The Option Investor Newsletter Tuesday 12-21-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 12-21-99 High Low Volume Advance Decline DOW 11200.50 + 56.20 11237.80 11098.00 963,540k 1,579 1,502 Nasdaq 3911.15 + 127.28 3911.17 3785.78 1,480,165k 2,148 2,056 S&P-100 778.86 + 7.57 781.35 769.41 Totals 3,727 3,558 S&P-500 1433.43 + 15.34 1436.41 1414.80 51.1% 48.9% $RUT 475.79 + 8.60 475.79 467.12 $TRAN 2836.50 - 47.97 2884.62 2826.96 VIX 23.44 - 1.22 25.81 23.01 Put/Call Ratio .46 ************************************************************* Faster than a speeding bullet, more powerful than a locomotive, able to leap tall records in a single bound. The Nasdaq, the superman of bull markets, leapt several records in a single bound today. Posting a +127 point gain the Nasdaq surpassed the previous one day gain of +108 last September. It also posted another record high, the 56th this year, and had another 1.5 bln share day. The S&P also joined the party adding +15.34 to a new record high. The Dow was again the laggard with only a +56 point gain and remains firmly mired in a trading range between 11100 and 11300. We did close above previous support of 11150 again but the index was negative most of the day. This is a simply remarkable chart of the Nasdaq. After bouncing off support at 3525 three times it has taken off like a rocket. Gravity and sanity has ceased to exist. It looks like the next stop could be 4000. The Nasdaq is now up +78% for the year and if the bullishness continues to gain speed we could have an outside chance of seeing something close to a +100% gain for the year. +100% would be in the 4394 range. Granted that would be a monumental feat but with the constant stream of bigger days and record highs nothing is out of the realm of reality. Would you have believed a +30 gain on QCOM to $500? Or maybe a +36 gain on YHOO to $405 or a +57 gain on CMRC to $480? Could you expect +48 for CMGI to $270 and +$40 on ICGE to 184? Does anybody see anything wrong with this picture? Granted we should thank the Fed for the Y2K Christmas present but this is true irrational exuberance. Like the new years eve reveler who has too much to drink and allows his inhibitions to relax with the excitement of the party, waking up the next day may bring some regrets. The Fed passed on raising rates or even raising the bias only two weeks before Y2K and the Nasdaq celebrated with wild abandon. The lack of a stern Fed statement today has put the Fed on hold until next year but the outlook for February is grim. They simply wanted to avoid any hint of misunderstanding about their Y2K stance but I am afraid that Uncle Al will not be so nice next time they meet. With the economy soaring at a +5% growth rate it is almost a sure thing that they will raise rates after Y2K. There are three new bears and only one neutral member being added to the FOMC committee for next year and it is almost a 100% chance we will see a series of rate hikes from these new bears as they attempt to shape monetary policy for 2000. 23 of 30 bond dealers surveyed are expecting a rate hike in February. But for the time being the trading light is green, or at least it would appear to be. You know what I have always said, "when everything is too good too be true, it is." I can't currently picture a scenario that will cause a significant pull back any time soon. That is scary. Normally there are several things on the watch list to help keep a lid on the markets but the current rally strength would require a monster event and there are none scheduled with that potential. We are firmly entrenched in earnings warning season but there is a scarcity of negative events. Many analysts think many companies are waiting until after Y2K hoping a post 1/1/2000 announcement will be ignored in the expected rally. If a flood of announcements does take place we will have our first test of 2000 very soon. The relief rally we saw today was impressive on the surface but the Advance/Decline numbers were still a concern. With such big gains on the Nasdaq you would expect a large win by advancers but it did not happen. The advances did win but only by a slim margin of 92 issues. (2148/2056) The NYSE was positive also but only by 169 (3727/3558). The leaders soared but the rank and file marched to a different drummer. New lows on the NYSE were 326 compared to only 75 new highs. Eventually this will impact the market. The most notable non-Fed event for the day was the high profile announcement by Ralph Acompora of his new targets for next year. He is calling for as much as 14,000 on the Dow, 1800 for the S&P and 5000 for the Nasdaq. Calling the current rally simply another leg in the current "Mega Bull Market" (his term) he says we could easily see another 25% gain over the next two years. His words were fuel to the already hot rally but he did also say there would be pull backs before we reached his targets. When Ralph? Several new additions to the S&P-500 could provide some trading ideas for this week. Transocean Offshore (RIG), NCR Corp (NCR) and First Security (FSCO) were announced today. Fund managers will now be forced to buy them and rebalance their portfolios. The money is still flowing into the market as TrimTabs.com said $11 bln came into the market last week. They are also projecting a huge flow of cash into the market in the next two weeks as Y2K holdouts start throwing cash at the market. The year 2000 rally train appears to have left the station and it is approaching supersonic speeds. With only two trading days before the after Christmas rally is expected to start, one wonders how much more buying can occur. The expected light volume turned into another top ten record day on the Nasdaq. No profit taking there. If buyers are waiting for another pull back before taking positions for January they are probably entering panic mode. With new highs all around on incredible gains the "it can't go up any more" thoughts are turning into "Oh my gosh, I missed it" and the urge to throw money at anything not up double digits in the next two days is undoubtedly growing. They markets got a "get out of December free" card from the Fed's deck today but the bond market did not celebrate. Yields rose to 6.46% on the prospect of a rate hike next February. Bonds and stocks may have disconnected today but like a boomerang they always come back. In times like these, there is nothing to do but "go long till your wrong" and let the market tell us when to quit. The trend is your friend and many traders have gone broke trying to buck a winning trend and call market tops. Our suggestion is to enjoy the ride but keep your stops close just in case. With upgrades flowing like eggnog and stock splits more plentiful than candy canes there appears to be no coal in the market stocking this week. Good Luck, Sell Too Soon. Jim Brown Editor ********** STOCK NEWS ********** Top Athletes Tackle E-Commerce Arena By Cindy Christ Three of the world's best-known athletes are teaming up with CBS to launch a sports and outdoors website with plans of going public next year. John Elway, Michael Jordan and Wayne Gretzky said Tuesday they're launching MVP.com, an online sporting goods store offering equipment, apparel and advice from the world's top athletes and sporting enthusiasts. /members/stocknews/122199_1.asp ************** Market Posture ************** As of Market Close - Tuesday, December 21, 1999 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,800 11,320 11,200 Neutral 11.12 SPX S&P 500 1,340 1,400 1,433 BULLISH 12.03 OEX S&P 100 700 750 779 BULLISH 12.03 RUT Russell 2000 430 450 476 BULLISH 11.12 NDX NASD 100 2,850 3,150 3,529 BULLISH 12.03 MSH High Tech 1,450 1,630 1,814 BULLISH 12.03 XCI Hardware 1,160 1,210 1,362 BULLISH 11.11 CWX Software 1,100 1,200 1,347 BULLISH 9.03 SOX Semiconductor 580 660 699 BULLISH 12.21 * NWX Networking 750 800 877 BULLISH 12.03 INX Internet 600 675 775 BULLISH 12.07 BIX Banking 645 690 560 BEARISH 11.30 XBD Brokerage 410 450 424 Neutral 11.30 IUX Insurance 625 650 589 BEARISH 11.30 RLX Retail 900 935 960 BULLISH 11.23 DRG Drug 380 400 339 BEARISH 12.07 HCX Healthcare 760 790 678 BEARISH 12.07 XAL Airline 180 190 150 BEARISH 5.21 OIX Oil & Gas 290 315 291 Neutral 11.23 Posture Alert Thanks to the Fed leaving their bias at Neutral, the broad market rallied hard with more records for