The Option Investor Newsletter Tuesday 1-11-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 1-11-2000 High Low Volume Advance Decline DOW 11511.10 - 61.10 11663.10 11502.70 1,014,040k 1,013 2,083 Nasdaq 3921.19 - 128.48 4066.66 3904.82 1,682,735k 1,592 2,572 S&P-100 785.25 - 5.67 795.67 783.06 Totals 2,605 4,655 S&P-500 1438.56 - 19.04 1458.66 1434.42 35.8% 64.2% $RUT 492.61 - 9.28 501.91 492.56 $TRAN 2949.56 - 30.94 3017.18 2948.44 VIX 23.93 + 1.42 24.36 22.19 Put/Call Ratio .47 ************************************************************* Deja Vu? I hope this is not a repeat of January 1999. After setting a new high on the Dow yesterday, interest rate pressures finally caused investors to step back and reconsider the future. I hope we are not going to relive last January. Coincidentally, Yahoo! announced earnings after a big pre-earnings move, announced a 2:1 split for Feb-8th and then tanked, taking much of the Internet sector with it. Maybe it is just the way things line up in January that makes the markets rocky. The Fed does not like to raise rates in December and the first meeting of the year is late January, early February. Before this important meeting is non-farm payrolls, CPI, PPI and Retail Sales. The market is in rally mode with all the new year retirement cash and earnings are on the way. With all the positive market events all leading up to a negative Fed event something has got to give. Add to that the +85% gains for the Nasdaq in the last twelve months and the Dow at new record highs and the possibility of profit taking is close to 100%. After spending most of the day in record territory the Dow finally caved in to the soaring bond yields and coming CPI and PPI reports. It was a valiant effort but the selling on the Nasdaq and the rising interest rates proved too much to overcome. The Nasdaq never had a chance today. Many tech and Internet stocks gapped down at the open and never saw positive ground. While the bears are painting pictures of gloom and doom the real picture is more likely just profit taking from the almost +400 point gain since last Friday's low. The Dow had held and even had some interest rate sensitive stocks were rebounding some until the fear of darkness descended on traders. As the Nasdaq plunged to the lows of the day just before closing many feared that the YHOO earnings could be a pivotal event. The expectations were so high that anything else would be a disappointment. Traders sold off anything Internet in the last 45 min of trading but both indexes came to a dead stop on their current support levels. 3900 on the Nasdaq and 11500 on the Dow were hit almost simultaneously and both came to a dead stop with only a slight rebound. There was no end of day rally or hordes of buyers coming in off the sidelines. The event that prompted all the caution was of course the Yahoo earnings. YHOO was expected to earn $.15 but the whisper numbers were in the $.20 to $.22 cent range. Also rumored was a 4:1 split. Yahoo did announce record earnings posting a $.19 gain but they missed even the lowest whisper number and the split was only a 2:1. (my how traders today are fickle, only a 2:1?) Yahoo is now experiencing the Dell syndrome. More shares equal the need for exponentially more revenue to beat estimates and make the whisper number from quarter to quarter. Even stellar numbers like Yahoo turned in today, more than double the same quarter last year, were not enough for investors. In January last year Yahoo repeated almost exactly the same results with a stock split and still tanked from $240 to $130 before the split run began. The Internet sector followed YHOO down. CMGI dropped from a high of $77 prior to YHOO earnings to a low of $40 only two weeks later. Another battle being waged by the Internet bulls and bears is the PE war. AOL successfully used its very high PE Internet stock to buy a real business with real earnings and a PE less than 10% of its own. On one hand, this is good. Time Warner felt like AOL stock was a good value and were willing to trade. The bad news, AOL is now not just an Internet company and there is a tug of war between traders as they try to decide how the new company should be valued. TWX had a PE of 12 and AOL a PE of 117. The combined entity will end up being valued somewhere in the middle. If the middle is 50-60 then AOL could be trading in the $50 range or less soon. Amazing how valuation math works. Is AOL worth less today just because it now has twice the hard assets and access to 100 million paying subscribers, than it was last week when it only had 21 million subscribers? Is it worth less now that it has its own cable/broadband network? In my mind it should be worth more. The combined entity will be a monster marketing machine. Couple that with the new AOL/TV product announced this week and look at the millions of new eyeballs who will be clicking and buying soon. Yet, because it now controls hard assets which can be valued by historical norms the Internet valuations are being called into question. This is putting pressure on the entire Internet sector as traders rethink the Internet Valuation model. I think when cooler heads prevail there will be a rush to buy AOL as a multimedia giant with a huge Internet footprint and a profit model that works. The Fed is ahead and there is already trouble brewing. Last night a Fed head started the interest rate hike ball rolling with a hawkish speech and by doing so fired the first warning shot towards the markets. Normally the Fed heads go on a whirlwind speaking tour just before a rate hike to talk up the need for a hike. You can lock your doors and board up your windows but you cannot escape the coming events. As if the CPI/PPI was not enough trouble on Thr/Fri, Alan Greenspan is scheduled to give a speech on Thursday night and it may not be pretty. Many analysts think there is not enough votes on the committee to raise rates a full +.50% on Feb 2nd and they expect Greenspan to use his speaking events to pound the markets and therefore accomplish the same thing. The last time the Fed raised rates +.50% in one meeting was just before the Oct 97 crash. With the market extended so far recently there are several board members who think a +.50% hike could have the same result. We all know Greenspan can bring the markets to their knees if he wanted, so this will be a test of his restraint. Traders feel the market has already priced in a +.25% hike and feel that ONLY a +.25% hike now would be like firing a starter pistol on the road to Dow 13000. This wall of worry that is building could mean rocky and very volatile markets for the next two weeks. That boomerang came back. I have been telling you that eventually the interest rates would appear to haunt the markets and today was the day. I think this is just another excuse for profit taking but with yields over 6.67% and forecasted for 7% soon the markets are beginning to leak some cash. Liquidity however is alive and well. Trimtabs.com reported that +$10 bln in cash poured into stock funds in the last week and that money will have to be put to work. If they see the market sliding, they may wait. If they see others buying the dip then we could see a rush of cash from the sidelines. The breadth was terrible again today but about what you would expect on a down day. The bad news again was the volume. Strong volume on a down day is not a good omen. The Nasdaq posted 1.7 bln shares and the NYSE slightly over 1 bln. Traders would rather have seen light volume and lack of conviction. Several Internet stocks I watch dropped back to strong support at the close and in checking after hours trading they had not moved more than a dollar or so. This is positive considering the -$20 than YHOO dropped in after hours trading. It is possible that we could see a dip at the open and then a slow recovery but we are at a very dangerous point. A break much under 3900 on the Nasdaq could start a slide to 3700 or even lower. The two days of record gains by the Nasdaq may have just needed a release day but the magnitude of some of the drops makes me cautious. I urge you to be cautious tomorrow until we see which way this market is really going. Good Luck, 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. ****************************************************************** ********** STOCK NEWS ********** Digital Island Rises on Road Runner Pact By Cindy Christ In a move to expand its worldwide content delivery network, Digital Island (ISLD) formed a strategic partnership with Time Warner Corp.'s (TWX) Road Runner cable modem service, the company said Tuesday. The deal comes a day after AOL announced it was acquiring "old media" company Time Warner, reflecting an emerging trend for content distribution companies to align with leading content providers. http://members.OptionInvestor.com/stocknews/011100_1.asp ************** Market Posture ************** As of Market Close - Tuesday, January 11, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,800 11,550 11,511 Neutral 1.04 SPX S&P 500 1,340 1,400 1,439 BULLISH 12.03 OEX S&P 100 700 750 785 BULLISH 12.03 RUT Russell 2000 430 450 493 BULLISH 11.12 NDX NASD 100 3,200 3,800 3,544 Neutral 1.06 MSH High Tech 1,650 1,900 1,821 Neutral 1.06 XCI Hardware 1,250 1,425 1,373 Neutral 1.06 CWX Software 1,210 1,420 1,305 Neutral 1.07 SOX Semiconductor 640 660 717 BULLISH 12.21 NWX Networking 820 900 853 Neutral 1.07 INX Internet 665 800 723 Neutral 1.06 BIX Banking 645 690 517 BEARISH 11.30 XBD Brokerage 410 450 419 Neutral 11.30 IUX Insurance 625 650 588 BEARISH 11.30 RLX Retail 900 935 988 BULLISH 11.23 DRG Drug 380 400 364 BEARISH 12.07 HCX Healthcare 760 790 738 BEARISH 12.07 XAL Airline 180 190 152 BEARISH 5.21 OIX Oil & Gas 280 315 292 Neutral 1.06 Posture Alert 100-point swings on the Nasdaq are becoming a daily occurrence, as the technology index closed down -128 today after making a nice comeback from last week's sell-off. The Dow sold off near the end of the day as well, after breaking a new all-time-high earlier in the trading session. Losing sectors were abundant, and were led by the Nasdaq 100 (-4.66%), Internet (-4.47%), Semiconductor (-3.32%), and Software (-3.25%). There are no current changes in posture. *************** Market Sentiment *************** Tuesday, January 11, 2000 Where do we go from Here? Volatility continues to be the name of the game, as investors and traders continue to get whipsawed all around with no sense of direction. After last week's 10% Nasdaq correction (if we can call it that), CNBC had every bear in the world on their television show. Three days later, you couldn't find one bear in sight, as the bulls started to celebrate the major comeback with a vengeance. 