The Option Investor Newsletter Sunday 3-12-2000 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 3-10 WE 3-3 WE 2-25 WE 2-18 DOW 9928.82 -438.38 10367.20 +505.08 9862.12 -357.40 -205.29 Nasdaq 5048.62 +133.83 4914.79 +324.29 4590.50 +178.76 + 16.29 S&P-100 749.50 - 16.45 765.95 + 46.17 719.78 - 8.74 - 23.52 S&P-500 1395.07 - 14.10 1409.17 + 75.81 1333.36 - 12.73 - 41.03 RUT 603.81 + 5.93 597.88 + 41.14 556.74 + 11.06 + 8.58 TRAN 2365.29 - 69.16 2434.45 + 83.19 2351.26 - 79.54 - 5.33 VIX 23.80 + 2.51 21.29 - 7.79 29.08 + 0.63 + 1.53 Put/Call .39 .40 .41 .63 ****************************************************************** Nasdaq +134 in record week, Dow -438 and falling. What is wrong with this picture? Extreme divergence. Or is it really just rapid convergence? Whatever you call it the fact is the Dow and Nasdaq are headed in opposite directions at a high rate of speed. Eventually this is going to cause serious problems and from the news reports today it may be sooner than we think. As long as the Dow remained positive Friday, even by only single digits, the Nasdaq was in record setting rally mode. As soon as the Dow rolled over around 3:PM and dropped from +30 to -90 the Nasdaq dropped from an intraday high of 5132 at +83 points to only barely close positive at +1.76. The results of the Dow's drag on the Nasdaq will only get worse as we move farther below 10,000. The Dow's failure to rally this week after the big drop on Tuesday and the failure to hold over 10000 today has only confirmed the current downward trend line and could be bad news for the week ahead. In addition to the technical problems there are some serious sentiment problems developing as well. Technically the Dow bounced off the exact upper boundary of the down trending channel and technically we could see a drop next week to as low as 9500. The failure to even mount a credible bear trap rally after the big drop has put a serious cloud over the forecast. The volatility is increasing and we have four serious news events next week and none are expected to be market friendly. The Nasdaq turned in the equivalent of a full reversal with the sprint to a new intraday high of 5132 and then the retreat that gave it all back. This reversal pattern after setting a new high is normally a sign that a rest is in the cards. Who can blame it? With an over 800 point gain (5132-4291=841 points) in only 14 trading days since the Feb-22nd low there is a lot of profit waiting to be taken. We have had three days of -100 or more points to only gain it all back and then some the following day. We should patent this mini correction cycle of approximately once every four days and give it some catchy name like "settlement day" to set it apart from the real -10% corrections. We have had two of the major corrections in the last three months and the Nasdaq is still up over +24% for the year. We are on track for another +100% year and should lock in +30% by the end of March. A 100% year would put the Nasdaq at 8500 by year end. I am certainly not forecasting that but I would gladly take it. Back to the point, the Dow pulled the Nasdaq down today and is likely to do it again next week. The main catalyst for the drop today was another earnings warning from a major consumer firm. Dial (DL) warned that they would miss earnings by -10% to -12% this quarter and the resulting -$3 drop in price put them at a six year low. Not that Dial is a real bellwether company but after PG earlier in the week traders are now becoming increasingly worried about who else will come out of the closet in the next three weeks. We are sure to get some more brand names and each will have its own reason for missing the boat but the results will be the same. Market depression due to reduced earnings expectations for those not brave enough to warn. Another factor that is starting to become apparent is the awakening of the passive investor. Contrary to what you hear about the online investing generation the majority of the investing public are passive investors. Retirement accounts make up the vast majority of their investments. Of these accounts the vast majority are invested in index funds. A simple way to maximize returns safely in a bull market. These funds are setup to mirror the gains in the DOW, S&P, RUT, etc. Works great in a bull market but the same mechanics that reward in up markets also deduct in down markets. The passive investor will remain that way as long as they can pick up a newspaper once a month or so and marvel at how smart they were to invest in XYZ fund which is up another xx% in the last month. Fat, dumb and happy. What some analysts are beginning to see is the awakening of the collective subconscious's of these investors. How many times do you have to see a headline about the Dow being down XXX points before it starts to sink in that maybe there is a problem in the markets? How many times do they have to look in the paper and see a minus sign next to their super fund before they start to wonder about the wisdom of staying invested? What is all this talk about the techs being grossly overvalued, old economy stocks rusting away, Warren Buffett down -48%? Warren Buffet? If the greatest investor of all time is losing money then maybe there is something I don't know. Maybe I should put that money into a money market account instead. OOPS! A phenomenon almost unknown in a decade called "net redemption's" is starting to appear. Value funds have been Suffering this problem for months and now index funds are beginning to see a net outflow of cash almost daily. Since index funds are not banks and are paid to hold stocks not cash, they have to sell stock to get the money for redemption's. When they need to sell large amounts of stock they use a type of order called "order on close". Instead of impacting the price negatively during the day by dumping large blocks of stock they place a "sell on close" order and they get paid whatever the closing price is for their stock. The market makers have an advantage in knowing when and how much stock is going to be sold and they can stockpile buy orders to offset the large block they are going to have to handle. At about 3:30 these "order on close" orders are made known on the floor of the NYSE. Recently the number of "sell on close" orders has been rising. On Friday there were blocks of several hundred thousand shares going out at the close. One block was 446,000. The public is starting to move and once in motion it will be hard to reverse the trend. This could cause the cycle to accelerate as the liquidity which has been powering the market begins to dry up. Before you start crying foul I will tell you that more money came into the market in the last two weeks than most full months of last year. The problem is that it did not go into value funds or index funds. It went into growth funds and tech stocks. This is money that came out of the Dow and out of the S&P. It is accelerating the Nasdaq and decelerating the Dow. I wrote a couple months ago that I expected the Nasdaq to possibly pass the Dow late this year. It is looking more and more possible and probable as the calendar unwinds. If the Dow did nothing and the Nasdaq continued to add +25% a quarter as it has in the last twelve months then they would meet at year end. Instead the Dow is on a downward spiral that is dropping twice as fast as the Nasdaq is advancing and they could converge as soon as September-October. That is of course depending on how much the Dow drop continues to degrade the market as a whole. While the outlook for the Nasdaq is stellar there is always the chance that investor psychology could turn based on the "perception" of a negative market due to the media coverage of "Dow" as the "market". It is this "bear" market mentality that we will need to avoid as we progress farther into 2000 and continue to benefit from the Internet revolution. It is not a bear market. It is sector rotation in its purest form. The Internet is fueling record increases in productivity, competition, cost savings, connectivity, research, communication and cooperation. News of scientific discoveries like we are seeing in the biotech sector almost every week is available almost instantly across the net. Large strides in computing power and chip technology are increasing daily. Still shampoo is still shampoo and consumers are fickle. They will shop where the variety is greatest at the best price. That may not be a brick and mortar store. Companies that have been around for decades and are mired in the old sales and marketing paradigms will continue to suffer until they reinvent themselves and conform to the new Internet model. Earnings warnings? You bet. Count on many of them. Also count on many "better than expected" results from the "new economy" companies. (I am really growing to hate those terms already) Now I ask you, which type of company do you want to invest in? The answer... 