The Option Investor Newsletter Sunday 1-16-2000 1 of 5 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 1-14 WE 1-07 WE 12-31 WE 12-24 DOW 11722.98 +200.42 11522.56 + 25.44 11497.12 + 91.36 +148.33 Nasdaq 4064.27 +181.65 3882.62 -186.66 4069.28 + 99.84 +216.38 S&P-100 797.52 + 14.03 783.49 - 9.34 792.83 - 2.73 + 21.63 S&P-500 1465.15 + 23.68 1441.47 - 27.78 1469.25 + 7.81 + 40.39 RUT 508.11 + 19.80 488.31 - 16.44 504.75 + 26.81 + 11.73 TRAN 2891.63 - 73.09 2964.72 - 12.48 2977.20 + 89.50 - 30.72 VIX 22.13 - 1.07 23.20 - 3.51 26.71 + 3.59 + .11 Put/Call .42 .50 .51 .47 ****************************************************************** Remember February! The PPI was benign. The CPI was the lowest since 1965. Greenspan did not turn his speech into a market roast. Intel beat the whisper numbers and the Internets survived the AOL/TWX merger news. The Fed meeting is not for two weeks but the rate hike is already priced into the markets. Y2K is history and the Retail Sales showed the consumers spending all that Y2K cash. What is wrong with this picture? I hate it when everything is too good to be true! The markets roared back into record form again on Friday after the PPI posted the smallest gains since 1965 with only a +1.9% increase. After four failed attempts to close over 10600 the Dow exploded to a new record high close at 11722. There was no holding back the big caps or the techs even though the bond yields traded as high as 6.71% before falling back to close at 6.69%. Financials soared on the news and completely disregarded the coming rate increase. Citigroup closed at a new high and other Dow components AXP and JPM posted strong gains. The Nasdaq gapped open +65 and quickly ran up to trade near 4100 all day but could not break out completely. I am not complaining but many Nasdaq stocks did not participate in the rally. Most of the Nasdaq gains were on the back of Intel's outstanding earnings and the new Microsoft CEO. Intel added +$12 and MSFT +4.44. The other Nasdaq leaders were soft with CSCO only adding +1.38 and Dell +.88. Friday, Intel set the mood. Their earnings report was inspiration for a host of analyst upgrades on the chip sector. This spilled over into tangible and large scale moves in technology stocks across the board. Intel is rolling out a new chip for laptops this week. It's a 600 megahertz chip with power management capabilities built in. In other technology stock news, Lucent is in more trouble. There are now questions about accounting practices being raised. The tech sector appears to have digested most of the bad news in this stock, and is disregarding it. On the Economic front, Greenspan's Speech to the NY Economics Club last week was greeted well by Wall Street. Most encouraging, from our standpoint was that he seems to be assigning greater importance to the idea that the old models may not apply anymore. Under the old Phillips curve economic model, the Labor rate was the single largest component for inflation. Under the new Internet economy/New Paradigm, productivity growth is so rapid that the impact labor has on inflation has to be re-thought significantly. Some of the language in his speech showed signs that he may be becoming a little more comfortable with the idea that these older models are giving way to the New Paradigm. The Fed began draining some of the liquidity out of the market this week that had been pumped in for concerns over Y2K. Before the end of the year, there was a great deal of speculation about how and when this would be done, and what it's impact on the financial markets would be. The impact appears to have been negligible. Coming up soon, Mr. Greenspan will be speaking in front of the Senate Budget Committee. While this appearance will not be a rate policy speech, you can count on the Senators to badger him to death about interest rate policy and to make futile attempts to ascertain and to influence his opinion on interest rate policy matters. Any time Mr. Greenspan speaks, Wall Street pays attention. None of us want to be caught flat footed if he says something with direct and immediate impact. Treasury Secretary Summers will be giving testimony next week as well. He'll be addressing the Administrative Budget for the 2001 fiscal year. While we don't believe there will be any market moving news, we'll want to keep a close watch on this testimony. Next week is a short week, but there are going to be some key earnings announcements we'll want to keep an eye on. Tuesday, Broadcom and DoubleClick will be reporting. These two leaders hold big sway in the internet community. On Wednesday, AMD, Ameritrade (AMTD), AOL (AOL), E*Trade (EGRP), IBM, and Redback (RBAK) will report. On Thursday, Sun Micro (SUNW), Lucent (LU), and Gateway (GTW) are reporting. This week there were several key split events. Among them were DoubleClick (DCLK), CMGI (CMGI), Novellus (NVLS), and Juniper Networks (JNPR). For next week, Vitria (VITR), KLA Tencor (KLAC), and Oracle (ORCL) all have splits on the 19th. The only index not included in the party this week was the transports. With oil setting a new high of $28 per bbl the transports lost ground. This energy component will eventually make its way through the CPI/PPI numbers and cause trouble. This along with the FOMC meeting in two weeks is contributing to the rising bond yields. Everything appears rosy. Earnings announcements are picking up speed this week and most of the news has been good so far this month. So why should you remember last February? After a strong period and record profits by many traders during the end of 1998 the Nasdaq started a sell off on Feb 1st that took -300 points off the index by the middle of February. Well over -10% considering the high on Feb 1st was 2533. The market traded sideways from mid-February through March and did not regain the 2500 level until early April as the next earnings cycle kicked into gear. In 1998 the Nasdaq had run up from the October crash low of 1360 to a Feb 1st high of 2533 or +1173 points. The February sell off lasted six weeks as traders shuffled profits from this record gain. Don't look now but the Oct-1999 low was 2640 and we are now at 4100 for another record gain of +1460 points. The challenge here is to be in the market in case it does continue upward but be ready to get out of the market quickly should any market weakness begin to appear. I think I have received well over 1000 emails in the last year that went something like "I did real well the last four months (Oct-Jan) but I gave it all back and then some in February, what am I doing wrong?" Think about it. How did you do last February? Do you want to do it again? I doubt it. Now I want everybody to focus on this point. There may be a good chance the market will drop starting in the next two weeks. There is also a good chance the Y2K money coming off the sidelines could cushion this drop but once the earnings are basically over there will be some market weakness. This is hard to rationalize since market breadth is now more positive than it has been for sometime. New highs are beating new lows. The Nasdaq, Dow, S&P, RUT are all at new record highs. Investor sentiment is at an all time high. Yet, almost all the analysts are expecting some profit taking soon. Those concepts are not opposites. You can be bullish and still recognize that some short term profit taking will occur. Why am I trying to be so forceful in warning you about a possible bout of profit taking? Because most traders are so accustomed to buying the dip that they either try to hold their positions until it is over or they jump back in on the first or second dip and then get killed when the market continues downward. Everybody always thinks the correction will only impact everyone else. The stocks they own are good, strong and bullet proof. Sorry, but there has never been a stock that was bullet proof. Technicians differ on the exact amount but most will agree that 60% to 80% of a stocks movement is caused by market movement. Take any ten stock charts and overlay the corresponding market chart (Dow or Nasdaq) and you will see what I mean. We are entering a very critical period in the markets. I do not want you to give back your recent gains by ignoring the facts. Trade the current rally until it fails and then step aside. When it fails, and it eventually will, step aside. The end of this earnings cycle will leave investors with a Fed that is raising rates and no short term reason to be in the market. The Fed meets on February 1-2nd and that should be the catalyst for profit taking to begin. The next meeting is on March 21st and that meeting should be the signal for the April earnings runs to begin. Everything in between could be rocky. The low points last year during this period were Feb-18th and March 4th. Be careful the next few weeks. Ignore the warning signs and it could be expensive. Trade smart and avoid the mistakes of the past. The economic calendar this week is a non-event. With the markets closed on Monday for Martin Luther King Day there are no scheduled releases until Wednesday. The Housing Starts and Building Permits on Wednesday and International Trade, Philadelphia Fed Survey on Thursday are not significant compared with the PPI/CPI last week. It is earnings, earnings, earnings this week and then we start over the week before the Fed meeting with Consumer Confidence, Durable Goods and the Employment Cost Index. I got several hundred emails last week on the Covered Straddle Options 101 article. I can not answer them all but I plan on posting the most commonly asked questions with the answers on the website this week. My article this week is a much simpler strategy and almost as profitable. Check it out on the website. We are announcing our annual Options Expo Seminar in Denver for March. Last year this seminar sold out in only two days. This years seminar will be taught by over 15 OIN staff along with numerous guest speakers. The advanced seminar is a full three days with an optional additional day before the advanced seminar for those that need a better understanding of all the basic option strategies before attending the advanced sessions. Look for the announcement notice on the website or in the newsletter. If you think you are interested in attending you need to register immediately as seating is limited. The Options Clearing Corp reported that Friday was the fourth heaviest day ever for U.S. options volume with over 3.6 million contracts traded. This compares with an average of 2 million per day in 1999 and 1.6 million in 1998. Average daily volume in January has been over 3 million contracts. Looks like our readers are trading hard! With options expiring on on Friday the bias is normally up. Trade smart, sell too soon. Jim Brown Editor ****************************** ANNUAL OPTION INVESTOR SEMINAR ****************************** OptionInvestor is announcing the dates for the annual OIN Options Seminar in Denver Colorado. The four day seminar is scheduled for March 25-28 and will be taught by 15 OptionInvestor staff and several well known guest speakers. The seminar consists of two parts. The first day is an optional Options Boot Camp for new option traders who need a better grasp of all the different strategies before attending the following three day advanced seminar. Some of the topics covered will be: Entry Point, Entry Point, Entry Point Technical & Fundamental Analysis Options on Stock Splits Understanding Market Sentiment Recognizing Market Changes Cash Flow with Covered Calls Covered Calls on Leaps Using The Power of Index Options Successful Spread Techniques Maximizing Returns With Options Selling Puts, A Win - Win Play Using Options To Hedge the Market Buying Stock with Options Fundamentals of Charting Picking the Right Play In the Money, At the Money, Out of the Money Understanding Risk Profiles Making Stop Losses Work Trend Trading Day Trading Options Trading Psychology Money Management Target Shooting, Waiting on the Market Capitalizing on Earnings Stress Free Straddles Taxes and the Trader Keeping more Profits by Paying Less Taxes Selling Time OEX Skybox Recognizing Opportunity and Profiting From It. Last year the seminar sold out the first day. If you are interested please register immediately because seating is limited. http://www.OptionInvestor.com/bootcamp/oinmain.html ****************************** OptionInvestor/Optionetics Spring Advanced Seminar Series ****************************** The spring dates for the OptionInvestor/Optionetics seminar series have been announced. This is the advanced seminar taught by George Fontanills and Tom Gentile. If you feel you need more option strategies in your trading arsenal then this seminar is for you. Remember, you can bring a friend for free and retake the seminar as many times as you want for free. The cost of the two day seminar is about what you would lose in only one trade. Invest it, don't lose it. Here are the spring dates: Feb 27/28 Los Angeles Mar 19/20 Chicago Mar 26/27 Dallas Apr 2/3 San Francisco For complete details http://www.OptionInvestor.com/seminar/ There is a 100% money back guarantee and you can take a friend for free. What else could you ask for? ************ JIM'S PLAYS ************ Another incredible week in the market, if only you knew which way to play the day before. Up +100, down -100, repeat. Volatility anyone? I actually did not trade very much. I am buried with work this time of the year getting ready for our March seminar. I am also concerned about the coming post earnings season. With that in mind, I am limiting myself to two or three positions that are easily monitored. QQQ - JAN-160 Calls I bailed on these on Monday with a little better than a $10 per share profit. The QQQ tracking stock does not normally make such major moves. This shows the extreme volatility in the market. After the Nasdaq stopped dead on 4100 again and the Dow set new record highs three days in a row, I took a chance on Friday afternoon and bought some Jan-188 puts for $5.75 just in case the pull back starts Tuesday. This was a long shot and since the market did not drop at the close I really expect to bail on these at the open and re-enter the position later in the week. LU Jan-2002-45 leaps Still holding and considering buying more after rumors of accounting problems made the rounds on Friday. Lucent denied the rumors and I expect a quick rebound. GTW - Jan-2002 $50 Leaps Gateway rebounded quickly but the continued press on a rumored Dell warning to come has continued to depress Gateway. Earnings are this week and positive comments from the company should start the recovery. VOD - APR- $40 calls This was very gratifying. I actually was patient and waited for VOD to come back to me and bought the April-40 calls on the dip last week. As you can see it was just a dip and to my surprise it did rebound. Lately the dips I bought just kept dipping. I am sure this happens to nobody else. Now if only VOD can mount a breakout over $54!! Fortunately a great entry point makes me worry less about selling too quickly. I am going to try and let this one run. It is hard but I think I can, I think I can, I can, I can... BVSN - Covered Straddle I was long the stock and short the Jan-$170 puts last Sunday. I sold the stock at the open on Monday for a $13 gain and then went short the stock after it gapped down on Tuesday. I covered the short at the close Tuesday expecting another gap up off support on Wednesday but not confident enough to go long. I got wipsawed several times on Wed/Thr and finally saw the writing on the wall that it was not going back to $170 this week. I already had a noce profit and with no clear direction I closed the play. These require constant supervision if there is no clear direction. It is better to pass than remain frustrated over the the possibilities. China - Jan-75 puts I bailed on the Jan-75 puts after the gap open on Monday. It looks like the trend is down but I was taking no chances. A busted play, period. OEX - Jan-810 puts Another long shot on the market tanking Friday at the close. I bought the 810 puts near the high of the day expecting some sell off before the long weekend. If the market opens up on Monday I will bail and wait for another upward spike later in the week. ************ Again, I am not planning to trade much this week as I have a heavy schedule. I feel my LU and GTW plays are fairly safe from any market disturbance and I am going to sell calls against them on any upward spike. I want to wait for the spike to avoid being called out. If the VOD play looks like it is going to roll over again I may try converting to a rolling stock play and sell on the peaks and buy back on the dips until the trend quits. I am planning to sell some January puts on Tuesday morning to capture some quick cash flow deep out of the money. Because I am expecting a drop in the market soon I am not going to sell Feb puts until the drop starts. This will inflate the premiums and establish direction. Watch for signs of the market rolling over as we get closer to the Fed meeting. Good Luck Jim *********** OPTIONS 101 *********** Minimum Risk, Maximum Reward. By Jim Brown Selling naked puts significantly out of the money offers minimum risk on positions that require very little maintenance. If you can not watch your trades and want a low risk strategy this is it. http://members.OptionInvestor.com/options101/011600_2.asp ************ Stock News ************ Time to buy UAL? Are shares of parent company UAL Corp.'s United Airlines cheap? That's a tough question. Shares of the Elk Grove Township, IL-based airline fell sharply Thursday to $65 after the company warned that 2000 earnings would fall below analysts' estimates. Shares had been moving higher, up from $68 in December to the high 70s at the end of the year. http://members.OptionInvestor.com/stocknews/011600_1.asp ******* Ask OIN ******* There is no Ask the Analyst article this weekend. ************** Market Posture ************** As of Market Close - Friday, January 14, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 11,000 11,350 11,723 BULLISH 1.13 SPX S&P 500 1,340 1,400 1,465 BULLISH 12.03 OEX S&P 100 700 750 798 BULLISH 12.03 RUT Russell 2000 430 450 508 BULLISH 11.12 NDX NASD 100 3,200 3,800 3,705 Neutral 1.06 MSH High Tech 1,650 1,900 1,852 Neutral 1.06 XCI Hardware 1,300 1,350 1,428 BULLISH 1.14 * CWX Software 1,210 1,420 1,333 Neutral 1.07 SOX Semiconductor 640 660 810 BULLISH 12.21 NWX Networking 820 900 879 Neutral 1.07 INX Internet 665 800 711 Neutral 1.06 BIX Banking 645 690 561 BEARISH 11.30 XBD Brokerage 410 450 441 Neutral 11.30 IUX Insurance 625 650 615 BEARISH 11.30 RLX Retail 900 935 976 BULLISH 11.23 DRG Drug 380 400 375 BEARISH 12.07 HCX Healthcare 760 790 754 BEARISH 12.07 XAL Airline 180 190 144 BEARISH 5.21 OIX Oil & Gas 280 315 290 Neutral 1.06 Posture Alert "Intel Inside" definitely got inside technology buyers Friday as the Nasdaq romped to another 100+ point gain. Thanks to the giant chip-makers stellar earnings, the Semiconductor Index posted a +8.13% gain, which was followed by Hardware (+4.08%), Banking (+3.18%), and the Nasdaq 100 (+2.57%). Losers were limited to the Internet (-2.37%), Oil & Gas, and Retail sectors. With Friday's market action, we have upped the Hardware Sector to Bullish. ****************** Market Sentiment ****************** Sunday, January 16, 2000 Great Expectations! Last week felt more like a daytime soap opera than the usual grind of the stock market. Rumors, mergers, resignations, and earnings all contributed to the "Days of Our stock market Lives." The Nasdaq closed out the week by notching on another triple-digit gain, its fifth time year-to-date, or 50% of the trading days outstanding! The week started off with the news that America Online was merging with Time Warner in a $350-billion dollar blockbuster deal. We then had rumors of a Microsoft breakup, which were compounding hourly, then the world's richest man stepped down from the CEO position. We also had the CEO of the worlds largest retailer (Walmart/David Glass) step down as well. Intel rocked Wall Street with solid earnings and had it biggest day in a long-time, and now Lucent Tech is being rumored as cooking the books. Finally Michael Jordan is buying the Washington Wizards! C'mon Mike, buy some Dot-Com stocks, you'll make more money! Anyway, what a week this has been! If the major earnings run starting this next week is anywhere near as exciting as this last, we will be in for a major ride! Did we mention that the Nasdaq has a 50% batting average for 100+ gains in the new millennium? Anyway, below is a list of equities (that should be reporting their earnings this next week) and our Pinnacle Index for those particular stocks. The Pinnacle Index is a proprietary product that determines current market sentiment and expectations for underlying equities and indexes, which is based upon speculation in the option markets. Also included are their expected earnings, the infamous whisper number (if available), and their estimated earnings release date. What we look for are liquid stocks/options that garner a lot of interest from the investment community. Most of the issues are high tech, and are thus more aggressive. We then filter out many of the equities, only to show stocks with excessive optimism or pessimism. From a contrarian standpoint (a high number is a good indication of extreme optimism, and a low number is a good indication of extreme pessimism) you should buy when its low, and sell when its high. Last quarter, we highlighted some stocks with a Pinnacle Index that were stratospheric (as high as the upper 20's). Needless to say, these stocks had so much pent-up enthusiasm, that after their earnings, they tanked. It is the old adage, buy the rumor - sell the news. There were also numerous companies with a Pinnacle Index less than one. However, once these companies came out with their bad quarter, the stocks rallied due to the oversupply of pessimism. If your favorite stock is not listed, the most common reasons are: 1) there are no options traded on the underlying equity 2) lack of interest by option speculators in the security 3) lack of quality information 4) company already pre-released 5) insufficient data. Also, as we get closer to the heart of earnings season, the list will expand dramatically to reflect companies whose earnings are due out shortly. Company Symbol Pinnacle Expected Whisper#: Estimated Index(PI): Earnings: Date*: Adv. Micro Dev. AMD 4.80 -.07 -.00 1/19 America Online AOL 1.34 +.08 +.10 1/19 Ameritrade AMTD 3.68 -.12 -.11 1/19 Apple Computer APPL 2.84 +.86 +.90 1/19 Adaptec ADPT 8.42 +.48 +.52 1/20 Broadcom BRCM 6.69 +.27 +.30 1/18 Citrix Systems CTXS 15.50 +.37 +.39 1/18 Corel Corp CORL 4.86 -.14 -.13 1/19 Conexant Systems CNXT 5.88 +.20 +.23 1/19 C-Cube Micro CUBE 9.20 +.37 +.38 1/20 Doubleclick DCLK 7.30 -.08 -.07 1/19 E-Trade Group EGRP 2.45 -.17 -.15 1/19 Electronic/Imag. EFII 3.45 +.41 +.42 1/19 ExciteAtHome ATHM 1.29 +.00 +.00 1/20 Gateway Computer GTW 0.99 +.37 +.37 1/20 Go2Net Inc. GNET 8.31 +.09 +.11 1/18 Harmonic Lightw. HLIT 9.05 +.23 +.28 1/19 HearMe HEAR 4.20 -.30 -.27 1/18 i2 Technologies ITWO 4.74 +.17 +.19 1/20 IBM IBM 1.39 +1.05 +1.07 1/19 Iomega IOM 7.80 +.04 +.04 1/20 LamResearch LRCX 5.01 +.70 +.76 1/20 Lattice Semic. LSCC 2.22 +.36 +.37 1/20 Lucent Tech LU 1.00 +.36 +.39 1/20 Lexmark LXK 1.93 +.68 +.69 1/18 Motorola MOT 3.52 +.81 +.84 1/18 Microsoft MSFT 4.80 +.42 +.45 1/18 Morgan JP JPM 1.85 +2.10 +2.15 1/18 Novellus Syst. NVLS 6.90 +.77 +.84 1/18 Phone.com PHCM 0.78 -.17 -.14 1/20 PMC-Sierra PMCS 2.46 +.27 +.28 1/20 Rambus RMBS 2.36 +.10 +.12 1/18 Redback Networks RBAK 3.37 +.01 +.04 1/19 Spyglass SPYG 3.33 -.05 -.05 1/19 Silicon Storage SSTI 3.81 +.19 +.20 1/18 ST Microelectric STM 7.89 +.56 +.59 1/20 Sun Microsystems SUNW 9.15 +.20 +.22 1/20 Sybase SYBS 4.17 +.22 +.27 1/20 Tyco TYC 1.43 +.45 +.47 1/18 Unisys UIS 1.40 +.46 +.49 1/18 With Intel's solid earnings this past week, the expectation bar has been lifted for all companies across the board. On Friday, call options on individual equities traded over one million contracts, a very sizable number. What this tells us is that the speculators are looking for the next "big one." We may see this current rally continue, and witness many other issues beat expectations, only to sell off. The buy the rumor, sell the news mentality will definitely come out this week. Stocks showing current levels of extreme optimism based on the Pinnacle Index include Advanced Micro Devices, Adaptec, Broadcom, Citrix Systems, Conexant, C-Cube Microsystems, Doubleclick, Go2Net, Harmonic Lightwave, Iomega, LamResearch, Novellus Systems, ST Microelectric, Sybase, and Sun Microsystems. Not only do these companies have high option expectations, but also have whisper numbers are significantly greater, which is only another potential letdown if the quarter is not a blowout. Obviously, if these companies blow away all expectations, you could see significant appreciation, however, gauging this sentiment has been very successful during past quarters and with the level of optimism being so great, we would look for a little bit of a letdown after earnings. Stocks with low expectations from the option community include: America Online, Apple Computer, E-Trade, Excite@Home, Gateway Computer, IBM, Lattice Semiconductor, Lucent Tech, Lexmark, JP Morgan, Phone.com, PMC Sierra, Rambus, Tyco, and Unisys. Granted, some of these companies have a low Pinnacle Index due to a major news announcement, but regardless, if they beat earnings expectations and have a solid conference call, these companies would be poised for a pop in stock price due to the low sentiment that is already priced into the equities. Now, f your favorite company is due to report earnings, we would recommend that you monitor all option trades for that particular issue during the two trading days before the report. This is where the last second speculator tries to jump on board, and in the past, we have seen the Pinnacle Index change dramatically the day of earnings. Last quarter, we witnessed Qualcomm's Pinnacle Index change from overly optimistic to overly pessimistic in one day! We will, however, keep you posted of any changes Tuesday. Have a good trading week! BULLISH Signs: Corporate Earnings: The main corporate earnings season is just around the corner, but there have been several positive earnings surprises with the latest being technology bellwether Intel. 