The Option Investor Newsletter Sunday 1-9-2000 1 of 5 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 1-07 WE 12-31 WE 12-24 WE 12-17 DOW 11522.56 + 25.44 11497.12 + 91.36 11405.76 +148.33 + 32.73 Nasdaq 3882.62 -186.66 4069.28 + 99.84 3969.44 +216.38 +132.82 S&P-100 783.49 - 9.34 792.83 - 2.73 795.56 + 21.63 + 10.44 S&P-500 1441.47 - 27.78 1469.25 + 7.81 1461.44 + 40.39 + 4.01 RUT 488.31 - 16.44 504.75 + 26.81 477.94 + 11.73 - .50 TRAN 2964.72 - 12.48 2977.20 + 89.50 2887.70 - 30.72 + 43.48 VIX 23.20 - 3.51 26.71 + 3.59 23.12 + .11 + 2.09 Put/Call .50 .51 .47 .43 ****************************************************************** What was that? Was that a correction? Profit taking? Tax deferred selling? Who cares! The major point to consider was the incredible recovery in the face of major market moving news and events. The Nasdaq corrected -10% and then rebounded with a +155 point gain and the largest single day point gain ever. The Dow dropped from an intraday high on Monday of 11522 to an intraday low on Wednesday of 10938, a drop of almost -600 points, only to close at a new record high on Friday of 11521. Simply incredible! Especially when you consider the earnings warnings from several big name companies and higher than expected employment numbers on Friday. The market shook off the one-two punch of earnings warnings from Gateway and Lucent and the the larger than expected numbers in the jobs report. Liquidity, liquidity, liquidity! The warning from Lucent, one of the most widely held tech stocks in the world, may have knocked -$20 off Lucent's stock price but the market hardly noticed. Lucent set a one day volume record of 178 million shares for a single stock on the NYSE Friday. The jobs report provided a small jolt with +315,000 new jobs created but on the surface the unemployment rate remained steady at 4.1%. Actually the government changed the way they calculated this number this month. Had they not changed the calculation the number would have been 4.0% and would have caused much more concern in the market. The tech buyers roared off the sidelines and the buying was fierce. The Nasdaq posted the largest point gain ever with +155 points and the Dow posted +269 points and the fifth largest gain ever. So what happened to all of those gloom and doom market forecasters last week who were calling for a -20% drop in the overall market? They got run over by the cash express. With the tax deferred selling done on Monday and Tuesday and those investors now ready to buy something new and the flood of Y2k and retirement cash coming in from the sidelines, words were just not enough to hold back the buyers. After setting on the sidelines in December and watching the train leave the station they were not going to miss a chance to buy tech stocks at a -10% discount. Even the threat of an interest rate increase in three weeks did not slow them down. There is a superstition in the markets that the first week of January will set the direction for the rest of the month and how January goes, so goes the year. If that is the case then how will we rate the first week? The Dow only managed a +25 point gain for the week and the Nasdaq actually lost -186 points. Does that mean the techs will go down the rest of the month and year. I doubt it! With the previous three months of gains and the Y2K event I think we were simply due for a pullback and now that it is over we have blue skys ahead. No, I don't think it is a straight line to 12000 on the Dow or 5000 on the Nasdaq. After moving up +580 points in the last three days, the Dow is due to rest soon. With the Nasdaq back on track we could start seeing some new records there again soon. While I am very positive on the market outlook I would like to remind you that next Monday, Jan-10th, last year saw the Dow and Nasdaq set new highs and then tank for several weeks. In reality I think we got this same sell off last week and next week will be highly positive. The Nasdaq is only a little over 200 points from a new high and I would hope we see that instead of a retest of last weeks lows. The market breadth was good Thursday and Friday with advancers beating decliners by over 1000 issues on both the NYSE and the Nasdaq. The markets closed at the high of the day and strength was increasing. After saying I thought the market had a better chance to go up next week than down, I have to tell you that the economic calendar is stacked against us. Monday and Tuesday are light with only Wholesale Inventories on Tuesday. Wednesday has Import and Export Prices but Thursday and Friday are murder. Thursday has PPI and Retail Sales and Friday will have CPI, Business Inventories, Industrial Production, Capacity Utilization and Real Earnings. Based on this list I could see Monday and Tuesday with a follow through to this weeks rebound but then a slight pull back is possible towards the end of the week as traders take their profits to the sidelines before the PPI and CPI. While I feel positive about the internals of the market we still need to remember that we are in earnings warning season. If we get many more big name warnings the mood of the market could turn negative again. Secondly, with an expected rate hike in February and the slowing of earnings there is nothing to keep traders interested in the market. I would stay invested as long as the rally continues but if we start seeing the breadth decline again then I would take that as a sign of coming weakness. The real earnings start this week and run for four weeks. Normally the end of the second week is when the weakness starts. That would be real close to options expiration Friday and a good time to look for some current month close to the money OEX puts. Not now but keep your eyes open. Nothing goes up in a straight line and not all the profit is out of the market yet. Check out my Options 101 article this week on Risk Free Trading of Internet Stocks. Sell Too Soon! Jim Brown Editor **************************Advertisement************************ Register at http://fncentral.com for a chance to win a free Palm VII. fnCentral offers benefits of traditional financial management software, recurring bill reminders, Palm VII entry, and synchronization with Microsoft Money and Intuit Quicken. In addition, fnCentral connects members with independent consultants and allows them to securely share portions of their data with investment and tax consultants. *************************************************************** ************ JIM'S PLAYS ************ What a week! Since two weeks have come and gone since the last edition of my plays I am not going to try and catch up with the dozens of trades that were done. I am only going to list the current plays and the reasons I chose them. QQQ - JAN-160 Calls No real need to explain this. Whenever the Nasdaq corrects your first thought should be QQQ-Calls. This takes the need to be right on your stock pick out of the equation. By playing the QQQ you can plan the entire Nasdaq-100 cheaply and easily. I almost jumped in on the Tuesday dip but I just did not believe it was over yet. When the breadth started growing I waited about an hour for confirmation and loaded up. I will follow these up with a trailing stop in case this is a cleverly disguised bear trap. LU Jan-2002-45 leaps What can I say? Lucent onsale at -25% off, I could not resist. I bought the Jan-2002 45 calls at a bargain price. Does anybody not expect Lucent to be over $100 again next year and maybe $150 the next year. I bought these in my long term account and I will write covered calls against them until they are paid for. Whenever a good company takes an undeserved hit you should always take advantage of it. 170 million shares changed hands on Friday. You could not sell 170 million shares and have the price go up unless quite a few people thought is was a bargain. GTW - Jan-2002 $50 Leaps Same story as Lucent. Just because Intel is having problems shipping chips fast enough des not mean Gateway is not selling computers. They are gaining on Dell and when Intel gets its act together they will still be gaining market share. This stock will easily be $200 by 2002. I will sell covered calls against these leaps until they are paid for then hold for my free stock at the end. They will probably split twice in the next two years as well. VOD - APR- $40 calls Vodaphone is going to be the largest phone company in the world and it is already in the top ten companies. Do you think that this size will give them pricing power and cost savings? I do and I have been waiting for over a month for it to come back to me. I was beginning to think I would never see $44 again. I bought the April 40 calls. BVSN - Covered Straddle I had sold naked puts on BVSN three weeks ago and did real well. When the market tanked the Internets I was looking for a good candidate for a covered straddle. BVSN had the best trend line before the correction and the option premiums were very high. This is a very aggressive play - do not try this unless you are in the extreme risk category. When BVSN was heading for support at $130 on Thursday I set a target shooting order for BVSN stock at $130.25 (I got a complete fill and the low was 130.06!!) I set it at 130.25 to avoid the tendency of traders to put a buy just above big numbers. I just got a little above them. I bought the stock, the $130 calls, and sold the $170 puts. No that is not a typo. $170. I had faith that the market would turn and BVSN would be above $170 before expiration. The recent high was $190. I was feeling very cocky after BVSN climbed +$15 in about 30 min and the market was rebounding also. I stepped out at about 15 min before the close and almost died when I came back and saw the $15 had evaporated and the market was closed. After the Lucent earnings warning it traded as low as $122 after hours. I had 3000 shares and 30 contracts of calls and naked 30 contracts of the puts. OUCH!!! Fortunately there was never any doubt at the open on Friday and it rocketed to $148 before rolling over. I sold the stock and the calls thinking we might be in a bear trap and waited. About 1:PM when it rebounded from a higher low I went long on the stock again at $140. My plan is to sell the $170 calls when it gets close. I have already made $15 on the stock I sold and $8 on the current long position plus $9 on the $130 call options, plus the premium on the naked puts. If I closed the play on Monday at the open it would already be a huge win but I am betting on better than $170 next week! Time will tell. For a better explanation of this strategy see my Options 101 article today. China - Jan-75 puts You already know the story on this one. Over 30 million shares come out of lockup on Monday. Roughly 75% of the available shares. The trend for the past week had been down with the market and the possibility of some of these shareholders wanting to take a little off the table on Monday are good. After the close on Friday the company announced it was also selling 3.8 mil shares as well. This should be a quick play. It will either go down Monday or not. If it does not go down do not linger. There was some good news about China's (the country) Internet use in the paper over the weekend. Usage is now up to only 8 million users. WOW! Talk about a growth market. If this doesn't move down Monday, get out. Watch for signs of the market rolling over all week. Wednesday would be my bet for weakness if it is going to happen. Good Luck Jim *********** OPTIONS 101 *********** How To Trade High Risk Internet Stocks Without High Risk By Jim Brown Do you watch the highly volatile Internet stocks run up and down $25, 30 or even $50 a day but are afraid to play them because of the risk? Have you looked at the options on stocks like QCOM, YHOO, CMRC or BVSN and passed because you could not see paying $35 for an out of the money option? http://members.OptionInvestor.com/options101/010900_2.asp ****************** EARNINGS THIS WEEK ****************** The following Standard & Poor's 500 companies are expected to report quarterly earnings the week of Jan 10-15. Reporting dates and analysts' mean estimates are provided by First Call/Thomson Financial. YR AGO EST EPS 1/10 AA Alcoa Inc. 0.59 0.76 1/11 IP International Paper Co. 0.21 0.52 1/11 SEG Seagate Tech. Inc. 0.42 0.08 1/11 STI SunTrust Banks Inc. 0.86 1.05 1/11 THC Tenet Health Care 0.40 0.41 1/11 YHOO Yahoo! Corp. 0.07 0.15 1/12 BBT BB&T 0.46 0.51 1/12 SNV Synovus Financial 0.20 0.22 1/13 FNM Fannie Mae 0.85 0.97 1/13 HBAN Huntington Bancshares 0.39 0.47 1/13 INTC Intel Corp. 0.60 0.63 1/13 KLAC KLA-Tencor 0.11 0.47 1/13 KBH Kaufman & Broad Home Co 1.02 1.28 1/13 MTG MGIC Investment Corp 0.88 1.12 1/13 RDC Rowan Companies, Inc. 0.06 0.01 1/14 BGG Briggs & Stratton Corp. 1.05 1.38 1/14 FITB Fifth Third Bancorp 0.55 0.64 1/14 FTU First Union Corp. 1.00 0.86 1/14 FSR Firstar 0.24 0.33 1/14 NCC National City Corp. 0.53 0.55 ************ Stock News ************ The New Paradigm By S.P. Brown "Stock prices have reached what looks like a permanent high plateau," so said famed Yale economist Irving Fisher shortly before the October 1929 stock market crash. Fisher's enthusiasm for stocks, though easy to deride now in light of the stock market debacle that soon followed, is understandable when placed in contexts of the time. http://members.OptionInvestor.com/stocknews/010900_1.asp ******* Ask OIN ******* There is no Ask the Analyst article this weekend. ************** Market Posture ************** As of Market Close - Friday, January 7, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,800 11,550 11,523 Neutral 1.04 SPX S&P 500 1,340 1,400 1,441 BULLISH 12.03 OEX S&P 100 700 750 783 BULLISH 12.03 RUT Russell 2000 430 450 488 BULLISH 11.12 NDX NASD 100 3,200 3,800 3,530 Neutral 1.06 MSH High Tech 1,650 1,900 1,766 Neutral 1.06 XCI Hardware 1,250 1,425 1,339 Neutral 1.06 CWX Software 1,210 1,420 1,265 Neutral 1.07 * SOX Semiconductor 640 660 691 BULLISH 12.21 NWX Networking 820 900 845 Neutral 1.07 * INX Internet 665 800 701 Neutral 1.06 BIX Banking 645 690 544 BEARISH 11.30 XBD Brokerage 410 450 410 Neutral 11.30 IUX Insurance 625 650 606 BEARISH 11.30 RLX Retail 900 935 1,000 BULLISH 11.23 DRG Drug 380 400 375 BEARISH 12.07 HCX Healthcare 760 790 759 BEARISH 12.07 XAL Airline 180 190 150 BEARISH 5.21 OIX Oil & Gas 280 315 297 Neutral 1.06 Posture Alert A relief rally was just what the doctor ordered, as all the indexes across the board saw good buying pressure heading into the weekend. Leading sectors Friday included Healthcare (+8.06%), Drugs (+7.57%), Software (+6.03%), the NASDAQ 100 (+5.65), and the Internet (+5.15%). With Friday's reversal, both the Software and Networking sectors were upgraded to Neutral from Bearish. ****************** Market Sentiment ****************** Sunday, January 9, 2000 The Start of Great Expectations! Friday's relief rally was a blessing for the average technology investor, because he/she will now get about 16 hours of sleep this weekend compared to the 2 hours of sleep that was achieved during Tuesday/Wednesday/Thursday combined! So Lucent Technology dropped the ball and whiffed on their quarter. At first it looked like doomsday for technology, however, executives at the other major networking companies were quick to save the day, and stated that it was a problem with Lucent, not the industry. Positive comments came from or about Nortel Networks, Cisco Systems, Tellabs, JDS Uniphase, and even a laggard in the networking group, Newbridge Networks. More positive news that came out Friday was that the Semiconductor Industry Association (SIA) stated that worldwide sales of semiconductors jumped 24.8% to $14.2 billion, which is a new record for any month. The SIA also called for continued robust growth in the new millennium as well. They went on to state that flash memory sales increased 74.2% year-to-date in 1999, thanks to wireless communications, while DRAM increased 47.6%, with PC and server demand being the major force driving this segment. Pretty good timing on all parts! Below is quick list of equities (that should be reporting their earnings this next week) and our Pinnacle Index for those particular stocks. The Pinnacle Index is a proprietary product that determines current market sentiment and expectations for underlying equities and indexes, which is based upon speculation in the option markets. Also included are their expected earnings, the infamous whisper number (if available), and their estimated earnings release date. What we look for are liquid stocks/options that garner a lot of interest from the investment community. Most of the issues are high tech, and are thus more aggressive. We then filter out many of the equities, only to show stocks with excessive optimism or pessimism. From a contrarian standpoint (a high number is a good indication of extreme optimism, and a low number is a good indication of extreme pessimism) you should buy when its low, and sell when its high. Last quarter, we highlighted some stocks with a Pinnacle Index that were stratospheric (as high as the upper 20's). Needless to say, these stocks had so much pent-up enthusiasm, that after their earnings, they tanked. It is the old adage, buy the rumor - sell the news. There were also numerous companies with a Pinnacle Index less than one. However, once these companies came out with their bad quarter, the stocks rallied due to the oversupply of pessimism. If your favorite stock is not listed, the most common reasons are: 1) there are no options traded on the underlying equity 2) lack of interest by option speculators in the security 3) lack of quality information 4) company already pre-released 5) insufficient data. Also, as we get closer to the heart of earnings season, the list will expand dramatically to reflect companies whose earnings are due out shortly. Company Symbol Pinnacle Expected Whisper#: Estimated Index(PI): Earnings: Date*: Yahoo YHOO 3.40 +.15 +.18 1/11 Seagate SEG 3.52 +.09 +.13 1/11 Intel INTC 3.06 +.63 +.65 1/13 Looking at the 3 major players that are due out, all expectations lean to the bullish side of sentiment. All three have whisper numbers that are several cents higher than the expected number, and we are even starting to hear whispers for Yahoo that are even higher than the 18 cents listed. Unfortunately, the Pinnacle Index doesn't currently reflect any extreme bullish or bearish sentiment; however, option speculators like to jump in the preceding couple of days before earnings, so the Pinnacle Index can change dramatically within a few days. We will continue to monitor the options montage and let you know of any dramatic changes within these issues during the next letter. Look for a more expanded list starting next week, as the heart of earnings season will be upon us. Have a good trading week! BULLISH Signs: Corporate Earnings: The main corporate earnings season is just around the corner, but there have been several positive earnings surprises or comments from senior management, including SAP AKTIENGESELL (SAP), Peoplesoft (PSFT), Lehman Bros (LEH), Nortel (NT), Cisco Systems (CSCO), Newbridge Networks (NN), and Charles Schwab (SCH). Cash Flow: The cash that has been sitting on the sidelines was put to use Friday, as the NYSE traded 1.22 billion and the Nasdaq traded 1.63 billion. Mixed Signs: Volatility Index (23.20): The VIX proved once again this last week that the low 30's was a great opportunity, as it touched 31.02 on 1/5, which also correlated to a near term bottom on technology stocks. BEARISH Signs: Pre-Release Season: We are in the pre-release season, in which companies with negative earnings announcements spill the beans. We have witnessed several such as Gateway Computer, Beyond.com, and now Lucent Technology. Interest Rates (6.540%): The yield continues to break new highs, with the next stop being 6.75-7.00%. The market has already priced a 25 basis point increase this February, however the market is also pricing in a 20% chance of a 50 basis point hike. Valuation: Low price to earnings stocks have been a safe haven so far in 2000, while high P/E stocks have gotten blistered. Is value coming back into play? 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. Change in Sentiment: Bulls will remember this latest sell-off in technology shares, which could put a damper on any near-term rallies. The Power of Sentiment Analysis It has often been said that the crowd is right during the market trends but wrong at both ends. Measuring and evaluating the sentiment of the crowd, therefore, can give savvy option traders a decided edge. Pinnacle Index OEX Friday Benchmark (1/7) Overhead Resistance (785-810) 3.84 OEX Close 783.49 Underlying Support (760-780) 0.93 Underlying Support (730-755) 2.38 What the Pinnacle Index is telling us: Based on January 7, direct overhead is moderate, and underlying support is light. Put/Call Ratio Friday Strike/Contracts (1/7) CBOE Total P/C Ratio .50 CBOE Equity P/C Ratio .43 OEX P/C Ratio 1.03 Peak Open Interest (OEX) Friday Strike/Contracts (1/7) Puts 700 / 11,939 Calls 780 / 8,250 Put/Call Ratio 1.45 Volatility Index Major Date Turning Point VIX October 97 Bottom 54.60 July 20, 1998 Top 16.88 October 8, 1998 Bottom 60.63 January 11, 1998 Top 26.38 March 4, 1999 Bottom 28.15 May 14, 1999 Top 25.01 July 16, 1999 Top 18.13 August 5, 1999 Bottom 32.12 October 15, 1999 Bottom 32.06 January 5, 2000 Bottom? 31.02 January 7, 2000 23.20 Investors Intelligence Major Percent Percent Date Turning Point Bullish Bearish October 97 Bottom 22.0 48.3 July 20, 1998 Top 52.0 24.0 October 8, 1998 Bottom 38.5 42.7 January 11, 1999 Top 58.3 30.0 March 4, 1999 Bottom 49.1 32.5 Oct. 13, 1999 Bottom? 