The Option Investor Newsletter Sunday 12-19-99 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 12-17 WE 12-10 WE 12-03 WE 11-26 DOW 11257.43 + 32.73 11224.70 - 61.48 11286.18 +297.27 - 14.98 Nasdaq 3753.06 +132.82 3620.24 + 99.61 3520.63 + 72.82 + 78.56 S&P-100 773.93 + 10.44 763.49 - 3.99 767.48 + 13.91 + 4.27 S&P-500 1421.05 + 4.01 1417.04 - 16.26 1433.30 + 16.68 - 5.38 RUT 466.21 - .50 466.71 + 2.13 464.58 + 5.64 - 2.33 TRAN 2918.42 + 43.48 2874.94 - 53.86 2928.80 + 19.64 - 67.34 VIX 23.01 + 2.09 20.92 + .10 20.82 - 2.13 + 3.32 Put/Call .43 .45 .49 .42 ****************************************************************** Triple Witch Puts Spell on Markets The triple witch options expiration on Friday was credited with putting a volatility spell on the markets. After gapping open over +80 points to almost 3800 the Nasdaq ran in place until the Dow caught up after lunch. About 1:30 the Dow started climbing on the strength of a financial upgrade to JPM and soared to a new intraday high of 11383 dragging the Nasdaq along for the ride. About 2:30 both indexes topped out and support started thinning. The advance/decline line turned negative on the Nasdaq and the race to the exits began. What had been euphoria at new highs for both indexes turned to worry as each bled points faster the closer we got to the closing bell. Not only could the Dow not hold the intraday highs but fell back under its previous record closing high as well. A sure double record close evaporated in an avalanche of volume. The NYSE set two volume records today. The heaviest volume day ever with 1.3 bln shares and four days in a row with volume over 1 bln shares. After being up +100 at 2:45 the Dow barely managed to close positive +12 points. The Nasdaq lost over half of its gains to close +38. Friday was expected to be the last major volume trading day of the year as many funds went into lock down for Y2K. With options expiring volume was high as traders squared positions and moved to the sidelines, some for the year. The fear of the Fed meeting on Tuesday has prompted many traders to simply step aside for the next week and await a possible Santa Claus rally the following week. Will they or won't they, change the bias, not the rates. The debate is not over a possible rate hike but on how the Fed will move on the bias. With many analysts complaining about how the Fed handles the bias statements and the different views of what they mean, the Fed may change the way they express their views. However they say it the outcome is still the same. Traders will worry and volatility will reign. This uncertainty was seen with the run for the exits on Friday. The bonds held their ground Friday with 6.38% yields. You would think with four one-billion+ share days in one week the Dow would have made some significant gains. This was not the case as the index only managed to add +32 points for the week. The broader market attempted to rally but the sellers were out in force. The very big caps were the only NYSE stocks to post gains. The same is true on the Nasdaq as the big caps continued to rise but the smaller stocks lagged. Liquidity is the key. With billions continuing to flow into funds there is just no safe small caps in which to put the money to work before Y2K. Smaller companies are deemed to be risks and big caps are assumed to have the problem under control. If things go wrong, funds cannot move out of the small caps fast enough without impacting the price substantially. This flight to the very large caps is likely to continue until Y2K. Adding to this trend is the year end window dressing as funds want to show the big safe names in their portfolio in the year end statements. The Nasdaq has now exceeded 70% gains for the year and ranks as the largest gain ever. Previous high years were 1991 +56.84%, 1995 +30.9% and 1998 +39.6%. Tech valuations are now the highest since 1983 and are likely to adjust in January. The housing starts came in much lower than expected this morning with a -2.3% drop. Analysts expected a +1.4% gain. This shows the Fed interest rate hikes in action as increased costs of home ownership slow the demand. This was the lowest level since August. The housing permits however rose more than expected which point to a future increase in housing starts. The economy is still cooking along at a +5% rate and that is more than the Fed will tolerate. The big turnaround today came from JP Morgan. Earlier in the day a Merrill Lynch analyst cut their earnings estimates for JP Morgan and JPM dropped over -$5. Later in the day after speaking with JPM again the same analyst retracted her comments and JPM rebounded to positive territory taking the Dow with it. Another Dow component, GE, made several high profile announcements including a 3:1 stock split, an increase of +17% in their dividend and an increase in their share buyback program of $5 billion. The triple witch of the three announcements launched the Dow into record territory. Another Dow component, MSFT, finished the week up +$23 or almost +100 Dow points. Remember, the Dow was only up +32 for the week yet MSFT contributed over +100. Yes, the Dow was technically up for the week, but was it really? It looks like MSFT was up helped by INTC +$10 (+50 Dow), HD +10 (+50 Dow) and DD +10 (+50 Dow). After checking there were only eight Dow stocks up for the week, 2 flat and 20 down. Four Dow stocks MSFT, INTC, HD and DD accounted for almost +250 points. If it were not for three of the four new stocks the Dow would have been down substantially. Think about it. Was the market up or just four stocks? The liquidity driven market is about to get another boost. Year end bonuses for most people in the financial sector typically go directly into the market. With the hundreds of thousands of newly rich from the Internet boom their big year end bonuses are also going back into the market. The funds are faced with receiving millions of dollars every day and nothing to do with it. The cash buildup over the next two weeks will be unprecedented and the end of year retirement contributions will be the largest ever. The cash flood will make it impossible for the market to mount a serious pull back anytime soon. The coming week should be a week for family, shopping, parties and friends. It should not be looked on as a great trading opportunity. The Fed meeting on Tuesday will impact trading on Monday and Tuesday. Wednesday is a tossup and low volume on Thursday will make it a yawner. If you are going to open new positions the best targets should be the very big caps. Historically the market is up the week after Christmas but the Y2K event could blunt that rally depending on the negative hype in the news. This would be a good week to wait for the bus. Bus? If you want to go somewhere on the bus you probably would not simply hop on the first bus that came along. You would wait for the one with your route on the header. Would you get on a bus going to a different stop simply because you were impatient or tired of waiting? Of course not! You would wait as long as necessary for the right bus to come along. This week would be a good week to wait for the right bus. Trading just because the market is open is a good way to lose money. There are literally hundreds of good plays setting up for a post Christmas run. Spend your time analyzing the prospects and narrowing your targets to only three or four. Decide what your entry point will be and how you are going to scale into the position. I am going to place some ridiculous target shooting orders on several stocks I would like to play the week after Christmas. If I get filled this week, great! If not, I did not lose any money and I can still buy them after Christmas. We are probably going to get one more good rally into January and then some instability as we see how Y2K impacted fourth quarter profits. Plan your trades to capitalize on this rally and then be ready to take profits. Have a safe week in the market. Don't buy the first dip. Plan for the January rally and execute your plan. Jim Brown Editor Reminder for our male readers: There are only three days left before you have to shop for Christmas. I have heard that some stores will actually take money from males, without a spouse or girlfriend present, before Christmas Eve but I have yet to prove this theory. ******************** Y2K Renewal Offer!!! ******************** Announcing the cheapest renewal rate available! $24.91 mo* Only ten days left to take advantage of this offer. 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-390 Calls, Naked Dec-400 Puts Last week the chart on top was predicting a blowout soon. I was long the Dec-390 calls @ $13 and short the Dec-400 Puts @ $54.50. As you can see by the second chart is was a very profitable play. I covered the naked puts on Tuesday for $4.00 for a profit of a little over $50 per share. When the drop started just before the close I was afraid they would spike up again and closed the position. They eventually expired worthless but who can complain about a $50 a share profit? I closed the Dec-390 calls on Monday at $30 which was WAY!!!! too soon but again, who can complain about a $17 profit when the Nasdaq can connect at any minute? I took advantage of the Wednesday drop to buy the Dec-420 calls at an average of $22 and sold them on the open Thursday for $32.75. On Friday I felt the market and QCOM would tank by the end of the day and I sold Dec-440 calls naked at the open for $10.00 and covered them just before the close for $5.00. Just barely!! This is a one minute chart of QCOM for late afternoon. I had been nursing the $440 calls as they hovered around $10-11.00 all afternoon. When the sell off finally came I was sitting on the trigger. When it bounced on $444 the first time I covered 10 contracts @ $5.00 and put in a limit buy to cover 10 more at $4.00. When it bounced at 15:45 I was afraid it was going back up. By the time I decided to change my limit price it started back down again but I was already nervous. I changed it to $6.00 and got a fill at $5.63. I was also riding some OEX puts and as soon as I got the fill I switched screens to watch the OEX. You can imagine my surprise when I checked back just before the close. I was thinking about buying some Jan calls but when I saw the spike I was in such shock I decided to wait. If I had only held off covering those naked calls five more minutes I would have been burnt toast. Never fail to take a profit when offered. Especially when there is only 15 minutes until expiration! JDSU - DEC-240 Calls Good plan, bad entry. I had entered the DEC-240 calls UQD-LH for $8.00 on the previous Fridays drop. I tried to catch the falling knife and got stabbed. It continued on down and I got stopped out at $6.00. Hindsight is 20:20 and Wednesday morning I could have bought the same calls for $2.00 with a high on Friday of $25. I had removed JDSU from my watch screen and missed the rebound completely until the gap open on Thursday. ARBA - $240 Calls This play suffered from December decay. I had a nice profit going into the weekend on the Dec-240 calls bought at $9.25. After the dip at the open on Monday they never recovered the premium from the previous week. I closed at a profit for $12.00 but remained disappointed. The bounce off resistance took all the expectation out of the premiums and it never came back. INKT - $150 calls Luck never hurts. Sometimes your luck is all bad and sometimes you can do no wrong. The gap open on Monday offered too much of a profit to pass up and after looking at the chart for Tue/Wed I am very glad I sold for $30. I wish I could be lucky like this for a $15 profit on every play! This is not normal and you should not expect this kind of return. BVSN - $90 calls I had bought the Dec-90 calls BDV-LR for $14.50 the previous week on the strength of the saucer bottom formation. They looked ready to breakout over $110 again and the chart above shows the perfect follow through. I jumped at the chance to sell at the open on Monday for an average of $28 for another double. I was kicking myself at the close when they were trading for $45 but +100% gain is still 100%!!. MSTR - Stock and Jan-170 calls This is the painful part. I owned 1000 shares of MSTR in another account that I had bought the prior week. Options on MSTR are very expensive due to the strong price swings in the stock. Note that the chart lines are $40 graduations. When some stocks correct they can really correct. MSTR had gone from $100 to $230+ in about three weeks. When the Nasdaq corrected last week MSTR fell off the cliff. I first noticed it when it took the first drop to the $210 range. I was concerned but a -$25 drop and a solid hold, surely it was over. Wrong! When the bottom fell out it really fell out. The long red line at the close on Tuesday was literally about ten ticks. I was holding at -$20 and I looked away for a minute or two and now I am -$35 for the day. OUCH! Then it gapped down the next morning. I finally sold in disbelief at $180 for a serious hit. The good news was extremely high option premiums were dropping like a rock. I queued up the Jan $180, 170, 160 calls on Interquote and waited for the bounce. When MSTR hit $160 and started rebounding I bought 20 contracts of the $170 calls for an average of $20. My rationale was with 20 contracts MSTR would only have to go back up half as much to recover my loss on 1000 shares since I now controlled 2000 through options. Everything was looking real good midmorning on Friday but it eased off its highs before the close. I calculated I need a recovery to $200 to recover my loss on the stock. CLS - Jan-75 calls CLS got killed on the Solectron news. CLS is the third largest electronics manufacturer in the world. CLS was on a split run and would probably have been $110 by now without the SLR news. When It dropped to $84 on Monday on the news I thought it would be a quick entry point. I bought the Jan-75 calls for $12.75. Wrong again! The next day the bottom fell out and it lost another -$8. The drop was temporary and with the split coming next week and the numerous upgrades on the sector as a whole I elected to not sell. That was a good decision as you can see. The ex-date on the split is 12/22 and I plan to sell on Mon/Tue depending on the market. The calls closed at $19 Friday. OEX - Puts After the big recovery in the Nasdaq since Wednesday and the possibility of a sell off at the close on Friday, which was the last day of business this year for many funds, I decided to play OEX puts on Friday. The huge gap open setup the OEX for some profit taking but the JPM downgrade/upgrade at midday stopped it dead. I was stopped out with a dollar loss at midday but the mid-afternoon run just put me in a stronger position. I could not believe it. The OEX was sitting right on 780 at 3:15 and the DEC-780 puts were only $1.06x1.13. When the market stalled at the highs of the day I bought 50 contracts for $1.13 to $1.25 (what a bargin!) and within ten minutes the sell off started. I closed them just before the bell for an average price of $5.50. The play only took 30 min to run but all day to wait the entry point. Strategy: I had some incredibly lucky plays this week. Actually I like to think of them as being in the right place at the right time. By researching and planning carefully you can help these accidents happen more often. The downside was my failure to bail out on the two big losers soon enough. I did not have stops set on the MSTR stock because I was not planning to sell it any time soon. This just reinforces the fallacy of this type of thinking. You should always plan for the worst and hope for the best. A trailing stop would have taken me out well over $200 and I would be spending my time finding new plays instead of trying to nurse that one back to health. The JDSU play was simply a bad pick. Good stock, bad entry. These happen to everybody all the time. The key is to run quickly for the exits and minimize your losses. Stocks gap down just as much as they gap up. Stocks trending down tend to gap down and those trending up tend to gap up. If you are already nursing a losing position and the stock is showing signs of weakness then which way do you think the next gap will go? I am not planning to "trade" next week. I am planning to target shoot some options on several stocks using the contingent order feature on Preferred. (Place an order to buy options based on the stock price not the option price) This way I don't have to worry about what the option price will be if/when the stock drops intraday. I would like to get back into some January options on QCOM, YHOO, JDSU, INKT, CMGI. Some of these stocks are splitting and should have a decent split run. (market permitting) I am not going to chase them but if I have not filled I may consider opening some positions on Thursday afternoon. Something you should consider for your stock only accounts. The HHH is a basket of the 20 largest Internet stocks by market cap and was started by Merrill Lynch. It trades like stock on the AMEX. I bought some when it hiccuped at $162 and sold it when it rolled over last week at $180. I was expecting it to drop more on Wednesday and missed the $163 dip. If we get any weakness in the Internet market this week we could see a pullback to $163-165 again. I would be a buyer here. I think the Internets will be strong the two weeks after Christmas and we could see $190 easy. There are no options on it yet but it does let you profit from the top 20 stocks without having to pick one or two to play. We all know the trend is up overall. We just do not know which ones are going up this week. This is very safe and with proper stops very easy to trade because of the low volatility. Remember, my trading plan is to trade "only when profitable" and yours should be also. Good Luck Jim *********** OPTIONS 101 *********** Incremental Positions By Jim Brown Sometimes the best way to open/close a position is one bite at a time. /members/options101/121999_2.asp ************ Stock News ************ AOL Reaches 20-Million Member Mark By Cindy Christ No. 1 U.S. Internet Service Provider America Online reported Friday that membership of its AOL service has doubled over the past two years, reaching 20 million members. "Put another way, twice as many people belong to AOL as those that watch the USA, ESPN, Nickelodeon, MTV, TBS, CNN and CNBC cable networks -- combined -- during prime time," AOL said. /members/stocknews/121999_1.asp **** An Osmotic Technical Point of View Is the Internet Ringing the Bell on Commercial Real-Estate? As I was watching the talking heads on the tube today babbling on about the coming rally of REITS (real-estate investment trusts) and commercial real-estate companies, I realized that the analysts out there are missing the big one and I do mean BIG. Here it is. The Internet is going to gravely and negatively impact commercial real-estate over the next decade. /members/stocknews/121999_2.asp ******* Ask OIN ******* Jingle Bells, Greenspan Smells... Inflation? We hope not. With bond yields skyrocketing to almost 6.4%, economists worried that the U.S. economy is overheating, the American consumer spending money like it grows on trees, and Y2K nearly upon us, let us all bow our heads and pray that the Fed will wait until February to raise rates. It was a volatile week in the market and the next two weeks may be more of the same. Some of this week's charts, show it. I'd like to introduce some basic concepts for technical analysis. /members/ask/121999_1.asp ************** Market Posture ************** As of Market Close - Friday, December 17, 1999 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,800 11,320 11,257 Neutral 11.12 SPX S&P 500 1,340 1,400 1,421 BULLISH 12.03 OEX S&P 100 700 750 774 BULLISH 12.03 RUT Russell 2000 430 450 466 BULLISH 11.12 NDX NASD 100 2,850 3,150 3,360 BULLISH 12.03 MSH High Tech 1,450 1,630 1,723 BULLISH 12.03 XCI Hardware 1,160 1,210 1,319 BULLISH 11.11 CWX Software 1,100 1,200 1,289 BULLISH 9.03 SOX Semiconductor 580 660 639 Neutral 12.10 NWX Networking 750 800 849 BULLISH 12.03 INX Internet 600 675 746 BULLISH 12.07 BIX Banking 645 690 547 BEARISH 11.30 XBD Brokerage 410 450 420 Neutral 11.30 IUX Insurance 625 650 582 BEARISH 11.30 RLX Retail 900 935 972 BULLISH 11.23 DRG Drug 380 400 347 BEARISH 12.07 HCX Healthcare 760 790 689 BEARISH 12.07 XAL Airline 180 190 150 BEARISH 5.21 OIX Oil & Gas 290 315 298 Neutral 11.23 Posture Alert The Nasdaq continued its surge Friday on the back of a few select issues, while the Dow closed positive but gave up most of its gains late in the day. For the week, surprisingly, many of the select indexes didn't have major moves to the upside. Sectors that made some positive moves for the week are the Hardware Index (+6.37%), the Nasdaq 100 (+4.90%), and the Retail Index (+2.10%). Losers for the week were plentiful, and included Banking (-6.90%), Insurance (-6.00%), Brokerage (-5.90%), Internet (-4.20%), Drug (-3.90%), and Healthcare (-3.40%). There are no current changes in posture. ****************** Market Sentiment ****************** Sunday December 19, 1999 Will the Santa Claus Rally Continue? The markets closed out the week on a positive side, sending technology investors to the shopping malls with an optimistic attitude. Whatever the new-toy craze is, parents will undoubtedly be able to afford the price tag as long as they owned a dot.com stock this year. Department stores should feel the love as well, as the stock market wealth should translate into solid sales across the board. However, what lies in the future for this market? The one front that is most apparent to the end of the Bull Run is the long bond. Interest rates are still in the danger-zone and any poor economic indicator or fed-speak could cause a significant sell-off. We do have a Fed meeting on Tuesday but most professionals believe this meeting will be a non-event. However, Wall Street loves to scrutinize and read between the lines of every Greenspan paragraph, so when you combine this love of dissecting Greenspan with the fact that this December meeting has extremely low sentiment, what you get is the dangerous potential for a new high in the bond market. It is the holidays, so maybe we will all be lucky and find a Greenspan-gag in our stockings. If not, we may opt for the lump of coal. Recently, we spoke to several large fund managers that specialize in technology stocks, and we asked them if they were nervous about the bond yield. Now to make a long story short, the consensus seemed to believe that as long as the bond doesn't break above 6.75%, technology shares should do just fine (assuming delivery of growth). With the bond currently under 6.4%, this prediction gives the bond some room to work with (and screw up with), and also give credence to the fact that the market has priced in two rate hikes already for early 2000. This is the attitude that must have been prevalent this week, as the long bond jumped near 52-week highs, yet technology shares continued to soar. So until the sentiment changes and it can change very quickly, we have to stick with the old adage of: the trend is your friend. There always seems to be many investors who are always worried about a large market sell-off. Recently, we talked to an investor who said the DOW was overvalued at 5000 (Boy, that was quite awhile-ago (1/96)), and he was getting ready to buy stocks after the big Y2K drop. It reminds me of the old TV sitcom of Sanford & Son, where the father is always talking about the "big one", that it becomes rather amusing. Well, we get lots of questions from investors asking if the "big one" is coming. It is our feeling that we will see a market, very similar to last years. You will see many stocks doing phenomenally well, but stocks that make rumors of missing expectations or actually report negative numbers will get their legs chopped off. With many individual sectors, the "big one" has already occurred. The momentum game is so prevalent in today's market, that any negative remarks will cause an equity to lose many months (or years) worth of value in a couple of hours. Last January, it seemed like day after day, where we would see some stock getting chopped in half due to an earnings disappointment. You would watch CNBC, and every day they talked about some stock down -30 dollars. Every day, we would be thankful that we weren't long that issue, yet unhappy that we didn't own 100 puts of the pig. However, it is our feeling that you will see the same thing this year. The overall technology sector should continue to outperform, with the winners continuing to be winners, and the losers continuing to be losers. Many individual stocks will soon have the "big one!" Just look at the recent performance of Tandy (TAN) or Electronic Arts (ERTS) and you will get an early indication of what the rest of December and January will look like. So apart from individual stocks getting crushed and no surprises at this weeks Fed meeting, we continue to believe that the Santa Claus rally will continue with the leading sectors. BULLISH Signs: Cash Flow: The amount of money being poured into this market continues to be Strong, as evidenced by this last week's IPO's and the strong volume on all exchanges. 