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: None BEARISH Signs: Interest Rates (6.688%): 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. Volatility Index (21.05): The VIX proved continues to prove that the low 30's are an excellent buying opportunity, and the high teens continue to be a great selling opportunity. At Friday's level, we may be getting close to an overbought market on the short term. 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. The Power of Sentiment Analysis It has often been said that the crowd is right during the market trends but wrong at both ends. Measuring and evaluating the sentiment of the crowd, therefore, can give savvy option traders a decided edge. Pinnacle Index OEX Friday Benchmark (1/14) Overhead Resistance (800-820) 7.82 OEX Close 797.52 Underlying Support (770-790) 1.20 What the Pinnacle Index is telling us: Based on January 14, direct overhead is extremely heavy. We will need to see put buyers coming in to help take this index out. Underlying support is light. Put/Call Ratio Friday Strike/Contracts (1/14) CBOE Total P/C Ratio .42 CBOE Equity P/C Ratio .31 OEX P/C Ratio 1.83 Peak Open Interest (OEX) Friday Strike/Contracts (1/14) Puts 700 / 10,484 Calls 800 / 22,600 Put/Call Ratio 0.46 Investors Intelligence Major Percent Percent Date Turning Point Bullish Bearish October 97 Bottom 22.0 48.3 July 20, 1998 Top 52.0 24.0 October 8, 1998 Bottom 38.5 42.7 January 11, 1999 Top 58.3 30.0 March 4, 1999 Bottom 49.1 32.5 Oct. 13, 1999 Bottom? 39.2 37.5 Janurary 7, 2000 54.5 26.4 ************* COMING EVENTS ************* For the week of January 17, 2000 Monday None Scheduled Tuesday None Scheduled Wednesday Housing Starts Dec Forecast: 1.60M Previous: 1.60M Building Permits Dec Forecast: 1.59M Previous: 1.61M BTM Schroders 1/15 Forecast: -- Previous: -0.8% Thursday Jobless Claims 1/15 Forecast: -- Previous: 309K International Trade Nov Forecast:-$25.5B Previous: -$24.94B Philadelphia Fed Srvy Jan Forecast: -- Previous: 8.6 Friday Federal Budget Dec Forecast: $31.5B Previous: -$27.6B Week of 1/24 1/25 Consumer Confidence - Jan 1/25 Existing Home Sales - Dec 1/27 Durable Goods Orders - Dec 1/27 Employment Cost Index - Q4 1/27 Help Wanted Index - Dec 1/28 Gross Domestic Product - Q4 1/28 University of Michican Sentiment - Jan ************ WOMANS WORLD ************ TIBX DOES AN ELVIS - Anatomy of a bad trade I thought Elvis was re-incarnated after following the action of TIBX this week. Talk about swiveling those hips! Well, it was 1 for the money, 2 for the show, 3 to get ready and 4 GO LOW? On Monday at 10:30, I received the trading alert from the OIN site to buy puts on TIBX. From the site, I learned that Tibco is an infrastructure provider whose products and services enable computer applications and platforms to communicate efficiently across networks plan to offer Internet access in automobiles. Sounds good so far. 48 million new shares were to end their lock-up period. That doesn't sound good unless you're a put buyer. TIBX's 52-week high of 195 was on Dec 22. Since then it dropped about 75 points to a low of 114 on January 7 and then closed at 120. Its IPO price was $15 back in July! Even at 120 this stock was in nose bleed territory. Next step was to do some quick research, after all, I hadn't heard of this stock before the alert. I found out its competitors were MSTR, PUMA, MGIC and LEAF all of whom sport an EPS between 61 and 82. Tibco has been around since 1994 and still is not profitable. This seems to fit the "Amazon model" justifying extremely high multiples. Management owns 26 % of the stock, so in my mind, that further validated the reasoning to short this stock or buy puts now that the IPO lockout was over. Studying the charts further using Japanese candlesticks, I saw that the previous day's candle was a doji. Doji's can be a signal of a short- term top or bottom. The trick is knowing which direction. You need to wait for a further signal for the confirmation of a doji. Being the cautious investor that I am, I waited till TIBX broke below its 50-dma (117). By 11 AM, TIBX was trading down at 114. The current day's candle was now a very bearish candle called appropriately enough, a bearish engulfing pattern. This pattern is a very strong reliable signal, which has served me well. This was the confirmation I was looking for. Next I checked the puts-they were grossly overpriced so I decided I did not want to be a buyer. I consulted the chart again and determined there was good resistance at 138, so I decided to write some calls. To play it even more conservatively, I decided to write 10 contracts of the Jan 150 calls for 2-1/4 with 2 weeks to expiration. These were 36 points out of the money, so I figured I could just sit back and collect my moola next Friday. And now, get ready for the show, cause this stock did a "go cat go". By 1:00 the stock went up to 125, above the previous day's close, not a good sign. I didn't sweat it because I had 36 points of squirming room. The stock closed at 123 7/8 and the day's candle was now a rather large white up candle with a long tail. The following day, TIBX opened and went down to 126 in the first ten minutes, I felt a little relieved and convinced myself the previous day's move was to shake out the bulls. By 11:00, TIBX climbed to 147. Not to worry I told myself, there can't be any bulls left now so this stock can do what it was supposed to do-GO DOWN! The stock did go down from there but instead closed at 140-1/2. On Wednesday, TIBX ran up to 153, which is 3 points above my 150 call. I looked at the calls to buy them back but they were so inflated that I would have had to pay 8 points. It didn't make sense to pay 8 points when I was only down 3 (153-150) so it was now squirming time again. TIBX ran down from there and closed at 146-1/4. I was temporarily off the hot seat. Thursday TIBX gapped open at 154 15/16 and ran up to 165! Now I started desperately looking for a bullish counteractive strategy. There was a lot of noise between 162 and 164, so I contemplated writing 160 puts for 14-1/8. If the stock stayed above 160 I would keep the premium and use it to offset my loss at expiration. If at expiration the stock was at 165, my 150 call option would cost 15 to buy back. I would have received 14-1/8 on the puts plus the original 2-1/4 on the call, so I actually would be ahead of the game. But the bigger risk was if the stock closed below 160 and above 150-too much exposure for me at this point. The stock closed at 165 and opened on Friday at 167. As you know, Friday was a blockbuster day but TIBX had trouble from the get go and started it's downward descent to 159, where it closed. After climbing for 4 straight days, from a low of 112 to a high of 166, I reckoned this puppy needed a little rest. Friday's candle was a dark cloud cover, a very reliable bearish signal. I am convinced over the next week this stock will go back down and fill the gap at 146-1/4. That's all I need to make money of this raging bull. Of course, time will tell. The moral of this story is to use stops. Don't let your trades get this far out of control. I hope you don't think all my trading is this reckless. Rather than present you with all the glories of my week, I try to pick out a trade where you can learn the most. Sometimes they're great trades, and other times they truly are pathetic. Trading is an art and a science and involves a lot of emotion. Trying to take the emotion out of the trade is the most difficult lesson to learn. I have been trading options for ten years and I still haven't done it yet, but I'm working on it. Lynda@OptionInvestor.com ***************************************** MORE WOMANS WORLD ARTICLES 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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You may also fax the information to: 303-797-1333 DISCLAIMER *********** This newsletter is a publication dedicated to the education of options traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. 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The Option Investor Newsletter 1-16-2000 Sunday 2 of 5 ************************* WOMAN'S WORLD - CONTINUED ************************* Is the Fed on track? Profitable trades can be made in this range bound market although it is necessary for traders to be nimble about their stock and option picks. As of last week, I owned Nextlink stock and one Nextlink Feb 80 put. I had sold another put last week thinking the stock would go up. It went up last week, then way down to 65 on Monday at which time I sold my second put at a profit from the purchase price. If I had hung onto both of the puts I could have closed out the stock/put position at a profit. Instead, I wrote a Jan 75 covered call on the stock for 4.5 points. If the position works out as I think it will it will return 25% profit in three weeks. The position has worked out well but not the way I originally intended it because I acted too hastily in selling the first put. My Qwest communications leaps are at a profit from where I bought them, however I did not sell them because I think that Qwest may go to 50 in six months, in which case the leap could return 100%. I have been watching CMGI very closely, and it is showing a strong pattern of moving between 125 and 131.This will make it a good day trading stock to buy at 125 and sell at 130. I plan to purchase a Jan 125 leap next week if the stock drops to 124 or below. In addition, I bought back into Nortel at 94. There have been a number of debates and discussions in the last few years about the role of the Federal Reserve. One of the real issues which will face the Fed in the twenty first century is whether or not they should use monetary tools such as interest rate changes in order to attempt to influence the stock market. Traditionally the Fed has used interest rate policy in order to help control inflation. There have been periods when this was necessary. Inflation is dangerous when it gets to the point where people on a fixed income or gradually increasing income no longer have enough money for their basic needs. There is currently debate among economists about whether there is widespread inflation in our economy, and also whether the rapidly growing economy will lead to inflation if preventative steps are not taken. Certainly our current Fed Chairman has shown that he feels it is best to err on the side of preventative caution where inflation is concerned. Hypothetically, if inflation were benign or under control, then should the Fed act in order to target the stock market? In other words, if the stock market is deemed to be dangerously overvalued, then are they justified in increasing interest rates for the sole purpose of knocking down the stock market? I certainly don't have the answer to this question, but it is one of the main issues that economists may be faced with in the coming years. Is the stock market overvalued, and by what standards? If it is overvalued then is this dangerous? And finally, what should be done, if anything can be done, to control an overvalued market? It is difficult to determine if the entire market is overvalued. No one really knows the answer to that question. Ten years ago, who could have predicted the extent to which the internet would influence our economy? When the Dow was 1000 the thought of a 12,000 Dow may have seemed astronomical and unbelievable. But if you look at some of the companies in the index, the earnings growth have increased the book value of the companies, not just the multiple at which they trade. . If a company is growing its revenue at 100 % or even 500% per year then is it overvalued if it is trading at a high premium to the book value? I think that some of the companies in the Nasdaq and S & P 500 could easily grow from being 10 billion dollar companies to 100 billion dollar companies in a few years. But to place a precise number on where the various indexes should be at any point in time is virtually impossible. If the stock market were overvalued then is this dangerous? There are numerous articles which have been written detailing what some call an asset bubble - overvalued shares, record borrowing, and a current acct deficit. The assumption is that it will crash and when it does this will be dangerous. During and after the crash of 1987 certain things happened which were actually dangerous. For example, certain market makers didn't even pick up their phones to execute trades because they had no cash reserves or inventory. You could have called in to sell a stock and no one would have picked up the phone. The Fed had to authorize the banks to lend money directly to specialists on the NYSE so they could open their stocks. This was dangerous, and intervention was necessary. But the real issue is whether actual market corrections or crashes are dangerous or a necessary part of the growth cycle is debatable. What if any corrective steps should be taken? The primary goal of the central bank in the 1970s and 1980s was to keep inflation under control. Now that we may be in a "new paradigm" does the Fed need to change its goals and methods? Instead of focusing on inflation should they focus on the overvalued market? Should interest rates be raised because central bankers think that the overvalued market is dangerous? It is possible that if interest rates are raised for this reason it might actually damage the market. One other method which could be implemented is raising the margin requirements for stock purposes. One of the factors which contributed to the crash of 1929 was the fact that investors were buying stocks on five percent margin. Possibly the Fed of the future should examine their strategies as well as their goals in the fine tuning of the economy. ************* Renee HELP! My Trades Aren't Working Anymore Volatility trading can be really hard on your nerves, to say the least. Remember that commercial showing an egg being fried and sizzling, "This is your brain on drugs...". Well, a similar point can be made about your brain and nerves trading the swings of the last week. It is especially true coming on the heels of the wild ride the last 2 months. I received many emails discussing this subject this week. Suddenly trades don't seem to be working as well and try as many might, the swings are working against them. I suspect that more than a few, did not take their profits "off the table" as we had been discussing going into the Y2K transition period. Unfortunately, vanishing profits is what happens when you hold too long and continue to trade in a market that is against you. Except for YHOO, I had exited most positions when the volatility started the first week of January. I needed a break and when I saw the sell-off occurring earlier than I had expected, I went to cash. This is partly due to a previously learned mistake when I had held on during temporary set backs because things seemed to always come back. Then, I began to notice huge swings in my account every day. I had never seen swings like that because the previous year, I had exited to cash before every market downturn, due to pure accidental timing. So I saw these huge swings, which became a precursor to a market top last spring. Those huge swings by the way, occurred because I was not good at using my stop losses. I thought about them a lot and even talked to people about them. I just didn't do anything to activate them. Instead, I stared at the option and watched it go down. It cost me a lot of money before I hurt enough to learn to use my stop losses. A dumb lesson, but I finally learned. Another common mistake is over-trading. When people get accustomed to winning frequently, they think it is more their skill, than any help the market is giving them. Unfortunately, when the inevitable downturn comes, many over-trade their account trying to win back what they lost yesterday in an effort to get their account back to where it was. This is very dangerous, especially if you trade multiple contracts. That just makes things go down faster at a time your confidence is already low. So, when the markets started selling off the first week of January, after a 2 months ride up, I recognized the pattern again. When I saw the swings show back up, I exited to cash because I knew I needed a rest. Volatility trading can be very profitable, but it requires intense concentration, mostly intra-day and sometimes intra-10 minutes. When all the markets are turning around and start trailing downward, a stock may blow right through its support level and keep going south. This is usually when new players start learning their expensive lessons because they are inexperienced playing the downside strategies and confuse sell-offs for dips. Having learned from past mistakes, if I don't have the time, energy or inclination to baby sit the market intra-day, the safest rule is to exit to cash and let the dust settle. This will prevent emotional trading while protecting ones well-earned profits from the previous upturn. Remember, there is always another day or month. All traders have bad plays and all trades are not winners. This is why all experienced option traders will always tell new comers, "only trade with money you can afford to lose". (Hey look! I actually caught myself and spelled it corectly this time!!!) Besides, taking a break can be healthy. Trade when it works for you, stop when it doesn't. During the break this week, I have been trying to update my trading log in order to send Uncle Sam a check for fourth quarter taxes. Measured by percentage gain, my best company plays this year were AOL, YHOO and QCOM. The best percentage gains ranged from 1,851% on QCOM to a whopping 3,251% on YHOO in 16 days! Now, before anyone gets excited about those figures, let's look at them a little closer. Reviewing trades gives one a great opportunity to learn. Although those percentage gains look great, the trades were not. First of all, keep in mind that the two stocks with the highest gains had huge gains during a one time event. Both AOL and YHOO, exactly one year apart, entered the S&P 500. I was shocked by my AOL gains last year in December & January, so when they announced YHOO's inclusion, I loaded up expecting similar excitement. This time I was right. It will be hard for another stock to match the enthusiasm of YHOO's play. Remember, the Y2K melt-up helped also. I hope no one expects similar gains to occur with other stocks entering the S&P. This was an exception. My QCOM was just great timing due to Blow & Go. The real problem with gains like this is that one focuses on the large return, instead of realizing that if I had rolled out multiple times to more contracts closer ATM every time the option returned 100% (keeping some of the money in my pocket of course), I would have actually made more money. Rolling that play over and over and over again, is the right way to trade it, not holding on. So seeing those large gains tell me that I was distracted with other plays and lost opportunities to really milk the play until it ended. Of course, some of those trades legitimately occurred when I held to pay for shares I was exercising. Sometimes though, things just get going so fast, that I get distracted following my weaker plays more. Now that's kind of dumb isn't it? Why not just exit those plays? But all in all, as I review the plays through the year; the bad timing, the over trading, the lost profits, hard lessons learned from leaving town with open positions (read: 100% losses), the Fed effect, etc., I realize the biggest lesson learned was how valuable evaluating my mistakes really are. Writing about them has helped me remember and catch myself. My losses are much less now because of my awareness. There's lots of room for improvement this year but I have keyed in on several areas that ate into my profits last year. There is a lot more to trading than just the play. I encourage you to identify at least one consistent mistake you make and set that as a goal to conquer and improve on this year. That's one way to beat a down market!! Renee White ************** TRADERS CORNER ************** The Meatgrinder There are two possible views of the blood on a boxing canvas -- as a boxer hurt and down for the count; or as a spectator, evaluating the fighting style of a possible opponent. I prefer the latter. When I boxed in college, our coach taught us a good style -- solid footwork, good technique, how to slip punches, how to counterpunch. Tommy had coached Rocky Marciano and had boxed in the pros in the 40s; he was a master technician. The kids from South Boston, or Southie, on the other hand only knew one style -- straight ahead, hard punching, toe-to-toe fighting. We would go up and watch potential opponents at the Golden Gloves in Lowell, Massachusetts, so that we could pick up the style of our prospective opponents. That's what I am doing with the market right now. The last two weeks reminds me of the last few weeks of September, when the market changed direction almost daily. You could trade it if you picked the right direction each day, but if you were wrong, you would lose money fast. I know, I did. I nicknamed that volatile, sideways market the meatgrinder because I was always one step behind. One bad decision typically leads to another bad decision -- what the Marines called a degenerating decision making loop. I have been watching traders take blows on the chin and bleed cash -- holding QCOM calls too long; holding YHOO calls because it runs right up to earnings every time; buying a YHOO straddle right before earnings, only to watch the time premium evaporate on each side of the play. Pow, pow, pow. Not the kind of fight that I want to pick, thank you very much. But, I am learning. I have been paper trading the short covered strangle strategy (there's a good line for a cocktail party... So, do you, you know, trade online?... Well, as a matter of fact, I used to employ directional call plays, but now I have progressed to the point that I write covered strangles and hedge whichever side is in the money... ah, yeah). And I am glad to report that this strategy is absolutely beautiful. In my paper trades, I sold the BVSN Jan140C at 17.75 and it is now at 4.75; and I sold the Jan120P at 8.625 and it is now at 3. As I noted in my last column, on some days, I would have had to hedge and un-hedge repeatedly. For example, On 1/13, I would have had to buy & sell BVSN repeatedly as it passed one of the action lines. But, on the plus side, these are no-brainer trades. Now, BVSN seems to be settling down nicely in the box created by the put and call sold. If it expires between 120 and 140, it is entirely possible that neither the put nor the call would have been exercised. In my CMRC paper trade, I sold the Jan200C at 13.375 and it is now at 13/16, low enough to buy to close. I also sold the Jan180P at 10.125, and that contract is now at 13. Since the stock is at 166, I would have had to hedge by going short the stock when it crossed under my action line at 180. Should not be a big deal, though I am a bit inexperienced in exactly how being short the stock will hedge being short the put. Conceptually, I understand that I have sold the right to sell the stock to me at 180. Therefore, since I have sold the stock short at 180, when the stock is put to me my short position should cancel it. However, on this point, I need to talk to my broker to clarify the process. Nonetheless, the CMRC play seems to be working out also. In my YHOO paper trade, first of all, I must respond to Jim's comment in my last column. Yes, it might have made more sense to wait until after earnings to sell the strangle. But, on the other hand, the play worked beautifully because of the high premiums before the announcement. The premiums evaporated with the mundane (?!) 