1-800-redeem. Hello Fidelity, you know that index fund I own...... Now you see the problem. "We" are the problem. Welcome to 2000. Having totally gone off the deep end and rambled for several paragraphs I will try and direct your focus back to what is important next week. Economic reports and lots of them, followed by a Fed meeting. Sounds like a great week to go fishing. Tuesday starts off the calendar with Retail Sales, Wednesday Business Inventories, Import/Export Prices, Industrial Production. Thursday Jobless Claims, PPI, Housing Starts, Building permits. Friday closes with the CPI. Could be a rough week. Follow all those probably negative economic reports with a dose of interest rate fears and a Fed meeting on Tuesday the 21st and you get a real Maalox moment. The optimistic side of me is saying, "Dow down -438 points" got to be some bargains here somewhere. The pessimistic side is thinking, "I would not buy PG, JNJ, DD, EK, KO, so why should anybody else". Like I said last Sunday there is still a Nasdaq correction lurking in our future and even though it felt bad on Wednesday it was only a blip on the chart so the "big one" is still in our future. It would be nice if we could get through April earnings before we get blindsided by the next trip to the woodshed but April 15th is still a long way off. I would be careful of any Nasdaq weakness next week. With the market (Dow) still in a down trend you never know when the Nasdaq bottom may fall out. The VIX has been easing down from its high of almost 29 on Wednesday. Friday it moved in a narrow range between 23.45 and 25 and finished almost unchanged for the day at 24.17. It is not giving us any signals, buy or sell, at the present. The put/call ratio however is only .39 and indicating some weakness ahead. Friday night almost all the other editors and writers in the office happened to congregate in one spot where a lively discussion on market direction ensued. Without exception we all believed that the market could and would go down next week. All the negatives both technical and sentiment were being tossed out like so many nails for the Dow coffin. Red Alert! As I pondered the implications for this article Kimo and I slowly came to the realization that everyone had built the perfect wall of worry for the market to climb. Just like I have repeated many times, "when everything looks too good to be true, it probably is" the reverse is also true, "It is always darkest before the dawn". While I believe it could get darker, 9500 would be really dark, there is another axiom that comes to mind, "the herd is always wrong at both ends". If the herd here thinks the market is going down next week does that mean we should take the contrarian view and bet against it? Absolutely not! Never fight the trend. Take all the information you can find from every source possible and then plan for each outcome, up and down. If you pre-plan for both then you will be ready to execute for each direction. Once prepared, sit back and watch the show. Be slow to react at the open and you will save yourself much grief. I can't tell you how many times I have prepared the night before for my "expected" market direction only to have the market do the exact opposite. Have you ever felt the market was at the bottom and planned to buy OEX calls the next day and all day you just kept waiting for an entry point as the market dropped several hundred points? Had you been market neutral and ready to play calls OR puts then you could have made thousands of dollars. Instead your market bias either kept you out of the market or convinced you a dip was a bottom when it was just a dip. We can't force our view on the market. What we believe is irrelevant. It is up to us to play the hand we are dealt by the market. Most of us would be better off each day if we could call somebody who is not an investor over to the PC, show them a chart of the Dow and ask them which way is the market going. Their answer would be unencumbered by the wealth of "knowledge" that we have been blessed with. Because we know "so much" our vision is clouded. To be successful investors we must get rid of the cataracts of knowledge bias and then clearly follow the road map to wealth the market provides for us on a daily basis. Buy the dips but only when the rebound starts. Trade smart, sell too soon. Jim Brown Editor **************** SEMINAR ALERT !! **************** Due to scheduling conflicts we have had several cancellations for the March Option Expo Seminar in Denver. The first session for March 25-28th is completely full. There are still two openings for session two, March 28-31st. If you have interest in attending the second session please register ASAP. It is first come, first serve. You will not regret fours days of intense option training by the Option Investor staff. For more info click here; http://www.OptionInvestor.com/bootcamp/oinmain.html Disclosure: My current long positions: CPTH, RRRR, BWEB, KSU, SEG, TXN My current short positions: RIG, SLB Editors note: Due to the volume of email I receive it is impossible for me to respond to even a small percentage. If you have questions or comments about OIN please direct them to questions@OptionInvestor.com and a real person will respond. Thank you for your cooperation. ***************************ADVERTISEMENT************************* Bring the Markets Home! ~ InvestIN.com http://www.investinoptions.com Is your broker limiting your options? Can you enter stop and stop loss orders on options? Options Trading with InvestIN.com is available for all accounts. Ranging from IRA's to Direct-Access accounts. Option Stop loss orders accepted. Streaming real time option quotes available with direct access accounts. InvestIN.com has your OPTIONS. Call Toll Free 1-800-327-1883. http://www.investinoptions.com ***************************************************************** ****************************** 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? *********** JIM'S PLAYS *********** There is no Jim's Plays article tonight. ************ Stock News ************ Sonic Boom By S.P. Brown Talk about momentum, few companies have it working for them to the extent Sonic Foundry (SFO) does. Since hitting its 52-week low back in August, this high-tech wunderkind has soared nearly 1,400 percent to Friday's close of $118 a share. Given the three-letter stock symbol, Sonic obviously doesn't reside on the Nasdaq stock exchange. In fact, the company doesn't even reside on the New York Stock Exchange; it's domiciled on the oft-neglected AMEX - the infamous home of mutual fund-like derivatives and long-forgotten small-cap industrials. Nevertheless, despite being on the wrong side of the tracks, Sonic is very much a high-tech stock. The company makes some nifty Internet audio and video editing software such as Sound Forge, ACID and Stream Anywhere. These products combine editing functions with the ability to convert different audio- video software formats into various files compatible with Windows or Real streaming media platforms. The ACID software allows users to edit and merge segments into a song, while Sound Forge allows users to modify digital audio and video files. As for Stream Anywhere, it stores audio to a hard drive and prepares it for CDs, streaming over the Internet using either RealNetworks' G2 player or Microsoft Windows Media Technology for music compression formats such as MP3 or AVI. Thes technologies were recently showcased in an episode of "The Drew Carey Show," which was simultaneously broadcast over TV and the Internet. As for the numbers, Sonic is still at the development stage where what's happening at the present really