technology shares. Sector leaders for Tuesday include Semiconductors (+4.73%), Internet (+4.38%), and the Nasdaq 100 (+4.09%). Losers were limited to the Drug, Healthcare, and Energy sectors. With this most recen t action, we have upgraded Semiconductors to BULLISH from Neutral. *************** Market Sentiment *************** Tuesday December 21, 1999 Overextended? Like a broken record, the Nasdaq broke new highs once again, as the leading sectors continued to outperform the overall market. This sharp jump was on the heels of the Federal Reserve stating that their bias would remain neutral. This did come as a slight surprise, as many Wall Street pundits believed that a tightening bias was in the works. As such, technology stocks ripped into record ground, with no apparent signs of gravity. One sector that we have highlighted dozens of times in the past for its negative sentiment is the Nasdaq 100 (NDX). The NDX has had an incredible run this year, and jumped up a whopping +4.09% today alone. One aspect of market sentiment that we have commented on consistently throughout the entire year was the amount of negative sentiment surrounding the NDX in the form of its put/call ratio and short interest. Put buyers have consistently stepped up all year, nonstop, during the entire run-up on this beloved index. However, today, for the first time in quite a long time, we witnessed a significant drop off in puts, and increased activity in calls. Could this be a change of heart? Have these put buyers on the NDX thrown in the towel, and jumped on the bulls' side? Hopefully not, so let's hope they just took the Christmas week off, and will be back to business very shortly, because we need their negative sentiment to take this index even higher! We have stated for a long time, that when the bears throw in the towel on the NDX, we would be concerned about technology valuation. Well, this could be right here, right now. The put/call ratio for trading on the NDX today stood at .46, which would usually not be a bad number except that the bears have dominated this index all year. The overall put/call ratio for this index still stands at 1.95, which is VERY BEARISH, and has been above 2.0 a majority of the time during the last couple of months. So when we see the put/call ratio for today's trading at .46 when the ratio has been consistently bearish, we do get a little concerned. We also get a little concerned when we see a significant increase in call activity that is front month, and out-of-the-money, without the same action on the put side. Now, we don't want to get anyone alarmed, because we have been extremely bullish on the NDX for a long time and continue to be, however, if the bears have given up on the NDX, then this index may be overextended and due for a serious retracement. We will continue to monitor this index closely, so until we can confirm this suspicion (of a change in negative sentiment), we would stick with the positive trend, but become a little more cautious. 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 (23.44): 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 (6.450%): 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 Tues Benchmark (12/17) (12/21) Overhead Resistance (780-800) 9.69 3.51 OEX Close 773.93 778.86 Underlying Support (750-770) 1.10 1.34 What the Pinnacle Index is telling us: Based on 12/21, current overhead (780-800) is not as significant as it was before, and if the trend continues, we may soon see a test of this level. Underlying support did increase very slightly, but is not yet sufficient. Put/Call Ratio Friday Tues Strike/Contracts (12/17) (12/21) CBOE Total P/C Ratio .43 .46 CBOE Equity P/C Ratio .34 .35 OEX P/C Ratio 1.24 1.73 Peak Open Interest (OEX) Friday Tues Strike/Contracts (12/17) (12/21) Puts 700 / 8,398 700 / 9,067 Calls 700 / 6,272 700 / 6,272 Put/Call Ratio 1.34 1.45 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 21, 1999 23.44 Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Daily Results Index Last Mon Tue Week Dow 11200.54 12.54 56.27 68.81 Nasdaq 3911.15 30.81 127.28 158.09 $OEX 778.86 -2.64 7.57 4.93 $SPX 1433.43 -2.96 15.34 12.38 $RUT 475.79 0.98 8.60 9.58 $TRAN 2836.50 -3.09 -3.09 -6.18 $VIX 23.44 -0.16 -0.16 -0.32 Calls Mon Tue Week YHOO 405.56 19.50 36.06 55.56 Yahoo! Yahoo! Yahoo! QCOM 496.88 11.81 30.06 41.88 QCOM makes it up to $500! JDSU 278.47 14.31 23.22 37.53 Looks to be a split run NSOL 267.50 18.75 8.81 27.56 NSOL hits a home run! NXLK 91.38 3.50 15.88 19.38 NXLK continues to drive! DCLK 216.50 -3.56 15.13 11.56 Joins the split party! INKT 181.00 -8.06 18.00 9.94 The breakout we wanted! STM 148.00 4.63 4.38 9.00 STM makes gains on the open NT 99.25 1.56 6.44 8.81 Lots of pluses = BREAKOUT! TTN 42.00 3.19 4.38 7.56 TTN in greener pastures BVSN 136.13 -3.00 10.13 7.13 BVSN breaks through! INSP 173.50 -9.19 16.00 6.81 INSP makes a solid move VRTS 123.94 7.91 -1.44 6.47 Looks poised to deliver CLS 97.13 6.25 -0.75 5.50 Dropped, splits tomorrow VIGN 153.00 4.56 -1.50 3.06 Lots of opportunities! TERN 72.75 2.31 0.50 2.81 Reaches a new high at $75 SONE 85.50 1.25 0.25 1.50 Still climbing higher AOL 86.00 2.00 -0.25 1.00 Attracting some attention NOK 169.50 3.19 -2.19 1.00 Nokia is a growth story GLW 112.63 1.88 -1.75 0.13 Dropped, doesn't go TMX 111.69 0.19 -0.81 -1.06 Dropped, flattens out Puts ETYS 32.94 -2.75 -1.88 -4.63 Can you say entry point? EK 68.19 -1.31 -2.94 -3.75 New, time to revisit EK! KIDE 33.13 -1.31 -1.94 -3.25 KIDE takes the plunge! BMY 60.13 -0.69 -1.28 -2.00 Drug stocks get pummeled GT 25.50 -0.63 -0.94 -1.56 GT just can't get a grip! LTR 59.25 -0.06 -0.63 -0.69 The sellers win the day WB 68.19 0.69 1.50 2.19 A possible point of entry? GILD 40.63 -0.88 3.38 2.50 Tries to sell the bad news PWAV 57.38 9.38 -1.00 8.38 Dropped, caught a wave ************ WOMANS WORLD ************ Pssst Hey, Alan. Come Meet Me Under the Mistletoe Boy, I'd ask someone to please pinch me, but I am black and blue from pinching myself. I hope everyone made some money today. You would have had to try really, really hard to not make money this week. Unbelievable!! Thank you Alan for not messing up my Christmas rally. Last week, when the market was more mixed, I bought a basket of cheap, OTM January calls on both QCOM and YHOO. I did this because I expected these stocks to move higher this week and I felt I would benefit greatly from the multiples since I already held strong positions at better strike prices on both. With today's rally (which I totally underestimated), those contracts are now all ATM and ITM. Occasionally buying multiples of cheap OTM options, does work well in your favor. It sure did this time! I was caught off guard by the post announcement rally, sitting on too much cash from Friday's option expiration. Waiting for a pull back in the stocks I wanted,...which never came, cost me dearly. After expiration Friday, with money in my pocket, I was anxious to go option shopping. I wanted February YHOO options but I would have to wait till Tuesday. I guess everybody and their brother was waiting on the same thing because anyone wanting February options today, was either going to pay "a lot" or else, "a lot more". Actually on Monday, I really was looking to spend some money, but YHOO & QCOM were up, as were most other things on my watch & potential split list. I was looking for something that looked "relatively cheap" and a bargain. Boy, that's a joke isn't it??!! It certainly wasn't going to be YHOO or QCOM. I wanted to place an order in the morning and then go shopping, but I wasn't in the mood to jump in front of a racecar, the day before an FOMC meeting. Ahhh, but then I saw Doubleclick! Sweet, sweet, Doubleclick. Nobody wanted to play with him yesterday and he was in the red, all by himself. I had bought a few test contracts of DCLK and CMGI last week and I could still kick myself for not buying more CMGI. It left me in the dust! DCLK was on my radar because I wanted to own the stock. Well, you know me, I didn't want to buy it, I wanted to get it free with my profits. Anyway, Doubleclick is in the business of advertising. Internet advertising. In the last few months I have kept a close ear to news about the increase in monies spent for internet advertising and how effective those banner ads have proved to be. We have all been hearing that e-retailing