39.2 37.5 December 30, 1999 55.0 27.0 ************* COMING EVENTS ************* For the week of January 11, 2000 Monday None Scheduled Tuesday Wholesale Inventories Nov Forecast: -- Previous: 0.3% BTM Schroders 1/08 Forecast: -- Previous: 0.4% LJR Redbook 1/08 Forecast: -- Previous: 1.8% API Oil Stocks 1/07 Forecast: -- Previous: -1.568M Wednesday Import Prices Nov Forecast: -- Previous: 0.5% Export Prices Dec Forecast: -- Previous: 0.2% Atlanta Fed Index Dec Forecast: -- Previous: 21.7 Thursday Jobless Claims 1/08 Forecast: -- Previous: 309K Producer Price Index Dec Forecast: 0.3% Previous: 0.2% Retail Sales Dec Forecast: 0.7% Previous: 0.9% Friday Consumer Price Index Dec Forecast: 0.3% Previous: 0.1% Business Inventories Nov Forecast: 0.3% Previous: 0.2% Industrial production Dec Forecast: 0.4% Previous: 0.3% Capacity Utilization Dec Forecast: 81.1% Previous: 81.0% Real Earnings Dec Forecast: -- Previous: 0.3% Week of 1/18 1/19 Building Permits - Dec 1/19 Housing Starts - Dec 1/20 International Trade - Nov 1/20 Philadelphia Fed Index - Jan ************ WOMANS WORLD ************ NEW YEARS RESOLUTIONS First of all, I would like to wish all the readers of OIN a happy New Year. I know it's been a while since my last article on my Christmas Vacation strategy, but I told you I needed to visit my old aunt before she died, and I did just that! Now I'm back in the saddle and rearin' to go. Here's my advice for this new year- don't wait until the end of the year to figure your taxes! My Christmas Vacation Strategy got turned upside down, inside out and kicked in its fat little jolly ole belly. On 12/20 I received a call from my accountant stating he had some good news and bad news. The good news was that I made a lot of money in 1999. The bad news was, I didn't pay enough taxes. Because my taxes for 1999 were more than some IRS % amount of the previous year they would be subject to penalties, interest etc etc etc. So I had to scramble to review my positions and try to implement some last minute tax losses to bring my income down this year and postpone it to the next century. I don't know about you, but I really hate to lose money. So trying to come up with losses is like asking Ivana Trump not to wear diamonds or make-up. To recap, one of my Christmas Vacation strategies was to hold Yahoo and my Jan 350 call which I wrote for 18-1/4. Little did I know that Yahoo would turn explosively upward. The first problem was Yahoo went from 322 on December 9 to over 422 by December 22. Of course, it wouldn't have been a problem if I hadn't written a call against it. The second issue was my tax problem. After much nail biting and squirming in my chair, I bought back my Yahoo calls at 81-1/2 points for a net loss of 63-1/4 points (81-1/2 less 18-1/4). Sounds scary, huh? Herein lies the beauty of covered calls and how to unwind. The 63 point loss on 10 contracts provided me the loss I needed for my tax situation. However, this loss was made up on the gain in the stock. Had I been called out at 350, I would have given up 70 points on the stock (420 - 350). The gain in the stock offset the loss in the call I bought back. I could have at that point wrote a new January call for a higher strike price but because I couldn't confirm from my accountant if the new strike would be considered income in 1999, I decided not to take the chance. Besides, the way this stock was running, I didn't want to cap my upside (yet). Rumors were flying about a split and earnings were due January 11. I am still long yahoo and have not covered it. I am now waiting for a split announcement. (This is where I say a Hail Mary or two). After my Christmas vacation, I returned to trading on Monday January 3 and most of my stocks were up, up and away. I had vowed during my Christmas vacation break that I would write the calls on my volatile stocks to lock in my profits, but good old greed stopped me. I reckoned I could write the calls on Tuesday for even more money. What was one more day? Of course, Tuesday was the first day of the dip or do we now call it a correction? Wednesday was even worse than Tuesday. Now what? The Hail Mary's weren't working and I knew I was in trouble. If only, I had written the calls or sold when Yahoo dropped 10% off its high. I really need to implement stops. My mental stops don't work when there are extreme moves. I freeze and convince myself it will turn back around later in the day. By the end of Thursday, Yahoo was down to 361. A trailing stop off the high would have taken me out at 429! Please folks use them! Don't be a hardheaded woman like me. I couldn't bear to watch on Friday so I took the day off. Apparently the Hail Mary's must have kicked in, because Yahoo closed up around the high of the day at 407-1/4. There was a lot of consolidation around this level the previous week, so I except it might find resistance at this level. I don't like to hold over earnings, but I will probably write calls on half of my position this week if the market doesn't look strong to lock in some profits. The Jan 450 calls are currently overpriced at around 23. In my original Christmas vacation plan, I was going to write the JDSU JAN 260 calls for about 23 points on Monday December 20. Because the market was flat in the morning, I decided not to write the calls. The next day JDSU took off like a rocket. I only peeked at it occasionally during the day. I figured it was making its last split run so I decided I would not cover it but sell it on January 3 instead. On January 3 JDSU opened at 183-3/4 (367.50 pre-split) and the rest is history. Also included in my Christmas stocking was CMGI, which I bought for 198-1/4 on 12/15. On Monday December 20, my plan was to write the January 230 call for about 25 points. I didn't like the action on CMGI so I sold it for 218. Unfortunately, the next day it went through the roof up to 270. Oh well, you can't win 'em all. My last stocking stuffer was QCOM, which because it split 4:1 on December 30 It is too difficult to analyze in the context of this article. Suffice to say, the picture is similar to Yahoo without any impending split rumors. So folks, my New Year's resolution is to make sure I implement my Christmas Strategy at the end of this year, and not turn on my computer until the Monday after New Years. Contact Support **** What a whirlwind week in the market! A lot of people were caught off guard on Tuesday, Wednesday and Thursday at the mini-correction we saw in the tech stocks, only to hold their breath before the employment report was announced Friday morning. With the rising interest rate environment and the warnings from Lucent and Gateway all we needed was a bad employment report and a bad reaction to the report as a catalyst for what could have been a severe sell off. After the employment report was released most of the analysts and market announcers were left scratching their heads, puzzled at the fact that the S & P futures were up solidly before the opening. The employment rate came in virtually unchanged at 4.1 percent and wage increase rose .4 percent. More new jobs were created, and we saw a slight increase in wages so why wasn't the bond market tumbling? No one knows for sure why the market reacts to news, but in my opinion, this report was relatively benign considering that December was a robust holiday season and the stores had to hire seasonal workers. Remove that factor and you have unemployment and wage inflation virtually tame. This market looks for any excuse to rally. Short of a real disaster, the market wants to rally. Even the warning from Lucent didn't crash the tech stocks. This may be due to the fact that Lucent has large institutional holding and also is one of the most widely held stocks in America by people who hold it mostly for the long term, not as a trading stock..The market for telcommunications and networking equipment is expected to grow dramatically over the next several years, and the holders of Lucent may think that one disappointing quarter is not likely to do any real damage to Lucent's long term potential. My trades for this week were not as profitable as I would have liked but at least I wasn't wiped out. Why? Because I hedged my main position with two puts, and I took relatively conservative positions.On December 16th I had sold my last CMGI option and purchased shares of stock at a price of 226 ¾. On Monday I sold the CMGI at 307, when it had moved up 30 points and felt frustrated when it closed up 49 points for the day. The following day I bought the stock back at 303. This was a mistake, but not a disasterous one. At the time of this writing, CMGI is 267, which means the total profit for this position was 45 points, 81 on the upside, 36 on the downside. What I would NOT do here is buy a call option again until after CMGI splits next week, and settles into a fairly normal daily trading range with predictable support and resistance levels. The last call option position I had taken were Nortel June 95 calls which I bought at 20 ¼ on the 29th of December. I sold them on the fourth at 21 ½. Not a huge gain, but I was glad I took it when I saw the calls trade as low as 13 1/2 later in the week. This is why I always take a profit in a call option, even a long term option. I had also purchased 100 shares of Nextlink stock hedged with two at the money Nextlink Feb 80 puts the week of Dec 27. My reasoning for this was that Nextlink was likely to move dramatically one way or the other once the holidays were over, particularly because Nextlink had been added to the Nasdaq 100. This didn't work out quite as well as I had expected. When the market started to go down on Tuesday afternoon I sold one of the puts for a half point profit. I thought this was a temporary fluke, and the stock would go way up the next day. The following two days the stock went down as low as 72. If I had closed out the entire original position at that point (stock and puts) there would have been a bigger profit in the account. As it was I did make a small profit This type of position is best taken during a period of relatively low volatility in the market expecting a big increase in volatility. It is best taken with a liquid stock with a high trading volume and a high market capitalization. A quarter point or half a point difference in the purchase and sale price of the option can make a big difference in the profit, so watch out for the market makers who will try to scalp as much as they can. In fact, market makers across the board have been having a difficult time with certain stocks. The recent volume and volatility in certain stocks (ie 50 points in one day) has been unprecedented, and large order imbalances and backlogs have affected market makers and specialists. In certain circumstances, the market makers are determining time windows for execution for market orders. In addition, bench mark round lots are not always 1000 shares anymore. If you put in an order for 1000 shares at 100 you may very well get the first 100 shares at 100, then the next lot at 100 1/8, the lot after that at 100 ¼, or even 101. Think you have a hard time with these wild swings in internet stocks? Imagine trying to make or maintain an orderly market in such a stock. I also bought a long term Jan 2002 leap on Qwest communications at 11 ¼. I like this because the Jan 2001 leap was only about three points less. Qwest has been relatively dormant compared to other technology stocks, and I think the odds of this position becoming profitable in the next two years are very high. According to AMG Data Services, for the week ended Jan 5 mutual funds took in a total of 2 billion dollars in cash, or an average rate of 8 billion dollars a month. This is down from the November rate of 14 billion per month, but robust nonetheless. More significant, of the 2 billion taken in, 1.7 billion of the money went into technology sector funds! This is one of the factors supporting the technology stocks. The fund managers can't sit on cash very long, they are required to buy in the sector of their fund. This may be why the minor cyclical rotation we saw yesterday is not necessarily the start of a new trend. The flows into mutual funds are one of the factors supporting this long bull market, and it is not likely to end with the Federal Reserve's possible rate increases. Think about it, does anyone you know keep their money in a savings account in the bank? The traditional thought is that interest rates from bonds, money markets and CDs compete with the stock market for investor's money. However, with the S & P 500 returning high double digit growth the last five years it is unlikely that investors are going to sell their stock holdings if interest rates go from 6.5% to 6.75%, particularly because interest on government bonds is taxable.. . Contact Support WOMANS WORLD CONTINUED IN SECTION TWO ************************************* ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium 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 Contact Support 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. 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The Option Investor Newsletter 1-9-2000 Sunday 2 of 5 ************************ WOMANS WORLD - CONTINUED ************************ SURVIVAL OF THE FITTEST Okay, so now we know Darwin was an option trader. How does it feel to be stretched all the way to one side in order to be propelled in whiplash style, to the opposite extreme? Sort of like a spit-wad in a sling-shot? If one is a directional option trader, these times really test your level of skill. We hear all the time, that "the trend is our friend". This is absolutely true for those who actually play the trend. For a directional trader, that means you must be able to either exit when things turn against you, and/or play the downside slide too. Skill comes in being able to anticipate these movements, profiting on both sides of the trade. Others may just prefer to exit and wait it out. The most predictable part of option trading is that these reversals will come. Timing them is difficult. Either you prepare your portfolio in advance, or you need to watch it VERY carefully. Yes, that means intra-day, because carnage can ensue in a matter of minutes. The best way to prepare, especially if you pretty well know it is coming, is to keep your positions tight. Don't spread your attention out to 15 different trades. Also, if you know a correction is coming soon, start lightening up on your contracts and take your profits. Leave money in cash so that when the correction is over, you will have money available and ready to buy at the bottom. Concentrating on only a few positions at a time, will give you better profits by preventing distractions. Also, it allows you to exit trades more rapidly instead of fretting over 15 different positions trying to evaluate each one. In a fast correction, 5 minutes worth of evaluating can cost you thousands and thousands of dollars in lost premiums, before you can exit. Lately, I have been asked many times about stop losses. Some seem to be frustrated that although they are setting their SL, they find that once they exit, the stock returns back up. Yes, this is a typical problem. But remember, it could very well continue down or the return up may be only a momentary cycling before the continued sell off. I think the best rule of thumb is if you are stopped out, wait. Do not let emotion take over as you see the stock reverse course. This is where indicators come in. All stocks roll intra-day. Being able to look at these rolls, on a 1 min or 5 min chart, can greatly improve ones decision-making skills. It becomes easy to see if each rolling high, peaks out lower than the earlier ones in the day and if the rolling lows are getting lower and lower. This tells you the stock is still heading lower. If on the other hand, the reverse is seen, it is working its way down to your stop loss amount (?possibly a 20% stop loss??), you exit and then it starts going up with each rolling peak getting higher than the last one, while the lower rolls bottom out higher each time also, then this does give more indication of the stock recovering. Remember, for the conservative types, to be safe and not to be faked out, one should wait for the stock to recover to the point of closing at or above, the previous days high. To be even safer, wait for it to take out a major resistance level above that. Of course that takes time and days, which for many high-risk option traders, is very, very difficult to wait out. It can be hard to evaluate things during meltdown periods. For the last two weeks of the year, my concern centered on Y2K and would there be a crisis or not? Would it affect the markets around the world? Would there be irrational chaos or terrorism? Would it affect me at home in any way? I exited my high risk plays just in case, in addition to lightening up on the number of contracts I had. All weekend I watched, listened and waited, feeling confident by Sunday night that all markets were okay. Monday morning, I was a happy camper......that is, until I started to exit at the peak. No matter how prepared I thought I was, I had not anticipated problems entering online orders or delays reaching someone by phone. I eventually was able to exit but I continued to have problems all week including my charting service going out due to the higher than usual trading volume. Talk about a distraction and not being able to think!!! Without my charts I really felt helpless. I lost a few profits I could have kept, but in all honesty, I chalk it up to being on the breaking edge of technology. It's up to me to cover all my bases. Although it was a minor loss, it did affect my trading momentum. The last week before the New Year, I looked at buying puts but backed off because of the huge premiums. I evaluated my risk and decided to play my investment on the run up into the last few days of the year, instead of risking high put premiums for a sell off that may not come for a week or two. For me, that was the right choice because exiting high risk plays before the New Year, gave me cash when the sell off began on Tuesday. I waited for what I thought was a recovery bounce on Wednesday, before trying to re-enter. OOPS! Wrong timing! It was a bear trap instead. When that happens, one exits again and waits. I did not buy Friday's great YHOO dip to 364, but waited for it to try and take out the previous days high, at the close instead. The bottom line is, always take your profits. Those who held their YHOO from last week through this week, have not recovered their lost premiums. The safest play using stop losses is to exit as planned, wait, watch, then re-enter if appropriate. Commissions are so cheap these days that the commission charge is nothing compared to the potential cost of holding on for dear life. Also, although this quick Nasdaq recovery felt good, I will not trust it to be anything more than very temporary due to the FOMC meeting coming up. My plays will be much more cautious in the weeks ahead because I don't want to over-trade during rocky times. I prefer to keep the gains I recently made and wait for this period to pass. I will enter non-YHOO plays, on the pull back I expect Monday morning. I will be doing some traveling soon and if possible, I'd like to visit some local option clubs if the timing works out. Would the organizers of the Seattle, Washington; Durham, North Carolina and Austin, Texas clubs please send me an email. Also, I would like to hear from any advanced, experienced option traders in the Houston, Texas area. Renee White Contact Support *************** TRADERS CORNER *************** TDG #2: Get Small, Print Black Instead of waiting until next Thursday to publish the solutions to the Trading Decision Games, I will simply put the solution in the Sunday newsletter so that readers can stay up to speed on the situation and market conditions that formed the background for the decision. In Trading Decision Game (TDG) #2, you have just taken big profits on Jan4, but are tempted to trade on Jan5 because of the big sell off, and are getting ready to pull the trigger on some QCOM and YHOO calls. Here are 3 solutions, followed by a discussion. Solution 1 I would not trade at all until Friday after the jobs report. The fund tax advantage selling may draw out for the full week. QCOM I would not consider just yet. There are huge profits to be settled and there is good tax advantage to recognizing them in the early year for all investors. I anticipate expect a consolidation period before legs are found for QCOM (Jim is wise but I am responsible). If the jobs report is nice and the market fires a rally back signal I may consider a quick 1 & 1/2 day run in YHOO provided the Internets are cooking and YHOO is moving up briskly. I would watch this play and be ready to jump out at the first hint of roll over Monday afternoon. I will not be holding YHOO at the close Monday... Oh, wait a minute, I'm on a much needed vacation for the next few weeks. Time to sleep late and plan a nice date. Watch the market for fun. Nothing to decide. Leave the lap top at home. I already decided to relax. I ate the cake last month. Leave the frosting for the kids. What was I thinking? Oh yeah, I wonder what kind of a pop YHOO would have on Friday - Monday if the jobs report is benign? Curious. Solution 2 Now on to the question you posed in your newsletter. It sounds remarkably like my strategy, which I believe pretty much corresponds to your strategy for this month. I made a lot of trades during Nov and Dec and during that two month period I increased my portfolio by nearly 40%. I had a lot of good trades, the biggest ones being QCOM, both long and short term options. By late December I started to realize I need a break. It fits in nicely with my personal life, as we are going skiing for two weeks in late Jan and early Feb. So I decided that I was going to exit all of my ST Option positions early in Jan and sit tight for a few weeks. I was hoping that the market would zoom for a few days in Jan, euphoric over reaching the millenium with no major glitches. I would make my entire profit goal for Jan in two days. Then on Tues it started to turn. I got out of my YHOO options when the stock was at 486 for a 115% profit in two days (bought them on 31 Dec). Also got out of my ORCL options bought the day the split was announced, for a nice profit. Stupidly held on to some other positions hoping maybe the market would turn, but exited all of them early on Thurs, so overall about even with where I was on 31 Dec and no complaints. (Everything in this paragraph up to now is real) Then I saw this headline in Market Wrap saying "get out the checkbook and back up the truck". I was really tempted, especially to play YHOO given that it has experienced such a big correction and is due to bounce Mon and Tues in anticipation of earnings and a 3:1 split. But what happens if they only announce a 2:1 split, or no split at all. Remember what happened last year? They announced a 2:1 split, the stock zoomed to 460, then turned on a dime and by the time it actually split it was down to 340. And what if they suddenly pre-announce a la Gateway and Lucent? No, I am not going to do it. I set my rules and I am going to live by them. It is called discipline, and I know that if I am going to be successful in this game, it will be more because of discipline than anything else. I am taking a break, and am not trading again until after my ski vacation. The market is due for some volatility. It is still sick and still has some corrections to undergo before it gets better. The carnage won't be over until after the Fed meets in Feb, and maybe not even then because once it is over they will immediately start worrying about the next rate hike. Anyway, I am comfortable with my decision and as tempted as I may be, I am going to stick with it. So my answer is - I ain't playing! Solution 3 (Author's Solution) This is what I actually Did: On the back of the sheet where I printed out the Tuesday night "Market Wrap," I wrote down 2 major indicators, DOW & NASDAQ, and beside them, I wrote, 10850 and 3800. Those were my "weapons free" indicators. If I hit both of those, then I could trade the options, which were the YHOO Jan410 and QCOM Jan160 Calls. Next to the Option Symbols, I wrote levels of support which the newsletter write up had indicated -- YHOO 440 425 420; QCOM 160 147. I entered the symbols for the options into my qcharts quote sheet (I keep one quote sheet for options, another for the underlying stocks). When the market opened, I set alerts for YHOO at 430, 426, 422, 418, and for QCOM at 160, 156, 152, 148. I decided on a small number of contracts for each to enter at each alert level, and I decided on entering an automatic -15% stop loss underneath each contract as it filled. I was all in cash and feeling pretty good about my exit on Monday and Tuesday. Even the contracts I held (GSTRF) had gone up on Tuesday. As Marty Schwartz (see his book, Pit Bull) might point out, after big wins, I was due for some reckless plays. The alerts triggered almost immediately, and, to my credit, I waited, but not long enough. At about 420 on YHOO and about 150 on QCOM, I started taking positions. Fortunately, none of my YHOO orders filled. But some of my QCOM orders filled. My -15% stops took me out literally in minutes as QCOM kept tanking. After two rounds of getting filled on buys then stopped out, I made my best decision: I turned off the computer, and went back to bed. I had come up with the plan on the fly on Tuesday evening, and I lacked the conviction to carry it through. Discussion. As it turned out, I was just a little patience and about 20 minutes from some profitable trades. 