK New Ideas, the company now helps design, build, market, and support the e-business efforts of a growing list of FORTUNE 1000 and dot-com clients. AnswerThink offers a wide range of integrated solutions including e-business consulting, marketing, branding and creative content development, benchmarking, best practices, web-design, e-business transformation, custom application development, software package implementation, e-commerce and decision support technology. The strong moves in the Internet sector lit a fire under ANSR this week. The sheer momentum propelled the stock through strong resistance at $28 and $30 by Thursday. The powerful rally on Friday added icing to the cake as ANSR advanced above the 5-dma ($28.60) for the second consecutive day. Support is firmly established much lower at $23 and $24 with the 10-dma ($25.94) trailing slightly above this level. After five straight days of whopping gains - and I mean whopping at 46.5% - beware of traders taking some cash off the table. If ANSR can handle any backlash without falling apart (that is holding a price level around $28), then consider overhead resistance a mere hop away at $36.62. However take note, the last time ANSR traded at these levels was in May of 1998 when it set this 52-week high. It's very important to confirm stock direction and have a bullish market sentiment intact before you open a new position on this technical play. This is after all a HIGH-RISK INTERNET PLAY! Last month CSFB started coverage for ANSR with a Buy rating and issued a target price of $40. Just this week AnswerThink Consulting announced it was chosen by eBricks.com, an e-commerce solution company exclusively for the procurement of construction materials and equipment, to further develop their network. ***December contracts expire in two weeks*** BUY CALL DEC-25*QRA-LE OI=297 at $8.75 SL=6.75 BUY CALL DEC-30 QRA-LF OI=513 at $4.25 SL=2.75 BUY CALL JAN-25 QRA-AE OI=397 at $9.38 SL=7.25 BUY CALL JAN-30 QRA-AF OI=338 at $5.88 SL=4.25 BUY CALL JAN-35 QRA-AG OI= 0 at $3.13 SL=1.50 New Strike Picked on Dec 5th at $33.50 P/E = 82 Change since picked +0.00 52-week high=$36.62 Analysts Ratings 2-4-1-1-0 52-week low =$ 9.25 Last earnings 10/99 est= 0.10 actual= 0.10 Next earnings 02-02 est= 0.10 versus= 0.08 Average Daily Volume = 588 K Chart = http://quote.yahoo.com/q?s=ANSR&d=3m **** CMGI - CMGI Inc. $160.06 (+13.44)(+21.75)(+23.38) They invest in the future of the Internet. CMGI develops and operates Internet and direct marketing companies as well as venture funds focused on the Internet. They assist in the internal development and the operation of their majority owned subsidiaries within the CMGI Internet Group. CMGI has a stake in more than 40 Internet Companies including Lycos and Raging Bull. They also own 83% of search engine AltaVista. They have a majority interest in Engage Technologies, ADSmart, NaviSite and MyWay.com. Services include Web Hosting, ad serving, and traffic analysis. Located in Andover, MA, CMGI competes in the marketplace with Safeguard Scientifics, SOFTBANK, and ideally. A gain of over $13.00; just another week in the life of a CMGI stockholder. Don't we wish it were that easy. CMGI had quite a volatile week after exploding to a new high Monday, offering a nice return since being selected to our play list. What was behind the move this week? On Monday, AltaVista announced it was acquiring the remaining shares, that it doesn't already own, in online investor site Raging Bull. CMGI is the majority stock- holder in AltaVisa. Then the bears stepped in on Tuesday after CMGI hit $170.75, stuffing money in their pockets, and headed to the bank since CMGI was trading under $120 two weeks earlier. On Wednesday afternoon the investors came back in force once CMGI hit just below $145 and began to buy. Thursday CMGI received support from an analyst at Wit Capital, when he revised his operating estimates and price target for the CMGI. On Thursday afternoon, Navisite, another Web hosting Company, which is a majority-owned company of CMGI, reported a 252% quarterly increase in revenues over the prior year, but a $10.6 million loss or $3.49 per share compared to $0.56 a year earlier. This may have held shares of CMGI back a bit on Friday, when the November jobs report was released. CMGI added $8.90 before falling back to close at $160.06, up $3.94 for the session. As for our play in CMGI, technically, major support is seen at $145, followed by intraday levels at $151 and $157. CMGI reports earnings December 15th and we could see an earnings run begin to kick in. The annual CMGI stockholders meeting is scheduled for December 17th, which could be a good time to announce a split as well. For next week would look for any dips to the support levels as a chance to enter or add to existing positions. If we see continued upward momentum, we would also look to buy, but would suggest setting your stops according to your own risk profile. We will be closing out positions ahead of earnings despite a possible split being announced at the shareholder meeting. We can always play it again once we know how soon the ex-date will be. In other news Wednesday, CMGI announced it has acquired the instant messaging system Tribal Voice Inc. Financial terms of the deal were undisclosed. Company officials said they plan to merge previously acquired Activerse into Tribal Voice to form a single corporation offering real-time communications software and instant messaging. ***December contracts expire in two weeks*** BUY CALL DEC-150*GCB-LJ OI=4035 at $16.13 SL=12.50 BUY CALL DEC-155 GCD-LK OI= 585 at $13.25 SL=10.75 BUY CALL DEC-160 GCD-LL OI=2918 at $10.63 SL= 8.25 BUY CALL DEC-165 GCD-LM OI= 163 at $ 8.63 SL= 6.50 BUY CALL DEC-170 GCD-LN OI=1651 at $ 7.00 SL= 5.25 Picked on Nov 21st at $124.88 P/E = 39 Change since picked +35.19 52-week high=$170.75 Analysts Ratings 4-6-0-0-0 52-week low =$ 16.34 Last earnings 09/99 est= 4.08 actual= 4.24 surprise=+3.9% Next earnings 12-15 est=-0.16 versus= 0.38 Average daily volume = 4.28 mln Chart = http://quote.yahoo.com/q?s=CMGI&d=3m **** SDLI - SDL, Inc. $183.00 (-3.75)(+19.25) 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 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. A little bit like QCOM, SDLI is setting up a nice ascending triangle or pennant on lower volume (at least compared to November) portending a breakout. While support still seems strong at the $165 level, the best buying opportunity it could muster Friday was $169. As the lows move higher, look for $171- $173 to provide support. Resistance is $185 with blue sky available for your investing pleasure over $190. Target shooting at support (pick your level according to your tolerance for risk) should give you a good entry. A note of caution - we are not likely to see a sustained breakout without first seeing volume. It is highly likely that we will see a pullback from the current level before it moves any higher - SDLI simply needs to consolidate its three-week move from $120. Again, SDLI is deep into split territory, with the previous (and only) 2:1 announced in March at just $75. We are way over that now, and management seems to currently lack the desire to announce a split. Though anything is possible, the most likely scenario would be to simultaneously announce with earnings in February. Why the big moves in the first place? SDLI is emerging as a strong and able (but still smaller) competitor to JDSU and is rumored to be a buyout target of CSCO. They also are rumored to be considering an acquisition of their own in this currently hot industry. As mentioned in previous write-ups, news is sparse. However, CSFB came to the party on Wednesday with a new price target of $210 and a Buy rating, while Dain Rauscher Wessels initiated coverage with a Strong Buy rating and price target of $200. Like QCOM, time decay will really eat up your capital here. Don't just buy and sit on these. This play may fit your profile for covered calls too. Selling the DEC-180 (ITM) produces an 8% return through December 17 if called. Just watch the downside if the speculative frenzy ends. ***High time value risk*** ***December strikes expire in 2 weeks*** BUY CALL DEC-175 YSL-LO OI= 85 at $20.63 SL=16.00 BUY CALL DEC-180 YSL-LP OI= 92 at $18.25 SL=14.25 BUY CALL DEC-185*YSL-LQ OI= 99 at $16.00 SL=12.50 Picked on Nov 23rd at $167.50 P/E = 249 Change since picked +15.50 52-week high=$189.63 Analysts Ratings 8-9-0-0-0 52-week low =$ 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 = 777 K Chart = http://quote.yahoo.com/q?s=SDLI&d=3m **** VVTV - Value Vision International $46.06 (-1.75)(+4.31) Value Vision International, Inc. owns and operates the third largest and fastest growing home shopping network and a companion Internet shopping website, both which are being re-branded as SnapTV and SnapTV.com, respectively, as part of a wide-ranging direct e-commerce strategy the Company is pursuing with NBC Internet (NBCi). The moves are expected to position SnapTV and NBCi as the leaders in the ongoing convergence of television and the Internet, combining the promotional and selling power of television with the purely digital world of e-commerce. Value Vision, which is approximately 40% owned by GE Equity and NBC, offers live programming 24 hours per day, 7 days a week. VVTV and Wine.com announced plans for a series of new shows during the year 2000 after Friday's record success during a two hour, prime time premier simulcast in which live TV programming was converged with Internet technology in the sale of wine. With the Nasdaq surging once again after favorable economic data the shares of VVTV pushed higher as well, to a high of $47.63, but ended the day only up fractionally ($0.56) to close at $46.06, down $1.75 points for the week. VVTV looks upbeat as we look to next week, as the technical picture remains positive, each pullback has been met with higher-lows, especially after the Wednesday drop. It has been a good stock to buy on the dips and is now back above the 10-dma at $45.13. The trading pattern is volatile, but that can provide good entry and exit points for quick profits. Resistance remains at $50-$51. A breakout above this level on good volume would be bullish. Media stocks could attract extra attention this week as Paine Webber opens its 27th Annual Media Conference. The major players are scheduled to be there. The conference runs Monday through Friday. These conferences usually turn new investors on to the stocks in the sector. ***December strikes expire in 2 weeks*** BUY CALL DEC-45*UVR-LI OI=747 at $3.50 SL=1.75 BUY CALL DEC-50 UVR-LJ OI=228 at $1.50 SL=0.75 BUY CALL JAN-45 UVR-AI OI=146 at $5.88 SL=4.00 BUY CALL JAN-50 UVR-AJ OI=491 at $3.88 SL=2.25 Picked on Nov 28th at $47.81 P/E = 68 Change since picked -1.75 52-week high=$51.00 Analyst Ratings 1-0-0-0-0 52-week low =$ 4.75 Last earnings 11/23 est= 0.02 actual= 0.06 Next earnings 01-00 est= 0.06 versus= 0.06 Average daily volume = 441 K Chart = http://quote.yahoo.com/q?s=VVTV&d=3m **** AOL - America Online Inc $78.13 (-5.25) 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 starting to recover on Wednesday and Thursday. The strong two-day rebound combined with a powerful show of volume signals a much anticipated momentum run in the midst of e-holiday excitement although AOL did receive an added boost on Thursday. Traders were pleased with the company's announcement of a 4-year, $100 mln agreement with Monster.com, a career Web site, making the company the exclusive job search provider on AOL sites pumping up the stock 4.4%. Friday the stock showed promise and opened higher at $83.50, but immediately became a victim of profit-takers. The volume was strong throughout the day and this usually indicates a bearish sentiment, although AOL is holding at support and did make a valiant effort to climb back above $80 just before the bell. We are looking for support at $75 to hold and would be a good point to target shoot. Technically, if you're a little more conservative, you'll look for a confirming 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. In other news this week, AOL formed a 3-year pact with Net2Phone enabling user's Instant Messages to be placed and received via PCs, fax machines, or telephones. And surprisingly, AOL announced it's paying for user referrals. It will pay Web site operators a minimum of $15 for each new subscriber they recruit, increasing the amount paid based on the total number of referrals. The catch? A new user must stay on AOL for at least 90 days. ***December strikes expire in 2 weeks*** BUY CALL DEC-75*AOO-LO OI=33063 at $6.13 SL=4.25 BUY CALL DEC-80 AOO-LP OI=32218 at $3.25 SL=1.75 BUY CALL DEC-85 AOO-LQ OI=23951 at $1.63 SL=0.75 BUY CALL JAN-80 AOO-AP OI=45539 at $7.38 SL=5.75 BUY CALL JAN-85 AOO-AQ OI=28703 at $5.38 SL=3.75 SELL PUT DEC-75 AOO-XN OI=18965 at $1.13 SL=2.50 (See risks of selling puts in the play legend) Picked on Dec 2nd at $79.88 P/E = 232 Change since picked -1.75 52-week high=$87.75 Analysts Ratings 24-15-3-0-0 52-week low =$20.38 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 = 17.3 mln Chart = http://quote.yahoo.com/q?s=AOL&d=3m **** YHOO - Yahoo! Inc $253.00 (+26.13)(+8.13)(+21.81) Yahoo! Inc is a global Internet media company that offers an online guide to web navigation, plus a branded network of comprehensive