2:1 split and unspectacular (?!) .19 cent blow out. I sold the Jan380C at 33.5 and it is now at 4.125. I sold the Jan340P at 20 and it is now at 6.5. YHOO is sitting right in the box I created, with its current price of 353. It barely penetrated the lower bound of 340, so I would have had to take a short position for a hour or less yesterday. On the bright side, those premiums really did disintegrate. This is a game that I would much rather play than trying to profit from a directional strategy in a directionless, range bound market. This weekend, I am going to paper trade a whole list of Red Hot Internet stocks with the short covered strangle strategy, giving myself the benefit of the doubt of perfect late December/ early January entries into stocks like VRSN, INKT, BRCM and a number of other stocks. Next week, I will be looking for a failed rally entry point to sell calls on some stocks. Over the next month, I will track those short calls closely and I will be prepared to hedge the contracts by buying the stock at the strike price if they do get in the money. My hope is that the market rolls over and the stocks never get near the strike price at which I sold the contracts. I will also be commiting a certain amount of capital from my LT stock account to the purchase of some positions in AFFX, HGSI, INCY and BRCM. But, instead of buying the stock outright, I plan on writing puts when these stocks trend down towards my intended purchase price. If the stock price hits the put exercise price, and I am exercised, then I pocket the premium and get the stock at the price that I want. If, on the other hand, the stock does not hit the strike price of the option, then I just pocket the premium. If I am put the stock, I will probably write calls against the stock when, and if, the stock trends back up. I am going to go through this exercise because I want to get used to the idea of writing puts & calls. Our boxing coach used to put the experienced fighters in with new boxers. In Tommy's system, the experienced guys could only throw a jab to the body, for example, while the new fighters could throw jabs to the head and body, rights to the head and body, hooks & uppercuts. Fortunately, the new boxers rarely could throw competent combinations of the different punches, and we could dance around the mat, jabbing here or there to keep the new fighters at bay. I am still a rookie trader, with one good year under my belt. I feel like I only know how to throw one punch -- play straight calls... buy em low, sell em high. Now, I want to learn how to dance around the ring. I want to learn to sell calls and puts... sell em high, buy em low... or better yet, just let them expire. That is the fight that I want next time that I step into the ring. Every trader has a style -- Marty Schwartz, for example, was only a counter puncher, a scalper, probably because he started his trading life as a option market maker. I want to be able to use the strategy that best fits the market I am given, and to be able to profit whether the market moves up, down, or sideways. Good Luck Janar Joseph Wasito Contact Support ****************** OPTION CLUB UPDATE ****************** TRADING CLUB UPDATE ************************ Sunday, January 16, 2000 AM I MISSING SOMETHING? WHAT IS AN OPTION INVESTOR TRADING CLUB?? READ ON FOR MORE INFORMATION!! Visit the trading club message boards and see what others have to say: http://boards.OptionInvestor.com/tradersclubs/ The Option Investor Newsletter has over 100 active trading clubs globally with over 600 regular attendees. There are clubs organized on a daily basis. Within the last two weeks, several new clubs have been formed. Recent announcements have also included the growth of the Option Investor trading clubs in many other countries. The trading clubs were instituted due to the demand of the option trading investor. They were seeking a forum, locally, to meet and discuss with other traders their opinions and strategies. The trading clubs bring together the novice investor with the expert. The educational experience that this forum provides is outstanding. Exciting speakers from brokerage firms, The Chicago Board of Exchange (CBOE) and The Option Investor Newsletter are among the many speakers invited to present at the meetings. The success of the trading clubs has far exceeded the original expectation of the staff of The Option Investor Newsletter. The organizers that have worked in each of their local areas to implement clubs have found the experience both rewarding and challenging with several of the groups growing to over 50 attendees. Come visit a trading club near you!!! If you would like to join contact us at Contact Support and Contact Support ****************** EARNINGS THIS WEEK ****************** NEW YORK, Jan 14 (Reuters) - The following Standard & Poor's 500 companies are expected to report quarterly earnings the week of Jan 17-21. Reporting dates and analysts' mean estimates are provided by First Call/Thomson Financial. QTR YR AGO EST EPS 1/17 Motorola, Inc. (NYSE:MOT) Q4 0.26 0.81 1/18 Abbott Laboratories (NYSE:ABT) Q4 0.41 0.43 1/18 AmSouth Bancorporation (NYSE:ASO) Q4 0.38 0.41 1/18 Archer-Daniels-Midland (NYSE:ADM) Q2 0.18 0.13 1/18 Associates First Capital (NYSE:AFS) Q4 0.47 0.56 1/18 Automatic Data (NYSE:AUD) Q2 0.27 0.31 1/18 BankAmerica Corp. (NYSE:BAC) Q4 0.91 1.23 1/18 Bank Of New York Co. (NYSE:BK) Q4 0.40 0.43 1/18 Bank One Group (NYSE:ONE) Q4 0.88 0.79 1/18 Capital One Financial (NYSE:COF) Q4 0.35 0.47 1/18 Champion International (NYSE:CHA) Q4 0.13 0.74 1/18 Citigroup (NYSE:C) Q4 0.40 0.70 1/18 Comerica Inc. (NYSE:CMA) Q4 0.97 1.08 1/18 Crown Cork & Seal (NYSE:CCK) Q4 0.27 0.30 1/18 Delta Air Lines, Inc. (NYSE:DAL) Q2 1.29 1.06 1/18 Enron Corp. (NYSE:ENE) Q4 0.24 0.30 1/18 FirstEnergy Corp. (NYSE:FE) Q4 0.41 0.52 1/18 Freeport-McMoRan Copper (NYSE:FCX) Q4 0.26 0.20 1/18 Knight Ridder (NYSE:KRI) Q4 0.86 1.02 1/18 Mellon Financial Corp. (NYSE:MEL) Q4 0.42 0.48 1/18 Meredith Corp. (NYSE:MDP) Q2 0.47 0.49 1/18 Microsoft Corp. (NASDAQ:MSFT) Q2 0.36 0.42 1/18 Morgan (J.P.) & Co. (NYSE:JPM) Q4 0.86 2.00 1/18 Northern Trust Corp. (NASDAQ:NTRS) Q4 0.40 0.45 1/18 Paine Webber Group (NYSE:PWJ) Q4 0.63 0.92 1/18 Parametric Technology (NASDAQ:PMTC) Q1 0.16 0.05 1/18 Parker Hannifin Corp. (NYSE:PH) Q2 0.58 0.69 1/18 Schwab (Charles) Corp. (NYSE:SCH) Q4 0.12 0.19 1/18 Southwest Airlines Co. (NYSE:LUV) Q4 0.19 0.18 1/18 State Street Corp (NYSE:STT) Q4 0.68 0.73 1/18 Summit Bancorp (NYSE:SUB) Q4 0.67 0.71 1/18 Teradyne Inc. (NYSE:TER) Q4 0.07 0.39 1/18 Tyco International Ltd. (NYSE:TYC) Q1 0.31 0.45 1/18 U.S. Bancorp (NYSE:USB) Q4 0.52 0.53 1/18 Unisys Corp. (NYSE:UIS) Q4 0.40 0.45 1/18 Washington Mutual (NYSE:WM) Q4 0.74 0.84 1/18 Wells Fargo Inc. (NYSE:WFC) Q4 0.46 0.59 1/18 Xilinx (NASDAQ:XLNX) Q3 0.11 0.19 1/19 AMR Corp. (NYSE:AMR) Q4 1.00 0.61 1/19 Advanced Micro Devices (NYSE:AMD) Q4 0.15 0.01 1/19 America Online Inc. (NYSE:AOL) Q2 0.04 0.08 1/19 Apple Computer, Inc. (NASDAQ:AAPL) Q1 0.78 0.89 1/19 Atlantic-Richfield Co. (NYSE:ARC) Q4 0.22 1.47 1/19 Bear Stearns & Co. (NYSE:BSC) Q2 0.80 1.20 1/19 Boeing Company (NYSE:BA) Q4 0.48 0.68 1/19 Burlington Resources (NYSE:BR) Q4 0.00 0.37 1/19 Johnson Controls, Inc. (NYSE:JCI) Q1 0.86 1.02 1/19 Keycorp (NYSE:KEY) Q4 0.59 0.58 1/19 Millipore Corp. (NYSE:MIL) Q4 0.18 0.44 1/19 Old Kent Financial Corp (NYSE:OK) Q4 0.51 0.60 1/19 PG & E Corp. (NYSE:PCG) Q4 0.51 0.40 1/19 Pinnacle West Capital (NYSE:PNW) Q4 0.42 0.40 1/19 Public Svc Enterprise (NYSE:PEG) Q4 0.66 0.57 1/19 Central & South West Co (NYSE:CSR) Q4 0.26 0.28 1/19 Chase Manhattan Corp. (NYSE:CMB) Q4 1.31 1.32 1/19 Citrix Systems Inc (NASDAQ:CTXS) Q4 0.26 0.37 1/19 Delphi Auto. Systems Co (NYSE:DPH) Q4 (0.45) 0.46 1/19 Household International (NYSE:HI) Q4 0.71 0.90 1/19 International Business (NYSE:IBM) Q4 1.24 1.06 1/19 Regions Financial Corp (NASDAQ:RGBK) Q4 0.59 0.60 1/19 Reynolds Metals Co. (NYSE:RLM) Q4 0.76 0.97 1/19 Southtrust Corp. (NASDAQ:SOTR) Q4 0.59 0.69 1/19 Sysco Corp (NYSE:SYY) Q2 0.26 0.31 1/19 US Airways Group Inc. (NYSE:U) Q4 1.18 (0.63) 1/19 United Technologies Corp (NYSE:UTX) Q4 0.58 0.67 1/19 Warner-Lambert Co. (NYSE:WLA) Q4 0.40 0.52 1/19 Weyerhaeuser Co. (NYSE:WY) Q4 0.38 0.92 1/19 Willamette Industries (NYSE:WLL) Q4 0.07 0.69 1/20 Adaptec Inc. (NASDAQ:ADPT) Q3 0.24 0.48 1/20 Amerada Hess Corp. (NYSE:AHC) Q4 (1.11) 1.14 1/20 Andrew Corp. (NASDAQ:ANDW) Q1 0.28 0.18 1/20 Unicom Corp. (NYSE:UCM) Q4 0.40 0.26 1/20 Union Pacific Corp (NYSE:UNP) Q4 0.39 0.88 1/20 Union Planters Corp. (NYSE:UPC) Q4 0.55 0.81 1/21 Air Products & Chemical (NYSE:APD) Q1 0.55 0.51 1/21 Ball Corp. (NYSE:BLL) Q4 0.45 0.54 1/21 Caterpillar Inc. (NYSE:CAT) Q4 0.83 0.64 1/20 Becton, Dickinson, & Co (NYSE:BDX) Q1 0.29 0.28 1/20 Boise Cascade Corp. (NYSE:BCC) Q4 0.08 0.66 1/20 Consolidated Edison Co. (NYSE:ED) Q4 0.56 0.58 1/20 Crane Co. (NYSE:CR) Q4 0.51 0.42 1/20 Dover Corp. (NYSE:DOV) Q4 0.36 0.52 1/20 Duke Energy Co. (NYSE:DUK) Q4 0.60 0.75 1/20 Fortune Brands Inc. (NYSE:FO) Q4 0.55 0.67 1/20 Gateway (NYSE:GTW) Q4 0.41 0.42 1/20 General Motors Corp. (NYSE:GM) Q4 2.83 1.81 1/20 Helmerich & Payne, Inc. (NYSE:HP) Q1 0.26 0.21 1/20 Lucent Technologies (NYSE:LU) Q1 0.49 0.37 1/20 Molex Inc. (NASDAQ:MOLX) Q2 0.28 0.32 1/20 Peoples Energy Corp. (NYSE:PGL) Q1 0.66 0.81 1/20 Providian Financial (NYSE:PVN) Q4 0.66 1.08 1/21 Constellation Energy (NYSE:CEG) Q4 0.23 0.23 1/21 Edison International (NYSE:EIX) Q4 0.46 0.49 1/21 FPL Group (NYSE:FPL) Q4 0.54 0.57 1/21 Tribune Co. (NYSE:TRB) Q4 0.36 0.43 Copyright 2000, Reuters News Service LAST WEEKS CHANGE FOR THIS WEEKS PICKS: *************************************** Daily Results Index Last Week Dow 11722.98 200.42 Nasdaq 4064.27 181.65 $OEX 797.52 14.03 $SPX 1465.15 23.68 $RUT 507.56 19.25 $TRAN 2891.63 -73.09 $VIX 21.05 -2.15 Calls Week CHKP 236.00 44.13 Dropped, earnings on Tuesday after bell AFFX 186.75 33.50 AFFX has become one of the favorites VIGN 200.94 25.75 VIGN is giving us a very nice run! ANAD 73.00 25.56 Momentum propels ANAD to new heights! HGSI 184.63 24.31 A major rally for the Biotechs! TQNT 130.00 22.00 TQNT looks to be one of the strongest! EXDS 106.00 18.88 Earnings and a possible split for EXDS MSTR 227.94 17.56 A cutting edge technology company! ADI 101.38 14.50 A constant stream of momentum for ADI NOK 184.06 13.06 Nokia breaks and holds over $180! JDSU 192.19 12.25 Earnings date is driving this play! LSI 72.75 11.50 New, strength in the sector GMST 76.81 11.31 Gemstar remains on its shining path! LVLT 86.75 10.88 New, plenty of bullish indications! CMVT 148.31 9.31 It looks like CMVT has found its way! MFNX 57.13 9.00 New, similar to the Tasmanian Devil NTAP 93.69 8.69 New, shares of NTAP are on the move! SEPR 126.13 8.00 Biotechs get another shot in the arm! INTU 81.38 7.81 Momentum is the name of the game! EMC 112.38 5.00 EMC looks to have regained its footing INKT 94.38 5.00 Dropped, knowing when to say when ORCL 106.81 3.44 Dropped, boy, investors are fickle CSCO 107.56 1.69 Dropped, Cisco gives too little too slow AMGN 68.31 0.31 We still like the bullish story on AMGN QCOM 140.44 -9.56 Dropped, lacks the enthusiasm we need Puts ICGE 133.50 -40.38 New, doesn't have much going for it ISLD 77.13 -16.50 Dancing feet wear out; drifts lower CMGI 121.94 -15.56 New, case of the post-split blues IIJI 85.50 -11.50 New, investors look to lose Initiative FD 47.88 -2.94 New, news helps to move FD downward SBC 42.00 -2.19 Can certainly provide opportunities! WCOM 46.56 -0.63 Survey said? Entry points! CHINA 77.50 1.00 CHINA shows weak relative strength STOCKS ADDED TO THE PICK LIST ***************************** Calls LVLT - Level 3 Communications Inc. NTAP - Network Appliance Inc. MFNX - MetroMedia Fiber Network LSI - LSI Logic Puts FD - Federated Department Stores ICGE - Internet Capital Group IIJI - Internet Initiative Japan CMGI - CMG Information Services Inc. *************************** PICKS WE DROPPED THIS WEEK *************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS QCOM $140.44 (-9.56) What can we say, QCOM is choosing it's path and its not the direction we want. Even with the Nasdaq's record breaking highs and good volume for QCOM, it closed down on Friday. QCOM is no longer following the Nasdaq. It's that new direction that has caused us to drop QCOM. It is still holding support at $140 and that is a good indicator, but we just don't see any life in QCOM. Their earnings are due the 25th (that is about 7 trading days)and if they were going to make a run based on those earnings, we would see some enthusiasm in traders. Besides, QCOM has never been a company based on the present, they are all about the future so earnings based on present numbers may not do much for them. ORCL $106.81 (+3.44) Boy investors are fickle these days. It took exactly 8 days for them to rotate into, then out of ORCL. Volume has fallen back to the ADV despite a split coming on January 18. You may ask why we are dropping it in light of the price going up this week and the split next week. The answer is that the markets are closed on Monday, and Tuesday before our next update would be the time to sell the position since we never advocate holding through a split. Nothing wrong with the company - it's just that the play will be over on Tuesday at the close. CSCO $107.56 (+1.69) Too far until earnings on Feb 8th and not moving fast enough to stay on the list. As we've noted in recent updates, CSCO will benefit from Lucent's stumble. CSCO still runs a great and profitable business, but that "sector rotation" thing has taken the wind from its sails. It appears as though the broadening out of the market in the last 3 days may have slurped some of money managers' cash into previously unfavored issues, leaving CSCO with only average volume. While we still see the ascending pennant forming on the chart, which should ultimately result in a breakout as earnings approach, there are too many other plays in which to make money. Thus we are not going to wait for the breakout, but may bring it back if it does it's thing. It's not a suggestion to get out at any price, just that there are better plays right now. CHKP $236.00 (+44.13) A $31.13 one-day gain on a split play and a drop? Unfortunately that is the way we have to play it. After some conflicting information over the actual earnings date, it was confirmed with the company as Jan 18th after the close. Since we never recommend holding over earnings, we have to let this winner go. With the markets closed Monday, we will look to exit this winning play Tuesday morning and take our profits. The shareholders meeting Thursday resulted in approval of the much anticipated 2-for-1 split. Payable to shareholders of record on January 23rd, post-split trading will begin on or about January 31. We'll keep our eye on CHKP, and if earnings are positive, it could end up on our play list again very soon. INKT $94.38 (+5.00) Sometimes discretion really is the better part of valor. Knowing when to say, we give up, can be a difficult part of trading. We said Thursday it "appeared" as though INKT was preparing to make a last minute earnings run. Friday's strong move down, is the wrong direction for any kind of profitable earnings run. INKT fell -10.75 to $91.25, at its intraday low, closing down -7.63 for the session, at $94.38. INKT was up +6.0% for the week, but Friday's decline makes us uneasy. Many of the stocks in the Internet sector have struggled since the beginning of the new year. INKT is ahead, but keeps stubbing its toe. For now, we will stand aside. We will keep our eye INKT, as we do believe it continue to produce great opportunities in the future. PUTS No dropped puts today. STOCK SPLIT CANDIDATES *********************** Current Split Candidates NOK - Nokia AFFX - Affymetrix Inc. VIGN - Vignette Corporation EMC - EMC Corporation CMVT - Comverse LVLT - Level Three Communications EXDS - Exodus Communications SEPR - Sepracor Inc. Split candidates that are not current plays VRTS - Veritas Software IMNX - Immunex STM - STMicroElectronic BRCM - Broadcom Recent Announcements We Predicted YHOO (most recent pick) - Yahoo! TMPW (most recent pick) - TMP Worldwide STOCKS WITH UPCOMING SPLITS **************************** We don't list all splits available, only those we feel may have play possibilities. Symbol - Stock Splits/Date NVLS - Novellus 3:1 01-15-00 ex-date 01-17 VITR - Vitria Tech 2:1 01-17-00 ex-date 01-18 SIFY - Satyam Infoway 4:1 01-17-00 ex-date 01-18 KLAC - KLA-Tencor 2:1 01-18-00 ex-date 01-19 ORCL - Oracle Corp 2:1 01-18-00 ex-date 01-19 BVF - Biovail Corp 2:1 01-19-00 ex-date 01-20 PRSF - Portal Software 2:1 01-19-00 ex-date 01-20 BOBJ - Business Obj 2:1 01-20-00 ex-date 01-21 CYCL - Centennial Cell 3:1 01-20-00 ex-date 01-21 SCII - Sensar Corp 2:1 01-20-00 ex-date 01-21 PRGS - Progress Soft 2:1 01-21-00 ex-date 01-24 GE - General Elec 3:1 01-25-00 ex-date 01-26 MWD - Morgan Stanley 2:1 01-26-00 ex-date 01-27 MSTR - Micro Strategy 2:1 01-26-00 ex-date 01-27 RAZF - Razorfish 2:1 01-27-00 ex-date 01-28 CHKP - CheckPoint Soft 2:1 01-28-00 ex-date 01-31 CYTC - CYTYC Corp 2:1 01-28-00 ex-date 01-31 HGSI - Human Genome 2:1 01-28-00 ex-date 01-31 GBIX - Globix Corp 2:1 01-31-00 ex-date 02-01 TMX - Telmex 2:1 02-01-00 ex-date 02-02 PCS - Sprint PCS 2:1 02-04-00 ex-date 02-07 ASYT - Asyst Tech 2:1 02-04-00 ex-date 02-07 FDS - Factset Systems 2:1 02-04-00 ex-date 02-07 MCHP - Microchip Tech 3:2 02-07-00 ex-date 02-08 INFY - Infosys 2:1 02-11-00 ex-date 02-14 MERQ - Mercury Interact 2:1 02-11-00 ex-date 02-14 HRL - Hormel 2:1 02-15-00 ex-date 02-16 EMMS - Emmis Comm 2:1 02-15-00 ex-date 02-16 EXAR - Exar Corp 3:2 02-15-00 ex-date 02-16 ADCT - ADC Telecom 2:1 02-15-00 ex-date 02-16 DITC - Ditech Comm 2:1 02-16-00 ex-date 02-17 TQNT - Triquint 2:1 02-22-00 ex-date 02-23 KANA - Kana Corp 2:1 02-22-00 ex-date 02-23 IVX - IVAX Corp 3:2 02-22-00 ex-date 02-23 MGG - MGM Grand 2:1 02-25-00 ex-date 02-28 SILI - Siliconix 3:1 02-28-00 ex-date 02-29 NSOL - Network Solution 2:1 02-28-00 ex-date 02-29 SDLI - SDL Inc 2:1 02-29-00 ex-date 03-01 GTLL - Global Tech 3:2 02-29-00 ex-date 03-01 TMPW - TMP Worldwide 2:1 02-29-00 ex-date 03-01 SLR - Solectron 2:1 03-08-00 ex-date 03-09 JDSU - JDS Uniphase 2:1 03-10-00 ex-date 03-13 SNE - Sony Corp 2:1 05-19-00 ex-date 05-22 AA - Alcoa 2:1 06-09-00 ex-date 06-12 For a complete list of all the coming splits check out the "split calendar" on the side of the online edition newsletter page. ******************** THE PLAYS OF THE DAY ******************** With all the great plays each week we can never decide on just one so take your pick. Call plays of the day: ********************** VIGN - Vignette Corporation $200.94 (+25.75)(+12.19)(+12.50) See details in sector list Chart = http://quote.yahoo.com/q?s=VIGN&d=3m **** ANAD - Anadigics Inc $73.00 (+25.56) See details in sector list Chart = http://quote.yahoo.com/q?s=ANAD&d=3m Put play of the day: ******************** CMGI - CMG Information Services Inc $121.94 (-15.56) See details in put list Chart = http://quote.yahoo.com/q?s=CMGI&d=3m ************* DEFINITIONS ************* SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. TP/P= True premium or Time premium RRR = Risk/Reward/Ratio ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume MTD = Move to double - amount stock must move to double option price in one week. ONE WEEK MOVE ONLY ! Numbers within ( ) are the amount of change for the week. Numbers within ( ) may be designated with PxW, like P3W, prior 3 weeks The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** **************************** SEE DISCLAIMER IN SECTION ONE