20 minutes after I went back to bed on Wednesday morning, the NASDAQ bottomed at -167, after its -229 drubbing on Tuesday. If I had entered the QCOM and YHOO plays then, and sold them later that afternoon, I could have had some nice 50 -100% profits. If, however, I had held them through Thursday, I would have suffered losses. The lesson, then, is to know when to trade and when not to trade. And here, my hat is off to Solutions 1 and 2. Both in their well reasoned and humorous way, these two readers come to the right conclusion -- I have just made big profits in the November & December periods, now is the time to chill out, plan a date, go skiing, etc. That said, if I had to execute this trade over again, there are two things I would do to improve my performance. 1) I would be patient. I actually started executing the QCOM buys before the NASDAQ hit 3800, and the DOW was positive from the start. Had I waited, I could have found a bottom on QCOM on Wednesday morning. 2) I would add an indicator to the DOW and NASDAQ -- the VIX. It closed at 29 on Tuesday, having reestablished a range of 20-30, which it had for most of 99, but which had been absent in November and December. I would have also watched for the VIX to hit 31 - 32, which, in 99, indicated a bottom. However, even if I nailed a good entry on Wednesday, I would have been in danger of holding too long. The right play would have been to take profits on Wednesday afternoon, but how could one know that? The market, in Y2K hangover/ tax deferred selling mode was too volatile. In any event, the right thing to do was to step aside. As Marty Schwartz likes to say, now is the time to "play small, and print black." Whether you have made a killing in November/ December or just gotten killed in the last week, the right course of action is to get smaller, get smaller, get smaller... the market is volatile and lacks direction right now. Earnings are right around the corner, but so is the Fed. New cash is coming in, but is tax deferred selling over? Take cash off the table and wait for better conditions. Go skiing, forget about the market, or, if you can't forget about the market, get smaller in your trades. If you do trade, print black. Make profits, even small profits. After my Wednesday loss, which were very small compared to my recent gains, I still felt bad, but not nearly as bad as if I had put a large amount of value at risk. On Thursday, I started to paper trade in preparation for more advanced trading strategies. I sold YHOO Jan340 Puts when YHOO was crashing down through 380... 370... 360. I sold those puts at 20, and by Friday, they had gone down in price to 10 as YHOO righted itself and closed at 407. I plan to cover that trade on Monday afternoon before YHOO's earnings anouncement. SInce this is only a paper trade, the pressure is off. I am as small as I can get, but I am printing black. On Friday afternoon, the newsletter came out with a trading alert on China.com. I had no intention of trading, but a buddy of mine send me a YHOO instant message, asking whether I saw the alert. While trading instant messages, we brought up the time & sales on the China.com Jan75 and Jan80 Puts. He shot first and hit the 80s at 10 5/8. I couldn't resist and hit the same contracts at 10 7/8. By the end of the day, the contracts were trading over 15, as volume on the contracts swelled. I was still trading small compared to the scale of my November/ December trades, and I was printing black. Hadn't closed the China.com Put trade, but with the lock up coming off on Monday, there was every reason to hold to see how that situation played out. I am still sticking to my plan. I am in "rest" mode until about Jan17, perhaps even a week later. I am paper trading selling puts and calls to get ready to sell calls and to buy QQQ Puts when we get closer to the Fed. I don't want to totally ignore the markets because I want to keep the pulse while I wait for a good opportunity to line up for a major commitment of resources. With the markets trending up strongly on Friday, I am anticipating a potentially range bound/ sideways trading market so I am getting ready to close my short of a YHOO put and to sell calls when and if the market bounces off an upper bound; these will be paper trades only in the January series. I want to be prepared to shoot live rounds in the February series. Good Luck Janar Joseph Wasito Contact Support **** An Osmotic Technical Point of View Hello...My name is Harrison and I am a Capitalist and I am running for President... Yes sports fans, I actually took a bit of a trading vacation. I have some semblance of sanity back and just picked up a few Feb 95 Calls on Apple (although, there are those that say you can't be sane and trade options). Mac World is going on and it is taking a bit of a dip today for some reason. Just checked the ticker and I am up a buck in the time it took me to write the above paragraph. Man, I love this game sometimes. Which brings me to my point. I have decided to join the political fracas. I have decided to join the Capitalist Party. As far as I know, it does not exist, at least officially. But, I am signing myself up anyway. While everyone talks of ideology, we of the Capitalist Party speak of cash. Even when it comes to ideology it comes down to cash. Try building schools or parks or even governments without it! Heck, I might even run for President on the new platform. Let me lay it out for you. Our tax plan will be the "Reverse Curve Tax". I came up with this plan in my teen years the first time I worked a bunch of over-time and actually took home less than when I worked 10 hours less. I had really busted my hump that week and took the 2 hours a day over-time every day. There was a really nice set of skis that I just had to get. Well the paycheck came and I ended up with less money than some of my lazy compatriots who did not work any overtime. What kind of screwed up system is this that rewards people for working less I asked? They were laughing at my consternation! They already new what I had just learned! Progressive tax my eye! I could not believe it. What kind of idiot came up with that plan I asked myself. That was my introduction to the "logic" of governmental thinking. Logic? Try getting sales people to work using the same plan and your company will go broke. You try telling them "OK, the more you sell, the less you will make!" The company would be out of business is a week. Yet, that is exactly what I found our government doing several decades ago. I was dumbfounded! With the new "Reverse Curve Tax" the harder you work, the less you pay percentage wise! Now there is an incentive to actually work harder instead of being penalized for it. So for the first $100,000 you would pay $20,000 in taxes and then if you made $200,000 it would go down to lets say 15% on that $100,000. Then if you do really good, it would go down to 5% or so. Now there is some incentive to really get to work! Everyone would benefit! The government would get extra money that they would not have otherwise had and then you have all of the ancillary benefits of the extra money being put to good use somewhere else in the economy. Talk about a booming economy! So, what do you think? Let me know. I like getting e-mail! Ahh, but then again I am reminded of a quote by Hubert Eaton. "Capitalism is the only system in the world founded on credit and character". I guess I might not fit in too well with politicians after-all. Oh, but to dream of the Reverse Curve Tax. It keeps me warm at night. That and paying my electric bill on time! In the meantime, go Apple go! But then again, just maybe....Hello...My name is Harrison and I am a Capitalist and I am running for President.... has kind of nice ring to it. Don't you think? Happy Trading! Contact SupportHarrison PS You might be a Option Trader if: When at the grocery store you find yourself digging all the way to the back of the Dairy section to find the carton that has one extra day until expiration! PPS For those of you in doubt, this is supposed to be satire! ************** BROKERS CORNER ************** Selling Puts My name is Rob Norman. I work at a full service brokerage firm called J. Michael Patrick that is based in St. Louis, Mo. I am frequently asked what trading strategy have I been most successful using, the answer is always the same-selling naked puts! Selling a put is a strategy where you are selling the right to someone to sell (put) a specified stock to you at a specific price. Because you're on the selling side you get to keep the premium that was captured for the sell. The buyer in turn will have to pay the premium for the right to sell (put) the stock to you. Here is an example: Qualcomm is selling at 180. You could go out and sell a 150 put for January and receive a premium of $5.00. Therefore if you sold 10 contracts you would bring in $5,000.00 minus commissions! So if by the third Friday of January Qualcomm (QCOM) had sold off by 29 points down to 151 you would keep your entire profit! If (QCOM) had dropped more than 30 points you would have the obligation to purchase 1,000 shares at 150. Keep in mind you already received 5 points so your actual cost on (QCOM) would be 145, 35 points below the current bid! Also keep in mind you have the ability to purchase your put back at any time, you don't have to keep it until expiration. This is a strategy where you can win three different ways: YOU WIN if the stock goes UP, STAYS FLAT (unchanged), or goes DOWN a little. That's right, the only way you lose is if the stock goes DOWN a lot (5-10 points) approximately! Hard to believe but true. There is one rule to never break when using this strategy NEVER SELL A PUT ON A STOCK THAT YOU DON"T WANT TO OWN! This way if the stock does get killed after we sell a put on it you won't mind owning it. In fact when a client calls me and says I want to buy XYZ stock I always check the puts on it, have you ever heard of being paid to buy a stock that you want to buy anyway! There are many versions of this strategy, like taking half the premium you received for selling the put and buying a call with it and so on, I won't go into all that now, but you can use your imagination! Good Luck and Good Trading! If you have questions on this strategy please call me at (888) 432-5671 Contact Support LAST WEEKS CHANGE FOR THIS WEEKS PICKS: *************************************** Daily Results Index Last Week Dow 11522.56 156.05 Nasdaq 3882.62 -186.69 $OEX 783.49 -9.34 $SPX 1441.47 -27.78 $RUT 488.31 -5.08 $TRAN 2964.72 57.24 $VIX 28.02 -3.10 Calls Week VIGN 175.19 12.19 VIGN just keeps on moving faster AMGN 68.00 7.94 Was a relative monster last week! HGSI 160.31 7.69 Weathered the storm well last week GO 28.00 4.25 Call option volume picks up momentum XCED 45.75 4.25 New, a visionary in a hot sector CMTN 52.00 3.25 Renewed interest for a good Q1 EMC 107.38 2.69 More good news and a new $140 target GMH 98.00 2.00 New, buzzwords for tingly investors INKT 89.38 0.63 New, we just can't leave INKT alone MSTR 210.38 0.38 New, MSTR is set to split Jan 26th CSCO 105.88 -1.25 New, buyers stepping to the plate! CMVT 139.00 -5.75 New, CMVT has regained its footing ADI 86.88 -6.13 Starts the new year with a breather CHKP 191.88 -6.88 An earnings and split run for CHKP! GSTRF 35.56 -8.44 Dropped, sentiment not on our side ORCL 103.38 -8.69 New, let the split run begin! CMRC 187.50 -9.00 A lot events to fuel this ride! TTN 36.00 -11.31 Dropped, TTN trips and falls off NOK 171.00 -16.06 Makes Merrill Lynch's Top Ten List! AFFX 153.25 -16.44 An Intriguing way to play the hype MOT 128.81 -18.44 New, some outstanding opportunities BVSN 148.34 -21.72 See? No reason to worry about BVSN! QCOM 150.00 -26.12 You just can't get rid of it! Puts SCNT 66.50 -19.94 A whole lot of sellin' goin' on! GTW 61.63 -10.44 Dropped, looks like the news is out SANM 91.75 -8.13 New, slips down to meet its maker WCOM 47.19 -5.88 Much ado about nothing was the theme CHINA 76.50 -2.13 New, Friday's Trading Alert! HNZ 39.00 -0.81 Still bad taste in investors mouths SPLN 60.06 -0.06 Dropped, SPLN gets a first down CIEN 57.75 0.25 Dropped, a little bottom fishing JNJ 96.50 3.25 Dropped, climbs out of the trenches STOCKS ADDED TO THE PICK LIST ***************************** Calls XCED - Xceed, Inc. GMH - Hughes Electronics Corp. CMVT - Comverse Technology MSTR - MicroStrategy Inc. ORCL - Oracle Corp. CSCO - Cisco Systems MOT - Motorola Inc. INKT - Inktomi Corp. Puts SANM - Sanmina Corp *************************** 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 TTN $36.00 (-11.31) Titan tripped and fell back to earth on Friday, forcing us to stop coverage. We had mentioned in Thursday's report that a drop below support in the low $40's could lead to a lot of profit-taking to the next support level of $34. That's exactly what happened. We had suggested that $34 might be a good entry point. So if you got in there give it a chance to go back to $42 where you might want to take a profit. If you are long the stock, keep your stops in there because the stock could easily drop to $31. There was no news to explain TTN's very weak performance during Friday's very strong market. GSTRF $35.56 (-8.44) Even with a nice market rebound on Friday, GSTRF lost ground below the $37 support level. The final 15 minutes with a small volume surge that tacked on $0.75 is only a consolation prize. While GSTRF may have found a bottom, the lack of movement with the rest of the market tells us that sentiment is not currently on our side. Some readers forwarded us an article that appeared in the Yahoo! news that espoused dumping the shares while you still can. In our opinion (sometimes unhumble), the author betrays his fairly complete lack of understanding of the concept, the target market, and the business. Correct or false, the content still influences thousands of opinions - in this case, negatively. While we think GSTRF is a fine company with great long term prospects going forward, there are other plays with a better chance of success, at least for now. $30 is the next support level; resistance is $37. A retest of $30 is not out of the question. Accordingly, we're dropping GSTRF from the lineup. PUTS CIEN $57.75 (+0.25) On Thursday we said that we were unsure as to how CIEN would react to Lucent's earnings shortfall. We further stated that we figured the market would tell us. Smaller investors sure do love to bottom fish! Hopefully put holders took their profits immediately after CIEN traded above resistance at $50, which was our suggestion. It is evident that the market believes that Lucent's problems are Ciena's gains so we definitely need to stop coverage of CIEN as a put play. SPLN $50.06 (-0.06) Well, it doesn't look like we are going to get the close below $45 that we have looking for any time soon. SPLN made another move in the wrong direction, for us anyway. SPLN traded up nearly four points on Friday and managed a close above $50. SPLN has also re-enlisted the support of its 10-dma at $49.50. There was no new news to fuel this run and therefore we believe that SPLN is gaining some positive momentum and may try and run for a bit. SPLN is scheduled to announce earnings on the 20th of this month. Though the volume was not impressive, we are tired of waiting around for SPLN to take a plunge and dropping it from our put play list. JNJ $96.50 (+3.25) The gains continued on Friday after a stronger-than-expected Jobs Report reassured traders all was not so bad. The rally was broad and JNJ confidently climbed out of its trenches for the third consecutive day. Needless to say the yellow caution flag has been taken down and is now flying red. The definitive reversal was unfortunately ill timed for our play, but instead of "hoping" the course will change direction we're exiting the play this evening. GTW $61.63 (-10.43) Thursday, we cautioned that with GTW's earnings warning immediately followed by an analyst's cautionary comment on DELL may have caused GTW to find a bottom, but that a bounce down from $61 resistance could make a good entry. GTW gapped up right through it on Friday and continued to find support just under $61 before a strong finish at $61.63. Does this sound like a good entry for a put? Nope, we don't think so either. In fact, following a SG Cowan upgrade to Buy, and earnings scheduled for release on January 20, we'll be watching GTW as possible addition to our call list later this week. This is not an invitation for a game of "Dog Pile on Gateway" - there are still many hurdles to clear before it makes it on the play list. But we're dropping it as a put for now. STOCK SPLIT CANDIDATES *********************** CMRC - Commerce One NOK - Nokia BVSN - BroadVision CSCO - Cisco Systems GMH - General Motors AFFX - AffyMetrix MOT - Motorola VIGN - Vignette Corp EMC - EMC Corp CMVT - Comverse Technologies Split Candidates that aren't current plays YHOO - Yahoo! VRTS - Veritas Software IMNX - Immunex Corp STM - STMicroElectronics BRCM - BroadCom NT - Nortel Networks TMPW - TMP Worldwide Recent Announcements we predicted HGSI - Human Genome (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 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 DCLK - DoubleClick 2:1 01-10-00 ex-date 01-11 CMGI - CMG Info 2:1 01-11-00 ex-date 01-12 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 VITR - Vitria Tech 2:1 01-17-00 ex-date 01-18 SIFY - Satyam Infoway 4:1 01-17-00 ex-date 01-18 KLAC - KLA-Tencor 2:1 01-18-00 ex-date 01-19 ORCL - Oracle Corp 2:1 01-18-00 ex-date 01-19 BVF - Biovail Corp 2:1 01-19-00 ex-date 01-20 PRSF - Portal Software 2:1 01-19-00 ex-date 01-20 BOBJ - Business Obj 2:1 01-20-00 ex-date 01-21 CYCL - Centennial Cell 3:1 01-20-00 ex-date 01-21 SCII - Sensar Corp 2:1 01-20-00 ex-date 01-21 PRGS - Progress Soft 2:1 01-21-00 ex-date 01-24 GE - General Elec 3:1 01-25-00 ex-date 01-26 MWD - Morgan Stanley 2:1 01-26-00 ex-date 01-27 MSTR - Micro Strategy 2:1 01-26-00 ex-date 01-27 CHKP - CheckPoint Soft 2:1 01-28-00 ex-date 01-31 CYTC - CYTYC Corp 2:1 01-28-00 ex-date 01-31 HGSI - Human Genome 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 ASYT - Asyst Tech 2:1 02-04-00 ex-date 02-07 MCHP - Microchip Tech 3:2 02-07-00 ex-date 02-08 INFY - Infosys 2:1 02-11-00 ex-date 02-14 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 MGG - MGM Grand 2:1 02-25-00 ex-date 02-28 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 GTLL - Global Tech 3:2 02-29-00 ex-date 03-01 JDSU - JDS Uniphase 2:1 03-10-00 ex-date 03-13 SNE - Sony Corp 2:1 05-19-00 ex-date 05-22 For a complete list of all the coming splits check out the "split calendar" on the side of the online edition newsletter page. ******************** THE PLAYS OF THE DAY ******************** With all the great plays each week we can never decide on just one so take your pick. Call plays of the day: ********************** AFFX - Affymetrix $153.25 (-16.44)(+40.16) See details in sector list Chart = http://quote.yahoo.com/q?s=AFFX&d=3m **** AMGN - Amgen, Inc. $68.00 (+7.94)(+5.88) See details in sector list Chart = http://quote.yahoo.com/q?s=AMGN&d=3m Put play of the day: ******************** SCNT - Scient Corp $66.50 (-19.94) See details in put list Chart = http://quote.yahoo.com/q?s=SCNT&d=3m ************* DEFINITIONS ************* SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. TP/P= True premium or Time premium RRR = Risk/Reward/Ratio ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume MTD = Move to double - amount stock must move to double option price in one week. ONE WEEK MOVE ONLY ! Numbers within ( ) are the amount of change for the week. Numbers within ( ) may be designated with PxW, like P3W, prior 3 weeks The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. *********** CALLS PLAYS *********** Hardware *********** CSCO - Cisco Systems $105.88 (-1.25) Cisco is the number one electronic/Internet networking and equipment company. If you surf the Net, mine for data, or just exchange e-mail, somewhere in the transmission is likely a Cisco switch or router. While they are slightly behind in the move into optical networking, purchases of Monterey Networks, Cerent, and most recently Pirelli Optical Networks are helping to bring Cisco into the competitive arena with Nortel Networks and Lucent. CSCO hit a new high on Monday in excess of $110 before falling back, wherein it tested $97 on Thursday, then came roaring back on Friday on 1.5 times its ADV of 20.5 mln shares. Buyers were stepping up to the plate in droves. While CSCO is a great company and already known as a leader in the field, news that Lucent would fall short of