The Option Investor Newsletter Sunday 12-26-99 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 12-24 WE 12-17 WE 12-10 WE 12-03 DOW 11405.76 +148.33 11257.43 + 32.73 11224.70 - 61.48 +297.27 Nasdaq 3969.44 +216.38 3753.06 +132.82 3620.24 + 99.61 + 72.82 S&P-100 795.56 + 21.63 773.93 + 10.44 763.49 - 3.99 + 13.91 S&P-500 1461.44 + 40.39 1421.05 + 4.01 1417.04 - 16.26 + 16.68 RUT 477.94 + 11.73 466.21 - .50 466.71 + 2.13 + 5.64 TRAN 2887.70 - 30.72 2918.42 + 43.48 2874.94 - 53.86 + 19.64 VIX 23.12 + .11 23.01 + 2.09 20.92 + .10 - 2.13 Put/Call .47 .43 .45 .49 ****************************************************************** A different kind of triple witch, record closing highs on DOW, NASDAQ, S&P. I would not in my wildest dreams consider Santa Claus a witch but after ringing the opening bell on the NYSE this morning it appeared the markets were under his spell. The three major indexes, DOW, S&P and Nasdaq all closed at record highs after a flood of economic reports. The Dow soared intraday to a new high of 11443.07 and closed at 11405.76, well over the previous closing high of 11326. Only four Dow stocks failed to take part in the rally. MSFT, T, GE and MCD were only down fractionally while previous Dow under performers HWP, AXP, JNJ, MRK and EK all scored good gains. The S&P-500, a much broader view of the market than the Dow, also closed at a new record high of 1461 showing a slight broadening of the market. The Nasdaq went on another record romp and traded briefly over the magic 4000 level. A close there was not to be and the index sold off on profit taking just before the close. Still the Nasdaq nailed the 13th record close for December and the sixth consecutive in a row. The Nasdaq express will eventually slow but the odds of stretching the string into next week are very good. A Santa Claus rally normally begins in the last five trading days of the year and continues for the first two days of the next. The rally today was different than the gains over the last week. The advances actually beat the declines by a margin of +1200 stocks across all exchanges. New lows were still ahead of new highs by 3:1 but that number is improving. Analysts say the new lows are caused by tax selling of losers that are already at their lows for the year. The economic reports today showed the economy still running strong and consumer confidence at very high levels. The Durable Goods orders came in at +1.2% for November with the majority of the gains in electronics which posted a +9% gain. Personal Income increased only +0.4% and was the slowest rate of increase since August. Personal Spending rose +0.5% and was inline with analyst estimates. The personal spending component for December could be a real problem. Preliminary numbers for December are astronomical and could dramatically impact the Feds stance on interest rates in February. The December numbers will be announced the day before the February Fed meeting. A +1.0% increase would be very disconcerting to the Fed process. Jobless claims rose by +14,000 to 281,000 and was the eleventh week under 300,000 which is a key level for measuring unemployment. The market took the numbers in stride and charged off at the open even with bond yields soaring to 6.49% intraday. The market just refuses to accept the fact that February is going to be a real challenge to the current bull rally. That is ok in my book as long as investors understand that storm clouds are brewing in the future. There were many positive factors in today's rally. Some of the losers are starting to show signs of life. The beaten down sectors are starting to attract money away from the techs. Stocks like KR, CVS, GD, GDT, EK are posting gains while stocks like EBAY, AMZN, LCOS and DCLK, which have been strong recently are declining. This rotation is good and welcome as the rally continues. The market continues to power forward on the tide of liquidity. For the five days ending 12/22 more than $10.4 bln came into stock funds and this was on top of $11 bln the previous week. Estimates for December are now over +$25 bln and continue to be above normal. Considering the cash still held on the sidelines by Y2K holdouts and the normal January fund inflows there will be a lot of cash to float the market for the next several weeks. Considering investors were more interested about N4K (Nasdaq 4000) today than Y2K, the buying interest is still extremely strong. The breadth widened to include computer stocks, DELL +2.38, HWP +5.69, telecoms, WCOM +4.50, and drugs, WLA +2.56, BMY +3.50, MRK +2.56. Even with the +202 points for the Dow today the index only managed a +148 for the week compared to +216 for the Nasdaq. For a normally light volume day the Nasdaq still managed to trade over 1.25 bln shares and the NYSE over 938 mln. Volume is typically light during the pre-holiday week but this week did not conform to the rules. Again, the buying is rampant. Financial companies like funds and brokerages were reported today to have dished out $13 bln in bonuses so far in December. The majority of this money justs continues to be reinvested in the market. In November margin borrowing rose +42% as investors eager to buy even more stock leveraged themselves in to larger positions. This broad market bullishness coupled with the increasing cash flow should continue into next week. The next challenge will be January. After the huge gains made by the Nasdaq this year of +80%, or +182% if you count from the October 1998 low of 1419 last year, the chance of a quick bout of profit taking is very good. Funds are waiting for January to lighten up their positions and move the tax consequences into 2000. The convergence of tax advantaged selling and January cash inflows should make for very interesting trading. The question is not now will the Fed raise rates on Feb 2nd but will it be +.25% or +.50%. Greenspan is not prone to big increases but the pressure is building. Logically the markets should have a serious bout of profit taking before this meeting. The Santa Clause rally, the January Effect, the Y2K melt up, whatever reason you give to the current euphoria the result is the same. Increased buying with no hint of a pull back even at grossly extended levels. More than one user sent me a lump of coal by email this week after I suggested spending more time with families, shopping and relaxing this week instead of trading around the uncertainty of the Fed meeting. When the normally light volume week turned into a feeding frenzy after the Fed blessed the rates, the critics were out in force. Complaints were in the vein of "how can I make any money shopping with my family when the Nasdaq is up +127 points". Guys and girls, as much as you want to depend on someone to call the market flawlessly for you 250 days a year, it is still your decision. If you find somebody that can call it correctly every day, then send me his address and I will follow him too. Until then, it is your job to read everything you can find, analyze charts, check the news, weigh the possibilities and then decide if you are going to jump out of bed in the morning ready to trade or turn the alarm off and go back to sleep. I stood on the sidelines Tuesday just like you did, amazed at the market reaction. I did not lose any money because I was out of the market but when we are watching those missed profits move into five digits it is always frustrating. This is not a small operation. We are not three guys working out of our dorm room. Almost 70 people work for OIN and contribute to each newsletter. We compare research, argue about market technicals, fundamentals, and often times fail to agree on the forecast. Still we strive to present this information to you in a form that allows YOU to make a decision that YOU can live with the next day. When you trade, how you trade and what you trade is ultimately your responsibility. If you want to blame someone when the market disobeys the rules, go right ahead. We put our heart, minds and soul into producing the best newsletter possible and we are proud of the results. We hope you are too. The letter you receive tonight will be much larger than a regular Thursday newsletter. Surprise, that is because it is really the Sunday newsletter two days early. Since the market is closed on Friday we are publishing the weekend edition tonight. THERE WILL BE NO NEWSLETTER ON SUNDAY I would like to take this opportunity to wish everyone a very happy holiday. Enjoy this quality time with your family. When you are gone they will not say "I wish they had spent more time in front of the PC." Very seldom does the market give you a three day vacation and after they open night trading sessions next year you will have even less time for friends and family. You can't store, multiply or trade for more time on this earth. Spend it wisely. Jim Brown Editor Reminder for our male readers: Shop now! Friday is the official shopping day for males. The stores will be expecting you. Your wives, mothers and girl friends have all completed their shopping and have cleared out of the malls to make room for us. Two things I have found to be important in the past. 1. Kitchen appliances are NOT good gifts for your spouse. Hand tools, flannel nightgowns and beef jerky are not normally met with enthusiasm either. 2. It is possible you mis-remembered the correct size, shape, color or request. Remember to keep the receipts. Don't feel bad if they want to take your gifts back. You actually did them a favor by giving them an excuse to shop again. ******************** Y2K Renewal Offer!!! ******************** Announcing the cheapest renewal rate available! $24.91 mo* Only five 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 *********** MSTR - Jan-170 calls MSTR never managed to mount a rally this week and I finally closed the position for a $9,000 gain leaving me with a substantial loss for MSTR over two weeks. I do not like to stay in a position that is not moving up. The alternative to up is not attractive. With the Nasdaq in full rally mode I became concerned that the next move for MSTR would be down. I took my licks and quit. CLS - Jan-75 calls CLS played out exactly like I expected. A strong move up on Monday allowed me to sell my calls before the split for $22.88 and about a $10 profit. CLS did pull back some on Tuesday but took off again on Thursday. The next time it pulls back I am thinking about some longer term calls since the trend continues to be strong. BVSN - Naked Puts - Jan-$160 Broadvision has a great upward trending chart and pretty good volatility. I was looking for a stock to sell deep in the money puts for January like I did on QCOM last month. I reviewed several Thursday night and picked BVSN for stability and return on investment. Here were the candidates with approximate margin requirements for each assuming 10 contracts. JNPR $320 - JAN-$360 put @ $70.00 margin $128K % return = 54% QCOM $485 - JAN-$550 put @ $90.00 margin $194K % return = 46% YHOO $410 - JAN-$450 put @ $58.00 margin $164K % return = 35% BVSN $143 - JAN-$160 put @ $27.00 margin $ 57K % return = 47% ARBA $140 - JAN-$150 put @ $20.00 margin $ 56K % return = 35% I felt BVSN offered the best opportunity and I could sell 30 contracts for about the same margin as 10 contracts of QCOM or YHOO. I did not catch it right at the open so I did not get the $27 from the Thursday night example. I sold 10 for $24.50, 10 $24.25, 10 $23.88 for an average premium of $24.21. The low for the day was $20.50 and it closed at $22.50 and they are only -7 in the money now. SUNW - Jan-70 calls This was simply a logic play. I was looking for something relatively safe so I would not have to watch it close. I felt that when the big money starts coming back into the market the large cap Nasdaq stocks would be the prime plays. They may not move as fast as Internet stocks but they should not correct as much either. SUNW had just corrected and was under going consolidation. It looked like there was a good base on Wednesday and it was trading at the upper resistance of $76. I am expecting a breakout next week. By buying deep in the money Jan-70 calls @ $9.00 my time premium was small, about $2.00 and my delta was high at .75. A breakout could run back to the previous $82 very easily and give me a $5 gain. At least that is my theory. We will see if it plays out. Strategy: I did not get filled on any of my target shooting plays. I spent time with my family shopping and preparing for the holidays. I plan to enter some other positions next week market permitting. I am going to focus on steady movers like NT, BCE, IDC for my big positions and look for some entry points on some Internet stocks like EXDS, INSP, INKT. HHH - Internet trust Last Sunday I mentioned the HHH Internet trust from Merrill Lynch as an alternative for IRA accounts. It was not optionable. Good news! The AMEX will start listing options on this stock on Wednesday 12/29. This is a great way to play Internet stocks without having to pick a specific stock. The 20 underlying stocks are Amazon.com (NASDAQ:AMZN), America Online(NYSE:AOL), Ameritrade Holding Corp. (NASDAQ:AMTD), At Home Corp.(NASDAQ:ATHM), CMGI (NASDAQ:CMGI), CNET (NASDAQ:CNET), DoubleClick(NASDAQ:DCLK), E*TRADE Group (NASDAQ:EGRP), Earthlink Network(NASDAQ:ELNK), eBay (NASDAQ:EBAY), Exodus Communications (NASDAQ:EXDS),Go2Net (NASDAQ:GNET), Inktomi Corp. (NASDAQ:INKT), Lycos (NASDAQ:LCOS),MindSpring Enterprises (NASDAQ:MSPG), Network Associates (NASDAQ:NETA),Priceline.com (NASDAQ:PCLN), PSINet (NASDAQ:PSIX), Real Networks (NASDAQ:RNWK),Yahoo! (NASDAQ:YHOO). I was trying to target shoot it at $165 last week and it did not even come close. My target for this week is $170. Remember, my trading plan is to trade "only when profitable" and yours should be also. Good Luck Jim ************************ TRADING CLUB UPDATE ************************ Sunday, December 26, 1999 Y2K IS ALMOST HERE AND THE OPTION INVESTOR TRADING CLUBS ARE MOVING INTO HIGH GEAR!!! Visit the trading club message boards and see what others have to say: http://boards.OptionInvestor.com/tradersclubs/ UPDATE FROM UNITED KINGDOM *************************** It may not be cricket but we like this game! We're a group of Option investors based in the UK and we held our first meeting this week. Six of us attended at the bar in the Thistle Hotel at the rear end of Buckingham Palace. Club sandwiches and Guiness were the order of the day. We all agreed that although we may face the bowler on our own, it is none the less a team sport! We decided to combine our resources by figuring out each person's area of specialty and let them focus on this, feeding back to the rest of the group. Some people love to plough through web sites & books, others are superb technical analysts, others fundamental analysts. One guy working full time, has learned to use technology to send SMS messages to his mobile phone and receive email alerts with breaking news on the companies in his portfolio. We're all very new to options trading but think that use of technology in this way is definitely the way forward! We trade US stocks on the whole. Not being US residents we are limited to which brokers we can use. Preferred Capital Investors will not allow us to have an account with them (although we'd love to.....hint, hint!). Many other US discount brokers are the same. We are currently using Charles Schwab and Ameritrade. Please tell us, that us Brits can have access to a broker who caters for the UK Options trader! We were grinning like Cheshire cats as we realized we had Amazon as a call recently when OIN had it as a put. We made money! And Vodafone? We were already making a couple of dollars before you guys got it on your call list this weekend! However we openly discussed our bad trades as well as the good as we felt it was important to learn all the lessons we can as quickly as possible. i.e. any suggestions as to what we do with KIDE? April calls opened at $89. Do we hold on hoping it'll get back up there by April? Too late to buy puts? Anyone wanna swap?! By the way, Lynda Schuepp rocks! Straight down to talking options trading in a facts and figures kinda way. What's all this other touchdown and baseball stuff? Quite frankly, chaps, it just isn't cricket !