doesn't matter much to investors (the company's been public for about 20 months). At any rate, here they are anyway: For the most recent quarter ending December 31, revenues were $5.1 million, an 82 percent increase from the $2.8 million posted for the same quarter in 1998. As for earnings, the company posted a net loss of $2.2 million, or $0.33 per share, compared with a net loss of $1.4 million, or $0.52 per share, for the same period last year. What investors do care about, though, is market potential, and Sonic has plenty of that. According to market researchers Frost and Sullivan, worldwide demand for video compression technology is expected to reach $400 million by 2001, while the markets for video and audio post-production products in the US is expected to reach $1.4 billion by 2003. What's more, with the massive build-out in broadband capacity that has been occuring of late, there is a growing need for high-quality broadband content to fill these new "fat pipes." There is also a potentially huge opportunity to help convert older audio and videotape into digital formats. Sonic projects there are millions of hours of analog content that will need to eventually be digitized and edited for digital storage and transmission. To ensure it remains at the forefront of this potentially lucrative market, Sonic has moved fast to amass a blue-chip clientele, which includes the likes of Capitol Records, CBS News (CBS), Disney (DIS), News Corp. (NWS), General Electric (GE) and Seagrams (VO). On Thursday, Sonic added Time Warner (TWX) to this high-powered stable. The company will provide software and full-scale media deployment technology to TWX's Warner Brothers Online and Entertaindom.com Internet subsidiaries. Additionally, Warner Brothers will use Sonic's consulting and training services to push its traditional media onto the Internet. The importance of Sonic getting its foot in the door with TWX can't be underestimated, for it puts the company in an enviable position to help bridge the gap between TWX's vast media empire and America Online's (AOL) massive subscriber base. Sonic's alliance with TWX was formed as part of a new round of private financing that included an $18.5 million cash infusion by institutional investors Societe Generale and Essex Investment Management. The company plans to use the money to fund its working capital needs. Sonic's recent successes has piqued the interest of more than a few market watchers. One in particular, C.E. Unterberg analyst John Todd, predicts Sonic will increase sales to $36 million in 2000, versus $14.8 million in 1999. Todd also predicts that the company will shrink its per-share loss from $2.11 in 1999 to $0.59 this year. For the longer-term, Todd believes Sonic will grow revenues 50 percent a year for the next few years. Based on these prognostications, he has put a target price on Sonic of $175 a share. Granted, many analysts' stock price predications are as rooted in reality as the tooth fairy is. However, Todd has a proven track record for sizing up new technology companies. This guy foresaw the success of Puma Technology (PUMA), Proxim (PROX), Juniper Networks (JNPR) and Polycom (PLCM) long before their stocks' hit triple-digit levels. Another well-respected analyst who thinks Sonic has got room to run is Ray Dirks of Dirks & Company. Dirks was particularly encouraged by the funding from Societe Generale and Essex Investment Management Co. LLC, a group known for very astute technology investing. "The fact that they [Essex] put their money into Sonic Foundry indicates that this technology is for real," said Dirks, who added that he would be raising his current 52-week price target of $150 to somewhere above $200. The company's well on its way to reaching that target. This week alone Sonic added $44 to shareholder value. Finally, here's a heads-up for those investors who are prone to leap before they look. There are no fewer than six other publicly traded Sonics out there in the investing universe. Distinguishing one from another is important, as none of them are interchangeable. The only reason I bring this up is because of the well-publicized confusion that took place in January between Juno Online (JWEB) and Juno Lighting (JUNO). ******* Ask OIN ******* Another Milestone Falls By The Wayside By Ryan Nelson Faster than a speeding bullet, more powerful than a locomotive, and able to leap over the DJIA in terms of popularity, the Nasdaq knocked over another milestone this week. Just when we talked about the Volatility Index ($VIX) last week signaling a short-term top, the markets corrected by mid-week and it was back to the races. Superman has nothing on this Nasdaq which seems literally unstoppable at times. The question is, will the Nasdaq hit 6,000 by tax day like Jim predicted in the Thursday evening Market Wrap. I have to admit, if this current channel remains in tact (as it has for 5 months now), it should be a piece of cake. Not to mention, we are entering earnings season soon. Markets typically fly during this period. Either way, let's see if some of the stocks in this week's requests look to head higher or lower. One note about last week's article first. I had many requests asking what the float was and where you could get this info, along with the short interest. Easy enough. The float is the number of shares that are available to be traded by the general public. It is lower than the total number of shares outstanding. This is because many shares are typically held by insiders, privately-held, or "locked up" in some form. So it is good to know the float as it plays a part in how volatile and liquid trading may be in that security. The lower the float, the more volatile the shares to either the upside or downside. As far as short interest, it can be tough to determine how many shares short is too much. Again, it comes back to the float and the average daily volume. You sort of get a feel for what is out of line. The bottom line here is that the smaller the short interest and short ratio, the better. I just don't like to have a lot of traders betting against any of my long positions. It weighs the stock down and makes it trade like it can't get it's feet underneath it to put a good run together. We talked about ICIX having a huge short position and making it therefore too risky. Whoever is shorting this stock has got to be having some sleepless nights. ICIX is beginning to look like it is picking up steam. Probably based on their stake in DIGX. If they can put another day or two of rallies together, I wouldn't be surprised to see the shorts fleeing. That would really set this stock on fire. Again, it is a high-risk play, but worth watching as the volatility will undoubtedly increase as the battle between longs and shorts continue. Remember we cited RMBS as an example of a short- squeeze and that stock hit is now over $400! For both of these numbers, there are many places to go. I use the Yahoo! Finance page. Go to Yahoo!, click on Finance, go to stock quotes and enter the symbol and hit enter. Then hit Profile. That will give you all the basics on the company. ---------------------------- Bristol-Myers Squibb - BMY What do you see with BMY? The recent trend has been down and the recent news mixed. With the biotech sector doing so well, do you think a little enthusiasm might bleed off for the pharmaceuticals as well? At the current $50.00 level, I think this may be a great value play for a long term hold. Thanks! Gil Great value play is right. I am not usually a value kinda guy, but there is no denying the value in the drug sector. This group has just been beaten to death and I don't think there is justification for the drubbing. My guess is that most investors in this "general" area have been switching money to the Biotech sector. Why not? It has been incredibly hot. But I have seen the lots of Biotechs beginning to rollover after tripling or quadrupling already this year. So it wouldn't surprise me to see money come back into drug stocks. Let's face it, this is a cyclical group. One year it's Biotech, the next year it's Drugs. Remember how popular some of these stocks were last year? Pfizer and Viagra. Drug stocks can be big cash cows. So at some point they have to be a buy. Now I don't recommend trying to catch a falling