The Option Investor Newsletter Sunday 1-2-2000 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 WRAP (view in courier font for table alignment) ************************************************************ 12-30-99 High Low Volume Advance Decline DOW 11452.90 - 31.80 11568.80 11446.70 553,570k 1,766 1,365 Nasdaq 4036.87 - 4.59 4090.61 4026.19 1,100,607k 2,026 2,193 S&P-100 792.14 - 1.50 798.41 790.59 Totals 3,792 3,558 S&P-500 1464.47 + 1.01 1473.10 1462.60 51.5% 48.5% $RUT 499.27 + 2.26 499.27 498.87 $TRAN 2963.45 + 21.46 2973.69 2934.13 VIX 25.96 + 1.59 25.96 24.39 Put/Call Ratio .51 ************************************************************* The countdown continues only this clock won't stop at 007 By the time some of you read this it will be 2000. Due to the age old application of time zones, at 6:01 AM ET Friday morning it will be 12:01 AM 1/1/2000 in Auckland, New Zealand. (This always makes me laugh when someone claims the world is going to end at 12:01 on a given day. I want to hunt them up and ask them what time zone they are using.) Because of the many readers we have worldwide, in over 100 countries, we are sending the Sunday newsletter on Thursday night. While we have completely tested all 50+ computers in our office network and we are sure you have tested yours, we are not sure about the tens of thousands of servers that our email touches on its way across the Internet to you. Hopefully this will be just another event you will either forget by the end of next week or remember to tell your children later when talking about H.G. Wells War of the Worlds and the great Y2K scare. In my mind, and it has been very crowded in there lately, I think we should be more worried about the market next week than Y2K tomorrow. The small sell off today was simply traders moving to the sidelines for the holiday and nothing more should be made of it. The Dow and Nasdaq both opened strongly positive and then bled volume all day. The advance decline line was positive on both exchanges most of the day as it was yesterday also. This convinces me that the tax loss selling for 1999 is over and traders are ready to put their money back to work. Next week is shaping up to be quite a battle. The combination of cash inflows from retirement contributions and Y2K money coming off the sidelines will be pushing the markets higher. However, the Y2000 tax selling will begin in earnest. We will have massive movements of cash coming into the market and leaving at the same time. The positive side of the Y2000 tax deferred sales is that only a portion of the money will be leaving. Cash to pay 1999 taxes and a little spending money to pay off those holiday bills. The balance will either go into different stocks or go to the sidelines to wait for the coming pull back. Portfolio managers have down played the impact of these tax sales of previous big tech winners. The retort is "If we sold them what would we buy?" Trust me, there will be selling and with the Fed likely to be aggressive in 2000, the odds of strong selling before the Feb 1st Fed meeting is very strong. I would bet on a two billion share day on the Nasdaq next week as investors shuffle their holdings. There was an article on CNBC today about market tops in previous Januarys. I think they claimed that 70% of the time the first week in January was a short term market top. Many years it was the first or second day. Sometimes it was months before the market recovered. In 1999 the market top was the second Monday and the following slide took -200 off the Nasdaq and -600 off the Dow. I feel there is just too much liquidity to hold the market down long but we may see an end to day after day of new market highs. I incorrectly quoted the earnings date for Yahoo on Tuesday as Jan 6th, it should have been Jan-11th after the close. This is normally a turning point for the net stocks and the Nasdaq. The put/call ratio which measures investor sentiment is at the highest levels in memory on the Nasdaq and Dow. This points to a level of extreme pessimism and concern. Normally a high ratio is only achieved after a significant drop and represents a bottom. The existence of these high levels without a previous drop is actually an insurance policy against a severe sell off. Abbey Joseph Cohen was interviewed again today and if you read between the lines, she was hedging her bets. She said again that 2000 will be a good year but not a great year. The statement that caused me concern was her answer to tech valuations. She said that for most of this decade techs were grossly undervalued. BUT, now she feels that techs are FAIRLY valued and NOT cheap. This is a noted bull. What does she consider a good year for 2000? Her target as stated on CNBC AFTER the market close today was 1525 by year end. Before you start popping champagne corks let me remind you that the S&P closed today at 1464, only 60 points from her 2000 year end target. To be fair she always claims that her targets are low and obtainable. I hope so! It may be of note that the tech stocks in the S&P were up +75% for the year and all the other S&P stocks were only up +4.5%. Does this mean she expects a tech wreck in 2000? Don't forget that the Nasdaq is 44% over its 200DMA, a level historically unsupportable. Also historically the gains by the major indexes in the year after a record year have been terrible. After the previous biggest gain on the Nasdaq of +81% the next year the Nasdaq only gained +15%. The DOW, S&P and Russell all lost ground in the years following their biggest gains. The Nasdaq is up +84% in 1999 for the biggest gain on record. Name five stocks that are guaranteed to have strong volume on Friday's half day of trading. Here are my picks. HD, WCOM, INKT, GBIX and QCOM. I cheated, all of these stocks split after the close today and will trade at the post split prices on Friday. The biggest volume of course will be QCOM. Now the second quiz. If you have been holding QCOM for more than a week, did you sell at the open Thursday at $740? If not, why? After seeing it drop to 645 at the close, almost -$100, were you reconsidering your decision? More than 10% of the 140M float traded today, more than three times the recent daily volume. The new price target on QCOM, which caused the spike yesterday, is now $250. (post split) The stock price at the open tomorrow will be in the $161 range depending on after market activity. While a $600 QCOM has been making huge moves it is entirely possible that these big swings are now going to slow with four times the shares available. We have seen it time and time again. As outstanding shares increase the size of the moves decrease. Check out the recent moves on MSFT, INTC or DELL which all have over three billion shares outstanding. Granted the 644 million shares after the split still pale in comparison to the 3 bln for these other heavyweights. My point here is that paper gains are just that, paper profits, until sold. Many of the stockholders for the last couple of years bought this stock for $20-$50 and are now paper millionaires. A $38,750 investment on 1/1/99 (1550 shares) is now worth over $1,000,000. Some may decide they will want to turn paper profits into cash in January. Many funds have share limits for stocks in their portfolio to avoid having huge losses should disaster strike. Institutions hold 55% of the available shares or 77 mln shares. As of tomorrow, they will own 308 mln shares. If your share limit was one million then you will be three million over as of tomorrow. There is no drop-dead date when they must sell their shares but you can bet they will want to sell before the price drops very far. Remember every -$1 drop is now -$4 with four times the shares. Have you heard that there are several companies that claim they have a better product coming to market next year? Now that I have built a case for a coming drop let me switch sides. The $250 share target price is probably low. Even at these lofty 500+ PE levels the odds of QCOM beating the $250 level this year are 100%. Investors that missed the run will pour into the new $160 shares in record numbers hoping to see the $250 target by February. QCOM also has new products on the horizon. One which has analysts excited is streaming video over your cell phone. Data rates 50 times current modem speeds are expected soon. This will only increase the population of the CDMA technology. Confused? What we have here is simply a difference in time frames. Short term there may be some selling pressure as traders lower their exposure and diversify. Long term it is still a great company and a great stock. Did I mention that they just voted to increase the outstanding shares to 3 bln? There are now only 644 mln outstanding, can you say 4:1 split again soon? Friday should be exciting depending on the problems or lack of problems as Y2K moves across the face of the planet. Since the new year will be reported with a microscopic focus in each time zone, a lack of problems will likely cause a flood of money into the market before the 1:PM closing bell. Conversely if networks show disaster after disaster then the money may move quickly to the sidelines as well. The focus should be on the length of time expected to correct the problems and the severity. Next week begins the economic challenges for 2000 with the NAPM on Monday, Construction Spending on Tuesday, Factory Orders on Wednesday, New Home sales on Thursday and the biggie, the December Jobs Report on Friday. Remember, the Fed does not have to wait for the Feb-1st meeting to raise rates. Should a strongly negative report stimulate Greenspan things can turn ugly in a heartbeat. I will resume my Options 101 articles next Sunday with "How to trade the high risk Internets, without any risk". Good Luck, and a happy new year to everyone! Jim Brown Editor Happy New Year from all of us at OIN. /charts/index.asp?image=mw530 This is some of the staff from the Denver office at our Christmas party. About 25 were either unable to attend or work in other states and commute by email. Jim is the gray haired man in the center. ************************** Twas the night before Y2K ************************** Twas the night before Y2K, And all through the nation We awaited The Bug, The Millennium sensation. The chips were replaced In computers with care, In hopes that ol' Bugsy Wouldn't stop there. While some folks could think They were snug in their beds Others had visions Of dread in their heads. And Ma with her PC, And I with my Mac Had just logged on the Net And kicked back with a snack. When over the server, There arose such a clatter I called Mister Gates To see what was the matter. But he was away, So I flew like a flash Off to my bank To withdraw all my cash. When what with my wandering eyes Should I see? My good old Mac Looked sick to me. The hack of all hackers Was looking so smug, I knew that it must be The Y2K Bug! His image downloaded In no time at all, He whistled and shouted, Let all systems fall! Go Intel! Go Gateway! Now HP! Big Blue! Everything Compaq, And Pentium too! All processors big, All processors small, Crash away! Crash away! Crash away all! All the controls That planes need for their flights All microwaves, trains And all traffic lights. As I drew in my breath And was turning around, Out through the modem, He came with a bound. He was covered with fur, And slung on his back Was a sackful of virus, Set for attack. His eyes-how they twinkled! His dimples-how merry! As midnight approached, though Things soon became scary. He had a broad little face And a round little belly, And his sack filled with virus Quivered like jelly. He was chubby and plump, Perpetually grinning, And I laughed when I saw him Though my hard drive stopped spinning. A wink of his eye, And a twist of his head, Soon gave me to know A new feeling of dread. He spoke not a word, But went straight to his work, He changed all the clocks, Then turned with a jerk. With a twitch of his nose, And a quick little wink, All things electronic Soon went on the blink. He zoomed from my system, To the next folks on line, He caused such a disruption, Could this be a sign? Then I heard him exclaim, As he drove out of sight, Happy Y2K to all, It's a helluva night! ***************************** TWAS THE WEEK AFTER CHRISTMAS ***************************** 'TWAS THE WEEK AFTER CHRISTMAS AND ALL THROUGH THE HOUSE NOT ONE PC WAS WORKING NOT EVEN A MOUSE. I TURNED ON THE POWER BUT NOTHING WAS WORKING I GRAB THE COMPUTER AND START BANGING AND JERKING. I LAID OUT THREE GRAND FOR THIS BIG PIECE OF JUNK ON JANUARY 1ST THE DUMB THING WENT "KERPLUNK"! WHEN I THREW IT OUT THE WINDOW IT MADE SUCH A CLATTER MY NEIGHBOR JUST CALLED TO SEE WHAT'S THE MATTER. I TURNED ON THE TV THE CABLE IS DOWN MY MICROWAVE OVEN IS MAKING WEIRD SOUNDS. MY NEW VCR IS AS DEAD AS A ROCK NOT ONE LIGHT IS BLINKING NOT EVEN THE CLOCK. IT'S TWENTY BELOW THE PEAK OF SNOW SEASON THE FURNACE WON'T WORK THE PIPES ARE ALL FREEZING THIS COULDN'T HAVE HAPPENED AT A WORSE TIME I THINK I HAVE FROSTBITE ON MY BEHIND. I LAUGHED FOR A SECOND AND THOUGHT IT ALL FUNNY THEN A CALL FROM MY BANK IN REGARDS TO MY MONEY. WE MANAGED YOUR PENSION AND SAVINGS WITH CARE BUT FOR SOME ODD REASON YOUR MONEY'S NOT THERE WE WERE Y2K READY WE'D THOUGHT WE'D BE HEROES BUT REGRET TO INFORM YOU YOUR BALANCE IS..ZERO"! I DROP THE RECEIVER TO THE BATHROOM I RUSH I PUSH DOWN THE HANDLE THE TOILET WON'T FLUSH. I TURNED ON THE FAUCET NOT ONE DROP HITS THE SINK I HEAD OUT THE DOOR TO THE PUB FOR A DRINK. I JUMP IN THE CAR TURN THE KEY IN THE SWITCH IT ONLY GOES "CLICK" I SCREAM,"SON OF A WITCH!" A COMPUTERIZED IGNITION HAS JUST SEALED MY FATE NOT SET UP FOR THE "2000" DATE. I TWITCH LIKE A MADMAN THIS CANNOT BE TRUE NO CAR, HEAT, OR MONEY WHAT THE HECK CAN I DO. SHOUTING OBSCENITIES AS I RAN OUT OF SIGHT HAPPY Y2K TO ALL IT'S BEEN ONE HECK OF A NIGHT! ************ Stock News ************ There is no Stock News article this weekend ******* Ask OIN ******* There is no Ask the Analyst article this weekend. ************** Market Posture ************** As of Market Close - Thursday, December 30, 1999 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,800 11,320 11,453 BULLISH 12.23 SPX S&P 500 1,340 1,400 1,464 BULLISH 12.03 OEX S&P 100 700 750 792 BULLISH 12.03 RUT Russell 2000 430 450 497 BULLISH 11.12 NDX NASD 100 2,850 3,150 3,684 BULLISH 12.03 MSH High Tech 1,450 1,630 1,846 BULLISH 12.03 XCI Hardware 1,160 1,210 1,401 BULLISH 11.11 CWX Software 1,100 1,200 1,381 BULLISH 9.03 SOX Semiconductor 580 660 695 BULLISH 12.21 NWX Networking 750 800 876 BULLISH 12.03 INX Internet 600 675 727 BULLISH 12.07 BIX Banking 645 690 567 BEARISH 11.30 XBD Brokerage 410 450 446 Neutral 11.30 IUX Insurance 625 650 607 BEARISH 11.30 RLX Retail 900 935 1,007 BULLISH 11.23 DRG Drug 380 400 354 BEARISH 12.07 HCX Healthcare 760 790 707 BEARISH 12.07 XAL Airline 180 190 155 BEARISH 5.21 OIX Oil & Gas 290 315 292 Neutral 11.23 Posture Alert Late day selling left the broad market in negative territory, with the NYSE setting a 52-week low for volume during regular trading days. The Nasdaq still managed to crack over the billion-share figure, and with the way things are going, we would not be surprised to see a 2 billion-share day early in the new millennium. Most sectors were quiet today and thus relatively unchanged; however, the only real losing sector was the Internet sector, which closed down -2.42%. With a half-day tomorrow, we would like to wish you a happy and safe New Year! ****************** Market Sentiment ****************** Thursday December 30, 1999 Higher Highs in the New Millennium! The Nasdaq lost all steam this afternoon, as the technology index gave away all of the gains from the morning session. Volume was decent, but volume on the Big Board set a 52-week low for futility during regular trading sessions. Regardless, tomorrow's trading day should be even more futile. The only real action to watch today was the Qualcomm gap-up at the opening, which gave many people the case of "sticker shock," as their 740 dollar purchase dropped a quick eighty or ninety dollars. The fun should continue for this stock, as it will be trading split adjusted tomorrow. One amusing event witnessed today was Abbey Joseph Cohen getting the honor of closing the NYSE. For those of you who witnessed it, you saw Abbey-the-bull doing the ritual of hitting the gavel while being surrounded by all the NYSE officials during the close of the exchange. However, in this case, the top of the gavel broke off and flew straight down into the trading pit. It was a pretty amusing sight, but we hope it didn't hit any bears! Speaking of bears, they are definitely on the prowl pre-Y2K. They seem to believe that the end of the market is coming upon us, as they jump on out-of-the-money puts right before the big dance. Price premiums for out-of-the-money index puts are currently much greater than calls of equal stature. Another indicator that is showing an increase in pessimism is the Pinnacle Index for the OEX, in which overhead resistance has dropped dramatically. If this trend continues, and we think it will, this may just be indicating that we are due for a rally. Another issue that jumps out at Pinnacle is that the put/call ratios continue to be dominated by the bears. The put/call ratio for the S&P 500, during this last trading day, stood at 2.85, which is very bearish. It gets worse. The put/call ratio for the Dow was at 5.9, and for the Nasdaq 100, it was at a blistering 10.07. OUCH! Pretty bearish stuff. The Nasdaq 100's overall p/c ratio is now back over the 2.0 benchmark, and is currently clocking in at a 2.23. This benchmark number is significant, as the p/c ratio has consistently been above this number during the NDX's magnificent run. What this is telling us is that the NDX may have some strong legs in January! One last issue that came out this week was the most recent short interest ratio for the Nasdaq. The Nasdaq set a short interest record for the third month in a row ending December 15, clocking in with a 2.13% increase. Shares short rose by 49,301,236 to a grand total of 2,363,795,218. The bearish sentiment continues. This is the 3rd record in a row. Can you imagine being short back in October? It is our opinion that this bearish sentiment will only help technology stocks in the near term. When you combine this statistic with the ones above, what you get is a recipe for higher highs in the new millennium! The traders at Pinnacle Capital would like to wish everyone a safe and happy New Year! BULLISH Signs: Cash Flow: The amount of money continues to pour into this market, but more importantly, is the money that is building up on the sidelines that will eventually have to be put to use. Short Interest: The Nasdaq set a short interest record for the third month in a row ending December 15, clocking in with a 2.13% increase. Shares short rose by 49,301,236 to a grand total of 2,363,795,218. This high level of bearish sentiment may only help increase the up-move in technology stocks during the new millennium. S-Squeeze: News events continue to squeeze the shorts, as lately evidenced by Commerce One (CMRC) and Qualcomm's (QCOM) recent tour into the stratosphere. Mixed Signs: Volatility Index (25.45): 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 (6.475%): 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, but recently, we are starting to witness a slight uptick. 