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. S-Squeeze: News events continue to squeeze the shorts, as lately evidenced by Yahoo's incredible run up in stock price. Mixed Signs: Volatility Index (23.01): Once again, the VIX presaged a near-term market top, when it bounced off of 20. It is now safely off of the lows, however, a break through its 50dma may signal more downside in the market. BEARISH Signs: Interest Rates (6.377%): The yield on the 30-yr Treasury is back into dangerous territory, and could cause a precipitous sell-off should we see new highs. Advance/Decline Line: The A/D line's continual break does not serve the best interests of the overall market. Investor Intelligence: The rapid change from bearish to bullish sentiment has been too great, and may indicate a near term top in the market. However, we did see a slight downtick in sentiment this last week. Energy Prices: With the rapid rise in crude oil, everything from manufacturing to transportation will be affected by higher costs. These higher costs will be felt 1-2 quarters out, and could put pressure on profit margins. OTM Call Analysis As we move closer to the December expiration cycle, Pinnacle is tracking the level of call buying (OTM) between 720-810 among option speculators. As we have been documenting, excessive out-of-the- money (OTM) call may serve as overhead resistance. 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 (12/10) Overhead Resistance (780-800) 9.69 OEX Close 773.93 Underlying Support (750-770) 1.10 What the Pinnacle Index is telling us: Based on 12/17, current overhead (780-800) is heavy, and underlying support is light. Put/Call Ratio Friday Strike/Contracts (12/17) CBOE Total P/C Ratio .43 CBOE Equity P/C Ratio .34 OEX P/C Ratio 1.24 Peak Open Interest (OEX) Friday Strike/Contracts (12/17) Puts 700 / 8,398 Calls 700 / 6,272 Put/Call Ratio 1.34 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 17, 1999 23.01 Investors Intelligence Major Percent Percent Date Turning Point Bullish Bearish October 97 Bottom 22.0 48.3 July 20, 1998 Top 52.0 24.0 October 8, 1998 Bottom 38.5 42.7 January 11, 1999 Top 58.3 30.0 March 4, 1999 Bottom 49.1 32.5 Oct. 13, 1999 Bottom? 39.2 37.5 November 24, 1999 53.0 28.7 December 10, 1999 51.7 29.3 ************* COMING EVENTS ************* For the week of December 20, 1999 Monday None Scheduled Tuesday Federal Reserve Meeting on interest rates (FOMC) !!!!!!!!!!!!!!!! Wednesday GDP Q3-Rev Forecast: 5.5% Previous: 5.5% Univ Michigan Sentiment Dec-F Forecast: -- Previous: 104.2 Thursday Jobless Claims 12/18 Forecast: -- Previous: 266K Personal Income Nov Forecast: 0.2% Previous: 1.3% Personal Spending Nov Forecast: 0.4% Previous: 0.6% Durable Goods Orders Nov Forecast: 1.1% Previous: 1.3% Help Wanted Index Nov Forecast: -- Previous: 86 Friday None Scheduled Week of 12/27 12/27 Existing Home Sales - Nov 12/28 Consumer Confidence - Dec 12/29 APICS Survey - Dec 12/31 Chicago PMI - Dec ************* WOMAN'S WORLD ************* CHRISTMAS VACATION STRATEGY Last week I put on an unorthodox spread on JDSU. Many of the readers had questions regarding my reasons. First of all, my longer term (30-45 day) outlook on JDSU was and is very bullish. The trade I put on was a long Dec200 put for 1-3/8 and a short Jan200 put for 7-1/4 points netting me 5-7/8 points. The reason I didn't put on both legs with a December expiration was because the spread was less than one point. My criteria is a minimum of 1 but nearer to 2 points for a current month spread. I could have put on a January Spread but I was greedy (not enough money on the spread because it was so far out of the money). However, I didn't want to go naked for that long a period of time and tie up that much money in margin. I was confident that JDSU would hold above 200 in January but that there might be some turbulence in December especially during expiration week. By purchasing the Dec200 put I wouldn't tie up a lot of capital and I would have a position to trade if JDSU tanked below 200 before expiration. Then I could sell the Dec200 put for a sizable profit and hold the January put naked. Worst Case, it would provide me insurance for 1-1/2 weeks at a cost of 1 3/8 points. After expiration, if it expired worthless (I sold it for 25 cents), I could put on a January spread by purchasing the Jan 190 put for far less money, because JDSU would be up in price and there would be much less time value left in the option. The other thing I could do would be to buy back my short leg (if JDSU were up big time) or simply go naked for the next four weeks. Well it was a rocky week. JDSU went down to 220 on Tuesday and closed there. I knew I was on thin ice, but I kept telling myself that because the volume was dropping with the price, we were running out of sellers and JDSU would bounce off this very strong support level. I did however, light a candle that night. Fortunately for me, I was not available for the first half hour of trading on Thursday morning. JDSU went through support and down to the 210 area! By the time I got back the stock turned around on increasing volume and found support back above 220 and closed above 225. Phew! JDSU continued up up and away. Once it broke above 245 on big volume I bought some stock at 245-1/4. The next strong resistance was at 250. Then I wrote a December 250 call for $4.50 with only one day to expiration. I wanted to own this stock for my Christmas vacation strategy which I will explain next. Worst case, I would get called out of the stock and make 9-1/4 points in one day or I would own the stock, keep the 4-1/2 points and implement my Christmas Vacation Strategy. The last hour on Friday was one heck of a roller coaster ride. I didn't even watch. Fortunately for me I had errands to run and I knew I was set either way. JDSU dropped from 252 to 242 in the last hour. I wasn't called out so I got to keep the 4-1/2 points AND the stock. YIPPEE! Now for my Christmas Vacation Strategy. The strategy is really quite simple and one that you are aware of, but most people don't do it on the type of stocks that I choose. I like to buy highly volatile, good quality, split or rumored split stocks and write January calls on them. Unfortunately, the stocks are usually expensive. Fortunately, the options are grossly overpriced so I write the calls on these stocks and watch the time value melt away over Christmas and New Years. I devote my entire short term trading portfolio capital (not margined) so that I'm not tempted to get in there and day trade during Christmas Vacation. The first reason I implement this strategy is so that I can go and do my Christmas shopping, spend some time with my 13 year-old daughter who is now out of school, and visit that old aunt I haven't seen for "how long has it been?" (7 years). The second reason is because of the January effect. These stocks will fly, I will get called out, or if they don't I've locked in a tremendous profit. The third is for tax reasons. I am able to postpone a sizable gain until the next century! My intention is to get called out of these stocks. When I am ready to start trading in January, I have my entire appreciated equity to margin until expiration. After expiration, I am loaded for bear (no pun intended). The specifics are as follows: I will write the JDSU JAN 260 calls for about 23 points. I bought this stock for 245-1/4. I also implemented this strategy on YHOO, which I bought for $322 on 12/9 and wrote the Jan350 call for 18-1/4 points at that time. Also included in my Christmas stocking is CMGI, which I bought for 198-1/4 on 12/15 and wrote the December 230 call for 5-3/4 points. I didn't get called out of the December calls and got to keep the 5-3/4 points on CMGI and the 4-1/2 points on JDSU. On Monday I will write a January 230 call on CMGI for about 25 points. My last stocking stuffer is QCOM, which I bought for 400-1/2 on 12/10. I immediately wrote a Jan450 call for 21-1/2 points. I fully expect to receive a total of about 200 points on the expired premiums and the gains on the stocks (up to the strike price written) on expiration date in January. I'll then be able to pay for all the lovely Christmas presents I charged in December. Merry Christmas to all and to all a good NITE (Trimark). Lynda Schuepp lynda@OptionInvestor.com ***************************************** MORE WOMANS WORLD ARTICLES IN SECTION TWO ***************************************** ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. 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The Option Investor Newsletter 12-19-99 Sunday 2 of 5 ********************** WOMANS WORLD CONTINUED ********************** I got two nice Christmas presents this week. Nextlink was added to the Nasdaq 100, and CMGI went up another 24 points after earnings and a split announcement. I bought Nextlink a couple of weeks ago at 54, and watched it hit a high of 74 this week. On Monday when the news came out that the stock was being added to the Nasdaq 100 I bought NXLK Jan 70 calls at 6.5, and sold them at 7.75 the next day. I am considering 6 month options on Nextlink This is a very volatile stock because it isn't profitable and they have a significant amount of debt, which means the price can fluctuate highly with interest rate fluctuations. Additionally I bought Nortel June 85 calls at 18. This is a relatively long term play (long term can mean a month in options versus a lifetime in a stock) This is a 6 month option, and it is only about 20% higher than the price of the stock, which is a very dynamic growth company in a rapidly expanding industry. On Monday I considered buying Qcom calls in a spread, Dec 380 and selling the 400 but I couldn't seem to pull the trigger. By the time I decided to do it the darn thing had jumped up another 20 points and it was too late. I may consider this strategy in January, as the odds of Qualcom being above 380 in Jan are very high. However, I think the call premiums are ridiculously inflated. Sometimes you just have to trust your gut instinct as a trader, if the play doesn't feel right, don't do it. I didn't break the rule of not holding options over earnings with CMGI, I sold my options and took half the profit and put it in the stock. I was glad I did, although I didn't make as much as I would have in an option. The risk with a stock is that it will go down and possibly go back up. The risk with holding an option over earnings is that it will go down and never come back up, and in worst case scenarios go down to zero.. How many times have you heard the following phrases in the last couple of weeks "The Nasdaq is over valued, it has to correct" "We are looking for a 10% correction in the Nasdaq" If your listening to market news programs its probably every 15 minutes. The market doesn't have to do anything, it does what it wants. However, at some point this market is going to correct, nobody really knows when, but markets always correct. There will always be irrational exuberance and speculative froth on the upside just as there will always be panic selling on the downside. One of the frustrating aspects of trying to predict and time the market is that there are too many things going on internationally we don't know about and have no control over. Remember in the summer of 1998 the market corrected 20% and the Nasdaq hit 1000. A lot of people claim to have called this, but most were taken off guard by catalyst events which occurred in the Asian and Russian economies. Right now the Nasdaq is defying the bears and the grumpy curmudgeons at the Fed. Thing s look unbelievably good in the U.S., we have the combination of relatively low inflation, low interest rates, high productivity, and we lead the rest of the world in corporate profits, innovation and achievement.What could possibly go wrong? Well, the US is not isolated, we depend on other countries for inventories as well as export sales, some of the big US multinational companies get as much as 50% of their revenues overseas. While the US is floating in an oasis of prosperity, the rest of the international situation doesn't look quite as promising. The main function of the SEC in the US is to protect the investor from fraud. They do a very good job considering the number of people in the securities industry and the number of companies which have gone public in the 1990s. If shares of foreign companies stocks are American Depository Receipts then they have to file with the SEC also. If you read the balance sheet or annual report of an American company or an ADR you can be reasonably certain that what they say is true, for example if they say they are earning one dollar a share it's almost certainly true. However, there is little protection in certain overseas countries from fraud, which means if people buy shares of stock on foreign stock exchanges it is possible that they could be buying fraudulent or non existent assets.This was one of the contributing factors to the crash of 1998. Bluntly put, the Japanese banking system hadn't really been updated since the feudal era and Russia's overnight conversion to capitalism was really a conversion to crime and chaos. Now we hear things like the "global economic recovery " is well underway. Thanks to the work of the US Fed, IMF, and the US Treasury we were able to bail them out of collapse and prevent them from taking the US down with them. But global economic recovery is a vague and vast term which encompasses too much to be accurate. We don't know exactly what is going on everywhere else because some of the other countries don't want the US involved until they need our money. Some of their turbulence and instability can sneak up on us while we least expect it. We know, for instance that the Japanese are recuperating from the recession because they are ordering more computers. We can see the reported estimates of growth in Gross Domestic Product in other countries. But do we know for sure if reforms in their banking systems have actually taken place? As demonstrated by the World Trade Organization's disorganized summit in Seattle, other countries don't want to follow our laws and regulations as far as child labor and human rights are concerned. What makes you think they are willing to obey our laws and regulations regarding banking and securities? With the Russians laundering 10 billion of stolen IMF money through the Bank of New York, what type of securities regulation do they have over there? For example, there have been a number of articles and studies on reforms and changes in the Japanese society from an industrial monoculture which stifles individualism and innovation to a freer, more competitive society like ours, but this type of change doesn't happen over night.When people are forced to change and adapt to survive in a new environment they will, but it can take a generation to change an entire culture . In the meantime, problems in the overseas markets may have a ripple effect on our markets. We live in a very exciting era. The internet is crossing borders, opening opportunities and breaking down old barriers. We can't even begin to predict where it will take us in the next century, but many oppressive governments may be overthrown, old systems of business will be overhauled and all of this is going to happen comparatively faster than previous changes due to the technological revolution However along the road there are going to be stumbling blocks. Most people who survive trading long term hedge their bets to a certain degree. No matter how carefully you plan your trades, something can always happen You can hedge a bet by playing both sides of the market at the same time, keeping half your money in cash, using some conservative stocks like utilites to offset potential losses in technology stocks, or by using more sophisticated heding techniques involving derivatives and convertibles. Mary Redmond mary@OptionInvestor.com **** DEAR SANTA, All I want for Christmas is one more year like this one. Well on second thought, I could do without that little mistake between May and September. I promise Santa, I will never leave your presents alone again, with honey on them, while I go out and play. I promise to bring them in and stick them in a drawer (account) somewhere, so they will be safe from Mr. Bear. I know there are a lot of other people who need your attention and presents, more than I do this week. Thank you for giving me mine early. This is why I'd like to use most of my wishes on next year's present. Please be good to Steve Case (AOL), Timothy Koogle (YHOO) and Irwin Jacobs (QCOM). They were VERY nice to me this year. Other people were nice too, but they were exceptionally nice and invited me to several parties. Because of them, I had the BEST champagne!!! I guess I should also thank Alan Greenspan. I really like him a lot, but he made me mad this year and hurt my feelings for several months. I don't like it when he tries to just scare me like a bully. I stay upset everyday, not knowing if he's going to hit me or not. He's been really nice to me lately, so I don't want to complain. Just please make him realize that we can all play together, share and grow and no bullies are needed. I hope your health stays good, Santa. If you grant me my wish for next year, I promise to write even a bigger check to Toys for Tots. And Santa, just one more teeny tiny thing. Would you please keep that Y2K guy at home the next two weeks? We have a big party scheduled on January 3rd and we are going to be practicing a lot before hand with mini parties and the band & such. We don't like him and he scares our friends off. Some of our friends take all their toys and run, hide and won't share. This isn't fair at Christmas. We want to play with everyone else's toys and share in the fun. Besides Santa, some of our friends are afraid to party with us until after New Years day because he is threatening to crash our party at the stroke of midnight. I think he's all talk, but just in case, please LOCK HIM UP!! Thank you Santa. I love you. Tell Rudolf, "Hi" for me. Oh, I almost forgot, Frito, Smash & Sunshine promise not to bother you this year. Give Mrs. Clause a kiss, a hug and a nice big present for me. God Bless you all! Renee On to business. First, let me apologize for the way the charts turned out in my last column. I promise, they did not appear that way from my end. I have a jpg (picture) file of both charts. If you would like to receive these by email, drop me a note. They take a couple of minutes to download, but the charts are easily readable. I'll figure out a better process before adding further charts in the future. Also, to clarify, I use the directional movement indicator for both short term and long term plays. The lines are less volatile when looking at the daily chart, which I extrapolate into my daily trading. The smoothing line is more important to me on the daily chart. I use entry signals with DM, in conjunction with stochastic's over bought and over sold indicator. Also, if these indicators give me buy or sell signals while the stock hits an upper or lower Bollinger Band with heavy volume, this confirms my play. With 1 minute charts on high flying stocks like YHOO, you can see the day traders pounce on trades when the stock hits a Bollinger Band. The stock volume immediately goes up and will die back down as the stock come off the band. Finally, I use MACD as a lagging indicator, which gives me a feel for the consolidated strength and overall movement of the stock. These things do not take long to learn. A picture is worth a thousand words. For more information on momentum indicators and Directional Movement consider: Technical Analysis from A-Z by Steven B Achelis. Check the OIN bookstore. Secondly, I will be buying on the volatile dips the next two weeks, adding to my QCOM & YHOO. With profits taken on Friday, I will buy buyable dips for other POTENTIAL split plays, which I expect announcements on in January. I will churn short-term plays for the next two weeks and probably load for January 3rd, if the market holds. My plays are all working better than expected. Thirdly, as we approach the end of the year, I'd like to discuss a little bit about profit taking. I had a chill run down my spine last week, as a new friend of mine said he is reinvesting 100% of his profits so it would all keep growing. (Dave, sorry to pick on you, but I know you are not the only one thinking this way.) I would like to share my first hand experience from this year on this topic with some ideas for all to ponder. Harrison- with his Stockaholic article (in the Thursday's edition of Trader's Corner with a Woman's World typo. Ha, ha, ha), Janar- who talked about putting all his money into one play and Dave, seemed to make the timing of this discussion imminent. As I have mentioned previously, the first quarter was very good to me. I had roughly a 145% gain before I left for an option conference with open positions in AOL as it ran into earnings. I had done so well in AOL, that I loaded just about all my trades, for that play going into earnings. Just to be safe, I had also loaded with July calls. At the conference, they said if you consistently made 60% profit a year trading options, you could consider yourself doing very well. I was puzzled because every year that I've traded options they've returned a much, much higher percentage. These were Masters - VERY successful and VERY respected traders, well known in the industry, so I was confused. One of them offered to review my trades and account, via my laptop computer. What he said shocked me. At the time, he said my successes were far greater than his (in April), but that he did not take the risks that I did. (Does anyone remember the story of the tortoise and the hare?) He then proceeded to advise me on how to do things differently, in order to protect myself. He did not give me much time to ask questions, so I had to "learn" some of his advice in real life. Upon reviewing my trades, open positions and daily account balance swings, he said that I was a much higher risk taker than he was. I had huge swings in my account, on a daily basis. I had to admit that these swings were getting much bigger, as my account grew and they were starting to concern me. Sure, the upside felt good, but those downside swings hit my stomach. I had begun to feel, like things were getting out of hand, because I was doing too well and I wasn't sure I knew how to handle it. I had begun to tell close friends, that I was afraid I did not know how to protect myself when the inevitable correction came. I did not appreciate his words of wisdom, until summer. It would be shortly after this visit, that I would LOSE all of my first quarter gains, and then some. (The fact that I held long stock from Blow & Go, actually salvaged my account.) Our discussion was enlightening. He trades several instruments but we'll stick with options here. He starts the year with a predetermined balance in an option trading account. For him, that is around $100K even though he is worth millions of dollars. Clean slate. He does this every year. Only a small portion of his net