The Option Investor Newsletter Sunday 3-5-2000 1 of 5 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 3-3 WE 2-25 WE 2-18 WE 2-11 DOW 10367.20 +505.08 9862.12 -357.40 10219.52 -205.29 -538.59 Nasdaq 4914.79 +324.29 4590.50 +178.76 4411.74 + 16.29 +151.31 S&P-100 765.95 + 46.17 719.78 - 8.74 728.52 - 23.52 - 23.47 S&P-500 1409.17 + 75.81 1333.36 - 12.73 1346.09 - 41.03 - 37.25 RUT 597.88 + 41.14 556.74 + 11.06 545.68 + 8.58 + 11.58 TRAN 2434.45 + 83.19 2351.26 - 79.54 2430.80 - 5.33 -172.83 VIX 21.29 - 7.79 29.08 + 0.63 28.45 + 1.53 + 3.99 Put/Call .40 .41 .63 .59 ****************************************************************** Rational exuberance breaks black Friday curse. Fewer jobs, higher unemployment equals massive market rally. I know it sounds like a contradiction of terms but what is good for American workers is not always good for the markets. The February Employment report reported gains of only +43,000 new jobs compared with the official estimates four times higher. The unemployment rate rose to 4.1% when official estimates were a drop to 3.9%. What happened? You heard it here first. As I said on Thursday we felt the January report, which was much higher than expected, was exaggerated by weather related factors. We felt this report would come in less than expected as those factors worked their way out of the system. The herd on the street saw the surface numbers and thought it was the mother of all buy signals. The markets gapped open and the Dow ran nonstop to 10,443 before realization started to sink in. The NASDAQ surged farther into record territory closing at the high of the day and the first close over 4900. The Dow gained +504 points for the week and the NASDAQ gained +324. If you measure from the NASDAQ's intraday low on Monday of 4466 then the NASDAQ scored a +448 point gain. The NASDAQ has been on a run since bouncing off 4300 twice in February. So much of a run it has now tacked on +600 points since the last major period of weakness. It did have two days of simple profit taking and buyers bought the dip with a vengeance. At this point we have a really good chance of some serious profit taking at any time. The odds are greater due to the 5000 milestone. Indexes tend to falter at significant milestones after major rallies. N5K could prove to be a short term ceiling if we fail to break above it and hold on the first attempt. Since N5K was the end of 2000 target for dozens of market pundits, and it appears that we could hit it this week, then where are we going from here? We are sure there are as many ideas as we have readers so we are going to play a Nasdaq-5000 game. The prize is $500 and it is open to all current readers of OIN. The concept is simple. Click on the link below and tell us when the NASDAQ will first hit 5000 and when it will first close above 5000. All entries must be submitted prior to 9:AM EST on Monday. http://www.OptionInvestor.com/contests/n5k.asp The NASDAQ soared to the third biggest point gain ever on the third largest volume ever of 2.1 bln shares. Records are becoming so common that writers are running out of adjectives to describe the market. The NASDAQ has had only 14 days of triple digit gains ever and 11 of them have been this year. Top ten NASDAQ days 02/23/00 168.21 01/10/00 167.05 03/03/00 160.28 01/07/00 155.49 02/03/00 137.02 12/21/99 127.28 02/10/00 122.39 02/17/00 121.27 02/29/00 118.72 02/01/00 111.63 Also amazing is the volume. At 2.1 bln shares today only qualified as the third largest. Powering the huge gains this week were the semiconductor and biotech stocks. The SOX is now up +70% YTD but even that gain is overshadowed by the biotech index (BTK) with a +90% YTD gain. Even with the brighter outlook across the board these types of gains cannot go on forever. Trees do not grow to the sky. Technicians are becoming concerned that this euphoria is really turning into the speculative bubble that ends badly. With the NASDAQ extending its gains daily into nosebleed territory it might be wise to remember that the Dow is still in correction territory. Even with the +500 points gained last week the Dow is still down over -12% since the January high and still -3% under November-1999 levels. To put things into perspective the +202 point gain on Friday was in sharp contrast to the -1200 points lossed in the previous five Fridays. Yes, the Dow has gained back +500 points of the -1700 points lost since Jan-14th but in two of the bear trap rallies we gained over 300 points only to lose them again. Follow through is the key here. If the Dow can hold its own next week we have a chance. It really does not have to gain much to have a positive impact, just stay above 11200 and preferably above 11300. There is significant overhead resistance at almost every century mark and it will take a complete revival of interest in old economy stocks to power this index upward. Several of the laggards experienced a brief rebound on Friday but in reality their individual outlook is still bleak. MMM posted a $10 gain at the open on Friday but slipped back to close at $89.50 and only a $3.44 gain. MMM traded as high as $103 in January. IP gapped up +$4 at the open for a +10% gain but slipped back to only +1.19 for the day at $36.31. IP traded at $60 in January. AA jumped +3.50 at the open but dropped back to +1.13 for the day at $67.94. IP traded at $82 in January. Dupont managed to hold most of its +5.00 opening gains with $3.88 at the close but DD was significantly under the $74 it managed in January. The big Dow winner for Friday was ironically DOW Chemical. For some reason investors ran back to DOW and pushed it up +$14 from its 99.00 close on Thursday. Slippage did occur but DOW was able to hang on to +10.25 of its gains. Still closing at $109 was far shy of its January high of $142. My point here is why? Four of the Dow's most unloved companies sprinted on the rate relief rally at the open but were unable to hold onto much of their gains. Had they closed at the highs on increasing investor optimism then I would view the bounce in a more positive light. Instead I view it as a relief rally based on the news event. Nothing changed in the minds of most investors. These stocks are proud of managing single digit growth per year when tech stocks are powering ahead to 50%, 75% and 100% gains per quarter. These old economy stocks cannot even be considered "safe" investments in today's market. Why buy? I can't imagine why given the Fed is still in rate increase mode. We still have at least two rate increases in our future. The only thing changed is the possibility in some analysts minds that Greenspan would raise +.50% instead of +.25% in March. Since they were wrong anyway what difference did it make. Drug stocks, long held to be safe havens, just keep dropping. How much farther can the Dow rally when the bloom is gone from the Friday favorites if MRK, JNJ, PG all have charts with no bottom in sight? Another reason these stocks are not likely to rebound far is simply dictated by cash flow. Growth funds have received +$47.7 bln in cash in Jan/Feb while value funds have lost -$26.5 bln in the same period. Several value funds have complained that they would like to buy these beat down stocks at these levels but they simply couldn't do to a lack of cash. They are being faced with more redemption's than investments on a daily basis and they do not see any light at the end of the tunnel. Before you accuse me of getting my bear suit out of the closet I think I should temper my comments. The Dow had its best week since July-1999. We should celebrate! Then we should quickly turn our attention back to the NASDAQ because focusing on the Dow next week could be disappointing. The real excitement is strictly NASDAQ. What, the Russell-2000 is setting records also? Don't believe everything you see. The Russell-2000 could be renamed the Russell-13 since the recent major moves into record territory have been on the back of only 13 Russell "large caps." We should be celebrating the rebound of the market but we should always keep our eyes on the pillars of the markets as well. Take away the semiconductors and biotechs last week and the outcome would have been much different. How much longer do you think those leaders can continue to post gains of $30-$40-$50 per week without some profit taking? Just look at the weekly results for the OIN plays last week. The stocks of 17 of the 25 call plays had double digit gains. Profit taking anyone? Bond, what bond? When is the last time you heard about bond yields being a factor in the stock market? The 30-yr bond closed on Friday at 6.13% yields and have been trading in a tight range all week. This may change on Monday. Just when you thought it was safe to go back into the market Federal Reserve Governor Laurence Meyer launched a warning that the Fed may have to be "aggressively reactive" in the near future to halt the increase in consumer spending and allow the supply/demand equation to ease. Saying that economic numbers to come, even if benign, would not be enough to cause the Fed to stand down from the current rate increase policy and the Fed may have to react even more aggressively. The hawkish speech on Friday night held no hope for investors that the Fed would ease its stance anytime soon. Before I give you whiplash with my change of direction I want to point you to the broader market indexes of the OEX and SPX. Both of these broader market indexes have posted strong rallies even when the Dow was marking time tue/wed/thr of last week. This is very encouraging and could point to a healing process on a broader level. Both these indexes just barely closed over their respective inflection points and we are only a couple S&P future points away from slipping back into a technical negative. The OEX needs to confirm the move with a close over 785 and the SPX with a close around 1450. If either starts falling again the recent pattern of lower highs will be confirmed and the whole downward trend could start all over again. Last but not least is our friend (or enemy) the VIX. While the VIX does not always signal buys or sells exactly the indicator does forecast direction changes very routinely within a day or so. Look at the chart of the VIX above. On Jan-14th, the Dow top in January of 11749, the VIX was 20.90, the exact sell indicator we have today. On February 8th the VIX hit 22 and the Dow sold off -650 points in the next five days. Don't look now boys and girls but the euphoria is rampant and the VIX is flashing red. The companion indicator, the Put/Call ratio is .40 which is also on the low end of the spectrum. Under 50 is bearish, over 50 bullish. Remember that most down trends are triggered by the market reaching a new high after a strong run. Sounds like the NASDAQ to me. I am not saying the market is going to crash but I do think there will be some profit taking very soon. My current thought process, assuming we open up on Monday, would be a run to 5000 and then a drop on profit taking and a possible consolidation period before the run into April earnings. As much as I don't want to admit it, we still have room for another correction in the NASDAQ before the April earnings run. Trade smart, sell too soon. Jim Brown Editor Disclosure: My current positions include: NXTV, ARBA, OEX, QQQ, Editors note: Due to the volume of email I receive it is impossible for me to respond to even 20%. I usually get well over 1000 unsolicited emails per day. I can't even read them all, much less respond to them. Please don't take offense if I do not answer your email. I do try to set aside several hours a week to read subscriber email but I can normally only get through several hundred at best. If you have questions about OIN please direct them to Contact Support and a real person will respond. We cannot give specific answers to specific trading requests. We cannot tell you if you should hold your Dell stock or how to handle trades gone bad. We do love to get your email about your winning trades also. We pass them around like a pat on the back for a job well done. Within the next two weeks we should have our newest website revision up and it contains a huge website guide and frequently asked questions page. Please check these out before sending your emails. Thank you for your cooperation. Jim *********** JIM'S PLAYS *********** What a week! With the Nasdaq running rampant almost all of my naked puts were deep out of the money and highly profitable. When the Dow started fading at midday on Friday and the VIX dropping like a rock I closed everything and regrouped. With only two weeks to go before expiration the remaining premiums are slippinf fast. If we do get a pullback next week I plan on using the inflated premiums from the drop to sell more puts wherever stocks have dropped to support and rebound. When the VIX hit 21 on Friday afternoon I bought OEX and QQQ puts again just in case the market dies on Monday. I may have jumped the gun with the N5K euphoria so strong. The Nasdaq could sprint to 5000 on Monday morning and then fall back. I will be watching closely at the open. I only have two other plays open and both were started on Friday. NXTV $142.50 Short $140 calls With the announcement that Qwest might be taking a minority position in NextLevel the stock ran up $35. A totally unsupported level. The keywords here are "rumor" and "minority" stake. I sold the $140 puts when the price was only $130 thinking the news would come out and push the price over $140. When the price rocketed to $155 and then the follow on news was negative, IE; no news, I decided to turn it into a straddle and sold the $140 calls as well. When it started back down I decided to short it early at $145 and try to capture a couple more dollars. That is when disaster struck. No shares available to short! OOPS! I quickly covered the puts for anout a $12k loss (75 contracts). I still think the news will dry up and the calls will expire. Any market wekaness will only help. Time will tell. ARBA $330 Short March $330 calls ARBA announced a split and an analyst upgraded the price target to $350 on Friday. The excitement added $30 to the price. After soaring +1000% since their IPO last year and adding +$70 since Monday I took a chance and wrote calls on ARBA friday afternoon. The price started dropping around 2:PM and the candles on the 5 min chart were showing more red than green and getting longer. If the Nasdaq races off to 5000 on Monday morning I may get stopped out but ANY Nasdaq weakness should knock $10-20 off the stock price. (IMO) OEX - $770 puts QQQ $220 puts These two plays were strictly based on the big gains made by the Dow and Nasdaq last week and the extremely low VIX at 20.90. If ever there was going to be a pullback the VIX at 20.90 is screaming sell. Ironic that whenever all things look too good to be true they usually are......we will see if the VIX is lying or not on Monday. Nothing precludes it from dropping even farther if the Nasdaq bounds out of the gate on Monday. That will only make these positions uncomfortable but I will wait till I see what happens during the day and then add to them. ********** The game plan for this week is "wait on the market". You do not have to be in the market at all times and even if you can't sit out then only invest a small percentage. I think the next run to earnings will be the big one and I hope the markets drop like a rock on Mon/Tue to give us some good entry points for that run. Don't buy the first dip. Be patient. Trade smart, wait for the bounce and sell too soon. Jim ****************************** 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: 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 ************ Acxiom Corp: Better Marketing via Technology Knowing your customers is the probably the single most important element to running a successful business. With the evolution of the Internet, information, in many respects, is easier to obtain than ever before. But sifting through that information can be tedious and time-consuming. Companies that know the most about their clients, and can act quickly enough, will have the best chances for success. Acxiom Corporation (ACXM), based in Little Rock, Arkansas, is a global leader in this area. They provide comprehensive information management solutions using customer, consumer and business data. The company's databases provide information on 95 percent of US households. Besides its core data delivery business, which makes up 55 percent of sales, Acxiom also offers data processing and outsourcing services. Clients such as Allstate, Wal-Mart, Netscape, Procter & Gamble, and AT&T use Acxiom's information to pinpoint customers that might want their products and services. The company has been on an acquisition binge of late, buying data marketing and delivery companies to protect market share, and extend the breadth of its Acxiom Data Network, a new Web- based data delivery system. Consider the power that business gains when it can quickly and accurately see a big picture of their customers and markets to discern buying patters, product and market overlap, and new opportunities for cross-selling and upselling. Acxiom's products and services allow business enterprises to more effectively manage inventory, transportation, and communications, all which can further a company's competitive advantage. Say, for example, that you are a large insurance company, and that you want to launch a large mail/email campaign to existing and prospective clients, but you want to send only to those prospects that can afford the service and that have excellent credit ratings. Acxiom's technology products can quickly scour your company's database of customers, as well as its databases, to compile a customized "perfect" audience that result in the most responses and, thus, more sales. One of Acxiom's products, AbiliTec, has helped Acxiom bag several new clients. Abilitec is a customer integration product that links to Axciom's comprehensive knowledge base (Acxiom Data Network) of consumer and business name and addresses. AbiliTec facilitates customer relationship management by enabling companies to achieve a single view of a customer across multiple business lines and databases. AbiliTec can handle easily large-scale database environments, and can accommodate real-time transactional needs. Acxiom's customers span many industries, including automotive, credit card, healthcare, insurance, media, real estate, retail, banking, technology and telecommunications. Most companies in the business of providing online customer solutions are bleeding red ink. Acxiom's financials and fundamentals, on the other hand, look strong. For the nine months ended December 31, 1999, revenues rose 30 percent to $702.6 million. Net income totaled $63.5 million versus a loss of $34.8 million. Revenues increased in all segments of its business. As far as Wall Street is concern, Zack's Investment Research's survey of 13 analysts are estimating ACXM will earn 29 in the fourth quarter, ending March 31, 2000, up from 23 cents in the prior year period. Fiscal 2000 earnings per share are expected to be $1.00 per share, up from 84 cents last year. Fiscal 2001 estimates are for earnings per share of $1.17, which would render a price to earnings ratio (P/E) of just 26, based on ACXM's current share price of $31. From a technical perspective, ACXM stock looks poised to move higher, finishing the day at a new 52-week, and all-time high, closing at $31.58 per share. If you believe legendary investor Peter Lynch's theory that, "stocks that hit new highs tend to move higher," this is a good sign. Always be sure to do your own due diligence. ******* Ask OIN ******* Ask the Analyst, Sunday, 03/05/00 Last Week's Question Was Answered With An Astounding, Yes. By Ryan Nelson After watching an indicator work so successfully for so long, you can really start to trust the outcome. It proved itself again last week by signaling yet another top in the market. Of course, the indicator I am referring to is the VIX. It was rising all last week during the market turmoil before topping out in the low 30s. Sure enough, it signaled the top and begin to retreat. This helped most major indices to mammoth moves and lots of profit. So where is the VIX now? Back down to 20.90, almost ensuring there will be some profit-taking next week. It is never for certain as the VIX could continue to hover in the upper or lower range, but the more it extends out of the typical range, the more likely you are to see a sharp reversal. Enough with the VIX though. Despite being a beautiful Denver morning, I am ready to settle in at the computer and look at some charts. We had lots of requests this week so let's see how many we can answer. ---------------------------- Intermedia Communications - ICIX Could you please explain why icix is valued far below its intrinsic value. Since it owns 80% of digx, now trading at $137, I am at a loss trying to figure out why it is only trading at $55. -thank you, Jeffrey I know how you feel. We played ICIX as an earnings run for their most recent quarter and I was scratching my head over the fact that it didn't respond to the incredible book value it is gaining from DIGX. Not to mention ICIX isn't struggling with their business either. You would think this was a shoe-in play, but there are still a few factors that worry me. Namely, the short position increases every month. It is now up to 60% of the float. That is huge. You usually don't see that kind of massive shorting unless something is wrong. That alone would keep me from playing it. Especially since the stock won't respond to the incredible gains from DIGX. The chart doesn't show us anything bad, but I just can't bring myself to play a stock with such a high short position. I have seen too many fortunes lost when bad news hits the wire. Besides, in this market you do not need to settle for plays that have a dark cloud hanging over it, despite the potential. ---------------------------- Sonic Foundry Inc - SFO What are your comments on Sonic Foundry (SFO) AMEX and it's recent runup? -Molly Never heard of it until now, but the chart looks good. I personally don't play stocks with such a low average daily volume, in this case under 100K. It makes for some slow trading, large spreads between the bid and ask, and even high volatility in some cases. Fortunately, I don't see a lot of wild swings in this chart, which may mean it is a more stable stock. SFO is a provider of software products and services that enable its customers to create and edit digital audio and video content. Again, they are a real small cap (but up and coming) company. I like the recent breakout over the downtrend line. They had a 2 to 3 day move and are now consolidating. They also recently agreed to acquire another company, which may pressure the stock somewhat. But with that said, if SFO can hold the 5 or 10-dma and begin to bounce higher on renewed volume (buying interest), I think you may find another short-term play here. The momentum has been there for SFO so far this year and until it tells you otherwise, you go with the flow. ---------------------------- Chemdex - CMDX I bought CMDX at $120 last week. Now it is $240 (5 days later!!). What do you recommend? -Richard Well Richard, as the long time readers know, I don't recommend anything, just talk about what I see. But I would be happy to tell you what I would do with CMDX (now known as VNTR since they changed their name and symbol last week). Sell it and sell it fast, but that's just me. I know you are supposed to let your winners run, but I can't turn down a quick doubling of my money. I typically play options and let's say I buy something at the close on a good entry point. The stock has some good news the next morning with either a positive product announcement or an upgrade and I am looking at a double within the first few minutes, I can't help but take the profit. In some cases the news is so good that I will let it run, but I will take all the doubles I can get in such a short period of time. So it will come back to your goal for this investment. If it is a long-term stock play, then hold it. But with the VIX low and the market potentially in need of profit-taking, you may be able to buy it back under $200. I like this stock and the outlook for their business, but I can't resist such a big return in such a small amount of time. As for the chart, VNTR has struggled the past few days. Only up $1.69 on Friday when the market went on such a run. You can also see the intraday top at $220 in the afternoon. Whatever you decide, good luck and I hope you sell right at the top to make all the money you can! ---------------------------- Good Luck to all and don't forget to send in the symbols for any stock you want analyzed. Send those requests to Contact Support. Please put the symbol in the subject line of the e-mail. ---------------------------- DISCLAIMER: This column 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 Ask the Analyst picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable, but is not guaranteed as to its accuracy. ************** Market Posture ************** As of Market Close - Friday, March 3, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,700 