The Option Investor Newsletter Tuesday 2-22-2000 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) ************************************************************ 2-22-2000 High Low Volume Advance Decline DOW 10304.80 + 85.30 10336.80 10103.80 980,317k 1,358 1,658 Nasdaq 4382.12 - 29.62 4443.94 4291.01 1,772,029k 1,808 2,462 S&P-100 731.58 + 3.06 734.75 719.48 Totals 3,166 4,120 S&P-500 1352.17 + 6.08 1358.11 1331.88 43.5% 56.5% $RUT 540.95 - 4.73 547.55 531.40 $TRAN 2459.14 + 28.34 2463.42 2424.49 VIX 27.55 - 0.90 30.69 27.21 Put/Call Ratio .63 ************************************************************* Almost and Exactly The Dow, seemingly hell bent for a retest of the October low of 9976, paused this afternoon on its downward plunge. Contrary to Friday's selling action, the buyers were lined up on the sidelines at the open. After a brief rally the few remaining sellers overpowered the buyers for a brief drop of -115 points to 10,103. The closer we got to 10000 the more buyers cut in line to beat other investors to the bargains. Those waiting to see if 10000 would hold were left waiting at the altar after the bargain hunting kept the Dow from getting within 100 points of the goal. The Dow then rebounded +225 points to trade over +100 points and 10300 in late afternoon. After almost touching 10K again the Dow looked like it was gaining strength all afternoon as buyers gave up on the idea that 10K would be just around the corner. The Nasdaq, always the contrarian, diverged with the Dow yet again but in the opposite direction. With the Dow in rally mode you would have expected the Nasdaq to be setting records again. The only record set by the Nasdaq was the bounce off -120 at 4291. This was the exact same number that served as support before charging off +260 points last week. The 150 point trading range today was highlighted by strong rebounds by many of the previous winners but also by some big losers as well. The Biotech index has now corrected -10% from the highs set last week but it is still up +44% YTD. When the VIX spiked into buy territory over 30 this morning the bargain hunters went shopping. Some of the most beat down stocks received the most attention. GE, down from 144 to 125 in February gained +4.50 today. Dow Chemical, down from 121 to 104 in February jumped +9.38 as bottom fishers ran from stock to stock looking for huge retracements. Texas Instruments soared +15 to $149 on news that they were expanding their DSP offerings. Volume was moderate on both major exchanges with the Nasdaq only trading 1.78 bln shares. Even though the Dow was positive the advance/decline on the NYSE was strongly negative at 1658 decliners to 1358 advancers. The Nasdaq was no better with decliners beating advancers by 2462 to 1808. Several analysts said there was heavy margin related selling when the averages dipped at mid-morning. With the Dow down -1600 points from the Jan-14th high we are reaching the pain threshold for many highly leveraged traders. Part of the credit given to the turn around today was the flurry of stock buyback announcements. The leader with the mother of all buybacks was MRK. Now trading at a 52 week low the company announced that it would buy back $10 billion of shares. Following in their footsteps were GIS 50 mln shares, Goodrich $300 mln, LTD $200 mln, WFC 81 mln shares, KMB 25 mln shares, VISX 10 mln shares. Share buybacks tend to energize investors and markets. The investors are encouraged that there will be less shares in the market place and therefore higher earnings and share prices. The markets are energized because buy backs tend to occur at market bottoms. The flurry of announcements today would tend to make investors believe that 10000 is as low as we are going. The strong afternoon rally on the Dow and the Nasdaq's struggle back to positive territory were blunted by the realization that Greenspan testifies before Congress again tomorrow and many traders do not want to hold over that event. The interest rate worries continue to plague the market and bonds are benefitting from the shift out of stocks. As a result, bond prices rose a full point pushing the yield, which moves inverse to the price, down to its low of the day at 6.08%. The Dow is still in oversold territory and the Nasdaq is just consolidating from the recent gains. The challenge will be holding today's gains on the Dow. We need to build a base here above 10,000 or the future looks bleak. The 10,000 level is a very important psychological support level. As long as we stay above it we have a chance at catching fire and running back to record levels. Once we slip and close below 10k the bloom will be gone from the rose and some analysts are calling for 8800-9000. It will never happen in my mind because the economy is still firing on all cylinders. Mr G., as much as we poke fun at him will manage the inflation and keep us on track. We will take our monthly vaccinations for a while but then we will get healthy again. The next two rate hikes are already priced into the market and once past the verbal abuse by Greenspan on Wednesday we should be on track. I just hope that track is up! AMG data reported today that $16.9 billion came out of growth and value funds so far in February. Don't look now but that money has to go somewhere and all bets are on tech stocks. Anybody else want to make that bet? Trade smart, sell too soon. Jim Brown Editor Disclosure: I did not pull the trigger at 4300 today. It was just under for a minute and only 9 points. Sign me, Still holding. My current positions include: AFFX, ANAD, ARX, BEAS, BVSN, CMDX, DITC, EMLX, ENZ, HGSI, INSP, ITWO, JMED, MSTR, PUMA, SILK, TIBX, TERN, LU, DELL, AMTD, OEX, QQQ. ****************************** 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 ********** SciClone Pharmaceutical: A Profitable Small-Cap Biotech? Believe it or not, there are other sectors in this booming economy to invest in other than optical networking and business to business e-commerce that can offer big potential returns. The biotech industry happens to be one of them. The average biotech mutual fund rose more than 60 percent last year. This year looks like it could be a repeat. Consolidation in the industry is creating larger, more efficient companies. This consolidation is allowing companies to combine their respective drug pipelines, thus, reducing the gaps between product releases. Also, automation in the sector has helped speed up the process of conducting clinical trials. The benefit of consolidation and automation: a company that can bring more new drugs to market faster and more cost- effectively. One way to play biotech is to bet on the Pfizers and Warner Lamberts of the world. These companies are profitable and have proven track records with established drugs. These companies may receive FDA approval on several drugs each year. It is the safer way to invest in biotech. And for taking the safer route, the probability of losses is reduced, but at the same time, so is the probability for huge gains. The other way to play biotech is to invest in a small company with perhaps a very limited track record, and one or two drugs in later-stage clinical trials that have some promise. These are the companies typically have no profits and don't plan on generating profits for several years. However, approval of just one drug could send shares of a small biotech to the moon, especially if the drug has a large potential market and is costly to administer. SciClone Pharmaceuticals (SCLN), based in San Mateo, CA, just may be that company. Sciclone is no Pfizer or a Warner Lambert, but it does have some good things going for it. SciClone acquires, develops, and commercializes drugs for treating chronic and life-threatening diseases. Its lead drug, ZADAXIN, targets hepatitis B and C, cancer, and certain immune disorders. ZADAXIN is approved for treating hepatitis B in China, Kuwait, Peru, the Philippines, and Singapore. It is also used as an influenza vaccine in Argentina, and is undergoing clinical trials for treating Hepatitis C in the US and Europe. The firm has an agreement with Schering-Plough (SGP) to develop and market ZADAXIN in Japan. A second drug is undergoing clinical trials in the U.S. for use against cystic fibrosis, called CPX. Hepatitis B is a highly infectious liver disease that can lead to liver cancer and death. Worldwide, there are approximately 350 million long-term carriers of the Hepatitis B virus, including 1.2 million in the United States. According to the Centers for Disease Control and Prevention, over 200,000 Americans contract acute Hepatitis B each year. Just last month, SciClone announced the start of a U.S. Phase II Hepatitis B study using its ZADAXIN, in combination with lamivudine (discovered by BioChem Pharma and developed by Glaxo Wellcome), an FDA-approved nucleoside analogue. The study will assess the safety and efficacy of the combination in the treatment of chronic hepatitis B patients. Approximately 1.2 million people in the U.S. are chronic carriers of Hepatitis B. Lamivudine currently is used as a singular treatment, but has been unsuccessful. Doctors say that it is quite possible that multi-drug cocktails will emerge as the preferred treatment regimen for hepatitis B in the U.S., just as we have seen with HIV and hepatitis C. "We believe that ZADAXIN plus lamivudine could be an ideal combination therapy for Hepatitis B, a combination designed to boost the patient's immune system while suppressing hepatitis B viral replication," said Alfred R. Rudolph, M.D., SciClone's Chief Operating Officer. SciClone expects to start pivotal U.S. Phase 3 studies for Hepatitis C during this year, and has filed for ZADAXIN marketing approval in 19 additional countries. Cystic fibrosis is the most common fatal genetic disorder among Caucasians. Cystic fibrosis will kill most of its 70,000 worldwide victims before they reach the age of 31. SciClone, just last week, announced plans to move forward with the next stage of its phase II development program for CPX. Sciclone plans to study a new formulation of CPX, based on results of its initial phase II study. "CPX is one of the most promising therapies for CF patients," said Robert J. Beall, Ph.D., President and Chief Executive Officer of the Cystic Fibrosis Foundation (CFF). From a valuation standpoint, Sciclone's financials are looking better and better. For the year ending December 31, 1999, the company reported total revenue of $9.4 million versus $3.7 million for 1998. Net losses were $5.4 million, or 26 cents per share, a decrease of 74 percent, from a loss of $21.1 million, or $1.29 per share, excluding a dividend of 19 cents per share, in 1998. The company's net loss for the fourth quarter was just $535,000, or 2 cents per share, a 94 percent reduction compared to a loss of almost $9.5 million, or 52 cents per share, for the fourth quarter of 1998. Sales of ZADAXIN for the fourth quarter of 1999 were $2.99 million versus $1.26 million in the prior year period. Total ZADAXIN sales for 1999 were $9.1 million versus $3.6 million for 1998. SciClone said the improvement in operating results is based on the 1999 restructuring of the company to focus on sustaining international sales growth, increased drug development activities through partnerships and relatively stable operating expenses. The company expects these trends to continue in 2000 and maintains the goal of operating profitably by the end of this year. CEO Donald Sellers has increased his stake in the company by more than 50 percent to around 52,000 shares in the past few months. One director made a 68,000-share open market purchase in July of 1999. Insider purchases are always a good sign of management's confidence in the company. Cash totaled almost $12.7 million as of February 2, 2000. According to Zack's Investment Research, Sciclone is forecasted to post reduced losses of 9 cents per share for 2000 and a profit of 46 cents per share for fiscal year 2001. The one analyst covering the company has a Strong Buy rating on the shares. Sciclone has no debt. SciClone stock is currently trading at $9 per share, which values the company at less than 20 times fiscal year 2001 earnings of 46 cents per share. With two promising drugs, one moving to late-stage Phase II trials and one scheduled for U.S. Phase III trials, no debt, profitability in 2000, and strong insider buying, SciClone looks poised for future growth. ************** Market Posture ************** As of Market Close - Tuesday, February 22, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,700 11,250 10,304 BEARISH 2.17 SPX S&P 500 1,350 1,450 1,352 BEARISH 2.18 OEX S&P 100 740 780 732 BEARISH 2.18 RUT Russell 2000 500 560 541 Neutral 2.18 NDX NASD 100 3,575 4,090 3,969 Neutral 2.18 MSH High Tech 1,800 2,000 1,900 Neutral 2.11 XCI Hardware 1,300 1,525 1,427 Neutral 2.11 CWX Software 1,200 1,470 1,441 Neutral 2.18 SOX Semiconductor 740 940 990 Neutral 2.18 NWX Networking 900 1,040 1,008 Neutral 2.18 INX Internet 700 800 708 Neutral 1.06 BTK Biotech 420 675 612 Neutral 2.18 BIX Banking 550 690 479 BEARISH 11.30 XBD Brokerage 400 450 404 Neutral 11.30 IUX Insurance 550 600 492 BEARISH 11.30 RLX Retail 950 1,000 805 BEARISH 1.28 DRG Drug 340 380 328 BEARISH 2.18 HCX Healthcare 700 750 685 BEARISH 2.18 XAL Airline 160 180 120 BEARISH 5.21 OIX Oil & Gas 250 280 256 Neutral 2.15 ***Posture Alert*** Equity markets rebounding after Friday's precipitous sell off. However, our market posture remains the same until we get confirmation of today's potential market reversal. (2/22) **************** Market Sentiment **************** Confirming a Reversal! By Pinnacle Capital Advisors Tuesday, February 22, 2000 Before jumping in the Market Wednesday (2/23), make sure you confirm the potential reversal signal given during Tuesday's action. Attached below are intraday charts of several potentially strong reversal signals across some broad market indices. Notice also the chart provided for the Market Volatility Index (VIX). 