The Option Investor Newsletter Wednesday 1-12-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com Also provided as a service to The Online Investor Advantage ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 1-12-2000 High Low Volume Advance Decline DOW 11551.10 + 40.00 11612.50 11505.20 978,138k 1,356 1,696 Nasdaq 3850.02 - 71.17 3950.98 3834.53 1,519,027k 1,799 2,334 S&P-100 782.73 - 2.52 788.30 780.36 Totals 3,155 4,030 S&P-500 1432.25 - 6.31 1442.60 1427.08 43.9% 56.1% $RUT 490.04 - 2.57 494.84 487.09 $TRAN 2936.24 - 13.32 2966.68 2931.61 VIX 24.63 + 0.70 25.51 23.33 Put/Call Ratio .45 ****************************************************************** The Thrill of Wednesdays The beauty of writing the Wednesday Market Wrap is that YHOO typically announces on Tuesday and I get to cover the aftermath, which is where I want to start today. The company announced great earnings, strong revenue growth and a gave traders a bonus with a 2:1 stock split. YHOO then began dropping in after-hours trading, down over $20. It is standard procedure for Yahoo to fall after earnings. In truth, the 2:1 split was the only thing stopping us from recommending puts last night (we don't want to fight against another catalyst). So when YHOO opened at $390, it was screaming for put plays. Who is out there bidding this stock back to almost even before the market open?! Not to make this a soapbox issue, but this has been one of the most reliable trends in the market for the past two years. A huge run-up into earnings followed by a short-term decline. So congratulations to all who took advantage of the odd opening in shares of YHOO for a quick $40 profit on the stock's intraday trading today. YHOO ended at $357.56, down almost $40. But this isn't a Yahoo Wrap so let's get back to markets where a lot of action happened today, in front of what could be a real wild ride tomorrow. Let's take a poll. What is more important to the markets on Thursday? A) The PPI report due out in the morning, B) Retail Sales numbers also due out early, C) INTC's earnings report after the close, or D) the Greenspan speech in the evening. The answer is a trick! It is E) all of the above. Not to mention how the bond will react to this overload of interest rate sensitive data. You would be prudent to keep an eye on the 30-year bond yield before placing your bets. Some analysts are still talking about a run towards a yield of 7.00%. Here are the expectations for the data. The PPI is expected to be up by 0.3%, with the core rate increasing by 0.1%. The Retail Sales figures are forecast to be up 0.9% which is a big jump. In evaluating this number you will have to look at what part new car sales played. They had a great month and may skew the number slightly. Once the bond traders get this sorted out, they will have to worry about what Mr.Greenspan might say that evening. It's not that rising rates have really hurt the high-tech sector over the past couple months, but there is an increasing feeling that a move to 7.00% would bring out the bears. The Dow ended up 40.02 to 11551.10, helped by Financials, even though the bond was sinking. The Financials won't be able to continue to rise if the bond is sinking so we will consider this to be abnormal. Especially when you consider that 3 out of the last 4 times the PPI and Retail Sales were released on the same day, the bond got hammered. The S$P 500 was down 6.46 today and the Nasdaq was down big, dropping over 71 points. Volume was good, but nothing to write home about. Decliners also ruled the day over advancers. The 30-year bond ended trading with a yield of 6.71%. The Nasdaq spiked open today up 30 points and if you put your hand in that cookie jar, you got caught. It quickly reversed course and never came close to that level again. It did bounce at 3835, which at the time was an 80 point loss, to come back to even before rolling over again. The Dow faired better by holding in a tight 100 point range all day. Shares of Microsoft were plagued Wednesday by a report in today's edition of USA Today. The report noted the intentions of federal and state prosecutors to seek a breakup of the colossal software maker. This news helped to bring MSFT down $3.56 for the session. Rumor has it that lawyers are looking to split Microsoft into two or three separate entities according to products. None of the parties involved would comment on the rather speculative report. One spokeswoman from the Justice Department was quoted as saying that the report was "inaccurate in several important respects" and "does not accurately represent our views." But there was news later that MSFT could be broken into 3 separate companies. Ariba (ARBA) announced earnings on Tuesday, coming in 4 cents better than analysts estimates. Today, Prudential upgraded ARBA from a Hold to a Strong Buy. Ariba shares closed down just over 18 points for the session at $172.88. Today, Drugstore.com (DSCM) announced plans to acquire Beauty.com. DSCM will issue 1.3 million of its shares for 100% ownership of Beauty.com. This deal is worth an approximate $42 million. The plan is for Beauty to maintain its operations from New York while DSCM will begin providing customer service, operational infrastructure and technology support. USA Networks (USAI) announced plans to buy Precision Response in a stock swap worth an approximate $608 million. USAI plans to combine Precision's e-commerce customer service with its USA Electronic Commerce and Serviced unit. Digital communications provider Razorfish (RAZF) shares closed up $5.88 at $87.13 following a 2:1 split announcement which will be effective as of January 27th. Shares of Rite Aid (RAD) were down $2.75 after the company announced late Tuesday that they would not be reporting end of the year quarterly results until their auditors had completed a review of financial information. Lehman Brothers also downgraded the stock from a Buy to a Neutral citing the company's lack of earnings power as the reason for the downgrade. Here are my thoughts and they are just that, but use them for what they are worth. Markets cycle, and we are entering the lull period after a healthy boom (to say the least) for the past three months. Traders are selling the rallies and the markets have been generally trending sideways to lower since the start of the year. The bond can no longer be ignored. As it continues to fall, investors will shift money over from high P.E. stocks. Another indicator is the overall bullishness in the Investor Intelligence survey. This is a classic contrarion indicator. It is at a level that is typical of a short-term correction in the markets. The market charts don't look great technically and sideways trading and a little consolidation sounds bad, but would be considered healthy. The Dow is in less jeopardy to sink based on the fact it hasn't really gone far. The Nasdaq on the other hand might be looking at 3700 once again or possibly a break of that support, pushing it down to the 3550 level. The timing is tougher to predict, but it is hard to imagine that we can flush out all of the worries before the Fed meeting on Feb. 2nd. Not to worry though because an experienced investor can make money in all markets (that makes it sound too easy but its true). Selling calls, buying puts, combos, and straddles aren't always exciting, but produce a decent return. I love a good bull market, but have learned to wait until the time is right before jumping in with both feet to buy calls. LEAPS is another strategy worth a look when the market takes these quick dips, especially when the $VIX jumps over 30 (currently at 24.63). Don't fight this negative trend. You may end up with a damaged portfolio after stepping into a bear trap. Ryan Nelson Asst. 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 *********** Buying stocks with big profit margins: a safer bet With all the volatility in the stock market these days, its difficult to find companies to invest in that allow you to sleep comfortably at night. Whether you are a risk-taker or not, one possible way of eliminating, or at least reducing those sleepless nights, may be to look at companies with large profit margins. Investing in companies with big profit margins is a good way insulate yourself against various economic pressures, such as pricing pressures due to increased competition, increases in overhead costs, or unfavorable tax status, whatever the case may be. If adverse economic conditions were to erode a company's margins, profits would of course shrink, but not necessarily evaporate. Big profit margins can help insure against companies from taking drastic measures. To find these companies, it does not take a P.H.D. in biochemistry from M.I.T. Most of the companies who dominate their respective industries do so for a reason. Perhaps its because the company has built a better mousetrap, has better technology, or has a dominant market share. Usually, the companies who have garnered these high margins were able to do so through some competitive advantage. In software, for example, the 800-pound gorilla is, of course, Microsoft, which has posted consistent quarterly net margins of roughly 40 percent. That means that out of every dollar of revenue Bill Gates' little outfit in Redmond, Washington generates, 40 cents goes to the bottom line. Practically every computer in existence today uses Microsoft's operating system. Microsoft dominates because of its installed base, which grows every day. The company receives a fee for each machine, regardless of whether the computer is put together by Dell, Compaq, or Gateway. With the emergence of the Linux operating system, Microsoft will have its hands full warding off the programmers who boast of Linux's more robust and more stable platform. In other areas of technology, data storage in particular, Hopkinton, Mass.