will be huge this Christmas. I knew this to be true for sure, when I heard Ed McMahan say on TV last week, that he bought his wife's Christmas present over the internet. Anyway, Doubleclick fit my profile for a potentially hot growth company. Actually, after I finally noticed DCLK limping a little yesterday, it had already established a pattern that looked a little too sick for me to jump in on. I wanted to buy, but the chart and indicators kept telling me it had more downside potential to go. All day I kept waiting for an entry point I felt comfortable with, so I could go shopping. Finally in the late afternoon, a significant sell off occurred. In the last few minutes before the close, a beautiful clean bounce occurred at 195 and my directional movement indicator showed a strong surge to the upside. On the bounce, I loaded up with January ATM and OTM calls and an April, hopefully for my "free shares". As luck would have it, after Monday's close, they announced a 2:1 stock split. Yes, I think I'll be getting myself some free shares down the road. Can we say "entry"? Sometimes, it just happens and jumps out at ya. Today, I was still hoping to add to my QCOM and YHOO positions but golly gee, not at THOSE levels, especially not before the announcement! Everything I wanted seemed to have gapped up at the open today. Of course, had I bought yesterday, I'd be plenty happy about that. But, I don't like to buy at times like this, especially in the face of uncertainty and in a market that has been running on an Eveready battery that won't seem to quit. In reviewing my list of stocks, I noticed that JDSU, which is splitting next week, did not gap up this morning. It had sold off last week and I missed a wonderful entry while concentrating on other plays. Since it didn't gap open this morning and was relatively stable with small gains, I loaded an order ready to hit, as soon as the fed announcement was made, if it was in my favor. The fed announcement would be the only uncertainty I would have for placing the trade because of the strength of the company; the stock split next week and the sell off from last week. Once the coast was clear, I entered the order and I watched my positions take off with the stock after the announcement. A better entry on this stock was last week on the sell off. Since I missed that, I felt I wanted to be conservative and wait until I knew the results of the fed announcement. Now, I think it's a green light going into next weeks split. This market is really something, right now. I keep pinching myself to make sure I'm not dreaming. I think it is exciting for all of us, lucky enough to be part of it. On one hand, one has to be very careful. On the other hand, it seems so easy. Tomorrow, is a bond auction, I think the last one for the year. We may give up a few of today's gains because of it. But hopefully, that would give my high flyers a chance to come back to earth a little, so I can scoop up a few more contracts. I'm anxious to ride YHOO's rocket ship going into the January earnings. A potential 3:1 split makes my heart beat very, very fast and I am watchful for any good entry, to buy more. If there is a sell off on the last trading day, I will be buying. I'm getting a little nervous though. Gains like these can spoil you quickly and fake you into believing it will last forever. I'll be glad when my fingernails start growing back out! Renee renee@OptionInvestor.com ************** TRADERS CORNER ************** An Osmotic Technical Point of View Musings and other Bull Wow, I had the beginning of a really great story this afternoon. But, it just flat just out disappeared without a trace. Kind of like what happens to some of my trades! I have to laugh when I watch magicians take a hundred dollar bill and rip it up into little pieces and make it disappear. Wimps! I have done that with $10,000 before and never even had to touch it! When the magicians do it, the $100 bill always turns up again. When I do it, it stays gone! Those guys need to talk to us option traders. And they have the gall to call themselves professionals. For those of you that have been wondering and even those that have not, here is my definition of an "Osmotic Technician". Osmosis, according to Webster at www.m-w.com (thanks to a reader, this is a great link!) is as follows: A process of absorption or diffusion suggestive of the flow of osmotic action; especially : a usually effortless often unconscious assimilation
The Option Investor Newsletter Tuesday 12-21-99 Copyright 1999, All rights reserved. Redistribution in any form strictly prohibited. ***************************** PICK NEWS - CALLS - CONTINUED ***************************** BVSN $136.13 +10.13 (+7.13) Broadvision took back $3 during Monday's session, finding resistance at $135 in the first half of the session and $130 late day. Today, BVSN made a good move up in the morning, hitting its head at $135 once again, and quickly pulling back to revisit resistance at $130. BVSN found some legs to make another run, finally managing a breakthrough and a close above $135 at the end of the session. The $135 level has been providing formidable resistance for the last two sessions and we view today's finish as a good indication of BVSN's continuing positive momentum run. BVSN has near term support at $130, which is currently BVSN's 5-dma. BVSN has additional support at $125 and $120. BVSN really wants to run and we believe it will do so, particularly as we approach earnings on January 18th (unconfirmed). Make your entries on the pullbacks. Broadvision was ranked number one on Barron's Best Internet Companies list in the December 20 issue, citing BVSN as the best performer amongst its peers, such as America Online, Yahoo!, and Amazon.com. VRTS $123.94 -1.44 (+6.47) The software sector got back on track today. Shares of VRTS have certainly had a nice beginning for the week as well. VRTS gained $7.91 Monday on light volume of 2.6 of million shares. Traders took back $1.44 today. The volume was a bit higher today at 3.6 million. A positive for our play in VRTS is the bounce we saw late this morning at the $120 level. There is really no company specific news in the last couple of days to account for the moves. VRTS is a popular stock for investors and traders that follow the software sector. It has split twice so far this year, as has got a great deal of good press. With the Fed out of the way, or as out of the way as we ever get the Fed, VRTS appears poised to let Santa deliver more profits. If you joined in this play, $120 area should be guide. Further movement higher would be an opportunity to enter this play if you haven't already. As always assess your risk profile and sets your stops accordingly. NSOL $267.50 +8.81 (+27.56) Sometimes you hit a homerun without swinging for the fence. That's pretty much the case with our play in NSOL. Monday, on its first day in the Nasdaq 100, investors gave the Internet domain registrar quite a warm welcome. NSOL gained $18.75. Today the warmth continued as NSOL added another $8.81 to the price of the company's stock. NSOL made another run at the $274.50 high it set last Friday, right out of the gate today, but fell back to catch its breath. Since being selected to our play list, NSOL has run up over $60 and could be gearing up to make a run into Y2K. NSOL announced a split early in January of this year and they could be preparing to do the same next month. They certainly have the available shares to do so. As for our play, NSOL has intraday support at $258.50. Continued upward movement or a bounce off support would be a signal to enter this play. As you can see, NSOL can be an extremely volatile stock and is not a play for everyone. TERN $72.75 +0.50 (+2.81) On the bright side TERN did make a new high at $75. The other news is it didn't continue it higher with the momentum, yet. At this point it appears as though the communications company is consolidating for the next leg up rather than setting up to see any serious profit-taking. The key as far as support lies at the $70 level. As long as shares of TERN can continue to stay above the support level on a closing basis, we feel as though TERN should get untracked and continue its upward momentum. TERN did get the support of analysts at Deutsche Banc Alex Brown on Monday. They reiterated their Strong Buy rating