The Option Investor Newsletter 1-16-2000 Sunday 3 of 5 *********** CALLS PLAYS *********** HARDWARE ******** EMC - EMC Corporation $112.38 (+5.00)(-1.88)(+8.13) EMC wants to be your storage solution. The company designs, manufactures and markets a wide range of enterprise storage systems, software, networks, and services. The company's products store, retrieve, manage, protect and share information from all major computing environments including mainframe, UNIX, and Windows NT. With offices around the world and a 35% growth rate for the first 9 months of the year, EMC is effectively filling its role as the worldwide storage leader. After dipping with the rest of the techs as the new year began, EMC looks like it has regained its footing. Moving up to kiss $116 early in the week, our earnings play needed to test support between $105-107 before closing out the week above $110. This was the level of the 52-week high when we started our play at the end of December, and we would like to see it hold as support, now that the PPI/CPI is out of the way. For you chart readers, EMC is forming a nice pennant, with the lows moving higher, and the lower boundary now at $108, right on the 10-dma. With interest rate fears alive and well, the markets could remain volatile, giving us one more test of this support level, but we expect to see a strong breakout through the top of the pennant, near $115. Earnings, confirmed for January 26 before the open, should now start to attract investors' attention in earnest. New positions can be initiated with either a bounce near $108 or a break through $115, but make sure volume is there to back you up. As always, if you are going to play, use stops. Like PacMan, gobbling up those little dots, EMC continues to gobble up what it needs to maintain and strengthen its market- leading position. On Friday, the company announced that they bought Terascape Software for $50 million in cash, adding to its already strong storage software business. This marks the third acquisition for EMC in the past six months. In December, EMC announced it would acquire Softworks Inc., another storage software maker, for $192 million. This follows the $1.22 billion deal in October, where EMC bought its rival Data General. BUY CALL FEB-110*EMB-BB OI=1718 at $10.25 SL= 7.75 BUY CALL FEB-115 EMB-BC OI=2076 at $ 8.00 SL= 6.25 BUY CALL FEB-120 EMB-BD OI=1034 at $ 6.00 SL= 4.25 BUY CALL APR-115 EMB-DC OI=1429 at $13.00 SL=10.50 BUY CALL APR-120 EMB-DD OI= 769 at $11.25 SL= 9.00 Picked on Dec 30th at $110.31 P/E = 107 Change since picked +2.06 52-week high=$113.13 Analysts Ratings 14-7-3-0-0 52-week low =$46.16 Last earnings 10/20 est= 0.27 actual= 0.29 Next earnings 01-26 est= 0.31 versus= 0.24 Average Daily Volume = 5.67 mln Chart = http://quote.yahoo.com/q?s=EMC&d=3m ******** BIO-TECH ******** AMGN - Amgen, Inc. $68.31 (+0.31)(+7.94) Amgen is one of the elite companies in the biotechnology industry. Amgen develops products to treat cancer, arthritis, blood disorders, Parkinson's, Alzheimer's, other infectious disease and many more. Its current drugs include: Neupogen (used for cancer and AIDS patients), Infergen (for treating hepatitis C), and Epogen (for the production of red blood cells). It has several alliances with other key companies that help Amgen maintain its position as world's largest biotechnology company. Current drugs under development include Stemgen, an early acting blood cell growth factor, and Leptin, the protein produced by the obesity gene used to help regulate the amount of fat stored by the body. Despite a week of stock price churning, we still like the bullish story for AMGN, and hopefully it will be reflected in another rally next week. The first story that could get investors buying AMGN again is their earnings report due out this Thursday. Amgen has a history of reporting excellent results this time of year and it is quite possible a earnings related rally may ensue. Remember, we never stay long options through an earnings report, due to inflated premiums right before announcement. Another positive influence for AMGN's stock is its impressive pipeline of new drugs. Kinaret, a drug for treating rheumatoid arthritis, is currently under review at the FDA and NESP, a potential blockbuster drug for treating anemia could have sales of over a billion dollars. NESP should be submitted for approval soon. While awaiting the approvals of new drugs, AMGN has been very successful in finding new uses for its core drugs in the past year. Especially Neupogen, which has been used effectively with the treatment of chemotherapy patients. After making a new high, the shares of AMGN have pulled back to support and have mostly traded in a range between $62.50 and $70. The upper end of the range at $70 proved to be a solid resistance point on Friday. If the stock can trade above that price early this week, a nice move may happen. If you want to try and trade the range, you may consider going in around $64. On Wednesday, Amgen announced that it intends to spend $850-$900 million on research and development this year. Also last week, fellow Biotech heavyweight, Biogen, pre-released good results which should bode well for Amgen's release. Over the past two weeks, there have been several recent upgrades and price target revisions for Amgen. Paine Webber raised its price target from $60 to $80. Dennis Harp, the analyst at Deutsche Banc Alex Brown termed the company "a bargain" relative to the earnings multiples of its peers in the industry. BUY CALL FEB-60 YAA-BL OI=1197 at $11.25 SL=8.75 BUY CALL*FEB-65 YAA-BM OI=2024 at $ 8.00 SL=6.25 BUY CALL FEB-70 YAA-BN OI=2271 at $ 5.63 SL=3.75 BUY CALL FEB-75 YAA-BO OI= 570 at $ 3.38 SL=1.50 Picked on Jan 6th at $61.00 P/E = 69 Change since picked +8.31 52-week high=$72.69 Analysts Ratings 14-12-8-0-0 52-week low =$25.69 Last earnings 10/99 est= 0.25 actual= 0.25 Next earnings 01-20 est= 0.25 versus= 0.22 Average Daily Volume = 7.48 mln Chart = http://quote.yahoo.com/q?s=AMGN&d=3m **** AFFX - Affymetrix Inc. $186.75 (+33.50)(-16.49) Affymetrix, Inc. is recognized as a worldwide leader in the field of DNA chip technology. The Company has developed and intends to establish its GeneChip system as the platform of choice for acquiring, analyzing and managing complex genetic information in order to improve the diagnosis, monitoring and treatment of disease. The Company's GeneChip system consists of disposable DNA probe arrays containing gene sequences on a chip, certain reagents for use with probe arrays, a scanner and other instruments to process the probe arrays, and software to analyze and manage genetic information from the probe arrays. The company sells its products to Drug and Biotech companies involved in gene research. Affymetrix has become one of the favorites of a very strong sector. At the end of the year stocks associated with The Human Genome Project exploded. What makes AFFX an interesting play here is that the company is not dependant on coming up with some breakthrough drug. AFFX sells the tools that researchers need. As long as there is funding for the project, AFFX will have plenty of customers. AFFX's current run began two months ago when some of the strongest names in the tech research field began coverage. CSFB and Robertson Stephens both issued Strong Buy recommendations. Since then Robertson Stephens lowered it's recommendation to a Buy, mostly due to the strong sell off at the beginning of the year. The analyst did set a $190 price target. Look for that target to be raised if AFFX trades above the target price. AFFX is also the beneficiary of being considered a Semiconductor company. An affiliation with that sector could account for some of the gains the stock enjoyed on Friday. AFFX seems to trade true to form at the psychologically important price levels. $100 gets you to $150. $150 gets you to $200. Friday's rally broke a four day downtrend that closed a gap all they back down at $153. If AFFX can trade into new high ground this week a rally to $200 is likely. If the stock can climb above $200 a rally to $250 is not out of the question. As always be cautious when trading a volatile stock like this. Once a move starts in either direction there tends to be a lot of follow through. Support can first be found at $163 and then at $153. If the market is weak, you may want to wait and see if these support levels hold before going long. Last week Affymetrix received a broad based agreement with Novartis to supply the company with the tools it will need to develop its gene research capabilities. The Genomics sector received a big boost on Monday when Celera announced that they have nearly completed the mapping of the Human Genome. The race is on! BUY CALL FEB-180*FUE-BP OI= 20 at $29.13 SL=22.75 BUY CALL FEB-190 FUE-BR OI= 6 at $24.25 SL=18.88 low OI BUY CALL FEB-195 FUE-BS OI= 3 at $22.00 SL=17.13 low OI BUY CALL FEB-200 FUE-BT OI=180 at $19.75 SL=15.38 SELL PUT FEB-135 FIQ-NG OI= 3 at $10.13 SL=12.75 low OI (See risks of selling puts in play legend) Picked on Jan 2nd at $184.75 P/E = N/A Change since picked +2.00 52-week high=$195.50 Analysts Ratings 3-5-2-0-0 52-week low =$ 27.50 Last earnings 10/99 est= -0.28 actual= -0.21 Next earnings 02-02 est= -0.20 versus= -0.31 Average Daily Volume = 436 K Chart = http://quote.yahoo.com/q?s=AFFX&d=3m **** HGSI - Human Genome Sciences $184.63 (+24.31)(+7.68)(+23.56) Human Genome Sciences develops drugs and diagnostic products based on human genes. Although the company has no marketable products, firms pay HGSI to develop products for cancer, heart disease, arthritis, and Lou Gerhig's disease. HGSI is involved with SmithKline Beecham, Merck, and The Institute of Genomic Research. HGSI also researches non-human genes, including those of bacteria, fungi and viruses. These could eventually prove useful in creating vaccines and antibiotics. HGSI competes with Genzyme, Incyte Pharmaceuticals and Scios. HGSI is in an arena that has seen tremendous growth in the last month. Genomics companies have helped fuel a major rally in the biotech sector. To understand the magnitude of what's happened to HGSI, the company's stock traded between $25 and $50 from January of 1996 until the middle of July 1999. Not exactly a stock that would be viewed as volatile. From July through December, HGSI moved up to $172. The point we are trying to make is Genomics has garnered investors attention in a big way. Our primary interest in HGSI at this time, is for a potential split run. HGSI splits 2-for-1 January 28th. Not only has the company earned investors attention, it now has become a volatile stock, with a one day trading range of what we saw over a 3-year period. On Friday HGSI made a new 52-week high at $199, before profit-taking set in to push the stock back down settling at $184.63. If you have a position in this play, HGSI will find in intraday support at $178, $170, and $163. Technically the 5 and 10-dma sit at $170.20 and $160.23 respectively. Due to the recent volatility, HGSI has provided us with some incredible opportunities, but it is not necessarily one you want to sit on. If you are considering a new play, we believe HGSI will continue to move up into its split, however it could be a wild ride. Look for bounces off support for entry points, and be prepared to take your money off the table when profit your objectives are met. HGSI CEO William Haseltine said in an interview this week, that they don't have any products on the market yet, but have several that are undergoing clinical tests. He went on to say he is confident studies will show patients benefit from what are thought to be the first genomics-derived drugs. A drug that treats breast and ovarian cancer is in Phase I/II trials. BUY CALL FEB-180 HHA-BP OI=61 at $26.00 SL=20.50 BUY CALL FEB-185 HHA-BQ OI= 1 at $23.63 SL=18.63 low OI BUY CALL FEB-190*HHA-BR OI=33 at $21.63 SL=17.00 SELL PUT JAN-170 HHA-MN OI= 0 at $ 4.75 SL= 6.50 (See risks of selling puts in play legend) Picked on Dec 28th at $138.88 P/E = N/A Change since picked +45.75 52-week high=$199.00 Analysts Ratings 1-4-2-0-0 52-week low =$ 28.75 Last earnings 10/99 est=-0.30 actual=-0.42 Next earnings 01-25 est=-0.67 versus=-0.55 Average daily volume = 433 K Chart = http://quote.yahoo.com/q?s=HGSI&d=3m **** SEPR - Sepracor Inc. $126.13 (+8.00) 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. Our play in SEPR rebounded nicely on Friday. SEPR jumped +6.25 on volume of 746K. SEPR moved higher Monday and spent the next three sessions consolidating. The Biotech industry got another shot in the arm Friday when Biogen (BGEN) posted 4th quarter EPS of $0.44, a penny ahead of analyst's estimates. Several brokerage firms came out with Buy and Strong Buy reiterations on BGEN. In the news, the Biotech sector added just under 2.0 percent, while SEPR and the stronger stocks added about 5 percent for the session. We believe the near-term prospects for SEPR are excellent, due to SEPR's current strategic relationships with Schering-Plough (SGP), and Eli Lilly (LLY). SEPR is scheduled to report earnings the last week of January, an exact date is yet to be announced. With the current momentum behind the move in SEPR, we believe the biotech company can sustain the trend higher. Technically, SEPR has support at $124 and $120, with the 5-dma sitting at $121.08. If we get a pullback early in the week, a bounce off support would provide a good entry point for this play. If we see SEPR continue higher, we would look to enter this earnings run play, however set your stops according to your risk profile, as SEPR has a pattern of moving higher and then consolidating for a few sessions and then continuing the trend. With SEPR, we rarely see 3-4 days of strong moves without a consolidation period, as we've seen with other sector issues recently. Friday, analyst Jerry I. Treppel at Banc of America rated SEPR as a new Buy. Treppel's 12-month price target for SEPR was $150 per share. SEPR's 52 week high is at $140.88 set back in the first week of March. SEPR could be setting up to test that area in the near future. BUY CALL FEB-120 ERQ-BD OI=30 at $13.63 SL=10.75 BUY CALL FEB-125*ERQ-BE OI=11 at $11.38 SL= 9.00 BUY CALL FEB-130 ERQ-BF OI= 2 at $ 8.88 SL= 6.75 low OI Picked on Jan 11th at $122.38 P/E = N/A Change since picked +3.75 52-week high=$140.88 Analysts Ratings 5-4-2-0-0 52-week low =$ 58.75 Last earnings 10/99 est=-1.56 actual=-1.68 surprise=-7.70% Next earnings 01-24 est=-1.51 versus=-1.10 Average Daily Volume = 428 K Chart = http://quote.yahoo.com/q?s=SEPR&d=3m ************* SEMICONDUCTOR ************* ADI - Analog Devices $101.38 (+14.50)(-6.13)(+9.06) ADI is a semiconductor company. They design, manufacture, and market analog and digital integrated circuits (ICs) including digital signal processors. Most of the company's components are used by original equipment manufacturers (OEMs) and include such clients as 3Com, Hewlett-Packard, and Electrolux. Analog Devices have operations in the US, the Philippines, Taiwan, and Ireland. ADI has been blessed with a constant stream of momentum that has taken it to new heights four times this week. For the most part, volume has been only moderate, but Friday was a different story. Following Intel's blowout earnings report on Thursday evening, ADI traded heavily at 2.34 mln shares and tacked on $7.56 by the finish. This surge catapulted ADI to an intraday high of $101.94 crushing overhead opposition from the word "go". Notably the stock closed bullishly just a fraction away from this new 52-week high. With the psychological $100 barrier broken there's nothing to hold ADI back now. Earnings are not expected until mid-February so it'll be important to pay attention to the sector sentiment especially since this is a pure momentum play. Nearest support is still at $93 and $95 which is now in line with the 5-dma ($94.74). If there's a strong correction, look to firm support at $90 and/or the 10-dma ($90.78) for a bottom, but don't jump in there. Wait for another rebound if the stock ever gets that low. News was scarce this week. However, ADI did announce on Monday 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. BUY CALL FEB- 95 ADI-BS OI=320 at $12.75 SL=10.25 BUY CALL FEB-100*ADI-BT OI=228 at $10.00 SL= 7.50 BUY CALL FEB-105 ADI-BA OI= 0 at $ 7.38 SL= 5.75 New Strike BUY CALL FEB-110 ADI-BB OI= 0 at $ 5.63 SL= 4.00 New Strike BUY CALL MAR-105 ADI-CA OI= 0 at $10.13 SL= 7.75 New Strike BUY CALL MAR-110 ADI-CB OI= 0 at $ 8.38 SL= 6.50 New Strike Picked on Dec 30th at $90.44 P/E = 93 Change since picked +10.94 52-week high=$101.94 Analysts Ratings 10-5-1-0-0 52-week low =$ 24.38 Last earnings 12/99 est= 0.35 actual= 0.40 Next earnings 02-17 est= 0.44 versus= 0.18 Average Daily Volume = 1.44 mln Chart = http://quote.yahoo.com/q?s=ADI&d=3m **** TQNT - TriQuint Semiconductor $130.00 (+22.00) TriQuint Semiconductor is a leading worldwide supplier of a broad range of high performance gallium arsenide (GaAs) integrated circuits. TriQuint's products span the RF and millimeter wave frequency ranges and employ analog and mixed signal circuit designs. They are used in wireless communications, telecommunications, data communications and aerospace systems. TriQuint offers both standard and customer specific products as well as foundry services. TriQuint's two operations, in Oregon and Texas, are both certified to the ISO 9001 international quality standard. The markets have been backing and filling all month in an attempt to establish a new leadership group. We may have one now. Roaring ahead on the excellent earnings report from Intel, many Semiconductor stocks surged to new highs on Friday. TQNT was one of the strongest. If the other leading groups turn out to be wireless communications and telecommunications then TriQuint will have hit the trifecta in a big way. TriQuint's gallium arsenide chips are used extensively in telecom equipment, especially wireless components. All fund managers looking for exposure in either the Semis or Telecom sectors, have to seriously consider a position in TriQuint. To keep the party going, TQNT announced a 2-for-1 split with a delivery date of February 22nd. An excellent trading day on Friday, leads us to believe that more gains are ahead for the shares of TQNT. By establishing a new high, TQNT has formed a very bullish pattern that could take it up to $150. The last breakout took the stock up 15%. There was a little profit taking into the close on Friday. If TQNT can stay above $126 on Tuesday you might be able to get a bullish position started at a favorable price. Momentum investors could be interested in opening positions if the stock can take out Friday's high of $137.25. Support can be initially found at $125. BUY CALL FEB-115 TQN-BC OI= 297 at $21.88 SL=17.00 BUY CALL FEB-120 TQN-BD OI= 58 at $18.75 SL=14.63 low OI BUY CALL FEB-125*TQN-BE OI=1609 at $16.50 SL=12.88 Picked on Jan 13th at $130.00 P/E = 114 Change since picked +5.75 52-week high=$137.25 Analysts Ratings 5-4-4-0-0 52-week low = $10.31 Last earnings 10/99 est= 0.27 actual= 0.36 Next earnings 02-10 est= 0.37 versus= 0.21 Average Daily Volume = 400 K Chart = http://quote.yahoo.com/q?s=TQNT&d=3m **** LSI - LSI Logic $72.75 (+11.50) LSI Logic designs and makes application-specific integrated chips. They offer a variety of products, however, their system- on-a-chip(SOC) product combines the microprocessor, logic, and memory functions of an electronic system onto a single chip. LSI's semiconductor business primarily manufactures and sells ASICs, which are semiconductors designed for a unique, customer- specified application. They have expanded their investment in the wireless and broadband communications market. LSI's customers include computer manufacturers, as well as customers in the communications and consumer products industries. Thank you Intel. INTC's earnings came in better than expected and that set the stage for a rally in the Semiconductor sector. Well, our new play actually got a little help from the tame CPI report on Friday. Even Alan Greenspan, unknowingly aided in the start of a rally in the tech and chip sector. Most investors decided the Greenspan speech didn't sound that bad, and returned the markets Friday with buy orders in hand. LSI took off out of the starting blocks and set a new 52-week high before the end of the session at $74.25. The momentum behind Friday's move was strong with over 2.4 million shares changing hands. LSI is scheduled to report earnings Jan 25th and we believe the momentum will continue. Semiconductor growth is expected to post double digit returns in the fourth quarter, and 2000 could be brighter for LSI and the semiconductor industry. The broader markets will continue to be volatile, so it will be important to be patient and select your entry points carefully. Technically, LSI has support at $72 and $70. Should we see a pullback next week, a bounce off those areas would provide a good entry point for our new play. A report out last Tuesday from AP, said PC prices will probably begin to rise, due to a chip shortage. Not a good situation for the box makers, however the demand will probably continue to stay strong. On the bright side, the chip shortage is expected to not be remedied for about two years. In other news, analysts at Warburg Dillon Read, said demand remains strong across the Semiconductor industry and picked LSI as one of its top four picks for the first quarter of 2000. BUY CALL FEB-65 LSI-BM OI=288 at $12.25 SL=9.63 BUY CALL FEB-70*LSI-BN OI=510 at $ 9.00 SL=6.75 BUY CALL FEB-75 LSI-BO OI= 1 at $ 6.25 SL=4.50 Picked on Jan 16th at $72.75 P/E = 69 Change since picked +0.00 52-week high=$74.25 Analysts Ratings 13-7-3-0-0 52-week low =$20.13 Last earnings 10/99 est= 0.30 actual= 0.35 surprise=+16.7% Next earnings 01-25 est= 0.43 versus= 0.00 Average daily volume = 2.23 mln Chart = http://quote.yahoo.com/q?s=LSI&d=3m ******** Internet ******** NTAP - Network Appliance Inc. $93.69 (+8.69) Their customer base is an impressive group of clients. Names like Yahoo, AOL, Motorola, Siemens and the UK's #1 ISP Demon Internet depend on them daily. Network Appliance uses its Netcache software and NetApp suite of network storage servers, or filers. These products are designed for and provide fast reliable cost effective service for Internet service providers, and corporate intranets. NTAP's hi-powered ONTAP operating system allows simultaneous access by users from Windows, UNIX and Web platforms. NTAP is located in Sunnyvale, Ca and competes against EMC, Sun Microsystems, Cisco Systems and Novell. Since its 2-for-1 split on Dec 21st, shares of NTAP are on the move again. NTAP and the Networking sector had fallen prey to the sector rotation in the broader markets since the first of the year. The first week of the new year was rough for many of the tech stocks at the Nasdaq. NTAP traded down to a low of $67.75 before investors decided enough was enough, and began to bid the price higher. Last Monday in what seemed to be a group effort, many of the tech stocks began to see buyers return to the market. After a brief mid-week sell-off in what has been described as a one or two day sector rotation, NTAP and its brothers in the Networking sector, took off like a rocket Friday morning, with the release of the benign CPI report and Thursday evening's speech by Alan Greenspan. Investors seem to be saying it's ok now, to jump back in the leading technology issues. INTC was the first major Tech to report earnings, and that also seemed to ignite the fire at the Nasdaq, at least for the time being. NTAP gained $7.97 Friday, on volume of 3.0 million shares. NTAP made a new 52-week high at $95.25, and appears to be headed higher, given the strength and volume supporting the move. There has been no company specific news or events supporting the move. As for entering this new play, we would wait to see the mood of traders as they return from the holiday weekend on Tuesday. If we see some profit- taking early in the week, NTAP should find intraday support at $92 and $90. Wednesday NTAP added another name to its long list of satisfied clients. Billserv.com, a leading electronic bill presentment and payment service bureau, announced it had supplemented its data center operation with NTAP storage and data management software solutions. They also selected NTAP as their standard storage infrastructure vendor. Add to that, a reiteration of a Strong Buy recommendation from Soundview, and a projected price target of $110 and we believe NTAP has had a great start to the new year. BUY CALL FEB-80 NUL-BP OI=205 at $17.75 SL=14.00 BUY CALL FEB-85 NUL-BQ OI= 82 at $14.38 SL=11.38 BUY CALL FEB-90*NUL-BR OI=113 at $11.50 SL= 9.00 BUY CALL FEB-95 NUL-BS OI=380 at $ 8.75 SL= 6.50 Picked on Jan 16th at $93.69 P/E = 311 Change since picked +0.00 52-week high=$95.25 Analysts Ratings 8-5-1-0-0 52-week low =$19.06 Last earnings 11/99 est= 0.17 actual= 0.19 surprise=+10.0% Next earnings 02-16 est= 0.11 versus= 0.06 Average daily volume = 1.48 mln Chart = http://quote.yahoo.com/q?s=NTAP&d=3m **** VIGN - Vignette Corporation $200.94 (+25.75)(+12.19)(+12.50) VIGN provides Internet Relationship Management (IRM) software products and services, a category of enterprise solutions designed to enable businesses to build sustainable online customer relationships, increase returns on internet-related investments and capitalize on internet business opportunities. VIGN's clients come from diverse sectors and include financial services, health, education and government, media, retail, technology and telecommunications. With earnings season now in full swing, VIGN is giving us a very nice run. The company has still not released the actual date, but says to expect earnings near the end of January. The move up, though volatile, paints a nice picture of higher-highs and higher-lows. After the strong move up late Thursday afternoon, the momentum continued on Friday. Volume this past week has only been average, and we expect it to pick up as we get closer to that nebulous earnings date. VIGN has had large daily swings, providing plenty of entry points, and opportunities for day traders. Support is building in the $193-194 area, and the lows this week have created strong support at $175. VIGN has traded as high as $206 three times this week and this looks to be the next resistance point to break through. Either a strong move through resistance or a convincing bounce off of support can be considered as a point for opening new positions, but remember your stops. With the inherent volatility in this issue, you don't want to be the last one standing when the music stops. Tuesday brought more good news with Tara Long at CE Unterberg Towbin reiterating her Strong Buy recommendation. This, coming on the heels of two other upgrades one week earlier is adding fuel to the fire under VIGN. 