100+ point moves are starting to become the norm, which is a scary thought. Below, we have a top 10 list for several categories on the Nasdaq, and as you can see, we have broken many records during the first seven trading days of the year. We are only seven trading days into the new-year and we have 3 of the greatest point decreases, and increases in history. Granted, percentage change is more important to us, but regardless, this is not a trend that we want to continue. In past history, extreme swings in volatility usually presage a change in trend. Back in October, we highlighted this same issue, and stated that the volatility (end of OCT.) was a positive for the bulls. Hindsight is 20/20, but the bulls had a pretty good run after we called that change in volume. The current volume and volatility (so far) is leaning in favor of the bears, and may be indicating a change in trend. The flip side is that if the Nasdaq can break into new highs soon, this volatility may be indicating a new leg in the current Bull Run. Regardless, with the major run we've had in this market, as well as the weakness being witnessed in the bond, we find it prudent to be taking a more cautious tone at this moment. DATE: VOLUME: DATE: POINT CHANGE: 12/9/99 1,781,618,331 1/4/00 -229.46 1/5/00 1,732,071,691 1/6/00 -150.41 1/10/00 1,731,743,600 8/31/98 -140.43 1/11/00 1,693,203,000 4/19/99 -138.43 12/8/99 1,671,003,270 1/11/00 -128.48 11/17/99 1,646,360,300 10/27/97 -115.83 12/15/99 1,641,956,336 9/23/99 -108.33 1/7/00 1,634,928,900 7/20/99 -98.11 12/10/99 1,616,740,374 2/9/99 -94.13 1/6/00 1,594,505,965 11/30/99 -85.21 DATE: %GAIN: DATE: %LOSS: 10/21/87 7.34% 10/19/87 -11.35% 9/8/98 6.02% 10/20/87 -9.00% 10/30/87 5.29% 10/26/87 -9.00% 10/29/87 5.20% 8/31/98 -8.56% 10/9/98 5.17% 10/27/97 -7.02% 9/1/98 5.06% 3/27/80 -6.15% 10/15/98 4.55% 4/19/99 -5.57% 10/28/97 4.43% 1/4/00 -5.55% 1/10/00 4.30% 10/5/98 -4.85% 6/16/99 4.27% 10/1/98 -4.81% DATE: POINT CHANGE: 1/10/00 +167.05 1/7/00 +155.49 1/11/00 +128.48 12/21/99 +127.28 9/3/99 +108.87 6/16/99 +103.16 10/20/99 +99.95 12/2/99 +99.07 2/11/99 +96.05 9/8/98 +94.34 These last seven days have been witness to extreme volatility in volume and price, which do seem to be favoring the bears. The Nasdaq failed to break into new ground, and based on technicals, is indicating a failed rally. With new highs in the bond, we would look for continued weakness in equities. Most professionals didn't expect the big drop we had last week, and most didn't expect the impressive rebound. Granted, Yahoo, Ariba, and AT&T all made positive news tonight, but where we go from here is anyone's guess, and ours is leaning towards the bear camp. 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 (23.93): 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 (6.677%): 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 30% 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 Tues Benchmark (1/7) (1/11) Overhead Resistance (785-810) 3.84 3.05 OEX Close 783.49 785.25 Underlying Support (760-780) 0.93 1.29 Underlying Support (730-755) 2.38 2.66 What the Pinnacle Index is telling us: Based on January 11, direct overhead is moderate, and underlying support is light but slowly gaining strength. Put/Call Ratio Friday Tues Strike/Contracts (1/7) (1/11) CBOE Total P/C Ratio .50 .47 CBOE Equity P/C Ratio .43 .36 OEX P/C Ratio 1.03 1.88 Peak Open Interest (OEX) Friday Tues Strike/Contracts (1/7) (1/11) Puts 700 / 11,939 700 / 11,157 Calls 780 / 8,250 790 / 7,469 Put/Call Ratio 1.45 1.49 Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Daily Results Index Last Mon Tue Week Dow 11511.08 49.64 -61.12-11.48 Nasdaq 3921.19 167.05 -128.48 38.57 $OEX 785.25 7.43 -5.67 1.76 $SPX 1438.56 16.13 -19.04 -2.91 $RUT 492.61 13.58 -9.28 4.30 $TRAN 2949.56 15.78 -30.94-15.16 $VIX 23.93 -0.69 1.42 0.73 Calls Mon Tue Week MSTR 238.50 40.88 -12.75 28.13 Announces new alliance! VIGN 201.66 14.69 11.78 26.47 VIGN shares on fire! AFFX 170.06 39.63 -22.81 16.81 Still positive this week EXDS 103.19 16.91 -0.84 16.07 New, breakout play CHKP 202.50 19.88 -9.25 10.63 CHKP never looked back INKT 99.94 15.50 -4.94 10.56 Joins in the party! ORCL 112.38 12.38 -3.38 9.00 Plethora of positive press INTU 82.38 11.56 -2.75 8.81 New, traders are in-to-it GMST 70.63 6.00 0.88 6.88 New, a market gem GMH 102.56 6.06 -1.50 4.56 Back in the good old days HGSI 164.81 17.25 -12.75 4.50 What a week for our play! SEPR 122.38 2.06 2.19 4.25 New, entry to hot sector GO 32.00 4.00 0.00 4.00 Hops on and rides the wave MOT 132.75 10.94 -7.00 3.94 Earnings next Monday! ADI 90.56 7.56 -3.88 3.69 Sets a new all time high EMC 109.50 6.38 -4.50 2.13 Continues where left off CSCO 106.50 3.94 -3.31 0.38 Holding back a surprise? CMTN 52.00 1.56 -1.56 0.00 CMTN is at a crossroads AMGN 66.44 4.13 -5.69 -1.56 Earnings January 20th! NOK 171.00 7.94 -10.94 -3.00 Nokia has solid support CMRC 184.00 11.25 -14.75 -3.50 Dropped, can't go through CMVT 135.25 0.13 -3.88 -3.75 If you needed a reminder XCED 41.75 -0.19 -3.81 -4.00 XCED gets down to business QCOM 144.44 9.38 -14.94 -5.56 Offers great opportunities BVSN 141.06 13.66 -20.94 -7.28 The ever so generous BVSN Puts WCOM 42.56 -0.38 -4.25 -4.63 Strong day doesn't help HNZ 38.69 -0.81 0.50 -0.31 Dropped, stuck in bottle CHINA 79.44 5.75 -2.81 2.94 On the edge of your seat? SCNT 70.25 4.00 -0.25 3.75 A little more time for SCNT SANM 96.63 9.56 -4.69 4.88 Headed toward 200-dma? TIBX 140.50 13.13 7.38 20.50 Dropped, too much positive ************ WOMANS WORLD ************ Caviar or Spam? Gee Whiz! This roller coaster is getting exhausting!! AOL surely helped us yesterday but boy, they surely re-thought the issue today! It's amazing how a little issue like valuations, can cause so much anxiety. I got slammed with the opening gap down this morning. I felt like creamed spinach. Served me well, though. Things had been going a little too well lately!! You know what it is, don't you? It's the PPI/CPI due later this week and the G-Man giving us a lecture on Thursday. That's when we find out if we are grounded or not. In anticipation of punishment, those bond yields escalated to their 2 year highs on the 30yr @ 6.67%. Anytime you are playing high flyers, it is important to pay attention to the bond. I knew better yesterday, when I saw the yield up, even though the rest of the whole investment world was flying high. I saw it, acknowledged it, thought about it, then like an idiot, I ignored it. Thank was dumb. Thank goodness I did sell a bunch trying to rollout out for day trading today. Well, that didn't quite work either. I stayed up late doing research, then over-slept an hour this morning. That's bad because when that happens it critically affects my coffee infusion period, which critically affects my early morning decisions.... all of which causes my sell finger to work in slow motion. I hate it when that happens! Just for fun, notice the difference a week makes from last Monday. Are you eating Caviar or canned Spam for either holding or taking profits? Anyway, I love to play gaps...when they work in my favor. But I guess every now and then, one must feed those friendly "Writers" of all those calls we buy. I'd rather buy them a little cheaper present though! Three good points can be made here that can be useful in the future. One, YHOO has a huge following before earnings. It has developed a pattern of beating expectations. As more and more people have read about its pattern and run up into earnings, more people have played it. I've noticed that people have started taking profits earlier and earlier. Three earnings back, huge intra-day runs occurring the day of earnings was not uncommon. Unfortunately, one doesn't know the pattern has changed, until a new pattern has developed and been tested. Next earnings, it might be a good idea to take some major profits daily, the week working into earnings. A new pattern has been noticed and tested in spite of great earnings. Another point is noticing how a stock in the same sector, can affect another stock. The exuberance over AOL certainly helped YHOO take off on Monday. Well shoot, it helped EVERYTHING take off yesterday! Which can then set you up for payback if one happens to sneeze. Suddenly the excitement about the merger, created concern over how internets would be valued post mergers. That was bad timing for YHOO. What's the big deal anyway? Internet players ignore valuations! That's what we've been trying to tell them all along. Uh Oh. The battle of the older versus younger MBA's is heating up. Add to that the third point, which is that darn bond yield and you have the derailing of a freight train for internets. Interest rates are more important to some, than others. I may be wrong but venture capital fund agreements are signed without worries over the daily fluctuations of the bond yield, where profitable companies may borrow working capital money from their banks. Then again, some have a drawer full of cash and don't need to borrow money to operate. YHOO has about $963 Million CASH ON HAND! Boy, could I ever go shopping on THAT credit card! Regardless, many react first and then think about things later. The rule of thumb for me, is that when I see the bond yield escalating, its time to aggressively take profits and lighten up for at least a day. Unfortunately, I broke my own rule yesterday and paid the price at the open today before exiting. Oh well, we are all works in progress. Right? Back to YHOO, "typically" it has a nice sell off after earnings since it has such a strong run up into earnings. Usually it is a good put play at that time. What confuses me this time is that YHOO has sold off $103 dollars from its high last week. That's a lot! It's at $370 in after hours as I write. But also remember, YHOO was roughly at $215 right before the announcement for its