of the company. They also estimated 3-5 year growth for the company to be near 75 percent. With the Brazilian markets opening up as a result of recent legislation, we believe that may be just the news the company needs to continue its upward trek. Liquidity is going to get thinner for the balance of the week. Be careful if you are trying to enter a new play in TERN. Set your price objectives and stick with them. NT $99.44 +6.63 (+8.81) No FED action plus technology sector, plus optical category, plus Qtera purchase, plus top pick at JP Morgan equals...BREAKOUT!!. Not content with a nice price target upgrade from $85 to $110 from JP Morgan, NT took out previous resistance of $94 after the FED announced there would be no change in interest rates or bias, and never looked back. Volume increased all the way through the close indicating the move should continue. Cash is coming off the sidelines in droves, and barring any Y2K glitches (or Y2K inherent volatility), NT should keep going. According to the "old resistance equals new support" theory, $94 should be new support. Resistance at this point is more psychological than anything at $100. The sky is still the limit, and volume is the fuel. Target shooting on weakness should work well through the end of the month. While it still may be possible to pick up the option with the stock in the low $90s, that will be much tougher after today. NOK $171.38 -0.31 (+1.00) For those of you nervous about the lack of movement in NOK following the FED announcement, especially since the rest of the market caught fire, take a deep breath and relax. Remember NOK is an ADR whose price is determined in European markets. That said, NOK needs to trade in Europe over night to reflect the markets action in the U.S. today. Anybody want to venture a guess as to how the overseas markets will trade in the wake of today's rally? Right, probably up. NOK should look good in our markets tomorrow, assuming no catastrophes overnight. NOK is a growth story that we expect it to surprise to the upside when it reports earnings, tentatively scheduled for January 30. NOK is currently a split candidate too. Support is decent at $165 and growing stronger at $170. Target shoot to your level of comfort and get set for what we think will be a buying spree after the new year. QCOM $496.88 +30.06 (+41.88) Investors have to be asking themselves if QCOM is going to roll over and die soon. We think not. Shareholders yesterday approved the share reauthorization to enable the 4:1 split, with new shares to begin trading on December 30 (confirmed with QCOM IR). We expect the moves to continue into the split based on today's continued high volume of 6.3 mln shares, 15% over the ADV. Support? Forgeddaboudit. The closet we can find is intraday at $481-$482. After that, $455. Don't count on hitting that number anytime soon, as today JP Morgan made it a Top Pick raising the price target from $460 to $570. Not only that, but Salomon Smith Barney notes that they could announce the buyer of their handset division this week. Their likely buyer? Nokia (wonder where we've heard that before) Target shoot where you feel lucky. This play should be confined to those able to handle a great amount of risk. That said, if you want to hedge that downside risk a bit, time premiums are juicy and thus make great covered calls. Conclusion: move should continue; buy the dips after you see the bounce. JDSU $278.47 +23.22 (+37.53) Early this morning JDSU broke over strong $262 resistance to $265, but couldn't hold and fell back to $258 where it traded flat. That is until the FED announced its neutral stance on monetary policy. At that point, JDSU began a strong volume driven assault on its old high of $272. The action tapered then fell for a few minutes from there, before finally blasting through convincingly to a new high of $278.47. Support, though progressively weaker the higher the price rises, can be found at $248, $258, $268. Given the volume increase today to 3.5 mln shares (12% over the ADV), we think the 2:1 split run may have started today. Recall that the split occurs on December 30. At that point, we're not likely to see much of a post split depression given the increased buying activity expected once Y2K proves to be a non-event. Buying on mid-day dips or target shooting will likely give the best entry. Otherwise look for the breakout over $280. YHOO $405.56 +36.06 (+55.56) Following the FED's announcement that it would remain neutral on interest rates, investors exhaled the contents of their wallets all over this thing. Why? Of course Internets are typical beneficiaries of positive FED news, despite a spike in rates. Go figure. The fact is big cap Internets have a nice luster to fund managers, and YHOO in particular is on a pre earnings run. January 11 is the announce date. Support is hard to find following the breakout over $355. With volume strong (10% over the ADV today), pullbacks are temporary with traces of support at $355, $380, and $398. Buy the dips, but beware of quick bouts of profit taking following today's stellar performance. Aside from adrenaline, YHOO is running on pure momentum. The prospect of a split helps too. 2:1 is historical, but 3:1 appears more likely since enough shares are authorized and a 2:1 would still leave a pretty expensive price. As long as sentiment remains in tact, volume should continue to drive the price. AOL $85.00 -1.25 (+1.00) What? No gain? Fear not. AOL looks to be in a consolidation phase. $84 offers good support on bounces and also fits the "old resistance equals new support" theory. Why keep it? Large cap Internets are already emerging as targets for institutional managers and should become even more so after the first of the year. Take your time and target shoot for your position on intraday dips. If not $85, $79 is the next level of support. Resistance is at $92 and $96. Not much news of late as AOL's biggest headline today was that it landed on Fortune's list of "100 best companies to work for in America". AOL is flying just under the radar, but as soon as volume picks up again following this brief pullback, the price should begin another ascent into earnings scheduled tentatively on January 19. VIGN $153.00 -1.50 (+3.06) We said Sunday the momentum behind the recent moves in VIGN would indicate there was more room the stock to move higher. This is another play that offers great opportunities and possibilities. It is not a play for everyone due to the inflated option premiums. For those with the proper account size and a strong heart, VIGN gave us a great entry point Monday afternoon. With the move up yesterday intraday support is seen at $150. A drop below that level on a closing basis could spell trouble for our play. Monday's move came on good volume of 1.2 mln. Today VIGN gave back only -1.50 for the session on just under 1.0 mln shares. We still believe the momentum behind this play will continue. No real news in the last couple of days to move the stock in either direction. With the Fed decision not leave interest rates unchanged and the bias at a neutral rating, VIGN should find its way higher going into Y2K. If you entered this play keep your stops close as VIGN can move. INKT $181.00 +18.00 (+9.94) The breakout we had been looking for finally happened Tuesday. As we mentioned sometimes a play needs to be nurtured and allowed time to develop. Our split run play got just the nurturing it needed today. And you won't believe from where it came. Alan Greenspan. That's right the Fed boss himself. With the Fed announcing it was leaving interest rates unchanged and the dreaded bias at a neutral rating shares of INKT took off like a rocket. INKT bounced off the $160 area Monday and began to trade higher this morning at the opening bell. When news of the FOMC meeting hit the markets INKT gained over $13 in the last two hours of the session. Volume for the day for INKT was strong at just over 2.0 mln. shares. Today's move should clear the way for our play to continue into its 2:1 split on Dec. 31st. Should we see a pullback intraday support can be found at $175 and $170. If you are in a play, assess your risk profile and adjust your stops accordingly. **************** PICK NEWS - PUTS **************** ETYS $32.94 -1.88 (-4.63) Can you say entry point? I knew you could. ETYS is the gift that keeps on