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. BUY CALL FEB-190 GGV-BR OI=207 at $31.13 SL=24.25 BUY CALL FEB-195*GGV-BS OI=102 at $28.63 SL=22.25 BUY CALL FEB-200 GGV-BT OI= 64 at $25.38 SL=19.75 BUY CALL FEB-210 GGV-BB OI= 89 at $21.50 SL=16.75 Picked on Dec 30th at $163.75 P/E = N/A Change since picked +37.19 52-week high=$200.94 Analysts Ratings 9-4-0-0-0 52-week low =$19.91 Last earnings 10/99 est=-0.20 actual=-0.19 Next earnings N/A est=-0.09 versus= N/A Average Daily Volume = 1.33 mln Chart = http://quote.yahoo.com/q?s=VIGN&d=3m **** EXDS - Exodus Communications $106.00 (+18.88) 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. Nice gain for the week, but Friday wasn't so pretty. Following Monday's blast off into new territory, the trading pattern became breakout in the morning, then descent through the close. Of course, if you bought at the close, then sold at the open the next day, you did well. Despite the gap and crap (can we say that on the Internet?), support moved up from $100 to $102.50 to $105 throughout the week, and held well at $105 on Thursday and Friday, which should provide further support. If nothing else, the 10-dma ($97.56) has provided support during consolidation phases, but has generally meant nothing to EXDS when it's on the move. The mechanism for further increases? Earnings are scheduled on January 26, wherein EXDS could also announce another split. The last announcement came when the shares traded at $108 on November 19, 1999 (It was effective December 15, 1999). Here we are again. Target-shoot to fit your risk profile or wait for the breakout over $110. EXDS had a great week of "reiterations". MSDW said Strong Buy. Jeffries and Co. maintained a Buy and increased their price target to $140, while BBRS reiterated Buy. Legg Mason? Buy. Wit Capital started them as a Buy the week before last too. For those that are curious about EXDS's $44 mln purchase of KeyLabs, KeyLabs provides software and services to help customers develop and test sites to ensure that they work before they're introduced. The Lindon, Utah-based company, founded in 1996, also tests and ranks the performance of competing companies' hardware and software. (bloomberg) With high time value, consider using Jim's Covered Straddle strategy outlined in Options 101 from last Sunday. BUY CALL FEB-100*DUB-BT OI=1818 at $17.75 SL=14.00 BUY CALL FEB-105 DUB-BA OI= 439 at $15.50 SL=12.00 BUY CALL FEB-110 DUB-BB OI= 796 at $13.38 SL=10.75 BUY CALL MAR-110 DUB-CB OI= 390 at $17.50 SL=13.75 SELL PUT FEB- 90 DUB-NR OI= 76 at $ 6.75 SL= 8.50 (See risks of selling puts in play legend) Picked on Jan 11th at $103.19 P/E = N/A Change since picked +2.81 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 = 3.7 mln Chart = http://quote.yahoo.com/q?s=EXDS&d=3m ********* SOFTWARE ********* INTU - Intuit Inc $81.38 (+7.81) 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. Momentum is the name of the game for INTU. Investors and analysts alike were impressed with the company's unveiling of 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 compete via the Net and at a relatively low cost with Intuit's QuickBooks Site Builder service. In response to the news, INTU traded at almost four times its ADV and advanced an astonishing 29%, or $17.56 on January 5th. Bear Stearns immediately began coverage with a Buy rating and issued an $80 price target. ABN AMRO also endorsed Intuit with a reiteration of its Buy recommendation. Founder and company executive, Scott Cook, was on the front lines that day too. He was adamant that QuickBooks Site Builder "is the most exciting thing we've introduced in over a year" and " this is just part of a much-larger strategy, which is to become the largest hoster of small businesses". We added INTU to our call list on Tuesday evening after watching INTU shatter resistance at $80 and tag the $90 mark on pure momentum the day before. Falling into a typical pattern, old resistance at $80 has emerged as near-term support holding firm at the 5-dma (also $80). The present level is a reasonable entry point into this momentum play, however target-shooting for an intraday bottom would, of course, be optimum. Stay on your toes if you're playing interest-rate sensitive Internets. Volatility is expected. Intuit announced on Monday 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. Also in the news this week, Intuit and Concentrex (CCTX) formed an alliance to bring TurboTax to the Web. Concentrex will market and provide the portal for its 5000 financial institution clients to reach the TurboTax site. The major online retail and Internet related service sites such as Wal-mart.com and America Online (to name a few) will provide consumers the access to the electronic tax return filing service. BUY CALL FEB-80*IQU-BP OI=381 at $9.88 SL=7.50 BUY CALL FEB-85 IQU-BQ OI=241 at $7.75 SL=6.00 BUY CALL FEB-90 IQU-BR OI= 72 at $5.88 SL=4.25 Picked on Jan 11th at $82.38 P/E = 44 Change since picked -1.00 52-week high=$90.00 Analysts Ratings 5-9-1-0-0 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 = 3.26 mln Chart = http://quote.yahoo.com/q?s=INTU&d=3m **** GMST - Gemstar International $76.81 (+11.31) 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 began its most recent shining path to new heights back in December. It began with every investor's favorite early Christmas present, a 2-for-1 split. Not content in simply giving during the holidays, Gemstar was also the recipient of a cherished invitation into the NASDAQ 100. Gemstar is one of only three foreign companies to be included in this exclusive club. By being included in the QQQ, GMST shares were under immediate accumulation by Index investors. The longer-term enthusiasm for GMST lies in the hopes that it will be the leader in developing interactive television and could became a brand name found in every home. At the start of the millennium Gemstar developed a few occlusions as profit-takers took control of the stock and drove the share price back to $61. We became interested in this stock as a call play last week when the downtrend was broken. Leaders for the year are born this time of year and GMST seems poised to plow back into new high ground. The break above the down channel indicates that GMST may move up into the $90 level. A bullish position around Friday's close could prove to be profitable. Momentum investors are probably waiting for a new high above $79.50 before jumping on board. New support has been established around $72 which might be a good entry point for the more patient investor. Significant support exists in the low $60's. The most recent new analyst coverage for GMST occurred at the end of November when SG Cowan initiated a Strong Buy. If GMST continues its strength, look for some new coverage. BUY CALL FEB-70 GST-BN OI=1636 at $12.13 SL=9.50 BUY CALL FEB-75*GST-BO OI=4460 at $ 8.50 SL=6.50 BUY CALL FEB-80 GST-BP OI=1029 at $ 6.00 SL=4.25 SELL PUT JAN-75 GST-MO OI= 195 at $ 2.06 SL=3.75 High Risk! (See risks of selling puts in play legend) Picked on Jan 11th at $70.63 P/E = 95 Change since picked +6.19 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 = 1.50 mln Chart = http://quote.yahoo.com/q?s=GMST&d=3m **** MSTR - MicroStrategy Inc. $227.94 (+17.56)(+0.38) MicroStrategy is a worldwide provider of enterprise DSS software applications and related services. DSS software enables users access to and the analysis of information stored in large relational databases through various devices like the Internet, e-mail, telephones, pagers and other wireless communications devices. Through this software clients can improve operations, analyze marketing effectiveness and create and deliver targeted one-to-one marketing campaigns to customers. MicroStrategy also provides customers with professional and customer support services. MSTR has re-shaped itself into a cutting edge technology company. Having announced in the past week the planned sale of its Water-Jel division the transformation is complete. MSTR is in the very hot B2B field. This industry could be one of the strongest for many years to come as businesses in general are spending tons to create efficiencies through the Internet and MSTR is ready, willing and able to help them do it. After enjoying a huge run up, officers of MSTR have seen fit to split the stock 2-for-1 on the 26th of January. If it was not for the cooling attitude for Internet stocks in general last week we figure that MSTR would be well on its way to new highs. The sentiment needs to change soon for the stock to have a split run. In the meantime MSTR is doing all it can to strengthen its client list. Recent new clients include Ameritrade, Sybase and Dimension Data. Technically, MSTR started the week in fantastic fashion, up over 41 points on Monday, only to slowly back down. Intraday trading has established support around $215 and resistance at $233. One could attempt to trade this range. Look for a nice rally into the $250's if the stock can take out $233. This stock really moves on small volume. Please keep that in mind when evaluating your risk tolerance. Also be careful trading options on this stock. We have noticed some shockingly wide discrepancies in the option bid/ask spreads at the two exchanges that trade MSTR. If you do not get the fill you think you deserve try moving the trade to the other exchange. It is recommended that you do not use market orders when trading options with small volume or open interest. One of the reasons why MSTR rallied on Monday was because of the announcement that it had reached an agreement to develop a new wireless information channel with Primark. MSTR is looking to build its corporate client base by advertising at the Super Bowl. MSTR was also named by Fortune as one of the "Top 100 Best Places to Work". Happy employees tend not to sell stock. BUY CALL FEB-210 EUU-BB OI=25 at $41.25 SL=32.25 BUY CALL FEB-220 EUU-BD OI=39 at $36.50 SL=28.50 BUY CALL FEB-230*EUU-BF OI=50 at $31.00 SL=24.25 SELL PUT JAN-220 EUU-MD OI=50 at $12.63 SL=16.00 High Risk! (See risks of selling puts in play legend) Picked on Jan 9th at $210.38 P/E = 811 Change since picked +17.56 52-week high=$262.00 Analysts Ratings 5-3-1-0-0 52-week low =$ 14.69 Last earnings 10/99 est= 0.08 actual= 0.09 Next earnings 01-27 est= 0.11 versus= 0.07 Average daily volume = 346 K Chart = http://quote.yahoo.com/q?s=MSTR&d=3m ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ******************************* CALLS CONTINUED IN SECTION FOUR ******************************* SEE DISCLAIMER IN SECTION ONE
The Option Investor Newsletter 1-16-2000 Sunday 4 of 5 ******* Telecom ******* MFNX - MetroMedia Fiber Network $57.13 (+9.00) Buckets-O-Bits. That's not a new dog food. It's MetroMedia's business to send big batches of data down its fiber-optic network lines as a competitive local exchange carrier (CLEC). It operates its network in Chicago, Philadelphia, New York City and Washington, D.C. and interconnects its service areas through an agreement with Williams Communications. It rents its fiber to customers, ISP's, other local and long distance carriers and wireless providers. Racal is their partner between the U.S. and the U.K. Metromedia also owns Abovenet, a recent acquisition (and competitor of Exodus Communications) in the hosting business. Bell Atlantic owns 10% of the company and contracts with MFNX to use their network. On December 19, MFNX was named for inclusion in the NASDAQ 100. Having encountered resistance at $45 until that date, MFNX finally broke out of the range on strong volume, but took a breather in early January, retesting for new support at $44. From there, it's moved over the last 2 weeks to its current $57.13. Near-term support is now at $52 following Friday's breakout again to a new trading and closing high of $57.25. Volume of 3.8 mln shares traded handily beat the ADV of 2.8 mln shares by about 35%. Volume has been steadily rising throughout the week and over the last 3 months. Technically, MFNX is looking very strong, and they are scheduled to announce earnings in early February. Though Zack's reports the unconfirmed date of February 7, MFNX has a bad habit of keeping investors in the dark as to the release date (except that it will likely be the first week in February), then releasing numbers in the middle of the trading day. It's not followed by many analysts either, which makes estimates much less valuable. Even so we will have a more firm date in the next update, assuming we get an answer from the company. Speaking about "tough to track" information on this company, they have historically announced 2:1 splits in the $52- $78 range. Could we get another? Perhaps, but get this. The company reports only 180 mln shares authorized, yet 192 mln already issued - neat trick...we're trying to get a handle on that too. Nonetheless, the company last week reported exceeding over $2 bln in contracts for the first time (total value, not annual revenue) and continues to lease out more capacity to other carriers. To summarize, the play is technical, but partially driven by earnings. Target shoot at support - no chasing. MFNX is an illusive animal. Similar to a Tasmanian Devil, it can bite. In the news, two individuals claim they are owed 15% of the company at a cost of $1000 (yes, thousand) stemming from a 1993 agreement to find financing for the company prior to its 1997 IPO. They claim they introduced Stephen Garofalo, MFNX's CEO to an investor who took a stake in the company. Last year, said 2 individuals wrote their $1000 check to the company seeking their 15% stake. Yeah, right. Don't get panicked out by the words "law suit" folks. Their attorney couldn't explain the 4-year delay in making their demand either. BUY CALL FEB-50 QFN-BJ OI=2049 at $ 9.63 SL=7.75 BUY CALL FEB-55*QFN-BK OI=1520 at $ 6.75 SL=5.00 BUY CALL FEB-60 QFN-BL OI= 70 at $ 4.25 SL=2.50 BUY CALL MAY-55 QFN-EK OI=5277 at $11.75 SL=9.25 BUY CALL MAY-60 QFN-EL OI= 24 at $ 9.63 SL=7.75 Picked on Jan 16th at $57.13 P/E = N/A Change since picked +0.00 52-week high=$57.25 Analysts Ratings 18-8-0-0-0 52-week low =$17.38 Last earnings 11/99 est=-0.12 actual=-0.16 Surprise=-33% Next earnings 02-07 est=-0.26 versus= 0.00 Average Daily Volume = 2.8 mln Chart = http://quote.yahoo.com/q?s=LVLT&d=3m **** ANAD - Anadigics Inc $73.00 (+25.56) Anadigics designs and manufactures radio frequency and microwave gallium arsenide integrated circuits (IC). These circuits are sold to communications equipment makers in the broadband, direct satellite, fiber-optic and wireless communications markets. Ericsson, Motorola, and Qualcomm account for about 60% of total sales. Momentum is propelling ANAD upward at an ever-increasing pace. Take a look at a ten-day chart for confirmation. The visual is crystal-clear. Last Friday a Strong Buy reiteration and $56 price target from Needham & Co lit a fire under ANAD. On Monday the stock broke through the stubborn resistance at the $50 mark on positive company news. Anadigics announced a $10 mln expansion to its state-of-the-art 6-inch production facility in response to the growing demand for its wireless and broadband products. According to Dr. Bami Bastani, President & CEO, "this manufacturing expansion plan positions ANADIGICS with the necessary capacity to serve our customers and is consistent with our 2000 year-end projected growth rates in these markets". Investors also realized the bottom-line potential and have subsequently bid up ANAD $25.56, or 53.9%! On Friday ANAD not only advanced a respectable $7, but also closed smack on its intraday high. Quite a bullish sentiment for any stock. But because of the rapid run-up it's difficult to determine a short- term support level, however $70 held firm as intraday support on Friday. Next would be $66, then the $60 to $62 range in the proximity of the 5-dma ($61.53). There are just two weeks to play this momentum run as the company is confirmed to report earnings on January 28th, before the bell. This event should significantly increase the intensity of the play so you may have to look intraday for an entry point. ANAD is not without the analysts' backing. Earlier in the week Adams, Harkness and Hill upgraded ANAD to a Strong Buy from Accumulate. Then on Thursday Needham & Co repeated its Strong Buy recommendation for ANAD. ***Note: The rapid run-up has resulted in new strikes on the option contracts and thus, the absence of Open Interest (OI)*** BUY CALL FEB-60*DQA-BL OI=2 at $16.25 SL=12.75 BUY CALL FEB-65 DQA-BM OI=0 at $12.88 SL=10.50 BUY CALL FEB-70 DQA-BN OI=0 at $10.13 SL= 7.75 Picked on Jan 13th at $66.00 P/E = -181 Change since picked +7.00 52-week high=$73.00 Analysts Ratings 3-2-1-0-0 52-week low =$11.19 Last earnings 10/99 est= 0.10 actual= 0.15 Next earnings 01-28 est= 0.16 versus=-0.01 Average Daily Volume = 391 K Chart = http://quote.yahoo.com/q?s=ANAD&d=3m **** CMVT - Comverse Technology $148.31 (+9.31)(-5.75) Comverse is the world leader in multimedia telecommunications applications. Through its Comverse Network Systems division, the company markets its Access NP and TRILOGUE INfinity Enhanced Services Platforms, which enable wireless, wireline, and internet companies to offer enhanced telecommunications services to business and residential customers. Among these services are voice and fax messaging, call answering, and web information services. Comverse also offers Intelligent Peripheral/Service Node, supporting next-generation personal communication services such as pre-paid wireless, mobile number portability, call screening, and mobile attendant functions. It looks like CMVT may have found its way again. Throughout the volatile trading that commenced on January 4th, we saw this issue subjected to the same wild price swings as the NASDAQ. Now that the economic reports are out, CMVT investors can get back to focusing on the strength of CMVT in its market. CMVT continues to add to its extensive customer base, which currently numbers more than 290 telecommunications operators worldwide. More than 150 of these are in the rapidly growing digital wireless market. Still showing weakness early in the week, CMVT put in a bottom near $132 early on Wednesday, and has marched up steadily since then. Now solidly above its 10-dma (currently $140), it could be setting up to make a run at its 52-week high at $155.88. Volume was light throughout the week, and given the gains over the past 3 days, we would like to see more buying interest to confirm the move. Enter new positions on continuing strength or on any bounce from support near $140. CMVT is not for the risk-averse, and with the volatility likely to continue, keep your stops in place. The jury is still out on when CMVT will announce a split. Recall that it has been a split candidate since October when the company increased the number of shares and the CEO said a split would be coming in a matter of weeks or months. BUY CALL FEB-145 CQV-BI OI=161 at $ 9.00 SL= 6.75 BUY CALL FEB-150*CQV-BJ OI= 90 at $ 6.00 SL= 4.25 BUY CALL FEB-155 CQV-BK OI= 25 at $ 4.38 SL= 2.75 BUY CALL APR-155 CQZ-DK OI= 39 at $13.63 SL=11.00 Picked on Jan 9th at $139.00 P/E = 70 Change since picked +9.31 52-week high=$155.88 Analysts Ratings 10-4-0-0-0 52-week low =$43.63 Last earnings 11/99 est= 0.53 actual= 0.56 Next earnings 02-29 est= 0.56 versus= 0.44 Average Daily Volume = 1.35 mln Chart = http://quote.yahoo.com/q?s=CMVT&d=3m **** NOK - Nokia $184.06 (+13.06)(-20.06)(+6.00)(+5.50)(P5W +52.63) Finnish Phone Firm, Nokia is the world's number one maker of wireless cellular phones, ahead of Motorola, Ericsson and Qualcomm. In addition they make wireless networking equipment, PC monitors and workstations, digital satellite and cable network systems and set-top boxes. However mobile phones make up 80% of their $18.5 bln in annual sales. Return on equity is an industry smokin' 43%, and they currently sit on $3.3 bln cash, or slightly over $3 per share. That's more like it. Looks like NOK finally got a break over $180 and held. We'd be a lot more convinced though if volume existed to back it up - only 76% of the ADV traded on Friday and roughly that same figure earlier in the week too. If the market gets rough again, it may not last long. Nonetheless, a gain is a gain; we'll take it. Fund managers know the story, and after 9 weeks on the play list you probably do to. But for those just joining us, NOK announced in late November that they would meet their three-year sales objective in two years (secret code for 50% revenue growth rate), while reporting to the Street that they should revise revenue estimates from 25-35% up to 30-40%. Not only that, they