information, communication services, and shopping access to millions of users daily. Over 32 mln users visit the Web site each month. Yahoo! operates in the black with the bulk of its revenues derived from advertisements commissioned by its list of about 3800 clients. YHOO is a split-candidate play powered by investor enthusiasm which typically surrounds this high-flying Internet. In the past, the company has announced stock splits when the share price reaches $200 to $220. Obviously YHOO is now trading way above these levels. It was previously thought that YHOO did not have enough shares to authorize another split. We have found new data that contradicts that viewpoint. It appears that YHOO has 900 mln shares authorized and only 263 mln outstanding. Therefore, this Internet blue chip could announce a split if it wants to. If Yahoo decides to announce at the 4th Annual Shareholders' Meeting then we'll be waiting around until May 12th. However, the next earnings' report is coming up next month confirmed for January 11th, after the bell. Besides the stock split anticipation, the arrival of the holiday season and 'tis the season to buy online can only help to boost YHOO's share price. The very gutsy who bought on the plunge, or for that matter even the more conservative at near-term support ($225 to $235), were handsomely rewarded the past three days. On Wednesday YHOO prices surged $16.94 (7.6%) on news YHOO was added to the S&P 500 Index replacing Laidlaw Inc (LDW) and comparable gains extended into Thursday's session ahead of the Jobs Report. Thursday was its own special day. YHOO "unequivocally squashed" April's record high of $244 when it peaked at $250 and closed strong at $245.81! After this paramount achievement and not knowing the outcome Friday's economic data we recommended caution. All was for naught - YHOO raged on to hit $258.75 and set another 52-week high! Also on a positive note, CSFB reiterated its Buy rating on Friday. Unless the market rolls over in the next couple weeks, YHOO is poised to go the extra mile. Again support is around $225 to $235 with the 10-dma ($229.12) smack in its midst. However, beware of a return to this level. If YHOO is going to make a solid run in new territory then near-term support should begin to evolve around $240. Of course however, this is a suggestion and the ultimate decision is yours. Only you know your pocketbook and stomach's tolerance for risk. ***December strikes expire in 2 weeks*** BUY CALL DEC-250*YMM-LJ OI=3561 at $14.75 SL=11.75 BUY CALL DEC-260 YMM-LL OI=2868 at $10.00 SL= 7.50 BUY CALL DEC-270 YMM-LN OI=2803 at $ 6.50 SL= 4.75 BUY CALL JAN-250 YMM-AJ OI=7041 at $27.38 SL=21.50 BUY CALL JAN-260 YMM-AL OI=1037 at $22.88 SL=18.00 BUY CALL JAN-270 YMM-AN OI=3853 at $18.88 SL=14.75 Picked on Nov 18th at $212.56 P/E = 1188 Change since picked +40.44 52-week high=$258.75 Analysts Ratings 13-16-4-0-0 52-week low =$ 9.69 Last earnings 10/99 est= 0.09 actual= 0.14 surprise=+55.6% Next earnings 01-11 est= 0.15 versus= 0.07 Average Daily Volume = 7.54 mln Chart = http://quote.yahoo.com/q?s=YHOO&d=3m *************************************** PLAYS CONTINUED IN SECTION FOUR *************************************** ******************** Y2K Renewal Offer!!! ******************** Announcing the cheapest renewal rate available! $24.91 mo* Long time readers know that each December we offer our subscribers an extra value package as a thank you for their support. The package this year contains (2) of our Y2K Option Expiration Calendar Mousepads and the Millennium Edition of the Stock Traders Almanac, a $50 value. You will receive two mousepads, one for home and another for the office so you have no excuse for not knowing those expiration dates and strike price codes. We are also giving away the Millennium Edition of the Stock Traders Almanac by Yale Hirsch. This almanac has thousands of facts, tips and hard information that a trader cannot live without. Just one of these facts can pay for the newsletter subscription for the entire year and there are thousands of them. This is the serious stock traders bible. And the offer is.....Renew your subscription in December at the annual rate and receive (2) Y2K Option Expiration Calendar Mousepads and the Millennium Edition of the almanac for FREE. This package has a $50 value. Added to the savings you receive on an annual subscription over the monthly rate and it is like getting over four months of the newsletter for free. A $180 value. This lowers the actual price of the newsletter to only $24.91 per month for an annual subscription. The supply of almanacs is limited so don't delay. Click here for more info. http://www.OptionInvestor.com/renewalinfo.asp ************************************************************* 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 ************************************************************** ******************************* CALLS CONTINUED IN SECTION FOUR ******************************* SEE DISCLAIMER IN SECTION ONE
The Option Investor Newsletter 12-5-99 Sunday 4 of 5 *************** PLAYS CONTINUED *************** SOFTWARE *************** MSFT - Microsoft Corp $96.13 (+5.00)(+5.13)(-3.19) Microsoft is the #1 software company in the world. They develop, manufacture, license, and support a broad range of software products including Windows operating systems, server applications, the popular MS Office suite, and a Web Browser. The company is presently involved in anti-trust issues with the government. CEO and co-founder, Bill Gates still owns 15% of Microsoft. There's no doubt about it, MSFT is a news-driven momentum play. We added it to our call list on November 21st after it showed signs of a resurrection following its painful demise to the 200-dma (then at $85-86) as a result of the monopoly and bully lashing it took from US District Judge Thomas Penfield Jackson. The eventual appointment of a mediator, Richard A. Posner, Chief Judge of the 7th US Circuit Court of Appeals, to negotiate an out-of-court settlement in the governments antitrust case against Microsoft was the stock's saving grace. This catalyst led to lots of intraday activity and entry points while MSFT traded primarily between $89 and $92. The awaited breakout began on Wednesday and since, MSFT has made over $5, or 5.6% in gains. Now the real battle emerges. MSFT faces strong resistance at $95 and $96. Looking at a six- month chart you can find the peaks in this range. Therefore it's reasonable to assume that an earth-shattering event like an out-of-court settlement with the government, for example, coupled with a bullish market may be necessary for a run to $100.75, the 52-week high. Events surrounding this news-driven momentum play were mixed this week. On Tuesday MSFT and its government opponents met for the first time in Chicago with mediator, Judge Posner. Negotiations were hush-hush and no comments were released. Although there was a new twist. The Justice Department recruited veteran investment banker, Robert Greenhill, to its team. Some say this is a signal the government is campaigning for a breakup of Microsoft. Product news was also on the agenda. Microsoft 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. In the international arena, Microsoft "formally announced" to the Japanese government its intention to buy the 60% stake in Titus Communications which is now held by MediaOne Group. ***December contracts expire in two weeks*** BUY CALL DEC- 90*MSQ-LR OI=28024 at $7.00 SL=5.25 BUY CALL DEC- 95 MSQ-LS OI=34594 at $3.50 SL=1.75 BUY CALL DEC-100 MSQ-LT OI=28002 at $1.19 SL=0.50 High Risk! BUY CALL JAN- 95 MSQ-AS OI=25225 at $6.38 SL=4.75 BUY CALL JAN-100 MSQ-AT OI=30579 at $3.88 SL=2.50 BUY CALL JAN-105 MSQ-AA OI=22572 at $2.38 SL=1.25 Picked on Nov 21st at $86.00 P/E = 62 Change since picked +10.13 52-week high=$100.75 Analysts Ratings 14-18-3-0-0 52-week low =$ 54.62 Last earnings 10/99 est= 0.34 actual= 0.38 surprise=+11.8% Next earnings 01-19 est= 0.42 versus= 0.36 Average Daily Volume = 25.5 mln Chart = http://quote.yahoo.com/q?s=MSFT&d=3m **** MACR - Macromedia Inc. $76.63 (+7.38)(+6.63) 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 Infrastructure, which will provide developers and companies with the first comprehensive, integrated solution for creating, managing, personalizing and analyzing Web content. MACR was definitely a stock to watch this past week, and especially on Friday. The internet software developer continued to fly high on the back of the $44 million dollar investment from Sequoia Capital and Internet heavyweight Jim Clark, co-founder of Netscape. This investment will be used to develop shockwave.com, MACR's Web based animation viewer that is now a premier destination for Net surfers. They already claim over six million registered members and a registration rate of 50,000 per day. That is not hits to the site, that is registrants...WOW!. With this kind of news saturating the street on Friday, as well as a favorable economic report that evaporated fears of rising interest rates, it is no wonder MACR soared to a new 52-week high of $77.50. The momentum continued to build as the trading day progressed before the stock settled in to close just off of the highs at $76.63. Earlier in the week the stock pulled back nicely to fill the gap, and wipe out the remaining profit- takers, as support held up strong at the $63 level. Support now sits way down at the $67.50 level so keep trailing stops tight to protect current gains. We had been waiting for all of the technicals to hit on all cylinders, and with the volume now picking up, and converging with the prices and moneystream, we could see higher-highs. Looking to enter the stock going forward, target shoot your way in around $72-74 with protective stops behind any new positions. MACR has now successfully transformed into one of the most visible Internet applications participants in the market. The core business of building software has redefined Internet content and driven the company to a 28% annual growth over the past five years. ***December strikes expire in 2 weeks*** BUY CALL DEC-70*MRQ-LN OI= 539 at $ 9.25 SL= 7.00 BUY CALL DEC-75 MRQ-LO OI= 12 at $ 6.00 SL= 4.25 low OI BUY CALL JAN-70 MRQ-AN OI= 56 at $13.63 SL=10.75 low OI BUY CALL JAN-75 MRQ-AO OI= 0 at $11.38 SL= 9.25 just opened! Picked on Nov 23rd at $67.56 P/E = 114 Change since picked +9.06 52-week high=$77.50 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 = 895 K Chart = http://quote.yahoo.com/q?s=MACR&d=3m ******* Telecom ******* VOD - Vodafone Group $49.44 (+0.69) Formed earlier this year, when the UK's Vodaphone group bought AirTouch Comm, Vodafone AirTouch provides international mobile telecommunications services. VOD operates analog and digital cellular network services including voice communications, messaging, paging, and mobile data services. They serve over 31 million mobile phone customers in 23 countries, with over nine million subscribers in the United States and more than seven million in the UK. They take on the best, competing with AT&T, BT, and Cable & Wireless. VOD recently announced a bid for Germany's Mannesmann. You've seen the name in the headlines almost on a daily basis. Vodafone AirTouch has been in the process of attempting to buy Germany's Mannesmann for some time now and it has turned ugly, well maybe just uglier. In what started out as a friendly takeover gesture has now evolved into almost a soap opera type climate. Early last month VOD offered $106 billion for the German telecom company. Although VOD made it clear it wouldn't be defeated easily, shares of the company's stock dropped from just above $52 to $43 as investors became uncertain whether VOD could pull the deal off or not. Well, this week with the current bid by Vodafone approaching $147 billion it appeared as though the odds of a takeover are improving. Investors in Mannesmann will have about 2 months to consider the after VOD publishes the offer documents later this month. During that time VOD could raise its offer or Mannesmann could find a partner to ward off VOD's approach. If Vodafone's shares keep rising, investors say they probably would support the takeover, as the decision for Mannesman shareholders rests partly on what VOD's share price is the day they have to decide. Shares of VOD have began to climb along with the volume. Friday VOD gained $1.44 on better than average volume of 4.97 mln shares. So how do we play this new addition to our call list? VERY CAREFULLY. This on-again, off-again hostile takeover bid for Mannesmann could cause shares of VOD to skyrocket or fall out of bed. It would appear as though all the fuss coming from Mannesmann executives is an attempt to drive the takeover bid higher. It does appear at this time that the deal will probably happen. In considering a position in VOD, remember this could be an extremely volatile play but once the merger news is finalized, VOD has a lot of make up ground to cover in this hot sector. Saturday morning several Hamburg-based shareholders in Mannesmann filed a suit against the company's CEO for trying to woo selected investors in his favor to help fight the takeover. The attorney filing the suit says the company's lobbying isn't in the best interest of shareholders and wants to prevent the German Company from spending money on advertising to promote its defense against Vodafone. (Stay