giving. On Monday shares of the online toy merchant moved right up to resistance at $40.25 and then headed south for the rest of the day. Not only did the move occur on strong volume, almost twice the ADV, but prices moved right through the $36 support level, closing near the low of the day at $34.81. Proving that there is no rest for the wicked, ETYS continued its descent today, not even challenging resistance (old support) at $36. Shortly before 2pm, buyers pushed the issue up to $35, but the move didn't last. By the time it was all over, sellers had shaved another $1.88 on triple the ADV, leaving yet another lump of coal for those who chose to hold and hope, closing the issue at $32.94. The news continues to be positive, with the Wall Street Journal reporting that ETYS led a 35% rise in online shopping traffic last week. NextCard Inc., the online credit card issuer, ranked the top 10 online shopping sites based on purchases made by its 135,000 customers and ETYS grabbed the #4 position behind Amazon.com, Buy.com, and BarnesandNoble.com. Consumers continue to be pleased with ETYS, but this positive sentiment has failed to rub off on investors. We must use caution going forward, as ETYS is very close to long-term support in the $28-29 range. This is the 52-week low, and with all of the oscillators, RSI, Stochastics, and Momentum moving deeply into oversold territory, we are overdue for a bounce. If volume dries up, the momentum of our play will likely not be far behind. LTR $59.25 -0.63 (-0.69) For all the trading on Monday, LTR went nowhere. Trading in a very tight range on normal volume, buyers and sellers fought to a standstill, shaving a mere $0.06 off of the share price. Today was a little different with stronger volume and sellers definitely winning the day. On 1.5 times the ADV, LTR dropped a fraction to close near the low at $59.25. This is particularly bearish considering the strength in the overall markets today. Litigation woes and interest rate fears should continue to pull investors away from LTR. Even though the FED left interest rates alone today, the consensus is that there will be a raise in February. In the news today, the New York State Assembly is considering a doubling of cigarette taxes to pay for a new $2.9 billion health care program. Between this and the announcement that the government of Canada is filing suit against big tobacco, LTR will be hard-pressed to show any strength in the near future. Before opening a new position, confirm prices are continuing to head south on good volume. We may get a bounce up to resistance at the 10-dma (currently $60.80), but more likely the weakness will continue from here as investors put their money into stronger issues. BMY $60.13 -1.28 (-2.00) Is there anything in the medicine chest to cure what ails Bristol-Meyers? Drug stocks in general are getting pummeled to close out the year. Buying appears to be unlikely until January for this sector. Right now the sector is a hotbed of tax loss specials. Yesterday, BMY closed just above its low at $60. Today after an attempt to drag it up with a surging market, BMY again closed right on its low for the day at $60.13. This is a very bearish pattern and puts can be bought if Bristol-Meyers trades below $58.88. A trade below that price could take the stock down to the next support level just above $57. All of this selling despite the fact that BMY received an FDA approval for their antibiotic, Tequin. Potential sales for this new drug could exceed $60 million next year. GILD $40.63 +3.38 (+2.50) Time to start watching Gilead Sciences very cautiously. Today's rally was very strong. It was a case of selling the news. Bad news that is. It works both ways. GILD settled a patent dispute with biotech heavyweight Chiron. GILD admitted to violating three of Chiron's patents for their hepatitis C drugs. As a result, Gilead assigned Chiron a co-ownership interest to all of Gilead's hepatitis C virus research results. Perhaps investors are happy that the case was settled, thus reducing litigation costs. In the long run it can not be a good thing that Gilead now has to share research results with Chiron. Most importantly for put holders of Gilead is that the stock rallied right into a brick wall of resistance at $41. You can buy puts at this level. If the stock trades above $41.25 the next stop could very well be $45, the next level of resistance. Therefore, put holders should use the $41.25 level as a good place to put stops. If Gilead fails to climb higher look for a retest of the low at $37 where we will determine if it is time to take profits. WB $68.19 +1.50 (+2.19) Wachovia has had two positive days in a row, but we are not convinced that this is a reversal of WB's long time downward trend. The financials had a good day overall thanks to the Fed's decision to keep rates steady and maintain a neutral stance. WB made a good move up early on but struggled with the $68 level. We are looking at this recent move up as a potential for some good points of entry. WB has its 10-dma providing resistance right around $70. With $70 being such a strong psychological number as well, we expect this level to hold. WB does have some weak support at its 5-dma of $68 with additional support at $66 and $60. Should the above referenced resistance levels hold we could be cleared for a healthy fall and with some nice opportunities for new entries. GT $25.50 -0.94 (-1.56) Goodyear just can't seem to get a grip. This really is the picture perfect put play. Monday, GT lost another $0.63 and continually found resistance at $27. Today, GT made another good move down and dropped to close below $26. Good volume continues to back GT's decline, which as we mentioned on Sunday, is most likely indicative of some end of the year portfolio clean up. GT's next real level of support is at $20. GT's 5 and 10-dma are still providing immediate resistance right around $27. GT has further resistance at $30. Being that GT typically opens at the high of the day and steadily declines for the remainder of the session, try and time new entries to the earlier part of the day. An article released on Sunday reported an expected increase in profit for Sumitomo Rubber Industries through its alliance with GT, which was formed last June. Sumitomo did not revise its 1999 earnings forecast. GT and Sumitomo inked a deal to form a global alliance by forming joint venture operating companies in North America, Europe, and Japan. KIDE $33.13 -1.94 (-3.25) KIDE continued its decline on Monday and decided to close just above its low for the day of $35. KIDE has spent a few days toying with the $35 support level and this morning, finally took the plunge. Once KIDE made the breakthrough, it made a quick drop down to the low of the day, $31.25. KIDE spent the remainder of the session flirting with $32.50. KIDE is approaching some solid support right around $30 and it is quite possible that we are going to see a bounce in the near future. New entries are extremely risky at this point and we would recommend waiting for a bounce backed by holding support and a reclamation of negative momentum before making any new moves. KIDE could run into some resistance at $35 and has resistance at its 10-dma of $39.50. ************** NEW CALL PLAYS ************** No new call plays tonight. ************* NEW PUT PLAYS ************* EK - Eastman Kodak Company $57.38 -2.94 (-3.75 this week) Eastman Kodak Company is engaged in developing, manufacturing, and marketing consumer, professional, health and other imaging products around the world. The company has four operating segments: Consumer Imaging, Kodak Professional, Health Imaging, and Other Imaging. Primarily all of these divisions are in the business of selling photographic supplies and equipment. Their main competitor is Fuji. Time to revisit this stumbling behemoth. A couple of weeks ago we grew weary of waiting for EK to break down. Well, now it is happening. It all goes back to the perception that EK's management is clueless to the new paradigm that drives the prices of publicly held stocks. Despite being a leader in digital photographic technologies, Kodak seems to cling to its old technologies, at least in the sense of how they portray themselves. It is possible that there is a lot of fear in the halls down at headquarters about how they will be able