11,250 10,367 BEARISH 2.17 SPX S&P 500 1,400 1,450 1,409 Neutral 3.03 * OEX S&P 100 740 780 766 Neutral 3.02 RUT Russell 2000 500 520 598 BULLISH 2.24 NDX NASD 100 3,800 4,000 4,443 BULLISH 2.24 MSH High Tech 1,850 2,000 2,148 BULLISH 2.24 XCI Hardware 1,300 1,460 1,588 BULLISH 2.24 CWX Software 1,200 1,470 1,578 BULLISH 2.24 SOX Semiconductor 800 900 1,211 BULLISH 2.24 NWX Networking 940 1,000 1,158 BULLISH 2.24 INX Internet 700 800 784 Neutral 1.06 BIX Banking 500 550 485 BEARISH 11.30 XBD Brokerage 400 450 488 BULLISH 2.31 IUX Insurance 500 550 470 BEARISH 11.30 RLX Retail 950 1,000 841 BEARISH 1.28 DRG Drug 340 380 315 BEARISH 2.18 HCX Healthcare 700 750 660 BEARISH 2.18 XAL Airline 120 140 121 Neutral 3.03 * OIX Oil & Gas 280 315 256 BEARISH 1.27 ***Posture Alert*** The employment figures sparked a huge rally on Wall Street, as fears of inflation have subsided, at least for one day anyway. Most industries participated in the big day, however, the Software sector led the way with a +7.29% gain! Other notables include Semiconductors (+6.64%), Internet (+6.46%), and Airlines (+4.76%). With this most recent action, we have upped Airlines and the S&P 500 to Neutral from Bearish. ****************** Market Sentiment ****************** Sunday, March 5, 2000 Bill Gates and your $395 bucks! The employment figures that came out Friday caused a broad-based explosion with all sectors participating. The Dow has now made it 5 days (of gains) in a row, and the NASDAQ continues to do a good job of outperforming all other indexes, as it closed at another record high. Volume continues to surge on the NASDAQ, as 2-billion share days are becoming ever more the "norm." Below are the top record volume days, and as you can see, we are shattering records every week! Date: Volume: 03/01/00 2,232,343,100 03/03/00 2,151,119,000 03/02/00 2,137,050,406 02/29/00 2,088,835,400 02/17/00 2,008,438,100 01/24/00 1,980,702,700 02/08/00 1,971,175,500 02/24/00 1,944,047,900 01/21/00 1,916,620,600 02/18/00 1,898,407,400 02/23/00 1,892,802,200 So not only did the NASDAQ trade big volume, but it also closed up another +160 points! If the old adage of: volume precedes price follows here, NASDAQ 5500 is just around the corner! Date: Change: 02/23/00 +168.21 03/03/00 +160.28 01/10/00 +167.05 01/07/00 +155.49 02/03/00 +137.02 12/21/99 +127.28 02/10/00 +122.39 02/17/00 +121.27 02/29/00 +118.84 02/01/00 +111.63 09/03/99 +108.87 Now with this continued surge in volume, we would not be surprised to see the NASDAQ rip through the 5,000 mark in relatively easy fashion. However, some things to take note for Monday/Tuesday would be that this market appears to be in a near-term overbought condition. The Volatility Index closed Friday at 21.29, which has been a reliable indicator to lighten up on positions. Now don't get us wrong, the VIX has been a teenager before, and it easily could be again, but the statistics point that at this stage, lightening up could be the best strategy. Now, in the past, we have seen the VIX get caught in a narrow trading range. We highlighted this fact below in the chart: As you can see, the VIX traded in a relatively narrow range from November to January (as highlighted by the arrows), in which it never hit an oversold area (low 30's). Now during this time frame, the NASDAQ gained +1,000 points, with the VIX never closing below 20. So at this stage (for the extremely short term), we would look to lighten up positions, and then look for a re-entry point after the VIX gets out of the overbought area. Another gauge that we look readily look at for our trading is the Pinnacle Index on the OEX. In last Sunday/Tuesday's letter, we stated that based on the figures, we were due for a rally. Well, we got the rally and then some! However, when looking at the latest figures, the Pinnacle Index for the OEX (765-785) is extremely heavy, which would indicate that a slight pullback would be in order. With March expiration in less than 2 weeks, we view this area of the OEX as being a hurdle, and most likely, we will not surpass this area until after expiration. However, should the bears start aggressively buying puts in this range on the OEX, our figures will easily change. We will update you on any of those changes, but as it currently stands, this index is due for a breather. As a side note, we found this analogy quite amusing: Microsoft Stock Price (3/3/00): $96 1/8 Bill Gates's Wealth: $108 billion U.S. Population: 274 million Your Personal Contribution: $395 Bill thanks each and every one of us! 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. With the NASDAQ surpassing volume of 2 billion shares again, this money is obviously flowing into technology. Short Interest: Short interest continues to climb as quickly as the market. The short interest on the NASDAQ increased another +8.51%, for a 5th consecutive record. Interest Rates (6.117): The current yield is now safely off of 52-week highs and is temporarily out of the danger zone. Mixed Signs: None BEARISH Signs: Pre-Release Season: With April just around the corner, we have the beginning of pre-release season. Over the next 3 to 4 weeks, companies will let Wall Street know that their profit/sales goals are not being met, and their stocks will get brutally punished. 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. Investor Expectations: More and more investors are now expecting high double-digit growth if not triple-digit expansion in their portfolios. This extreme positive sentiment could help fuel a future selloff in technology shares. Volatility Index (21.29): The VIX continues to prove that the low 30's are an excellent buying opportunity, and the low 20's continue to be a great selling opportunity. The VIX is currently indicating an overbought market. The Power of Sentiment Analysis It has often been said that the crowd is right during the market trends but wrong at both ends. Measuring and evaluating the sentiment of the crowd, therefore, can give savvy option traders a decided edge. Pinnacle Index OEX Friday Benchmark (3/3) Overhead Resistance (790-820) 16.85 Overhead Resistance (765-785) 6.23 OEX Close 765.95 Underlying Support (740-760) 0.69 Underlying Support (700-735) 2.71 What the Pinnacle Index is telling us: The OEX got a nice lift on Friday thanks to the employment figures, however, the Pinnacle Index is indicating that the OEX is due for a little breather. Both overhead resistance levels are top heavy, indicating that the OEX will struggle at these respective benchmarks. Put/Call Ratio Friday Strike/Contracts (3/3) CBOE Total P/C Ratio .40 CBOE Equity P/C Ratio .32 OEX P/C Ratio 1.36 Peak Open Interest (OEX) Friday Strike/Contracts (3/3) Puts 680 / 9,154 Calls 750 / 7,497 Put/Call Ratio 1.22 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 28, 2000 Bottom 29.09 March 3, 2000 21.29 Investors Intelligence Major Percent Percent Date Turning Point Bullish Bearish October 97 Bottom 22.0 48.3 July 20, 1998 Top 52.0 24.0 October 8, 1998 Bottom 38.5 42.7 January 11, 1999 Top 58.3 30.0 March 4, 1999 Bottom 49.1 32.5 Oct. 13, 1999 Bottom 39.2 37.5 February 25, 2000 51.8 28.6 March 2, 2000 52.3 28.3 ************* COMING EVENTS ************* For the week of March 6th, 2000 Monday None Scheduled Tuesday Productivity-Rev. Q4 Forecast: 6.4% Previous: 5.0% Consumer Credit Jan Forecast: 7.0B Previous: 11.2B Wednesday Fed Beige Book Thursday Initial Claims 03/04 Forecast: 280K Previous: 275K Wholesale Inventories Jan Forecast: 0.4% Previous: 0.4% Friday None Scheduled Week of 3/13 03/14 Retail Sales 03/14 Retail Sales ex-auto 03/15 Business Inventories 03/15 Export Prices ex-ag. 03/15 Import Prices ex-oil 03/15 Industrial Production 03/15 Capacity Utilization 03/15 Current Account 03/16 PPI 03/16 Core PPI 03/16 Housing Starts 03/16 Building Permits 03/16 Initial Claims 03/16 Philadelphia Fed 03/17 CPI 03/17 Core CPI 03/17 Michigan Sentiment ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. 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. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. 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The Option Investor Newsletter 3-5-2000 Sunday 2 of 5 ************* WOMAN'S WORLD ************* Conversion Ratios are Important By Mary Redmond My best trade this week was my Qwest leaps. I was getting a little tired and bored of this stock on Monday when the stock drifted down to 46, and my leaps drifted to 14 1/2. On Wednesday a rumor crossed the newslines that Deutsche Telecom was in takeover talks with Qwest. The stock shot up to 58 on Wednesday, and I thought it had further to go. The next day it opened over 63, and I sold my leaps at 28 1/2 for a 16 1/2 point gain. I still thought the stock was a good buy so I bought back in to Qwest 2001 50 leaps at 15. Neither company had publicly commented on the rumors. If the takeover actually happens one of the important factors to watch for is company management changes. When the management of a company is not given the same freedom and decision making abilities, corporate mergers sometimes work out for the worst. On Thursday afternoon additional news came out that Deutsche Telecom was in discussions with Global Crossing and Qwest stopped trading temporarily, then resumed in the range of 58 to 60. On Friday I sold the leaps at 17 5/8 when the VIX dropped below 22. I like Qwest even at a market capitalization of over 44 billion, regardless of the takeover topic. Later Friday news crossed Reuters that that DT and GLBX were not holding discussions. This on again off again started making me dizzy. IFCI sold off after earnings but stayed above 30 , which I interpret as continued interest in the company. The backlog of orders this company has looks as if their revenues could double or quadruple this year, and I like it as a long term holding. CMGI popped like a champagne cork early in the week, probably because of upcoming earnings and the fact that the company presented to institutions at the Robertson Stephens conference this week. I sold the shares I bought a couple of weeks ago on Monday, then bought back in at 127 1/2. The stock hasn't had as dramatic a run up to earnings as it did last fall, when it went from 100 to over 300. It may sell off after earnings, but CMGI is one of the few companies which has a history of going up slightly after earnings. In addition to buying the stock I had put on a put credit spread previously by buying 10 CMGI march 100 puts at 3 7/8 and selling 10 CMGI March 110 puts at 7 1/4. This gives a credit of almost 4 points if CMGI can stay above 110 before expiration. Another possible strategy would be to sell the 110 put naked, but this can tie up alot of margin. I still think CMGI is undervalued long term, and has a superb management team, but the internet sector has not performed as well as some of the other sectors like chips and biotechs lately, so CMGI may stay in a trading range for a while. Some people have been making meaningless comparisons to ICGE, which is not relevant since they have different business models. On Wednesday of this week I bought Nextlink July 100 calls at 24 1/4 when the stock was 110 and sold them at 26 the same day. The reason I liked the calls is that they were already ten points in the money. When the 100 calls sold down to 25 I put on a call spread buying the 100 calls at 25 and writing the 110 calls at 19. On Friday I considered buying straight calls but I hestitated with the VIX at about 21.5. I had purchased a Lucent leap back when Lucent was 50, and sold the leap when the stock went up to over 70 this week. I think Lucent is a great long term buy, but any time an option doubles I think it should be sold. Sometimes when you are bullish on a stock after it has moved up it can be more profitable to sell puts than buy calls. The reason is that volatile stocks have both volatile call and put ratios. This is because of a strategy known as a conversion, which is theoretically a risk free profit usually only executed by market makers and specialists on the floor of the exchange. Understanding how the conversion strategy works can be important to understanding how options are priced. A conversion strategy consists of buying 100 shares of the underlying stock, buying a put and selling a call where the call and put option have the same strike price and expiration date. This position has a theoretically risk free profit if the cost of the position is less than the strike price of the option. Whenever the call/put ratio is out of whack arbitrageurs and market makers will execute conversions until the ratio is precise. Individuals trading for their own accounts at brokerage firms rarely have the opportunity to profit from conversions due to transaction fees. An example of a conversion is as follows: Buy 100 CMGI at 132, buy a June 130 put at 23 (the price Friday afternoon) and write a June 130 call at 26 7/8. The cost of the position is the cost of the stock plus the cost of the put minus the credit received from the call. In this case the profit is only 1.87 points. What the stock does during the rest of the time period is irrelevant. The only risk is if the stock closes at exactly the strike price on expiration date in which case you don't know if you will be called. If the stock is not called and drops Monday morning there will be a loss. In this case certain traders might think it makes more sense to sell the 130 put and receive 23 points than to pay 26 7/8 for the call. The money flows this week may have been helpd by over 50 billion in tax refunds the IRS has already mailed. Some of that money will come in to the market. According to AMG Data Services, cash flows into stock mutual funds have already picked up after dropping significantly the prior two weeks. For the week ending March 1, over 10.9 billion went into equity mutual funds. Tech funds took in 2.6 billion, small cap aggressive growth funds took in 5.3 billion, and international funds took in 5.3 billion. Look out for that money to be spent. Mary Redmond Contact Support ************** QUE PASA? OEX Ole, Ole (pronounced oh-lay, oh-lay) By Linda Schuepp Warning: You may skip the first 2 paragraphs if you are in a hurry. It's been a while since my last article, but I have been away on my yearly Mexican getaway, followed by an Option's Seminar in L.A. I was pleased to meet many OIN readers at that seminar. Thought I'd give you a little update, since I received so many inquiries about my planned escape. This year it was quite an ordeal to get to my annual Mexican Spa destination. I go there as a relaxing retreat, to get away from the market, responsibilities and every day life in general. I was originally routed through Chicago during the only major snowstorm the east has seen this winter. The prospect of getting marooned in Chicago for several days, is not my idea of a relaxing vacation so I, along with a couple of thousand other panicked "President Week" travelers, attempted to find alternative routing. After leaving Boston a day later than scheduled, I had to fly to San Francisco, stay overnight, and get up at 5 AM the next morning in order to catch a 6:15 A.M. flight to L.A. From L.A., I took yet another flight to Mexico City finally arriving at 4:30 P.M. the following day, two days after I began the journey. From there it was a 2-1/2 hour hair-raising ride through the twisting, mountainous roads in a vehicle with no shocks. I was fortunate not to have to share the vehicle with any live poultry. Needless to say, I was desperate for a massage and a good margarita. It was too late for the massage, but I comforted myself in the outdoor hot tub with a few margaritas. I really try to leave the market and the rest of my world behind, but this year the spa offered Internet access. Wow, I thought, I can check a few stocks, send a couple of e-mails to my family and still have a ball. You will recall, I own Tel Mex stock, so I figured, this could only help my position. I only connected twice during the week because it took 20 minutes to get a clean connection, and when I did I was connected at 200 baud. My daughter thought she'd be cute and send me a greeting card to say she missed me. It took 20 minutes to download it. Needless to say I didn't bother checking the market. During the week I had lots of pool time to reflect on my OEX strategy I wrote about before I left. I put on an "At the Money" straddle on the OEX before I left, with instructions to my broker to sell either leg if I could get 5 points. With a delta of .5 for an ATM option, I figured if the OEX moved 10 points I should be able to get my 5 points. The put side was closed out while I was gone and I was able to close out the call side this past week for 5 points as well. Since I returned I have spent an inordinate amount of time trying to tweak the strategy, but because I do not have historical daily option data for more than 5 days, it is quite difficult to accurately backtest my strategy. If anyone knows of a service, feed or publication that provides historical option data such as: daily open, hi, lo, and close-- please let me know immediately. I've been asked a lot of basic questions by new readers as to which strategies you should put on and when. It sounds very complicated and seems that the possibilities are endless, but there are really only a few strategies you need to understand. Simply focus on the key issues and implement the proper strategy. Step 1: Review charts of the security(s) you wish to trade and determine key support and resistance levels Step 2: Determine Market Direction (sector & exchange) Step 3: Check Historical and Implied volatility to determine if options are expensive or cheap. Step 4: Pick your Strategy Step 5: Determine your exit (both good and bad) Step 6: Put on the Trade After step one, you should have 4 or 5 candidates. After step two, It is best to choose those securities that are trading in the same direction as the sector and the exchange. The old saying "the trend is your friend" is never too trite. It is much easier to make money on a stock that is going up along with its sector and along with the exchange it trades on. If the market is going up: implement bullish strategies. There are really only 4 main strategies-buy a call, sell a put, buy a bull call spread, or sell a bull put spread. Buy a call-simple strategy, but subject to time decay. Biggest mistake people make is to buy OTM calls on stocks with no liquidity or calls with too little time left. As a buyer, time is your enemy. If I buy calls, and it isn't too often, I try to buy with at least 2 months left and some intrinsic value ("in the money"). I actually prefer leaps (Long Term Equity Anticipation Security). Check with your broker, but you are now only required to put up 75% on options with 9 months or greater to expiration. This greatly changes your potential returns! Sell a put-simple strategy, but subject to larger margin requirements and greater risk. I like to write OTM puts BELOW a support with very little time left. I am basically a chicken when it comes to naked positions. As a seller, time is your ally. Buy a Bull Call Spread-buy a lower strike ATM or ITM call and sell a higher OTM call. Think of this as a covered call, except that you are long a call instead of owning the stock. Your risk and reward are both limited, but you can't have it all. Sell a Bull Put Spread-buy a lower strike ATM or OTM put and sell a higher strike ITM put. This will put money in your pocket, which is why a lot of people like this one. Like the Bull Call spread, your risk and reward are both limited. If you are bearish, you would do the opposite of the above four strategies: buy a put, sell a call, sell a bear put spread, or buy a bear put spread. Regarding Step 3: If implied volatility is greater than historical volatility, than options will be expensive, therefore, you should be a seller of options (sell a call, sell a put, sell a spread). If options are cheap you should implement long strategies (buy a call, buy a put, buy a spread). So once you've determined market direction there are really only 3 strategies you can implement and they depend on your level of comfort. Now here comes the hard part. Determine your exit strategy. Do this before you place the trade. Write it down, put a copy on your bathroom mirror if necessary and follow it. Don't be greedy if your winning, and don't be a sucker if your losing. Now here comes the easy part. Put on the trade and monitor it. Don't put all your eggs in one basket. You should have at least 4-5 different positions, hopefully not all in the same sector. That way, if one trade is a loser, chances are the other 4 will be winners. As Jim says, "sell too soon", and that means if you're winning but especially if you're losing! Lynda Schuepp Contact Support *************** Renee will be back on Tuesday *************** TRADERS CORNER *************** A Nice First Day Back & Trading Checklist By Janar Wasito All vacations should go this well -- a great trip and a terrific rally on the first day back. It was hard not to be happy about the market today. Almost all of my plays were up, and big: New LEAPS, purchased a few weeks ago: BRCM (+26), SEBL (+18), IMNX (+23), NOK (+8). These are going to be the basis for my LEAP/ Calendar spread strategy on stocks that are Gorillas, split often, and thus offer maximum potential to capture volatility by selling calls with 10 days to expiry against LEAPs with 22 months to expiry. My other LEAPs are GE, CSCO, QCOM, GSTRF. Nice to see some huge moves in my new LEAPs! Bull Spreads: JDSU (+7, both March Credit and Sept Debit Spreads); CMGI (+10, Jan01 Debit Spread); ICGE (+8, Sept Debit Spread); NOK (+8, July Debit Spread); IMNX (+23, March Credit Spread); VIGN (+18, July Debit Spread). The principle in my spread trading is that the 30 day or less credit spread (always 1:1 reward: risk or better) is the solid rocket booster that generates the cash flow to put my longer term debit & credit spread plays (always 2:1 reward: risk or better, preferably 3:1+) into a position to capture even higher rewards over a longer period of time. There's no free lunch: my returns are lower than if I had opened straight call plays on these stocks. On the flip side, I think that I can sustain this type of trading for a longer period without burning out. I think that I can control my draw downs more effectively with this style of trading. I also feel that I can use this methodology to manage a larger scale of money. I spent a lot of time on the flight back reading various business magazines about where the economy is headed. Many articles are arguing that most Internet companies are going out of business because new dot.coms are going to run out of advertising dollars, etc, etc. Money managers who have been losing out of the technology boom are spilling a lot of ink (electrons?) trying to project a bubble, etc. I live in the heart of the Silicon Valley explosion, and I believe exactly the opposite. I think that the shift to new economy companies will continue and accelerate. Individual and institutional investors have been pulling cash out of the DOW stocks and putting it into aggressive growth, technology funds. Those fund managers are going to trade the new cash like you and I trade options: they are going to put it into new, hot sectors, as they emerge. Watch for the emergence of new sectors, and the fragmentation of sectors. Which Biotechs are going to aid the development of biocomputing? Jim Clark, founder of 4 billion dollar companies, just sank 150 million into the Stanford Industrial Engineering program in biocomputing. Which networking companies are positioned to benefit/lose when optical networks kill SONET? Internet companies? What is NOT an Internet company today? Which ones will aid the boom in personal finance & trading as Baby Boomers become week- or day-traders like a crowd of hippies at Woodstock? Which healthcare companies will those Baby Boomers need when they hit 60 later this decade and the next? I am not saying the market will go straight up. I think that there will be big pull backs, and, with the speed of money today, they will be very fast. But I do think that the general direction is up. It will not be enough, though, to pick a basket of leading tech stocks, and to put a lot of cash into them. DELL, AOL, MSFT are all great companies, but they are hit tunes from years past, not 2000. Here is my trading checklist. It answers a lot of questions that I have received from readers over the past few weeks. I basically spent the first two monthes of this year re engineering my approach to trading. I had to go through this process because of a great QCOM trade that resulted in a massive gain, and a different scale to my portfolio. Not wanting to trade with only a small percentage of my assets, I decided to come up with a methodology that would minimize my risk, while putting a significant % of my assets in play. I also learned the hard way that a system that does not take stress into account cannot work over the long run. My schoolwork may have suffered a bit, but I think the end result -- both in financial terms, and in terms of my ability to do this for the long run -- are worth the effort. This checklist works for ME, and should not be construed