worth is at risk in options. All other option gains and profits have been put into other non-financial investments, ie; real estate, businesses, personal, etc. He said the worst thing one could do, is continue to trade 100% of their profits, which I had been doing. When a downturn occurs, it can wipe you out much faster than you made it. One year, he had to borrow money from his mother to survive, before he figured out the game and learned how to protect himself... from HIMSELF. Down turns may last days, weeks, months or years??? One never knows ahead of time. He advised to take profits routinely... weekly, monthly or quarterly, to protect profits. Also, as Jim emphasizes all the time, he advised me to quit holding all of my plays too long. Churn plays by scalping 25% over and over and over again. This generates huge cash flow, protects your profits and allows you to let a few big winners run into the stratosphere. Most importantly he said to exit plays that go against you, immediately. Take your loss and move on because your money could be better spent on a play that will win. Don't wait for a recovery, which may not ever come due to time decay. This was what was causing my huge swings because I was ignoring any stop loss I considered. I had faith in my positions. I would marry myself to an option and put way too much faith in its profitable return to the upside. Looking back, that was really dumb! The last thing he said is that if it were his account, he'd exit all the AOL contracts and go to cash. He said the markets didn't look good to him. I baulked at this because I had loaded for the tried, tested & true, AOL earnings run. The next day, AOL dropped 24 points and continued not only a downhill slide into earnings, but almost a 50% correction to its lows. Remember those July contracts I ALSO had????? I have baggage now. I will never trust a stock that much, ever again!!! Unfortunately, the hit came fast before I could do anything about it, but now I do things differently. I am now up about 540% from my lows. I get out quick on bad plays, churn my account and only hold a few contracts for those skyrocketing plays for Blow & Go. Now I am a much more disciplined trader not only because of his discussion, but the immediate impact of lessons learned. I am grateful for both learning the lessons AND the loss because I have recovered now and I know I will never take my profits for granted again. I believe in learning from the masters, for they have already stepped in the puddles in front of me. So as we all sit here in exuberant glory, basking in our new found profits, consider the old saying, "If it looks too good to be true, it usually is." Although Harrison (in Trader's Corner) was being humorous and entertaining, being a true "stockaholic" is the ultimate in uncontrollable high risk. Being in medicine, there are clear signs of additive personalities. With all these gains, you should be asking yourself some serious questions. Can you part with some of your gains or will you justify keeping them all invested in more high-risk investments? I had to dry out. What about you? Can you learn from other's mistakes? The only way you can protect yourself is by making a profit withdrawal from your account and use those funds on other things. Reward yourself. Leave less money at risk. Learning to be a good churner, will replenish the profits over and over and over again. What do you think the chances are, that you actually ARE the next Bill Gates or Warren Buffet? Here are some rewarding ideas to consider. You will be glad you did something, if your account goes down with a correction. Now when is that due? January??? Pay off your mortgage Pay off your car Pay off all credit cards and school loans Invest in your education with more financial seminars Do something for your parents Open a savings account with your profits and set up an auto-deduct system for your routine monthly expenses and taxes Set up an IRA account for your child and deposit the maximum per year (check with CPA, different brokers have varied rules) Set up an account to tax deposits...and keep you hands off that money!! Write a check or make a payment, for someone less fortunate than you. Pay (anonymously) their electricity or gas bill. Get debt free Do something that makes you smile, laugh and giggle....and something that makes others laugh too. Spend some money on learning how to "smell the flowers" and how type B personalities enjoy life. ....and as always, be kind to strangers. That punk kid with baggy pants, a ring in his nose and stringy long hair, may have just sold his company for a billion dollars!!! Have a Merry Christmas everyone!! Renee renee@OptionInvestor.com *************** TRADERS CORNER *************** I've got a mission for you! After a hectic year of trading, I picked 9 of my strongest players to carry the ball past the Y2K goal line. Often in the Marines, I would assign the most difficult tasks to my best Marines, solid individuals that I knew would think on their feet, use their resourcefulness, and take advantage of opportunities when presented with them. So too, I am now in a personal lock down mode -- of course, I watch the market, but, today is the first of about 10 trading days when I have already decided to do exactly nothing. The conventional wisdom among traders is to take profits now and be ready for dips leading up to Y2K. I take an opposite view that the market will remain fairly stable, albeit possibly affected by low volume day traders, and generally trade sideways to up through the new year, when we get another jolt of liquidity, culminating a meltup to this unusually sustained uptrend. At worst, if a pullback occurs, I think it will be met by buying... if not by mutual fund managers, then by their assistants who have a wish list and lots of cash to get into positions on the biggest, best positioned tech companies. Does this strategy make me nervous? Sure. But, just like a platoon commander looking into the eyes of a man you can trust to do the job, I feel comfortable when I look at my current positions, which, in my ST portfolio include January calls on the following stocks: QCOM. My biggest position, and the biggest gaining stock on my play list today! This was the topic of my last piece. It is a Gorilla and we are in the tornado phase of the adoption of CDMA technology, not just in handsets, but also in all types of wireless products. Stock splits 4:1 just before the New Year. Sale of handset division pending, which, as one local club member notes, will make QCOM a fabless semicondutor; the market assigns an even higher valuation to fabless semiconductor companies. Undervalued at 455? How about undervalued at 114 (or 125... or 130...) after its split in a few weeks? LEAPS and Jan Calls on this one. NOK. Bouncing back smartly from 150, the biggest PC manufacturer (advanced wireless phone handsets) in 2001? Benefitting from Wireless Access Protocol (WAP) leadership, which is related to CDMA, but without the same revenue power. I drive by the new NOK building in Silicon Valley's highway 101, and I rest assured that good things are going on. Every fund manager will have to own this one for 2000. Look out above. LEAPS and Jan Calls on this one too. GE. Announced a 3:1 split as predicted -- nice pop! The thing to watch here is that GE is a net company too, just like WMT. The difference is that GE makes all of the stuff that companies want to sell over the net. So, instead of letting other companies sell the stuff over the net, GE can choose to execute a Internet strategy itself... and still have some of the most efficient manufacturing and organization of any company. (thanks to my friend Dave for a bit of this analysis) LEAPS and Jan Calls on this one. INKT. Split in a few weeks, right before Y2K. My entry on this was not the best, which is part of why I chose to execute a simple strategy for the rest of the year. Nice bounce back from the 155-160 level. Dominant in the search engine space. Jan Calls. MSFT. Can't hold a good gorilla with $20 billion in cash down. I played this one successfully in July, when I watched my Jul95 Calls sprout from less than 1 to almost 5 in value on expiration day. The massive open interest in that contract helped to ensure that once MSFT broke above 95 on that day, it would quickly blast up to almost 100. (Check out the OI on Dec100, Dec105, and Dec110 as Mister Softee crushed those strikes this week! Hedge that!) I also recall MSFT hitting 100 3/4 on Monday, 7/19, when I closed Aug MSFT Calls, switched to OEX puts on a sweet call by Jim Brown, and tracked Mister Softee for the intervening 5 months while dozens of tech stocks saw appreciation of several hundred percent. So, when I saw MSFT break 100 3/4 on Wed, I made a instinctive decision to get in on the play. I bought Jan100 calls at 5 3/4, sold half of them at 8 1/8, and am keeping the rest of them. It is hard to say enough good things about MSFT, but the main thing is cash, cash, cash. Cash on the balance sheet. Cash from a new product cycle (Win2K). Huge margins. Now that this one has broken out, it is hard to say exactly how high it can go. SUNW. Already up strongly this year, this is a real company with a huge infrastructure (compared to many 'net companies), massive institutional knowledge in the hottest sector of the economy, and multiple partnerships with leading companies. If you are running Joe's Very Excellent Large Cap High Tech Growth Fund, you have to own this one for 2000. Got into it yesterday around 72, already back at 75. Jan Calls. AOL. Ran up to 95 on the AOL/ WMT news, dipped back to 82 (a great entry point, which I did NOT nail... part of the reason I am backing away from trading). I bought too soon at about 92. Down on the play, but confident that this will keep moving as eHoliday season goes into overdrive. Preliminary reports of ecommerce are already very strong, and I expect them to get stronger. PHCM. Supplies the operating system for internet access on wireless phones. Got into it yesterday when it bounced after consolidating for a few weeks. If fund managers and the market realizes just how central to the expansion of wireless communications this company's products are, this could see Red Hot like appreciation. JDSU. Maybe a object lesson in why not to buy and hold options, this stock rocketed out of the gates on Friday to 262, but dropped to 240 before the close. However, I bought this when the stock was at 225-230 a few days ago, and the stock is splitting right before the new year. I did take profits on part of this play at 10% and 25% gains. One of the way to value options is with a binomial pricing model in which you envision a stock going to one of two prices over a certain period of time, then calculating the amount of the stock and bonds that you need on hand to hedge the contracts you have written. The time period can be minutes, days, or weeks. The Black-Scholes pricing system is an advanced mathematical application of this binomial pricing model utilizing formulas that Fischer Black finally found over in the rocket science department at MIT. I've made my plan to hold the above options based on a gut call analysis of where the prices of those stocks will be over the next 2.5 week period. They could be higher or lower, and I think they will be higher, indeed, high enough to overcome the time decay on the premiums of the options I am holding. I have also made the decision because I do not want to devote my attention to target shooting the dips that will occur over the next two weeks. I could dial back into the market on, say, 12/29 and then start target shooting, but I think that, on balance, most of those stock prices will be much higher, especially the ones that are splitting. I know the Fed is meeting next week, and even if they tighten the bias, I think the market will be generally stable. This plan might get me in trouble with Jim for not following exact instructions, but in this situation, I think this is the most profitable strategy. Anyway, that is one trader's plan to skin the Y2K problem. Good Luck. Janar Joseph Wasito janar@OptionInvestor.com ************************ TRADING CLUB UPDATE ************************ Sunday, December 19, 1999 HAPPY HOLIDAYS FROM THE OPTION INVESTOR TRADING CLUBS!!! Visit the trading club message boards and see what others have to say: http://boards.OptionInvestor.com/tradersclubs/ UPDATE FROM TORONTO, CANADA *************************** Greetings from Toronto We have had a remarkable month. Our last traders Club meeting was on November 27 and we had a great turnout. There were 8 members who were able to attend. It is so good to see everyone making money using DIFFERENT strategies. One used just put plays. Others use covered calls, or called on volatile stocks( qcom, yhoo ) while others still buy those blue chips and turn around and get a nice steady income from them selling calls and are satisfied with 5-7% a month. I doubled my money in just 5 weeks!!! We all had some good news and also were able to share some not so nice trades and learn from each others mistakes. We all came from different parts of the city, and are all looking forward to the next meeting. The trades we still like are NT, QCOM, YHOO, RHAT, RIM (Toronto) and AOL. We will meet again in the New Year since we do have a life outside of options trading. All the best (trades) Thomas - email@example.com ************************************************************** If you would like to join an option trading club anywhere in the world please contact us at Visit@OptionInvestor.com and Organize@OptionInvestor.com and we will put you in touch with the one nearest you. ************************************************************** *************** BROKERS CORNER *************** THE MORE THINGS CHANGE...THE REACTIONS REMAIN THE SAME We can all remember when we started trading and the numerous things we had to learn. The markets are difficult enough that simple things like placing orders or managing risk should not be difficult. The basics of money management and having a trading plan hopefully have become second nature. If you have not yet developed your own trading discipline at least you have been lucky enough to survive mentally as well as financially. Make your life easier and trade more consistently without expensive mistakes by sticking to your plan. If this column seems similar to ones I have written before, it is because TRADING MISTAKES ARE CONTINUOSLY REPEATED. The markets change but traders' reactions continue to be based on the classic fear and greed emotions. Every day stocks are going to move but your trading opinion should not vary with every news story or analysts view. Have a plan and act on it, not react emotionally. In this volatile trading environment created by the increased market liquidity discipline will separate you from the masses chasing their own tails. As a broker, I am still amazed by the panicked phone calls I receive from otherwise successful people that whip themselves into an emotional frenzy and come unglued when an individual stock moves dramatically. People have become more afraid to miss something than the substantial risk of buying too little time on options or entering a market AFTER a substantial move. As you learn from your trading battles, either you develop the discipline or the market humbles even the brightest of men and women. We as option brokers do not know where the market is going but know how to use options to increase our likelihood of success. More importantly we know what usually is not a profitable trading strategy... buying options with one week left until expiration, buying options because they are cheap? And buying options after large move. ANYTHING CAN HAPPEN IN THIS MARKET ENVIRONMENT but you must be prepared when things do go your way to take profits or when it doesn't to get out. Place the profit order and your stop loss when you get into the market and try not to participate in the everyday trading frenzy that has caused many sleepless nights. My best traders feed on the fear of the common man and have learned to scoop up options on good companies when others are panicking out. Successful trading is all a matter of perspective and the foresight to recognize the opportunity when it occurs. ANY TRADE IS WORTH DOING AS LONG AS YOU HAVE A PLAN. Without trading discipline I may get a frantic call to "Sell all of my Microsoft options immediately because the government is going after them". When emotional decisions are made they are usually wrong and regretted later. We as option brokers try to encourage traders to balance the ideal amount of time until expiration and strike price variables to increase your probability of success. As you learn trading discipline our job becomes easier and hopefully we are all closer to the goal of helping you make money. Without financial success you are not going to continue to trade and we will be out a customer. If we can instill the proper trading habits we are all better off. Alan Knuckman and Andrew Aronson LaSalle St. Securities Chicago, Il 60604 Toll Free 888-281-9569 www.Lasalleoptions.com LAST WEEKS CHANGE FOR THIS WEEKS PICKS: *************************************** Daily Results Index Last Week Dow 11257.43 32.73 Nasdaq 3753.06 132.82 $OEX 773.93 10.44 $SPX 1421.05 4.01 $RUT 466.21 -0.50 $TRAN 2918.42 43.48 $VIX 23.01 2.09 Calls Week QCOM 455.00 63.50 $63.50 last week, any complaints? BVSN 129.00 21.63 BVSN delivers the breakthrough NSOL 239.94 21.19 Settles down for a gain of $21! SONE 84.00 19.25 New, breaks out of consolidation DCLK 204.94 8.94 Something is up! Rumors abound... INSP 166.69 8.63 New, goes for a stock split! VRTS 117.47 8.41 VRTS tags another new 52-wk high VIGN 149.94 8.06 New, a full month of excitement NXLK 72.00 7.88 Good news and strong technicals TTN 34.44 5.94 Investors show carnivorous zeal CLS 91.63 4.88 What a nice recovery for CLS! TERN 69.94 4.69 New, looks to have the momentum GE 151.50 4.06 Dropped, 3:1 stocking stuffer INKT 171.06 3.31 2:1 split to end the millennium TMX 112.75 2.63 Momentum run in our midst! NT 90.44 2.19 Could there be a split for NT? STM 139.00 2.19 The Semiconductor sector is hot! NOK 168.50 0.50 Hello upside surprise! VOD 49.25 -0.50 Dropped, but on our radar screen JDSU 240.94 -3.31 Lots of opportunity for profits YHOO 350.00 -3.50 New, earnings January 11th GLW 112.50 -4.50 New, momentum is in high gear AOL 85.00 -6.50 Looking for holiday momentum SUNW 75.13 -6.75 Dropped, the sun ain't shining MACR 80.00 -6.88 Dropped, MACR's upside shifts NTAP 144.69 -9.19 Dropped, splits on Monday Puts PWAV 49.00 -15.25 New, the tide moves out for PWAV KIDE 36.38 -8.31 Stubs its toe on the way up ETYS 37.56 -7.56 Nobody wants to play with ETYS! WB 66.00 -7.13 New, WB investors not too happy BMY 62.13 -6.13 New, potential lack of growth LTR 59.94 -1.81 New, fells the dual-edged pain GT 27.06 -1.69 GT's tires must be balding! GILD 38.13 -0.88 New lows against sector highs STOCKS ADDED TO THE PICK LIST ***************************** Calls GLW - Corning Inc INSP - InfoSpace.com TERN - Terayon Communications VIGN - Vignette Corp. SONE - Security First Technologies YHOO - Yahoo! Inc. Puts BMY - Bristol-Myers Squibb Co. WB - Wachovia Corporation PWAV - Powerwave Technologies LTR - Loews Corporation *************************** PICKS WE DROPPED THIS WEEK *************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS MACR $80.00 (-6.88) The trading for option traders on MACR was good for three weeks. This past week we began to be cautious on the shares of MACR, because of the sluggish volume, and weak price increases. The normal pattern of aggressive moves, pullbacks, and then another aggressive move, continued to fizzle to the point where we were down almost 7 points for the week. The bias to the upside has shifted, and this recent consolidation seems to be getting weaker as the shares now currently sit at the $80 level. On Friday the volume continued to be lower than average, and any attempt at a normal rally could not hold up to the selling pressure. Although there are possibilities to make more money in MACR, the risk reward has narrowed. The clear trading picture of weeks past has become blurry. We have had a good run in MACR, and now it is time to move on to more attractive opportunities. NTAP $144.69 (-9.19) We're exiting our quick split play ahead of the ex-date on Tuesday. If you got into the play near the support level ($150) you were rewarded with a 10+ point gain by Friday afternoon as NTAP topped at $162.25 intraday. Unfortunately after that nice peak the stock suffered profit taking. Remember, if you have any positions open at this point you should consider having them closed by tomorrow. Most stocks will typically suffer a post-split depression. GE $151.50 (+4.06) Time to exit this profitable call play. GE's board spread the holiday cheer and gave shareholders everything they were looking on Friday. A 3-for-1 split, a 17 percent dividend increase and a $5 billion share buy back program. The buy back program was a bit of a surprise considering that GE is looking to increase acquisitions of other companies next year. The split still needs shareholder approval. The vote is not scheduled until April 26th. It might as well be in 2010, as far as momentum investors are concerned. With the holiday doldrums approaching and with all of the news already out, GE's stock price will probably just wander around. VOD $49.25 (-0.50) We are going drop our play on VOD for now. The soap opera saga between VOD and Mannesmann continues to drag on. We believe that VOD will eventually be successful in its efforts to merge with Mannesmann. Friday VOD did secure $30 billion in credit from a consortium of banks, not to sweeten its bid, but to use in case Mannesmann's credit lines are cut off if and when the deal goes through. The telecom sector had a better day Friday and VOD continued to struggle. We are dropping VOD as a play for now but will continue to monitor the negotiations or lack there of, between VOD and Mannesmann. SUNW $75.13 (-6.75) Leave it Steve Ballmer, Microsoft's President, to mess up a perfectly good play. Well, not really but his announcement that in February, Microsoft would release its Windows 2000 server platform, reportedly its most tested and most stable platform ever, put a chill on the SUNW. SUNW builds servers that run on competing UNIX systems. With the announcement, the spotlight currently belongs to Microsoft and has put a damper on the SUNW play. We're not saying SUNW is a lousy company with completely changed fundamentals. However it hasn't performed as well as we'd like since Ballmer's announcement, and we can re-deploy the capital elsewhere for better use. SUNW will likely be a play again sometime in the future - just not now. PUTS No dropped put plays this weekend. STOCK SPLIT CANDIDATES *********************** Current Split Candidates DCLK - DoubleClick NOK - Nokia STM - STMicroElectronics BVSN - BroadVision GLW - Corning Inc. YHOO - Yahoo! VRTS - Veritas Software NSOL - Network Solutions Split candidates that are not current plays SNE - Sony Corp. QLGC - QLogic CHKP - CheckPoint HGSI - Human Genome SDLI - SDL Inc. BRCM - BroadCom MEDI - MedImmune Recent announcements we predicted GE - General Electric (most recent pick) CMGI - CMGI Inc. (most recent pick) STOCKS WITH UPCOMING SPLITS **************************** We don't list all splits available, only those we feel may have play possibilities. Symbol - Stock Splits/Date 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 IQIQ - Vialink 2:1 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 CLS - Celestica 2:1 12-21-99 ex-date 12-22 FLEX - Flextronics 2:1 12-22-99 ex-date 12-23 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 HOTT - Hot Topic 2:1 12-27-99 ex-date 12-28 SEAC - SeaChange 3:1 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 QCOM - Qualcom 4:1 12-30-99 ex-date 12-31 est INKT - Inktomi 2:1 12-30-99 ex-date 12-31 INSP - Infospace 2:1 01-04-00 ex-date 01-05 CCBL - C-COR.net 2:1 01-06-00 ex-date 01-07 FDRY - Foundry 2:1 01-07-00 ex-date 01-10 INAP - InterNAP 2:1 01-07-00 ex-date 01-10 MAPS - MapInfo 3:2 01-10-00 ex-date 01-11 TXCC - TranSwitch 3:2 01-10-00 ex-date 01-11 AVTC - AVT Corp 2:1 01-10-00 ex-date 01-11 ITN - InterTan 3:2 01-13-00 ex-date 01-14 COST - Costco 2:1 01-13-00 ex-date 01-14 JNPR - Juniper Netwk 3:1 01-14-00 ex-date 01-18 NVLS - Novellus 3:1 01-15-00 ex-date 01-17 KLAC - KLA-Tencor 2:1 01-18-00 ex-date 01-19 PRGS - Progress Soft 2:1 01-21-00 ex-date 01-24 TMX - Telmex 2:1 02-01-00 ex-date 02-02 PCS - Sprint PCS 2:1 02-04-00 ex-date 02-07 HRL - Hormel 2:1 02-15-00 ex-date 02-16 TQNT - Triquint 2:1 02-22-00 ex-date 02-23 SILI - Siliconix 3:1 02-28-00 ex-date 02-29 MGG - MGM Grand 2:1 03-01-00 ex-date 03-02 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: ********************** NOK - Nokia $168.50 (+0.50)(+11.94)(+9.31)(P3W +30.88) See details in sector list Chart = http://quote.yahoo.com/q?s=NOK&d=3m **** DCLK - DoubleClick $204.94 (+8.94)(+26.63) See details in sector list Chart = http://quote.yahoo.com/q?s=DCLK&d=3m Put play of the day: ******************** ETYS - eToys Inc. $37.56 (-7.56)(-8.69) See details in put list Chart = http://quote.yahoo.com/q?s=ETYS&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 ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millineum with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** **************************** SEE DISCLAIMER IN SECTION ONE