to replace the bulk of their revenues from the old standards. Until Kodak redefines itself as a cutting edge innovative new technology company and stops emphasizing their stodgy old commodities business the shares will continue to underperform the market. Our current goal here is to try and capture the last week of tax loss selling before value investors start to build a bottom for the stock in January. After making a new low today very few institutional investors want a position in Kodak on their books to clutter up their otherwise stellar year. Kodak had very major support, going all the way back to December 1997, at the high $57 to $58 range. Puts can be purchased here. Confirmation of the downtrend and good put profits may be had if the stock trades below today's low of $56.63. BUY PUT JAN-65*EK-XM OI=5069 at $7.75 SL=5.75 BUY PUT JAN-60 EK-ML OI=9472 at $3.50 SL=1.75 Average Daily Volume = 1.13 mln Chart = http://quote.yahoo.com/q?s=EK&d=3m ********************** PLAY OF THE DAY - CALL ********************** NT - Nortel Networks $99.25 +6.44 (+8.81 this week) 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. Sundays Write Up 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. Tuesday's Write Up No FED action plus technology sector, plus optical category, plus Qtera purchase, plus top pick at JP Morgan equals... BREAKOUT!!. Not content with a nice price target upgrade from $85 to $110 from JP Morgan, NT took out previous resistance of $94 after the FED announced there would be no change in interest rates or bias, and never looked back. Volume increased all the way through the close indicating the move should continue. Cash is coming off the sidelines in droves, and barring any Y2K glitches (or Y2K inherent volatility), NT should keep going. According to the "old resistance equals new support" theory, $94 should be new support. Resistance at this point is more psychological than anything at $100. The sky is still the limit, and volume is the fuel. Target shooting on weakness should work well through the end of the month. While it still may be possible to pick up the option with the stock in the low $90s, that will be much tougher after today. BUY CALL JAN-85*NT-AQ OI=1718 at $17.00 SL=13.25 BUY CALL JAN-90 NT-AR OI=2939 at $13.00 SL=10.00 BUY CALL JAN-95 NT-AS OI=1375 at $ 9.75 SL= 7.50 BUY CALL FEB-90 NT-BR OI= 101 at $15.50 SL=12.00 BUY CALL FEB-95 NT-BS OI= 124 at $12.38 SL= 9.50 Picked on Nov 7th at $68.81 P/E = 580 Change since picked +30.44 52-week high=$99.63 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 ************************ COMBOS/SPREADS/STRADDLES ************************ In This Case, No Move Is The Best Move.. Monday, December 21 In the battle for market supremacy, blue-chip stocks were ousted by technology issues as bond rates climbed to two-year highs. The Dow Jones Industrial Average closed near session lows, down 113 points at 11,144 while the Nasdaq composite posted another day of records, up 30 points to 3,783. The tech-driven index has gained more than 70% this year. The S&P 500 index was down 3 points at 1,418. Volume was heavy with 902 million shares traded on the Big Board. Market breadth was negative with declining issues leading advancers 1,813 to 1,295. The yield on the 30-year Treasury bond rose to 6.44%, its highest since October, 1997. Sunday's new plays (positions/opening prices/strategy): Vodaphone VOD LJAN45/JAN50C $10.00 debit LEAPS/CC's Newmont Gold NEM JAN20C/JAN22C $1.93 debit bull-call On Health ONHN APR7C/JAN10C $2.12 debit diagonal C.R. Bard BCR JAN65C/JAN60C $0.38 credit bear-call C.R. Bard BCR JAN65C/JAN55C $1.56 credit bear-call Telephone Data TDS JAN150C/J145C $0.50 credit bear-call Telephone Data TDS JAN150C/J140C $1.38 credit bear-call Today's session provided some excellent entry opportunities for our new spread candidates. On Health Network was the only play that required adjustment as the prices for the (long) position opened significantly lower than Friday's quotes. The difference offered a slightly better opening debit on the bullish diagonal spread. In the bear-call scenarios, we chose the conservative positions. Portfolio plays: Technology stocks continued their record run today but financial issues turned negative as bonds weakened and Tuesday's Federal Reserve meeting weighed heavily on investors. Most analysts say the Fed will leave interest rates unchanged but could shift from a neutral bias to a tightening one to indicate a leaning toward boosting rates again in the new year. Traces of inflation have yet to slow the booming telecommunications industry and our leading issue today was Motorola (MOT). The stock climbed over $6 to end at a new all-time (closing) high of $137 amid optimism that those types of businesses will become more profitable next year. J.P. Morgan Securities analyst Greg Geiling said earnings estimates for Motorola could rise next year as the company boosts operating margins in its chip and cellular-phone businesses. He now expects Motorola shares to climb to $165 within a year. Computer-based industries continue to shine and today's portfolio winners included Computer Associates (CA) and Solectron (SLR). The Computer Associates rally came after the company was rated a new "buy" by analysts at Jackson Partners & Associates. The 12-month target price is $73.00 per share. Another boost came as SmartMoney magazine named CA in its twelve favorite stocks for the year ahead. Solectron's move may have been purely a technical rebound from the recent sell-off but it appears the issue has strong support near our sold (short) strike price. The bullish LEAPS/CC's spread has been one of our more profitable plays in the last few months. The Unisys (UIS) recovery has been much better than expected and today the issue moved up another $1.00 to close at $31.75. The lawsuits are still pouring in, but none of the current investors appear to notice and any settlement is years in the future. In the interim, the company is focusing on increasing market share and that has boosted the rebounding stock value in past weeks. Internet issues performed well in Monday's session and one of our most surprising plays was YouthStream Media Networks (NETS). The issue moved up $3.25 to close near a new high at $31.25 on speculation about a possible Disney deal. Our bullish position is profitable above $25. One of the few "non-technology" groups that continues to make a broad recovery is the Consumer Cyclicals. Our most recent addition to this group is Navistar (NAV) and both new positions moved into profitable territory during Monday's rally. The bullish diagonal spread, JUL35C/JAN45C now has a $1 credit and the JAN40C/45C debit position can be closed for a $2.62 profit. General Motors (GM) is another automotive stock that has made a solid recovery from lows in October and both of our long-term positions are now profitable. Our new LEAPS/CC's play on United Airlines (UAL) has exceeded all expectations and today the issue moved up $2.38 with the bullish transport sector. The stock finished at $77.50, a recent high and both of our new plays are at maximum profit. Tuesday, December 21 Stocks rallied across the board as investors applauded the Federal Reserve's decision to hold interest rates steady. The blue-chips ended up 56 points at 11,200 after being in negative territory for most of the session. The technology-driven Nasdaq composite index enjoyed another awesome day, soaring 127 points to 3,911. Even the broader S&P 500 index was up almost 16 points, finishing at 1,433. The yield on the benchmark 30-year Treasury bond rose to 6.45%, its highest level in more than two years. Portfolio plays: Today's session included a number of blowouts in the Internet group and while our portfolio was a bit more docile, we did have some big winners. Priceline.com (PCLN) climbed $3.38 to $59.50 as the online commerce stocks blossomed during the rally. Our current "bull-call" spread (JAN50C/60C) is profitable with the stock above $56 and the rebound may be an indication of new interest in the issue. Another leading sector is Wireless Communications and our top position in this group is Qwest (QWST). Today the stock rose over $3 to a recent high near $44 after the company announced that it will move to the New York Stock Exchange. It will trade on the Big Board beginning 1/3/00 under