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 Tuesday (2/22) at 30.7 before collapsing and closing at 27.3. This may lead to a potential reversal pattern and signal the end of the market's current slide. 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 (6.068): Friday's action appears to holding just above its 200-dma. Volatility Index (27.33): 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 Tuesday (2/18) at 30.7 before collapsing and closing at 27.3 This may lead to a potential reversal pattern and signal the end of the market's current 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 (2/18) (2/22) Overhead Resistance (750-830) 2.16 3.15 OEX Close 728.04 730.16 Underlying Support (700-730) 5.63 7.10 What the Pinnacle Index is telling us: Underlying resistance is building and could provide support for the market. Peak Open Interest (OEX) Friday Tues Strike/Contracts (2/18) (2/22) Puts 700 / 5,522 700 / 6,241 Calls 800 / 4,863 800 / 5,300 Put/Call Ratio 1.14 1.2 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 22, 2000 27.33 Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Daily Results Index Last Tue Week Dow 10304.84 85.32 85.32 Nasdaq 4382.12 -29.62 -29.62 $OEX 731.58 3.06 3.06 $SPX 1352.17 6.08 6.08 $RUT 540.95 -4.73 -4.73 $TRAN 2459.14 28.34 28.34 $VIX 27.55 -0.90 -0.90 Calls Tue Week INKT 132.00 9.44 9.44 New, ready to rally with Nasdaq LHSP 98.75 9.38 9.38 A great performer in this market SEBL 121.88 7.31 7.31 New, favorable sentiment for SEBL ENMD 74.50 7.00 7.00 How can you not love this chart? EMLX 146.00 6.00 6.00 EMLX continues Friday's momentum QLGC 115.50 4.50 4.50 New, ignores market weakness ERICY 91.25 2.56 2.56 ERICY is a news driven play NEON 76.00 2.38 2.38 NEON's glow continues to attract COMS 70.88 1.19 1.19 A volatile but impressive move COVD 85.13 0.13 0.13 Another good news bad news day ESPI 13.56 -0.38 -0.38 New earnings play performs well PHCM 136.81 -0.81 -0.81 PHCM avoids potential disaster PCMS 22.16 -0.91 -0.91 Are the new buyers committed? Q 48.50 -0.94 -0.94 A possible point of entry for Q IFCI 30.88 -1.13 -1.13 Tags yet another new high today GLW 190.00 -3.31 -3.31 Anticipating split announcement INSP 196.25 -4.00 -4.00 We have not given up on INSP BCE 112.94 -6.44 -6.44 Dropped, like watching paint dry SEPR 159.94 -7.19 -7.19 Did you catch the entry point? ISLD 107.75 -7.63 -7.63 A pure Internet momentum play ISSX 86.13 -8.56 -8.56 Dropped, a possible trend change ANAD 136.38 -9.88 -9.88 ANAD's gains too juicy to resist Puts MCOM 85.94 -3.81 -3.81 New, takes turn and heads south KMG 44.44 -1.00 -1.00 KMG slides right through $45 RHAT 71.63 0.13 0.13 Resistance could keep the hat on KRB 20.75 0.75 0.75 Dropped, beginning of a rally? PGR 56.94 1.00 1.00 Look at today in two lights JNJ 78.63 1.19 1.19 Still trapped under resistance MRK 65.50 3.50 3.50 Dropped, $10 billion buyback ************ WOMANS WORLD ************ The Square Peg Round Hole Theory By Renee White Last Thursday, I shared my frustration of trying to enter multiple plays with limit orders that were slightly under what the market was willing to let me buy. I had been in cash for many weeks and I was getting anxious to trade. I was ALMOST, determined to trade, even though the market was against my inner instincts and the prices I wanted to pay on that day. In a desire to play, I committed a trading sin by inching up my limit price on two plays, ever so slightly. Still I was not filled. By the close, I had felt totally beat up, even though I had not bought anything and my money was still in the bank. Now, looking at hind-site, I realize how lucky I was. Starting Thursday evening, I began having computer problems, which kept me tied up with (what seemed to be) every tech support person in the country until last evening. I even had the paid Microsoft techs stumped for a while. The good news was that I was completely out of the market on Friday's sell off and those pains of missed opportunities from Thursday, quickly dissipated as I watched the premiums of things I had tried to buy, atrophy to a point of cachexia. I believe very strongly in the Square Peg, Round Hole theory of life. Many years ago, after a long introspective search for the understanding of who I was, I realized a correlation between anything that I tried to force "to be one way", and the opposing forces that kept my desires from being met. I noticed that the more I tried to force something, it ended up taking way too much negative energy and effort to get. Also, it seemed as though the win ended up being less than what I had expected or dreamed. The alternative being things in life that seem to work, seem to work from the beginning. Something tells you it will work out. It may need adjustments and tweaking, but not a complete overhaul. I guess you can say that this is similar to the blending of either two water based substances, or an oil & water mixture. In my minds eye, I see these forces in almost everything I do. I evaluate relationships by them, potential business deals, and now trading (when I think about it). I evaluate things on bad days, to see how they are handled. It is almost a second sense to me now. When things aren't making progress, or appearing to be getting difficult, red flags go up and I find myself backing off to watch from the sidelines. If I am right that the forces are against me, the storm will continue without my participation and I realize it was a bad deal. If I am wrong, it gives me an opportunity to re-evaluate the situation and decide if it is indeed a win/win situation just going through a rocky time. When I inched up my limit orders last week, that was trying to force a play and I knew better. Thank goodness it still didn't fill. Traders know not to chase stocks. In a high flying frenzy, it causes you to over pay due to emotional excitement. What goes up, must come down. Wait for the pullback. If you missed the launch, at least wait for an intra-day pullback to support. The opposing forces of wanting to buy versus staying in cash, worked me over last week. I think, no, I KNOW, that had I not had computer problems on Friday, my fingers would have been sliced off one digit at a time, while I tried to catch one falling knife after another. My computer problems kept me out of the market, which meant not only that I could not buy too soon, but I was not faced with trying to decide to sell everything I had bought the day before. The missed buying opportunities from Thursday, now felt like luck. Sometimes the laws of nature work in mysterious ways. Uploading to a new computer is always a frustrating endeavor. I am always amazed how many hours can be eaten up with plug-n-play technology. It's akin to helter skelter on a pretty, sunny day. I thought the pain was over this morning until I downloaded qcharts on my new machine and realized all my settings were gone. All my alerts, all my stops, my bases, my watch list, my option lists, Ugh.this was painful. In my mind, everyone had all weekend to study their charts and plan their strategies while I was with tech support until last night. Also, my qcharts were blinking in and out, with bad data showing up, which I initially blamed on my computer problems. Disorientation is very uncomfortable and coming to work "green" in the middle of sell-offs just makes it worse. In medicine, you are taught to always think in terms of the big picture. Although the immediate crisis catches your attention, one must always be thinking of their differential diagnosis. Treat the cause, not just the symptom. Coming into the market today, cold and without my normal parameters in front of me, I felt the first thing to do was evaluate the big picture. The DOW was the easiest. It was still selling off from its recent slide. Looking at a daily chart showed it heading further south. I saw minor support at 10,200 from late September which also saw support in April, then stronger support close to 10,000 from mid October, which also showed stronger support from last April. Since the DOW quickly headed further south from the open, I was looking for some leap opportunities which I felt would recover nicely, if these support levels held and the VIX hit 30. I began studying charts on stocks I knew I wanted to own, that had been hit hard, but had good growth potential. With the Nasdaq down also (an unusually thing to see these days), I feel bounces on each could be soon, since I feel the negative sentiment in the air. I did not have time for all the research I needed, but I only needed a couple of good plays. One that I found was GE. As I looked at the daily chart, GE closed last Friday at a 125 support level seen last October. This looked like weak support, with stronger support being around 120. GE has already announced a 3:1 split, with a record date of 4/27/00. It has corrected >21% from its high of 159 1/2 around Christmas. For those who like dividends, GE also pays handsomely @ 1.64/share. Looking back over the last 4 years, the only other similar major sell off that I saw, occurred during the July-October 1998 period. For those who don't remember, this was during a major overall market correction also. By the end of the next quarter, it had a +50% increase from the October lows. For me, these things help stack the deck in my favor. GE is a good strong company which has kept up with technological advancements. I expect continued growth and rewards, along with interest in the stock split. It did not test the 120 support, but traded higher all day. I believe, this was a good entry for a Jan '02 leap play. Then watching Nasdaq more closely, again I pulled up my daily chart and saw 4300 as the support to watch. As it sank below that support, with the VIX spiking over 30, I put in orders for QQQ March 186. I initially had problems with my trading programs since I had not adjusted any settings on the new download. I missed the best entry because buyers rushed in as I expected, while I was fighting with my order. This time, I did not inch up my limits but waited for another intra-day pull back. Although Nasdaq did not pierce under 4300 again, it did tap it and my entry points were staged for good fills. These Q's looked great at the end of the day and I expect them to fly once the buying returns. The lesson I keep reminding myself is when your square pegs seem not to be fitting in those round holes, just stop yourself and ask if the forces of nature seem to be against you. If so, nothing you do will help. Wait for that exciting opportunity that feels right, the right price, that relationship, or that business deal, that seems to fit nicely with your plans, your dreams, your research and your emotions. As much as I hate to admit it, even computer problems can save you from forcing a fit, giving you better entries a day later. Renee White Contact Support ************** TRADERS CORNER ************** Selling Puts vs. Spreads & Option Traders vs. Market Makers By Janar Wasito I would like to explain why I have decided against selling naked options, including puts, in favor of doing spread trades. Then I would like to compare our position as individual traders with the market makers in the pits. If you have been following the newsletter, you may be experiencing the problem of how to manage a large account. That is a good problem to have. The holy grail is monthly compounding at a high enough rate (15 - 30%) to turn your six figure account into several million dollars in a year or two. Jim has been writing about two strategies -- the so called covered straddle (or strangle) strategy, and the naked put strategy -- as a means to accomplish this goal. I have been testing both, and I have decided against them. Here is my comparison of the strengths and weaknesses of the naked put strategy vs. the spread strategy. Naked Puts: Advantages: 1. It is relatively simple. You see a bounce in the market, sector, and stock, and simply select an at the money, or slightly out of the money put and sell it. 2. Time decay (theta) works in your favor if the stock goes up, goes up slightly, or stays flat. Disadvantages: 1. It can tie up a lot of margin. 