The Option Investor Newsletter 12-19-99 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 *********** CLS - Celestica Inc. $91.69 (+4.88)(+13.81) Celestica is a global leader in the electronics manufacturing services industry. With over 17,000 employees worldwide, Celestica operates 28 manufacturing and design facilities in the United States, Canada, Mexico, the United Kingdom, Ireland, the Czech Republic, Thailand, Hong Kong and China. Celestica provides a broad range of services including design, prototyping, assembly, testing, product assurance, supply chain management, worldwide distribution and after-sales service. Its customers include industry leading original equipment manufacturers (OEMs), primarily in the computer and communications sectors. What a nice recovery for Celestica last week. The leader in Celestica's industry group, Solectron threw a wrench in the spokes of the rally of the major electronics manufacturing companies. A funny thing happened on the way to the exits. Many investors seemed to realize that what may be a problem for one is not necessarily a problem for all. Specifically it was announced last week that Solectron was experiencing a shortage of key components and that fact contributed to a shortfall in their revenue report last week. After the panic, at least two analysts of Celestica's shares re-iterated their bullish outlooks for CLS. The analyst at Bank of America specifically said that CLS is not experiencing the same component problems that Solectron is suffering from, and furthermore sees a continuation of significant revenue and earnings increases for CLS. It seems that CLS has put that issue behind and investors can now concentrate on the upcoming 2:1 split on Dec 22nd. What did all of last week's action mean technically? The shares of CLS actually accomplished a very important event last week by closing a "gap". Some technical theorists surmise that all gaps must be closed through a retracement in price before a stock can resume its trend. If this theory is true than CLS is heading for new highs. On Wednesday CLS closed the gap by trading below support of $80 taking the stock all the way down to $75.38. The past two days have seen an impressive rally back to the highs. Despite a steep selloff in shares at the close of Expiration Friday, CLS managed to close only 0.50 off of its intraday high. If CLS can trade above it's old high of $93.25, aggressive investors can buy calls in the anticipation of continued rallying till the split. If you do buy in new high ground, make sure you put in a stop because the breakout could fail and you do not want to be hurt too bad if the market turns. If the stock pulls back on Monday, it might be wise to allow it to test support at $84.50 before going long. Make sure you close out your positions ahead of the split. The stock of this Canadian based issue has already split on its home exchange in Toronto. Another major player in the same group as CLS, Jabil Circuits, reported earnings on Thursday. Despite excellent results and price target increases by Merrill and Soundview the shares pulled back a bit. BUY CALL JAN-85 CLS-AQ OI=123 at $12.00 SL=9.50 BUY CALL JAN-90*CLS-AR OI=126 at $ 9.13 SL=6.75 BUY CALL JAN-95 CLS-AS OI= 12 at $ 6.75 SL=4.75 low OI Picked on Dec 12th at $86.75 P/E = 163 Change since picked +4.94 52-week high=$93.25 Analysts Ratings 6-7-2-0-0 52-week low =$20.25 Last earnings 10/99 est= 0.33 actual= 0.37 Next earnings 02-08 est= 0.40 versus= 0.27 Average Daily Volume = 4.96 mln Chart = http://quote.yahoo.com/q?s=CLS&d=3m **** NXLK - Nextlink Communications $72.00 (+7.88) Nextlink delivers broadband communications services to businesses over fiber optic and broadband wireless facilities. The Company currently provides these services in 41 markets across the U.S.. Nextlink is the largest holder of fixed wireless spectrum in North America, with licenses covering 95 percent of the population in the top 30 markets in the U.S. Additionally, Nextlink has acquired exclusive rights to a 16,000 mile high-speed, IP-centric fiber optic backbone network that will connect over 50 cities in the United States and Canada. Completion is expected by the end of 2001. Good news and strong technicals drive our interest in this stock. Nextlink made its first new high of the week on Monday when it was announced that it would be placed in the NASDAQ 100 Index. Companies that are new to this index are introduced to a wealth of new investors, particularly institutional ones who only concentrate on the elite of the NASDAQ. After breaking out to another new high on Tuesday to just under $74, Nextlink's shares cooled off for a couple of days to catch its breath. A resistance level of $72 was taken out on Friday. The resulting rally was impressive all the way to just under $77.50 before succumbing to end of the day expiration Friday selling pressure. The buying interest in NXLK has been very impressive whenever it takes out resistance. If NXLK starts moving up on Monday you can go long any pullbacks. If the stock takes out Friday's high of $77.44 the shares of this momentum stock could really go. The first support level for NXLK is $70 a pretty good place to buy if the market opens weak on Monday. If support at $70 doesn't hold, look for the stock to pullback to the $65-$67 range where it may need to consolidate for a couple of days before moving up again. On December 8th, the investment company of Forstman Little stated it will invest approximately $850 million into Nextlink via convertible preferred stock with a conversion price of $63.50. Conversion prices on private equity deals can prove to be very powerful support levels for the long-term. Nextlink will be closing the acquisition of 50 percent of INTERNEXT LLC early next year. Nextlink enjoys certain advantages if the share price of NXLK is above $64.20 at the time of the closing. On Friday CIBC Worldwide Markets initiated a Strong Buy rating on NXLK. BUY CALL JAN-65 QNF-AM OI= 314 at $10.88 SL=8.50 BUY CALL JAN-70*QNF-AN OI=1734 at $ 7.63 SL=5.75 BUY CALL JAN-75 QNF-AO OI= 274 at $ 5.13 SL=3.25 SELL PUT JAN-65 QNF-MM OI= 120 at $ 3.13 SL=5.00 (See risks of selling puts in play legend) Picked on Dec 14th at $66.69 P/E = N/A Change since picked +5.31 52-week high=$77.44 Analysts Ratings 9-5-2-0-0 52-week low =$11.19 Last earnings 11/99 est= -1.40 actual= -1.27 Next earnings 02-23 est= -1.45 versus= -1.04 Average Daily Volume = 985 K Chart = http://quote.yahoo.com/q?s=NXLK&d=3m **** TTN - Titan Corporation $34.44 (+5.94) The Titan Corporation is a leading provider and integrator of state-of-the-art information technology, satellite communications systems and services, and medical product sterilization and food pasteurization products and services, for commercial and government customers worldwide. Titan has made substantial changes recently by moving from a defense communications company to an information systems and services concern. Titan gets a mighty giant lift from the government. In a big news item last week, the USDA approved an irradiation technology to kill deadly bacteria on raw meat. Titan owns a patented technology and a processing plant that will utilize Surebeam that destroys food-borne pathogens in seconds using electricity. Surebeam has been approved by the FDA for meat irradiation uses, and the processing facility will immediately begin pasteurizing meat. In the past year Titan has entered into several exclusive multi-year agreements with most of the nation's largest poultry and beef providers to handle their irradiation business. Titan has nearly 75% of the ground beef and 50% of the poultry markets locked up under these agreements. It is a headline grabbing news item and investors are snapping up shares of Titan with carnivorous zeal. Titan has not offered any revenue or profit projections due to the new business. After the announcement shares of TTN rose over $3.50. After breaking above resistance at $31, TTN had a nice follow through all the way to $36.50. Yesterday the trading range contracted with a higher-low and a lower-high. If the stock trades below $33.69, a retracement to $31, the breakout point, would not be out of the question. If we have a weak market next week, $31 could prove to be an excellent entry point for the next advance into new high ground. If the shares of TTN do not pullback, a good entry point would be when the stock trades above Thursday's high of $36.50. Other news items concerning Titan include an announced acquisition of Internet commerce company, Assist Cornerstone Technologies through Titan's e-business solutions subsidiary Cayenta.com. Assist's technology provides a complete front to back-end solution to companies focused on conducting business over the Internet. Titan also recently announced the acquisition of Advanced Communication Systems, a leading government information technology services company. BUY CALL JAN-30*TTN-AF OI=2797 at $6.63 SL=4.75 BUY CALL JAN-35 TTN-AG OI= 607 at $3.88 SL=1.75 BUY CALL JAN-40 TTN-AH OI= 480 at $2.19 SL=1.00 Picked on Dec 16th at $35.00 P/E = 73 Change since picked -0.56 52-week high=$36.50 Analysts Ratings 5-0-0-0-0 52-week low =$ 4.75 Last earnings 10/99 est= 0.13 actual= 0.13 Next earnings 02-17 est= 0.15 versus= 0.13 Average daily volume = 693 K Chart = http://quote.yahoo.com/q?s=TTN&d=3m ************* SEMICONDUCTOR ************* STM - Stmicroelectronics $139.00 (+2.19)(+5.44)(+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. This past week a hot item of Wall Street was Semiconductor stocks and the Semiconductor sector. Upgrades, price targets were increased, earnings estimates were raised, the revenue growth outlook for the sector is looking higher than previously expected for next year, and there will be accelerated global demand. That is just a few of the many key items being discussed that had the $SOX index rolling back from the low's on Tuesday of $587.99, to end the week at $639.34. This ended the week at the high end of the range up 51.35 points from the bottom. STM continues to mirror the $SOX reaching a high for the week of $143, re-establishing the uptrend before settling in to close at $139 after the late day sell-off on Friday. Trailing stops should have allowed for a nice profit at this point and we want to keep stops tight since STM closed at the low end of Friday's range. The uptrend has been established, but the volume has not followed. A move above $141, backed by strong volume, would be a nice conformation of the trend and be tough to resist for an new play. In the news, STM completed its purchase of Arithmos, a California based developer of flat panel displays, integrated circuits and personal computers. Also, STM and Hewlett-Packard have joined forces to research and develop a computer chip that will be used in applications like cell phones and printers. This news could provide a spark in the shares of STM in the trading days to come. This kind of technology is contributing to change the face of the computer hardware industry. BUY CALL JAN-135*STM-AG OI=155 at $15.88 SL=12.63 BUY CALL JAN-140 STM-AH OI= 98 at $13.00 SL=10.50 BUY CALL JAN-145 STM-AI OI= 17 at $10.25 SL= 7.75 low OI Picked on Nov 30th $125.06 P/E = 83 Change since picked +13.94 52-week high=$145.00 Analyst Ratings 12-2-2-0-0 52-week low =$ 35.69 Last earnings 10/99 est= 0.43 actual= 0.46 Next earnings 01-25 est= 0.56 versus= 0.42 Average daily volume = 1.07 mln Chart = http://quote.yahoo.com/q?s=STM&d=3m ******** Internet ******** INSP - InfoSpace.com $166.69 (+8.63) InfoSpace.com provides content and commerce solutions for Web sites and Internet appliances. Their focus is on real- world content such as yellow pages, maps, classified ads, real- time stock quotes, sports and other information. InfoSpace.com is a leading global Internet information infrastructure company. They provide their services to consumers, merchants and wireless devices. InfoSpace.com's affiliate network consists of more than 2,100 Web sites. Major affiliates include AOL, Microsoft, Disney, Lycos and Doubleclick, Dow Jones and ABC LocalNet among others. INSP joined the ranks of Internet companies splitting their shares. On November 30th, INSP announced a 2-for-1 and has been rallying ever since. We have time to jump on this split play with a payable date on the 4th of January. InfoSpace is not simply content to cheer investors with a split. They have also announced 2 strategic acquisitions. One a wireless service provider the other an e-commerce company for $750 million in stock. They have also received a long-term Buy recommendation from Merrill Lynch. After reaching an intra-day high of $181 on December 8th, the shares of INSP had a very healthy pullback all the way down to $135 last week were it successfully tested support. The selloff was healthy because it washed out the short term traders and found some new investors who may try and drive the stock into new high ground. There are two possible entry points for this play. If INSP trades above Friday's high of $169 it may indicate a run to the old high of $181. If there is general weakness in the Internet sector early next week (which is possible considering the run out on Friday) be patient and attempt to go long on INSP at support in the $153- $155 area. In other news it was announced on Friday that InfoSpace.com has formed InfoSpace.com Venture Capital Fund to make investments in start-up Internet companies that are synergistic to INSP's business. Can you say CMGI? BUY CALL JAN-165 OHY-AM OI= 42 at $29.00 SL=22.62 BUY CALL JAN-170*OHY-AN OI=190 at $26.25 SL=20.48 Better OI BUY CALL JAN-175 OHY-AO OI= 22 at $24.50 SL=19.11 low OI BUY CALL JAN-180 OHY-AP OI=120 at $22.13 SL=17.26 Picked on Dec 19th at $166.69 P/E = N/A Change since picked +0.00 52-week high=$181.00 Analysts Ratings 6-4-0-0-0 52-week low =$ 9.75 Last earnings 10/99 est=-0.03 actual= 0.06 Next earnings 02-04 est= N/A versus=-0.04 Average Daily Volume = 1.07 mln Chart = http://quote.yahoo.com/q?s=INSP&d=3m **** TERN - Terayon Communications $69.94 (+4.69) The company's TeraComm system speeds up and helps improve the quality of two-way data transmissions over the cable so that cable providers can offer enhanced Internet access. Terayon Communications systems located in Santa Clara, California is in the broadband business in a big way. TERN has some big customers as well, including Shaw Communications a Canadian cable firm, U.S. cable provider Cablevision, and their distributor in Japan, Sumitomo. They compete with some of the biggest and best in the industry including 3Com, Motorola, and Samsung. Cisco Systems holds a six percent stake in the company. TERN joins our list of plays for several reasons. After making a new high in mid-November at $74, TERN is rapidly approaching that level again. The communications equipment company appears to have the momentum necessary to move higher. The communications and technology sector made a strong move yesterday as well setting new highs. Earlier this month legislation in Brazil opened up the numerous opportunities in the broadband market. News came out Thursday that a company named Globo Cabo S.A(GLCBY) announced the launch of its high-speed Internet access service in Brazil. TERN seems to have positioned themselves to take advantage of the increasing broadband opportunities in Brazil and as well as those in the U.S. markets. The cable modems chosen by Globo Cabo will be provided by Terayon. The news got investors attention on Friday. TERN gained over $6 on strong volume of 900K, nearly twice its norm. After making its November high TERN has traded mostly in an $8 range between $68 and $60. Friday TERN broke out of that range and appears to be on the move. TERN closed right on an intraday support level near $70. The next area of support is found at $68. We would look for continued strength as an opportunity to buy calls. If we see a pullback let TERN bounce off of a support level prior to entering a new play. The lack of liquidity in the upcoming week could be a problem for traders wanting to enter plays. Assess your risk profile and select your entry points carefully. No other news at this time. BUY CALL JAN-60 TUN-AL OI=720 at $13.13 SL=10.50 BUY CALL JAN-65*TUN-AM OI=477 at $ 9.88 SL= 7.50 BUY CALL JAN-70 TUN-AN OI=370 at $ 7.38 SL= 5.75 BUY CALL JAN-75 TUN-AO OI=243 at $ 5.38 SL= 3.75 Picked on Dec 19th at $69.94 P/E = N/A Change since picked 0.00 52-week high=$74.00 Analysts Ratings 2-3-1-0-0 52-week low =$25.75 Last earnings 10/99 est=-0.22 actual=-0.08 surprise +63.6% Next earnings 01-18 est=-0.19 versus=-0.33 Average Daily Volume = 517 K Chart = http://quote.yahoo.com/q?s=TERN&d=3m **** VIGN - Vignette Corp. $149.94 (+8.06) Vignette provides Internet Relationship Management software products and services. They offer two server platforms, the StoryServer and the Syndication Server, which allow customers the ability to build and manage customer relationships online. The StoryServer software enables businesses to post information on their Web sites without reprogramming. It also generates reports on Web site traffic and can customize private Web pages with data for individual clients. Located in Austin, Texas VIGN competes in the market place with BroadVision, Allaire, and Inso. Vignette Corp has already had a full month of excitement. Their stock split 2:1 on December 1st. Several brokerage firms had reiterated their views of the company and on Dec 9th they announced a secondary offering. Oh, and by the way, did we mention the price of their stock has risen almost 50 percent since the split as well. Not a bad month. On Dec 10th VIGN announced that it was pricing a secondary public offering of 2.9 million shares of stock, at $139.88. Immediately after the announcement shares of VIGN fell back to $129 but then promptly began its ascent to new highs. Friday VIGN made a new split adjusted high of $153. The volume behind the move was strong with over 1.5 million shares exchanging hands. VIGN closed at $149.94, +9.94 for the session. The strength of the move would indicate there is more room to go on the upside. One other item that might lead us to believe in the strength of VIGN stock is a reiteration of a Buy rating from analyst, Manuel Royo at Southwest Securities. He raised his price target for the software company from $120 per share to $220 in the next twelve months. At the rate the company's stock has been moving lately it may see $220 sooner than 12 months. Friday's move took out a resistance level of $146 experienced earlier in the week. Should we see a pullback in shares of VIGN, intraday support would be seen near $146 and $140. A bounce off support would provide a good entry point for our play. Remember it is a holiday week and the liquidity in the markets will be slim. Due to the recent volatility of the stock the option premiums are inflated, so this play may not be for those with a weak heart. As always assess your risk profile as well as the potential profit prior to entering any new play. Tuesday Oberon Software, a privately held, provider of software that enables e-business through rapid integration with customers announced that its e-Enterprise integration platform will soon integrate with VIGN's flagship e-Business applications. VIGN also announced this week that Great Entertaining an online party supplies company had selected Vignette's StoryServer 4 software platform. BUY CALL JAN-140*UOJ-AH OI=152 at $25.50 SL=20.15 BUY CALL JAN-145 UOJ-AI OI= 73 at $22.63 SL=17.75 low OI BUY CALL JAN-150 UOJ-AJ OI=340 at $20.25 SL=16.00 Picked on Dec 19th at $149.94 P/E = N/A Change since picked +0.00 52-week high=$153.00 Analysts Ratings 9-4-0-0-0 52-week low =$ 18.63 Last earnings 10/99 est=-0.10 actual=-0.09 surprise=+10.0% Next earnings 01-19 est=-0.08 versus= N/A Average Daily Volume = 959 K Chart = http://quote.yahoo.com/q?s=VIGN&d=3m **** SONE - Security First Technologies $84.00 (+19.25) S1, the pioneer of Internet banking, is today's leading global provider of innovative Internet-based financial services solutions. S1 offers a broad range of applications that empower financial organizations to increase revenue, strengthen customer relationships and gain competitive advantage by meeting the evolving needs of their customers across various lines of business, market segments and delivery channels. Through its professional services organization, S1's applications can be implemented in-house or outsourced to the S1 Data Center. SONE broke out of its consolidation phase on December 2, and hasn't stopped to look back since. Driving the move is renewed interest in the internet and specifically B2B e-commerce. SONE continues to make strategic alliances as they strengthen their market position, (see news below). Since the breakout, shares of the company have only once touched the 5-dma (currently at $76.19). Nothing moves up in a straight line to be sure, but barring a significant correction in the broader markets, we may have to content ourselves with an entry on an intra-day dip. Price swings of $6-10 are common, which should give the alert trader good entry opportunities. SONE has almost doubled in price since the first of the month, so there is a lot of air that could be let out by any negative news or market events. Remember the FED meeting this week; investor concern before the meeting could be just what we need to get a good entry into this high- flyer. In the event of a correction (Oh please!), look for a bounce near $70, which is just above the 10-dma (currently at $68.33). This can be a volatile issue, so confirm direction and continuing strong volume before opening a new position. VerticalOne Corporation, a wholly-owned subsidiary of SONE, announced on December 13 they have been selected to provide their one-stop personal account aggregation service to iVillage.com's vast audience of 7.1 million women visitors. On Wednesday, the company announced a joint venture with Zurich Financial Services to develop a new European-based subsidiary of SONE. Zurich will invest $15 million in exchange for a minority stake in the new venture. BUY CALL JAN-75 QFB-AO OI=484 at $14.63 SL=11.00 BUY CALL JAN-80*QFB-AP OI=267 at $12.25 SL= 9.25 BUY CALL JAN-85 QFB-AQ OI=40 at $ 8.88 SL= 6.50 Low OI! BUY CALL JAN-90 QFB-AR OI=7 at $ 8.00 SL= 6.25 Low OI! Picked on Dec 18th at $84.00 P/E = N/A Change since picked +0.00 52-week high=$85.00 Analysts Ratings 6-2-0-0-0 52-week low =$13.94 Last earnings 11/99 est=-0.05 actual=-0.03 Next earnings 02-01 est=-0.06 versus=-0.19 Average Daily Volume = 735 K Chart = http://quote.yahoo.com/q?s=SONE&d=3m **** YHOO - Yahoo! Inc. $350.00 (-3.50) Yahoo! Inc is a global Internet media company that offers an online guide to web navigation, 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. Let's see...recently added to the S&P 500...up $130 within five days of the announcement...