-) Regards, Charles Saldanha - 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. ************************************************************** ************ Stock News ************ Tellabs Quietly Goes About Its Business By S.P. Brown In the network equipment industry, acquisitions are the name of the game. The bigger they are, the more the market likes them. But while industry leaders like Cisco Systems (CSCO) and Lucent Technologies (LU) grab the headlines with their multi-billion dollar network equipment acquisitions, feisty little Tellabs, Inc. (TLAB) quietly snaps up smaller, but strategically important, niche companies to round out its portfolio. /members/stocknews/122399_1.asp ******* Ask OIN ******* There is no Ask the Analyst article this weekend. ************** Market Posture ************** As of Market Close - Thursday, December 23, 1999 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,800 11,320 11,406 BULLISH 12.23 *** SPX S&P 500 1,340 1,400 1,458 BULLISH 12.03 OEX S&P 100 700 750 793 BULLISH 12.03 RUT Russell 2000 430 450 482 BULLISH 11.12 NDX NASD 100 2,850 3,150 3,591 BULLISH 12.03 MSH High Tech 1,450 1,630 1,831 BULLISH 12.03 XCI Hardware 1,160 1,210 1,385 BULLISH 11.11 CWX Software 1,100 1,200 1,378 BULLISH 9.03 SOX Semiconductor 580 660 696 BULLISH 12.21 NWX Networking 750 800 872 BULLISH 12.03 INX Internet 600 675 751 BULLISH 12.07 BIX Banking 645 690 566 BEARISH 11.30 XBD Brokerage 410 450 421 Neutral 11.30 IUX Insurance 625 650 608 BEARISH 11.30 RLX Retail 900 935 990 BULLISH 11.23 DRG Drug 380 400 356 BEARISH 12.07 HCX Healthcare 760 790 714 BEARISH 12.07 XAL Airline 180 190 153 BEARISH 5.21 OIX Oil & Gas 290 315 295 Neutral 11.23 Posture Alert The Dow is starting off to a very Merry Christmas, as this lagging index finally broke resistance and closed into new record territory. Volume was above average, considering the holiday nature of today's trading, as the NYSE traded 734 million while the "other" exchange traded 1.26 billion. Leading sectors for Thursday include Healthcare (+2.90%), Drug (+2.66%), Airlines (+2.46%), and yes, the DOW (+1.80%)! Losers for Thursday were limited to Internet (-2.67%) and Semiconductors (-0.61%). With this most recent action, we have upgraded the DOW to BULLISH from Neutral. ****************** Market Sentiment ****************** Thursday December 23, 1999 Dow 12,000? By Next Week! For the first time in a long time, we can write about something other than the Nasdaq. Granted, the technology index did break another high today, and was momentarily above the 4k mark, but the big story heading into the holiday weekend is that the Dow finally broke its trading range and closed into a new record high! This has been long overdue, and was definitely a sign of relief for all the Dow theorists and owners of Dow stocks. The sentiment for this index has been brutally bearish, and continues to be negative. The put/call ratio for the Dow today stood at 2.35, which is extremely bearish, and would indicate further upside potential. The overall put/call ratio for this index now stands at 2.19, which is extremely negative. This negative sentiment surrounding the Dow is very similar to the Nasdaq 100's sentiment several months ago! Now, we have highlighted sentiment on many of the indexes numerous times, and what we currently see may be the start of a change in leadership. It is still too early to tell, but it is intriguing anyhow. Below is a quick list of the major indexes and their put/call ratios. Now a bearish put/call ratio, from a contrarian standpoint, is actually bullish, and all of these ratio's highlighted below are bearish. Thursday's Overall Index: Symbol: Put/Call Ratio: Put/Call Ratio: S&P 100 OEX 2.40 1.71 S&P 500 SPX 2.03 1.39 Dow Jones Industrial INDU/DJIA 2.35 2.19 Nasdaq 100 NDX 0.54 1.58 Even in the face of Thursday's gain, put buyers were lining up on the Dow, OEX, and SPX. As you can see, the overall put/call ratio for the Dow stands at a whopping 2.19, and with a 2.35 on Thursday, may suggest that there are some legs to this recent rally. We noted during the last letter how the put buyers dried up on the NDX, but they have been nibbling again the last couple of days. However, the put/call ratio on the NDX, which was over 2.0 a couple of weeks ago, now stands at 1.58. This is a significant drop, and Thursday's put/call ratio of 0.54 for the NDX suggests that the overall ratio may continue to drop. If this is the case, we may soon see a top in the NDX. We will continue to monitor this index and let you know of any significant changes. In summary, the Dow broke new highs Thursday on good volume (considering the holidays). The sentiment that surrounds this index has been bearish, and continues to be bearish. Should the bearish sentiment continue in the face of big gains, this may only help propel the index higher. From a technical standpoint, the rally today was important, but more importantly, we need to see a continuation on Monday and Tuesday. The last thing this index needs right now is a failed rally. However, if this index can hold onto Thursday's gains, we would not be surprised to see the Dow make a big run heading into the new millennium. Can you say Dow 12,000! How about 12,500? Anyway, the traders at Pinnacle Capital would like to wish everyone a safe and happy holiday weekend! 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 (22.37): 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 (6.477%): The yield continues to break new highs, and the broad market continues to shrug this off. Next stop for the long bond is most likely 6.7%. Advance/Decline Line: The A/D line's continual break does not serve the best interests of the overall market. 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 Thurs Benchmark (12/17) (12/21) (12/23) Overhead Resistance (780-800) 9.69 3.51 2.43 OEX Close 773.93 778.86 793.16 Underlying Support (750-770) 1.10 1.34 1.57 What the Pinnacle Index is telling us: Based on 12/23, bearish sentiment picked up steam all week, as the Pinnacle Index (780-800) dropped like a rock from almost 10 to 2.4. As you can see, the increase in bearish sentiment had a direct correlation with the latest rally in the OEX. Put/Call Ratio Friday Tues Thurs Strike/Contracts (12/17) (12/21) (12/23) 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 Thurs Strike/Contracts (12/17) (12/21) (12/23) Puts 700 / 8,398 700 / 9,067 700 / 10,982 Calls 700 / 6,272 700 / 6,272 700 / 6,458 Put/Call Ratio 1.34 1.45 1.70 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 23, 1999 22.37 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 December 23, 1999 53.2 29.4 ************* COMING EVENTS ************* For the week of December 20, 1999 Monday None Scheduled Tuesday Existing Home Sales Nov Forecast: 4.96M Previous: 4.79M Consumer Confidence Dec Forecast: 134.9 Previous: 135.8 Wednesday Leading Econ. indicators Nov Forecast: 0.2% Previous: unch Thursday Jobless Claims 12/25 Forecast: -- Previous: 281K APICS Survey Dec Forecast: -- Previous: 52.9 Chicago PMI Dec Forecast: -- Previous: 70.0 Help Wanted Index Nov Forecast: -- Previous: 86 Friday None Scheduled Week of 1/03 01/03 NAPM Manufacturing - Dec 01/04 Construction Spending - Nov 01/05 Factory Orders - Nov 01/05 NAPM non-manuf - Dec 01/06 New Home Sales - Nov 01/07 Employment Report - Dec 01/07 Consumer Credit - Nov ************************Advertisement************************* Tired of waiting on trades to execute? 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All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. The newsletter staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control.
The Option Investor Newsletter 12-26-99 Sunday 2 of 5 ************* WOMAN'S WORLD ************* OUCH! ... I Hate it When THAT Happens! I felt so good Wednesday, that I left to go shopping a few minutes before the close. WOOPS!!! It appeared as though QCOM was waiting for me turn my back, before it jumped off the ledge. If I could trade, just two times a day, it would be at lunch and the last 30 minutes of the market. I've traded end of day trading opportunities for some time. I hate missing the close, when I'm working at the hospital. Most of us thought that selling off QCOM's least productive division would give the stock one more boost, but instead we got a "sell on the news" event. That was a little surprising but in a market such as this, with the incredible gains that have been made, ANY news could be cause for profit taking. Just as there is a reshuffling of stocks at the end of the year by fund managers, dumping the poor performers for better ones, there are individuals who want to shuffle their profits for tax reasons. Some will want to wait till next year to take profits, while others want to use the gains against losses incurred earlier this year. There may be more of this to come next week. All of us are in a market that none of us have seen before. Play carefully. This market is not for those prone to fainting or arrhythmias. A few beta blockers could come in handy. Wednesday during the morning sell off, I was able to capture a few YHOO February contracts on a dip and a few more this afternoon. Today, I took profits on some January contracts and will leg in to more Februarys on dips next week. I haven't decided yet, what all I will be holding going into January 1st. A lot depends on the market next week, specifically the last 2 trading days. Both JDSU and QCOM split next week, so I will have more cash to save for bargains. The markets appear to be broadening out, which helps all of us in the long run. I know that's great news, but I'm about ready for a lengthy rest! My brain is starting to hurt and January earnings aren't even here yet. Perhaps the holidays will help. Well, on second thought....that's not working. Oh well, one more month. Over the weekend, I had been asked how I was going to unwind my QCOM position. I guess I should have answered that on Tuesday. It doesn't help much now, but if I had been in front of the computer at the close on Wednesday, I would have exited my highest risk plays. For me, that was a few OTM contracts January 450s, bought during the market weakness in the morning at 31. I knew they were high risk when I bought them and I mentally accepted a higher 30% stop loss due to expected volatility. The reason I would have sold at the close was because of the sharp increase in selling volume going into the close, after announcing the sell of their handset division. If I had been home, this would have been "RED ALERT" to a "selling on the news" event. I would have exited because I would have been afraid of a gap down on this morning's opening, not knowing what would happen after that. Would the selling stop or continue sliding? Luckily, most of my contracts had expired last Friday and I have been waiting for another entry point this week. I had a larger order in on QCOM yesterday, but I was only filled in one account on 3 contracts. I was frustrated at the failed fills when it went up nicely, but grateful by last evening. I do have deep ITM January contracts on QCOM, but many more YHOO since no split announcement has been made yet. I expect major momentum when their split is announced. So this morning, I watched QCOM. The selling seemed to stabilize around the 467 level which gave me time to decide what I wanted to do. My stop loss came close. When it visited that area again about an hour after the open, I exited at 23. I did that because the strength of the buy program was weak and in hopes of re-entering at a cheaper price. I entered buy orders for 21 but was never filled. It had channeled within a close range, most of the day. It started breaking out of this channel to the upside, about 1 ½ hours before the close. It is clearly seen on a 1 minute chart. Due to the break out from a narrow channeling range all day, I entered buy orders getting filled at 22 3/8 as a buy opportunity for next week's split. Yo-Yo buying & selling occurred later into the close. Every time I started to sell again, it would bounce back. I finally held the positions, down 1 point at the close. Usually there is a post Christmas rally, but this year may or may not follow trend. Again, it's high risk, but that is part of the challenge. A safer play would have been waiting until next week to re-enter, but I don't always do everything I'm supposed to do. My real risk is a gap down that holds on Monday, instead of the buying I expect after today's weakness. This means nothing at this point, in fact it may work against us, but if you didn't hear it QCOM is the best performer for 1999 in the NASDAQ with a 1700% gain!!!! Speaking of a Leap!! So, how am I going to exit? Well, I'll exit on further signs of strong weakness Monday or Tuesday. I may day trade those days depending on the market. I will exit most positions after the split in order to take profits for other plays. I will hold some going into January as I expect more buying once it splits. I will try to exit on euphoric highs around the split, just as I try to buy in sell offs like today. So much money has been made in QCOM that I am comfortable moving most of my attention to my other big player YHOO, who's potential announcement is still creating a buying frenzy. YHOO has a huge following by people who have made lots of money in it, with every earnings season. They have all been trying to get in line early for the January report around the 11th. It still has time to wax & wane getting there though, as it showed today. Once my QCOM is more stable (read: up) and given the opportunity in the near future, I will be entering BRCM. Hopefully a nice split run will show up in that company too. I hope everyone has a wonderful, wonderful holiday this weekend and that you eat everything in sight that looks delicious!!! Be Safe, Be Kind and Be Grateful. While shopping last evening, I found a framed piece of art by Brian Andreas, an artist, sculptor & storyteller. One piece caught my eye. It read: "I used to wait for a sign, she said, before I did anything. Then one night I had a dream & an angel in black tights came to me & said, 'You can start any time now' and then I said, 'Is this a sign?' And the angel started laughing and I woke up. Now, I think the whole world is filled with signs, but if there's no laughter, I know they're not for me. Merry Christmas, Everyone. Renee renee@OptionInvestor.com *************** TRADERS CORNER *************** There is no Traders Corner article this weekend. *********** OPTIONS 101 *********** There is no Options 101 article this weekend. LAST WEEKS CHANGE FOR THIS WEEKS PICKS: *************************************** Daily Results Index Last Mon Tue Wed Thu Week Dow 11405.76 12.54 56.27 3.06 202.16 274.03 Nasdaq 3969.44 30.81 127.28 26.15 32.14 216.38 $OEX 793.16 -2.64 7.57 3.06 11.24 19.23 $SPX 1458.34 -2.96 15.34 2.56 22.35 37.29 $RUT 482.43 0.98 8.60 2.15 4.49 16.22 $TRAN 2887.70 -3.09 -3.09 -3.09 48.96 39.69 $VIX 22.37 -0.16 -0.16 -0.16 -0.75 -1.23 Calls Mon Tue Wed Thu Week JDSU 298.06 14.31 23.22 6.91 12.69 57.13 Splitting YHOO 402.63 19.5 36.06 13.75 -16.69 52.63 Yahoo!!! VRTS 143.13 7.91 -1.44 10.56 8.63 25.66 Hot sector BVSN 153.06 -3.00 10.13 6.88 10.06 24.06 On target PMCS 145.25 7.06 4.75 6.13 6.00 23.94 New INKT 191.50 -8.06 18.00 -4.50 15.00 20.44 Split coming BCE 88.75 0.56 4.94 11.88 2.88 20.25 New INSP 186.13 -9.19 16.00 16.50 -3.88 19.44 More splits NXLK 83.63 3.50 15.88 -5.19 -2.56 11.63 Mo'mentum QCOM 466.50 11.81 30.06 -11.44 -18.94 11.50 Turning over? IMNX 99.88 -2.50 