2. Your potential risk is much larger than your reward. I decided against the strategy because of the two negative factors. Other traders may come to the opposite conclusion because of the advantages. The first disadvantage is that selling puts can tie up a large part of the available margin in your account. I am not an expert on margin, and that is partly by my disposition and personal comfort level. Until January of this year, I never bought a stock on margin. If you have a $100,000 account, you can think of your ability to sell puts on several levels. The first level is to think of your straight cash buying power of $100,000. Say you like BRCM, which is at 190. You would not mind owning the stock. You can sell (5) BRCM Mar 190 Puts for $1500 apiece, netting an inflow of $7500. You have just entered into an obligation to buy $95,000 of BRCM stock. You think BRCM is going up, and your strategy is to let the puts expire worthless and to pocket the premium. You have enough cash in your account to accomplish that. $7500/ $100,000 = 7.5% return. The next level is to look at your $100,000 account and to use the margin buying power in your account. You can sell (10) BRCM Mar 190 Puts for $1500 apiece, netting an inflow of $15000. You have entered into an obligation to buy $190,000 of BRCM stock. $15000/ $100,000 = 15% return. The next level is to calculate how many naked puts you can sell. Your broker has various methods of calculating this, and you will be able to sell more if you are further out of the money. You could call and ask your broker how many of the BRCM Mar 180 Puts you can sell, for example, and the answer would be an amount that is higher than your ability to purchase stock if BRCM drops below the strike price and stays there until expiration. I am not going to go into this calculation, which has been covered in various recent parts of the newsletter. I am simply making a personal decision in saying that I am not comfortable with being in this position. There are methods to limit your risk -- setting stop orders to buy to close the contracts if the contracts or the stock hits a certain price. My experience with stops, however, is that setting tight stops on a position usually leads to getting taken out, and, on average a lot of little losses eventually lead to a larger loss. The other protection is diversification. Of course, no trader should put all his eggs in a single play. But there is a high degree of correlation in the plays in the newsletter -- ie, they all move together. It would be one thing if you were selling BRCM Puts and HD Puts, but the newsletter plays tend to be concentrated in the networking, biotech, and Internet sector -- or, simply, the Nasdaq/ tech sector. Diversification won't protect you if all of the tech stocks take a dive together. Perhaps the biggest risk of this strategy is that a trader will develop complacency and get run over by a big move against his positions. Hence the description, "picking up dimes in front of a bulldozer" for this strategy. The advanced Optionetics seminars teach that a trader should first evaluate how much he can lose on a trade, then calculate how much he can make. Say, for example, that you sold (20) BRCM Mar 180 Puts for 10 1/4 in a $100,000 account. You take in $20,000, a return of 20%. (I realize that you would probably diversify, but the math would be the same if you did the same trade across 4 stocks.) If BRCM drops from 190 to 140 overnight and stays there until expiration in March, then you do not have enough buying power in your account to purchase the stock you have obligated yourself to buy. You need to be able to buy $360,000 worth of stock, which means that you need to be able to add another $80,000 to your account -- or perhaps just $60,000, if you have the $20,000 credit from the puts you sold. That is what you can lose. The most you can make is the premium, or $20,000 which you captured by selling the 20 contracts initially. George Fontanills tells a story of a money manager who ran a fund which did nothing but sell naked puts. The fund grew to $60 million, but, on one day in October 1997, it went to negative $60 million. But perhaps you answer that you can see this type of situation coming. You will just not sell puts in August or in October. I don't think that is a wise course of action either. If you have had success selling puts for several months, you will probably grow complacent and overconfident. That is itself the biggest danger. In any case, I would recommend that you take a conservative, rather than the most aggressive, approach towards calculating margin requirements. There is no "riskless" way to compound money at steady rates of 15 - 30% a month. There is no free lunch. The strategy might be appropriate for some people, and it makes a lot of sense to purchase stock, but everyone should look hard at the risks before attempting this strategy. I also think that we have become complacent in that we assume that every dip will be bought, and that there is a constant upward bias to the market. I can think of several potential scenarios that could lead to major drops -- 1. Natural Disaster. Think of a R. 9 earthquake in San Francisco/ Silicon Valley that shuts down a lot of Internet businesses temporarily. 2. Successful attack on financial systems. The recent attack by hackers on web sites is tame by comparison with the potential, without going into details for obvious reasons. The great thing about the naked put strategy is that it takes advantage of time decay (theta). Is there a way to capture the advantages of theta, while limiting the risk? Here is an approach using spreads. Let's assume that you have a $100,000 account, and that you are going to shoot for the same 15 - 30% return that the naked put strategy offers. One approach would be to take the newsletter recommendations for naked put/ straight call plays, complete with the analysis of good entry points and support levels, and to engage in a strategy of Bull Put Spreads. For example, let's assume that the newsletter picked BRCM (not currently a play, but just an example). Instead of writing those naked puts, you decide to construct a Bull Put Spread as follows: Sell BRCM Mar 195 Put @ 17 3/4 Buy BRCM Mar 175 Put @ 8 7/8 For a credit of 8.9 with a risk of 11.1. Break Even is 186. Normally, you would not want to put on a spread with a reward/ risk ratio of less than 1/1, but, in this case, you think that your probability of pay off is high enough to justify the risk. But look at the trade in the context of your portfolio. If you sold those naked (20) BRCM Mar 180 Calls, you tie up your entire $100,000 -- indeed, you obligate yourself to buy $360,000 worth of stock, more than you can purchase in your account. But, if you put on the above spread with 30 contracts, you have a credit (or maximum reward) of 30 * $887 = $26,625. Most importantly, your maximum risk is 30 * $1100 = $33,750. If BRCM does in fact drop to $140 overnight, you will lose 33% of your account, but you will not incur an obligation beyond the funds in your account. Moreover, once you have put on the spread, you have enough margin left to put on 2 similar positions. Here then is a summary of Spreads: Advantages: 1. Allows the trader to create risk/ reward balances (along with probability of pay off, and potential for longer time frames) 2. Can still take advantage of theta. 3. More efficient use of available margin in account Disadvantages 1. Complicated, so harder to construct and execute on the fly (but with practice can be done; after all, this is what market makers do all day long) Here is a another comparison -- the individual trader vs. the market maker. Market makers have many advantages, including these: 1. Better access to information about the stock and activity in the pits 2. Greater leverage -- market maker margin is 20:1, which is far beyond what individual traders will be able to use 3. Speed in execution But, particularly with a real time quote service like qcharts and a broker like Preferred, individual traders have some important advantages too: 1. Can pick when to be in the market and when to take a week or two off 2. Can see the bigger picture -- can see the quotes on 4 option exchanges I want to focus on the last item in the context of putting on spread trades to take advantage of the newsletter's market awareness, which is a big competitive advantage. Take one of the naked puts that Jim sold -- for example the AFFX Mar 280 Put. The current bid on that contract is 29.875, which is a juicy premium by anyone's standards. Let's say you catch a nice bounce off of the 275 level, and you sell that contract. AFFX is headed up on another surge by the biotechs. One alternative, which I personally plan on using, is to let a stock like that run up. AFFX is capable of moving 10 or 20 points in an hour or less. Let's say that AFFX gets to 300, and it is still moving north. One thing that you can do at this point is to buy a lower strike put. The current ask on the AFFX Mar 260 Put, for example, is 21.125. However, if AFFX moved up to 300, the ask on that contract would probably drop quickly. If you bought that contract at $11.875, you would have created a Bull Put Spread with a credit of $18 and a risk of just $2. The break even on that trade would be 280 - 18 = 262. In other words, you would make money at expiration if AFFX closed above 262. If it closed above 280 at expiration, you would pocket the entire $18 per contract in your spread. Instead of tying up a large part of your account in order to maintain the margin for that position, you now just have a margin requirement of $2 per contract in the spread. Of course, the risk of this technique is that AFFX could just as easily move against you. One could argue that if you are watching a stock closely enough to know whether it is moving up or down on a given day or hour, you should just trade it with a straight call. All very true, but I am trying to point out some creative techniques. Now let's look at the potential advantages that an individual trader can exploit. A few months ago, I visited the options trading floor of the Pacific Exchange. It was chaos. Rows of screens streaming quotations on stocks, options, and market indices. Ranks of market makers in pits huddled around specialists in a specific stock option. Hand signals, pieces of paper all over the place. The trader who was giving us the tour made a comment that stayed with me: "You know, some traders try to pick an option on one exchange and to sell it for a difference of 1/4 or 1/8 of a point on another exchange. We hate those guys." That is an important clue. For all of the advantages that the market makers in any one exchange have, they also have this disadvantage -- there is always a disparity of 1/8 or 1/4 of a point between the bids on the AMEX and CBOE or between the PACX and PHLX. That spells opportunity. With a real time quote service like qcharts, and a broker like preferred, I can pick exactly where to place my orders. Last week, frustrated with some other brokers, I set up a Bull Put Spread in Preferred by going to the best exchange to get both legs of the position. The "natural" price (ie, the bid on the higher strike put minus the ask on the lower strike put) was something like 21, but I set up my "do it yourself" spread for something like 22.5. A point and a half on a 40 point spread. Not that big a deal, right? Maybe so. But how about a point and a half on a 5 or 10 point spread? That's a significant advantage, especially when all the other factors (market direction, sector direction, and stock direction) line up in your favor. Usually, a spread order goes to the same exchange to be filled, and market makers get a chance to look it over and decide whether they like it or not. As I learned, it can take a good long time to get a fill. But when you are creating your own spread positions for your account by hitting the best bid and the best ask on the best exchanges, you have total control. The market makers who are selling you the individual legs of the spread have no idea that you are creating a spread. In fact, with a certain minimum number of contracts, the orders are filled electronically. That is why I could set up my spread in 32 seconds on Preferred when attempting to enter the order in other brokers had proven more time consuming. Let's take an example. Say you want to sell the JDSU Mar 200 Put because you think that JDSU will move up towards its split on 3/13. You want to minimize the impact to your margin, so you decide on a fairly tight, 5 point spread trade -- a Bull Put Spread in which you sell the Mar200 Put and buy the Mar195 Put. On the AMEX, the bid for the 200P is 16 5/8 and the ask on the 195P is 15 1/8. You could get a total credit of 1.5 for a risk of 3.5 -- not very favorable. But if you hit the bid on the 200P at 17 on the PACX and the ask of 15 1/8 on the AMEX, the total credit goes to 1.875 and the risk goes down to 3.125. Still not very favorable, but immediately better by going to different exchanges. Now, if you wait to leg into the trade on an uptrend, you can create even more favorable odds. Say you sell the 200P for the best bid of 17, and JDSU is moving up. You are short a naked put, but you are watching the play. If JDSU moves up 5 points, the ask on the 195P may drop to 12, and you can buy that contract to complete the spread position. If you can in fact buy the 195P for 12, then you have a 5 point Bull Put Spread with a credit of 5. In other words, you have reduced the risk in the trade to zero and you are tying up zero margin. Of course, this would be the ideal situation. It won't always occur just that way. But if you create your own spreads by looking for the best exchange for both legs of your trade, you can get half a point or a point on a 5 or 10 point spread, and that is significant. If you can leg into the trade at the most favorable times, then you can give yourself an even bigger edge, while still enjoying the reduced risk of a spread vs a naked put position. The same techniques will work for constructing Bull Call Spreads as well as Bearish Spreads. Of course, this is a lot more complicated than buying straight calls. But if you are a serious long term player in this arena, you need to know as much as possible to stack the odds in your favor. On Tuesday, I entered the following trades: CMGI bull call spread jan01 115/175 ICGE bull put spread sept 120/220 NOK bull call spread jul 190/240 AFFX bull call spread aug 270/310 IMNX bull put spread mar 165/185 (used the technique described above to "leg into" the trade for a better credit) VRSN buy-write w/ mar 240Call (IRA) VIGN Bull Call Spread Jun 230/270 It is also good to see JDSU moving up this morning, turning my Bull Put Spread positive. And here's the best part of spread trading -- I am headed to Paris, Germany & Switzerland tomorrow. (I am meeting one OIN subscriber in Paris, and another in Switzerland! And when I get over to Ireland again, I am headed up to Rathmullen on beautiful Lough Swilly for a beer with another subscriber.) I am simply letting the above trades run. The only ones that are high anxiety are the March Credit Spreads. The Bull Call Spreads can all be adjusted (ie, the short side bought back), if the stock price drops when I get back in early March. It is fine to day trade a better entry on a spread (eg, IMNX credit spread above), but once I am in the trades, I want to just walk away and check them twice a day... or twice a week. When I get back, I plan to start my program of LEAPs & Calendar Spreads. Good Luck & Respect Risk. Janar Wasito Contact Support *********** An Osmotic Technical Point of View Dyslexia strikes again and more blips on the Radar by Harrison Frolick In one of my stories on Sunday I incorrectly gave the symbol for DSLN- DSL.NET Inc. as NDSL. DSLN is the correct symbol. I also forgot to include CMTN this time around as well in the Broadband corral. If you want to see all of my potential picks in this area go to the Traders Corner in the sidebar and look at my February 3rd article. Buying opportunities are what I see in this