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. 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 (12/24) (12/28) (12/30) Overhead Resistance (795-810) N/A 6.34 3.98 OEX Close N/A 794.71 792.14 Underlying Support (775-790) N/A 0.96 1.04 What the Pinnacle Index is telling us: Based on 12/30, overhead is starting to lighten up, and if this pace continues, may indicate a rally at the start of the new millennium. Underlying support is getting stronger, but is still light. Put/Call Ratio Friday Tues Thurs Strike/Contracts (12/24) (12/28) (12/30) CBOE Total P/C Ratio N/A .47 .51 CBOE Equity P/C Ratio N/A .35 .38 OEX P/C Ratio N/A 2.48 1.87 Peak Open Interest (OEX) Friday Tues Thurs Strike/Contracts (12/24) (12/28) (12/30) Puts N/A 700 / 11,096 700 / 11,799 Calls N/A 700 / 6,383 700 / 6,086 Put/Call Ratio N/A 1.74 1.94 ************* COMING EVENTS ************* Monday - NAPM Tuesday - Construction Spending Wednesday - Factory Orders Thursday - New Homes Sales Friday - December Employment Report, Consumer Credit ************* WOMAN'S WORLD ************* NOPE, The Party Was Only Beginning After All. As Gomer Pyle used to say, "SUR-PRISE, SUR-PRISE". I don't think anyone was expecting yesterday's run up by Qualcomm, but I will remember it always. More Champagne, please!!! Well, what should I say? "Oops", for selling my higher risk QCOM contracts on Tuesday, or "Thank Goodness", for holding on to all the others? Either way, I am happy. Remember, we never complain for taking profits, especially nice juicy profits...even if they doubled the next day!! Congratulations to everyone who has been playing this gorilla. Perhaps now you can appreciate why I have focused my attention primarily on YHOO and QCOM for most of this month. I am a very happy lady. Yesterday, QCOM just made me happier and YHOO is building steam. Just for the record, thank goodness I only sold off my high risk trades! Otherwise, you would have seen one upset brunette developing new foreign language skills! Luckily, I had kept my basket of January 500 calls bought at 16 1/4. Today they closed at 173. Gulp! I know from my emails, that I am not alone. Anyone lucky and brave enough to jump in on this play, was greatly rewarded. Anyone who didn't, is probably in a bad mood. Don't thank me or blame me. I am just a player like you. We all win some and loose some. The winners feel a lot better. In medicine, one learns how to perform procedures by the theory "see one, do one, teach one". You watch someone who is more experienced than you, do one. You study their technique and then you try it yourself. After learning it and becoming more polished, it is your responsibility to then teach someone else. The rotation of learning continues. I am very grateful for the lessons I have learned this year but I have much more to learn, that will still take years. This market is exciting and I will remember this year the rest of my life. It is this euphoric feeling that urges me to repeat the 18 mistakes I discussed in my article "Loosing Money On Vacation" printed in November. These are the mistakes I realized I had made, after loosing my nice profits, from the first quarter of this year. After trading successfully for several years, it wasn't until I had an extreme quarter, before I learned what I didn't know. I lost site that the market could actually STOP going up. It wouldn't hurt any of us to review my mistakes again. Making these mistakes and then learning from them, has drastically improved my trading. As you re-read them, ask yourself if you too could be feeling a similar false since of security, like I felt last April before I left town with open positions. Perhaps it will help you be careful, going into January. None of us want to give up any of our profits next year. You should be able to find the whole article in the archived Woman's World section. These are the things I now know, I did wrong. 1. Having a false sense, of not being at risk for big losses. Doing too well for too long 2. Believing I knew what I was doing, because I had winning plays, in an up market 3. Not researching my plays 4. Having too many open positions at once, at too many strike prices (the 1s, 2s, and 3s) 5. Playing too many companies 6. Not understanding the value of technical analysis and indicators 7. Not understanding how to correlate the stock with the sector, market, sentiment & vix 8. Not having an exit plan 9. Not buying at good entry points 10 Not knowing markets have historical yearly cycles, when the odds are against you 11 Buying OTM calls when I didn't know why 12 Not following my cost basis, due to #3 & 4 above 13 Not understanding the expense, of not having real time quotes for the full time trader 14 Not taking money off the table, instead playing with all my profits 15 Not having a trader friendly brokerage account 16 Entering shorter term trades and more contracts in a down market, trying to recover my losses 17 Leaving town with many open vulnerable positions 18 Never having ever been taught, "Sell Too Soon" Okay, so what else happened this week? Well, I took profits in some of my deep ITM YHOO contracts and bought more multiple OTM contracts on dips. Naturally, I could be wrong, but I expect this one to really start taking off next week since YHOO's earnings are less than 2 weeks away. I was able to buy BVSN on Wednesday's intra-day dip and also picked up some February BRCM, which will hopefully become a split play. I know you will think I'm nuts, but I bought a couple of more QCOM on the big dip today because I expect more buying after the split. I will be watching my QCOM very carefully next week. Do you think it will have an earnings run in January???? (that's a joke! ...who knows?!) Anyway, I am pretty well settled on my current positions. The decisions and game plans have been established. I know why I bought each one and what I am expecting from them. For now, I'll just rest and celebrate a great year, waiting on nightfall Friday. Over the weekend I will be checking foreign markets for weird happenings and like everyone else, I will hold my breath hoping I made the right decision to hold over the weekend. I have sold off my riskiest positions, which hopefully will give me some form of protection if something horrible happens. I worry more about having online access to trade, than the trades themselves. If I need to exit, can I? If holding proves to be a mistake, at least I will know that it was a once in a lifetime mistake, which will never happen again. When making your New Year's resolutions, consider making one that affects your trading too. Decide on ONE thing you can do, which will improve your trading. I suspect if each of us chooses just one thing, our profits will reward us for the conscious effort. Here are some ideas that may help: learn a hedging technique for a future market down turn, learn basic technical analysis, learn how to benefit from a quote service, go to a conference and sit in the front, learn how to research a play and read a basic chart, learn how to choose an entry point, decide on a stop limit on your losses and be sure you abide by it, learn how to churn for cash flow instead of holding for eternity, know your exit plan before you enter and perhaps, learn how to stop when your plays aren't working. Improving even one thing at a time, will help a lot more than you realize. Good Luck Everyone. I hope you have a Memorable and Safe New Years. I'll be raising my glass to QCOM, YHOO and others, for a fabulous year. I'll also have a special toast for the OIN Research Team. Now it's time to have some fun, but I really am scared of the dark. Renee renee@OptionInvestor.com ************** What a year it has been It's easy to have a happy New Year with gains like those seen by most of us this year! The only problem now is it is getting harder to find good high quality tech stocks which haven't skyrocketed so high that the premiums are over valued. I sold my Nortel June 85 calls at 20.5 last week (for a two point profit) then watched the stock rise another ten points before setting in the 98-101 range. Then I bought Nortel June 100 calls for 20.5 this week. I think these are a gift. My other strategy for this week is Nextlink stock hedged with Nextlink Feb 80 puts. This position was entered Monday, and all Nextlink has to do next week is make a big move one way or the other for this position to be profitable. Nextlink is a dynamic stock with explosive revenue growth potential and it has recently been added to the Nasdaq 100. However, the volume in this stock has been unusually low this week and I think it will pick up next week when the holidays are over and institutional buying occurs.Next week we also have the employment report, which usually swings the market dramatically one way or the other. I won't make as much money as I would in a call option this way, but I only take high risk positions with a certain percentage of my capital. I am hanging on to my CMGI stock until it splits, after that it may settle down to a 2-5 point trading range which is easy to trade. Around this time of year most Wall Street analysts are reflecting on the phenomenal year we have had and making annual predictions for the year ahead. The majority I have read about are bullish, with year end predictions for the Dow in the range of 12,500 to 14,000 and the Nasdaq 5000 or more. There are a few famous doom and gloomers who are predicting that stocks will take a major down turn, I am sure everyone knows who they are. If you look at a 50 year chart of the Dow or the S & P 500 which you can get off the Yahoo finance or other services you will see that over the very long term the US stock markets go up. However, the last really bad year we had in the market was 1991, and it is important to look at circumstances we had in the 1980s and early 1990s to understand what was going on so everyone can reach his or her own conclusions and strategies for this year. There are several key factors which have driven the phenomenal bull market of the 1990s. One of them is the technological revolution and the growth and productivity it has stimulated. The NASA scientists who started the Internet years ago, the guys at Intel, Cisco and Microsoft who made the equipment for people to access the Internet,and the leaders at American companies who lead the world in technological improvements and innovation every day made all of this possible. If we look ahead a long time it's easy to see that some of these companies will grow to be 5 or 10 times bigger than they are now in the next decade. The fundamentals of most companies in the U.S. have improved over the last decade, as earnings, profit margins and return on equity have grown, which gradually adds to the book value of a company. In addition, we have been lucky the last several years because several of the economic factors which influence the stock market have been consistently benign. We have had historically low interest rates, relatively low inflation and low unemployment. Despite all of the technological growth we can see in the future, if one or more of these factors changes, this may change the rate of growth we see in the market. One of the reasons we have experienced relatively low interest rates of below 7% in the latter part of the decade is the fact that we now have a federal budget surplus. It wasn't always this way. When Ronald Reagan left office in the late 1980s the federal budget deficit was in the trillions. Trillions! This was partly due to the fact that the federal government spent heavily on defense and other programs while he was in office. This was a different era, it was during the height of the cold war, and the former USSR was perceived by many to be a major threat to international security. However, when Reagan left office interest rates went as high as 12%. Economists blame this on several factors, including the heavy increases in interest rates by the Federal Reserve under Paul Volker, but there is no denying that the federal budget deficit influences interest rates greatly. The Clinton Administration, on the other hand, instituted a program of fiscal conservatism and restraint which has been consistent throughout the last 8 years. Such noted experts as former Treasury secretary Robert Rubin have stated that this fiscal conservatism was the primary factor which reduced the federal budget deficit to the surplus we are enjoying now. The implications for this on the interest rate market and the stock market are huge. A big federal budget deficit is like a big weight on your shoulders. Imagine trying to purchase something on a credit card when you are already a million dollars in debt. The rate they would charge you would go way up. What worries me is that the federal budget surplus could become a budget deficit again. We are in an election year, and if a new administration comes in next year, which does not follow the same program of fiscal restraint our budget surplus could become a deficit again. It probably won't happen next year, maybe not even the following year, but if it were to happen, things could change in the market. The technology stocks have been on fire, and have been ignoring the slight increases in interest rates we have seen. Interest rates have increases from 6% to 6.45% and still the market has rallied. However, if rates were to increase to 8% or 9%, imagine what would happen to the market. No one can predict exactly how the stock market would react to this, but heavy increases in interest rates are generally not good for stocks. In addition to competing for investors' money by offering high risk-free yields, high interest rates mean it is harder for corporations to borrow to expand their programs, and must reduce their profit margins to pay off interest on debts. So, although most analysts can see another good year ahead of us, it doesn't always mean that things will always necessarily be this good forever. Every market moves in cycles, and sometimes prolonged good periods can dull peoples' perception of risk. It's always best to invest some of your money for retirement for the very long term (the rest of your life) while hedging your bets with your trading capital to a certain degree. Mary@OptionInvestor.com ************************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 ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "subscribe@OptionInvestor.com" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 DISCLAIMER *********** This newsletter is a publication dedicated to the education of options traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. The newsletter staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control.