2.75 6.00 4.13 10.38 New NSOL 250.25 18.75 8.81 4.75 -22.00 10.31 Dropped STM 149.00 4.63 4.38 -1.13 2.13 10.00 Momentum! TTN 43.56 3.19 4.38 3.75 -2.19 9.13 Entry point GENZ 47.56 -0.31 3.81 1.63 3.94 9.06 New NT 98.69 1.56 6.44 -1.25 0.69 7.44 Going north DCLK 211.63 -3.56 15.13 -0.25 -4.63 6.69 Split run? NOK 174.00 3.19 -2.19 -4.50 9.00 5.50 Nice day GSTRF 28.19 2.63 -1.00 0.44 2.13 4.19 New VIGN 150.50 4.56 -1.50 0.63 -3.13 0.56 Dropped TERN 68.25 2.31 0.50 -1.75 -2.75 -1.69 Dropped AOL 81.25 2.00 -0.25 -2.25 -1.50 -2.00 Entry point? SONE 80.00 1.25 0.25 -5.19 -0.31 -4.00 Dropped Puts PHCM 118.25 -9.06 -0.31 -1.94 -5.75 -17.06 New ETYS 30.94 -2.75 -1.88 -1.06 -0.94 -6.63 E-downhill! CIEN 58.00 -2.63 1.00 -1.88 -2.00 -5.50 New KIDE 35.44 -1.31 -1.94 -2.69 5.00 -0.94 Dropped GT 27.13 -0.63 -0.94 1.69 -0.06 0.06 Sliding LTR 61.44 -0.06 -0.63 1.69 0.50 1.50 Finds a nut EK 63.31 -1.31 -2.94 4.69 1.25 1.69 Dropped WB 67.88 0.69 1.50 -0.63 0.31 1.88 Downward Ho! BMY 66.69 -2.13 -1.28 3.06 3.50 3.16 Dropped GILD 46.38 -0.88 3.38 4.81 0.94 8.25 Dropped NSOL 250.25 18.75 8.81 4.75 -22.00 10.31 New STOCKS ADDED TO THE PICK LIST ***************************** Calls PMCS - PMC-Sierra Inc GENZ - Genzyme General GSTRF - Globalstar Telecommunications IMNX - Immunex Corp. BCE - BCE Inc. Puts NSOL - Network Solutions CIEN - Ciena Corp. PHCM - Phone.com Inc *************************** 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 SONE $80.00 (-4.00) SONE must have been bad this year, as it was left out of the Santa Claus rally over the past 2 days. Traders have been happy to allow the issue to consolidate its gains from the past two weeks. Volume has been on the light side the past 2 days as the price has dropped The lack of upward movement over the past 2 days is disconcerting, as the bulk of the B2B Internet stocks have had strong gains. SONE could be just taking a breather, but it is possible investors are moving on to other more exciting B2B plays such as Commerce One (CMRC). For now, we will have to let SONE go, as there are so many superior plays available. NSOL $250.25 (+10.31) We are going to drop NSOL as a call play because we think we've began to wear out our welcome. NSOL hit a new 52-week high Wednesday at 287.75. The Internet domain registrar has given us several opportunities to take some money off the table. The stock split we mentioned Tuesday was announced Wednesday morning. Since hitting its new high shares of NSOL have begun to roll over. NSOL has pulled back over $37 and appears to be setting up to correct further. Be sure and check the Put section of our newsletter for our new plans for NSOL. TERN $69.13 (-0.81) We mentioned our concern in the lack of follow through for TERN on Tuesday. Now you can see why. TERN never really got on track. If you entered this play, you would have had to have break several of Jim's ten rules, in order to have profited from this play. Actually when TERN fell out of bed in the first hour of Wednesday's session, you probably got stopped out. There was no real company specific news connected to the decline. TERN settled just above its 10-dma at $67.69 and would appear to headed lower. With the strength in the major indices and other sectors, there are simply to many other opportunities available at this time. VIGN $150.63 (+0.69) Since its split the first part of December, VIGN has had a great run. However, it looks like someone has let the air out of our play. Although the volume has been light VIGN appears to be preparing to either consolidate or retrace. We did have a chance to make a small profit on this play, but the recent pullback from Monday's high at $159.50 has made us a bit uncomfortable. The Internet stocks didn't fair to well in today's Santa Claus rally. This could be the beginning of a sector rotation going into Y2K. We are going to let our play in VIGN go for now and stand aside. We will continue to monitor the stock, for opportunities in the future. PUTS EK $63.38 (-2.25) What we thought was just a dead cat bounce on Tuesday has turned into the real thing. Hopefully, you used stops and the damage was not too bad. Value investors found a couple of dimes to rub together and began their January buying early. Some of the heavy buying in EK can be attributed to the announcement that EK has hired away the CFO from Unisys to be the new CFO at EK. Also Kodak met with investors on Tuesday and emphasized their digital technologies. Kodak has been accused of not focusing enough on this part of their business. Perhaps the recent price advance has opened the apertures wide enough for executives to get a clue as what investors want to hear before they will move money into the stock. BMY $69.56 (+4.44) Bristol-Meyers found the cure and it is called bottom fishing. Looks like the stock has broken its downtrend. Today's market was very impressive in the broadness of the rally. Many "value" stocks are starting to work their way up with an infusion of new buyers. It appears that the "January Effect" is upon us and widely held large under- performing stocks should not be shorted. There has not been any news in the past two days for BMY. GILD $46.38 (+8.25) In the past week, Gilead Sciences has driven through two resistance levels that we pointed out in the past two updates of this put play. If you used stops at these points your losses would have been minimized. There has not been any specific news to drive the share price of GILD. The biotechs in general have been very strong. In this case a rising tide has lifted all boats, even the lifeless ones like GILD. KIDE $35.44 (-0.94) It seems strange that on a day when profit taking plagued the e-commerce stocks that KIDE rallied 5 points. Maybe KIDE had had enough body slamming of its shares and decided to rebound from its brutal punishment nearly unscathed like the nauseating/adorable (you pick) Pokemon toys it promotes. We have had our fun with KIDE and now it is time to take the profits and buy something nice for the new year, like a momentum stock. All kidding aside, it looks like KIDE is trying to break its downtrend and we do not want to be short if it is going to go and test resistance at $43. STOCK SPLIT CANDIDATES *********************** Current split candidates NOK - Nokia STM - STMicroElectronics BVSN - BroadVision YHOO - Yahoo! VRTS - Veritas Split candidates that are not current plays SNE - Sony Corp. QLGC - QLogic HGSI - Human Genome CHKP - Checkpoint BRCM - BroadCom Recent announcements we predicted NSOL - Network Solutions (most recent pick) DCLK - DoubleClick (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 XLNX - Xilinx 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 RHAT - Red Hat Inc 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 LBRT - Liberate Tech 2:1 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 ORCL - Oracle Corp 2:1 01-18-00 ex-date 01-19 PRGS - Progress Soft 2:1 01-21-00 ex-date 01-24 MWD - Morgan Stanley 2:1 01-26-00 ex-date 01-27 CHKP - CheckPoint Soft 2:1 01-28-00 ex-date 01-31 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 EMMS - Emmis Comm 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 NSOL - Network Solution 2:1 02-28-00 ex-date 02-29 SDLI - SDL Inc 2:1 02-29-00 ex-date 03-01 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: ********************** INSP - InfoSpace.com $186.13 (+19.44) See details in sector list Chart = http://quote.yahoo.com/q?s=INSP&d=3m **** BVSN - Broadvision $153.06 (+24.06)(+21.63) See details in sector list Chart = http://quote.yahoo.com/q?s=BVSN&d=3m Put play of the day: ******************** PHCM - Phone.com Inc $118.25 (-17.06) See details in put list Chart = http://quote.yahoo.com/q?s=PHCM&d=3m ************* 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 *********** NXLK - Nextlink Communications $83.63 (+11.63)(+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. Nextlink continues to connect its shareholders with profits. There is nothing like good news and being in the right sector to make a stock an outstanding momentum play. It all started almost two weeks ago when it was announced that NXLK would be admitted into the NASDAQ 100 club. Being in the NASDAQ 100 gives a company a certain cache. It means that the company is now one of the elite technology companies in the world. Correspondingly, this fact introduces the company to a whole new league of investors. Confidence in a positive future for NXLK has driven its stock price and introduced the company to new investors. 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 equity deals provide excellent long term support. Recently, NXLK has made a new all time high seven of the last nine trading days. The slope of the uptrend is getting more steep. On Tuesday, we saw an incredible rally of over 15 points into the close. We wrote in the update that aggressive investors may want to take profits on the Wednesday opening and re-enter a position after a retracement of the last minute rally on Tuesday. This strategy proved to be very fortuitous. Nextlink failed to make a new high today. The stock rallied to within 1 point of a new high before falling all the way back to the middle of yesterday's trading range. A consolidation would not be out of the question for this stock before attempting another rally. A break below $82 would indicate a drop to support at the $75 level, which would be a good entry point. Aggressive traders could go long when the stock makes a new high above $91.50. 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. On Monday, NXLK announced the hiring of Mr. Nate Davis for the position of President and COO. Mr. Davis was previously an Executive Vice President with Nextel Communications. BUY CALL JAN-75 QNF-AO OI= 363 at $12.75 SL=10.50 BUY CALL JAN-80*QNF-AP OI= 609 at $ 9.50 SL= 6.75 BUY CALL JAN-85 QNF-AQ OI= 178 at $ 7.13 SL= 5.25 SELL PUT JAN-75 QNF-MO OI= 100 at $ 3.00 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 +16.94 52-week high=$91.50 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 = 1.5 mln Chart = http://quote.yahoo.com/q?s=NXLK&d=3m **** TTN - Titan Corporation $43.56 (+9.13)(+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. Fe-Fi-Fo-Fum! I smell the carcass of a defeated bear. Or so it may seem as Titan stomped its way into new high ground. The shares of Titan continue to be driven by their new patented technology. Last week the USFDA approved an irradiation technology to kill deadly bacteria on raw meat. It is not surprising that investors are jumping on the headline grabbing news about a topic that has created fear in consumers ever since the Jack-In-The-Box poisoning. Titan owns a patented technology and a proccesing plant that will utilize Surebeam that destroys the offending bacteria in seconds by using electricity. Titan, in anticipation of the approval, already had a manufacturing facility in place and several exclusive agreements with most of the largest meat producers in the country. Investors obviously believe that meat irradiation can be a business that will add giant chunks to the bottom line. (new profit projections have not yet been offered). Also, please note that Titan is not a one trick pony. They are in the very hot communications industry as well as making forays into the Internet sector (see news item). After breaking out of a base at the $31 level, TTN has had an excellent run all the way to today's high of $48.25. Today's low price tested yesterday's low price at $41.88. This is a very important support level. If TTN trades below this level be patient before adding a bullish position. Wait until support is established. If TTN can move above today's high then momentum traders can attempt to catch the next wave up. As always, place your stops. Especially since TTN closed down on a strong day overall for the markets. Short term profit taking is a real possibility. 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. In yet another acquisition, Titan's e-business solutions company is buying Solutions For Growth, a billing software company. BUY CALL JAN-35 TTN-AG OI=3012 at $10.50 SL=7.50 BUY CALL JAN-40*TTN-AH OI=1068 at $ 7.50 SL=5.75 BUY CALL JAN-45 TTN-AI OI= 549 at $ 5.00 SL=3.25 Picked on Dec 16th at $35.00 P/E = 73 Change since picked +8.38 52-week high=$45.88 Analysts Ratings 5-0-0-0-0 52-week low =$ 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 = 923 K Chart = http://quote.yahoo.com/q?s=TTN&d=3m ************* SEMICONDUCTOR ************* STM - STMicroelectronics $149.00 (+10.00)(+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. The story this week for STM was the overall momentum in the Semiconductor Index, $SOX. The $SOX closed last Friday's session at 639.34. As we close out this trading shortened week today, the $SOX tacked on 56.62 points, ending at $695.96. The overall sentiment for the Semiconductors continues to look very favorable as we approach the year 2000. Most analysts on the street has been raising there price targets, earnings, and revenue growth going forward and have been putting the money to work to support those increases. STM tacked on $10 more points this week closing the day at $149. The stock has been gapping up for sometime now at the open of trading. This is a perfect scenario for trailing stops. Stops that could have been adjusted daily to protect gains. At this point we want to be cautious before entering new positions, the volume is slowing down. If the market broadens out next week, the profit-takers may step up. Support is down at the $139 level. Adding to the momentum in the shares of STM was the news earlier in the week that STM had teamed up with Hewlett-Packard to do R&D to develop a technology platform based on Very Long Instruction Word(VLIW) technology. No additional news was reported after early in this week. BUY CALL JAN-140*STM-AH OI=128 at $15.88 SL=12.83 BUY CALL JAN-145 STM-AI OI= 56 at $13.00 SL=10.00 BUY CALL JAN-150 STM-AJ OI= 6 at $10.25 SL=8.00 low OI Picked on Nov 30th $125.06 P/E = 88 Change since picked +23.94 52-week high=$149.63 Analyst Ratings 12-2-2-0-0 52-week low =$ 37.06 Last earnings 11/99 est= 0.43 actual= 0.46 Next earnings 01-25 est= 0.56 versus= 0.42 Average daily volume = 902 K Chart = http://quote.yahoo.com/q?s=STM&d=3m **** PMCS - PMC-Sierra Inc $145.25 (+23.94) PMCS designs, develops, markets and supports high-performance semiconductor system solutions for advanced communications markets. PMCS provides customers with Internetworking semiconductor system solutions for high-speed transmission and networking systems that enable the restructuring of the global telecommunications and data communications infrastructure. The company intends to achieve this by providing its customers with world-class products, quality, service and technical support. Since the 15th, PMCS has rebounded off their support of $105.00 and closed off an intraday 52 week high of $148.25, settling at $145.25. This is a gain of $6.00 for the day and $23.94 for the week. The catalyst for this incredible run was the announcement that as of December 20th PMCS will be added to the NASDAQ-100 Index. Volume peaked after being added to the Index to over 3 million shares but has now settled into its norms of just shy of 1 million share a day and the price continues to climb. A pullback to $130 would be ideal but it may be unlikely unless the market takes a breather. This is mainly a momentum play, but PMCS also has earnings in January and should continue to move up in anticipation of a strong report. Another catalyst was the upgrade from Salomon Smith Barney. They raised its rating on shares of PMCS to a Buy rating from Outperform on December 17th. BUY CALL JAN-135 SQL-AG OI=482 at $19.38 SL=16.00 BUY CALL JAN-140*SQL-AH OI=170 at $16.13 SL=13.25 BUY CALL JAN-145 SQL-AI OI= 0 at $13.38 SL=11.00 New Strike SELL PUT JAN-125 SQL-MY OI=136 at $ 4.50 SL=6.25 (See risks of selling puts in