reported demand for their Internet capable phone was exceeding even their lofty projections. Anybody see an earnings surprise here? The magic date is February 1 after the close, wherein they could also announce a split too. Historically, NOK has split its shares at around $150. Support is still strong at $170. If the "old resistance equals new support" rule holds, look for support at $175. The nearest resistance is $189. We suggest you consider target shooting if NOK continues to range trade. Otherwise take a position at any intraday dip if the volume and price accelerate into the earnings date. If you are at all concerned that Motorola's recent success in the handset business is happening at NOK's expense (NOK usurped the number one spot from MOT in 1998), fear not. "They are taking market share, not at Nokia's expense, but others," said Brian Modoff, a Deutsche Banc Alex Brown analyst. Here's the probable source of NOK's $6 gain on Friday: NOK announced they had inked a "memorandum of understanding" to jointly develop Internet access for mobile phone users in China. BUY CALL FEB-175 NZY-BO OI= 971 at $19.00 SL=14.75 BUY CALL FEB-180*NZY-BP OI=1249 at $16.50 SL=13.00 BUY CALL FEB-185 NZY-BQ OI= 438 at $14.50 SL=11.00 BUY CALL FEB-190 NZY-BR OI=1848 at $12.00 SL= 9.50 Picked on Nov 14th at $122.25 P/E = 81 Change since picked +61.81 52-week high=$196.00 Analysts Ratings 13-8-0-0-0 52-week low =$ 52.31 Last earning 10/99 est= 0.52 actual= 0.57 surprise=9.6% Next earning 02-01 est= 0.66 versus= 0.58 Average Daily Volume = 3.5 mln Chart = http://quote.yahoo.com/q?s=NOK&d=3m **** JDSU - JDS Uniphase $192.81 (+12.25)(+7.75) Here's another company laying around on paradigm beach ready to surf the next wave. Uniphase Corporation is a fully integrated optical electronics company that designs, develops, manufactures and markets fiber optic telecommunications components and modules and laser subsystems. The Company's telecommunications products include semiconductor lasers, high-speed external modulators, transmitters, fiber Bragg gratings and optical modules for fiber optic networks in the telecommunications and cable television industries. Based in the Silicon Valley, California, they employ approximately 6260 people worldwide. As we've said before, "Dear God, please let there be one more company like Intel to invest in, and I promise not to mess it up this time". Effectively they do for light what Intel does for electrons and is the largest arms merchant in the optical networking wars. JDSU announced another 2:1 split 3 days following its last split, which will become effective on March 10, assuming the shareholders approve an increase in the number of authorized shares from 600 mln to 3 bln on February 25. But this isn't the reason for the play. The earnings date however, is driving the play. The announcement is scheduled for January 26. If ETEK's 18% surprise last Monday was any indication, earnings should exceed the street estimate by a significant amount. Sorry, we have no whisper number. If you need further evidence, just note that Lehman Brothers raised its estimate on Cymer (a laser/semiconductor manufacturer) due to potential upside following conversations with Cymer's customers, competitors and suppliers (Cockroach theory play - where there is one, there are many). JDSU's CEO, Kevin Kalkhoven figures that they need to double capacity for the next two years just to meet demand. Even so, they can't produce fast enough. Thus it becomes an execution-focused business rather than demand-focused. JDSU is the biggest and most integrated in the business, which all but assures continued future orders. Support is firm at $180, but getting stronger at $185. Volume has tapered down a bit, but still consistently 35-65% above the ADV of 4.6 mln shares. Target shoot to your level of comfort. Otherwise buy an intraday dip if the market, volume and price start to move north. Resistance is at $197 and $210. George Gilder's Technology Newsletter was posted yesterday, and true to history, he had comments on JDSU. "JDSU consolidates its position as the Intel of the Telecoms with a breadth and depth even its elite competitors cannot challenge". That sounds good. Furthermore, there is a rumor that JDSU will be added to the S&P 500. If ultimately true, index funds would be in the position of having to buy it to accurately reflect the index. That means increased volume and rising prices as the action occurs. Needham and Company reiterated its Strong buy rating on Thursday too. Anybody ever heard of Griffiths McBurney? Neither have we, but they have reiterated their Reduce rating and issued a price target of $68. Suppose these guys are short the shares, or that they don't want to do any future underwriting of JDSU? Limited resources and oh so many ways to play! Consider the Covered Straddle from last Sunday's "Options 101" portion of the newsletter (naked puts too). BUY CALL FEB-180 XXZ-BP OI= 783 at $32.38 SL=25.25 BUY CALL FEB-190*UCQ-BR OI=1029 at $27.63 SL=21.55 BUY CALL FEB-200 UCQ-BT OI=1925 at $23.63 SL=18.50 BUY CALL MAR-200 UCQ-CT OI=1977 at $31.25 SL=24.50 SELL PUT FEB-160 XXZ-NL OI=1415 at $10.13 SL=12.75 (See risks of selling puts in play legend) Picked on Jan 13th at $187.69 P/E = N/A Change since picked +4.50 52-week high=$210.75 Analysts Ratings 13-13-0-0-0 52-week low =$ 14.81 Last earnings 10/99 est= 0.25 actual= 0.29 surprise=16% Next earnings 01-26 est= N/A versus= 0.07 Average Daily Volume = 4.5 mln Chart = http://quote.yahoo.com/q?s=JDSU&d=3m ***** LEAPS ***** Rotation seemed to be the key word for the week. Monday's news of the AOL-Time Warner merger set the tone for the week, until investors really began to dissect the deal, puzzled over how to value the merger. Investors headed for financial, cyclical and drug stocks to send the Dow to three record highs this week. The Nasdaq gained 4.7% for the week. Friday's surge came on the heels of a tame CPI report and the Intel's better than expected earnings. The Nasdaq climbed 107 points Friday, to close the week at 4064, just 5 points from where it started the year. Overall our LEAP plays maintained a good performance for the week. The major indices performed very well, but we need to point of the ending number for the VIX. The VIX fell like a rock Friday ending the day and the week at 21.05. The VIX is approaching a low not seen since early December, which would indicate the broader markets are nearing a period of retracement or at least a consolidation. If we get a pullback and the VIX rises, it could a great buying opportunity for more LEAPS, but for the VIX to rise or you will be paying a high premium. Current Plays SYMBOL SINCE LEAPS SYMBOL CURRENT PICKED RETURN EMC 11/07/99 JAN-2001 $80 ZOH-AP at $44.75 $15.38 190.96% JAN-2002 $90 WUE-AR at $48.00 $19.00 152.63% GPS 11/07/99 JAN-2001 $40 ZGS-AH at $15.00 $ 5.75 160.87% JAN-2002 $45 WGS-AI at $16.88 $ 7.88 114.21% IBM 11/07/99 JAN-2001 $100 ZIB-AT at $32.50 $13.63 138.45% JAN-2002 $110 WIB-AB at $35.75 $16.50 116.67% CSCO 11/14/99 JAN-2001 $80 ZCY-AP at $38.00 $19.13 98.65% JAN-2002 $90 WIV-AR at $40.63 $22.00 84.68% SLR 11/14/99 JAN-2001 $85 ZSR-AQ at $18.75 $21.75 -13.79% GE 11/21/99 JAN-2001 $150 ZGR-AU at $25.25 $16.25 55.38% JAN-2002 $150 WGE-AU at $35.75 $25.50 40.20% NT 11/28/99 JAN-2001 $75 ZOO-AO at $34.13 $22.25 53.39% JAN-2002 $75 WNT-AO at $42.13 $30.25 39.27% VOD 12/05/99 JAN-2001 $50 ZAT-AJ at $13.13 $10.75 22.14% JAN-2002 $50 WHV-AJ at $17.63 $15.00 17.53% KM 12/05/99 JAN-2001 $10 ZKM-AB at $ 2.69 $ 2.50 7.60% JAN-2002 $15 WKM-AC at $ 1.94 $ 1.75 10.86% ADBE 12/12/99 JAN-2001 $65 ZAE-AM at $16.25 $15.00 8.33% JAN-2002 $70 WAE-AN at $21.25 $20.38 3.91% TXN 12/12/99 JAN-2001 $110 ZTN-AB at $23.50 $22.25 5.56% JAN-2002 $120 WGZ-AD at $29.25 $28.50 2.63% NXTL 12/19/99 JAN-2001 $90 ZFU-AR at $34.00 $23.50 44.69% JAN-2002 $100 WFU-AT at $39.38 $27.25 44.51% SUNW 12/19/99 JAN-2001 $80 ZJX-AP at $20.88 $17.63 18.44% JAN-2002 $90 WJX-AR at $25.88 $22.00 17.64% AOL 12/23/99 JAN-2001 $90 ZKS-AR at $ 8.88 $20.13 -58.37% JAN-2002 $100 WAN-AT at $13.50 $25.63 -47.33% LU 11/14/99 JAN-2001 $80 ZEU-AP at $ 4.75 $12.88 -65.06% JAN-2002 $90 WEU-AR at $ 8.38 $16.13 -48.05% 01/09/00 JAN-2001 $50 ZEU-AJ at $13.88 $13.63 1.83% GTW 11/21/99 JAN-2001 $90 ZWB-AR at $ 7.13 $17.75 -59.83% JAN-2002 $100 WGB-AT at $11.38 $22.50 -49.42% 01/09/00 JAN-2001 $60 ZWB-AL at $15.75 $15.88 - 0.78% MOT 01/09/00 JAN-2001 $125 ZMA-AE at $46.00 $31.13 47.77% JAN-2002 $125 WMA-AE at $57.13 $41.50 37.66% To review the play description on any of our current plays, go to the LEAPS section for the date the play was added. New Plays CY - Cypress Semiconductor $37.06 Cypress Semiconductor had a great week. CY started off strong and ended the week in the same fashion. Tuesday analyst's at Warburg Dillion Read said that they expect demand in the Semiconductor industry to remain strong, and they expect most of the companies they follow to meet or exceed fourth-quarter estimates. They also indicated continued demand and stable pricing would lift 2000 chip industry growth over 1999. Their top four picks four the first quarter of 2000 include, ATML, LSI, MIPS and the latest addition to our LEAP portfolio, CY. On the news CY gained +4.69 Tuesday. By Friday CY had hit a new 52-week high at $37.75 and would appear to be ready to continue higher. The analysts like CY, with Gruntal reiterating a short-term Outperform rating Tuesday as well. Merrill Lynch reiterated their Buy rating as well, citing the acquisition of SRAM Co. CY is scheduled to report earnings January 25th before the open. Analysts estimates are for CY to report $0.29 EPS, compared to $-0.04 for the same period last year. CY could be an explosive play and a great addition to our portfolio. BUY LEAP JAN-2001 $40.00 ZSY-AH at $ 9.13 BUY LEAP JAN-2002 $40.00 WSY-AH at $12.63 http://www.OptionInvestor.com/playimages/index.asp?image=cy011600 Drops WMT $64.50 Wal-Mart provided us with a good opportunity to profit from our LEAP position in the last two months. We are going to let the retailing giant go for now. WMT hit a new high in late December and was the subject of profit- taking going into the first week of the year. We had a bit of a rebound and had been consolidating until Friday. Friday morning, the discounter announced David Glass, the company's CEO, would step down, immediately. Glass had been with the company since 1976 and took over from founder Sam Walton in 1988. Investors took this news as an opportunity to sell, and shares of WMT dropped through an intraday level of support at $65.13. WMT finished the session down only $-0.63, but does appear to be headed lower. We will keep our eye on WMT for new opportunities to buy LEAPS. ***************** PUTS, PUTS, PUTS ***************** Put plays can be very profitable but have a larger risk than call plays. When a stock is falling the entire investment community (except the shorts) is hoping it will reverse and start back up. The company management is also doing everything they can to shore up their stock price. The company issues press releases, brokers talk it up, analysts try to put a positive spin on everything. Then of course there is the death knell, the "buy recommendation" simply because the price has dropped to some level that analysts feel attractive again. Buyers who like the stock wait until it appears a bottom has been reached and then jump on it in a feeding frenzy. They may already have a large position and are averaging down. Many factors can stop a free falling stock in mid drop. **** ISLD - Digital Island, Inc. $77.13 (-16.50) Digital Island is a provider of network services to enable locally relevant customer experiences. Digital Island's services include global content delivery and hosting, unique application services, and a reliable Intelligent Network, all of which deliver the right content to the right customer, in the right market, at the right time. The Company has regional Data Centers in New York, Santa Clara, Honolulu, Hong Kong, and London, connecting directly into 21 countries, with Local Content Managers in 11 markets worldwide. ISLD made an attempt at a positive day on Friday, but just couldn't manage to pull it off. ISLD gapped up to open at $82 and quickly fell to spend the majority of the session dancing along $80. Finally, ISLD's dancing feet wore out and ISLD made another move down to close pennies over $77. This is the perfect kind of relative strength that we like to see out of put plays. In fact, days like Friday are a gift, as they yield room for entry points. The strong open followed by the continual drifting lower is a good sign that the selling is still in tact. We now have two consecutive closes below $80, which is a good indication that $80 is going to continue to serve more as resistance than support. Worst case, ISLD looks to have additional resistance right around the $85 level. Any confirmed move over this level would signal an end to our play so set your stops accordingly. As far as support goes, we still are looking at roughly another $7.50 to close the gap back to $69 from the huge move up back in December after the alliance with SUNW and INKT. BUY PUT FEB-85 SUH-NQ OI=353 at $18.75 SL=14.50 BUY PUT FEB-80 SUH-NP OI= 0 at $15.38 SL=12.00 Wait for OI Average Daily Volume = 1.86 mln Chart = http://quote.yahoo.com/q?s=ISLD&d=3m **** CHINA - China.com $77.50 (+1.00)(-2.13) Chinadotcom is the first pan-Asian integrated Internet company listed in the United States. The company provides a full range of Internet services that build e-business strategies and solutions (Web Connection), distribute content via its portal network (china.com, cww.com, hongkong.com, taiwan.com), and sell services through online advertising (24/7 Media Asia). They are committed to enabling digital communities to realize their full potential, thereby facilitating the development of the Internet in China and across Asia. The company has over 900 employees in 21 offices across 10 Asian markets, including Australia, Hong Kong, Japan, Korea, Malaysia, Singapore, and Taiwan. In Mainland China, the company has five offices and over 200 employees. CHINA did not really even bother trying to breakthrough $80 on Friday. Though CHINA did manage to gain a dollar, we were not too impressed being that the NASDAQ was up over 100 points. CHINA has been demonstrating some weak relative strength lately. CHINA did not even manage to trade half of the average daily volume on Friday. We are still looking for CHINA to drop below $75 and then we could be cleared for a nice fall. CHINA's 10-dma is hovering just below $70, which may provide some support as well. We are definitely seeing CHINA tag lower highs on a seemingly daily basis. As the intraday trading ranges have been narrowing a bit, we believe that we are merely seeing CHINA do a bit of consolidating in preparation for further decline. Of course, confirm direction before entering. Watch for $80 to hold as resistance and look for a drop through $75. CHINA's lack of participation in the recent up days in the market, may still be a result of pressure from the end of its lock-up period on January 8th. CHINA may also continue to struggle as more and more competition emerges. Many companies are trying to establish a strong Chinese presence. BUY PUT FEB-80 UIH-NP OI=80 at $14.38 SL=11.50 BUY PUT FEB-75*UIH-NO OI=86 at $11.75 SL= 9.25 Average Daily Volume = 1.46 mln Chart = http://quote.yahoo.com/q?s=CHINA&d=3m **** WCOM - MCI WorldCom, Inc. $46.56 (-0.63)(-5.88) MCI Worldcom is a telecommunications giant, providing consumers and businesses with local, long distance, Internet, data, and international communications services. Included in the company's products and services are switched and dedicated long distance and local products, dedicated and dial-up Internet access, wireless services, 800 services, calling cards, and debit cards. Survey said? Entry Point! The question we posed on Thursday, after seeing WCOM recover from a low of $40.75 was, "Has WCOM found a bottom or is this a good entry point?". The answer was clear by the close on Friday, as WCOM opened up at $49 and slid downhill all day for a loss of $2.94 from the high of the day. Volume was still heavy at more than double the ADV, indicating the weakness we have been focusing on is alive and well. The source of that weakness is the seemingly endless saga of the merger with Sprint. Adding further downside pressure is the announcement by AT&T on Thursday that they are lowering their key long-distance rate, a move WCOM will have to counter. This will continue to pressure the company's revenues and therefore the stock price. Look to enter new positions on continued weakness or a bounce off of the 10-dma, now at $47.50. Selling volume has been strong throughout this drop, so confirm that it continues to support any continuation of the downward move The latest salvo in the battle between the local phone companies and the large Telecoms was launched on Friday. In response to the AOL and Time Warner merger, the Small Business Survival Committee is urging Congress to reject legislation currently before the House of Representatives. The bill would grant local phone monopolies an exemption from the 1996 Federal Telecommunications Act, which prevents them from offering long-distance service to their local phone customers. Also on Friday, WCOM was named as the 'unnamed creditor' that has agreed to swap part of a $30 million for a 19 percent stake in Able Telecom, a builder of communications networks. BUY PUT FEB-50 LDQ-NJ OI=1377 at $5.25 SL=3.50 BUY PUT FEB-45*LDQ-NI OI=4543 at $2.50 SL=1.25 BUY PUT MAR-50 LDQ-OJ OI=1051 at $6.00 SL=4.25 BUY PUT MAR-45 LDQ-OI OI=4219 at $3.38 SL=1.75 Average Daily Volume = 14.24 mln Chart = http://quote.yahoo.com/q?s=WCOM&d=3m **** SBC - SBC Communications $41.94 (-2.19) Since purchasing Ameritech, SBC Communications became the #1 local phone company in the U.S. SBC has more than 10 million wireless phone subscribers in 22 states. They operate nearly 60 million access lines throughout the country. SBC has Internet access and paging businesses, and stakes in telecom operations, in 22 countries outside the U.S. They have invested in Williams Communications, a national fiber-optic network company, which will allow them to enter the long distance arena when the time comes. We added our put play on SBC Thursday and we've chosen to keep it for few more days. SBC jumped up $1.13 up during Friday's session. That's not that surprising given it had fallen over 10% for the week. SBC is the kind of stock that will get in a trend, up or down, and maintain the direction for a time. It's not a big mover, but can certainly provide wonderful opportunities. The move up Friday may be the beginning of a bounce up to resistance levels near $42 or $44, followed by a continuation of the current downtrend. The other possibility is the communications company is attempting to put in a bottom in the $40 area. Honestly, we won't know for sure until we see the strength behind any further moves higher. SBC reports earnings Jan 25th before the open, and we could see some strength from folks that believe they will handily beat analysts estimates. Analysts are looking for earnings to come in at $0.54 compared to $0.50 for the same period a year ago. We are not suggesting you ignore this play. We do however believe you should exercise caution and confirm any moves down with volume, prior to placing an order. A decline from the resistance levels could provide a great entry point for this play, but we would like to see it accompanied by better than average volume, when placing an order. In a strange way SBC, could have become a part of the ongoing Vodafone - Mannesman battle on Friday. Mannesmann CEO, Klaus Esser, said they may float their Internet business to realize a growth potential greater than anything VOD could offer. Esser indicated they may fight the VOD hostile takeover offer, with an Internet IPO and mentioned the names of SBC, WCOM or BEL as firms they would cooperate with in a potential venture. BUY PUT FEB-45*SBC-NI OI=441 at $4.50 SL=2.75 BUY PUT FEB-40 SBC-NH OI=249 at $1.56 SL=0.50 Average daily volume = 5.51 mln Chart = http://quote.yahoo.com/q?s=SBC&d=3m **** FD - Federated Department Stores $47.88 (-2.94) Federated Department Stores, Inc. is the nation's largest operator of department stores, located in all major regions of the United States. Federated operates 403 department stores in 33 states as of January 1, 2000. Additionally, in March of 1999 Federated acquired Fingerhut, which together with Bloomingdale's By Mail, Macy's By Mail, Macys.Com and certain other direct marketing activities comprises its direct-to-customer businesses. In an effort to reinforce their online units, FD announced on Friday that they planned to double their Internet related spending. The estimated amount that FD plans to spend will be an approximate $150-$200 million. Though FD tried to reassure investors that the added investment should not affect earnings, FD shares fell on the news, breaking through a good deal of support including its 10-dma of $50. This decline was backed by roughly four times the average daily volume. Obviously, investors were not too excited about the announcement and decided not to wait around to see if the company was right about the news not impacting earnings. FD did manage a bounce off of its 50-dma at $46 and we would like to see a breakthrough of this level before entering any new positions. FD's 100-dma could play back up at $45 as well. FD has additional support at $42 and $39. FD has resistance between $48 and $50. Look for this level to hold. Being that the news is just starting to hit the wires, we think that investor concern will continue to plague the shares. Of course, the news may have been overblown and the stock could recover so it is important to confirm the "mood" and direction of FD before initiating a new play. FD is scheduled to announce earnings on February 9th (we will confirm this date next week) and we think it is quite possible that this recent news will play a negative role as we approach the announcement. BUY PUT FEB-50 FD-NJ OI= 33 at $4.25 SL=2.50 low OI BUY PUT FEB-45*FD-NI OI=550 at $1.75 SL=0.75 Average Daily Volume = 1.13 mln Chart = http://quote.yahoo.com/q?s=FD&d=3m **** ICGE - Internet Capital Group $133.50 (-40.38 this week) Internet Capital Group is an Internet holding company actively engaged in business-to-business e-commerce through a network of Partner Companies. It provides operational assistance, capital support, industry expertise, and a strategic network of business relationships intended to maximize the long-term market potential of more than 45 business-to-business e-commerce partner companies. ICGE made a big run up mid-late December. Problem is they were just following the heels of CMGI and good market conditions. Let's look at what happened. CMGI was initiated by Merrill Lynch predicting a high target price. ICGE gets initiated with a Market Outperform by Goldman Sachs. At the same time the Fed's announce they are leaving short-term interest rates alone. So the Nasdaq gets a big boost. ICGE made a big run up based on all these factors. At one point, ICGE went as high as $210. Finally reality is sinking in and traders are realizing that ICGE is overvalued. Even with the Nasdaq closing high on Friday, ICGE closed down. Support at $134 has been holding since Wednesday, but that doesn't say a lot