the symbol Q. Our bullish debit spread is now $9 in-the-money and the position profit is 15% after just two weeks. Another recent addition to the bull-call portfolio is PanamSat (SPOT) and today the issue exceeded all expectations closing at a new 52-week high. Both positions on this issue are now profitable and we expect the share value to move higher in the coming weeks. Small-cap stocks have lagged the broad market but fortunately, most of our low-cost issues continue to profit from the incredible interest in options. One of our newest (bullish) speculation plays is On Health Networks (ONHN) and in just two days, the position has become profitable. Today the stock hit a recent high of $13.50 during the rally in Internet issues. Another of the best performing stocks in past weeks is Peoplesoft (PSFT) and share value in the computer software company rose $1.38 to a 26-week high of $23. The move put our Covered-combination (JAN-$15) at maximum profit and the remaining long position from last month's diagonal spread closed easily at $5.50 credit. The long-term portfolio continues to suffer from profit-taking in many issues but Motorola (MOT) remained in excellent form, rising almost $4 to a new high near $138. The move came on momentum from the recent upgrade by a J.P. Morgan. A JPM analyst said he expects a healthy fourth quarter from the telecom equipment industry and added that the outlook for capital spending in 2000 appears very robust. The key product areas expected to drive revenue growth are wireless handsets and infrastructure services. Computer Associates (CA) also continued its winning ways with a $1.62 move to close at $64. The rally places the issue at our sold (short) strike and the maximum profit area in our bullish LEAPS/CC's play. Past winners Solectron (SLR) and Sun Microsystems (SUNW) made favorable moves in today's session. Solectron closed at the top of a recent range near $89 and Sun Microsystems is successfully testing a post-split sell-off with buying on each drop to the $73 area. One of our most unimpressive plays has been American International Group (AIG). Today the issue rebounded to a midday high near $105 but that is far short of the original target and the chart pattern is now technically unfavorable. Our current plan is to watch the renewed bullish trend for continued signs of selling into strength and if the stock fails to hold the short-term moving average, we will close the long positions to protect the remaining capital. Straddles: It's been a great month for the Straddle Portfolio as many of the previously tame issues have come to life with the market's renewed volatility. Our leading performer was Lycos (LCOS) with a $30 move over the past three weeks. Our profit in the position was $18 on $14.62 invested for a gain in excess of 100%. Another 100%+ return came from the Station Casinos (STN) position with a $7.75 maximum credit on $3.75 invested. Straddles with significant profits in the past month include Cullen Frost Bankers (CFR), a $1.93 profit on $3.06 debit; Mylan Laboratories (MYL), $2.68 returned on $4.56 invested; Allegheny (ATI) with $0.88 profit on $2.50 debit and our most recent winner, Univision (UVN) which is now offering a $17.00 credit against an original cost basis of $14.75. We expect that issue to move higher in the coming weeks, now that it is trading at new all-time highs. Jones Pharmaceuticals (JMED) has also made some big moves over the past few days and that position is now profitable. Summary Of Monthly Positions: *********************** CALENDAR SPREAD SUMMARY *********************** Stock Pick Last Position Debit Value G/L Status ABTE $10.81 $7.66 MAR10C/DEC10C $1.00 $1.00 $0.00 Closed BEL $64.13 $64.94 APR65C/JAN65C ($2.00) $2.00 $4.00 Open BIDS $5.06 $5.25 MAY7C/JAN7C $0.62 $0.62 $0.00 Open CHB $9.62 $7.94 APR10C/JAN10C $0.81 $0.50 ($0.31) Open CYCH $11.88 $9.94 MAR15C/JAN15C $0.75 $0.50 ($0.25) Open CTIX $19.12 $12.50 JAN22C/DEC22C $1.12 $0.50 ($0.62) Closed DLP $26.63 $17.19 FEB30P/JAN30P $1.25 $1.12 ($0.12) Closed ELON $9.00 $13.00 MAY10C/DEC10C $1.25 $2.38 $1.12 Closed FO $33.38 $31.81 JAN35C/DEC35C $0.68 $0.62 ($0.06) Closed GERN $13.00 $12.00 MAR12C/JAN12C $0.62 $0.50 ($0.12) Open LGE $22.69 $18.13 MAR22C/DEC22C $0.88 $0.38 ($0.50) Closed LOR $18.00 $16.69 APR20C/JAN20C $1.25 $1.25 $0.00 Open MUEI $10.50 $12.13 APR12C/JAN12C ($0.50) $0.75 $1.25 Open OXY $21.69 $20.50 JAN22C/DEC22C ($0.50) $0.38 $0.88 Closed PILL $13.62 $11.50 APR15C/JAN15C $1.00 $0.88 ($0.12) Open PSFT $16.19 $21.06 JAN17C/DEC20C $0.38 $3.00 $2.62 Open SATH $13.00 $11.88 FEB15C/JAN15C $0.38 $0.50 $0.12 Open SGI $9.38 $9.44 FEB10C/JAN10C $0.31 $0.38 $0.06 Open SWBT $19.93 $19.75 MAY20C/JAN20C $0.93 $1.00 $0.06 Open TALK $13.75 $14.88 JAN15C/DEC17C $1.38 $2.25 $0.88 Closed TDFX $8.50 $9.22 MAR10C/JAN10C $0.12 $0.50 $0.38 Open TOY $16.62 $14.88 JAN17C/DEC17C $0.12 $0.88 $0.75 Closed ZOLT $7.68 $9.88 APR7C/JAN10C $1.62 $2.00 $0.38 Open The calendar (or time spread) is profitable if the value of the position exceeds the initial debit (or cost-basis) at the end of the expiration period for the long position. However, because we track the plays based on the current closing cost/value, the gains for time spreads will rarely be reflected until the play closes. Each month, as we sell a new option against the long position, the net cost should decline or the position value should increase. ************************ COVERED-CALLS WITH LEAPS ************************ Stock Pick Last Position Debit Value G/L Status ADBE $76.13 $67.50 JAN80/JAN80C $7.50 $6.00 ($1.50) Open CA $53.56 $59.63 JAN60/JAN65C $4.88 $11.12 $6.25 Open CS $16.80 $28.50 JAN15/JAN22C $5.75 $7.75 $2.00 Open GM $71.68 $71.00 JAN75/JAN75C $8.25 $8.75 $0.50 Closed GM $71.68 $71.00 JAN75/JAN75C $5.50 $8.75 $3.25 Open JNJ $95.68 $94.88 JAN100/J100C $3.12 $9.50 $6.38 Open MDT $39.38 $33.56 JAN37/JAN40C $4.25 $4.38 $0.12 Open MOT $100.00 $131.56 JAN105/J120C $18.00 $25.88 $7.88 Open PG $109.50 $106.25 JAN100/J110C $14.88 $17.50 $2.62 Open SBC $54.93 $51.38 JAN40/JAN55C $15.00 $13.50 $1.50 Open SLR $71.25 $85.00 JAN70/JAN85C $15.50 $20.00 $4.50 Open SUNW $35.88 $75.13 JAN37/JAN70C $24.00 $31.50 $7.50 Open UAL $70.38 $75.00 JAN60/JAN70C $13.25 $14.25 $1.00 Open UAL $70.38 $75.00 JAN75/JAN75C $6.75 $9.38 $2.62 Open XOM $81.94 $82.63 JAN85/JAN85C $4.75 $7.38 $2.62 Open * New LEAPS/Covered-Calls plays are generally not profitable for at least two strike periods. *********************** DIAGONAL SPREAD SUMMARY *********************** Stock Pick Last Position Debit Value G/L Status AG $13.75 $12.19 FEB12C/JAN15C $1.50 $1.00 ($0.50) Open AGTX $8.88 $9.63 JUN7C/JAN10C $2.31 NEW PLAY Open AMTD $21.93 $25.38 JAN21C/DEC25C $2.88 $3.38 $0.50 Closed ATHM $51.31 $47.88 JAN37C/DEC55C $13.25 $13.50 $0.25 Closed ATHM $48.06 $47.88 JAN40C/DEC50C $5.50 $9.00 $3.50 Closed AWEB $9.68 $12.50 MAY10C/DEC12C $2.38 $3.38 $1.00 Closed AWEB $9.68 $12.50 MAY10C/JAN12C $0.88 $2.50 $1.62 Open COHU $29.25 $29.06 FEB25C/JAN30C $2.88 $2.62 ($0.12) Open COMS $25.31 $48.75 JAN27C/DEC30C $0.38 $2.50 $2.12 Closed DLP $26.63 $17.19 FEB30P/JAN25P $3.25 $4.50 $1.25 Open EGRP $24.94 $30.06 APR25C/JAN30C $3.75 $5.12 $1.38 Open KM $10.00 $11.19 JUN7C/JAN10C $2.25 $2.62 $0.38 Open NAV $41.31 $44.13 JUL35C/JAN45C $9.06 $9.12 $0.06 Open NETS $25.06 $28.00 FEB22C/JAN25C $0.62 $2.12 $1.50 Open NTBK $21.75 $21.63 JAN22C/DEC25C $2.00 $2.62 $0.62 Closed PTX $5.38 $6.00 MAY5C/JAN7C $1.38 $1.50 $0.12 Open T $50.81 $53.63 JAN46C/DEC50C $3.25 $3.75 $0.50 Open UIS $29.25 $30.75 APR22C/JAN30C $4.88 $6.38 $1.50 Open The diagonal spread is profitable if the value of the position exceeds the initial debit (or cost-basis) at the expiration of the long position. However, because we track the plays based on the current closing cost/value, the gains for diagonal spreads will rarely be reflected until the play closes. Each month, as we sell a new option against the long position, the net cost should decline or the position value should increase. ************* DEBIT SPREADS ************* Stock Pick Last Position Debit Value G/L Status AIG $111.68 $103.50 JAN96C/J110C $10.88 $7.00 ($3.88) Open AIG $111.68 $103.50 JAN104/J110C $4.62 $2.12 ($2.50) Open ATHM $51.31 $47.88 DEC35C/45C $9.12 $9.38 $0.25 Closed BCR $52.43 $49.00 DEC60P/55P $4.31 $5.00 $0.68 Closed CD $18.50 $25.00 JAN12C/17C $4.06 $4.75 $0.68 Open