market. For those of you looking for the dip in HGSI that I mentioned on Sunday, it may have given it to you today. Keep an eye on the 3 day MA. GWRX-Geoworks gave a buy signal on Friday. I picked up the GWU GJ July 50 Calls for $8.5. Toshiba licensed it wireless communications patent today. Here is some info. "ALAMEDA, Calif., Feb 22, 2000 /PRNewswire via COMTEX/ -- Geoworks Corporation (Nasdaq: GWRX), a pioneer in wireless data communications services and technologies, today announced that Toshiba Corporation is the first to finalize a licensing agreement for Geoworks' patented flexible user interface (Flex UI) technology. Flex UI technology is an essential element of the Wireless Application Protocol (WAP), the emerging global standard for mobile communications. Geoworks has licensed its patented technology to Toshiba for use in a series of handset devices. " This should be the first of many announcements for them. I look for it to go to 70 by July with a little luck. They are up 7 from Friday to around 41 as I write this. Here is one more for you. FDC- First Data Corp. I don't normally like to play NYSE stocks because of the manipulation by the market makers I see every morning, I mean come on, holding up a stock for a half an hour while a couple of guys sort things out with a pencil? In my opinion the NYSE's days are numbered. Anyway, FDC owns Western Union and Transpoint which is jointly owned by Microsoft. Transpoint just merged with Checkfree-CKFR a few days ago. Here is the deal, these guys appear to have the horsepower to own a good portion of the transactions on the web. We are talking billions here! This means huge earnings potential. They are around 45 right now up from 22 in October but, they appear to have built a good base for solid growth and, the calls are relatively cheap. I picked up the May 50 Calls FDC EJ's for only 2 1/8 today. I like these types of plays for doubles, they are sleepers. These are the gears that make the Net go. That is it for today, remember to have fun out there! Happy Trading! Contact SupportHarrison *********** OPTIONS 101 *********** "What is this thing we call volatility?" By Lee Lowell In continuation of my article from last time, I would like to dive deeper into the different forms of volatility. If you remember from my previous discussion, "volatility" is one of the components used in an option-trading model to figure out an option's theoretical value. There are three main types: Let's begin with "historical volatility". Every stock has a range that it trades within over the course of a year, (or any period of time in the past) and this range is measured and turned into a % number, which we call its "volatility". In technical terms, the volatility is really one standard deviation of these price movements. And these movements can be either up or down. Here's an example. DIS currently has a volatility of 25%. What does this tell us? It is saying that over the course of the year, DIS should trade within a range of +/- 25% from its current price of today. If DIS is at $30/share today, then you can expect it to move in a range from $22.50 - $37.50 over the next year. Now this theory holds true about 67% of the time for a one standard deviation move. A two standard deviation move will hold true with a 95% accuracy. So if you really want to be sure about DIS' range over the next year and be 95% accurate about it, then you need to just double its range to $15-$45/ share. This has a big effect when trading and I will show you how to use this in your own options trading in the next article. Just remember that historical volatility is a measurement of the underlying stock only. How is historical volatility measured and what time frames should we use? (The actual formula and mathematics involved in the calculation is a little complex for this discussion but it can be found in various option novels) This is a good question because historical volatility can be measured and calculated in a number of different ways. Do you want to know the stock's volatility for the last 10 days, 2 months, 1 year, 10 years, etc? What is best? Do you use daily or weekly closing prices, or do you take an average of the high, low, and close for the day? It's confusing. So what's the answer? The answer really depends on your own individual time frame for the option you plan to take. If you're looking to buy a one- year leap call option, you might want to look at the stock's historical volatility over the last year because that tends to smooth out the recent erratic moves. But you should also look at a more recent volatility number also, maybe a 3-month volatility chart. This could give you a feel for the stock's most recent activity. So when planning your trade, you could actually take a weighted average of those two historical numbers and use that to give you a better volatility picture. Now, which prices of the underlying should you use? Do you use closing prices only, high, low and close averaged together or just the high and low together? Do you use daily prices, weekly prices or monthly prices? Again that depends on your time frame but to get the most accurate picture, most systems rely on the daily close to close method. This brings us to the second form of volatility - "forecast volatility". This is your own guesstimate of where you think the stock will move to over the life of your option. Your forecast volatility is then put into your option-pricing model. Where do you get your forecast from? By using past historical and past implied volatility levels. This is why it's important to pick a certain historical time frame to look back at. If you're pricing a 30-day option, you'll put more importance on where the stock has been in the recent past. But if you're buying or selling long term leaps, you must not only look at the recent stock range, but also how the stock has moved on a long term basis. This is the only way I know how to come up with a forecast volatility. Just like technical analysts use historical charts to gauge where a stock might go in the future, volatility analysts can do the same with historical volatility charts. The last form of volatility I'd like to discuss is "implied volatility". This is the volatility of the option itself and not the underlying stock. It is also a % number that implies the price range the market thinks the stock will trade in during the life of the option. If you want to find out an option's implied volatility, you need to input the option's actual price that it's currently trading for and run it through your trading model. Then it will spit out the volatility number. This "implied" volatility number will probably be different than the stock's historical volatility and different from the forecast volatility number that you place into your own calculations. Implied volatility is really what you want to concentrate on if you're going to be a serious option trader. It is implied volatility that decides whether options are over/under priced in the marketplace. When active traders talk about volatility and whether options are cheap or expensive, they are talking about implied volatility and where it's at compared to its past-implied levels. I know this, because I lived it. If you want to buy an option on a stock right before a Fed meeting or right before a company puts out its earnings, you run the risk of buying overvalued options. This is because there is so much uncertainty about the way the underlying stock will move in the very near term, that all the market participants want to protect themselves from an adverse move. So all the options get bid up in price because everyone is trying to buy them at the same time in anticipation of the earnings announcement or a Fed decision. Once again, you can find out the implied volatility number if you have a simple option calculator or you can ask your broker. The way to find out if your option is over/under valued at this point is to then compare this implied volatility number to its PAST implied and PAST historical volatility numbers. You must have access to this information and there are a few select websites where you can find this out to make the comparisons. Making this comparison can tell you whether its current implied volatility is at its high, low, or middle end of its past range. Now if you really want to get in on the action because you have a strong idea of where the stock's going to go, then by all means buy the option you want. Just remember that you are buying an expensive option and if your prediction of the stock's direction is wrong, you will lose extremely quickly. Because once the earnings come out, all the uncertainty is gone and the implied volatility levels will come back down to earth. So you may even be right on the direction of the stock after the earnings announcement, but you will not make as much or you might even lose money because once implied volatility goes lower, so does the price of your option! Whew! That was quite exhausting. I hope you have gained somewhat of an idea how important and confusing volatility can be. It is this way because it's such an important component when trading options. It's also the only unknown ingredient within the option-trading model. All the other factors - strike price, underlying price, days to expiration and interest rates are all easily definable and fixed at that moment that you price your option. Volatility is not. You have to pick which kind of volatility or volatilities to focus on and then decide what time period to look back at. The best advice I can give is the more time spent analyzing volatility and how to use it, the more successful you will be. Now that we've got a handle on what volatility is and how to figure it out, we'll actually start to use that knowledge in examples in upcoming lectures. See you then. Regards, Lee Lowell Contact Support 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: ***** ISSX $86.13 -8.56 (-8.56) Is ISSX establishing a base camp, or is it reversing its trend for a spell? It is hard to say for sure at this point, but with today's breakthrough of both the 5 and 10-dmas and a drop over eight points, we aren't waiting around to find out! Though the volume backing today's drop was not all impressive, the fact that ISSX was unable to participate in the Nasdaq's late day rally and instead closed just shy of its low for the day, may be indicative of more downside to come. Therefore, we are dropping ISSX from our call play list for now while it shakes out the rest of its bears. BCE $112.94 -6.44 (-6.44) Here's a not so subtle riddle: Paint drying, grass growing, BCE appreciating. What do these have in common? Other than boredom, if you guessed a non-productive use of time, you'd be right. The only difference is time premiums don't evaporate from paint or from your front lawn. Investors are not keen on recognizing the value in BCE. While stripped of its NT holdings, BCE looks to be quite a value play. However, the rest of the market doesn't agree. That could be the lack of capital gains tax treatment on the distribution, which would leave a lot of long term holders squealing from the tax pain of ordinary income. We can't explain today's big drop either, especially following Merrill's upgrade this morning. Suffice it to say, BCE doesn't look like it will pay off anytime soon. Thus we are dropping it from the list. PUTS: ***** KRB $20.75 +0.75 (+0.75) What we witnessed today may be the beginning of a rally. KRB is making a come back on strong volume since Friday's afternoon bottom. For this reason we have decided to drop our play on KRB. They still haven't broken above the 10-dma at $21.40 or the old support level of $21, which did hold KRB down some today too. Anyway, we aren't making money as KRB is trying to pick its direction so we will exit for the time being. KRB hasn't had any news recently. MRK $65.50 +3.50 (+3.50) It's not unusual that a company will announce a stock repurchase program when its stock is near all- time lows, but it was a bit of a surprise considering Merck is currently making purchases under a July 1998, $5 billion authorization. Just minutes before the market close today, the company announced its BoD approved a new $10 bln treasury stock purchase plan and separately, declared a $0.29 p/s quarterly dividend payable April 3rd. The common stock will be purchased "over time" on the open market in block transactions and in privately negotiated transactions. The acquired shares will be used for employee benefit programs and general corporate purposes. As a result of the announcement, MRK spiked up sharply and gained +$3.50 on strong volume. We have no choice but to exit the play this evening. **************************Advertisement************************* Have you got an idea for a financial website? Need help getting started? Technical support? Funding? 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To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "Contact Support" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 DISCLAIMER ********** This newsletter is a publication dedicated to the education of options traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. 