Tuned) ***December contracts expire in two weeks*** BUY CALL DEC-45*VOD-LI OI=5802 at $5.13 SL=3.25 BUY CALL DEC-50 VOD-LJ OI=4602 at $1.69 SL=0.75 BUY CALL JAN-45 VOD-AI OI=3045 at $6.50 SL=4.75 BUY CALL JAN-50 VOD-AJ OI=5826 at $3.38 SL=1.75 BUY CALL JAN-55 VOD-AK OI=1638 at $1.75 SL=0.75 Picked on Dec 5th at $49.44 P/E = 93 Change since picked +0.00 52-week high=$53.63 Analysts Ratings 6-3-3-0-0 52-week low =$27.73 Last earnings 10/99 est= N/A actual= N/A Next earnings 01-00 est= N/A versus= N/A Average daily volume = 3.55 mln Chart = http://quote.yahoo.com/q?s=VOD&d=3m **** NT - Nortel Networks $80.19 (-1.50)(+0.44)(+8.69)(+3.75)(+6.88) Here come 'Ol Flat Top; he come groovin' up slowly. What does this has to do with the new era of communications, we don't know. But the bandwidth enabling capability of NT equipment is causing the Internet to "Come Together" (the Beatles song used in NT's TV commercials) with PC's, TV's, LANs, plus wireless and fiber data/voice communications systems everywhere. NT makes the equipment that makes the electronic convergence possible. With over $19 bln in sales, they are number #2 behind competitor Lucent in size. Canadian Telecom owns 40%. The U.S. accounts for over 50% of sales. Ol' Flat Top got a haircut this week - fortunately, just a little trim around the edges when all was said and done, despite a low of $73.38 on Wednesday. All we can say is "nice recovery". The fact is, the recovery wasn't as strong as we would like to have seen. Note that volume has pulled back to roughly the ADV on Thursday and Friday's market-wide recovery. That tells us that the funds or institutional investors are not as interested in the issue as they use to be, and are looking elsewhere at the moment for something more reasonably priced. At least there was enough interest to recover the gap down loss - a positive technical indicator. Support remains fairly solid at $75...a bit less solid at $79.50. If you made money on this play over the last 2 days and still hold a position, you may want to consider setting a trailing stop at the $79 level, then a buy limit at $75 (the old sell it and buy it back cheaper theory). Otherwise, consider target shooting at your comfort level somewhere in between. Be sure to keep an eye on the volume. Without it, we won't see the kind of gains we've become accustomed to in the past. Despite its #1 optical equipment sales volume ranking ahead of Lucent, NT may need some rest following a 60% gain since mid-October. NT gaps up and down a bit more too, making it tough to chase. The point is, be satisfied with some smaller profits right now until the volume returns. As a reminder, $88 price tag puts NT into split range. Remember too since NT is buying CLFY, it's possible to earn a 30% greater return playing CLFY options in buyout sympathy. Soundview still has a target price of $110; CSFB reiterated a Strong Buy rating; ABN AMRO also upped their earnings outlook along with a target price, now $100. Early in the week, NT announced a sale of $200 mln of GSM (wireless) equipment to a French firm, and announced the purchase of a Spanish design, engineering and maintenance firm, Radiotronica. ***December strikes expire in 2 weeks*** NORTEL STRIKES: BUY CALL DEC-75*NT-LO OI=2072 at $6.75 SL=5.50 BUY CALL DEC-80 NT-LP OI=3450 at $3.50 SL=1.75 BUY CALL DEC-85 NT-LQ OI=2509 at $1.50 SL=0.75 High Risk BUY CALL JAN-80 NT-AP OI=1350 at $6.75 SL=5.00 BUY CALL JAN-85 NT-AQ OI= 664 at $4.75 SL=3.00 CLARIFY STRIKES: (CLFY = $101.38) BUY CALL DEC- 95 QCY-LS OI= 20 at $ 7.88 SL= 6.25 $6.38 ITM BUY CALL DEC-100 QCY-LT OI= 39 at $ 5.63 SL= 3.75 BUY CALL DEC-105 QCY-LA OI= 15 at $ 5.00 SL= 3.25 BUY CALL JAN-100 QCY-AT OI= 16 at $11.88 SL= 9.50 BUY CALL JAN-105 QCY-AA OI= 22 at $ 9.38 SL= 7.00 Picked on Nov 7th at $68.81 P/E = 481 Change since picked +11.38 52-week high=$82.19 Analysts Ratings 12-12-3-0-0 52-week low =$22.06 Last earnings 10/99 est= 0.26 actual= 0.28 surprise=7.7% Next earnings 01-26 est= 0.44 versus= 0.36 Average Daily Volume = 4.0 mln Chart = http://quote.yahoo.com/q?s=NT&d=3m **** NOK - Nokia $156.06 (+9.31)(+13.25)(+11.25)(+6.38) Finnish Phone Firm, Nokia is the world's number one maker of wireless cellular phones, ahead of Motorola, Ericsson and Qualcomm. In addition they make wireless networking equipment, PC monitors and workstations, digital satellite and cable network systems and set-top boxes. However mobile phones make up 80% of their $18.5 bln in annual sales. Return on equity is an industry smokin' 43%, and they currently sit on $3.3 bln cash, or slightly over $3 per share. Only a hunch, but do you think they'd make a great candidate to purchase QCOM's handset business? Wow! Talk about a recovery...+$11.44 on Friday! As we suspected could happen, NOK had a great Friday thanks to renewed buying interest - more than twice the ADV. A ton of buy orders at the open caused a big gap open to a new high, and NOK never looked back. What caused the buy orders in the first place? Multiple analysts' upgrades. The Chairman of NOK said that revenues would grow from 30-40% through 2002, whereas the previous estimates were an already lofty 25-35%. Chairmen don't just let out every last foot of their line in the same cast either. You can bet he's being conservative and will now likely surprise the Street with earnings too. To up the revenue projection only to meet the revised earnings expectation looks bad. As goes the cockroach theory (where there is one, there are many), so goes analyst upgrades and thus stock prices. The long-term looks really great for them. NOK now expects 1 bln worldwide subscribers by the end of 2002, a year ahead of schedule - that's like cramming an extra year of revenue into the 2 years you've already been given. Need evidence? Smith Barney raised earnings estimates by a modest 8%, but the price target by 63%, from $135 to $220 (they had to just to stay ahead of the game). On the old resistance equals new support theory, $150 could be the target; in the channel - $145. Pick your mark according to your risk profile, but realize you may not get filled thanks to these earnings/price revisions, so long as demand (volume) remains high. In after-hours trading on Friday, NOK was already up another $6 to $162 so we may have to resort to intraday dips for entrance for a quick momentum play. The big news is contained above. Just note that CSFB also raised their target price and earnings estimates following the Chairman's comments too. This puts NOK on the fast track for another split now that the price is back over $150, and more likely to remain there. ***December strikes expire in 2 weeks*** BUY CALL DEC-150 NAY-LJ OI=872 at $9.25 SL=7.00 BUY CALL DEC-155 NAY-LK OI=471 at $6.75 SL=5.00 BUY CALL DEC-160 NAY-LL OI=926 at $4.00 SL=2.50 BUY CALL DEC-165*NZY-LM OI=212 at $2.56 SL=1.25 BUY CALL JAN-160 NAY-AL OI=848 at $9.00 SL=6.75 BUY CALL JAN-165 NZY-AM OI= 77 at $7.25 SL=5.50 Picked on Nov 14th at $122.25 P/E = 125 Change since picked +33.81 52-week high=$162.00 Analysts Ratings 13-8-0-0-0 52-week low =$ 47.81 Last earning 10/99 est= 0.52 actual= 0.57 surprise= 9.6% Next earning 01-28 est= 0.66 versus= 0.58 Average Daily Volume = 2.8 mln Chart = http://quote.yahoo.com/q?s=NOK&d=3m **** QCOM - Qualcomm Inc. $384.44 (-0.31)(+17.69)(-10.94) QUALCOMM Incorporated is a leader in developing and delivering innovative digital wireless communications products and services based on the Company's CDMA digital technology. The Company's major business areas include CDMA phones; integrated CDMA chipsets and system software; technology licensing; and satellite-based systems including OmniTRACS® and portions of the Globalstar(TM) system. Headquartered in San Diego, Calif., QUALCOMM is included in the S&P 500 Index and is a 1999 FORTUNE 500 company. We couldn't have scripted this play any better. QCOM behaved exactly as expected finding support at higher-lows on low consolidating volume. If the channel holds, $368 +/- will be the new support. Also textbook-like, resistance came at $390 (actually $392) before heading down again. In Friday's euphoria, QCOM found support at $383, but we think there will be dips to buy along the way to a probable breakout. Remember, QCOM is forming an ascending pennant on the chart, which generally portends a breakout on huge volume. What will drive the volume? The 4:1 split (which will be voted upon at a special shareholder meeting on Dec 20th - any objections?) which will likely be effected quickly thereafter; and then the prospect of QCOM making an announcement of the disposition of its handset business at the same time. Barring the normal market fluctuations or a market- wide meltdown, look for entry points on ascending support and sell points at $390 as long as volume remains low. We are not suggesting this will be the date (it could obviously happen sooner or later), but December 9th or 10th is the graphical convergence date. It is also well into the time period when a typical split run takes place. When you see big volume move the price over $392 and Dec 20th hasn't happened yet, get on the train, but don't give up give up your judgement. Until then, plan your trades using support and resistance just like any other. The news is above, but some words of caution before you jump in: don't buy December strikes and sit on them. The time decay will eat us alive with only 2 weeks to go, not to mention that they will be worthless 3 days before the shareholder meeting. As we noted Thursday, 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. HIGH PREMIUM ALERT !! Another good strategy for this play would be to go long the stock and write covered calls at or out of the money. The premiums are so inflated that even an ATM contract with 10 trading days remaining can yield roughly a 5% return until December 17th. ***December strikes expire in 2 weeks*** BUY CALL DEC-370 AAF-LN OI=2577 at $29.25 SL=22.00 BUY CALL DEC-380 AAF-LP OI=2194 at $23.00 SL=18.00 BUY CALL DEC-390*AAF-LR OI=2188 at $18.13 SL=14.00 BUY CALL DEC-400 AAF-LY OI=3501 at $14.38 SL=11.50 BUY CALL JAN-380 AAF-AP OI=1240 at $47.88 SL=37.50 BUY CALL JAN-390 AAF-AX OI= 741 at $45.00 SL=35.00 SELL PUT DEC-360 AAF-XL OI=1108 at $ 8.00 SL=10.25 (See risks of selling puts in the play legend) Picked on Nov 16th at $330.00 P/E = 302 Change since picked +54.44 52-week high=$406.13 Analysts Ratings 6-8-4-0-0 52-week low =$ 24.50 Last earnings 11/99 est= 0.88 actual= 0.91 Next earnings 01-19 est= 0.95 versus= 0.33 Average Daily Volume = 5.9 mln Chart = http://quote.yahoo.com/q?s=QCOM&d=3m **** JDSU - JDS Uniphase $251.19 (-14.81)(+52.19)(+13.81) Uniphase Corporation is a fully integrated optical electronics company that designs, develops, manufactures and markets fiber optic telecommunications components and modules and laser subsystems. The Company's telecommunications products include semiconductor lasers, high-speed external modulators, transmitters, fiber Bragg gratings and optical modules for fiber optic networks in the telecommunications and cable television industries. Based in the Silicon Valley, California, they employ approximately 6260 people worldwide. Customers include Lucent, Nortel, Cisco and Ciena. American Express owns 10% of the common shares. "Dear God, please let there be one more company like Intel to invest in, and I promise not to mess it up this time". Here's your big break. JDSU makes the laser modules and pumps (in addition to other components) that split a fiber optic strand into many different, potentially unlimited channels. Effectively they do for light what Intel does for electrons. Their components are critical to the development of optical networks. Here's another incredibly profitable play since Wednesday's dip to $221 - JDSU is up 14% in 2 trading days. Watch the downside with protective stops so you don't lose the profits. Support is still OK at $245-$248; short-term resistance at $262 followed much later at $270-$273. At current levels, we are in the middle of the ascending channel. Volumes, though at or slightly above the ADV have fallen back from levels seen in November, which may indicate a slight consolidation. That wouldn't be a surprise given that the 2:1 split won't occur until December 30 - it's a bit early for a split run and JDSU has come a long way in a hurry. In short, it needs a break. It is still tradable for short-term gains. Just be sure to target shoot in your comfort zone Big news has been a bit sparse with the major news of a split 4 weeks away and earnings about 6 weeks away. But note from Thursday that Dain Rauscher Wessels issued a Strong Buy rating with a price target of $300. That follows Wednesday's reiteration by SoundView of their Buy rating. Note too that JDSU has doubled analyst expectations over the last 6 quarters. Cockroach theory says that where there's one, there are many. With optical equipment so much in demand NT, LU, CSCO and TLAB will keep JDSU hopping. This could also be one for the long- term portfolio or IRA, especially with juicy premiums suitable for writing covered calls. ***December strikes expire in 2 weeks*** BUY CALL DEC-240 UQD-LH OI=1266 at $21.63 SL=16.75 BUY CALL DEC-250*UQD-LJ OI=2069 at $15.50 SL=12.00 BUY CALL DEC-260 UQD-LL OI=1311 at $11.63 SL= 9.25 BUY CALL JAN-250 UQD-AJ OI= 960 at $31.88 SL=25.00 BUY CALL JAN-260 UQD-AL OI= 617 at $27.75 SL=21.50 