-based EMC Corp. is the leader boasting net margins of 22%. The company's shares have risen dramatically with the evolution of the Internet and its need to store innumerable types of data, such as demographic information. Gemstar International develops, markets and licenses proprietary technologies and systems under the VCR Plus+ name, designed to simplify and enhance consumers' interaction with electronics products and other platforms that deliver video, programming information and other data. The company boasts of staggering net margins of 47 percent. John Malone, the telecommunications and cable magnate, stated that the block of patents that Gemstar holds on its VCR Plus+ and electronic programming guide technologies is "unassailable." The semiconductor industry is another industry where larger than average profit margins can occasionally be found, but you have to be careful. These stocks tend to be cyclical in nature. Swings in supply and demand for semiconductors can greatly affect unit prices. Firms that make commodity-type chips are the ones that are subject to these supply and demand shifts. Too much supply in the market and these firms must lower prices to keep attracting buyers. It becomes a war based on volume, not on price. Intel, which dominates the industry, posts the strongest profits in the memory chip industry with margins in the 25 percent range. But these margins are not exclusively found in the technology sector. Coca Cola, the Atlanta-based soft drink juggernaut posts net margins in the 15 to 16 percent range. Coke is the number one brand name in the world. The stock has come down recently from the 70s to around 60 recently. The company is battling back from increased marketing expenses related to building customer trust after last year's European contamination scare, negative currency translation, and consolidation of Russian and Indian bottling assets which currently are operating at losses. Coke's latest strategy is to buy weak bottlers, strengthen them, and then sell them again for a profit, thereby gaining profits and better bottlers for continued distribution. In the area of film production, Digital animation movie studio Pixar, who's credits include Toy Story, Toy Story 2 and A Bug's Life, has posted average net margins for the last four quarters of almost 38 percent. VISX Corporation, the undisputed leader in laser vision correction, with a market share in excess of 75 percent, has net margins of 35%. The company reportedly receives a $250 license fee for every laser procedure, with now one million procedures completed, according to its Web site. Doctors love the company and many have had the procedures done. The Company holds over 140 patents for the technology worldwide and has more than 70 additional patents pending. The Company received its first U.S. Food and Drug Administration market approval in 1995 and was the first laser manufacturer with approval to treat low, moderate and high myopia, astigmatism, and hyperopia. The drug sector has several candidates with some very attractive margins as well. American Genetics, also known as AMGEN, posts regular net margins in the neighborhood of 33 percent. Pfizer Inc., the behemoth in the pharmaceutical sector, posts net margins, on average, of 16.3 percent in its last 4 quarters. MedImmune, which develops and markets products for the prevention and treatment of infectious disease and for use in transplantation medicine, posts solid net margins of 34 percent. Indirectly related to the pharmaceutical industry are the genomics companies. These companies are focussed on drugs based on the discovery and understanding of the medical utility of genes for human healthcare. Many of these companies are not profitable because much of the operations are in the area of research and development. However, Human Genome Sciences and Millennium Pharmaceuticals are two of the more prominent contenders in the field. Millennium, however, is the one that is profitable, posting net margins of 11 percent. PE Biosystems, an indirect participant in the genomics sector, which focuses on in the development, manufacture, sale, and service for life science research, posts net margins of 13.2% net margins. Keep in mind that there are many other tools one can use for evaluating investment candidates. Examining the profitability of companies should be accompanied with other types of analysis. In addition to big profits, check out the company's competition, what Wall Street analysts think of the company and the sector its in, and so forth. As yourself questions. Is this truly the dominant company in the industry? Are there emerging technologies or other economic forces (interest rates, inflation, etc.) that could hurt my investment? Do your homework and good luck! ********************** PLAY OF THE DAY - CALL ********************** CHKP - Check Point Software $190.50 -12.00 (-1.38 this week) 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. Sunday's Write Up 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*** Tuesday's Write Up 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. BUY CALL JAN-190*KEV-AR OI= 94 at $11.63 SL= 9.00 BUY CALL JAN-195 KEV-AS OI= 74 at $ 9.00 SL= 6.75 BUY CALL JAN-200 KEV-AT OI=230 at $ 7.25 SL= 5.50 BUY CALL FEB-190 KEV-BR OI= 58 at $23.88 SL=18.50 BUY CALL FEB-200 KEV-BT OI= 86 at $21.63 SL=16.75 Picked on Jan 4th at $198.75 P/E = 97 Change since picked -8.25 52-week high=$223.50 Analysts Ratings 7-6-3-0-0 52-week low =$ 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 = 597 K Chart = http://quote.yahoo.com/q?s=CHKP&d=3m ******************************** BIG COVERED CALLS AND NAKED PUTS ******************************** Welcome to our BIG, BIG-MONEY Covered Calls and Naked Put section. We will be listing a favorable "in-the-money" positions that offer conservative entry points into technically bullish charts, with reasonable monthly returns. The positions that we find favorable (and will track every week) will be marked by asterisks. We will also list more aggressive positions for those traders so inclined. Do not enter these trades unless you fully understand the strategy and various methods of manipulating the position should the stock price drop or rise and in the event you decide you want to keep the issue. Summary of Previous Picks: Covered Calls: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return PUMA JAN 80 77.16 105.00 $2.84 7.00% CLRS JAN 60 58.06 83.00 $1.94 6.40% INCY JAN 60 58.22 117.13 $1.78 5.80% AFFX JAN 120 116.75 162.94 $3.25 5.30% HGSI JAN 125 121.63 152.94 $3.37 5.30% Naked Puts: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return CLRS JAN 55 53.87 83.00 $1.13 11.70% INCY JAN 50 49.00 117.13 $1.00 10.50% IDC JAN 30 29.37 30.13 $0.63 9.60% Watch Closely AFFX JAN 105 103.44 162.94 $1.56 9.50% PUMA JAN 65 63.87 105.00 $1.13 9.40% HGSI JAN 115 113.62 152.94 $1.38 8.60% CRA JAN 115 113.75 234.00 $1.25 7.20% ICGE JAN 110 108.87 131.75 $1.13 6.20% Our target Return On Investment: for January is 1.5% for nine days; for February is 6.1% for thirty-seven days; which equates to a 5% monthly return. A margin account would double the listed covered call returns. NEW PICKS January Plays HNCS - HNC Software $91.94 *** Disparity Play *** HNC Software develops, markets and supports predictive software solutions for leading service industries. These predictive software solutions employ proprietary neural-network predictive decision engines, profiles, traditional statistical modeling, business models, expert rules and context vectors to convert existing data and business experiences into recommendations and actions. Leading service industries such as the healthcare and insurance, financial services and retail industries are using predictive software to improve profitability, competitiveness and customer satisfaction. HNCS's healthcare/insurance industry products include CRLink, MIRA, CompCompare, ProviderCompare, PMAdvisor, VeriComp, Autoadvisor, eCM Director and Spyder. Financial service industry products include Falcon and ProfitMax, and its retail industry products include several solutions under the Retek name. HNCS is a well-known company with an excellent technical history but this play is based solely on the disparity in option premiums at the $60 strike price. Normally we would pass on this type of position but the return on investment is favorable for a ten-day play. HNC Software (HNCS) $91.94 Action Month & Option Open Closing Cost Return On Req'd Strike Symbol Interest Price Basis Investment Sell Call JAN 60 NSQ AL 20 33.13 58.81 2.0% Chart = http://quote.yahoo.com/q?s=HNCS&d=6m **** RFMD - RF Micro Devices $74.88 *** Technicals Only *** RF Micro Devices designs, develops, manufactures and markets proprietary radio frequency integrated circuits for wireless communications applications such as cellular and personal communication services, cordless telephony, wireless local area networks, wireless local loop, industrial radios, security and remote meter reading. RFMD offers a broad array of products, including amplifiers, mixers, modulators/demodulators and single chip transmitters, receivers and transceivers, which represent a substantial majority of the RFICs required in wireless subscriber equipment. The company designs products using three distinct process technologies, gallium arsenide heterojunction bipolar transistor, silicon bipolar transistor, and to a lesser extent, gallium arsenide metal semiconductor field effect transistor. The company produces some unique components for a number of industries and their fundamental outlook is excellent. First Boston leads the coverage on this stock and their most recent rating was a strong buy with a price target of $85. The issue has an excellent short-term pattern that complements