considering the overall markets rise. Any bounce back into resistance should be considered as a good point to jump in and ride the downward fall. The 50-dma is at $120 which could hold ICGE at that price for awhile since 50-dma usually gives better support. If ICGE breaks through the 50-dma of $120, the next stopping point for ICGE may be as low as $100. That is more ICGE's price range, valuation-wise. ICGE really doesn't have anything going for them to hold them at these high prices. Like we said, people are realizing their run was due to market conditions and CMGI's own run. BUY PUT FEB-135 EUG-NG OI= 46 at $19.88 SL=15.50 low OI BUY PUT FEB-130*EUG-NF OI=1203 at $16.75 SL=12.50 Average Daily Volume = 4.35 mln Chart = http://quote.yahoo.com/q?s=ICGE&d=3m **** IIJI - Internet Initiative Japan $85.50 (-11.50) Founded in 1992, IIJI offers a comprehensive range of Internet access services and Internet-related services to customers, including corporations and other Internet service providers, in Japan. IIJI offers its services via one of the largest Internet network backbones in Japan as well as between Japan and the United States. IIJI IPO'd on August 4th at $23.75. Just over one month later, it was trading in the $80-$90 neighborhood. In October, IIJI came back to test a $40 support level, moved up a bit to build more of a base around $48 and then took off. After spending some time back in the old neighborhood (the $80-$90 range), traders took the Initiative and traded it as high as $132.81. Then we saw the volume pick up and it looked as though many of the investors that had been along for the ride decided it might just be time to hop off. IIJI then began to roll over which brings us to our put play. Previously, when IIJI traded around the $80 level, it had quite a bit of moving average support backing it. Right now, IIJI is trading under all of its dmas with the exception of its 100, which is down at $76.50. At this point, we are looking for a fall to $80 and though IIJI may flirt around here for a bit, we think it could continue to fall beyond that level as well. IIJI looks to have some support right around $66. Resistance looks to be right around $90 and $95 with additional backing at $100, and $110. Volume has been consistently backing IIJI's decline, which is a nice bearish indication in support of our put play. IIJI generally offers some pretty wide intra-day trading ranges so try and use these to your advantage for points of new entry. IIJI does have a history of closing toward the low end of its session, so you may want to target shoot your way in on the earlier part of the day. Be sure to keep your stops tight, particularly around $80 to protect your profits against a bounce. BUY PUT FEB-80*IUJ-NP OI=42 at $10.25 SL=7.75 BUY PUT FEB-75 IUJ-NO OI= 9 at $ 7.75 SL=6.00 Average Daily Volume = 536 K Chart = http://quote.yahoo.com/q?s=IIJI&d=3m **** CMGI - CMG Information Services Inc $121.94 (-15.56) CMGI invests in, develops, and integrates advanced Internet, interactive, and database management technologies. The company's venture capital arm is called @Ventures and boasts a portfolio of over 30 Internet companies such as Lycos and Raging Bull. One of the more prominent additions to its portfolio is a 83% acquisition of the search engine, Alta Vista. The majority of CMGI's revenues (80%) is derived from fulfillment and mailing list services. Doctor, the diagnosis please? Post-split blues in its classic form. The broad interest-rate concerns and profit-taking kicked off the depression earlier in the week foreshadowing the inevitable 2:1 stock split on Wednesday. The completion of the stock-for-stock acquisitions of Adforce, an online ad management and delivery service company and of Flycast Communications, an online direct marketing company, this week didn't seem to help the situation. Under the terms, CMGI will issue .524 shares of common stock for every share of AdForce held on January 11, 2000 and in respect to Flycast, CMGI will issue .9476 shares of common stock for every share of Flycast held on January 13th. The volume during the ensuing sell-off was unwavering and sometimes reached levels triple the ADV. Three technical indicators: the Momentum, MACD, and Stochastic are red-flagged pointing south and CMGI is now precariously perched on its 30- dma ($121.83), a technical point it hasn't seen in months. I say precariously because this price level has acted as bottom support recently and honestly, we'd be more comfortable seeing the stock slip under this mark. Yet considering the extraordinary gains CMGI has made since mid-November, it's not unthinkable for CMGI to retrace 50% back towards the 50-dma ($97.52). Simply be patient for further confirmation before beginning a new play. This play has potential. BUY PUT FEB-125 GCD-NE OI=1117 at $17.00 SL=13.25 BUY PUT FEB-120*GCD-ND OI= 728 at $14.25 SL=11.25 BUY PUT FEB-115 GCD-NC OI= 239 at $11.88 SL= 9.50 Average Daily Volume = 5.41 mln Chart = http://quote.yahoo.com/q?s=CMGI&d=3m ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
The Option Investor Newsletter 1-16-2000 Sunday 5 of 5 ************* COVERED CALLS ************* Success Basics: The Value of Position Management... One of the major attributes of successful option traders is their emphasis on money management principles. The philosophy behind a precise and orderly administration of financial issues extends to many other facets of everyday life. Studies of professional gambling suggest that methodical execution of proven techniques can shift the odds up to 90% in the player's favor. Unfortunately, many of the same difficulties that face the speculator are often found in the realm of investing. Successful position management is inherently linked to a number of common axioms that you will hear in stock market rhetoric. Phrases like "trade with the trend", "keep losses small", "let the winners run" and "planning and patience produces profits" are all excellent counsel, provided you have the ability to implement the techniques. In simple practice, money management means never risking more than you can afford to lose in any trade. A small percentage (10%-15% is common) of your trading capital is the most you should devote to any one position. Professionals commonly use lower figures but for small accounts and more aggressive traders, a 10% maximum would be appropriate for all but the most conservative positions. For novice investors, there are some instances when even that amount is more than the suitable risk level for a specific trade. After you have selected a potential candidate and the theoretically correct strategy, you must calculate the amount of potential loss and determine the initial profit target and shortfall allowance. In most cases, you'll be able to use technical indicators to establish the appropriate exits but in other instances you may have to limit the position risk to a percentage of the initial investment, or to some other arbitrary (maximum) amount. All of these principles have one goal in common; the preservation of capital when your forecasts are less than accurate. One of the most common failures of novice traders is improper entry timing and incorrect placement of stop-losses. The majority of poor trades begin when a position is opened near the peak of a short term movement. When the inevitable consolidation occurs, the trader has no alternative but to exit the trade as the loss limits are exceeded. In contrast, the overly conservative investor is far too protective with his entry orders and often ends up on the sidelines when the issue makes a substantial move. Another frequent problem is the tendency to place stops too tight on a favorably trending issue, causing the position to be closed-out long before the optimal return is achieved. Successful traders will balance their desire to achieve precise entry points with a commitment to participate (@ higher cost) in positions that have a greater probability of profitable outcome. The most enjoyable component of money management occurs when your predictions are correct and the position become profitable. That's when your trading objective is most important. The methods by which you lock-in profits and hedge the initial investment will determine your ability to participate in future gains. As the trend continues, the returns can grow larger while the risk never exceeds the amount originally invested. New opportunities will be met with additional funds (profits) while the principle remains safely preserved as collateral for the next trade. Only through the use of disciplined entry/exit practices and adherence to your trading objective will the desire for success become a reality. SUMMARY OF PREVIOUS PICKS Stock Price Last Mon Strike Opt Profit ROI Monthly Sym Picked Price Price Bid /Loss ROI MCRE 7.56 11.25 JAN 7.50 1.31 *$ 1.25 20.0% 14.5% SPLH 8.44 12.25 JAN 7.50 1.81 *$ 0.87 13.1% 11.4% EMIS 19.88 35.50 JAN 17.50 4.50 *$ 2.12 13.8% 10.0% WSTL 10.75 11.44 JAN 10.00 1.88 *$ 1.13 12.7% 9.2% CBIZ 10.31 8.13 JAN 7.50 3.63 *$ 0.82 12.3% 8.9% FSII 10.69 15.81 JAN 10.00 1.94 *$ 1.25 14.3% 8.9% LGND 11.69 16.50 JAN 10.00 2.75 *$ 1.06 11.9% 8.6% NFO 14.38 21.75 JAN 12.50 2.94 *$ 1.06 9.3% 8.1% STRX 8.13 8.25 JAN 7.50 1.00 *$ 0.37 5.2% 7.5% AWEB 12.13 10.13 JAN 10.00 3.00 *$ 0.87 9.5% 6.9% NETA 25.13 28.00 JAN 22.50 3.63 *$ 1.00 4.7% 6.7% SCOC 17.88 20.75 JAN 15.00 4.13 *$ 1.25 9.1% 6.6% PILT 17.56 26.00 JAN 12.50 5.88 *$ 0.82 7.0% 6.1% ENER 11.81 12.19 JAN 10.00 2.06 *$ 0.25 2.6% 5.6% BAMM 9.81 8.13 JAN 7.50 2.75 *$ 0.44 6.2% 5.4% ONHN 10.25 7.44 JAN 7.50 3.38 $ 0.57 8.3% 5.2% TTWO 16.31 14.31 JAN 12.50 4.63 *$ 0.82 7.0% 5.1% MWHS 15.06 18.56 JAN 12.50 3.25 *$ 0.69 5.8% 5.1% PILT 20.25 26.00 JAN 15.00 6.38 *$ 1.13 8.1% 5.1% RNBO 20.00 23.16 JAN 15.00 6.13 *$ 1.13 8.1% 5.1% NPLS 20.56 20.06 JAN 17.50 3.63 *$ 0.57 3.4% 4.9% TSCM 15.75 19.06 JAN 12.50 3.88 *$ 0.63 5.3% 4.6% NETS 28.00 26.00 JAN 22.50 6.63 *$ 1.13 5.3% 4.6% AGY 16.88 16.63 JAN 15.00 2.75 *$ 0.87 6.2% 4.5% EMIS 24.63 35.50 JAN 20.00 5.38 *$ 0.75 3.9% 4.2% CNCX 29.88 41.75 JAN 22.50 8.00 *$ 0.62 2.8% 4.1% ENMD 28.44 33.75 JAN 22.50 6.75 *$ 0.81 3.7% 4.1% SATH 12.69 11.88 JAN 10.00 3.38 *$ 0.69 7.4% 4.0% MESG 16.63 13.56 JAN 12.50 4.88 *$ 0.75 6.4% 4.0% BNYN 15.81 19.56 JAN 12.50 4.13 *$ 0.82 7.0% 3.8% VDAT 13.50 9.75 JAN 10.00 3.88 $ 0.13 1.4% 1.5% BIDS 5.13 4.22 JAN 5.00 1.00 $ 0.09 2.2% 1.4% BIDS 5.25 4.22 JAN 5.00 0.94 $ -0.09 -2.1% 0.0% TERA 4.41 4.94 FEB 5.00 0.50 $ 1.03 26.3% 19.1% GMGC 6.84 7.44 FEB 5.00 2.38 *$ 0.54 12.1% 8.8% HRC 5.81 6.94 FEB 5.00 1.13 *$ 0.32 6.8% 5.0% PCMS 10.06 12.38 FEB 7.50 3.00 *$ 0.44 6.2% 4.5% HMK 9.88 12.19 FEB 7.50 2.81 *$ 0.43 6.1% 4.4% IFCI 10.13 10.50 FEB 7.50 3.00 *$ 0.37 5.2% 3.8% WDC 5.50 4.50 FEB 5.00 1.13 $ 0.13 3.0% 2.2% *$ = Stock price is above the sold striking price. Comments: Bid.Com (BIDS) is still holding at support and offering decent premiums for the $5.00 call in February ($1.00 in May). The post earnings (and downgrade) sell-off of Visual Data (VDAT), appears to be abating. Century Business (CBIZ) looks like it just might make it to expiration. On Health Network (ONHN) provides a great example of why we prefer ITM covered writes, selling calls near support areas. It has fallen 28%, yet it remains above the cost basis (4 more days please!). February should allow for a conservative roll down to the $5.00 call, lowering the overall debit to $4.50. Positions Previously Closed: Value America (VUSA), Summit Tech (BEAM). NEW PICKS ********* Definitions: OI - Open Interest CB - Cost Basis (Price paid - Prem rec'd, the break-even point) RC - Return Called RNC - Return Not Called (Stock Price Unchanged) Sequenced by Company Stock Price Mon Strike Option Opt Open Cost RC RNC Sym Price Symbol Bid Intr Basis ASFT 21.50 FEB 15.00 AGQ BC 7.38 220 14.12 6.2% 6.2% CCUR 18.38 FEB 15.00 URC BC 4.38 185 14.00 7.1% 7.1% CYOE 5.50 FEB 5.00 QTO BA 1.44 547 4.06 23.2% 23.2% EAII 14.25 FEB 10.00 QNE BB 4.75 73 9.50 5.3% 5.3% ERTH 6.03 FEB 5.00 QER BA 1.38 163 4.65 7.5% 7.5% GMGC 7.50 FEB 5.00 GGQ BA 2.88 30550 4.62 8.2% 8.2% MUEI 12.75 FEB 10.00 MQU BB 3.25 475 9.50 5.3% 5.3% XICO 22.56 FEB 17.50 CIU BW 5.75 100 16.81 4.1% 4.1% Sequenced by Return Not Called ***** Stock Price Mon Strike Option Opt Open Cost RC RNC Sym Price Symbol Bid Intr Basis CYOE 5.50 FEB 5.00 QTO BA 1.44 547 4.06 23.2% 23.2% GMGC 7.50 FEB 5.00 GGQ BA 2.88 30550 4.62 8.2% 8.2% ERTH 6.03 FEB 5.00 QER BA 1.38 163 4.65 7.5% 7.5% CCUR 18.38 FEB 15.00 URC BC 4.38 185 14.00 7.1% 7.1% ASFT 21.50 FEB 15.00 AGQ BC 7.38 220 14.12 6.2% 6.2% EAII 14.25 FEB 10.00 QNE BB 4.75 73 9.50 5.3% 5.3% MUEI 12.75 FEB 10.00 MQU BB 3.25 475 9.50 5.3% 5.3% XICO 22.56 FEB 17.50 CIU BW 5.75 100 16.81 4.1% 4.1% Company Descriptions ASFT - Artisoft $21.50 *** A Buy on Dips *** Artisoft is engaged in the design, manufacture, marketing and support of cost-effective and easy-to-use local area network (LAN) software systems and communications devices designed to enhance the productivity of PC users. Artisoft is a recognized leader in providing easy-to-use, affordable computer telephony and communications software solutions for small to medium-size businesses. Their products have received more than 100 industry awards including "Product of the Year", "Best of Show" and "Editors' Choice" by a number of publications. Their flagship TeleVantage is a powerful software-based PBX and an impressive IP Telephony system that uses off-the-shelf computer, wiring and telephone hardware. This week, Artisoft signed a contract with Dialogic, an Intel® company, setting into motion plans to deliver a jointly developed software-based phone system. The chart remains in a very bullish stage II climb, with the consolidation area around $16.00, offering reasonable support. FEB 15.00 AGQ BC CB=7.38 OI=220 CB=14.12 RC=6.2% RC=6.2% Chart = http://quote.yahoo.com/q?s=ASFT&d=1y **** CCUR - Concurrent Computer $18.38 *** Digital Video *** Concurrent Computer is a leading provider of high-performance computer systems, software, and servers. Concurrent Computer's XSTREME Division is a leading supplier in the emerging digital video server marketplace. This market includes broadband/cable, corporate training, education, hospitality, and in-flight entertainment industries. Concurrent is also a leading provider of high-performance, real-time computer systems, solutions, and software for commercial and government markets. Concurrent was upgraded at the end of December. With a new president and CEO, Concurrent will be looking to take advantage of the AOL - Time Warner merger. Favorable speculation on bullish technicals with support near the sold strike. FEB 15.00 URC BC Bid=4.38 OI=185 CB=14.00 RC=7.1% RNC=7.1% Chart = http://quote.yahoo.com/q?s=CCUR&d=1y **** CYOE - Coyote Network Systems $5.50 *** Stage I Speculation *** Coyote Network Systems designs, builds and operates communication networks for entrepreneurial service providers. The company provides telecom switching equipment, international long distance and network services. Coyote's subsidiary, Coyote Technologies, signed a three-year contract and license agreement with Ericsson (ERICY) to develop North American signaling protocols as well as new technologies and telephony applications. A short-term symmetrical triangle is apparent in Coyote's chart suggesting a continuation of the stage I base. The high call premiums offer favorable speculation with a cost basis below the November and December lows. FEB 5.00 QTO BA Bid=1.44 OI=547 CB=4.06 RC=23.2% RNC=23.2% Chart = http://quote.yahoo.com/q?s=CYOE&d=1y **** EAII - Engineering Animation $14.25 *** Breakout? *** Engineering Animation is the leader in Internet-enabled visual process management, collaboration, analysis and communication solutions for extended manufacturing enterprises. EAI's VisEPM(TM) solutions, which include e-Vis.com(TM), Open Enterprise Visualization(TM) and Open Virtual Factory, help manufacturing companies drive down costs while improving business practices, efficiency, quality and time-to-market. It appears EAII's year- long downtrend (and recent four month base) has been broken. Wednesday's news that Delphi Automotive Systems (DPH) has adopted EAI's VisProcess, for use in product and production planning in its European operations, caused a $7 price spike. We favor the support at our cost basis on an issue with improving technical strength and several positive divergence's. Earnings are due near the second week of February. FEB 10.00 QNE BB Bid=4.75 OI=73 CB=9.50 RC=5.3% RNC=5.3% Chart = http://quote.yahoo.com/q?s=EAII&d=1y **** ERTH - EarthShell $6.03 *** Can They Produce? *** EarthShell is engaged in the licensing and commercialization of proprietary composite material technology for the manufacturer of disposable food service packaging, such as cups, plates, bowls, and hinged-lid containers. EarthShell Packaging is considered an environmentally preferable alternative made from a new composite material, which consists primarily of abundant limestone, potato starch, water and protective coatings. The manufacturing process is clean and energy efficient. It uses less energy and results in low greenhouse gas emissions when compared to traditional rigid packaging. EarthShell Packaging is rigid, strong and provides good insulation. It biodegrades in marine and composting environments, and is recyclable through composting. Now that they have their production line up and running, EarthShell is preparing to resume in-store testing. The chart is definitely showing a change in character, with heavy accumulation since the middle of November. A favorable entry point with a reasonable cost basis. Earnings are due near the middle of March. FEB 5.00 QER BA Bid=1.38 OI=163 CB=4.65 RC=7.5% RNC=7.5% Chart = http://quote.yahoo.com/q?s=ERTH&d=1y **** GMGC - General Magic $7.50 *** It's Still Talking *** General Magic offers voice-enabled services and technology that make communication and access to information easy and convenient. The company's innovative, patent-pending magicTalk voice interface lets people interact with information using their own words, as if they were talking to another person. General Magic started its climb in November after OnStar, a division of General Motors, selected magicTalk as the voice user interface for the OnStar Virtual Advisor, which will provide hands-free, voice-activated access to web-based information services in vehicles. The deal was closed in December and last week, Chet Huber, the general manager of OnStar, has joined General Magic's Board of Directors. Favorable speculation with a breakout above resistance ($4.50 - now support) and signs of heavy accumulation. FEB 5.00 GGQ BA Bid=2.88 OI=30550 CB=4.62 RC=8.2% RNC=8.2% Chart = http://quote.yahoo.com/q?s=GMGC&d=1y **** MUEI - Micron Electronics $12.75 *** Boxmaker, Boxmaker... *** Micron Electronics is a leading direct manufacturer of personal computers, business Internet offerings, Web hosting and B2B e-commerce applications for the small and medium-business, government and education markets. Under the micronpc.com, HostPro, Lightrealm, Micron Internet Services and SpecTek brands, Micron offers a wide range of innovative products, services and support. The company expects to continue its expansion and acquisition strategy to increase its E-Services capabilities. We favor Micron as a solid company with improving technical strength. The post earnings sell-off is over and Micron appears ready to break above its ten month long stage I base. FEB 10.00 MQU BB Bid=3.25 OI=475 CB=9.50 RC=5.3% RNC=5.3% Chart = http://quote.yahoo.com/q?s=MUEI&d=1y **** XICO - Xicor $22.56 *** It's Red Hot! *** Xicor designs, develops, manufactures and sells nonvolatile in-the- system programmable products which retain information even when the system is turned off or power is inadvertently lost. Xicor's product line includes digitally controlled potentiometers (XDCPs(TM)), system management ICs, and standard and secure memory ICs. Upgraded in December, a new contract this week with America II Electronics, and a bullish chart make for favorable speculation. We favor a cost basis near support on this red hot issue. FEB 17.50 CIU BW Bid=5.75 OI=100 CB=16.81 RC=4.1% RNC=4.1% Chart = http://quote.yahoo.com/q?s=XICO&d=1y ***************** NAKED PUT SECTION ***************** Successful Option Trading: Strategy Selection... The virtually unlimited number of new and exciting ways of making money in the options market can be an incredible attraction. Unfortunately reaping those rewards on a consistent basis can be a daunting task. Profitable option trading requires a knowledge of advanced pricing concepts, an understanding of commonly used techniques and the resources to implement the correct strategies in a timely manner. The foundation for success begins with a collection of properly planned strategies and a list of simple, easy to follow guidelines. The first step in developing a profitable trading plan is to identify your risk tolerance and comfort level. It's obvious that no single strategy can be correct for all traders as each of us has individual attitudes and differing portfolio requirements. While several strategies may appear to be appropriate under the same market conditions, each technique will have different risks and incentives. If the theoretically correct strategy doesn't feel comfortable then don't open the position. There are usually a number of alternatives and the majority of popular techniques can be implemented synthetically. For example, a trader who wants to sell naked puts can also buy the underlying stock and sell a call to create the equivalent position. Another common strategy for bullish issues is to buy a call and sell a put; a synthetic long. The knowledge of equivalent positions allows a trader to utilize favorable alternatives with similar profit potential and substantially different risk characteristics. A study of losing positions would suggest that novice traders are often pressured into adverse situations simply because they chose to make a trade that was inappropriate for their particular skill level or risk tolerance. The problem of strategy selection is a common obstacle and it's not unusual to find professionals who encounter the same difficulties under stressful conditions. Regardless of your style or ability, it's important to be relaxed and at ease with the techniques you are using. Anything less will generally produce irrational decisions and a departure from the original plan. While there's no simple method for avoiding stress in a trade, there are a number of techniques employed by the pros that increase the margin for error in demanding situations. We consider these to be most important: * Develop a trading plan, write it down and use it. * Focus on a limited number of techniques and become an expert in at least one of them. * Know the market, know the issue, and trade with the trend. * Use the appropriate strategy (or its equivalent) and quantify all risks prior to establishing a position. Never enter a trade without clearly defining the exits. * Never open a position without a sound mental attitude and complete devotion to the task at hand. If in doubt, skip the trade. * Always use proven position management techniques and adhere to the original plan, making only those adjustments that conform to the fundamental goals of the trade. Stay in your comfort zone at all times. * Control your emotions and limit risk with position stops. * Review each