$40 sell-off following the addition...why is it that we'd play this again? Earnings scheduled for release on January 11, of course. A high probability of a split announcement is part of the play too. Expect the two to coincide since they have in the past three split announcements. YHOO has never split 3:1. Historically, the ratio has most recently been 2:1. However, there are 900 mln shares authorized - plenty for a 3:1 with only 263 mln outstanding. Plenty of companies have great earnings, but don't make the play list. What makes YHOO so special? Aside from being a brand name leader on par with AOL in the Internet business, YHOO has handily beaten previous earnings estimates and enjoyed a healthy run-up into the announcement. It's highly likely history will repeat itself. Technically speaking, YHOO's support is at $315, $320, and $332. Those are places to start target shooting. However, in Friday's final minutes, YHOO successfully tested $345, then bounced up from there. It just might hold on the "old resistance becomes new support" theory. Play it according to your own risk profile, and recognize that you still have plenty of time to take a position, so don't chase it. Wait for the pullbacks. Low volumes indicates a consolidation, thus it may be more profitable to wait until the volume returns before getting on the train. If you hadn't already heard the news, Yahoo! will partner with SoftBank and Kmart to launch a new online shopping site. Looks like the specials will no longer be relegated to 10 minute time slots on isle 38. While an initial expense increase to K-Mart, YHOO benefits. With the big premiums, you may want to consider covered call positions too. BUY CALL JAN-340*YUU-AH OI= 895 at $39.13 SL=30.50 BUY CALL JAN-350 YUU-AJ OI=3213 at $34.75 SL=27.00 BUY CALL JAN-360 YUU-AL OI=3013 at $30.13 SL=23.50 Picked on Dec 12th at $350.00 P/E =1364 Change since picked +0.00 52-week high=$357.50 Analysts Ratings 14-14-4-0-0 52-week low =$ 94.75 Last earnings 10/99 est= 0.14 actual= 0.10 surprise=+40% Next earnings 01-11 est= 0.15 versus= 0.11 Average Daily Volume = 9.0 mln Chart = http://quote.yahoo.com/q?s=YHOO&d=3m **** NSOL - Network Solutions $239.94 (+21.19) Network solutions is the leading Internet domain registration services provider worldwide. At one time NSOL was the only registrar of Internet addresses ending in domains .com, .org, . Net, and .EDU. In 1999 the U.S. government opened the market To competition. By registering Internet domain names the company enables businesses and other organizations and individuals to establish an Internet identity. NSOL has registered more than 4 million .com Web addresses representing businesses around the world. Network Solutions received competition in 1999 from AOL, France Telecom and others pursuing the .com registration business. NSOL is now marketing its network engineering and security services. NSOL had quite a week. Shareholders of NSOL stock experienced gains of over $56 before the Internet domain registrar finally settled at $239.94, +21.19 for the week. Monday it was announced that NSOL would join a new group of stocks to be added to the prestigious Nasdaq 100 index. In addition, NSOL will also be included in the Nasdaq 100 Tracking stocks, which includes securities representing ownership in the Nasdaq-100 Trust. The $4 billion trust holds a portfolio of equity securities that compose the Nasdaq 100 index. Since being added to our list of plays NSOL has gained over $67.75. Although it has been a fantastic play in the last three days, it is not one that everyone would be comfortable considering. Notice the implied volatility in the price of the options listed below. It is a play that has offered exceptional rewards, and we believe will continue to do so. The volatility in Friday's session was obvious with NSOL making a new 52-week high at $274.75. NSOL closed near its low of the day at $237. A range of over $37 for one day, is volatile, however seems to becoming more common in many of the Internet issues recently. Volume Friday was strong at 1.99 million shares. NSOL lost $8.06 for the day Friday, but spent most of the day declining from its high early in the session. Should we see NSOL and the Internet sector retreat further next week, support can be seen near $225. A bounce off support, accompanied by strong volume would signal an opportunity re-enter this play. As we mentioned this is not a play for everyone, and the lack of liquidity in the markets this week will make it imperative that you stick to your guns when entering a play. Friday Network Solutions announced the release of a new enhanced version of the dot com directory. The dot com directory is a comprehensive source for consumers to find online businesses they are looking for. Remember NSOL joins the Nasdaq 100 index at the start of trading on Monday. ***THIS IS A HIGH-RISK INTERNET PLAY*** BUY CALL JAN-220*JNU-AD OI=403 at $46.63 SL=36.75 BUY CALL JAN-230 JNU-AF OI= 45 at $40.63 SL=32.10 BUY CALL JAN-240 JNU-AH OI=125 at $37.00 SL=29.25 Picked on Dec 14th at $207.00 P/E = 386 Change since picked +32.94 52-week high=$274.75 Analysts Ratings 7-6-0-0-0 52-week low =$ 47.00 Last earnings 10/99 est=-0.19 actual= 0.21 surprise +10.5% Next earnings 01-27 est= 0.23 versus= 0.11 Average daily volume = 1.06 mln Chart = http://quote.yahoo.com/q?s=NSOL&d=3m **** BVSN - Broadvision $129.00 (+21.63) Broadvision provides integrated software application systems. These systems enable users to create applications for marketing and selling their services on the World Wide Web. Broadvision's software is designed as a platform to conduct e-commerce transactions, offer online financial services, and deliver information to customers. Their One-to-One software enables venders to tailor their marketing efforts directly to each visitor based on a set of business rules. Thus making it easier for both parties to interact. We began playing BVSN on Thursday because we thought that BVSN was poised to break through its newly set 52-week high of $135. Breakthrough it did! BVSN traded all the way up to $139.88 the very next day! BVSN spent the majority of Friday's session flirting with $137.50 before the rather voracious profit-takers moved in for the kill near the end of the day, dragging BVSN all the way down to close at $129. This is just the kind of opportunity we like to see on a solid call play. A quick sell- off backed by holding support and a reclamation of positive momentum. BVSN is resting on support of its 5-dma of $128.50. This level should evolve into nice support and we look for it to continue doing so in the future. BVSN made a nice bounce here on Friday and closed on the road to recovery. This could be a good area to make a new entry should BVSN continue Monday where it left off. BVSN has additional support at $120, if needed. BVSN may encounter some resistance at $130, though the resistance is the new 52-week high. Watch for established support to hold and a continued reclamation of BVSN's positive momentum run. Also, remember to take advantage of BVSN's wide intra-day trading ranges for possible entry points. There is no new news that we believe will really have an affect the share price. BVSN makes an occasional appearance in an article related to the booming business-to-business industry, which never hurts. We are still keeping our ears open to catch any news on the possibility of a split (we mentioned in last Thursday's write up that BVSN does have enough shares authorized for another split). BUY CALL JAN-125*BDV-AE OI=587 at $19.63 SL=15.25 BUY CALL JAN-130 BDV-AF OI=427 at $17.25 SL=13.50 BUY CALL JAN-135 BDV-AG OI=376 at $15.50 SL=12.00 SELL PUT JAN-110 BDV-MH OI=237 at $ 7.63 SL=10.00 (See risks of selling puts in the play legend) Picked on Dec 16th at $131.69 P/E = 878 Change since picked -2.69 52-week high=$139.88 Analysts Ratings 5-16-2-0-0 52-week low =$ 9.00 Last earning 10/99 est= 0.04 actual= 0.05 Next earning 01-27 est= 0.06 versus= 0.03 Average Daily Volume = 1.92 mln Chart = http://quote.yahoo.com/q?s=BVSN&d=3m **** DCLK - DoubleClick $204.94 (+8.94)(+26.63) DoubleClick is a leading provider of comprehensive global Internet advertising solutions for marketers and Web publishers. Combining technology and media expertise, DoubleClick centralizes planning, execution, control, tracking and reporting for online media campaigns. The online advertising firm offers a targeted delivery of ads using its patented DART technology. DART measures Ad effectiveness and Web traffic. DoubleClick has Global headquarters in New York City and maintains offices in 32 other major cities around the world. The outlook for DCLK continues to look positive and they are being recognized as the leader in the Online Ad space. We are still hearing rumors that the stock split for DCLK is just around the corner and, the newest rumor, is a possible addition to the Nasdaq 100. Remember these are rumors, but it looks as though traders were buying into the rumor mill near the close of trading on Friday as the stock broke-out sharply in the final hour of to close at the high end of the range $204.94, up over 15 points for the day. Friday's trading pattern was unlike previous sessions, volatility calmed until the 3pm price surge. Something is UP!! That unusual move was not just a coincidence. Let's see how it plays out. Well the adventurous traders who took a chance and hung in there around $190 should be in profitable positions or have already taken profits. Previous resistance at $200 has been shattered. DCLK now sits at a 52-week closing high $204.94. It is blue sky territory is above $209.38. We continue to like DCLK at these levels and are bullish short-term. A retrace to $200 would make for a nice entry but DCLK will likely gap on the open Monday. Maybe we will get some fresh news by then. We will keep watching for more news or rumors to fuel DCLK. BUY CALL JAN-200 TDU-AT OI=1929 at $26.00 SL=20.00 BUY CALL JAN-210*QTD-AB OI= 268 at $21.38 SL=18.13 BUY CALL JAN-220 QTD-AD OI= 555 at $17.25 SL=14.00 BUY CALL JAN-230 QTD-AF OI= 88 at $14.25 SL=11.50 Picked on Dec 9th at $197.00 P/E = N/A Change since picked +7.94 52-week high=$209.38 Analyst Ratings 11-7-1-0-0 52-week low =$ 17.88 Last earnings 10/99 est= -0.14 actual= -0.13 Next earnings 01-19 est= -0.10 versus= -0.13 Average daily volume = 2.60 mln Chart = http://quote.yahoo.com/q?s=DCLK&d=3m **** AOL - America Online Inc $85.00 (-6.50)(+13.38)(-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. We added AOL to our call list on Dec 2nd as a holiday momentum play. Since its inception at $79.88 we've seen the share price climb to a new all-time high at $96 during Monday's trading session. However the rest of week we've been waiting patiently as AOL consolidates at an $85 support range. At this point we expect $85 to hold and if it doesn't we'll kill the play. Look for a strong bounce off the 10-dma ($86.32) with a show of volume for confirmation. Some of highlights this week were the cross marketing deal between AOL and Wal-Mart (WMT) which includes a broad range of initiatives such as a co-branded ISP. And on Friday, AOL announced it now has more than 20 mln subscribers in 15 countries and has plans to add services in Mexico and Argentina next year. BUY CALL JAN-80 AOO-AP OI=44368 at $11.25 SL=9.00 BUY CALL JAN-85*AOO-AQ OI=45512 at $ 8.88 SL=6.75 BUY CALL JAN-90 AOO-AR OI=37947 at $ 6.63 SL=5.00 BUY CALL JAN-95 AOO-AS OI=21846 at $ 4.88 SL=3.25 SELL PUT JAN-80 AOO-MP OI=17941 at $ 5.63 SL=7.50 (See risks of selling puts in the play legend) Picked on Dec 2nd at $79.88 P/E = 251 Change since picked +5.13 52-week high=$96.00 Analysts Ratings 23-16-3-0-0 52-week low =$20.38 Last earnings 10/99 est= 0.13 actual= 0.15 surprise=+15.4% Next earnings 01-19 est= 0.14 versus= 0.08 Average Daily Volume = 20.0 mln Chart = http://quote.yahoo.com/q?s=AOL&d=3m **** INKT - Inktomi Corp $171.06 (+3.31)(+22.75) Inktomi develops the world's most scalable software for the world's fastest-moving software environment: the Internet. The company's core technology underpins products for the Internet infrastructure that contribute to network performance, scalability and efficiency. Inktomi technology paves the way for emerging opportunities in online commerce, media and communications by enabling the Internet to intelligently accommodate more users and data traffic. Inktomi developed the search engine that runs such popular portals as HotBot, NBC's Snap, Yahoo!, and the Disney Internet Guide. Nine trading days left for this split run! INKT is splitting its stock 2:1 on December 30th and will go ex-div on New Year's Eve. The Board of Directors announced the stock on December 3rd and INKT surged on the news. The company has 300 mln shares authorized and 50 mln outstanding, therefore shareholder approval was not required. This has been a great week to play INKT if you had the stomach to whether its ups and down. On Monday it set another 52-week record peaking at $185 intraday providing a hefty profit for players who entered in the vicinity of support ($160). Share prices were bid up by the news that Microsoft had reopened its doors to the search provider. Inktomi's award-winning Search Engine would once again be the search provider for all of MSN. But then YIKES! INKT swiftly fell back to the $160 support level by Wednesday morning. The good news is the back fill was a blessing of an entry point after all. INKT has slowly regained its position above the 10-dma ($166.93) and this is a positive sign. Although trading activity was sluggish and we'd like to see volume levels pick back up and signal another powerful breakout. BUY CALL JAN-165 KYQ-AM OI= 580 at $23.75 SL=18.50 BUY CALL JAN-170*KYQ-AN OI=1170 at $20.50 SL=16.00 BUY CALL JAN-175 KYQ-AO OI= 296 at $19.13 SL=15.00 BUY CALL JAN-180 KYQ-AP OI= 801 at $17.25 SL=13.50 Picked on Dec 9th at $166.94 P/E = N/A Change since picked +4.13 52-week high=$185.00 Analysts Ratings 7-6-3-0-0 52-week low =$ 51.31 Last earnings 10/99 est=-0.10 actual=-0.09 surprise=+10.0% Next earnings 01-20 est=-0.08 versus=-0.14 Average Daily Volume = 1.97 mln Chart = http://quote.yahoo.com/q?s=INKT&d=3m ********* SOFTWARE ********* VRTS - VERITAS Software $117.47 (+8.41)(+2.94) The world's largest maker of storage management software is located in Mountain View, California. VERITAS supplies enterprise data storage management solutions and provides advanced storage management software for open systems environments. Other VRTS products offer centralized administration with a high degree of automation. They also make backup software and cluster management tools. VRTS has partnered with the likes of Hewlett-Packard, Microsoft and other manufacturers, all of which have licensed and bundled VERITAS products with their operating systems. The software index (CWX) started Friday's session trading higher and drifted lower for the balance of the day. VRTS Gapped up at the opening bell, fell back and gained momentum as the day went on, finishing the session +4.47 at $117.47. VRTS finished the week with a nice gain of +8.41. Technically, VRST not only broke out of the recent trading range this week, but more importantly made a new 52-week Friday at $120.25, which should give VRTS the momentum to continue higher. VRTS is popular with the big players, with over 80 percent of its outstanding shares owned by over 568 institutions. The company is well positioned in the storage business, and connected to most of the major players in the industry. Friday, analyst Kevin Buttigieg, from PaineWebber initiated coverage of VRTS with an Attractive rating, with a 12-month target of $127. Where do we go from here? If the software sector can't regain its momentum, VRTS may have to try to go it alone. We would look for VRTS to continue to climb as the volume behind Friday's move was solid with over 5.1 million shares exchanging hands. As for a new play, VRTS has intraday support at $117, $114 and $110. A bounce off any of those levels could provide a good buying opportunity. Continued strength would also be viewed as a chance to enter this play, however we would suggest looking for a pullback to enter. As we head into a holiday week the liquidity will be thin and could produce wild swings in the markets. Assess your risk profile prior to entering any new plays this week. Earlier in the week VERITAS announced they had broadened their strategic relationship with NEC Corporation. The agreement expands a partnership announced in mid-September. Terms of the agreement call for VERITAS NetBackup to be bundled with NEC'S backup server, and for VERITAS Backup Exec to be bundled in NEC's entry-model servers. BUY CALL JAN-105 VUQ-AA OI=337 at $21.50 SL=17.00 BUY CALL JAN-110 VUQ-AB OI=649 at $18.50 SL=14.50 BUY CALL JAN-115*VUQ-AC OI=248 at $15.63 SL=12.25 BUY CALL JAN-120 VUQ-AD OI=713 at $13.63 SL=10.75 Picked on Dec 12th at $109.06 P/E = N/A Change since picked +8.41 52-week high=$120.25 Analysts Ratings 6-14-2-0-0 52-week low =$ 17.53 Last earnings 10/99 est= 0.14 actual= 0.11 surprise=+27.3% Next earnings 01-13 est= 0.15 versus= 0.08 Average daily volume = 2.50 mln Chart = http://quote.yahoo.com/q?s=VRTS&d=3m ******************************* CALLS 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 ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millineum with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ******************************* CALLS CONTINUED IN SECTION FOUR ******************************* SEE DISCLAIMER IN SECTION ONE
The Option Investor Newsletter 12-19-99 Sunday 4 of 5 *************** CALLS CONTINUED *************** Telecom ******* NT - Nortel Networks $90.44 (+2.19)(+8.06)(1.50)(P4W +19.75) 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. Not much changed since Thursday's update, which is to say that following the breakout early last week, NT remained fairly flat in the $89 to $92 range. As the largest provider of Optical networking equipment ahead of Lucent, and anticipating $10 bln in sales of optical equipment alone in 2000 (which could account for up to 30% of NT's business), NT expects this segment of its business to grow more rapidly than any of its other divisions. Compared to its peers, it's still reasonably priced too, which has fund managers salivating (evidenced by strong volume above the ADV of 4.3 mln shares). 20% growth rate and increasing margins don't hurt either. Support is currently mild at $90 and gets stronger in descending $2 increments ($89, $87, and $85). If it drops below $85, it will likely do so with strong volume since that's where the most recent breakout occurred, in which case you may want to make an exit or stand aside. Feel free to target shoot to your comfort level. Just make sure there is volume in the issue - weak with descending price is OK; strong and descending indicates institutional selling. Weak volume, but ascending price should prepare you for the exits; average to strong volume and ascending price is ideal. Resistance is $92.50; breakout occurs at $94. We suggest target shooting in the $80's or waiting for the breakout. Also, despite the 30% greater return for every $1 NT gains, we are dropping the Clarify (CLFY) strikes because they are so thinly traded and the spreads eat up the profits. NT is also a split candidate at these levels. A likely announcement date would be with earnings tentatively scheduled for January 25. In the news, NT agreed to purchase Qtera, a company developing a technology that will allow an optical signal to travel further without regeneration. Purchase price: $3.5 bln. NT also took a position in a small DSL provider (Log On America) for $5 mln. NT will sell them $47 mln worth of DSL equipment for starters. BUY CALL JAN-85*NT-AQ OI=1269 at $10.00 SL=7.50 BUY CALL JAN-90 NT-AR OI=1724 at $ 7.00 SL=5.25 BUY CALL JAN-95 NT-AS OI=1102 at $ 4.75 SL=3.00 BUY CALL MAR-90 NT-CR OI= 671 at $10.88 SL=8.50 BUY CALL MAR-95 NT-CS OI= 534 at $ 8.63 SL=6.50 Picked on Nov 7th at $68.81 P/E = 563 Change since picked +21.63 52-week high=$94.00 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 = 4.3 mln Chart = http://quote.yahoo.com/q?s=NT&d=3m **** NOK - Nokia $168.50 (+0.50)(+11.94)(+9.31)(P3W +30.88) 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? NOK traded down to $150 this week, so how come we're so excited about it? One word: sandbag. When the Chairman announced 3 weeks ago that they were upping their growth rate forecast from the 25-35% range to the 30-40% range and announced that they would sell 1 bln handsets a year ahead of schedule, we think that's conservative. Since the old schedule was by the end of 2003, with the new schedule by the end of 2002, it doesn't take a rocket scientist to see that cramming 3 years of anticipated revenue into 2 years is actually a 50% growth rate. Hello upside surprise! We look for the first one to be at earnings tentatively scheduled January 20. As a corporate officer or an analyst, you don't want to let out the whole line at once, thus you surprise a little in each successive quarter to build a great earnings history, which will really pump up the multiple and the price. The odds of an upside surprise get even higher if NOK announces a split BEFORE earnings - the theory here is that management would not announce a split if there were going to be any glitches in their numbers. Just meeting current expectations won't do. Get ready for an earnings run to begin after the new year. Technically, NOK has moved up back to the middle of the trading channel, but we need volume to get back to those highs of $179. Having said all that, keep your guard up for profit- taking since volume has fallen back to the ADV. In the news, NOK signed an equipment provision agreement with KG Telecom, a wireless provider in Northern Taiwan, valued at $250 mln. A deal a week - that's all we ask! It's also possible we could get an announcement on Monday that NOK is purchasing QCOM's handset business (just a hunch on our part) BUY CALL JAN-160 NAY-AL OI=4051 at $17.75 SL=13.75 BUY CALL JAN-170*NZY-AN OI=1951 at $12.88 SL=10.50 BUY CALL JAN-180 NZY-AP OI= 940 at $ 9.00 SL= 6.75 BUY CALL APR-170 NZY-DN OI= 430 at $24.00 SL=18.75 BUY CALL APR-180 NZY-DP OI= 370 at $19.75 SL=15.50 Picked on Nov 14th at $122.25 P/E = 74 Change since picked +46.25 52-week high=$179.12 Analysts Ratings 13-8-0-0-0 52-week low =$ 52.31 Last earning 10/99 est= 0.52 actual= 0.57 surprise=9.6% Next earning 01/20 est= 0.66 versus= 0.58 Average Daily Volume = 3.2 mln Chart = http://quote.yahoo.com/q?s=NOK&d=3m **** QCOM - Qualcomm Inc. $455.00 (+63.50)(+7.06)(P3W +28.31) 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 OmniTRACSŪ 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. Uummm...