the play legend) Picked on Dec 2nd at $145.25 P/E = 139.81 Change since picked +0.00 52-week high=$145.25 Analysts Ratings 15-6-2-0-0 52-week low =$ 30.06 Last earnings 10/99 est= 0.24 actual= 0.25 surprise=+4.17% Next earnings 01-20 est= 0.27 versus= 0.30 Average Daily Volume = 1.80 mln Chart = http://quote.yahoo.com/q?s=PMCS&d=3m ******************************** CALLS CONTINUED IN SECTION THREE ******************************** 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 12-26-99 Sunday 3 of 5 *************** CALLS CONTINUED *************** Internet ******** INSP - InfoSpace.com $186.13 (+19.44) 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. Another day, another Internet stock approaching $200 after a split announcement. Not very original, but we are not complaining. On November 30th, INSP announced that they would split their shares on January 4th, 2-for-1. Despite a huge day yesterday and a subsequent pull back today, we still feel there may be more to go to the upside for this stock. There has been plenty of other good news recently to keep investors interested. In recent weeks the company has announced plans to buy two other companies that could prove to be very beneficial for InfoSpace.com. The first is a wireless service company, the other an e-commerce company for $750 million. It is possible that the e-commerce side of InfoSpace.com's business could explain the lackluster behavior of the stock today, as the major commerce players pulled back. INSP also received a long-term Buy recommendation from Merrill Lynch. Monday, INSP announced a strategic partnership with MSFT. The two companies are integrating their instant messaging capabilities. It will give users the ability to send and receive instant messages anytime, anywhere and on any device. After INSP launched itself into orbit yesterday making a new high at $197.75 it succumbed to some profit taking finishing down $3.88 today. Take a look at the premiums on the calls. They have really jacked up the prices. This is great for those already long, but new investors should be wary of these premiums. This stock trades very well when it makes a new high, so expect a good follow through if it trades above $198. If the market is weak next week you may have a chance to go long INSP in the mid $170's. In other news it was announced last 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. This has proven to be a very profitable strategy for other Internet companies, most notably CMGI. BUY CALL JAN-180 OHY-AP OI=182 at $38.25 SL=29.75 BUY CALL JAN-185*OHY-AQ OI=106 at $37.38 SL=29.13 BUY CALL JAN-190 OHY-AR OI= 91 at $35.25 SL=27.38 BUY CALL JAN-195 OHY-AS OI= 40 at $33.13 SL=25.84 Picked on Dec 19th at $166.69 P/E = N/A Change since picked +19.44 52-week high=$197.75 Analysts Ratings 6-4-0-0-0 52-week low =$ 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 **** YHOO - Yahoo! Inc. $402.63 (+52.63)(+3.25) 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. Same as last week...recently added to the S&P 500...now preparing for an earnings run with scheduled announcement on January 11. YHOO is also a heavily favored split candidate. Historically, the splits have been 2:1, however, we think there is a strong likelihood of a 3:1. First of all there are enough authorized shares without requiring a shareholder vote. Second, a 2:1 really doesn't do much to make the shares any more affordable. That said, with the exception of the big run last Tuesday, volumes have been slipping below the ADV of 9.1 mln shares, telling us that YHOO may take a few days of rest. Thursday, just 4.6 mln shares traded, indicating not much buying interest right now. YHOO could be entering a consolidation phase for the next week. Hence now could be the time to target shoot for an intraday low in these days of volatility. On the old resistance equals new support theory, YHOO looks buyable here at roughly $400. The nearest historical support is $395. However, despite an intraday bounce in the closing minutes on Thursday, the price was in descent mode on increased volume. YHOO is a volatile play, so if you play it, watch to see its behavior on Monday morning. Between $395 and $400 is the target. However below $395 is a red light. Wait for the bounce and don't try to catch the falling knife. $426.25 is resistance. If you hadn't already heard the news, Yahoo! will partner with SoftBank and Kmart to launch a new online shopping site called "bluelight.com". Looks like the specials will no longer be relegated to 10 minute time slots on isle 29. While an initial expense increase to K-Mart, YHOO benefits. Other than that, there isn't much in the news moving the price, just momentum. With the big premiums, you may want to consider covered call positions too. BUY CALL JAN-390 YUU-AR OI= 821 at $47.13 SL=38.00 BUY CALL JAN-400*YUU-AT OI=6737 at $42.88 SL=33.50 BUY CALL JAN-410 YHX-AB OI= 270 at $37.00 SL=29.00 BUY CALL JAN-420 YHX-AD OI= 306 at $32.50 SL=25.00 Picked on Dec 12th at $350.00 P/E =1677 Change since picked +52.63 52-week high=$426.25 Analysts Ratings 14-14-4-0-0 52-week low =$109.00 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 = 9.1 mln Chart = http://quote.yahoo.com/q?s=YHOO&d=3m **** DCLK - DoubleClick $211.63 (+6.69)(+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, DCLK 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 rumor became a reality in the shares of DCLK this week. After Monday's closing bell, the Board of Directors approved a stock split for shareholders of record on Dec 31st. The split will take place on Jan 10th. The split run has now officially begun and we expect the stock to remain strong up to the stock split which is only 11 trading days away. But don't forget the volatility that comes with trading a stock like DCLK. This week the stock traded to a high of $224, before profit-takers stepped up to the table to lock in gains. Another volatile, but profitable trading week for DCLK, the shares ended the week up $6.69 at $211.63. Possible target-shooting could be attempted above $213. Trailing stops are a must. As we look towards the last week of the year, volume will possibly start to dry up. That will increase volatility so be careful, but use the swings to get a good entry point. A bounce off of $210 is worth a look. Traders may be anticipating higher prices over the short-term for DCLK. Take a look at the option activity, it has increased recently in the out of the money near term Calls. The open interest for the Jan 260's is currently at "2201" contracts. BUY CALL JAN-220*QTD-AD OI=1483 at $19.50 SL=15.75 BUY CALL JAN-230 QTD-AF OI= 425 at $15.50 SL=12.25 BUY CALL JAN-240 QTD-AH OI= 371 at $12.50 SL=10.00 SELL PUT JAN-180 TDU-MP OI= 988 at $ 8.88 SL=11.00 (see risks of selling puts in the legend) Picked on Dec 9th at $197.00 P/E = N/A Change since picked +14.63 52-week high=$224.00 Analyst Ratings 11-7-1-0-0 52-week low =$ 21.81 Last earnings 10-03 est= -0.14 actual= -0.13 Next earnings 01-19 est= -0.10 versus= -0.13 Average daily volume = 2.45 mln Chart = http://quote.yahoo.com/q?s=DCLK&d=3m **** AOL - America Online Inc $81.38 (-3.61)(-6.50)(+13.38) 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. Can you say entry point? AOL got more consolidation again this week inching closer to the support at $80. The stock did decline for most of the day and then bounced near $81 at the end of the day to close at $81.38. In the news, AOL acquired a map making company Wednesday called MapQuest.com. The deal valued about $1.1 billion allows MapQuest shareholders 0.31558 of AOL stock for each share of MapQuest stock. AOL states that this is an attempt to localize the Internet by giving the 20 million AOL subscribers easy access to instant electronic maps and directions to restaurants, stores and other locations. The company also announces today that AOL's Moviefone.com has had a 62% Growth in usage making it the most popular site for moviegoers. Do you have all your Christmas shopping done yet? With less than two days to go (I started shopping yesterday), it may be profitable to take advantage of the post-Christmas sales. AOL announced today a new discount shopping center at Shop@AOL geared to capture the interest the online bargain hunters. Shop@AOL's clearance sale is offering up to 70% off a wide variety of name brand products. BUY CALL JAN-80*AOO-AP OI=43292 at $7.50 SL=5.25 BUY CALL JAN-85 AOO-AQ OI=56395 at $5.13 SL=3.50 BUY CALL JAN-90 AOO-AR OI=50832 at $3.50 SL=1.75 BUY CALL JAN-95 AOO-AS OI=28034 at $2.50 SL=1.25 SELL PUT JAN-80 AOO-MP OI=28697 at $3.63 SL=5.50 (See risks of selling puts in the play legend) Picked on Dec 2nd at $79.88 P/E = 251 Change since picked +1.50 52-week high=$95.81 Analysts Ratings 23-15-3-0-0 52-week low =$28.58 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 ********* SOFTWARE ********* BVSN - Broadvision $153.06 (+24.06)(+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. Broadvision is proving to be the picture perfect positive momentum play. Broadvision traded up to a new high of $146 in the early part of Wednesday's session and continually tested and held support at $140. Not satisfied with a mere $146, BVSN made its way up to a new high of $162.13 on Thursday, posting nearly three million in volume, which is just slightly higher than average. BVSN found new support at $150 throughout the day. Look for these two newly established support levels to hold going forward. If needed, BVSN has additional support at its 5-dma which is currently at $137.50. Other than the psychological levels, i.e., $160, the only mentionable resistance at this point is the new 52-week high. As we have mentioned before, according to BVSN's recent trading pattern, your best bet is to time your entries toward the early part of the day or to wait for bouts of profit taking backed by holding support. As we make these substantial moves up, tighten your stops accordingly to protect your profits. On Wednesday, BVSN announced that they had expanded their relationship with Verity (VRTY) in order to broaden their OEM alliance in the e-commerce arena. BUY CALL JAN-150 BDV-AJ OI=271 at $21.25 SL=16.50 BUY CALL JAN-155*BDV-AK OI=145 at $18.63 SL=15.50 BUY CALL JAN-160 BDV-AL OI=229 at $16.63 SL=13.00 SELL PUT JAN-130 BDV-MF OI=175 at $ 8.25 SL=10.50 (See Risks of Selling Puts in Play Legend) Picked on Dec. 16th at $131.69 P/E = 878 Change since picked +21.38 52-week high=$162.13 Analysts Ratings 5-16-2-0-0 52-week low =$ 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 = 2.03 mln Chart = http://quote.yahoo.com/q?s=BVSN&d=3m **** VRTS - VERITAS Software $143.19 (+25.72)(+8.41)(+2.93) The world's largest maker of storage management software is located in Mountain View, California. VERITAS Software Corp. supplies enterprise data storage management solutions, and provides advanced storage management software for open systems environments. Many of their products provide performance improvement and reliability enhancement features that are critical for many commercial applications. 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. Over 34% of the company is owned by institutional investors. Since their IPO in 1993 they have competed with some of the best in Sun Microsystems, BMC Software and Legato Systems. Another week, another $25 move. Don't we wish it was that simple. VRTS had a great holiday week, making a new high at $147.88 just after noon today. VRTS did fall back to close at $143.19 but it appeared to be traders squaring positions as they headed home for the holiday's. The volume for the week has been solid, averaging 2.8 mln. shares per day. VRTS received some help Wednesday from Wadell and Reed. VRTS was listed as one of the companies "tech favorites" for one of the company's funds. As we mentioned before VRTS is popular among the institutions and is certainly well positioned in the market place. Technically VRTS has exploded to the upside and only time will tell as to whether it can maintain its momentum into Y2K. We would be somewhat cautious about entering at this level and would look for a pullback to a support level and a bounce before entering a new play. Intraday support is found at $141, 136, and $131. VRTS has jumped over $24 in the past two sessions, so a retracement and a bounce would not be out of the question. If we see continued strength after the Christmas break, we would enter a new play or add to an existing position, but would cautiously as some of the recent buyers may decide to take some money off the table. Whether we see continued momentum or a decline with a bounce confirm the volume in VRTS before placing an order. The option premium in VRTS options is high due to the volatility of the stock, so this may be a play that is better left to those with a strong heart. As we've said VRTS is well connected in its industry. Wednesday IBM named VERITAS ClusterX for its WLBS(Windows NT Load Balancing Service). VRTS completed ClusterProven validation on IBM's Netfinity 7000 M10 server. IBM and VERITAS are long standing partners and continue to expand their relationship. BUY CALL JAN-130 VUQ-AF OI=273 at $22.00 SL=17.25 BUY CALL JAN-135*VUQ-AG OI=308 at $18.63 SL=14.75 BUY CALL JAN-140 VUQ-AH OI= 0 at $16.00 SL=12.63 New Strike BUY CALL JAN-145 VUQ-AI OI= 0 at $13.50 SL=10.63 New Strike Picked on Dec 12th at $109.06 P/E = N/A Change since picked +34.13 52-week high=$147.88 Analysts Ratings 6-15-2-0-0 52-week low =$ 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 = 2.60 mln Chart = http://quote.yahoo.com/q?s=VRTS&d=3m **** INKT - Inktomi $191.75 (+20.69)(+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. INKT gave us the breakout we were looking for Tuesday. Wednesday the bears jumped in with both feet driving shares of INKT, back down to a support level of $170. Calmer heads prevailed as the bulls jumped back in and bid the price of INKT stock higher to close the session at $176.50. This morning Merrill Lynch analyst Henry Blodget woke up in a good mood and raised his near term rating for the Internet directory company to accumulate from a neutral rating. When this analyst speaks traders listen. Blodget feels INKT is one of the best positioned companies to benefit from the hyper-growth in content distribution services. He set a new price target of $225 per share. INKT gapped up at the open today and traded between $189 and $197.25 for the session. Remember our interest in INKT was for a split run. INKT splits 2:1, Dec 31st. If you have a position in this play, assess your profit objectives and move your stops up accordingly. If you have not yet entered this play, and are considering a new position, please do so carefully. We only have next week for the split run to continue. A pullback to $185 followed by a bounce could provide an opportunity to buy calls. If we see continued strength early next week, that would also signal a buying opportunity. If you enter a position and get a profit, don't be afraid to take it as INKT is another Internet stock that can turn on a dime. BUY CALL JAN-180*KYQ-AP OI=1130 at $25.50 SL=20.00 BUY CALL JAN-190 KYQ-AR OI=1407 at $19.75 SL=15.63 BUY CALL JAN-200 KYQ-AT OI= 5 at $16.00 SL=12.63 low OI Picked on Dec 9th at $166.94 P/E = N/A Change since picked +24.81 52-week high=$197.25 Analysts Ratings 7-5-3-0-0 52-week low =$ 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 = 1.96 mln Chart = http://quote.yahoo.com/q?s=INKT&d=3m ******* Telecom ******* GSTRF - Globalstar Telecommunications $28.19 (+4.19) The difference between GSTRF and Iridium, the most recent flop in satellite communications can be described in four letters: CDMA. Globalstar will use it as the medium of transmission, instead of the TDMA technology used by Iridium. GSTRF will be able to transmit not just crystal clear quality voice calls, but data, messaging, paging, and GPS services. GSTRF uses 48 satellite in low orbit above the earth in conjunction with a ground-based system. Thousands of beta users already report fantastic results. Though commercial service has already begun, it will be available for the rest of us by the end of the first quarter in 2000. Loral Space and Communications owns 43% of the venture, while QCOM and others own the balance. Isn't this thing doomed to fail like the rest of them? Emphatically, the answer is no. GSTRF is based on CDMA technology, which is far superior and thus the new standard for wireless transmission, outstripping the growth rate of GSM and TDMA combined. Other systems can not as reliably transport data the way CDMA can. As for fundamentals, GSTRF costs only half as much to build as IRID and is profitable with only 400K users. While IRID had to charge $1 per minute just to break even, GSTRF has a cost of $0.05 including operating costs. They have already pre-sold $25 mln of time to wholesalers averaging $0.47 per minute - 85% cash flow margin at peak use. Want more? It's scalable so that when the system needs more capacity (around 7 mln users), more satellites can be added and ground equipment changed without modifying the whole system. 