The Option Investor Newsletter Tuesday 2-15-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 2-15-2000 High Low Volume Advance Decline DOW 10718.10 + 198.30 10763.10 10494.50 1,088,355k 1,538 1,471 Nasdaq 4420.77 + 2.22 4440.62 4291.10 1,708,659k 1,862 2,342 S&P-100 763.06 + 6.26 766.33 747.80 Totals 3,400 3,813 S&P-500 1402.05 + 12.11 1407.72 1376.25 47.1% 52.9% $RUT 540.24 + 0.30 540.36 533.08 $TRAN 2448.90 - 18.38 2475.41 2434.45 VIX 24.61 - 1.18 27.78 24.03 Put/Call Ratio .55 ************************************************************* Tag, you are it! The Nasdaq reached through the market ropes and tagged the Dow just before being knocked out of the ring by the bears. After diverging for over a week the Dow and Nasdaq switched roles and the Dow rallied into upside trading curbs for the first time since early January. Posting a strong +198 point gain the Dow was successful in dragging the Nasdaq back into positive territory late in the afternoon. After trading as low as 4291 around 11:00 the Nasdaq started slowly recovering on the Dow's strength. The Dow's strong performance was due to bargain hunting in the beaten down financial and materials sectors as well as strength in the Dow techs. American Express (AXP) added +5.13, JPM +3.88, UTX +2.13, MMM +6.25, PG +3.88, HWP +3.25, GE +3.13, INTC +2.13. The were several catalysts for today's blue chip rally. A Fed governor said the Fed was not going to tie rate increases to stock prices, industrial productivity soared +.1% for January and Abbey Joseph Cohen maintained her bullish outlook for 2000. The biggest factor here is the claim that the Fed would not raise rates based on stock prices. The opposite had been hinted since the Dow was at 7900. Mr. Greenspan has repeatedly cautioned that the market was creating wealth at a rate that could not be absorbed by the economy and the speculative bubble was unhealthy. If his view of the markets and the productivity of the economy have changed then there is a sale on snowballs in hell tonight. While the markets celebrated the statement today it may be soon to party. Greenspan himself will testify on his view of the economy on Thursday and it is entirely possible he may voice a different view of the subject. Abbey Joseph Cohen tried her best to put a positive spin on her "good but not great" forecast for the rest of this year. Her S&P forecast for year end 2000 is 1525 which is only about six good days gains from our close of 1402 today. Her forecast is for the S&P companies to increase earnings by only +8% for the year. This is only about half what other analysts are expecting. She expects the Fed to raise another +.75% which will put a collar on this rally for good. She is recommending investors only allocate 35% of their portfolios to tech stocks which she says are now "fairly valued" but if you read between her lines she is trying to say don't buy these high priced stocks. She recommended buying the neglected and unloved sectors. After her speech the bargain hunters came out in force and focused on the recent losers instead of the recent high flyers. PG, at a 52 week low, added +3.88, JNJ and UTX also at 52 week lows each posted +2.13 gains while other name brands like MSFT, CSCO, ORCL, QCOM, AMZN, WCOM, CMGI, JDSU, VIGN, AOL all lost ground. Even with the Dow rally the advance/decline line was only barely positive on the NYSE with 1538:1471 and negative across all markets with 3578: 4097. The new highs lost to new lows 413:502. Those annoying oil spots on your driveway may be valuable soon. With the price of oil now over $30 a bbl, a nine year high, and with some analysts predicting $35 soon, you may be able to sell drilling rights depending on the size of your driveway spots. The market may be able to digest $30 but for every dollar over $30 the cost of the thousands of products, which depend on oil in some way, will start climbing and could eventually impact our inflation rate. Higher oil prices may be good for oil stocks but that is the only sector that would benefit. The transport sector is getting killed by these higher prices. The cost of home heating oil in the northeast has skyrocketed from $.76 to almost $2.00 since early January. Airlines have passed on the increase in the form of a fuel surcharge but not every business can do this easily. Some truckers in the NE have parked their rigs instead of paying $300-$400 more for every tank of gas. If you only make $1500-2000 for a multi-state run and it takes several tanks of gas then you are better off staying home. Watch oil. If it continues up it will bite everyone eventually. Did you catch the about face from Dell today? In a report from Reuters Michael Dell is quoted as saying he expected adoption Of Windows 2000 software to be "strong," thereby distancing Himself from a previous quote suggesting slow acceptance. Dell Said his previous comments on the subject may have been misinterpreted. He said, "The adoption rate of Windows 2000 will not be determined by my speeches, it will be determined by customer acceptance of the product itself." "We see a lot of interest in Windows 2000 and our Dell technical consulting practice has seen a lot of demand." What's wrong Michael? Did they cancel your invitation to the big house in Redmond? Mr. Dell even mentioned that he had installed 2000 on his own Personal laptop and it "worked great" (until it crashed!! Jim) If you heeded my instructions from Sunday, "buy a Nasdaq dip under 4300" you should be profitable tonight. The Nasdaq dropped sharply at the open today but skidded to a stop at 4291 and performed a miraculous recovery from -127 to +2 at the close. Could it be possible that both major indexes are actually going to be moving in the same direction at the same time? Don't get your hopes up yet. Economic reports for Wednesday include the Import/Export prices and Housing Starts but Thursday is the key. With Greenspan and PPI on Thursday and CPI on Friday the odds for a strong rally to continue are slim. We are likely to be range bound until we see the PPI on Thursday morning. Expect more volatility and wide price swings. The only major earnings report tomorrow is HWP and the short term future of the PC stocks depend their outlook. Trade smart, sell too soon. Jim Brown Editor ****************************Advertisement************************** Options Traders ! Mr. Stock's new online trading site has been designed for you. Trade spreads, straddles, covered writes, and stocks online. Get real-time market data throughout our site. Advanced options tools include volatility graphs, implied volatilities, and more. http://mojofarm.mediaplex.com/adserver/click_thru_request/565-58-1875-3 ******************************************************************* ****************************** OptionInvestor/Optionetics Spring Advanced Seminar Series ****************************** The spring dates for the OptionInvestor/Optionetics seminar series are approaching fast. This is the advanced seminar taught by George Fontanills and Tom Gentile. If you feel you need more option strategies in your trading arsenal like the Delta Neutral Straddles George is famous for then this seminar is for you. Remember, you can bring a friend for free and retake this 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? ********** STOCK NEWS ********** Buffett to Buffoon By S.P. Brown Isn't it amazing how one bad year can sully a reputation? Prior to the start of 1999, nary a discouraging word could be heard about Berkshire Hathaway (BRKa) chairman and CEO Warren Buffett. And with good reason, there was nothing to discourage. Buffett, the lead investor for the insurance/ investment firm, had been a perennial market-beater. Over the past 30 years, BRKa stock had grown at a 26.4 percent annual rate. http://members.OptionInvestor.com/stocknews/021500_1.asp ************** Market Posture ************** As of Market Close - Tuesday, February 15, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,700 11,250 10,718 Neutral 2.15 * SPX S&P 500 1,350 1,450 1,402 Neutral 2.01 OEX S&P 100 740 780 763 Neutral 2.01 RUT Russell 2000 500 540 540 Neutral 2.11 NDX NASD 100 3,575 4,090 3,997 Neutral 2.11 MSH High Tech 1,800 2,000 1,948 Neutral 2.11 XCI Hardware 1,300 1,525 1,485 Neutral 2.11 CWX Software 1,200 1,470 1,422 Neutral 2.11 SOX Semiconductor 740 940 954 BULLISH 2.15 * NWX Networking 900 1,020 1,020 Neutral 2.11 INX Internet 700 800 745 Neutral 1.06 BIX Banking 550 690 517 BEARISH 11.30 XBD Brokerage 400 450 424 Neutral 11.30 IUX Insurance 550 600 519 BEARISH 11.30 RLX Retail 950 1,000 899 BEARISH 1.28 DRG Drug 340 380 342 Neutral 2.15 * HCX Healthcare 700 750 710 Neutral 2.15 * XAL Airline 160 180 117 BEARISH 5.21 OIX Oil & Gas 250 280 261 Neutral 2.15 * ***Posture Alert*** After selling off more than 11% since its high in January, the DJIA rebounded sharply over the past two days changing our market posture of the blue chips sectors to Neutral. We remain neutral across technology and bearish across financials and airlines. Take a special note of our key benchmarks for each index for they have been updated with the recent volatility. **************** Market Sentiment **************** Tuesday, February 15, 2000 Market Alert! Crude Oil Eclipses $30 per Barrel By Pinnacle Capital Advisors "It seems that everyone's attitude toward investing these days is Who Wants to Be a Millionaire. Unfortunately, in the stock market, you don't get any lifelines." In a speech Saturday, Arthur Levitt, Securities and Exchange Commission chairman warned that the historic bull market has created all kinds of traps for investors. Value. More and more investors are buying high-flying, fast-moving internet stocks with inflated PE ratios. IPOs. More and more investors are buying an IPO as a quick way to make money. Margin. Borrowing money to buy stock is as popular as ever. Margin debt has eclipsed $243 billion - representing the largest percentage of the $17 trillion in market float. If equity markets sells off beyond the 10% correction level, it may spark selling for investors to honor the broker's margin calls. With money returning to the market, how long will it take investors to figure out how $30/barrel oil will spark inflation and impact companies' earnings? Most investors trading online today, don't even remember the last time we were above the $30 level - during the Gulf War. OPEC is not scheduled to meet until March 27th when some members will seek to increase volume and thereby ease the price. As first highlighted in Sunday's (2/13) article, Pinnacle Capital Advisors is suspect of the current post-correction rally for several reasons. First, there was lack of selling climax as evidence by a modest spike in the Market Volatility index (VIX) and the lack of combined volume activity across Standard & Poors Depository Receipts or "spiders" (SPY) and Nasdaq 100 Trust shares or "Cubes" (QQQ). Tuesday's combined volume was only 26.3 million shares. Typically single day spikes in excess of 30 million serve as better signals. This may be too complacent of a reaction for Friday's (2/11) decline to be a short-term bottom. Next, market breadth is relatively weak and some of the big cap issues that led the market into record territory a couple of months ago are beginning to roll over. Consider Microsoft (MSFT). As illustrated below, the Nasdaq composite index climbed into record territory on the strength of Microsoft, among others, when the software company broke out last December. However, notice the