+$63.50 for the week...any complaints? By now we've all had the opportunity to pump our fists while breaking out the party hats and horns. In fact, QCOM has tacked on $125 since we picked it, and it closed at a new all time high on Friday with volume at 92% of its ADV. Want more? QCOM shareholders' vote on Monday on a proposal to increase the authorized shares in order to effect the 4:1 split, tentatively scheduled for December 30. We would expect the run to continue into and perhaps past the split. However, Monday's vote has become an event unto itself and investors may have been buying in anticipation of this date too. If the "buy the rumor; sell the news" theory holds, it's possible that we could see a brief sell-off after the announcement. Nonetheless, the possibility exists that they could also announce the sale of their handset division (the hunch is Nokia), which would tend to support the price. We're not saying to bail out - just keep a watchful eye on the action, or set a trailing stop to protect profits. We suggest waiting for the news of the shareholder meeting before taking any new positions at this level. This is a good time for profit-taking and others may see it that way too. Strong support is way back at $410, followed by progressive $10 (roughly) increments at $415, $425, $435,and $445. $455 could be resistance (short-term likelihood), but a big news based boost could set it up as support after a breakout. As we said, wait for the news, then consider target shooting. Congratulations to those who've made a bundle so far on this play. As a refresher, CDMA technology is the future and is being adopted for use in the newest telecom systems in the world. Hard wired systems under construction as little as one year ago have already been abandoned in favor of the CDMA wireless solution. QCOM is going to become instrumental in developing the last mile where copper dinosaurs form data bottlenecks, and where fiber is currently too expensive to reach. With these huge premiums, covered calls can work well here too. BUY CALL JAN-430 AAF-AW OI=1580 at $56.38 SL=44.00 BUY CALL JAN-440*AAF-AZ OI= 727 at $50.63 SL=39.50 BUY CALL JAN-450 AAF-AK OI=1387 at $46.00 SL=36.00 BUY CALL JAN-460 AAF-AM OI= 672 at $41.75 SL=33.25 BUY CALL JAN-470 AAF-AO OI= 323 at $37.13 SL=29.50 Picked on Nov 16th at $330.00 P/E = 319 Change since picked +125.00 52-week high=$456.00 Analysts Ratings 6-8-4-0-0 52-week low =$ 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 = 5.5 mln Chart = http://quote.yahoo.com/q?s=QCOM&d=3m **** JDSU - JDS Uniphase $240.94 (-3.31)(-6.94)(P3W +52.19) Uniphase Corporation is a fully integrated optical electronics company that designs, develops, manufactures and markets fiber optic telecommunications components and modules and laser subsystems. The Company's telecommunications products include semiconductor lasers, high-speed external modulators, transmitters, fiber Bragg gratings and optical modules for fiber optic networks in the telecommunications and cable television industries. Based in the Silicon Valley, California, they employ approximately 6260 people worldwide. Customers include Lucent, Nortel, Cisco and Ciena. American Express owns 10% of the common shares. "Dear God, please let there be one more company like Intel to invest in, and I promise not to mess it up this time". Here's your big break. UNPH makes the laser modules and pumps (in addition to other components) that split a fiber optic strand into many different, potentially unlimited channels. Effectively they do for light what Intel does for electrons. Their components are critical to the development of optical networks. Since Wednesday when JDSU (the reprobate) dropped like a rock to $210, it managed to spring back all the way to $262 at Friday's opening before falling back to $247 in amateur hour. After hanging around the $252 level for most of Friday, it again took a nosedive with 35 minutes left to go into the close, shedding roughly $10 on increased volume (not acceptable behavior - kind of makes us want to pinch Junior's ear to get his attention.) While JDSU hasn't been the ascending barnburner we'd hoped for, it has provided drastic intraday movements, leaving us lots of opportunity for profits. With the exception of Wednesday's hiccup, the lows are still getting higher - a good sign. Nonetheless, Friday's sell-off concerns us, even though $238-$240 is a decent level of support for the stock in the ascending channel. If there is going to be any salvation for JDSU, it's going to have to begin its 2:1 split run prior to the ex-date of December 30. Volume needs to pick back up again too while its making its move to convince us that it's for real. More support is at $233. Target shoot to your level of comfort, then note some strong resistance building at $262. After that, breakout occurs at $274. Well, you wouldn't know it by Friday's sell off, but JDSU has plans to build more facilities and hire 2400 more workers in 2000 to meet demand. That's great news and makes the long-term prospects all the more attractive. Remember too that following the split, shares will trade under the new symbol, JDSUV. Time premiums are high. Consider covered calls as well. BUY CALL JAN-230 UQD-AF OI=2435 at $37.13 SL=29.00 BUY CALL JAN-240*UQD-AH OI=1793 at $32.13 SL=25.00 BUY CALL JAN-250 UQD-AJ OI=2726 at $27.75 SL=21.00 BUY CALL JAN-260 UQD-AL OI=1294 at $23.63 SL=17.75 Picked on Nov 21st at $213.81 P/E = N/A Change since picked +27.13 52-week high=$273.62 Analysts Ratings 13-13-0-0-0 52-week low =$ 27.69 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 = 2.8 mln Chart = http://quote.yahoo.com/q?s=JDSU&d=3m **** GLW - Corning Inc $112.50 (-4.50) Corning is a global communications technology company that operates in three primary business segments: Telecommunications, Advanced Materials, and Information Display. They are the world's top producer and pioneer of fiber-optic cable, which it invented over 20 years ago. Corning also owns the well-known crystal maker, Steuben Glass. The company operates 40 manufacturing plants in 10 countries. After Corning came out on December 6th with a positive growth outlook, the momentum kicked into high gear. The company cited a 24% increase for 1999 from the previous year and a 20-25% added increase for 2000. Merrill Lynch put in its vote of confidence the following day and started GLW with an Intermediate-Term Accumulate and a Long-Term Buy rating, stating that "Corning has developed a deep offering of optical modules and components, where we think growth will be 50 percent-plus in 2000". Share prices climbed to an all-time high of $120.75 on Monday before being abruptly knocked off the pedestal. There was scuttlebutt and fears that such companies like Qtera (who is being bought by Nortel) could reduce the demand for certain fiber optic components. Many analysts believe this concern is unfounded and suggest quite the opposite. After dipping to an intraday low of $100.63 on Wednesday, GLW is recovering nicely. Once again it's advancing above near-term support of $105 to $110 and has moved off the 10-dma ($110.93) confirming direction. Remember this is a pure momentum play. Pay close attention to the news and market sentiment. A conservative player will look for another bounce for better confirmation before opening a position. This week the Corning and Oak Industries proposed merger resurfaced. Oak Industries' stockholders vote on the proposal at a Special Meeting on January 28th. If approved the closing is expected to occur that same day still subject to regulatory approval. Recently on November 14th both companies signed a definitive agreement to merge in a transaction that would ultimately strengthen Corning's position as a global leader in optical communications. Under the terms, GLW will exchange 0.83 shares of its common stock for each share of Oak Industries common stock. In other news, GLW announced Lucent has extended their optical amplifier contract through June 2001. BUY CALL JAN-110*GLW-AB at $11.00 OI=798 SL=8.75 BUY CALL JAN-115 GLW-AC at $ 8.25 OI= 80 SL=6.50 BUY CALL JAN-120 GLW-AD at $ 6.25 OI= 29 SL=4.50 BUY CALL FEB-115 GLW-BC at $11.25 OI= 51 SL=9.00 BUY CALL FEB-120 GLW-BD at $ 8.88 OI= 45 SL=6.75 Picked on Dec 19th at $112.50 P/E = 58 Change since picked +0.00 52-week high=$120.75 Analysts Ratings 6-3-1-0-0 52-week low =$ 41.93 Last earnings 10/99 est= 0.53 actual= 0.54 surprise=+1.9% Next earnings 01-25 est= 0.48 versus= 0.40 Average daily volume = 1.25 mln Chart = http://quote.yahoo.com/q?s=GLW&d=3m **** TMX - Telefonos De Mexico $112.75 (+2.63)(+8.50) Telefonos de Mexico (Telmex) is a telecommunications provider of domestic and international telephone services in Mexico. Telmex also provides ISP connections to over 300K subscribers and is involved in reselling long-distance along the US borders. The wireless end of the business is handled by its subsidiary Telcel, which provides cellular service to over 3 mln customers. Telmex shareholders approved a 2:1 stock split on December 6th to boost trading activity and scheduled a pay date for Feb 1st. Accordingly the ADR traded on the NYSE would be affected as well. An investor would receive 2 ADRs or every 1 they owned. Now in all reality it may be too early for a split run considering the stock split is still six weeks away. However there was no doubt a momentum run in our midst when we added the play last weekend. This week near-term support well established itself at $105 as TMX consolidated at this higher level. To follow up the bombardment of analyst recommendations that hit the press last week, Dresdner Kleinwort Benson Securities reiterated a Buy rating and issued a $126 target price for TMX on Monday. By Wednesday the ADR started to show signs of life again fueled by a resurgence in the Mexican bank stocks. Traders cited the Mexican Budget approval and a separate $505 mln World Bank loan for the re-capitalization of Mexico's banking system as major factors in the rally. On Friday TMX hit broke through overhead resistance at $110.50 demonstrating the momentum was intact as it powered higher with the tech sector. The newest 52-week high record ($113.81) was attained in a steady climb throughout Friday's session in moderate trading. Look for near-term support to evolve above the 5-dma ($108.06) next week. BUY CALL JAN-105 TMX-AA OI=1031 at $11.88 SL=9.50 BUY CALL JAN-110*TMX-AB OI=1955 at $ 8.50 SL=6.50 BUY CALL JAN-115 TMX-AC OI=2907 at $ 6.25 SL=4.50 BUY CALL FEB-110 TMX-BB OI= 645 at $10.88 SL=8.75 BUY CALL FEB-115 TMX-BC OI= 242 at $ 8.75 SL=6.75 SELL PUT JAN-105 TMX-MB OI= 190 at $ 4.13 SL=6.00 (See risks of selling puts in the play legend) Picked on Dec 12th at $110.13 P/E = 23 Change since picked +2.63 52-week high=$113.81 Analysts Ratings 1-3-5-0-0 52-week low =$ 39.88 Last earnings 10/99 est= 1.38 actual= 1.67 Next earnings 02-03 est= 1.46 versus= 1.26 Average Daily Volume = 1.54 mln Chart = http://quote.yahoo.com/q?s=TMX&d=3m ***** LEAPS ***** The LEAPS portfolio continues to grow and so do the profits. This bull market has the optimism for the future growing almost daily and it is increasing our LEAP premiums. It is never too early to take profits, especially if you have some more Christmas shopping to do. The point of our investments is to increase the quality of our lives. Another congratulations to those who were successful in the new ADBE play from last week. With the solid support at $60, excellent earnings from fellow software maker Oracle, and the sector heating up with Microsoft breaking new highs; this wasn't a difficult play to find. There will be lots of factors playing in to the market as we approach the year-end. Remember, we are looking for volatile days to help with entry points so we can nibble on some more contracts. The VIX stands at 23.01. Current Plays SYMBOL SINCE LEAPS SYMBOL CURRENT PICKED RETURN EMC 11/07/99 JAN-2001 $80 ZOH-AP at $31.25 $15.38 103.19% JAN-2002 $90 WUE-AR at $35.13 $19.00 84.90% DELL 11/07/99 JAN-2001 $50 ZDE-AJ at $ 9.25 $ 7.00 32.14% JAN-2002 $50 WDQ-AJ at $13.88 $11.25 23.38% GPS 11/07/99 JAN-2001 $40 ZGS-AH at $13.38 $ 5.75 132.70% JAN-2002 $45 WGS-AI at $15.50 $ 7.88 96.70% IBM 11/07/99 JAN-2001 $100 ZIB-AT at $24.50 $13.63 79.75% JAN-2002 $110 WIB-AB at $28.00 $16.50 69.70% WMT 11/07/99 JAN-2001 $70 ZWT-AN at $ 9.88 $ 6.50 52.00% JAN-2002 $75 WWT-AO at $13.75 $ 9.75 41.03% LU 11/14/99 JAN-2001 $80 ZEU-AP at $17.38 $12.88 34.94% JAN-2002 $90 WEU-AR at $20.38 $16.13 26.35% CSCO 11/14/99 JAN-2001 $80 ZCY-AP at $31.88 $19.13 66.65% JAN-2002 $90 WIV-AR at $34.50 $22.00 56.82% SLR 11/14/99 JAN-2001 $85 ZSR-AQ at $19.50 $21.75 -10.35% GE 11/21/99 JAN-2001 $150 ZGR-AU at $26.50 $16.25 63.08% JAN-2002 $150 WGE-AU at $36.38 $25.50 42.67% GTW 11/21/99 JAN-2001 $90 ZWB-AR at $14.50 $17.75 -18.31% JAN-2002 $100 WGB-AT at $19.50 $22.50 -13.33% NT 11/28/99 JAN-2001 $75 ZOO-AO at $30.63 $22.25 37.66% JAN-2002 $75 WNT-AO at $38.88 $30.25 28.53% VOD 12/05/99 JAN-2001 $50 ZAT-AJ at $10.88 $10.75 1.21% JAN-2002 $50 WHV-AJ at $15.13 $15.00 0.87% KM 12/05/99 JAN-2001 $10 ZKM-AB at $ 3.63 $ 2.50 45.20% JAN-2002 $15 WKM-AC at $ 2.69 $ 1.75 53.71% ADBE 12/12/99 JAN-2001 $65 ZAE-AM at $17.25 $15.00 15.00% JAN-2002 $70 WAE-AN at $21.50 $20.38 5.50% TXN 12/12/99 JAN-2001 $110 ZTN-AB at $19.25 $22.25 -13.48% JAN-2002 $120 WGZ-AD at $25.13 $28.50 -11.83% 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 NXTL - Nextel Communications $90.06 This company is evolving as one of the future giants amongst the wireless providers to Internet access. Nextel provides an integrated digital wireless communications service to customers in and around major metropolitan population centers throughout the country. NXTL's stock was falling on big volume this week as word that NextWave, a major competitor in building the infrastructure for the Internet, received $1.6 billion dollars which would help build its advanced wireless network. NXTL was hoping to capitalize on NextWave's bankruptcy and buy their licenses for a minimal amount. In was not to be though, and their competition is back up and running. We view this as a buying opportunity. With the Internet explosion, both companies have room to be successful. A short-term low may have occurred on Friday as NXTL plummeted to $85 before bouncing back to close above $90. This appears to be support. Worst case scenario, NXTL could fall to the 100-dma at $77, where it would make a great entry point. Watch for an opening to buy in and for more news on the story. BUY LEAP JAN-2001 $ 90.00 ZFU-AR at $23.50 BUY LEAP JAN-2002 $100.00 WFU-AT at $27.25 http://www.OptionInvestor.com/playimages/index.asp?image=nxtl121999 **** SUNW - Sun Microsystems $75.13 It was only a matter of time before Sun showed up in our LEAPS portfolio. This is one of those tech companies that most money managers build their funds around. One look at the chart for the past 5 years will tell you why. They have been integral in building the backbone of the Internet with their high-powered servers, workstation computers and storage devices. We finally got a pullback after SUNW had been immune to any sell-off for the past two months. This is partially due to the 2:1 split which took place in early December. Now we have the chance to open a position as the stock is consolidating in the mid-70s. Any bounce off $70-$71 would be buyable as well. BUY LEAP JAN-2001 $80.00 ZJX-AP at $17.63 BUY LEAP JAN-2002 $90.00 WJX-AR at $22.00 http://www.OptionInvestor.com/playimages/index.asp?image=sunw121999 **** Drops As you know, sell too soon according to your own goals. But, for now we will hold our current plays until the market shows signs of reversing. The beauty of LEAPS is that we have time watch for these reversals. ***************** 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. **** KIDE - 4Kids Entertainment $36.38 (-8.31)(-4.88)(-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. There is nothing like waking up in a good mood and stubbing your toe as your feet hit the floor. The day just kind of goes downhill from there. Sure, you may have a few moments in the day where things start looking up again but the mood for the day has already been set, and you submit to grumbling your way through a bad day. And thus is a day in the life of KIDE. We have mentioned before that KIDE's mini rallies are getting smaller and shorter. Take a look at KIDE's intra-day chart for last Friday and you will see what we mean. Gone are the days of the $10 gain, for now anyway. There simply does not seem to be enough investor interest to get KIDE in the mood to play. Though KIDE did have a positive day on Friday, if you look at the chart you will see that for the majority of the session, KIDE was headed south. Therefore a good portion of the volume can be attributed to the sellers. $35.50 has held as KIDE's support up to this point and we would like to see a drop below this level backed by good volume to convince us that KIDE is still content to roll downhill. Resistance looks to be holding right around $40 with KIDE's 10-dma of $42 serving as backup. If KIDE is able to make a move up and re-enlist its 10-dma as support, it may be time to take the money and run. Keep an eye out for KIDE's morning rallies met with maintaining resistance for possible points of entry. We are still looking for a drop to $30. BUY PUT JAN-40*IUK-MH OI=771 at $9.00 SL=6.75 BUY PUT JAN-35 IUK-MG OI= 90 at $6.00 SL=4.25 Average Daily Volume = 1.49 mln Chart = http://quote.yahoo.com/q?s=KIDE&d=3m **** GT - Goodyear Tire and Rubber $27.06 (-1.69)(P3W -8.25) 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. GT's tires must be balding as Goodyear just keeps right on sliding downhill. We mentioned last Thursday that we thought we were reaching the bottom of our put play on GT. The bottom? GT came right back to let us know it wasn't done declining just yet. GT dropped yet another $1.06 while posting higher than average volume and closing right at the low for the day. Could this be the bottomless put play? Not likely, but it is starting to feel that way! GT continues to find resistance looming overhead at its 5-dma of $28 and the 10-dma (currently at $28.75) is moving down to help keep the lid on. Should GT manage to breakthrough here, it still has to make it through $30, which will require a lot more momentum than GT seems to possess right now. We are most likely going to see more selling, as investors look to dump their losers for the year. Once everyone has cut their losses, GT could find itself at long last on the road to recovery, so be aware and start thinking about locking in profits. Confirm direction and watch for the GT mini-rallies for potential points of entry. Desperate for any kind of buoyant news to help their stock rise, GT announced that six Goodyear Blimps will be used in six different time zones to bring live coverage of the events on New Years Eve. I would imagine GT is anxious for this not so good year to be over. BUY PUT JAN-35 GT-MG OI=489 at $8.13 SL=6.25 BUY PUT JAN-30*GT-MF OI=685 at $3.63 SL=1.75 BUY PUT JAN-25 GT-ME OI=786 at $0.88 SL=0.00 High Risk! Average Daily Volume = 1.04 mln Chart = http://quote.yahoo.com/q?s=GT&d=3m **** GILD - Gilead Sciences Inc. $38.13 (-0.88) GILD, a biopharmaceutical company, seeks to provide accelerated solutions for patients & caretakers. GILD discovers, develops, and commercializes proprietary therapeutics for viral diseases. GILD has some potentially significant new products now being readied for the market. These include adefovir dipivoxil for HIV and Tamiflu treatment for influenza, both of which are expected to receive FDA approval before year-end 1999. The R&D pipeline also includes other drugs for AIDS, hepatitis B, macular degeneration, cancer, and other conditions. However, the company is unlikely to be profitable before 2002. It is never a good sign when a stock is making new lows while its industry group is making new highs. This is the story of Gilead Sciences. GILD has been having problems ever since November 1st, when the USFDA advisory panel recommended the FDA not approve GILD's HIV drug. It was a devastating blow for Gilead, despite efforts to keep the HIV research trials alive in Europe. The drug is not dead yet, but Gilead will need some positive developments concerning their HIV drug or one of their other research possibilities before investors will be interested in the stock. In the meantime the stock just keeps drifting lower. Further selling pressure on the stock could also come in the form of tax-loss selling. Mutual Funds do not want to show that they are holding a loser in their portfolios and investors who want to take some of their spectacular gains from other biotechs off of the table might be willing to sell GILD to offset capital gains. One could buy a put if GILD opens on Monday below Friday's high of $39.25. The stock would have to trade above $41.25 to break its downtrend. Therefore $41.25 would be a good place to put a stop. If the downtrend continues, look to take profits at the long term support price of $31.75. BUY PUT JAN-40*GDQ-MH OI=554 at $5.00 SL=3.25 BUY PUT JAN-35 GDQ-MG OI=220 at $2.44 SL=1.00 Average Daily Volume = 866 K Chart = http://quote.yahoo.com/q?s=GILD&d=3m **** ETYS - eToys Inc. $37.56 (-7.56)(-8.69) ETYS is a leading web-based retailer focused exclusively on children's products, including toys, video games, software, videos and music. Designed to be the consumers primary source for children's products, ETYS online store offers an extensive selection, with over 100,000 products and 750 brands. With its recent purchase of BabyCenter, ETYS now also provides online parenthood information and baby gear. Nobody wants to play with eToys anymore. Regardless of what happens, positive press or upgrades, ETYS seems destined to continue south. Consumers continue to rate the company at the top of the e-tailer heap, and Goldman Sachs upgraded ETYS to a Buy with a $65 price target on Monday. The net result was a bounce off of resistance at $50 and an uninterrupted slide through support at $46, and then $40. This will likely be short term weakness as analysts like ETYS going forward as they have a solid e-business model. The problem is concern over valuations relative to its peers. On Friday, ETYS resumed its fall on more than double the ADV, closing at $37.56, near the low of the day. The $40 support level has become resistance and our next level of support, at $36, is rapidly approaching. Use caution going forward, as ETYS has moved down quickly and has left all the moving averages far behind. Also, Stochastics has moved deep into oversold territory and RSI isn't far behind. Look for in intraday bounce to the vicinity of $40 and then enter as the sellers return. Should the $36 level be broken, we may be cleared for a run all the way to the 52-week low near $28.50. As always, if you have profits on the table, tighten up those stops. It would be a shame to give them back on such a nice play; especially so close to Christmas. BUY PUT JAN-45 ETU-MI OI=792 at $10.00 SL=7.50 BUY PUT JAN-40*ETU-MH OI=370 at $ 6.63 SL=4.75 BUY PUT JAN-35 ETU-MG OI=255 at $ 4.25 SL=2.75 Average Daily Volume = 2.21 mln Chart = http://quote.yahoo.com/q?s=ETYS&d=3m **** BMY - Bristol-Myers Squibb Co $62.13 (-6.13) Bristol-Myers is best known as a leader in the personal care industry as a producer and distributor of familiar items such as Clairol and Excedrin. However the company focuses its primary efforts on pharmaceuticals which comprise about 70% of its total sales. Cardiovascular treatments, anticancer, and anti-infective drugs top their research-development list. Through divisions and subsidiaries they also make baby formula, nutritional products, and medical devices. Concerns about possible Medicare reform accompanied by drug- pricing regulation and whether the drug makers can keep the pipeline full next year with enough blockbusters drugs are driving down share prices in the sector. In others words, investors are worried that earnings growth will be curtailed. The general downtrend started in mid-November but really came into its own for BMY on December 6th as it slipped under its 200-dma ($69.27) likely in response to a downgrade by SG Cowen to a Buy from a Strong Buy. 2 days later Dain Rauscher Wessels started BMT with a Neutral rating citing the stock is "fully valued at current levels" however "patent expiration could limit revenue growth to 7-8% through 2002". The revenue expectations really hit home since investors were anticipating numbers in the mid-teens for next year. On Thursday and Friday of this week, BMY broke down even farther shedding $4.50, or 6.8% on more than double the normal trading activity. This performance caught our attention and prompted us to add BMY to our put list. Support is firm at $66, but if the trend stays intact for the next few days you may have to look intraday for an entry. In other news, Bristol-Myers and OXiGENE Inc (OXGN) entered into a joint venture to develop and sell anti-cancer treatments. BUY PUT JAN-65 BMY-MM OI=5027 at $5.00 SL=3.25 BUY PUT JAN-60*BMY-ML OI=2300 at $2.31 SL=1.25 BUY PUT JAN-55 BMY-MK OI=1358 at $1.00 SL=0.00 Average Daily Volume = 3.2 mln Chart = http://quote.yahoo.com/q?s=BMY&d=3m **** WB - Wachovia Corporation $66.00 (-7.13) Wachovia Corporation is a leading interstate financial services company with dual headquarters in Atlanta and Winston-Salem, N.C., serving the southeastern, national and international markets. Wachovia has been spending time lately watching over it's declining share price! Could this be because of the Y2K paranoia, which is plaguing the banking sector? Are