the low risk position and the play offers a favorable risk/reward ratio based on inflated option premiums. RFMD $74.88 Action Month & Option Open Closing Cost Return On Req'd Strike Symbol Interest Price Basis Investment Sell Call JAN 65 RFZ AM 333 11.00 63.88 1.8% Chart = http://quote.yahoo.com/q?s=RFMD&d=6m **** ARTG - Art Technology Group $100.88 *** Own This One! *** Art Technology offers an integrated suite of Internet customer relationship management and electronic commerce software applications. The company's solution enables businesses to understand, manage and build online customer relationships and to market, sell and support products and services over the Internet more effectively. Their Dynamo product suite is designed to provide businesses with the core application platform and software tools required to develop and deploy personalized, reliable, large-scale Web sites for conducting electronic commerce. ARTG also provides a variety of consulting, design, application development, integration, and training and support services in conjunction with its products through its Innovation Solutions and Express Services offerings. Art Technology was recently presented with an Editor's Choice Award (Best Java Application Server) for its Dynamo Product Suite. The award recognizes industry-leading companies that provide business solutions with Java and respond to the increasing demands of technology. Dynamo was one of the first 100% Java application servers and today drives some of the largest and busiest Ecommerce sites on the Web today. ARTG customers include 3M, BMG Music, Hilton Hotels, J-Crew, John Hancock Funds, MTV/Nickelodeon, Peapod, Scudder/Kemper, Sony Online Entertainment and Sun Microsystems. The recent run-up has left most of the moving averages well behind and now the stock is trying to find solid ground from which to make its next assault. We believe $75 is an extreme target for the issue (in the next 10 days) and the return on investment offers a fair risk/reward ratio against the possibility of owning the issue. Art Technology Group (ARTG) $100.88 Action Month & Option Open Closing Cost Return On Req'd Strike Symbol Interest Price Basis Investment Sell Put JAN 75 AYQ MO 275 0.94 74.06 4.5% *** Sell Put JAN 80 AYQ MP 123 1.75 78.25 8.0% Sell Put JAN 85 AYQ MQ 37 2.38 82.62 8.9% Chart = http://quote.yahoo.com/q?s=ARTG&d=6m **** ASDV - Aspect Development $66.25 *** Picking The Bottom *** Aspect Development creates, markets and supports enterprise client server software and content products that enable manufacturers to improve product development and business processes through component and supplier management (CSM). Aspect's CSM solution is licensed to global enterprises in many industries including electronics and high technology, aerospace and defense, automotive, industrial process and consumer package goods. The CSM solution incorporates four interrelated elements, the Explore family of enterprise client server software products, the VIP family of component and supplier content databases, Professional Services for legacy data conversion and business process consulting and a Web Catalog Publisher. Aspect's customers include more than 150 of the 200 largest manufacturing companies in the world. In short, ASDV makes Internet-based software and reference data products that help businesses improve product development and business processes through component and supplier management solutions. That's one of the hottest sectors in the market right now and the late-December rally has boosted the stock out of an old trading range to new all-time highs. We will use the technical support from the recent consolidation area to provide a favorable short-term position. Aspect Development (ASDV) $66.25 Action Month & Option Open Closing Cost Return On Req'd Strike Symbol Interest Price Basis Investment Sell Put JAN 55 QDV MK 19 0.63 54.37 4.0% *** Chart = http://quote.yahoo.com/q?s=ASDV&d=6m **** INCY - Incyte Pharmaceuticals $103.00 ** A Genome World *** Incyte Pharmaceuticals designs, develops and markets genomic database products, genomic data management software tools and related reagents and services, providing access to its genomic databases through collaborations with other pharmaceutical, biotechnology and agricultural companies worldwide. Incyte's portfolio of database modules includes the LifeSeq human gene sequence and expression database, the LifeSeq FL database of full-length human genes, the LifeSeq Atlas mapping database, the PathoSeq microbial genomic database, the ZooSeq animal genomic database, the LifeTools suite of bioinformatics software programs, and LifeSeq 3D data mining and visualization software, as well as a variety of custom database and sequencing services. Each database module consists of a relational database that runs on UNIX-based client/server networks and incorporates HTML and JAVA graphical user