COMS $31.50 $48.75 JAN30C/32C $1.31 $2.50 $1.18 Open KNT $23.75 $22.44 DEC20C/22C $2.00 $2.43 $0.43 Closed LCOS $64.00 $80.94 JAN47C/55C $5.75 $7.50 $2.75 Open MEL $39.19 $33.13 DEC37C/40C $1.38 $1.00 ($0.38) Closed MESG $13.38 $14.38 DEC10C/12C $1.50 $2.50 $1.00 Closed NAV $41.31 $44.13 JAN40C/45C $0.62 $1.50 $0.88 Open NETA $19.80 $25.13 DEC12C/17C $3.62 $5.00 $1.38 Closed NTBK $21.75 $21.63 JAN22C/25C $0.25 $0.75 $0.50 Open NVDA $28.25 $37.63 DEC20C/25C $3.50 $5.00 $1.50 Closed PCLN $65.06 $56.94 JAN50C/60C $6.88 $5.75 ($1.12) Open QWST $38.06 $41.69 JAN30C/35C $4.00 $4.50 $0.50 Open QWST $38.06 $41.69 DEC35C/37C $2.00 $2.50 $0.50 Closed REV $10.25 $7.50 JAN7C/10C $1.50 $1.00 ($0.50) Closed T $50.81 $53.63 JAN46C/50C $2.25 $2.50 $0.25 Open TVGLA $64.12 $77.00 DEC45C/60C $13.25 $15.00 $1.75 Closed TWE $16.63 $16.69 DEC12C/15C $2.12 $2.50 $0.38 Closed TWLB $9.72 $9.09 FEB10C/12C $0.75 $0.38 ($0.38) Open UIS $29.25 $30.75 DEC25C/27C $2.12 $2.50 $0.38 Closed * Many of these positions were closed early to protect profits or prevent (limit) potential losses. A debit-spread is profitable if the value of the position exceeds the initial cost of the spread when the play is closed. However, because we track plays based on the current cost/value, potential gains may not be reflected until both positions are closed. ********************* CREDIT SPREAD SUMMARY ********************* Stock Pick Last Position Credit Cost G/L Status ETEK $73.12 $90.25 DEC55P/60P $0.43 $0.00 $0.43 Closed ITVU $64.50 $88.00 DEC40P/45P $0.62 $0.00 $0.62 Closed VRTY $52.75 $33.38 DEC40P/42P $0.68 $1.00 ($0.31) Closed Credit spreads are profitable if both positions remain OTM until expiration. The cost-to-close price can be used to compare the initial opening credit to the current spread value. ****************************** COVERED CALLS AND COMBINATIONS ****************************** Stock Pick Last Position Debit Value G/L Status DLP $23.56 $17.19 JAN17CC $16.00 $14.75 ($1.25) Open PIXR $40.50 $39.69 DEC35CC/35NP $32.62 $35.00 $2.38 Closed PSFT $17.81 $21.06 JAN15CC $14.12 $15.00 $0.88 Open A covered-call or combination is profitable if the closing credit from the position is greater than the initial cost-basis. *************** DEBIT STRADDLES *************** Stock Pick Last Position Debit M/V C/V Status ALL $24.50 $24.44 APR25C/25P $5.50 $7.25 $4.38 Open ATI $16.44 $21.94 APR17C/15P $2.50 $3.38 $3.00 Open AMES $31.63 $32.50 JAN30C/30P $8.88 $9.62 $6.00 Closed CAL $36.43 $41.44 MAR35C/35P $8.62 $9.00 $8.25 Open CBR $27.19 $28.00 MAY25C/30P $10.25 New Play Open CFR $29.69 $25.25 MAR30C/30P $3.06 $4.75 $4.75 Open DLJ $50.13 $47.38 JAN50C/50P $13.25 $14.00 $8.75 Closed FDX $35.19 $40.00 APR35C/35P $9.75 $13.12 $9.75 Open JMED $38.65 $38.94 MAR37C/40P $8.12 New Play Open MYL $18.63 $20.44 APR17C/17P $4.56 $7.25 $4.88 Open STN $25.25 $17.50 JAN25C/25P $3.75 $7.75 $7.50 Closed U $25.62 $30.31 MAY25C25P $8.00 $10.75 $7.75 Open UVN $85.75 $95.19 MAR85C/85P $14.75 $15.38 $15.25 Open WMB $40.75 $29.06 JAN40C/40P $8.12 $10.88 $10.75 Closed LCOS $58.94 $80.94 JAN70C/70P $14.62 $33.00 $20.38 Closed M/V = Maximum Value C/V = Current Value A debit-straddle is profitable when the value of the position exceeds the initial cost of the spread. **** Note: We trade the 'Spreads' portfolio just as we would trade our personal account and the ongoing narrative is a service we provide to help novice traders understand how various positions might be opened and closed. It is not intended as a substitute for your own trading techniques nor does it replace your duty to manage the positions in your portfolio. We post a list of the current plays after each expiration period and the summary is a reasonable representation of the positions offered during the month. Questions & comments on spreads/combos to ray@OptionInvestor.com ********* NEW PLAYS ********* STAT - I-Stat Corporation *** New 52-week High *** I-Stat develops, manufactures and markets medical diagnostic products for blood analysis that provide health professionals with immediate and accurate critical diagnostic information at the point of patient care. The company's products, known as the i-STAT System, consist of portable, hand-held analyzers and single-use, disposable cartridges, each of which simultaneously performs different combinations of commonly ordered blood tests in a short time period. Merger-mania is in full swing and the recent deals with Monsanto (MTC) and Pharmacia & Upjohn (PNU) along with the American Home Products (AHP), Warner-Lambert (WLA), Pfizer (PFE) melee have brought new interest into the sector. In this case, the failed agreement by Alza (ALZA) and Abbott Laboratories (ABT) has made I-Stat a new target for Abbott, one of the larger companies in the group. Last week, Alza and Abbott called off their merger deal, citing regulatory concerns by the Federal Trade Commission. Now the focus is shifting to other acquisitions that might bring Abbott, a recently beleaguered drug manufacturer, back to the forefront of the industry. Technically, the I-Stat break-out is very strong and the health of the long-term pattern is excellent. A number of new, positive indications suggest that the current move will find support near $14, just below our opening cost basis. We expect to close (and roll forward) the short $15 call after a portion of the time premium erodes but in the event the stock continues higher, the long option will be exercised (at January expiration) for a small profit. PLAY (conservative - bullish/diagonal spread): BUY CALL APR-10 TAQ-DB OI=5 A=$6.50 SELL CALL JAN-15 TAQ-AC OI=191 B=$1.68 MAXIMUM INITIAL NET DEBIT=$4.68 TARGET ROI=50% Chart = http://quote.yahoo.com/q?s=STAT&d=3m **** SVGI - Silicon Valley Group $16.38 *** On The Move! *** Silicon Valley Group designs, manufactures, markets and services semiconductor processing equipment used in the fabrication of integrated circuits. The fabrication of integrated circuits involves repeating a complex series of process steps to a semiconductor wafer. The three broad categories of wafer processing steps are deposition, photolithography and etching. Their products include photolithography exposure tools; photo resistant processing equipment; oxidation, diffusion and low-pressure chemical vapor deposition processing; atmospheric pressure chemical vapor deposition systems and precision optical components and systems. The recent rally began after SVGI announced it won a $100 million order for its Micrascan lithography system from an unnamed chip maker. The booking of its lithography system reflects the growing confidence in the rapid development of the semiconductor industry and their advanced technology was a major factor in winning the order. The multiple-unit order will be shipped during the next 12 to 15 months and is expected to significantly affect this year's revenues. Bullish analysts have suggested this quarters earnings will be two to three times the consensus estimate of $0.04/share. Our outlook for the issue is bullish but we think the rally may encounter some difficulty near the previous highs near $17. This position offers an excellent entry point in the current trend and the small disparity in option pricing will help us open the play at a favorable discount. PLAY (aggressive - bullish/calendar spread): BUY CALL JUN-17.50 VQQ-FW OI=219 A=$3.38 SELL CALL JAN-17.50 VQQ-AW OI=271 B=$1.18 INITIAL NET DEBIT TARGET=$2.00 TARGET ROI=50% The basic premise in a calendar spread is simple; time erodes the value of the near-term option at a faster rate than it will the far-term option. It is generally best to establish this type of spread at least 2 - 3 months before the long option expires, capitalizing on the ability to sell another option against the longer-term position. That is the basic idea in this spread play; selling time value in the options when they are overpriced (high implied volatility) and buying it back (if necessary) when they return to intrinsic value. Ideally, the spreader would like to have the stock finish just below the sold strike when the near-term option expires. If the short options are in-the-money at expiration, he will have to buy them back to preserve the long-term position. Chart = http://quote.yahoo.com/q?s=SVGI&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? 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