knife, but it would seem prudent to watch for reversal and may check out some LEAPS. I bought LEAPS this week on a beaten down drug stock. BMY's chart is showing signs of a bottom this week with the capitulation happening late Tuesday. It will have strong resistance at $60, but I can't imagine this stock under that level a year from now, barring some unforeseen event. Keep you eye on this stock and sector. You may be glad you did in the long run. It is also a good diversification play in this market. The Nasdaq will eventually have to take a breather and I don't want to be stuck with all my eggs in one basket. ---------------------------- Metricom - MCOM I'm enjoying my free trial on the optioninvestor. I would like the stock MGIC analyzed and also MCOM. Thanks much, Ron Rasoletti I have good news and bad news for you Ron. Good news is that your pick made it into the article. Bad news is I only have time for one of them. Let's go with MCOM since it is at a pivotal point. Metricom is a provider of wide area wireless communications solutions. They were thrust into the limelight last June when it was announced that Paul Allen's venture capital firm would be adding to their stake in MCOM. This really made MCOM a mainstream stock. We begin adding it to the call list from time to time last summer. Right now the chart looks very interesting. Note how it has retreated recently, but stopped dead on the 100-dma. In fact, the 100-dma has been a historically strong support level. Take a look at a chart from last September for confirmation. So as MCOM consolidates, it will eventually have to choose a direction. My guess is higher, but if it breaks the 100-dma on strong volume, I would not be afraid to buy puts. Just make sure it is a solid break with a close under the 100-dma. You don't want to get faked-out based on one bad market day or some other one-day news event. A move to the upside could be considered on a break over the 50-dma. Next stop would then be resistance at $100. After that you are in blue-sky territory and the momentum investors will take over. Anyway, MCOM is at a pivot point and should be playable once it picks a direction. ---------------------------- MRV Communications - MRVC What about MRVC? I had it at 18 sold it at 22.5...watched the doji at 52 and it's gone nuts ever since. Curious why it's never been OIN pick? Never been a pick? We've played this thing a lot in OI, just not as a straight call play. Probably because Jim and I never found the perfect entry point for that. But we've had it in our Naked Put section, Naked Put Percentage List and even in Ask the Analyst. See the January 23rd issue for my last write- up of MRVC. It was then that we noted the amazing basing pattern and the breakout. Who know it would run like this though? So in our January 23rd issue we were cautiously optimistic, but know I have to go one the record as bearish on MRVC. Too far, too fast, that is all. Great company, great sector, but $90 to $190 in just under a month is too steep for my blood. They did announce a split on March 3rd and that could keep the stock running, but the risk level is incredibly steep, especially for call buying. With the high premiums due to the implied volatility, I can't see being a buyer here. Not to mention, the split date isn't even scheduled yet. Second quarter of next year is the best the company could give as a date. I would expect, and wait, for a pullback first. I don't even have a target for this to pullback. You could argue a 50% retracement would be $140 and that is where I would start looking for an entry point. I would also want to see strong volume come back to the play wherever the bottom forms. A good tail on a candlestick would also be a good confirmation. All in all, high premiums, a huge run, and no set stock split date would all keep me on the sidelines for awhile on MRVC. Who knows, maybe in another month and a half we will revisit MRVC once again and turn back to bullish for a split run. You know we love to revisit our favorites! ---------------------------- 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 10, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,700 11,250 9,929 BEARISH 2.17 SPX S&P 500 1,410 1,450 1,395 BEARISH 3.07 OEX S&P 100 765 780 750 BEARISH 3.07 RUT Russell 2000 500 520 604 BULLISH 2.24 NDX NASD 100 3,800 4,000 4,587 BULLISH 2.24 MSH High Tech 1,850 2,000 2,196 BULLISH 2.24 XCI Hardware 1,300 1,460 1,618 BULLISH 2.24 CWX Software 1,200 1,470 1,630 BULLISH 2.24 SOX Semiconductor 800 900 1,333 BULLISH 2.24 NWX Networking 940 1,000 1,158 BULLISH 2.24 INX Internet 700 800 846 BULLISH 3.09 BIX Banking 500 550 464 BEARISH 11.30 XBD Brokerage 400 450 495 BULLISH 2.31 IUX Insurance 500 550 446 BEARISH 11.30 RLX Retail 950 1,000 803 BEARISH 1.28 DRG Drug 340 380 329 BEARISH 2.18 HCX Healthcare 700 750 671 BEARISH 2.18 XAL Airline 110 140 121 Neutral 3.10 * OIX Oil & Gas 280 315 274 BEARISH 1.27 ***Posture Alert*** The Dow ended the week under 10k, while the NASDAQ continued to shrug off the blue-chip woes by maintaining the 5,000 mark in good fashion. Friday's activity saw the Brokerage sector jump up +3.62%, thanks to the mega-merger between Deutsche Bank AG and Dresdner Bank AG. This only helped fuel rumors or more industry consolidation. Other sectors that showed strength include the Semiconductor sector (+3.30%) as well as Airlines (+3.15). With this most recent action, we have upped Airlines to Neutral from Bearish. **************** Market Sentiment **************** Sunday, March 12, 2000 Technology stocks locked in another solid week, as the NASDAQ maintained the 5,000 mark while the Dow continues to languish below the 10k level. Congratulations to the NASDAQ 5000 winner (Louise Hill), but would you be so kind as to let us know when the NASDAQ will beat the Dow? They are only 4,800 points apart right now, and with the torrid pace that the NASDAQ is on, combined with the poor pace that the Dow is on, it may be just a couple of months before we see that scenario occur! Volume continues to surge on the NASDAQ, which just shows the strength in technology shares. This volume continues to crack 2-billion shares a day, which is phenomenal. Does anyone see the NASDAQ trend slowing down anytime soon? With all of the millions of new traders coming onto the net, controlling their own dollars, as well as the foreign investors looking for action, this trend towards the NASDAQ should continue for a long time (long time in traders-talk is what, 2 weeks?). This trend continues to be ECON-101 (first-level economics in college), where demand continues to outstrip supply. Too many dollars are chasing too few stocks. Professionals talk on CNBC about the new thinking on how to value stocks, which is a bunch of BS! This trend happens to be one of the most basic economic principles, supply vs. demand. As long as the supply of new money and investors continue to surge, concentration will be put on high growth companies which happens to help fuel the NASDAQ. Now many times in the past, Pinnacle Capital has highlighted the sentiment on the NASDAQ 100 (NDX) or the QQQ (which trades on the American Exchange). Once again, we want to highlight the sentiment on this index, versus the Dow. Now during the entire run-up in the NASDAQ 100, we have witnessed and highlighted heavy put buying versus call buying. The sentiment on the NASDAQ 100 during the major rallies was extremely bearish, and it continues to be. The put/call ratio on Friday for the NDX was 3.90, that is, almost 4 puts for every call. This is a very bearish figure. Now, look at the chart below. The most bullish index is the Dow, which happens to be the worst-performing index. The most bearish index is the NASDAQ 100, which happens to be the best performing index. What a perfect contrarian scenario! Now if you look at the QQQ, there are over 7 puts for every call, which is unbelievably bearish! Anyway, we continue to view the statistics below from a contrarian stand, so as long as the bears are dominating the NASDAQ 100, we will continue to be bullish on this index. And as long as the option speculators are bullish on the Dow, we will stay bearish. This sentiment analysis has been extremely dead-on accurate, when predicating major moves on the indexes. The bearishness on the NASDAQ has continued now for many months, and as long as it does, we will continue to see major milestones accomplished! Have a good trading week! Put/Call Ratio Index Friday 3/10/00 Overall S&P 100 1.81 1.31 S&P 500 0.97 1.27 Dow 0.27 0.93 NASDAQ 100 3.90 1.83 QQQ N/A 7.27 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 (6.148): 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. The first major corporation to do just this is Proctor & Gamble, with it's 27 point decline. Volatility Index (23.80): 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. At current levels, the VIX is within one good day of being in overbought territory. 