its earnings initially tarred CSCO with the same negative brush, sparking a wave of investor selling without stopping to think of the ramifications. Almost immediately CSCO defended itself by announcing they would not change any of their guidance to analysts. Translation: what ills Lucent doesn't ill CSCO. In fact, it gives a window of opportunity for CSCO to muscle into Lucent's turf while their guard is down. February 8 is the next earnings report (confirmed). In CSCO's refusal to change its guidance to analysts, there may be an earnings surprise that they'd currently like to remain a surprise. CSCO is also in split territory again and may announce at the same time. Assuming the market cooperates, look for a run to take place prior to that date. Support is at $102; resistance at $110. Target shoot where your comfort level lays or wait for the breakout over $110 with volume. The news is contained above. Just know that Lucent's misfortune is its competitors' gain, including CSCO's. ***January contracts expire in two weeks*** BUY CALL JAN-100 CWY-AT OI=20852 at $8.00 SL=6.25 BUY CALL JAN-105*CWY-AA OI=18930 at $4.75 SL=3.00 BUY CALL JAN-110 CWY-AB OI=14574 at $2.63 SL=1.25 BUY CALL FEB-105 CWY-BA OI= 3084 at $8.38 SL=6.50 BUY CALL FEB-110 CWY-BB OI= 3386 at $6.25 SL=4.50 Picked on Jan 9th at $105.88 P/E = 168 Change since picked +0.00 52-week high=$110.25 Analysts Ratings 22-16-0-0-0 52-week low =$ 44.94 Last earnings 11/99 est= N/A actual= 0.24 Next earnings 02-08 est= 0.23 versus= N/A Average Daily Volume = 20.5 mln Chart = http://quote.yahoo.com/q?s=CSCO&d=3m **** EMC - EMC Corporation $107.38 (-1.88)(+8.13) 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. Fortunately, EMC remembered its support at $98 and recovered from there on Wednesday to close at $102. Investors tested this level a couple of times on Thursday, but the recovery on the NASDAQ could not be ignored. Moving up strongly on Friday, EMC added $7 to close solidly above resistance at $105 and the 10-dma at $106. The move, on nearly double the ADV, filled the gap left at the open on Wednesday, turning this resistance level into mild support. The sentiment in the broad markets will continue to affect this play, so further weakness could cause a retest of support at $102. Any bounce, confirmed by strong volume is buyable going forward as EMC investors will be focusing on earnings on January 26th (confirmed). Continuing strength in the NASDAQ should enable EMC to test resistance at the recent 52-week high of $110.31. If you had the good fortune to enter new positions when EMC bounced mid-week, keep your stops in place. As we saw this week, investor sentiment can turn on a dime, and you don't want to be left holding the bag. Good news continued for EMC on Friday as David Bailey at Gerard Klauer Mattison rated the issue a Buy with a price target of $140. In the news Thursday, Merrill Lynch added EMC to its top 10 technology list. On Monday, John C. Dean at Salomon Smith Barney added EMC to his "top pick" list, raising his price target from $91 to $140. ***January contracts expire in two weeks*** BUY CALL JAN-105*EMB-AA OI=3374 at $6.13 SL=4.25 BUY CALL JAN-110 EMB-AB OI=3056 at $3.75 SL=2.25 BUY CALL JAN-115 EMB-AC OI=3157 at $2.31 SL=1.25 BUY CALL FEB-110 EMB-BB OI= 544 at $7.75 SL=6.00 BUY CALL FEB-115 EMB-BC OI= 536 at $6.13 SL=4.00 Picked on Dec 30th at $110.31 P/E = 109 Change since picked -2.94 52-week high=$110.31 Analysts Ratings 14-7-3-0-0 52-week low =$ 40.81 Last earnings 10/20 est= 0.24 actual= 0.27 Next earnings 01-26 est= 0.32 versus= 0.24 Average Daily Volume = 3.73 mln Chart = http://quote.yahoo.com/q?s=EMC&d=3m ******************************************** CALLS - HARDWARE -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 millennium 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 1-9-2000 Sunday 3 of 5 **************************** CALLS - HARDWARE - CONTINUED **************************** MOT - Motorola Inc. $128.81 (-18.44) Motorola is a leader in the telecommunications industry providing integrated communications solutions and embedded solutions. Cellular products make up about 40% of Motorola's sales. Semiconductors, two way radios, pagers, computers, and network peripherals are among MOT's other business interests. Motorola recently purchased General Instrument, a set-top box maker. This will help MOT continue its expanding focus on the broadband communications market. The company is also expanding is software business. Shares of MOT took a bath this week, and are providing traders with some outstanding opportunities. After making a new 52-week high Monday at $153.63, shares of the telecommunications giant dropped like a rock as the Nasdaq began its correction. MOT lost over 20% of its market cap hitting a low of $118 late Thursday afternoon. Part of the decline came as result of being in the same industry as Lucent. In case you have been living in a cave this week, Lucent announced it would miss earnings. The announcement drove most stocks in the telecom sector south in a big way. MOT recovered a bit in the final two hours of trading on Friday. Most analysts believe the sell-off was way over done, and the earnings problem, at this time, should only be seen by Lucent. We see the decline in shares of MOT as a great opportunity to buy calls. MOT fell to a minor support area near $119 and bounced back Friday to over $125, which had previously provided solid intraday support. MOT announces earnings Jan 17th, and we believe MOT will begin a move higher into the earnings period. Analysts expect MOT to beat last years' earnings by a mile. Last quarter they came in right on target earning $0.53 per share. This quarter the consensus estimate calls for $0.83 per share. The volume picked up Friday, to just under 8.0 mln shares which indicates traders and investors alike want to own MOT. Next week brings the release of more economic data which could light a fire under our play, or knock the legs out from underneath it. As always confirm the market direction prior to entering any new play. Wednesday and Thursday analysts at Gruntal & Co. and DB Alex Brown reiterated strong buy ratings on MOT, especially now that the purchase of General Instruments is complete. Gruntal projected a short-term price target of $150 and a long term price of $200 for Motorola. Both see the potential for MOT in broadband arena. ***January contracts expire in two weeks*** BUY CALL JAN-120*MOT-AD OI=3556 at $13.13 SL=10.63 BUY CALL JAN-125 MOT-AE OI=2113 at $10.00 SL= 7.50 BUY CALL JAN-130 MOT-AF OI=3886 at $ 7.50 SL= 5.75 BUY CALL JAN-135 MOT-AG OI=2598 at $ 5.50 SL= 3.75 Picked on Jan 09th at $128.81 P/E = 126 Change since picked 0.00 52-week high=$153.63 Analysts Ratings 15-12-7-0-0 52-week low =$ 63.31 Last earnings 10/99 est= 0.53 actual= 0.53 Next earnings 01-17 est= 0.81 versus= 0.26 Average daily volume = 3.67 mln Chart = http://quote.yahoo.com/q?s=MOT&d=3m ******* BioTech ******* HGSI - Human Genome Sciences $160.31 (+7.69)(+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. HGSI weathered this week's storm pretty well, and ended the week in the black. The fact they announced a 2-for-1 split of their stock, helped the biotech company get back on track. The split is scheduled to take place January 28th. The Biotech sector had been strong going into the new year, but fell prey to the selling at the Nasdaq early in the week. Our confidence is this play was strengthened by the lack of volume in the declines seen in HGSI. We mentioned earlier the use of trailing stops, as HGSI has provided opportunities for a very good profit in a short amount of time. After being selected to our play list, HGSI made a high at $172.56, in only two days. A move of over $33 in two days. We are not patting ourselves on the back, rather wanting to illustrate the importance of trailing stops. HGSI provided a great return by any standards, but you needed to be diligent in protecting the bottom line, as profit taking set in at the high, dropping the price back $13.00 from the high of the day. Although HGSI did trade over $17 lower this week making a low of $135.38, we saw a couple of good opportunities to jump back on board this play. HGSI spent most of Tuesday and Wednesday in the bottom of the week's range near $136 and began to gain momentum as rumors of the split surfaced, and jumped $10 as the news hit the wires. The split run has began. We would view further momentum as an opportunity to buy calls. Support for HGSI is seen at $155, $150 and $145. As always assess your risk profile prior to entering a new play. Other than the split announcement, HGSI CEO William Haseltine, appeared on CNBC this week and said that it will not be long before the company introduces marketable drugs. The company has a number of clinical trials underway for its genome-derived drugs for medical purposes. He went on say "it should be a great year for people interested in seeing results of Human- genome studies." ***January contracts expire in two weeks*** BUY CALL JAN-145*HHA-AK OI=224 at $15.63 SL=12.25 BUY CALL JAN-150 HHA-AL OI= 13 at $13.13 SL=10.50 low OI BUY CALL JAN-155 HHA-AM OI= 24 at $10.38 SL= 7.88 low OI BUY CALL FEB-155 HHA-BK OI= 49 at $24.25 SL=19.00 low OI BUY CALL FEB-160 HHA-BL OI= 18 at $23.25 SL=18.38 low OI Picked on Dec 28th at $138.88 P/E = N/A Change since picked +21.50 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 = 383 K Chart = http://quote.yahoo.com/q?s=HGSI&d=3m **** AMGN - Amgen, Inc. $68.00 (+7.94)(+5.88) Amgen is one of the elite companies in the biotechnology industry. Amgen develops products to treat cancer, arthritis, blood disorders, Parkinson's, Alzheimer's, other infectious disease and many more. Its current drugs include: Neupogen (used for cancer and AIDS patients), Infergen (for treating hepatitis C), and Epogen (for the production of red blood cells). It has several alliances with other key companies that help Amgen maintain its position as world's largest biotechnology company. Current drugs under development include Stemgen, an early acting blood cell growth factor, and Leptin, the protein produced by the obesity gene used to help regulate the amount of fat stored by the body. Amgen was a relative monster last week as investors infused this leading biotech with cash. Investors who wanted to put money to work last week abandoned the tech stocks, but fell in love with the Biotech's. There are two major fundamental reasons why the stock of Amgen is doing well. Amgen has a very strong drug pipeline and Amgen has had great success in finding new uses for its old stalwarts, Epogen and Neupogen, especially Neopogen, which is being used with chemotherapy patients. Together these drugs should continue to generate enormous profits for Amgen for many years to come. In the pipeline are Kinaret, a drug for treating rheumatoid arthritis and NESP a drug for treating anemia. Kinaret is currently under review by the FDA and NESP will soon be submitted for approval. NESP could generate over a billion dollars in revenues for AMGN. On top of the strong fundamentals driving the share price, AMGN has a history of reporting excellent earnings in January. It is possible that the shares of AMGN will continue to appreciate all the way up to the report date of January 20th. Hopefully you jumped on the buypoint of $62 pointed out in our initial write-up on AMGN on Thursday. Friday, the stock opened just above $62 and steadily gained strength through the rest of the day. $70, the old high, is the next breakout point. Aggressive investors can buy there. If there is any profit taking on Monday, look to get long around $64-$66, barring any market meltdown. There have been several recent upgrades and price target revisions for Amgen. On Tuesday, Paine Webber raised its price target from $60 to $80. Dennis Harp, the analyst at Deutsche Banc Alex Brown termed the company "a bargain" relative to the earnings multiples of its peers in the industry. ***January contracts expire in two weeks*** BUY CALL JAN-60*YAA-AL OI=4571 at $9.25 SL=6.75 BUY CALL JAN-65 YAA-AM OI=4688 at $5.38 SL=3.75 BUY CALL JAN-70 YAA-AN OI=1211 at $2.75 SL=1.50 BUY CALL FEB-65 YAA-BM OI=1370 at $8.13 SL=6.25 BUY CALL FEB-70 YAA-BN OI=1292 at $5.63 SL=3.75 Picked on Jan 6th at $61.00 P/E = 63 Change since picked +7.00 52-week high=$70.00 Analysts Ratings 14-12-8-0-0 52-week low =$25.69 Last earnings 10/99 est= 0.25 actual= 0.25 Next earnings 01/20 est= 0.25 versus= 0.22 Average Daily Volume = 6.79 mln Chart = http://quote.yahoo.com/q?s=AMGN&d=3m **** AFFX - Affymetrix $153.25 (-16.44)(+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. Affymatrix is an intriguing way to play the hype in the Human Genome Research Project. AFFX provides the tools that researchers need to complete the project. Whether the researchers are successful or not in bringing new drugs to market, they will continue to buy product from AFFX, as long as the researchers continue to receive funding. This symbiotic relationship has made AFFX a very desirable stock to own in the past two months. The current uptrend began when several Wall Street analysts started a string of new coverages and upgrades. Some of the influential heavyweights include; CSFB, Dain Rauscher and Robertson Stephens. When AFFX broke above $130 two weeks ago it ran all the way to just under $200. Like so many high flyers, AFFX suffered very strong profit- taking. The good news is that support has been re-established at $143 which could prove to be the launching pad for another run to $200 and possibly beyond. A good entry point is in the $150-$152 range. All last week the stock seemed to target this price area and it developed some support. In the unlikely event that the market sells off next week you may be able to go long in the mid $140's. Do not get stuck in this stock if it trades below critical support of $140. Momentum investors may wish to wait for AFFX to take out Friday's high of $157.50 before going long. A trade through that level could get the stock into the $170's pretty quickly. On Tuesday Robertson Stephens downgraded Affymatrix to a Buy from a Strong Buy. ***January contracts expire in two weeks*** BUY CALL JAN-150 FIQ-AZ OI=50 at $16.00 SL=12.50 BUY CALL JAN-155*FUE-AK OI=20 at $13.63 SL=10.63 low OI BUY CALL JAN-160 FUE-AL OI=31 at $ 8.75 SL= 6.50 low OI BUY CALL JAN-165 FUE-AM OI=11 at $ 7.25 SL= 5.25 low OI Picked on Jan 2nd at $184.75 P/E = N/A Change since picked -31.50 52-week high=$195.13 Analysts Ratings 2-6-2-0-0 52-week low =$ 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 = 417 K Chart = http://quote.yahoo.com/q?s=AFFX&d=3m ************* SemiConductor ************* ADI - Analog Devices $86.88 (-6.13)(+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 is a momentum play that recently has taken a breather after powering upwards to a new 52-week record ($94.50) during the last trading session of 1999. Previously support was firm at $80 and $81, but now near-term support has risen to $85 and $86. This newly established level is in-line with the converging 5- dma ($86.81) and the 10-dma ($87.01) technical indicators. At this point $88 seems to be the first line of opposition. We've kept ADI on our call list as it held up well this week while many investors were moving out of the techs on interest-rate concerns and quite honestly, profit-taking. On Friday we saw a glimmer of hope as ADI tacked on $2.38, or 2.8% and managed to penetrate $88 on a spike. It's likely money will return to the tech sector next week after the positive Jobs Report reassured many investors that the interest-rate hike will be minimal. However, wait for a definitive move through that resistance for better confirmation that ADI make a charge towards its all-time high. The Semiconductor Industry Association announced this week that global semiconductor sales rose 25% to a record $14.2 bln in November as a result of an increasing demand for memory chips used in computers and mobile phones. ADI also reported its Othello chipset was awarded the Electronic Products Magazine's "Product of the Year" for 1999. The Othello is the world's first open-market GSM (Global System for Mobile Communications) direct conversion radio chipset. ***January contracts expire in two weeks*** BUY CALL JAN-80 ADI-AP OI=1237 at $9.13 SL=6.75 BUY CALL JAN-85*ADI-AQ OI= 456 at $6.13 SL=4.25 BUY CALL JAN-90 ADI-AR OI= 414 at $3.50 SL=1.75 BUY CALL FEB-85 ADI-BQ OI=1039 at $8.75 SL=6.75 BUY CALL FEB-90 ADI-BR OI= 185 at $7.00 SL=5.25 SELL PUT JAN-85 ADI-MQ OI= 33 at $3.75 SL=5.50 (See risks of selling puts in play legend) Picked on Dec 30th at $90.44 P/E = 79 Change since picked -3.56 52-week high=$94.50 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 = 1.71 mln Chart = http://quote.yahoo.com/q?s=ADI&d=3m ******** Internet ******** CMTN - Copper Mountain Networks $52.00 (+3.25) Copper Mountain Networks develops and markets a comprehensive family of DSL solutions that enable high-speed internetworking over existing copper facilities. CMTN has partnered with 3Com, Intel, and Lucent. In addition to selling DSL communications products for telecommunications and Internet service providers, CMTN sells its products CopperEdge DSL Access Concentrators, CopperRocket DSL Customer Premise Equipment, and CopperView Network Management Tools through direct sellers, manufacturers, and distributors. NorthPoint Communications accounts for about 60% of CMTN's sales. CMTN had their IPO in May of 1999 and competes with Cisco Systems, Alcatel, and Paradyne Networks. Since the 2-for-1 split of the company's stock on December 10th, shares of CMTN have gathered momentum, carrying the price of the company's stock past the $50 market. CMTN has renewed interest from the brokers that follow the company, citing the visibility of the company and the potential for a good first quarter. CMTN saw shares of their stock fall Thursday after Lucent announced their earnings warning. CMTN has a strategic partnership with LU and investors became a bit skittish of anything that was connected to Lucent. The fall Thursday came on average volume and indicates the pullback is probably temporary. CMTN is well positioned in its industry and should have an outstanding first quarter. They are scheduled to report earnings on January 18th, and we believe CMTN will catch its breath and make a run into the earnings date. Technically CMTN has support at $50. CMTN dropped to $47, Friday morning right out of the gate, but traders quickly bid the price back over $50, to finish the day down, just $0.13 for the session. Another pullback, and bounce off $50, accompanied by solid volume would provide a good entry point for this play. Continued momentum to the upside would also be an opportunity to participate. As always asses your risk profile prior to entering a new play. CMTN was a equipment vendor at the Consumer electronics show in Las Vegas. CMTN joined a group of leading broadband vendors, as they demonstrated their G.Lite solutions at the DSL Forum Interoperability booth. Their 24-port G.lite linecard will enable telecommuters and consumers cost-effective, high speed, access on a single copper loop. ***January contracts expire in two weeks*** BUY CALL JAN-45 KUA-AI OI=1625 at $8.63 SL=6.50 BUY CALL JAN-50*KUA-AJ OI=1871 at $5.38 SL=3.25 BUY CALL JAN-55 KUA-AK OI= 943 at $3.13 SL=1.50 BUY CALL FEB-50 KUA-BJ OI= 560 at $8.25 SL=6.38 BUY CALL FEB-55 KUA-BK OI= 243 at $6.00 SL=4.25 Picked on Jan 4th at $52.00 P/E = 520 Change since picked +0.00 52-week high=$67.50 Analysts Ratings 2-4-0-0-0 52-week low =$25.25 Last earnings 10/99 est= 0.06 actual= 0.08 surprise=+33.3% Next earnings 01-18 est= 0.09 versus= N/A Average daily volume = 1.43 mln Chart = http://quote.yahoo.com/q?s=CMTN&d=3m **** XCED - Xceed, Inc. $45.75 (+4.25) Xceed helps companies develop e-commerce and e-business solutions, improving people and business performance through communication tools, techniques, and technologies. Xceed also owns several companies and was once primarily engaged in the development, manufacturing and marketing of emergency first aid products for burn injuries, this division, Water-Jel, is still a revenue generator but Xceed is planning to sell all non-Internet related businesses. In 1998 the company began to shape its current form as a fully integrated marketing and communications company with Internet and interactive services its main emphasis. Xceed is a visionary company that has re-invented itself to be in the hottest sector in the market. An active stream of press releases confirms that Xceed is determined to be at the forefront of the e-business solutions market. On December 21st, Xceed announced the launch of a Linux Solutions Team which will help their clients develop Linux based business solutions. On the 28th, the company announced an alliance with iMedium allowing Xceed to offer iMedium's commerce technology to its clients. On January 4th, Xceed won a contract to help expand InvestPrivate.com's Web presence and develop a marketing program for the online private placement brokerage concern. Investors have rewarded this very active company with a strong stock price. If the good news keeps coming they will keep buying. Technicals confirm a strong interest in the stock. A break above $34 in early December led to a consolidation between $36 and $44. On Friday it appears the consolidation phase is over, with the stock breaking out again into new high ground. Any trading above $47.50 would be a good entry point for momentum investors. A little patience may allow an investor to pick up the stock around $43, but you may miss the next move if the market is strong early next week for Internet issues, especially Web Builders. Support prices are at $40 and $36. On December 29th Paine Webber raised the target price for shares of XCED to $65 from $35. ***January contracts expire in two weeks*** BUY CALL JAN-40 XCU-AH OI=419 at $7.13 SL=5.25 BUY CALL JAN-45*XCU-AI OI=385 at $3.88 SL=1.75 BUY CALL JAN-50 XCU-AJ OI=160 at $1.69 SL=0.75 BUY CALL FEB-45 XCU-BI OI=129 at $6.38 SL=4.25 Picked on Jan 9th at $45.75 P/E = N/A Change since picked +0.00 52-week high=$47.50 Analysts Ratings 1-0-0-0-0 52-week low =$ 8.00 Last earnings 11/99 est= N/A actual= N/A Next earnings N/A est=-0.48 versus=-0.10 Average daily volume = 295 K Chart = "http://quote.yahoo.com/q?s=XCED&d=3m **** GO - GO.com $28.00 (+4.25) GO.com is a newly formed Internet company -- the result of a merger between Infoseek and The Walt Disney Co.'s online unit, Buena Vista Internet Group (BVIG). Basically GO is a tracking stock for Disney's Internet venture. They provide Internet services to Disney-related Web sites including the GO.com