The Option Investor Newsletter Wednesday 3-1-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com Also provided as a service to The Online Investor Advantage ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 3-1-2000 High Low Volume Advance Decline DOW 10137.90 + 9.60 10186.30 10084.60 1,274,100k 1,558 1,481 Nasdaq 4784.08 + 87.39 4796.90 4696.69 2,232,343k 2,425 1,846 S&P-100 743.54 + 4.90 748.41 738.64 Totals 3,983 3,327 S&P-500 1379.19 + 12.77 1383.46 1366.83 54.4% 45.6% $RUT 588.35 + 10.64 589.38 577.71 $TRAN 2397.77 + 8.91 2400.78 2380.02 VIX 23.68 - 1.91 24.91 23.22 Put/Call Ratio .45 ******************************************************************* Nasdaq 5,000, More Than Just A Dream At this point, you almost have to figure traders will want to make a run at the next milestone. And who can blame them? This tech-driven market continues to trek higher despite the Dow's lackluster performance. It is possible that today's weak performance in the Dow is just more evidence that investors are leaving on any rally to head for technology issues. The Nasdaq has been filled with opportunities and the outlook is still bright. Today was another example of how playable the Nasdaq is too, with an open near 4750 and three intraday bounces off that support mark. You could have stepped into entry points at any one of those dips. This is really becoming a broken record with the Nasdaq dipping to support only to rise once again. The question now is, do we have enough juice to propel the Nasdaq to 5K this week? Today's close at 4784.32, +87.68 leaves us just under 5% away. The Dow Industrials is another, less enthusiastic, story. It is trying to break a month and a half downtrend. Today saw a tight range between 10084 and 10186 We closed the session near the middle at 10136.38, +8.07. The key here is for the Dow to close solidly over the 10-dma, currently at 10,206. This has been the resistance since mid-January that traders have been selling on. The old bear trap scenario. Just when you think it has the momentum to punch above that moving average, SNAP, it's got you. I'm still not real keen on this index until we see one or two day's closing over this mark. Some are acting as if this will never happen with the "new economy" taking over. In fact, it will eventually free itself from this rut, but there is no point testing the waters on some of these between down issues until it does. Especially when you can find all the hot stocks you want in the SOX, Russell 2000 or the previously mentioned Nasdaq. Speaking of the SOX, even after a more than one hundred point move on Tuesday, it still managed to gain another 1.72. This sector continues to leave the general market in the dust. The other hot sectors of the day included Biotech, Internet, Networking and Hardware. Even the Online Brokers put together their third straight advance on positive comments about how much trading we are all doing. Some analysts are looking for 30-40% from last quarter in trading activity. The market internals were also good. Volume was strong at over 2.2 billion shares on the Nasdaq and over 1.27 billion on the NYSE. The advance/decline line was even on the NYSE, while Gainers beat advancers 24 to 19 on the Nasdaq. The 30-year bond fell slightly to yield 6.16 by the close. The newswires were abuzz with big news from the telecoms today. It was announced that SBC Communications and BellSouth could be engaged in talks to merge their cellular services. Shares of SBC closed up $3.63 at $41.38 and BLS finished the session at $43, up $2.44. Also in the news today, Lucent announced plans to spin off three of it's slower growing businesses including data, cabling, and call-accounting to form one company, which is expected to be available to shareholders in September. Lucent is taking this action in order to narrow the focus to the communications networking portion of it's business. This announcement seemed to help alleviate some investor concern regarding Lucent's rather slow growth rate. LU's communications networking business accounted for roughly $30 billion of Lucent's $38.3 billion of sales last year. Wall Street greeted the announcement with enthusiasm as nearly 75 million shares were traded in comparison to the average 18. Lucent closed the session up $9.13 at $68.63. And we are not done with the telecoms just yet. Shares of Qwest Communications (Q) were up $11.38 on the news of a possible buyout by Germany's Deutsche Telekom. Qwest spokesman Matt Barkett, claimed