Picked on Nov 21st at $213.81 P/E = N/A Change since picked +37.38 52-week high=$273.62 Analysts Ratings 13-13-0-0-0 52-week low =$ 26.31 Last earnings 10/99 est= 0.25 actual= 0.29 surprise= 16% Next earnings 01-24 est= 0.30 versus= 0.14 Average Daily Volume = 2.7 mln Chart = http://quote.yahoo.com/q?s=JDSU&d=3m ************* MISCELLANEOUS ************* MXIM - Maxim Integrated Products $92.31 (+7.94) Established in 1983, Maxim Integrated Products is a worldwide leader in design, development, and manufacture of linear and mixed-signal integrated circuits. Maxim circuits "connect" the real world and digital world by detecting, measuring, amplifying, and converting real world signals. Signals such as temperature, pressure, or sound, into the digital signals necessary for computer processing. Their products include data converters, interface circuits, microprocessor supervisors, operational amplifiers, power supplies, multiplexers, switches, battery chargers, and voltage references. They say we live in a digital world now. True, but we still need someone to produce the meat and potato products of the world. MXIM is one of those companies. Sound familiar? It should, because we played this stock previously, anticipating that they would be announcing a stock split. We were rewarded with a 2:1 split announcement at the Nov 18th Annual Stockholder's meeting. Since that time, much has changed. The stock saw a normal post-annoucement depression that took the stock to $80 by the last day of the November. On Nov 30th (after the market), Louis P. Gerhardy at Morgan Stanley Dean Witter reiterated a Strong Buy recommendation. The following day, the stock reversed course and headed north. That afternoon (Dec 1st), Analog Devices released their earnings, indicating strong revenue growth and a rosy outlook for the sector. That was all MXIM needed to take off. On Dec 2nd, MXIM executed an expansion breakout (largest range in 7 days and highest close for at least 2 months) and hit a new record high, trading above $90 for the first time ever. The stock struggled on Friday (after the run-up you would expect it) but still managed another record close. New month, new trend. Thursday's breakout and the heavy volume over the last 3 days is a pretty good indication that momentum players are positioning themselves for what looks like a split run. Support is looking good at $90, and again at $88. The 5 and 1-0dma are not much help, sitting back at $86 and $85 respectively. As far as initiating positions, look for a retrace to $90. If this doesn't happen by Monday or Tuesday, you are probably going to have to chase it some. This play has a quick trigger (2 weeks) and as we're already in record territory now, expect a run at and possibly through $100. Meat and Potatoes? Looking more and more like Filet Mignon! Also Bloomberg News ran an article on Dec 2nd regarding Yahoo's addition to the S&P 500. In the article, analysts over at Lehman Brothers identified MXIM as a candidate for that index since they are one of the largest tech companies not currently in the S&P 500. Food for thought! As far as our play, the split pays on Dec 21st, so we plan to exit by the 20th to avoid profit- taking and post-split depression. ***December contracts expire in two weeks*** BUY CALL DEC- 85 XIQ-LQ OI=1509 at $8.63 SL=6.50 BUY CALL DEC- 90*XIQ-LR OI= 361 at $5.63 SL=3.75 BUY CALL DEC- 95 XIQ-LS OI= 50 at $3.13 SL=1.50 BUY CALL DEC-100 XIQ-LT OI= 10 at $1.44 SL=0.50 High Risk! SELL PUT DEC- 85 XIQ-XQ OI= 205 at $1.19 SL=2.50 (See risks of selling puts in the play legend) Picked on Dec 5th at $92.31 P/E = 69 Change since picked +0.00 52-week high=$92.56 Analysts Ratings 6-7-2-0-0 52-week low =$37.63 Last earnings 10/99 est= 0.35 actual= 0.37 Next earnings 01-27 est= 0.41 versus= 0.31 Average Daily Volume = 1.50 mln Chart = http://quote.yahoo.com/q?s=MXIM&d=3m **** TIF - Tiffany & Co. $79.69 (+3.56) 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. TIF got the stamp of approval from Bob Pisani, a reporter on CNBC. He came out with comments to end the week saying that high-end retailers/e-tailers like TIF are looking good through the holiday season. Hey, is Bob an OIN subscriber, because we said the same thing, only a day earlier. On the back of these comments, TIF continued to set a record 52-week high at $80.69, as the shares moved forward on strong volume. This was after TIF had sold off in the morning Friday, providing an excellent entry point. The shares bounced right on $77. Rolling into another weekend of holiday shopping, the technical picture is strong on all levels: volume, moneystream, prices, and relative strength. This week's favorable climb continued on Friday breaking above resistance levels between $79-$79.50, and ending the week at an all time closing high of $79.69. There was more than twice the daily average volume that exchanged hands, which further confirms the move. With the bulls taking interest in TIF, we like the stock at current levels. The ascending pennant taking shape usually signals a nice move to the upside as long as the volume remains strong. Support is strong at $76-$77 but we may need a market sell-off to dip down to these levels. Resistance is at $80 for the pennant mentioned above. The robust thanksgiving weekend sales have also contributed to help shine a brighter light on retailers like Tiffany & Co. Analysts are looking to even better Christmas sales as they have been increasing their quarterly and yearly earnings estimates for the company going forward. ***December contracts expire in two weeks*** BUY CALL DEC-75 TIF-LO OI=221 at $6.88 SL=5.00 BUY CALL DEC-80*TIF-LP OI=147 at $3.63 SL=1.75 BUY CALL JAN-75 TIF-AO OI= 79 at $9.88 SL=7.25 BUY CALL JAN-80 TIF-AP OI=158 at $7.13 SL=5.25 SELL PUT DEC-75 TIF-XO OI= 69 at $1.50 SL=3.00 (see risk of selling puts in the play legend) Picked on Dec 2nd at $78.88 P/E = 50 Change since picked +0.81 52-week high=$80.69 Analyst Ratings 1-13-5-0-0 52-week low =$19.06 Last earnings 11/27 est= 0.24 actual= 0.29 Next earnings 03/08 est= 0.87 versus= 0.74 Average daily volume = 563 K Chart = http://quote.yahoo.com/q?s=TIF&d=3m ***** LEAPS ***** December 5th - LEAPS The Christmas rally officially got under way this week, backed by a tame employment report for November. The momentum in this market is unbelievable right now and we will continue to let this bull market run higher. That is why there are still no dropped plays this week and some sizable returns mounting in our portfolio. Hindsight is always 20-20, but the market dip on Tuesday that took the VIX over 25 briefly was a good entry point. Congratulations to all who took advantage of this opportunity. Right now, the smart bet still lies in a one or two-day pullback before entering, but intraday dips also appear tempting. Just don't get impatient. Time is on our side. Y2K will likely make trading volatile for the next 3-4 weeks and provide entry points. Until then, full steam ahead Rudolph! Our motto for the week: LEAPs, the gift that keeps on giving. Current Plays SYMBOL SINCE LEAPS SYMBOL CURRENT PICKED RETURN EMC 11/07/99 JAN-2001 $80 ZOH-AP at $30.38 $15.38 97.53% JAN-2002 $90 WUE-AR at $34.25 $19.00 80.26% DELL 11/07/99 JAN-2001 $50 ZDE-AJ at $ 9.13 $ 7.00 30.43% JAN-2002 $50 WDQ-AJ at $13.88 $11.25 23.38% GPS 11/07/99 JAN-2001 $40 ZGS-AH at $11.13 $ 5.75 93.57% JAN-2002 $45 WGS-AI at $12.63 $ 7.88 60.28% IBM 11/07/99 JAN-2001 $100 ZIB-AT at $27.13 $13.63 99.05% JAN-2002 $110 WIB-AB at $30.38 $16.50 84.12% WMT 11/07/99 JAN-2001 $70 ZWT-AN at $ 6.75 $ 6.50 3.85% JAN-2002 $75 WWT-AO at $10.00 $ 9.75 2.56% LU 11/14/99 JAN-2001 $80 ZEU-AP at $17.88 $12.88 38.82% JAN-2002 $90 WEU-AR at $21.00 $16.13 30.19% CSCO 11/14/99 JAN-2001 $80 ZCY-AP at $28.25 $19.13 47.67% JAN-2002 $90 WIV-AR at $31.00 $22.00 40.91% SLR 11/14/99 JAN-2001 $85 ZSR-AQ at $24.50 $21.75 12.64% GE 11/21/99 JAN-2001 $150 ZGR-AU at $15.25 $16.25 - 6.15% JAN-2002 $150 WGE-AU at $24.25 $25.50 - 4.90% GTW 11/21/99 JAN-2001 $90 ZWB-AR at $11.63 $17.75 -34.54% JAN-2002 $100 WGB-AT at $16.88 $22.50 -25.02% NT 11/28/99 JAN-2001 $75 ZOO-AO at $22.25 $22.25 0.00% JAN-2002 $75 WNT-AO at $29.38 $30.25 - 2.91% To review the play description on any of our current plays, go to the LEAPS section for the date the play was added New Plays VOD - Vodafone Group $49.44 Vodafone is making a bid to become the largest cellular maker in the world. In the ongoing battle to purchase German-based Mannsemann, VOD finally appears to be winning. This struggle has put a damper on VOD's share price but as the air clears, it appears the VOD now has some catching up to do. The sector has been red hot and VOD has lagged due to the merger struggles. That is why VOD is now starting to trend higher. Investors are realizing that the damage may be coming to an end and that VOD is set to move up. We like the fact that the options have not seen a dramatic rise in premiums yet. $48 looks like good support to do some buying. BUY LEAP JAN-2001 $50.00 ZAT-AJ at $10.75 BUY LEAP JAN-2002 $50.00 WHV-AJ at $15.00 **** KM - Kmart Corporation $9.63 This is a different play but an intriguing one as well. Let's call it our speculative-value play, if there is such a thing. It is speculative because of the uncertainty of KM's future against the ever strong Wal-mart. And it is a value play due to the falling stock price. We usually prefer higher growth stocks for our LEAPS section but a look at the options will tell you what the play is all about. The premiums are about as low as they go. We haven't sat down to calculate what KM might be worth in a buyout or reorganization but any hint of decent news, not even good news, just fair news should be good for a quick move in the stock. Therefore we are looking to take a position and play the quick spikes up. Again, this isn't a stock with dynamic moves but it can be very profitable given the right situation. A dip to $9 would be a good entry. BUY LEAP JAN-2001 $10.00 ZKM-AB at $2.50 BUY LEAP JAN-2002 $15.00 WKM-AC at $1.75 **** AOL - America Online $78.13 Ameica Online is a company that should be on everyone's LEAPS list to buy on the dips. We are watching the world's leading Internet Service Provider closely for an ehtry point but we feel it will come done a little more. That is why there are no options currently listed. Let's wait for a dip to at least $75 before entering. Maybe we miss the boat, maybe we don't but nothing goes up in a straight line. The reason that AOL is listed now is help you in target-shooting your way in on the dips. It is time to put it on the radar. Drops Still no drops but we are ready to protect profits when the market looks like it is rolling over. Set those stop orders. ***************** PUTS, PUTS, PUTS ***************** Put plays can be very profitable but have a larger risk than call plays. When a stock is falling the entire investment community (except the shorts) is hoping it will reverse and start back up. The company management is also doing everything they can to shore up their stock price. The company issues press releases, brokers talk it up, analysts try to put a positive spin on everything. Then of course there is the death knell, the "buy recommendation" simply because the price has dropped to some level that analysts feel attractive again. Buyers who like the stock wait until it appears a bottom has been reached and then jump on it in a feeding frenzy. They may already have a large position and are averaging down. Many factors can stop a free falling stock in mid drop. **** GT - Goodyear Tire and Rubber Co. $32.81 (-1.31)(-2.88) Goodyear has helped most of us keep our grip at one time or another. After all, they are the world's largest tire maker. They also own the Dunlop and Kelly-Springfield brand. Headquartered in Akron, Ohio, the company manufacturers engineered rubber products and chemicals too in more than 90 facilities in 30 countries. It has marketing operations in almost every country around the world. Goodyear, with the recent addition of its Dunlop tire joint ventures, employs more than 105,000 people worldwide. We don't think that GT has bottomed just yet, though it did try and participate in the market rally last Friday. GT encountered resistance at $33 for the majority of the session before finally making a breakthrough and trading above this level for a bit in the afternoon session. GT looks to have bumped its head on it's 5-dma, which is currently right around $33.50. We want to see this resistance hold up heading into this week. GT has further resistance at it's 10-dma of $34 and should we see a breakthrough of this level, we will want to let GT go. Being that we are seeing GT's volume pick up, we are proceeding with caution at this point. You will probably want to hold off on entering any new plays until we see a fall below $31.75 (52-week low) and a drop off in volume. We think that Friday was merely a market driven rally and see nothing substantial backing the move and therefore expect a reclamation of GT's downward trend. In the news, GT has suspended output for it's Argentine unit and has laid-off 900 employees. Apparently the Argentina tire market is suffering severely due to a steep decline in local car demand. Not a very positive sign for GT going forward. ***December contracts expire in two weeks*** BUY PUT DEC-40 GT-XH OI=481 at $7.75 SL=5.75 BUY PUT DEC-35*GT-XG OI=419 at $2.56 SL=1.25 Average Daily Volume = 925 K Chart = http://quote.yahoo.com/q?s=GT&d=3m **** JCI - Johnson Controls, Inc. $52.44 (-3.25) 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 10.75. 