as a recommendation for any one person in particular. Use it for what it is worth. It is also a work in progress, and it doesn't mean a thing if you can't pull the trigger. A lot of traders have tons of programs, all the reference books, and detailed checklists, but they still are too reluctant to put on a trade. This is probably a combination of lack of capital, overall life situation, and the result of getting burned. My goal is to make my trading a lot more like training for an athletic event -- consistent workouts, good decisions, and heads up play on game day. Nothing in here is rocket science, but it does require consistent work. This approach to trading takes the best of different methodologies I have been exposed to -- Jim Brown and this newsletter's market awareness and stock selection; George Fontanill's lower stress approach to combination plays; elements of trading psychology from Jack D. Schwager, ed., The Market Wizards & The New Market Wizards, and Marty Schwartz, Pit Bull. As you attempt to put together your own checklist (and you must put together your own, even if you copy parts of other trader's work), remember this -- less is more. If you can get the strategy that fits your personality from a free source, or a book, all the better. If you can find it on the web, print it out, read it over and over until it makes sense, great. Don't feel like you are better prepared to face the market because you have 3 different real time quote services, 5 brokers, and some expensive, proprietary software that costs a fortune. Those costs all come out of your bottom line in the business you are running. I use this newsletter, qcharts, and if I could have only one broker, it would be preferred trade. The rest of this, I have put together from sources on the web (free trials are great), books, lunches with some other traders, etc. I have also worked through a variety of strategies because I need to be in a trade to really perceive the dynamics of things like time decay (theta) and why it can be so profitable. There are tons of great mathematicians in business schools and investment banks, but the real test is who can make money. My finance professor has been in inflation indexed treasury bonds and East Asian funds for the past few years because his extensive knowledge tells him that these are the assets which make the most sense. But after you have gone through the different strategies, I think it is best to settle on the two that work best for you. For me, those are credit/ debit spreads and LEAP/ calendar spreads. Read extensively, try everything, then settle down with a few strategies and execute. Less is more. As I trade, I will doubtless boil down this monstrosity even more. Trading Checklist 1. Money Management. a. Principles i. Trade for the long run. Avoid compressing/ stretching the spring. Take at least one week of solid vacation per month. Reward successful period with travel & recreation. View trading as an athletic challenge. ii. George's Rule: Success in Trading is determined by how much you put into stable assets like cash & real estate, not by how big your trading account gets. iii. Corollary to George's Rule: Success in Trading is determined by what you do with your non-trading time, not by how much time & effort you put into trading. iv. Ed Seykota: Everyone Gets What They Want from the Markets. I want $_____ dollars, after taxes -- not more, not less. v. Paul Tudor Jones: Play Great Defense, Not Great Offense. b. Stop Loss Rules i. Position: Immediately exit positions which are down 15%, or 7% of underlying stock ii. Portfolio: Immediately close 50% of positions when down 3% from previous month's close; repeat as necessary. c. Asset Allocation i. LEAPs/ Calendar Spreads (50%) ("LT Option Account") 1. Add 8% of total available assets to LEAP positions each month. a. 2% per LEAP b. 1% per 9 month call (where LEAP is unavailable) 2. Maintain cash reserve of 15% of total assets 3. Sell current month calls with 10 days remaining at oversold moments. Target: Pay for 5% of LEAP per month. a. Principle: Shorting calls with 10 days until expiry lowers the cost of LEAPs ii. Spreads (50%) ("ST Option Account") 1. Max Risk: 1% per position 2. 30 or Less Credit Spreads (Bull Put Spreads): 10 15 per month. a. Always 1:1 Reward: Risk or better 3. 3 to 6 month Debit & Credit Spreads a. Only as many as previous month's credit spreads have "paid for." b. Always 2:1 Reward: Risk or better, preferably 3:1. iii.Future Asset Classes: Real Estate (50% or less), ________ (% to be determined) 2. Stock Selection a. Time Allocation. Sunday after 6 P.M. until completion. One hour per weekday evening. b. Sector. Look for hyper growth benefiting Baby Boomers. (The Long Boom, Roaring 2000s) c. Leading Companies. Look for Gorillas. (The Gorilla Game, Crossing the Chasm) Trade what I understand (One Up on Wall Street, Beating the Street) d. Watch List i. Add companies from OIN Sunday, Tuesday & Thursday newsletter to watch list with entry (support) points ii. Set up credit spread plays with break even or max profit at suggested support levels iii.When company is removed from OIN play list, add it to the appropriate watch list category: Internet, Computer Software, Networking, Wireless, Biotech 1. Be fast to add new sectors as they emerge iv. Each Sunday, update watch list in my.yahoo.com, note upcoming earnings & splits and recent new highs; cruise company web sites. v. Candidates for Spreads 1. Consolidation on major support 2. Low Implied Volatility for Debit Spreads 3. High Implied Volatility for Credit Spreads 4. Deep OTM Options Available vi. Candidates for LEAPs 1. Huge Market, Good Management, Sustainable Competitive Advantage 2. 2 or More Splits in Last Year a. Principle: Time & Volatility Premiums remain similar for the split LEAPs, and for the calls which can be sold against the LEAPs. e. Sources: View trading as an opportunity to learn about business & the most exciting period in history. i. Investors Business Daily ii. San Jose Mercury News iii.Red Herring iv. OIN (Calls, Naked Put Candidates, Local Club) 3. Checklist for Taking Position (Entry/ Strategy Selection) a. Time Allocation. 30 Minutes after market opens. 60 minutes before market closes. b. Market: Is the Market overbought or oversold? i. Check Charts & Moving Averages prior to making a trade. Don't go against them. ii. VIX. Below 22 = overbought. Over 28 = oversold. iii.TYX. Less predictive power, but note for macro shifts in direction. iv. DOW, COMPX, OEX 1. Resistance & Support Levels. 2. Above/ below 10 Day Exponential Moving Average (EMA). Above = green light (beware reversal). Below = red light (might be entry point) 3. Hitting Bollinger Bands a. Above = Overbought b. Below = Oversold 4. Stochastics: Major drop offs = entry points v. NDX/ NDOOH & SPX/ SPOOH. Are the futures above/ below the cash? Beware 3:20 Sell Program. vi. ADVDECV.NQ & ADVDECV.NY. View in 30 minute chart to spot intraday reversals which might be entry points. vii.Are we above or below moving averages, i.e., in positive or negative mode? viii.Are we above or below a dominant trend line? ix. Has recent price action taken out previous highs or lows? c. Sector: Is the Sector over bought or oversold? i. Sector Indexes (CWX.X, MSH.X, SOX.X, DOT.X, XCI.X, NWX.X, BTK.X, GIN.X, XBD.X) 1. Resistance & Support Levels 2. Above/ below 10 Day Exponential Moving Average (EMA). Above = green light (beware reversal). Below = red light (might be entry point) 3. Hitting Bollinger Bands a. Above = Overbought b. Below = Oversold 4. Stochastics: Major drop offs = entry points ii. Leading Stocks. Are there major news driven moves in the sector leaders (splits, earnings, new products)? iii. Market is oversold, Sector is Neutral/ Overbought: Do Nothing iv. Market is overbought, Sector is Neutral/ Sold: Do Nothing v. Market is oversold, Sector is oversold: Look at stocks vi. Market is over bought, Sector is overbought: Look at stocks d. Stock i. Individual Stock 1. Resistance & Support Levels 2. Above/ below 10 Day Exponential Moving Average (EMA). Above = green light (beware reversal). Below = red light (might be entry point) 3. Hitting Bollinger Bands a. Above = Overbought b. Below = Oversold 4. Stochastics: Major drop offs = entry points ii. Splits, Earnings, New Products? iii. Market is Oversold, Sector is Oversold, Stock is Neutral/ Overbought: Do Nothing iv. Market is Overbought, Sector is overbought, Stock is Neutral/ Oversold: Do Nothing v. Market is Oversold, Sector is Oversold, Stock is Oversold 1. Buy LEAPs 2. Enter Bull Spreads 3. Adjust Bull Spreads (Close Short Leg of Bull Call Spread) vi. Market is Overbought, Sector is Overbought, Stock is overbought 1. Write Calendar Spread 2. Exit Bull Call Spread e. Always ask before taking a position: do I really want to have this position? f. Always know the amount I am willing to lose before taking a position. Know the uncle point and honor it. g. After a very profitable run of trading, reduce the position size. h. After a successful period, take a day off as a reward. i. Tricks of the Trade: 1. Gaps in Charts 2. Mutual Fund Cash 3. Three Day Rule 4. Put/ Call Ratio 5. How Market Reacts to News 6. New Highs/ New Lows 7. Up Mondays 8. Market Probability Calendar 9. Option Expirations 10. Trading on the Half Hour 11. Take Out the Highs/ Take Out the Lows 12. First Trade Back 13. Worst Fears Not Realized 14. Ego: "I can tell you how I became a winner I learned how to lose." Janar Wasito Contact Support ****************** OPTION CLUB UPDATE ****************** Sunday, March 5, 2000 THE OPTION INVESTOR TRADING CLUBS ARE THE PERFECT SOLUTION TO THAT "TRADING ALL ALONE" FEELING!!! Visit the trading club message boards and see what others have to say: http://boards.OptionInvestor.com/tradersclubs/ UPDATE FROM ST. LOUIS, MO ************************* We had our regular meeting on Monday the 21st. Our attendance continues to build and I continue to get more people who are interested. We viewed an instructional video about splits and split runs. This was followed by a discussion of split plays and the split trader. Again, thanks to Mike Moore and the Deckerd's for the AV support. Our next meeting will be March 6. At that meeting each person will present a play - successful or unsuccessful- and discuss it. Why you did it, what your plan was, how it went and lessons learned. Remember it is good to learn from others' mistakes and the more we have the fewer mistakes you will make. A few weeks ago I presented a put spread I did on MSFT. Here's an update. So far I have had 400 shares (I did 10 contracts) put to me. In each case I sold the shares and then sold my long puts with enough spread to about breakeven. First 200 I actually made a few bucks, but on the second my only loss was from commissions. This was one of the motives for doing this play. If it didn't work there was very little downside with very positive upside. I think MSFT has good upside. Just not now. I will probably try to trade out and close the position with a profit. Our lunch today had a record attendance. I secured Ozzie's Bull Pen for each Thursday in March so lunch will be there until further notice. We will reserve it month to month. Any questions or need information drop me a note. Look forward to seeing everyone on the 6th. Maris ************** BROKERS CORNER ************** WHAT MAKES A TRADER HAPPIER? A PROFIT$$$ OR HOPEFULLY MORE PROFIT$$$ By Alan Knuckman The goal of all trading is to make money. That fact is sometimes lost in the battle with the market and the emotional effect it takes on us. Ego gets in the way of our decision making process and unfortunate results can occur. Mastering emotions requires discipline and planning prior to entering a trade. If you place a profit taking order at a level you would be happy with of $500, $1000, $2500, etc, the only regret is that YOU COULD HAVE MADE MORE MONEY. If it doesn't get there you can always adjust your exit but at least a goal is in place. At minimum exit half of the positions if you double your money. The worst thing that could happen is you break even. It certainly beats losing money. Everyone's measure of a successful trade is different. Some traders would rather lose money than miss out on a big move. Chasing markets or greedily refusing to take profits often catches up with you. Another day always leads to more opportunities. MANY TRADERS HOLD POSITIONS TOO LONG and are afraid of what they may miss not being in the market. Fear and greed are not the deciding factors for successful traders. The natural tendency for traders is to get out when a position is going against them or because they are afraid to give back profits. It is very hard to think clearly if fear is used in determining when to exit. A disciplined trader places both a profit taking order at a level they are happy to exit and a protective stop loss if the market fails to act as they had planned. When the emotions involved in trading are minimized more successful results usually follow. The strategy of peeling off positions at different levels and setting targets instills trading discipline but doesn't suit everybody. The emotional "would have, could have, should have" trader sometimes tries to feel when it is time to exit. That style of trading is not necessarily focusing on monetary success but instead the entertainment value in being right. An experienced trader would use the peaks and valleys to exit and possibly reenter positions. As obvious as it seems making some money is always better than losing. A stock can always move much higher or lower than you anticipated. Choosing the top or bottom is nearly impossible and the majority of money is made somewhere in the middle. Try to determine before hand what makes you happy as a trader and your results should be better. Alan Knuckman and Andrew Aronson Lasalle Options Toll-Free 888-281-9569 www.lasalleoptions.com *********** An Osmotic Technical Point of View A view from the edge. Well, was that an interesting week or what? For me it was so in more ways than one. Don't know about you but, I made more money last week than I had so far this year up until Monday. Brian Eno, whom I respect very much once said "Don't be afraid of things because they're easy to do" and I think that may be the quotation for the week. Last week was kind of a blur for me trading wise, other than everything was easy. Entered trades when the charts said to, put the stops in, and also traded Osmotically. That is I listened to that quite little voice in the back of my head and exited or entered a dozen or so trades earlier than the chart indicated. Was right every single time too Your subconsious gray matter is pretty wonderful when you listen to it. The twist this week for me was that I had my third brush with mortality in the past 10 months Monday evening. It could best be described as a catastrophic failure of a mechanical device. I think that I need to change hobbies. This one was as close as I ever care to get. As the numbness of actually how close this one was wears off a bit, I can state unequivocally there is no stiffer tonic to help you reexamine your priorities in life. It has allowed me for however briefly, to reduce things to their lowest common denominator. I think that is partially why trading was "easy" this week. I hope that all of you who have followed the ETEK equation are having fun! How about that premium! I suggest the you might want to consider taking some of the $100+ that you have made on those calls off the table. Sometimes the most profitable plays are too obvious (see quote above). Considering the response that I received from my story on charting, I am going to see if Jim can put in some charts to show you how I judge getting into and out of some of my plays. Ones that I have actually made money on. You can get theoretical BS just about anywhere but, not here. These are by no means scientific or maybe even "correct" but, they work for me. Well, I shall leave you with a suggestion for those of you that racked up some big gains this week. Take some of the money and go do something for the ones that you care for. Do not wait around to later either. Do it today! Otherwise, what are you really trading for? Happy Trading! ************** "Ever heard of the skew effect?" By Lee Lowell Ok, now that we've got a handle on the different types of volatilities and how to figure them out, let's see how we can use it to our advantage in the marketplace. As I was talking about my last article with my father; he said to me, "explain how this volatility thing works with an example". Here's what I showed him: (hypothetical example) March 1, 2000 March 1, 2000 IBM stock $100/share YHOO stock $100/share IBM June $100 call = $5 YHOO June $100 call = $10 Why is YHOO's June $100 call double the price of IBM's $100 call? They both have the same stock price, the same strike price, and the same expiration date. (we'll leave out interest rates and dividends since they don't have a major effect). There is only one explanation for the difference in option premiums, and that is VOLATILITY! YHOO is a much more volatile stock than IBM and it is reflected in its option premium. YHOO can blast through so many different strikes on any given day and then reverse itself back down too. IBM takes the nice slow path of going through strikes (if it moves at all). Since YHOO has the ability to turn out-of-the-money options into in-the-money options more quickly, its volatility component will be much higher. This is the effect volatility has on option premiums. Let's move onto something deeper. Have you ever heard about volatility "skews"? This is one characteristic of volatility that makes for great trading opportunities. In a perfect market, all the implied volatilities of each strike in an option chain would be trading at the same level. For example, XYZ corp. is trading at $65 and has option strikes ranging from $50 - $100. Each option (puts and calls) has an implied volatility of 35%. This is what's called a flat skew. Most stable stocks can have this sort of flat skew. Now, very volatile stocks can have what's called a sloping skew. This is when the implied volatilities for each strike are different. ABC corp. has strikes ranging from $25 - $200 because it has moved within that range over the last 3 months. It is trading at $80 today and its implied volatility for each strike looks like this: 75%, 77%, 80%, 82%, 85%, 88%, etc. etc. starting with the at-the-money call strike and moving higher. The same can be said for the puts. Starting with the at-the-money put and moving lower in strikes. Here's what the levels would look like for XYZ corp.: Calls Strike 80 85 90 95 100 105 Imp. Vol. 75% 77% 80% 82% 85% 88% PutsStrike 55 60 65 70 75 80 Imp. Vol. 88% 85% 82% 80% 77% 75% You can see as the calls increase from the at-the-money strike, so does the implied volatility. And as the puts decrease from the at-the-money strike, the volatility goes up. The out-of-the-money strikes have the higher implied vols. This is called a "smiling skew" because if you plotted the levels on a graph, it would look like a smile. What is the reason for this? Good question. It is mostly because of the uninformed amateur option players out there that make up most of the general public. And due to lots of speculation. Many traders like to play the out-of-the-money options because they are cheap and the rewards can be huge if the stock moves in their favor. As the volume increases in the out-of-the-money options as more people want to get in on the move, there is pressure to bid up the option premiums and the market makers are aware of this. So they keep bumping up their asking prices. This is turn leads to higher implied volatilites on these options. This holds true for calls and puts. One of the reasons why the puts have this sort of skew dates back to the crash of '87. Many people got burned on the downside so lower strike puts will usually have higher implied volatilites now. This is really evident in the S&P 500 put options. If you are using a real-time data feed that gives implied volatility levels for an option chain, look for the skew effect. Not all skews are smiling though. Some options have downward sloping skews in the calls as the strikes increase. This is due in part by many large hedge funds and institutional firms that employ covered call writing. These funds are long the underlying and short the calls against them. As many more firms employ this strategy and sell the calls in volume, this tends to bring down the call premiums, thus lowering its implied volatility. At the same time as the call are sold, these same firms may be buying the downside puts for protection too. (thanks to the '87 crash effect) This tends to raise the implied vols of the out-of-the-money puts as I said before. So the volatility "skew" can have a few different shapes. Just look at different option chains that supply implied volatility numbers and you can see this effect. So how do we use the skew effect to our advantage? It can be employed in a few different spread type strategies. Let's start with options that have a smiling skew. If you are bullish or bearish on a stock but want to be conservative in your option strategy, then you can initiate debit call and put spreads to lower your overall cash outlay. If you buy a call spread on options with a smiling skew, you are assured to buy the option with the lower implied volatility and sell the option with higher implied volatility. For a put spread, you'll be buying the put that has a lower implied vol. and selling the put with higher implied vol. So what does that mean? This automatically puts the odds in your favor. Or should I say, starts you off with an advantage. All options on the same underlying stock should trade at the same volatility, but they don't. Why would someone pay more (on an implied volatility basis) for an option in the same chain on the same underlying? I told you before. It's because of speculators who want to get in on the game and buy cheap out-of-the-money options. This buying pressure causes the implied volatilites of the further out-of-the-money option to slope higher. So when you buy an option with lower implied volatility than the option you're selling, you already have the odds tipped in your favor. Now whether or not you eventually make money on your spread will be determined by where the underlying stock ends up. But at least you know that you started with a slight advantage. Let's look at an example to help clarify my ranting. XYZ corp. at $50 with flat skew: Calls 50 55 60 65 70 75 80 Imp. Vol. 35% 35% 35% 35% 35% 35% 35% Premium 5 4 3 2 1 .5 .25 XYZ $60 - $75 call spread = $2.50 XYZ corp. at $50 with smile skew: Calls 50 55 60 65 70 75 80 Imp. Vol. 35% 37% 39% 41% 44% 47% 50% Premium 5 4.5 4 3.75 3.5 3.25 3 XYZ $60 - $75 call spread = $.75 Do you see what happened here? If you bought the XYZ June $60 - $75 call spread with a flat skew, the spread would cost you $2.50. But with the smile skew, the same call spread would only cost you $.75. That's a big difference! That's a $1.75 cheaper per spread. This is what volatility analysis can do for your trading. It can start you off with an advantage. I highly recommend checking the implied volatilites for the strikes you're interested in trading. Now let's use a different kind of spread to take advantage of the skew effect. We'll use the ratio spread this time. A ratio spread consists of buying a closer-to-the-money option and selling two or more further out-of-the-money options. The ratio could be 1:2 or 1:3, depending on your outlook and risk tolerance. Most of the time you would want to initiate a ratio spread for a credit or $0 net into your account. Here's an example using the same XYZ data: If you were to put on the XYZ $60 - $70 1x3 call spread with the flat skew, the cost would be $0 plus commissions. Your position would consist of long 1 XYZ $60 call at $3 and short 3 XYZ $70 calls at $1, for $0 net. (for the short side, just multiply the number of contracts by the premium. 3x $1 = $3. So your total long premium minus the short premium = $0) If you were to put on a ratio spread using the smile skew, with a ratio of 1x2, here's what the outcome would be. You would be long 1 XYZ $60 call at $4 and short 2 XYZ $70 calls at $3.50 with a net CREDIT of $3 in your account. Now that's nice! And the good part is that your ratio has been reduced to a 1x2 contract spread vs. the 1x3 contract spread with the flat skew example. This smaller ratio reduces your outright risk if the trade should happen to go against you. Let me just expand on why someone might want to do ratio spreads and how the final numbers might look. XYZ corp. is $50 today. A trader might believe that XYZ will not go any higher than $70 per share over the next 3 months. So he/she will put on a ratio spread of long 1 $60 call and short 2 $70 calls for a credit of $3 (using the example above). At expiration day, XYZ closes at $68. Here's what happens: Long 1 $60 call in-the-money = $8, for a total gain of $4. ($8 - $4 initial outlay = $4 gain) Short 2 $70 calls out-of-the-money = $0, for a total gain of $7 ($7 initial credit) Total profit = $11. That's how it works. Not only did this trader begin with a credit in his/her account, but he/she made even more money because the prediction was correct. Just remember though, XYZ could have gone up well past $68 in that time frame. In that case, the trader would be short more options than long, so they would have to cover at sometime. (maybe at a loss). With the $3 initial credit, the breakeven would be at $73 and losses would start to occur above that number. With the flat skew spread, the breakeven is at $70 with 2 extra short calls to deal with if XYZ starts flying past $70. You can see how the skew effect can give you an advantage. So it is in the best interest of every option trader to be aware of the volatility skew. (if there is any). Just check your option chain data before putting on the trade to see if the odds might be in your favor. Next time, I will discuss more strategies to take advantage of the skew effect. Regards, Lee Lowell Contact Support ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www. PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** **************************** SEE DISCLAIMER IN SECTION ONE