S&P inclusion at the end of November. Of course Y2K was in there helping too. So, $500 is a long way from $215 in 6 weeks. It makes sense to give some back. But how much will that be and did the good put play already take place? Somewhere in between, it will settle out, but I will be a little more careful entering large put contracts until I feel more confident with more downward pressure. I'll turn to sector and market watch for confirmation. The AOL news is exciting and interesting. For those who like leaps, this could be an interesting play for a long-term hold. I haven't checked the premiums but Wednesday afternoon may look even better and then there is Thursday. Question: AOL and Time Warner sure were quiet working out the details of the merger. Doesn't it make you wonder who else is out there working on similar deals we don't know about? I have exited most all positions except those I intend to exercise on option expiration Friday to take long shares. Due to the uncertainty later this week, I will probably wait this period out. I see no reason for any run-ups happening between now and Thursday. The potential risk seems to be on the down side to me. During this time, I will rebuild my watch list and look for good entry opportunities for earning's plays. Then it will depend on if G-Man is nice to us and the eco reports are in line. Several great companies are in split territory and earnings day always makes for a good announcement time. At this time, I don't plan on playing too many diverse plays because I still expect uncertainty to spook plays going into the February Fed meeting. Also, my nerves need a rest!! Renee White Contact Support ************** TRADERS CORNER ************** An Osmotic Technical Point of View Hello, my name is Harrison... I am an Option Trader and you might be one too! Oh ya, and a few words on AOL. Doesn't if feel good to be a Capitalist at times like these! NASDAQ is handing out prizes like a carny booth gone mad! If you played almost any of the plays from the Sunday update you are a happy camper! AOL, what can you say? Well I can say a lot! The analysts are falling all over themselves praising it. Pabulum, pure and simple. It was looking like the best short in quite awhile. It still may be, but, not for the faint of heart. AOL was walking across piranha infested waters on the back of alligators. Well they made it but, only to the island in the middle. With over 50 % of revenues coming from subscribers, they were in serious danger of seeing drastic revenue drops in the very near future. The problem that they face now is they have been fighting letting others gain true access to their users. They have been running a closed platform so to speak and fighting hard to keep it that way. For those of you who aren't AOL users, it is very difficult to even open attachments in email if it is not from another AOL user. Now in order to get approval for the merger, they are going to have to open up and let their users roam free. This is a 180 on this issue since just last month. Once they do, I predict that quite a few of them will jump ship. You can think of the AOL user as Jim Carrey in the movie The Truman Show (if you have seen it, you know what I mean, if not, go rent it, it is pretty good). The soap box just collapsed. Now for some fun stuff! OK, here you go. You might be an option trader: If at the dairy isle you dig all the way into the back of the case to find the carton that has just one extra day until expiration. If you regularly refer to January and February as Jan and Feb. If you regularly refer to the months in possessive tense i.e. December's, June's etc. If you have made more money in one day than some people make in a month. If you have lost more money in one day than some people make in a month. If you have made more money in one day than some people make in a year. If you have lost more money in one day than some people make in a year. If while in a conversation about investing when others are talking about there rate of returns for the year, you surpassed their yearly returns in one month. If you are reading this! If any of you would like to contribute any more of these gems, please let me know. I will post them with copious attribution. I got almost everything that I wanted for Christmas this year except for that darn crystal option ball. I even left out cookies and a bottle of Jack Daniel's just to be safe. Both were gone but, no ball. I am going to have to talk with the fat guy! My only New Year's resolution this year was to quit mumbling when someone asked me what I do. Be glad that you that you figured out that you are an option trader! Well, this week ought to be fun! Heck, for that matter this year ought to be fun! This kind of market is what we have been waiting for! Hello, my name is Harrison. I am an Option Trader! Happy Trading! Contact SupportHarrison"Fortunate few are those that greet life on their own terms" I was sitting in my rocking chair when I came up with that gem. I was staring at the quote screen! PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** CMRC $184.00 -14.75 (-3.50) Yesterday CMRC topped out at $202 and couldn't push through the resistance. This disappointment coupled with today's negative performance impels us to exit the momentum play tonight. There was some news surrounding CMRC however nothing to effect trading. Wellpoint health Networks (WLP) chose Commerce One's solution to streamline its purchasing and planning process and Connected Corp inked a deal to manage and protect CMRC's PC assets. PUTS: ***** HNZ $38.69 +0.50 (-0.31) You know that frustrated feeling that you get when you just can't get the ketchup out of the bottle? No matter how hard you pound on the bottom, it just won't budge. Admittedly, that is how we are feeling about the $38 level on this play. Looking back, HNZ is known for spending a good deal of time at dollar levels along its decline. The question becomes, is the drop going to be worth the wait? (I am talking about the stock, not the ketchup). We don't think so. There are so many big movers out there, it is hard to justify keeping a play that has been trading in such a tight range for so long, and therefore, we are saying so long to our play on HNZ. TIBX $140.50 +7.38 (+20.50) Ouch! TIBX headed as low as $112 yesterday and then managed to find its legs and traded all the way up to $135. TIBX settled for a close just over $133 with volume double the daily average. TIBX opened up today and quickly climbed to tag a high of $148 for the day before settling back to flirt around $140 for the remainder of the session. Again, this move was backed by good volume. What happened? There were several factors that worked together to throw a wrench in our put play. One factor was an upgrade by MSDW on Monday of the Reuters Group Plc to a Strong Buy, which was based on a higher asset valuation of TIBX. Another factor was, as we mentioned in our initial write up, the near term support of TIBX's 50-dma at $117; it held. And of course, there was the announcement of the largest mega-merger ever between TMX and AOL, which helped drive the NASDAQ to new highs. There were simply too many positive happenings to cushion TIBX and keep our put play from even really getting started. ***************** PICK NEWS - CALLS ***************** BVSN $141.06 -20.94 (-7.28) Haven't we been here before? The ever so generous BVSN wants to make sure that everyone gets the chance to play. BVSN made a big gap up at the open on Monday and moved up nearly $14 for the day. Today, BVSN opened down slightly and traded as low as $140. We believe that we have been granted more opportunities for potential points of new entry. BVSN has some immediate support at $140 backed with further support at $138 and $130. We may encounter some resistance at $150. BVSN's 10-dma, which is currently at $161.75, looks to be providing resistance as well. Should $140 hold, we could be cleared for another nice run up. On Monday, BVSN announced that they had entered into an agreement with Central Design Systems (CDSI) and will be providing end-to-end management technology to CDSI's e-business solution offering. QCOM $144.44 -14.94 (-5.56) QCOM is holding on well for the kind of markets we are dealing with. Trading on Monday was great for the Nasdaq and therefore great for QCOM. You may recall it bounced from support at $133 on Friday and closed just shy of the old level of $160. Today's markets brought QCOM down with them but we see QCOM sticking this out and going on an earnings run. Earnings are due out on the 25th. So at this point there are different support levels and opportunities to jump in on the dips. The support at $140 is practically what QCOM closed at so if the markets are dip again tomorrow morning, that would be a good entry level. If it is stronger than "a dip", look for QCOM back at $133. Resistance and the 10-dma are both hanging out around $160. QCOM made an agreement with Hitachi today to develop and commercialize a next-generation mobile data communication system. MSTR $238.50 -12.75 (+28.13) In this volatile market things change with amazing quickness. MicroStrategy began the week with a very strong rally into new high ground. After gaping above resistance at $217, the stock rallied all the way to $262, shattering the old high of $230. Positive news and one of the biggest comebacks in NASDAQ history were responsible for the strong move. MSTR announced a new business alliance with Primark Corp. to develop and syndicate premium financial information services for investors on the Stretegy.com Personal Intelligence Network. Today's action was understandably weak. MSTR's drop today did not violate any support levels. Look for support and a good entry point at $231. If MSTR gathers strength look to enter a bullish position if it can trade above $251. One word of caution. This stock moves on very little volume. In the first half hour of trading the stock had a 14 point range on only 26,000 shares! If you are going to trade the options on this stock we recommend that you have access to real time quotes and do not place market orders. AFFX $170.06 -22.81 (+16.81) Human Genome Project stocks were the big winners last week and that continued on Monday. However, this sector was one