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. 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 down- trodden cyclicals like JCI and CAT but until then, the trend is your friend. Curiously, the CEO of JCI, Mr. James Keyes was awarded a $1 million bonus yesterday. The bonus, an increase of more than 100% over last year was awarded for shareholder equity performance (say what?) and operating income increases. With the stock trading at its lows, some 68% off of its highs, we think some shareholders might be a little miffed by the assessment that shareholder equity has been improved. Technically speaking, JCI's shares had a very dismal week. JCI has closed at or near its low price for the day on 4 consecutive trading days. We will let the trend continue to take JCI lower. Resistance is just over $55. ***December contracts expire in two weeks*** BUY PUT DEC-55 JCI-XK OI= 6 at $3.25 SL=1.50 low OI BUY PUT JAN-55*JCI-MK OI=38 at $4.13 SL=2.50 Average Daily Volume = 289 K Chart = http://quote.yahoo.com/q?s=JCI&d=3m **** EK - Eastman Kodak Company $60.13 (-4.38) Eastman Kodak Company is engaged in developing, manufacturing, and marketing consumer, professional, health and other imaging products around the world. The company has four operating segments: Consumer Imaging, Kodak Professional, Health Imaging, and Other Imaging. Primarily all of these divisions are in the business of selling photographic supplies and equipment. Their main competitor is Fuji. Is Kodak a pioneering technology company on the cutting edge of new product development? Or is it the proverbial "buggy whip" company, doomed to be left behind? Kodak is probably neither. However, there are serious concerns among institutional investors about Kodak weaning itself off of a primarily commodity business. As the price of film goes down, so go the profits. Yesterday's comments from Chief Marketing Officer, Mr. Carl Gustin, have done nothing to alleviate those concerns. "To make a new model work, the old model has to be broken. Today digital imaging doesn't offer anything [better] besides sharing." Kodak's stock has been decimated in the past year due in part because the perception among investors is that the digital revolution could eventually inflict heavy damage on the sales of Kodak's core business. The comments are particularly shocking to analysts because Kodak has been making good inroads into the digital format. If Mr.Gustin's comments represent the corporate philosophy of Kodak, then there could be more trouble for the stock down the road. Money is pouring into the shares of companies who have accepted and are creating the new technological paradigm. The performance of EK is indicating a move towards the exits. The share price of Kodak peaked in September at just over $80. It has been in decline ever since. EK is likely to be on the sell candidate list of money managers during any sell programs. Resistance is sitting at $63 and that would make a nice entry point for less aggressive investors. Otherwise, you can initiate new positions on small rallies or a break below the $60 support. This is a company that has been known to warn of profits too. We are now entering the warning month for Q4 and EK is always a stock to watch for a possible disappointment. ***December contracts expire in two weeks*** BUY PUT DEC-65*EK-XM OI= 865 at $5.00 SL=3.75 BUY PUT JAN-60 EK-ML OI=9472 at $2.38 SL=1.25 Average Daily Volume = 1.11 mln Chart = http://quote.yahoo.com/q?s=EK&d=3m **** BOW - Bowater, Inc. $48.00 (+1.13)(-5.50) Bowater Inc., manufactures, sells and distributes newsprint, directory paper, un-coated groundwood specialties, coated groundwood paper, market pulp and lumber. Bowater is the #1 U.S. maker of newsprint and became #2 in the world after it's purchase of Canadian company Avenor. Bowater now has the capacity to churn out about 3 billion tons of newsprint a year. The company operates eight pulp and paper mills and three sawmills in Canada, South Korea and the U.S. Bowater is a classic cyclical stock. Bowater is currently facing not only an economy with rising interest rates but also is facing a review of it's long-term debt ratings by Moody's for a possible downgrade. A Moody's downgrade would increase the cost of capital for Bowater. This would be a painful blow to a already unprofitable company. Earnings estimates for FY 99 are -$0.30. As always, we are much more concerned with the immediate outlook for OUR profit opportunities! Moody's chief concerns lie in the possibility that Bowater will continue to remain in an aggressive acquisition mode, which could further stress debt protection measurements that are already significantly weakened from the effects of cyclically low pricing. The recent bad news from Moody's and a complete disinterest in cyclical stocks from Wall Street, leads us to believe that the downtrend may continue in Bowater's shares in the near future. On the cautious side, it is possible companies such as Bowater may be seen as a safe place to be should we experience a meltdown in the averages. Indeed, this scenario occurred last week when BOW had a strong bounce on Tuesday when the rest of the market was falling apart. It is possible that BOW is trying to build support down here in the low $46 range. A close above $50 may indicate that support has been established and value investors are coming in. Be cautious and we will be watching. A break below $46 and put holders will be in business. ***December contracts expire in two weeks*** BUY PUT DEC-50*BOW-XJ OI=124 at $2.94 SL=1.50 BUY PUT DEC-45 BOW-XI OI=200 at $0.81 SL=0.00 High Risk! BUY PUT JAN-50 BOW-MJ OI= 10 at $4.00 SL=2.50 Average Daily Volume = 350 K Chart = http://quote.yahoo.com/q?s=BOW&d=3m **** KIDE - 4Kids Entertainment $49.56 (-13.69) 4Kids Entertainment is a vertically integrated entertainment based company. KIDE provides a wide range of services. KIDE designs, develops, and produces toys. It also handles international merchandise licensing media buying and planning, television distribution and production. KIDE is responsible for the licensing of World Championship Wrestling and the very popular Pokemon. Talk about the gift that keeps on giving! Haven't we been here before? KIDE is doing its part to make sure we can all afford to buy Pokemon paraphernalia for everyone on our lists this year. We have been profitable on both sides of KIDE's runs, and here we are yet again, ready for another ride. If you remember, we initiated a put play on KIDE back on the 21st of November and had a short but sweet run down to $42, where KIDE made a big bounce. Traders hopped back on board, pushing the KIDE swing as high as $67.50 on the 29th. KIDE is sliding down once again and we think KIDE will most likely trade back down to $42 and possibly even go as low as $38. As always, it is going to be important to exercise caution as we know from experience just how quickly KIDE can change direction. KIDE has exhausted nearly all of the moving average support with the exception of the 100-dma, which is at $42 (note: this is where KIDE bounced before, therefore exercise caution and tighten stops as we approach!) Should KIDE breakthrough here, we could be cleared for a healthy fall, as the only formidable support will be the psychological levels, i.e., $40. KIDE's 200-dma is all the way down at $26. ***December contracts expire in two weeks*** BUY PUT DEC-55*IUK-XK OI= 629 at $9.25 SL=7.00 BUY PUT DEC-50 IUK-XJ OI= 916 at $6.13 SL=4.25 BUY PUT DEC-45 IUK-XI OI=1245 at $3.50 SL=1.75 Average Daily Volume = 1.37 mln Chart = http://quote.yahoo.com/q?s=KIDE&d=3m ******************** Y2K Renewal Offer!!! ******************** Announcing the cheapest renewal rate available! $24.91 mo* Long time readers know that each December we offer our subscribers an extra value package as a thank you for their support. The package this year contains (2) of our Y2K Option Expiration Calendar Mousepads and the Millennium Edition of the Stock Traders Almanac, a $50 value. You will receive two mousepads, one for home and another for the office so you have no excuse for not knowing those expiration dates and strike price codes. We are also giving away the Millennium Edition of the Stock Traders Almanac by Yale Hirsch. This almanac has thousands of facts, tips and hard information that a trader cannot live without. Just one of these facts can pay for the newsletter subscription for the entire year and there are thousands of them. This is the serious stock traders bible. And the offer is.....Renew your subscription in December at the annual rate and receive (2) Y2K Option Expiration Calendar Mousepads and the Millennium Edition of the almanac for FREE. This package has a $50 value. Added to the savings you receive on an annual subscription over the monthly rate and it is like getting over four months of the newsletter for free. A $180 value. This lowers the actual price of the newsletter to only $24.91 per month for an annual subscription. The supply of almanacs is limited so don't delay. Click here for more info. http://www.OptionInvestor.com/renewalinfo.asp ************************************************************* 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 ************************************************************** ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
The Option Investor Newsletter 12-5-99 Sunday 5 of 5 ************************ SPREADS/STRADDLES/COMBOS ************************ A Year To Remember.. Friday, December 3 Stocks soared Friday as positive news in the nation's jobs market and growth in U.S. productivity eased fears of inflation. The Dow Jones Industrial Average ended 247 points higher at 11,286 after briefly surpassing its previous record close of 11,326. The Nasdaq Composite Index rocketed to its biggest yearly gain ever, up 60% as it posted another record high at 3,520. The broad market S&P 500 index rose 24 points to 1,433, also a new record. Advancing issues outnumbered declines 3 to 2 on active volume of 994 million shares on the NYSE. The 30-year U.S. Treasury bond was up 25/32, with the yield dropping to 6.26%. Thursday's new plays (positions/opening prices/strategy): Cheap Tickets CTIX JAN20C/DEC22C $2.00 debit diagonal Cheap Tickets CTIX JAN22C/DEC22C $1.12 debit diagonal Priceline.com PCLN JAN50C/DEC65C $12.88 debit diagonal Our new online travel issues made headway early in the day but both fell victim to profit-taking as investors transitioned to market-leading stocks. Priceline.com was hit hard by a negative article on their business model and the share value dropped over $3 to close near recent support at $61. Cheap Tickets finished with a smaller loss, down $0.88 at the close but near the day's lows. Needless to say, the target prices were available on all positions. Portfolio plays: Stocks moved higher right from the open after the Labor Department reported that 234,000 new jobs were added to non-farm payrolls in November while the unemployment rate remained unchanged. News that the average hourly wages were up only 0.1% also contributed to the benign data. Comments by an influential voting member of the Fed's interest rate policy-setting group that inflation is under control added to the optimistic outlook. Analysts noted that cash inflows to equities continue to be positive, the U.S. economy is expanding and the majority of earnings are favorable, three key elements of a successful bull market. Banks and technology shares led the Dow to record levels with money center, computer, wireless and Internet issues dominating the headlines. The majority of leaders in our portfolio were in the communications sector and E-tek Dynamics (ETEK) topped that group, up $9 to close at a new all-time-high of $93. E-tek is a a leader in the design of key products for fiber optic networks required by most manufacturers of telecommunications equipment and with the current demand for infrastructure, this company is poised for incredible growth in the coming months. InterVu (ITVU) was another of today's best performers, climbing $4.50 to close above a recent channel near $65. This issue also has room to run and should test 52-week highs before years' end. Other telecom issues participated in the rally and Bell Atlantic (BEL) made the news with a report that the FCC made an unexpected request for additional industry comment on the company's application to offer long distance service in New York. The surprise move could help eliminate a stumbling block that has arisen in Bell's effort to enter the $7 billion New York long distance market. The stock closed at a recent high of $66 after the announcement. AT&T (T) also made headway, climbing to $57 on speculation of the crucial meeting with analysts next Monday. AT&T faces pressure to unveil a much-anticipated wireless tracking stock and reassure investors that its strongest growth is not in its past. Chairman C. Michael Armstrong is expected to deliver a few surprises on new company initiatives to maintain shareholder enthusiasm. Big-cap issues were the focus of most institutional investors and our long-term portfolio benefitted from the new interest. Shares of Sun