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. 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 (3/10) Overhead Resistance (790-820) 18.34 Overhead Resistance (765-785) 6.26 OEX Close 749.50 Underlying Support (740-760) 0.78 Underlying Support (700-735) 4.16 What the Pinnacle Index is telling us: The Pinnacle Index was the perfect market-timing tool last week, as we called the run-up and both failed rallies. Anyway, based on Friday's numbers, we have light support until the 700-735 range, where support is extremely strong. However, overhead resistance is heavy (765+) so the odds of us breaking this level by March expiration is very small. We did notice a heavy put/call ratio on the OEX Friday, so we may see a small bounce early in the week for the S&P 100. Put/Call Ratio Friday Strike/Contracts (3/10) CBOE Total P/C Ratio .39 CBOE Equity P/C Ratio .31 OEX P/C Ratio 1.81 Peak Open Interest (OEX) Friday Strike/Contracts (3/10) Puts 700 / 11,436 Calls 750 / 9,088 Put/Call Ratio 1.26 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 10, 2000 23.80 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 March 9, 2000 53.4 27.6 ************* COMING EVENTS ************* For the week of March 13th, 2000 Monday None Scheduled Tuesday Retail Sales Feb Forecast: 1.0% Previous: 0.3% Retail Sales ex-auto Feb Forecast: 0.7% Previous:-0.3% Wednesday Business Inventories Jan Forecast: 0.4% Previous: 0.5% Export Prices ex-ag. Feb Forecast: N/A Previous: 0.1% Import Prices ex-oil Feb Forecast: N/A Previous: -0.1% Industrial Production Feb Forecast: 0.6% Previous: 1.0% Capacity Utilization Feb Forecast: 81.9% Previous: 81.6% Current Account Q4 Forecast:-95.0B Previous:-89.9B Thursday PPI Feb Forecast: 0.6% Previous: Unch. Core PPI Feb Forecast: 0.3% Previous: -0.2% Housing Starts Feb Forecast:1.720M Previous:1.775M Building Permits Feb Forecast: N/A Previous:1.763M Initial Claims 03/11 Forecast: 280K Previous: 280K Philadelphia Fed Mar Forecast: 13.0 Previous: 13.3 Friday CPI Feb Forecast: 0.4% Previous: 0.2% Core CPI Feb Forecast: 0.2% Previous: 0.2% Michigan Sentiment Mar Forecast: 110.5 Previous: 111.3 Week of 3/20 03/20 Treasury Budget 03/21 Trade Balance 03/21 FOMC Meeting 03/23 Initial Claims 03/23 FOMC Minutes 03/24 Durable Orders ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? 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The Option Investor Newsletter 3-12-2000 Sunday 2 of 5 ************* WOMAN'S WORLD ************* What is the value of a company? By Mary Redmond One of the big news topics this week was the on again off again merger trio between Qwest, Deutsche Telecom and Qwest's merger partner US West. It was announced early this week that the attempted takeover of Qwest by Deutsche Telecom had been cancelled, because Qwest might face a potential lawsuit from their partner US West. Qwest dropped down as low as 50. Then early Thursday morning a rumor was published in a European financial newspaper that Deutsche telecom had made a 100 billion dollar offer for both companies. By Thursday evening Qwest released news that the merger talks had been suspended. This type of merger would face many legal and regulatory hurdles, and could take years to complete. The point is that Qwest has a worldclass set of assets, and if both Deutsche Telecom and US West want them, others may want them too. When CMGI skyrocketed above 146 I closed the put credit spread I had put on two weeks earlier by selling the 100 puts at 3/8 and buying back the 110 puts for 1.5, for a total credit on the spread of 2.7 points. The stock bounced off 150, and couldn't hold. On Tuesday I sold my shares of CMGI at 146 and bought back in at 141. I considered selling Thursday afternoon when it hit 148, but I held on. Holding a stock over earnings is risky, but not as dangerous as holding an option, because the option premiums can become so inflated when a company is expected to report good earnings that you end up paying for the excitement of the earnings. CMGI ended up reporting earnings much better than expectations, but didn't sell off dramatically, it just stayed in the same trading range. I had purchased Nextlink July 100 calls at 21 the week before last, and last week I put a spread on Nextlink calls by buying the July 100 calls at 25 and selling the July 110 calls at 19. On Friday Nextlink opened up over 15 points, and I couldn't figure out why until I heard on the news that a brokerage firm had indentified Nextlink as a ptential takeover target for Deutsche Telecom. I sold my Nextlink calls at 28, because I think it's a great long term company, but I couldn't face going through the same on again off again rumors Qwest was subjected to. How do you value a company? There are many different methods but most are a variation on the basic principles of security analysis which were first illuminated in the classic book Security Analysis by Benjamin Graham. Anyone who is interested in stock market investing should take the time to read this book, as the principles still hold even in our techno-driven momentum market. At the most basic level, the value of a company is its book value, or the value of its assets minus liabilities. The property, plant, and equipment, or the value of savings deposits at a bank, its inventories and accounts receivable. Assets like patented technology are hard to place a precise value on, which is why the widest price swings frequently occur in companies which have no earnings, and only new technology. But companies rarely trade all the way down to book value unless there is something wrong with the company or a serious misperception of its value in the stock market. This is because stocks have earnings power, which is the ability to generate money off their assets. Graham determined in the 1930's that a company could be valued the way a bond could be valued, by summing up the future earnings payments of a company and discounting by the appropriate discount rate. This is where the uncertainty comes in, because future earnings are not predictable like bond interest payments. Predicting the future value of a company thus becomes tricky. The method some analysts use is to determine the shareholders' equity, then calculate the return on equity, or what percentage return you receive on your investment. This is where the profit margin comes in. Companies which are highly capital intensive, and have to spend a lot of their earnings on upgrading their equipment don't have as much left over to reinvest in their companies. Once you determine the return on shareholders' equity and the amount that is reinvested back in the company you can estimate a future value for shareholders' equity. Some analysts have stated that they feel technology stocks are overvalued and the "old economy" stocks have been knocked down so low they are bargains. However, by looking at the shareholders equity of some of the technology stocks in the Nasdaq you can determine that some of the growth is not just growth in the multiples the stocks trade at, but growth in the actual book value of the companies. It used to be believed that you could always count on the blue chips for slow and steady gains over time, and that technology stocks were riskier. However, investors are learning nowadays that the real risk to a company is stagnation while the rest of the economy and market progresses. Mutual fund investors again demonstrated their appetite for technology stocks, as approximately 5.4 billion flowed into equity funds for the week ended March 8, and 2.8 billion went into technology funds. Aggressive growth took in 2.5 billion, small cap took in 1.1 billion, and health care took in 1 