divergence between Microsoft and the technology index over the past two months. Simply put - once the Generals led the market higher, but now the troops are moving up WITHOUT the generals. Not the best scenario for a resumption of a broad market advance. Finally, media reference (CNBC / CNN) to the "standard" market correction of 10% is widely accepted by investors as the next dip and buying opportunity without regard to other broader market undercurrents. BULLISH Signs: Corporate Earnings: Major corporate earnings continue to come out strong and ahead of analyst expectations. Cash Flow: The cash that has been sitting on the sidelines has been put to use as of late, as record volumes for the major indexes have been shattered. Short Interest: From a contrarian stand, short interest on the NYSE is still very high, eclipsing 4 billion shares. The short interest on the Nasdaq is more than 2.4b shares. Mixed Signs: Interest Rates (6.247): Although the recent bond market rally has helped bring the current yield down near 6.0 last week, the long bond remains above 6.24. Volatility Index (24.52): A review of the VIX's daily chart suggests that the low 30's are an excellent buying opportunity, and the low 20's continue to be a great selling opportunity. The VIX peaked on an intraday basis Friday (2/11) at 28.4 before collapsing and closing at 24.52. This may serve as a potential reversal pattern and signal the end of the market's recent slide. BEARISH Signs: Energy Prices: With the rapid rise in crude oil, everything from manufacturing to transportation will be affected by higher costs. These higher costs will be felt 1-2 quarters out, and could put pressure on profit margins. The Power of Sentiment Analysis It has often been said that the crowd is right during the market trends but wrong at both ends. Measuring and evaluating the sentiment of the crowd, therefore, can give savvy option traders a decided edge. Pinnacle Index OEX Friday Tues Benchmark (2/11) (2/15) Overhead Resistance (760-830) 2.16 3.72 OEX Close 752.04 763.06 Underlying Support (700-750) 5.63 5.30 What the Pinnacle Index is telling us: Overhead resistance is building and could stall a broad market advance. Peak Open Interest (OEX) Friday Tues Strike/Contracts (2/4) (2/8) Puts 740 / 9,937 740 / 10,315 Calls 800 / 7,806 800 / 8,796 Put/Call Ratio 1.27 1.17 Volatility Index Major Date Turning Point VIX October 97 Bottom 54.60 July 20, 1998 Top 16.88 October 8, 1998 Bottom 60.63 January 11, 1998 Top 26.38 March 4, 1999 Bottom 28.15 May 14, 1999 Top 25.01 July 16, 1999 Top 18.13 August 5, 1999 Bottom 32.12 October 15, 1999 Bottom 32.06 January 18, 2000 Top 21.09 February 11, 2000 26.98 February 15, 2000 24.98 Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Daily Results Index Last Mon Tue Week Dow 10718.09 94.63 198.25 292.88 Nasdaq 4420.77 23.10 2.22 25.32 $OEX 763.06 4.76 6.26 11.02 $SPX 1402.05 2.82 12.11 14.93 $RUT 540.24 2.84 0.30 3.14 $TRAN 2448.90 31.15 -18.38 12.77 $VIX 24.61 -1.13 -1.18 -2.31 Calls Mon Tue Week ANAD 140.69 12.50 4.19 16.69 Yeah baby! Defies gravity BEAS 120.75 8.38 4.38 12.75 A very nice earnings run CLRN 116.41 15.00 -4.84 10.16 So much for resistance! INSP 200.56 9.19 0.06 9.25 New all-time high on Mon SEPR 149.13 1.75 7.13 8.88 New, a healthy addition AMCC 237.50 -10.91 18.38 7.47 Buyers back at the table MLNM 217.75 3.59 1.66 5.25 MLNM exhibits strength! EMLX 129.06 -4.75 9.94 5.19 A very convincing drive PCMS 22.25 0.78 2.72 3.50 An 18.6% gain this week CUBE 89.19 -0.06 2.06 2.00 Second time be a charm? LHSP 84.00 -2.06 4.06 2.00 A break to consolidate SNDK 151.00 3.38 -1.44 1.94 Product demand increases ADIC 69.38 3.50 -2.13 1.38 Earnings report tomorrow BCE 119.31 0.91 0.38 1.28 BCE regains its footing COVD 84.94 0.13 0.19 0.31 "No man is an island" LLTC 105.00 2.63 -3.13 -0.50 Strong relative strength ASPT 67.09 -0.75 -0.03 -0.78 News driven momentum play HYSL 47.94 -1.69 0.75 -0.94 Offers investors solutions TXN 134.94 -3.00 0.31 -2.69 Makes a strong bounce MUSE 205.94 -4.00 0.44 -3.56 Will split spark a run? ERICY 86.38 -3.69 -0.13 -3.81 New, we have been waiting ISLD 110.19 -9.19 5.13 -4.06 Fasten your seatbelts Puts VERT 197.00 -10.50 -5.50 -16.00 Valentines gift from VERT RHAT 74.75 -5.19 -3.44 -8.63 New, enthusiasm waning? GD 41.31 0.13 -0.25 -0.13 Use your life jacket! KMG 48.63 -0.94 1.44 0.50 Plenty of news out there KRB 22.19 0.13 1.25 1.38 What's in KRB's future? PGR 55.94 -1.88 3.81 1.94 Still impressive downtrend JNJ 79.69 0.19 2.06 2.25 A short-lived rally? PVN 67.88 -3.88 6.38 2.50 Dropped, possible bottom CAT 40.00 2.63 1.38 3.50 Dropped, cat out of bag MMM 89.13 -0.06 6.25 6.19 Dropped, will it recover? ************ WOMANS WORLD ************ When You Hold Too Long Instead of Selling Too Soon By Renee White Do you understand the emotional reasons that cause option premiums to inflate and deflate? This is not an article explaining intrinsic and time value, which makes up an option premium. It is an attempt to explain, "What really happens". The books are great but understanding the dynamics of "the game", will help protect your profits. I received an email on Monday, from an unhappy camper who held too long, through Yhoo's split, instead of selling too soon, as the near term high started fading last Tuesday into the close. It continued to sell off until it took a mild breath, late today. Dear Renee: Your opinion on a matter that has taken my sleep away last week: I own 19 Yhoo calls, that I bought rather expensive, to my great sadness, Yhoo did not have the usual pre-split rally, but it went down even on the evening of the split. I have lost already a lot of money, as I was planning to sell them on Friday, sometime during the rally that never happened. Please, indulge me with some advice. I can't afford to loose any more money, and instead of my profits, the only thing going up is my blood pressure. A.S. Dear A.S. Yes, I think you are in trouble and I feel your pain. Trying to put spilled milk back into a glass is always hard. Most just wipe it up. There is a street rule, don't hold over a split, especially high-flyers. They tend to sell-off for several days or weeks afterwards because of the run up created from the excitement of the split. That's not good if expiration Friday is only a few days away. Recovery may be impossible due to Theta (time decay). Will they all ALWAYS do that? No. Are you familiar enough and good at fortune telling, to make an educated "guess" if it will be different this time? So you ask, what do you do if it's too late? Well, I can't tell you when to buy or when to sell, but look at your own risk tolerance. Would you rather take whatever money is left since you know that money is there today or wait to see if it can go back up on a rally, if there is one? If you wait for a rally that does not come, will you be happy with options being worth even less than they are today, because this is what will happen to near term option, with expiration day nearby. Also, any rally that occurs may not include your stock since so many people have exited, not to mention a bear trap rally that you hold through again, thinking recovery is near. Remember too, if you exit now, wait for it to bottom, you could re-enter and ride it back up. I urge caution before jumping back in though, until the sell off is confirmed, then roll out. Try to think through the most likely scenario, not what you hope will happen. "A bird in the hand is worth two in the bush." Understanding why options inflate and deflate will help your future plays. Nothing makes one more frustrated than having juicy fat profits, only to hold too long instead of "Selling Too Soon". That is a very valuable phrase. Option premiums inflate with anticipated excitement. Sometimes, excitement causes the premium to blow up way out of proportion to what the realistic value should reasonably be. Anyone who played QCOM last December can tell you that. It's the supply and demand theory. That's why one option that's $5 in-the-money may have a premium of 12, while another one has a premium of 38. It's okay if you are a short-term trader, but it can kill you if you buy, hold and don't understand the intricacies of the game. Excitement can occur with earnings, with an anticipated split announcement, during a split run, on rumors, on unexpected exciting press releases, on some analyst upgrades, on favorable economic data, etc. Notice, these are opportunities for short-term excitement. Do you remember receiving your first bicycle? Did you have the same excitement about it 6 months later? Traders play the excitement, milk it for all they can get, then leave before the party is over, so they can scope out the next play and get in early. They make their money on the momentum of the ride up. Not the vacillation at the top. Premiums start evaporating rapidly once the excitement is over and selling starts. Once the split occurs, earnings are reported, rumor is dismissed, news is released, etc., buyers will no longer outnumber sellers. Your calls will lose value as the big players sell to take their profits. Supply & demand again, causes the put premiums to now increase, while the calls deflate. If you were planning on selling your calls at last week's high, you missed your chance. Now the other side (the put player) has the upper hand. Their premiums are quickly inflating at the expense of those you kept holding. Waiting for your calls to inflate again, once the excitement is over, is very costly. In reality, a near term option, close to expiration, probably can't recover from a strong sell-off after the reason for the excitement is over. In most cases, it doesn't happen. Are there other strategies you could play, to counter some loses? Probably, yes. BUT keep in mind, these will be panic plays, placed to salvage lost money, plays that may be advanced and much more sophisticated. Most likely, these are plays you are unfamiliar with and haven't paper traded, thereby setting you up for further loss and panic since you don't understand the play. Let me ask you this, if you were about to have a wreck because you were speeding, would you press on the accelerator even harder or let up? When you've already made a big mistake, it's a bad time to try something new, especially if it is a shaky week in the markets, with lots of economic reports and everybody is warning you to watch out. The longer you hang in without being objective, the more at risk you become. Exiting does stop the pain and SHOULD increase your knowledge of what NOT to do next time. Trust me, it WILL still happen again. I hate to say it again, but I must, don't play options with money you can't afford to lose. Play when the market is in your favor. It happens to all level of traders. The more experienced ones try to catch when emotional trading sneaks into their trading. Most will exit and take their punishment, then go kick a tire because they really knew better. Emotional trading, while trying to recover a loss, is probably the biggest set up for losing more money, in addition to holding on and not exiting a position going against you. Exit. Don't let it close another day lower. I know the loss is brutal. I'm sorry. We are in a shaky market right now, even for experienced traders. Do you know if you are a Dow or a Nasdaq trader? Do you know why I ask? Personally, it might be a good time for new traders to sit back, watch, read and study, while waiting for things to settle down before trying to play, especially if that is a real