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The Option Investor Newsletter Tuesday 2-22-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. ******************** PLAY UPDATES - CALLS ******************** INSP $196.25 -4.00 (-4.00) We haven't given up on INSP despite the past six days of strong consolidation. For the more aggressive traders who look for early entries, than INSP is the play for you. In about three weeks on March 15th, InfoSpace.com is scheduled to split its stock 2:1 for the second time this year. INSP is now primarily trading in a narrow channel between $195 and $200. Although this morning it popped up to $206.13 flirting with the all-time high of $208. Recently too trading volume has been waning, but today over 2.04 mln shares exchanged hands. This is another bullish sign. Good news also came by way of the press. InfoSpace.com announced that it won the patent for commerce infrastructure services on the Internet and wireless devices. This patent encompasses private label commerce solutions for tracking purchases, services, and information on the Internet and wireless devices. ESPI $13.56 -0.38 (-0.38) Our new earnings play performed admirably today. The early morning bidders propelled ESPI up to $14.94 setting up new opposition for tomorrow's session. Although ESPI may experience stronger resistance as the share price approaches its 52-week high at $18.13. After today's session, it appears near-term support is establishing itself at $14 and $13.50. Watch for intraday dips to the latter mark for entries. Recall ESPI is reporting earnings next Monday, February 28th. This is a quick "get in and out" play. In the news, ESPI announced it's been hired to build fiber-optic networks in Atlanta and Miami for PSINet, one of the US largest Internet providers to businesses. ACSI Network Technologies, a unit of e.spire, will build the network and lease the fiber- optic capacity to PSINet. Terms of the agreement were unavailable. IFCI $30.88 -1.13 (-1.13) IFCI held up very well in today's down market and managed to tag yet another new high of $35.25. We saw a few profit-takers emerge on to the scene early today, dragging the stock down to $28.50. The buyers quickly came to the rescue and brought IFCI back up. IFCI tested the recently established support level at $30, which held nicely throughout today. Should IFCI reclaim its positive direction tomorrow, the current level may serve well for new entries if you are looking to play the remainder of this earnings run. As we have mentioned before, IFCI is set to announce earnings on February 29th and therefore, we have less then a week left of this play. Enjoy! ERICY $91.25 +2.56 (+2.56) This is turning out to be a news driven momentum play. ERICY jumped out of bed this morning, gapping up $3.75 to a new 52-week high of $93.25. ERICY then quickly pulled back to test support at $90. This level held nicely, and provided some room for entry. ERICY demonstrated some great relative strength against today's rather bleak market too. Part of this may be attributed to a strong Euro, which helped boost a few of the telecom stocks. The current level could provide some potential for new entries should ERICY continue on with its positive momentum run. Watch for $90 to hold on the pullbacks. On Monday, ERICY received a nice mention in an article written by two Internet stock columnists, Michael Ward and Mido Shammaa. It was written that ERICY offers "an exciting opportunity to develop a position in the burgeoning global Internet equipment market". They went on to comment that investing in a stock like ERICY offers investors combined exposure to wireline telecom, broadband and wireless equipment sectors. ERICY announced on Monday that it would be investing approximately $26 million in its Malayasian plant. ERICY also revealed intentions to invest in the cellular market in Mexico. ENMD $74.50 +7.00 (+7.00) How can you not love ENMD's chart? Even with the market weakness over the past 2 days, the price won't even give the time of day to the 5-dma (clear down at $63) as it continues to surge higher. It is hard to dampen the continuing enthusiasm for any company that promises to enhance and improve our health. The move that began in early February is being driven by strong buying volume, motivated by the company's recent announcements of new and promising anti-cancer drugs. Gapping up over $5 at the open today, the market weakness was only able to drag the price down to fill the gap before ENMD started marching higher. By the end of the day, the stock was challenging the morning highs which represented a new 52-week high. We have good support near $68 and resistance is at $75. As long as the sector remains strong, dips near support are buyable, but use caution - we are now up over 70% in the last 11 trading days and profit-taking could appear at any time. LHSP $98.75 +9.38 (+9.38) Somebody forgot to tell LHSP investors that the market is weak. Diverging from the broad markets right out of the gate on Friday, the move continued today. On double the average daily volume, shares have surged as much as 25% in the past two days, allowing LHSP to tag the $100 mark before pulling back a bit at the close. Today's high makes another 52-week high and there are enough positive factors to continue driving it higher. Among these factors are the strong earnings announced on February 9th, accompanied by a 2-for-1 split announcement (execution date and shareholder approval pending), and frequent new product announcements and strategic alliances. With the rapid move up, strong support is clear down at $85. Mild support is found at $94.50 and $92, with the 5-dma still down at $87.25. As long as volume remains strong, a bounce near any of these support levels is buyable going forward. A breakout over $100 is a good trigger for those more conservative investors. NEON $76.00 +2.38 (+2.38) NEON's glow continues to attract investors. In this uncertain market environment, investors are searching for a few strong stocks to put their money in and NEON has definitely made the short list. Just as we expected, NEON bounced right at the $70 support level this morning before launching higher to tag a new 52-week high at $78.63. The weakness today was enough to allow NEON to meet the 5-dma ($69.25) for the first time in over a week, but the buyers didn't let the meeting last for long. Strong volume (25% over the ADV today) should continue to drive shares higher as the company continues to make strategic alliances in the B2B marketplace. Today NEON and Commerce One announced the availability of the Commerce One BuySite to ERP Connector for SAP R/3. Also, in a second press release, NEON will be giving support to CMRC's direct materials procurement and collaborative supply chain management services. This is what sparked the afternoon rally and pushed NEON above $74. Going forward, intraday dips are buyable as is a return to the $70 support level. Don't get too stingy though or you might miss the next leg up. A break to new highs can be considered for new entries as long as volume remains strong. Oh, and don't forget those stops! SEPR $159.94 -7.19 (-7.19) Did you catch that entry point today? Dropping with the NASDAQ this morning, SEPR tagged $153.75 before the buyers returned and helped the stock recover to close near $160. It was a rough day, but not unexpected, given the strong run-up last week. Even with the sharp pullback, the low today was almost $2 above the 10-dma. The $155 support level is still intact, but now the question is whether SEPR has enough strength to run higher before the 2-for-1 split this Friday. Today has the look of simple profit-taking, as the volume dropped from the extreme levels of last week to only 550K shares, very near the ADV. If the stock is going to surge higher, it will have to come on strong volume. Entries can be considered on another bounce off of support or a break through resistance at $164. Today's drop should be all that is needed to remind you of the importance of stop losses - use them and keep your profits. COVD $85.13 +0.13 (+0.13) Another good news, bad news day for investors in COVD. COVD announced this morning that a federal district judge ruled that they did not infringe on a patent held by Bell Atlantic. The company said it won a summary judgement last Friday, in a federal district court in Norfolk, Va. The judgement is subject to appeal however. Last year COVD filed an antitrust and fraud lawsuit against Bell Atlantic, which is still pending. On the news COVD jumped out of the recent trading range to a high of $87.50 in the first fifteen minutes of the session. The bad news here is that the move to higher prices was met by sellers who decided that may be their opportunity to get out. By early afternoon COVD had declined to $83.13, when buyers finally entered the picture. COVD fought its way back into the middle of the recent trading range which is exactly where it closed. Although it's not really bad news, we would like to have seen COVD be able to sustain its move early in the day. So we are back at square one. If we see COVD begin to move higher, be sure and check the volume behind the move, to help assure it's not another ride on the seesaw. EMLX $146.00 +6.00 (+6.00) Volatility was the order of the day for many of the stocks at the Nasdaq and EMLX proved to be no exception. EMLX continued the momentum seen Friday, shooting up to $148 early in the session. It then dropped almost $16 or 11% in the next ninety minutes. Traders that entered EMLX early on probably ended the day with a sore neck, as the action in the first two hours certainly provided all the ingredients for whiplash. Hopefully you were able to remember the first hour rules, and either stay away and wait for a pullback, or took some money off the table as EMLX retreated from the early spike. For those with patience, EMLX provided a very nice entry point when it bounced off the $132 area. Not much news today on EMLX, just volatility. We mentioned Sunday that if EMLX were to fall back through $138 or $135 that the stock may be taking a breather. Well we hope it took a quick breath, because shares of EMLX shot back through those levels and finished the day in the plus column, gaining $6 for the session on lighter than ADV. What's ahead for EMLX? Given the strength of the bounce, we would look for EMLX to continue to move higher. If it runs out of gas near $148, then move your stops up close. PCMS $22.16 -0.91 (-0.91) Our sleeping giant slept through most of the trading session, finishing the day with a loss of almost 4.0%. In reality shares of PCMS began to pullback about noon on Friday. From its high of $23.88 we have seen PCMS retrace about 10%. Today $21.50 held up as good support, when buyers entered the market. The decline appears to be nothing more than profit-taking at this point, as the volume has been fairly light. PCMS and EMS technologies announced this morning that PCMS had placed its second large order of antennas from EMS. Not a big deal for PCMS, but it was for EMS. The bottom line of the deal shows the continued strength of PCMS in the fixed wireless networks business, which is what has caught investor's attention in the first place. PCMS has very strong support at the $20.00 level, and subsequent levels of support every $0.50 up the chart. Although PCMS did find support today at $21.50 we would like to see more of a commitment from new buyers, before entering as we enter a new play. Q $48.50 -0.94 (-0.94) Unless you are a previous holder of Q stock, today's pullback may have been good news. We added Q to our list of plays this weekend and the pullback today may have provided us with a very nice entry point for our new play. Traders sold shares of Qwest stock at the opening bell dropping the communications company to near its 10-dma at $47.55. Q traded near its low for most of the session until the final thirty minutes of the day, when a few buyers began to surface. As we said this may be a good point to enter our new play. Q's next support levels are seen at $47 and $46 although we believe Q may generate strength from the current levels. Much of the strength in this play came from recent upgrades and analysts comments on Qwest. This morning analyst, Christine Nairne, of E*OFFERING reiterated her Strong Buy rating on Qwest, and set a 12 month price target of $70. She went on to comment that she feels confident about the company's current plans and management's ability to execute. Before entering a new play, it may be a good idea to check the volume and movement in Q. COMS $70.88 +1.19 (+1.19) The movement in COMS today was a bit volatile, but impressive as the networking company finished the day in positive territory. Remember this is a play on the spin-off of Palm, a subsidiary of COMS as much as COMS itself. The IPO for Palm is in the next couple of weeks and investors can participate in the IPO by purchasing shares of COMS now. Like many of the stocks at the Nasdaq COMS suffered from selling woes early in the session today. COMS hit the support area near $67 and again found buyers waiting with open arms. The fact that COMS made two more unsuccessful attempts to move lower only to be met by more buyers is a plus in our book for our new play. Another positive for COMS was the announcement that COMS and Hewlett-Packard have expanded their current agreement to develop and supply a range of connectivity solutions aimed at the corporate user. If the broader markets will cooperate we expect COMS to continue to move higher. ANAD $136.38 -9.88 (-9.88) Profit-takers are finally stepping in. That meteoric rise provided gains too juicy to resist. As we noted Sunday, volume was pulling back, indicating buyers may be taking a break. Not only that, but escaping a market downdraft is that much more difficult with no buying volume to counter it. ANAD gave us a buying opportunity when it dipped below its 10-dma ($131) to $126, yet managed a close not only above its 10-dma, but above historical support of $136 (barely). Even with no news to bolster the price, today's dip coincided nicely with NASDAQ's dip to 4300. If NASDAQ can continue the rebound, ANAD would have some of the selling pressure removed and would then be free to move up into its 3:2 split on February 29 after the close. Also, with the VIX.X touching 30 intraday, a NASDAQ reversal to the upside may have been at hand. To play it safe, you may want to confirm that $136 will hold, otherwise, we'd rather see another round of selling in unison with the NASDAQ followed by a rebound before taking a position. While we didn't see the breakout of the ascending pennant today, there is still time to enter this play. GLW $190.00 -3.31 (-3.31) Moody's reaffirmed GLW's debt rating today noting, "The confirmation reflects Corning's improving profitability and cash flows, solid margins, global leadership position in optical fiber and cable, and the expectation that supply/demand factors for optical fiber and liquid