The Option Investor Newsletter 1-2-2000 Sunday 2 of 5 *************** TRADERS CORNER *************** Trading Decision Game #1 Last week, I set up what I call a "Trading Decision Game," which was designed to give our readers the chance to design a plan for how they would handle a specific situation. Please go back to that column under the Trader's Corner tab on the left to review the situation. Recall that the date is December 7, 1999, you have made a nice profit on NOK Dec140 calls which spiked up sharply to 170 - 178 on the CEO's higher estimate of handset growth, and you are now considering entering a new NOK Jan160 position. You have $50,000 in your account. Here are three possible plans -- Solution 1 what I would do is take half the profit from the Nok 140 call and put it in to a Nok 165 call when the stock is 169. I always sell after a couple of points profit, even though I miss some really big moves that way. I like to watch it rather than enter the order right away and decide when to sell it. Solution 2 I would watch for any pullback, and bounce off support near the 160-165 range. If this occurs I would target shoot the option price with a "limit buy to open" on the January 160 call. Four contracts in the $8 range. One order GTC. If filled, I would place a limit sell on two contracts at $16 and a stop loss of $4 on the other two contracts. Hopefully all goes well and I get limited out on the two $16 sells at which time I would move up my stop and let the other two contracts run until I see any signs of weakness. Then I would close the remaining contracts. I would only hold the GTC order for one or two days because I am afraid of buying options too close to expiration. Solution 3 (author's solution) I would use buy to open, market, contingent on stock orders with 2 contracts each at the following prices -- 164.75, 159.75, and 157.75. After getting filled on each order, I would immediately set a sell to close, market, stop on stock (since NOK is a NYSE stock) at a price 5 points below NOK's price when it filled. When NOK hit its lower Bollinger Band, I would convert the orders to limit sells above the current price of the option for 50% profits. Commentary These three approaches highlight different ways to approach this problem. Solution 1 focuse on money management. She will never put all of the capital back to work in the same stock. In this way, she maintains the upside potential, but never risks her total gain. Solution 2 presents an interesting approach -- setting a stop for half of a position and a limit sell for the other half. This technique can give you some protection on the downside while also giving you the ability to profit from sharp upward intraday spikes. The last solution attempts to take advantage of the newsletter's comments regards probable levels of support. In fact, these levels of support did not hold in this particular case, as the stock traded as low as 150 by mid December. Therefore, this solution would highlight the need to also be very market aware through reading the Market Wrap & Market Posture sections of the newsletter, as well as outside sources. I am actually in this play. I got filled in three different stages, roughly as I outline in Solution 3, but I did not set the stops which I describe. As a result, I became overly focused on NOK as it moved downward through 170, 160, and finally bottomed at 150. Of course, now that NOK is back up to about 180, my play is profitable, but it is still a good lesson in how holding an option can make you an "investor" instead of a "trader." When you make that switch, you lose focus, and the ability to make sound decisions. My other plays are going OK, with QCOM an absolute blowout. I am concerned that the post split performance of JDSU bodes poorly for my decision to hold QCOM through the split and the New Year. But, for tax reasons alone, I feel this decision will be justified. I will be conducting an after action report next week, assessing my decisions, and going back to cash. Happy Holidays & Good Luck Janar Joseph Wasito janar@OptionInvestor.com LAST WEEKS CHANGE FOR THIS WEEKS PICKS: *************************************** Daily Results Index Last Mon Tue Wed Thu Week Dow 11452.86 -14.68 85.63 7.95 -31.80 47.10 Nasdaq 4036.87 5.94 -3.27 69.36 -4.59 67.44 $OEX 792.14 1.42 0.13 -1.07 -1.50 -1.02 $SPX 1464.47 -1.25 0.57 5.80 1.01 6.13 $RUT 496.59 2.03 4.02 8.53 -0.42 14.16 $TRAN 2963.45 39.98 16.83 -2.52 21.46 75.75 $VIX 25.94 1.23 0.09 0.68 1.57 3.57 Calls Mon Tue Wed Thu Week AFFX 184.75 28.09 -12.94 20.44 4.56 40.16 New DCLK 246.88 15.75 -6.44 28.19 -2.25 35.25 Party on! INSP 213.75 -3.38 19.00 1.50 10.50 27.63 Splitting HGSI 159.56 5.19 -2.31 10.13 10.56 23.56 Biotech play BVSN 175.94 5.44 4.63 6.38 6.44 22.88 New high! IMNX 116.00 0.88 -0.75 7.00 9.00 16.13 Hot sector YHOO 416.06 12.38 -24.75 13.44 12.38 13.44 Upgraded VIGN 163.75 -2.88 3.31 6.06 6.75 13.25 New MWD 141.25 0.13 2.63 4.69 2.31 9.75 New EMC 110.31 3.88 -1.25 4.75 1.81 9.19 New CREE 84.88 1.63 1.75 7.25 -1.50 9.13 Top form! ADI 90.44 -0.75 2.63 5.44 1.75 9.06 New GSTRF 35.78 4.06 -1.88 2.06 3.34 7.59 Looks good NOK 180.00 -3.13 -3.63 14.75 -3.00 6.00 Wakes up! PMCS 150.88 -1.69 -1.31 6.69 1.94 5.63 Going north TTN 46.50 -2.56 -0.81 0.25 6.06 2.94 Nice day BCE 89.94 8.75 -4.81 -2.25 -0.50 1.19 NT play NT 99.16 9.94 -5.88 -2.81 -0.78 0.47 Talented STM 148.88 1.00 -1.25 3.13 -3.00 -0.13 Good story GENZ 46.13 -1.81 -0.25 0.94 -0.31 -1.44 Earnings run? NXLK 80.44 -3.13 -0.19 -0.81 0.94 -3.19 A must own? VRTS 136.88 -9.50 1.44 4.94 -3.13 -6.25 Hangs on Puts NSOL 217.06 -10.38 -3.63 -9.75 -9.44 -33.19 Excellent SPLN 45.88 -2.69 -3.69 -1.50 -4.25 -12.13 New PHCM 111.50 -6.25 -12.19 18.19 -6.50 -6.75 Entry points CIEN 56.50 -3.06 0.31 3.75 -2.50 -1.50 Rolling over LTR 61.13 -0.94 -0.63 -0.09 1.44 -0.31 Dropped WB 67.81 0.13 -1.06 1.00 -0.13 -0.06 Dropped GT 27.44 -0.69 -0.44 1.94 -0.56 0.31 Dropped PUMA 115.00 -3.75 -7.75 15.25 28.00 31.75 Dropped STOCKS ADDED TO THE PICK LIST ***************************** Calls MWD - Morgan Stanley Dean Witter ADI - Analog Devices EMC - EMC Corporation VIGN - Vignette Corporation AFFX - Affymetrix Inc. Puts SPLN - Sportsline.com *************************** 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 No dropped calls today. PUTS PUMA $115.00 (+31.75) Honestly, it is never a good sign when you have to start a put play write up with "PUMA traded up to a new 52-week high of $115 today" but here I am doing just that. Thanks a lot QCOM. If you take a look at the news for PUMA in the last two days, you will see repeated reference to the out-of-the-ballpark, 30 billion dollar Wednesday, Qualcomm. PUMA found a way to hitch onto the QCOM wagon and has managed a gain of $43.25 since we initially began coverage on Tuesday. Thankfully, PUMA never gave us much of a chance to hop on board before it took off. Needless to say, we are bidding farewell to PUMA as a put play and moving on to plays heading in the right direction. GT $27.44 (+0.31) As we mentioned on Tuesday, it is time at long last to bid GT a very fond farewell. GT made a good bounce off of $26 on Wednesday, gaining $2 for the session. Being that GT has continually found support at $26 and the end of the year is upon us, meaning that we will see the end of tax loss selling, we are pretty much convinced that we are at the bottom of this put play. Perhaps the New Year will give Goodyear a little drive. WB $67.81 (-0.06) Down $0.06 for the week so far pretty much sums it up. This put play has flattened out. WB gave us a nice opportunity for entry on Monday, trading as high as $68 and followed up with a decent move down, trading as low as $66.19. WB has regained the support of its 5 and 10-dma's and at this point looks to have lost the negative momentum necessary to make continuing this play worthwhile. LTR $61.13 (-0.31) Loews is looking like this is as low as it will go. Over the past two weeks the price has bounced a point north and south of the 10-dma (currently just over $60). When we began coverage of LTR, the 10-dma was providing resistance, but now looks to be changing to support. Volume has been light along with the rest of the market, but this smells like bottom fishing. Note the unwillingness of LTR investors to participate in the sell-off towards the end of trading today. The news continues to be negative, but is no longer moving the share price. We are dropping this one until it decides which way it wants to go. STOCK SPLIT CANDIDATES *********************** Current Split Candidates NOK - Nokia STM - STMicroElectronics BVSN - BroadVision YHOO - Yahoo! VRTS - Veritas Software HGSI - Human Genome Sciences IMNX - Immunex Split candidates that are not current plays CHKP - CheckPoint BRCM - Broadcom NT - Nortel Networks TMPW - TMP Worldwide Recent announcements we predicted SNE - Sony Corp. (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 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 PLAY OF THE DAY ******************** GSTRF - Globalstar Telecommunications $35.78 (+7.59)(+4.19) See details in sector list Chart = http://quote.yahoo.com/q?s=GSTRF&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 ************* SEMICONDUCTOR ************* AFFX - Affymetrix Inc. $184.75 (+40.16) Affymetrix, Inc. is recognized as a worldwide leader in the field of DNA chip technology. The Company has developed and intends to establish its GeneChip system as the platform of choice for acquiring, analyzing and managing complex genetic information in order to improve the diagnosis, monitoring and treatment of disease. The Company's GeneChip system consists of disposable DNA probe arrays containing gene sequences on a chip, certain reagents for use with probe arrays, a scanner and other instruments to process the probe arrays, and software to analyze and manage genetic information from the probe arrays. The company sells its products to Drug and Biotech companies involved in gene research. AFFX is a perfect example of a pure momentum play driven skyward by too much money chasing too few shares. Gene research stocks have been the darlings of the momentum world for two weeks now. What makes AFFX an interesting play here is that it is the company that supplies the tools that make the industry happen. This is like the relationship of photomask makers like KLA-Tencor have with Intel. The point is that if gene research is going to be the big growth industry of the next century somebody has to supply all of those researchers with the tools they need. Investors seem to have honed in to this fact and they have driven AFFX into new high ground for eight staight trading days. This current uptrend all started two months ago when Wall Street analysts started a string of new coverages and upgrades. CSFB, Dain Rauscher and Robertson Stevens to name a few of the biggies. Technically the stock is very strong. You might expect a pullback, but support at $180 has been very strong. This is a very aggressive play, so be careful with your stops. Any correction could be severe. You do not want to get buried when you can get out and utilize any big drop as a buying opportunity. The only real news comes from the rumour mill that AFFX may merge with Gene Research. The real news is still the investing public's love affair with gene based Biotechs. BUY CALL JAN-180*FUE-AF OI= 11 at $23.13 SL=18.00 BUY CALL JAN-185 FUE-AQ OI=N/A at $17.63 SL=13.75 BUY CALL JAN-190 FUE-AR OI=N/A at $15.38 SL=11.75 BUY CALL JAN-195 FUE-AS OI=N/A at $13.50 SL=10.50 Picked on Jan 2nd at $184.75 P/E = N/A Change since picked +0.00 52-week high=$195.13 Analysts Ratings 3-5-2-0-0 52-week low =$ 22.88 Last earnings 10/99 est= -0.28 actual= -0.21 Next earnings 02-02 est= -0.20 versus= -0.31 Average daily volume = 389 K Chart = http://quote.yahoo.com/q?s=AFFX&d=3m **** ADI - Analog Devices $90.44 (+9.06) ADI is a semiconductor company. They design, manufacture, and market analog and digital integrated circuits (ICs) including digital signal processors. Most of the company's components are used by original equipment manufacturers (OEMs) and include such clients as 3Com, Hewlett-Packard, and Electrolux. Analog Devices have operations in the US, the Philippines, Taiwan, and Ireland. ADI has been trending up this week and we do not want to miss out on the momentum. Not too long ago bottom support was rock solid at $75 with $80 to $81 rendering a strong channel of opposition. But on Tuesday the tightening coil was sprung and ADI clearly moved north and separated itself from the 10-dma (now at $81.77). The next two days have followed with newer highs and strong closes. If momentum does let up a bit after these recent gains, look for bounces off the 5-dma (now at $84.88) for confirmation that the uptrend is indeed intact before jumping in headfirst. On Wednesday, ADI received a big boost from Rick Whittington, analyst at Banc of America. He reiterated his Strong Buy rating and lifted fiscal estimates citing "improved fundamental visibility" and that annual revenue growth "should be at least 30-40% each of next five years". He topped it all off by raising the target price for ADI to $150 from $100. BUY CALL JAN-85*ADI-AQ OI=251 at $9.50 SL=7.25 BUY CALL JAN-90 ADI-AR OI=289 at $6.50 SL=4.75 BUY CALL JAN-95 ADI-AS OI= 65 at $4.50 SL=2.75 BUY CALL FEB-90 ADI-BR OI= 0 at $9.88 SL=7.50 New Strike BUY CALL FEB-95 ADI-BS OI= 0 at $7.63 SL=6.00 New Strike Picked on Dec 30th at $90.44 P/E = 106 Change since picked +0.00 52-week high=$92.25 Analysts Ratings 10-5-1-0-0 52-week low =$24.38 Last earnings 12/99 est= 0.35 actual= 0.40 Next earnings 02-17 est= 0.44 versus= 0.18 Average Daily Volume = 1.70 mln Chart = http://quote.yahoo.com/q?s=ADI&d=3m **** PMCS - PMC Sierra $150.88 (+5.63)(+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. The Semiconductor industry seems to have stalled a bit. PMCS struggled early in the week but today received new life as the traders that wanted to do business today zeroed in on shares of PMCS. PMCS gained $1.94 for the session, but made a new high at $154.25 on just under 678K. That is still considered light volume but it did pick up over what we saw the previous two sessions. With traders returning to work next week we believe the some of the sectors that have been in a consolidation mode for the past week will probably re-gain their momentum. The current momentum behind PMCS should continue to pick up as well. PMCS will report earnings in about three weeks. At this point there is no indication that there will be a split announcement, however with the recent moves we wouldn't be surprised to see an announcement with earnings. PMCS split 2-for-1 back in the middle of May. Analysts are projecting earnings to come just short of the previous year, but PMCS seems to have carved its own little niche in the Semiconductor industry. If you haven't entered this play yet, PMCS has support at $150 and $145. A retracement to support followed by a bounce would provide and ideal entry point for this play. Continued strength accompanied by strong volume would also be viewed as a buying opportunity. Yesterday PMCS was named to CNBC.com's top stock of 1999. CNBC looked at stock-price gains, sales performance and the company's gross-profit margin in consider company's to be added to their list. PMCS was clearly ahead of the industry average in most category's. BUY CALL JAN-145*SQL-AI OI=143 at $16.63 SL=13.00 BUY CALL JAN-150 SQL-AJ OI= 20 at $13.88 SL=11.00 low OI BUY CALL JAN-155 SQL-AK OI= 64 at $11.63 SL= 9.25 Picked on Dec 23rd at $145.25 P/E = 150 Change since picked +5.63 52-week high=$154.25 Analysts Ratings 15-6-2-0-0 52-week low =$ 11.44 Last earnings 10/99 est= 0.24 actual= 0.25 surprise=+4.2% Next earnings 01-20 est= 0.27 versus= 0.30 Average Daily Volume = 1.71 mln Chart = http://quote.yahoo.com/q?s=PMCS&d=3m **** STM - STMicroelectronics $148.88 (-0.13)(+10.00)(P3W +18.94) 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 gap open story remains the same for STM. This is a very interesting story and strategy. The last two trading sessions provided traders who have followed our updates good entry and exit points. If the stock was purchased near the close of trading, and then sold at the open of trading the next morning, you would have been profitable. Let's review: STM closed Tuesday's session at $148.75, Wednesday morning gapped at the open of the trading session at $152.50. Closed Wednesday's session at $151.88, Thursday morning gapped at the open of the trading session at $154.00. In two days, applying the fore-mentioned strategy, traders could have taken advantage of nice profits. A combined total of almost 6 points. We still remain bullish on STM, hitting the 52-week high price of $154 again today before bouncing back to close at $148.88. The uptrend is still firmly in place, but the volume remains low. This low volume keeps our stance cautious. We remain positive going forward because support levels continue to hold near $149, $147. Taking a position in STM late in the day continues to look attractive for a quick in and out trade the next morning, but past performance is no guarantee of future results. A break above $154.25 would be record territory. In the past STM and the Semiconductor Index $SOX have mirrored each other and this past trading week has not been any different. The $SOX has been flat, with a bias to the upside, and so has STM. The tug of war between profit-takers and traders buying the dips has kept both STM, and the $SOX in a trading range. Keep an eye on the $SOX, it should assist in recognizing the daily trading direction for STM. BUY CALL JAN-140 STM-AH OI= 96 at $14.38 SL=11.38 BUY CALL JAN-145*STM-AI OI= 56 at $11.50 SL= 9.25 BUY CALL JAN-150 STM-AK OI= 28 at $ 8.75 SL= 6.63 BUY CALL JAN-155 STM-AK OI= 36 at $ 6.63 SL= 4.69 Picked on Nov 30th $125.06 P/E = 91 Change since picked +23.81 52-week high=$154.00 Analyst Ratings 12-2-2-0-0 52-week low =$ 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 **** CREE - Cree Research $84.88 (+9.13) Cree Research develops, manufactures, and markets silicon carbide (SiC) diodes and wafers. The blue light-emitting devices (LEDs) are used for various lighting applications such as displays or video screens and the SiC wafers are used primarily by research labs. Almost 75% of all sales come from outside the US. Our earnings' run play was in top form the past two days. Both days it powered upward setting new highs along the way. During Thursday morning's opening spike it peaked at $89.25 to set the latest 52-week record. Honestly though, volume has been weak to moderate during its recent run up. If we look at old resistance becoming new support then the $80 mark fits the bill. Below at $75 is more solid, but the 10-dma ($76.40) now sits above this level. A dip below this point should now be used as a warning sign while the 5-dma ($80.70) can be considered a good gauge for an entry. Again we want to capitalize on this uptrend by getting in at good entry points and riding the wave up to the earnings date confirmed for January 13th, after the bell. On Thursday, Cree