of the first to suffer profit- taking today and AFFX was no exception. We are encouraged by the fact that AFFX is still positive for the week. A very interesting technical picture has developed in the past two days. A double top was established yesterday at $195.50. A shorter-term double bottom was made the past two days at $167. So what does it all mean? Primarily it means that these two price levels are the key pivot points. If you want to trade the range buy in the mid to low $160's and sell in the low $190's. If the stock takes out today's high and opening price of $186, you could get a run to $195. If AFFX cannot convincingly trade above $195 you might want to take profits. On the downside, if AFFX trades below $167, look for it to close the gap all the way down to $153 before initiating a bullish position. In the news, Novartis entered into an agreement with AFFX whereby, Novartis now has purchased broad access to AFFX's gene research equipment and software. XCED $41.75 -3.81 (-4.00) Not the best of starts for this call play. Although the first recommended purchase point of $43 seems to have been a little high and the stock failed to rally after taking out the old high of $47.50, we still believe that this stock has profit potential to the upside. A consolidation in the $40-$42 range could be just the tonic this stock needs to gather strength for another run. If the stock opens in this range, a call position could be initiated. If it opens much lower wait for it to go to $36 before going long. If it rallies on the open you can buy it above $46, if it falls short of that mark wait for a pullback. On Monday, XCED made the anticipated announcement of divesting its holdings in its old Water-Jel business. The move allows XCED to fully concentrate on its Internet and Business development services. GMH $102.56 -1.50 (+4.56) Back in the good old days a channeling stock would take a little while before trading between the upper and lower bands. Yesterday, GMH did it one grand gesture! With an open of $103 and a follow through to $105.68, GMH fell just short of our upper band target of $106- $107. It can still get there. Today was an "inside" day with a range of $101.68 and $104. These numbers are important in determining the next move. A trade above $104 should take us into new high territory. A trade below $101.68 could take us back to the lower band at $96. Place trades and stops accordingly. Pegasus sued to be able to join a lawsuit against GMH over fees and rate rebates. The original suit was filed in August by affiliate members of NRTC (a group of DIRECTV providers) and seeks class action status. AMGN $66.44 -5.69 (-1.56) Hopefully subscribers long AMGN took their profits when AMGN traded below $70 today, an important short-term support level mentioned in Sunday's write-up. After dropping below $70, profit-taking accelerated, dropping the stock all the way back to $64.13 before finding support. If the market can settle down and start to move higher, then earnings traders may start bidding shares back up to the announcement date of January 20th. It would probably take a trade above $70 to get traders to start buying enthusiastically again. Otherwise you can buy AMGN if it stays above $64, today's low. On the downside, AMGN should find some support first at $62 and then $58. AMGN dropped today despite the fact that industry colleague and fellow heavyweight, Biogen, announced that it will beat estimates. BGEN was also down today. ADI $90.56 -3.88 (+3.69) Yesterday ADI obviously had taken enough of a breather and opened strong at $90, bypassing its first line of opposition at $88. By the close ADI had tacked on $7.56 and penetrated its all-time high setting a new record at $94.75 confirming momentum was not dead. If the past two trading sessions are any indication, near-term support could establish itself at $90 just above the rising 5-dma ($88.65) and 10-dma ($89.13). If there's a slip under this higher level, confirm a bounce off $87-$88 before starting another position. In the news, ADI announced it's the leading seller of over 1 mln ADSL chipsets on the open market with a 60% dominant market share. ADI also boasts its ADSL chipset have more interoperability with more ADSL systems than any of the competition. GO $32.00 +0.00 (+4.00) Yesterday the bullish momentum surrounding the American Online (AOL) and Time Warner (TWX) deal rippled through the Media and Internet stocks. GO hopped on a board and rode the wave to an extraordinary $4.00, or 14.29% advance! Volume too was strong with 3.36 mln shares exchanging hands. Today the same robust trading activity carried on as GO maintained its higher share price. Near-term support is at $32 and also $30, with the 10-dma trailing down at $27.63. Any dip under this level signals the momentum may be running out of steam. Remember this play is primarily news-driven, but technically it still has promise. ORCL $112.38 -$3.38 (+9.00) It's hard to complain about a $3.38 loss on day when the NASDAQ lost 128 points, especially since it gained $12+ yesterday. Volume remains strong at 1.5 times the ADV, which tells us that buying interest is still present. If you look at the opening price, ORCL lost just $0.13 in today's trading - no cause for alarm here. It's a good sign. Today, support was found at $109.50, but is a bit stronger at $105 (previous resistance), then $102.50. The market could be jittery through the end of the week in light of PPI, Greenspan, then CPI beginning Thursday morning. Interest rates are a big worry right now. The point is to target-shoot your entry according to your risk profile. ORCL is proving itself to be the software partner of choice in Internet applications and isn't going away anytime soon. A 2:1 split that takes place after the close on Jan 18th is driving the current run - a plethora of positive press releases (say it 3 times real fast!) doesn't hurt either. CSCO $106.50 -$3.31 (+0.38) Lucent's flaws are CSCO's opportunity. While CSCO doesn't report earnings until Feb 8th, CSCO's defense of and refusal to change analysts' estimates following the LU news leads us to believe that they may be holding back an earnings surprise. CSCO is also in split territory again, though not likely to influence any current buying decisions. Over the past two days, support can be found at $106; $102 after that. Resistance is holding firm at $110. It's starting to look like one of those ascending triangles, or pennant on the chart, don't you think? Volume has fallen back slightly to match the ADV of 21 mln shares, indicating perhaps some consolidation. We'd almost expect that, given the propensity for market choppiness driven by interest rate worries prior to PPI, Greenspan, then CPI beginning Thursday morning. Pick your entry carefully - any negative market news could send CSCO back to $100 if severe enough. Nonetheless, we consider the dips buyable after a bounce off these levels of support. Just make sure your target fits your risk profile, or wait for a breakout over $110 with volume. ******************************************** PICK NEWS - CALLS - 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. 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The Option Investor Newsletter Tuesday 1-11-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. ***************************** PICK NEWS - CALLS - CONTINUED ***************************** NOK $168.00 -10.94 (-3.00) OK, this is getting old. Just when we think we might get that breakout over $180, along come interest rate fears to knock the stuffing out of telecom ADRs. While we are frustrated waiting for a move, support remains in $5 increments beginning at $170 all way down to $150, though we really don't expect NOK to get that low again. NOK is the only major handset producer currently offering Internet-ready phones, which can't produced fast enough. We've already noted that we expect an upside earnings surprise thanks to their announcement last year that they would earn 3 years of income in just the next 2 years. The earnings announcement date is February 1, subject to change per Nokia's IR department. They are also in split range over $150. While it may be a bit early to begin an earnings/split announcement run, if you are itching to play and don't mind holding through some turbulence, consider target shooting for April calls whose time value won't diminish as rapidly. In current news, NOK is on board as a partner in the launch of Vodafone's single global platform and content for mobile data and Internet applications. Other partners are Charles Schwab, IBM, SUNW, Netscape (AOL), and Infospace. As VOD launches wireless Internet, it will sell more phones. CMTN $52.00 -1.56 (+0.00) CMTN is once again coming to a crossroads. We have been looking for a run into earnings next week. Since the Lucent debacle last week, CMTN has had a tough time getting back on track. Remember we are normally judged by the company we keep. The negative tone in the major indices didn't help CMTN today either. Monday, CMTN gapped higher at the open and has drifted sideways to lower for most of the two sessions this week. Technically CMTN has come down to an intraday support level at $51.75 in both of the last two sessions. The 10-dma sits at $51.15. A close below support could spell trouble for our play. The next level of support for CMTN sits at $49.25. On the bright side, the volume the past two days has been lower than average. We aren't giving up as we still have time for CMTN to run into earnings. Before entering or adding to existing plays, confirm the direction of CMTN and volume. CMTN reports on Jan 18th. HGSI $164.81 -12.75 (+4.50) What a week so far for our play in HGSI. Shares of HGSI surged over $30 Monday before settling at $177.56, +17.25 for the session. The move came on news from Celera Genomics Group. The company said it had mapped more than 90 percent of the material in the human genome, the genetic blueprint for the human body. Celera sells drugmakers genetic information, that may serve as blueprints for molecules to precisely target causes of disease and create better drugs. It was the kind of information that was just what the doctor ordered for our split run play in HGSI. Today profit taking set in for HGSI, dropping the price -12.75 to end the session at $164.81. The volume was lighter than normal, indicating the serious players are still hanging on to their shares of HGSI. Technically HGSI appears to still be headed south. It will find support near $160. A bounce off that area would provide another good entry point for our play. If HGSI rebounds from here, confirm the volume of the move prior to entering a new play. INKT $99.94 -4.94 (+10.56) Monday's announcement of the AOL-TWX merger ignited the momentum for stocks in the Internet sector. INKT joined in the party as well. Shares of INKT surged over 17 percent Monday on the news, as the tech heavy Nasdaq made another record move. Today saw some profit-taking set in, as INKT fell -4.94, to close just under the century mark at $99.94. Given the move Monday, the retreat was not bad. Technically INKT has initial support at $98 on an intraday basis. The next level is seen at $95. The week's economic reports get under way tomorrow, and depending on the numbers, INKT and the Internet sector and the Nasdaq could take off again or head south. YHOO reported better than expected earnings this afternoon, and continued to fall out of bed in after-hours trading. If the trend continues in the morning, this could pull shares of INKT lower as well. INKT reports earnings Jan 20th and we are looking for a run into the announcement. Keep your stops close and confirm market direction prior to entering any new plays in this one. MOT 133.38 -6.38 (+3.94) Motorola joined in on the buying frenzy Monday as AOL and Time Warner announced their new union. Shares of MOT climbed to $143.63 on speculation the AOL merger could also boost sales at MOT. Time Warner's Road Runner cable-modem service already gets its cable from modems from Motorola. Last week MOT completed its $17 bln purchase of General Instruments Corp. That purchase should help MOT take advantage of rising demand for cable services. The $7 decline today appears to be profit-taking. If you entered this play, hopefully you sold too soon, and are looking for a new entry point. MOT will find initial support at $130, followed by $125. Patience may be the key to this play. We are looking for a run into earnings as MOT is due to report next Monday. We would wait for the market to dictate our next move. A decline to either support level followed by a bounce, with solid volume would provide a good entry point for this play. CMVT $135.25 -3.88 (-3.75) Need a reminder why we never recommend trading during amateur hour? Look no further than CMVT on Monday. Gapping up over $5 on the open, the first price of the day was the high, followed by a gradual deterioration throughout the day. This was on slightly greater than average volume and occurred in the face of the NASDAQ's largest 1-day point gain ever. Showing some strength today, CMVT moved above $143, before the late day selloff in the NASDAQ pulled it back for a $3.88 loss. Volume picked up late in the day and thankfully CMVT bounced right on its $133 support level to recover over $3 from the low of the day. Going forward, we expect the volatility to continue, so confirm market direction before opening new positions. Overhead resistance is in the $143-144 area, right where CMVT rolled over today. We are still waiting to hear from CMVT on a possible split, and expect support to hold at $133 or possibly $130, but if the market is uncooperative and these levels are violated, stand aside. CHKP $202.50 -9.25 (+10.63) Monday's record move on the NASDAQ gave a nice boost to our earnings/split play. Gapping up over $6, CHKP never looked back, adding just under $20 for the day on average volume. Tuesday was a mixed bag for CHKP, as it was for many of the high-flying technology shares. Opening lower, shares ran all the way to $218.50, last week's new 52-week high, before succumbing to selling pressure. CHKP gave up all of its intraday gains to lose over $9 on the session. There is light support at $200 and then $193. With the strength of this play, earnings February 1 and a split (date to be determined at the shareholder meeting on January 13), look for CHKP to continue showing strength. Resistance is up at the 52-week high, which was tested again today. Remember, this is a volatile internet issue, so evaluate your risk profile accordingly. CHKP continued to add to its market leading position Monday, through collaboration with Verisign. The 2 companies unveiled Go Secure!(SM) for Check Point which facilitates the deployment of digital certificates in Check Point's VPN-1T/FireWall-1 solution. With continuing concern over internet security, CHKP's ability to provide security in its systems will continue to attract customers. EMC $109.50 -0.50 (+2.13) EMC continued Monday right where it left off on Friday, tagging $116, before fading a bit in the afternoon to close up $6.38 on 1.5 times it ADV. Benefiting from the strength in the NASDAQ, EMC got within spitting distance of its 52-week high from last Monday, before profit- takers moved in near the close. EMC tried to continue its rise today, and although it got close to yesterday's high, the downside pressure in the NASDAQ was too much, pushing EMC down to close with a fractional loss. It now has resistance at $116 and then support between $105-107. The 10-dma, currently just above $107, should reinforce this support level. Earnings are 2 weeks away and should start to garner investors' attention going forward. On Monday, EMC completed the U.S. antitrust review portion of its $192 million acquisition of SOFTWORKS, a leading global provider of enterprise data, storage and performance management software. VIGN $201.66 +11.78 (+26.47) Did you buy the dip yesterday? After opening strongly, VIGN moved up just south of the $190 resistance level. Prices then dropped off, consolidating for most of the day near $180. Volume started to pick up around 3pm and VIGN moved strongly right up to the close, ending at $189.88, right below resistance. Continuing where it left off, VIGN opened strongly this morning, quickly moving through resistance and hitting a new 52-week high of $211, before succumbing to the overall market weakness. VIGN spent the rest of the day consolidating near $200, and fortunately refused to participate in the NASDAQ selloff. Support is building at this level, but further weakness in the market could drop us down to retest support at $190. VIGN has still not announced the actual date for their earnings. According to the company, they will be released in late January or early February. On Monday, VIGN agreed to buy DataSage Inc. for $554 million in stock (3.16 million shares) to help them get a larger share of the e-commerce software market. Tuesday brought more good news with Tara Long at CE Unterberg Towbin reiterating her Strong Buy recommendation. Also on Tuesday, VIGN announced the acquisition of Engine 5, Ltd., a pioneer in enterprise-wide Java server technology. This further solidifies VIGN's leadership position in the e-business applications market. **************** PICK NEWS - PUTS **************** CHINA $79.44 -2.81 (+2.94) CHINA likes to keep you on the edge of your seat. CHINA's 5, 10 and 30-dmas have worked to converge and provide some solid support right around $75-79. Though this level is holding well, should CHINA manage a breakthrough, it doesn't have much left to rely on in the way of near term support. We are headed in the right direction and should we make the drop below this current support level, we could be cleared for a healthy fall. We did not really see the kind of volume we would have liked backing today's decline, however, we expect to see this to pick up should CHINA continue to fall through support. Obviously, we are at a crucial point for this play. Confirm direction before entering any new plays. SCNT $70.25 -0.25 (+3.75) SCNT traded up $4 during Monday's session while posting better than average volume. Today, SCNT opened just over $70 and spent the day flirting around this level. $70 seems to be providing support at this point, backed by the 5-dma at $69.75. SCNT does look to have some resistance right around $73. Also, SCNT still has a ways to go before it is able to re-enlist the support of its 10-dma ($77), which is still trying to catch up with SCNT's rapid decline. We are going to give SCNT a little more time on our play list as we are not convinced that it has reversed its downward trend just yet. We recommend waiting for some consistent trading below $70 before entering any new plays. One thing to watch out for is an upcoming earnings announcement on the 19th (confirmed). Exercise caution as there is always the possibility of an earnings run. SANM $96.63 -4.69 (+4.88) When we said wait for further corroboration before opening a position on SANM and that "it's better to be safe than sorry", it couldn't have been said any better. The AOL/TWX "dance party" was no doubt rocking the markets and SANM was shaking its booty. Yesterday's Strong Buy reiteration by Needham & Co was certainly no help either. SANM shot up as high as $102.75 on strong volume before settling back to the mid-90s today. The increasing volume on today's decline as the market session was coming to a close indicates profit- taking may continue tomorrow. We'd like to see a slip back under the $95 mark to confirm our technical conviction that SANM will head back towards the 200-dma ($80.64). WCOM $42.56 -4.25 (-4.63) The strong day at the NASDAQ couldn't help WCOM yesterday. Moving up to bump its head just below $49 during amateur hour, it was all downhill from there, giving WCOM a fractional loss for the day. With the markets weaker today, the weakness continued right from the open, and as the day wore on it got worse. WCOM, losing over $4 today is now at its lowest point since late 1998. The 10-dma (currently $49.50) will continue to create resistance and now the October low near $45 should pressure this telecom behemoth. Downside pressure from the pending Sprint merger continues with talks still ongoing about how Sprint will pull out of its unprofitable European phone venture with Global One. The merger of AOL with Time Warner is generating concern over competition with WCOM's UUNET operation. The only silver lining for WCOMs dark cloud of woes came from Jack Grubman