crystal displays will provide steady growth opportunities in the near-to- intermediate term"...not that it helped much in this morning's downdraft. The good news is that GLW is rebranding itself as a tech company in optical components rather than cookware manufacturer. Technically, GLW's $6 recovery off its low this afternoon was positive as was holding $186 during the market's other "Maalox moments" (see 5-day chart). The 10-dma is way back at $178, which is to say that MACD and RSI are positive, however the stochastic indicator is flashing "overbought" (yes, but so is every other tech stock after the last two months). Resistance is at $195; breakout occurs over $198. Without much consolidation, picking an entry point at support is tricky, so pick your entry commensurate with your own risk profile. We still anticipate a split announcement and are awaiting proxy material with an "increase the authorized shares" agenda item. PHCM $136.81 -0.81 (-0.81) There could have been disaster today on two fronts, but there wasn't. First, PHCM was never down today more than $1.63 from Friday's close - this despite a selloff that took the NASDAQ down to 4291. Second, with Larry Ellison's introduction of Oracle Mobile today, PHCM will finally have some competition (even Larry Son said PHCM had no competition until now) - still no stutter-stepping. You know you have a good thing when a giant turns its guns on you. We picked this play because we think that PHCM is about to break out of the trading range that it's held since December. What's different this time is that increased volume has come to the issue at this level of resistance ($140). If the volume keeps up and the NASDAQ continues its rebound, PHCM should give us the breakout over $142. With dips entailing less than $2 over the past five days while the rest of market fell apart, PHCM is poised to outpace the NASDAQ on any upturn. For the brave, target shoot to your level of comfort. For the conservative wanting a bravery play, we suggest waiting for the $140-$142 breakout before making an entry. ISLD $107.75 -7.63 (-7.63) Today ISLD couldn't hold near-term support at $110, but soundly bounced upward off the firmer support level near $105. This as well as the stock's positive response to the Nasdaq trying to reclaim its ground later in the day was its saving grace. Of course, better confirmation is for ISLD to move above the converging 5-dma ($110.71) and 10-dma ($109.02) and then, crack the initial opposition at $115. For new readers take heed, playing ISLD is RISKY business. There is no news or events to power the stock higher. ISLD is a pure Internet momentum play. ******************* PLAY UPDATES - PUTS ******************* RHAT $71.63 +0.13 (+0.13) RHAT is on probation. RHAT broke below the $70 level that we mentioned in Sunday's write up as a possible obstacle for our put play. This level managed to provide what looked like some rather formidable looking resistance throughout the session, however the NASDAQ's late day rally managed to pull RHAT back through. Now, we have to wait for RHAT to drop below this level again so that we know RHAT isn't ready to surrender it's downward trend just yet. The next level of support for RHAT looks to be somewhere between $64 and $62. RHAT still has quite a bit of resistance overhead, which could work to keep the hat on this play. The 10-dma is still headed lower, currently as $79. We will give RHAT a few more days to determine its direction. Should it appear that investors are ready to throw their hats back into the ring and start buying back into RHAT, it will be time for us to leave RHAT off the put list. KMG $44.44 -1.00 (-1.00) Though many analysts are saying oil stocks may be oversold at this point, the decline continues. Shares of KMG are no exception. Apparently, investors are just not convinced that oil and oil service stocks are the place to be. The $45 level proved to be a non-issue in today's session, as KMG quickly slid on through. The bears dragged KMG across $44.50 throughout the majority of today's session. Should investors start buying into analyst's claims that oil and oil service stocks are oversold at this point, we may see a trend reversal for some. It was reported today that OPEC could make a decision to increase production prior to their March 27th meeting. Of course, there is still a chance that OPEC may wait until the March or even the September meeting before offering any kind of relief. Another factor to consider is the potential lag time that between a decision to increase production and the time when we will see actual relief to the consumer. As this story continues to unfold, it will be important to keep your stops tight and enter with caution, taking note of any recent developments in the news. PGR $56.94 +1.00 (+1.00) You can look at today's trading in two lights. Yes we see the point gain and if that's all you look at, then it seems like PGR is trying to do something here. Plus today's close was over the 10-dma. But we also look at the volume which shows a lack of conviction for that gain. Nope, looking at the whole picture it looks like we are in another one of PGR's bear-trap rallies they like to create so often on their way downhill. This rally is mostly created by the Dow's comeback today more than anything. This is a risky play however because PGR didn't roll over and break the $54.69 level either. So watch your positions with stops now that the 10-dma is broken. One good thing about these little rallies are that they create great entry points. JNJ $78.63 +1.19 (+1.19) Today the US Supreme Court sided with major drug makers and distributors refusing to renew a class- action antitrust suit that alleged an industry wide price-fixing conspiracy. The decision is a major victory for the likes of JNJ, Novartis AG, Monsanto, and Forest Laboratories who chose not to bow down to the allegations. Several of their competitors paid out more than $700 mln in settlements. Carter Phillips, an attorney for the defendants, believes the decision now puts his clients at a "wonderful competitive advantage" simply because "they're not out the 700 million bucks"! Still JNJ is straining to move one way or the other. Currently the stock is trapped under overhead resistance at the 10-dma ($78.99), which is good news for this sector put play, but we're nevertheless frustrated that JNJ isn't breaking out under the $77 mark. If you have open positions, please keep the stops in place to protect you're capital. ************** NEW CALL PLAYS ************** QLGC - QLogic Corporation $115.50 +4.50 (+4.50 this week) Somebody has to make the equipment that lets your computer talk to all its peripheral equipment and QLGC does it well. A leading designer and supplier of semiconductor and board-level input/output (I/O) management products, QLGC has been providing SCSI-based connectivity solutions to this market sector for over 12 years. QLGC's I/O products provide a high performance interface between computer systems and their attached data storage peripherals, such as hard disk and tape drives, removable disk drives and RAID (redundant array of independent disks) subsystems. QLGC ignored the market weakness on Friday and punched through resistance at $105 on double the average daily volume. The gap up this morning was a bit too much and the bears forced a retest of the $105 level before being overwhelmed by buying volume. Bouncing strongly, the stock gained over $10 from its low of the day, setting a new 52-week high at $117. With no post-split depression after the 2-for-1 which occurred on February 8th, QLGC looks very strong and should continue higher. Demand for its products coupled with compatibility with the newest technology (see news below) is a formidable combination and investors have been taking notice. Another test of support at $105 would be a gift at this point, but would make for a very nice entry into this momentum play. If volume remains strong and the bulls can push prices through resistance at $117, be prepared to jump on board. Last Wednesday, QLGC announced full driver support for the Intel IA-64 architecture on all QLogic Fibre Channel and SCSI controllers and host bus adapters. According to Mark Edwards, VP and General Manager of QLGC's Computer Systems Group, the company designed software drivers for their products to run on 64-bit CPUs from the beginning. As a result, the controllers could be migrated seamlessly to Intel Itanium processor-based systems. This follows a host of announcements this month, highlighting QLGC Fibre Channel product support for the new Open Storage Area Network (SAN) Initiative. Compliance to the initiative will ensure interoperability and manageability in multi-platform, complex environments. BUY CALL MAR-110 QLC-CB OI= 336 at $13.63 SL=11.00 BUY CALL MAR-115*QLC-CC OI=1680 at $11.25 SL= 9.00 BUY CALL MAR-120 QLC-CD OI= 0 at $ 8.63 SL= 6.50 Wait for OI! BUY CALL APR-115 QLC-DC OI= 20 at $16.75 SL=13.00 BUY CALL APR-120 QLC-DD OI= 20 at $14.25 SL=11.50 SELL PUT MAR-105 QLC-OA OI= 10 at $ 4.88 SL= 6.75 (See risks of selling puts in play legend) Picked on Feb 22nd at $115.50 P/E = 174 Change since picked +0.00 52-week high=$117.00 Analysts Ratings 3-3-0-0-0 52-week low =$ 11.63 Last earnings 01/00 est= 0.36 actual= 0.40 Next earnings 04-19 est= 0.20 versus= 0.11 Average Daily Volume = 843 K /charts/charts.asp?symbol=QLGC **** SEBL - Siebel Systems, Inc. $121.88 +7.31 (+7.31 this week) Siebel Systems, Inc. is the world's leading provider of eBusiness applications software. Siebel Systems provides an integrated family of eBusiness application software enabling multi-channel sales, marketing and customer service systems to be deployed over the web, call centers, field, reseller channels, retail and dealer networks. Siebel Systems' sales and service facilities are deployed locally in more than 28 countries. We've been watching SEBL for awhile and finally decided to play it, given what appears to be a bottom for the NASDAQ. Not only that, but when a stock is up $7 on an otherwise lousy day, it deserves attention. The news also figures prominently into creating favorable sentiment for SEBL. Here's a partial list: 1) IBM will use SEBL software for its 55,000 internal users and 30,000 business partners - SEBL cites this as its largest win ever. 2) SEBL will support MS-SQL 7.0 and Windows 2000. 3) SEBL announces integration between Cisco ICM software and SEBL's e- business applications. 4) SEBL wins Call Center Magazine's Product of the Year for the second year in a row. You get the picture. All this follows a blowout Q4 announced on January 26 wherein SEBL smoked analyst's $0.15 estimates with a $0.19 actual figure. Technically, SEBL has been on the stairway to Heaven since early January in a beautiful ascending channel. Today was another breakout to a new high. While we can't recommend taking a position first thing in the morning since it's trending toward the high end of the channel, you may want to consider an entry at one of two price points dependant on your risk tolerance. The first is at $116-$118, or the center of the channel, where support has been found over the last three days. The second and most conservative entry would be where the 10-dma falls to meet the 50-dma, though we can't promise that will happen again anytime soon, or at what price point. But if you see them converge, then separate, that's an entry point. Another reason not to jump in immediately is that volume has been tracking a bit lightly and could signal a reversal for a few days - history suggests that's the case. Thus wait for the pullback before taking a position unless volume gets pumped up to where you can't stand it. SEBL is also a split candidate, having announced its last 2:1 split in late August 1999 at $67. However, with 300 mln shares authorized vs. 185 mln outstanding, only a 3:2 is possible without a shareholder meeting. No proxy to increase the shares has yet been filed, and earnings (a likely time to announce a split) won't occur again until April. Last week, Dain Rauscher Wessels rated SEBL a new Strong Buy with a $150 price target. BUY CALL MAR-115 SGW-CC OI= 232 at $13.13 SL=10.50 BUY CALL MAR-120*SGW-CD OI=1134 at $10.25 SL= 7.75 BUY CALL APR-115 SGW-DC OI= 0 at $18.38 SL=14.25 Wait for OI! BUY CALL APR-120 SGW-DD OI= 0 at $15.75 SL=12.00 Wait for OI! Picked on Feb 22nd at $121.88 P/E = 216 Change since picked +0.00 52-week high=$121.88 Analysts Ratings 9-5-0-0-1 52-week low =$ 15.75 Last earnings 01/00 est= 0.15 actual= 0.19 Next earnings 04-25 est= 0.14 versus= 0.10 Average Daily Volume = 3.5 mln /charts/charts.asp?symbol=SEBL **** INKT - Inktomi Corp $132.00 +9.44 (+9.44 for the week) Inktomi develops the world's most scalable software for the world's fastest-moving software environment: the Internet. The company's core technology underpins products for the Internet infrastructure that contribute to network performance, scalability and efficiency. Inktomi technology paves the way for emerging opportunities in online commerce, media and communications by enabling the Internet to intelligently accommodate more users and data traffic. Inktomi developed the search engine that runs such popular portals as HotBot, NBC's Snap, Yahoo!, and the Disney Internet Guide. Some Net stocks, like AOL, may have lost some of their appeal, but the money is flowing into the infrastructure stocks. On Friday, INKT made a strong move through resistance at $120 tagging $128.50 intraday. The breakout was in direct correlation with new coverage put out by Dain Rauscher Wessels. Analyst Stephen Sigmond rated INKT a Strong Buy and issued a $190 12-month price target that day. He cited that "Inktomi is still in the early stages of a massive growth opportunity, and we believe the company should represent a core holding for investors in the Internet infrastructure sector"; and further adding that "no other infrastructure provider offers off-the- shelf, building-block based solutions on such a massive scale". Overall, INKT was one of the best performers in the Goldman Sachs Internet index last