investors concerned regarding the possible long-term effects of rate increases? Whatever it is, WB investors are not too happy about it. WB has been in a steady decline since the beginning of November and on Friday, WB worked down to tag a new 52-week low of $65.94. WB closed just pennies above the low for the day with double the average daily volume positioning us well heading into this week. As we near the end of the millennium, and more specifically this year, we will most likely see a lot of sellers emerge for WB as they look to unload the losers in their portfolio. WB has some resistance overhead at $70. WB's 10-dma is trying to keep up with the decline, but so far has had no luck and is currently providing resistance at $71. Support? Well, that is a little harder to peg, as support has meant nothing to WB for some time now. You would have to go back to 1998, the last time that WB was trading this low, to find any kind of pre-established support. Therefore, WB is relying on the psychological levels of support, i.e., next stop $60. Good points for new entries shouldn't be too hard to come by. WB typically gaps down slightly to open right around the high for the day before continuing downhill. Therefore, if you are looking to make a new entry, try and time your entries on the early side or near the close of the day (this way you can take advantage of the following days gap and decline). WB received an "honorable mention" in a recent article, noting that it was one of the banks that is now offering the banking/brokerage package. BUY PUT JAN-70*WB-MN OI=366 at $3.88 SL=2.25 BUY PUT JAN-65 WB-MM OI= 10 at $1.81 SL=0.75 Average Daily Volume = 438 K Chart = http://quote.yahoo.com/q?s=WB&d=3m **** PWAV - Powerwave Technologies $49.00 (-15.25) Powerwave TechnologiesŪ designs, manufactures, and markets advanced radio frequency (RF) power amplifiers for use in wireless communications networks worldwide. Powerwave has one of the broadest and most diverse product offerings of any independent supplier in our industry. Powerwave's products continue to set new standards for performance, service, and price while carving out a rock solid reputation for reliability. Their production released products cover all major global air interface standards in all major frequency bands. They are used in cellular, Personal Communications Services (PCS), and Wireless Local Loop (WLL) base stations in both digital and analog networks. The tide looks to be moving out for PWAV. Powerwave was riding high, trading up to $80 back in November before losing some ground and struggling for the remainder of the month. December brought out the bulls and once again PWAV was living the high life. This time, PWAV only made it up to $72.50 before the bears decided it was time go surfing once again. PWAV has been in a steady decline for nearly two weeks. PWAV ended Friday's session at the low for the day with three times the average daily volume, both bearish indications to carry us into this week. Powerwave, proved to be just that as it crashed through it's 100-dma, and closed below $50, both levels that should have provided support. PWAV spent a good deal of time trading right around $45 back in September backed by support of it's 5 and 10-dma's. This level is now considered price level support and could hold going forward though we are betting that PWAV has picked up too much negative momentum to be stopped just yet, and could be headed down to $40. PWAV has immediate resistance overhead at $50 and $52 (100-dma) with further resistance at $60. A cautionary note for our put play on PWAV, we have yet to see any negative news materialize to back the recent, rapid decline. Therefore, it is important to enter with caution, use your stops and keep an eye on PWAV. Last week, we were dealing with triple witching, which may very well have been a factor here. Somebody is definitely selling. Looking at an intra-day chart, you are able to see the definite tops when the stock has the flat steps downward, and as we mentioned above, we have the volume backing the decline. PWAV is scheduled to announce earnings on January 19th and to avoid falling victim to an earnings run, we will definitely want to proceed with caution as we approach this date. PWAV typically opens at the high of the day and descends for the remainder of the session, so once the negative momentum looks to be confirmed for the day, it is probably best to make new entries toward the early part of the day. Note: There was very big volume on the Jan-60 contracts last Friday. BUY PUT JAN-55 VFQ-MK OI=10 at $9.63 SL=7.00 BUY PUT JAN-50*VFQ-MJ OI=14 at $6.13 SL=4.25 Average Daily Volume = 478 K Chart = http://quote.yahoo.com/q?s=PWAV&d=3m **** LTR - Loews Corporation $59.94 (-1.81) Loews Corporation is a diversified holding company whose main interest is insurance, through publicly traded subsidiary CAN Financial. Other holdings include subsidiary Lorillard Tobacco Company, 15 hotels in the US, Canada, and Monaco (through subsidiary Loews Hotels), watchmaker Bulova, and contract oil-drilling subsidiary Diamond Offshore Drilling. The company also owns a minority stake in fiber optic company Global Crossing. Sliding down the razor blade of life, LTR is feeling the dual- edged pain of tobacco litigation and investor concern over the possibility of Y2K-related insurance claims. Rising interest rates are also pressuring the insurance industry, and LTR is no exception, providing evidence that a rising tide (broad markets) doesn't necessarily float all boats. Adding to the company's woes is the rejection on Thursday of the tobacco industry's attempt to dismiss a lawsuit filed in California. The suit, filed on behalf of more than 100 union health and welfare trust funds, seeks to recover money spent to treat smoking-related illnesses. According to a lawyer for the plaintiffs, "The ruling is that they cannot use the national settlement to bar individual lawsuits, at least in California". Since this slide began in mid-October, the 30-dma (currently $64.38) has provided impenetrable resistance, and a bounce near this level would provide an ideal entry. We may not get this lucky though, as forays above the 10-dma (currently $61.65) have become shorter and less frequent over the past six weeks. Volume has been strong throughout the decline, averaging 25% above the ADV of 303K as LTR has continued to set new lows. LTR had a slight recovery Friday afternoon, allowing the issue to close near the daily high. Going forward, open new positions on continued weakness or a southward bounce from resistance at the 10-dma. Be sure to confirm that further price moves are accompanied by strong volume; a drop in volume may be our first indication when LTR finds that elusive support level. BUY PUT JAN-65 LTR-MM OI=15 at $5.75 SL=4.25 low OI! BUY PUT JAN-60*LTR-ML OI=7 at $2.25 SL=1.50 low OI! BUY PUT JAN-55 LTR-MK OI=0 at $0.00 SL=0.00 New Strike!! Average Daily Volume = 303 K Chart = http://quote.yahoo.com/q?s=LTR&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 ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millineum with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
The Option Investor Newsletter 12-19-99 Sunday 5 of 5 COVERED CALLS ************* Conservative Entry/Exit Techniques... The majority of covered-call positions that we recommend in the newsletter are 'in the money' plays. We favor this conservative strategy as it provides new investors with a relatively stable, annualized return even in a bearish market. We try to construct positions that utilize over-valued option premiums to provide a reasonable profit with adequate downside protection. Our extensive research exposes stocks that have a high probability of finishing above the sold strike at expiration, and whose premium provides a final cost-basis (the break-even price) that is near the current technical support or trading range. A BUY-WRITE order can be a useful method to establish the overall profit/loss position when opening a new covered-call play. This technique involves placing a combination order with the broker. The exact phraseology is not important but a specific net-debit must be given when the trade instructions are delivered to the agent. The floor broker or clearing-house will fill the order if the net-debit can be achieved through any combination of stock and option prices. One of the advantages of this technique is that it prevents the possibility of losses when the premium in the target call falls on heavy selling pressure. This happens frequently to the plays we list as many are opened in the first hour of trading. If too many calls are sold without any buying pressure, the bid premium drops quickly towards intrinsic value and the ITM play becomes unfavorable. Traders who attempt to leg-in to these positions, (buying the stock to sell the call later) are often surprised to see the overvalued premiums disappear before they can write the options that complete the play. Using the BUY-WRITE technique, a position can be established at an acceptable risk/reward ratio without the possibility of loss during the transaction. The stock does not have to be monitored during the day's trading as the order will be executed only when the appropriate net-debit is achieved. This type of trading works well with low volume issues and provides the market-maker with an opportunity to fill the request based on other orders in the pits. It can also be used with volatile stocks that new investors might otherwise avoid when utilizing the conservative, covered-writing strategy. SUMMARY OF PREVIOUS PICKS Stock Price Last Mon Strike Opt Profit ROI Monthly Sym Picked Price Price Bid /Loss ROI EMIS 16.88 20.88 DEC 15.00 3.38 *$ 1.50 11.1% 16.1% FSII 10.44 11.25 DEC 10.00 1.81 *$ 1.37 15.9% 13.8% ITIG 10.00 26.19 DEC 10.00 1.25 *$ 1.25 14.3% 8.9% ALGO 15.25 13.75 DEC 12.50 3.75 *$ 1.00 8.7% 7.6% WSTL 8.00 10.31 DEC 7.50 1.06 *$ 0.56 8.1% 7.0% BTOB 18.38 15.75 DEC 15.00 4.63 *$ 1.25 9.1% 6.6% SATH 12.44 11.88 DEC 10.00 3.00 *$ 0.56 5.9% 6.4% AND 8.38 8.69 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% AWEB 12.25 12.50 DEC 10.00 2.63 *$ 0.38 4.0% 5.7% CRUS 13.94 12.50 DEC 12.50 2.19 $ 0.75 6.4% 5.5% PILT 18.50 17.63 DEC 15.00 4.38 *$ 0.88 6.2% 5.4% RRRR 14.75 32.56 DEC 12.50 3.25 *$ 1.00 8.7% 5.4% WAVX 13.19 12.75 DEC 10.00 3.88 *$ 0.69 7.4% 5.4% DRIV 22.75 35.13 DEC 20.00 4.25 *$ 1.50 8.1% 5.0% DIGE 14.44 18.50 DEC 12.50 2.75 *$ 0.81 6.9% 5.0% PILT 15.94 17.63 DEC 12.50 4.25 *$ 0.81 6.9% 5.0% LTXX 16.00 18.00 DEC 15.00 2.06 *$ 1.06 7.6% 4.7% IVIL 28.38 25.06 DEC 22.50 6.75 *$ 0.87 4.0% 4.4% TOPP 9.81 12.38 DEC 7.50 2.75 *$ 0.44 6.2% 3.9% JDAS 11.63 15.19 DEC 10.00 2.13 *$ 0.50 5.3% 3.8% MESG 17.63 14.38 DEC 15.00 3.63 $ 0.38 2.7% 2.9% PRGY 25.38 21.69 DEC 22.50 4.50 $ 0.81 3.9% 2.4% MESG 17.88 14.38 DEC 15.00 3.50 $ 0.00 0.0% 0.0% ONEM 19.94 16.25 DEC 17.50 3.25 $ -0.44 -2.6% 0.0% FLAS 10.75 6.88 DEC 7.50 3.63 $ -0.24 -3.4% 0.0% MOGN 13.44 11.00 DEC 12.50 1.63 $ -0.81 -6.9% 0.0% DGII 13.56 10.94 DEC 12.50 1.69 $ -0.93 -7.8% 0.0% ICGX 20.50 15.00 DEC 17.50 3.88 $ -1.62 -9.7% 0.0% BIDS 5.13 5.25 JAN 5.00 1.00 *$ 0.87 21.1% 13.1% EMIS 19.88 20.88 JAN 17.50 4.50 *$ 2.12 13.8% 10.0% WSTL 10.75 10.31 JAN 10.00 1.88 *$ 1.13 12.7% 9.2% CBIZ 10.31 9.38 JAN 7.50 3.63 *$ 0.82 12.3% 8.9% FSII 10.69 11.25 JAN 10.00 1.94 *$ 1.25 14.3% 8.9% LGND 11.69 9.88 JAN 10.00 2.75 $ 0.94 10.5% 7.6% AWEB 12.13 12.50 JAN 10.00 3.00 *$ 0.87 9.5% 6.9% SCOC 17.88 27.00 JAN 15.00 4.13 *$ 1.25 9.1% 6.6% ONHN 10.25 9.69 JAN 7.50 3.38 *$ 0.63 9.2% 5.7% TTWO 16.31 14.88 JAN 12.50 4.63 *$ 0.82 7.0% 5.1% PILT 20.25 17.63 JAN 15.00 6.38 *$ 1.13 8.1% 5.1% RNBO 20.00 22.00 JAN 15.00 6.13 *$ 1.13 8.1% 5.1% AGY 16.88 15.38 JAN 15.00 2.75 *$ 0.87 6.2% 4.5% SATH 12.69 11.88 JAN 10.00 3.38 *$ 0.69 7.4% 4.0% VUSA 12.50 9.44 JAN 10.00 3.63 $ 0.57 6.4% 4.0% MESG 16.63 14.38 JAN 12.50 4.88 *$ 0.75 6.4% 4.0% BNYN 15.81 16.63 JAN 12.50 4.13 *$ 0.82 7.0% 3.8% MCRE 7.56 6.25 JAN 7.50 1.31 $ 0.00 0.0% 0.0% *$ = Stock price is above the sold striking price. Comments/Observations on Open Positions: Time to evaluate any December positions not called away. Consider the value of rolling to January (or later) series verses moving your capital to more lucrative positions. Ligand (LGND) appears to be suffering the "sell on news" effect; consider closing the position if it breaks $9.00 (closing basis). Value America (VUSA) broke support (the December position was closed) and continues to weaken - consider exiting early. Metacreations (MCRE) warned about next quarter as it restructures - support at $6.00 appears to be holding - consider an early exit. The January position of Summit (BEAM) may warrant further consideration. The VISX upgrade helped BEAM rise over $1 in after-hours trading Friday; possible follow through next week. Positions Closed: Able Telecom (ABTE), Cyberian Outpost (COOL) both at break-even. Summit (BEAM) - unable to recover from the VISX damage. Value America (VUSA) - broke support at $11.00. 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 BAMM 9.81 JAN 7.50 QMZ AU 2.75 20 7.06 6.2% 6.2% BIDS 5.25 JAN 5.00 BDU AA 0.94 1491 4.31 16.0% 16.0% MWHS 15.06 JAN 12.50 MQR AV 3.25 60 11.81 5.8% 5.8% NETS 28.00 JAN 22.50 NTU AX 6.63 311 21.37 5.3% 5.3% NFO 14.38 JAN 12.50 NFO AV 2.94 51 11.44 9.3% 9.3% PILT 17.56 JAN 12.50 PTU AV 5.88 148 11.68 7.0% 7.0% SPLH 8.44 JAN 7.50 QRX AU 1.81 277 6.63 13.1% 13.1% TSCM 15.75 JAN 12.50 YTQ AV 3.88 23 11.87 5.3% 5.3% Company Descriptions BAMM - Books-A-Million $9.81 *** Stage I Base *** Books-A-Million is principally engaged in the sale of books, magazines and related items through a chain 182 stores in 17 states and via its web site. The company operates four distinct store formats, including large superstores operating under the names Books-A-Million and Books & Co., traditional bookstores and combination book and greeting card stores, both operating under the name Bookland, and Joe Muggs Newsstands. BAMM's net loss narrowed last quarter with increasing sales. The chart has slowly been improving as investors accumulate the stock. Strong support above our cost basis makes for favorable speculation. JAN 7.50 QMZ AU Bid=2.75 OI=20 CB=7.06 RC=6.2% RNC=6.2% Chart = http://quote.yahoo.com/q?s=BAMM&d=3m **** BIDS - Bid.Com $5.25 *** Takeover 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. In recent weeks, BIDS has surged to highs near $7 on rumors that online auction giant eBay (EBAY) was preparing to buy the Toronto based firm. The technical picture has steadily improved and with investors buying into the dips, a breakout appears likely. We favor the strong support near our entry point. JAN 5.00 BDU AA Bid=0.94 OI=1491 CB=4.31 RC=16.0% RNC=16.0% Chart = http://quote.yahoo.com/q?s=BIDS&d=3m **** MWHS - Micro Warehouse $15.06 *** What's Up? *** Micro Warehouse is a specialty catalog and online retailer and direct marketer of brand name personal computers, computer software, accessories, peripheral and networking products to commercial and consumer customers. MWHS markets its products through frequent mailings of distinctive, colorful catalogs and dedicated telemarketing account managers who focus on corporate, education and government accounts. Forget about last quarter's earnings, what about next? Or is it a deal with Amazon, AOL, or some merger? Who cares when you can obtain a cost basis below four months of consolidation. The deep-in-the-money time premium created by call-buying speculators makes this a favorable play! JAN 12.50 MQR AV Bid=3.25 OI=60 CB=11.81 RC=5.8% RNC=5.8% Chart = http://quote.yahoo.com/q?s=MWHS&d=3m **** NETS - YouthStream Networks $28.00 *** New High *** Network Event Theater (or YouthStream Media Networks) publishes mybytes.com, the premier online community for the large college market and the leading media gateway to the young adults, with a strong emphasis on the high school/college audiences. YouthStream delivers the most extensive range of customized, fully integrated media and marketing services for this age group. NETS recently announced acquisition of sixdegrees.com, an online community of nearly three million members, creating the largest Internet site targeted to young adults and college students. NETS continued its up-trend with a new high Monday on heavy volume. We favor the strong support near the sold strike. JAN 22.50 NTU AX Bids=6.63 OI=311 CB=21.37 RC=5.3% RNC=5.3% Chart = http://quote.yahoo.com/q?s=NETS&d=3m **** NFO - NFO Worldwide $14.38 *** New Trend? *** NFO Worldwide is a leading provider of research-based, marketing information and counsel to the worldwide business community. With 13,000 employees operating in 35 countries; in-depth expertise in all research methodologies and marketing experience in multiple market sectors, NFO provides clients with trusted insight into the behaviors, attitudes and opinions of customers around the globe. Interesting speculation on a research/marketing stock as we head into an election year. A new automated web site, InsightExpress, provides online market research services. The stock price moved above the recent consolidation area on heavy volume. This play offers good speculation with a cost basis near technical support. JAN 12.50 NFO AV Bid=2.94 OI=51 CB=11.44 RC=9.3% RNC=9.3% Chart = http://quote.yahoo.com/q?s=NFO&d=3m **** PILT - Pilot Network Services $17.56 *** New Entry Point *** 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 it is instituting a Y2K Alert Center to proactively warn and protect-as well as respond to-any security threats during the changeover to Year 2000. The recent sell-off is offering a re-entry into Pilot Network at about a 50% retracement from the recent run-up. The technical outlook is still bullish though we favor the support near the cost basis. JAN 12.50 PTU AV Bid=5.88 OI=148 CB=11.68 RC=7.0% RNC=7.0% Chart = http://quote.yahoo.com/q?s=PILT&d=3m **** SPLH - Splash Technology $8.44 *** Strange Moves! *** Splash Technology produces color servers that transform printing engines into powerful networked printers. Splash's innovative technology is easy to use and enables high-quality, accurate, and consistent color printing from virtually any desktop computer and application. Splash ships color servers on both Intel and PowerPC platforms. No recent news and Splash is making waves, rising 100% in one month on heavy volume. Is this the break-out of the year long base? We favor the strong support above the cost basis (until the reason for the move is known). JAN 7.50 QRX AU Bid=1.81 OI=277 CB=6.63 RC=13.1% RNC=13.1% Chart = http://quote.yahoo.com/q?s=SPLH&d=3m **** TSCM - TheStreet.com $15.75 *** What's Cramer Saying Now? *** TheStreet.com is a web-based provider of original, timely and comprehensive financial news, commentary and information aimed at helping readers make informed investment decisions. Hmmm, a web site geared towards investors...now where have I seen that before? Coverage recently initiated by First Union and several positive technical divergence's portend a future upswing in price. TSC's leadership in the industry is well known and their web-page is the focus of many research forays. A very favorable speculation play with a basis below the recent support at $14. That is, of course, only until the OIN goes public.. JAN 12.50 YTQ AV Bid=3.88 OI=23 CB=11.87 RC=5.3% RNC=5.3% Chart = http://quote.yahoo.com/q?s=TSCM&d=3m NAKED PUT SECTION ***************** Conservative Investing Alternatives... This week we received a question regarding convertible securities. These unique financial vehicles offer worthwhile opportunities for investors who need current income, yet want to invest in companies that will benefit from the bullish market trends. Although this category of investing is not well known, it can offer favorable annual returns along with potentially high rewards for those that choose to learn the fundamentals of the strategy. Bonds and preferred stock that can be exchanged for common stock are the most conventional types of convertible securities. These instruments provide the necessary means for companies to raise capital for growth and ongoing operations. Most corporations fund their future activities through bank loans or the sale of bonds or common stock. Bondholders are reimbursed for their investment with interest added but inflation can erode their profits. Shareholders can benefit from appreciation of the stock's value but they have no guaranteed income from the investment. Convertible bondholders enjoy the best of both worlds as they receive a specific rate of interest, are virtually assured a return of their principal, and also have the right to exchange or convert the bond into a fixed number of shares of common stock. Convertible preferred stock is a similar financial instrument. In this case however, the investor receives a regular distribution or dividend rather than an interest payment. Unlike convertible bonds, the distribution is usually not guaranteed. This type of issue can be exchanged or converted into a fixed number of shares of common stock but it will not be redeemed at the end of a specific term; it simply exists as preferred stock until physically converted. When a company's stock grows in value, the convertible bondholder can exchange his holdings and participate in the appreciation of the issue. It the company fails to perform in the short-term, at least the investor gets paid a good rate of interest for waiting. It's a well-known fact that most of the technology companies pay little or no dividend however, convertible instruments on the same issues generally offer attractive yields, plus the opportunity for future profit at a substantially lower risk. Convertible instruments are ideal investments for IRA's and other qualified plans. The distribution income can often be deferred or sheltered and the growth of the common stock will protect against losses from inflation and higher interest rates in other vehicles. Regular premium bonds have only a small yield advantage over most convertibles and the risk/reward ratio favors the profit potential inherent in the future growth of the underlying equity. In most cases, convertible instruments will provide a conservative and yet competitive method to participate in the growth of the current bull market. *** 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 MAIL 21.88 19.56 DEC 17.50 0.56 *$ 0.56 11.3% 24.6% ELON 12.50 13.00 DEC 10.00 0.31 *$ 0.31 11.0% 24.0% HRBC 18.69 26.56 DEC 15.00 0.38 *$ 0.38 9.1% 19.8% NSPK 18.56 19.13 DEC 15.00 0.38 *$ 0.38 9.0% 19.5% IVIL 27.25 25.06 DEC 22.50 0.94 *$ 0.94 13.3% 19.2% SCOC 14.56 27.00 DEC 12.50 0.31 *$ 0.31 7.6% 16.5% PILT 20.25 17.63 DEC 15.00 0.31 *$ 0.31 7.1% 15.4% ELIX 15.13 15.25 DEC 12.50 0.25 *$ 0.25 6.8% 14.8% NSPK 16.38 19.13 DEC 12.50 0.50 *$ 0.50 13.2% 14.4% RNBO 18.13 22.00 DEC 15.00 0.44 *$ 0.44 9.6% 14.0% STRX 7.63 6.88 DEC 5.00 0.44 *$ 0.44 22.3% 13.9% ZOMX 36.06 40.75 DEC 30.00 0.81 *$ 0.81 8.8% 12.8% PILT 21.31 17.63 DEC 15.00 0.56 *$ 0.56 11.6% 12.6% NPIX 37.50 40.69 DEC 22.50 0.69 *$ 0.69 8.4% 12.2% MMWW 33.00 28.88 DEC 25.00 0.38 *$ 0.38 5.4% 11.8% NSPK 15.50 19.13 DEC 12.50 0.50 *$ 0.50 13.5% 11.7% BNYN 12.75 16.63 DEC 10.00 0.38 *$ 0.38 13.0% 11.3% MSGI 16.94 18.81 DEC 12.50 0.50 *$ 0.50 12.9% 11.2% COOL 9.56 10.31 DEC 7.50 0.31 *$ 0.31 14.0% 10.1% ITVU 64.50 88.00 DEC 45.00 1.25 *$ 1.25 8.8% 9.6% NVDA 32.00 37.63 DEC 22.50 0.75 *$ 0.75 10.5% 9.1% MLTX 16.19 28.00 DEC 12.50 0.50 *$ 0.50 13.4% 8.3% XCED 31.63 40.25 DEC 22.50 0.63 *$ 0.63 9.1% 7.9% AMTD 28.19 25.38 DEC 20.00 0.44 *$ 0.44 7.2% 7.9% MTSN 15.56 15.63 DEC 12.50 0.31 *$ 0.31 8.9% 7.8% IONA 21.38 34.38 DEC 15.00 0.56 *$ 0.56 11.6% 7.2% TUTS 39.69 47.75 DEC 30.00 0.81 *$ 0.81 9.3% 6.7% CMDX 65.19 86.00 DEC 40.00 0.63 *$ 0.63 4.6% 6.7% MRVC 31.00 57.06 DEC 22.50 0.38 *$ 0.38 5.8% 6.3% PDLI 40.75 48.38 DEC 35.00 0.44 *$ 0.44 4.0% 5.8% NPIX 37.44 40.69 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% FLAS 10.06 6.88 DEC 7.50 0.75 $ 0.13 4.7% 3.4% MAIL 25.75 19.56 DEC 20.00 0.31 $ -0.13 -2.4% 0.0% HEPH 16.50 11.63 DEC 12.50 0.38 $ -0.49 -13.3% 0.0% DGII 14.88 10.94 DEC 12.50 0.50 $ -1.06 -26.0% 0.0% AND 9.25 8.69 JAN 7.50 0.44 *$ 0.44 18.4% 13.3% SATH 12.94 11.88 JAN 10.00 0.56 *$ 0.56 17.8% 12.9% CCUR 17.75 15.25 JAN 12.50 0.50 *$ 0.50 12.3% 8.9% SCOC 17.88 27.00 JAN 12.50 0.44 *$ 0.44 10.9% 7.9% PRRC 23.56 23.38 JAN 17.50 0.56 *$ 0.56 10.6% 7.7% INSO 32.13 32.63 JAN 20.00 0.75 *$ 0.75 10.4% 7.6% EGRP 35.56 30.06 JAN 25.00 0.56 *$ 0.56 7.3% 5.3% MMWW 37.38 28.88 JAN 22.50 0.50 *$ 0.50 6.3% 4.5% *$ = Stock price is above the sold striking price. Comments/Observations on Open Positions: On positions that will be assigned, consider the value of rolling to January (or later) series verses selling the stock and moving your capital to more lucrative positions. Positions Closed: Cdnow (CDNW), Cheap Tickets (CTIX), Egghead.Com (EGGS). 