head and shoulder pattern forming that I see on the Nasdaq Composite daily chart. Renee Contact Support (Editor: Another way to exit a losing call position is to turn it into a spread. If you own $300 YHOO calls and YHOO was $270 and going down, you could sell $280 calls using your worthless $300 calls as margin. Check with your broker but this really works. Jim) ************** TRADERS CORNER ************** A Market for Metaphors By Janar Wasito Studying the Optionetics Strategies this weekend has proven to be a real revelation. I am confident that now I can focus on these strategies and achieve the results that I want. At the same time, I am rethinking the dominant metaphor for my trading -- Trading is War. I am reading the chapters in The New Market Wizards randomly and checking off the chapters. This evening, I was reading about Randy McKay, a very successful futures trader. At the beginning of the interview, McKay states that he was a Marine in Vietnam, and my radar perked up -- another successful Marine trader! But he is highly critical of his experience, calling his two years in Vietnam a waste, and saying that war is stupid. He has more of a right to say that than anyone. Contrast this with Marty Schwartz, author of Pit Bull. For Schwartz, the dominant metaphor of his success is that trading is war. But Schwartz never went to war. In his own book, and in his interview in Market Wizards, he states that he went to Marine officer candidate school to avoid service in Vietnam by getting a reserve commission. In my own case, I never served in any kind of real conflict. I got into the Marines in 1991, and left in 1995. I loved it, had a great time, made some of the best friends of my life, and will always consider myself a Marine. But even in the Corps, the Vietnam Veterans with eagles, stars and stripes on their collars never talked about war. They had no desire to go back. They respected risk. So, what is the point? I have tried to develop a trading style like Marty Schwartz. But I can't. I can't sit in front of a trading screen for 7 hours a day, making notations about what the market is doing each 30 minutes. I can't see every half hour as another phase of a battle. I don't want to. I want to have a life. The dominant metaphor that trading is war is good in the sense that it encourages planning a strategy. In that sense, McKay, Schwartz, and -- I hope -- I will be similar in applying our Marine heritage. But, I disagree with approaching trading as war. Cybercorp.com says that every trade is a battle with a counter party. I, for one, have nothing against the market maker who is the counter party for most of my orders. I don't want to shoot him, destroy him, etc, etc. He's doing his job in the economy, just as I am trying to benefit from the economy. Trading is war is the dominant metaphor of day traders. Most day traders go broke, and quickly. Most day traders have a insurmountable obstacle in the commissions that their brokers charge. If you were an arms merchant, you would want everyone to go to war also. It's good for business. I am choosing two different metaphors as the model for my trading in this year and beyond. The first metaphor is the trader as athlete. My sport is triathlon. I have a race on May 2. I am a big guy. I never race to win. I race to finish. It is existential. A race every month over the summer encourages a dedication to fitness, health, and good diet. To be successful at triathlon, you have to be consistent. Do a mix of swimming, running, biking, and weight lifting work outs. I am way, way out of shape. I could go workout like a mad man, get sick, or pull a muscle, and I would be out for 2 weeks. The really important training is booooo...rring. Long, slow runs. Long, slow bikes. Long, slow swims. Long... slow. Knock out the time at the right heart rate. Of course, there are necessary elements like doing bricks -- bike/ run workouts to prepare for the transition in the race. Techniques are important, consistency is important, and doing boring workouts is paramount. I'd rather make trading like triathlon training than a war with another trader... who is actually probably a nice guy. I just want to finish. To that end, I would like a style of trading in which I look at the market about twice a day, for a half hour each. I'd like to do a few hours of work on Sundays. I'd like to take off for a week or two each month (currently planning a Paris/ London jaunt at the end of Feb), while leaving positions open. I would rather not sit at a computer screen for 7 hours a day and "fight" the market or another trader. I want to do my work, get paid for it well, and develop other professional and personal interests outside of trading. I think that is what some of the more advanced strategies will allow me to do. If my last few columns have looked like a man in transition and change from one approach to another, it is entirely accurate. I don't claim to be a guru. I am just a guy, a novice trader, who has been trading options in volume since December 1998. I think that is why Jim asks me to write this column. I am not the straddles guru, bull call expert, or anything else. I am looking for the best way to make a very good return commensurate with the risk that I am taking. And I recognize that one of the risks is disruption to my life on a day to day level. That is a risk that I would like to minimize as well. I don't like any of the naked option strategies. They are too dangerous. I am not saying that Jim Brown or others can't do very well with them. But the fact that the risk is unlimited scares the hell out me. Now that I have made some money with options, I don't want to blow up my account, or incur a liability beyond the cash in my account, by having naked options move the wrong way. I do, however, think that the basic market awareness, stock selection, and entry point awareness that the newsletter offers are the best and most timely on the Internet. I just plan on adjusting the strategies to fit my risk profile, which has changed since last year. For instance, I no longer plan on trading straight calls; instead I plan on substituting bull put spreads for targets under 30 days to take advantage of time decay (theta); and I plan on substituting bull call spreads for targets over 45 days -- and I want to go out as far as possible, with LEAPs where available to construct the spread. I no longer plan on trading naked puts; instead I plan on substituting bull put spreads. I no longer plan on selling naked calls; instead I plan on substituting bear call spreads. I think that Jim has a brilliant insight in the covered straddle strategy -- if you sell a call and a put on the same stock, both sides cannot be in the money, and time decay works in your favor on both sides. But, given this insight, I would like to take advantage of it by doing both bear call spreads and bull put spreads (both credit spreads) on the same stock when it gives good entry points in the same month. Take VRSN, for example. In January/ February, I could have entered both types of plays on this stock when it bounced off of the 210 level near earnings, and off the 145 level at the bottom of the NASDAQ pullback in early Feb. Instead of having Long Term Stock holdings, I plan on having only LEAPs, but I will sell higher strike calls against those LEAPS (calendar spreads). I have had some very successful LT Stocks, which I purchased in 1998/ 1999. YHOO, AOL, MSFT, CSCO, HD, AMGN, VOD. But I am selling those stock positions. The risk/ reward diagrams on stocks are just not favorable enough. Instead of LT Stock positions in 15 - 20 stocks, I want 15 - 20 LEAP holdings, all of which are delivering present cash flow through capturing the time decay on calendar spreads. So, in summary, my strategies will be: -- Long Term: LEAPs/ Calendar Spreads -- 45+ Days: Debit Spreads (Bull Call Spreads), Straddles -- Less than 30 Days: Credit Spreads (Bull Put Spreads, Bear Call Spreads) The second metaphor for my trading is that I am a historian. My undergraduate major was American History & Literature. We are in the middle of the greatest change in how humans communicate since the invention of the printing press. What better place to watch it than as a graduate student at Stanford University? I have been in the middle of the deals driving our economy. Depending on how you view it, our economy is either at the start of a new digital renaissance, or at the birth of a new set of industries analogous to the invention of the telegraph, railroads, and cars. Based on the spending habits of baby boomers, this technology boom should continue until 2009 with some strong pullbacks here and there. In the middle of this technology revolution, I am making my own chronicle of it for my grand kids -- my monthly trading journal. Each month, I will start a new journal. I have different sections for various parts of the newsletter, for my notes, and for the different strategies I will employ. Those strategies, of course, are changing day to day. I plan to augment these contents with personal and business notes from various involvement with companies around the valley. I'd love to develop a career writing for National Geographic -- articles about fireworks, the velocity of money, and silicon valley. Think Creatively, Good Luck! Janar Wasito Contact Support ******************* BROKERS CORNER ******************* A word about taxes. By Robert Norman Of course, at this time of year, a lot of investors continually ask questions about taxes. "How are gains and loses figured in on my taxes?" "What tax brackets am I in?" "How do I calculate an expired option?" "What about dividends?" First the tax brackets. For individuals: $ 0 - 25,350 15.0% 25,350 - 61,400 28.0% 61,400 - 128,000 31.0% 128,100 - 155,950 36.0% 278,450 and up 39.6% Married, filing jointly and surviving spouses: $ 0 - 42,350 15.0% $ 42,350 - 102,300 28.0% $102,300 - 155,950 31.0% $155,950 - 278,450 36.0% $278,450 and up 39.6% Long-term versus short-term holdings: As a general rule of thumb, an individual will combine short-term gains and losses (securities held for twelve months or less) and long-term gains and losses (securities held for more than twelve months)and then combine the net results of short-term and long-term gains and losses. An individual can deduct up to $3,000.00 net loss per year ($1,500.00, if married and filing separate returns). Any excess of actual losses over the annual limitation can be carried forward to be used to offset gains in future years or to be deducted on the tax return, subject to the annual limitations. How are options that expire worthless taxed? If an option expires worthless (lapses), the loss is figured by calculating the taxpayers cost basis (including commissions paid) in the option and is used in the tax year that it expires. Dividends: Usually dividends are taxed as regular income in your specific tax bracket. Of course, always consult your tax adviser on any and all questions concerning taxes on any asset. Have a very profitable New Year! Robert L. Norman Vice President, Investments J. Michael-Patrick, LLC - St. Louis PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** ADIC $69.38 -2.13 (+1.38) Even though we feel that the market has not even come close to recognizing the hidden value contained in ADIC's equity position in CRDS, we nevertheless must drop this play due to the earnings report coming out tomorrow. Despite the fact that CRDS has retraced a chunk of its recent gains, there