transaction and evaluate it critically for missing information, theoretical mistakes, and errors in judgment. Make a written report and use it to improve your future trades. Remember, there is one scenario for which there is no appropriate strategy. That is the case in which a trader has anything less than complete conviction with respect to market direction or character. Under those conditions, a successful trader will always choose to remain on the sidelines and wait for the next profitable opportunity. *** WARNING!!! *** Occasionally a company will experience catastrophic news causing a severe drop in the stock price. This may cause a devastatingly large loss which may wipe out all of your smaller gains. There is one very important rule; Don't sell naked puts on stocks that you don't want to own! It is also important that you consider using trading STOPS on naked option positions to help limit losses when the stock price drops. Many professional traders suggest closing the position when the stock price falls below the sold strike or using a buy-to-close STOP at a price that is no more than twice the original premium from the sold option. SUMMARY OF PREVIOUS PICKS Stock Price Last Mon Strike Opt Profit ROI Monthly Sym Picked Price Price Bid /Loss ROI CNQR 29.50 27.69 JAN 22.50 0.94 *$ 0.94 13.7% 29.9% ADG 13.13 11.50 JAN 10.00 0.25 *$ 0.25 8.7% 18.9% AWEB 12.88 10.13 JAN 10.00 0.50 *$ 0.50 16.2% 17.6% ITIG 24.81 25.13 JAN 17.50 0.63 *$ 0.63 11.3% 16.3% WAXS 20.00 20.69 JAN 17.50 0.69 *$ 0.69 11.1% 16.1% ASFT 18.13 21.50 JAN 12.50 0.25 *$ 0.25 6.4% 14.0% PILT 17.13 26.00 JAN 12.50 0.50 *$ 0.50 12.7% 13.8% AFCI 37.13 39.75 JAN 27.50 0.50 *$ 0.50 6.3% 13.7% RNBO 21.94 23.16 JAN 17.50 0.81 *$ 0.81 15.6% 13.5% AND 9.25 8.00 JAN 7.50 0.44 *$ 0.44 18.4% 13.3% SATH 12.94 11.88 JAN 10.00 0.56 *$ 0.56 17.8% 12.9% SCOC 29.00 20.75 JAN 17.50 0.56 *$ 0.56 8.8% 12.8% GSTRF 35.56 34.13 JAN 25.00 0.44 *$ 0.44 5.8% 12.7% ORCT 31.00 34.50 JAN 25.00 0.81 *$ 0.81 11.2% 12.2% AMD 33.00 40.38 JAN 25.00 0.38 *$ 0.38 5.4% 11.8% IUSA 12.13 12.13 JAN 7.50 0.31 *$ 0.31 11.3% 9.8% LOR 20.25 23.00 JAN 17.50 0.38 *$ 0.38 6.6% 9.6% EMIS 21.00 35.50 JAN 15.00 0.50 *$ 0.50 10.6% 9.2% DAVX 23.75 23.19 JAN 17.50 0.56 *$ 0.56 10.5% 9.2% CCUR 17.75 18.38 JAN 12.50 0.50 *$ 0.50 12.3% 8.9% SCOC 17.88 20.75 JAN 12.50 0.44 *$ 0.44 10.9% 7.9% MSGI 19.00 17.63 JAN 12.50 0.38 *$ 0.38 9.1% 7.9% ENMD 28.44 33.75 JAN 20.00 0.44 *$ 0.44 7.2% 7.8% CS 28.50 29.00 JAN 20.00 0.56 *$ 0.56 8.9% 7.8% PRRC 23.56 26.31 JAN 17.50 0.56 *$ 0.56 10.6% 7.7% INSO 32.13 32.13 JAN 20.00 0.75 *$ 0.75 10.4% 7.6% WAXS 20.50 20.69 JAN 15.00 0.38 *$ 0.38 8.5% 7.4% NETS 28.00 26.00 JAN 20.00 0.50 *$ 0.50 8.2% 7.1% EGRP 35.56 28.75 JAN 25.00 0.56 *$ 0.56 7.3% 5.3% MMWW 37.38 27.06 JAN 22.50 0.50 *$ 0.50 6.3% 4.5% *$ = Stock price is above the sold striking price. Comments: Entremed (ENMD) and Concentric Network (CNCX) never retreated after the initial opening gap on Monday; therefore we will list them as unplayable. Autoweb.Com (AWEB) is still looking a little weak though holding above support around $9.00. Santa Cruz (SCOC) has been steadily falling over the last few weeks. Wednesday, the company warned of the impact of Y2K on this quarter's earnings. It may hold with four trading days to expiration, but will require monitoring (unless you wish to own the stock). NEW PICKS ********* Definitions: OI - Open Interest CB - Cost Basis (break-even point if put exercised) ROI - Return On Investment Sequenced by Company Stock Price Mon Strike Option Opt Open Cost ROI Opt Sym Price Symbol Bid Intr Basis Expired DMRK 22.38 FEB 17.50 DQN NW 0.69 0 16.81 13.4% EMIS 35.63 FEB 25.00 MTQ NE 0.63 0 24.37 8.1% GSTRF 34.19 FEB 22.50 YVQ NX 0.63 96 21.87 8.4% NETA 28.00 FEB 20.00 CQM ND 0.38 17 19.62 6.4% NOVL 33.69 FEB 25.00 NKQ NE 0.63 516 24.37 8.6% PGEX 22.81 FEB 15.00 QAE NC 0.50 583 14.50 9.9% PILT 25.94 FEB 17.50 PTU NW 0.56 0 16.94 9.7% TLCM 20.25 FEB 15.00 TMU NC 0.50 0 14.50 11.0% WSTL 11.44 FEB 7.50 QLW NU 0.50 116 7.00 17.9% Sequenced by ROI Stock Price Mon Strike Option Opt Open Cost ROI Opt Sym Price Symbol Bid Intr Basis Expired WSTL 11.44 FEB 7.50 QLW NU 0.50 116 7.00 17.9% DMRK 22.38 FEB 17.50 DQN NW 0.69 0 16.81 13.4% TLCM 20.25 FEB 15.00 TMU NC 0.50 0 14.50 11.0% PGEX 22.81 FEB 15.00 QAE NC 0.50 583 14.50 9.9% PILT 25.94 FEB 17.50 PTU NW 0.56 0 16.94 9.7% NOVL 33.69 FEB 25.00 NKQ NE 0.63 516 24.37 8.6% GSTRF 34.19 FEB 22.50 YVQ NX 0.63 96 21.87 8.4% EMIS 35.63 FEB 25.00 MTQ NE 0.63 0 24.37 8.1% NETA 28.00 FEB 20.00 CQM ND 0.38 17 19.62 6.4% Company Descriptions DMRK - Damark $22.38 *** Earnings Rally *** Damark utilizes targeted, information-based strategies to bring a broad range of products, programs, and services to consumers via direct mail, telesales, and the Internet. They operates in two segments: Membership Services and Catalog Retail. Membership Services develops, markets, and manages fee-based programs that provide purchase price discounts and other benefits related to consumer needs while the Catalog Retail offers brand name items through a variety of catalog titles. Shares have climbed higher since DMRK said it will report better than expected earnings and the support near $15 provides a favorable risk/reward position. FEB 17.50 DQN NW Bid=0.69 OI=0 CB=16.81 ROI=13.4% Chart = http://quote.yahoo.com/q?s=DMRK&d=1y **** EMIS - Emisphere $35.63 *** Drugs Are Hot! *** Emisphere is a biopharmaceutical company specializing in the oral delivery of therapeutic macromolecules and other compounds that are not currently deliverable by oral means. The company has two drugs in human clinical trials using its unique carrier technology and has strategic alliances and ongoing feasibility studies with several pharmaceutical and biotechnology companies, including Novartis and Eli Lilly. EMIS's most clinically advanced product is oral heparin which is designed to capture and expand the existing $2 billion coronary anti-thrombosis market. A number of new deals and a recent upgrade. This position offers another chance to gain entry into an ever climbing issue that is once again in "blue sky" territory. FEB 25.00 MTQ NE CB=0.63 OI=0 CB=24.37 ROI=8.1% Chart = http://quote.yahoo.com/q?s=EMIS&d=1y **** GSTRF - Globalstar Telecom $34.19 *** Picking The Bottom *** Globalstar Telecom is part of a limited partnership which is designing, constructing, and will operate a worldwide, low earth orbit satellite-based digital telecommunications system. GSTRF intends to offer quality, low-cost telecom services including voice services, messaging and paging services, remote monitoring, facsimile and other data services, including position location. Loral Space (LOR) is the managing general partner of GSTRF, with a majority ownership. Lots of recent news on this issue including a public offering of 7 million shares. With the recent consolidation, put premiums have moved up significantly, offering an excellent entry opportunity. FEB 22.50 YVQ NX Bid=0.63 OI=96 CB=21.87 ROI=8.4% Chart = http://quote.yahoo.com/q?s=GSTRF&d=1y **** NETA - Network Associates $28.00 *** The Price Is Right *** Network Associates is a leading supplier of enterprise network security and management software. Network Associates' Net Tools Secure and Net Tools Manager offer best-of-breed, suite-based network security and management software. Net Tools Secure and Net Tools Manager suites combine to create Net Tools that centralizes these point solutions within an easy-to-use, integrated systems management environment. Recent upgrades and favorable earnings expectations should help NETA continue its move to the new target of $35. Technical support exists above the cost basis. FEB 20.00 CQM ND Bid=0.38 OI=17 CB=19.62 ROI=6.4% Chart = http://quote.yahoo.com/q?s=NETA&d=1y **** NOVL - Novell $33.69 *** Portfolio Stock *** Novell provides network solutions, education and support for distributed network, Internet and small-business markets. Their products include directory services, operating platforms and management tools that allow businesses to control and administer their networks from one central site. The company's communication services allow users to share and manage files, e-mail, documents and publish to the Internet. Novell's connection services help companies expand their services. Recently acquired JustOn, one of the premier Internet publishing companies, to excel in the growing Application Service Provider industry. A solid stock with excellent long-term potential. FEB 25.00 NKQ NE Bid=0.63 OI=516 CB=24.37 ROI=8.6% Chart = http://quote.yahoo.com/q?s=NOVL&d=1y **** PGEX - Pacific Gateway $22.81 *** Something's Up! *** Pacific Gateway provides international telecom services to a customer base of long distance service providers worldwide. The company also provides point-to-point connections between United States locations and foreign locations to certain carriers to meet the needs of end users; multinational corporations or government agencies that have a high volume of voice and data communications between international locations. Not much news on this issue but option trading volume has increased over the past few days and implied volatility is at historically high levels. A low risk speculation play. FEB 15.00 QAE NC Bid=0.50 OI=583 CB=14.50 ROI=9.9% Chart = http://quote.yahoo.com/q?s=PGEX&d=1y **** PILT - Pilot Network Services $25.94 *** New Entry Point *** Pilot Network Services, the Security Utility pioneer, is the only e-business network service provider of highly secure subscription based e-business services. For companies of all sizes, in every industry, Pilot enables secure e-business by providing a wide range of services with built-in security to protect enterprise networks. PILT is quickly becoming an old favorite with the OIN and the recent bullish move has excellent underlying strength. We favor the support near the cost basis. Earnings are due soon. FEB 17.50 PTU NW Bid=0.56 OI=0 CB=16.94 ROI=9.7% Chart = http://quote.yahoo.com/q?s=PILT&d=1y **** TLCM - TelCom Semiconductor $20.25 *** On The Move! *** TelCom Semiconductor designs, develops, manufactures and markets a diversified portfolio of high-performance analog integrated circuits for a wide variety of applications in the industrial, wireless communications, computing, networking and medical markets. The company builds products in a number of critical areas for a wide range of electronic systems. A new upgrade this week based on TelCom's accelerating sales growth and expected success in their new communications and networking applications. We favor the new bullish trend and support near the cost basis. FEB 15.00 TMU NC Bid=0.50 CB=0 CB=14.50 ROI=11.0% Chart = http://quote.yahoo.com/q?s=TLCM&d=1y **** WSTL - Westell Technologies $11.44 *** Technicals Only *** Westell Technologies includes two companies; Conference Plus and Westell. Westell supplies DSL Customer Premise Equipment, DSL and Telephone Access Systems and monitoring and maintenance equipment for demarcation points in telecommunications networks. Conference Plus is an Application Service Provider, providing audio, video, IP conferencing and support services. The company serves ILECs, CLECs, alternative carriers in North America and around the Globe. A nice year-long trend with over six months of support near the cost basis. FEB 7.50 QLW NU Bid=0.50 OI=116 CB=7.00 ROI=17.9% Chart = http://quote.yahoo.com/q?s=WSTL&d=1y ************************ SPREADS/STRADDLES/COMBOS ************************ The Dream Continues.. Friday, January 14 The Dow posted a new all-time high and the Nasdaq enjoyed another incredible rally as investors rejoiced over tame inflation data. The Dow closed up 140 points at 11,722 while the Nasdaq composite index ended 107 points higher at 4064. The S&P 500 index finished up 15 points at 1465. Volume on the Big Board reached 1 billion shares, with winners ousting losers 1,621 to 1,395. The 30-year Treasury fell 13/32 to yield 6.688%. Thursday's new plays (positions/opening prices/strategy): Helix Tech. HELX APR25C/APR45C $15.75 debit bull-call Humana HUM MAY10C/FEB10C $0.75 debit calendar Pacific Gty. PGEX FEB12C/JAN20C $7.12 debit diagonal Helix was a slow starter but came alive late in the day to finish up $4 at $55. There were no contracts traded in our deep ITM debit spread and without volume it's difficult to determine the opening price. The best observed debit was slightly higher than our target. Humana and Pacific Gateway were far less exciting. Humana opened late, traded sideways and drifted lower in the afternoon, offering better prices near the close; we recorded our (less favorable) morning quote. PGEX moved in a small range but offered a number of entry opportunities. While we feel that $7.00 was achievable, we will use the 3 contract trade (near 10:30 am) as our entry price. Portfolio plays: A broad range of stocks advanced in today's session after a favorable inflation report (the CPI) prompted investors to get back to the business of buying. The weight of favorable economic indicators diminished the prospect of a significant rate hike at the Fed's February policy meeting and most analysts believe that Greenspan will do little to alter the outlook in the short-term. The Fed chief told a group of economists that he was intent on defusing a potential speculative bubble but investors chose to focus on the positive remarks in his speech. The outlook for low inflation and strong corporate profits boosted the market leaders and shares of banks, brokerages and technology issues were the big winners. The Spreads/Combos portfolio also had some big winners and one of our most recent large-cap plays (Wednesday's new section) was in the news. Officials at Hughes Electronics reported the company will sell its satellite systems unit to Boeing (BA) for almost $4 billion. General Motors (GM) ended up $6 at $82.25 on the announcement, driving our LEAPS/CC's play well into profitable territory. Our recent move to February may have been slightly premature but today's rally offered another opportunity to boost the profit potential of the play. The cost to roll-up to the $80 was just under $3 strike during the morning session. Another big mover was Motorola (MOT). Today the stock gained $12.43 to close at a new all-time high of $151. The time was right for a move to February and we decided on the $135 strike for increased downside protection. Our new position is LJAN105C/FEB135C at $22.50 debit. The spread now has no upside risk and we can afford to be more aggressive in the coming months. There were a number of other favorable moves in the long-term portfolio but none that required position adjustments. The small and mid-cap issues were far more interesting and our bullish diagonal position on Cohu (COHU) led the group. The stock climbed $5 to $35 in the wake on INTC's positive earnings report. Cohu is expected to benefit from the increased capital spending at Intel and one of their competitors, Teradyne (TER) jumped $7 after receiving an upgrade. Our position is at maximum profit above $30. Cabletron Systems (CS) rallied $4 to close at a recent high near $29 on speculation of a possible sale or merger of the company. There was no news to support the speculation but traders suggest some rumored insider information refers to a buyout offer. Our bullish LEAPS/CC's play returns maximum profit above $22.50. One of our newest long-term issues, Network Associates (NETA) was also on the move, climbing $3 to $28 on high earnings expectations. The position is profitable after just one month in play and the rally will help our transition to February options. Other leading performers in the small cap group included: Concentric Networks (CNCX), up $2.75 to $41.75; Silicon Valley Group (SVGI), up $1.38 to $23; Cadence Design (CDN) up $1.25 to $22.75 and Loral Space and Communications (LOR), which rebounded from a midday deficit to finish $1.06 higher at $23. The most surprising mid-cap has undoubtedly been Vodaphone (VOD) and today the issue rose another $2.38 to $53 on strength in the telecom sector. Our LEAPS/CC's position is at maximum profit above $50. Questions & comments on spreads/combos to Contact Support ********* NEW PLAYS ********* We had an excellent response to our "reader's request" plays this week and today there are two more candidates from this group. Both plays are conservative (bullish) positions on well-known companies with excellent growth potential. Once again, they are based on the current price of the underlying stock and the recent technical history or trend. Current news and market sentiment will have an effect on these issues so review each play thoroughly and make your own decision about the future outcome of the position. **** BVF - Biovail $103.88 *** Hot Sector *** Biovail International is a global integrated pharmaceutical product development company specializing in the application of advanced oral controlled release delivery technologies. Their proprietary technologies are used in formulations, which either improve upon conventional dosage forms of existing products by providing the therapeutic benefits of controlled release drug delivery or are generically equivalent to existing once-daily branded products. BVF develops controlled release formulations for branded and generic market segments, which are manufactured by it or by others under license. Biovail has enjoyed an incredible run over the past three months, due in part to the expectation of a much-awaited stock split and new drug approvals. In mid-December, BVF reported it had received final approval from the Food and Drug Administration (FDA) of its generic version of Cardizem CD, for the treatment of Angina. Biovail's marketing partner Teva Pharmaceuticals has launched the product and future sales are expected to bolster BVF's revenues. Officials of the company recently announced that shareholders of the corporation approved a 2-for-1 stock split of common shares. The additional stock will be issued to shareholders of record as of the close of business on January 12, and will begin trading on a split basis on January 20, 2000 on the New York Stock Exchange. This week there were two ratings issued on BVF; A short-term BUY from Merrill Lynch and a STRONG BUY from CIBC. The chart supports the ratings. PLAY (conservative - bullish/debit spread): BUY CALL APR-85 BVF-DQ OI=97 A=$23.25 SELL CALL APR-100 BVF-DT OI=75 B=$13.25 INITIAL NET DEBIT TARGET=$9.50-9.75 ROI(max)=53% B/E=94.75 Chart = http://quote.yahoo.com/q?s=BVF&d=3m **** EMLX - Emulex $119.00 *** A New Range? *** Emulex is a designer, developer, and supplier of a broad line of fibre channel host adapters, hubs, ASICs and software products that enhance access to, and storage of, electronic data and applications. Their products, which are based on internally developed ASIC technology and are deployable across a variety of heterogeneous network configurations and operating systems, support increasing volumes of stored data. The company is also a supplier of some traditional networking products that include printer servers and network access products. Emulex sells its products worldwide to OEMs and end users, as well as through other distribution channels including value-added resellers, systems integrators and industrial distributors. This OIN favorite has been on the move since its recent split and investor optimism about the maker of fiber-optic channel products has driven the stock to new highs. Analysts say EMLX is one of the leading companies in the emerging technology market and the share value has moved higher on improving profit margins and a strong increase in past earnings. We favor the fundamental outlook for the issue but what may be more impressive is the bullish technical pattern that has formed over the last two weeks. This position offers a conservative method to participate in the future movement, for those who don't mind owning the stock. PLAY (conservative - bullish/covered-combo): BUY STOCK - EMLX LAST=$119.00 SELL CALL FEB-100 UMQ-BT OI=271 B=$24.12 SELL PUT FEB-95 UMQ-NS OI=94 B=$4.00 COMBINED COST BASIS = $93.00 MAXIMUM ROI(approx)=15% Chart = http://quote.yahoo.com/q?s=EMLX&d=3m **** SPLH - Splash Technology $12.25 *** Technicals Only *** Splash Technology develops, produces and markets color servers that provide an integrated link between desktop computers and digital color laser copiers and large format printers, enabling such devices to provide high quality, high speed, networked color printing. These hybrid systems, consisting of color servers and digital color laser copiers, support multiple uses including image scanning, image manipulation, printing and photocopying. Their products feature advanced color correction, calibration and separations support, variable data printing, wide format, ease of use, time-saving work flow functionality, simulation of many color monitors and printing presses, and automatic correction for certain printing workflow problems. Splash's color servers are commonly accessed by users across networks of Windows-based personal computers, Power-PC personal computers and UNIX-based computers. Lots of activity for this up and coming issue. A recent lawsuit against Electronics For Imaging (EFII), a ratings revision to STRONG BUY (target $25) and a spike in options trading volume. Regardless of the news, the technical trend is extremely bullish and the volatility will help us open a relatively conservative position at a small discount. PLAY (conservative - bullish/debit spread): BUY CALL FEB-7.50 QRX-BU OI=111 A=$5.00 SELL CALL FEB-10.00 QRX-BB OI=360 B=$2.88 INITIAL NET DEBIT TARGET=$2.00 ROI(max)=25% B/E=$9.50 Chart = http://quote.yahoo.com/q?s=SPLH&d=3m **** TKLC - Tekelec $26.00 *** Towering Telecom *** Tekelec designs, manufactures, and markets innovative switching solutions and diagnostic systems for the global communications marketplace. The company's EAGLE STP switching platform enables operators of wireline/wireless networks to deliver Intelligent Network and Advanced Intelligent Network (AIN) services such as Caller ID, voice messaging, personal number calling, Service Provider Local Number Portability and customized routing and billing, as well as digital wireless services such as PCS and GSM. Their flagship products enable traditional carriers and new entrants to pursue cost-reduced and performance-enhanced network architectures based on Internet Protocol, Asynchronous Transfer Mode or other "packet" technologies. Their diagnostic product lines enable carriers and communications equipment suppliers to ensure conformance to specifications and to evaluate network performance in controlled environments. The Tekelec rally began in mid-December when Deutsche Banc Alex Brown raised the company's shares to a STRONG BUY based on future product developments. Now the issue is steadily trending higher and each technical consolidation has been met with new investor interest. The institutional ownership is excellent and last week, Jefferies & Company reiterated their BUY rating based on TKLC's leadership in the network switching industry. We favor the sector outlook and the current strength in the bullish trend. PLAY (conservative - bullish/debit spread): BUY CALL FEB-17.50 KQ-BW OI=85 A=$9.00 SELL CALL FEB-22.50 KQ-BX OI=123 B=$4.88 INITIAL NET DEBIT TARGET=$3.88 ROI(max)=28% B/E=$21.38 Chart = http://quote.yahoo.com/q?s=TKLC&d=3m ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
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