Microsystems (SUNW) vaulted another $6 to $142 as traders competed for the popular issue in the pre-split rally. A bullish upgrade by Merrill Lynch analyst Steven Milunovich started the most recent move and his target of $165 may be achieved sooner than many expect. Motorola (MOT) rambled $5 to end at $124 thanks in part to a positive report on its leading competitor. The world's biggest mobile phone maker Nokia rewarded bullish investors with higher forecasts for mobile users worldwide and painted a bright future the company. Motorola benefits from the same type of growth and the outlook for their wireless division is extremely favorable. Solectron (SLR) moved up $4 to a new high near $92.25 on strength from Merrill Lynch's recent upgrade. The stock is once again above technical resistance and a roll-up/out decision will have to made in the next few days. The lack of a quick adjustment can put you well behind the profit curve; as we have witnessed with SUNW over the past few months, and our current spread (LJAN70C/DEC80C) will not benefit from further upside moves. Computer Associates (CA) also broke-out to a new range, climbing $3 to an all-time-high near $68. In this case, our current spread (LJAN60C/DEC65C) will permit a small amount of bullish movement before the profit falls significantly. This downside margin will give the issue time to consolidate above the new support at $65. General Motors (GM) was the last of the major movers in the LEAPS/CC's portfolio and as we said earlier in the week, it was our primary candidate for roll-up to higher strike options. GM rallied over $3 on news the company will consider spin-off proposals next week for Hughes Electronics (GMH). In addition, a rumor that GM will be acquired by a large consortium is circulating among traders. Regardless of the reason, General Motors has moved back into its old channel near $75 and our current positions (LJAN75C/JAN75C) have been adjusted to fit the new outlook. The next target for GM is the 26-week high near $77. There were a number of disappointing issues in today's session but after the recent success of many of our portfolio positions, it's normal to expect some consolidation in the short-term. Tax loss selling has begun in earnest and should continue until late December. This type of trading negatively affects all but the top performing stocks and creates an artificial disparity among the lower ranks, allowing the best issues to forge higher while the mediocre companies fall quickly into the abyss. Fortunately, the market is a great equalizer and as investors rotate out of the current high flying issues, new winners emerge from previously underrated candidates and the growth cycle starts all over again. The majority of our group of small-cap positions will participate in this well-known ritual and resume their bullish ways in the weeks ahead. Questions & comments on spreads/combos to ray@OptionInvestor.com ********* NEW PLAYS ********* UAL - United Airlines $70.38 *** LEAPS/Covered-Calls *** UAL is the holding company for United Airlines. UAL is a majority employee-owned airlines which offers 2,200 flights a day to 136 destinations in 30 countries and territories around the world. The airline industry is preparing for one of the best holiday travel seasons in recent history and United will certainly be at the top of the heap. This well-known company leads almost every category in the group of worldwide air carriers and analysts now consider it the leading candidate for growth in the sector. The most recent bullish recommendations have come from Ing Baring Furman Selz, S&P Market Scope, and Deutsche Banc Alex Brown. The majority of ratings are very optimistic and we concur with the outlook based on UAL's favorable technical history. UAL's stock appears ready to exit a six-month base though more volume support would be reassuring as it is slightly overextended in the near-term. The long-term trend favors an eventual bullish move out of the current lateral consolidation with strong support above $65 and the first level of resistance starting near $75. There are two ways to play this position, both with favorable disparities in option pricing. PLAY (aggressive - bullish/diagonal spread): BUY CALL JAN01-60 ZUA-AL OI=819 A=$18.62 SELL CALL DEC99-70 UAL-LN OI=3139 B=$2.68 INITIAL NET DEBIT TARGET=$15.75 TARGET ROI=150% (13 months) - or - PLAY (aggressive - bullish/calendar spread): BUY CALL JAN01-75 ZUA-AO OI=420 A=$11.50 SELL CALL DEC99-75 UAL-LO OI=581 B=$0.88 INITIAL NET DEBIT TARGET=$10.25 TARGET ROI=100% (13 months) Chart = http://quote.yahoo.com/q?s=UAL&d=3m **** BCR - C.R. Bard $52.43 ** An Old Favorite *** C.R. Bard is a leading multinational developer, manufacturer and marketer of health care products. They design and distribute medical, surgical, diagnostic and patient care devices. Major hospitals, physicians and nursing homes purchase most of the company's products, which are generally used once and discarded. Our old friend is back and open interest in the December options has fallen slightly as speculators departed the stock on a lack of news on the recent merger rumors. The technicals have turned sour and now the trend is noticeably bearish. The probability of profit in this play is excellent and the two-week (ITM) position is based on a small premium disparity in the front-month options. PLAY (conservative - bearish/debit spread): BUY PUT DEC-60 BCR-XL OI=27 A=$8.75 SELL PUT DEC-55 BCR-XK OI=22 B=$4.50 INITIAL NET DEBIT TARGET=$4.00 ROI(max)=22% B/E=$56.00 Chart = http://quote.yahoo.com/q?s=BCR&d=3m ***************** CHEAP SPECULATION ***************** AG - Agco $13.75 *** Technicals Only *** Agco is engaged in the manufacturer and distribution of farm equipment, machinery and replacement parts in the United States and Canada. The company's products include tractors, combines, hay tools and forage equipment and implements. We found this issue while searching for Covered-call candidates and while it didn't have the right combination of premiums for that type of position, it does offer a great spread play for low-cost speculation with a bullish outlook. The option prices favor a long-term, at-the-money diagonal spread. The stock is exiting a seven month lateral consolidation during which systematic accumulation is evident (often called a flying plateau), with a confirming increase in volume. The first level of resistance is long-term at $25 and near-term support exists near $12.50. PLAY (conservative - bullish/diagonal spread): BUY CALL FEB-12.50 AG-BV OI=832 A=$2.00 SELL CALL JAN-15.00 AG-AC OI=24 B=$0.50 INITIAL NET DEBIT TARGET=$1.38 TARGET ROI=50% Chart = http://quote.yahoo.com/q?s=AG&d=3m ****************************************************************** - VOLATILITY PLAYS - These plays are based on the current price or trading range of the underlying issue and the recent technical history or trend. The probability of profit from these positions is also higher than other plays in the same strategy due to implied volatility extremes or disparities in option pricing. Market sentiment and upcoming events will have an effect on these positions so review each play and make your own decision about the future outcome of the stock price. ****************************************************************** DLP - Delta & Pine Land $23.56 *** In A New Range? ** Delta Pine And Land is a commercial producer of cotton planting seed in the United States. It also breeds and distributes other seed products; sorghum and soybean, and distributes hybrid corn planting seed acquired from others under non-exclusive license agreements. The ongoing saga of the DLP merger has option buyers in a frenzy and implied volatility and volume moved higher last week on new concerns about the previously agreed-upon marriage with Monsanto. The Wall Street Journal reported recently that Monsanto has been holding talks with several companies, including Pfizer about a full or partial sale of the company. The WSJ also said the Swiss drug maker Novartis AG had emerged as a serious suitor. Both of the companies declined comment about a possible deal but Pfizer said it may be interested in acquiring Monsanto's pharmaceutical (Searle) unit, if it were available separately. The MTC deal has also been mired in a lengthy antitrust review process and most investors have long since fled the scene for greener pastures. The incredible premium disparities in option pricing continue to provide us with favorable positions. In this case, we are going to participate in an aggressive, neutral-outlook position that profits if the stock price remains between $17.88 and $32.12. PLAY (aggressive - neutral/credit strangle): SELL CALL DEC-30 DLP-LF OI=5119 B=$0.56 SELL PUT DEC-20 DLP-XD OI=1346 B=$1.43 INITIAL NET CREDIT TARGET=$2.12 ROI(max)=31% Chart = http://quote.yahoo.com/q?s=DLP&d=3m **** CYGN - Cygnus $9.25 *** Speculation Only! *** Cygnus is engaged in the development of diagnostic and drug delivery systems, with its current efforts primarily focused on three core areas: a painless, automatic glucose monitoring device, transdermal drug delivery systems and mucosal drug delivery systems. The three core areas of their business are: painless, automatic glucose monitoring, mucosal drug delivery and transdermal delivery systems. The GlucoWatch, a device to painlessly record blood sugar, or glucose levels will come under scrutiny from federal advisers on Monday. The watch-like device is designed to help diabetics monitor their blood sugar without the need to "fingerstick" to draw blood several times a day. Analysts said they expect the FDA advisory panel to conduct a thorough review of the product because it will be the first device to provide this information directly to patients and experts believe it may revolutionize treatment of diabetes. This position is based solely on the extreme option premiums and the recent technical history of the stock. The margin for profit is extremely large but the post-announcement volatility has the potential to exceed all statistic-based estimates. We offer this play for the speculative trader only. PLAY (very aggressive - neutral/credit strangle): SELL CALL DEC-12.50 YNQ-LV OI=4856 B=$1.00 SELL PUT DEC-7.50 YNQ-XU OI=2980 B=$1.38 INITIAL NET CREDIT TARGET=$2.50 ROI(max)=57% Chart = http://quote.yahoo.com/q?s=CYGN&d=3m **** FO - Fortune Brands $33.38 *** Technicals Only *** Fortune Brands is a consumer products company with powerhouse brands and leading market positions. They manufacture and sell hardware and home improvement products, office products, golf products and distilled spirits. Not much news on the company recently but Standard & Poor's has assigned its single-'A' rating to Fortune's $200 million 7-1/8% senior unsecured notes. At the same time, S&P affirmed the rest of the corporate credit, senior unsecured debt, preferred stock, commercial paper and short-term credit ratings on the company. The near-term outlook for the fundamentals of the business are stable and that matches our evaluation of the chart technicals. This position is based on the favorable disparity in front-month option premiums. The spread will profit if the underlying issue remains in a relatively small range for two weeks. PLAY (conservative - neutral/calendar spread): BUY CALL JAN-35 FO-AG OI=0 A=$1.18 SELL CALL DEC-35 FO-LG OI=1308 B=$0.43 INITIAL NET DEBIT TARGET=$0.62 TARGET ROI=25% Chart = http://quote.yahoo.com/q?s=FO&d=3m ************* COVERED CALLS ************* Secrets Of Stock Ownership: Exiting The Position... One of the key portfolio-management decisions that investors must make is "when to sell." There are a number of different techniques that professional traders, fund managers and institutional brokers use to determine that point in the life-span of a position. Today we will begin a multi-part series of narratives dedicated to this particularly complex (and often philosophical) subject. The art of investing is not some arcane science that requires a knowledge of mysterious algorithms but it does require a very disciplined approach to be successful on a consistent basis. One of the most important skills an investor must master is timing the entry and exit points. New investors frequently use a method known simply as the common-sense approach: Sell a stock when you have a better stock to buy. The problem is, a successful position in a good company is hard to give-up, especially when the market is positive and you have made a profit with the issue. It is very important NOT to sell stocks just because they have increased in value; capitalizing on lucrative positions (letting your profits run) is a basic strategy for consistent, long-term performance. Proponents of this common technique recommend that when you find another quality issue at a favorable price with a promising rate (expected) of share value growth, then you should exchange that stock with one of the less attractive positions in your portfolio. In reality, selling one to buy the other will not always improve the returns and in most cases, a novice trader will exit the issue because of anxiety, selling far too soon and missing the lion's share of future gains. There are times when a stock needs to be sold, even when one does not have another candidate in mind. If everyone who wants to own the stock already owns it, then there is no one left to