is still a ton of value in ADIC's holdings. If ADIC can muster a good earnings report we may re- visit the company as a call play. Technically, ADIC made a nice move into new high ground. The selling today was pretty strong down to near the breakout point of $63, but it bounced right back. If we are lucky, maybe we will get a little bit of an earnings anticipation bounce tomorrow. ADIC entered into a new OEM agreement with Quantum Corp and will begin offering some of Quantum's tape storage products. PUTS: ***** CAT $40.00 +1.38 (+3.50) Okay, who let the CAT out of the bag? Apparently, it was those pesky value seeking investors who were looking for something in the blue light special section of the market. After last weeks run, many investors seemed to feel that some of the overbought blue chips may not be the best place for their money. Monday, the bargain shoppers moved in on a few of the "un-loved" stocks, i.e., heavy equipment makers, such as CAT. Today, CAT's move through and close at $40, a move which was backed by strong volume, showed us that there may be too many CAT lovers in this market for us to warrant keeping a spot open on our put list for this stock. MMM $89.13 +6.25 (+6.19) Recovery or entry point? The recovery in the cyclicals over the past couple days has even trickled down to poor MMM. The move today was particularly impressive, moving up $6.25 on strong volume (1.5 times the ADV). The advance halted at the $90 resistance level and pulled back a bit at the close. The pivotal question is whether this is the beginning of a recovery or a head fake. Given the strong move in the broad market, we think the value investors may lend support to MMM, limiting the potential downside. We'll let MMM go and move on to more profitable plays. PVN $67.88 +6.38 (+2.50) Exhibiting no strength yesterday, PVN fell all the way to $60 support and bounced into the close. In this morning's amateur hour, it did the same thing, apparently shaking out the rest of the sellers. Then on news that PVN had generated 220K in online credit card accounts and $750 mln in Internet retail deposits, the issue gained traction and powered its way up the chart without so much as a tire-spin. A good company starving for an inkling of good news can reverse direction immediately when that good news shows up. An analyst upgrade to Strong Buy from CS First Boston didn't hurt either. While the issue hasn't yet traded back up to its 10-dma, the worst is over. And with volume at two times the ADV today, it appears that a recovery has begun. That said, PVN is off the list tonight. ******************** PLAY UPDATES - CALLS ******************** HYSL $47.94 +0.75 (-0.94) Today, Hyperion offered some solutions to those who were trying to decide on a possible entry point. HYSL rolled out of bed this morning and headed down to test support at $46. Then the coffee kicked in and HYSL woke up to make a steady move up for the remainder of the session. Volume was light today, though it did start to pick up slightly toward the end of the session. We were pleased to see the greater volume on the right end of Hyperion's day. As we mentioned on Sunday, HYSL's 5-dma has done a nice job of providing support throughout February, and though HYSL did trade below this level today, it managed to reclaim this level as support with a close right on it. Should HYSL continue on with its steady ascent, the 5-dma may serve well for future entries. HYSL looks to have additional support at $47 and $46. MUSE $205.94 +0.44 (-3.56) Muse traders have been a bit uninspired this week. The 2-for-1 split is coming next week which may spark another run for the stock once we get through this expiration week. If you had been patient yesterday you could have initiated a bullish position at just above $200. Despite the fact that the stock traded just below that always critical price support level today, it has nevertheless proven to be an excellent entry point. The lack of any follow through below $200 indicates to us that MUSE is stabilizing in this area and is building a nice base to give it a little strength to mount a move next week. Be cautious, just in case today's bounce was a bull trap. If MUSE does trade convincingly below $200 you may want to step to the sidelines and wait for the stock to test support at $191 before contemplating a new position. In a continuing story, MUSE has added yet another new user of its Netcool software. The software will be used by Mannesmann Mobilfunk (gotta love that name) to present its services during the CeBIT 2000 IT trade show in Germany. It is the world's largest IT trade show. LLTC $105.00 -3.13 (-0.50) With all of the chip excitement concentrated in INTC and RMBS early this week it appears that LLTC has been a little bit lonely in its pursuit of investment dollars. Of course, it is still very early in the week. LLTC actually showed some marvelous relative strength yesterday by testing $100 and closing very strong. Today was a bit of a different story as the stock really could not get going. LLTC closed at a very significant short term price point today. The important thing to realize is that the stock is in a trading range, and as we pointed out in Sunday's update, traders could have made some quick intraday profits. We look for LLTC to move to the higher end of its range tomorrow on the heels of the AMAT earnings report. A trade above $109 could take us straight to a test of the old high of $111.50. If the stock can make another new high we may be witnessing the re-establishment of the uptrend. Otherwise, look for stock to stay in its current 10- point range in an attempt to consolidate its most recent move. CUBE $89.19 +2.19 (+2.00) We may have knocked the sellers out of the box as C-Cube weathered the early NASDAQ storm and made a nice move above short-term resistance at $88.75. The great earnings report from AMAT could have a positive affect on all things silicon tomorrow and CUBE should benefit. A re-test of the highs could be imminent as long as the CPI and PPI come out decently and Greenspan does not say anything to rattle the markets in general. The only negative aspect of today's move is that it occurred on very low volume, less than half of the ADV. We certainly need to see some good volume tomorrow to confirm that CUBE is well on its way back up. If we can get a close above $90, maybe the second time will be the charm to get that anticipated move to $100. COVD $84.94 +0.19 (+0.31) The old saying that "no man is an island" perhaps could be changed to "no company is an island". After managing top keep its head above water Friday with the weakness in the Nasdaq, COVD finally gave way to the pressures seen in the tech stocks the past two days. We aren't giving up on this one by any means. COVD fell out of bed, first thing Monday morning, but began to bounce back quite nicely after hitting the $80 level of support. The selling at the Nasdaq this morning took its toll on COVD again, but the DSL provider fought its way back to end the day in the plus column. COVD announced this morning the availability of its DSL services in the greater Pittsburgh, Pennsylvania area. The company continues to expand their services in metro areas around the country and their latest addition is a positive for the company, but our play is going to need an added push to get it back on track. If the strength seen late today in the Nasdaq can continue, COVD should join in. Keep your stops close, just in case the strength seen late today proves to be a head fake. *********************************************** PLAY UPDATES - CALLS - CONTINUED IN SECTION TWO *********************************************** ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. 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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 Tuesday 2-15-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. ******************************** PLAY UPDATES - CALLS - CONTINUED ******************************** ASPT $67.09 -0.03 (-0.78) ASPT was barely scathed as profit- taking on the Nasdaq was driving others lower. Not once did ASPT dip below the 10-dma and today's upswing off the daily low of $64.50 moved it back above the 5-dma (now at $66.39). All in all, the stock suffered only fractional upsets and the volume was moderate. Even though ASPT is performing well we'd like to see volume levels return in this news-driven momentum play. Overhead resistance is mere points away at Friday's new 52-week high of $69.94. The next hurdle is of course to break through that psychological $70 level on a rally. Yesterday, Aspect announced Puget Sound Energy has selected its Customer Relationship Portal for the mission-critical environment at their new electronic facility. INSP $200.56 +0.06 (+9.25) Volume was powerful again this week. This is a good sign that INSP will continue to make gains ahead of next month's expected 2:1 split on March 15th. On Friday the stock hit $200.44 during intraday trading, but was unable to close above the formidable $200 mark. This was not the case of the past two trading sessions. Both days INSP managed to close above $200 and on Monday, the stock also hit $208 to record another all-time high. Near-term support is now clearly established at $195 just a smidgen above the 5-dma ($193.26), but is more rooted at $190 and $185. Entries off these references should provide profit opportunities unless of course there's a severe correction. But there's good news in that Open Interest at the higher strike prices is more respectable and climbing. Yesterday, InfoSpace.com announced it signed an agreement to integrate Mojam's live music event listing into its consumer content services. And today, AirTouch Cellular announced it has chosen INSP to deliver its Internet services and applications serving as AirTouch's US mobile Internet platform. ISLD $110.19 +5.13 (-4.06) After amateur hour on Monday, the pullback was sharp and swift. Of course you didn't open any positions during this time, but did you have your seatbelt securely fastened anyway? This afternoon, there was finally some confirmation that the profit-taking was subsiding. The increase in volume ignited the upward momentum and ISLD came off its intraday lows ($100.25) at the 10-dma ($100.27) to finish at a respectable level. A more conservative trader will still wait for another bounce before entering this pure momentum play. In the news today Digital Island announced FT.com, the UK's media giant, was added to its clientele list. ISLD will supply critical infrastructure and network services to support the new Financial Times portal. BEAS $120.75 +4.38 (+12.75) BEAS has added +12.75 in two days, after being in what some would consider an overbought technical state. But sometimes there is no stopping momentum. BEAS is in the middle of a very nice earnings run and traders that have profited from the move the past few days don't care whether BEAS is overbought or not. Yes, there could be a round of profit taking or a brief consolidation, but the volume the past two days certainly suggests there is more of a move to the upside ahead. BEAS has seen more than 7.2 million shares change hands in the move to new highs, which supports our belief that BEAS is not done. BEAS closed on an intraday support level of $120. The next area of support is seen at $115. Should we see some profit taking those would be good points at which to add to or enter new positions. BEAS is scheduled to report earnings next Tuesday