The Option Investor Newsletter 3-5-2000 Sunday 3 of 5 LAST WEEKS CHANGE FOR THIS WEEKS PICKS: *************************************** Daily Results Index Last Week Dow 10367.20 505.08 Nasdaq 4914.79 324.29 $OEX 765.95 46.17 $SPX 1409.17 75.81 $RUT 597.88 41.14 $TRAN 2434.45 83.19 $VIX 21.29 -7.59 Calls Week DNA 234.50 59.50 A great week for our play on DNA! CLRN 138.00 39.00 What a nice start to a brand new play INSP 259.81 34.50 INSP offers exhilarating space ride EMLX 190.25 33.13 See what a little good news can do? VERT 251.72 25.97 VERT gets it's fair share of momentum CHKP 229.75 24.13 Another command performance from CHKP JDSU 280.00 23.19 JDSU shares split 2:1 on March 10th GLW 205.25 17.44 GLW puts on quite a nice performance CMGI 134.06 16.56 CMGI took the spotlight last week SEBL 154.72 16.34 Seibel investors and traders rejoice! INKT 160.97 15.85 Powerful momentum puts INKT in game ADIC 96.94 12.88 Split run is back in business MER 107.00 11.13 New, Merrill Lynch charges ahead CCBL 49.72 10.22 Here's another low cost optical play QLGC 155.44 10.19 QLGC looks to be on the move again LHSP 118.25 10.03 This play still worth "listening" to HGSI 216.00 10.00 Dropped, more like tarnished brass NSM 77.44 9.44 NSM to announce earnings this Thurs. ATML 52.44 9.25 Semiconductor optimism boosts ATML AFCI 65.50 8.06 A fire began to kindle under AFCI ERICY 104.81 7.19 ERICY just keeps cruising right along NTAP 199.94 7.00 New, shares to split 2:1 March 23rd CSCO 137.44 4.69 New, rolling out the red carpet MDT 51.38 3.94 New, found it's legs and wants to run Puts CTS 52.31 -14.06 New, breaks through key $60 level RNWK 70.19 -8.19 Unable to breakthrough 10-dma on Fri. MRK 57.50 -2.69 New, MRK continues to limp along PPG 49.06 0.00 Investors came to their senses JNJ 73.50 2.31 Dropped, time to abandon this ship DD 50.75 -0.75 Opportunities for possible entry? KMG 46.94 6.19 Dropped, alright, enough is enough STOCKS ADDED TO THE PICK LIST ***************************** Calls MER - Merrill Lynch NTAP - Network Appliance Inc. MDT - Medtronic Inc. CSCO - Cisco Systems Inc. Puts CTS - CTS Corporation MRK - Merck & Co. *************************** PICKS WE DROPPED THIS WEEK *************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS HGSI $216.00 (+10.00) The silver lining we were looking for in HGSI is beginning to appear more like tarnished brass. While we believe the Biotech sector and more specifically the genomics industry still has a bright future, HGSI released some news late Thursday that could take shine out of this play. The company said they will call $200 million in 5% convertible subordinated notes for redemption and take a $30 million or $0.55 per share charge. The notes convert into HGSI stock at a price of $71.63 per share, and the conversion right will expire on March 21st. This dilution of shares would up the number of outstanding shares by about 2.8 million shares if all notes were converted. Friday HGSI did open higher but again tested the $200 area. HGSI really appeared to struggle for most of the session ending the day +$1.88 to the good. With the dilution coming we will let HGSI go for now. PUTS KMG $46.94 (+6.19) Alright, enough is enough. It looks as though the bounce that KMG made from $40 may have been legitimate. Though we still believe there could be more downside in the near future of KMG, we can no longer justify hanging on to a put play that posted gains every single day last week. We cannot deny the possibility that KMG may have at long last found a bottom and is now attempting to recover. KMG is now over $2 above its 10-dma and seems to have acquired a good deal of support. Resistance may be encountered at the $50 level, however, the risk/reward factor is simply not in our favor at this point. It is time to let this one slip on by. JNJ $73.50 (+2.31) Slip on the life preserver and abandon ship. While JNJ continues to trade at respectable volume levels it's now stuck in a narrow trading range unable to crack Monday's all-time low at $70.06. Furthermore it's systematically developing a pattern of higher-lows. This, in particular, is not a bearish indication and we're exiting the play. STOCK SPLIT CANDIDATES *********************** Current Split Candidates CHKP - CheckPoint Software EMLX - Emulex QLGC - QLogic GLW - Corning SEBL - Siebel Systems INKT - Inktomi Corp CLRN - Clarent Corp. Split Candidates that are not current plays CHINA - China.com CMVT - Comverse Tech. EMC - EMC Corp. PHCM - Phone.com Most recent announcements we predicted TERN - Terayon Comm. (most recent pick) STOCKS WITH UPCOMING SPLITS **************************** We don't list all splits available, only those we feel may have play possibilities. Symbol - Stock Splits/Date SLR - Solectron 2:1 03-08-00 ex-date 03-09 BFRE - Be Free 2:1 03-08-00 ex-date 03-09 JDSU - JDS Uniphase 2:1 03-10-00 ex-date 03-13 ASDV - Aspect Dev 2:1 03-10-00 ex-date 03-13 SDLI - SDL Inc 2:1 03-13-00 ex-date 03-14 BVSN - Broadvision 3:1 03-13-00 ex-date 03-14 ADIC - Advanced Digital 2:1 03-13-00 ex-date 03-14 ADVS - Advent Software 2:1 03-13-00 ex-date 03-14 ALLR - Allaire Corp 2:1 03-14-00 ex-date 03-15 BRCD - Brocade 2:1 03-14-00 ex-date 03-15 AJG - Arthur Gallagher 2:1 03-15-00 ex-date 03-16 OTTR - Otter Tail Pwr 2:1 03-15-00 ex-date 03-16 WLSN - Wilson Leather 3:2 03-15-00 ex-date 03-16 AMAT - Applied Materials2:1 03-15-00 ex-date 03-16 ADI - Analog Devices 2:1 03-15-00 ex-date 03-16 AGIL - Agile Software 2:1 03-16-00 ex-date 03-17 LRCX - Lam Research 3:1 03-16-00 ex-date 03-17 SFE - Safeguard 3:1 03-17-00 ex-date 03-20 MVSN - Macrovision 2:1 03-17-00 ex-date 03-20 CPTL - CTC Comm 3:2 03-17-00 ex-date 03-20 TLGD - Tollgrade Comm 2:1 03-20-00 ex-date 03-21 IMNX - Immunex Corp 3:1 03-20-00 ex-date 03-21 EVRC - Evercel Inc 2:1 03-21-00 ex-date 03-22 DISH - EchoStar Comm 3:1 03-22-00 ex-date 03-23 PUMA - Puma Tech Inc 2:1 03-22-00 ex-date 03-23 SANM - Sanmina 2:1 03-22-00 ex-date 03-23 CSCO - Cisco 2:1 03-22-00 ex-date 03-23 WON - Westwood One 2:1 03-22-00 ex-date 03-23 NTAP - Network Appliance2:1 03-22-00 ex-date 03-23 NSOL - Network Solution 2:1 03-23-00 ex-date 03-24 ARTG - Art Technology 2:1 03-24-00 ex-date 03-27 TEVA - Teva Pharma 2:1 03-24-00 ex-date 03-27 PCLE - Pinnacle Systems 2:1 03-24-00 ex-date 03-27 HAUP - Hauppauge Digitl 2:1 03-24-00 ex-date 03-27 JWG - JWGenesis 3:2 03-24-00 ex-date 03-27 KCP - Kenneth Cole 3:2 03-27-00 ex-date 03-28 LLTC - Linear Tech 2:1 03-27-00 ex-date 03-28 IQIQ - ViaLink 2:1 03-27-00 ex-date 03-28 SMTL - Semitool Inc 2:1 03-28-00 ex-date 03-29 USIX - USinterworking 3:2 03-28-00 ex-date 03-29 CRGN - CuraGen Corp 2:1 03-30-00 ex-date 03-31 ARBA - Ariba 2:1 03-31-00 ex-date 04-03 VERT - VerticalNet 2:1 03-31-00 ex-date 04-03 RADS - Radiant Systems 3:2 03-31-00 ex-date 04-03 RMD - ResMed Inc 2:1 03-31-00 ex-date 04-03 ADRX - AndrxCorp 2:1 04-03-00 ex-date 04-04 GRDN - Guardian Tech 2:1 04-03-00 ex-date 04-04 SBL - Symbol Tech 3:2 04-05-00 ex-date 04-06 ABGX - Abgenix 2:1 04-06-00 ex-date 04-07 HDI - Harley Davidson 2:1 04-07-00 ex-date 04-10 MFNX - Metromedia Fiber 2:1 04-17-00 ex-date 04-18 MLNM - Millenium Pharm 2:1 04-18-00 ex-date 04-19 AHAA - Alpha Industries 2:1 04-19-00 ex=date 04-20 ELNT - Elantec Semi 2:1 04-21-00 ex-date 04-24 MCLD - McLeodUSA 3:1 04-24-00 ex-date 04-25 GE - General Elec 3:1 04-26-00 shareholder mtg CYSV - Cysive Inc 2:1 05-08-00 ex-date 05-09 AXP - American Exprs 3:1 05-10-00 ex-date 05-11 ALKS - Alkermes 2:1 05-12-00 ex-date 05-15 SNE - Sony Corp 2:1 05-19-00 ex-date 05-22 CXR - Cox Radio 3:1 05-19-00 ex-date 05-22 MOT - Motorola 3:1 06-01-00 ex-date 06-02 MEDI - Medimmune 3:1 06-02-00 ex-date 06-05 NXTL - Nextel Comm 2:1 06-06-00 ex-date 06-07 ANEN - Anaren Micro 3:2 06-09-00 ex-date 06-12 AA - Alcoa 2:1 06-09-00 ex-date 06-12 NXLK - Nextlink 2:1 06-15-00 ex-date 06-16 EXDS - Exodus Comm 2:1 06-20-00 ex-date 06-21 For a complete list of all the coming splits check out the "split calendar" on the side of the online edition newsletter page. ******************** THE PLAYS OF THE DAY ******************** With all the great plays each week we can never decide on just one so take your pick. Call plays of the day: ********************** NSM - National Semiconductor $77.44 (+9.44)(+4.50) See details in sector list Chart = /charts.asp?symbol=NSM **** JDSU - JDS Uniphase $280.00 (+23.19)(+6.81) See details in sector list Chart = /charts.asp?symbol=JDSU Put play of the day: ******************** MRK - Merck & Co. $57.50 (-2.69) See details in put list Chart = /charts.asp?symbol=MRK ************* DEFINITIONS ************* SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. TP/P= True premium or Time premium RRR = Risk/Reward/Ratio ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume MTD = Move to double - amount stock must move to double option price in one week. ONE WEEK MOVE ONLY ! Numbers within ( ) are the amount of change for the week. Numbers within ( ) may be designated with PxW, like P3W, prior 3 weeks The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. *********** CALLS PLAYS *********** Hardware *********** CSCO - Cisco Systems Inc $137.44 (+4.69) Cisco is a worldwide leader in networking for the Internet. They provide networking solutions to businesses that allow for seamless communication without regard to differences in time, place, or type of computer equipment. Cisco directs 2/3rds of the network traffic out there and is also a major maker of LAN switches. The strategic alliances they have formed with such big names as Microsoft, Alcatel, and US West further enhance their influence and presence in the networking industry. The red carpet is once again being rolled out for CSCO. This time it's being added to OIN's call list for a split run. The stock splits 2:1 in a little more than two weeks on March 22nd. There's no question the BoD has enough shares. These days Cisco has 5.4 bln shares authorized and only 3.42 mln outstanding. Now even though volume has been drifting at moderate levels, we're anticipating some pre-split excitement will give CSCO a shot of adrenaline. As of Friday's close, Cisco is perched just a hair under the 52-week high of $139 (set on February 23rd). Dips near the converged 5-dma ($132.95) and 10-dma ($132.31) are considered solid entries as these levels represent relatively strong support. If you want to play it safer, then a move through $139 is your target entry. Also look for stronger volume levels to back the climb. Cisco was recently ordered to change its name in Brazil. Apparently Brazil's Sisco Sistemas e Computadores SA had registered its name eight years before the San Jose company. Cisco has until April 9th to comply with the ruling or face $5,693 a day in penalties. Also on the global front, Cisco along with the Intel Corp, made recommendations to foster the growth of Internet usage and e-commerce in the Russian markets. As of 1998 Internet-related services in the Russian markets was worth about $160 mln. ***March contracts expire in 2 weeks*** BUY CALL MAR-130 CWY-CF OI=12192 at $ 9.75 SL=7.50 BUY CALL MAR-135*CWY-CG OI=16083 at $ 6.25 SL=4.50 BUY CALL MAR-140 CWY-CH OI=11092 at $ 3.38 SL=1.75 BUY CALL MAR-145 CWY-CI OI= 6978 at $ 1.69 SL=0.75 BUY CALL APR-135 CWY-DG OI= 5186 at $11.63 SL=9.25 BUY CALL APR-140 CWY-DH OI= 8036 at $ 8.63 SL=6.50 Picked on March 5th at $137.44 PE = 188 Change since picked +0.00 52 week high=$139.00 Analysts Ratings 23-15-0-0-0 52 week low =$ 47.00 Last earnings 12/99 est= 0.23 actual= 0.25 Next earnings 05-09 est= 0.26 versus= 0.19 Average daily volume = 23.8 mln /charts/charts.asp?symbol=CSCO ******** BIO-TECH ******** MDT - Medtronic Inc. $51.38 (+3.94) As the world's leading medical technology company, MDT makes devices to help regulate medical problems from erratic heartbeats to tremors and incontinence. The company conducts business in more than 120 countries in the areas of cardiac rhythm management, neurological and spinal, vascular, and cardiac surgery. About half its sales come from defibrillators and pacing products, including devices for slow, irregular, or rapid heartbeats. Through its Arterial Vascular Engineering subsidiary, MDT makes catheters, stents, and guidewires used in angioplasties. MDT is also developing products for minimally invasive cardiac surgery and sleep apnea. Helping us stay healthy in spite of ourselves, MDT continues to provide devices critical to keeping our hearts ticking. A different angle than the Biotech firms who are working on anti- cancer treatments, MDT goes right to the source of the problem to control and mitigate cardiac and neurological abnormalities. Breaking out of a year-long consolidation in late January, shares of the company seem to have really found their legs in the past few weeks. Helped along by strong earnings and a host of positive analyst comments (see news below), shares of MDT surged to a new all-time high of $51.50 on Friday. Although volume was a bit lackluster (25% below the ADV), the intraday volume picture is more encouraging. Each time prices moved up, they were accompanied by a surge in volume, which tapered off as MDT prepared for the next surge higher. Also encouraging is the fact that the close was just a tiny fraction below the high of the day. With a strong close above $50, this level should now act as support, followed closely by $49 which is right between the 5-dma and 10-dma. Now in uncharted territory, MDT looks poised to continue higher. Feel free to jump on board if the buyers continue to bid shares up on Monday, but a more conservative approach would be to wait for a confirming bounce at support. MDT competitor Guidant (GDT) saw its shares hit a record high this week on perceptions that the medical device maker will report strong first-quarter sales. According to Goldman Sachs analyst Lawrence Keusch, there is a strong sense that both GDT and MDT will retain their competitive position in the defibrillator market. This came on the heels of a host of positive analyst comments in the last 2 weeks. On Tuesday, CS First Boston began coverage of MDT with a Buy Rating. This followed ABN Amro reiterating its Buy rating and raising its price target from $50 to $60 on February 24th. The same day, Gruntal raised its long-term price target from $50 to $62, leaving its rating at Outperform. This all followed MDT's strong earnings release on February 23rd, where the company reported a 28% rise in earnings on an 18% revenue growth. All four of its major business units reported double-digit sales growth. ***March contracts expire in 2 weeks*** BUY CALL MAR-50 MDT-CJ OI=3536 at $2.69 SL=1.25 BUY CALL MAR-55 MDT-CK OI=1021 at $0.75 SL=0.00 High Risk! BUY CALL APR-50 MDT-DJ OI= 207 at $4.38 SL=2.75 BUY CALL APR-55*MDT-DK OI= 237 at $1.94 SL=1.00 Picked on Mar 5th at $51.38 P/E = 93 Change since picked +0.00 52-week high=$51.50 Analysts Ratings 14-17-2-0-0 52-week low =$29.94 Last earnings 02/00 est= 0.23 actual= 0.23 Next earnings 05-24 est= 0.26 versus= 0.20 Average Daily Volume = 4.27 mln /charts/charts.asp?symbol=MDT **** DNA - Genetech Inc $234.50 (+59.50) Genentech is one of the largest biotechnology companies in the world. The company's research has led to twelve biotechnology- based products on the market today. Genentech is the only biotechnology company to have taken seven of its own products from the laboratory to the marketplace, with several other products stemming from Genentech research licensed to other companies. Today Genentech markets seven biotechnology-based products and has a product pipeline of more than a dozen potential products. Activase, Protropin and Nutropin, Herceptin, Pulmozyme, and Rituxin and two other drugs make up 66% of their revenues. Everyone knows Biotech is a hot sector, but the more discriminating investors are favoring companies like Genetech, CuraGen (CRGN), and Gene Logic (GLGC) who spend time and money researching genomics, gene therapy and genetic decoding. Momentum traders are also taking notice. Following a growth stock conference at the end of February, which discussed cutting-edge genetic treatments, many of these momentum players jumped on DNA. The stock has since been a big mover. Last Friday it closed above the previous resistance of $173.50 and then proved it could hold higher levels on Monday. The momentum was intact and building. Although momentum isn't the only element in this play's favor. There's no doubt DNA is a split- candidate. This Wall Street darling is currently trading at more than 60% above historical split-levels ($130). DNA last split 2:1 in November 1999. Notably the trigger event for the split announcement was an earnings' release. Genentech is scheduled to report its next earnings around April 12th, before the bell. It'd be nice to see momentum carry DNA into an earnings and potential split run. However the company only has 400 mln shares authorized and 257 mln outstanding so without a vote to increase the number of shares there's only enough for a 3:2 stock split. But for now let's focus on the current trend. We're faced with huge gains in a short time period, particularly the $20 move on Friday, which marked the third consecutive 52- week record. So we've got to be careful on the entry. At these lofty levels, surely some will want to take some chips off the table. The nearest support levels are at $210 and $215 while $205 near the 5-dma ($207.49) is next in line. A big correction could see DNA below $200. This is not likely to play into the scenario, but nevertheless be aware of the risk. Overhead resistance is at Friday's all-time high of $245. If DNA doesn't slow down and consolidation you could look for intraday dips and enter on the climb. But of course this is extremely risky and only for the aggressive players who can afford to take a hit if all goes to pot. On Wednesday CSFB began coverage on DNA with a Strong Buy rating. Earlier on February 8th, Goldman Sashes reiterated a Market Outperform. ***March contracts expire in 2 weeks*** BUY CALL MAR-190 DWN-CR OI= 20 at $46.50 SL=36.25 BUY CALL MAR-195 DWN-CS OI=163 at $41.75 SL=32.50 BUY CALL APR-195 DWN-DS OI= 94 at $48.00 SL=37.50 BUY CALL APR-210 DWN-DB OI= 1 at $37.88 SL=29.50 low OI BUY CALL APR-220*DWN-DD OI=113 at $32.00 SL=25.00 Picked on Feb 29th at $192.88 P/E = N/A Change since picked +41.63 52-week high=$245.00 Analysts Ratings 3-5-5-0-0 52-week low =$ 58.25 Last earnings 12/99 est= 0.18 actual= 0.18 Next earnings 04-12 est= 0.25 versus= 0.22 Average Daily Volume = 830 K /charts/charts.asp?symbol=DNA ************* SEMICONDUCTOR ************* QLGC - QLogic Corporation $155.44 (+10.19)(+34.25)(+10.97) 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. Building a better mousetrap has certainly worked for QLGC. The company's leading-edge I/O products are in high demand and the result has been gratifying. Add to this the continued stream of positive comments from the company and the rapid rise in the share price is no mystery. Succumbing to a bit of profit -taking mid-week, QLGC looks to be on the move again. After confirming the $140 support level twice on Thursday, buyers returned in force Friday. Bidding shares back above the $150 resistance level on double the ADV gave QLGC new life and allowed the issue to close just a smidge below the high of the day. The next target will be the 52-week high at $159.50, which should be an easy mark if the markets can stay healthy. With NASDAQ 5K just a short hop away, the enthusiasm for this next millennium mark could be just what QLGC needs to shoot to new highs. Even with the profit-taking that took place last week, QLGC didn't get anywhere near challenging its 10-dma (currently $139.50). Look for the $150 level to provide support, followed by $147 and target shoot for those intra-day entry points. Keep an eye on volume as it will be key to QLGC's future direction - if it drops off, beware of the profit-takers hiding in the shadows. In a decidedly positive interview on Friday, QLGC's CEO touted the company's track record, citing strong financial performance, the string of innovative products brought to market, and the extensive OEM customer base, supported by a strong supplier network. Also on Friday, QLGC announced support for Quantum-ATL's Prism Storage Architecture initiative, which is designed to provide Global 1000 corporations with a cost effective means to realize the benefits of Storage Area Networks (SANs). ***March contracts expire in 2 weeks*** BUY CALL MAR-150 QOV-CJ OI=175 at $14.00 SL=11.00 BUY CALL MAR-155 QOV-CK OI= 58 at $11.50 SL= 9.00 BUY CALL MAR-160*QOV-CL OI=174 at $ 9.13 SL= 7.00 BUY CALL APR-155 QOV-DK OI= 36 at $22.88 SL=15.50 BUY CALL APR-160 QOV-DL OI=485 at $20.63 SL=13.75 SELL PUT MAR-140 QOV-OH OI=326 at $4.13 SL=7.50 (See risks of selling puts in play legend) Picked on Feb 22nd at $115.50 P/E = 221 Change since picked +39.94 52-week high=$159.50 Analysts Ratings 3-3-0-0-0 52-week low =$ 11.63 Last earnings 01/00 est= 0.18 actual= 0.20 Next earnings 04-19 est= 0.20 versus= 0.11 Average Daily Volume = 892 K /charts/charts.asp?symbol=QLGC **** ATML - Atmel Corporation $52.44 (+9.25)(+5.19) Founded in 1984, Atmel Corporation is headquartered in San Jose, California with manufacturing facilities in Colorado Springs, Colorado; Nantes and Rousset, France and Heilbronn, Germany. Atmel designs, manufactures and markets on a worldwide basis advanced logic, mixed-signal, non-volatile memory, and RF semiconductors. Atmel is also a leading provider of system level integration semiconductor solutions using advanced CMOS, BiCMOS, BiPolar and SiGe process technologies. That sure was a short break before ATML started higher again. It had cooled off on Thursday, closing at $47.88 due to profit- taking. So come Friday all the bears had been shaken out, giving the bulls their chance to continue ATML's climb. The optimism that the Semiconductors will outperform the markets is obviously continuing. We didn't see strong volume backing the loss on Thursday either so we knew it may be time to rally again on Friday. We would still like to see stronger volume backing the move, but we can't complain about that intraday trend. Hardly any weakness at all. ATML's resistance point is $53.50. A bullish indictor will be if that level is broken with volume. On the other hand, we are looking at the 5-dma ($49) as support if ATML heads downward. Place stops to protect yourselves of anything lower than that. ATML has a lot in their favor right now. They are in a hot sector, they have analysts backing them, there is a bright outlook on future earnings, and market conditions are good. All these factors should allow them to keep their current direction. ***March contracts expire in 2 weeks*** BUY CALL MAR-45 AQT-CI OI=4108 at $8.50 SL=6.50 BUY CALL MAR-50 AQT-CJ OI= 485 at $4.88 SL=2.75 BUY CALL MAR-55 AQT-CK OI= 313 at $2.63 SL=1.25 BUY CALL APR-50*AQT-DJ OI= 732 at $8.38 SL=6.25 Picked on Feb 25th at $43.19 P/E = 108 Change since picked +9.25 52-week high=$53.50 Analysts Ratings 7-5-2-0-0 52-week low =$ 7.50 Last earnings 01/00 est= 0.13 actual= 0.16 Next earnings 04-24 est= 0.17 versus= N/A Average Daily Volume = 5.41 mln /charts/charts.asp?symbol=ATML **** NSM - National Semiconductor $77.44 (+9.44)(+4.50) National Semiconductor combines leading edge analog and digital technologies to create highly integrated solutions for the information age. They are developing the next generation microchip, called a system-on-a-chip, which will combine a microprocessor and logic and memory components in a single unit. These products will be used in Internet appliances and set-top boxes. No longer in the PC processor market, NSM has switched its focus to integrated circuits that are used in communications devices, networking equipment and automobiles. The majority of the NSM's revenues come from outside the U.S. with 60% of its sales in Asia and Europe. NSM does business with some big names including Lucent, Compaq, Samsung and Siemens. How does that cliche go? Ask and you shall receive? Well, we asked for a move through $74.50 accompanied by solid volume, and that's exactly what we received. Shares of NSM moved through $74.50 in the first five minutes of trading on pretty good volume