portal, ABC.com, Disney.com, ESPN.com, NFL.com, NASCAR Online, and Family.com to name a few. The GO Network derives nearly 90% of revenue from advertising and has over 21 mln visitors each month. After a disappointing IPO in November, whispers could be heard by the end of 1999 that GO was poised to move off its firm support ($24) and climb. GO.com's well-timed announcement that its ABC.com's Web traffic doubled in the past 12 months and its Internet reach had exceeded rival competitor CBS by a significant 85% was paramount in the stock's subsequent progress. This news event coupled with reports that its suite of e-commerce sites had three times more sales than same time last holiday season really piqued investor's interest. GO sprung into the millennium on strong volume and made its move. First stop was $26 before flirting with the psychological resistance at $30. Near-term support is now evolving at $28 and this is a good entry point into this momentum play, but wait for a definitive bounce off the current level for validation. Now granted GO is a cheaper stock than most are accustomed to seeing on our call list. However, the call option volume is picking up momentum which is no doubt a bullish sentiment. Plus technically GO has promise. The MACD and Stochastic are pointing north and the 5-dma ($27.99) and 10-dma ($26.20) are at relatively satisfactory levels. Now we know rumors are just hearsay, but here's a tid-bit that may interest you. An OIN reader recently whispered to us that GO.com may soon become an ISP! Now we have no information that confirms this rumor and it certainly doesn't have any bearing on our current play, but we thought we'd share the scuttlebutt. In the news this week, the GO Network was fastest growing Web site from August to November 1999 with a 31% growth spurt easily surpassing its nearest competitor by an 11% margin according to a Nielsen/NetRatings report. The GO Network also announced an arrangement that provides it with more access to consumers through an affiliate program. Affiliate.go.com now allows business or personal Web sites to add certain GO Network content such as Web search, daily weather forecasts, or stock quotes, free of charge. **January contracts expire in two weeks** BUY CALL JAN-25*GO-AE OI=1323 at $3.88 SL=2.25 BUY CALL JAN-30 GO-AF OI=2298 at $1.25 SL=0.50 BUY CALL FEB-30 GO-BF OI= 549 at $2.94 SL=1.50 BUY CALL FEB-35 GO-BG OI= 374 at $1.50 SL=0.75 Picked on Jan 6th at $29.00 P/E = N/A Change since picked -1.00 52-week high=$37.69 Analysts Ratings 1-0-0-0-0 52-week low =$21.50 Last earnings 10/99 est= N/A actual=-0.34 Next earnings 01-29 est=-0.45 versus=-0.39 Average Daily Volume = N/A Chart = http://quote.yahoo.com/q?s=GO&d=3m **** CHKP - Check Point Software $191.88 (-6.88)(+13.75) Check Point provides Internet security. The company provides secure enterprise networking solutions that enable customers to implement centralized policy-based management with enterprise- wide distributed deployment. Simply put, CHKP has benefited from rising demand for its virtual private networks software which lets remote workers, business allies and customers securely access corporate computer networks. The main catalyst for our play on CHKP, is a run towards earnings with the added bonus of a split. The split date should be announced after the shareholder meeting on January 13, and we think it could coincide with earnings, now confirmed for February 1. Once investors finished punishing the Internets, they refocused on these facts and helped CHKP recover nicely on Friday. Trading as low as $174.50 on Thursday, CHKP was saved from the grim reaper's scythe by bouncing right at the $175 support level. Money began flowing in Friday morning, but the stubborn bears demanded one more test of support around noon. After that, CHKP was off to the races, adding almost $16 from the low of the day to close just below resistance ($194) which is also the site of the 10-dma. Going forward, we may need to see CHKP test support near $184 before powering forward and a bounce here accompanied by strong volume should provide a good entry. If CHKP remains strong next week, a move through $194 is buyable as long as it is confirmed by volume. We may see additional resistance near $205 on the way to the 52-week high, set only a week ago at $218.50. Keep in mind, this is a volatile issue, with wide daily price swings, so entry points should be abundant and stops are a must. James Pressler, an Internet analyst at PaineWebber, speaking Thursday on CNBC, included CHKP as one of his favorites in the new year, referring to it as the standard in internet security. CHKP announced Tuesday that its FireWall-1 Internet security solution and IBM's HACMP high availability software have both met the rigorous integration standards, enabling IBM to strengthen its security offering. This provides customers with the protection and availability that e-businesses require. ***January contracts expire in two weeks*** BUY CALL JAN-190*KEV-AR OI=105 at $17.00 SL=13.25 BUY CALL JAN-195 KEV-AS OI=109 at $14.75 SL=11.75 BUY CALL JAN-200 KEV-AT OI=248 at $11.00 SL= 8.75 BUY CALL FEB-190 KEV-BR OI= 60 at $28.00 SL=21.75 BUY CALL FEB-200 KEV-BT OI= 98 at $24.00 SL=18.75 Picked on Jan 4th at $198.75 P/E = 95 Change since picked -6.88 52-week high=$218.50 Analysts Ratings 7-6-3-0-0 52-week low =$ 26.75 Last earnings 10/99 est= 0.56 actual= 0.60 Next earnings 02-01 est= 0.65 versus= 0.47 Average Daily Volume = 517 K Chart = http://quote.yahoo.com/q?s=CHKP&d=3m **** VIGN - Vignette Corporation $175.19 (+12.19)(+12.50) 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 everything is moving faster and VIGN is no exception. Tagging a new 52-week high of $188.56 on Monday, the popular B2B e-commerce issue got hammered with the rest of its sector, trading as low as $155 late Thursday afternoon. Turning on a dime Friday morning, VIGN quickly moved up to resistance at $170, where the battle between buyers and sellers continued for most of the day. The bulls finally won out, pushing VIGN up to close above $175. The test of the $155 support level on Thursday filled in the opening gap from December 30th, which makes the chartists happy. Volume has been on the light side the past 2 days, and we would like to see it pick up to confirm a further move to the upside. Market permitting, VIGN will be setting its sights on resistance near $190. Barring a repeat of last week's wild gyrations, VIGN should have good support in the $165 area. Any bounce here would provide an excellent entry point as we set up for our run to earnings which are about 2 weeks away. Keep in mind the volatility of this issue; the faint of heart need not apply, and stops are mandatory. Positive comments and upgrades were the news of the week for VIGN. Greg Vogel of Banc of America maintained his Strong Buy rating and raised his price target from $133 to $265 on Tuesday. Also on Tuesday, Aaron Scott of Advest Inc., increased his rating from Buy to Strong Buy and raised his price target from $130 to $275. ***January contracts expire in two weeks*** BUY CALL JAN-170*UOJ-AN OI=342 at $17.00 SL=13.25 BUY CALL JAN-175 UOJ-AO OI= 51 at $13.88 SL=11.25 BUY CALL JAN-180 GGV-AP OI= 36 at $12.13 SL= 9.50 low OI BUY CALL FEB-170 UOJ-BN OI= 84 at $26.25 SL=20.50 BUY CALL FEB-180 GGV-BP OI= 18 at $22.00 SL=17.25 low OI Picked on Dec 30th at $163.75 P/E = N/A Change since picked +11.44 52-week high=$188.56 Analysts Ratings 9-4-0-0-0 52-week low =$ 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 = 1.20 mln Chart = http://quote.yahoo.com/q?s=VIGN&d=3m **** CMRC - Commerce One Inc $187.50 (-9.00) Commerce One is a provider of B2B electronic commerce solutions that enables buyers and suppliers of goods and services direct access to trading communities over the Internet. Its BuySite software simplifies the buying process by providing product catalogs from different suppliers, automating approvals, and enforcing buyer- and seller-specific policies. The company's MarketSite.net Web site enables buyers and sellers using different software applications to seamlessly connect and perform e-commerce transactions. There have been lots of events that have effected the stock's recent roller coaster ride. CMRC was trading as high as $331 following its 3:1 stock split on December 27th only to dive to a $196.50 close by the week's end. It wasn't merely "post-split" depression that began on December 29th, but rather an influx of insiders who were now able to sell their millions of shares which had been restricted during the 180-day IPO lockout period. In the trading sessions that followed a firm support base was established at $200 and marked for us a solid buying opportunity. On Tuesday CMRC shot up $14.88, or 7.3% while the market was in an obvious sell-off confirming our belief the stock is poised for a profitable momentum run. Although it's likely too that the news that rival Freemarkets (FMKT) was losing General Motors' (GM) contract within 90-days incited the surge. Ok let's retrace a bit for a better understanding. Back in November GM and CMRC struck a crucial deal. According to the terms, together they will create a B2B e-commerce site called TradeXchange and GM will take a 19.9% stake in CMRC. Now 17% of FMKT's FY99 revenues were a direct result of GM's business, so guess who gets it now? Yup, the answer is obvious. CMRC is the ultimate beneficiary with a significant increase to its revenue stream! For the remainder of the week CMRC was brought down a few notches as a result of its announcement that it will issue approximately 870 K shares of common stock and $10 mln in cash to acquire privately held Mergent Systems, a leading developer of distributed product information management systems for B2B portals in the first quarter of this year. That announcement and the resurfacing interest-rate fears put CMRC under the gun. However we're anticipating investors will be bringing their cash back into the lucrative technology sector and see CMRC as a likely recipient. Be patient and watch for a definitive move through the 5-dma ($202.50) for confirmation. The next step of resistance is the 10-dma ($212.84) before it faces $220. Please consider your tolerance for risk before opening any new positions. This is a HIGH-RISK INTERNET play that is blatantly VOLATILE. In other news this week, Commerce One entered into a joint venture with Banacci, Mexico's main financial group, and will offer a B2B electronic marketplace to Latin America. The company also announced the formation of its Public Sector Group that is dedicated to providing e-commerce solutions to federal, state, and local governments as well as higher education institutions. On the analyst front, Dresdner Kleinwort Benson Securities reiterated a Buy rating and issued a $333 price target. **January contracts expire in two weeks** BUY CALL JAN-190 RUC-AR OI= 88 at $15.63 SL=12.25 BUY CALL JAN-195*RUC-AS OI= 37 at $13.75 SL=11.00 low OI BUY CALL FEB-190 RUC-BR OI= 24 at $28.63 SL=22.25 low OI BUY CALL FEB-195 RUC-BS OI= 45 at $26.50 SL=20.75 low OI SELL PUT JAN-185 RUC-MQ OI= 33 at $13.88 SL=17.75 low OI (See risks of selling puts in play legend) Picked on Jan 4th at $218.50 P/E = N/A Change since picked -31.00 52-week high=$331.00 Analysts Ratings 2-6-0-0-0 52-week low =$ 8.83 Last earnings 10/99 est=-0.42 actual=-0.45 Next earnings 01-19 est= 0.15 versus= N/A Average Daily Volume = 1.48 mln Chart = http://quote.yahoo.com/q?s=CMRC&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. Move your trading into the next millennium 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 1-9-2000 Sunday 4 of 5 ***************** CALLS - CONTINUED ***************** SOFTWARE ********* INKT - Inktomi Corp. $89.38 (+0.63) Inktomi develops the world's most scalable software for the world's fastest-moving software environment: the Internet. The company's core technology underpins products for the Internet infrastructure that contribute to network performance, scalability and efficiency. Inktomi technology paves the way for emerging opportunities in online commerce, media, and communications by enabling the Internet to intelligently accommodate more users and data traffic. Inktomi developed the search engine that runs such popular portals as HotBot, NBC's Snap, Yahoo!, and the Disney Internet Guide. We just can't leave INKT alone. Call it one of our favorites, call it what you want. We call another exciting opportunity. INKT was on our play list up until last weekend, when shares the software company split 2-for-1. This week, during the tech decline at the Nasdaq, INKT fell back to support at the $80 level. Stocks normally pullback a little after a split anyway. INKT appears to be on the move again. Friday INKT surged $8.88 on strong volume of 3.2 million shares. We are adding INKT to our list of plays, for several reasons. The pullback has provided us with a good buying opportunity. There is a tremendous amount of money on the sidelines waiting to enter the markets. INKT is not only one of our favorites, it has been a stock traders and investors look at, to produce fantastic returns. When the money begins to enter the market, we believe INKT will be among the top stocks on investors list. Another reason for adding INKT to our play list is earnings. INKT is scheduled to report earnings Jan. 20th. Most analysts are expecting a loss of -$0.04 compared to $0.06 last year. Granted they aren't profitable yet, but they are one of the few Internet stocks that are headed in the right direction. INKT is a great play but obviously can be a volatile play. We have a slew of economic data coming out next week. Prior to entering this play confirm the direction of the Nasdaq, the Internet sector, and INKT itself. Continued momentum would be a chance to buy calls. Should we see a decline look for a bounce off the $80 area would also be viewed as a buying opportunity. As always assess your risk profile before entering any new play. Tuesday, Banc of America resumed its coverage of INKT with a Buy rating. They view Inktomi as a leading provider of Internet infrastructure software that improves the process of locating and retrieving information. Analysts set a price target of $120 for INKT. ***January contracts expire in two weeks*** BUY CALL JAN-80 KYQ-AP OI=6375 at $11.63 SL=9.25 BUY CALL JAN-85*KYQ-AQ OI=2042 at $ 8.00 SL=6.25 BUY CALL JAN-90 KYQ-AR OI=1310 at $ 5.50 SL=3.75 BUY CALL JAN-95 KYQ-AS OI=3461 at $ 3.50 SL=7.75 Picked on Jan 9th at $89.38 P/E = N/A Change since picked +0.00 52-week high=$104.00 Analysts Ratings 7-7-2-0-0 52-week low =$ 26.03 Last earnings 10/99 est=-0.10 actual=-0.09 surprise=+10.0% Next earnings 01-20 est=-0.04 versus=-0.06 Average daily volume = 2.01 mln Chart = http://quote.yahoo.com/q?s=INKT&d=3m **** MSTR - MicroStrategy Inc. $210.38 (+0.38) MicroStrategy is a worldwide provider of enterprise DSS software applications and related services. DSS software enables users access to and the analysis of information stored in large relational databases through various devices like the Internet, e-mail, telephones, pagers and other wireless communications devices. Through this software clients can improve operations, analyze marketing effectiveness and create and deliver targeted one-to-one marketing campaigns to customers. MicroStrategy also provides customers with professional and customer support services. MSTR is among one of the favorite industry groups for investors. The feeling is that e-business development companies will have no shortage of business and hopefully profits during this age when every company out there is trying to establish a major Internet presence as well as cutting edge information access and tools. To add fuel to the fire of an already hot stock, MSTR announced on January 4th a 2:1 stock split for shareholders of record by January 20th. Delivery is set for the 26th. Strategic new partners and clients announced in the past six weeks include Ameritrade, Sybase, ePlus, Net Perceptions, Questra and Dimension Data. This is a very active company and each new deal has been met with investor enthusiasm. After a breakout in early December above the psychologically important $150 point, the stock had green lights and straight ahead to over $230. The subsequent pullback and consolidation back down to the $160-$190 range was a healthy reprieve enabling new investors to get in. If MSTR can trade above $217 look for a run to the old highs. If that does not happen on Monday look to enter a call position in the middle of Friday's range around $207. Be wary of support levels. A recently established important support level is $195-$197. Further down you can find support at the $166 level. MSTR is looking to add to its profile by advertising at the Super Bowl. MSTR was also named by Fortune as one of the "Top 100 Best Places to Work", lets hope the employees buy the stock out of appreciation. ***January contracts expire in two weeks*** BUY CALL JAN-195 EUU-AS OI=18 at $28.00 SL=21.75 low OI BUY CALL JAN-200*EUU-AT OI=63 at $25.13 SL=19.50 BUY CALL JAN-210 EUU-AB OI=62 at $20.00 SL=15.50 BUY CALL JAN-220 EUU-AD OI=85 at $15.63 SL=12.25 SELL PUT JAN-190 EUU-MR OI=20 at $11.38 SL=15.13 low OI (See risks of selling puts in play legend) Picked on Jan 9th at $210.38 P/E = 715 Change since picked +0.00 52-week high=$234.56 Analysts Ratings 5-3-1-0-0 52-week low =$ 14.69 Last earnings 10/99 est= 0.08 actual= 0.09 Next earnings 01-27 est= 0.11 versus= 0.07 Average daily volume = 354 K Chart = http://quote.yahoo.com/q?s=MSTR&d=3m **** ORCL - Oracle Corp. $103.38 (-8.69) Oracle is world's largest producer, seller, and supporter of database management systems. If you need the ability to simultaneously access the same data for different applications all at the same time from mainframes to wireless handsets, Oracle has your software. Oracle's most eligible billionaire bachelor and CEO, Larry Ellison has developed the latest versions to support Internet appliances and PC's using Web- based programs. Despite spending millions on toys, including the coolest airplanes, boats, automobiles, and the authentic replication of a Japanese mansion in which he lives, he still owns about 24% of the company. The last time we played ORCL in early November, it traded at half its current value, and had just received a boost on Larry Ellison's strong forward looking comments. December 14th, the proof was in the pudding as ORCL reported $0.26 earnings vs. $0.22 estimates. On December 20, ORCL also reported a 2:1 stock split which effects on January 18 after the close, and will begin split adjusted trading on January 19. After correcting 25% since reaching its high on Monday of $125, let the split run begin! Friday's bounce off $93 was encouraging since it came with 50% greater volume than the ADV of 14.4 mln shares, indicating large buying interest. Don't look for earnings to help out anytime soon since they won't be announced again until mid March. If the Friday's recovery remains even somewhat intact, support is at $97.50, then $94. Resistance is at $105 and $110, but could easily break that with any volume. Target shoot to your level of risk tolerance. In the news, Merrill Lynch removed ORCL from its Top 10 List - looks like a case of bad timing. The good news is that B of A Securities upgraded ORCL to a Buy, while Paine Weber added it to its list of 30 highlighted stocks. Though it was announced earlier in the week that ORCL insiders were selling $113 mln of their shares, the selling had already been done, and nobody cared. ***January contracts expire in two weeks*** BUY CALL JAN-100*ORQ-AT OI=8107 at $ 9.38 SL=7.00 BUY CALL JAN-105 ORQ-AA OI=4986 at $ 7.38 SL=5.50 BUY CALL JAN-110 ORQ-AB OI=5597 at $ 5.13 SL=3.25 BUY CALL FEB-105 ORQ-BA OI= 861 at $12.00 SL=9.50 BUY CALL FEB-110 ORQ-BB OI=1664 at $ 9.75 SL=7.50 SELL PUT JAN- 90 ORQ-MR OI=3643 at $ 2.56 SL=4.25 (See risks of selling puts in play legend) Picked on Jan 9th at $103.38 P/E = 100 Change since picked +0.00 52-week high=$125.19 Analysts Ratings 12-18-3-0-0 52-week low =$ 21.00 Last earnings 12/99 est= 0.22 actual= 0.26 surprise=18.2% Next earnings 01-25 est= 0.00 versus= 0.00 Average Daily Volume = 14.4 mln Chart = http://quote.yahoo.com/q?s=ORCL&d=3m **** BVSN - Broadvision $148.34 (-21.72)(+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. See? No reason to worry about good old Broadvision. The beautiful thing about BVSN is that, even though it was down nearly $22 for the week, we are still up on this play. BVSN participated in Friday's record breaking rally, gaining nearly 20 points for the day. It turns out that the $130 level did provide room for some great points of entry and hopefully everyone was able to take advantage of the "correction" that we saw last week for a new entry. BVSN closed out Friday's session near the high of the day and looks poised to regain more of the ground it lost during last weeks debacle. Being that Friday's positive Jobs Report has alleviated some of the interest rate fears which helped fuel last weeks decline, we are looking for more positive days in BVSN's near future. BVSN has plenty of room to do a little leg stretching. BVSN may encounter a bit of resistance at $150 though we believe the more formidable resistance will be met at $170. BVSN found some nice support right around $141 back toward the end of December when it traded through this level. BVSN has also regained the support of its 30-dma of $132.50 which is backed by what has proved to be some solid support at $130. Should BVSN retain the momentum it picked up on Friday and manage to trade through $150, we could be cleared for a nice run back up. $150 looks to be another good potential entry level. Though it probably isn't necessary to mention this after last weeks roller coaster ride, I am going to say it anyway. USE YOUR STOPS!! BVSN is known for making big moves quickly so remember to keep your stops tight if you are going to play. An article released on Friday quoted Internet analyst Michael Graham of BancBoston Robertson Stephens as saying "There appears to be a lot of institutional cash waiting for an Internet opening once the quarterly sell-off and interest rate fears are behind us." I would say that BVSN certainly qualifies as an "Internet opening". Another item to brighten the BVSN future is an upcoming earnings announcement on January 26th. ***January contracts expire in two weeks*** BUY CALL JAN-145*BZV-AI OI=300 at $20.13 SL=15.75 BUY CALL JAN-150 BZV-AJ OI=526 at $17.75 SL=13.75 BUY CALL JAN-155 BZV-AK OI=500 at $15.50 SL=12.00 BUY CALL JAN-160 BZV-AL OI=830 at $13.63 SL=10.50 BUY CALL JAN-165 BZV-AM OI=129 at $12.38 SL= 9.50 Picked on Dec 16th at $131.69 P/E = 861 Change since picked +16.65 52-week high=$193.00 Analysts Ratings 5-16-2-0-0 52-week low =$ 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 = 2.29 mln Chart = http://quote.yahoo.com/q?s=BVSN&d=3m ******* Telecom ******* GMH - Hughes Electronics Corp. $98.00 (+2.00) Hughes Electronics Corp., is a manufacturer of communications satellites and a provider of satellite-based services, owning and operating a fleet of geostationary satellites and providing direct broadcast services through DIRECTV, the world's leading digital direct broadcast satellite service. Subsidiaries include; PanAmSat which owns and operates the largest commercial satellite fleet in the world, Spaceway which is a planned satellite-based broadband communications company which is planning to begin multi-media transmission services in 2002, Hughes Network Systems a provider of satellite and wireless communications ground equipment and services, and Hughes Space and Communications a leading satellite manufacturer. You can hardly go on a spacewalk these days without banging into a Hughes product. For years, GMH did not seem to be getting the respect it deserves for being one of the largest and most significant technology companies in the world. In the past year investors have finally taken notice of this very influential communications company. The very high profile DIRECTV is becoming a household name not to mention actually being in a leading 8 million homes. Last year Hughes increased their subscriber growth rate by 39 percent. If that was not enough, Hughes plans to be a leading provider of satellite based broadband multimedia communications. Hughes has more buzzwords to make investors feel all tingly inside than just about any other company. All they need to do is add .com (or .sat) to their name to complete the package. Hughes began its most recent uptrend back in mid October at $70. Since then GMH has been developing a textbook channeling pattern. After bouncing off of the lower band this week, GMH seems poised to rally to a new high above $100. If it could break above the upper band, it could really move. If GMH gaps up on Monday, be a little patient and see if you can get a pullback. Support is $92-$93. In a press release from the ICES show in Vegas, DIRECTV and TiVo announced a jointly developed device that integrates their respective technologies. ***January contracts expire in two weeks*** BUY CALL JAN-85 GMH-AQ OI= 162 at $13.88 SL=10.75 BUY CALL JAN-90*GMH-AR OI=1203 at $ 9.38 SL= 6.75 BUY CALL JAN-95 GMH-AS OI= 781 at $ 6.00 SL= 4.25 BUY CALL FEB-90 GMH-BR OI=1024 at $12.13 SL= 9.50 BUY CALL FEB-95 GMH-BS OI=1277 at $ 8.75 SL= 6.50 SELL PUT JAN-95 GMH-MS OI= 286 at $ 2.31 SL= 4.00 (See risks of selling puts in play legend) Picked on Jan 9th at $98.00 P/E = 231 Change since picked +0.00 52-week high=$104.00 Analysts Ratings 10-6-3-0-0 52-week low = $38.50 Last earnings 10/99 est= -0.14 actual= -0.13 Next earnings 01-19 est= -0.28 versus= 0.03 Average Daily Volume = 916 K Chart = http://quote.yahoo.com/q?s=GMH&d=3m **** CMVT - Comverse Technology $139.00 (-5.75) Comverse is the world leader in multimedia telecommunications applications. Through its Comverse Network Systems division, the company markets its Access NP and TRILOGUE INfinity Enhanced Services Platforms, which enable wireless, wireline, and internet companies to offer enhanced telecommunications services to business and residential customers. Among these services are voice and fax messaging, call answering, and web information services. Comverse also offers Intelligent Peripheral/Service Node, supporting next-generation personal communication services such as pre-paid wireless, mobile number portability, call screening, and mobile attendant functions. CMVT continues to add to its extensive customer base, which currently numbers more than 290 telecommunications operators worldwide. More than 150 of these are in the rapidly growing digital wireless market. CMVT began a strong move up in late December, driven by the co-marketing alliance with Genesys Telecommunications on December 22 (see below). Considering the wild week on the NASDAQ, CMVT did pretty well. Moving up with everything technology at the open on Monday, it followed the rest of its sector during the wild selloff that ensued. Hitting a low near $123 early Friday morning, CMVT recovered nicely throughout the day. Regaining most of its losses on strong volume Friday, CMVT turned a $21 bloodbath into a much more acceptable loss of only $5.75 on the week. What was really encouraging was the strong bounce at the $123 support level, the area where prices bounced in early December and then consolidated before taking off in the last two weeks of the year. This level looks to be very strong support going forward. Now that CMVT has regained its footing, we are looking for the late December momentum to return, as the catalysts for the move up remain unchanged. With positive sentiment returning to the Telecom sector, we expect CMVT to move up and challenge resistance at the 52-week high ($155.88) set last Monday. Look for a bounce between $134 (resistance Thursday and support on Friday) and $136 (the 10-dma) to provide a good entry. If the market remains strong next week, aggressive traders can open new positions as long as volume remains robust. A quick look at a daily chart shows the large daily price swings that can occur in this issue, providing good entry points and underscoring the need to use stops. Also, CMVT has been a split candidate since December when the company increased the number of authorized shares and the CEO said a split would be coming in a matter of weeks or months. On December 22, CMVT and Genesys Telecommunications announced a co-marketing alliance and technological partnership in the Asia-Pacific region. The alliance will focus on promoting the integration of CMVT's Intelligent Recording platform, ULTRA, and the Genesys T-Server to provide call centers with improved Customer Relationship Management. On Radio Wallstreet Friday, an analyst with Suntrust Equitable Securities had good things to say about CMVT, citing the strength of their business model and their consistent track record of beating earnings estimates. He also highlighted their broad customer base, consistent earnings growth and a strong balance sheet with over $750 million in cash. He expects 20-25% earnings growth over the next year. ***January contracts expire in two weeks*** BUY CALL JAN-135 CQV-AG OI= 309 at $ 9.00 SL=6.75 BUY CALL JAN-140*CQV-AH OI=1004 at $ 6.00 SL=4.25 BUY CALL JAN-145 CQV-AI OI= 208 at $ 4.38 SL=2.75 BUY CALL FEB-140 CQV-BH OI= 202 at $11.00 SL=8.75 BUY CALL FEB-145 CQV-BI OI= 119 at $ 8.75 SL=6.75 Picked on Jan 9th at $139.00 P/E = 72 Change since picked +0.00 52-week high=$155.88 Analysts Ratings 10-4-0-0-0 52-week low =$ 43.63 Last earnings 11/99 est= 0.53 actual= 0.56 Next earnings 02-29 est= 0.54 versus= 0.44 Average Daily Volume = 891 K Chart = http://quote.yahoo.com/q?s=CMVT&d=3m **** NOK - Nokia $171.00 (-20.06)(+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? Ouch, this was a rough week for NOK, which, despite a nice recovery of $18, still remains $20 below last week's close. Support is at $155, $160, $165, and as of Friday, mildly so at $170. While NOK remains a few $$$ shy of its 10-dma of $174.63, the recovery on strong volume from it's $154 low on Thursday was promising as long as the market doesn't head back into the dunking tank. Fortunately, NOK reported Friday that they are having a hard time keeping up with demand for their wireless, Internet-ready handsets, and they emphasized that it was NOT from manufacturing problems. Adding to their good fortunes, they currently have the only one available on the market while Ericsson, Siemens, and Motorola play catch-up. They knew demand would be strong based on their earlier announcements that they would reach their 3-year revenue growth within 2 years (50% growth). But noting that lofty demand beyond their highest announced expectation whispers "surprise" in our ears. Earnings will be announced on February 1 after the close (confirmed, but subject to change per IR), wherein we may also get a split announcement, since they historically announce in the $150 range. In the news, Merrill Lynch added NOK to its Top 10 List, and CSFB reiterated NOK as a Strong Buy. ***January contracts expire in two weeks*** BUY CALL JAN-165 NZY-AM OI=1677 at $11.00 SL= 8.75 BUY CALL JAN-170*NZY-AN OI=6349 at $ 8.25 SL= 6.25 BUY CALL JAN-175 NZY-AO OI=3856 at $ 6.00 SL= 4.25 BUY CALL FEB-175 NZY-BO OI= 865 at $12.63 SL=10.00 BUY CALL FEB-180 NZY-BP OI=1044 at $10.63 SL= 8.25 SELL PUT JAN-160 NAY-ML OI=1836 at $ 3.13 SL= 1.50 (See risks of selling puts in play legend) Picked on Nov 14th at $122.25 P/E = 69 Change since picked +48.75 52-week high=$196.00 Analysts Ratings 13-8-0-0-0 52-week low =$ 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 = 3.4 mln Chart = http://quote.yahoo.com/q?s=NOK&d=3m **** QCOM - Qualcomm Inc. $150.00 (-26.13) QUALCOMM Incorporated is a leader in developing and delivering innovative digital wireless communications products and services based on the Company's CDMA digital technology. The Company's major business areas include CDMA phones; integrated CDMA chipsets and system software; technology licensing; and satellite-based systems including OmniTRACS® and portions of the Globalstar(TM) system. Headquartered in San Diego, Calif., QUALCOMM is included in the S&P 500 Index and is a 1999 FORTUNE 500® company traded on the Nasdaq under the ticker symbol QCOM. You just can't get rid of it! We picked up QCOM again this week. It showed us all that it can take the good with the bad. All QCOM needed was the market to be on it's side and it is making it's come back. All week, even with the market tanking, QCOM held at different support levels, showing that investors are still looking to by the dips. While it did go down as the market got the blues out of its system, on Friday we saw how investors truly are on QCOM's side. Now that it is more affordable, nobody wants to be left out of the next move up. Proof of this is the strong volume QCOM had on Friday. With the 10-dma at $154 expect that to be possible resistance, but it will likely run to $160 before finding real resistance. A good point to look at entry would be Friday's low of $133 if the Nasdaq has another bad week. With just over a week until earnings (due out on the 19th) QCOM might not get that low again so to jump in on the intraday dips if the momentum has the stock trading higher. However, remember to be cautious in case the market still hasn't shaken the blues and watch the Nasdaq. Friday's rally may have just been a bear trap. Others see the same thing we do. QCOM got an analyst upgrade on Thursday when Argus Research raised it from a Hold to a Buy. QCOM also announced calling some of their Trust Convertible Preferred Securities, but that it would have no effect on the upcoming earnings. ***January contracts expire in two weeks*** BUY CALL JAN-145 AUA-AI OI= 2933 at $15.63 SL=12.00 BUY CALL JAN-150*AUA-AJ OI=10576 at $12.38 SL= 9.50 BUY CALL JAN-155 AUA-AK OI= 2507 at $11.50 SL= 9.00 SELL PUT JAN-135 AUA-MG OI= 1372 at $ 5.00 SL= 7.00 (See risks of selling puts in play legend) Picked on Jan 4th at $162.06 P/E = 523 Change since picked -12.06 52-week high=$200.00 Analysts Ratings 7-7-5-0-0 52-week low =$ 6.53 Last earnings 11/99 est= 0.88 actual= 0.91 Next earnings 01-19 est= 0.24 versus= N/A Average Daily Volume = 21.5 mln Chart = http://quote.yahoo.com/q?s=QCOM&d=3m ***** LEAPS ***** The week's trading activity in the Dow and Nasdaq left many traders and investors scratching their heads. It was wild close to a volatile week. After making it through Y2K with no major problems, investors dumped the tech stocks at the Nasdaq for three days. Friday saw the Dow make a new all-time high, while the Nasdaq managed to recoup more than half of its losses from earlier in the week. A stronger than expected employment report didn't detour traders enthusiasm for buying stocks. It was a broad-based event as drug, health care, consumer, Internet, disk drive and telecom equipment stocks all participated in the rally. Most traders decided Lucent's problems were company specific and not industry wide as NT, CIEN, MOT and CSCO finished the day with solid gains. We will get a better insight on earnings next week, as earnings season kicks into high gear. Economic data will continue to bombard the markets with the release of Import-Export Prices, PPI, Retail Sales, and Initial Jobless claims. Probably the most important report of the week, CPI, brings up the rear on Friday. The VIX peaked out Wednesday morning at 31.02, and declined for the balance of the week, settling at 23.20. The week produced one drop and several other opportunities in our LEAP section. We are adjusting our positions in LU and GTW. Both announced earnings warnings this week. If you haven't been stopped out off your positions in these two plays, we are adding them again as a buy at the lower levels. We believe traders over-reacted to the earnings warnings and if they were good plays at their previous points they are great plays at the current levels. We believe the money on the sidelines from year-end tax selling and year-end bonuses will continue to make its way into the markets. The VIX went over 30, did anyone buy LEAPS? Current Plays SYMBOL SINCE LEAPS SYMBOL CURRENT PICKED RETURN EMC 11/07/99 JAN-2001 $80 ZOH-AP at $39.88 $15.38 159.30% JAN-2002 $90 WUE-AR at $43.25 $19.00 127.63% GPS 11/07/99 JAN-2001 $40 ZGS-AH at $14.00 $ 5.75 143.48% JAN-2002 $45 WGS-AI at $16.38 $ 7.88 107.87% IBM 11/07/99 JAN-2001 $100 ZIB-AT at $27.75 $13.63 103.60% JAN-2002 $110 WIB-AB at $31.13 $16.50 88.67% WMT 11/07/99 JAN-2001 $70 ZWT-AN at $11.88 $ 6.50 82.77% JAN-2002 $75 WWT-AO at $15.50 $ 9.75 58.97% CSCO 11/14/99 JAN-2001 $80 ZCY-AP at $37.00 $19.13 93.41% JAN-2002 $90 WIV-AR at $39.13 $22.00 77.86% SLR 11/14/99 JAN-2001 $85 ZSR-AQ at $22.13 $21.75 1.75% GE 11/21/99 JAN-2001 $150 ZGR-AU at $25.50 $16.25 56.92% JAN-2002 $150 WGE-AU at $36.25 $25.50 42.17% NT 11/28/99 JAN-2001 $75 ZOO-AO at $38.00 $22.25 70.79% JAN-2002 $75 WNT-AO at $45.13 $30.25 49.19% VOD 12/05/99 JAN-2001 $50 ZAT-AJ at $ 9.75 $10.75 - 9.30% JAN-2002 $50 WHV-AJ at $14.00 $15.00 - 6.67% KM 12/05/99 JAN-2001 $10 ZKM-AB at $ 2.75 $ 2.50 10.00% JAN-2002 $15 WKM-AC at $ 1.94 $ 1.75 10.86% ADBE 12/12/99 JAN-2001 $65 ZAE-AM at $15.25 $15.00 1.67% JAN-2002 $70 WAE-AN at $19.50 $20.38 - 4.32% TXN 12/12/99 JAN-2001 $110 ZTN-AB at $15.88 $22.25 -40.11% JAN-2002 $120 WGZ-AD at $21.25 $28.50 -25.44% NXTL 12/19/99 JAN-2001 $90 ZFU-AR at $29.38 $23.50 25.02% JAN-2002 $100 WFU-AT at $33.00 $27.25 21.10% SUNW 12/19/99 JAN-2001 $80 ZJX-AP at $15.88 $17.63 -11.02% JAN-2002 $90 WJX-AR at $20.88 $22.00 - 5.14% AOL 12/23/99 JAN-2001 $90 ZKS-AR at $16.13 $20.13 -19.87% JAN-2002 $100 WAN-AT at $20.75 $25.63 -23.52% ***Both cratered due to short-term earnings warning but we feel they will comeback and are listing new LEAPS for the situation*** LU 11/14/99 JAN-2001 $80 ZEU-AP at $ 4.50 $12.88 -65.06% 01/09/00 JAN-2001 $50 ZEU-AJ at $13.63 $13.63 NEW JAN-2002 $90 WEU-AR at $ 8.38 $16.13 -48.05% GTW 11/21/99 JAN-2001 $90 ZWB-AR at $ 7.75 $17.75 -56.34% 01/09/00 JAN-2001 $60 ZWB-AL at $17.13 $15.88 NEW JAN-2002 $100 WGB-AT at $12.00 $22.50 -46.67% 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 MOT - Motorola $128.81 MOT fell out of bed this week after making a new high at $153.63. Thursday, MOT hit a support level near $119, and rebounded Friday, as investors realized that Lucent's problems are company specific and not industry wide. The volume behind MOT's move on Friday picked up to 7.9 million indicating traders saw the recent decline as a buying opportunity. Frankly, we couldn't agree more. Wednesday and Thursday analysts at Gruntal & Co. and DB Alex Brown reiterated Strong Buy ratings of MOT. They feel the recently completed purchase of General Instruments, will provide MOT with great potential in the broadband arena. Gruntal issued a short-term price target for MOT at $150 and a long term target of $200. A catalyst to get MOT in gear, could be their earnings announcement Jan 17th. Analysts are expecting earnings for MOT to come in at $0.83, compared to $0.26 for the same period last year. Considering the price of the stock and the recent volatility the LEAPS are reasonably priced. BUY LEAP JAN-2001 $125.00 ZMA-AE at $31.13 BUY LEAP JAN-2002 $125.00 WMA-AE at $41.50 Drops DELL $46.19 Although we are still ahead of the game for our play in DELL, we are going to stand aside for the time being. Dell suffered right along with Gateway this past week, losing -4.81. Considering some of the other stocks in the tech sector it could have been worse. However the volume behind the drop in price was substantial. Average daily volume for DELL, is about 27.5 million shares. This week DELL averaged about 39.4 million shares. Dell fell below 2 important levels of support at $50 and $46.50. This could be a near term bottom, but with the concern over earnings and the technical picture, we are going to let this one go for now. If the current downtrend continues, Dell could find strong support near $40 and could provide us with another buying opportunity soon. ***************** 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. **** SCNT - Scient Corp $66.50 (-19.94) Scient is leading a new category of professional services firms focused solely on building eBusiness systems and capabilities that help companies go to market rapidly and build competitive differentiation. Scient specializes in developing strategic eBusiness solutions for both Fortune 500 companies and electronic start-ups that want to dominate their marketplace. There still looks to be a whole lot of selling going on. SCNT tried to make a move up on Friday and wound up hitting its head squarely on $70 and taking a turn south. This brief attempt did a nice job of providing some room for entry points, as SCNT traded all the way down to $64. We mentioned some weak support right around $65, though we are really looking for a fall down to at least $60, where there is a more solid level of support. We are still seeing evidence of SCNT sellers in the market with intra-day tops throughout the sessions backed by good volume. Need we even mention SCNT's weak relative strength against Friday's record breaking market rally? Anything e-related seemed to fare well Friday, however the exuberance did nothing to help SCNT. We believe SCNT is still headed downhill. We look for $70 to continue providing the strong resistance. Should SCNT manage a close below $65, we will look for this level to hold SCNT back as well. For new entries, try to target shoot your way in on any brief run-ups backed by holding resistance, like we witnessed on Friday. Again, once SCNT trades through $65, we could be cleared for another healthy fall. ***January contracts expire in two weeks*** BUY PUT JAN-70 SMQ-MN OI=787 at $7.00 SL=5.25 BUY PUT JAN-65*SMQ-MM OI=113 at $4.25 SL=2.50 Average Daily Volume = 340 K Chart = http://quote.yahoo.com/q?s=SCNT&d=3m **** HNZ - H.J. Heinz $39.00 (-0.81) Who hasn't heard of H.J. Heinz? With the infamous "57 Varieties" which include 9-Lives pet food, StarKist tuna, Weight Watchers, Budget Gourmet, and of course, Heinz 57 Ketchup, H.J. Heinz is indeed a household name. Heinz produces and markets its products worldwide. Heinz also ventures into the weight loss class arena along with other related programs. HNZ did manage another gain for Friday's session, trading up nearly a dollar and parking on $39 for the weekend. We really do not believe that the overall negative sentiment that has been plaguing the food producers has changed direction. Friday's positive job report seemed to be just what investors needed to hear to rejuvenate the bull market, for a while anyway. It is quite possible that we will see a pullback in some of the more defensive stocks, such as HNZ, which benefited from last week's "correction". Should HNZ continue to move up, it is likely to encounter some rather formidable resistance right around $40 and may be held back. This level has potential to provide some room for possible entry points should HNZ reach $40, turn around and start heading south again. HNZ does have some support that has recently formed right around $38. HNZ really had no problem trading below this level last week so we do not view $38 as very solid support. Watch for a reclamation of HNZ's downward trend with good volume to back the selling. ***January contracts expire in two weeks*** BUY PUT JAN-45 HNZ-MI OI= 337 at $7.13 SL=5.25 BUY PUT JAN-40*HNZ-MH OI=1042 at $1.63 SL=0.75 Low premium Average Daily Volume = 933 K Chart = http://quote.yahoo.com/q?s=HNZ&d=3m **** CHINA - China.com $76.50 (-2.13) Chinadotcom is the first pan-Asian integrated Internet company listed in the United States. The company provides a full range of Internet services that build e-business strategies and solutions (Web Connection), distribute content via its portal network (china.com, cww.com, hongkong.com, taiwan.com), and sell services through online advertising (24/7 Media Asia). They are committed to enabling digital communities to realize their full potential, thereby facilitating the development of the Internet in China and across Asia. The company has over 900 employees in 21 offices across 10 Asian markets, including Australia, Hong Kong, Japan, Korea, Malaysia, Singapore, and Taiwan. In Mainland China, the company has five offices and over 200 employees. China may have survived Y2K, but can this CHINA survive the onslaught of over 30 million shares set to clear lockup on Monday? With only an 8.4 million share float, the odds are definitely not in there favor. The company has over 42 mln shares outstanding so the release of 30.4 mln more represents 72% of the stock. That is a high number even by current lockup standards. One look at the chart and you see that investors know what is coming. The stock has been trending lower despite a quick two-day spike to start the year. This trend is coming in the face of a vast number of positive press releases from the company to try and support the stock. Don't kid yourself, they know the possible ramifications of such a large amount of new stock to absorb and they will do what they can to support their stock. Unfortunately, stocks typically suffer during the short-term after the lockup period and it makes for good put playing. CHINA isn't helped by the by the fact that the stock has some air underneath it. We've seen mild support at $75, but that isn't likely to