billion. Value funds took in practically no cash at all, as investors showed they would rather stick with money market funds than value funds. A remarkable 23.2 billion flowed in to money market funds last week according to AMG data services. Value funds and index funds may have difficult times ahead, because the proliferation of index tracking stocks like Diamonds, Spyders, and the QQQs have taken a lot of money away, and because investors are finding that blue chips are no longer the safe haven they were once believed to have been. Mary Redmond Contact Support ************** GOING NAKED FOR THE FIRST TIME WITHOUT LOSING YOUR SHIRT/BLOUSE! Going Naked 101 By Linda Schuepp It is apparent to me that going naked (with regard to options) is perceived as the macho, sophisticated route that many would like to try but either are afraid to, or worse yet, do it without really understanding what they're in for. I felt this article was needed, because I receive quite a bit of e-mails from readers just starting out. I really love to receive these e-mails and encourage you to ask your questions and hope that I am helpful in accelerating your learning curve. Going naked is nothing more than the other side of a directional bet. What makes it a little more complicated is the fact we deal with puts AND calls. It's easier to understand directional bets when dealing with stock. You buy stock if you think it's going up and you sell or "short" stock if you think it's going down. When you "short" stock, you are selling stock that you don't own. You're betting the stock will go down, and when it does, you can later "buy" back the stock that your broker borrowed for you. The money from the sale goes into your account and you have what in effect is a loan to your broker. Your profit is the difference between the price you "shorted" the stock and price you eventually paid to buy it back less any interest you had to pay the broker for the "loan" of the stock. Now for the options-it's a little more complicated to take a directional position because there are calls AND puts, and they can be in, at or out of the money. So, let's break this down into bite size pieces everyone can understand. The only thing different from the stock analogy in dealing with options is the terminology. Selling naked is nothing other than "shorting"-- you are selling an option that you don't own. The seller of the option is called the option writer. The buyer is called the holder. All the transactions are handled by a market maker who acts like a real-estate agent and makes a commission (the bid-ask spread). Once you understand the lingo, it gets a little less intimidating. The Call Side: It's always easier to understand the long side of any transaction and it's also easier to understand the "call" side of an option transaction. When you buy a call, you think the underlying asset is going up. The call acts like a substitute for buying the stock. In order for you to buy the call, someone else has to sell it. That someone could be selling a call that they bought previously or selling a call that they don't own (going naked). The person "selling" the call thinks the stock is going DOWN or not going anywhere in the near future. Unlike holding onto stock that is basing before making another leg up (QCOM), the call holder (buyer) does not want to hold onto the call because time value is eroding with each passing day. Option volatility (one of option pricing factors) is also going down which makes the call even less valuable. Therefore, if you felt a stock was going down, sideways or only going up only a little, you would "sell" the call. If the stock continues to go sideways or go down, the call that you sold would go down in value-and that is a good thing. At some point you could "buy" back the call to close out your naked position or you may simply let the option expire worthless. Tips for getting started selling naked calls: -pick stocks that have good volatility (no utility companies) -sell calls on stocks in a fast downtrend that have not bottomed -sell "out of the money" strikes (higher than current price) -pick strike price ABOVE strong resistance (old 52 day high's) -sell calls when implied volatility is higher than historical -pick stocks that have lots of daily volume (liquidity) -get out of position if stock reaches strike price sold Now for the harder part- The Put Side: When you buy a put, you think the underlying asset is going down. Buying a put is a downward directional bet like shorting a stock. The only risk is the cost of the put. If the stock takes off for the moon (JDSU) your loss would be miniscule compared to shorting the stock. Again, like the call side, in order for you to buy a put, someone else has to sell it. The person "selling" the put thinks the stock is going UP or not going anywhere in the near future. The put seller (this is the toughest to understand) believes the stock will go UP or stay above the strike price they sold the put for. If the stock goes up, trades sideways or even goes down a little, the seller gets to keep the premium they received for selling the option "naked". Tips for getting started selling naked puts: -pick stocks that have fairly high volatility -sell puts on stocks in a fast up-trend but have not yet peaked -sell "out of the money" strikes (lower than current price) -set strike price below strong support (old 52 day low's) -sell puts when implied volatility is higher than historical -pick stocks that have lots of daily volume -GET OUT of position if stock reaches strike price sold CAUTION: Don't sell any naked calls or puts until you know what happens to the value of your option if the stock goes up, down, or doesn't move. You also need to understand what happens to time value. You must know of any upcoming events that could cause significant changes to the value of your stock such as when earnings are due for the stock or if approval is due on a lawsuit. Volatility typically is higher just before known events such as earnings and drops off after the announcement. Therefore, it is better to sell options in periods of high volatility and buy in periods of low volatility. This is not meant to scare you off, just to warn you the things that can get in your way of being profitable. BAILOUT: There are only two ways to bail out of naked positions. The Call Side: If you sold a naked call and the stock went UP to your strike price, you could: 1. Buy back the call at a loss or 2. Buy the stock. If you bought the stock you would now have a covered call position. If you had sold the call ABOVE a previous significant resistance level, such as a 52 week high as suggested, you would probably now be bullish on the stock and you could additionally purchase even more stock. If you are near to expiration, with no time value left in the option, you could get "called out" of your original naked call position, which is now a "covered position". This means the call holder (buyer) has the right to buy the stock from you the writer (seller) at the strike price you originally sold the call for. Since you covered your position by purchasing stock at the strike price written, you would deliver that stock and your naked call position is now over and done with. You would have hopefully made a profit on this transaction (the premium received less commissions and slippage). You could now make more money on the additional stock you purchased after the stock reversed its trend. This of course assumes you have unlimited capital. The Put Side: If you sold a naked put and the stock went DOWN to your strike price, you could buy back the put at a loss or you could short the stock. You would now have a "covered put" position. If you had sold the put BELOW a previous significant support level, you and everyone else would probably now be bearish about the stock. If there were little time value (close to expiration) then the stock would be "put" to you. This means the put holder (buyer) has the right to sell the stock to you, the writer (seller), at the strike price you originally sold the put for. Since you covered your position by shorting the stock, you would be obligated to buy the stock from the option holder, which would fulfill your short position. This transaction would be a wash. Your naked put position is now