interfaces enabling collaborators to use multiple search tools and browse various database modules. Incyte's CEO says the company will enjoy accelerated revenue growth this year as new database deals kick in and they become the gateway for biotech and pharmaceutical companies. Incyte expects to be the focal point for companies and researchers seeking comprehensive DNA data, and will announce later this year how it will use the Internet to expand its offerings. On January 11, Deutsche Banc Alex Brown raised its rating on shares of Incyte with a new price target of $157. The firm said it believes that a combination of anticipated new deals and a major acceleration in revenue growth could fuel new investor interest. The collaborations would supplement the deals with AstraZeneca and Pfizer signed last quarter and may also include programs focused on Incyte's genetic variability program. Incyte Pharmaceuticals (INCY) $103.00 Action Month & Option Open Closing Cost Return On Req'd Strike Symbol Interest Price Basis Investment Sell Put JAN 65 IPQ MM 0 0.56 64.44 2.6% *** Sell Put JAN 70 IPQ MN 52 1.00 69.00 4.6% Sell Put JAN 75 IPQ MO 1 1.56 73.44 7.0% Chart = http://quote.yahoo.com/q?s=INCY&d=6m **** JDSU - JDS Uniphase $180.69 *** An OIN Favorite *** JDS Uniphase develops, manufactures and markets components and modules for fiber optic telecommunications and cable television systems, laser subsystems and laser-based semiconductor wafer defect examination and analysis equipment. JDSU's telecomm and CATV divisions builds semiconductor lasers, high-speed external modulators, transmitters and other components for fiber optic networks. Their Laser Division designs, develops, manufactures and markets laser subsystems for a broad range of applications which include biotechnology, industrial process control and measurement, graphics and printing, and semiconductor equipment. JDSU's Ultrapointe subsidiary develops advanced laser-based systems for semiconductor wafer defect examination and analysis. This company has been at the top of the OIN leader board for many months and not much has changed since the 2 for 1 split in late December. The fundamental outlook is great and the chart continues to show strength, even in the wake of post-split selling. We consider this issue a long-term portfolio position. JDS Uniphase (JDSU) $180.69 Action Month & Option Open Closing Cost Return On Req'd Strike Symbol Interest Price Basis Investment Sell Put JAN 125 UQD ME 2,631 0.69 124.31 1.9% *** Sell Put JAN 130 UQD MF 626 0.81 129.19 2.2% Sell Put JAN 135 UQD MG 763 0.94 134.06 2.5% Sell Put JAN 140 XXZ MH 906 1.13 138.87 3.0% Chart = http://quote.yahoo.com/q?s=JDSU&d=6m **** PUMA - Puma Technology $98.19 ** An Information Society *** Puma Technology develops, markets and supports mobile device management and synchronization software designed to improve the productivity of handheld computers, smart phones and other wireless personal communications platforms. Analysts are very optimistic about Puma's prospects, because the acquisition NetMind gives the company a more complete e-commerce strategy at a time when companies are looking to offer consumers more wireless and mobile data services. With Puma's leading-edge data synchronization technology, the e-commerce technology from NetMind and the technology for rendering Web pages on handhelds from the August acquisition of Proxinet, Puma is poised to become the next Phone.com or Broadvision. We favor the ITM positions with technical support near $75 to $80 in this aggressive, short-term play. Puma Technology (PUMA) $98.19 Action Month & Option Open Closing Cost Return On Req'd Strike Symbol Interest Price Basis Investment Sell Put JAN 70 PUP MN 83 0.75 69.25 3.7% *** Sell Put JAN 75 PUP MO 112 1.31 73.69 6.3% Sell Put JAN 80 PUP MP 129 2.25 77.75 9.6% Chart = http://quote.yahoo.com/q?s=PUMA&d=6m **** February Plays ADAP - Adaptive Broadband $93.19 *** Covered-Combo *** Adaptive Broadband is a supplier of terrestrial wireless and satellite-based systems to support data communications, broadcast digital TV and telemetry networks. ADAP also provides products for satellite-based and terrestrial wireless ultra-high speed Internet access, transport and worldwide Internet backbones. The company's products are able to send large amounts of voice, video and data traffic over the airwaves using microwave and satellite technology. Adaptive currently derives revenues from two market areas: satellite communications and terrestrial wireless. Their product series include the AB-Infrastructure Series, the AB-Data Network Series, the AB-Video Series, and the AB-Internet Series. Recently listed with a number of issues that are expected to lead the emerging growth companies in the broadband industry, Adaptive is an excellent choice for a long-term portfolio holding. Today the issue was rated a new 'Accumulate' at Prudential Volpe with an