after the close, so we still have time for this play to cook. MLNM $217.75 +1.66 (+5.25) The folks that jumped in MLNM Friday as it bounced off the $207 area should be feeling pretty good after the first two days of the new week. The scenario here is similar to many others in the Nasdaq. MLNM jumped up in the first hour of trading, both Monday and today only to be met by sellers. It appears tonight that some of the people that had entered along the way see the gaps up as an opportunity to get out. We see the fact that MLNM has managed to muster some strength going into the end of the day as a real positive for our play. It appears as though the traders that weren't scared off by the decline Friday. This week MLNM hasn't exhibited the strength seen by a few the genomics company's, but we are pleased that there was no follow through selling from Friday. MLNM has intraday support at $215, $212 and $207 and would provide ideal points to target shoot an entry should we see any further pullbacks. Not much news so far this week, so rely on support and resistance to be your guide on MLNM. EMLX $129.06 +9.94 (+5.19) On Monday investors decided to take a little money off the table and this morning the selling continued as the Nasdaq began to fall. Unlike the Nasdaq, the buyers stepped in early just like clockwork at the $117 level of support which was hit in the first hour of trading. The heavy hitters jumped back into EMLX and drove the price back through the $125 level very convincingly. We also mentioned Sunday that the next target for EMLX could be the $140 area, which given the volume the past two days may not be out of the question. We expect the momentum to continue. Support for EMLX is found at $124 and $121. CLRN $116.41 -4.84 (+10.16) So much for resistance! After building a nice base of support at $105 on Friday, CLRN took off this week, shattering the old 52-week high at $110.25. Moving as high as $123.13 on Monday, the temptation was too great and some profit-taking was bound to occur today. New support seems to be forming near $116, and with the bounce in the NASDAQ right at the 4300 level, CLRN could be ready to run higher still. Stronger support exists at $110, with resistance up at yesterday's high. Driving the move is the constant stream of positive press and the shareholder meeting that took place today. On the agenda was a vote to increase the number of authorized shares from 50 to 200 million - does anyone else think this sounds like a split coming? The gap up at the open yesterday was likely the result of the company signing memorandums of understanding (MOUs) with 5 companies in Taiwan. These agreements focus on the fact that CLRN will supply the software for the new broadband local access devices manufactured by the Taiwanese companies. Targeted media formats include DSL, Cable, Wireless Local Loop, and ISDN. Needless to say, CLRN is a hot stock in a hot sector. Look for the run to continue, especially if they happen to announce a split. The drop at the close today is a little disconcerting, so look for a renewed move upwards before jumping on board. LHSP $84.00 +4.06 (+2.00) Taking a break to consolidate the gains from last week, LHSP found its footing right at the $75 support level today. Reversing itself in lockstep with the NASDAQ recovery today, LHSP put in a nice performance and set a new closing high of $84 on double its average daily volume. Driving the strong move up are the continuous stream of new technology applications and the excitement of a pending 2-for-1 split, (announced with strong earnings last week). The split date is not set, and a shareholder vote will be required, but the announcement underscores the company's positive outlook in the rapidly growing IP telephony market. LHSP is nestled right up against the $85 resistance level and any positive sentiment tomorrow should enable it to push right through. Mild support appears at $80 (also the site of the 5-dma), followed by strong support at $75. With an almost $10 range today, the importance of good entry points cannot be overemphasized. Look for a continued move upwards or another bounce near support to trigger new entries. BCE $119.31 +0.38 (+1.28) Barely registering a pulse while trading flat yesterday, BCE fell to the first level of support at $117 (actually $116.50) today before regaining its footing. The net gain of $0.38 on the day hides the fact that BCE made a $3 recovery off its low today. That's a show of strength in our book. Now, if investors would get interested in BCE for its residual value net of its 39% stake in NT, which it plans to spin off soon, we might see BCE shares move up without maintaining parity to NT shares. As it is, the market is valuing this Canadian phone giant at just 1.3 times sales and 3.7 times earnings, both figures net of NT value. We think it can be said again, you can a lead a horse to water, but you can't make him drink. BCE is clearly under valued, but we think it's just a matter of time before the market at large makes that discovery, which should then stimulate buying interest again. Volume has been average lately indicating no unusual interest. That may be due to unfavorable tax treatment that shareholders might receive following BCE's spinoff of NT shares. BCE is going to need volume to break out over resistance in the $120-122 range. Anyway support is still at $117, then $115. Target shoot if you like, but a breakout over $122 with volume would be more convincing. News that BCE intends to buy the remaining shares of Teleglobe, Inc. that it does not already own for $6.67 bln in BCE shares had little effect on the stock. AMCC $237.50 +18.38 (+7.47) Following a selloff that began last Friday, yesterday morning was looking kind of ugly for AMCC (not that it didn't deserve a breather after such a long sprint), as it traded down to $205 on two occasions before finding its land legs again. That makes the case for rock solid support at $205 look pretty strong. $5 increments also provide small amounts of support all the way to the current price, with $220 having the strongest base. Target shoot where you like, but based on increased volume (more than twice the ADV today), we'd say the mini-correction is over. Investors appear to be back at the buying table. With the next resistance not far away at $245, you won't have to work too hard to get there. However, a breakout to a new high doesn't occur until $262. If today's correction was real and $$$ now come off the sidelines, AMCC will be a fund favorite and the price should continue moving up. Let volume be your guide. Also, at these levels, AMCC is a split candidate with enough shares authorized to effect a 3:1. All we need is a surprise BOD meeting with the good news! Otherwise we may have to wait until the next earnings release, tentatively scheduled on April 10th. ANAD $140.69 +4.19 (+16.69) Yeah Baby! Apparently having figured out a way to defy gravity, ANAD moved up smartly yesterday and dropped a measly $0.50 below yesterday's stellar close during today's pre-lunch shellacking. With the exception of a $1 loss on Friday, ANAD has not seen a down day since January 28 when it traded at $75. It doesn't have to fall back very far to reach support. Gap ups at the open just provide a new technical benchmark, which ANAD seems all too willing to conquer. Support levels have thus moved up to $135 (nice bounce) and $140 (cruise control without selling pressure). With volume over twice the ADV yesterday and today, buyers (most probably growth fund money) are in control. Remember too that ANAD splits 3:2 on February 29, with an ex-date of March 1. That can only help. We look for the price to keep moving up accordingly, even though ANAD is bumping its head on resistance at $144. Of course that's expected when setting a new high every day. A bit of news may be driving the price too: ANAD announced today that they received an order for 10 mln RF switches from "one of largest U.S. based wireless handset manufacturers" (duh, maybe Motorola) to be used in dual mode phones. SNDK $151.00 -1.44 (+1.94) SNDK finally broke out to the upside, but the weakness in the NASDAQ was too much. Nervous investors took the opportunity to lock in some of their profits and the result took SNDK as low as $145 before the buyers returned in force. The dip and subsequent recovery provided a nice entry point for more aggressive investors, and further solidified the $145 support level, which is also the site of the 10-dma. Volume has been exceptionally light the past several days (less than half the ADV), and we will need to see a resurgence in volume if SNDK is going to move significantly higher. SNDK has closed above $150 for the past 2 days and this level may provide mild support going forward. With demand for its products increasing at a furious pace, SNDK is continuing to see its profits soar. Earnings were a huge upside surprise, but the real excitement is the 2-for-1 split that occurs on February 22nd. Investors should start to show up in droves, driving both volume and price higher as the date approaches. Wait for a bounce near $150 accompanied by increasing volume before jumping on board TXN $134.94 +0.31 (-2.69) Dropping with the rest of the NASDAQ over the past couple days, TXN finally found its feet this afternoon at $130 and bounced strongly. Breaking down through the $137 support level may have transformed it into resistance, so we need to see TXN break above the 10-dma ($135) and preferably $138 to convince us the upward move is intact. If investors can get moving above this level, the next target will be the most recent 52-week high at $145. This is purely a momentum move, driven by TXN's strong presence in the digital wireless industry. Investors should continue to bid the shares higher as TXN continues to push the state of the art in Digital Signal Processing while making additional inroads into the wireless market (see news below). Volume has been near the daily average, so the drop over the past few days may have just been profit-taking. But keep your stops in place, just the same. New positions can be considered on a breakout above $135 as long as volume confirms the move. More conservative traders may want to wait for a break above $138 before jumping on board. TXN had lots of exciting news on Monday, but the principal story was the announcement of another industry first. The company announced the first DSPcodec that maximizes DSP performance for voice-band applications, while reducing development time by a factor of 10. The new codecs enable voice extensions in broadband applications such as voice over IP for cell phones and cable modems. PCMS $22.25 +2.72 (+3.50) A gain of $3.50 for the week, may not be huge by some traders standards, so how about we put it this way, a gain of 18.6%. There does that sound better? Now you can see why we like what we saw when selecting PCMS as a new play. It just goes to show that bigger is not necessarily better, when it comes to selecting stocks to play. Not only did PCMS gain $2.72 today, but it did it on day the Nasdaq was in the hole by better than 100 points. The recent upgrades by analysts and the popularity of the companies fixed wireless technologies seem to have caught investors attention. The volume behind the 13% increase was impressive as well, with over 4.2 million shares changing hands. So were do we go from here? PCMS is now in uncharted waters, so we must turn to support since at this time we have no real resistance to hang our