over and done with as is your short stock postion. You probably would have made a profit (the premium received less commissions and slippage) on this transaction. Similarly to bailing out of the naked call position, you could have shorted more stock than necessary to fulfill the put contracts you originally sold and therefore take a bearish directional position. If you had shorted additional stock, which I don't recommend for beginners, you would now make money on the additional stock as the stock reverses its up-trend and continues downward. This also assumes you have unlimited capital. Even though you are taking money in when you short a stock, you have to have enough money in your account to maintain the margin required (50%). In summary, selling naked options is like play strip poker. If you're careful and play your cards right, you won't lose your shirt! Lynda Schuepp Contact Support *************** Renee will be back on Tuesday *************** TRADERS CORNER *************** The Space Shuttle Uniphase & Versign By Janar Wasito I have had some requests to detail what I mean by using current month credit spreads as a booster rocket to get debit spreads into orbit. So, here it goes. This is one part money management, one part entry points, and one part discipline. But there is nothing riskless or magic about it, so take it all with a large grain of salt. This is a variation on the Free Play article that Jim wrote a few weeks back. He detailed a good entry point on DELL (high 30s, if memory serves), and a technique for getting a "free trade" -- i.e., sell a put, and use the proceeds to buy a call. Put a stop on the short put, and let the call run. If the stock goes up (as it did), the put goes down in value (and you benefit from time decay if you stay in the short put position), and the call goes up in value. My variation on this technique is a little more complex, in that it involves two types of bull spreads. I am NOT (nor do I aspire to be) a spread guru or expert. For that, you need to go to George Fontanill's seminars, or a similar expert. I can't really cover the details of a bull spread in this article. It is too complicated. But, I will attempt to lay out some of the main concepts so that you can get a start. About 3 weeks ago, I put on my first two spread trades, both on JDSU. Here are the trades: Date: 2/16 Stock: JDSU Strategy: Bull Call Spread Elements: Bought JDSU Sept 220 Call at 52.5 Sold JDSU Sept 270 Call at 36 Stock Price: 213 Events: Split, 3/13 Reward/ Risk :: 33.5/ 16.5 (ie, I am risking 1 to make 2) Break Even: 236.5 (the lower strike + the debit, in the case of a bull call spread) Stock: JDSU Strategy: Bull Put Spread Elements: Sold JDSU Mar 230 Put at 35.5 Bought JDSU Mar 190 Put at 13.25 Reward/ Risk :: 22.25/ 17.75 Break Even: 208 (the higher put minus credit received) Target Exit: Expiration in March As you can see in the above chart, the success of this trade depended on a steady up trend. Spread trading isn't magic. It has its advantages and disadvantages. If the stock doesn't move in your direction, you will still lose money, but maybe more slowly. That said, my JDSU trades went about as well as the possibly could have. Here is the principle: the short term (ie, current month, or 30 day), credit spread pays for the long term (ie, 3 - 6 month), debit spread. In a Bull Put Spread/ credit spread, you sell a higher strike put, and buy a lower strike put. Because you receive more from the option you sold than from the option you bought, you receive a credit. You calculate the reward simply by taking the amount of credit you have received. You calculate the risk by taking the spread (in this case, 40) and subtracting the reward from it (ie, 40 - 22 = 18). Notice, that I sold a put ABOVE the price of the stock, which is highly risky. I took this risk because I knew that the stock was splitting, and because consolidation was strong at the 200 level. In order to get the 1:1 or better rik reward ratio that I want on credit spreads, I typically need to sell a put above the price where the stock is trading. That is just how the pricing of options plays out. I compare these two trades, taken together, with the space shuttle for the following reason: 1. Like solid rocket boosters that burn for a preset, comparatively short time in order to escape gravity, a 30 day, or less, bull put spread burns a very volatile fuel, namely theta (time decay) in a period when gravity (also like time decay) is the greatest. In the final 30 days of its life, an option's time & volatility premium decays very, very rapidly. That decay is particularly exacerbated in the final 10 days (which is why I also like calendar spread, but that is a different article). A Bull Put Spread on a stock that is moving up towards an event (splits, earnings) in a up trending market takes advantage of time decay and of the movement of the stock. In this case, I only needed JDSU to go to 230 and STAY THERE to get max reward. If JDSU went to 232 and stayed there for 3 weeks (a highly unlikely event), then, each day and week that it dragged on, both sides of the play would decay. But the higher strike put would lose more value per day than the lower strike option. Since I sold the higher strike option, I would benefit simply from time decay if JDSU just went to 232 and stayed there. Of course, JDSU did not just go to 230, it went to 300, then started falling back to the planet. I had set a limit order to buy to close the short side of the play at 1/2. This order filled, and I was out of the play for 95% of my potential reward, or about an ROI of 105% in 2 weeks. A great play no matter how you slice it. 2. Like the main engines of a space shuttle that take it into the stratosphere, and allow for more complex maneuvering, the bull call spread is designed for greater flexibility over a longer period of time. My Bull Call Spread (Sept 220/270) is a different animal from the Bull Put Spread for a variety of reasons. Most importantly, I have a comparatively long time horizon. This is both good and bad. I have a long time to be right. On the other hand, I have to wait a long time to get max reward. In this play, for example, I risked 16.5 to make 33.5, but I will only realize the full reward if I wait until expiry in September (provided JDSU is still above 270). At its height of 300, I could have closed this play for an ROI of, perhaps, 60%, when the max theoretical ROI at expiration is 200%. Looking back on it, I think that I should have closed this play at 60% ROI and moved on and waited for better plays. But, as I said, this is my second spread trade, so I am learning. A 60% return on a three week play is a terrific return. On the other hand, if I had played JDSU with straight calls (just buying April 220 Calls for example) my returns would have been in the several hundred percent range. There is no free lunch. The beauty of these two plays together, in my mind, is that the second, debit play is "paid for" by the credit play. The credit play is closed, the cash is in my account. That cash is, by design, of the exact same amount about 1% of my portfolio) as the debit. Taken together, the debit spread represents pure gravy. From a finance perspective, these two plays together are a positive net present value project by definition. The first half of the project has already paid for the second leg of the project. Although I wish I had taken the 60% ROI exit when I could have, I don't worry at all about this play. I can afford to let it run for 6 months to collect max reward. Its paid for. A portfolio full of successful plays like this will produce magnificent results over the long run. A further word about theta. I think of it as rocket fuel because that is the right way to think both about risk and reward. If you sell a naked put, you are banking on theta. You want your stock to stay above the strike price while each day (and you love those weekends, especially before expiration week) passes in order for theta to work in your favor. One view of naked puts is that they are a great tool that can give you monthly compounding of 15 to 25%. That's true. My view (shared by George Fontanills, which is where I have adopted this view), is that naked puts are a kind of rocket engine that can use the fuel of theta to