40K handsets are already sold and 200k are expected to be in circulation by the end of the first quarter. We could go on about the technological aspects that will make this system a huge success, but that gets boring. For us traders, we should note that volume has been from 30% to 500% greater than the ADV last week, indicating a heavy accumulation. Historical support and resistance has been channeling between $20 and $30, respectively. We believe that after the new year and maybe as early as next week, GSTRF is finally going to get the respect it deserves. If you want to target shoot, mild support is at $24 and $26. Otherwise, a breakout over $30 with volume is the key to a good entry. In the news, George Gilder, telecoms guru had kind words for GSTRF, which might help explain its monster volume on Thursday. He wrote, "The stock is still down because of the aftershock of the TDMA failures of Iridium and Teledisic. We are not market timers, but as a historian, I note that Globalstar is an ascendant technology, and that the stock has yet to ascend. You do not have to be a rocket scientist to recognize that such a discrepancy between potential and kinetic energies - such an underestimation of CDMA and bandwidth demand - historically supplied the voltage for the explosive ascent of Qualcomm. "Nuff said." Ditto (Remember from the Nortel write-up that bandwidth demand is projected to increase by 100 to 260 fold in the next four years) BUY CALL JAN-25 YVQ-AE OI=4002 at $4.75 SL=3.00 BUY CALL JAN-30 YVQ-AF OI=1938 at $2.25 SL=1.00 BUY CALL JAN-35 YVQ-AG OI= 472 at $0.88 SL=0.00 High Risk! BUY CALL MAR-30*YVQ-CF OI=3014 At $4.50 SL=2.75 BUY CALL MAR-35 YVQ-CG OI=3653 at $2.81 SL=1.25 Picked on Dec 23rd at $28.19 P/E = N/A Change since picked +0.00 52-week high=$33.00 Analysts Ratings 4-7-1-0-0 52-week low =$12.63 Last earnings 10/99 est=-0.35 actual=-0.19 surprise=+84% Next earnings 01-11 est=-0.75 versus=-0.19 Average Daily Volume = 1.8 mln Chart = http://quote.yahoo.com/q?s=GSTRF&d=3m **** NT - Nortel Networks $98.69 (+8.25)(+2.19)(+8.06)(P5W +21.25) Here come 'Ol Flat Top; he come groovin' up slowly. What 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, local area networks, 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 firm, BCE owns 40%. The U.S. accounts for over 50% of sales. Bring on the bandwidth. NT demonstrated in late November their ability to transmit 80 gigs per second on a single wavelength, with each fiber able to carry 80 wavelengths. Doing the math, that equates to 5.6 petabits per second on a single 864-strand fiber cable. Bandwidth glut coming? Not even close. Telecoms guru, George Gilder, notes that while bandwidth will increase 80- fold over the next four years, demand will rise between 100 and 260 times creating a capacity crunch. Look for NT's sales to faster than the 20% rate currently expected by the street, and for their margins to rise. Fund managers like this stuff, but have temporarily (likely holiday related) put their plans on hold until after the new year. It shows in the volume. Technically, NT still has good support at $97. Barring a market meltdown or "frozen rope" from left field, that should hold. $95 is the next level of support on the theory that old resistance equals new support. New resistance is $100. Target shooting at support or waiting for the breakout with volume over $100 may be the best way to play this. Earnings are January 25, and NT is a split candidate over $88. Not much in the news other than that noted above, however there is speculation that BCE, which reportedly owns 41% of NT may spin it off in the near future, creating as much as $30 per share in value for BCE owners. We're not suggesting that you back up the truck on BCE, but make a note of the possibility as a basis for further research on BCE. BUY CALL JAN- 90 NT- AR OI=3380 at $12.63 SL=10.00 BUY CALL JAN- 95*NT- AS OI=2364 at $ 9.13 SL= 6.75 BUY CALL JAN-100 NTV-AT OI=1730 at $ 6.63 SL= 4.75 BUY CALL MAR- 95 NT- CS OI= 648 at $14.25 SL=11.25 BUY CALL MAR-100 NTV-CT OI= 166 at $11.88 SL= 9.25 Picked on Nov 7th at $68.81 P/E = 613 Change since picked +29.88 52-week high=$100.19 Analysts Ratings 12-12-3-0-0 52-week low =$ 23.63 Last earnings 09/99 est= 0.26 actual= 0.28 surprise=7.7% Next earnings 1-25 est= 0.44 versus= 0.36 Average Daily Volume = 4.4M Chart = http://quote.yahoo.com/q?s=NT&d=3m **** NOK - Nokia $174.00 (+5.50)(+0.50)(+11.94)(P3W +40.19) 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? While we didn't see that pop on Wednesday following Tuesday's rally, we have seen an ascending consolidation on lower than average volume beginning to form that infamous technical pennant, portending a breakout. Does it look familiar to you as the lows get higher while the resistance remains strong at $175? It should. Think QCOM, JDSU, and YHOO. Not un-coincidentally, an ABM-ANRO analyst advised moving out of QCOM (we don't yet) and into NOK calling it "the most attractive stock in Global Telecom Equipment Sector based on future earnings and relative PE valuations." They have also been called potentially the largest volume PC producer in 2002, citing the shift of handsets to performing PC functions. We've also noted that NOK is planning on meeting their three-year scheduled in just 2 years - a 50% growth rate. We look for a string of upside earnings surprises and the possibility of a split announcement on their tentative announcement date of January 20. On the chart, support has been growing in $15 increments at $135, $150, and recently at $165. Once a breakout over $175 happens, look for the next level of resistance to be $180. As an ADR, there is some confusion as to the actual announce date. Their web site says February 1, however web site data has been historically inaccurate and subject to change even when provided by the company itself. Zack's states January 20, which is closer to NOK's historical reporting pattern. Thus we use that until we can confirm the date with the company, which will still be subject to change. The best entry will be achieved by buying dips or waiting for the breakout with volume over $175. In what was greeted a disappointment by the Street, QCOM announced the sale of their CDMA handset business to the Japanese handset maker, Kyocera. The world (including us) was expecting NOK to be the buyer, but NOK seems to have bounced back from the minor surprise. BUY CALL JAN-160*NAY-AL OI=4693 at $20.50 SL=16.00 BUY CALL JAN-170 NZY-AN OI=3765 at $14.75 SL=11.75 BUY CALL JAN-180 NZY-AP OI=1711 at $ 9.63 SL= 7.25 BUY CALL APR-180 NZY-DP OI= 521 at $21.63 SL=17.00 Picked on Nov 14th at $122.25 P/E = 74 Change since picked +51.75 52 week high=$179.13 Analysts Ratings 13-8-0-0-0 52 week low =$ 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 = 3.30 mln Chart = http://quote.yahoo.com/q?s=NOK&d=3m ***************************************** CALLS - TELECOM 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 12-26-99 Sunday 4 of 5 ************************* CALLS - TELECOM CONTINUED ************************* QCOM - Qualcomm Inc. $466.50 (+11.50)(+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 OmniTRACS® and a 6.4% interest in Globalstar(TM). Headquartered in San Diego, Calif., QUALCOMM is included in the S&P 500 Index and is a 1999 FORTUNE 500® company traded on the Nasdaq under the ticker symbol QCOM. Anybody sell too soon at $522 at the open on Wednesday? QCOM encountered some negative news of its own making shortly thereafter when it announced it was selling its handset business to Kyocera (KYO) of Japan, the parent of the largest PCS service in the region also enjoying the fastest growth. This caught many by surprise, including us, whom expected the buyer to be Nokia. It also means a $30 mln one-time expense to earnings. While it sounds bad, it's really nothing in the scheme of things, especially since the terms of the sale include Kyocera buying 75% of its CDMA chips from QCOM over a 5-year supply agreement. KYO, the fastest grower in a new region, apparently gave QCOM the better deal. We should be happy about it, and most investors should get over the shock rather quickly (Nokia has). It does nothing to harm the long-term viability of QCOM. Besides that, has everybody forgotten that QCOM splits 4:1 on December 30? We'd view the pullback as a buying opportunity. QCOM rests on support of $465, and is still well above its 10-dma of $446 The analysts are impressed anyway, if you consider that QCOM has been awarded three upgrades in the last 24 hours. B of A Securities maintained its Buy rating, but upped FY2000 earnings from $3.85 to $4.00. CS First Boston in a not so daring move raised its price target from $450 to $520. While giving a plug for NOK and recommending a move out of QCOM, an ABM ANRO analyst nonetheless raised earnings estimate from $4.00 to $4.23 in FY2000, citing the absence of the poorly performing handset business. With these huge premiums, covered calls can work well here too. BUY CALL JAN-450 AAF-AK OI=2085 at $55.00 SL=43.00 BUY CALL JAN-460 AAF-AM OI=1749 at $51.13 SL=40.00 BUY CALL JAN-470 AAF-AO OI=1142 at $46.38 SL=36.00 BUY CALL JAN-480*AAR-AQ OI=2173 at $41.25 SL=32.00 BUY CALL JAN-490 AAR-AS OI=1410 at $38.25 SL=30.00 Picked on Nov 16th at $330.00 P/E = 391 Change since picked +136.50 52-week high=$522.13 Analysts Ratings 6-8-4-0-0 52-week low =$ 25.12 Last earnings 11/99 est= 0.88 actual= 0.91 Next earnings 01-19 est= 0.95 versus= 0.33 Average Daily Volume = 5.60 mln Chart = http://quote.yahoo.com/q?s=QCOM&d=3m **** JDSU - JDS Uniphase $298.06 (+57.12)(-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. Wow! Three breakouts and record closes in a row since last Monday! But the volume remains about average. What's floating this issue now? The 2:1 stock split is the answer since the new shares begin trading on December 30. Support appears at $260, $275, 280, and (today only) at $296. Resistance is at the new intraday high of $305.25. Wait for a dip, followed by a bounce on strong volume before you take a position. This is a volatile issue and you don't want to buy in on the "I'm missing the train" emotional state of mind (fear and greed in the same playpen). First in the "woops, we misread that" department, we had previously noted that JDSU's symbol would change to JDSUV after the split - not so. It will remain as JDSU. Second, telecoms guru, George Gilder reports from a European visit that JDSU is popping out optical amplifier pump lasers at a pace of "hundreds of thousands per year", whereas just two years ago, the number was in the low thousands. Keeping up with demand appears to be one of the greatest challenges facing JDSU right now. We wish all companies had this problem. Third, winning the "close the barn after the animals are out" award, Gruntal and company raised their price target from $270 to $310 (no bravery there). Time premiums are high. Consider covered calls as well. BUY CALL JAN-290*XXZ-AR OI= 937 at $33.25 SL=26.00 BUY CALL JAN-300 XXZ-AT OI=1710 at $28.75 SL=22.50 BUY CALL JAN-310 XXZ-AB OI= 272 at $24.25 SL=19.00 Picked on Nov 21st at $213.81 P/E = N/A Change since picked +84.25 52-week high=$305.25 Analysts Ratings 13-13-0-0-0 52-week low =$ 29.62 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 = 3.2 mln Chart = http://quote.yahoo.com/q?s=JDSU&d=3m **** BCE - BCE Inc. $88.75 (+9.56) BCE is a diversified holding company whose primary business is telecommunications services in Canada and communications equipment manufacturing. BCE is the parent company of Bell Canada and controls a 65% share of the Canadian long-distance market. BCE is also substantially involved in wireless communications and telephone directory publishing. BCE is a player in e-commerce, satellite networks and Internet Protocol based networks and solutions. BCE has a very unusual capitalization situation which could potential reward patient shareholders with big rewards. BCE owns 39.6 percent of Canadian neighbor and communications high flyer Nortel Networks (for more information about Nortel see our call play section). BCE can't get any respect and is looking for ways to benefit from Nortel's stellar stock performance. After you strip away the value of BCE's holdings in Nortel, the rest of BCE's businesses combined are barely given any value at all. In effect, you can buy BCE and enjoy the price appreciation of NT and at the same time hope to cash in when the market recognizes the value of all of BCE's other holdings. The big question for BCE is how to get any respect and the answer seems to be to spinoff its NT holdings. The catch is how to do it without sticking the company with the biggest tax liability in Canadian history. The company is actively petitioning the Canada Customs and Revenue Agency to allow BCE to enact a butterfly reorganization that would be exempt from capital gains tax. The question is; When can all of this happen? There is a proposed change to the Income Tax Act currently being considered by Parliament that would declare butterfly transactions exempt. A passage of a bill could be several months away. The best scenario would be some sort of advanced assurance. If that were to happen then BCE could get very serious about developing a plan. If a spinoff of NT seems inevitable then BCE's shares should appreciate nicely. In the meantime, think of BCE as a tracking stock of NT with the possibility of a little extra kick if we get the right news. Technically, BCE's shares are very strong. The stock is in a very strong uptrend ever since it broke above $57 in late October. The most recent mini-breakout was at $85. A small pullback to that level could prove to be a good entry point. Otherwise, a more aggressive investor could go long at these prices. Since we have no idea when the news will hit, a longer term investor might want to take a look at the June options. On Tuesday it was announced that BCE, Bell Canada, BCE Emergis and Ariba Inc. have signed a long term agreement in which BCE Emergis will provide Bell Canada and its subsidiaries with a fully managed business-to-business corporate exchange marketplace and e-procurement solution that will initially be used by Bell Canada and all of its suppliers across Canada. Over time, the agreement will offer substantial cost savings for all parties involved. Last week BCE was upgraded to the Recommended List from Market Outperform by Goldman Sachs. BUY CALL JAN-80*BCE-AP OI=903 at $10.25 SL= 7.50 BUY CALL JAN-85 BCE-AQ OI= 71 at $ 6.63 SL= 4.75 BUY CALL JAN-90 BCE-AR OI= 35 at $ 3.88 SL= 1.75 BUY CALL JUN-80 BCE-FP OI= 46 at $15.50 SL=11.75 BUY CALL JUN-85 BCE-FQ OI= 37 at $12.50 SL= 9.50 Picked on Dec 16th at $88.75 P/E = 16 Change since picked +0.00 52 week high=$89.63 Analysts Ratings 4-5-0-1-0 52 week low =$34.88 Last earnings 09/99 est= 0.47 actual= 0.47 Next earnings 01-27 est= 0.64 versus= 0.52 Average daily volume = 371 K Chart = http://quote.yahoo.com/q?s=BCE&d=3m ************* Miscellaneous ************* IMNX - Immunex Corp. $99.88 (+10.38) Their primary products include Enbrel, for treating rheumatoid arthritis, Lukine, which is used in the treatment of bone-marrow transplant patients and Novantrone, used to treat acute non- lymphocytic leukemia and to ease pain associated with prostate cancer. Immunex develops biopharmaceutical products aimed at treating cancer, auto-immune disorders, and infectious diseases. They are in the developmental stages of developing other drugs to treat asthma, leukemia, and certain other cancers. Immunex competes in the marketplace with heavy weight Amgen, Bristol- Meyers Squibb and Merck. 