hat on. Technically, PCMS has intraday support at $21.25 and $20.50. If we see any pullback or profit-taking, those would be great entry points for additional positions or a new play. ******************* PLAY UPDATES - PUTS ******************* PGR $55.94 +3.81 (+1.94) Hey it happens sometimes! Every dog is allowed to have a day or two and it looks like PGR is getting theirs. Ever since we began this play we have warned that a trade above any previous day's high could result in a mini- rally. If you had been using trailing stops you would have a nice profit and would now be waiting for the next entry point. Throughout this devastating downtrend PGR has managed a few small rallies that seem to last 2-3 days. Resistance is at $59 and could provide a good entry point. If the stock can climb above that price, take a look at the $63 level for the next possible entry point. We are maintaining PGR as a put play mainly because it is still in a very impressive downtrend, despite the fact that the stock did find a few value investors today. Today's move can be partially attributed to an upgrade from CSFB from Buy to Strong Buy. KRB $22.19 +1.25 (+1.38) What's in KRB's future? Well lets see...today, the industrial production report came out showing that US economic growth is still accelerating. Curiously enough though this did nothing to stop the stocks that are usually interest rate sensitive. However, looking ahead more interest rate hikes are inevitable. Greenspan stated - and we all listen up when he speaks - that "the Fed's current policy is to slow the economy to a more moderate pace before inflation becomes a problem." So with all that in mind what does all this mean for KRB? Well, their business is affected by interest rates so while they had a good day today (as did others in the same industry) what is forthcoming might not be more of the same. So we keep our play but with caution, with the Dow beating out the Nasdaq. Since KRB follows along with the cyclicals, any weakness the Dow shows should cause KRB to continue falling and thus causing new entry points. The only news KRB had was that the North Carolina Bar Association will now offer MBNA services to its members. KMG $48.63 +1.44 (+0.50) It seemed as though you couldn't go far into today's market without slipping into a story that had something to do with the current oil supply (or lack there of) situation. As we are sure you know by now, oil is trading higher than it has since 1991 during the Persian Gulf War, and is therefore, commanding a great deal of headline presence. CNBC analyst Greg Miles reported this morning that many of the big oil companies are posting big profits because of the high oil prices. Despite this fact, many of the oil and oil service stocks are continuing to feel pressure as investors fear the inevitable correction looming just around the bend. Kathy Jones, Director of Futures Research for Prudential Securities, believes that an increase in oil production is inevitable since supply is so tight. Who will finally make the decision to loosen the supply is really the only matter of contention at this point. The question is, will investor fears continue to plague oil and oil service companies up until the March OPEC meeting or is the news out and digested? On a cautionary note, many analysts are saying that we may have seen some investor over-reaction in regards to the possibility of a correction in oil prices. We are betting that today's run-up in the oil stocks was pre-mature and that investors may still continue to proceed with caution toward the oil stocks. KMG is approaching a level of resistance at $50, which may prove to be an important deciding factor in the future of this play. VERT $197.00 -5.50 (-16.00) Okay, so it wasn't roses and chocolate, but if you were playing VERT on the downside, VERT still delivered a very nice Valentine's gift. On Monday, VERT traded within $0.63 of the $200 level, which was the goal when we initiated this put play. As if the tagging the desired level were not enough, VERT even held the door open, allowing investors plenty of time to get on board with new entries. VERT traded in a range just under $18 on Monday and just under $12 today. VERT closed near the low end of its day today and looks well positioned to continue its downward trend. One point to note, is that prior to VERT's gap up back in January, it had gained a lot of ground in a short period of time. Therefore, we may be still be cleared for a nice fall. We would hate to be hasty and miss a potential opportunity. The next level of mentionable support looks to be right around $180. If you are playing VERT and have not tightened those stops to protect the profits that you have made so far, now would be a good time to do so. Remember, we are in bonus territory now, and from here, it is icing on your cake. If only every Valentine were so giving! On Monday, US Bancorp initiated coverage of VERT with a Strong Buy rating and a $290 price target. Obviously, this had little if any positive impact on the stock. JNJ $79.69 +2.06 (+2.25) Since it's quite possible the DOW's rally may be short-lived amidst the upcoming economic events this week, JNJ is staying on our put list for now. Taking a look at the descent on a chart with a 10-dma line, it's clear that this indicator has served as strong resistance. Currently JNJ is just below it by a fraction (10-dma = $80.71) so a descending bounce from this point would be a good sign. And better confirmation is to see it slip back under $78, then $77. Remember this is a sector play. The basis is for the broad negative pressure to continue to drive JNJ lower as investors rush toward the high-flying techs. GD $41.31 -0.25 (-0.13) Don't jump on this boat without your lifejacket. In GD's case it might come in handy since it appears to be sinking. We keep saying this over and over, but GD just can't get investors to turn trusting eyes back towards them. Traders have left it off their buy list lately. It might be the whole industry they don't like, but GD is still one of the worst performers out there. The Dow for the second day in a row out- performed the Nasdaq, but GD still didn't show life. Instead we see people jumping overboard left and right. Today Berkshire Hathaway took that jump and cut their stakes in GD. Adding to the weight that is pulling them down GD plans on spending 10 billion dollars to start a new program known as Navy-Marine Corps Intranet (NMCI) and while in the long run this program has The ability to help GD people only see what's going on right now and that is cash going out GD's door. We tested the waters today and dipped under support then rebounded so support is still keeping GD afloat at $41.50. Deciding when to enter will really depend on your risk, but cautious investors should wait for support to break. ************** NEW CALL PLAYS ************** ERICY - LM Ericsson Telephone $86.38 -0.13 (-3.81 this week) Ericsson is a world-leading supplier in the fast-growing and dynamic telecommunications and data communications industry, offering advanced communications solutions for mobile and fixed networks, as well as consumer products. Ericsson is a total solutions supplier for all customer segments: network operators and service providers, enterprises and consumers. Ericsson has more than 100,000 employees, representation in 140 countries and clearly the world's largest customer base in the telecommunications field. We guess you could say we have been waiting by the phone for this call for some time now. ERICY has posted an attractive upward trend and last Friday, ERICY tagged a new 52-week high of $92.13. Monday, traders made their move to lock in some profits. The profit-taking continued into today's session where ERICY was traded down to just over $82. ERICY made a solid bounce at this level and quickly found its way on to the road to recovery. The buyers jumped back into ERICY with enthusiasm, pushing ERICY up to regain the majority of the ground it had lost with strong volume backing the ascent. We view this recent move down as an opportunity to get on board and congrats to all who jumped on intraday. ERICY is still trading underneath its 10-dma, which is currently at $87. We would obviously like to see ERICY move up through this level as a confirmation of positive momentum. Aside from the $82 level which was tested in today's session, ERICY looks to have additional support at $80, if needed. On January 31st, ERICY announced better than expected Q4 results and a 4:1 stock split. No, that is not a typo, ERICY will be splitting its shares 4:1, a very rare occurrence for a stock that is trading under $100. Though the split date has yet to be announced, news like that certainly doesn't hurt the near-term picture for a stock! BUY CALL MAR-75 RQC-CO OI=265 at $13.63 SL=10.50 BUY CALL MAR-80 RQC-CP OI=528 at $10.13 SL= 7.50 BUY CALL MAR-85*RQC-CQ OI=441 at $ 7.13 SL= 5.25 BUY CALL MAR-90 RQC-CR OI=863 at $ 4.75 SL= 2.75 BUY CALL MAR-95 RQC-CS OI=313 at $ 3.13 SL= 1.50 Picked on Feb 15th at $86.38 P/E = 118 Change since picked +0.00 52-week high=$92.13 Analysts Ratings 8-11-4-0-0 52-week low =$20.50 Last earnings 01/00 est= 0.32 actual= 0.36 Next earnings 04-28 est= 0.17 versus= 0.04 Average Daily Volume = 4.91 mln http://OptionInvestor.com/charts/charts.asp?symbol=ERICY **** SEPR - Sepracor $149.13 +7.13 (+8.88 this week) As a specialty pharmaceutical company, SEPR strive to develop improved versions of widely prescribed drugs. Their Improved Chemical Entities (ICE) program identifies existing, widely prescribed drugs that might be replaced by improved, single- isomer or active-metabolite forms of such drugs. The company then seeks to develop ICEs that offer one or more benefits over the parent drugs, such as reduced side effects, improved efficacy or effectiveness for new indications. SEPR has licensed or is developing ICEs to treat a broad range of indications in areas including respiratory, urology/ gastroenterology, and psychiatry/neurology. On a never-ending quest to make a better drug, SEPR appeals to our desire for better health. As Americans strive to live longer, more vibrant lives, SEPR wants to be there to provide the drugs we need. Beginning a strong move upward in early January, supported by a broad-based surge in the Biotech sector, SEPR has paused over the past 2 weeks to consolidate its gains. Now that the stock has gotten the consolidation out of the way, SEPR may be ready to run into its split. The company is set to split its shares 2-for-1 next Friday, February 25th. During the consolidation mentioned above, SEPR has built good support at the $140 level, followed by $137. As the split date approaches, the pullbacks should be milder and SEPR could find support near $144. With a strong move upwards today, SEPR is testing resistance at $150, and a break through this level could open the door for a test of the 52-week high at $158.50. Volume today was strong (double the ADV) and bodes well for a continued move upwards. Entries can be considered on a strong break through $150 or another bounce at the $144-145 level. News has been light on SEPR lately, which should focus investor attention on the upcoming split. The most recent news was the company's issuance of $400 million in convertible bonds on February 7th. The proceeds of the sale will be used for its ongoing preclinical and clinical trials, and other research and development programs. BUY CALL MAR-145 ERQ-CI OI= 79 at $15.13 SL=11.75 BUY CALL