that the reports were nothing but rumors and speculation. Deutsche Telekom offered no comment. It was another big day for 3Com Corp. (COMS) as investors continued to snatch up shares in anticipation of tomorrow's Palm IPO. Palm is the number 1 manufacturer of electronic organizers. The expected offering price for Palm is $38, which has been raised from the original $14 proposed offering price. COMS traded up to another new 52-week high of $119.75 in today's session. Shares of Aetna were halted today following the announcement that the Health Insurance Giant has received an unsolicited offer from WellPoint Health Networks and ING America Insurance Holdings in a cash and stock deal worth approximately $10 billion. Apparently, ING and WellPoint first expressed their interest beginning discussions on the deal in a letter dated February 24th. Aetna commented that they will be reviewing the offer. The future of this market still sounds like a broken record. The Nasdaq is where the action is at for those looking to be long the market. The Dow has provided as much volatility of late, but the trend is still lower, although may be coming to an end. A nice retest of last week's lows followed by a bounce which can close above the 10-dma might be just what the Dow needs. Hopefully it can curb this downtrend without another panic event to the downside. But if it does cause investors to sell and pull down the other markets like the Nasdaq, I will be hunting for entry points. Earnings season just isn't that far off anymore. Dips in the Biotech, Semis, and the old reliable Internets (still sounds strange) is where I will be focusing my efforts. ********** STOCK NEWS ********** Lucent Rises from the Ashes on Spin-Off Plans By Cindy Christ Lucent Technologies rose from the dead Wednesday, but some analysts were warning that its meteoric rise could be short lived. Lucent (LU) plunged 23 percent Jan. 7 after the world's No. 1 telecommunications equipment maker warned that its profits would fall below expectations by up to 25 percent, in part because it couldn't meet demand for optical networking and other fiber optic products. On Wednesday, Lucent breathed new life into its stagnant share price by announcing it would spin off slower expanding divisions into an independent company to focus on the fastest- growing areas of its business. Shares of Lucent, the most widely held U.S. stock, were up $12.50, or 21 percent, at $72 midday and were the Big Board's most active issue with 61 million shares trading hands. Intraday, Lucent traded as high as $75.38. Lucent said the new company, which is as yet unnamed, will concentrate on enterprise networking products and services, including telephone switchboards, cabling systems and data- based Local Area Networks. Lucent said the new $8 billion company would rank No. 1 or No. 2 in most of the markets in which it competes, starting out with a blue-chip customer list including 90 percent of Fortune 500 companies and 34,000 employees worldwide. Under the spin-off, which is expected to close by Sept. 30, shares in the new company will be distributed tax free to Lucent shareowners. "By spinning off our PBS, SYSTIMAX cabling and LAN-based data businesses, we are sharpening Lucent's focus and creating another leading company to serve business customers," said Lucent Technologies chairman and CEO Richard McGinn in a statement. "Lucent will concentrate greater resources on fast-growing areas like optical networking, Internet infrastructure, wireless, semiconductors, optoelectronics, Web-based enterprise solutions linking private to public networks, and professional design and consulting services for service providers and enterprises," he added. McGinn said that current Lucent executive vice president and chief financial officer Donald Peterson has been named president and CEO of the new company. Before coming to Lucent, Peterson ran the enterprise networking business for Canada's Nortel Networks (NT). After the spin-off, each company will have its own brand, board of directors and research and development organizations. Murray Hill, N.J.