54% of Immunex stock is owned by American Home Products through its subsidiary American Cyanamid. The Biotechnology sector has began to attract investors attention this past week. Immunex has certainly attracted its share of interest in the past ten sessions. December 9th IMNX closed at $63. This afternoon shares of the drug maker closed at $99.88. The biotech index rose about 19 percent this week as investors have started to focus on the optimism about prospects for breakthrough medications and expectations that biotech companies are takeover targets. Shares of IMNX have traded in a sideways pattern since the middle of May. This past week IMNX broke out of that pattern with solid momentum. Today the stock pushed to another new high at $101.25 We have added IMNX as a call play based on the momentum behind the stock and the sector. This is a play you may want to consider entering after a pullback. IMNX has jumped over 40 percent in the month of December. A retracement back to intraday support levels of $95 or $90 followed by a bounce may provide an excellent opportunity to buy calls. With the strength seen in the Dow, and broadening into other sectors today, we believe the biotech stocks should continue to flourish into the new year. As always assess not only your risk profile, but your profit objectives prior to placing an order in a new play. The first two days of the week analysts at Robertson Stephens and Dain Rauscher Wessels reiterated Buy recommendations on IMNX. Todd Nelson at Dain Rauscher Wessels projected a 12-month price target of $121 for the drug maker. Tuesday afternoon Ralph Acampora, chief technical strategist for Prudential Securities, and a prominent Wall Street bull mentioned IMNX in a list of companies he remains bullish on in the year 2000. Wednesday IMNX jumped $6 after the comments. BUY CALL JAN- 90*IUU-AR OI=773 at $13.75 SL=11.00 BUY CALL JAN- 95 IUU-AS OI= 0 at $ 8.13 SL= 6.25 New Strike BUY CALL JAN-100 IUU-AT OI= 0 at $ 7.75 SL= 6.00 New Strike BUY CALL JAN-105 IUU-AA OI= 0 at $ 5.50 SL= 3.75 New Strike Picked on Dec 23rd at $99.88 P/E = 407 Change since picked 0.00 52-week high=$101.25 Analysts Ratings 3-8-9-0-0 52-week low =$ 26.88 Last earnings 10/99 est= 0.10 actual= 0.12 surprise=+20.0% Next earnings 01-18 est= 0.09 versus= 0.06 Average daily volume = 1.54 mln Chart = http://quote.yahoo.com/q?s=IMNX&d=3m **** GENZ - Genzyme General $46.38 (+7.38) GENZ is a diversified human health care business with product development, manufacturing and marketing capabilities in therapeutic and diagnostic products, pharmaceuticals and diagnostic services. Between the incredible strength in the overall markets and the improving sentiment towards the Biotechs, GENZ had a great week, tacking on $7.88 on much better than average volume. Although volume was weaker today (probably due to investors gone for the holiday), GENZ still managed to add $2.75, closing near the high of the day. Over the past 5 weeks, solid support has formed in the $35-36 range. When the breakout started back on December 10, GENZ cleared its 10-dma, which has acted as support ever since. The move really kicked into high gear on Tuesday when prices broke above both the 30 and 50 day moving averages. At the same time the 10-dma moved above these longer averages, which is typically a very bullish sign. Adding fuel to the move seems to have been all the news related to the potential merger with Cell Genesys (see below). Also, with earnings being released in less than a month, GENZ should continue to be strong. Although it is too early for an earnings run, investors know that GENZ has a habit of beating earnings. Today, GENZ broke through and closed above resistance at $45 and if the strength continues, there is tiered resistance at $52, $56, and $61. Consider opening new positions on continuing strength from this point or on a pullback and bounce between $43-45. As always, confirm that the volume remains strong. On Wednesday, GENZ terminated its proposed merger with Cell Genesis Inc., which would have involved a stock swap valued at $350 million. This seems attractive to GENZ investors as the value of Cell Genesis had appreciated significantly and would probably have required an increase in the value of the offer. BUY CALL JAN-40 GZQ-AH OI=1107 at $7.50 SL=5.75 BUY CALL JAN-45*GZQ-AI OI=618 at $4.50 SL=2.75 BUY CALL JAN-50 GZQ-AJ OI=946 at $2.06 SL=1.00 Picked on Dec 23rd at $46.38 P/E = 22 Change since picked 0.00 52-week high=$62.06 Analysts Ratings 7-4-1-0-0 52-week low =$32.94 Last earnings 10/21 est= 0.43 actual= 0.49 Next earnings 01-20 est= 0.48 versus= 0.39 Average Daily Volume = 1.24 mln Chart = http://quote.yahoo.com/q?s=GENZ&d=3m ***** LEAPS ***** December 23rd - LEAPS What a week for stocks! It is almost hard to be impressed anymore with the continual gains the Nasdaq (and now the Dow) have posted for over 2 months. The bottom line is that there are still no sellers in sight. Most likely because investors are waiting until the clock ticks into the year 2000, thus delaying the tax implications. So with liquidity due to the holiday and no sellers, the market is feeling light-footed as it runs to new highs. The VIX is currently at 22.58. Current Plays SYMBOL SINCE LEAPS SYMBOL CURRENT PICKED RETURN EMC 11/07/99 JAN-2001 $80 ZOH-AP at $34.88 $15.38 126.79% JAN-2002 $90 WUE-AR at $39.63 $19.00 108.59% DELL 11/07/99 JAN-2001 $50 ZDE-AJ at $13.63 $ 7.00 94.71% JAN-2002 $50 WDQ-AJ at $18.88 $11.25 67.82% GPS 11/07/99 JAN-2001 $40 ZGS-AH at $11.13 $ 5.75 93.57% JAN-2002 $45 WGS-AI at $13.25 $ 7.88 68.15% IBM 11/07/99 JAN-2001 $100 ZIB-AT at $24.38 $13.63 78.87% JAN-2002 $110 WIB-AB at $28.00 $16.50 69.70% WMT 11/07/99 JAN-2001 $70 ZWT-AN at $11.50 $ 6.50 76.92% JAN-2002 $75 WWT-AO at $15.13 $ 9.75 55.18% LU 11/14/99 JAN-2001 $80 ZEU-AP at $15.63 $12.88 21.35% JAN-2002 $90 WEU-AR at $19.00 $16.13 17.79% CSCO 11/14/99 JAN-2001 $80 ZCY-AP at $35.88 $19.13 87.56% JAN-2002 $90 WIV-AR at $38.13 $22.00 73.32% SLR 11/14/99 JAN-2001 $85 ZSR-AQ at $23.63 $21.75 8.64% GE 11/21/99 JAN-2001 $150 ZGR-AU at $30.25 $16.25 86.15% JAN-2002 $150 WGE-AU at $40.63 $25.50 59.33% GTW 11/21/99 JAN-2001 $90 ZWB-AR at $12.38 $17.75 -30.25% JAN-2002 $100 WGB-AT at $17.13 $22.50 -23.87% NT 11/28/99 JAN-2001 $75 ZOO-AO at $37.63 $22.25 69.12% JAN-2002 $75 WNT-AO at $46.50 $30.25 53.72% VOD 12/05/99 JAN-2001 $50 ZAT-AJ at $10.63 $10.75 -1.11% JAN-2002 $50 WHV-AJ at $14.63 $15.00 6.50% KM 12/05/99 JAN-2001 $10 ZKM-AB at $3.38 $ 2.50 35.20% JAN-2002 $15 WKM-AC at $2.50 $ 1.75 42.86% ADBE 12/12/99 JAN-2001 $65 ZAE-AM at $17.13 $15.00 14.20% JAN-2002 $70 WAE-AN at $21.25 $20.38 4.27% TXN 12/12/99 JAN-2001 $110 ZTN-AB at $22.75 $22.25 2.24% JAN-2002 $120 WGZ-AD at $28.38 $28.50 0.42% NXTL 12/19/99 JAN-2001 $90 ZFU-AR at $33.75 $23.50 43.62% JAN-2002 $100 WFU-AT at $34.63 $27.25 27.08% SUNW 12/19/99 JAN-2001 $80 ZJX-AP at $18.13 $17.63 2.84% JAN-2002 $90 WJX-AR at $22.25 $22.00 1.14% 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 AOL - America Online $81.13 It's back! You may recall three weeks ago we added AOL as a new LEAPS play but said we were waiting for an entry point. $80 was the number we were target-shooting and our patience is ready to be rewarded. AOL came down to $80.63 for the low on Thursday. We feel like this is the time to jump aboard. AOL has excellent support at this price, which has attracted us to the play. As an Internet bell-whether, AOL has provided some outstanding plays and profits in the past. We expect it to duplicate this trend, especially heading into earnings next month. We do want to give AOL some room to breath but any drop below $70, in any market conditions, would be a sign to exit the play. BUY LEAP JAN-2001 $ 90.00 ZKS-AR at $20.13 BUY LEAP JAN-2002 $100.00 WAN-AT at $25.63 http://www.OptionInvestor.com/playimages/index.asp?image=aol122399 Drops We are still encouraging LEAP holders to sell too soon when you reach your initial goals or become uneasy about the current market levels. It may not be worth risking your profits if the market turns volatile ahead of Y2K (you haven't forgotten about that, have you?). Stop losses would be perfect if your broker allows. ***************** 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. **** ETYS - eToys Inc. $30.94 (-6.63)(-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. The disparity between consumer sentiment and investor interest continued this week as ETYS continued to fall despite any good news. The past two days have brought the e-tailer to within spitting distance of its 52-week low at $28.50. Several times bottom-fishers have attempted to push prices higher, but each time the sellers have won out, and at ever-decreasing levels. Today, they couldn't even push through $33. Volume remains heavy, trading at 50% above the ADV today and 250% of the ADV on Wednesday. ETYS appears to be developing significant support at $30. For those that have open positions, we strongly recommend tightening your stops to keep all those profits. This play has been very good to us, but may be getting a little long in the tooth. New entries can be considered on a bounce south from the $34-35 range as this level has provided resistance this week. If prices break convincingly (read strong volume) below $30, this could also be used as an entry cue. News on ETYS has been sparse this week, with the only items of note being general to the industry and referring to competitors. Today Alottafun! Inc. (ALFN) announced successfully clearing its registration with the SEC. ALFN is a manufacturer of collectible toys and in expanding its e-commerce operations may draw investors away from ETYS. BUY PUT JAN-40 ETU-MH OI=641 at $10.88 SL=8.75 BUY PUT JAN-35*ETU-MG OI=846 at $ 7.13 SL=5.25 BUY PUT JAN-30 ETU-MF OI=291 at $ 4.38 SL=2.75 Average Daily Volume = 2.21 mln Chart = http://quote.yahoo.com/q?s=ETYS&d=3m **** LTR - Loews Corporation $61.44 (+1.50)(-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. Even a blind squirrel finds a nut once in a while. LTR finally had a positive day, due in large part to the broad-based rally in the markets the past two days. LTR managed to pierce resistance at the 10-dma yesterday on slightly less than average volume. Today was another good day, allowing LTR to move all the way up to the 30-dma (currently at $63.44) before turning around and drifting south for the remainder of the day, closing at $61.44. LTR now sits poised just above its 10-dma (currently at $60.50). The move up today was on slightly less than the ADV and has the appearance of bottom fishing. Look for weakness to continue next week with strong volume. New positions can be considered on a drop back through the 10-dma or another bounce down from the 30-dma. Despite the move up this week, the negative news and interest rate fears should continue to exert pressure on the price of LTR. In the news this week, the woes of LTR continue on both the tax and litigation fronts. On Monday, the New York State Assembly stated their intention to double cigarette taxes to pay for a new $2.9 billion health care program. Also, the government of Canada filed suit against big tobacco, adding further pressure on the litigation front. BUY PUT JAN-65*LTR-MM OI= 16 at $5.13 SL=3.25 low OI BUY PUT JAN-60 LTR-ML OI=130 at $1.19 SL=0.00 High Risk! Average Daily Volume = 303 K Chart = http://quote.yahoo.com/q?s=LTR&d=3m **** GT - Goodyear Tire and Rubber $27.13 (+0.07)(-1.69)(-4.06) 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. Is there a bottom to this put play? GT may have held its ground this week but every time it has done this in the past 4 months GT heads south again. Volume remains high is there going to be support 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. As always, confirm direction and watch for the GT mini-rallies for potential points of entry. The only positive news is that BMW has chosen GT's run-flat tire for their BMW 7-Series 'Protection' models. BUY PUT JAN-35 GT-MG OI= 464 at $8.00 SL=6.25 BUY PUT JAN-30*GT-MF OI= 628 at $3.25 SL=1.75 BUY PUT JAN-25 GT-ME OI=1304 at $0.68 SL=0.00 High Risk! Average Daily Volume = 1.04 mln Chart = http://quote.yahoo.com/q?s=GT&d=3m **** WB - Wachovia Corporation $67.86 (+1.86)(-7.13)(-5.68) 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. In new news, there is nothing more than a headline which states, "Moody's Affirms Wachovia Bank AA2 Deposits Rating, Revises Outlook to Negative" If you watch the chart you will see that since the beginning of November WB as been falling approximately $15.00 then a slight $2.00 - $5.00 comeback before it drops again, for the week WB is up +$1.69. Can you say entry point? BUY PUT JAN-70 WB-MN OI=292 at $4.00 SL=3.00 BUY PUT JAN-65 WB-MM OI=210 at $1.75 SL=1.25 Average Daily Volume = 438 K Chart = http://quote.yahoo.com/q?s=WB&d=3m **** NSOL - Network Solutions $250.25 (+10.31) 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. Tuesday you probably were reading about NSOL as one of our more profitable call plays. We are adding Network Solutions as a put play tonight. We dropped NSOL from our call section and added it to our put list due to the recent pullback in the stock. Much of what surrounds NSOL news-wise has been positive. Monday it entered the Nasdaq 100 index. Wednesday NSOL announced a 2:1 stock split. In making the announcement it said it also plans to hire financial advisors to assist in separating its registry and registrar services. Technically NSOL has fallen back over $37 from its high at $287.75 on Wednesday. It could be just a retracement with profit taking but it really appears as though NSOL is beginning to roll over. The short side of this play may not be a long term change in direction but it does appear to be a potentially profitable play. NSOL seems to be suffering a buy the rumor, sell the news scenario right now. If we see more weakness in the price of NSOL stock, the first level of support would be seen near $240, followed by the $230 mark. An additional point of reference shows the 10-dma at $238.58. In other news the company also filed for a follow-on stock offering of 7.73 million shares on Wednesday, 6.7 million of which are held by Science Applications International Corp. or (SAIC)the largest scientific research organization in the U.S. At the same time NSOL said SAIC executive John Glancy will resign from the NSOL board, as will Donald Telage. Telage will also step down as Network Solution's senior vice president of Internet relations and special programs. BUY PUT JAN-250*JNV-MJ OI=114 at $30.00 SL=23.75 BUY PUT JAN-240 JNU-MH OI=152 at $24.88 SL=19.63 BUY PUT JAN-230 JNU-MF OI= 46 at $20.00 SL=15.88 Average daily volume = 1.10 mln Chart = http://quote.yahoo.com/q?s=NSOL&d=3m **** CIEN - Ciena Corp. $58.00 (-5.00) Ciena Corp designs, manufactures and sells open architecture, dense wavelength division multiplexing systems for fiber optic communications networks, including long-distance and local exchange carriers. Ciena has more than two million optical channel kilometers