MAR-150*ERQ-CJ OI=208 at $12.88 SL=10.50 BUY CALL MAR-155 ERQ-CK OI= 23 at $10.25 SL= 7.75 low OI BUY CALL APR-150 ERQ-DJ OI=105 at $17.00 SL=13.25 BUY CALL APR-155 ERQ-DK OI= 0 at $14.50 SL=11.50 Wait for OI! SELL PUT MAR-135 ERQ-OG OI= 28 at $ 7.63 SL=10.00 (See risks of selling puts in play legend) Picked on Feb 15th at $149.13 P/E = N/A Change since picked +0.00 52-week high=$158.50 Analysts Ratings 5-4-2-0-0 52-week low =$ 58.75 Last earnings 01/00 est=-1.53 actual=-1.79 Next earnings 04-27 est=-1.67 versus=-0.93 Average Daily Volume = 492 K /charts/charts.asp?symbol=SEPR ************* NEW PUT PLAYS ************* RHAT - Red Hat, Inc. $74.75 -3.44 (-8.63 this week) Red Hat is a developer and provider of open source software and services, including the Red Hat Linux operating system. Red Hat is the market leader in open source operating systems (OS) software, services and information. Red Hat offers a full line of services, including telephone support, on-site consulting, developer training, certification programs and priority access updates. Red Hat shares all of its software innovations freely with the open source community under the GNU General Public License (GPL) and other public licenses. RHAT has several partners including Compaq, Dell, Gateway, IBM, Hewlett-Packard and Silicon Graphics. It appears the early buzz and enthusiasm for Linux has begun to slip. Now that reality has set in, and the subsequent realization of out-of-this-world corporate capitalization, investors seem to be pulling a little bit away from their blind faith investing in everything Linux based. The biggest beneficiary of all the early excitement was perhaps, Red Hat. The stock has been cut in half in recent weeks and it had nothing to do with a split. The past two weeks have seen a capitulation of sorts from Michael Dell who, at first praised Linux while subtly criticizing Windows 2000. Now, Mr.Dell, perhaps the most influential contributor to the overall evaluation of the PC business, seems to have changed his tune, stating that Windows 2000 will encroach upon the Unix market. His lack of further praise of the Linux system may have been a de facto attempt to back away from his earlier positive endorsement. Whatever it all means we do know that RHAT is breaking down technically and it appears that it could go lower. RHAT finished last year on a tear from $60 to $150. After building a nice base around $105, the stock broke down and it looks as if the selling could continue, unabated, all the way back to the breakout point of $60. RHAT is still a solid company and has mostly had a nice string of positive news. Perhaps the bear story is simply just a matter of valuation. Either way we will let the trend be our friend. BUY PUT MAR-80 RCV-OP OI=1107 at $12.38 SL=9.50 BUY PUT MAR-75 RCV-OO OI= 16 at $ 9.50 SL=7.00 Today's vol=264 BUY PUT MAR-70*RCV-ON OI= 0 at $ 6.88 SL=4.75 Today's vol= 72 BUY PUT MAR-65 RCV-OM OI= 5 at $ 4.75 SL=2.75 low OI Average Daily Volume = 1.60 mln /charts/charts.asp?symbol=RHAT ********************** PLAY OF THE DAY - CALL ********************** ASPT - Aspect Communications $67.09 -0.03 (-0.78 this week) Aspect Communications provides customer relationship management solutions worldwide. Their hardware and software enables companies consistent interactions with their customers via the telephone, Web, electronic mail, and fax. Clients include Daimler Chrysler, E*Trade, ICT Group, Bank United, and PacificCare Health Systems. Sunday's Write Up A recent acquisition announcement initially fired up ASPT on February 1st, but it's momentum, momentum, momentum that is fueling this Internet rocket. The acquisition of privately held PakNetX Corp is important because the combined technology will for the first time allow seamless integration of video, voice, conferencing, and Web interactions from a centrally managed software switch, thereby eliminating the traditional PBX. As a result of the $55 mln cash deal, Aspect will take a one-time charge in the 1Q, but this factor obviously did not impact the share price. Since the announcement ASPT has risen upwards of 43%, climbing from the depths of $48 to an impressive new high of $69.94 on Friday. Although it's disappointing to note that volume levels have tapered off; and yet, the stock has stretched into new territory five out of the past six trading sessions! Near-term support on Friday was at $67 and $68, but it's more rooted near the 5-dma ($64.78). Look to this reference point for entries into this HIGH-RISK and potentially VOLATILE momentum play. Keep in mind too that players will eventually want to take some chips off the table. On Friday First Securities came in with a Strong Buy recommendation upgrading ASPT's rating from an Accumulate. Also this week Aspect announced the integration of its Aspect Portal applications with Clarify, Remedy, and Vantive front-office systems. This "out-of-the-box" solution provides a seamless system that can be easily customized to meet a client's need. And closer to home, the company appointed two new VP's "to strengthen and enhance customer support and consulting services". Tuesday's Write Up ASPT was barely scathed as profit-taking on the Nasdaq was driving others lower. Not once did ASPT dip below the 10-dma and today's upswing off the daily low of $64.50 moved it back above the 5-dma (now at $66.39). All in all, the stock suffered only fractional upsets and the volume was moderate. Even though ASPT is performing well we'd like to see volume levels return in this news-driven momentum play. Overhead resistance is mere points away at Friday's new 52-week high of $69.94. The next hurdle is of course to break through that psychological $70 level on a rally. Yesterday, Aspect announced Puget Sound Energy has selected its Customer Relationship Portal for the mission-critical environment at their new electronic facility. BUY CALL MAR-60 ATQ-CL OI=237 at $11.88 SL=9.50 BUY CALL MAR-65*ATQ-CM OI=153 at $ 8.75 SL=6.50 BUY CALL MAR-70 ATQ-CN OI=101 at $ 6.50 SL=4.75 Picked on Feb 8th at $64.50 P/E = N/A Change since picked +2.59 52-week high=$69.94 Analysts Ratings 1-9-1-0-0 52-week low =$ 6.00 Last earnings 12/99 est=-0.03 actual= 0.01 Next earnings 04-14 est= 0.00 versus=-0.27 Average Daily Volume = 1.03 mln /charts/charts.asp?symbol=ASPT ************************ COMBOS/SPREADS/STRADDLES ************************ The Market Merry-Go-Round Continues.. Monday, February 14 Equity markets ended higher Monday as Investors searched for bargains in the slumping cyclical issues. The Dow gained 94 points to 10,519 after losing over 500 points last week. The Nasdaq composite climbed 23 points to 4,418 after a range-bound session. The S&P 500 Index closed relatively unchanged at 1,389. On the NYSE, declining issues led advances 15 to 14 with 928 million traded. There were 55 stocks at new highs and 240 at new lows. The 30-year U.S. Treasury bond gained 17/32, pushing the yield down to 6.23%. Sunday's new plays (positions/opening prices/strategy): Friedman FBR MAR7P/MAR10P $0.62 credit bull-put Network NSOL MAR210P/220P $1.00 credit bull-put Epicor EPIC JUL12C/MAR12C $1.18 debit calendar Wavephore WAVO MAY5C/MAR10C $2.06 debit diagonal Premiere PTEK JAN5C/MAR10C $4.25 debit LEAPS/CC's Portfolio plays: Blue-chip issues came creeping back into favor today as traders decided last week's sell-off had run its course. Auto-makers and machinery stocks led the Dow higher while semiconductor and biotechnology issues supported the Nasdaq's small gains. A number of downtrodden sectors managed favorable rebounds but financial stocks ended lower as cautious investors avoided the interest-rate sensitive issues ahead of the Fed Chairman's testimony later this week. Analysts believe that the upcoming economic data and Alan Greenspan's Humphrey-Hawkins testimony on Thursday will keep the market in a relatively small trading range. A few of our portfolio positions were in the headlines today. One of the recent bullish issues, Corning (GLW) agreed to buy NetOptix, a leading optical technology company for $2 billion in cash and shares of stock. The companies expect to complete the transaction in the second quarter and after the announcement, Corning moved up $12 to $180. Our put-credit spread at $130 is expected to expire comfortably OTM. Computer Associates (CA) announced it will buy Sterling Software (SSW), a maker of network and information management software, for $4 billion in stock. Sterling closed higher but Computer Associates ended down slightly at $69.31. Our bullish LEAPS/CC's play is at maximum profit with the stock above $65 and we will use the current slump to transition to the March options. The roll-up to a (short) MAR-$70 call can be made with little or no debit, offering increased upside potential for the already profitable spread. The new position is LJAN60C/MAR70C at $2.12 debit. The small-cap group continues to outperform the majority of stocks and we had a number of bullish issues in today's session. Duramed (DRMD) moved up $1.12, closing at $11.50 on continued speculation of a possible merger with one of the larger drug companies. Our new diagonal position, JUN5C/MAR10C is already trading at a small profit and we expect the issue to move higher in the coming weeks. Recoton (RCOT) climbed $1.38 to end at $12.25, recovering nicely from last week's short-term losses. The current position in that issue, MAY5C/FEB10C is trading at maximum profit. Our choices are; close the play for $0.75 profit on $4.25 invested or sell a March option to extend the position. We elected to roll to the MAR-$12 call at a credit of $0.43. The new spread is MAY5C/MAR10C at a cost of $3.88. Marketing Services Group (MSGI) moved up $1.62 to $26.50 in anticipation of a positive earnings announcement after the close of trading. MSGI did not disappoint, reporting record results for the quarter with revenues up 68% to $27.8 million. Unfortunately the company still had a net loss, principally attributable to an increased cash burn from the acceleration of Internet operations, a slowdown in telemarketing operations and expenses associated with recent acquisitions. Our current spread, MAY10C/FEB22C is at maximum profit and once again the decision will have to be made; exit with the current profit or sell a March option for increased upside potential. With the stock well above our sold strike, we can wait until any post-earnings selling occurs before making the decision. If the time value premium in the sold option falls to parity, the risk of early assignment will increase. Keep that in mind when you are holding short positions to the expiration date. One of the questions I receive frequently concerns the correct timing of early exits and adjustments for spread positions. While there is no perfect answer (or solution) to this dilemma, one of the most practical closing strategies is based on the target ROI for the position. If a play originates with a 15% monthly return target and a slightly smaller but reasonable profit becomes available at an earlier time (based on a lower yield and shorter time period), the position is a candidate for early closure. Of course most positions that meet that criteria will appear to be so successful they can't possibly lose at expiration. This aspect along with commission considerations and the effects of human nature, which urges you to simply hold the play and hope for maximum profit, will prevent most traders from closing the play. As most of you know, even when the issue moves in