and moved higher from there. Ok, so maybe the tame jobs report helped our earnings play get back on track, but we will take whatever help we can get. By the end of the day NSM had made another new high at $77.88 and closed near that high, which suggests the momentum could continue next week. NSM is scheduled to report earnings after the close on Thursday, so we do have a bit of time for this play to continue. Many times earnings runs don't really kick into high gear until the last week or so before earnings are released, which may just be the case with our play. NSM received some good press this week after the Robertson Stephens Tech Conference. Twenty-one leading semiconductor analysts were on hand to examine the tech sector and NSM received high marks from Arun Veerappan, Vice President and Senior Analyst with Robertson Stephens. Companies whose focus in the industry is in the communications area are growing in popularity, and that is exactly where NSM sits. Veerappan believes communications is where the growth is, which places NSM in an attractive position in the market place. NSM has support at $75 and $73. Although NSM ended the day with all signs pointing higher, a pullback to support would also provide a good entry point for our earnings play. Wednesday National Semiconductor introduced the world's smallest USB node controller, the USBN9603. The USB node controller solution is 68 percent smaller than the industry TSSOP standard, making it the industry's smallest. Company official said "the USBN9603 is ideal for mobile telephones which couldn't use previous USB devices due to size and supply voltage." ***March contracts expire in two weeks*** BUY CALL MAR-70 NSM-CN OI=3120 at $10.13 SL= 7.50 BUY CALL MAR-75 NSM-CO OI=3280 at $ 7.25 SL= 5.50 BUY CALL MAR-80 NSM-CP OI=1498 at $ 5.00 SL= 3.25 BUY CALL APR-70 NSM-DN OI= 405 at $14.00 SL=11.25 BUY CALL APR-75*NSM-DO OI= 534 at $11.88 SL= 9.50 SELL PUT MAR-70 NSM-ON OI= 942 at $ 2.25 SL= 3.75 (See risks of selling puts in play legend) Picked on Feb 24th at $72.72 PE = N/A Change since picked +4.72 52 week high=$77.88 Analysts Ratings 9-9-2-0-0 52 week low =$ 8.88 Last earnings 12/99 est= 0.26 actual= 0.37 Next earnings 03-09 est= 0.45 versus=-0.16 Average daily volume = 2.47 mln /charts/charts.asp?symbol=NSM ******** Internet ******** NTAP - Network Appliance Inc. $199.94 (+7.00) Their customer base is an impressive group of clients. Names like Yahoo, AOL, Motorola, Siemens and the UK's #1 ISP Demon Internet depend on them daily. Network Appliance uses its Netcache software and NetApp suite of network storage servers, or filers. These products are designed for and provide fast reliable cost effective service for Internet service providers, and corporate intranets. NTAP's hi-powered ONTAP operating system allows simultaneous access by users from Windows, UNIX and Web platforms. NTAP is located in Sunnyvale, Ca and competes against EMC, Sun Microsystems, Cisco Systems and Novell. An earnings run or split run, sometimes we don't know which are more fun to play. NTAP provided traders with a very profitable earnings run in late January and early February. Well, NTAP reported solid earnings, meeting analysts estimates, coming in well ahead of last year. They also announced a 2-for-1 split of the company's stock set for March 23rd. The networker didn't even suffer from an earnings sell-off, seen so frequently this earnings season. It simply continued its trend to a new high at $207.94. This past week investors took some money off the table and NTAP spent most of the week consolidating. Friday, with Fed fears easing a bit, NTAP got back on track and appears to be setting up to provide us with a brand new opportunity. With the split coming in a little over 2 weeks, we are looking for NTAP to come through with an equally great split run. NTAP jumped over $24 the day after earnings and the split was announced. With each move higher NTAP has seen a fair amount of profit taking, but has found buyers waiting in the wings on just about every down move. What we are saying here is the die-hard investors have held onto their shares, short-term traders taking profits have only created buying opportunities for others. After a brief dip to the $181 area early this week NTAP has been gradually moving up, ending the week with a strong gain with 2.1 million shares changing hands. NTAP has support at $195, $188 and $182. If we see any profit taking in the broad markets early next week we would look for a chance to jump on board this new split run. A continued move higher would also provide a good opportunity, as NTAP could out-do itself once again. The brokerage companies approve of the near term outlook for NTAP as well, with four coming out after NTAP's earnings and split announcement reiterating Buy ratings on the company. NTAP's split will be the second on in the last three months, with the last coming on December 21st. ***March contracts expire in two weeks*** BUY CALL MAR-190 ULM-CR OI=259 at $18.25 SL=14.25 BUY CALL MAR-200*ULM-CT OI=338 at $13.13 SL=10.25 BUY CALL APR-190 ULM-DR OI=234 at $30.13 SL=23.50 BUY CALL APR-200 ULM-DT OI=262 at $25.25 SL=19.75 BUY CALL APR-210 ULM-DB OI= 15 at $21.00 SL=16.25 SELL PUT MAR-180 ULM-OP OI=249 at $ 5.00 SL= 6.75 (See risks of selling puts in play legend) Picked on Mar 05th at $199.94 PE = 571 Change since picked +0.00 52 week high=$207.94 Analysts Ratings 10-5-1-0-0 52 week low =$ 19.69 Last earnings 02/00 est= 0.11 actual= 0.11 Next earnings 05-16 est= 0.12 versus= 0.06 Average daily volume = 2.25 mln /charts/charts.asp?symbol=NTAP **** INKT - Inktomi Corp $160.97 (+15.85)(+22.56) 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. The powerful momentum that drove this infrastructure stock upwards of 18.4% the previous week is now back in the game. After a significant, but expected downdraft this week the momentum resurfaced on Thursday. INKT rose off strong near-term support levels of $138 and $140 and overcame two important obstacles. First it shattered Friday's all-time high of $148.25 and then it cleared a psychological path as it moved above the $150 mark to tag $151.56 intraday. Friday cinched the deal with a $15.47, or 10.6% jump. It appears investors are still very much interested in this faction of the Internet industry. Money is again flowing into INKT. But keep your guard up for some back-filling after the huge gain on Friday. For the dma watchers, the 5-dma at $145.13 is a good gauge to warn of any impending doom. On the other hand, a definitive bounce off this mark following a correction could ultimately be a solid entry. Pay attention to the market sentiment. The first level of short-term support is at $150, yet $156 showed strength during a last-minute dip on Friday. Your entry will undoubtedly depend how INKT responds to the market over the next few days. As a reminder, INKT is very HIGH-RISK and not for those with a weak stomach. Mid-week SG Cowen upped its price target on INKT to $200 from $150 citing that the company "continues to see strong demand for its traffic server". Currently the firm has a Strong Buy rating for the stock. In other news, e-lingo, the leading Internet- based translation platform, and INKT announced they will integrate their resources and provide a comprehensive multi- lingual search solution to Internet portals and destination sites. ***March contracts expire in 2 weeks*** BUY CALL MAR-150 KYQ-CJ OI=109 at $17.38 SL=13.50 BUY CALL MAR-155 KYQ-CK OI=333 at $14.13 SL=11.25 BUY CALL APR-150*KYQ-DJ OI=882 at $25.50 SL=20.00 BUY CALL APR-155 KYQ-DK OI=176 at $22.00 SL=17.25 Picked on Feb 22nd at $132.00 P/E = N/A Change since picked +28.97 52 week high=$163.25 Analysts Ratings 8-9-1-0-0 52 week low =$ 28.13 Last earnings 12/99 est=-0.04 actual=-0.02 Next earnings 04-17 est=-0.02 versus=-0.07 Average Daily Volume = 2.34 mln /charts/charts.asp?symbol=INKT **** INSP - InfoSpace $259.81 (+34.50)(+25.06)(+8.94)(P4W +75.31) InfoSpace.com provides content and commerce solutions for Web sites and Internet appliances. Their focus is on content such as yellow pages, maps, classified ads, real-time stock quotes, sports and other information. InfoSpace.com has 100+ online customers including the likes of American Online and Microsoft. Founder and CEO, Naveen Jain, has a 38% stake while Acorn Ventures owns 12% of the company. Many of you have enjoyed the exhilarating space ride INSP has taken us on. Just this week, the opportunity for astronomical profits were at hand. INSP moved from its consolidation respite at $215 and $225 to rocket to the heights of $277 by Friday morning. Volume also regained respectability trading above 2.1 mln during the latter part of the week. INSP is obviously getting more perked up as its split date approaches. InfoSpace stock is splitting 2:1 on April 7th (just announced the ex-date on Friday). Be prepared to exit your positions before it goes ex-div to avoid any chance of a post-split depression. If you're looking for another play into this split run then it appears a dip to $250 could provide the entry you desire. This mark has held up well under the pressure of the past two trading sessions. But again, I must remind you. There are many perils and risks in playing the Internet stocks. They have wild intraday swings and can also reverse a trend without notice. Never leave this type of play unattended. If you still interested or have open positions, watch $280 as a psychological point of resistance. If this stock does take a dive, the first sign of its demise will be a return to the 5-dma ($238.80) followed a slip to firmer support at $230. In the news this week, InfoSpace announced it made an investment in Internet Broadcast Systems (IBS), a leader in the industry of converging local television news and the Internet through its national network of local Web channels. According to IBS, the investment will help it expand its Web channels in the US and Canadian markets. And a name change for the company is on the horizon. InfoSpace.com is dropping the dot.com from its name to better reflect its position as a global provider of infrastructure services online and off. ***March contracts expire in 2 weeks*** BUY CALL MAR-250 FHY-CJ OI= 44 at $27.25 SL=21.25 BUY CALL MAR-260 FHY-CL OI= 60 at $22.63 SL=17.75 BUY CALL MAR-270 FHY-CW OI= 13 at $18.25 SL=14.25 BUY CALL APR-270 FHY-DW OI= 15 at $35.25 SL=27.50 BUY CALL APR-280*FHY-DX OI= 18 at $31.38 SL=24.50 Picked on Feb 10th at $191.50 P/E = N/A Change since picked +68.31 52-week high=$277.00 Analysts Ratings 5-3-0-0-0 52-week low =$ 10.00 Last earnings 12/99 est= 0.00 actual= 0.09 Next earnings 05-01 est=-0.12 versus=-0.01 Average Daily Volume = 1.81 mln /charts/charts.asp?symbol=INSP **** CMGI - CMG Information Services $134.06 (+16.56)(+9.13) CMGI invests in, develops, and integrates advanced Internet, interactive, and database management technologies. The company's venture capital arm is called @Ventures and boasts a portfolio of over 30 Internet companies such as Lycos and Raging Bull. One of the more prominent additions to its portfolio is a 83% acquisition of the search engine, Alta Vista. The majority of CMGI's revenues (80%) is derived from fulfillment and mailing list services. CMGI took the spotlight this week! The stock made stellar gains topping 15%, or $17.69 ahead of its scheduled earnings' date. Unfortunately this earnings' play is almost over. CMGI is confirmed to report on Thursday, March 9th, but it's UNKNOWN at what time during the day they'll announce. Therefore it's very important that you're out of any call positions before that date. You certainly don't want to be caught in a post-earnings' sell-off! If you got into the play two weeks ago when we first alerted OIN readers of this play's great potential, then you're pockets should be overflowing with greenbacks. Even if you were more conservative and waited for the break above $120 you can still say "they showed me the money"! Now let's take a look at our current situation. There's 3 trading sessions left. CMGI just plowed through $130 on Friday and managed a near-term support level of $132 and $134 quite well. It shouldn't take much to move through overhead resistance is at $135.38, Friday's intraday high, but if it does get stuck then time is your enemy. Only you can determine if this play still fits your risk portfolio. In the news this week, CMGI's iCast division is releasing an application that combines multimedia content with instant messaging features. CMGI is also partnering with Hicks, Muse, Tate & Furst Inc and Pacific Century CyberWorks Ltd to form a new venture capital alliance, @Ventures Global Partners. They have agreed to invest up to $500 mln each to support emerging Internet companies in Asia, Europe, and the Americas. ***March contracts expire in 2 weeks*** BUY CALL MAR-130 GCD-CF OI=6440 at $13.00 SL=10.50 BUY CALL MAR-135 GCD-CG OI=3269 at $11.25 SL= 9.00 BUY CALL MAR-140*GCD-CH OI=3678 at $ 9.00 SL= 6.75 BUY CALL APR-140 GCD-DH OI=2096 at $18.00 SL=14.00 BUY CALL APR-145 GCD-DI OI= 213 at $16.00 SL=12.50 BUY CALL ARP-150 GCD-DJ OI=1979 at $14.50 SL=11.25 Picked on Feb 24th at $119.06 P/E = 103 Change since picked +15.00 52-week high=$163.50 Analysts Ratings 4-7-0-0-0 52-week low =$ 26.94 Last earnings 12/99 est=-0.72 actual=-1.08 Next earnings 03-09 est=-1.32 versus= 0.07 Average Daily Volume = 6.75 mln http://www.optioinvestor.com/charts.charts.asp?symbol=CMGI **** CLRN - Clarent Corp. $138.00 (+39.00) Clarent makes Internet-based telephony systems that transfer voice, data and faxes. Their telephony systems permit the simultaneous transmission of voice, fax and data over the Internet and similar communications networks. The method of technology uses network space more efficiently than traditional circuit systems, because it takes up space only during transmissions. Clarent has three distinct components in their system, which is comprised of Clarent Gateway, Clarent Command Center, and a third party relational data base. Their revenues come primarily from telecommunications service providers such as AT&T, although about half of their customers are outside the U.S. Clarent's competition is found in Cisco Systems and Lucent. What a nice start to a brand new play. CLRN joined the broad markets in a rally Friday, moving to another new high. The Robertson Stephens Tech Conference was certainly good for a number of stocks this week, as comments coming at the end of the meeting concerning CLRN, were very favorable. Paul Johnson, Managing director at Robertson Stephens, mentioned CLRN with the likes of Brocade Communications, saying that while today CLRN is primarily focused on international long distance, over time they will be focused on domestic as well. Johnson went on to comment that CLRN will be "the next generation voice player." The telecom industry saw some renewed interest this past week for a variety of reasons, and CLRN did its share to support its brothers and sisters in the industry, with investors adding 39% to the price of its stock. Part of the recent interest in CLRN could be a special stockholders meeting that was held the middle of February. The company's board of directors asked for approval to increase the number of authorized shares from 50 mln to 200 mln, which can mean only one thing, a split is in the works. Actually we don't know if they approved the board's request, but we feel certain shareholders checked the box for approval. Technically, a look at an intraday chart shows CLRN forming an ascending triangle pattern. Typically this suggests a move to higher prices in a market that is moving up. Support for CLRN is seen at $135, $131 and back at $124. The charts are indicating that the momentum should continue, however we would check the mood of traders Monday, as a pullback could provide a good entry point for a new play as well. There was very little company specific news come out this week on CLRN. Besides the Robertson Stevens Tech Conference, shares of stocks in the sector moved higher on rumors and discussions between DT, Qwest, and US West. Earlier this week gecco.net did choose CLRN to be its IP telephony supplier for a network it intends to build throughout Europe, the Middle East and Asia. ***March contracts expire in two weeks*** BUY CALL MAR-130*KGQ-CF OI= 0 at $16.88 SL=13.00 New Strike BUY CALL MAR-135 KGQ-CG OI= 0 at $14.13 SL=11.00 New Strike BUY CALL APR-125 KGQ-DE OI=50 at $31.38 SL=24.50 BUY CALL APR-130 KGQ-DF OI=70 at $29.00 SL=22.75 BUY CALL APR-135 KGQ-DG OI= 0 at $26.63 SL=20.75 New Strike SELL PUT MAR-115 KGQ-OC OI= 1 at $ 4.88 SL= 6.50 (See risks of selling puts in play legend) Picked on Mar 02nd at $128.00 P/E = N/A Change since picked +10.00 52-week high=$139.06 Analysts Ratings 2-3-0-0-0 52-week low =$ 19.88 Last earnings 01/00 est-=0.10 actual=-0.05 Next earnings 04-20 est=-0.04 versus= N/A Average Daily Volume = 571 K /charts/charts.asp?symbol=CLRN **** SEBL - Siebel Systems, Inc. $154.72 (+16.34)(+23.81) 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. SEBL investors and traders alike were probably rejoicing in a "Thank God It's Friday" breakout (a rarity this year), wherein SEBL steadily rose over $18 for the day. The catalyst? A surge of volume after lunch, moving SEBL over previous resistance of $144. Once that figure was hit, technical traders jumped in too for the breakout to a new high. It didn't hurt either that DLJ issued a price target to $160 and initiating coverage with a Buy rating earlier in the day. They cited SEBL's ability to leverage its position as the dominant CRM (customer relations management) solutions provider going forward. Following the breakout, range trading in the late afternoon ensued between $147 and $150. A final 15 minute volume surge and $4 price rise looks good for Monday's market opening (just don't take a position in amateur hour). If the rally doesn't fall apart from any Fed-speak on Monday and the sentiment holds with traders who think that NASDAQ 5000 is going to happen, look for support at $150 (old resistance) and again at $147 (late intraday support). Support is really solid at $135. Despite the volume surges at certain price points during the day, daily volume still remains below the ADV. Accordingly, the move up isn't quite as convincing as we'd like it to be. Thus, our target for shooting is probably better relegated to a lower number between the 10-dma and 5-dma, currently $134.50 and $140.36 respectively. SEBL is also a split candidate at these levels although shareholders will need to vote an increase in authorized shares in order to effect anything greater than a 3:2 split. In the news, B of A issued a Strong Buy rating and raised it's price target on SEBL earlier in the week from $150 to $175, citing strong near-term fundamentals. ***March contracts expire in 2 weeks*** BUY CALL MAR-150 SGW-CJ OI=421 at $11.75 SL= 9.25 BUY CALL MAR-155 SGW-CK OI= 37 at $ 9.00 SL= 6.75 BUY CALL MAR-160 SGW-CL OI=192 at $ 6.88 SL= 5.00 BUY CALL APR-155 SGW-DK OI= 0 at $16.50 SL=13.00 Wait for OI! BUY CALL APR-160 SGW-DL OI=208 at $13.88 SL=10.75 Picked on Feb 22nd at $121.88 P/E = 253 Change since picked +32.84 52-week high=$155.00 Analysts Ratings 9-5-0-0-1 52-week low =$ 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 = 3.4 mln /charts/charts.asp?symbol=SEBL **** VERT - VerticalNet, Inc. $251.72 (+25.97)(+27.00) 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. There's plenty of momentum to go around in the B2B sector and VERT is getting its fair share. Much of the action came from analyst's comments at the BBRS Conference last week, where it was learned that VERT has created over 3000 store fronts across 55 industries, and continues to grow revenue at a 700% year over year rate. A BBRS analyst noted that of the sell side B2B companies, VERT holds the greatest opportunity. Despite the good story, the play is really based on technical patterns. VERT had consolidated around $200 by late February when we picked it up. Since, it has jumped in $10 increments to consolidate then take off again. $215 worked. So did $225. $235 was bypassed to test $245. Late in Friday trading, VERT punched through that level on a strong volume surge to close up over $17 at $251. However, volume remains below the ADV, which makes the move over $245 less reliable. Even so, the moves have been so huge that the 5-dma ($230.70) and the 10-dma ($220.78) are lagging way behind and should be considered as rock bottom (but unlikely) entry points. Any market weakness could lead to a nasty round of profit taking in this sector, VERT included, that could easily test these levels, but will likely result in an intraday bounce The tails on the candlesticks indicate the sector's continued strength. Considering how hot the sector has been, consider it a gift. Even better, VERT splits 2:1 on March 31. We expect VERT to get back to its old high of $289 by that time. If it isn't apparent yet, this in one volatile issue. Stepping away from your screen could cause a dip the same way washing your car can cause rain. To that end, protect your gains with a trailing stop (and buy a season pass at the car wash!). There is no news other than the BBRS love-fest. However for you long share traders, you can decrease the risk of trading only one issue by purchasing a basket of 20 of these B2B stocks available on the AMEX under the symbol BBH. VERT currently makes up about 7% of the index. Unfortunately, they are not yet optionable. ***March contracts expire in 2 weeks*** BUY CALL MAR-240 URE-CH OI=723 at $25.63 SL=20.00 BUY CALL MAR-250 URE-CJ OI=389 at $17.75 SL=13.75 BUY CALL MAR-260 URE-CL OI=487 at $13.25 SL=10.25 BUY CALL APR-250*URE-DJ OI=403 at $37.88 SL=29.50 BUY CALL APR-260 URE-DL OI= 93 at $34.50 SL=27.00 Picked on Feb 24th at $221.00 P/E = N/A Change since picked +30.72 52-week high=$289.56 Analysts Ratings 4-6-3-0-0 52-week low =$ 20.00 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 ********************************* CALLS - CONTINUED IN SECTION FOUR ********************************* ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ******************************* CALLS CONTINUED IN SECTION FOUR ******************************* SEE DISCLAIMER IN SECTION ONE