Research announced it received additional orders from several Asian countries totaling $14 mln for its light emitting diode (LED) devices. And last week Cree Research announced it began construction to expand its manufacturing facility for its high brightness light emitting diode (LED) product. This endeavor is part of the company's multi-year factory expansion plan. BUY CALL JAN-80*CQR-AP OI=518 at $ 9.00 SL=6.75 BUY CALL JAN-85 CQR-AQ OI= 0 at $ 6.25 SL=4.50 New Strike BUY CALL JAN-90 CQR-AR OI= 0 at $ 4.00 SL=2.50 New Strike BUY CALL FEB-85 CQR-BQ OI= 0 at $ 9.25 SL=7.00 New Strike BUY CALL FEB-90 CQR-BR OI= 0 at $ 7.25 SL=5.50 New Strike Picked on Dec 28th at $79.13 P/E = 169 Change since picked +5.75 52-week high=$89.25 Analysts Ratings 4-4-0-0-0 52-week low =$15.13 Last earnings 10/99 est= 0.13 actual= 0.15 Next earnings 01-13 est= 0.16 versus= 0.11 Average Daily Volume = 682 K Chart = http://quote.yahoo.com/q?s=CREE&d=3m ******************************** CALLS CONTINUED IN SECTION THREE ******************************** ************************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 1-2-2000 Sunday 3 of 5 *************** CALLS CONTINUED *************** Internet ******** NSOL - Network Solutions $250.25 (-33.19)(+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. Sometimes the lack of liquidity can be a wonderful thing, especially if you are on the right side of a trade. NSOL had a $28 trading range today. NSOL took off right from the opening bell today making a high of $243 in the first thirty minutes of trading. The bearish day-traders stepped in and began to have their way with NSOL. By the end of the session NSOL had made a low of $215. All that movement with just 450K shares exchanging hands. NSOL finished the session down -9.44. For the week NSOL gave back over $33 of its recent gains. Actually since its high last Wednesday, NSOL has retraced $70.69. NSOL broke the support area we mentioned Tuesday. Given the momentum behind the decline the next stopping point could be near $204. Much will depend on the mood of the traders next week, when we get everyone back to work. NSOL did announce a 2-for-1 split and NSOL could become a Nasdaq favorite again over night. Remember it did jump up over $16 in the first thirty minutes this morning. We would only enter this play on further weakness accompanied by solid volume, or a bounce to resistance, which now sits at $232 and $245 followed by a decline. As always assess your risk profile prior to entering a new play or adding to existing positions. BUY PUT JAN-220 JNU-MD OI=457 at $24.88 SL=19.50 BUY PUT JAN-210*JNU-MB OI=357 at $18.63 SL=14.75 Average daily volume = 1.01 mln Chart = http://quote.yahoo.com/q?s=NSOL&d=3m **** INSP - InfoSpace.com $213.75 (+27.63)(+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. Can you think of a better way for an Internet company to celebrate the New Year than by splitting their stock? On January 4th INSP will split 2-for-1. Last week we noted that INSP was poised to tackle the psychological barrier of $200. Well its there, so now what? Time is ticking on this play because we usually do not like holding on to split plays through the split. Look to take profits on strength on Monday, a nice run out into the close might be a good opportunity to exit this very profitable position. The longer term story for INSP is still valid and bullish. We may take a look at it after the split. INSP has developed a strategic partnership with Microsoft that should yield dividends for many quarters to come. It is the intention of the two companies to fully integrate their Instant Messaging capabilities enabling users to "I.M." anywhere, anyplace and from any device. Those high option premiums were certainly justified this week as 15 point swings were very common. Hopefully, you were able to pick some calls up on the dips and take some nice profits. Thursday's close was very powerful for the shares of INSP. The stock rallied 13 points in the final half hour of 1999 trading, even though the market sold off. With that kind of strength the opportunity for a big gap up on Monday exists, if there are no Y2K problems. Either take your profits on a gap up or wait for an end of day rally. Anyone who wants to put a new position on Monday should wait for a pullback. Any new positions should only be placed by very aggressive day traders. Last week InfoSpace.com 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. This event could prove to be another good reason why INSP might do well after the split. BUY CALL JAN-195 OHY-AR OI= 22 at $48.50 SL=37.75 low OI BUY CALL JAN-200*OHY-AT OI=217 at $43.00 SL=33.50 BUY CALL JAN-210 OHY-AB OI= 40 at $40.00 SL=31.20 Picked on Dec 19th at $166.69 P/E = N/A Change since picked +47.06 52-week high=$214.00 Analysts Ratings 6-4-0-0-0 52-week low =$ 9.75 Last earnings 10/99 est=-0.03 actual= 0.06 Next earnings 02-04 est= N/A versus=-0.04 Average Daily Volume = 1.09 mln Chart = http://quote.yahoo.com/q?s=INSP&d=3m **** DCLK - DoubleClick $246.88 (+35.25)(+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, DoubleClick centralizes planning, execution, control, tracking and reporting for online media campaigns. The online advertising firm offers a targeted delivery of ads using its patented DART technology. DART measures Ad effectiveness and Web traffic. DoubleClick has Global headquarters in New York City and maintains offices in 32 other major cities around the world. Trading remained light, but the party continues in DCLK, tacking on over 35 points for the week and another 52-week high of $254.50, before settling in to close at $246.88. This latest upward move in DCLK was sparked when a Donaldson Lufkin & Jenrette analyst raised the 6-12 month price target from $190 to $300. As today's trading day progressed, momentum simply shifted into neutral as we approach the New year. DCLK gave back a few points today, but nothing major. Traders seem to be riding the wave towards the upcoming stock split on Jan 11th. Now only seven trading days away. The wide daily trading ranges have only been enhanced due to light volume in the overall market. Take a look at today's chart, it looks like a roller coaster. Take profits according to risk tolerance, firm up your trailing stops. There is some support at $240 and then again down near $220. Above $249.25 could provide a day-trading opportunity. A major breakout would be above $254.75. In the news, DCLK recently closed its purchase of NetGravity and Abacus Direct. This will help to raise the margins of DCLK. Also Donaldson, Lufkin & Jenrette has raised their 2000 revenue estimates by 42 percent and the 2001 revenue projections by 46 percent. BUY CALL JAN-260*QTD-AL OI=2282 at $20.13 SL=16.88 BUY CALL JAN-270 QTD-AN OI= 530 at $17.00 SL=13.75 BUY CALL JAN-280 QTD-AP OI= 226 at $13.75 SL=11.38 SELL PUT JAN-220 QTD-MD OI= 137 at $11.38 SL=14.00 (See risks of selling puts in play legend) Picked on Dec 9th at $197.00 P/E = N/A Change since picked +49.88 52-week high=$254.50 Analyst Ratings 11-7-1-0-0 52-week low =$ 21.81 Last earnings 10/99 est= -0.14 actual= -0.13 Next earnings 01-19 est= -0.10 versus= -0.13 Average daily volume = 2.24 mln Chart = http://quote.yahoo.com/q?s=DCLK&d=3m **** YHOO - Yahoo! Inc. $416.06 (+13.44)(+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. After watching Qualcomm all week, a $12 gain seems hardly worthy of mention. Heck, even today's $41 point trading range seems paltry, but it isn't. The point we are trying to make here is that we may have all become a bit spoiled into thinking that an issue is garbage if it isn't delivering daily double-digit gains. It is a rare moment in history to have so many issues trading over $300 per share. We should be thinking of protecting this spectacular profit and working on controlling our greed. That said, we can't help our eagerness to see how YHOO performs in the New Year. After all, they have earnings coming up on Jan 11th after the bell. If history is any indication, they should blow away the consensus number, and the whisper number too, by a significant margin. It is also a split candidate, so look for that announcement at the same time. In addition, money managers will want to own the top tier Internets (especially ones actually earning money) after the first of the year. Market willing, next week will be a good one for YHOO. Technically speaking, though reaching as high as $448, which will serve as some upside resistance, YHOO has historical support at $380, $390, $400, and $410-$413. The 10-dma is $391, which should temporarily serve as a dip to rock bottom. If it falls under that mark, we'd suggest standing aside. Frankly, we think anything under $400 is unlikely unless the whole market moves south. Target shoot to your comfort level and get ready for January. Blessed be the friendly analyst. Right or wrong, Argus Research upped its 12-month price target on YHOO from $385 (not a tough call) to $550, which is partially responsible for Thursday's $12.38 gain, but more importantly, puts a solid underpinning at $385 - target reached. Psychologically, it's time to move higher. BUY CALL JAN-410*YHX-AB OI= 840 at $46.88 SL=35.50 BUY CALL JAN-420 YHX-AD OI=1132 at $42.25 SL=33.00 BUY CALL JAN-430 YHX-AF OI= 956 at $38.50 SL=30.00 BUY CALL FEB-420 YHX-BD OI= 211 at $56.50 SL=44.00 BUY CALL FEB-430 YHX-BF OI= 256 at $52.25 SL=41.00 Picked on Dec 12th at $350.00 P/E =1614 Change since picked +66.06 52-week high=$448.00 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 = 8.60 mln Chart = http://quote.yahoo.com/q?s=YHOO&d=3m ********* SOFTWARE ********* EMC - EMC Corporation $110.31 (+9.19) EMC wants to be your storage solution. The company designs, manufactures and markets a wide range of enterprise storage systems, software, networks, and services. The company's products store, retrieve, manage, protect and share information from all major computing environments including mainframe, UNIX, and Windows NT. With offices around the world and a 35% growth rate for the first 9 months of the year, EMC is effectively filling its role as the worldwide storage leader. While volume may have been weak, this didn't bother the EMC investors. The strong move this week was just a continuation of the trend that began in late October. Since then, shares have moved steadily upwards with the latest correction and consolidation ending on December 15. Since then prices have stayed above and increased their distance from the 10-dma. In fact, since this latest move began, the 5-dma has been the primary level of support. Volume has been average to low this week due to the paucity of traders, but the move has been strong. EMC likes to run strongly into earnings (still 3 weeks away) and this is the time to start looking for an entry. Keep in mind that nothing moves in a straight line, so we would like to see prices come down a little to provide a good entry point. Look for a pullback to 5-dma ($105.50) or if you're really lucky the 10-dma ($101.81) for an entry point. Strong support exists at $98, the level EMC broke through as it began the latest leg of its move upwards. If the strength continues next week, entries at current levels can be considered. Just remember to play with stops as EMC could be susceptible to a correction before powering forward into earnings. In the news today, EMC has qualified the Emulex LP850 Fibre Channel host bus adapter for its Windows NT solutions. This will provide EMC customers with entry-level server connectivity that delivers high-performance, scalability and flexibility in Windows NT environments. In its race to catch market-leader EMC, IBM announced today that it sold more than 1000 large corporate computer storage systems since late September. EMC currently has about 35 percent market share to IBMs 24 percent. Finally, on CNBC today, EMC's CEO was upbeat about the future of the company; a good sign as we are deep into the earnings-warnings period. This is what caused the afternoon rally in the shares. BUY CALL JAN-105*EMB-AA OI=3021 at $7.88 SL=6.25 BUY CALL JAN-110 EMB-AB OI=1292 at $5.00 SL=3.25 BUY CALL JAN-115 EMB-AC OI=1881 at $3.13 SL=1.50 BUY CALL FEB-110 EMB-BB OI= 544 at $8.25 SL=6.25 BUY CALL FEB-115 EMB-BC OI= 536 at $6.25 SL=4.50 Picked on Dec 30th at $110.31 P/E = 100 Change since picked +0.00 52-week high=$110.31 Analysts Ratings 14-7-3-0-0 52-week low =$ 40.81 Last earnings 10/99 est= 0.24 actual= 0.27 Next earnings 01-19 est= 0.31 versus= 0.24 Average Daily Volume = 4.36 mln Chart = http://quote.yahoo.com/q?s=EMC&d=3m **** VIGN - Vignette Corporation $163.75 (+13.25) VIGN provides Internet Relationship Management (IRM) software products and services, a category of enterprise solutions designed to enable businesses to build sustainable online customer relationships, increase returns on internet-related investments and capitalize on internet business opportunities. VIGN's clients come from diverse sectors and include financial services, health, education and government, media, retail, technology and telecommunications. It seems you just can't lose with B2B e-commerce. This is emerging as the new hot area of internet investing. Even splitting 2-for-1 in early December barely slowed VIGN down. In the midst of a strong breakout, VIGN is dancing with its 10-dma, and very effectively leading it. Currently at $152, the 10-dma has been excellent support since this move began in late November. VIGN is showing a nice pattern of moving up strongly, consolidating, and then dropping back to kiss the 10-dma and then repeating the process. The latest breakout cycle began on Tuesday and should continue for a couple more days (market permitting), before consolidating to provide us with an attractive entry. Needless to say, volume was fairly light this week and we would like to see a return to more normal levels before pulling the trigger. Today was yet another 52-week high, so we have no historical resistance levels to watch. Round numbers, 170, 180, 190 are the best we can do at this point, but if sentiment is high and money continues to flow next week, VIGN may not even stop to smell the flowers until hitting a nice round number like $200. VIGN tends to have fairly large intraday moves, so entry points should be abundant. Just confirm positive direction with volume and execute your plan. As with anything in the volatile internet sector, evaluate your risk tolerance and set your stops accordingly. A quick look at Commerce One (CMRC) is all you need to remind you of how quickly stocks in this area can go up and down. Support is also at $159, the old high which was strong resistance on Thursday. There was very little in the way of specific news this week, but analysts continue to speak positively of both VIGN and the other players in the Internet software arena (just look at the analyst ratings below). VIGN is seen as being a winner in this space long-term. BUY CALL JAN-160*UOJ-AL OI=132 at $19.13 SL=14.88 BUY CALL JAN-165 UOJ-AM OI=93 at $16.75 SL=13.00 BUY CALL JAN-170 UOJ-AN OI=318 at $14.38 SL=11.50 Picked on Dec 30th at $163.75 P/E = N/A Change since picked +0.00 52-week high=$163.75 Analysts Ratings 9-4-0-0-0 52-week low =$ 19.91 Last earnings 10/99 est=-0.20 actual=-0.19 Next earnings 01-19 est=-0.08 versus= N/A Average Daily Volume = 1.36 mln Chart = http://quote.yahoo.com/q?s=VIGN&d=3m **** VRTS - VERITAS Software $136.88 (-6.25)(+25.72)(+8.41)(+2.94) The world's largest maker of storage management software is located in Mountain View, California. VERITAS supplies enterprise data storage management solutions and provides advanced storage management software for open systems environments. Other VRTS products offer centralized administration with a high degree of automation. They also make backup software and cluster management tools. VRTS has partnered with the likes of Hewlett-Packard, Microsoft and other manufacturers, all of which have licensed and bundled VERITAS products with their operating systems. Shares of VRTS made it through the week without too much damage. In a holiday week with the volume drying up to approximately half the ADV, VRTS lost $6.25. If you were so inclined, VRTS did offer a few opportunities to pick up a small profit this week. The trick to trading stocks with the liquidity as thin as it has been is being prepared to take a small profit when you get one. The day traders and hedge fund managers can turn these markets on a moments notice. VRTS has spent most of the week consolidating. A look at the software index would indicate it may be preparing for a pullback. VRTS could be preparing to rollover, however we really believe when all the players return to work next week, VRTS will resume its upward trend. If we see some profit-taking set in, VRTS will find intraday support at $129. A bounce off that level would provide a good entry point to add to existing positions or enter a new play. Before entering a new play, wait for a clear signal, like a move supported by strong volume. A move back through $141 supported by strong volume would also provide a good entry point. As always, assess your risk profile prior to entering a new play. Veritas was mentioned today in an article outlining Scudder's Technology fund. They talked about the fund manager's favorite picks and sure enough VRTS was included. It is nice to see the big institutions still bullish on our play. BUY CALL JAN-130 VUQ-AF OI=231 at $16.38 SL=12.75 BUY CALL JAN-135*VUQ-AG OI=539 at $13.88 SL=11.00 BUY CALL JAN-140 VUQ-AH OI=174 at $11.38 SL= 9.00 BUY CALL JAN-145 VUQ-AI OI=423 at $ 9.13 SL= 6.75 Picked on Dec 12th at $109.06 P/E = N/A Change since picked +27.82 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 = 3.08 mln Chart = http://quote.yahoo.com/q?s=VRTS&d=3m **** BVSN - Broadvision $175.94 (+22.88)(+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. Another new 52-week high! BVSN gapped up at the open today and traded as high as $177.81. BVSN then made a move down backed by a nice bounce right around $170 and continued on with its move up. It appears as though the $170 level that BVSN spent some time flirting around is now serving as support, being that it did a nice job of holding BVSN up throughout today's session. BVSN has some additional support right around $165, $160 and $150, which could hold should the Y2K bears emerge. Resistance? BVSN doesn't seem to know the meaning of the word, although we are approaching another psychological level ($180). As far as new entries go, your best bet is to make your move in near the open. Be prepared, as we may be due for a bit of profit-taking since BVSN has gained $22.88 in less than a week and over $65 in the last three weeks. BVSN has a strong trend and enough positive news for the future to keep it moving, so take advantage of any pullbacks backed by support for possible points of new entry. So what does BVSN have planned for the New Year? According to a recent article, BVSN plans to focus on securing integration between third-party software and its Broadvision One-to One Web personalization system. BVSN also has plans to release its 5.0 version of its One-to-One system. Oh, and did I mention an earnings announcement on the 26th? (This date has been confirmed) BUY CALL JAN-170 BZV-AN OI=523 at $24.13 SL=18.75 BUY CALL JAN-175*BZV-AO OI=286 at $21.50 SL=16.75 BUY CALL JAN-180 BZV-AP OI=104 at $19.63 SL=15.25 SELL PUT JAN-160 BZV-ML OI=241 at $13.00 SL=16.50 (See risks of selling puts in play legend) Picked on Dec 16th at $131.69 P/E = 1130 Change since picked +44.25 52-week high=$176.00 Analysts Ratings 5-16-2-0-0 52-week low =$ 9.00 Last earning 10/99 est= 0.04 actual= 0.05 Next earning 01-26 est= 0.06 versus= 0.03 Average Daily Volume = 2.07 mln Chart = http://quote.yahoo.com/q?s=BVSN&d=3m ******* Telecom ******* GSTRF - Globalstar Telecommunications $35.78 (+7.59)(+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. Bank of America Securities - Zero; George Gilder - One. Not even the B of A analyst's "short" call (twice picked up by CNBC over two days) could keep GSTRF grounded on terra firma (Earth) forever. The CDMA technology wins in the end. The $0.05 cost basis, including operating costs provides an 85% cash flow margin, while even $25 mln of wholesale time was pre-sold at $0.47 per minute for resale to the consumer (estimated at roughly $1.00 per minute initially). The venture, 6% owned by QCOM and 41% owned by LOR breaks even at only 400 K users. Unlike its doomed TDMA counterparts, Iridium and Teledisic, GSTRF's CDMA technology will likely be able to transmit at high data speeds too within 24 months. The superb economics and CDMA technology have yet to be fully grasped by analysts whom we think will soon award GSTRF higher multiples. While we're not saying you'll get an 1800% return in one year if you get in now, GSTRF still represents a significant opportunity for those who missed out on QCOM twelve months ago. This could be your next chance. Technically speaking, $30 is solid support; $32 is pretty good too; and $34 provided strong support on Thursday. For you moving average watchers, keep an eye on the 10-dma of $28.25 even though we don't think it will see that level any time soon, given the strong volume of this issue. Even Thursday, the last full trading day of the year (and historically low on volume), GSTRF traded just under three times its ADV. Nonetheless, if it trades under $30, stand aside until the smoke clears. Otherwise, pick a comfortable entry for what we think will be a strong January (At least the first week). GSTRF has yet another great link to a terrific company. Yes, Vodafone-Airtouch (VOD) has the exclusive rights to sell the Globalstar services in the United States. Beta users are already testing the system, which will be available on a limited retail basis in January. Thursday, the FCC granted a license to GSTRF to officially sell the service in the U.S. For us closet propeller-heads, this is going to be a cool toy. But more importantly and contrary to the popular belief that the international businessperson is the target customer, GSTRF is actually the wireless solution for those who need coverage in the 90% of the land mass of the country where PCS and cellular don't reach. We bet there are far more than 400K of them right here in the U.S., let alone internationally. BUY CALL JAN-30 YVQ-AF OI=2325 at $7.13 SL=5.25 BUY CALL JAN-35*YVQ-AG OI=2459 at $4.00 SL=2.50 BUY CALL JAN-40 YVQ-AH OI=1382 at $2.19 SL=1.00 BUY CALL FEB-35 YVQ-BG OI= 925 at $5.63 SL=3.75 BUY CALL FEB-40 YVQ-BH OI= 267 at $3.25 SL=1.50 Picked on Dec 23rd at $28.19 P/E = N/A Change since picked +7.59 52-week high=$38.88 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 = 2.3 mln Chart = http://quote.yahoo.com/q?s=GSTRF&d=3m **** BCE - BCE Inc. $89.94 (+1.19)(+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. We have a multi-faceted interest in this stock. It may sound strange considering that this stock is trading near its highs just under $100, but BCE is a value play and a growth play. BCE owns 39.6% of Great White North neighbor Nortel Networks. Shareholders and management are a little miffed that their company is the Rodney Dangerfield of Canada. Almost all of the market capitalization of BCE is tied to their NT holdings. The best way to unleash the value of the rest of their substantial businesses seems to be to spinoff NT. The problem is that they need governmental assurance that they can proceed with a spinoff that would be tax free. Otherwise the capital gains would be enormous. We don't know when that might happen but when it does, BCE is going to take off. In the meantime we will play BCE for the merits of its NT holdings. For more details please look at NT in the calls section. Trading in BCE has been very volatile this week. A new high was established on big volume on Monday. Since then the shares of BCE have drifted lower and are looking to establish support just under $90. The stock has bounced there on each of the past two days. If support holds there on Monday look to go long. If support at $89-$90 does not hold then look to enter a position at the $85-$86 level. Since we have no idea when the news of the spinoff will hit, a longer term investor might want to buy some time with the June options. Last week 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. There was no significant news announced this week. BUY CALL JAN-80*BCE-AP OI=885 at $11.63 SL= 8.75 BUY CALL JAN-85 BCE-AQ OI= 26 at $ 7.63 SL= 5.75 low OI BUY CALL JAN-90 BCE-AR OI=259 at $ 5.00 SL= 3.25 BUY CALL JUN-85 BCE-FQ OI= 11 at $14.75 SL=11.50 low OI BUY CALL JUN-90 BCE-FR OI= 46 at $12.25 SL= 9.50 Picked on Dec 16th at $88.75 P/E = 17 Change since picked +1.19 52-week high=$98.31 Analysts Ratings 4-5-0-1-0 52-week low =$34.88 Last earnings 10/99 est= 0.47 actual= 0.47 Next earnings 01-27 est= 0.64 versus= 0.52 Average daily volume = 403 K Chart = http://quote.yahoo.com/q?s=BCE&d=3m **** NOK - Nokia $180.00 (+6.00)(+5.50)(+0.50)(P4W +52.13) 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? Just when we wrote that NOK might have fallen asleep at the switch as it seemingly encountered resistance at $175, investors gave NOK a wake-up call, and pushed it through to $183.38 on strong closing volume Wednesday afternoon (though daily volume remained low). Thursday, NOK remained resilient. Even though it dipped to $179 on 3 occasions, it held strong on continuing low volume, which tells us nobody is in line to sell. Again, text book consolidation. Based on that action, short-term support is at $179, with the next level at $175, then $172. Volatility reigns, so pick your entry according your own tolerance for risk. Given that NOK expects to achieve their 3-year revenue goal in two years, look for money managers and investors to take positions (read that, increase buying volume) following the New Year. This also portends an earnings surprise when they are announced on February 1 (subject to change per NOK investor relation) after the bell. Though it could happen any time, February 1 would also be a great day to announce a split since it has a history of making announcements in the $150 range. Remember that minor surprise when QCOM announced Kyocera of Japan would purchase QCOM's handset business instead of NOK? As it turns out, NOK is contracting with another company, Interdigital Communications (IDC) for high capacity CDMA capabilities (IDC has some CDMA patents of its own). NOK is not completely beholden to QCOM in the short run for the production of CDMA handsets. Could QCOM have a competitor? The answer is sort of. QCOM actually licenses some IDC CDMA patents for re-licensing to others. However, before it's all over, IDC and QCOM will likely have to grant each other cross-license agreements for each others' patented CDMA technology, both of which will likely be adopted as the Third Generation (3G) standard. So don't back up the truck on IDC. We're just trying to explain why NOK might have passed up QCOM's handset business. They are going to make a go of it on their own. BUY CALL JAN-170 NZY-AN OI=3558 at $17.50 SL=13.50 BUY CALL JAN-180*NZY-AP OI=2528 at $12.25 SL= 9.75 BUY CALL JAN-190 NZY-AR OI= 844 at $ 8.00 SL= 6.25 BUY CALL FEB-180 NZY-BP OI= 149 at $17.88 SL=14.00 BUY CALL FEB-190 NZY-BR OI= 629 at $14.00 SL=11.00 Picked on Nov 14th at $122.25 P/E = 83 Change since picked +51.75 52-week high=$187.00 Analysts Ratings 13-8-0-0-0 52-week low =$ 52.31 Last earning 10/99 est= 0.52 actual= 0.57 surprise=9.6% Next earning 02-01 est= 0.66 versus= 0.58 Average Daily Volume = 3.2 mln Chart = http://quote.yahoo.com/q?s=NOK&d=3m **** NT - Nortel Networks $99.16 (+0.47)(+8.25)(+2.19)(P6W +29.31) Here come 'Ol Flat Top; he come groovin' up slowly. What does this has to do with the new era of communications, we don't know. But the bandwidth enabling capability of NT equipment is causing the Internet to "Come Together" (the Beatles song used in NT's TV commercials) with PC's, TV's, LANs, plus wireless and fiber data/voice communications systems everywhere. NT makes the equipment that makes the electronic convergence possible. With over $19 bln in sales, they are number #2 behind competitor Lucent in size. Canadian Telecom owns 40%. The U.S. accounts for over 50% of sales. While bandwidth may increase 80-fold over the next four years, the demand for it will increase between 100-260 fold creating a capacity crunch. The is a perfect opportunity for NT to extend its lead as the #1 maker of fiber optic networking equipment ahead of Lucent, as NT has recently demonstrated their ability to carry 80 gigs per second on a single wavelength, or 5.6 petabytes on a single 864 strand fiber cable. (Can't you just taste the broadbandy goodness? Thanks Williams). This talent isn't wasted on fund managers who have taken note of NT's 20%+ growth rate and increasing margins to make this a darling of the industry, which is still attractively priced compared to LU and CSCO. Though support at $100 gave way in yesterday and today's trading, we are willing to accept that given the whipsaw action borne of low volume. It's hard to get concerned about low volume at the end of the year. $98 offers stronger historical support and is also the 10-dma. Look for this level to hold (barring intraday yo- yoing). If the volume picks up and the price falls below $98, it may be our cue to head for the exit. Otherwise, to initiate a play, wait for a bounce, or be ready to buy the dip in anticipation of what we think will be a strong first week of the New Year. Earnings are scheduled January 25, and NT is a split candidate above $88. News is thin. Cross your fingers for a strong start next week. Be sure to check out BCE as a tracking play BUY CALL JAN- 95*NT- AS OI=2547 at $ 9.63 SL=7.25 BUY CALL JAN-100 NTV-AT OI=1954 at $ 6.88 SL=5.00 BUY CALL JAN-105 NTV-AA OI= 718 at $ 4.88 SL=3.00 BUY CALL FEB-100 NTV-BT OI= 364 at $10.38 SL=8.00 BUY CALL FEB-105 NTV-BA OI= 343 at $ 8.25 SL=6.25 Picked on Nov 7th at $68.81 P/E = 613 Change since picked +30.35 52-week high=$110.00 Analysts Ratings 12-12-3-0-0 52-week low =$ 23.63 Last earnings 10/99 est= 0.26 actual= 0.28 surprise=7.7% Next earnings 01-25 est= 0.44 versus= 0.36 Average Daily Volume = 4.4 mln Chart = http://quote.yahoo.com/q?s=NT&d=3m **** NXLK - Nextlink Communications $80.44 (-3.19)(+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 could become one of the must own stocks of the new year. For the past two weeks Nextlink's shareholders have experienced a nice run. NXLK got investor's attention earlier in the month when the company was placed on the NASDAQ 100. This is a move from relative obscurity to the spotlight. When a company is accepted into the fraternity of the hottest technology stocks it receives a thorough analysis from new investors. Seems they liked what they saw and the shares starting bidding up. On top of many small investors getting interested in the stock, at least one large investor bought a big stake in the company with the belief that NXLK will become one of the communications leaders of the next decade. 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. The convertible securities are deep in the money and they give the investor the right to "convert" the preferred stock into the common stock at the conversion price. Ultimately this means that $63.50 should prove to be a very long term support level. Put sellers please take note. There was another recent news item that could provide support for the stock. In the middle of January, Nextlink will complete the acquisition of 50 percent of INTERNEXT. Nextlink will enjoy certain advantages if its stock price remains strong. Technically, NXLK's shares have become volatile over the past two weeks. After breaking out at $75 the stock rallied all the way to $91.50. After a few days of selling, NXLK tested the $75 level and rallied right back into the middle of its range. It was significant that NXLK broke its short term downtrend on Thursday. Although the volume was light due to holiday trading. A rally next week above $85 would imply a possible run to test the old high. Look to get long if it trades above $85. The stock has established excellent support at $75. If the market is weak you may be able to establish a bullish position in the high 70's. Put sellers might want to consider the $75 strike price which is at the support level. Last week 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. What's "Next" for this guy? Actually, it looks like he will stay for awhile. There was no other news this week. BUY CALL JAN-75 QNF-AO OI=310 at $9.75 SL=7.50 BUY CALL JAN-80*QNF-AP OI=706 at $7.13 SL=5.25 BUY CALL JAN-85 QNF-AQ OI=249 at $5.00 SL=3.25 SELL PUT JAN-75 QNF-MO OI=132 at $3.38 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 +13.75 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 = 1.00 mln Chart = http://quote.yahoo.com/q?s=NXLK&d=3m ***************************************** CALLS - CONTINUED IN SECTION FOUR ***************************************** ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. 