installed worldwide. Ciena's MultiWave DWDM systems enhance the transmission capacity of a single optical fiber without requiring significant modification or upgrade to transmission equipment. Ciena offers optical transport products for long distance, short distance and ring-based applications, and through its wavewatcher network management system software. What a great comeback for Ciena Corp. Trading in single digits just over a year ago the most exciting thing for Ciena was a botched takeover attempt by Tellabs. Boy have things changed! Optical cable looks as pretty attached to the name of a company as "dot" com. Ciena came roaring back in 1999 trading as high as $74.56 earlier this month. Alas, the party may be over for this pixie in the land of giants. Ciena has many bruises from trying to carve market share against its two biggest competitors, Nortel and Lucent. It hardly seems fair then that Cisco is now joining the battle field with its planned purchase of Pirelli. Investors fear that Ciena's attempts to expand its product mix and customer base may not be enough to keep them from getting squished by its richer competitors. It would not take much to scare money out of this stock. It has fallen before, and whether it deserves it or not the perception is that it can fall again and nobody wants to be left holding the bag if it does. A good entry point for a put position would be when the stock trades below today's support of $57.50. A more conservative approach would be to hold of buying puts until the stock tests and fails to trade through resistance at $62. A drop below $54 could take the stock down into the forties pretty quickly. BUY PUT JAN-60*EUQ-ML OI=1003 at $7.13 SL=5.25 BUY PUT JAN-55 EUQ-MK OI=2239 at $4.38 SL=2.50 BUY PUT JAN-50 EUQ-MJ OI=1369 at $2.44 SL=1.25 Average daily volume = 5.40 mln Chart = http://quote.yahoo.com/q?s=CIEN&d=3m **** PHCM - Phone.com Inc $118.25 (-17.06) Phone.com, Inc. is a provider of software that enables the delivery of Internet-based services to mass-market wireless telephones. The Company's software products enable the delivery of Internet-based services to mass-market wireless telephones. Wireless subscribers have access to Internet- based and corporate intranet-based services, including email, news, stocks, weather, travel and sports. In addition, subscribers have access to telephony services, which may include over-the-air activation, call management, billing history information, pricing plan subscription and voice message management. Only seven months since its IPO back in June, PHCM has been in a forlorn state for almost the entire month of December. What has caused this downfall? PHCM has been introduced to some new competition from AOL and MSFT. AOL acquires Tegic Communications giving AOL access to licensing deals with the world's largest wireless handset makers. Then with MSFT, analysts say that their tie with Ericsson, number 3 in the world in mobile handsets, to market Internet-ready phones using MSFT's Mobile Explorer, which may threaten PHCM. Also PHCM's director Roger Evans and Bell Canada filed plans to sell 66,666 and 551,012 shares of the company's common stock respectively. This will put pressure on the stock until it is digested by the market. Obviously, PHCM has had a great year but we want to capitalize on the over-extended state of their stock and the newly found shares. BUY PUT JAN-120*UMC-MD OI=555 at $16.00 SL=12.50 BUY PUT JAN-115 UMC-MC OI=107 at $13.25 SL=10.25 Average Daily Volume = 1.41 mln Chart = http://quote.yahoo.com/q?s=PHCM&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 12-26-99 Sunday 5 of 5 COVERED CALLS ************* Stock Buying Basics: Which Approach Is Best? With the incredible number of new traders entering the market, we thought it might be a good time to review the basics of position selection. There are two common approaches to analyzing stocks; technical and fundamental. Most of the older investors are more comfortable with fundamental analysis. That is the process where one attempts to predict the future profits of a company by analyzing their market share, revenue, pricing structure, and other components regarding the actual operation of the company's business. In contrast, the study of historical pricing trends and chart patterns has nothing at all to do with the daily operations of the company. Technical analysis of price patterns is a technique used to forecast the future direction and magnitude of a stock's movement. Although each style is often viewed as less than adequate by the opposing group, there is value in both methods. In many cases, each system can produce favorable results. Technical analysis is generally more suitable to short-term trading, since it offers the best method for timing entries and exits. Fundamental analysis provides an accurate picture of the long-range outlook, but it is miserably late in predicting the actual movement of stock prices. However, analyzing the value of a company can help to forecast potential profits (or losses) and in the end, earnings usually determine share value. Quarterly reports will also affect the short-term trading of a stock and the most significant moves occur when a company reports earnings that are different from the analysts' consensus estimates. A worse-than-expected earnings report will inevitably cause share values to fall as soon as the information become public news. When this happens, the brokerages are first to change their opinions on the company, downgrading the issue and causing further damage to the share value. This is one of the few times when fundamental analysis might be helpful in a short-term trading scenario. Most of the positions that we offer are of a short-term nature and thus we favor technical analysis as the primary means for stock selection. This type of research bases its forecasts for the future on past prices, moving averages, and volume considerations. These are valuable tools in almost every case, and we will discuss them in detail in future narratives. Next week; Trend-lines, Time-frames and Relative Strength. SUMMARY OF PREVIOUS PICKS Stock Price Last Mon Strike Opt Profit ROI Monthly Sym Picked Price Price Bid /Loss ROI MCRE 7.56 8.94 JAN 7.50 1.31 *$ 1.25 20.0% 14.5% SPLH 8.44 8.13 JAN 7.50 1.81 *$ 0.87 13.1% 11.4% EMIS 19.88 24.63 JAN 17.50 4.50 *$ 2.12 13.8% 10.0% WSTL 10.75 11.00 JAN 10.00 1.88 *$ 1.13 12.7% 9.2% CBIZ 10.31 9.13 JAN 7.50 3.63 *$ 0.82 12.3% 8.9% FSII 10.69 11.94 JAN 10.00 1.94 *$ 1.25 14.3% 8.9% LGND 11.69 11.13 JAN 10.00 2.75 *$ 1.06 11.9% 8.6% NFO 14.38 21.69 JAN 12.50 2.94 *$ 1.06 9.3% 8.1% AWEB 12.13 12.63 JAN 10.00 3.00 *$ 0.87 9.5% 6.9% SCOC 17.88 32.00 JAN 15.00 4.13 *$ 1.25 9.1% 6.6% PILT 17.56 17.00 JAN 12.50 5.88 *$ 0.82 7.0% 6.1% ONHN 10.25 10.81 JAN 7.50 3.38 *$ 0.63 9.2% 5.7% BAMM 9.81 8.81 JAN 7.50 2.75 *$ 0.44 6.2% 5.4% TTWO 16.31 14.50 JAN 12.50 4.63 *$ 0.82 7.0% 5.1% MWHS 15.06 18.63 JAN 12.50 3.25 *$ 0.69 5.8% 5.1% PILT 20.25 17.00 JAN 15.00 6.38 *$ 1.13 8.1% 5.1% RNBO 20.00 21.75 JAN 15.00 6.13 *$ 1.13 8.1% 5.1% BIDS 5.13 4.44 JAN 5.00 1.00 $ 0.31 7.5% 4.7% TSCM 15.75 16.78 JAN 12.50 3.88 *$ 0.63 5.3% 4.6% NETS 28.00 29.88 JAN 22.50 6.63 *$ 1.13 5.3% 4.6% AGY 16.88 15.25 JAN 15.00 2.75 *$ 0.87 6.2% 4.5% SATH 12.69 10.38 JAN 10.00 3.38 *$ 0.69 7.4% 4.0% MESG 16.63 14.25 JAN 12.50 4.88 *$ 0.75 6.4% 4.0% BNYN 15.81 23.13 JAN 12.50 4.13 *$ 0.82 7.0% 3.8% BIDS 5.25 4.44 JAN 5.00 0.94 $ 0.13 3.0% 2.6% *$ = Stock price is above the sold striking price. Positions Closed: Summit (BEAM), Value America (VUSA) 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 EMIS 24.63 JAN 20.00 MTQ AD 5.38 297 19.25 3.9% 3.9% ENMD 28.44 JAN 22.50 QMA AX 6.75 40 21.69 3.7% 3.7% VDAT 13.50 JAN 10.00 UDT AB 3.88 243 9.62 4.0% 4.0% Sequenced by Return Not Called Stock Price Mon Strike Option Opt Open Cost RC RNC Sym Price Symbol Bid Intr Basis VDAT 13.50 JAN 10.00 UDT AB 3.88 243 9.62 4.0% 4.0% EMIS 24.63 JAN 20.00 MTQ AD 5.38 297 19.25 3.9% 3.9% ENMD 28.44 JAN 22.50 QMA AX 6.75 40 21.69 3.7% 3.7% Company Descriptions EMIS - Emisphere $24.63 *** Higher And Higher! *** 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 new chance to gain entry into an ever climbing issue that is nearing blue sky territory. JAN 20.00 MTQ AD Bid=5.38 OI=297 CB=19.25 RC=3.9% RNC=3.9% Chart = http://quote.yahoo.com/q?s=EMIS&d=3m **** ENMD - Entremed $28.44 *** Awesome Volatility *** Entremed engaged primarily in the research and development of biopharmaceutical products that address the role of blood and blood vessels in the prevention and treatment of a broad range of diseases. Their core technologies include the development of products intended to inhibit the abnormal growth of new blood vessels associated with cancer and certain causes of blindness, and a device designed to enhance the ability of blood cells to deliver oxygen to organs and tissues. The latest spike in price occurred after Entremed exercised its stock repurchase option from Bristol-Myers Squibb. Favorable speculation that must be researched thoroughly. Excellent support above the sold strike. JAN 22.50 QMA AX Bid=6.75 OI=40 cb=21.69 RC=3.7% RNC=3.7% Chart = http://quote.yahoo.com/q?s=ENMD&d=3m **** VDAT - Visual Data Corp. $13.50 *** A New Uptrend? *** Visual Data produces, markets and distributes original video and audio content for the Internet and soon Interactive Television. Visual Data's extensive video libraries cover a wide range of topics, including travel, business information, medicine and healthcare and entertainment. Through its subsidiary EDnet, Inc. Visual Data has established relationships throughout the motion picture and recording industries. VDAT's strategic alliances include PR Newswire, InterVu, and TravelWeb, to name a few. Visual Data recently launched TheFirstNews.com, which provides breaking corporate news releases in a streaming-audio format giving subscribers corporate news announcements. The issue has moved back above its 150 dma on increasing volume and is now breaking above a recent four-month base. Earnings are due near the end of December. JAN 10.00 UDT AB Bid=3.88 OI=243 CB=9.62 RC=4.0% RNC=4.0% Chart = http://quote.yahoo.com/q?s=VDAT&d=3m NAKED PUT SECTION ***************** Option Trading Strategies: Orders And Executions We have received a number of emails regarding option trading in a volatile market. There are numerous obstacles that an investor must overcome when participating in this type of environment and it is important to understand the limitations of the system that we use. Wide price fluctuations and heavy trading characterize volatile markets. These conditions generally arise as a result of an imbalance of trade orders in one direction or another and can occur at the market opening or at any time during the trading day in either the over-the-counter exchanges or the NASDAQ. The markets can be driven by many different factors including news releases, changes in analyst recommendations, Internet news and rumors in chat rooms, adjustments to interest rates, interviews with leading policy-makers or for no reason at all. Sometimes the sheer volume of trades being processed in a fast market will lead to delays in trade execution and/or trade reports. Prices and trades move so quickly that there can be significant differences between the quote you receive at one point in time and the price at which the trade is executed later. Even real-time quotes will be lagging behind the current market. The number of shares/contracts available at a certain price and the size of the position at the current quote by a market maker can also change rapidly; affecting the likelihood of your order being filled at that previously quoted price. Market orders are executed on a first-come first-served basis. The high volume of orders that are rapidly submitted to market makers and specialists from many broker-dealers may create a backlog that can cause significant delays. As a result, when you place a market order under these conditions, the quote you get is more an indication of what has already happened than that of the execution price you will receive. In the time between when your order is placed and when it is executed, other orders already in line ahead of yours can adjust the stock/option price and movement. There are also significant delays between an initial partial execution you receive, which may be an automatic execution, and the subsequent fill of the balance of a larger order, which may be executed manually. Many market makers offer automatic execution for eligible securities up to certain size positions (20 contracts is the standard number for auto execution of an option order). However, during volatile market conditions, that feature may be modified or suspended for some or all issues. Under those circumstances, delays may result and order executions can occur at prices less favorable than the originally quoted. If you place a trade order during a volatile market, there is no guarantee that your order will be executed. Entering a limit order merely allows you to establish a buy price at the maximum you are willing to pay, or a sale price at the lowest you are willing to receive. Even when the market moves to your limit price, there is no guarantee that you order will be executed because there may be limit orders from other customers ahead of yours. During a fast market, it is recommended that you don't attempt to change or cancel limit orders. Change or cancel orders do not expedite trade reports in a fast market; they actually burden the system with more information to process. If you enter a change, the broker will process your request on a best-efforts basis and that change will probably result in your order moving to the back of the line. The safest way to trade in a fast market is to find a dependable broker (there are many!) and make your desires very clear so that they can effectively execute the transaction that you are paying them to perform. Good Luck! *** 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 RNBO 21.94 21.75 JAN 17.50 0.81 *$ 0.81 15.6% 13.5% AND 9.25 7.75 JAN 7.50 0.44 *$ 0.44 18.4% 13.3% SATH 12.94 10.38 JAN 10.00 0.56 *$ 0.56 17.8% 12.9% IUSA 12.13 12.88 JAN 7.50 0.31 *$ 0.31 11.3% 9.8% EMIS 21.00 24.63 JAN 15.00 0.50 *$ 0.50 10.6% 9.2% DAVX 23.75 20.50 JAN 17.50 0.56 *$ 0.56 10.5% 9.2% CCUR 17.75 15.44 JAN 12.50 0.50 *$ 0.50 12.3% 8.9% SCOC 17.88 32.00 JAN 12.50 0.44 *$ 0.44 10.9% 7.9% MSGI 19.00 17.38 JAN 12.50 0.38 *$ 0.38 9.1% 7.9% CS 28.50 26.75 JAN 20.00 0.56 *$ 0.56 8.9% 7.8% PRRC 23.56 27.25 JAN 17.50 0.56 *$ 0.56 10.6% 7.7% INSO 32.13 31.25 JAN 20.00 0.75 *$ 0.75 10.4% 7.6% WAXS 20.50 21.25 JAN 15.00 0.38 *$ 0.38 8.5% 7.4% NETS 28.00 29.88 JAN 20.00 0.50 *$ 0.50 8.2% 7.1% EGRP 35.56 27.25 JAN 25.00 0.56 *$ 0.56 7.3% 5.3% MMWW 37.38 29.88 JAN 22.50 0.50 *$ 0.50 6.3% 4.5% *$ = Stock price is above the sold striking price. 