The Option Investor Newsletter 3-5-2000 Sunday 4 of 5 ***************** CALLS - CONTINUED ***************** SOFTWARE ******** ADIC - Advanced Digital Information $96.94 (+12.88) A leading supplier of automated tape libraries, ADIC buys tape drives from other manufacturers and outfits them with robotic arms. The arm then selects a tape from a multi-tape unit, ranging in size from desktop-size to large standalone units, and adds or accesses data. With over 55,000 libraries installed and a suite of innovative software solutions and Storage Area Networking (SAN) products, ADIC is a leader in the rapidly growing market to manage and protect computer network information. Like the Energizer Bunny, ADIC keeps going and going. Continuing to march to higher-highs, ADIC finally took a breather on Wednesday and Thursday to let investors park some of their profits. As soon as the price hit support at $88, it was off to the races again as investors bid the price up above $97 on Friday. Closing very near the high, ADIC looks poised to move higher, but the light volume does cause us some concern. It may just be investors resting before a final run into ADIC's 2-for-1 split, set for March 13th. The stock has been strong for months now, and on February 16th, we were given ample reason. Along with the split announcement, the company reported 30% sales growth and 80% earnings growth year-over-year. With the continued gains in the NASDAQ, a positive outlook for the company, and a pending split, ADIC shares look ready to charge through resistance at $100 and back into new highs. Intraday support looks to be forming at $95, with strong support between $88 and $90. ADIC trades in a nice, predictable manner, as the direction of the open usually dictates the direction for the remainder of the day. Look to enter new positions on a renewed bounce off of support, but wait for the confirmation of increasing volume. In its absence, any move to the upside will likely be short-lived. If things really get jumping next week, a breakthrough of the $100 resistance level can also be considered for an entry trigger. Just the latest to jump on the Linux bandwagon, ADIC announced on Wednesday that it is bringing Linux servers into Storage Area Network (SAN) data sharing applications by supporting the fast-growing operating system with ADIC's CentraVision File- sharing System (CVFS). In early February, ADIC announced that it had added new Fibre Channel routers to its suite of Open SAN Backup Solution products, making that package the first in the industry to build in support for direct disk- to-tape, serverless backup within SANs. BUY CALL MAR- 95*QXG-CS OI= 43 at $11.00 SL= 8.75 BUY CALL MAR-100 QXG-CT OI= 25 at $ 9.00 SL= 6.75 BUY CALL MAR-105 QXG-CA OI=102 at $ 6.88 SL= 5.00 BUY CALL APR-100 QXG-DT OI= 3 at $19.00 SL=14.75 low OI BUY CALL APR-105 QXG-DA OI= 0 at $17.13 SL=13.25 Wait for OI! SELL PUT MAR-85 QXG-OQ OI=66 at $4.13 SL=5.75 (See risks of selling puts in play legend) Picked on Feb 29th at $90.63 P/E = 104 Change since picked +6.31 52-week high=$101.00 Analysts Ratings 3-3-0-0-0 52-week low =$ 7.19 Last earnings 02/00 est= 0.23 actual= 0.27 Next earnings 05-17 est= 0.25 versus= 0.17 Average Daily Volume = 486 K /charts/charts.asp?symbol=ADIC **** LHSP - Lernout & Hauspie $118.25 (+10.03)(P3W +47.59) On the cutting edge of interfacing man to his machines, LHSP is the world's leading provider of speech and language technology products and services. Included in the company's broad array of products and services are the following; speech recognition for more than 15 languages (another 20 are on the way), digital speech and music compression, language translation, text-to-speech, Web-based translations, and dictation of continuous speech. LHSP is collaborating with Microsoft (who owns 7% of LHSP) on its own speech recognition interface. After waking up mid-week to bid shares of LHSP above the $100 support level, investors appear to have hit the mute button, as volume dropped off again to less than half the ADV on Friday. Relegated to a rather narrow range for the past 3 days, LHSP is building support at $115 and resistance at $120. With the positive comments coming from the company and anticipation of the 2-for-1 split (approval and execution date pending), LHSP will likely break out of this tight range sooner rather than later. More encouraging than the profit-taking that took place after LHSP last visited the $120 area, this looks to be consolidation ahead of a renewed run at new highs. Each spurt higher has come on increasing volume, so continue to use this indicator as a confirmation of the stock's direction before turning the sound back on. In the event of broad market weakness, we may see a return to support near $108.50, which could make for a very nice entry point. Target shoot intraday dips to your risk tolerance level and then enjoy the ride. For those more risk-averse, wait for a solid break through the $120 resistance level as LHSP investors make a run at the 52-week high of $126.50. In an upbeat interview on Thursday, LHSP CEO Gaston Bastiaens spoke about the company's new voice sensitive technology and real-time translation portals, and touted the company's growth rate (more than 100% year-over-year for the past 3 years). Presenting Thursday at the Robbie Stephens Tech 2000 Conference provided yet another opportunity for the company to impress investors with their strong product mix and growing list of industry alliances, as evidenced by the strong jump in the share price early Friday. ***March contracts expire in 2 weeks*** BUY CALL MAR-115 XQL-CC OI= 71 at $10.13 SL= 7.50 BUY CALL MAR-120 XQL-CD OI=334 at $ 7.88 SL= 6.00 BUY CALL MAR-125 XQL-CE OI= 19 at $ 5.25 SL= 3.50 BUY CALL APR-120 XQL-DD OI= 83 at $14.13 SL=11.25 BUY CALL APR-125 XXR-DE OI= 77 at $11.75 SL= 9.25 SELL PUT MAR-105 XQL-OA OI= 50 at $ 3.13 SL= 4.75 (See risks of selling puts in play legend) Picked on Feb 12th at $82.00 P/E = 165 Change since picked +36.25 52-week high=$126.50 Analysts Ratings 1-1-1-0-0 52-week low =$ 25.75 Last earnings 02/00 est= 0.20 actual= 0.22 Next earnings 05-10 est= 0.16 versus= 0.12 Average Daily Volume = 930 K /charts/charts.asp?symbol=LHSP **** CHKP - Check Point Software $229.75 (+24.13)(+7.44) Check Point Software has laid claim on being the best in the business at securing the Internet. Their Secure Virtual Network (SVN) architecture provides the infrastructure that enables secure and reliable Internet communications. It's FireWall-1 verifies remote users, controls access and blocks viruses and other unwanted Web content, while VPN-1 will allow companies to set up virtual private networks for secure internal and remote communications. CheckPoint markets its products through manufacturers and resellers including Sun Microsystems. CHKP is located in Rmat Gan, Israel, but nearly 60% of its sales come from the U.S. CHKP presented another commanding performance Friday. With an improved sentiment in the markets, CHKP saw $9.25, or another 4.2% added to the price of its stock. Actually, at it's high the gains were better than that, with CHKP topping out at $237 early in the session. Whether it's the recent cyber attacks or the positive comments from the Robertson Stephens Technology Conference this week, that have moved CHKP to the head of the the class, CHKP has enjoyed a very nice run since its breakout on Wednesday. One interesting note, shows the last upgrade or reiteration CHKP received, came back in the middle of January. It's not that the lack of comments from brokers that follow the company, suggests anything wrong, as 14 out of the 16 that follow CHKP have the company rated a Strong Buy or Buy at this time. We would have expected more comments and reiterations for a company that has performed so well since its 2-for-1 split in late January. Since its split, CHKP has formed a very nice channel in its move to new highs. Friday's high just happens to be where the top of the channel extended as well. CHKP has had recent pattern of making its move early in the day, and then consolidating for the balance of the session. That was the case Friday, as CHKP pulled back to the $225 area and saw buyer's step in again late in the day. Intraday support for CHKP is seen at $225, $220 and back at $212. Although a bounce off support may have already began late Friday, use these points as a guide should we see profit taking in CHKP and the Nasdaq early in the week. Most of the 100 or so Israeli tech and telecom stocks that trade on the Nasdaq are outperforming their American software and telecom counterparts. That's because Israel's engineers are releasing advanced patented technology. This past Tuesday Checkpoint and Internet Security Systems(ISSX) announced the next generation of Check Point RealSecure which offers the most comprehensive integration between intrusion detection and VPN/ firewall software. ***March contracts expire in two weeks*** BUY CALL MAR-210 YKE-CB OI=872 at $28.88 SL=22.50 BUY CALL MAR-220*YKE-CU OI=849 at $21.00 SL=16.38 BUY CALL APR-220 YKE-DU OI= 55 at $35.50 SL=27.75 BUY CALL APR-230 YKE-DV OI= 26 at $31.00 SL=24.25 SELL PUT MAR-180 YKE-OT OI=112 at $ 3.25 SL= 5.00 (See risks of selling puts in play legend) Picked on Feb 27th at $205.63 P/E = 198 Change since picked +24.13 52-week high=$237.00 Analysts Ratings 8-6-2-0-0 52-week low =$ 11.50 Last earnings 01/00 est=0.32 actual=0.35 Next earnings 04-18 est=0.35 versus=0.25 Average Daily Volume = 821 K /charts/charts.asp?symbol=CHKP ******* Telecom ******* AFCI - Advanced Fibre Communications $65.50 (+8.06)(+8.69) Advanced Fibre Communications develops, manufactures, and supports the Universal Modular Carrier 1000 (UMC), a multi- feature digital local-loop carrier system. This product enables telecommunications providers to deliver voice, video, and data on whirling or wireless systems to smaller line-sized markets. Global clients include Alltel, Sprint, France Telecom, and Cable & Wireless Panama. A fire began to kindle under AFCI following February's long weekend. Looking back there was a recent baud meeting that may have sparked investors' interest, but ultimately the momentum was fueled by the slew of analysts' comments. Still if we put all this aside what we essentially have is a pure momentum play and nothing more. Sure it's true that news or company events could effect AFCI, but it's the momentum traders that are running this show. This adds to the risk factor because there's no set date to mark on the calendar to estimate when the trend will be likely over. For instance, on a split or earnings' run you have a clue when the play will cool off or reverse. So keep this in mind if you're new to trading momentum plays. AFCI is at present a case in point. On Monday, the stock dipped down to $56 and then went full-tilt setting a new 52-week record at $71.37! Tuesday's volatility continued to provide profit opportunity. But hold on the ride wasn't over. By Thursday AFCI suffered enough of a downdraft to tweak our radar. Simply put, it's sometimes difficult to determine if a momentum stock is taking a breather or is running out of steam. Therefore entry points can be a risky business. Friday's performance showed promise with a $4.50 gain, but it'd be better to see AFCI bounce off this point at the 5-dma ($65.39) and hold its gains. ***March contracts expire in 2 weeks*** BUY CALL MAR-60*AQF-CL OI=2347 at $ 8.25 SL=6.50 BUY CALL MAR-65 AQF-CM OI= 284 at $ 5.50 SL=3.75 BUY CALL MAR-70 AQF-CN OI= 455 at $ 3.63 SL=2.00 BUY CALL APR-65 AQF-DM OI= 133 at $12.38 SL=9.75 BUY CALL APR-70 AQF-DN OI= 181 at $10.00 SL=7.50 BUY CALL APR-75 AQF-DO OI= 144 at $ 8.50 SL=6.50 Picked on Feb 27th at $57.44 P/E = 22 Change since picked +8.06 52 week high=$71.38 Analysts Ratings 5-8-1-0-0 52 week low =$ 6.75 Last earnings 12/99 est= 0.09 actual= 0.10 Next earnings 04-20 est= 0.07 versus= 0.04 Average daily volume = 1.97 mln /charts/charts.asp?symbol=AFCI **** ERICY - LM Ericsson Telephone $104.81 (+7.19)(+8.94)(-1.50) Ericsson is a world-leading supplier in the fast-growing and dynamic telecommunications and data communications industry, offering advanced communications solutions for mobile and fixed networks, as well as consumer products. Ericsson is a total solutions supplier for all customer segments: network operators and service providers, enterprises and consumers. Ericsson has more than 100,000 employees, representation in 140 countries and clearly the world's largest customer base in the telecommunications field. ERICY keeps cruising right along. ERICY gapped up nearly three points at the open on Friday and set a new high at $105. Possible points of new entry were a little hard to come by because of the gap at the open, however, as you will see mentioned in the paragraph below, there is still plenty of time to get on board. Friday's volume was a little on the light side and we will be looking for this to pick up again next week. ERICY looks to have established some near term support at $104, but the more solid support levels look to be at $100 and at ERICY's 5-dma of $99.50. ERICY did close just pennies shy of the new high, and could be well positioned heading into this week to pick up right where it left off. Do not forget, ERICY is a split run play. And we are not talking your average 2:1 either. ERICY is set to split its shares 4:1, something you do not often see for a stock trading at this current level. The vote to approve the authorized shares for the split, will be taking place at the end of this month. The actual split will probably not occur until May, leaving plenty of room for potential upside and entry points. In other words, this could be just the beginning of a potentially long and profitable run. On Friday, it was announced that Ericsson and Saudi Telecommunications Company have signed a Letter of Intent far a deal valued at approximately $300 million. The deal involves a major expansion and upgrade of Saudi Telecom's already existing GSM Network. ERICY has also been selected to supply the WCDMA infrastructure for Japan Telecom's new 3rd Generation network. ***March contracts expire in 2 weeks*** BUY CALL MAR- 95 RQC-CS OI=1062 at $11.25 SL=8.75 BUY CALL MAR-100 RQC-CT OI=4797 at $ 7.75 SL=5.75 BUY CALL MAR-105 RQC-CA OI=2406 at $ 4.63 SL=2.75 BUY CALL APR-100*RQC-DT OI=2105 at $11.75 SL=9.00 BUY CALL APR-105 RQC-DA OI= 180 at $ 9.00 SL=6.75 SELL PUT MAR- 95 RQC-OS OI= 426 at $ 1.00 SL=2.00 (See risks of selling puts in play legend) Picked on Feb 15th at $86.38 P/E = 138 Change since picked +18.44 52-week high=$105.00 Analysts Ratings 8-11-4-0-0 52-week low =$ 20.50 Last earnings 01/00 est= 0.32 actual= 0.36 Next earnings 04-28 est= 0.17 versus= 0.04 Average Daily Volume = 5.41 mln http://OptionInvestor.com/charts/charts.asp?symbol=ERICY **** JDSU - JDS Uniphase $280.00 (+23.19)(+6.81) Here's another company laying around on paradigm beach ready to surf the next wave. JDS Uniphase Corporation is a fully integrated optical electronics company that designs, develops, manufactures and markets fiber optic telecommunications components and modules and laser subsystems. The Company's telecommunications products include semiconductor lasers, high- speed external modulators, transmitters, fiber Bragg gratings and optical modules for fiber optic networks in the telecommunications and cable television industries. Based in the Silicon Valley, California, they employ approximately 6260 people worldwide. Customers include Lucent, Nortel, Cisco and Ciena. American Express owns 10% of the common shares It seems lately that split runs, rather than tax revenues, could be used to pay off the national debt. They certainly have been profitable. Probably one of the better ones we'll see could be put on by JDSU as it approaches its 2:1 split date on March 10. Split adjusted shares will begin trading on March 13. While volume fell slightly below the ADV by week's end, we expect JDSU to rocket forward, not just on the split run, but also following what is anticipated to be new product introductions by JDSU at the Optical Fiber Comm (OFC 2000) conference to be held this week in Baltimore. There's a buzz surrounding this meeting like we haven't heard in a long time. Just listen to Chris Crespi, analyst at Banc of America Securities from a Reuter's article: "We expect the stock price of the participating companies to swing wildly by week's end." Technically though, JDSU wasn't all that flashy by last week's end. Don't get us wrong; we'll take a $7 gain on any Friday if it's handed to us. However, JDSU hovered around $280 and generally failed to keep pace with the NASDAQ all of Friday. That slightly sagging volume doesn't look good either considering the OFC 2000 event and 2:1 split. Support is around $270, though we don't think it will get to the next level at $260 before the split. If you are real aggressive, $280 may actually be support. There was some strange talk that market makers were trying to keep JDSU under $280 on Friday. We are not clear on that line of thinking, but Friday's chart clearly shows the market's intent to keep this normally volatile issue rangebound in the extreme. The OFC 2000 event will be the news. Watch Monday morning for a clue. ***March contracts expire in 2 weeks*** BUY CALL MAR-270 UCQ-CN OI= 7488 at $21.50 SL=16.75 BUY CALL MAR-280*UCQ-CP OI=11977 at $16.00 SL=12.50 BUY CALL MAR-290 YSU-CR OI= 1327 at $12.50 SL=10.00 BUY CALL APR-280 UCQ-DP OI= 847 at $35.00 SL=27.25 BUY CALL APR-290 YSU-DR OI= 245 at $30.63 SL=24.00 Picked on Feb 29th at $263.88 P/E = N/A Change since picked +16.13 52-week high=$285.69 Analysts Ratings 20-11-1-0-0 52-week low =$ 21.38 Last earnings 01/00 est= 0.16 actual= 0.18 Next earnings 04-26 est= 0.20 versus= 0.09 Average Daily Volume = 7.7 mln /charts/charts.asp?symbol=JDSU **** CCBL - C-COR.net Corp $49.72 (+10.22)(+5.47) As makers of fiber optic equipment and RF devices, customers include cable television operators, telephone companies, and installers of broadband communication networks for manufacturing plants, offices, campuses, institutions, airports, and traffic control systems. In support of its products, C-COR offers technical customer services, including network engineering, installation and maintenance assistance, and training. The latest in manufacturing processes and techniques including surface mount technology and an integrated MRP II system, enable C-COR to produce high quality, value-added products for the worldwide communications market. C-COR employs approximately 1200 people worldwide. That's the long way of saying they are in the optical component and broadband access infrastructure business. For those reading this play for the first time, let's recap from Thursday's letter when we introduced it: Here's another low cost optical play. Having more than doubled since tagging $20 on January 31, CCBL has been on a jet ride. A word of caution before we get started - the pilot has hiccups and has been known to deploy thrust-reversers, causing unusual flight characteristics. That said, this issue had no trouble at all springing at the open from $45 (coincidentally, its 5-dma) then finding support intraday at $48 before setting a new all-time trading high at $50. Volume took a positive upward turn in the process to exceed its ADV by 19%. Institutional buying is increasing monthly, and with a float of just 16.7 mln shares, retail buyers taking notice may stick to this issue like white on a picket fence. Anyway, the trajectory is up. That's the direction in which we expect the play to move as long as volume continues over the ADV and the overall market cooperates. Earnings are a ways off, currently anticipated on April 13 and should have no effect on the current stock movement. Unless you have an iron stomach, you may want to consider the April strikes to capture what may turn into an earnings run by then. There was no news on Friday to account for the move. However, we note the following from Thursday's letter: The last upgrade by CE Unterberg Towbin was to a Strong Buy and a $52 price target on February 17. It's also worth noting that on February 22, CCBL received a $33 mln order from Adelphia Communications - about 15% of their trailing 12-month revenues of $228 mln. ***March contracts expire in 2 weeks*** BUY CALL MAR-45 LQE-CI OI=225 at $7.38 SL=5.50 BUY CALL MAR-50 LQE-CJ OI=115 at $4.38 SL=2.75 BUY CALL APR-45 LQE-DI OI=111 at $9.88 SL=7.25 BUY CALL APR-50*LQE-DJ OI=153 at $7.38 SL=5.50 Picked on Mar 02nd at $44.97 P/E = 57 Change since picked +4.75 52-week high=$50.00 Analysts Ratings 1-4-1-0-0 52-week low =$ 8.00 Last earnings 01/00 est= N/A actual= 0.13 Next earnings 04-13 est= 0.11 versus= N/A Average Daily Volume = 595 K /charts/charts.asp?symbol=CCBL **** GLW - Corning Inc. $205.25 (+17.44)(-5.50)(+27.88)(+25.31) Corning is a premier provider of optical fiber, cable, and photonic products for the telecommunications industry; high- performance glass for computers, television screens, and other information display applications; advanced optical materials for the semiconductor industry and the scientific community; ceramic substrates for the automotive industry; specialized polymer products for biotechnology applications; and other advanced materials and technologies. Pots and pans (housewares) have been a division of Borden since their sale in April 1998. Aside from a nosedive at the open last Monday, GLW put on quite a performance. No longer in the casserole dish business, GLW is emerging as the major challenger to JDSU in the optical component/subsystem heavyweight class. Look no further for proof than last week's announcement that GLW would sell off their metallic cable division to the U.K.'s Belden, Inc. - no more "last century" technology for these guys. Technically, volume remains above average (and did so all week), which tells us that buyers are at the trough. It was enough buying activity to keep GLW moving up every time it touched its 5-dma, currently at $196.38. With the big technology move, GLW never got there, as $200 support held firm on Friday. As long as Fed-Speak doesn't get out of hand this week and throw cold water on the tech rally, we look for the move to continue. Going forward, $200 support should remain intact in a strong market, otherwise target the shoot the 5-dma ($196.38) or the 10-dma ($193.18), depending on your comfort level. Keep in mind that with such a big rise in a short time, GLW may again stop to catch it's breath. However with earnings on April 17, and the likelihood of a split announcement on that date (shareholder meeting on April 27 to authorize new shares from 500 mln to 1.2 bln), the trend is up. Nonetheless, we think there will be buying opportunities along the way. Target shoot to your level of risk tolerance, or wait for a breakout over $208, a resistance level tested three times in the last two days. Volume is the key; just be sure to confirm that the market is in your favor before entering. One item that could really light up GLW (so to speak) is their 19th Annual Media Briefing/Fiber and Photonics Business Update to be held on Tuesday in New York. Secondarily, they could see action from any buzz generated at the Optical Fiber Comm (OFC 2000) Conference this week, which will be held in Baltimore this year. ***March contracts expire in 2 weeks*** BUY CALL MAR-190 GRJ-CR OI= 952 at $22.00 SL=17.25 BUY CALL MAR-200*GRJ-CT OI=2425 at $16.00 SL=12.50 BUY CALL MAR-210 GRJ-CB OI=1041 at $11.25 SL= 9.00 BUY CALL APR-200 GRJ-DT OI= 445 at $27.38 SL=21.25 BUY CALL APR-210 GRJ-DB OI= 22 at $22.75 SL=17.75 Picked on Feb 17th at $191.06 P/E =106 Change since picked +14.19 52-week high=$207.94 Analysts Ratings 7-6-0-0-0 52-week low =$ 47.69 Last earnings 01/00 est= 0.48 actual= 0.51 Next earnings 04-24 est= 0.47 versus= 0.36 Average Daily Volume = 2.48 mln /charts/charts.asp?symbol=GLW **** EMLX - Emulex Corp. $190.25 (+33.13)(+17.13)(P2W+32.00) Emulex Corp is a leading developer and supplier of fibre channel technology, an ANSI standard communications interface that delivers unprecedented bandwidth, connectivity and reliability networking applications. They design three types of connectivity products: network access servers, print servers, and high-speed fibre channel products. They sell their products worldwide to original equipment manufacturers, and end users, through other distribution channels including value-added resellers, systems integrators and others. They have secured relationships with some significant names including Compaq, EMC, Hitachi, IBM, Sequent and Siemens. IBM accounts for about 11% of sales and Sequent, which IBM bought last year accounts for nearly 12% of the EMLX revenues. It's nice to see what a little good news can do for the price of a stock price. Actually there was no company specific news out on EMLX, but the benign February jobs report helped ignite a fire under the broader markets on Friday. As we've said EMLX had held up very well the previous three Friday's with the major indices in a tail spin. Yesterday, with the overall market sentiment much improved, EMLX took off at the opening bell and was trading +27 higher after the first ninety minutes of the session. It really appeared as though traders who had been nibbling on shares of the computer peripherals company off and on for the last few weeks, suddenly received the green light to jump in with both feet, as the volume picked up again to over 1.0 million shares. Friday's move certainly suggests there is there is more upside potential for EMLX. It broke through the top of the channel we've mentioned in earlier updates and could experience a bit of profit-taking, which wouldn't be bad as it would allow for a better entry into new or additional positions. EMLX has support at $188 and again at $178, and a retracement followed by a bounce, would be a very good area to consider a new play. In the last month shareholders of EMLX have enjoyed a gain of over $78. Some are calling for EMLX to be the next "CSCO", while the chat rooms are still buzzing about a potential split. We must reiterate, at this time there is no indication of any split forthcoming. For now we will simply call EMLX a great play. If you have a current position in EMLX, assess your risk profile and set you stops accordingly. As noted earlier, EMLX has been in the headlines very little lately. Friday EMLX did show up in the Investor's Business Daily along with others as a Nasdaq stock in the news. The chart showed Emulex with +83% annual EPS growth and 0% debt. We've mentioned that the institutions have been heavily invested in EMLX for quite some time, and it seems like the investing public has discovered this great company now as well. ***March contracts expire in two weeks*** BUY CALL MAR-175 UEL-CO OI=467 at $25.13 SL=19.50 BUY CALL MAR-180 UEL-CP OI= 5 at $21.50 SL=16.75 low OI BUY CALL MAR-185 UEL-CQ OI= 1 at $18.63 SL=14.50 low OI BUY CALL MAR-190 UEL-CR OI= 4 at $16.25 SL=12.63 low OI BUY CALL APR-190*UEL-DR OI= 15 at $29.25 SL=22.75 low OI SELL PUT MAR-170 UEL-ON OI= 83 at $ 5.63 SL= 7.50 (See risks of selling puts in play legend) Picked on Feb 13th at $123.88 P/E = 346 Change since picked +66.38 52-week high=$195.69 Analysts Ratings 3-4-0-0-0 52-week low =$ 6.63 Last earnings 01/00 est=0.14 actual=0.23 Next earnings 04-25 est=0.17 versus=0.05 Average daily volume = 1.05 mln /charts/charts.asp?symbol=EMLX ************* Miscellaneous ************* MER - Merrill Lynch $107.00 (+11.13) Merrill Lynch, public since 1971, serves a wide array of clients ranging from individuals and small businesses to the world's largest corporations and governments. With over 60,000 employees in more than 40 countries, the company provides investment, financing, advisory, insurance and related services, through its subsidiaries and affiliates. We are all probably familiar with the infamous Merrill Lynch bull. This seems to be a very appropriate company icon, as lately MER has done nothing but charge ahead. The financials are said to be in the "interest rate sensitive" category and as you may know, things have been a little rough lately for this group. You would never know it by looking at Merrill Lynch's chart. MER seems to be oblivious to the goings on of the rather volatile market and its peers. Instead, MER has posted an impressive $21.25 gain since the first of February and looks to have the momentum behind it to keep right on going. The volume has remained strong behind MER's move up, a nice "bullish" indication that there are quite a few interested MER buyers out there. MER has some solid support backing, the first at it's 5-dma of $103 followed by support levels at $102, $100 and $96 which MER tested and held throughout last week. Friday, MER traded up to and closed near its new 52-week high that was set during Wednesday's session. The bull may be well positioned to continue it's charge into next week. Last Wednesday, brokerage shares benefited from an analyst report released predicting increased profits for many of the firms due to an increase in share trading and advising fees. The Solomon Smith Barney analyst went on to up his 12 month price target on MER from $110 to $140, citing the fact the market activity is currently at record levels as one reason for the upgrade. Watch for upcoming earnings reports toward the end of this month from Morgan Stanley, Lehman Brothers and Goldman Sachs, as these reports could potentially have an impact on Merrill Lynch's share price. ***March contracts expire in 2 weeks*** BUY CALL MAR-100 MER-CT OI=3117 at $8.75 SL=6.50 BUY CALL MAR-105 MER-CA OI=1867 at $5.63 SL=3.75 BUY CALL MAR-110 MER-CB OI=1817 at $3.25 SL=1.50 BUY CALL APR-105*MER-DA OI= 861 at $9.38 SL=7.00 BUY CALL APR-110 MER-DB OI=2774 at $7.00 SL=5.25 SELL PUT MAR-100 MER-OT OI= 811 at $1.50 SL=3.00 (See risks of selling puts in play legend) Picked on Mar 5th at $107.00 P/E = 106 Change since picked +0.00 52-week high=$107.63 Analysts Ratings 3-3-3-0-0 52-week low =$ 62.00 Last earnings 01/00 est= 1.36 actual= 1.80 Next earnings 04-25 est= 1.53 versus= 1.44 Average Daily Volume = 2.84 mln http://OptionInvestor.com/charts/charts.asp?symbol=MER ********************** LEAPS by Mark Phillips ********************** Well, that didn't take long! From a high of 29.96 on Monday, the VIX moved down sharply all week, ending up at 21.29. This is getting close to the typical "market top" zone of our favorite indicator, and we urge caution over the next week. We want to buy LEAPS when the VIX is high and the stock in question is providing an attractive entry point. We can purchase LEAPS on a strong stock that has fallen on hard times, profiting when the (hopefully) inevitable recovery comes. With the long fuse on LEAPS, we don't have to worry about burning time-value on a daily basis. For a better understanding of our philosophy and approach, read the last 2 weeks' Leap of the Week plays. These have been ideal entry points on great companies and patient investors are being rewarded. Another play that finally delivered is LU - after being beaten up (remember, entry point!), the company finally gave investors something positive to chew on and Bingo! - an $18 move in less than 2 weeks. This may be a good week for LEAP players to sit on their hands - with the VIX in the low 20's good, entry points may be hard to find. If you are looking to take some profits from winning plays off the table, this may be as good a chance as any. Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN EMC 11/07/99 JAN-2001 $ 80 ZOH-AP $15.38 $48.63 216.19% JAN-2002 $ 90 WUE-AR $19.00 $52.63 177.00% GPS 11/07/99 JAN-2001 $ 40 ZGS-AH $ 5.75 $12.75 121.74% JAN-2002 $ 45 WGS-AI $ 7.88 $15.38 95.18% IBM 11/07/99 JAN-2001 $100 ZIB-AT $13.63 $23.50 72.41% JAN-2002 $110 WIB-AB $16.50 $28.50 72.73% LU 11/14/99 JAN-2001 $ 80 ZEU-AP $12.88 $10.88 -15.53% JAN-2002 $ 90 WEU-AR $16.13 $15.63 - 3.10% CSCO 11/14/99 JAN-2001 $ 80 ZCY-AP $19.13 $64.75 238.47% JAN-2002 $ 90 WIV-AR $22.00 $66.25 201.14% GE 11/21/99 JAN-2001 $150 ZGR-AU $16.25 $18.25 12.31% JAN-2002 $150 WGE-AU $25.50 $29.13 14.24% NT 11/28/99 JAN-2001 $ 75 ZOO-AO $22.25 $56.75 155.06% JAN-2002 $ 75 WNT-AO $30.25 $66.00 118.18% VOD 12/05/99 JAN-2001 $ 50 ZAT-AJ $10.75 $18.25 69.77% JAN-2002 $ 50 WHV-AJ $15.00 $23.88 59.20% TXN 12/12/99 JAN-2001 $110 ZTN-AB $22.25 $87.75 294.38% JAN-2002 $120 WGZ-AD $28.50 $91.88 222.39% NXTL 12/19/99 JAN-2001 $ 90 ZFU-AR $23.50 $56.38 139.91% JAN-2002 $100 WFU-AT $27.25 $61.13 124.33% SUNW 12/19/99 JAN-2001 $ 80 ZJX-AP $17.63 $31.75 80.09% JAN-2002 $ 90 WJX-AR $22.00 $36.00 63.64% LU 01/09/00 JAN-2001 $ 50 ZEU-AJ $13.63 $27.38 100.88% MOT 01/09/00 JAN-2001 $125 ZMA-AE $31.13 $65.75 111.21% JAN-2002 $125 WMA-AE $41.50 $78.13 88.27% CY 01/16/00 JAN-2001 $ 40 ZSY-AH $ 9.13 $14.13 54.76% JAN-2002 $ 40 WSY-AH $12.63 $18.50 46.48% ERICY 01/30/00 JAN-2001 $ 65 ZYD-AM $19.75 $47.25 139.24% JAN-2002 $ 65 WRY-AM $27.00 $55.00 103.70% MSFT 01/30/00 JAN-2001 $100 ZMF-AT $17.63 $16.88 - 4.25% JAN-2002 $110 WMF-AB $21.63 $21.38 - 1.16% Q 02/13/00 JAN-2001 $ 50 ZWK-AJ $ 5.88 $19.13 225.34% JAN-2002 $ 50 WWH-AJ $10.88 $24.38 124.08% CS 02/13/00 JAN-2001 $ 30 ZCJ-AF $14.25 $24.13 69.33% JAN-2002 $ 30 WLJ-AK $18.25 $28.13 54.14% ICOS 02/20/00 JAN-2001 $ 40 ZIL-AH $10.25 $23.38 128.10% JAN-2002 $ 45 WJI-AI $12.13 $26.50 118.47% NSM 02/27/00 JAN-2001 $ 70 ZUN-AN $18.50 $24.50 32.43% JAN-2002 $ 70 WUN-AN $24.25 $31.25 28.87% To review the play description on any of our current plays, go to the LEAPS section for the date the play was added. Option Selection: Notice that many of our LEAP plays have moved considerably since initially being picked. The listed options may therefore be deep in the money and very expensive. When entering a new position, look to buy LEAPS according to your suitability level, but note that we typically initiate strikes that are slightly out of the money from the stock's current price. Leap of the Week IBM - International Business Machines $109.00 Did you take advantage of the buying opportunity this week? Bouncing thrice at the $100 support level, IBM epitomizes the quality we look for in playing LEAPS. Find a strong stock that has fallen on hard times and wait for an attractive entry point. Since there is plenty of time available, we can be patient, wait for the bounce at support and then profit from the recovery in the stock. Like our prior Leap of the Week picks (MSFT and GE), IBM looks like it has put in a bottom and is ready to head higher. On Thursday, Merrill Lynch analyst Steven Milunovich expressed near term concerns, but expects the stock to be stronger in the second half of the year. This sounds to us like the perfect recipe for a successful LEAP play. With the VIX so low, don't be in a hurry - let the play come to you. Patience will likely be rewarded with another choice entry near $100 before the move begins in earnest. BUY LEAP JAN-2001 $110.00 ZIB-AB at $18.50 BUY LEAP JAN-2002 $120.00 WIB-AD at $24.63 /charts.asp?symbol=IBM New Plays No new plays this week. Drops No drops this week either. ***************** PUTS, PUTS, PUTS ***************** Put plays can be very profitable but have a larger risk than call plays. When a stock is falling the entire investment community (except the shorts) is hoping it will reverse and start back up. The company management is also doing everything they can to shore up their stock price. The company issues press releases, brokers talk it up, analysts try to put a positive spin on everything. Then of course there is the death knell, the "buy recommendation" simply because the price has dropped to some level that analysts feel attractive again. Buyers who like the stock wait until it appears a bottom has been reached and then jump on it in a feeding frenzy. They may already have a large position and are averaging down. Many factors can stop a free falling stock in mid drop. **** DD - DuPont $50.75 (-0.75) DuPont is a leader of global industrial companies that produce and engineer products such as pharmaceuticals, chemicals, high performance materials, and agriculturals. Some of their products include Teflon, Dacron and Lycra. The company is mainly focused in the life sciences area and its work includes the finding of treatment for the H.I.V virus. It is the number one chemical firm in the U.S. The company operates globally through some 20 strategic business units. Friday's mild job report, which helped to alleviate rising interest rate fears, looks to have helped us with our put play on DD. How so? Friday presented us with some great opportunity for possible entry points. DD attempted to participate in Friday's market rally but had it's run cut short by resistance at the $52 (10-dma) level. By midday, DD found itself headed in the all too familiar downward direction and by the close, had taken back half of the day's gain. One day does not a trend make, and we are certainly not convinced that DD is on its way to a trend reversal. Another of the catalysts behind DD's move on Friday, were the kind words spoken by Merrill Lynch analyst John Roberts. He raised his intermediate-term rating on DD to a Buy with a $58 12-month price target. He further commented that "After 5 years of essentially flat EPS (earnings per share), management appears committed to do whatever it takes to achieve 10 percent-plus EPS growth in 2000," Sure, it sounds good, but by the end of Friday's session, it looked as though investors just weren't ready to buy in, and thus the selling resumed. As we mentioned on Thursday, investors seem to be concerned with DD's upper management. In perusing through the message boards, one is bound to encounter such terms as "dead wood" and "starched shirts". It could be that until DD takes action to do a little house cleaning on the upper executive level, the sellers will continue to determine DD's direction. That is just fine by us. As we mentioned, DD found resistance on Friday at it's 10-dma. Watch for this level to continue to hold DD back. This level may serve well for possible entry points as well. Also, watch for DD to trade back through $50 backed by volume as an indication that DD does intend to reclaim its downward trend. ***March contracts expire in 2 weeks*** BUY PUT MAR-55*DD-OK OI= 907 at $4.63 SL=2.75 BUY PUT MAR-50 DD-OJ OI=1223 at $1.44 SL=0.75 Average Daily Volume = 2.95 mln /charts/charts.asp?symbol=DD **** RNWK - RealNetworks $70.19 (-8.19) RealNetworks is the pioneer and established market leader in streaming media technology on the Internet. RealNetworks is helping transform the Internet into the next mass medium by making real-time, or streaming, Internet broadcasting possible and profitable. In only four years, RealNetworks software systems have become by far the most pervasive method of streaming media on the Internet and intranets. Based in Seattle, RealNetworks develops and markets software products and services designed to enable users of personal computers and other digital devices to send and receive real-time media using today's infrastructure. When the rhythm is good, it is hard not to want to dance. RNWK found itself tapping it's foot to the beat of the market on Friday as the NASDAQ jetted to yet another record high. Was it the beginning of a reversal for RNWK, or was it merely a great opportunity for potential entry points? Being that RNWK was unable to breakthrough its 10-dma on Friday, we are putting our money on the latter. It was actually RNWK's 100-dma right that managed to keep the lid on during Friday's session. RNWK's 100-dma is now at $71 and RNWK's 10 and 50-dma's are working to converge right around $75.50, which could provide some formidable resistance if needed. It is important for these support levels to hold, as a breakthrough could indicate a possible reversal. The $70 level could play a key role in the future of RNWK's stay on our put play list. As we have mentioned previously, though this level does look to have potential to provide some support, we see the real support coming into play near the $60 level. If RNWK can manage a breakthrough the $70 level backed by strong volume we may be cleared for a fall to this level. Did Friday's session remind you of just why using your Stop Loss orders is so important? ***March contracts expire in 2 weeks*** BUY PUT MAR-70 RNO-ON OI= 819 at $5.50 SL=3.75 BUY PUT MAR-65*RBO-OM OI=1006 at $3.25 SL=1.50 Average Daily Volume = 1.97 mln /charts/charts.asp?symbol=RNWK **** PPG - PPG Industries $49.06 (+0.00) PPG manufactures a variety of products for the manufacturing, construction, automotive and chemical processing industries. The company also helps do-it-yourself homeowners brighten up their house with its Lucite brand of house paints. Paints, stains, and other coatings account from almost half of the company's sales, with the balance coming from the glass products and chemicals divisions. PPG has over 75 manufacturing facilities in 16 countries, but North America accounts for 70% of company sales. Every dog has his day, and Friday was it for PPG. Supported by the recovery on the DOW, PPG managed to move as high as $50.63, before investors came to their senses and remembered they don't like manufacturing stocks. Falling back from its highs, PPG found support near $49 as the selling tapered off. The big question is whether this is a bottom for the stock or if we were just provided with an attractive entry point. With very little in the way of news, PPG should continue to be influenced by the direction of the broad non-tech market. PPG looks to have solid resistance at $50.50, and if the bargain- hunters can push through to close above this level, we will likely have to concede defeat. Conversely, moving up to resistance and rolling over could provide us with a very attractive entry point. Below the $49 level, PPG will likely find support near Thursday's new 52-week low of $46.63. Look to enter new positions on either another southward bounce from $50.50, or a penetration of today's support at $49. Keep an eye on volume, as continued buying interest could signal that life really has returned to this beaten down issue. ***March contracts expire in 2 weeks*** BUY PUT MAR-55 PPG-OK OI= 50 at $8.13 SL=6.25 BUY PUT MAR-50*PPG-OJ OI=109 at $2.44 SL=1.25 Average Daily Volume = 509 K /charts/charts.asp?symbol=PPG **** CTS - CTS Corporation $52.31 (-14.06) CTS designs, manufactures and sells a broad line of electronic components and custom assemblies for OEM customers in primarily the automotive, computer equipment and communications equipment markets worldwide. Roughly one third of CTS' sales come from General Motors, Seagate Technology and Compaq. Negative momentum is the name of this game. CTS had managed to maintain a trading range between $60 and $80 from November through the end of February. With no negative news backing the drop, the $60 level finally gave way on the second day of March and once it did the sellers picked up the pace and CTS closed the session down $8.44. Since then, the negative momentum has propelled CTS through its 200-dma, a level that has held since December of 1998. CTS has consistently been tagging lower highs and lower lows. CTS now looks cleared for a fall down to the next level of support, which is in the neighborhood of $44. We have also seen an increase in the volume level since CTS broke $60, which indicates that there are a lot of investors who viewed that level as a solid level of support and are now in a panic mode to get out. Despite the market's stellar performance on Friday, CTS continued to decline, giving us the go ahead to initiate this play. CTS could encounter resistance at it's 200-dma, which is now at $55.50, should it make an attempt at a move up. Look for the long time support level of $60 to now provide a formidable level of resistance. ***March contracts expire in 2 weeks*** BUY PUT MAR-55*CTS-OK OI=400 at $5.00 SL=3.25 BUY PUT MAR-50 CTS-OJ OI=821 at $2.13 SL=1.00 Average Daily Volume = 2.95 mln /charts/charts.asp?symbol=CTS **** MRK - Merck & Co. $57.50 (-2.69) Merck is a research-driven pharmaceutical company that discovers, develops, manufactures and markets a broad range of human and animal health products. Profiting from American's poor eating habits, Merck is the US's #1 drug maker, producing drugs to battle high cholesterol, hypertension, and heart failure. Cholesterol drugs Zocor and Mevacor and top-selling hypertension drugs, Vasotec and Prinivil make up more than one-third of the company's sales. Among Merck's newer drugs are AIDS medication Crixivan, anti-baldness pill Propecia, migraine treatment Maxalt and arthritis pain medication Vioxx. Moving into the internet world, MRK has formed an alliance with CVS to market its drugs online. Limping along with the rest of the NYSE, MRK has now not only committed the cardinal sin of breaking its 52-week low, but Friday provided the drug maker with its lowest close since June of 1998. As if the poor market conditions weren't enough for MRK, on Friday a company official shot the company in the foot, announcing his belief that no drug maker will complete development of an HIV vaccine for at least another decade. This is not the kind of comment that attracts investors' enthusiasm, much less their cash, and MRK paid the price by losing $1.75 on the day. Technically this issue looks weak as the January rally failed to take out the double-top from October/November of last year. Volume on this latest decline has been strong with Friday topping 10 million shares. With the degree to which the share price has been depressed, MRK may find support right near Friday's closing price; if not, investors will have to look for $54 to provide assistance. Resistance on the upside comes in the form of the old 52-week low near $61, backed up by the 10-dma (currently at $61.25). Ideally, we'd like to see a move up near resistance to provide for a better entry, but if the selling continues, look to jump on board as the beleaguered issue drops below Friday's low of $57.06. ***March contracts expire in 2 weeks*** BUY PUT MAR-60*MRK-OL OI=3782 at $3.75 SL=2.25 BUY PUT MAR-55 MRK-OK OI= 654 at $1.13 SL=0.00 Average Daily Volume = 5.82 mln /charts/charts.asp?symbol=MRK ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
The Option Investor Newsletter 3-5-2000 Sunday 5 of 5 ************* COVERED CALLS ************* Charting Basics: Pattern Recognition... The knowledge of basic chart formations can significantly increase the probability of a successful position. There are a number of common technical patterns that can be used to identify favorable entry points. Trend lines, support and resistance and volume are fundamental to any technical assessment and there is one specific formation that historically exhibits all of these components in a clear and concise manner. This major reversal pattern was made famous by Charles Dow and it has appeared in every major market top or bottom in the last 50 years. The formation I am referring to is a precursor to both market rallies and major corrections. It is accurately described as a "Head-n-Shoulders" top or bottom. In its simplest form, the Head-n-Shoulders Top reflects the final rallies in a major uptrend, the first recovery of the following downtrend, and the potential support or breakdown area (neckline) between the upward movements. In a stage II climb, a stock will generally advance along an established trend line in a series of rallies that are interrupted by small corrections. When the move begins to lose strength, a consolidation area is formed. If the trend reverses to a significantly lower range before a recovery occurs, a pattern of peaks and valleys will begin to evolve. The initial segment of the formation (the left shoulder) is normally associated with high trading volume. The follow-through to the head of the pattern (generally a long-term high) will ordinarily be driven by less volume. A variation of the double-top, often near the peak of buying will occasionally develop on slow moving blue-chip issues. This patterns typically exhibits heavy upside volume which dissipates and then gradually increases as the stock rounds-over into the downtrend. The eventual recovery rally (to the right shoulder) is generally made on relatively low volume. As with any pattern, there can be a number of small variations. For example, there may be two or more left shoulders near the same price range, or two or more right shoulders. In any case, the most important component of the formation is the neckline. When it is broken, the pattern is complete and a significant change in character often follows. During this transition, trading volume may not be significantly different but any substantial penetration of the neckline warrants immediate action. There is usually one attempt at recovery but the move almost always fails at the level of the neckline. The following drop is often the most precipitous of the entire formation and occasionally will eclipse the height of the pattern (the top of the Head to the Neckline). As the new character evolves, successive rallies commonly fail at lower highs until the overall decline is far greater than the magnitude of the initial formation. The major differences between Head-and-Shoulders Tops and Bottoms are the time periods necessary for the pattern to mature and the trading volume associated with the development of the head (peak) of the formation. In bearish reversals, top formations are often completed in a few weeks. In contrast, significant support levels (or bottoms) generally occur over longer periods and some patterns may take months to evolve. In failing issues, the breakdown from from a Head-and-Shoulders Top may not include a significant change in volume, whereas the bullish breakout from a Head-and-Shoulders Bottom must have volume confirmation. The historical traits of well known patterns demonstrates the ability to profit from their analysis and it's obvious you should never overlook the potential of a clearly formed and definitely broken trend. SUMMARY OF PREVIOUS PICKS ***** NOTE: Using Margin doubles the listed Monthly Return! Stock Price Last Call Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return BIDS 5.34 7.13 MAR 5.00 1.06 *$ 0.72 19.0% ASPX 12.56 11.16 MAR 10.00 3.25 *$ 0.69 10.7% HEB 11.94 15.75 MAR 10.00 2.69 *$ 0.75 9.1% ANIC 6.94 7.38 MAR 5.00 2.31 *$ 0.37 9.0% PTEK 8.94 9.38 MAR 7.50 2.13 *$ 0.69 8.8% TSEM 21.00 27.25 MAR 17.50 4.63 *$ 1.13 7.8% New Symbol FSII 17.81 20.00 MAR 15.00 4.25 *$ 1.44 7.7% XICO 26.13 23.25 MAR 22.50 4.75 *$ 1.12 7.6% IMNR 15.75 16.25 MAR 10.00 6.38 *$ 0.63 7.6% GZTC 29.13 44.00 MAR 22.50 8.38 *$ 1.75 7.3% AND 8.88 16.13 MAR 7.50 1.94 *$ 0.56 7.0% SCTC 22.31 25.00 MAR 20.00 3.75 *$ 1.44 6.7% TLXN 20.78 27.00 MAR 17.50 4.00 *$ 0.72 6.2% SMSC 14.25 13.69 MAR 12.50 2.25 *$ 0.50 6.0% UBET 6.25 5.19 MAR 5.00 1.63 *$ 0.38 6.0% REMC 26.38 39.38 MAR 22.50 5.00 *$ 1.12 5.9% PCMS 23.06 17.50 MAR 17.50 6.38 $ 0.82 5.5% MCRE 15.50 19.75 MAR 12.50 3.88 *$ 0.88 5.5% SIII 15.00 21.13 MAR 12.50 3.38 *$ 0.88 5.5% EPIC 9.56 8.91 MAR 7.50 2.50 *$ 0.44 5.4% WRLS 28.00 25.25 MAR 17.50 11.13 *$ 0.63 5.4% ELIX 21.75 21.00 MAR 17.50 4.88 *$ 0.63 5.4% MSGI 24.88 23.75 MAR 20.00 6.00 *$ 1.12 5.2% RNBO 30.88 44.38 MAR 25.00 7.00 *$ 1.12 4.1% ITIG 43.44 43.00 MAR 30.00 14.25 *$ 0.81 4.0% GELX 17.81 21.56 MAR 15.00 3.75 *$ 0.94 3.6% DRMD 12.75 9.31 MAR 10.00 3.38 $ -0.06 0.0% *$ = Stock price is above the sold striking price. Comments: Some issues to watch that are testing (or may test) support include Auspex Systems (ASPX), Xicor (XICO), and Youbet (UBET). Duramed Pharma (DRMD) and Standard Microsytems (SMSC) have weakened (earnings warning). Consider exiting early or rolling down, depending on your long term outlook. P-Com (PCMS) is suffering some post earnings blues. The 50 dma appears to be providing support as P-Com nears a 50 percent retracement of its latest rise in price. NEW PICKS ********* Sequenced by Company Stock Last Call Strike Option Last Open Cost Return Return Symbol Price Month Price Symbol Bid Intr Basis Called Unchanged AND 16.13 APR 12.50 AND DV 4.75 152 11.38 9.8% 9.8% BIDS 7.13 APR 5.00 BDU DA 2.63 642 4.50 11.1% 11.1% COB 14.13 APR 10.00 COB DB 5.00 168 9.13 9.5% 9.5% EPTO 14.00 APR 10.00 QTP DB 4.75 901 9.25 8.1% 8.1% ESCM 17.50 APR 15.00 QFC DC 4.38 568 13.12 14.3% 14.3% MUEI 14.50 APR 12.50 MQU DV 2.81 1728 11.69 6.9% 6.9% THDO 15.75 APR 12.50 TUD DV 4.25 209 11.50 8.7% 8.7% Sequenced by Return Called & Return Not Called Stock Last Call Strike Option Last Open Cost Return Return Symbol Price Month Price Symbol Bid Intr Basis Called Unchanged ESCM 17.50 APR 15.00 QFC DC 4.38 568 13.12 14.3% 14.3% BIDS 7.13 APR 5.00 BDU DA 2.63 642 4.50 11.1% 11.1% AND 16.13 APR 12.50 AND DV 4.75 152 11.38 9.8% 9.8% COB 14.13 APR 10.00 COB DB 5.00 168 9.13 9.5% 9.5% THDO 15.75 APR 12.50 TUD DV 4.25 209 11.50 8.7% 8.7% EPTO 14.00 APR 10.00 QTP DB 4.75 901 9.25 8.1% 8.1% MUEI 14.50 APR 12.50 MQU DV 2.81 1728 11.69 6.9% 6.9% Company Descriptions OI - Open Interest CB - Cost Basis or break-even point RC - Return Called RNC - Return Not Called (Stock unchanged) AND - Andrea $16.13 *** Breakout! *** Andrea designs, develops and manufactures audio technologies and equipment for enhancing applications that require high performance and high quality voice input. The Company's has several patented and Patent-pending audio products that enhance a wide range of audio products to eliminate background noise and ensure the optimum performance of voice applications. Though revenues were lower for the fourth quarter, Andrea is expanding its technology portfolio and strategic alliances, which