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The Option Investor Newsletter 1-2-2000 Sunday 4 of 5 ***************** CALLS - CONTINUED ***************** Miscellaneous ************* AFFX - Affymetrix Inc. $184.75 (+40.16) Affymetrix, Inc. is recognized as a worldwide leader in the field of DNA chip technology. The Company has developed and intends to establish its GeneChip system as the platform of choice for acquiring, analyzing and managing complex genetic information in order to improve the diagnosis, monitoring and treatment of disease. The Company's GeneChip system consists of disposable DNA probe arrays containing gene sequences on a chip, certain reagents for use with probe arrays, a scanner and other instruments to process the probe arrays, and software to analyze and manage genetic information from the probe arrays. The company sells its products to Drug and Biotech companies involved in gene research. AFFX is a perfect example of a pure momentum play driven skyward by too much money chasing too few shares. Gene research stocks have been the darlings of the momentum world for two weeks now. What makes AFFX an interesting play here is that it is the company that supplies the tools that make the industry happen. This is like the relationship of photomask makers like KLA-Tencor have with Intel. The point is that if gene research is going to be the big growth industry of the next century somebody has to supply all of those researchers with the tools they need. Investors seem to have honed in to this fact and they have driven AFFX into new high ground for eight staight trading days. This current uptrend all started two months ago when Wall Street analysts started a string of new coverages and upgrades. CSFB, Dain Rauscher and Robertson Stevens to name a few of the biggies. Technically the stock is very strong. You might expect a pullback, but support at $180 has been very strong. This is a very aggressive play, so be careful with your stops. Any correction could be severe. You do not want to get buried when you can get out and utilize any big drop as a buying opportunity. The only real news comes from the rumour mill that AFFX may merge with Gene Research. The real news is still the investing public's love affair with gene based Biotechs. BUY CALL JAN-180*FUE-AF OI= 11 at $23.13 SL=18.00 BUY CALL JAN-185 FUE-AQ OI=N/A at $17.63 SL=13.75 BUY CALL JAN-190 FUE-AR OI=N/A at $15.38 SL=11.75 BUY CALL JAN-195 FUE-AS OI=N/A at $13.50 SL=10.50 Picked on Jan 2nd at $184.75 P/E = N/A Change since picked +0.00 52-week high=$195.13 Analysts Ratings 3-5-2-0-0 52-week low =$ 22.88 Last earnings 10/99 est= -0.28 actual= -0.21 Next earnings 02-02 est= -0.20 versus= -0.31 Average daily volume = 389 K Chart = http://quote.yahoo.com/q?s=AFFX&d=3m **** GENZ - Genzyme General $46.13 (-1.44)(+9.06) GENZ is a diversified human health care business with product development, manufacturing and marketing capabilities in therapeutic and diagnostic products, pharmaceuticals and diagnostic services. The predicted drop in volume and investor interest that was predicted for this week, definitely came home to roost with GENZ. After the strong move up last week, volume fell off this week and there just wasn't enough interest to push prices in either direction. Hopefully next week we will see a return of the buyers and a resumption of the uptrend. Earnings are just 3 weeks away and the company's history of beating estimates should provide a nice run as the date approaches. GENZ is currently sitting just above support (old resistance) at $45. Barring a Y2K catastrophe this weekend which spooks the markets, GENZ should move up from here. If prices drop through this level, additional support is at the 10-dma (currently $42). We don't expect to see a level much lower than that without momentum players dumping the stock. So your best bet is to enter on any pullback and bounce next week that is confirmed with strong volume. More conservative investors may want to wait for GENZ to trade through the recent intraday high of $48.38 before opening new positions. Although the markets will be open tomorrow, we recommend waiting until next week to open new positions as volume will probably be too weak to determine the future direction for GENZ. There has been no news on GENZ since it terminated its merger with Cell Genesis on December 22. There has been a marked improvement in the sentiment towards Biotechs in general and when investors return in force next week, GENZ should be able to ride the wave. BUY CALL JAN-40*GZQ-AH OI=1020 at $7.13 SL=5.25 BUY CALL JAN-45 GZQ-AI OI=1100 at $3.38 SL=1.75 BUY CALL JAN-50 GZQ-AJ OI=1464 at $1.19 SL=0.00 BUY CALL FEB-45 GZQ-BI OI= 114 at $4.88 SL=3.25 BUY CALL FEB-50 GZQ-BJ OI= 38 at $2.50 SL=1.25 low OI Picked on Dec 23rd at $46.38 P/E = 27 Change since picked -0.25 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 = 1.31 mln Chart = http://quote.yahoo.com/q?s=GENZ&d=3m **** TTN - Titan Corporation $46.38 (+2.94)(+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. Earlier this week Titan looked more like a stumbling giant ready to fall back to earth, but look at the rally on Thursday. People really want to own this stock despite Y2K fears. Let's revisit the story. Titan was the beneficiary of its own excellent foresight and a USFDA approval. Titan secured patents for an irradiation technology that uses very cheap and safe electricity to kill deadly bacteria on raw meat. In anticipation of an approval for this technology, Titan had the good sense to hammer out agreements with most of the largest meat producers in this country. Titan was also smart enough to already have a processing plant ready to go when the approval came. The ability to immediately reap the benefits of their technology has investors trying to grab a piece of Titan not unlike the Lilliputians swarming Gulliver! There is more to the Titan story than just meat irradiation. Titan is becoming a bigger player in the market leading communications sector by adapting its military communications technologies for civilian uses. Titan has also been grabbing a piece of the Internet pie. Titan does seem to be a very opportunistic company. TTN made its all time high of $48.38 on December 23rd. Since that time it has been pulling back all week until Thursday. It appears that the stock has found some nice support at $41. With a six point run off of support while the rest of the market was selling off, it appears that TTN will be a popular holding for 2000. Trading on Monday above $47 should make it only a quick hop to plow into new high ground. If the world comes to an end this weekend, (just kidding!) support at $44 looks solid. There was a huge news item on Thursday that may account for a lot of the renewed enthusiasm in the shares of TTN. The company intends to spin off part of its stake in its business software subsidiary, Cayenta.com. The company is attempting to unleash some more shareholder value. By keeping a majority stake in the spinoff, the parent company looks to benefit both ways through this IPO. Other news items concerning Cayenta.com include an announced acquisition of Internet commerce company, Assist Cornerstone Technologies. Assist's technology provides a complete front to back-end solution to companies focused on conducting business over the Internet. Titan also recently announced the acquisition of Advanced Communication Systems, a leading government information technology services company. BUY CALL JAN-35 TTN-AG OI=2591 at $13.00 SL=10.50 BUY CALL JAN-40*TTN-AH OI=3651 at $ 9.00 SL= 6.75 BUY CALL JAN-45 TTN-AI OI= 284 at $ 6.50 SL= 4.25 Sell PUT JAN-40 TTN-MH OI=5318 at $ 2.56 SL= 4.00 (See risks of selling puts in play legend) Picked on Dec 16th at $35.00 P/E = 84 Change since picked +11.38 52-week high=$48.38 Analysts Ratings 5-0-0-0-0 52-week low =$ 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 = 767 K Chart = http://quote.yahoo.com/q?s=TTN&d=3m **** IMNX - Immunex Corp. $116.00 (+16.13)(+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. Right on schedule, IMNX broke out to new highs. Wednesday saw shares of the drug maker hit $97 and take off like a rocket, adding $7 to its previous close. This morning investors got serious about buying IMNX stock. IMNX opened $1 higher and buy the end of the session had made another new high at $120.50, before settling at $116, +9.00 for the session. The encouraging aspect of this play is the volume that came in to support the move today. Almost 1.3 million shares exchanged hands in the session that saw thin volume in the major indices. The was no company specific news to move the stock. The Biotech sector showed a small loss today, which gives more credence the strength of IMNX. Next week could be a tough call, although we do expect shares of IMNX to continue higher. Will there by tax selling or buyers prepared to jump into this red hot sector. We believe there may be a small retracement, that will find buyers waiting to jump on board. IMNX shows intraday support at $114.50 and $108. The closest moving average is the 5 and 10-dma back at 104.73, and 97. As for entering new play wait for confirmation of a continuation of the trend or a bounce off intraday support. Stephen Flaks, a hedge fund manager whose portfolio has more than double this year, likes the current momentum in the Biotech sector. The recent strength in stocks like IMNX and the interest in genomics has added fuel to the fire. Flaks says "there is definitely money in biotech that hasn't been seen for a long time." BUY CALL JAN-105 IUU-AA OI=161 at $16.00 SL=12.50 BUY CALL JAN-110*IUU-AB OI=135 at $12.63 SL=10.00 BUY CALL JAN-115 IUU-AC OI= 0 at $ 9.75 SL= 7.50 New Strike BUY CALL JAN-120 IUU-AD OI= 0 at $ 7.50 SL= 5.75 New Strike Picked on Dec 23rd at $99.88 P/E = 471 Change since picked +16.12 52-week high=$120.50 Analysts Ratings 3-8-9-0-0 52-week low =$ 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 = 1.48 mln Chart = http://quote.yahoo.com/q?s=IMNX&d=3m **** HGSI - Human Genome Sciences $159.56 (+23.56) Human Genome Sciences develops drugs and diagnostic products based on human genes. Although the company has no marketable products, firms pay HGSI to develop products for cancer, heart disease, arthritis, and Lou Gerhig's disease. HGSI is involved with SmithKline Beecham, Merck, and The Institute of Genomic Research. HGSI also researches non-human genes, including those of bacteria, fungi and viruses. These could eventually prove useful in creating vaccines and antibiotics. HGSI competes with Genzyme, Incyte Pharmaceuticals and Scios. It would appear that investors had the same idea about HGSI as we did. HGSI shot up over $20 since being added to our play list on Tuesday. The impressive move came on good volume, which considering the lack of liquidity in the markets this week, says quite a bit about the confidence traders have in this stock. Wednesday's move came on volume of 409K, while today's $10 move showed over 750K exchanging hands. HGSI is in a hot sector, and the money has flowed into solid stocks that people believe are positioned well. HGSI has received a lot of press this week, much of which came on CNBC. Whether we like it or not, when a company gets mentioned in the national media, normally the stock moves. Most of the mentions have obviously been favorable since HGSI has gained over $23 in the last week. We feel the company is positioned well in its industry and will be for a long time. Our other interest is in a potential split announcement, with earnings. HGSI will report earnings in the next three weeks. The company's board of directors recently approved an increase in the number of authorized shares from 50 million to 250 million. Regardless of whether they will meet earnings, the excitement around HGSI is the potential split announcement. HGSI bounced off support in the last hour of trading Thursday at $155. The next level of support is near $149. Look for continued strength as an opportunity to buy calls. As always assess your risk profile prior to entering a new play. Yesterday analysts at Janney Montgomery Scott maintained their Buy rating on HGSI. Analyst Heather D. Morris raised her price target for the drug maker from $150 to $183. Probably a good move, considering the stock was trading at $155 at the time. We are not taking a shot at analysts, but would point out, we are all human and just because analysts project a price target doesn't mean it will hit it. BUY CALL JAN-145 HHA-AI OI=N/A at $21.88 SL=17.25 BUY CALL JAN-150 HHA-AJ OI=N/A at $18.50 SL=14.75 BUY CALL JAN-155*HHA-AK OI=N/A at $15.75 SL=12.50 Picked on Dec 28th at $138.88 P/E = N/A Change since picked +20.68 52-week high=$172.56 Analysts Ratings 1-4-2-0-0 52-week low =$ 28.75 Last earnings 10/99 est=-0.30 actual=-0.42 surprise=-35.5% Next earnings 01-24 est=-0.70 versus=-0.55 Average daily volume = 520 K Chart = http://quote.yahoo.com/q?s=HGSI&d=3m **** MWD - Morgan Stanley Dean Witter $141.25 (+9.75) MWD is the #2 retail broker in the US only after Merrill Lynch. The 1997 merger of Morgan Stanley and Dean Witter created an investment banking and retail brokerage powerhouse. The company is now a global financial service firm with three primary business segments: securities, asset management, and credit services. Its Discover unit has been one of the leading credit card issuers. MWD has more than 430 branches in the US and some 30 more abroad. Its clients include both individuals and institutions. Breakout! This financial stock is splitting 2:1 on January 12th and it seems the party has begun. On Wednesday MWD shattered its strong resistance at $135 and has consecutively powered higher. MWD outdid yesterday's stellar performance and set another new record today. Overhead opposition is now at $142.38 with near-term support likely to evolve around the 5-dma now at $135.51. The 10-dma ($131.97) has yet to catch-up with the recent gains, but marks a stronger support level. Look for intraday dips that fit your risk portfolio to get into this split play. Although it's important to realize the true test for this stock will be to hold above $140 over the next few trading sessions. Keep in mind too that MWD is a financial stock and was certainly influenced by the lower bond yield that ultimately aided the broad market advances. In the news JP Morgan, Goldman Sachs, and Morgan Stanley Dean Witter are reported to be in talks to buy Credito Fondiario & Industriale SpA, an Italian corporate lender with a market value of about $247.7 mln. All the companies failed to comment on the rumor. BUY CALL JAN-135 MWD-AG OI=2139 at $10.88 SL=8.75 BUY CALL JAN-140*MWD-AH OI=1205 at $ 7.75 SL=6.00 BUY CALL JAN-145 MWD-AI OI= 160 at $ 5.13 SL=3.25 BUY CALL FEB-140 MFZ-BH OI= 152 at $11.38 SL=9.00 Picked on Dec 30th at $141.25 P/E = 19 Change since picked +0.00 52-week high=$142.38 Analysts Ratings 4-4-6-0-0 52-week low =$ 70.81 Last earnings 12/99 est= 1.85 actual= 2.84 Next earnings 03-27 est= 1.85 versus= 1.76 Average Daily Volume = 2.00 mln Chart = http://quote.yahoo.com/q?s=MWD&d=3m ***** LEAPS ***** With Y2K only a day away, we are going to sit back watch and see if this event has any major impact. It's not likely, but there is no reason to risk capital. Why not take a day off after such a phenomenal year? What we want to focus on is going into the new year with stop losses. We have lots of profits in our portfolio and it's tough to add to positions at this lofty level. Not to mention, the markets usually dip mid-January after the earnings anticipation is over. It would be this kind of market or stock dip that will turn us into buyers once again. Therefore, tighten your stops while still allowing a little room for your options to breathe and wait for a strong downdraft in the averages, possibly lasting a few days, to buy. Remember, let the VIX be your eyes and ears on market sentiment. Anything over 30 is a good time to consider buying LEAPS. The VIX is currently at 25.94. This is the highest level in awhile. Current Plays SYMBOL SINCE LEAPS SYMBOL CURRENT PICKED RETURN EMC 11/07/99 JAN-2001 $80 ZOH-AP at $41.25 $15.38 168.21% JAN-2002 $90 WUE-AR at $44.38 $19.00 133.58% DELL 11/07/99 JAN-2001 $50 ZDE-AJ at $13.25 $ 7.00 89.29% JAN-2002 $50 WDQ-AJ at $18.50 $11.25 64.44% GPS 11/07/99 JAN-2001 $40 ZGS-AH at $13.38 $ 5.75 132.70% JAN-2002 $45 WGS-AI at $16.13 $ 7.88 104.70% IBM 11/07/99 JAN-2001 $100 ZIB-AT at $24.75 $13.63 81.58% JAN-2002 $110 WIB-AB at $28.13 $16.50 70.49% WMT 11/07/99 JAN-2001 $70 ZWT-AN at $11.63 $ 6.50 78.92% JAN-2002 $75 WWT-AO at $15.38 $ 9.75 57.74% LU 11/14/99 JAN-2001 $80 ZEU-AP at $13.63 $12.88 5.83% JAN-2002 $90 WEU-AR at $17.00 $16.13 5.39% CSCO 11/14/99 JAN-2001 $80 ZCY-AP at $37.13 $19.13 94.74% JAN-2002 $90 WIV-AR at $39.25 $22.00 78.41% SLR 11/14/99 JAN-2001 $85 ZSR-AQ at $24.63 $21.75 13.24% GE 11/21/99 JAN-2001 $150 ZGR-AU at $27.88 $16.25 71.57% JAN-2002 $150 WGE-AU at $38.25 $25.50 50.00% GTW 11/21/99 JAN-2001 $90 ZWB-AR at $12.38 $17.75 -30.25% JAN-2002 $100 WGB-AT at $17.25 $22.50 -23.33% NT 11/28/99 JAN-2001 $75 ZOO-AO at $36.88 $22.25 65.75% JAN-2002 $75 WNT-AO at $45.88 $30.25 51.67% VOD 12/05/99 JAN-2001 $50 ZAT-AJ at $11.50 $10.75 6.98% JAN-2002 $50 WHV-AJ at $15.38 $15.00 2.53% KM 12/05/99 JAN-2001 $10 ZKM-AB at $ 3.13 $ 2.50 25.20% JAN-2002 $15 WKM-AC at $ 2.19 $ 1.75 25.14% ADBE 12/12/99 JAN-2001 $65 ZAE-AM at $16.25 $15.00 8.33% JAN-2002 $70 WAE-AN at $20.38 $20.38 0.00% TXN 12/12/99 JAN-2001 $110 ZTN-AB at $17.88 $22.25 -19.64% JAN-2002 $120 WGZ-AD at $23.25 $28.50 -18.42% NXTL 12/19/99 JAN-2001 $90 ZFU-AR at $32.00 $23.50 36.17% JAN-2002 $100 WFU-AT at $35.63 $27.25 30.75% SUNW 12/19/99 JAN-2001 $80 ZJX-AP at $19.75 $17.63 12.02% JAN-2002 $90 WJX-AR at $23.88 $22.00 8.55% AOL 12/23/99 JAN-2001 $90 ZKS-AR at $17.63 $20.13 -12.42% JAN-2002 $100 WAN-AT at $22.63 $25.63 -11.71% 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 No new plays today. Remember to use any market meltdowns in the coming month to start a new position on an existing play. Drops No drops today either. With our long-term outlook, we are more likely to give a stock some room to retreat, consolidate, and start moving up again. That is what happened to SLR and we used that drop as an excellent entry point. Now we are firmly in the money on that play. ***************** 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. **** PHCM - Phone.com Inc $111.50 (-6.75)(-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. We noted the possibility of a bounce and a bounce is what we got. What an opportunity for entry points! PHCM made it all the way up to $127, briefly peeking through its 10-dma, which was at $121, before making a turn and resuming its move south. Today was a perfect example of PHCM offering a wide trading range perfect for new entries. PHCM traded from $127 all the way down to $110.75, a range of $16.25. PHCM ended the session just three quarters above the low for the day backed with good volume, positioning us well heading into tomorrow's shortened session. PHCM is currently resting on its 5-dma at $111 so watch for some trading below this level to confirm a continuation of the downward trend. As we have seen, PHCM has some solid support at $100, so it is imperative to exercise caution and tighten your stops as we approach. PHCM has resistance at $120, $121 (10-dma) and further resistance at $130 if needed. BUY PUT JAN-115*UMC-MC OI=0 at $17.88 SL=14.00 Today's vol=30 BUY PUT JAN-110 UMC-MB OI=0 at $15.25 SL=12.00 Today's vol=66 Average Daily Volume = 1.41 mln Chart = http://quote.yahoo.com/q?s=PHCM&d=3m **** CIEN - Ciena Corp. $56.50 (-1.50)(-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. Ciena has been one of the big winners of the year. Just over a year ago CIEN was trading in the single digits and nobody wanted to get near this former high-flyer. Then the market fell in love with any company in the fiber optic communications business. Ciena's stock made a comeback for the ages. Funny thing about success. When you do well, everybody wants a piece and the trailblazers sometimes lose their claims to bigger and better financed