-based Lucent will have about 116,000 workers worldwide and 1999 sales of $30 billion. In recent months Lucent also has been considering a tracking stock for its optical networking unit. Market watchers say a decision could come by the end of this quarter. Initial reaction to the spin-off on Wall Street was mostly positive, but late in the session a leading investment bank was alerting investors that concerns about Lucent's upcoming quarter could pop Wednesday's bubble. SG Cowen analyst Christopher Stix raised his rating Wednesday on Lucent shares to "buy" from "neutral." "The spin-off will help increase the growth profile of the company and improve operating margins," said Stix. Analysts said that while margins would increase, the spin-off wouldn't affect Lucent's earnings. According to CNBC financial television, Goldman Sachs issued a warning to clients Wednesday, saying that Lucent's March quarter is at risk and that earnings projections may be lowered from current levels. Unlike chief rival Nortel Networks, Lucent has struggled to transition its business from providing equipment for voice- based communications systems to meet exploding demand for high-speed Internet and data networking gear. ********************** PLAY OF THE DAY - CALL ********************** VERT - VerticalNet, Inc. $229.63 +9.63 (+3.88 this week) VerticalNet owns and operates 55 industry-specific Web sites designed as online business-to-business communities, known as vertical trade communities. These vertical trade communities provide users with comprehensive sources of information, interaction and e-commerce. They are grouped into the following industry sectors: ADVANCED TECHNOLOGIES, COMMUNICATIONS, ENVIRONMENTAL, FOOD AND PACKAGING, FOODSERVICE AND HOSPITALITY, HEALTHCARE/SCIENCE, MANUFACTURING AND METALS, PROCESS, PUBLIC SECTOR, SERVICE, TEXTILES AND APPAREL. Additionally, VerticalNet provides auctions, catalogs, bookstores, career services and other e-commerce capabilities horizontally across its communities with sites like Industry Deals.com, IT CareerHub.com, LabX.com, Professional Store.com. VerticalNet's NECX Exchange provides an exchange for the electronic components industry. Latest Write Up While we might loudly complain that volume fell off a cliff and the price didn't move relative the rest of the tech issues in the last two trading days, that could actually be a blessing. The low volume of roughly half the ADV of 1.4 mln shares says that traders are not interested in dumping VERT shares either and we may have found a higher low following the solid bounce off previous long-term support of $200. It now appears support is holding well at $215-$216. Use that as your target for what will likely be the best entry. If you'd rather see a breakout before taking a position, then $225 backed up with an increase in volume is your number. Still helping to drive this play going forward will be the 2:1 split, which will take effect after the close on March 31. You still have plenty of time for a good entry, so wait for VERT to come to you. With the rest of the market moving forward though, the probability of VERT remaining at these levels for long diminishes. Earnings are not a factor again until May. Comments Well, if you were waiting for that breakout mentioned above, today was your day. VERT posted an impressive $9.63 gain and had some nice volume backing the move. As we mentioned, there is still plenty of time to get on board for the split run, so do not be hasty with your entry points. Watch for the $225 level to continue to hold. VERT looks to have additional support between $214 and $216, which could hold on a pullback and provide some nice possible points of entry. VERT may encounter a bit of immediate resistance at $230, so watch for VERT to move through this level. BUY CALL MAR-210 ERW-CB OI= 290 at $32.00 SL=25.00 BUY CALL MAR-220 ERW-CD OI= 649 at $30.00 SL=23.50 BUY CALL MAR-230*URE-CF OI=1498 at $20.00 SL=15.50 BUY CALL APR-220 ERW-DD OI= 611 at $38.75 SL=30.25 BUY CALL APR-230 URE-DF OI= 346 at $38.75 SL=30.25 Picked on Feb 24th at $221.00 P/E = N/A Change since picked +8.63 52-week high=$289.56 Analysts Ratings 4-6-3-0-0 52-week low =$ 17.50 Last earnings 02/00 est=-0.36 actual=-0.28 Next earnings 05-02 est=-0.45 versus=-0.19 Average Daily Volume = 1.4 mln /charts/charts.asp?symbol=VERT ************************************* BIG COVERED CALLS & NAKED PUT SECTION ************************************* The question remains: Who will lead? Will the NASDAQ lead the DOW up or will the DOW lead the NASDAQ into the cellar? Time will tell. With conservative yet favorable "in-the-money" positions, time is our friend! Summary of Previous Picks: Covered Calls: (Margin would double the listed Monthly Return) Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return SCMR MAR 95 89.31 169.03 $5.69 6.5% INKT MAR 125 119.63 141.06 $5.37 