at Salomon Smith Barney. Today, he reiterated his Buy rating, but this didn't seem to matter. ************** NEW CALL PLAYS ************** EXDS - Exodus Communications $103.19 -0.84 (+16.06 this week) Though they don't like the term, they are frequently called "server farms". Exodus is a leading provider of Internet systems and network management solutions for enterprises with mission- critical Internet operations. Exodus manages Internet Web sites and its network infrastructure from 16 Internet Data Centers located in the United States and Europe. Exodus currently has IDCs located in the Austin, Boston, Chicago, London, Los Angeles (2), New York (2), Seattle (2), Silicon Valley (4) and Washington, D.C. (2) metropolitan areas. Exodus added three additional IDCs and three international server hosting sites at the end of 1999, bringing the total number of Exodus sites to 22 worldwide. It's been a while since we've seen EXDS on these pages. However, following a 1-month consolidation in the $80-$90 range, we have ourselves a breakout which began yesterday on more than twice the ADV of 3.6 mln shares. That EXDS gave back less than $1 while the NASDAQ and Internets crumbled around it is testimony to its strength. But the real meat is that EXDS will report earnings on January 26 after the close, where they may announce another split. The last one completed (a 2:1 on December 15) was announced on November 19, 1999 at $108. Don't look now, but here we are again. Support held well today at $101, but can also be found a bit lower at $97.50. After that? Around $95. Target shoot where you are comfortable, but realize the next few days will be turbulent. Don't try to catch a falling knife. Wait for the bounce. You may also consider buying a breakout back over $110, but volume is the key. Today, EXDS announced they would buy Keylabs in a $44 mln, transaction. However, yesterday, the big news was that MSDW reiterated their Strong Buy. Wit Capital started them as a Buy last week too. Jim's Covered Straddle strategy could work well here (see Sunday Newsletter, Options 101). The net debit on the long side is below $80 consolidated support. ***Warning! January contracts expire next week*** BUY CALL FEB-100 DUB-BT OI=939 at $17.00 SL=13.25 BUY CALL FEB-105*DUB-BA OI=226 at $14.88 SL=11.75 BUY CALL FEB-110 DUB-BB OI=396 at $12.75 SL=10.25 BUY CALL MAR-110 DUB-CB OI=143 at $17.25 SL=13.50 Picked on Jan 11th at $103.19 P/E = N/A Change since picked +0.00 52-week high=$116.50 Analysts Ratings 18-8-0-0-0 52-week low =$ 6.88 Last earnings 10/99 est=-0.29 actual=-0.29 Next earnings 01-26 est=-0.19 versus=-0.13 Average Daily Volume = 3.6 mln Chart = http://quote.yahoo.com/q?s=EXDS&d=3m **** INTU - Intuit Inc $82.38 -2.75 (+8.81 this week) Intuit develops and markets financial software products and related Web services. Their flagship products are Quicken, the #1 personal finance program in the world, and TurboTax used for tax preparation. Founder Scott Cook still has a 12% stake in the company. Last Wednesday Intuit traded at almost four times its ADV and advanced an astonishing 29%, or $17.56 after Bear Stearns started coverage with a Buy rating and news of the company's latest Internet-strategy hit the press. Intuit unveiled a new Web service that allows small business to create its own Website and link up its accounting date. For the first time, small business can do business via the Net quickly and at a relatively low cost with Intuit's QuickBooks Site Builder service. The first six months will be free and after that $9.95 per month. According to Scott Cook, founder and company executive, QuickBooks Site Builder "is the most exciting thing we've introduced in over a year" and that " this is just part of a much-larger strategy, which is to become the largest hoster of small businesses". Yesterday INTU powered even higher on pure momentum breaking through resistance at $80 and tagging $90 to set a 52-week record! Assuming old resistance will emerge as new support, look for the present level to hold firm above the 5-dma ($77.64) indicator. Then pick your entry after confirming stock direction and market sentiment. In addition to its new Buy rating last Wednesday, Bear Stearns issued an $80 price target. ABN AMRO also stepped up to the plate for INTU and reiterated a Buy recommendation that day. In other news on Monday, Intuit announced its Quicken Mortgage online home lending service changed its name to Quicken Loans to reflect its expanded and direct lending capabilities. The recent acquisition of Rock Financial Corp now allows prospective clients the ability to secure and close loans directly from the Website. ***Warning! January contracts expire next week*** BUY CALL JAN-80*IQU-AP OI=134 at $ 5.88 SL=4.25 BUY CALL JAN-85 IQU-AQ OI=187 at $ 3.37 SL=1.75 BUY CALL FEB-80 IQU-BP OI=342 at $10.00 SL=7.50 BUY CALL FEB-85 IQU-BQ OI= 84 at $ 7.75 SL=6.00 BUY CALL FEB-90 IQU-BR OI= 0 at $ 5.88 SL=4.25 New Strike Picked on Jan 11th at $82.38 P/E = 44 Change since picked +0.00 52-week high=$90.00 Analysts Ratings 4-9-1-0-0 52-week low =$22.50 Last earnings 11/99 est=-0.19 actual=-0.12 Next earnings 02-21 est= 0.46 versus= 0.45 Average Daily Volume = 3.27 mln Chart = http://quote.yahoo.com/q?s=INTU&d=3m **** GMST - Gemstar International $70.63 -0.88 (+5.13 this week) Gemstar develops, markets and licenses proprietary technologies and systems aimed at making technology user- friendly for consumers under the VCR Plus+ name. Gemstar is a leading provider of electronic program guide services, which allow users to view a television program guide on screen, obtain details about a show, sort shows by themes or categories and select shows for tuning or recording, all through remote control. Gemstar's primary source of revenues has been license fees paid by consumer electronics manufacturers and publications for the licensing of the VCR Plus+ technology and the right to print the PlusCode Numbers. Gemstar had a very exciting December that drove the stock into the wonderful heights of new highs. On December 14th, GMST split it shares 2-for-1, putting an exclamation point on an excellent year for GMST. On December 23rd GMST was added to the NASDAQ 100. This very exclusive club has become a very important investment vehicle for Index fund owners. It makes sense in light of the huge gains for the NASDAQ 100 Index last year. Demand for the shares of GMST increased because of inclusion in the "Q's". Since December, Gemstar has suffered a bit of a hangover, with the shares pulling back to $61 after hitting $79.50. It looks like the profit-takers are out of the way. Relative strength has been very good for the shares of GMST the past few days although it did slip a bit into today's close. New support has been established at the $60-$61 level and the stock convincingly broke a two week downtrend on Monday. Indications of the break from a downside channel put the stock back up, possibly into the $90's. A bullish position on GMST can be placed at current price levels on a flat opening. If we get lucky and there is a little selling follow through on the opening you could get a more favorable price. If the shares drop below $65, wait for $62 before initiating any positions. No recent news items for Gemstar. ***Warning! January contracts expire next week*** BUY CALL JAN-65 GST-AM OI=2865 at $ 7.25 SL=5.25 BUY CALL JAN-70 GST-AL OI= 973 at $ 3.88 SL=2.25 BUY CALL FEB-65 GST-BM OI= 245 at $10.00 SL=7.50 BUY CALL FEB-70*GST-BN OI=1633 at $ 7.38 SL=5.25 BUY CALL FEB-75 GST-BO OI= 449 at $ 5.00 SL=3.25 Picked on Jan 11th at $70.63 P/E = 79 Change since picked +0.00 52-week high=$79.50 Analysts Ratings 7-0-0-0-0 52-week low =$13.88 Last earnings 10/99 est= 0.09 actual= 0.09 Next earnings 02-15 est= 0.10 versus= 0.08 Average Daily Volume = 1.48 mln Chart = http://quote.yahoo.com/q?s=GMST&d=3m **** SEPR - Sepracor Inc. $122.38 +2.19 (+4.25 this week) They are a specialty pharmaceutical company that develop improved versions of widely prescribed existing pharmaceuticals. Located in Marlborough, MA, Sepracor products can offer reduced side effects, improved safety, new uses, and improved dosage forms over traditional compounds. They are currently in the process of developing drugs to treat asthma, allergies, pain, sleep disorders, and depression. SEPR has licensed to Johnson & Johnson the rights to an improved version of JNJ's own Propulsid heartburn medication. SEPR competes in the healthcare sector with Bayer AG, Glaxo Wellcome, and Johnson & Johnson. SEPR continued higher today without the rest of the Biotech sector. Late last week analysts at Paine Webber issued favorable comments on several stocks in the drug and biotech sector. That seemed to give SEPR and several leaders in the industry the boost necessary to break out of the recent consolidation. SEPR broke through the $105 level, which had provided tough resistance on several occasions. The volume behind the move was impressive with over 1.0 million shares changing hands. The momentum behind the move continued this week, with SEPR hitting a high of $128, an level not seen since late last March. The resurgence of the Drug and Biotech sector has provide investors with some handsome returns recently. With the momentum behind the move, we are adding SEPR to our list of plays for an earnings run as well. SEPR is scheduled to report earnings next week. Even though SEPR and many stocks in the industry are showing negative earnings, investors are choosing to focus on the potential for the company. SEPR, like many others in the industry have been beaten down and now have seen a renewed interest in the sector. For our play in, SEPR bounced off intraday support at $120 late today. The next level of support is seen at $117. We would look for continued strength in SEPR as the stock and the industry are a hot item right now. As always confirm market direction and volume prior to entering any new play. This morning analysts at Deutsche Banc Alex Brown reiterated their Strong Buy rating on SEPR. They projected a new price target of $155 for the company. They also expect strong inflows of news from trial programs at the company over the course of 2000. Although SEPR has few brokers that follow the company, most of those that do have rated the company