support the price and the selling will soon begin. The common-sense approach lacks two primary qualities that are absolutely necessary in any successful trading system; precision and consistency. Without these characteristics, the method will ultimately falter, regardless of the skill and tenacity with which it is applied. The flaws are obvious; winners will be sold long before their full potential is realized and at other times, one will overstay the trend and donate most or all of the profit as the stock plunges into a full-scale correction. With this type of trading, the exit strategy is never clearly defined and after the issue passes the critical break-even point (on the way down), the position is usually held all the way to the bottom. Comments like "I can't afford to take the loss" or "I can average-down to improve my cost basis," are heard along the way. By the time the investor realizes the futility of this practice, their equity has all but evaporated. The important lesson to learn from this type of trading is that each position should be constantly evaluated both fundamentally and technically to determine if it merits your investment capital. You have to ask, "If I were considering this stock for the first time today, would I buy it?" If not, sell it and move your assets to a more favorable investment. Any loss you incur can easily be converted to a tax savings at the end of the year. Learning to manage the situation (keeping the losses to a minimum) is one of the most important aspects of successful investing and that's a subject we'll discuss further in next week's edition. SUMMARY OF PREVIOUS PICKS Stock Price Last Mon Strike Opt Profit ROI Monthly Sym Picked Price Price Bid /Loss ROI EMIS 16.88 19.38 DEC 15.00 3.38 *$ 1.50 11.1% 16.1% FSII 10.44 10.69 DEC 10.00 1.81 *$ 1.37 15.9% 13.8% VUSA 14.38 12.50 DEC 12.50 2.63 $ 0.75 6.4% 9.2% ITIG 10.00 15.38 DEC 10.00 1.25 *$ 1.25 14.3% 8.9% MESG 17.63 16.56 DEC 15.00 3.63 *$ 1.00 7.1% 7.8% ALGO 15.25 13.69 DEC 12.50 3.75 *$ 1.00 8.7% 7.6% ONEM 19.94 18.44 DEC 17.50 3.25 *$ 0.81 4.9% 7.0% WSTL 8.00 9.94 DEC 7.50 1.06 *$ 0.56 8.1% 7.0% BTOB 18.38 22.00 DEC 15.00 4.63 *$ 1.25 9.1% 6.6% SATH 12.44 11.63 DEC 10.00 3.00 *$ 0.56 5.9% 6.4% MOGN 13.44 12.63 DEC 12.50 1.63 *$ 0.69 5.8% 6.3% MESG 17.88 16.56 DEC 15.00 3.50 *$ 0.62 4.3% 6.2% AND 8.38 7.56 DEC 7.50 1.38 *$ 0.50 7.1% 6.2% CYCH 8.38 9.94 DEC 7.50 1.44 *$ 0.56 8.1% 5.8% FLAS 10.75 8.63 DEC 7.50 3.63 *$ 0.38 5.3% 5.8% ICGX 20.50 18.81 DEC 17.50 3.88 *$ 0.88 5.3% 5.8% AWEB 12.25 10.13 DEC 10.00 2.63 *$ 0.38 4.0% 5.7% CRUS 13.94 14.94 DEC 12.50 2.19 *$ 0.75 6.4% 5.5% PILT 18.50 20.19 DEC 15.00 4.38 *$ 0.88 6.2% 5.4% RRRR 14.75 31.44 DEC 12.50 3.25 *$ 1.00 8.7% 5.4% WAVX 13.19 13.56 DEC 10.00 3.88 *$ 0.69 7.4% 5.4% DRIV 22.75 30.75 DEC 20.00 4.25 *$ 1.50 8.1% 5.0% DIGE 14.44 17.94 DEC 12.50 2.75 *$ 0.81 6.9% 5.0% PILT 15.94 20.19 DEC 12.50 4.25 *$ 0.81 6.9% 5.0% BEAM 20.13 20.38 DEC 17.50 3.38 *$ 0.75 4.5% 4.9% PRGY 25.38 25.63 DEC 22.50 4.50 *$ 1.62 7.8% 4.8% LTXX 16.00 18.00 DEC 15.00 2.06 *$ 1.06 7.6% 4.7% IVIL 28.38 27.25 DEC 22.50 6.75 *$ 0.87 4.0% 4.4% TOPP 9.81 11.56 DEC 7.50 2.75 *$ 0.44 6.2% 3.9% DGII 13.56 15.56 DEC 12.50 1.69 *$ 0.63 5.3% 3.8% JDAS 11.63 15.69 DEC 10.00 2.13 *$ 0.50 5.3% 3.8% COOL 14.50 10.88 DEC 12.50 2.44 $ -1.18 -9.8% 0.0% ABTE 10.75 8.13 DEC 10.00 1.63 $ -0.99 -10.9% 0.0% SATH 12.69 11.63 JAN 10.00 3.38 *$ 0.69 7.4% 4.0% BNYN 15.81 14.38 JAN 12.50 4.13 *$ 0.82 7.0% 3.8% *$ = Stock price is above the sold striking price. Comments/Observations on Open Positions: This week two issues are faltering in a very bullish environment. Cyberian Outpost (COOL) failed to hold above $11.50 and appears headed for support near $9. With Cyberian becoming oversold, you may consider using the next rally to exit the position. The other bearish issue is Able Telecom (ABTE). The stock was pounded after announcing that the SEC has concerns regarding the accounting of its acquisition of MFS Network Technologies from MCI/WorldCom. An exit was available near our cost basis and any ensuing rally should be considered another opportunity to exit. Both of the above issues would require in excess of 6 months to roll down, a long time to commit trading capital in a bearish position. NEW PICKS ********* Definitions: OI - Open Interest CB - Cost Basis (Price paid - Prem rec'd, the break-even point) RC - Return Called RNC - Return Not Called (Stock Price Unchanged) Sequenced by Company Stock Price Mon Strike Option Opt Open Cost RC RNC Sym Price Symbol Bid Intr Basis BEAM 20.38 JAN 17.50 BAQ AW 4.13 63 16.25 7.7% 7.7% BIDS 5.13 JAN 5.00 BDU AA 1.00 160 4.13 21.2% 21.2% FSII 10.69 JAN 10.00 FQH AB 1.94 13 8.75 14.3% 14.3% MESG 16.63 JAN 12.50 MUG AV 4.88 256 11.75 6.4% 6.4% ONHN 10.25 JAN 7.50 OUN AU 3.38 84 6.87 9.2% 9.2% PILT 20.25 JAN 15.00 PTU AC 6.38 246 13.87 8.1% 8.1% RNBO 20.00 JAN 15.00 BQO AC 6.13 700 13.87 8.1% 8.1% VUSA 12.50 JAN 10.00 UAS AB 3.63 30 8.87 12.7% 12.7% Sequenced by Return Not Called Stock Price Mon Strike Option Opt Open Cost RC RNC Sym Price Symbol Bid Intr Basis BIDS 5.13 JAN 5.00 BDU AA 1.00 160 4.13 21.2% 21.2% FSII 10.69 JAN 10.00 FQH AB 1.94 13 8.75 14.3% 14.3% VUSA 12.50 JAN 10.00 UAS AB 3.63 30 8.87 12.7% 12.7% ONHN 10.25 JAN 7.50 OUN AU 3.38 84 6.87 9.2% 9.2% PILT 20.25 JAN 15.00 PTU AC 6.38 246 13.87 8.1% 8.1% RNBO 20.00 JAN 15.00 BQO AC 6.13 700 13.87 8.1% 8.1% BEAM 20.38 JAN 17.50 BAQ AW 4.13 63 16.25 7.7% 7.7% MESG 16.63 JAN 12.50 MUG AV 4.88 256 11.75 6.4% 6.4% Company Descriptions BEAM - Summit Technology $20.38 *** New Trend? *** Summit Technology and its subsidiaries consist of two operating segments: 1. Laser vision correction which includes manufacturing, selling and servicing laser systems and related products to correct vision disorders and collecting per procedure license fees from users of its systems; and 2. Contact lenses and related products which are sold via mail order through its wholly-owned subsidiary, Lens Express. Recent FDA approval of Summit's Apex Plus Excimer Laser Workstation (for the treatment of hyperopia) and favorable earnings resulted in an upside exit out of a four- month base. We favor selling the strike price within the recent consolidation area, as it is now technical support. JAN 17.50 BAQ AW Bid=4.13 OI=63 CB=16.25 RC=7.7% RNC=7.7% Chart = http://quote.yahoo.com/q?s=BEAM&d=3m **** BIDS - Bid.Com $5.13 *** Rumors/Speculation *** Bid.Com is one of e-commerce's leading international online sales and marketing organizations. The company offers a compelling, entertaining and cost-effective method of selling a wide array of goods and services over electronic distribution channels. Bid.Com is strategically positioned to leverage its business-to-consumer technological leadership by offering the pre-eminent online auction platform for co-ventures into business-to-business markets, licensing custom branded e-commerce solutions and for distribution through broadband/cable media. The recent pop in Bid.Com's price was due to several buy-out rumors on the message boards. We favor the basing formation that is establishing support near $4 along with several positive, technical divergence's. JAN 5.00 BDU AA Bid=1.00 OI=160 CB=4.13 RC=21.2% RNC=21.2% Chart = http://quote.yahoo.com/q?s=BIDS&d=3m **** FSII - FSI International $10.69 *** New High Soon? *** FSI is a leading global supplier of processing equipment used at key production steps to manufacture microelectronics, including semiconductor devices and thin film heads. The Company develops, manufactures, markets and supports products used in the technology areas of microlithography and surface conditioning. FSI customers include microelectronics manufacturers located throughout North America, Europe, Japan and the Asia-Pacific region. No recent news as FSI made a successful test of support (and the neckline of a year-long double bottom) and should now take out the November high. Reasonable speculation on an increasingly bullish chart with a favorable cost basis below technical support. JAN 10.00 FQH AB Bid=1.94 OI=13 CB=8.75 RC=14.3% RNC=14.3% Chart = http://quote.yahoo.com/q?s=FSII&d=3m **** MESG - MessageMedia $16.63 *** New Entry Point *** MessageMedia is a leading provider of e-mail-based customer relationship management and direct marketing services. MESG offers a comprehensive suite of outsource messaging services for information delivery, e-commerce services, permission-based direct marketing, ongoing customer communications and real-time customer feedback solutions using industry standard Internet protocols. A strong earnings report at the end of October initiated the current rally. The launch of SupportView, a real- time web-based customer survey and decision support system spurred a recent price jump. The January $12.50 striking price offers conservative speculation on a bullish issue. JAN 12.50 MUG AV Bid=4.88 OI=256 CB=11.75 RC=6.4% RNC=6.4% Chart = http://quote.yahoo.com/q?s=MESG&d=3m **** ONHN - OnHealth Network $10.25 *** Breakout! *** OnHealth Network Company is a leading Internet health information and services resource that empowers consumers with integrated solutions to effectively manage their health and well-being. The award-winning site was recently named "Best Health & Medicine Web Site" by US News & World Report and won three gold medals including "The Best Consumer Healthcare Portal Site" at the November 1999 eHealthcare World Awards. Over 500 different sites drive traffic to OnHealth.com through various strategic alliances. OnHealth's web site traffic continues to grow and should increase with the recent acquisition of Health Decisions International. OnHealth is moving out of a saucer bottom on improving technicals and the upgrade this week makes this play favorable speculation. JAN 7.50 OUN AU Bid=3.38 OI=84 CB=6.87 RC=9.2% RNC=9.2% Chart = http://quote.yahoo.com/q?s=ONHN&d=3m **** PILT - Pilot Network Services $20.25 *** Up-trend Intact *** Pilot Network Services, the Security Utility pioneer, is the only e-business network service provider of highly secure subscription based e-business services. For companies of all sizes, in every industry, Pilot enables secure e-business by providing a wide range of services with built-in security to protect enterprise networks. Pilot announced earnings in October with revenues up 89%. Very strong technically and the recent break-out has left us few entry opportunities. The recent pullback marks a 50% retracement from the end of October and a successful test of support (the April high), above our recommended strike price. JAN 15.00 PTU AC Bid=6.38 OI=246 CB=13.87 RC=8.1% RNC=8.1% Chart = http://quote.yahoo.com/q?s=PILT&d=3m **** RNBO - Rainbow Technologies $20.00 *** Internet Security *** Rainbow provides Security Solutions for the Information Age. The company is a leading developer, manufacturer and supplier of software protection solutions, and a leading provider of network license management, Internet and information security. Rainbow continues to develop new products for the state-of-the-art online security and authentication solutions and they are expected to become one of the leading players in this growing industry. The recent consolidation has worked off an over-bought condition and the technical outlook remains bullish. We favor the support area near $15, more than a dollar below the recent pullback. JAN 15.00 BQO AC Bid=6.13 OI=700 CB=13.87 RC=8.1% RNC=8.1% Chart = http://quote.yahoo.com/q?s=RNBO&d=3m **** VUSA - Value America $12.50 *** Stage I *** Value America is a brand-direct and factory-authorized marketplace for technology, office and consumer products. With over 30 product categories, Value America offers customers superior value on products from more than 3,000 of the world's most trusted brands. Through unique multi-media product demonstrations, customers are provided with thorough product information, allowing them to make informed and confident buying decisions. Value America reported that its revenues increased 269% last quarter, with gross margin increasing 110%. Recent agreements were announced with Federal Express, Ask Jeeves, and Citibank. Value America is consolidating after the appointment of a new CEO and the naming of Wolf Schmitt as Chairman of the Board. The technical outlook remains bullish as Value America continues to churn within its stage I base. We favor a strike price that is below the October (all-time) low. JAN 10.00 UAS AB Bid=3.63 OI=30 CB=8.87 RC=12.7% RNC=12.7% Chart = http://quote.yahoo.com/q?s=VUSA&d=3m ***************** NAKED PUT SECTION ***************** Position Management: One Traders View... Most experienced traders are aware of an old adage, "It is harder to sell than to buy." Exiting a position is more difficult because you are forced to make a decision about an issue that you already own and had previously considered attractive. When emotion enters the equation, your judgment becomes clouded and the alternatives appear limited. When an investor focuses on the performance of a single issue, anxiety increases exponentially. A decision must be made: "Do you keep the stock, trade it, or dump it?" What if the technical outlook becomes ambiguous? When you trade without a plan it's amazing how confusing the situation can become, and once you are committed, you are playing by somebody else's rules. A system of structured and pre-planned