should boost future revenues. Andrea has broken above a stage I base on heavy volume and has reached a new 52 week high. As Andrea is somewhat overextended, we favor a cost basis below the February high. APR 12.50 AND DV Bid=4.75 OI=152 CB=11.38 RC=9.8% RNC=9.8% Chart = /charts/charts.asp?symbol=AND **** BIDS - Bid.Com $7.13 *** Blast off! *** Bid.Com is one of e-commerce's leading international online sales and marketing organizations. The company offers a compelling and cost-effective method of selling a wide array of goods and services over electronic distribution channels. Bid.Com is strategically positioned to leverage its business-to-consumer technological leadership by offering the pre-eminent online auction platform for co-ventures into B2B markets, developing and implementing custom branded e-commerce solutions and for distribution through broadband media. After reporting earnings, showing revenues increasing by 80 percent, Bid.Com has now announced plans to enter into a strategic alliance with Ireland's Sunday Business Post. This should allow BIDS to take advantage of the growing demand for vertical online marketplaces in Europe. The news caused the stock to jump above its recent trading range closing above the December high and making a successful test of its 150 dma. APR 5.00 BDU DA Bid=2.63 OI=642 CB=4.50 RC=11.1% RNC=11.1% Chart = /charts/charts.asp?symbol=BIDS **** COB - Columbia Labs $14.13 *** What's Up? *** Columbia Laboratories develops unique pharmaceutical products that treat female specific diseases and conditions including infertility, dysmenorrhea, endometriosis, hormonal deficiencies and the prevention of sexually transmitted diseases. Columbia's research in endocrinology has also led to the development of a product to treat Andropause in men. Their products primarily utilize its patented bioadhesive delivery technology, the Bioadhesive Delivery System. The recent restructured senior management team can't be the only reason for such strength in the tape. Are investors anticipating blow-out earnings? Is the rise due to sector strength? With earnings due this week, we favor speculating closer to support until the reason for the recent run-up is made known. APR 10.00 COB DB Bid=5.00 OI=168 CB=9.13 RC=9.5% RNC=9.5% Chart = /charts/charts.asp?symbol=COB **** EPTO - Epitope $14.00 *** Oral Drug Testing *** Epitope develops, manufactures & markets oral specimen collection devices and diagnostic products using its proprietary oral fluid technologies. Epitope's lead product, the patented OraSure collection device, is used in conjunction with screening and confirmatory tests approved by the FDA to test for HIV-1 antibodies and other conditions. Their technology is also being used to test for drugs of abuse and other analytes. Last quarters earnings were favorable showing increasing revenues and narrowing losses. The recent introduction of the Intercept(TM) oral fluid drug test helped spur the resumption of the stage II climb. We favor the support provided by the January high and 30 dma. APR 10.00 QTP DB Bid=4.75 OI=901 CB=9.25 RC=8.1% RNC=8.1% Chart = /charts/charts.asp?symbol=EPTO **** ESCM - ESC Medical Systems $17.50 *** New FDA Approvals *** ESC develops, manufactures and markets medical devices utilizing lasers and proprietary intense pulsed light technology for non-invasive treatment of varicose veins and other benign vascular lesions, as well as other clinical applications. Their products are used in a variety of areas, including cosmetic, medical, dental and veterinary medicine. ESC announced in January that strong fourth quarter sales exceeded the Company's expectations, which helped ignite a strong rally. With recent FDA approval for ESC's proprietary Intense Pulsed Light technology for hair removal on all skin types, the stock shows no signs of technical weakness. APR 15.00 QFC DC Bid=4.38 OI=568 CB=13.12 RC=14.3% RNC=14.3% Chart = /charts/charts.asp?symbol=ESCM **** MUEI - Micron Electronics $14.50 *** Another Breakout *** Micron Electronics and its subsidiaries are the third largest provider of personal computers sold through the direct channel. They develop, manufacture, market and support electronic products for a broad range of computing and digital applications. They custom builds a wide variety of notebook and desktop PC systems and servers for its core customers in consumer, commercial and government sectors. Just as many of the PC makers have, Micron has been focusing its resources to become a Web-hosting outfit. The effort appears to have paid off as Micron was chosen as the "number one Web hosting company in the world" by Hottest Hosts. We favor the breakout above Micron's stage I base on heavy volume and the technical support at the sold strike. APR 12.50 MQU DV Bid=2.81 OI=1728 CB=11.69 RC=6.9% RNC=6.9% Chart = /charts/charts.asp?symbol=MUEI **** THDO - 3DO Company $15.75 *** Up and Away? *** 3DO is a leading developer and publisher of branded interactive entertainment software. Its software products operate on several multimedia platforms including personal computers, the Sony Play Station and Nintendo N64 video game consoles, and the Internet. Their software covers a broad spectrum of entertainment products, including action, strategy, adventure/role playing, sports and family games. Last quarter's earnings, powered by the release of 10 new games and European expansion, showed revenues up by 300 percent. Shortly afterward, ING Barings initiated coverage with a strong buy. We agree, though we favor a cost basis closer to support. APR 12.50 TUD DV Bid=4.25 OI=209 CB=11.50 RC=8.7% RNC=8.7% Chart = /charts/charts.asp?symbol=THDO ***************** NAKED PUT SECTION ***************** Naked Put Percentage List DISCLAIMER: Before entering any of the positions listed below, you need to understand your risk tolerance. Selling puts can be a High-Risk endeavor depending on the strike you choose to sell. For a greater return, you run a higher risk of being exercised. Therefore, please consider other strikes than the ones listed below if you aren't comfortable with the one we choose. We are gearing these towards higher-risk players. In any case, you can always select a lower strike with a lower return if it better meets your suitability. Stock Stock Strike Option Option Margin Percent Symbol Price Price Symbol Price At 25% Return ELON 83.69 75 EUL-OO 6.88 20.92 33% LYNX 94.69 80 ULX-OP 7.00 23.67 30% CMTO 68.56 60 CQH-OL 3.88 17.14 23% TXCC 101.06 100 TZQ-OT 9.50 25.27 38% AMSC 63.00 60 QAY-OL 4.38 15.75 28% RIMM 150.69 140 RUP-OH 8.00 37.67 21% PUMA 172.00 160 YCQ-OL 13.63 43.00 32% CORR 95.38 85 CHQ-OQ 6.75 23.85 28% CIEN 170.00 165 UEE-OM 10.00 42.50 24% ENMD 83.50 80 QMA-OP 6.25 20.88 30% ENGA 165.94 160 GQE-OL 12.38 41.49 30% ASDV 166.13 160 QFV-OL 16.13 41.53 39% PMCS 201.00 200 SZI-OT 15.13 50.25 30% ENZ 87.50 85 ENZ-OQ 5.88 21.88 27% IMCL 154.44 140 QCI-OZ 4.63 38.61 12% ADIC 96.94 100 QXG-OT 11.00 24.24 45% FIBR 133.25 125 QBD-OE 10.38 33.31 31% BVSN 260.25 250 BZV-OV 12.50 65.06 19% CNXT 93.69 90 QXN-OR 5.75 23.42 25% SDLI 442.00 440 QZL-OH 28.00 110.50 25% CMGI 134.06 130 GCD-OF 8.13 33.52 24% SONE 117.75 115 QFB-OC 7.25 29.44 25% NSOL 355.69 340 JNV-OH 16.13 88.92 18% MEDX 194.88 180 MJU-OP 21.13 48.72 43% BRCD 315.25 300 UBZ-OT 13.50 78.81 17% AMCC 269.38 260 AZV-OL 14.63 67.35 22% EPNY 222.63 200 UEP-OT 10.13 55.66 18% CRA 234.50 230 CKA-OU 18.00 58.63 31% ALKS 186.00 180 ADE-OP 11.25 46.50 24% PDLI 281.38 260 RPV-OV 17.38 70.35 25% EPNY AGGRESSIVE SELL PUT MAR-220 UEP-OD at $19.00 = 34% MODERATE SELL PUT MAR-210 UEP-OB at $14.25 = 26% CONSERVATIVE SELL PUT MAR-200 UEP-OT at $10.13 = 18% SDLI AGGRESSIVE SELL PUT MAR-240 QZL-OH at $28.00 = 25% MODERATE SELL PUT MAR-230 QZL-OF at $22.13 = 20% CONSERVATIVE SELL PUT MAR-220 QZL-OD at $17.88 = 16% ENGA AGGRESSIVE SELL PUT MAR-160 GQE-OL at $12.38 = 29% MODERATE SELL PUT MAR-155 GQE-OK at $10.38 = 25% CONSERVATIVE SELL PUT MAR-150 GQE-OJ at $ 8.38 = 20% CIEN AGGRESSIVE SELL PUT MAR-160 UEE-OL at $8.13 = 19% MODERATE SELL PUT MAR-155 UEE-OK at $6.00 = 14% CONSERVATIVE SELL PUT MAR-150 UEE-OJ at $4.63 = 11% ********** Naked Put Writing: Buying stock at a discount... In addition to viewing naked put writing as a strategy unto itself, many investors and large portfolio managers who actually want to acquire stock, will often write puts as well. We have mentioned before that there are two basic strategies to use in a neutral to bullish Market. The first technique involves writing at-the-money puts to take advantage of a bullish movement in the underlying stock for short-term profits. The second technique, a less aggressive method, is to write an out-of-the-money put, hoping that the sold position will expire worthless. Many traders who enter these positions never intend to own the stock, as they are time merchants. If the underlying stock drops in price, they simply buy back the puts and close the position. Yet the technique of writing naked puts is useful to many types of investors who are oriented toward stock ownership. When a stock's price rises quickly (as many have done recently), many investors will open a limit buy order near an expected technical pullback. If the stock never reaches the buy limit, the investor misses out on the advance. Savvy investors will use a naked put to acquire the same stock, using the option premium to reduce their net cost in the desired stock. Of course, if the sold option remains out-of-the-money at expiration, the put will not be assigned and a naked put writer will also miss the advance. However, he still gets to keeps the premium from the put as it will expire worthless. The put writer takes a proactive role in trying to acquire stock, and at the very least, receives some compensation for his efforts. It is simply a method of trying to accumulate a stock position at prices lower than currently available on the market. Next week we should continue with the series on Option Trading Mechanics, as Ray should be back from "vacationing" in Moscow. *** WARNING!!! *** Occasionally a company will experience catastrophic news causing a severe drop in the stock price. This may cause a devastatingly large loss which may wipe out all of your smaller gains. There is one very important rule; Don't sell naked puts on stocks that you don't want to own! It is also important that you consider using trading STOPS on naked option positions to help limit losses when the stock price drops. Many professional traders suggest closing the position when the stock price falls below the sold strike or using a buy-to-close STOP at a price that is no more than twice the original premium from the sold option. SUMMARY OF PREVIOUS PICKS Stock Price Last Put Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return ESPI 12.75 14.13 MAR 10.00 0.50 *$ 0.50 23.7% SCTC 24.38 25.00 MAR 17.50 0.63 *$ 0.63 16.6% WSTL 25.88 34.25 MAR 17.50 0.69 *$ 0.69 13.2% ANET 12.69 13.25 MAR 10.00 0.25 *$ 0.25 13.0% WPZ 15.31 14.00 MAR 10.00 0.38 *$ 0.38 12.4% New Symbol ZONA 7.69 12.69 MAR 5.00 0.31 *$ 0.31 12.1% WSTL 31.50 34.25 MAR 22.50 0.56 *$ 0.56 11.8% XICO 26.13 23.25 MAR 20.00 0.44 *$ 0.44 11.2% NTRX 31.13 25.88 MAR 20.00 0.69 *$ 0.69 11.2% CLPA 44.81 47.31 MAR 20.00 0.75 *$ 0.75 11.2% MSGI 23.75 23.75 MAR 17.50 0.38 *$ 0.38 10.7% TSEM 20.13 27.25 MAR 15.00 0.56 *$ 0.56 10.6% New Symbol CRUS 20.31 22.56 MAR 15.00 0.38 *$ 0.38 9.6% PTEC 20.63 28.75 MAR 15.00 0.63 *$ 0.63 9.6% RWAV 10.56 9.63 MAR 7.50 0.31 *$ 0.31 9.3% PGEX 23.13 20.19 MAR 17.50 0.50 *$ 0.50 8.5% IDTC 31.50 36.56 MAR 20.00 0.50 *$ 0.50 8.3% SKYC 28.63 34.00 MAR 20.00 0.44 *$ 0.44 8.0% PILT 33.94 38.19 MAR 22.50 0.63 *$ 0.63 7.4% EXLN 23.00 22.13 MAR 15.00 0.31 *$ 0.31 7.1% MSGI 24.88 23.75 MAR 17.50 0.44 *$ 0.44 7.1% PTEC 23.06 28.75 MAR 17.50 0.38 *$ 0.38 6.6% DRD 28.00 21.75 MAR 20.00 0.56 *$ 0.56 6.6% AXTI 31.94 45.75 MAR 17.50 0.50 *$ 0.50 6.3% RNBO 30.88 44.38 MAR 22.50 0.38 *$ 0.38 5.0% *$ = Stock price is above the sold striking price. Comments: Rogue Wave (RWAV) appears to have successfully tested its 150 dma and the January low. Duane Reade (DRD) is testing previous lows (near the sold strike) and should be monitored closely. The recent "strong buy" rating by Banc of America did little to stop the drop after earnings. With Duane Reade oversold in the short term, consider using any rally that quickly fails to exit the position, unless you wish to own the issue. NEW PICKS Sequenced by Company Stock Last Put Strike Option Last Open Cost ROI Opt Symbol Price Month Price Symbol Bid Intr Basis Expired BCRX 32.75 MAR 25.00 BIU OE 0.38 98 24.62 5.5% ELIX 21.00 MAR 17.50 XQQ OW 0.50 0 17.00 9.3% EXLN 22.13 MAR 17.50 ODU OW 0.56 116 16.94 11.2% PLNR 15.88 MAR 12.50 PNQ OV 0.25 12 12.25 7.3% SCTC 25.00 MAR 20.00 YQS OD 0.38 100 19.62 7.1% TSEM 27.25 MAR 22.50 TWQ OX 0.38 50 22.12 5.8% Sequenced by ROI Stock Last Put Strike Option Last Open Cost ROI Opt Symbol Price Month Price Symbol Bid Intr Basis Expired EXLN 22.13 MAR 17.50 ODU OW 0.56 116 16.94 11.2% ELIX 21.00 MAR 17.50 XQQ OW 0.50 0 17.00 9.3% PLNR 15.88 MAR 12.50 PNQ OV 0.25 12 12.25 7.3% SCTC 25.00 MAR 20.00 YQS OD 0.38 100 19.62 7.1% TSEM 27.25 MAR 22.50 TWQ OX 0.38 50 22.12 5.8% BCRX 32.75 MAR 25.00 BIU OE 0.38 98 24.62 5.5% Company Descriptions OI - Open Interest CB - Cost Basis or break-even point ROI - Return On Investment BCRX - BioCryst $32.75 *** Breakout *** BioCryst Pharmaceuticals is a biotechnology company focused on the development of pharmaceuticals for the treatment of infectious, inflammatory and cardiovascular diseases and disorders. BioCryst's most advanced drug candidate, BCX-1812, is a neuraminidase inhibitor designed to treat and prevent viral influenza. The recent weakness in BioCryst was due to possible delays in starting Phase III clinical trials for its flu treatment. In early February, BioCryst announced that it will receive a $4 million milestone payment from the R.W. Johnson Pharmaceutical Research Institute reference the initiation of Phase III clinical trials oral influenza neuraminidase inhibitor. The price rebounded nicely though remaining within its six month trading range. On Friday, BioCryst jumped out of this range and closed at a new all-time high. There was no news with this huge move but you can't argue with the tape. We favor the strong support above the sold strike on this speculative issue. MAR 25.00 BIU OE Bid=0.38 OI=98 CB=24.62 ROI=5.5% Chart = /charts/charts.asp?symbol=BCRX **** ELIX - Electric Lightwave $21.00 *** Fiber Optics *** Electric Lightwave is a broadband integrated communications company providing Internet, data, voice and dedicated access services to communications-intensive businesses and the growing e-commerce market. The company owns and operates high-speed fiber optic networks that interconnect major markets in the West and operates a leading national Internet and data network. Electric recently settled its dispute with US West and completed two more segments of its $131 million long haul route. Electric just reported earnings this week, showing revenue and margin growth, which should bode well for the future. A speculative candidate, as some post earnings weakness may occur. We favor an entry point below the 50 dma and the January high, with a cost basis near the 150 dma. MAR 17.50 XQQ OW Bid=0.50 OI=0 CB=17.00 ROI=9.3% Chart = /charts/charts.asp?symbol=ELIX **** EXLN - eXcelon $22.13 *** B2B solutions *** eXcelon is a provider of enterprise and embedded data management solutions, including object-oriented and eXtensible Markup Language (XML) data management solutions; a new universal data standard from the World Wide Web Consortium. EXLN also offers training and consulting services, as well as maintenance and support services. The company's core data management product offerings include ObjectStore, an enterprise object database management system, eXcelon, an XML data server, and ObjectStore PSE Pro, a suite of small footprint embeddable databases that can be used either to prototype ObjectStore applications or as the data management solution for embedded systems. A number of new contracts and agreements have propelled this issue to blue sky territory. The recent consolidation area near $17 provides excellent support for this conservative position. MAR 17.50 ODU OW Bid=0.56 OI=116 CB=16.94 ROI=11.2% Chart = /charts/charts.asp?symbol=EXLN **** PLNR - Planar Systems $15.88 *** Entry Point *** Planar Systems is a provider of high performance electronic information displays, display sub-systems and complete display systems. The Company markets products based on a variety of display technologies including active matrix liquid crystal displays(AMLCDs), passive matrix liquid crystal displays (PMLCDs), and several others. These products are used in a wide variety of applications in Planar's core medical, transportation and industrial markets. Nothing like announcing the highest sales ever to get your stock moving (enough to reach a new multi-year high). Planar has recently announced several new contracts for its display panels which suggest sales should increase. The consolidation area near the sold strike offers a favorable entry point in a hot issue. MAR 12.50 PNQ OV Bid=0.25 OI=12 CB=12.25 ROI=7.3% Chart = /charts/charts.asp?symbol=PLNR **** SCTC - Systems And Computer Tech. $25.00 *** Learning Curve *** SCTC licenses and supports a suite of client/server, enterprise software and provides a range of information technology services, including outsourcing, systems implementation, systems integration and maintenance and enhancements. The company offers a continuum of information technology solutions from application software to large-scale outsourcing contracts. SCT targets the 2,200 English speaking institutions of higher education with enrollments greater than 2,000 students for its software and services. SCTC recently announced they will form a company with Datatel in the distance education market. This new company would provide a web-based platform for integrating electronic teaching/learning environments with administrative enterprise systems. This is a unique and undeveloped market that should provide enormous potential. MAR 20.00 YQS OD Bid=0.38 OI=100 CB=19.62 ROI=7.1% Chart = /charts/charts.asp?symbol=SCTC **** TSEM - Tower Semiconductor $27.25 *** Entry Point *** Tower Semiconductor is an independent manufacturer of integrated circuits on silicon wafers and a provider of related services. As a foundry, Tower provides IC design, manufacturing and turnkey services using advanced production capabilities and the proprietary IC designs of its customers, and is specializing in providing solutions for embedded non-volatile memory devices and CMOS image sensors. ICs manufactured by Tower are adapted into a wide range of products in diverse and rapidly growing markets, including computer and office equipment, communication products and consumer electronics. Strong fourth quarter earnings helped propel Tower into a strong stage II climb, which is now nearing blue sky territory. We favor a 2 week play with a cost basis near the 30 dma. MAR 22.50 TWQ OX Bid=0.38 OI=50 CB=22.12 ROI=5.8% Chart = /charts/charts.asp?symbol=TSEM ************************ SPREADS/STRADDLES/COMBOS ************************ Russian Shares Follow The West... The dependence on U.S. markets is apparent in many of the world's economies. If you aren't a well-traveled person, a trip to the capital of Russia (formerly the Soviet Union) would appear to be an incredible opportunity. After spending a few days with the people of this culture, I can safely confirm that opinion. My temporary home (the famous Ukraina Hotel) is located on the Southern bank of the Moskva (Moscow) River in the heart of the government district. The view to the East of this monumental building offers an impressive panorama of the central part of Moscow: the "White House" of Russian Parliament, the International Trade Center and the most popular tourist area in the city; Novy Arbat Street. This location provides an excellent vantage point to view the plight of Russian urban society. The first and most important issue facing Russia's current administration is the development of a sound economic strategy. The nation has often been accused of spending beyond its means and once again the country faces serious monetary problems. Russia is due to make over $700 million in foreign debt payments this month but the current budget simply won't allow it. Their last resort, the central bank's reserves is the only way to fulfill these obligations. Despite the problems in central government, the booming export business and foreign interests in Russian corporations continues to grow. While its difficult to understand why anyone would want to invest in companies that operate in a severely cash-strapped economy, the motive is obvious. The world's wealthiest investors are willing to go to any length to exploit a potentially profitable situation. The Russian Stock Market is a relatively new achievement, born out of a necessity to finance the flagging infrastructure. Oil equities make up two thirds of the market and telecoms are Russia's dominant technology stocks. The most popular gauge of market performance is the Moscow Times Index, a diverse group of 50 leading companies with a total capitalization of almost $40 billion. The movement of the dollar-dominated index is heavily dependent on Western markets and this broad-based indicator mimics the Dow's performance during periods lacking significant regional news. The system of exchange and trading is similar to Western markets but the obstacles for outside investors are numerous. The most important issue concerns inconsistencies in the current securities legislation. Russian law regards a security or stock only as a "tsennaya bumaga", a valuable paper. Unfortunately, securities trading generally occurs entirely in a virtual world and with current regulations, there is no allowance for electronic trading. By defining a security as a document, Russian legislators assumed a traditional, impractical approach. In hindsight, lawmakers are now considering amendments to recognize paperless markets. There is another popular method of investing in Russian industry. The leading corporations are traded on U.S. financial markets as American Depository Receipts (ADR's); financial instruments that act as proxies on Wall Street for the shares of companies based abroad. ADR's were created in 1927 in response to British Law prohibiting local companies from registering their shares in foreign markets. Most companies avoided the letter of the law by using a proxy stock that traded on Wall Street instead of real stock. American Depository Receipts are used by countries around the globe to participate in U.S. corporate growth but in Russia they also have an unclear legal status. A large number of Russian companies have sold ADR's on Wall Street and although they are attractive to wealthy foreign investors, under Russian law ADR's are not absolutely recognized as an ownership stake in a corporation. A number of hard-line politicians are opposed to the system and were they to derail the ADR program, it would affect the ownership structure of almost every major Russian corporation. Of course any trouble with the ADR market would eventually translate into concerns for the entire concept; not a favorable outcome for Wall Street. It is interesting to note that the Bank of New York is centrally involved in the current ADR controversy. You may recall that BNY made the headlines years ago as part of a billion dollar Russian money-laundering scheme. Now it is again at the eye of the storm as the Wall Street ADR connection for Russian investors. BNY retains almost 75% of the global ADR market and has been in a unique position to influence how a number of these proxies are leveraged in Russian corporations. Critics of the program have filed formal complaints about the way ADR's were run through the BNY with Russian Stock Market officials and the U.S. Securities Exchange Commission. The statements suggest the BNY has been conspiring with the management of Russian companies that participate in the ADR program. Of course all the alleged activities are subject to investigation and interpretation (none of them have been substantiated), but the BNY is vulnerable because it has multi-million dollar assets in Russia that could eventually be seized. There is one unique development that has come from the recent ADR controversy. A new project is underway to create Russian Depository Receipts; proxies that would let Russians buy a piece of Wall Street. The plan was unveiled last year by a group that includes Deutsche Bank and Templeton Investments and it is being examined by representatives of the Central Bank and the Russian Commission for Securities. The program is expected to be in a place later this year and if successful, it maybe extended to Russian ADR's. Now let me get this straight - Russians investing in Russian companies through proxy shares - that's certainly an optimistic proposition, considering the current state of economy. Next week, I return home and we get back to the business of making money... ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. 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