a Strong Buy or a Buy. ***Warning! January contracts expire next week*** BUY CALL JAN-110 ERQ-AB OI=1446 at $14.25 SL=11.25 BUY CALL JAN-115 ERQ-AC OI= 457 at $10.38 SL= 8.25 BUY CALL JAN-120*ERQ-AD OI= 238 at $ 7.13 SL= 5.25 BUY CALL JAN-125 ERQ-AE OI= 319 at $ 4.25 SL= 2.50 Picked on Jan 11th at $122.38 P/E = N/A Change since picked +0.00 52-week high=$140.88 Analysts Ratings 4-5-2-0-0 52-week low =$ 58.75 Last earnings 10/99 est=-1.56 actual=-1.68 surprise=-7.70% Next earnings 01/20 est=-1.51 versus=-1.10 Average Daily Volume = 414 K Chart = http://quote.yahoo.com/q?s=SEPR&d=3m ************* NEW PUT PLAYS ************* No new puts today. ********************** PLAY OF THE DAY - CALL ********************** VIGN - Vignette Corporation $201.66 +11.78 (+26.47 this week) 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. Sunday's Write Up 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. Tuesday's Write Up Did you buy the dip yesterday? After opening strongly, VIGN moved up just south of the $190 resistance level. Prices then dropped off, consolidating for most of the day near $180. Volume started to pick up around 3pm and VIGN moved strongly right up to the close, ending at $189.88, right below resistance. Continuing where it left off, VIGN opened strongly this morning, quickly moving through resistance and hitting a new 52-week high of $211, before succumbing to the overall market weakness. VIGN spent the rest of the day consolidating near $200, and fortunately refused to participate in the NASDAQ selloff. Support is building at this level, but further weakness in the market could drop us down to retest support at $190. VIGN has still not announced the actual date for their earnings. According to the company, they will be released in late January or early February. On Monday, VIGN agreed to buy DataSage Inc. for $554 million in stock (3.16 million shares) to help them get a larger share of the e-commerce software market. Tuesday brought more good news with Tara Long at CE Unterberg Towbin reiterating her Strong Buy recommendation. Also on Tuesday, VIGN announced the acquisition of Engine 5, Ltd., a pioneer in enterprise-wide Java server technology. This further solidifies VIGN's leadership position in the e-business applications market. ***January contracts expire in two weeks*** BUY CALL JAN-180 GGV-AP OI= 92 at $28.13 SL=22.00 BUY CALL JAN-185 GGV-AQ OI= 47 at $24.13 SL=18.75 BUY CALL JAN-190 GGV-AR OI=389 at $21.00 SL=16.25 BUY CALL JAN-195*GGV-AS OI=503 at $18.38 SL=14.25 BUY CALL FEB-190 UOJ-BR OI=207 at $32.38 SL=25.25 BUY CALL FEB-195 GGV-BS OI= 59 at $29.88 SL=23.25 Picked on Dec 30th at $163.75 P/E = N/A Change since picked +37.91 52-week high=$211.00 Analysts Ratings 9-4-0-0-0 52-week low =$ 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 = 1.03 mln Chart = http://quote.yahoo.com/q?s=VIGN&d=3m ************************ COMBOS/SPREADS/STRADDLES ************************ Rising Interest Rates Subdue Euphoric Attitude.. Monday, January 10 Technology stocks drove the Nasdaq to its biggest one-day gain in the history of the index as investors celebrated the pact between America Online and Time Warner. The Dow Jones Industrial Average climbed 49 points to 11,572 while the Nasdaq Composite soared 167 points to 4,049. Volume on the Nasdaq was heavy at 1.72 billion shares with advances beating declines 2,516 to 1,560. The broader S&P 500 index rose 16 points to 1,457. Advancing stocks edged-out declines 17 to 13 with more than 1.03 billion shares traded on the NYSE. There were 103 stocks at new highs and 60 at new lows. The market's rally came amid a weakening in the bond market with the 30-year U.S. Treasury down 18/32 while the yield rose to 6.59%. Sunday's new plays (positions/opening prices/strategy): HealthSouth HRC MAR7C/FEB7C $0.19 debit calendar HealthSouth HRC JAN7C/FEB7C $1.25 debit LEAPS/CC's P-Coms PCMS MAY7C/FEB10C $2.00 debit diagonal Allaire ALLR JAN175C/165C $0.75 credit bear-call Legato LGTO JAN80C/JAN75C $0.62 credit bear-call Viatel VYTL JAN55C/JAN50C $1.00 credit bear-call Today's buying frenzy started a number of our issues higher at the open. The bullish activity allowed excellent entry points in the call-credit positions. The most beneficial move came in Legato, and with the stock up almost $6 during the session, we were able to open the conservative position for a higher credit. In fact, the majority of our new plays traded at better than expected prices. Portfolio plays: The major indices posted record moves today as a merger between Time Warner (TWX) and America Online (AOL) brought new interest into media and Internet stocks. The industry giants announced they would join forces in the largest all-stock combination in history. In the wake of the news, retailing, chemical and financial services stocks ended lower as money flowed back to high-flying technology issues. The Nasdaq closed with an absurd point gain, bolstered by rising chip and software stocks. Despite the enthusiasm in the market, analysts are now concerned about the increasing potential for the Fed to raise interest rates. Our biggest winner today was Exodus (EXDS) with a surprise $17 rally to $104. The bullish credit position, JAN70P/JAN72P should expire at maximum profit. Another tremendous mover was Motorola (MOT), which gapped up over $11 to close at $140. Our LEAPS/CC"s position is profitable above $115. Smaller-cap stocks also made some incredible progress. Silicon Valley Group (SVGI) opened $3 higher after announcing it will easily top analysts' estimates in its first quarter. Company officials said it will earn $0.15 per share in the quarter, well above the consensus. Last quarter they earned $0.05 a share on sales of $189 million. Analysts said SVGI has seen continued strength in its bookings. Our bullish calendar spread provided two profitable opportunities; an early exit for a favorable profit or the roll-out to February options at a higher strike price. Geron Corporation (GERN) climbed another $2.75 to $17.25 as news of continued success in human genome sequencing lifted biotech stocks to new highs. Morgan Stanley noted that many non-genomic companies participated in the rally amid promising drug pipelines and recent launches of money-making products. Both of our positions in this issue are now profitable. Other recent performers also participated in the rally including; Loral Space And Communications (LOR), Micron (MUEI), Silicon Graphics (SGI), Talk.com (TALK) and Zoltek (ZOLT). Merger news led the market and also dominated the Spreads/Combos portfolio. Today Nextlink Communications (NXLK) said it would buy Internet access provider Concentric Network (CNCX) in a $3 billion deal. The acquisition allows NXLK to expand its high-speed data and Internet services. CNCX shareholders will receive $45 in NXLK stock for each share. Nextlink said it expects the Concentric pact to close in the second quarter of 2000. Our position in CNCX moved to maximum profit as the stock rose sharply on the news, gaining almost $10 to $39.62. There may also be an opportunity for rolling up as the inflated option premiums move back to theoretical value. In the long-term portfolio, there were a number of excellent moves. Adobe Systems (ADBE), Computer Associates (CA), Solectron (SLR), Sun Microsystems (SUNW), and United Airlines (UAL) all shared in the day's gains. Of particular interest was Vodaphone (VOD) which climbed almost $5 during the session to close at $51, after a new upgrade from CSFB. General Motors (GM) was also in the news with an announcement they will buy the remaining 50% of SAAB Automobile from Investor AB, the Swedish holding company with which it has shared Saab ownership for 10 years. They expect to complete the acquisition by the end of January. GM rallied to $75.50, offering an excellent opportunity to move the spread position into February. The new position is LJAN75C/FEB75C at $3.88 debit. One of the top movers in the straddles section, Continental Airlines (CAL) said that it is pleased with the numbers from the fourth quarter. The company is scheduled to release earnings January 18. According to First Call, Continental is expected to post earnings of $0.40 per share. The straddle position has traded higher in recent weeks, offering as much as $11.00 credit on the original $8.62 invested. Tuesday, January 11 Bond yields tempered investor enthusiasm a day after the market rallied on news of the largest merger in the history of stocks. The Dow ended down 61 points at 11,511 after reaching an all-time high of 11,663. The technology-laden Nasdaq Composite dropped 128 points to 3,921. The S&P 500 index fell 19 points to 1,438. In the broad market, declining stocks led advances 2 to 1 with almost a billion shares traded on the NYSE. New lows outpaced new highs 73 to 67. The benchmark 30-year U.S. Treasury bond dropped 1-5/32, driving the yield up to 6.68%. Portfolio plays: There were a few favorable moves in the portfolio today. Our most surprising issue was HealthSouth (HRC) which rose another $0.75 to finish at $6.68. The issue traded near $7 for much of the day, over $1 higher than our original cost on Monday. Both of the new bullish positions are profitable and we expect the stock to move higher in the coming weeks. Another recent pick, P-Com (PCMS) rebounded in today's slumping market and the bullish technical trend appears to be intact. Zoltek (ZOLT) has been on the move in the last few sessions and institutions are showing more interest in the issue. One well-known competitor, Conoco Corporation has invested $125 million in a new carbon fiber facility and that may indicate future demand in the industry. Speculators are suggesting that ZOLT may also be a target for Dupont (DD) or General Electric (GE). Other than the market bellwethers, there were only a small number of long-term positions that made bullish moves today. Exxon-Mobil (XOM) led that group, climbing $1.25 to $85 (our sold strike) on strength in the major oil companies. One of our straddles plays made a new high. Mylan Laboratories (MYL) climbed $1.31 to end just short of $27 on the rally in the biotech sector. The current credit for the APR-$17.50 straddle is $9.25. The original cost of the position was $4.56. Another recent straddle, Univision (UVN) rebounded to a midday peak near $105. The overall position again eclipsed the $20 mark, providing $5.25 profit on $14.75 initially invested for one month. A number of bullish issues moved lower during the session and the most beneficial drop was Legato (LGTO). The company's share value fell almost $10 today partly due to negative comments by Merrill Lynch. They said that poor revenues in the sector were affecting the valuation of many companies and although they offered a "buy" recommendation on the stock, most investors saw it as a downgrade. In any event, the negative move helped our conservative bull-call spread considerably, and we expect the play to expire comfortably OTM next week. Questions & comments on spreads/combos to Click here to email Ray Cummins ********* NEW PLAYS ********* THC - Tenet Healthcare $26.31 *** Sector Rally *** Tenet Healthcare is the second largest investor-owned healthcare services company in the United States. Tenet owns and operates over a hundred general hospitals with thousands of licensed beds and related healthcare facilities. Tenet's facilities serve urban and rural communities in 18 states, with the company's largest presence in California, Texas, and Florida. Tenet's healthcare operations consist of numerous subsidiaries: Tenet HealthSystem Hospitals, TH Medical, and TH HealthCorp. Their general hospitals offer acute care services, operating and recovery rooms, radiology services, respiratory therapy services, pharmacies, and clinical laboratories. Some of THC's hospitals offer tertiary care services such as open-heart surgery, neonatal intensive care, and other neuroscience procedures. Major operations of the company include rehabilitation hospitals, specialty hospitals, long-term care facilities, and psychiatric facilities. The healthcare sector is performing well and today Tenet reported a rise in second-quarter net income. Officials said net income for the quarter was $135 million, or $0.43 per share versus $0.40 per share in the prior-year quarter. On an operating basis, they beat analysts' estimates by $0.02 cents for the quarter. Tenet reported that revenues rose almost 10% billion and marked the resumption of earnings growth after a particularly difficult 1999. We wouldn't normally recommend a new bullish position after an earnings report but the suggested calendar spread is very low risk and the issue appears to be firmly established in a new long-term upward trend. The stock will most certainly consolidate over the next few weeks but the premium from the sold option will offset any small correction. PLAY (conservative - bullish/calendar spread): BUY CALL MAY-30 THC-EF OI=550 A=$1.56 SELL CALL JAN-30 THC-AF OI=690 B=$0.38 INITIAL NET DEBIT TARGET=$1.00 TARGET ROI=50% A less neutral and more bullish type of calendar spread is when the underlying issue is some distance below the strike price of the options. This position is speculative with low initial cost and large potential profits. Two favorable outcomes can occur: the stock rallies in the short-term and the position is closed for a profit as time value erosion in the short option produces a net gain or; the underlying stock consolidates, allowing the sold option to expire and then eventually rallies above the long option strike price. It is generally best to establish this type of spread at least 2 - 3 months before the long option expires, capitalizing on the ability to sell another option against the longer-term position. That is the basic idea in this spread play; selling time value in the options when they are overpriced (high implied volatility) and buying it back (if necessary) when they return to intrinsic value. Ideally, the spreader would like to have the stock finish just below the sold strike when the near-term option expires. If the short options are in-the-money at expiration, he will have to buy them back to preserve the long-term position. Chart = http://quote.yahoo.com/q?s=THC&d=3m **** KEG - Key Energy Services $6.81 *** On The Rebound! *** Key Energy is the largest onshore, rig-based well servicing contractor in the world, with almost 1,500 well service rigs and over 1,000 oil field trucks. The company is also a leading onshore drilling contractor with a large number of drilling rigs. Well services include rig-based services, oil field trucking and ancillary oil field services. KEG also provides contract drilling services for major and independent oil companies onshore the continental United States and internationally. This is simply another bullish issue moving out of a long-term basing pattern. The recent earnings were favorable and a number of brokers have upgraded the issue in recent weeks. There are two ways to participate in the movement of the issue, depending on your outlook for the stock. PLAY (conservative - bullish/calendar spread): BUY CALL JUL-7.50 KEG-GU OI=261 A=$1.43 SELL CALL FEB-7.50 KEG-BU OI=50 B=$0.38 INITIAL NET DEBIT TARGET=$0.88 TARGET ROI=50% - or - PLAY (aggressive - bullish/diagonal spread): BUY CALL APR-5.00 KEG-DA OI=355 A=$2.25 SELL CALL FEB-7.50 KEG-BU OI=50 B=$0.38 INITIAL NET DEBIT TARGET=$1.75 TARGET ROI=25% Chart = http://quote.yahoo.com/q?s=KEG&d=3m ********************* More Reader's Request ********************* Here is another position on a well-known issue submitted by a reader. This play is based on the current trading range of the underlying stock and the recent technical history or trend. Current news and market sentiment will have an effect on this issue so review the play thoroughly and make your own decision about the future outcome of the position. **** RMBS - Rambus $77.63 *** Own This One? *** Rambus designs, licenses, and markets high-speed chip-to-chip interface technology to enhance the cost-effectiveness and performance of computers. This high-speed interface technology is used in logic ICs and DRAM memory chips found in workstation PC graphics, consumer electronics and networking systems. Rambus has created a revolutionary chip-to-chip interface architecture allowing data to be transferred through a simplified bus at significantly higher frequencies than permitted by conventional technologies. The company holds 44 patents on various aspects of its technology, and has applications pending for a number of additional products in the United States. Rambus also licenses its technology on a nonexclusive and worldwide basis to chip manufacturers that sell their ICs to systems companies who have adopted Rambus technology. A recent article suggested that chip manufacturers are going to increase their output of Rambus-based memory for use in PCs and game systems. A new industry study said memory chip makers will ship an estimated 270 million RDRAM units this year and if this expansion occurs as expected, Rambus will enjoy a large revenue windfall from the licensing royalties. RMBS' unique architecture for chip-to-chip interface doubles the speed of data transfer and is expected to increase in future versions. Their RDRAM may eventually dominate the game system market and many experts say it will become the industry standard. In view of the incredible outlook for this company, the inherent risk of the position may be offset by a desire to own the stock at a greatly reduced price. PLAY (aggressive - bullish/credit spread): BUY PUT JAN-60 BNQ-ML OI=1401 A=$1.31 SELL PUT JAN-65 BNQ-MM OI=1363 B=$1.81 INITIAL NET CREDIT TARGET=$0.62 ROI=14% Chart = http://quote.yahoo.com/q?s=RMBS&d=3m *********************** INDEX OPTION SPREADS... *********************** As a trader, you may be familiar with options on individual stocks where you have the right to buy (call option) or the right to sell (put option) a particular stock at some predetermined price within some predetermined time. The buyer has the rights and the seller the obligations. With index options the basic ideas are the same. Index options allow you to make investment decisions on a specific market industry or on the market as a whole. Spread strategies can be made with index options similar to those made with individual stock options. Many professional traders employ index spreads as a hedge strategy. We favor debit positions on the SPX for momentum and hedge or longer-term plays and OTM credit spreads on the OEX when the risk/reward is favorable. Low ROI disparity spreads will be listed (when available) for the conservative index trader. **** OEX - S&P 100 Index $785.25 OTM Credit-Spreads The Standard & Poor's 100 Index is a capitalization-weighted index of 100 stocks from a broad range of industries. The component stocks are weighted according to the total market value of their outstanding shares. The impact of a component's price change is proportional to the issue's total market value, which is the share price times the number of shares outstanding. OBSERVATIONS: For OTM credit spread trades, we like to use the actively-traded S&P 100 Index options because they contain much more premium than options on individual stocks and provide an underlying instrument less prone to huge, gapping moves. Review the 'Market Sentiment' section for specific technical information on the S&P 100 Index. Conservative... PLAY (bearish/low ROI): BUY CALL JAN-815 OEX-AC OI=3471 A=$1.00 SELL CALL JAN-810 OEX-AB OI=5375 B=$1.43 NET CREDIT TARGET=$0.43 ROI=9% (10 days) PLAY (bullish/low ROI): BUY PUT JAN-735 OEZ-MG OI=2585 A=$1.43 SELL PUT JAN-740 OEZ-MH OI=5127 B=$1.75 NET CREDIT TARGET=$0.31 ROI=6% (10 days) COMBINED ROI=15% UPSIDE B/E=$810.75 DOWNSIDE B/E=$739.25 STATICTICAL PROBABILITY OF PROFIT=80% By combining two credit spread positions, you can participate in a popular neutral strategy known as the Long Iron Condor. It is often used with range-bound positions and is a limited risk, limited profit strategy that gives you a wide range for success. The play is based solely on the current price and trading range of the underlying issue and the recent technical trend. Current news and market sentiment will have an effect on this position so review the underlying issue and make your own decision about the future outcome of the stock price. CHART= http://quote.yahoo.com/q?s=^oex&d=b ************************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 ************
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