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 CS 28.50 JAN 20.00 CS MD 0.56 1633 19.44 8.9% DAVX 23.75 JAN 17.50 VQ MW 0.56 0 16.94 10.5% EMIS 21.00 JAN 15.00 MTQ MC 0.50 0 14.50 10.6% IUSA 12.13 JAN 7.50 BQU MU 0.31 3 7.19 11.3% MSGI 19.00 JAN 12.50 UMS MV 0.38 15 12.12 9.1% NETS 28.00 JAN 20.00 NTU MD 0.50 4 19.50 8.2% RNBO 21.94 JAN 17.50 BQO MW 0.81 10 16.69 15.6% WAXS 20.50 JAN 15.00 WXQ MC 0.38 276 14.62 8.5% Company Descriptions CS - Cabletron Systems $28.50 *** Own This One! *** Cabletron Systems develops, manufactures, markets, installs and supports a wide range of standards-based local area network and wide area network connectivity hardware and software products including intelligent switches and hubs, remote access devices, and sophisticated management software. CS products address the full range of networking technologies, including Ethernet, Fast Ethernet, Gigabit Ethernet, token ring, fiber distributed data interface, asynchronous transfer mode (ATM), integrated services digital network and frame relay. A bullish chart with technical support above the cost basis. JAN 20.00 CS MD Bid=0.56 OI=1633 CB=19.44 ROI=8.9% Chart = http://quote.yahoo.com/q?s=CS&d=3m **** DAVX - Davox $23.75 *** On The Move! *** Davox is principally a software and systems integration company which develops, implements, and supports management systems for call center operations. These centers conduct credit/collections, customer service, telephone sales, and fund raising. Its systems help calling operations integrate voice and data systems, manage outbound/inbound calling applications and focus on improving the quality/quantity of customer contacts. IUSA's recent adoption of Davox technology demonstrates their potential as a supplier of customer interaction solutions for electronic business. Markets for this service are expected to grow exponentially. Also rumors of a deal with Kana Communications (KANA). JAN 17.50 VQ MW Bid=0.56 OI=0 CB=16.94 ROI=10.5% Chart = http://quote.yahoo.com/q?s=DAVX&d=3m **** EMIS - Emisphere $21.00 *** New Drugs *** Emisphere is a biopharmaceutical company specializing in the oral delivery of therapeutic macromolecules and other compounds that are not currently deliverable by oral means. The Company has two drugs in human clinical trials using its unique carrier technology and has strategic alliances and ongoing feasibility studies with several pharmaceutical and biotechnology companies, including Novartis and Eli Lilly. EMIS's most clinically advanced product is oral heparin which is designed to capture and expand the existing $2 billion coronary anti-thrombosis market. Received FDA approval to advance clinical trials of the anticoagulant heparin and plans to have a marketing partner in place for the drug by the second quarter of 2000. A good premium for target-shooting an entry point. JAN 15.00 MTQ MC Bid=0.50 OI=0 CB=14.50 ROI=10.6% Chart = http://quote.yahoo.com/q?s=EMIS&d=3m **** IUSA - InfoUSA $12.13 *** A Big Rally! *** InfoUSA is a leading provider of business and consumer marketing information products and data processing services in the United States and Canada. Nearly two million customers use the products and services for direct and telemarketing, new leads, sales and planning, customer analysis and credit reference. ABN AMRO said Thursday it raised its rating on InfoUSA to "buy" based on high expectations for a strong fourth quarter. The price target is $17 and the Sands Bothers "strong buy" rating last Monday appears to have merit. A low risk entry at the cost-basis near $7. JAN 7.50 BQU MU Bid=0.31 OI=3 CB=7.19 ROI=11.3% Chart = http://quote.yahoo.com/q?s=IUSA&d=3m **** MSGI - Marketing Services Group $19.00 *** Where To Now? *** Marketing Services Group provides database management, custom telemarketing/telefundraising and other direct marketing services to a diverse group of clients located in the North America. These services include customer/market data analysis, database creation and analysis, data warehousing, merge/purge, predictive behavioral modeling, list processing, brokerage/management, data enhancement, and other direct marketing information services. The recent merger announcement between MSGI's Mazescape, a B2B solution provider in the Internet recruitment industry, and either Breckenridge Group or Claybrooke Associates has caused confusion among investors. It appears the stock is back in gear and the entry point is favorable. JAN 12.50 UMS MV Bid=0.38 OI=15 CB=12.12 ROI=9.1% Chart = http://quote.yahoo.com/q?s=MSGI&d=3m **** NETS - YouthStream Networks $28.00 *** What's In A Name? *** Network Event Theater (or YouthStream Media Networks) publishes mybytes.com, the premier online community for the large college market and the leading media gateway to the young adults, with a strong emphasis on the high school/college audiences. YouthStream delivers the most extensive range of customized, fully integrated media and marketing services for this age group. NETS recently announced acquisition of sixdegrees.com, an online community of nearly three million members, creating the largest Internet site targeted to young adults and college students. Solid support near the cost basis. JAN 20.00 NTU MD Bid=0.50 OI=4 CB=19.50 ROI=8.2% Chart = http://quote.yahoo.com/q?s=NETS&d=3m **** RNBO - Rainbow Security $21.94 *** Going For The High! *** 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 technical outlook remains bullish and we favor the move above a recent consolidation area near $20. Support exists at $15-16. JAN 17.50 BQO MW Bid=0.81 OI=10 CB=16.69 ROI=15.6% Chart = http://quote.yahoo.com/q?s=RNBO&d=3m **** WAXS - World Access $20.50 *** Watch This One! *** World Access provides wholesale, international long distance services and designs a broad range of wireline and wireless telecommunications solutions for service providers worldwide, from single products to comprehensive network solutions. These solutions include intelligent multiplexers, digital microwave radio systems, digital switches, billing and network management systems, cellular base stations, fixed wireless local-loop and engineering services. On Friday, WAXS said it would buy Long Distance International (LDI) in a deal worth $180 million to establish itself in the European retail market. World intends to utilize LDI's customer development and retention programs as a basis for further retail account growth but the stock price may suffer briefly on the news. We are looking for a favorable entry point on this issue. Premiums may be higher on Monday. JAN 15.00 WXQ MC Bid=0.38 OI=276 CB=14.62 ROI=8.5% Chart = http://quote.yahoo.com/q?s=WAXS&d=3m ************************ SPREADS/STRADDLES/COMBOS ************************ Blue-Chips Compete For Top Honors.. Friday, December 17 Growing strength in cyclical stocks and frenzied buying in leading technology issues drove equity markets to record levels on Friday. The Dow Jones Industrial Average moved up 74 points to 11,317 and the Nasdaq composite rose 41 points to 3756. The broad market S&P 500 index was also higher at 1425. Volume on the NYSE was heavy as 869 million shares were exchanged and market breadth was positive with advancers beating decliners 1,602 to 1,372. The benchmark 30 year Treasury bond's price closed up 5/32 while its yield eased to 6.38%, just below Thursday's two-year closing high. Thursday's new plays (positions/opening prices/strategy): PanamSat SPOT JAN45C/JAN50C $3.00 debit bull-call PanamSat SPOT FEB45C/JAN50C $4.00 debit diagonal Recoton RCOT MAY5C/JAN7C $2.25 debit diagonal PanamSat bolted from the gate, opening $5 higher with the surge in technology issues. We thought the position was long gone but soon the stock fell back on profit-taking and by noon it was down $0.93. The move allowed favorable entries for both our positions and the issue eventually rebounded to close up $0.38 for the session. The Recoton play was far less exciting, with the stock trading in a $0.50 range throughout the course of the day. Our suggested target was slightly out of range (on a simultaneous order basis) but a favorable entry debit was available. Portfolio plays: Companies that benefit from the cyclical nature of the market led blue chip stocks higher after struggling earlier in the week. The Dow powered ahead in heavy trading with support from an improving bond market, which garnered relief from favorable housing data. Housing starts fell 2.3% in November, below the consensus estimate as builders broke ground on new dwellings at the slowest pace in seven months. Rising mortgage prices caused the housing sector to level-off and interest rates hit a 2-year high after news that the U.S. trade deficit widened to 7.4% in October. Trading volume was at an extreme during the triple-witching expiration of equity and index options and futures contracts. The Nasdaq continued to soar on the wings of hardware issues and analysts say there is little chance the trend will reverse before year's-end. While tech issues remain strong, today's trading saw a rotation into some of the more beleaguered industries and our most recent consumer cyclical, Navistar (NAV) was one of the portfolio's big winners. The issue climbed $4.50 to a midday high near $46.50 as investors continued to speculate on a possible buyout from one of the major auto conglomerates, Volvo or Paccar. The stock price eventually closed at $44.75, just below our sold (short) strike and a perfect price for the roll-out to January options. Our new bull-call position is JAN40C/JAN45C at $0.62. A number of other issues in the diagonal spread portfolio finished at the optimum prices and one of the biggest surprises was Autoweb (AWEB). The stock jumped $2 to close at $12.50 (our sold strike) after news of a strategic e-commerce alliance with Saturn Corporation. The participation of all Saturn retailers strengthens Autoweb.com's Member Dealer network and enhances Saturn's sales opportunities. Autoweb.com customers now have Saturn representation in every state and based on location, consumers on Autoweb.com can choose from the retailers to whom they want to send a purchase request. The rally provided a $1.50 credit for the move to January options in our bullish diagonal spread. The new position is MAY10C/JAN12C at $0.88 debit. This play also offered a $1.00 profit for early exit at the end of November. Technology stocks have yet to be outdone and our recent addition to the LEAPS portfolio, Adobe Systems (ADBE) made the headlines. Shares of the software giant rallied to a midday high near $72 after the company reported better-than-expected earnings for the fifth consecutive quarter. Adobe, which makes products to design publications and Web pages, earned $0.46 per share in its fourth quarter, up from $0.39 per share in the year-ago period. Analysts had expected Adobe to earn $0.42 per share. Our bullish calendar spread position at $85 will be profitable in January and the long option is currently trading for $3.50 more than the cost basis. Another well known computer company made the news in our spreads portfolio today. Micron Electronics (MUEI) bounded $2.06 to close at $12.12 as investors piled on to the pre-earnings rally. Micron will report its first-quarter results next week and it should be interesting considering the PC maker blew-away analysts' numbers last quarter. In its previous quarter, Micron earned $0.14 cents a share, on sales of $333 million and the First Call consensus is again centered at $0.14. Our bullish calendar spread profited from the move and our new position, APR12C/JAN12C has credit of $0.50. This play now has zero risk and three months of profit potential, all from a stock that has moved less than $4 in 180 days. That's one unique advantage of spread trading. When it comes to neutral calendar spreads, there is one stock that dominates our portfolio and the issue is Bell Atlantic (BEL). For the sixth consecutive month, the stock price closed near the $65 strike. Our neutral position, APR65C/JAN65C has a credit of $2.00 with no risk and four more months of profit potential. Again, this type of position benefits from a small trading range and favorable option premiums. BEL is an great example of those characteristics. Other issues in that category are performing well and our newest play on Southwest Bancorp (SWBT) is off to a fine start. The stock price finished at $19.75, just $0.25 below our target price. The credit for the move to January options is $1.31 and our cost basis in the current position, MAY20C/JAN20C is $0.93. Unisys (UIS) and Zoltek (ZOLT) rounded out this incredible group. Zoltek closed at $9.88 with a premium of $1 for the JAN-$10 option and UIS ended at $30.50, providing a credit of $2.25 for the move to January. Our new spread is APR22C/JAN30C at $4.88 debit. The alternate Unisys play (DEC25C/DEC27C) also closed at maximum profit. With the recent bullish market environment, directional plays have far outperformed neutral positions and in our case, the debit and diagonal portfolios have led this portion of the newsletter. The ratio of (closing) winners in the debit section was 11 for 13 with total monetary gains outpacing losses by 90%. The diagonal spreads portfolio has actually performed better but the majority of plays have yet to be closed, thus a numerical outcome can not be listed. The LEAPS/Covered-call section has provided some excellent returns but unfortunately, many of the gains were limited by the strategy itself. Stocks such as Sun Microsystems (SUNW) and Motorola (MOT) would have been better played as simple call options, but who can say when an issue is going to perform as well as they have. Other strategies contributed winners to this month's success including the incredible Lycos (LCOS) straddle and (bullish) credit spreads on Etek Dynamics (ETEK) and InterVu (ITVU). We would like to claim another 100% profitable month in the "bull-put" portfolio, but we did not formally recommend closure of the Verity (VRTY) position when the exit debit shrunk to pennies. However, we have monitored the position extensively since Wednesday's debacle and recorded no less than three profitable exit opportunities in the $10 move. In today's session, Verity climbed almost $7 to $33.38 on optimism it will fix problems that caused second-quarter revenue to fall short of forecasts. The shares initially fell after Verity said that it failed to close three large sales, prompting the company to report revenues below expectations. VRTY said two of the three contracts have been completed since the quarter ended on November 30 and the third is expected to close soon. Our most interesting issue during the month has been Delta & Pine Land (DLP). We started with two bearish positions and one neutral credit-strangle. One of the plays returned a nice profit of $1.50 while the other was exited for a small ($0.12) loss. The strangle closed at $1.18 debit but as suggested on Thursday, we decided to accept delivery of the stock. Today's sale of the JAN-$17 covered call provided a new cost basis of $16.00. Obviously, we expect the issue to rebound in the near future. DLP's board of directors met today to decide the fate of the infamous Monsanto merger and those officials close to the negotiations said they are doing everything in their power to consummate the deal. Reports suggested that both parties are still very committed and that all possible avenues are being explored. At the same time, Pharmacia & Upjohn and Monsanto are also rumored to be in merger discussions. From this viewpoint, it appears that any deal is far from ensured and the new pact is just one option MTC's board is considering as a means of boosting shareholder value. The good news is that DLP officials also said they would explore strategic alternatives. They spoke with other parties before agreeing to the MTC deal and rumors of a $30 cash bid have been heard on the Street. As one trader said, "Wouldn't that be a great end to this soap opera." We concur.. Questions & comments on spreads/combos to ray@OptionInvestor.com ********* NEW PLAYS ********* VOD - Vodaphone Group PLC $49.25 *** LEAPS/Covered-Calls *** Vodafone Group provides telecommunications services and operates the Vodafone network. The company's services include cellular radio, wide area paging, trunked private mobile radio, packet radio and value added network services. Vodafone offers its services in the United Kingdom, Europe and around the world. Vodaphone's ongoing takeover attempt of Mannesmann has dominated the telecom sector headlines and with any luck it will soon come to a close. When the company first launched the bid, officials said the deal would generate cost savings of $800 million in 2003 and provide enhanced growth prospects and superior value for the shareholders of both companies. If completed, the telecom giant would control majority stakes in both mobile and fixed telephony in a large part of Europe. Vodafone currently holds controlling stakes in cellular-phone operators Mobilfunk in Germany, Omnitel in Italy and Orange in the United Kingdom. Vodafone has minority holdings in both Mobilfunk and Omnitel, and the two are partners in the French market through SFR/Cegetel. It was Mannesmann's $33 billion bid for Orange (ORNGY) that was the driving force behind Vodafone's move on Mannesmann. The Mannesmann-Orange pact gave the German group a solid foothold in Vodafone's home market and made Mannesmann Europe's biggest provider of cell-phone services. Now Vodaphone wants to be the king. The potential for a favorable outcome increased on Friday as VOD reasserted its bid with a new $30 billion credit line to conclude the deal. Regardless of the merger, Vodaphone is still a valuable company with incredible potential for growth. A small disparity in option premiums will help us open the play at a discount. PLAY (conservative - bullish/diagonal spread): BUY CALL JAN01-45 ZAT-AI OI=191 A=$13.00 SELL CALL JAN00-50 VOD-AJ OI=8651 B=$2.75 INITIAL NET DEBIT TARGET=$10.00 TARGET ROI=100% (13 months) Chart = http://quote.yahoo.com/q?s=VOD&d=3m **** NEM - Newmont Mining $24.43 *** Inflation Hedge *** Newmont Mining is engaged, directly and through its subsidiaries and affiliates, in the production of gold, the development of gold properties, the exploration for gold and the acquisition of gold properties worldwide. Newmont produces gold from operations in Nevada and California, as well as in Peru, Indonesia and the Central Asian Republic of Uzbekistan. Gold stocks lost their luster in late November after the Bank of England's auction turned bearish but a Y2K rally is expected to boost bullion prices before the end of the year. Precious metal stocks offer a partial hedge against inflation and the sector now appears to be in a favorable position for bullish speculation. In the case of Newmont, a number of positive divergences exist in the near-term pattern and a significant increase in the Time-Segmented Volume indicates a new interest in the issue. Our position offers a conservative risk/reward outlook with solid technical support near the cost basis. PLAY (conservative - bullish/debit spread): BUY CALL JAN-20.00 NEM-AD OI=5011 A=$5.00 SELL CALL JAN-22.50 NEM-AX OI=4135 B=$2.93 INITIAL NET DEBIT TARGET=$1.88 ROI(max)=32% B/E=$21.88 Chart = http://quote.yahoo.com/q?s=NEM&d=3m **** ONHN - OnHealth Network $9.69 *** Internet Speculation *** 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. In association with leading medical institutions, ONHN's seasoned health journalists and medical contributors offer unbiased and trusted health resources via reference guides, up-to-date news feeds, deep research, personalization and interactive tools. The award-winning site was recently named "Best Health & Medicine Web Site" by U.S. News & World Report and won three gold medals including "The Best Consumer Healthcare Portal" at the November eHealthcare World Awards. Over 500 different sites drive traffic to OnHealth.com through various strategic alliances and recently, the OnHealth Network destination was ranked as the single largest health site on the Web. According to the figures reported by PC Data, OnHealth has reached two new benchmarks in terms of traffic and overall ranking. Unique Users increased 87% in October and monthly overall rankings place OnHealth.com as the 83rd largest website on the Internet. Technically, OnHealth is moving out of a saucer bottom on steady volume and the recent spike to $13 has produced some new interest in the short-term call options. A bullish brokerage upgrade and favorable option premiums provide the necessary impetus for the position. PLAY (conservative - bullish/diagonal spread): BUY CALL APR-7.50 OUN-DU OI=30 A=$3.88 SELL CALL JAN-10.00 OUN-AB OI=559 B=$1.43 INITIAL NET DEBIT TARGET=$2.25 TARGET ROI=50% Chart = http://quote.yahoo.com/q?s=ONHN&d=3m *************** TECHNICALS ONLY *************** These plays are based on the current price or trading range of the underlying issue and the recent technical history or trend. The probability of profit from these positions is also higher than other plays in the same strategy based on disparities in option pricing. Current news and market sentiment will have an effect on these issues. Review each play individually and make your own decision about the future outcome of the position. **** BCR - C.R. Bard $49.00 *** Back For More! *** 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 call options continues to be excellent even in the wake of the recent slump. No news ever surfaced on the merger rumors and the stock has fallen back into its old trading range near $47. The medical equipment sector is in a slump and traders that were speculating on the take-over have left the scene. We favor the probability of profit in this play based on the small premium disparities in January's option prices. PLAY (conservative - bearish/credit spread): BUY CALL JAN-65 BCR-AM OI=89 A=$0.56 SELL CALL JAN-60 BCR-AL OI=105 B=$0.93 INITIAL NET CREDIT TARGET=$0.50 ROI=11% - or - PLAY (aggressive - bearish/credit spread): BUY CALL JAN-65 BCR-AM OI=89 A=$0.56 SELL CALL JAN-55 BCR-AK OI=479 B=$2.00 INITIAL NET CREDIT TARGET=$1.56 ROI=18% Chart = http://quote.yahoo.com/q?s=BCR&d=3m **** TDS - Telephone Data Systems $122.12 *** Going South? *** Telephone and Data Systems is a diversified telecommunications service company with well established cellular telephone, local telephone and radio paging operations and developing personal communications services (PCS) operations. Not much news on this issue but the rally appears to be over for now. TDS has broken a three month trend-line indicating a major change of character. The swiftness of the decline dropped the price below the 30 dma and indicates a very bearish, short-term outlook. This week's failed rally has created new resistance near $127 and any major recovery should be halted in the near-term by selling at the previous highs near $135. PLAY (conservative - bearish/credit spread): BUY CALL JAN-150 TDS-AJ OI=0 A=$1.38 SELL CALL JAN-145 TDS-AI OI=505 B=$1.81 INITIAL NET CREDIT TARGET=$0.56 ROI=12% - or - PLAY (aggressive - bearish/credit spread): BUY CALL JAN-150 TDS-AJ OI=0 A=$1.38 SELL CALL JAN-140 TDS-AH OI=17 B=$2.62 INITIAL NET CREDIT TARGET=$1.38 ROI=16% Chart = http://quote.yahoo.com/q?s=TDS&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 ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millineum with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
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