moves is the only solution. Each and every day, you have to make a decision: "Take the profit? Take the loss? Or let it run?" It doesn't matter which exit system is used, the key is that all the decisions are made in advance. You don't want to create a battle plan in the middle of a campaign. Once you take a position, you should know exactly what you would do in any circumstances that may develop. Professionals traders utilize various mechanical systems and exit strategies to manage their positions. The primary goal of every trader is to limit losses and maximize profits. The question is, "How far do you let the position run before eroding your profits?" Setting up rules before you enter a position will help to control your emotions and improve consistency with exit decisions. Most methods for taking profits (and preventing losses) fit into one of two categories: 1. A prearranged goal, say 25%; 2. A trailing stop, which is moved up as the stock advances. There are many different methods using technical analysis to establish the stop loss level; trend-lines, previous lows, moving averages, etc. With a stop-loss system, you take profits (or limit losses ) after a violation of a pre-established level. Traders may decide to combine both a profit goal of 30% with a trailing stop-loss as there is no guarantee the first goal will be met. Opening a new position is easier because you can pick and choose from thousands of candidates. You don't have to buy unless you are completely satisfied; waiting for the perfect combination of sound fundamentals, bullish indicators and favorable market conditions. You can search through charts for the perfect pattern and perform extensive due-diligence until the number of reasons to buy becomes overwhelming. The choice of ownership is yours to make and timing is not a constraint or limitation; "Buy today, tomorrow, or next month...maybe never." The entry position is particularly important. It deserves your best analysis and judgment. The issue should be one you want to own and the price must be technically favorable, with minimal downside risk. Correctly timing the purchase requires a thorough knowledge of charting techniques and market trends. The entire process is something you must completely understand because a successful exit is by and large the product of a proper entry. *** WARNING!!! *** Occasionally a company will experience catastrophic news causing a severe drop in the stock price. This may cause a devastatingly large loss which may wipe out all of your smaller gains. There is one very important rule; Don't sell naked puts on stocks that you don't want to own! It is also important that you consider using trading STOPS on naked option positions to help limit losses when the stock price drops. Many professional traders suggest closing the position when the stock price falls below the sold strike or using a buy-to-close STOP at a price that is no more than twice the original premium from the sold option. SUMMARY OF PREVIOUS PICKS Stock Price Last Mon Strike Opt Profit ROI Monthly Sym Picked Price Price Bid /Loss ROI FLAS 10.06 8.63 DEC 7.50 0.75 *$ 0.75 27.2% 19.7% IVIL 27.25 27.25 DEC 22.50 0.94 *$ 0.94 13.3% 19.2% HEPH 16.50 13.50 DEC 12.50 0.38 *$ 0.38 10.3% 15.0% NSPK 16.38 18.56 DEC 12.50 0.50 *$ 0.50 13.2% 14.4% RNBO 18.13 19.88 DEC 15.00 0.44 *$ 0.44 9.6% 14.0% STRX 7.63 8.00 DEC 5.00 0.44 *$ 0.44 22.3% 13.9% DGII 14.88 15.56 DEC 12.50 0.50 *$ 0.50 12.3% 13.3% ZOMX 36.06 38.88 DEC 30.00 0.81 *$ 0.81 8.8% 12.8% PILT 21.31 20.19 DEC 15.00 0.56 *$ 0.56 11.6% 12.6% ONSL 24.00 26.63 DEC 17.50 0.63 *$ 0.63 11.6% 12.6% NPIX 37.50 37.00 DEC 22.50 0.69 *$ 0.69 8.4% 12.2% NSPK 15.50 18.56 DEC 12.50 0.50 *$ 0.50 13.5% 11.7% BNYN 12.75 14.38 DEC 10.00 0.38 *$ 0.38 13.0% 11.3% MSGI 16.94 16.88 DEC 12.50 0.50 *$ 0.50 12.9% 11.2% COOL 9.56 10.88 DEC 7.50 0.31 *$ 0.31 14.0% 10.1% ITVU 64.50 68.00 DEC 45.00 1.25 *$ 1.25 8.8% 9.6% CTIX 20.13 18.31 DEC 15.00 0.38 *$ 0.38 8.6% 9.4% NVDA 32.00 38.13 DEC 22.50 0.75 *$ 0.75 10.5% 9.1% MLTX 16.19 25.88 DEC 12.50 0.50 *$ 0.50 13.4% 8.3% XCED 31.63 30.19 DEC 22.50 0.63 *$ 0.63 9.1% 7.9% AMTD 28.19 23.50 DEC 20.00 0.44 *$ 0.44 7.2% 7.9% MTSN 15.56 15.69 DEC 12.50 0.31 *$ 0.31 8.9% 7.8% IONA 21.38 37.00 DEC 15.00 0.56 *$ 0.56 11.6% 7.2% TUTS 39.69 42.63 DEC 30.00 0.81 *$ 0.81 9.3% 6.7% CMDX 65.19 82.25 DEC 40.00 0.63 *$ 0.63 4.6% 6.7% MRVC 31.00 36.00 DEC 22.50 0.38 *$ 0.38 5.8% 6.3% PDLI 40.75 48.44 DEC 35.00 0.44 *$ 0.44 4.0% 5.8% NPIX 37.44 37.00 DEC 20.00 0.50 *$ 0.50 6.3% 5.4% LTXX 18.56 18.00 DEC 15.00 0.31 *$ 0.31 7.4% 5.4% CDNW 17.00 14.25 DEC 15.00 0.50 $ -0.25 -4.7% 0.0% *$ = Stock price is above the sold striking price. Comments/Observations on Open Positions: The bullish market environment is doing little to help our merger play on Cdnow (CDNW). The technical outlook is ambiguous and the position should be monitored closely (if you do not want to own the stock. A bounce would be encouraging, especially above $13. NEW PICKS ********* Definitions: OI - Open Interest CB - Cost Basis (break-even point if put exercised) ROI - Return On Investment Sequenced by Company Stock Price Mon Strike Option Opt Open Cost ROI Opt Sym Price Symbol Bid Intr Basis Expired ELIX 15.13 DEC 12.50 XQQ XV 0.25 10 12.25 6.8% ELON 12.50 DEC 10.00 EUL XB 0.31 150 9.69 11.0% HRBC 18.69 DEC 15.00 BQ XC 0.38 366 14.62 9.1% MAIL 21.88 DEC 17.50 UMA XW 0.56 65 16.94 11.3% MMWW 33.00 DEC 25.00 EQB XE 0.38 117 24.62 5.4% NSPK 18.56 DEC 15.00 NNQ XC 0.38 167 14.63 8.8% PILT 20.25 DEC 15.00 PTU XC 0.31 207 14.69 7.1% SCOC 14.56 DEC 12.50 UQS XV 0.31 171 12.19 7.6% Sequenced by ROI Stock Price Mon Strike Option Opt Open Cost ROI Opt Sym Price Symbol Bid Intr Basis Expired MAIL 21.88 DEC 17.50 UMA XW 0.56 65 16.94 11.3% ELON 12.50 DEC 10.00 EUL XB 0.31 150 9.69 11.0% HRBC 18.69 DEC 15.00 BQ XC 0.38 366 14.62 9.1% NSPK 18.56 DEC 15.00 NNQ XC 0.38 167 14.63 8.8% SCOC 14.56 DEC 12.50 UQS XV 0.31 171 12.19 7.6% PILT 20.25 DEC 15.00 PTU XC 0.31 207 14.69 7.1% ELIX 15.13 DEC 12.50 XQQ XV 0.25 10 12.25 6.8% MMWW 33.00 DEC 25.00 EQB XE 0.38 117 24.62 5.4% Company Descriptions ELIX - Electric Lightwave $15.13 *** Own This One! *** Electric Lightwave is a full-service, facilities-based competitive local exchange carrier providing a broad range of telecom services in five major market clusters in the western United States. ELIX provides state-of-the-art voice & data communications services to retail customers, primarily communications-intensive companies and wholesale customers, including telecom service providers. ELIX has an extensive portfolio of products; local telephone, long distance, data/video, and network access. Solid support at the sold strike and coverage initiated (with a bullish outlook) by DLJ on Friday. DEC 12.50 XQQ XV Bid=0.25 OI=10 CB=12.25 ROI=6.8% Chart = http://quote.yahoo.com/q?s=ELIX&d=3m **** ELON - Echelon $12.50 *** New Entry Point *** Echelon Corporation develops, markets and supports a family of hardware and software products and services that enables original equipment manufacturers and systems integrators to implement open, interoperable, distributed control networks. ELON is developing a systems integrator distribution channel and integrating LonWorks control networks with enterprise data systems to exploit other market opportunities. Echelon is well established in the building, home, industrial, and transportation markets as the standard for networking everyday devices and their potential to create future revenue with new applications is excellent. A conservative, ground floor entry opportunity for this unique issue. DEC 10.00 EUL XB Bid=0.31 OI=150 CB=9.69 ROI=11.0% Chart = http://quote.yahoo.com/q?s=ELON&d=3m **** HRBC - Harbinger Corporation $18.69 *** Entry Point *** Harbinger Corporation is a leading single-source provider of electronic commerce, with proven solutions for software, network communications, consulting, and customer service/support. HRBC's unique products include the only scaleable, platform-independent suite of electronic data interchange management software in the industry, which protects our customers' technology investments as they migrate up or down; a leading PC-based solution for banks, and corporate/small business cash management markets. The word "revision" can sure scare a lot of traders. Harbinger has since recovered from the October sell-off and appears ready to resume its up-trend. A favorable entry point at technical support that provides a reasonable risk/reward outlook. DEC 15.00 BQ XC Bid=0.38 OI=366 CB=14.62 ROI=9.1% Chart = http://quote.yahoo.com/q?s=HRBC&d=3m **** MAIL - Mail.com $21.88 *** Target Shooting! *** Mail.com is a global provider of email services. Mail.com's basic email services are free to members and anyone can become a member. The company generates revenues primarily from advertising related sales, including direct marketing and e-commerce promotion. The company also receives income from subscription services, such as increased storage capacity and premium email addresses. Mail.com announced that it has exceeded the ten million mark in e-mailboxes served in the consumer and business markets, a 178% increase since the beginning of this year. A bullish chart history with improving technicals and a favorable entry point at recent support. DEC 17.50 UMA XW Bid=0.56 OI=65 CB=16.94 ROI=11.3% Chart = http://quote.yahoo.com/q?s=MAIL&d=3m **** MMWW - Metamor Worldwide $33.00 *** Break-Out! *** Metamor Worldwide is a leading provider of information technology and staffing services. It was founded as a traditional staffing business under the name CORESTAFF, Inc. The company now offers information technology project support, management, outsourcing, systems development, as well as supplemental staffing. The latest structural change occurred when acquiring eleven new IT services. No news on the recent break-out above the neckline of a year-long double-bottom with heavy volume support. Can a new all-time-high be far behind? Short term speculation on an entry point within an established technical support area. DEC 25.00 EQB XE Bid=0.38 OI=117 CB=24.62 ROI=5.4% Chart = http://quote.yahoo.com/q?s=MMWW&d=3m **** NSPK - NetSpeak $18.56 *** Momentum Play *** NetSpeak develops, markets, licenses, and supports a suite of intelligent software modules which enable real-time, concurrent interactive voice, video and data transmission over packetized data networks such as the Internet and local-area and wide-area networks. In addition to marketing its technology, services and systems to new strategic partners, NSPK has begun to sell those products directly to end-users. Recent upside earnings surprise, a solid technical history, and now above recent resistance (near $17) with a new 52-week high on Friday. DEC 15.00 NNQ XC Bid=0.38 OI=167 CB=14.63 ROI=8.8% Chart = http://quote.yahoo.com/q?s=NSPK&d=3m **** PILT - Pilot Network Services $20.25 *** Last Chance? *** Pilot Network Services, the Security Utility pioneer, is the only e-business network service provider of highly secure subscription based e-business services. For companies of all sizes, in every industry, Pilot enables secure e-business by providing a wide range of services with built-in security to protect enterprise networks. Pilot announced earnings in October with revenues up 89%. Very strong technically and the recent break-out has left us few entry opportunities. The recent pullback increased the put-option premiums and this is another conservative attempt to profit from the bullish trend. DEC 15.00 PTU XC Bid=0.31 OI=207 CB=14.69 ROI=7.1% Chart = http://quote.yahoo.com/q?s=PILT&d=3m **** SCOC - Santa Cruz Operation $14.56 *** New CFO *** Santa Cruz Operation is a leading supplier of UNIX System software for business-critical, network computing environments. Network computing offers businesses a more powerful, cost-effective way to share business-critical applications and information with people anywhere in the world. The two key elements are powerful, scalable, and reliable servers; and support for a wide range of clients. The company also offers an application broker for network computing. The resignation of Santa Cruz's CFO (to become a CFO at a new Tech company), caused a slight setback in price, offering put-sellers another chance to profit on this strongly bullish issue. DEC 12.50 UQS XV Bid=0.31 OI=171 CB=12.19 ROI=7.6% Chart = http://quote.yahoo.com/q?s=SCOC&d=3m ******************** Y2K Renewal Offer!!! ******************** Announcing the cheapest renewal rate available! $24.91 mo* Long time readers know that each December we offer our subscribers an extra value package as a thank you for their support. The package this year contains (2) of our Y2K Option Expiration Calendar Mousepads and the Millennium Edition of the Stock Traders Almanac, a $50 value. You will receive two mousepads, one for home and another for the office so you have no excuse for not knowing those expiration dates and strike price codes. We are also giving away the Millennium Edition of the Stock Traders Almanac by Yale Hirsch. This almanac has thousands of facts, tips and hard information that a trader cannot live without. Just one of these facts can pay for the newsletter subscription for the entire year and there are thousands of them. This is the serious stock traders bible. 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