last. After that we are hard pressed to see any support before the $65 range and eve that is mild. Strong support resides at $60. Pick your entry points off any subtle rally met by resistance. A break below the $75 support looks tempting as well. Following Friday's trading alert, the volume on the Jan-75 contracts went from 66 to 2007 and the ask went from $7.38 to $12.75. Apparently, you were checking your e-mail Friday. CHINA closed the session toward the low end of its day, and looks well positioned to trade through $75 this week. In an article released late in the day on Friday, it was announced that CHINA has plans to sell 3.88 million Class A shares. The company will sell 2.9 mln of the shares itself and stockholders will sell the remaining 970K. Following this offering, CHINA will have approximately 47.5 million shares outstanding. CHINA plans to use the proceeds from the sale of its shares for expansion of sales, marketing, and workforce. Acquisitions and capital spending will be a focus for the company as well. CNBC also did a report late Friday about IPO Lockup periods which are ending and CHINA was at the top of the list. Who knows, maybe they are an OIN subscriber as well! ***January contracts expire in two weeks*** BUY PUT JAN-80 UIH-MP OI=197 at $15.88 SL=12.00 Fri vol= 615 BUY PUT JAN-75*UIH-MO OI=159 at $12.75 SL=10.25 Fri vol=2007 Average Daily Volume = 1.46 mln Chart = http://quote.yahoo.com/q?s=CHINA&d=3m **** WCOM - MCI WorldCom, Inc. $47.19 (-5.88) MCI Worldcom is a telecommunications giant, providing consumers and businesses with local, long distance, Internet, data, and international communications services. Included in the company's products and services are switched and dedicated long distance and local products, dedicated and dial-up Internet access, wireless services, 800 services, calling cards, and debit cards. Much Ado About Nothing was the theme for WCOM on Friday. Normally one of the most heavily traded stocks, WCOM nearly doubled its ADV in the process of going nowhere. That's right, in the face of the largest one-day point gain on the NASDAQ, over 34 million shares traded hands, leaving prices unchanged. This is encouraging for our put play as there is not enough pressure to drive prices up, even in a strong market. The pending merger with Sprint continues to add downside pressure, but the real mover this week was the 3 cent per share reduction in revenue estimates by Jack Grubman of Salomon Smith Barney. WCOM is now firmly under all of its moving averages which will create overhead resistance between $51-52. Look for a roll over in this area to provide a better entry as we move forward. Earnings are on January 28, but don't look for any strength from that camp as long as sentiment about revenues continues to be bearish. One other interesting note is that option volume was particularly heavy for WCOM on Friday. Although heavy on the call side, volume for the Jan 45 put was very heavy, with OI increasing from 166 to 1514. ***January contracts expire in two weeks*** BUY PUT JAN-50*LDQ-MJ OI=1869 at $4.00 SL=2.50 BUY PUT JAN-45 LDQ-MI OI=1514 at $1.50 SL=0.75 BUY PUT FEB-45 LDQ-NI OI=1173 at $2.75 SL=1.38 Average Daily Volume = 18.33 mln Chart = http://quote.yahoo.com/q?s=WCOM&d=3m **** SANM - Sanmina Corp $91.75 (-8.13) Sanmina is a leading electronic component manufacturer in the US. They produce printed circuit board assemblies and backplane assemblies as well as multi-layer printed circuit boards and custom cable and wire harness assemblies. The company's market base is diversified and includes original equipment manufacturers (OEMs) in the telecommunications, computer, data communications, industrial, and medical instrumentation industries. The telecommunications market makes up about 50% of Sanmina's sales with DSC Communications and Cisco Systems accounting for nearly one-third of total sales. For the last two weeks SANM has steadily sunk from highs near $110 to its present level just above $90. That is definitely a huge decline however, SANM didn't meet its maker until it slipped under $95 on Thursday. Take a look at a six-month chart and you can see that this mark previously served as strong support through November and December. Far below, the 200-dma ($80.25) is the next level of bottom support - a place where this stock spent most of 1999. On Thursday, the bearish plunge was backed by increased volume levels and Friday the scenario persevered. This is a technical play that so far hasn't been effected by positive news events. For example on December 29th, the Board of Directors announced it would be asking the shareholders to increase its authorized common stock to 500 mln from 200 mln at the next meeting (January 28th)to add flexibility for future corporate dealings. No response by investors - SANM traded relatively flat. Then this past Wednesday, SANM announced it had signed a letter of intent to acquire the Clinton, North Carolina electronic enclosure systems facility from Alcatel (ALA), a French telecommunications equipment firm. The proposed deal calls for a three-year manufacturing service contract and is expected to close in the 1Q of 2000. Herve Francois analyst at CSFB liked the deal and reiterated a Strong Buy on Wednesday, but investors were still "hands off SANM" in the days following. Now technically the indicators such as the MACD, Stochastic, and RSI are all in the red too, but wait for further corroboration before entering a new put position. After hours on Friday, the analyst firm Stephens Inc reiterated a Buy rating and issued a $150 12-month target price. Likely this alone shouldn't impact the downward trend but it's always better to be safe than sorry. Remember cash is king. ***January contracts expire in two weeks*** BUY PUT JAN-95 SQN-MS OI= 149 at $7.00 SL=5.25 BUY PUT JAN-90*SQN-MR OI= 465 at $3.50 SL=1.75 BUY PUT JAN-85 SQN-MQ OI=1360 at $2.13 SL=1.00 Average Daily Volume = 789 K Chart = http://quote.yahoo.com/q?s=SANM&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 millennium 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 1-9-2000 Sunday 5 of 5 COVERED CALLS ************* Option Trading Basics: Rules For The Beginner... The #1 goal for the majority of OIN subscribers is to use options to take advantage of favorable trading opportunities. Derivatives are generally regarded as the most effective trading vehicle as they offer a means to gain an edge in the market. Before you can begin to utilize this unique instrument, you must understand the most common rules for success. The most important factors in option trading are market movement, option volatility, and time decay. The knowledge of these concepts is paramount to profitable trading and without a suitable basis, you will likely enter the market at a theoretical disadvantage. The first requirement is familiarity with option pricing. We have the ability to measure an option's premium through mathematical evaluation and if you aren't prone to formulas, pricing models will help you determine the fair market value of an option. Many of the established tools for pricing options are free and they should be used before opening any position. In volatile issues, the emotional optimism of traders can cause prices to vary widely from their true worth. Without a realistic estimate of the value of an option, you will often pay an excessive amount for the rights inherent in the contract. Another important component of successful option trading is risk management. There are two fundamental risks in derivatives; price movement in the underlying instrument and changes in volatility. The risk of adverse price movement can be managed through the use of spreads and combination positions. Simple call and put options can be protected with trading stops and roll-out strategies. Delta neutral plays can be maintained through the use of a hedge ratio. After you have a plan for controlling unexpected price movements, the subject of volatility can be addressed. The easiest way to reduce your exposure to this aspect of option trading is to buy options that are under-priced and sell options that are overpriced. Successful traders will anticipate changes in market expectations and volatility characteristics. One of the simplest approaches is buying premium (calls, puts, straddles and back-spreads) when you foresee an increase in market volatility and focus on techniques for selling premium (credit straddles, credit spreads and ratio positions) when you expect volatility to fall. Similar to patterns in price movement, most volatility fluctuations generally exhibit observable levels and transition periods, and their tendency to revert to previous ranges can be used to profit on a regular basis. In the majority of investment techniques, the end result is a product of what you know, and how well you act upon it. In the case of options, it's more a matter of knowing your risk and controlling it. Only in that manner, will your portfolio grow consistently, in all 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 8.06 JAN 7.50 1.31 *$ 1.25 20.0% 14.5% SPLH 8.44 9.25 JAN 7.50 1.81 *$ 0.87 13.1% 11.4% EMIS 19.88 30.00 JAN 17.50 4.50 *$ 2.12 13.8% 10.0% CBIZ 10.31 7.81 JAN 7.50 3.63 *$ 0.82 12.3% 8.9% FSII 10.69 13.44 JAN 10.00 1.94 *$ 1.25 14.3% 8.9% LGND 11.69 13.69 JAN 10.00 2.75 *$ 1.06 11.9% 8.6% NFO 14.38 20.94 JAN 12.50 2.94 *$ 1.06 9.3% 8.1% STRX 8.13 7.81 JAN 7.50 1.00 *$ 0.37 5.2% 7.5% AWEB 12.13 10.13 JAN 10.00 3.00 *$ 0.87 9.5% 6.9% NETA 25.13 25.13 JAN 22.50 3.63 *$ 1.00 4.7% 6.7% WSTL 10.75 9.69 JAN 10.00 1.88 $ 0.82 9.2% 6.7% SCOC 17.88 25.31 JAN 15.00 4.13 *$ 1.25 9.1% 6.6% PILT 17.56 27.13 JAN 12.50 5.88 *$ 0.82 7.0% 6.1% ONHN 10.25 7.81 JAN 7.50 3.38 *$ 0.63 9.2% 5.7% BAMM 9.81 8.63 JAN 7.50 2.75 *$ 0.44 6.2% 5.4% TTWO 16.31 13.50 JAN 12.50 4.63 *$ 0.82 7.0% 5.1% MWHS 15.06 18.59 JAN 12.50 3.25 *$ 0.69 5.8% 5.1% PILT 20.25 27.13 JAN 15.00 6.38 *$ 1.13 8.1% 5.1% RNBO 20.00 20.88 JAN 15.00 6.13 *$ 1.13 8.1% 5.1% NPLS 20.56 22.00 JAN 17.50 3.63 *$ 0.57 3.4% 4.9% TSCM 15.75 18.50 JAN 12.50 3.88 *$ 0.63 5.3% 4.6% NETS 28.00 26.00 JAN 22.50 6.63 *$ 1.13 5.3% 4.6% AGY 16.88 16.00 JAN 15.00 2.75 *$ 0.87 6.2% 4.5% VDAT 13.50 10.38 JAN 10.00 3.88 *$ 0.38 4.0% 4.3% EMIS 24.63 30.00 JAN 20.00 5.38 *$ 0.75 3.9% 4.2% CNCX 29.88 30.00 JAN 22.50 8.00 *$ 0.62 2.8% 4.1% ENMD 28.44 29.31 JAN 22.50 6.75 *$ 0.81 3.7% 4.1% SATH 12.69 10.38 JAN 10.00 3.38 *$ 0.69 7.4% 4.0% MESG 16.63 13.38 JAN 12.50 4.88 *$ 0.75 6.4% 4.0% BNYN 15.81 16.81 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% BIDS 5.25 4.28 JAN 5.00 0.94 $ -0.03 -0.7% 0.0% *$ = Stock price is above the sold striking price. Comments: Bid.Com (BIDS) appears to be holding at support. The technical outlook of Century Business (CBIZ) has worsened (they expect to take a fourth-quarter pre-tax charge) but the position can be closed now for a break even exit - just something to consider. 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 ENER 11.81 JAN 10.00 EQI AB 2.06 254 9.75 2.6% 2.6% GMGC 6.84 FEB 5.00 GGQ BA 2.38 31,971 4.46 12.1% 12.1% HMK 9.88 FEB 7.50 HMK BU 2.81 134 7.07 6.1% 6.1% HRC 5.81 FEB 5.00 HRC BA 1.13 597 4.68 6.8% 6.8% IFCI 10.13 FEB 7.50 IQD BU 3.00 1,258 7.13 5.2% 5.2% PCMS 10.06 FEB 7.50 PQP BU 3.00 1,675 7.06 6.2% 6.2% TERA 4.41 FEB 5.00 QIP BA 0.50 190 3.91 27.9% 12.8% WDC 5.50 FEB 5.00 WDC BA 1.13 1,480 4.37 14.4% 14.4% Sequenced by Return Called Stock Price Mon Strike Option Opt Open Cost RC RNC Sym Price Symbol Bid Intr Basis ENER 11.81 JAN 10.00 EQI AB 2.06 254 9.75 2.6% 2.6% TERA 4.41 FEB 5.00 QIP BA 0.50 190 3.91 27.9% 12.8% WDC 5.50 FEB 5.00 WDC BA 1.13 1,480 4.37 14.4% 14.4% GMGC 6.84 FEB 5.00 GGQ BA 2.38 31,971 4.46 12.1% 12.1% HRC 5.81 FEB 5.00 HRC BA 1.13 597 4.68 6.8% 6.8% PCMS 10.06 FEB 7.50 PQP BU 3.00 1,675 7.06 6.2% 6.2% HMK 9.88 FEB 7.50 HMK BU 2.81 134 7.07 6.1% 6.1% IFCI 10.13 FEB 7.50 IQD BU 3.00 1,258 7.13 5.2% 5.2% Sequenced by Return Not Called Stock Price Mon Strike Option Opt Open Cost RC RNC Sym Price Symbol Bid Intr Basis ENER 11.81 JAN 10.00 EQI AB 2.06 254 9.75 2.6% 2.6% WDC 5.50 FEB 5.00 WDC BA 1.13 1,480 4.37 14.4% 14.4% TERA 4.41 FEB 5.00 QIP BA 0.50 190 3.91 27.9% 12.8% GMGC 6.84 FEB 5.00 GGQ BA 2.38 31,971 4.46 12.1% 12.1% HRC 5.81 FEB 5.00 HRC BA 1.13 597 4.68 6.8% 6.8% PCMS 10.06 FEB 7.50 PQP BU 3.00 1,675 7.06 6.2% 6.2% HMK 9.88 FEB 7.50 HMK BU 2.81 134 7.07 6.1% 6.1% IFCI 10.13 FEB 7.50 IQD BU 3.00 1,258 7.13 5.2% 5.2% Company Descriptions ENER - Energy Conversion Devices $11.81 *** Two-Week Play *** Energy Conversion Devices is a leader in the synthesis of new materials and the development of advanced production technology and innovative products. They provide new technologies for use in the fields of alternative energy and are engaged in activities ranging from product development to manufacturing and selling products as well as designing and building production machinery with an emphasis on alternative energy and information technology. Traders are suggesting the meteoric rise of Plug Power (PLUG) has something to do with the recent rally. Regardless of the reason, the technical outlook is favorable and it appears there is little chance of owning this issue at expiration. JAN 10.00 EQI AB Bid=2.06 OI=254 CB=9.75 RC=2.6% RNC=2.6% Chart = http://quote.yahoo.com/q?s=ENER&d=1y **** GMGC - General Magic $6.84 *** Talk to me! *** General Magic offers voice-enabled services and technology that make communication and access to information easy and convenient. The company's innovative, patent-pending magicTalk voice interface lets people interact with information using their own words, as if they were talking to another person. General Magic started its climb in November after OnStar, a division of General Motors, selected magicTalk as the voice user interface for the OnStar Virtual Advisor, which will provide hands-free, voice-activated access to web-based information services in vehicles. The deal was closed in December and this week, Chet Huber, the general manager of OnStar, has joined General Magic's Board of Directors. Favorable speculation with a breakout above resistance ($4.50 - now support) and signs of heavy accumulation. FEB 5.00 GGQ BA Bid=2.38 OI=31,971 CB=4.46 RC=12.1% RNC=12.1% Chart = http://quote.yahoo.com/q?s=GMGC&d=1y **** HMK - HA-LO $9.88 *** What's Up? *** HA-LO, a brand marketing organization, is the nation's leading provider of promotional and premium products and has established a continuum of brand marketing services, including marketing and promotion (UPSHOT), brand strategy and identity (LAGA), presence marketing (HA-LO Sports and Entertainment, and Events by HA-LO) and relationship marketing (Market USA and UPSHOT Direct). HA-LO's extensive client roster includes such global leaders as Abbott Labs, Anheuser-Busch, The Coca-Cola Company, Discover Financial Services, Ford, General Electric, Glaxo Wellcome, Mirage Resorts, and P & G. In December, HA-LO jumped out of a 5 month base after announcing a partnership with Nike Golf; to sell & distribute a line of corporate promotional products, branded with the Nike logo. After a brief consolidation, HA-LO has once again started to fly and has taken out the December high. There is no news for the recent spike in price which moves HA-LO into a stage II pattern. FEB 7.50 HMK BU Bid=2.81 OI=134 CB=7.07 RC=6.1% RNC=6.1% Chart = http://quote.yahoo.com/q?s=HMK&d=1y **** HRC - Healthsouth $5.81 *** Stage I Base *** Healthsouth provides outpatient and rehabilitative healthcare services through its inpatient and outpatient rehabilitation facilities, surgery centers, diagnostic centers and medical centers. The Company had nearly 2,000 locations in 50 states, the United Kingdom and Australia. The recent volume suggests the January effect may be drawing some interested buyers to HRC. Positive technical divergence's are possible signals of an upside resolution and a new bullish character. FEB 5.00 HRC BA Bid=1.13 OI=597 CB=4.68 RC=6.8% RNC=6.8% Chart = http://quote.yahoo.com/q?s=HRC&d=1y **** IFCI - International FiberCom $10.13 *** New Trading Range? *** International FiberCom is a leading provider of a wide range of engineering, development and maintenance services for fiber optic, broadband networks, public telephone networks, local and wide area networks, and specialized wireless applications. With a number of recent strategic acquisitions that complement and enhance existing services and products, International FiberCom has positioned itself as a "one-stop shop" for the telecom and cable TV industries. The spike in price Thursday and Friday came after FiberCom's subsidiary, All Star Telecom, was awarded an additional design-build contract with a value in excess of $20 million by PF.Net. This was an addition to the $32 million contract with PF.Net, announced last month. This activity has moved the price above resistance at $9.00 and out of a two-year trading range. Conservative speculation with a favorable cost basis. FEB 7.50 IQD BU Bid=3.00 OI=1,258 CB=7.13 RC=5.2% RNC=5.2% Chart = http://quote.yahoo.com/q?s=IFCI&d=1y **** PCMS - P-Com $10.06 *** Stage II? *** P-Com develops, manufactures, and markets network access systems for the worldwide wireless telecommunications market. The point- to-point, spread spectrum, and point-to-multipoint radio links provided by P-Com are designed to satisfy the network requirements of cellular, personal and corporate communications services, public utilities and local governments. In addition, P-Com provides comprehensive network services including system planning, program planning and management, path design, and installation. P-COM has moved to a new 52-week high on increasing volume as the competitive wireless telecom market continues to draw investors. We favor the technical support near the cost basis with a conservative entry point. FEB 7.50 PQP BU Bid=3.00 OI=1,675 CB=7.06 RC=6.2% RNC=6.2% Chart = http://quote.yahoo.com/q?s=PCMS&d=1y **** TERA - Tera Computer $4.41 *** Finally, OTM Speculation! *** Tera Computer designs, builds and sells high performance general purpose parallel computer systems. Tera believes its Multithreaded Architecture (MTA) system represents the next wave in supercomputer technology because of its unique ability to provide high performance, broad applicability and ease of programming in a single system. In December, Best Paper of SC99 studied a Tera MTA system and concluded that, compared with competitors (read CRAY, an acquisition that SGI is trying to unload), multithreaded systems "offer tremendous potential for quickly and efficiently solving some of the most challenging real-life problems on parallel computers." The San Diego Supercomputer Center recently purchased and upgrade to their existing 8-processor MTA supercomputer. Will Tera be able to penetrate the CRAY market? Will the government continue to fund supercomputers? The tape suggests that Tera Computer's two-year downtrend has ended and a stage I base has begun. Reasonable speculation for those with a 'high' risk verse reward trading plan. FEB 5.00 QIP BA Bid=0.50 OI=190 CB=3.91 RC=27.9% RNC=12.8% Chart = http://quote.yahoo.com/q?s=TERA&d=1y **** WDC - Western Digital $5.50 *** Break-Out! *** Western Digital is a leading manufacturer of hard drives used for information storage in desktop computers, servers, workstations and home entertainment electronic products. Through its Connex subsidiary, the company serves users of network-attached storage systems and enterprise-wide storage area networks. Western Digital was founded in 1970 and has long been noted for its storage and end-market systems-level design knowledge. The company's products are marketed to leading systems manufacturers and selected resellers under the Western Digital brand name. In December, Western Digital began shipping the WD Caviar EIDE 10.2G perplatter, 7200 RPM hard drive, and according to WD's FIT lab, offers a 10% increase in performance over all EIDE hard drives on the market. Western Digital has closed above its 150 dma on heavy volume and improving technicals. With the data storage sector showing signs of strength, this play offers favorable speculation with a reasonable cost basis. FEB 5.00 WDC BA Bid=1.13 OI=1,480 CB=4.37 RC=14.4% RNC=14.4% Chart = http://quote.yahoo.com/q?s=WDC&d=1y NAKED PUT SECTION ***************** Success Basics: Trading Plan Revisited... Successful investors have a number of traits in common; market knowledge, an understanding of technical analysis and discipline. Option traders search for the best opportunities the markets can provide and exploit them through the use of leverage and hedged positions to profit on a regular basis. Unfortunately, without a sound trading plan and rigid money management principles, even the most skilled trader will fail to produce consistent returns. If you asked a group of successful investors to describe their trading mentality, you would discover a number of different approaches. The systems, methods and markets would all be unique but they would have one similar characteristic; a trading plan. A trading plan is the most important feature of your investing philosophy. Without a specific approach and well-defined objective, you are subject to a trader's worst enemies; hope, greed and fear. Hope convinces you that the situation will improve no matter how bad the fundamental or technical outlook, while fear makes certain that you're taken out of a good trade prematurely, and greed keeps you in a winning play long after the optimum exit opportunity has passed. Unbelievably, four out of every five traders do not have comprehensive trading plans and only one in ten have their methods or ideas in writing. As you might suspect, professional traders and floor brokers use a system of specific, pre-defined techniques throughout the course of their daily business and that's why they are consistently successful. The first step in developing a trading plan is to determine your risk profile and time frame for any portfolio strategies. Most investors have a predetermined amount of capital to commit in their initial venture and the primary objective is to learn a profitable system before that money is gone. Novice investors can begin by creating a proposal for long-term success in any market environment. It sounds like a tall order, but in reality there are a number of proven strategies that profit under all but the most unfavorable conditions. After you have a basic outline of future goals, an arsenal of short range tactics can be constructed from proven techniques. Before you can decide which approach is best, you must be aware of the current trend of the underlying market; whether it is bullish, bearish or neutral. Then you can select a suitable time frame and the appropriate trading strategy. For most investors, technical analysis; trend-lines, moving averages and historical patterns are the primary method of forecasting the direction or character of the underlying position. The next phase in a consistent trading system is money management. This includes provisions for taking profits and limiting losses including specific guidelines for initiating, adjusting, and closing positions. Developing these rules is quite wearisome but the process is paramount to achieving success. Next week, we will discuss the basic principles of profitable position management. *** 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 10.13 JAN 10.00 0.50 *$ 0.50 16.2% 17.6% ITIG 24.81 23.69 JAN 17.50 0.63 *$ 0.63 11.3% 16.3% WAXS 20.00 18.44 JAN 17.50 0.69 *$ 0.69 11.1% 16.1% PILT 17.13 27.13 JAN 12.50 0.50 *$ 0.50 12.7% 13.8% RNBO 21.94 20.88 JAN 17.50 0.81 *$ 0.81 15.6% 13.5% SATH 12.94 10.38 JAN 10.00 0.56 *$ 0.56 17.8% 12.9% SCOC 29.00 25.31 JAN 17.50 0.56 *$ 0.56 8.8% 12.8% ORCT 31.00 36.00 JAN 25.00 0.81 *$ 0.81 11.2% 12.2% IUSA 12.13 13.25 JAN 7.50 0.31 *$ 0.31 11.3% 9.8% AND 9.25 7.38 JAN 7.50 0.44 $ 0.32 13.4% 9.7% LOR 20.25 20.06 JAN 17.50 0.38 *$ 0.38 6.6% 9.6% EMIS 21.00 30.00 JAN 15.00 0.50 *$ 0.50 10.6% 9.2% DAVX 23.75 21.50 JAN 17.50 0.56 *$ 0.56 10.5% 9.2% CCUR 17.75 16.56 JAN 12.50 0.50 *$ 0.50 12.3% 8.9% SCOC 17.88 25.31 JAN 12.50 0.44 *$ 0.44 10.9% 7.9% MSGI 19.00 19.88 JAN 12.50 0.38 *$ 0.38 9.1% 7.9% ENMD 28.44 29.31 JAN 20.00 0.44 *$ 0.44 7.2% 7.8% CS 28.50 23.44 JAN 20.00 0.56 *$ 0.56 8.9% 7.8% PRRC 23.56 21.81 JAN 17.50 0.56 *$ 0.56 10.6% 7.7% INSO 32.13 32.75 JAN 20.00 0.75 *$ 0.75 10.4% 7.6% WAXS 20.50 18.44 JAN 15.00 0.38 *$ 0.38 8.5% 7.4% NETS 28.00 26.00 JAN 20.00 0.50 *$ 0.50 8.2% 7.1% EGRP 35.56 26.69 JAN 25.00 0.56 *$ 0.56 7.3% 5.3% MMWW 37.38 27.69 JAN 22.50 0.50 *$ 0.50 6.3% 4.5% *$ = Stock price is above the sold striking price. Comments: Andrea Electronics (AND), Shop At Home (SATH), Autoweb.Com (AWEB) and E*Trade (EGRP) are consolidating near the sold strikes. 