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 AWEB 12.88 JAN 10.00 UWB MB 0.50 80 9.50 16.3% ENMD 28.44 JAN 20.00 QMA MD 0.44 70 19.56 7.2% ORCT 31.00 JAN 25.00 QFY ME 0.81 130 24.19 11.2% PILT 17.13 JAN 12.50 PTU MV 0.50 13 12.00 12.7% Sequenced by ROI Stock Price Mon Strike Option Opt Open Cost ROI Opt Sym Price Symbol Bid Intr Basis Expired AWEB 12.88 JAN 10.00 UWB MB 0.50 80 9.50 16.3% PILT 17.13 JAN 12.50 PTU MV 0.50 13 12.00 12.7% ORCT 31.00 JAN 25.00 QFY ME 0.81 130 24.19 11.2% ENMD 28.44 JAN 20.00 QMA MD 0.44 70 19.56 7.2% Company Descriptions AWEB - Autoweb.com, Inc. $12.88 *** Breakout Soon! *** Autoweb.com is the leading consumer automotive Internet service, guiding consumers through every stage of vehicle ownership. From research and buying, to enjoying, maintaining and selling, AWEB delivers what consumers want. Autoweb.com works with over 5,000 Member Dealers and other commerce partners to provide the best experience at every stage of vehicle ownership. Autoweb.com has announced a long-term, strategic e-commerce alliance with Saturn Corp. that spans across its entire retail network nationwide. AWEB has achieved a number one ranking for unique visitors among online car buying services in November. The chart looks great as Autoweb.com is moving up and out of a basing formation. Several technical indicators continue to strengthen and $0.50 is a very reasonable reward for trying to own the stock below $10. JAN 10.00 UWB MB Bid=0.50 OI=80 CB=9.50 ROI=16.3% Chart = http://quote.yahoo.com/q?s=AWEB&d=3m **** ENMD - Entremed $28.44 *** Awesome Volatility *** Entremed engaged primarily in the research and development of biopharmaceutical products that address the role of blood and blood vessels in the prevention and treatment of a broad range of diseases. Their core technologies include the development of products intended to inhibit the abnormal growth of new blood vessels associated with cancer and certain causes of blindness, and a device designed to enhance the ability of blood cells to deliver oxygen to organs and tissues. The latest spike in price occurred after Entremed exercised its stock repurchase option from Bristol-Myers Squibb. Favorable speculation that must be researched thoroughly. JAN 20.00 QMA MD Bid=0.44 OI=70 CB=19.56 ROI=7.2% Chart = http://quote.yahoo.com/q?s=ENMD&d=3m **** ORCT - Orckit Communications $31.00 *** Telecom - DSL *** Orckit Communications develops, manufactures and delivers DSL solutions, which enable telephone companies and ISP's to optimize the bandwidth in the "last mile" of copper wire in the Local Loop. Orckit's core silicon expertise enables them to provide a wide range of world-class DSL systems including its FastInternet(TM) DSLAM System with ADSL, and its CopperTrunk® HDSL and VDSL product lines. Orckit has key strategic alliances with several leading semiconductor companies and telecom equipment providers. Orckit has recently been awarded $2 million in funding by the U.S.-Israel Science and Technology Foundation to design and develop access solutions enabling commercial deployment of future residential broadband systems. Signs of strength are returning to the tape which may be signaling an end to the recent consolidation. JAN 25.00 QFY ME Bid=0.81 OI=130 CB=24.19 ROI=11.2% Chart = http://quote.yahoo.com/q?s=ORCT&d=3m **** PILT - Pilot Network Services $17.13 *** 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, which appears to be ending, is offering a new entry into Pilot. The technical outlook is still bullish and we favor the support near $12.50. Earnings are due near January 20. JAN 12.50 PTU MV Bid=0.50 OI=13 CB=12.00 ROI=12.7% Chart = http://quote.yahoo.com/q?s=PILT&d=3m ************************ SPREADS/STRADDLES/COMBOS ************************ Dow Delivers Christmas Cheer.. Wednesday, December 22 Cyclical issues led the blue-chip index as investors transitioned to inflation-resistant stocks and bellwether technology companies. Both the Nasdaq composite and the S&P 500 index advanced to record highs for the second consecutive day. The Dow gained just 3 points to 11,203. Market breadth was negative on the NYSE as 1,689 shares fell while 1,419 moved higher. Volume was modest with 849 million shares traded on the Big Board and 1.47 billion shares on Nasdaq. Tuesday's new plays (positions/opening prices/strategy): Silicon Valley SVGI JUN17C/JAN17C $2.06 debit calendar I-Stat STAT APR10C/JAN15C $4.68 debit diagonal Silicon Valley Group was out of the gate quickly with only a few minutes of trading before it began to move higher. There were a few contracts on the short side of our trade (at $1.50) but no other interest during the first hour. The position prices were within a reasonable range and our recorded entry was $0.06 from the observed quote. I-Stat offered a much easier entry with the best opportunity near 11:00 AM. The spread debit was observed at $4.75. Portfolio plays: The trend was much the same today as the market continued higher on strength in individual issues that dominate the averages. One of the few differences was the beginning of a shift to consumer stocks and much of the Dow's gains came from advances in Procter & Gamble (PG). The stock closed up almost $5 after analysts said they expected strength in the entire consumer products sector. The company also won a false advertising suit in a court battle against a rival. Our new LEAPS/CC's play is profitable after just one month. To compliment the rotation, Insurance issues were back in favor along with companies that are less affected by inflation and the economy. American International Group (AIG) rose $2.38 to $108. The world's largest insurer may be interested in acquiring Massachusetts insurer Trust Insurance. Both of our bullish debit spreads moved back into favorable territory and now we will look for an early exit opportunity. Today's top performer in the technology portfolio was PanamSat (SPOT). The stock jumped $3.88 after last night's news that its advanced Galaxy XI spacecraft had been successfully lofted into orbit, becoming the largest commercial communications satellite ever launched. Galaxy XI, PanAmSat's 20th satellite, will offer video, Internet and telecommunications services throughout North America and Brazil. The launch marks the beginning of PanAmSat's comprehensive satellite expansion and backup plan that will grow the company's fleet to 25 satellites by mid-2001. Both of our new (bullish) spreads are profitable after just one week. Another top performer was Adobe Systems (ADBE) with a $3.50 move to $67. The issue has corrected significantly since we recommended the play a few weeks ago but the LEAPS/CC's position should be positive at January expiration. Small-cap issues were hammered today but one of our speculation stocks continues perform well. Autoweb.com (AWEB), the leading consumer automotive Internet service, achieved a #1 ranking for unique visitors among Internet car buying services in November. According to Nielsen/NetRatings, Autoweb.com's combined properties received approximately 1,125,000 unique visitors in November, 18% higher than its next closest competitor. AWEB's online advertising also reached more consumers than any online car buying service. Our bullish diagonal spread continues to outperform many of the higher priced plays with numerous profitable exit opportunities since the position was initiated. Bellwether technology issues gained ground but telecommunications companies slumped after recent gains. AT&T (T) fell $1.31 on news that Bell Atlantic (BEL) received clearance from the FCC to offer long distance phone service in New York. BEL is the first company to receive authority to provide service in its home territory but AT&T said it expects to file a court challenge to the ruling as Bell Atlantic's network may limit fair competition. Both of our plays were affected but neither is in danger of a loss. The BEL calendar spread currently has a $4 profit and the T debit spread will profit if the stock finishes above $49. Another big loser was 3com (COMS). Share value of the network solutions company dropped almost $5 after a profit warning. COMS reported quarterly income of $0.37 a share, beating Street estimates by $0.03, but it warned third-quarter profit will be hurt by a Y2K sales slowdown. Our play is safe at $32.50. Potential merger partners Pharmacia & Upjohn and Monsanto moved higher after offering upbeat earnings forecasts to gain support for their deal. The companies said that estimated sales of the combined continuing operations will be almost $17 billion and the new business is expected to grow at an annual rate of 14-15%. Of course that did nothing to help the flagging Delta and Pine Land (DLP), whose owners can't seem to understand that a break-up might be a good thing. There's nothing wrong with finding a new dance partner when the one you have keeps stepping on your toes. DLP fell $0.50 to $15. Thursday, December 22 Blue-chips stocks filled investors with joy as holiday buying reached a climax with an across-the-board rally that saw the major averages set new records. The Dow Jones Industrial Average rocketed 202 points to 11,405 while the Nasdaq Composite reached a new high at 3,969. The tech-gauge peaked at 4001 in intra-day trading, crossing the 4,000 barrier for the first time. The S&P 500 index also climbed to another record. Volume was light at 735 million shares on the NYSE. Market breadth was positive during the session, with 19 winners for every 11 losers but despite the rally, 161 stocks hit new lows while only 86 made new highs. In the bond market, prices attempted to recover from early losses but the 30-year Treasury eventually slipped 11/32 to yield 6.48%. Portfolio plays: The festive mood on Wall Street spread to groups in the market that have been under recent pressure including financial issues and transport stocks. Banking companies posted healthy gains despite a downturn in the bond market and that helped insurance stocks as well. Our bullish position in American International Group (AIG) benefitted from the move, climbing $1.56 to $109.50. The midday rally provided early exit opportunities for both of the debit spreads near a break-even cost basis. The rotation to cyclical stocks continued today with Johnson & Johnson (JNJ) in the headlines after a $4 gain to $95. Our LEAPS/CC's play has doubled in value since the position was opened in late summer. Another long-term issue, United Airlines (UAL) made a big move during the session. UAL climbed $1.88 to end at $77 with the rallying transport sector. Both of our new LEAPS/CC's positions on this issue are profitable after just one month. The top performer in the portfolio was again PanamSat (SPOT). The stock price climbed another $3.50 to close at a recent high near $58 on momentum from Tuesday's successful satellite launch. SPOT will follow the deployment of Galaxy XI with the scheduled liftoff of Galaxy XR in January 2000. The new satellite will take-off from French Guiana aboard an Ariane rocket on a mission to become their fifth satellite in the Galaxy cable neighborhood. PanamSat is also expected to launch Galaxy IVR in the first quarter of 2000. Both of our (bullish) debit spreads are deep ITM with favorable exit opportunities. Loral Space (LOR) rode the industry's enthusiasm to a nice recovery, rising $1.25 to a recent high near $18. The move places our long-term calendar spread in profitable territory. Last but not least, we can't avoid mentioning Motorola (MOT) which has exceeded even the most optimistic estimates in 1999. Today the stock rose another $3.25 to a new all-time high at $145. The move prompted our adjustment to a higher strike in the bullish diagonal spread. The new LEAPS/CC's position is LJAN105C/JAN130C at $19.50 debit. I would like to take this opportunity to thank all of you that offered such generous support and encouragement for this section while we learned the tricks of the trade during the past year. I hope that you and your families enjoy a wonderful holiday season with all of the joy and happiness the Lord can provide. Remember those who are less fortunate when you give gifts and always treat your loved ones with the respect that they most certainly deserve. Merry Christmas and Happy New Year! Questions & comments on spreads/combos to ray@OptionInvestor.com ********* NEW PLAYS ********* CRUS - Cirrus Logic $14.06 *** Chip Sector *** Cirrus Logic is a manufacturer of proprietary ICs for desktop and portable computing, telecommunications and consumer electronics markets. The company has developed a broad portfolio of products and technologies spanning multimedia (graphics, video, and audio), wireless and wireline communications, magnetic disk and CD-ROM storage, and data acquisition applications. Cirrus is a market leader in audio integrated circuits for computer, consumer and professional segments; and in optical storage for the CD-R/RW industry. The company is also a technology leader in magnetic storage segment with its 3Ci system-on-chip (SOC) solution, which substantially integrates hard disk drive electronics. This year, Cirrus realigned operations to succeed in embedded applications, based on its unique combination of analog circuit skills and mixed-signal expertise. During this period, they returned to the fabless model that spurred its earlier growth. With its experience in both SOC solutions and audio technology, CRUS is well positioned to be a significant supplier in the emerging market for Internet audio, driven by the popularity of portable digital music players that can operate with either MP3 or Microsoft Audio compression standards. During 1999, Cirrus accelerated its momentum in the industrial market with the launch of numerous high-precision/resolution chip solutions. With nearly 900 patents (issued and pending) in its rich product portfolio, Cirrus Logic intends to build upon its strong market opportunities and technology positions. The company targets large existing markets that are undergoing major product or technology transitions as well as emerging markets that forecast high growth. They participate in worldwide markets, with more than 50% of sales coming from exports to Pacific/Asia, Japan and Europe. Technically, Cirrus has bounced off price support provided by the September high and the increase in volume (last two days) with a significant rise in buying reinforces the bullish outlook. The new interest suggests the up-trend is ready to resume and we will use the long-term approach to increase profit potential. PLAY (aggressive - bullish/diagonal spread): BUY CALL JUN-10 CUQ-FB OI=310 A=$5.12 SELL CALL JAN-15 CUQ-AC OI=2145 B=$0.75 INITIAL NET DEBIT TARGET=$4.12 TARGET ROI=50% - or - PLAY (conservative - bullish/diagonal spread): BUY CALL JUN-10.00 CUQ-FB OI=310 A=$5.12 SELL CALL JAN-12.50 CUQ-AV OI=777 B=$1.93 INITIAL NET DEBIT TARGET=$3.00 TARGET ROI=30% Note: We will use this position if the stock opens lower (from its recent overextended rally) on Monday. This spread offers increased downside protection but the sold (short) option must be monitored closely and rolled forward before expiration to protect the long position. Chart = http://quote.yahoo.com/q?s=CRUS&d=3m **** BCGI - Boston Communication Group $5.12 *** Bottom Fishing *** Boston Communication Group develops, markets and provides innovative call processing and customer support services to wireless telephone carriers. The company's roaming services, customer support services and prepaid wireless services and designed to enable wireless telephone carriers to focus internal resources on their core business activities, while increasing revenues, improving service quality and reducing costs. Their services are available in the United States, Mexico and Canada. Not much news on this issue but the company appears to be in a good position for future growth. Rumors on the message boards suggest that insiders and industry players are investing heavily in this company. One commented that Nortel Networks (NT) is using BCGI's wireless prepaid system and Voicemail platform and they have installed a large amount of BCG equipment in recent months. The chart on Boston Communications is showing subtle signs that the selling pressure is ending. Several technical indicators have formed positive divergences that suggest the stage IV trend has ended and a stage I base has begun. Increasing volume with the recent accumulation may be an indication that new institutional investors are adding bullish positions. We will use the small disparity in option pricing to open a favorable speculation play. PLAY (speculative - neutral/calendar spread): BUY CALL JUN-5.00 QGB-FA OI=95 A=$1.75 SELL CALL JAN-5.00 QGB-JA OI=35 B=$0.68 INITIAL NET DEBIT TARGET=$0.93 TARGET ROI=50% Chart = http://quote.yahoo.com/q?s=BCGI&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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