week! Today we saw INKT continue to power higher and tack on a hefty $9.44, or 7.7%. But what else is behind the imminent momentum? Well first off, the constant flow of news tooting consistent Web growth is pumping up the infrastructure stocks. Just last month, Media Metrix reported that the number of monthly unique visitors accessing the Internet has increased by 15%. Plus there's the news that SBC Communications (SBC) will purchase Sterling Commerce (SE), a Net infrastructure firm, for $3.9 bln in an all cash deal on the expectation that all roads lead to conducting business online. This most certainly bodes well for INKT who makes the software that accommodates Web traffic. Technically it looks like INKT is developing a short-term support level at $125 above the 5-dma ($121.74). But today INKT shattered intraday resistance at $130 and set a new 52-week high at $134.19 by the close. If patterns hold true, then $130 could eventually evolve as a higher support level. Please pay close attention to the stock's direction and market sentiment before opening any positions. And for those who can't stomach the HIGH-RISK and VOLATILITY that goes along with Internet plays, please move on - this one's not for you! In the news last week, Robertson Stephens upgraded INKT to a Buy from a Long-Term Attractive. The analyst, John Powers, raised the rating as he believes " the company is the premier provider of software that provides access to the ever-increasing amount of content of the Web". BUY CALL MAR-125 KYQ-CE OI= 443 at $15.13 SL=11.75 BUY CALL MAR-130*KYQ-CF OI=1361 at $12.38 SL= 9.75 BUY CALL MAR-135 KYQ-CG OI= 109 at $ 9.88 SL= 7.50 BUY CALL MAR-140 KYQ-CH OI= 603 at $ 7.75 SL= 6.00 BUY CALL APR-140 KYQ-DH OI= 75 at $14.13 SL=11.25 BUY CALL APR-145 KYQ-DI OI=1065 at $12.50 SL=10.00 Picked on Feb 22nd at $132.00 P/E = N/A Change since picked +0.00 52 week high=$134.19 Analysts Ratings 7-10-1-0-0 52 week low =$ 28.13 Last earnings 01/00 est=-0.04 actual=-0.02 Next earnings 04-17 est=-0.02 versus=-0.07 Average Daily Volume = 2.32 mln /charts/charts.asp?symbol=INKT ************* NEW PUT PLAYS ************* MCOM - Metricom $85.94 -3.81 (-3.81 this week) Metricom is a leading provider of wide area mobile data communications solutions. It designs, develops and markets wireless network products and services that provide low-cost, high performance, easy-to-use data communications that can be used in a broad range of personal computer and industrial applications. The Company's networks take advantage of Federal Communications Commission ("FCC") regulations that permit license-free, spread spectrum operation in the 902 to 928 MHz frequency band. Metricom's primary service, Ricochet, provides users of portable and desktop computers and hand-held computing devices with fast, reliable, portable, wireless access to the Internet, private intranets, local area networks ("LANs"), e-mail and on-line services for a low, flat monthly subscription fee that permits unlimited usage. Today's close below the 50-dma helped to land MCOM on our put list. MCOM recently went through what looks like a reversal pattern, which is a period of consolidation followed by a trend reversal. MCOM was locked in a fairly tight trading range for approximately 3 days before the new downward trend began to emerge last Friday, when it broke through its 10-dma, which was at $95. Today's continuation of the downward movement gave us the confirmation and the go ahead to initiate a put play on MCOM. One of the possible catalysts behind MCOM's decline is a good old-fashioned post-earnings depression. MCOM announced earnings last Wednesday and came in a whopping 51 cents better than analysts expectations. It may have been the pending announcement that was holding MCOM afloat and once the news was out, it looks as though investors were anxious to lock in their profits. MCOM has made substantial drops in the last two sessions, and with today's close near the low for the day, MCOM may be well positioned to continue it's descent heading into tomorrow's session. The next level of support for MCOM looks to be at $80, backed by additional support levels at $71 and $69. It appears as though MCOM may encounter resistance at $87, $90 and $92. New entries are probably best made toward the early part of the day, as MCOM looks to be establishing a pattern of opening near the high and closing near the low. BUY PUT MAR-85*MQM-OQ OI=28 at $8.25 SL=6.25 BUY PUT MAR-80 MQM-OP OI=34 at $6.13 SL=4.25 Average Daily Volume = 822 K /charts/charts.asp?symbol=MCOM ********************** PLAY OF THE DAY - CALL ********************** NEON - New Era of Networks $76.00 +2.38 (+2.38 this week) Delivering e-business and enterprise application integration solutions, NEON is the leader in providing packaged solutions that successfully integrate legacy applications, client/server and Web-based applications. Proving that the old and new can successfully coexist, NEON counts large banks and financial institutions like Chase Manhattan and Merrill Lynch among the long list of companies that use its proprietary software technology to integrate business information on incompatible databases and operating systems. Through partnerships, internal growth, and acquisitions, NEON serves some 800 clients worldwide in the healthcare, insurance, telecommunications, travel and manufacturing industries. Sunday's Write Up Like a beacon in the night, NEON continues to glow brightly. Receiving a recharge on Monday from the positive press (see below), NEON spent the week charging higher. Even the NASDAQ weakness on Friday couldn't dim investor enthusiasm for this B2B leader. After a strong move up in October and November of last year, NEON entered a 3-month period of consolidation. Although not moving very quickly, this consolidation period did result in a nice pattern of higher-highs and higher-lows. Breaking out of this uptrending channel on Thursday galvanized more buyers to flock to the stock. The strength of the move is highlighted by the fact that the 5-dma (currently at $66.50) hasn't been touched since Monday. The move up this week took place on above average volume and it was encouraging to see the volume surge as prices moved up in the final hour on Friday. Look for NEON to find support near $70, followed by $66. Consider opening new positions on a bounce near either of these levels, as long volume returns. More conservative investors may want to wait for a convincing breakout above resistance at $75 before jumping on board. NEON and Softplus, Inc., a leading e-solutions company announced a strategic partnership on Monday. Softplus will offer NEON's e-business infrastructure platform as part of its end-to-end e-solutions, providing flexible, Internet-based applications to the communications industry. Also on Monday, NEON announced a strategic partnership with eXcelon Corporation, a leading supplier of dynamic B2B solutions. eXceleon will bundle core components of NEON's e-business products with its new B2B Integration Server in order to enhance the server's enterprise connectivity. Tuesday's Write Up NEON's glow continues to attract investors. In this uncertain market environment, investors are searching for a few strong stocks to put their money in and NEON has definitely made the short list. Just as we expected, NEON bounced right at the $70 support level this morning before launching higher to tag a new 52-week high at $78.63. The weakness today was enough to allow NEON to meet the 5-dma ($69.25) for the first time in over a week, but the buyers didn't let the meeting last for long. Strong volume (25% over the ADV today) should continue to drive shares higher as the company continues to make strategic alliances in the B2B marketplace. Today NEON and Commerce One announced the availability of the Commerce One BuySite to ERP Connector for SAP R/3. Also, in a second press release, NEON will be giving support to CMRC's direct materials procurement and collaborative supply chain management services. This is what sparked the afternoon rally and pushed NEON above $74. Going forward, intraday dips are buyable as is a return to the $70 support level. Don't get too stingy though or you might miss the next leg up. A break to new highs can be considered for new entries as long as volume remains strong. Oh, and don't forget those stops! BUY CALL MAR-65 QNO-CM OI=329 at $15.13 SL=11.75 BUY CALL MAR-70*QNO-CN OI=468 at $12.00 SL= 9.50 BUY CALL MAR-75 QNO-CO OI=172 at $ 9.13 SL= 6.75 BUY CALL MAR-80 QNO-CP OI= 0 at $ 7.00 SL= 5.25 Today's vol = 57 SELL PUT MAR-60 QNO-OL OI=70 at $2.00 SL=4.00 (See risks of selling puts in play legend) Picked on Feb 20th at $73.63 P/E = N/A Change since picked +2.38 52-week high=$78.63 Analysts Ratings 2-5-1-0-0 52-week low =$12.19 Last earnings 01/00 est=-0.03 actual= 0.00 Next earnings 04-26 est= 0.01 versus= 0.11 Average Daily Volume = 1.02 mln /charts/charts.asp?symbol=NEON ************************ COMBOS/SPREADS/STRADDLES ************************ Is this a good way to start the month? Tuesday, February 22 The Dow displayed new strength today, rallying in late-session trading ahead of Federal Reserve Chairman Greenspan's final round of congressional testimony. The popular Blue-chip average added 85 points to end at 10,304 after falling 115 points early in the day. The technology heavy Nasdaq closed down 29 points at 4,382, also recovering from significant early losses. Declining issues outnumbered advancing issues 4-to-3 on active volume of slightly less than 1 billion shares on the NYSE. The 30-year U.S. Treasury bond rose almost a full point, pushing the yield down to 6.08%. Sunday's new plays (positions/opening prices/strategy): Ariba ARBA MAR160P/170P $1.12 credit bull-put Bea Systems BEAS MAR90P/M105P $2.75 credit bull-put MRV Comm. MRVC MAR60C/MA70C $9.00 debit bull-call Integrated ISSI APR7C/MAR15C $7.00 debit diagonal Organogen. ORG JUN10C/MA15C $4.12 debit diagonal With the widespread option pricing (data) problems during the first 20 minutes of the session, it was difficult to correctly record the opening position on ISSI. It appears there was a brief opportunity to participate in the diagonal spread, but it was not at our target price. In any case, the issue moved as expected, up through the recent resistance area on strong volume. Portfolio plays: Today's session began on a sour note with stocks selling off in the majority of industries. Fortunately, blue-chips made a sharp recovery, driving the index up 86 points at the close. Technology issues also started slow but by the end of the day, most of the leading stocks had rebounded to opening levels. Our portfolio enjoyed a number of favorable rallies in the lower-priced issues but no adjustments were made. The leaders in the small-cap group were ESC Medical (ESCM), up $1.12 to $13.50 on momentum from last Thursday's 52-week high and Tupperware (TUP) with a $1.00 rebound off the 50 dma. Today's move may provide the necessary impetus for a continued recovery from the recent slump. The surprise of the day was Helix Technology (HELX) which added another $3.62 to close at a new all-time high of $64.00. Our bullish debit spread position is at maximum profit above $45. Summary Of Monthly Positions: ****************************************************************** - DIAGONAL SPREAD SUMMARY - ****************************************************************** Stock Pick Last Position Debit Value G/L Status AFCI $55.00 $48.75 MAR40C/FE50C $8.75 $11.75 $3.00 Closed AGTX $8.88 $3.31 JUN7C/FEB10C $1.81 $2.12 $0.31 Closed BCGI $5.12 $10.63 JUN5C/MAR7C $0.93 $2.25 $1.31 Open BMCS $42.31 $41.63 MAR40C/FE45C $3.75 $5.00 $1.25 Closed CDN $22.81 $18.63 MAY15C/MA20C $2.93 $3.50 $0.56 Open CNCX $29.38 $52.63 APR15C/FE40C $17.75 $20.00 $2.25 Closed CRUS $14.06 $20.31 JUN10C/MA15C $3.75 $5.12 $1.38 Open DLX $29.00 $23.19 APR25C/FE30C $3.75 $2.75 ($1.00) Closed DRMD $10.12 $12.75 JUN5C/MAR10C $3.93 $4.31 $0.38 Open ESPI $10.88 $13.94 JUN5C/MAR10C $4.38 $4.75 $0.38 Open GERN $13.00 $53.63 MAR12C/FE15C $1.25 $2.50 $1.25 Closed GSTRF $37.68 $23.00 MAR35C/FE40C $3.25 $2.88 ($0.38) Closed KEG $6.81 $8.50 JUL7C/MAR10C $1.43 $1.68 $0.25 Open KM $10.00 $8.31 JUN7C/FEB10C $1.75 $2.06 $0.31 Closed LOR $18.00 $15.38 APR20C/FE22C $1.75 $2.50 $0.75 Closed MSGI $20.43 $26.06 MAY12C/MA22C $5.75 $9.00 $3.25 Open NAV $41.31 $33.56 JUL35C/FE45C $4.88 $9.12 $4.25 Closed NN $27.69 $32.88 MAR17C/FE25C $6.25 $7.50 $1.25 Closed ONHN $9.69 $10.38 APR7C/FEB7C $0.62 $0.75 $0.12 Closed PCMS $10.06 $23.06 MAY7C/FEB12C $3.00 $4.75 $1.75 Closed PCMS $10.06 $23.06 MAY7C/MAR15C $4.25 $6.75 $2.50 Open PZL $11.68 $9.50 APR10C/FE12C $1.81 $0.93 ($0.88) Closed RCOT $7.50 $13.44 MAY5C/MAR10C $3.88 $4.62 $0.75 Open STAT $15.75 $12.00 APR10C/FE15C $4.00 $3.88 ($0.12) Closed SVGI $16.38 $25.00 JUN17C/MA22C $2.88 $5.00 $2.12 Open TERA $6.62 $8.00 JUN5C/MAR7C $1.43 $1.93 $0.50 Open UIS $29.25 $32.94 APR22C/MA30C $2.50 $6.38 $3.88 Open WAVO $7.88 $7.75 MAY5C/MAR10C $2.06 $2.00 ($0.06) Open ZOLT $7.68 $9.94 APR7C/MAR10C $0.06 $1.68 $1.62 Open * A number of these positions were closed early to protect profits or prevent (limit) potential losses. The diagonal spread is profitable if the value of the position exceeds the initial debit (or cost-basis) at the expiration of the long position. However, because we track the plays based on the current closing cost/value, the gains for diagonal spreads will rarely be reflected until the play closes. Each month, as we sell a new option against the long position, the net cost should decline or the position value should increase. ****************************************************************** - DEBIT SPREADS - ****************************************************************** Stock Pick Last Position Debit Value G/L Status ASDV $78.00 $105.00 FEB55C/F65C $8.75 $9.88 $1.12 Closed BEAS $84.94 $146.00 MAR50C/M65C $12.38 $14.50 $2.12 Open BCE $96.75 $119.38 FEB75C/F85C $8.25 $9.88 $1.12 Closed BVF $56.93 $67.50 APR42/AP50C $5.00 $6.12 $1.12 Open CVD $14.25 $15.19 FEB12CC/NP $12.25 $12.50 $0.25 Closed EMLX $119.00 $140.00 FEB100C $95.00 $99.88 $4.88 Closed EMLX $119.00 $140.00 FEB95P $92.50 $95.00 $2.50 Closed ESCM $11.31 $12.38 APR7C/AP10C $1.38 $1.38 $0.00 Open HELX $51.00 $60.50 APR25C/A45C $15.75 $17.00 $1.25 Open MI $56.00 $46.88 FEB50C/F55C $3.50 $2.75 ($0.75) Closed NTPA $77.50 $79.50 MAR50C/M65C $13.25 New Play Open PCS $55.38 $43.75 FEB42C/F47C $4.43 $4.88 $0.43 Closed PCS $55.38 $43.75 FEB42C/F50C $6.25 $7.00 $0.75 Closed RMII $11.00 $10.31 MAY5C/MA10C $3.62 $4.50 $0.88 Open SEBL $101.88 $114.56 FEB85C/F95C $7.00 $9.88 $2.88 Closed SPLH $12.25 $14.44 FEB7C/FE10C $2.00 $2.43 $0.43 Closed TKLC $26.00 $37.63 FEB17C/F22C $4.12 $5.00 $0.88 Closed TQNT $160.50 $223.44 FEB135/140C $3.75 $4.88 $1.12 Closed TUP $16.81 $17.31 APR15C/A17C $1.25 $1.12 ($0.12) Open VLNC $35.88 $30.88 MAR20C/A25C $4.25 $3.38 ($0.88) Open VSTR $155.31 $148.00 MA110C/130C $17.00 $15.00 ($2.00) Open WDC $5.56 $4.31 FEB5CC/NP $4.38 $4.31 ($0.06) Closed * A number of these positions were closed early to protect profits or prevent (limit) potential losses. A debit-spread is profitable if the value of the position exceeds the initial cost of the spread when the play is closed. However, because we track plays based on the current cost/value, potential gains may not be reflected until both positions are closed. ****************************************************************** - CREDIT STRANGLES - ****************************************************************** Stock Pick Last Position Credit Cost G/L Status SDW $54.94 $54.88 FEB50P/60C $2.25 $0.00 $2.25 Closed A credit strangle is profitable if the closing cost of the play is less than the initial credit. ****************************************************************** - DEBIT STRADDLES - ****************************************************************** Stock Pick Last Position Debit M/V C/V Status APLX $14.62 $16.06 JUL15C/15P $6.50 $7.00 $6.88 Open CBR $27.19 $17.75 MAY25C/30P $10.25 $12.50 $12.25 Open CFR $29.69 $21.25 MAR30C/30P $3.06 $8.75 $8.62 Closed JMED $38.65 $67.50 MAR37C/40P $8.12 $40.00 $31.00 Closed LHSG $25.50 $41.00 APR25C/25P $6.75 $15.75 $15.50 Open MYL $18.63 $24.44 APR17C/17P $4.56 $10.50 $7.38 Closed UVN $85.75 $105.19 MAR85C/85P $14.75 $27.00 $20.00 Closed M/V = Maximum Value C/V = Current Value A debit-straddle is profitable when the value of the position exceeds the initial cost. ****************************************************************** - CREDIT SPREAD SUMMARY - ****************************************************************** Stock Pick Last Position Credit Cost G/L Status CCN $75.38 $65.75 FEB70P/65P $0.93 $1.25 ($0.31) Closed CTAS $49.25 $37.38 FEB65C/60C $0.75 $0.00 $0.75 Closed EXTR $87.38 $85.00 FEB70P/65P $0.62 $0.00 $0.62 Closed FBR $15.00 $13.38 MAR7P/M10P $0.62 $0.62 $0.00 Open GLW $162.00 $193.31 F120P/130P $1.12 $0.00 $1.12 Closed IONA $67.00 $64.50 MAR45P/50P $0.62 $0.88 ($0.25) Open ISSX $97.38 $94.68 MAR70P/75P $0.75 New Play Open ITVU $139.00 $135.00 FE90P/100P $1.12 New Play Open NSOL $302.88 $292.50 M210P/220P $1.00 $1.25 ($0.25) Open PEP $32.75 $34.25 MAR37C/35C $0.38 $0.75 ($0.38) Closed PGR $65.50 $55.94 FEB85C/80C $0.62 $0.00 $0.62 Closed SNDK $142.00 $145.63 FE95P/105P $0.75 $0.00 $0.75 Closed Note: The Pepsico (PEP) credit spread was inadvertently listed as a February position. The correct expiration month is March and the portfolio has been updated to reflect that change. While the stock is still trading below the sold strike (the position remains profitable below $35.25), the closing price on Friday will be our recorded exit. The Chris Craft (CCN) position was closed early to limit potential losses. Credit spreads are profitable if both positions remain OTM until expiration. The cost-to-close price can be used to compare the initial opening credit to the current spread value. ****************************************************************** - CALENDAR SPREAD SUMMARY - ****************************************************************** Stock Pick Last Position Debit Value G/L Status AG $13.88 $10.56 MAY15C/FEB15C $0.75 $0.50 ($0.25) Closed CRUS $15.68 $20.31 JUN20C/MAR20C $0.88 $1.50 $0.62 Closed EPIC $9.56 $9.38 JUL12C/MAR12C $1.18 $1.12 ($0.06) Open ESPI $10.88 $13.94 MAR12C/FEB12C $0.62 $1.12 $0.50 Closed HUM $9.25 $7.06 MAY10C/FEB10C $0.75 $0.62 ($0.12) Closed HRC $5.75 $5.25 MAR7C/FEB7C $0.18 $0.12 ($0.06) Closed KLOC $5.93 $5.13 APR7C/FEB7C $0.75 $0.50 ($0.25) Closed MUEI $10.50 $11.81 APR12C/FEB12C ($2.38) $0.62 $3.00 Open PDE $17.25 $14.69 APR17C/FEB17C $0.56 $1.00 $0.43 Closed PFE $37.00 $33.50 MAR40C/FEB40C $0.62 $0.50 ($0.12) Closed STRX $8.43 $6.50 MAY7C/MAR7C ($0.12) $0.25 $0.38 Open SWBT $19.93 $16.00 MAY20C/JAN20C $0.93 $1.00 $0.06 Closed TALK $17.68 $16.13 APR22C/FEB22C $0.25 $1.00 $0.75 Closed TDFX $8.50 $9.75 MAR10C/FEB10C ($0.38) $0.62 $1.00 Closed * A number of these positions were closed early to protect profits or prevent (limit) potential losses. The calendar (or time spread) is profitable if the value of the position exceeds the initial debit (or cost-basis) at the end of the expiration period for the long position. However, because we track the plays based on the current closing cost/value, the gains for time spreads will rarely be reflected until the play closes. Each month, as we sell a new option against the long position, the net cost should decline or the position value should increase. ****************************************************************** - COVERED-CALLS WITH LEAPS - ****************************************************************** Stock Pick Last Position Debit Value G/L Status ADBE $76.13 $98.25 JAN80/MAR80C $5.50 $12.00 $6.50 Closed CA $53.56 $71.25 JAN60/MAR70C $2.12 $15.75 $13.62 Open CS $16.80 $35.69 JAN15/MAR25C $4.25 $10.62 $6.38 Open GM $71.68 $73.75 JAN75/FEB80C $6.62 $10.50 $3.88 Closed HRC $5.75 $5.25 JAN7C/FEB7C $1.25 $1.12 ($0.12) Closed JNJ $95.68 $77.44 JAN100/F100C $2.12 $7.50 $5.38 Closed MDT $39.38 $47.69 JAN37/MAR45C $6.25 $9.62 $3.38 Open MOT $100.00 $144.94 JAN105/M145C $27.50 $44.00 $16.50 Closed NETA $25.12 $28.31 JAN15/MAR25C $7.88 $9.50 $1.62 Open PG $109.50 $92.94 JAN100/F110C $11.62 $12.12 $0.50 Closed PTEK $8.94 $9.56 JAN5C/MAR10C $4.25 $4.12 ($0.12) Open SLR $71.25 $66.56 JAN70/FEB85C $11.50 $17.00 $18.75 Closed SUNW $35.88 $92.81 JAN37/MAR85C $32.00 $47.00 $15.00 Closed UAL $70.38 $53.50 JAN60/FEB70C $11.25 $9.00 ($2.25) Closed UAL $70.38 $53.50 JAN75/FEB75C $5.75 $4.50 ($1.25) Closed VOD $49.25 $50.75 JAN45/MAR55C $9.75 $12.25 $2.50 Open XOM $81.94 $76.56 JAN85/FEB85C $2.38 $6.38 $4.00 Closed * We are closing the majority of older plays in this section to to allow better coverage of the remaining positions. **** Note: We trade the 'Spreads' portfolio just as we would trade our personal account and the ongoing narrative is a service we provide to help novice traders understand how various positions might be opened and closed. It is not intended to substitute for your own trading techniques nor does it replace your duty to manage the positions in your portfolio. We post a list of the current plays after each expiration period and the summary is a reasonable representation of the positions offered during the month. Questions & comments on spreads/combos to Click here to email Ray Cummins ********* NEW PLAYS ********* Companies in the biotechnology, wireless telecommunications and E-commerce groups are the new market leaders as the majority of investors continue to buy these issues on weakness. Obviously no one really knows where the market will go but most analysts are optimistic about technology stocks and traders have tailored their strategies to overweight these companies. Even in the face of additional interest rate hikes, these issues are the favorites as they have the capacity to grow their earnings at much faster rates than blue-chip companies. In fact, the whole technology industry is expanding so rapidly that Greenspan's present strategy of small, periodic interest rate increases will have little or no impact on the majority of companies. The bottom line is that corporations with annual earnings growth of 30% offer a much better investment opportunity in the current, inflation-sensitive environment. **** TGX - Theragenics $14.56 *** Biotechnology Boom! *** Theragenics produces and sells implantable radiation seeds used in the treatment of prostate cancer. TheraSeed is a U.S. Food and Drug Administration licensed device based on the radioactive isotope palladium 103. In treatment, TheraSeeds are implanted into the prostate in a one-time, minimally invasive procedure, that has been shown in independent clinical studies to offer success comparable to, or better than conventional therapies, with reduced side effects. Theragenics has an agreement with Indigo Medical for the distribution of TheraSeeds. The company has also participated in the development of the TheraSphere, a microscopic radioactive glass sphere designed for the treatment of liver cancer, and has granted Nordion International, the exclusive sublicense to manufacture, distribute and sell the product. TheraSphere has been approved for distribution in Canada and is awaiting approval by the FDA in the United States. There's no news to explain today's rally but the attitude among investors is extremely bullish when Biotechs are mentioned. The recent focus on this sector has propelled a number of previously slumping issues to solid recoveries and TGX is participating in the move. Instead of attempting to justify the gains, we will simply focus on the excellent technical character of the bullish issue and the long-term potential for a significant rebound. PLAY (conservative - bullish/diagonal spread): BUY CALL JUN-10.00 TGX-FB OI=498 A=$5.12 SELL CALL MAR-15.00 TGX-CC OI=148 B=$1.00 INITIAL NET DEBIT TARGET=$4.00 INITIAL TARGET ROI=25% Chart = /charts/charts.asp?symbol=TGX **** DISH - Echostar $100.00 *** An OIN Favorite! *** EchoStar and its subsidiaries deliver direct-to-home satellite television products and services. Their satellites provide the DISH Network capacity for over 200 channels of digital video, audio and data services. The DISH network has over two million subscribers. DISH Network programming is available to consumers in the continental United States using an 18-inch satellite dish and a digital satellite receiver. Another group, the Satellite Services business provides the delivery of video, audio and data to business television customers and other satellite users. The services include satellite up-link, satellite transponder space, and other products. EchoStar Technologies designs, manufactures and distributes DBS (Direct Broadcast satellite) set-top boxes, antennas and other digital equipment. Some of you may not know that EchoStar Communications is headquartered in the same city as The Option Investor Newsletter; Littleton, Colorado. Echostar rallied almost $6 today after positive comments from an analyst at CSFB concerning the upcoming investor conference call. First Boston, the leading brokerage on the issue, also reiterated their recent BUY rating with a target price of $125. The company is expected to address a number of issues in the near future, the most important topic being new products and the status of their lawsuit against Direct TV (the filing claims violations of federal and state antitrust laws). Analysts at First Boston are bullish on the issue based on the belief that subscriber additions have continued to increase exponentially. I personally subscribe to DISH as it's the only source for worldwide financial inforamtion in the rural area where I live (Chugiak, Alaska). The chart appears to be signaling an upcoming break-out and with the possibility of a split in this range, investors will be adding to their positions on any new rally. This conservative spread offers a favorable method of speculating on a future bullish move. PLAY (conservative - bullish debit/spread): BUY CALL MAR-80 UAB-CP OI=642 A=$22.25 SELL CALL MAR-90 UAB-CR OI=1127 B=$13.50 INITIAL NET DEBIT TARGET=$8.38-8.50 ROI(max)=17% Chart = /charts/charts.asp?symbol=DISH **** IDTC - IDT Technologies $33.94 *** NTOP Buy-out? *** IDT Corporation is a leading multinational carrier that provides wholesale and retail customers with integrated international and domestic long distance telecommunications service, Internet access and, through Net2Phone, Internet telephony services. IDT also offers retail long distance services to individual and business customers in the U.S. and around the globe. IDT operates one of the nation's largest Internet access networks and is well known for their Net2Phone service, which allows customers to make phone calls from a PC. IDTC continued to rally today on speculation that AOL will buy a controlling interest in Net2Phone. A recent report suggested that AOL may purchase IDT's remaining 48% stake in Net2Phone for terms that could approach $70 per Net2Phone share. Traders swarmed the pits as the stock recovered from early losses, driving the Implied Volatility to extreme levels. There are a number of ways to speculate on the possibility of a Net2Phone merger but we favor this simple, in-the-money position. PLAY (speculative - bullish/debit spread): BUY CALL MAR-22.50 IQJ-CX OI=1652 A=$12.38 SELL CALL MAR-30.00 IQJ-CF OI=3836 B=$6.75 INITIAL NET DEBIT TARGET=$5.75 ROI(max)=30% Chart = /charts/charts.asp?symbol=IDTC **************************Advertisement************************* Have you got an idea for a financial website? Need help getting started? Technical support? Funding? We will help you turn your idea into a reality. Don't sit on your idea until somebody beats you to the punch. Do you have a website now that is not succeeding like you think it can? Let us help you achieve faster results with our proven techniques. Sunset Investment Group has the knowledge and the financial capabilities to turn your ideas into reality. Contact us for a confidential interview. Email contact information to Contact Support **************************************************************** ************ See Disclaimer in section one ************
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