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 ADG 13.13 JAN 10.00 ADG MB 0.25 10 9.75 8.7% AFCI 37.13 JAN 27.50 AQF MY 0.50 260 27.00 6.3% AMD 33.00 JAN 25.00 AMD ME 0.38 6,932 24.63 5.4% ASFT 18.13 JAN 12.50 AGQ MV 0.25 60 12.25 6.4% CNCX 30.00 JAN 22.50 QXF MX 0.38 333 22.13 5.9% CNQR 29.50 JAN 22.50 COQ MX 0.94 244 21.56 13.7% ENMD 29.75 JAN 22.50 QMA MX 0.31 366 22.19 5.0% GSTRF 35.56 JAN 25.00 YVQ ME 0.44 1,608 24.56 5.8% Sequenced by ROI Stock Price Mon Strike Option Opt Open Cost ROI Opt Sym Price Symbol Bid Intr Basis Expired CNQR 29.50 JAN 22.50 COQ MX 0.94 244 21.56 13.7% ADG 13.13 JAN 10.00 ADG MB 0.25 10 9.75 8.7% ASFT 18.13 JAN 12.50 AGQ MV 0.25 60 12.25 6.4% AFCI 37.13 JAN 27.50 AQF MY 0.50 260 27.00 6.3% CNCX 30.00 JAN 22.50 QXF MX 0.38 333 22.13 5.9% GSTRF 35.56 JAN 25.00 YVQ ME 0.44 1,608 24.56 5.8% AMD 33.00 JAN 25.00 AMD ME 0.38 6,932 24.63 5.4% ENMD 29.75 JAN 22.50 QMA MX 0.31 366 22.19 5.0% Company Descriptions ADG - Advanced Communications Group $13.13 Advanced Communications Group is a regionally competitive local exchange carrier that provides integrated communications to business and residential customers located in the Midwestern region of the United States. ADG's products include local, long distance, Internet access, cellular and enhanced voice and data services. Advanced also publishes yellow pages directories in popular markets. Recent speculation on the message boards with the possibility of an SEC approval concerning the name change to "WorldPages.com" and new stock symbol. We simply favor the bullish technical pattern. JAN 10.00 ADG MB Bid=0.25 OI=10 CB=9.75 ROI=8.7% Chart = http://quote.yahoo.com/q?s=ADG&d=1y **** AFCI - Advanced Fibre Communications $37.13 *** Own This One! *** Advanced Fibre is a manufacturer of telecommunications systems for the "local loop" between telephone service users and public telephone networks worldwide. AFC's flagship product is the UMC 1000 Third Generation Digital Loop Carrier (3GDLC). The UMC 1000 can be installed in a variety of network configurations to support the varying geographic distribution of subscriber bases. There are thousands of these systems installed in countries around the world. Recent bullish analyst comments on TSC and CNBC. Quarterly earnings are expected to be favorable and the long-term outlook is excellent. JAN 27.50 AQF MY Bid=0.50 OI=260 CB=27.00 ROI=6.3% Chart = http://quote.yahoo.com/q?s=AFCI&d=1y **** AMD - Advanced Micro Devices $33.00 *** Keeping Intel Honest *** Advanced Micro Devices offers a wide variety of industry-standard integrated circuits (ICs) that are used in many diverse product applications such as telecom, data and network communications equipment, consumer electronics, personal computers (PCs) and workstations. The company is engaged in the three principal areas within the digital IC market; memory circuits, logic circuits and microprocessors, through two operating segments, AMD and Vantis. AMD's high-performance Athlon chip is giving Intel a run for its money in the high-end market and strong sales and margins point toward a better-than-expected quarter. Gateway has just announced they will again use AMD chips in their computers. JAN 25.00 AMD ME Bid=0.38 OI=6,932 CB=24.63 ROI=5.4% Chart = http://quote.yahoo.com/q?s=AMD&d=1y **** ASFT - Artisoft $18.13 *** (Almost) Free Money *** 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. Their products have received more than 100 industry awards including "Product of the Year", "Best of Show" and "Editors' Choice" by a number of publications. Their flagship TeleVantage is a powerful software-based PBX and an impressive IP Telephony system that uses off-the-shelf computer, wiring and telephone hardware. The long-term technical outlook is favorable (although there is little chance we will own this stock). JAN 12.50 AGQ MV Bid=0.25 OI=60 CB=12.25 ROI=6.4% Chart = http://quote.yahoo.com/q?s=ASFT&d=1y **** CNCX - Concentric Network $30.00 *** New 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. New upgrades and a stake in a future IPO (Register.com) provides for favorable speculation with a cost basis at support. JAN 22.50 QXF MX Bid=0.38 OI=333 CB=22.13 ROI=5.9% Chart = http://quote.yahoo.com/q?s=CNCX&d=1y **** CNQR - Concur Technologies $29.50 *** Own This One! *** Concur Technologies provides Intranet-based employee-facing software applications that extend automation to employees throughout the enterprise and to partners, vendors and service providers in the extended enterprise. Their Xpense Management Solution and CompanyStore products automate the preparation, approval, processing/data analysis of travel and entertainment expense reports and front-office procurement requisitions. The company's EmployeeDesktop product provides a business portal through which corporate customers and third parties can deliver other information and services to employees. B2B is hot and one way to enter a position at a great price is with a naked-put. JAN 22.50 COQ MX Bid=0.94 OI=244 CB=21.56 ROI=13.7% Chart = http://quote.yahoo.com/q?s=CNQR&d=1y **** ENMD - Entremed $29.75 *** An Old Favorite *** Entremed engaged primarily in the research and development of biopharmaceutical products that address the role of blood and blood vessels in the prevention and treatment of a broad range of diseases. Their core technologies include the development of products intended to inhibit the abnormal growth of new blood vessels associated with cancer and certain causes of blindness, and a device designed to enhance the ability of blood cells to deliver oxygen to organs and tissues. The latest spike in price occurred after Entremed exercised its stock repurchase option from Bristol-Myers. ENMD always provides favorable speculation but the issue must be researched thoroughly (and ownership must always be a consideration). JAN 22.50 QMA MX Bid=0.31 OI=366 CB=22.19 ROI=5.0% Chart = http://quote.yahoo.com/q?s=ENMD&d=1y **** GSTRF - Globalstar Telecommunications $35.56 Globalstar Telecommunications is a general partner of Globalstar L.P. (Globalstar), a development stage limited partnership which is designing, constructing, and will operate a worldwide, low earth orbit satellite-based digital telecommunications system. Globalstar has launched almost one half of the 52 satellites that will complete its full constellation. Globalstar intends to offer low-cost, high quality telecommunications services, including voice services, messaging and paging services, remote monitoring, facsimile and other data services, including position location. Loral Space & Communications (LOR) is the managing general partner of Globalstar, with a majority ownership. Lots of recent news and announcements on this issue and in the satellite industry and we have had a number of successful plays in this group. The recent consolidation provides us with an excellent entry opportunity. JAN 25.00 YVQ ME Bid=0.44 OI=1,608 CB=24.56 ROI=5.8% Chart = http://quote.yahoo.com/q?s=GSTRF&d=1y ************************ SPREADS/STRADDLES/COMBOS ************************ A Technical Rally Or Speculative Bubble? Friday, January 7 Investors ignored stronger-than-expected employment data and corporate profit warnings as they drove the blue-chip index to record levels. The Dow set a new closing high at 11,522 while the Nasdaq composite index climbed 155 points to 3882. The S&P 500 index was up 38 points at 1441. Overall breadth was positive with advances beating declines 2,267 to 854 and volume on the Big Board was extremely heavy with 1.2 billion shares traded. The long bond was up 1/32, bid at 94 12/32, where it yielded 6.54%. Thursday's new plays (positions/opening prices/strategy): Globalstar GSTRF MAR35C/FEB40C $3.25 debit diagonal M-S Group MSGI MAY12C/FEB22C $7.00 debit diagonal Our new "reader's request" plays were less than outstanding performers in today's session. Globalstar opened $4 lower and we quickly reduced the target debit. The stock traded in a relatively small range considering the recent activity and eventually closed down $2.12 at $35.50. Marketing Services Group also moved lower during the session, ending just below the $20 mark on light volume. Favorable entries were available on both positions. Portfolio plays: The market rebounded with authority today as investors vied for a number of recently under-performing issues in a classic cyclical rotation. The fear of inflation and higher interest rates has pressured equities in the past week and today's bearish employment data was expected to weaken stocks further. Non-farm payrolls surged in December, finishing well above expectations on strength in retail and government employment. Unemployment was unchanged but average hourly earnings rose 0.4%, also above the consensus estimate. In the end, the jobs report had little effect on investors and analysts now say the bond market has factored in a 25-50 basis point hike in the federal funds rate. Regardless of the incredibly optimistic buying spree, traders remain skeptical about today's upside move and many believe that another correction will occur near the Fed meeting. Technology stocks regained lost ground as bargain hunters moved back into the recently battered sector but a significant amount of money flowed into health-related issues. Investors favored managed care, biotechnology, medical devices and pharmaceutical issues. The rally was based in part on expectations that drug companies will report solid fourth-quarter results later this month. Investors are also anticipating a well-known healthcare conference next week in California, traditionally a forum for important biotech product news. Our top position in this group was Medtronics (MDT), up $4.25 to a recent high near $42. The move pushed our LEAPS/CC's play well above the sold strike and comfortably into profitable territory. One of our new straddle positions, Jones Pharmaceuticals (JMED) also rallied with the group. The stock climbed $3.68 to close at a new all-time high near $48. The straddle credit is $11.75 on $8.12 invested after just three weeks in play. Big-cap companies dominated the headlines in today's session and our long-term plays were the best performers in the portfolio. Motorola (MOT) and Proctor and Gamble (PG) were the top movers, both up almost $10 in heavy trading. Other well known stocks; Adobe Systems (ADBE), Johnson & Johnson (JNJ), General Motors (GM), Solectron (SLR) and Sun Microsystems (SUNW) also participated in the rally. The Murphy's Law "Play Of The Day" was our recent loser American International Group (AIG). The stock came rambling back from the depths with a surprising $8 move, closing just short of our original target price at $110. The question now is whether the issue can maintain the today's bullish trend. In the small-cap portfolio, Peoplesoft (PSFT) again led the way with a $3 rally to close near $25. The company's share value is moving higher on speculation of favorable earnings. The three C's; Cohu (COHU), Concentric (CNCX) and Cadence Design (CDN) also had solid rebounds in today's session as technology issues recovered from recent losses. Cyclical stocks in this group performed well with both Navistar (NAV) and Delta And Pine Land (DLP) continuing their recent rallies. Regardless of the overall market outlook, we expect the small-cap issues to continue higher in the coming weeks. Questions & comments on spreads/combos to Click here to email Ray Cummins ********* NEW PLAYS ********* PCMS - P-Com $10.06 *** On The Move! *** P-Com develops, manufactures, and markets network access systems for the worldwide wireless telecommunications market. The point- to-point, spread spectrum, and point-to-multipoint radio links provided by P-Com are designed to satisfy the requirements of cellular, personal and corporate communications services, public utilities and local governments. The company also provides a comprehensive group of network services including planning, program management, path design, and installation. The wireless broadband industry is truly in its infancy and is expected to grow exponentially in the next two years. In addition to the incredible demand in the United States, the overseas market will enjoy an incredible expansion. In Europe, telecommunications companies will use the technology to fill in networks where they don't have fiber optic lines. The deficiency in infrastructure will create a large demand for wireless data and P-Com will be one of the leading-edge companies that benefits from that growth. Technically, P-COM has moved to a new 52-week high on increasing volume as this speculative market continues to interest investors. The small disparity in option pricing will allow us to participate in a conservative, low-cost position with excellent risk/reward characteristics. PLAY (conservative - bullish/diagonal spread): BUY CALL MAY-7.50 PQP-EU OI=936 A=$4.00 SELL CALL FEB-10.00 PQP-BB OI=2323 B=$1.81 INITIAL NET DEBIT TARGET=$2.00 TARGET ROI=25% Chart = http://quote.yahoo.com/q?s=PCMS&d=3m **** HRC - Healthsouth $5.81 *** LEAPS/CC"S *** Healthsouth provides outpatient and rehabilitative healthcare services through its inpatient and outpatient rehabilitation facilities, surgery centers, diagnostic centers and medical centers. The company had nearly 2,000 locations in 50 states, the United Kingdom and Australia, and is the nation's largest provider of rehabilitative health care and outpatient surgery services. Patients receive treatment at its outpatient centers, imaging services at its diagnostic centers, and treatments for work-related illnesses and injuries at its occupational medicine centers. The company also contracts with major insurers, HMOs, and large corporate employers. The company is partnering with Healtheon/WebMD Corporation to form a sports medicine website. We found this issue while searching for this week's conservative covered-calls and although there hasn't been much positive news in this group, a number of issues appear to be consolidating in long-term basing patterns. The industry is beginning to rebound from a long-term slump and the recent volume surge in HealthSouth suggests the January effect may be drawing some interested buyers to the issue. A number of positive technical divergences may be signaling a future upside resolution and a new bullish character. In any event, the ample time frame and favorable option premiums offer us an excellent opportunity to profit with little risk of loss in this bullish calendar position. PLAY (conservative - bullish/calendar spread): BUY CALL JAN01-7.50 ZHC-AU OI=2191 A=$1.43 SELL CALL FEB00-7.50 HRC-BU OI=86 B=$0.25 INITIAL NET DEBIT TARGET=$1.06 TARGET ROI=100% - And A Unique Short-term Play - PLAY (speculative - bullish/calendar spread): BUY CALL MAR-7.50 HRC-CU OI=2484 A=$0.43 SELL CALL FEB-7.50 HRC-BU OI=86 B=$0.25 INITIAL NET DEBIT TARGET=$0.12 TARGET ROI=100% Chart = http://quote.yahoo.com/q?s=HRC&d=3m ********************* More Reader's Request ********************* I had a number of Emails for bearish positions after Friday's market-wide rally. Here are some favorable credit-spread plays on stocks that have failed miserably during the previous run-up. These plays are based on the current price or trading range of the underlying issue and the recent technical history or trend. The probability of profit from these positions is also higher than other plays in the same strategy. Current news and market sentiment will have an effect on these positions so review each play individually and make your own decision about the future outcome of the stock price. **** LGTO - Legato Systems $61.36 *** The BMCS Effect *** Legato Systems develops, markets and supports advanced enterprise strength storage management software for the network computing market. The core elements of the company's storage solutions include scalability, heterogeneity, performance, ease of use and central administration. Legato's storage management solutions have been designed for both network administrators and end users, and can be accessed through a number of graphical user interfaces, including Windows, Windows NT and Motif. Their flagship product, Legato NetWorker, offers a family of easy-to-administer storage management applications that protect network-wide data across enterprises consisting of multiple operating systems such as NetWare, Windows NT, Solaris, HP-UX, AIX, Macintosh, OS/2 and DOS/Windows. The Company maintains offices around the world. The recent demise of BMC Software has hurled the sector into a downward spiral. Last week the company reported that earnings for the quarter would fall well short of expectations, causing a sharp sell-off in its stock. BMC said the earnings shortfall was mainly due to disappointing revenues from software license sales in North America where a customary surge in large orders during the final weeks of the quarter failed to materialize. The stock dropped $30 in one day and the group hasn't been the same since. Based on the outlook for the industry, the trend should continue for at least another two weeks. PLAY (very conservative - bearish/credit spread): BUY CALL JAN-80 EQN-AP OI=789 A=$0.81 SELL CALL JAN-75 EQN-AO OI=1263 B=$1.12 INITIAL NET DEBIT TARGET=$0.38 ROI=8% (two weeks) - or - PLAY (conservative - bearish/credit spread): BUY CALL JAN-80 EQN-AP OI=789 A=$0.81 SELL CALL JAN-70 EQN-AN OI=469 B=$2.00 INITIAL NET CREDIT TARGET=$1.31 ROI=15% (two weeks) Chart = http://quote.yahoo.com/q?s=LGTO&d=3m **** ALLR - Allaire Corporation $130.25 *** Time For A Break *** Allaire develops, markets and supports software for a wide range of Web development, from building static Web pages to developing high-volume, interactive Web applications. Allaire's products interoperate with emerging Web application technologies as well as key enterprise information systems technologies. Their unique services enable organizations to link their information systems to the Web, as well as develop business applications in areas such as electronic commerce, content management and web-site personalization. Allaire software also enable Web developers to build high-volume, interactive Web sites and Web applications, including applications for E-commerce and content management. They have two primary product brands, HomeSite, an HTML design tool, and ColdFusion, an integrated Web development environment and Web application server product line. Allaire enjoyed an incredible run in the fall technology rally, climbing from the $50 range to a recent high near $180 on the heals of surging Internet giants. Now the issue appears to be consolidating to a short-term support area near $120. Analysts have not lost interest in the software company but for now they are less than enthusiastic about the issue. Based on the current technical indications, they may be justified in their pessimism. PLAY (aggressive - bearish/credit spread): BUY CALL JAN-175 AUR-AO OI=20 A=$1.68 SELL CALL JAN-165 AUR-AA OI=65 B=$2.43 INITIAL NET CREDIT TARGET=$0.88 ROI=12% Chart = http://quote.yahoo.com/q?s=ALLR&d=3m **** VYTL - Viatel $45.25 *** Rolling Over? *** Viatel is a communications company providing high quality, competitively priced, long distance communication and data services to end users, carriers and resellers. Their products include switched and dedicated long distance services, 1-800 services, calling cards, domestic and international private line, debit cards, conference calling, advanced billing systems, enhanced fax and data connections and facilities management. The operate in a number of venues around and their principal services include ViaDirect, ViaDirect Plus, ViaCall Express, ViaCall, ViaISDNFax, ViaWorldFax, ViaConnect, ViaGlobe, ViaCard, ViaLink, and Via0800. There has been relatively little news on this issue since the merger with Destia Communications. Other than the recent sale of $63 million of senior notes, the company headlines have been rather quiet for a major long-distance carrier. From a technical point of view, the stock is weakening in its current trend. VYTL is below its 10-day moving average by a substantial margin and the MACD indicator, RSI and moving average ratios all exhibit bearish signs. The stock has fallen steadily over the last week and the majority of indicators suggests that VYTL will continue to pull back in the coming days. PLAY (very aggressive - bearish/credit spread): BUY CALL JAN-55 VQL-AK OI=195 A=$0.88 SELL CALL JAN-50 VQL-AJ OI=668 B=$1.68 INITIAL NET CREDIT TARGET=$1.00 ROI=25% Chart = http://quote.yahoo.com/q?s=VYTL&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. 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