the predicted direction, the play is always at risk from a variety of changes in the market. These effects are reduced with hedged positions but the end result can still be unfavorable. There are a number of examples in this month's portfolio including some which might have been our most profitable positions, except that they were closed in the interest of sound money management. This subject certainly warrants further discussion and we will explore the most common approaches in future narratives. Tuesday, February 15 Blue-chip stocks rallied again Tuesday as Investors shifted money to industrial companies. The Dow Average rose 198 points to 10,718 while technology shares staged a comeback in late trading and the Nasdaq managed to close without loss at 4,420. The S&P 500 Index rallied 12 points to 1,402 while the small-cap Russell 2000 rose slightly to 540. Market breadth was mixed with advancing issues leading decliners 1,536 to 1,471 on the Big Board with volume of 1.08 billion shares. The 30-year U.S. Treasury bond ended off 8/32, driving the yield up to 6.24%. Portfolio plays: The Dow came rumbling back at full gallop today as the current short-term rotation out of technology issues drove blue-chips higher. Unfortunately, our portfolio is heavily weighted with technology issues and thus we did not have many participants in the rally. However, we did have a number of big winners in the hot sectors; business to-business e-commerce and bandwidth and Internet infrastructure. Emulex (EMLX) was the top performer in the session, climbing $10 to $130 on a rally in the data storage sector. The March covered-combination is profitable above $95. Another big mover was the recent blow-out drug stock Geron (GERN). Today the issue gapped up $6 to a new all-time high at $44. Our bullish diagonal spread was previously closed near maximum profit but the has play offered a number of favorable entry and exit opportunities. This position is also a good example of when it might be better to take the early (and slightly smaller return) rather than chase the issue with numerous upside adjustments. Small-cap stocks dominated the headlines in the Spreads section and telecom and computer hardware companies were the leading issues. P-Coms (PCMS) rallied almost $3 to close at a 52-week high near $22. In January, the company reported that revenue rose significantly with their fixed wireless technologies gaining new prominence as a new, high-speed networking alternative to laying cable. Now analysts are predicting increasing sales revenue and up-trends in gross margin throughout the coming year. It appears that investors agree. Our problem is how to make the most of the continued bullish moves. The first position (MAY7C/FEB12C) was previously closed for a one-month, 30% profit. A recent upside adjustment created a new position, MAY7C/MAR15C at a $4.25 debit. This spread is also at maximum profit and the stock price is now $7 above the sold strike. Without a significant pull-back to assist in the transition, it appears this spread will close permanently on expiration Friday. Micron Electronics (MUEI) was also on the move, climbing $1.50 to $12.50 after unveiling its lightest notebook PC in an attempt to gain more market share and take advantage of new features found in Windows 2000. The company until now had not offered a lightweight notebook, putting it at a disadvantage compared to Dell Computer, IBM and others industry leaders. The rally came at a perfect time and should provide an excellent opportunity to roll our current spread (APR12C/FEB12C at $1.62 credit) into March. Another small surprise was Boston Communications. Today the stock broke a recent resistance level near $8 after the company reported it has doubled its prepaid wireless subscriber base, reaching two million in less than one year. BCGI attributes the 100%, year-over-year growth to their new nationwide roaming network, real-time rating capabilities and the increasing commitment to prepaid programs from wireless carrier customers. In this case, there is excellent potential for continued upside movement and the transition to March options is the first step to increase the position profit. The new (adjusted) spread is JUN5C/MAR7C at $0.93 debit. A couple of the mid-cap issues deserve mention. Concentric Network (CNCX) bounded $2.75 to end just short of a new all-time high near $50. The move was notable and may propel the issue to a higher range but our bullish diagonal position was previously closed near maximum profit. Helix (HELX) also continued a recent run, adding $1.75 to end at a new all-time high near $59. With this issue, we have a deep ITM, bull-call spread. The APR25C/45C at $15.75 debit can be closed for $17 credit. Is the slightly smaller, short-term reward worth an early exit? Only you can decide.. Questions & comments on spreads/combos to Click here to email Ray Cummins ********* NEW PLAYS ********* VSTR - VoiceStream $155.31 *** A New All-Time High! *** VoiceStream Wireless provides personal communications services in a number of urban markets across the United States. They are also constructing new systems in Texas and other regions. The company holds over 100 broadband (PCS) licenses covering over 60 million potential clients. VoiceStream's services include rate plans, prepaid services, wireless e-Mail, wireless data, and text messaging. In addition to offering home coverage in the urban markets, the company provides national and global roaming. The big news today is the FCC approval of VoiceStream's $2 billion deal to buy Omnipoint (OMPT). The merger, along with their plans to buy Aerial Communications (AERL), creates a near-nationwide wireless phone network based on the GSM technology platform, a European standard for cellular service. The company also recently announced they will pay $400 million to buy a portion of Microcell Telecommunications (MICT), a similar cellular telephone company. VoiceStream will receive 9.6 million class A non-voting shares of Microcell, representing 15% of the company. VoiceStream has been making acquisitions to broaden its reach and now they are considered an industry leader. Earlier in the month, Salomon Smith Barney initiated coverage of the company with a BUY SPECULATIVE rating; target $165, based on their growing network. Deutsche Banc Alex Brown made their outlook known back in January with an upgrade to STRONG BUY, based on the company's discounted price/value. Unfortunately, price may be the issue tomorrow as nobody knows where the stock will open. We are going to list the most favorable position based on the current option prices and will plan to make the necessary adjustments after the issue begins trading. PLAY (conservative - bullish/debit spread): BUY CALL MAR-110 UVT-CB OI=80 A=$47.25 SELL CALL MAR-130 BWU-CF OI=31 B=$29.88 INITIAL NET DEBIT TARGET=$17.00-$17.25 ROI(max)=15% Chart = /charts/charts.asp?symbol=VSTR **** IONA - Iona Technologies (PLC) $67.00 *** On The Move! *** IONA Technologies operates in one market segment: distributed component software products that enable the development, integration and management of network-based applications in multi-platform network environments. IONA's two categories of containers are basic, or entry-level container products, such as Orbix and OrbixWeb, and enterprise level container products, such as OrbixOTM, Orbix for MVS and OrbixTalk, which include support for advanced functionality; transaction management and mainframe connectivity. The company also provides professional services, consisting of customer consulting and training and product customization and enhancement, as well as technical product support. One of the most recent news items concerns IONA's new deal with Credit Suisse. Iona recently signed a lucrative, multi-year strategy contract with Credit Suisse to enable the bank's users to access crucial mainframe-based information through modern web-based clients, resulting in a compelling business solution. In the past, Credit Suisse has made major investments in large mainframe-based systems, enterprise resource applications and data centers, and this expenditure demonstrates the capability of IONA's technology. The bank used Orbix to integrate their existing processing systems with new front-end applications necessary for their products and distribution channels. IONA's goal is to makes it easy for brick and mortar companies to reliably extend their business to the Internet. Their product suite provides an excellent solution to enable users to implement new e-business strategies quickly and efficiently, meeting the demands of the growing electronic community. Investors appear to support their outlook as the stock price has climbed steadily in recent months, closing at a new all-time high on Monday. We will use the current consolidation to enter this position with a favorable credit. PLAY (conservative - bullish/credit spread): BUY PUT MAR-45 YWQ-OI OI=0 A=$0.68 SELL PUT MAR-50 YWQ-OJ OI=30 B=$1.25 INITIAL NET CREDIT TARGET=$0.62 ROI(max)=14% Chart = /charts/charts.asp?symbol=IONA **** CPWR - Compuware $23.56 *** Bottom Fishing! *** Compuware provides software products and professional services designed to increase the productivity of the information systems departments of its target market, the 20,000 largest enterprises worldwide. Although the company has historically focused on the testing and implementation environment in the mainframe market, CPWR also operates in the client/server market with products and professional services in the application development, testing and implementation and systems management environments. Compuware's products are classified under the categories of Mainframe Testing and Implementation Tools, Application Development Tools, Testing and Implementation Tools and Systems Management Tools. Compuware also offers a broad range of professional services, including business systems analysis, design and programming, software conversion, systems planning and systems consulting. Shares in the beleaguered stock rallied over $3 today after J.P. Morgan began coverage of the business software maker with a BUY rating and a target of $44. This new direction may be the first step in recovering from a sharp drop last month amid concerns about less-than-robust professional services revenues. The JPM analyst suggested that Compuware is poised to enjoy the benefits of the e-commerce wave and traders jumped on the bargain-priced issue after the news. Other analysts have supported the bullish outlook in the past few weeks including: First Boston with a BUY rating; target $42, based on results slightly ahead of revised estimates; Hambrecht & Quist with a BUY rating, after quarterly reports came in line with pre-announced targets and the revenues were ahead of estimates; and Prudential, with a STRONG BUY rating, a position on the select list and a target of $34 based on slowly increasing service revenues & margins. This position offers a fair risk/reward ratio for those of you that are bullish on the issue. A small disparity in call option premiums pricing will help us open the play at a discount. PLAY (very speculative - bullish/debit spread): BUY CALL MAR-20.00 CWQ-CD OI=260 A=$4.38 SELL CALL MAR-22.50 CWQ-CX OI=2712 B=$2.75 INITIAL NET DEBIT TARGET=$1.38-$1.50 ROI(max)=66% Chart = /charts/charts.asp?symbol=CPWR ************************Advertisement************************* Tired of waiting on trades to execute? 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