competition. This seems to be the case with Ciena. Nortel and Lucent have been aggressively moving into Ciena's business. Being bullied about by these behemoths must hurt. To make matters worse, CSCO has entered into the fray with its planned acquisition of the fiber optic division of the Italian company, Pirelli. Ciena is doing everything it can to increase its product and customer base. Will it be enough? Hard to know for sure, but it seems that fear has gripped the minds of Ciena's shareholders and they are doing some selling. Anybody with a memory of Ciena's price history has to be worried that the stock could fall all the way back into the single digits. Ciena probably would not deserve such a beating but emotions drive markets. After a nice drop on Monday morning, CIEN staged a little rally for a couple of days. On Thursday it appears that CIEN might have begun to roll over. Only time will tell of course, but it is a good sign for put holders that CIEN closed in the bottom end of its range after taking out Wednesday's high. $55 seems to be an area of a little support. Look to get into a bearish position if CIEN can trade below that level. You need to be cautious of CIEN trading above $60. That would be indicative of CIEN trying to keep its comeback going. BUY PUT JAN-60*EUQ-ML OI= 901 at $7.13 SL=5.25 BUY PUT JAN-55 EUQ-MK OI=1586 at $4.25 SL=2.50 Average daily volume = 5.26 mln Chart = http://quote.yahoo.com/q?s=CIEN&d=3m **** SPLN - Sportsline.com $45.88 (-12.13) SportsLine.com is at the leading edge of media companies, providing Internet sports content, community, and e-commerce on a global basis. SportsLine.com's content includes more than 400,000 pages of multimedia sports information, entertainment, and merchandise. SportsLine.com was founded in 1994, and its flagship Internet sports service was renamed CBS SportsLine in March of 1997 as part of an exclusive promotional and content agreement with CBS Sports. SPLN produces the official league Web sites for Major League Baseball, the PGA TOUR and NFL Europe League, and serves as the primary sports content provider for America Online, Netscape, and Excite. What do you get when you bring together Michael Jordan, John Elway and Wayne Gretzky on the same team? A website. Not your first guess, right? On Dec 21st, these three sports legends came together to announce that they were forming MVP.com, which will take over the e-commerce business of Sportsline.com. SPLN will receive a percentage of the revenue generated from MVP.com's Internet sporting goods sales. The day of this announcement, SPLN spiked up sharply tagging a new 52-week high of $83.25 and trading in a range over $20. SPLN finally closed just a quarter shy of the low for the day while posting huge volume. Once SPLN came crashing back to earth, it seemed to have trouble regaining its footing and continued to decline. On the 27th, SPLN broke through its 10-dma. SPLN has also broken through and is now trading below its 5 and 30-dma's, levels that have been backing SPLN for some time. SPLN is hovering above its 50-dma at $45 and should SPLN drop below this level, we could be cleared for a fall to $40. SPLN looks to have additional support right around $36. SPLN was held back at $50 in afternoon trading yesterday and this level managed to hold throughout today's session. We should be cleared for new entries once we have a breakthrough $45. SPLN is scheduled to announce earnings on January 20th (unconfirmed) so this may be a quick in and out play to avoid falling victim to a potential earnings run. Remember to use your stops. On Wednesday, SPLN announced that CBS had exercised warrants to purchase 380,000 shares of SPLN at $20 per share. CBS now owns a total of 16.1 percent of SPLN. BUY PUT JAN-50*QSP-MJ OI=0 at $6.50 SL=5.00 Just opened BUY PUT JAN-45 QSP-MI OI=0 at $2.06 SL=1.50 Just opened Average Daily Volume = 362 K Chart = http://quote.yahoo.com/q?s=SPLN&d=3m ************************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 1-2-2000 Sunday 5 of 5 COVERED CALLS ************* Mutual Funds And Pension Plans Use It Too... Believe it or not, buying stock and writing covered-calls is a well-known institutional hedge strategy. Fund managers suggest that the risk/reward characteristics of this technique can often be much better than owning the stock or speculating in options. There are a number or reasons why professional option writers use the covered-call strategy to achieve above-average returns. The motivation to sell call options comes from the fact that they are generally overpriced. Whether due to supply and demand factors or simple speculation, it's common for traders to pay more for call options than they are worth. When options are expensive, option writers benefit by receiving larger time values. Even a relatively small difference in premium can result in a 3% to 5% increase in the annual returns from this strategy. The basic techniques that fund managers use when implementing this strategy can be beneficial to retail investors as well. One of the most common traits is selling short-term options to obtain higher relative time values. In most cases, longer-term series have much less premium (proportionally) in the option price due to a smaller demand from traders. Fund and pension-plan buyers generally select high-quality stocks and sell in-the-money options for increased probability of assignment. When compared to outright ownership, this method is almost equal to "pre-selling" the issue at a profit. In covered-write positions, the owner retains any dividends issued on the stock before the option is exercised. Profits from regular dividends can increase the annual return of the position as much as 5%. For this reason, hedge-fund managers sell options on stocks with moderate to large dividends. In some instances, the early exercise of options (dividend capturing) will prevent an investor from receiving this added premium but the effect can be offset by reinvesting the funds in another profitable position. Institutions also use the popular buy-write technique when placing orders. Designating the net cost of the combined position when the order is placed eliminates price risk and affords the fund manager with an opportunity to negotiate a favorable basis. A block trader will often agree to these terms in order to unload large amounts of the stock with only a small premium concession from the current market price. Institutional traders generally utilize only the most successful long-term strategies to guarantee a consistent rate of return. Any method that produces less than profitable results will inevitably lower their supply of funds. The covered-call strategy is commonly used to generate moderate compound returns over a complete market cycle while avoiding the potential of large portfolio losses. It appears this may be the safest way to outperform all but the most aggressive techniques in the majority of market conditions. SUMMARY OF PREVIOUS PICKS Stock Price Last Mon Strike Opt Profit ROI Monthly Sym Picked Price Price Bid /Loss ROI MCRE 7.56 8.88 JAN 7.50 1.31 *$ 1.25 20.0% 14.5% SPLH 8.44 8.63 JAN 7.50 1.81 *$ 0.87 13.1% 11.4% EMIS 19.88 32.94 JAN 17.50 4.50 *$ 2.12 13.8% 10.0% WSTL 10.75 10.44 JAN 10.00 1.88 *$ 1.13 12.7% 9.2% CBIZ 10.31 8.50 JAN 7.50 3.63 *$ 0.82 12.3% 8.9% FSII 10.69 11.50 JAN 10.00 1.94 *$ 1.25 14.3% 8.9% LGND 11.69 12.50 JAN 10.00 2.75 *$ 1.06 11.9% 8.6% NFO 14.38 22.06 JAN 12.50 2.94 *$ 1.06 9.3% 8.1% AWEB 12.13 10.75 JAN 10.00 3.00 *$ 0.87 9.5% 6.9% SCOC 17.88 28.88 JAN 15.00 4.13 *$ 1.25 9.1% 6.6% PILT 17.56 23.00 JAN 12.50 5.88 *$ 0.82 7.0% 6.1% ONHN 10.25 8.94 JAN 7.50 3.38 *$ 0.63 9.2% 5.7% BAMM 9.81 8.03 JAN 7.50 2.75 *$ 0.44 6.2% 5.4% TTWO 16.31 13.25 JAN 12.50 4.63 *$ 0.82 7.0% 5.1% MWHS 15.06 18.44 JAN 12.50 3.25 *$ 0.69 5.8% 5.1% PILT 20.25 23.00 JAN 15.00 6.38 *$ 1.13 8.1% 5.1% RNBO 20.00 23.00 JAN 15.00 6.13 *$ 1.13 8.1% 5.1% TSCM 15.75 19.81 JAN 12.50 3.88 *$ 0.63 5.3% 4.6% NETS 28.00 27.94 JAN 22.50 6.63 *$ 1.13 5.3% 4.6% AGY 16.88 15.31 JAN 15.00 2.75 *$ 0.87 6.2% 4.5% VDAT 13.50 10.19 JAN 10.00 3.88 *$ 0.38 4.0% 4.3% EMIS 24.63 32.94 JAN 20.00 5.38 *$ 0.75 3.9% 4.2% ENMD 28.44 25.63 JAN 22.50 6.75 *$ 0.81 3.7% 4.1% MESG 16.63 13.88 JAN 12.50 4.88 *$ 0.75 6.4% 4.0% BNYN 15.81 20.06 JAN 12.50 4.13 *$ 0.82 7.0% 3.8% BIDS 5.13 4.28 JAN 5.00 1.00 $ 0.15 3.6% 2.3% SATH 12.69 9.63 JAN 10.00 3.38 $ 0.32 3.4% 1.9% BIDS 5.25 4.28 JAN 5.00 0.94 $ -0.03 -0.7% 0.0% *$ = Stock price is above the sold strike price. Positions Previously Closed: Value America (VUSA), Summit Tech (BEAM). 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 CNCX 29.88 JAN 22.50 QXF AX 8.00 282 21.88 2.9% 2.9% NPLS 20.56 JAN 17.50 UTN AW 3.63 1210 16.94 3.3% 3.3% NETA 25.13 JAN 22.50 CQM AX 3.63 2681 21.50 4.7% 4.7% STRX 8.13 JAN 7.50 TQQ AU 1.00 3047 7.13 5.3% 5.3% Sequenced by Return Not Called Stock Price Mon Strike Option Opt Open Cost RC RNC Sym Price Symbol Bid Intr Basis STRX 8.13 JAN 7.50 TQQ AU 1.00 3047 7.13 5.3% 5.3% NETA 25.13 JAN 22.50 CQM AX 3.63 2681 21.50 4.7% 4.7% NPLS 20.56 JAN 17.50 UTN AW 3.63 1210 16.94 3.3% 3.3% CNCX 29.88 JAN 22.50 QXF AX 8.00 282 21.88 2.9% 2.9% Company Descriptions CNCX - Concentric Network $29.88 *** Entry Point *** Concentric provides complete Internet business solutions for small and medium-sized enterprises including DSL access, Web hosting and e-commerce. The company also offers data center services, virtual private networks, dedicated access, and application infrastructure services for delivering applications over the Internet or a VPN. Concentric's services are offered through a nationwide network of data centers and a private, nationwide ATM network. Concentric's post-split consolidation appears over as the technical strength improves. Recent "buy" ratings and a stake in a future IPO (Register.com) provides for favorable speculation with a cost basis at technical support. JAN 22.50 QXF AX Bid=8.00 OI=282 CB=21.88 RC=2.9% RNC=2.9% Chart = http://quote.yahoo.com/q?s=CNCX&d=3m **** NETA - Network Associates $25.13 *** Stage I Exit? *** Network Associates is a leading supplier of enterprise network security and management software. Network Associates' Net Tools Secure and Net Tools Manager offer best-of-breed, suite-based network security and management software. Net Tools Secure and Net Tools Manager suites combine to create Net Tools that centralizes these point solutions within an easy-to-use, integrated systems management environment. The upgrade in December with a "buy" rating and price target of $35 should help NETA continue its move out of a stage I base. Favorable speculation with support (the positive test in early December) near the cost basis (July and September highs). JAN 22.50 CQM AX Bid=3.63 OI=2681 CB=21.50 RC=4.7% RNC=4.7% Chart = http://quote.yahoo.com/q?s=NETA&d=3m **** NPLS - Network Plus $20.56 *** Head-n-Shoulders Bottom *** Network Plus is a network-based integrated communications provider headquartered in Quincy, Massachusetts. Network offers broadband data and telecommunications services to small and medium-sized business customers located in major markets in the North-eastern and Southeastern regions of the US. The company's bundled product offerings include local and long distance services as well as enhanced, high-speed data and Internet services, utilizing digital subscriber line, or DSL, technology. New coverage, acquisitions, a new data center, and new contracts have contributed to the recent up-trend in Network Plus. The move has taken the stock price above the neckline of a head-n-shoulders bottom, which is a very bullish formation. A conservative entry with the strike price near the neckline; a technical support area. JAN 17.50 UTN AW Bid=3.63 OI=1210 CB=16.94 RC=3.3% RNC=3.3% Chart = http://quote.yahoo.com/q?s=NPLS&d=3m **** STRX - Star Telecom 8.13 *** Merger In Progress *** Star Telecom is an international long-distance provider offering highly reliable, low-cost, switched-voice services on a wholesale basis, primarily to U.S. carriers. STAR provides international long-distance service to more than 275 foreign countries through a flexible network of resale arrangements with providers, various foreign termination relationships, international gateway switches and leased and owned transmission facilities. World Access (WAXS) and Star Telecom recently signed a letter of intent to merge and the reported value to STAR shareholders is above $10.50 per share. Will the deal go through? Speculate at a cost basis below support. JAN 7.50 TQQ AU Bid=1.00 OI=3047 CB=7.13 RC=5.3% RNC=5.3% Chart = http://quote.yahoo.com/q?s=STRX&d=3m NAKED PUT SECTION ***************** Trend-lines And Relative Strength... It's important to understand the fundamentals of basic technical analysis and market timing strategies. When successful investors discuss their common traits, the most sought after qualities are knowledge of entry/exit indicators and proven historical patterns. In addition, the majority of option trading strategies are of a short-term nature, thus technical analysis is generally the best approach to use when researching potential candidates. Here are this week's topics: Trend-line A line connecting any two lows or highs on a given chart can be considered a trend-line. A significant trend occurs when the line is touched at least three times. A violation of this line usually signals a major change in the trend's direction. A move below an advancing trend-line is negative, while a break above a declining trend-line is bullish. However, the greater the slope of a given trend-line, the less meaningful its break is on the downside. With a rapidly advancing issue, a break below the current trend-line may simply be a technical consolidation, followed by a slower rate of future advance. When an issue is trading in a horizontal range, a break above or below the current lines of support and resistance is much more significant. The most compelling bullish signals are given when a stock penetrates a well defined resistance trend-line and simultaneously climbs above a long-term moving average. Relative Strength Relative strength is generally defined as how well a given issue or instrument performs in relation to an industry average or the overall market. A favorable relative strength is indicated when the stock achieves a higher rate of gain than the specific index or market gauge. The formula for measuring relative strength is simply the price of the issue divided by the price of the average. Poor relative strength demonstrates that the issue is an inferior performer compared to the overall stock market and should not be considered as a long position. Conversely, if relative strength is favorable, the position can often be held through periods of consolidation even when other forms of analysis suggest the issue might be failing. One of the most common and useful indicators in stock trading is the relative strength indicator (RS). The RS is charted as an oscillator with a value from 0 to 100. The direction or trend of RS should confirm price movement and can also identify turning points when there are divergence's in other indicators. An example would be a new high in price without a new high in RS; this may indicate a false breakout. RS can also identify overbought and oversold conditions; when the RS value reaches extreme highs or lows. One of the most significant bullish signals occurs when the indicator moves from negative territory (below the zero line) to positive territory. In cases where a trading range break-out is supported by a positive move in the relative strength line, the probability of a sustained bullish is greatly increased. *** 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 AWEB 12.88 10.75 JAN 10.00 0.50 *$ 0.50 16.2% 17.6% PILT 17.13 23.00 JAN 12.50 0.50 *$ 0.50 12.7% 13.8% RNBO 21.94 23.00 JAN 17.50 0.81 *$ 0.81 15.6% 13.5% ORCT 31.00 34.13 JAN 25.00 0.81 *$ 0.81 11.2% 12.2% IUSA 12.13 14.00 JAN 7.50 0.31 *$ 0.31 11.3% 9.8% EMIS 21.00 32.94 JAN 15.00 0.50 *$ 0.50 10.6% 9.2% DAVX 23.75 19.81 JAN 17.50 0.56 *$ 0.56 10.5% 9.2% CCUR 17.75 18.81 JAN 12.50 0.50 *$ 0.50 12.3% 8.9% SCOC 17.88 28.88 JAN 12.50 0.44 *$ 0.44 10.9% 7.9% MSGI 19.00 17.00 JAN 12.50 0.38 *$ 0.38 9.1% 7.9% ENMD 28.44 25.63 JAN 20.00 0.44 *$ 0.44 7.2% 7.8% CS 28.50 26.00 JAN 20.00 0.56 *$ 0.56 8.9% 7.8% PRRC 23.56 23.88 JAN 17.50 0.56 *$ 0.56 10.6% 7.7% AND 9.25 7.31 JAN 7.50 0.44 $ 0.25 10.5% 7.6% INSO 32.13 32.31 JAN 20.00 0.75 *$ 0.75 10.4% 7.6% WAXS 20.50 20.00 JAN 15.00 0.38 *$ 0.38 8.5% 7.4% NETS 28.00 27.94 JAN 20.00 0.50 *$ 0.50 8.2% 7.1% EGRP 35.56 27.00 JAN 25.00 0.56 *$ 0.56 7.3% 5.3% MMWW 37.38 29.94 JAN 22.50 0.50 *$ 0.50 6.3% 4.5% SATH 12.94 9.63 JAN 10.00 0.56 $ 0.19 6.0% 4.4% *$ = 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 ITIG 24.81 JAN 17.50 ITU MW 0.63 50 16.88 11.2% LOR 20.25 JAN 17.50 LOR MW 0.38 3502 17.13 6.6% SCOC 29.00 JAN 17.50 UQS MW 0.56 110 16.94 8.8% WAXS 20.00 JAN 17.50 WXQ MW 0.69 1220 16.81 11.1% Sequenced by ROI Stock Price Mon Strike Option Opt Open Cost ROI Opt Sym Price Symbol Bid Intr Basis Expired ITIG 24.81 JAN 17.50 ITU MW 0.63 50 16.88 11.2% WAXS 20.00 JAN 17.50 WXQ MW 0.69 1220 16.81 11.1% SCOC 29.00 JAN 17.50 UQS MW 0.56 110 16.94 8.8% LOR 20.25 JAN 17.50 LOR MW 0.38 3502 17.13 6.6% Company Descriptions ITIG - Intelligroup $24.81 *** B-2-B IPO *** Intelligroup is a global professional services firm that helps its clients improve their business performance by building and supporting innovative Internet-based solutions and enterprise applications. Intelligroup solutions break down barriers across clients' organizations, sharing information with their customers, suppliers, partners and employees alike, building relationships within and among