initial price target of $92. We favor the recent consolidation area as price support for this conservative combination position. Adaptive Broadband (ADAP) $93.19 Action Month & Option Open Closing Cost Return On Req'd Strike Symbol Interest Price Basis Investment Sell Call FEB 75 CQI BO 2 22.13 71.06 5.5% *** Sell Call FEB 80 CQI BP 96 18.88 74.31 7.7% Sell Put FEB 65 CQI NM 31 1.75 63.25 8.6% *** Sell Put FEB 70 CQI NN 20 2.38 67.62 11.3% Chart = http://quote.yahoo.com/q?s=ADAP&d=6m **** GMH - Hughes Electronics $107.00 *** New All-Time High *** Hughes Electronics is a leading global provider of digital direct broadcast satellite entertainment services and communications services including satellite-based private business networks. Hughes, a wholly owned subsidiary of General Motors Corporation, is also a leading global manufacturer of satellite systems. Their businesses includes DIRECTV, which is the world's leading digital direct broadcast satellite service based on number of subscribers; PanAmSat, which owns and operates the largest commercial satellite fleet in the world; Spaceway, which is a planned satellite-based broadband communications platform that is expected to provide customers with high-speed multimedia transmission beginning in 2002; Hughes Network Systems, which is a leader in satellite and wireless communications ground equipment and services; and Hughes Space and Communications, which is a top satellite manufacturer. The new rumor is that and Boeing (BA) plans to purchase Hughes Electronics' satellite-manufacturing business. The transaction would establish Hughes as an almost pure communications services company, allowing the company to achieve higher growth and better returns over the long term. Analysts have speculated for over a year that GM might spin-off Hughes as an independent company to boost shareholder value, but an outright sale of Hughes would come as a surprise. Some analysts have said that GM would more likely divest one-third of Hughes, worth about $27 billion and hold onto another one-third, while using the remaining one-third for debt and medical benefits obligations. Regardless on the outcome, this issue has been very bullish in recent months and the satellite communications industry continues to soar. Investors are flocking to this issue based on the new speculation but it should perform even without an eventual merger. Hughes Electronics (GMH) $106.81 Action Month & Option Open Closing Cost Return On Req'd Strike Symbol Interest Price Basis Investment Sell Call FEB 100 GMH BT 84 11.00 95.81 4.4% *** Sell Put FEB 95 GMH NS 22 2.25 92.75 6.8% *** Sell Put FEB 100 GMH NT 100 3.88 96.12 9.8% Chart = http://quote.yahoo.com/q?s=GMH&d=6m **** NVLS - Novellus Systems $141.31 *** Big Split Coming *** Novellus Systems manufactures, markets and services advanced automated wafer fabrication systems for the deposition of thin films within the semiconductor equipment market. The company is a leading supplier of high productivity deposition systems used in the fabrication of integrated circuits. It employs three primary film deposition systems: the Chemical Vapor Deposition, the Physical Vapor Deposition and the electro-fill systems. CVD systems employ a chemical plasma to deposit all of the dielectric or insulating layers and certain of the conductive metal layers on the surface of a semiconductor wafer. PVD systems are used to deposit conductive metal layers by sputtering metallic atoms from the surface of a target source via high DC power. Electro-fill systems are used for depositing copper conductive layers in a dual damascene design architecture using an Aqueous solution. Novellus shares have surged since the chip equipment maker said its fourth quarter earnings would substantially exceed the Street estimates. Novellus also declared a 3-for-1 stock split, with a record date of December 30 and payment to be made on January 18. A number of recent upgrades have also boosted the stock and the most recent came from ABN AMRO analyst David Wu. Today he raised his 12-month price target to $180 based on increased sales and higher than expected fourth-quarter profits. The analyst said he is now expecting calendar 2000 growth of 35%. He also commented that Intel's future move to a two vendor policy in strategic processing equipment could open up a business opportunity for the company. Novellus Systems (NVLS) $141.31 Action Month & Option Open Closing Cost Return On Req'd Strike Symbol Interest Price Basis Investment Sell Call FEB 115 NLQ BC 299 31.88 109.43 5.1% *** Sell Call FEB 120 NLQ BD 1,076 28.38 112.93 6.3% Sell Put FEB 100 NLQ NT 88 2.13 97.87 7.0% *** Sell Put FEB 105 NLQ NA 55 3.00 102.00 9.6% Sell Put FEB 110 NLQ NB 222 4.25 105.75 13.1% Chart = http://quote.yahoo.com/q?s=NVLS&d=6m ************************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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