5.9% LWIN MAR 80 75.63 88.50 $4.37 5.9% NEON MAR 55 52.00 89.94 $3.00 5.8% INSP MAR 145 135.56 238.00 $9.44 5.7% CRA MAR 130 124.62 235.50 $5.38 5.7% ITVU MAR 105 98.25 158.56 $6.75 5.6% SMTC MAR 55 52.75 63.88 $2.25 5.6% CHINA MAR 95 90.12 123.63 $4.88 5.5% TIBX MAR 65 61.79 130.13 $3.20 5.3% Split 3 - 1 FIBR MAR 55 51.75 141.94 $3.25 5.2% BVSN MAR 170 163.62 256.31 $6.38 5.2% ENTU MAR 65 61.88 93.88 $3.12 5.1% PUMA MAR 95 91.50 167.00 $3.50 5.1% IMNX MAR 130 122.50 219.00 $7.50 5.0% MUSE MAR 87 82.50 159.75 $4.50 4.5% Split 2 - 1 DITC MAR 62 58.94 111.06 $3.07 4.3% Split 2 - 1 Naked Puts: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return SCMR MAR 85 81.50 169.03 $3.50 13.3% BVSN MAR 160 156.25 256.31 $3.75 10.9% NEON MAR 50 48.44 89.94 $1.56 10.9% CRA MAR 120 117.19 235.50 $2.81 10.3% PUMA MAR 90 87.87 167.00 $2.13 10.1% MUSE MAR 82 80.19 159.75 $2.32 9.9% Split 2 - 1 ENTU MAR 60 58.31 93.88 $1.69 9.8% CHINA MAR 85 82.62 123.63 $2.38 9.3% INSP MAR 130 125.37 238.00 $4.63 9.3% LWIN MAR 70 68.19 88.50 $1.81 9.1% ITVU MAR 105 102.94 158.56 $2.06 8.9% TIBX MAR 58 56.83 130.13 $1.50 8.5% Split 3 - 1 HLIT MAR 95 92.50 140.88 $2.50 7.4% INKT MAR 110 108.37 141.06 $1.63 7.3% VRSN MAR 185 182.25 251.13 $2.75 7.1% MRVC MAR 70 69.06 155.88 $0.94 5.9% PROX MAR 80 78.50 159.13 $1.50 5.2% NEW PICKS The positions that we find favorable (and will track every week) will be marked by asterisks. Do not enter these trades unless you fully understand the strategy and various methods of manipulating the position should the stock price drop or rise and in the event you decide you want to keep the issue. Note: A slightly reduced section this week as my partner in "time" is vacationing in the winter wonderland in Moscow. **** CLRS - Clarus $115.50 *** B2B Sector Sizzles *** Clarus develops, markets and supports Web-based electronic commerce applications and client/server financial and human resources applications. Clarus' applications enable organizations to gain control of their operational resources and reduce the total cost of ownership by minimizing the time, costs, and risks associated with implementing, changing, and upgrading the appli- cations. Almost all of its products are sold as application suites. Clarus' Commerce line of products leverages Web technology to connect large populations of employees, management, and suppliers in continuous planning, monitoring, and control of resources. The Clarus line of products are based on a flexible, open architecture called Active Architecture, which allows for seamless, rapid changes and upgrades without modifying the source code. Though Clarus posted a fourth quarter loss ($0.47), they beat estimates by 13 cents. The company also reported record revenues, increasing 170 percent while their E-commerce license fees were up 200 percent. The resulting coverage by JC Bradford and Salomon Smith Barney (JC Bradford quickly upgraded to a "strong buy"), caused an immediate reverse in the post-earnings drop. Several new agreements have also helped ignite the new uptrend, with the latest, a broad-based agreement Wachovia. The technical pattern is quite favorable with the support provided by the January and mid-February high offering a reasonable entry point. Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call MAR 90 RUR CR 142 27.63 87.87 4.6% *** Sell Call MAR 95 RUR CS 117 23.88 91.62 7.0% Sell Put MAR 80 RUR OP 148 0.94 79.06 7.4% *** Sell Put MAR 85 RUR OQ 36 1.50 83.50 11.6% Sell Put MAR 90 RUR OR 66 2.31 87.69 17.3% Chart = /charts/charts.asp?symbol=CLRS **** FNSR - Finisar $139.81 *** Record Revenues/Earnings *** Finisar is a provider of fiber optic subsystems and network per- formance test systems which enable high-speed data communications over Gigabit Ethernet-based local area networks and Fibre Channel- based storage area networks. They are focused on the application of digital fiber optics to provide a line of high-performance, reliable, value-added optical subsystems for networking and storage equipment manufacturers. Finisar's fiber optic systems include GBIC transceivers, optical multiplexers, link extenders, protocol analyzers and data generators for Fibre Channel networks. Recently, Finisar's FLX-2000 Fibre Channel Link Extender was qualified by EMC Corporation for use with EMC's Symmetrix Enterprise Storage and Connectrix Enterprise Storage Network systems. Last week, Finisar reported a record 84 percent increase in revenues and record pro forma net income increase of 189 percent. Finisar's revenues have grown at a compounded growth rate of 94% for the last five years. Though some post-earnings weakness was expected, Finisar only powered on above its February high. The technical pattern continues to remain favorable with the 1st level of support around $115. Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call MAR 110 FQY CB 22 33.38 106.43 6.4% *** Sell Call MAR 115 FQY CC 3 29.75 110.06 8.5% Sell Put MAR 95 FQY OS 10 1.69 93.31 10.8% *** Sell Put MAR 100 FQY OT 50 2.38 97.62 14.9% Sell Put MAR 105 FQY OA 14 3.25 101.75 19.8% Sell Put MAR 110 FQY OB 15 4.00 106.00 23.8% Chart = /charts/charts.asp?symbol=FNSR **** IMNX - Immunex $219 *** Split play *** Immunex is a biopharmaceutical company that discovers, develops, manufactures and markets innovative therapeutic products for the treatment of human diseases including cancer, infectious diseases and immunological disorders. The Company's major product lines are Enbrel, Leukine, Novantrone and Thioplex. Enbrel is a soluble tumor necrosis factor receptor used to reduce inflammatory activity in patients with moderate to severe rheumatoid arthritis. Leukine is a granulocyte-macrophage colony-stimulating factor that is used to stimulate infection-fighting white blood cells. Novantrone and Thioplex are chemotherapy drugs that are used to treat pain in cancer patients. Immunex is also developing products to address ailments such as inflammatory disease, infection, multiple sclerosis, asthma and cancer. Recent news for Biotech leader IMNX was the approval of NOVANTRONE (mitoxantrone for injection concentrate). Now the big news is the announced 3-for-1 split of its common shares in the form of a stock dividend. The record date of this stock split is March 6. The split should occur around March 20, while the March option expiration is Friday, March 17. With momentum players jumping on every stock split, it is no wonder that Credit Suisse First Boston, raised its price target for Immunex to $300 a share. The move Wednesday was strong though there should be time to grab some naked put option premium. The chart remains extremely bullish as Immunex has broken out into blue sky territory. Any pullback in the next few days should inflate the conservative positions listed below. Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put MAR 160 QUV OL 547 1.25 158.75 5.3% Sell Put MAR 165 QUV OM 503 1.75 163.25 7.3% *** Sell Put MAR 170 QUV ON 388 2.31 167.69 9.5% Chart = /charts/charts.asp?symbol=IMNX **** INSP - InfoSpace.com $238 *** Not just an Internet company*** InfoSpace.com provides private label solutions for content and commerce to Websites and Internet appliances. The company's affiliate network include a number of online giants such as America Online, Microsoft Network and Lycos. The cornerstone of InfoSpace.com's content and commerce services is its nationwide yellow pages and white pages directories. In addition to its directory services, the company also distributes other valuable information in order to help web users locate people, places and things in the real world. InfoSpace.com provides services for a unique area of cyber-space. The Internet is best known for providing information and allowing communication. InfoSpace.com helps improve the quality of these activities for Web sites and their customers. Their services are utilized by more than 2,500 consumer Web sites, e-tail merchants and wireless communications companies. They also have a number of infrastructure tools to boost their own brand identity. Today, Infospace announced that it intends to drop the dot com from its name to reflect the Company's position as the leading provider of commerce infrastructure services to the off-line world through Regional Bell Operating Companies, merchant banks and other local media networks. Any name change that gets you into blue sky territory is fine by this writer. Infospace didn't even blink after its split in January, as its price continued to climb up strongly, never violating its 13 dma. The move today was supported by strong volume and the consolidation area around $190 should provide some near term support. Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put MAR 175 FHY OO 600 1.00 174.00 3.9% Sell Put MAR 180 FHY OP 303 1.81 178.19 7.0% *** Sell Put MAR 185 FHY OQ 115 2.13 182.87 8.1% Chart = /charts/charts.asp?symbol=INSP **************************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. 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