these constituencies, increasing sales, cutting cycle times, improving service and reducing costs. ITIG's price jumped when it announced that it would spin off SeraNova (B2B Internet and portal solutions) to its shareholders in the first quarter of 2000. Intelligroup is a fast growing company within a "hot" sector, closing at a new all-time high earlier this week. We feel $0.63 is just reward for trying to target shoot an entry point near a 33% retracement of the recent rise in price. JAN 17.50 ITU MW Bid=0.63 OI=50 CB=16.88 ROI=11.2% Chart = http://quote.yahoo.com/q?s=ITIG&d=3m **** LOR - Loral Space & Comm. $20.25 *** Sleeper Play *** Loral Space & Communications is a high technology company that concentrates primarily on satellite manufacturing and satellite- based services, including broadcast transponder leasing and value- added services, domestic and international corporate data networks, global wireless telephony, Internet services, international direct- to-home satellite services, and broadband data services including business television, distance learning and video to the desktop. Loral Space owns a 43% stake in Globalstar Telecom (GSTRF - see write-up in call section) and has benefited in the recent move of Globalstar. This has moved Loral Space near the top of a year- long base. We favor a cost basis below technical support. JAN 17.50 LOR MW Bid=0.38 OI=3502 CB=17.13 ROI=6.6% Chart = http://quote.yahoo.com/q?s=LOR&d=3m **** SCOC - Santa Cruz Operation $29.00 *** Retracement = Entry *** Santa Cruz Operation is a leading supplier of UNIX System software for business-critical, network computing environments. Network computing offers businesses a more powerful, cost-effective way to share business-critical applications and information with people anywhere in the world. The key elements are powerful, scaleable, and reliable servers; and support for a wide range of clients. The company also offers an application broker for network computing. The run-up has been incredible and we do appreciate getting paid for trying to own a very bullish stock at technical entry points. JAN 17.50 UQS MW Bid=0.56 OI=110 CB=16.94 ROI=8.8% Chart = http://quote.yahoo.com/q?s=SCOC&d=3m **** WAXS - World Access $20.00 *** STRX Merger *** World Access is focused on being a leading provider of bundled voice, data and Internet services to key regions of the world. The company competitively provides end-to-end communications services through its redundant digital network which is capable of supporting voice and data services, including frame relay, Internet Protocol, asynchronous transfer mode and multimedia applications. Located strategically throughout the US and 13 European countries, World Access's network backbone consists of gateway and tandem switches, linked by an extensive fiber network encompassing tens of millions of circuit miles. World Access has announced that they have signed a letter of intent to merge/buy Star Telecom (STRX) in a transaction valued at approximately $650 million, which will expand its retail telecom services in Europe. We favor the technical support near the cost basis. JAN 17.50 WXQ MW Bid=0.69 OI=1220 CB=16.81 ROI=11.1% Chart = http://quote.yahoo.com/q?s=WAXS&d=3m ************************ SPREADS/STRADDLES/COMBOS ************************ Pop The Corks - It's Party Time! Wednesday, December 29 Stocks surged to record levels Wednesday as a combination of thin volume and bullish analyst opinions boosted leading issues. The Dow Jones Industrials ended 8 points higher at 11,484 after the blue-chip index hit a new intraday high of 11,543. The tech-heavy Nasdaq index closed above 4,000 for the first time, climbing 69 points to 4,041. The broad market S&P 500 index rose 5 points to a record 1,463. The Russell 2000 index of small-cap stocks also hit a new high, up 8 points to 497. Trading volume was light with only 573 million shares exchanged on the NYSE. Market breadth was positive with 1,991 stocks moving higher while 1,090 fell lower. New lows outpaced new highs by a margin of 255 to 95. Bonds added some support with the 30-year Treasury up 12/32, bid at 95 23/32, and the yield at 6.44%. Tuesday's new plays (positions/opening prices/strategy): Bio-Tech Gen. BTGC JUN5C/JAN5C $2.00 debit diagonal Star Telecom STRX MAY7C/JAN7C $0.50 debit calendar Talk.com TALK APR22C/JAN22C $1.00 debit calendar LHS Group LHSG APR25C/APR25P $6.75 debit straddle All of our new plays offered favorable entry prices during the session. The positions were available at or below our suggested targets. Portfolio plays: Cyclical, financial and technology stocks drove the market today and wireless communication company Qualcomm (QCOM) set the stage for a telecom rally, gaining $156 after PaineWebber upgraded the stock and set a 12-month price target of $1,000. Qualcomm is a developer of Code Division Multiple Access (CDMA) technology. The company is going to split its stock four-for-one Friday and the issue is expected to continue higher after the new shares are distributed. Lycos (LCOS) was our big Internet mover, up over $8 to $85 with the sector rally. This issue has produced multiple winning positions in various strategies during the past month. One of today's most active stocks was Charles Schwab (SCH), the nation's #1 online broker. The bullish issue pulled the sector skyward after saying it expects to exceed fourth-quarter profit estimates due to strong trading volumes. Online financial stocks climbed higher on the news and our bullish play on E*Trade Group (EGRP) profited from the surprise announcement. Our current play (APR25C/JAN30C) has a credit of $5.25 with a cost basis of $3.50. EGRP also announced that shareholders have approved the planned acquisition of Telebank, an online banking company. A number of small-cap issues made nice moves today and many of our speculation plays are now profitable. Loral Space (LOR) led the group with an $0.88 move to $19.50. The sold (short) strike in the LOR position is at $20 and our play is near maximum profit. Other neutral spread issues moved up during the session including Bid.com (BIDS), Champion (CHB), Silicon Graphics (SGI), Southwest Bancorp (SWBT), and 3dfx (TDFX). A few of our mid-cap positions performed well and Cendant (CD) was the leader, climbing $1.68 to a recent high near $26.50. Our bullish debit spread is at maximum profit. Unisys (UIS) was a close second, rising $0.93 to $31.50. Our spread achieves maximum profit with the issue above $30. The best of the worst was Delta And Pine Land (DLP) with a $0.56 move to $16. Our covered-call recovery play has a cost basis near the current price. On the down side, drug stocks showed weakness, with Dow component Johnson & Johnson (JNJ) falling $3.56 to $92.38. Our LEAPS/CC's position is currently profitable with a $9 credit against $3.25 invested. Biotechnology stocks, on the other hand, soared again and Medtronics (MDT) rebounded along with the group, rising $1.38 to $37.50. January will be the first month of positive returns for this long-term play. The leaders in the LEAPS/CC's portfolio were Motorola (MOT), Sun Microsystems (SUNW) and Vodaphone (VOD). Corporate earnings warnings for the upcoming quarterly reporting season have also affected a few of our positions but cash inflows are heavy and yearly retirement contributions should continue to have a positive effect on stocks for the next few weeks. Many of the issues that have slumped in the past month are expected to recover as the seasonal "January Effect" begins after the Y2K rollover. With this in mind, we will wait until next week to pass judgment on all but the most under-performing positions. Thursday, December 30 U.S. markets consolidated Thursday as investors cashed-out of the high-flying technology stocks in a pre-Y2K celebration. The Dow Jones Industrial Average fell 31 points to 11,452 after hitting an intraday high of 11,568. The Nasdaq composite index finished down 4 points at 4,036, a day after its 60th record high of the year. Europe's major markets; London, Germany and Paris, also closed at yearly highs on Thursday. Trading volume was extremely light with 561 million shares exchanged on the NYSE. Advancing stocks edged out declines 1,767 to 1,363 on the Big Board with 108 issues at new highs and 165 at new lows. The benchmark U.S. 30-year bond rose 7/32 with yield ending at 6.42%. Portfolio plays: The market enjoyed a brief rest today as investors moved to the sidelines in preparation for the New Year celebration. Within the popular industries, Internet and semiconductor stocks came under selling pressure, as did networking issues. Retailers put on a strong performance but oil service stocks, precious metals, and bio-techs fell from grace. Our standout was Computer Associates (CA), which rose $4.12 to a new all-time high near $70. Stock value of the application software company surged after Morgan Stanley raised its price target on the stock to $80 a share, based on solid business trends and new strategic contracts in its consulting services. Our bullish LEAPS/CC's play is short at $65 and we may need to roll to a higher strike if the stock continues to rally. Plan to monitor the issue for further upside movement and make the necessary adjustments. Communication issues continue be the leaders in our portfolio and specifically, the satellite group is performing very well. Loral Space (LOR) is tagging along behind recent winner PanamSat (SPOT) for almost daily gains. Today LOR climbed another $0.75 to close above $20 for the first time in two months. Our bullish calendar spread play is at maximum profit and may need to be adjusted to extend gains. Recoton (RCOT) is another small-cap technology issue that has a generous amount of upside potential. Our new diagonal position is profitable after just three weeks and the technical outlook is very favorable. A number of our large-cap stocks also moved higher in today's trading but the most significant rally came in United Airlines' (UAL) $2 spike to $78. The stock climbed out of a previous channel near $75 and now appears poised for a run on the yearly highs. Both of our long-term plays profited from the rally but we will need to make some position adjustments if the bullish trend continues. One of our new speculation issues was hit hard by an unexpected earnings warning. Bio-Technology General (BTGC) fell $2.62 to $12 after announcing it expects 1999 EPS $0.08 to $0.10 below 1998's due to a reduction of Oxandrin inventory by its distributor. The bullish diagonal position may eventually recover but it appears the stock will test support near $10 in the short term. An early exit on the February call option offered a $1.50 credit (capital preservation). Another group that has fallen in recent weeks is the Internet retail sector and our departure from these issues was timely. Priceline.com (PCLN), Shop-At-Home (SATH) and Value USA (VUSA) have all been hammered by holiday sell-offs and the newest failure may be Autoweb.com (AWEB). Fortunately, the AWEB position has provided a number of profitable exit opportunities. Delta And Pine Land (DLP) was again the surprise of the day, up $0.88 to $16.75 as buying pressure moved to a positive character. The stock price is rebounding sharply from an extremely oversold condition and the trend should continue in the short-term. Happy New Year! Questions & comments on spreads/combos to ray@OptionInvestor.com *************** LONG-TERM PLAYS *************** NETA - Network Associates $25.12 *** LEAPS/CC's *** Network Associates (previously known as McAfee Associates) is a leading supplier of enterprise network security and management solutions. Network Associates' product offering includes four individual software suites, Total Virus Defense, Total Network Security, Total Network Visibility and Total ServiceDesk. Network Associates has been on the move recently with the new year expected to be a major time for virus and security issues. Last week the company posted a number of anti-virus and online security tips for corporations and consumers during the busy holiday season. One of their leading products has been the "Total Virus Defense" suite. The software provides complete anti-virus protection at the desktop, file server, group-ware server and Internet gateway. Powerful integrated management tools make it easy for administrators to deploy updates and upgrades, and to configure and monitor virus security enterprise-wide. The product comes with the Net Tools Secure suite, a comprehensive security system incorporating anti-virus, encryption, authentication, intrusion detection, vulnerability assessment, and security management. NETA is at the top of their game right now and the stock price began moving higher after an analyst at S.G. Cowen issued a 'buy' recommendation, saying the issue has come under tax-loss selling pressure. The brokerage placed a $35 price target on the company and we agree with their outlook. Technically, Network Associates is moving out of a year-long stage I base with several indicators issuing buy signals. The recent bullish climb above the 150 dma on increasing volume should lead to a successful rally through the resistance area near $28. In any event, our new play should remain profitable with the stock at or above the $22-$23 range. PLAY (aggressive - bullish/diagonal spread): BUY CALL JAN01-15 ZNE-AC OI=283 A=$13.12 SELL CALL JAN00-25 CQM-AE OI=4896 B=$2.06 INITIAL NET DEBIT TARGET=$10.75-$10.88 TARGET ROI=100% (12 months) Chart = http://quote.yahoo.com/q?s=NETA&d=3m **** ASFT - Artisoft $18.50 *** Network Management *** Artisoft is engaged in the design, manufacture, marketing and support of cost-effective and easy-to-use local area network (LAN) software systems and communications devices designed to enhance the productivity of PC users. Artisoft is a recognized leader in providing easy-to-use, affordable computer telephony and communications software solutions for small-to medium-size businesses. Artisoft's innovative software products have received more than 100 industry awards including "Product of the Year", "Best of Show" and "Editors' Choice" by PC Magazine, VARBusiness, Computer Telephony Magazine and CTI Magazine among others. Recently, their TeleVantage 3.0 software-based phone system was selected as the leading software product by a number of industry publications including C@LL CENTER Solutions Magazine, the original and most authoritative source on CRM, e-commerce and teleservices and, Internet Telephony Magazine, a leading voice, data, fax, and video convergence publication. TeleVantage was chosen for its enhanced features including IP Telephony, Web browser capabilities, Call Center Reporter and increased scalability. TeleVantage is a powerful software-based PBX and an impressive IP Telephony system as well. The software provides intelligent call management, ACD functionality, IP Telephony, web browser capability and messaging features. It is a flexible, upgradable software solution that operates with Windows NT systems and uses off-the-shelf computer, wiring and telephone hardware. When synchronized with networked desktop PCs, TeleVantage enables users to see and hear voice messages, and raphically manage their own calls while integrating e-mail and phone messaging. Certainly a lot of hype for one product but it appears to be working as the stock has climbed steadily higher since departing the $5 range in early September. The long-term technical outlook is favorable but a consolidation is definitely in order. We will plan for a move to the $20 range and protect our position against downside movement with premium from the (sold) January option. A disparity in pricing will help us enter the play at a discount. PLAY (aggressive - bullish/diagonal spread): BUY CALL MAY-15 AGQ-EC OI=20 A=$6.38 SELL CALL JAN-20 AGQ-AD OI=185 B=$1.85 MAXIMUM INITIAL NET DEBIT=$4.75 TARGET ROI=50% Chart = http://quote.yahoo.com/q?s=ASFT&d=3m **** CDN - Cadence Design Systems $22.81 *** Technicals Only! *** Cadence Design Systems develops, markets, and supports electronic design automation ("EDA") software products and services that automate, enhance and accelerate the design and verification of integrated circuits and electronic systems. The company combines its software products and professional services to provide new customers with highly-optimized electronic product development environments. Cadence recently announced the successful delivery of block-based and platform-based design methodologies and tool flows to the Alba Centre in Scotland. BBD/PBD are the industry's first comprehensive set of fully codified, design methodologies that rapidly transition electronic product development into the emerging system-on-a-chip (SOC) realm. The bottom for this company came as recently as August when the issue hit an all-time low near $9. A recovery to the mid-teens soon followed and now the stock is on the move again. Bolstered by an upgrade in mid-December, Cadence has undergone a favorable change of character. Morgan Stanley Dean Witter said it raised the company to a "strong buy" and the technicals support a much higher price target. We are going to open this position with anticipation of a small correction to the $20 range. We have no upside risk but as the January expiration nears, you should plan to buy back the short options (and roll-forward) to preserve the long-term position. PLAY (conservative - bullish/diagonal spread): BUY CALL MAY-15.00 CDN-EC OI=1260 A=$9.12 SELL CALL JAN-22.50 CDN-AX OI=738 B=$1.81 MAXIMUM INITIAL NET DEBIT=$7.12 TARGET ROI=50% Chart = http://quote.yahoo.com/q?s=CDN&d=3m ************************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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