blow up your entire portfolio. George talks about a hedge fund that did nothing but sell puts. It grew to $60,000,000, but, on one day in Oct97, it went to negative $60,000,000. My alternative to capture the same rocket fuel of time decay is to use bull put spreads. By engineering your plays and deciding to risk a sufficient amount of capital, you can still achieve returns in the 15% to 25% per month range. But if some unforeseen stock or market disaster should happen, you won't blow up your entire portfolio. This is not to say that selling puts is by itself a bad or wrong strategy. I am just saying to look at the risk/ reward going into the strategy. In naked puts, the risks are larger than the rewards, although the rewards are high and attractive. Let me illustrate the two-stage space shuttle strategy with another stock, VRSN. In fact, I had exposure to VRSN in this last week in just about every conceivable way: 1. Naked Puts (Short Mar 200): only as much as I could actually purchase if put to using the margin in my LT Stock Account 2. Sept 190 Calls (Calendar Spread in the future; check out the high premiums) 3. Bull Call Spread, June 220/300 4. Bull Put Spread, Apr 190/210 5. Buy-Write (Bought Stock, Sold Mar 240 Call, in IRA Account) Strategies 1 - 4 were put on after VRSN tanked on the NSOL acquisition news. I came into the week with strategy 5. At the end of the day, I am very happy with the result. The only thing I could have done better was to buy back the 240 calls when VRSN was down at 200, so that I could re sell another set of calls against the stock, perhaps a Mar250. Oh well. Needless to say, I am bullish on the stock, as I think it is the Internet backbone company, particularly on with this deal. I want to focus on Strategies 3 and 4, which, together, represent a kind of Space Shuttle play. Stage 1: April 190/210 Bull Put Spread is the Solid Rocket Booster. This play caused me some heart ache, because I legged into it. I was pretty confident that VRSN would bounce because I thought this was a terrific deal. So, I sold the Apr 210 Put -- NAKED! -- on Tuesday morning. As VRSN continued to tank... down to 200, 190, 185... I was underwater and not very happy about it. At this point, my fundamental conviction about the strength of the business kept me in the trade. But let me be very clear. I took a huge risk, and one that is not recommended. Anyway, I set a limit order to buy the Apr190 Put to complete the spread. I set that order so that I would have a better than 1:1 risk:reward ratio, actually about 1.2:8. I could actually have done better. On Thursday morning, VRSN started to come back, and by Thursday afternoon, I was a happy camper again. I had put the spread on, and I was 30 points above max reward. The play was already very profitable, and I could close it, or wait for a few weeks and let theta burn up. I was fully hedged, so that I knew the maximum risk that I was taking should VRSN tank to 100. That risk is less than 1% of my total assets. I expect that VRSN will move up in price as analysts realize the full value of this deal. In any case, I think that VRSN will be above 210 by April expiry, so this first stage of my VRSN space shuttle play looks like it is on track for a smooth lift off. Stage 2: June 220/300 Bull Call Spread is the Main Engine. I was already learning from my JDSU experience. The downside to putting on a September JDSU Bull Call Spread is that max reward is a full 6 months away. In this case, I decided to split the difference with a Bull Call Spread that is 3 1/2 months away. But in this Bull Call Spread, the reward:risk ratio is 58:22, or better than 2 to 1, in fact, almost 3 to 1. The reward to risk ratio is that high because the stock was heading down when I put on a spread that had a pay off in the opposite direction. The crowd was running in one direction, and I took a position going the opposite way. I got paid for taking what the market perceived as a large risk. Sometimes, though, the market is right, and you get crushed. This time, I was right, and it looks like I am going to be alright. If the credit spread does in fact hit max reward by April expiry (or sooner, as in the case of the JDSU play), then this too becomes a "free play." Once that happens, I sleep a lot easier. Say, in the best of all possible worlds, that VRSN goes to 300 by the beginning of May. Well, I can just sit on the position and unwind it, or try to take max reward at expiry in June. More likely, if the play goes to 50 to 100% ROI sometime in the next month or two, I will just close the play and move on. I don't want everyone to get the impression that I don't make mistakes. I let a beautiful AFFX Bull Call Spread slip through my fingers. I had 50% ROI or better, but I actually let it go negative today. On the plus side, I have 6 months to expiry. Same story with the JDSU Bull Call Spread. My INSP Mar Bull Put Spread is badly underwater, but at least I am hedged. My CSCO Mar Bull Put Spread is at max reward (135) but threatening to go underwater too. My overall portfolio management is somewhat like marksmanship qualification in the Marines (go ahead, get those emails ready now). In the known distance course, each Marine shoots from the 200, 300, and 500 meter line. The 200 meter line is a rapid fire station in which the Marine shoots 10 rounds in a minute at a prone target. That is somewhat like my Bull Put Spread/ Credit Spread program. I would like to shoot 10 to 15 of these trades in a given monthly expiration cycle. Each trade represents 1% of my overall assets. The targets are rapid reaction targets -- newsletter picks for call plays and naked puts, keeping a close eye on the entry points recommended. I set up these targets every Sunday, Tuesday, and Thursday in a qcharts quote sheet with targeted entry points in the comment column next to the last price. I can set price alerts, but I rarely do. I should do more of that in the future. I use my checklist to determine whether the market, sector, and stock are telling me this is a good entry point. The best times to shoot entries to these types of plays are in the two weeks following expiration to capture good theta decay. The 300 meter line is a slower fire program, emphasizing good marksmanship positions such as prone, kneeling, sitting. But the rifle score is progressive -- the 200 meter line sets you up for good performance on the 300 meter line, and so on. In the same way, my current month credit spread trading should "pay for" my debit spread trading. That's why I want to take only good shots on the credit spreads. If I hit every one of the 10 - 15 credit spreads I shoot, then I have paid for 10 - 15 longer term debit spreads, and that is where the 2:1, 3:1 reward: risk ratios are. By the time a Marine gets back to the 500 meter line, he has 10 minutes to place 10 shots into a man size target. It takes concentration, attention to windage and weather conditions, and near perfect marksmanship from the most stable position -- the prone. If the 200 and 300 have gone well, a Marine should be well set up to succeed on the 500, and get a good rifle score. This is my LEAP/ Calendar spread trading. Each month, I put a predetermined amount (8% of assets) into LEAPs on options on stocks that I know well, think are Gorillas, and will split often. Basically, these positions are highly leveraged stock positions. I buy deep in the money so that I have a high delta. My first few shots in this program (BRCM, SEBL, IMNX, NOK) have been winners, averaging 30% returns over less than a month. I sell 10 day calls against these LEAPs when the market, sector and stock look over bought. It is not a perfect science. Sometimes the calls I sell go in the money (eg, SEBL Mar 160 Call, sold earlier this week). In that case, I plan to buy the contract back on Thursday if it is still in the money. Because of the high delta on the SEBL LEAP, I make more money on the LEAPs' appreciation than I lose on the contract I need to buy back, and I benefit from the huge disparity in time decay between a deep in the money LEAP with 22 months of life and a 10 day call. Every Marine a Rifleman. Including John Glenn, who, as an apparently old man, just flew the shuttle into space. And before you send those emails, some of the best shots in the Marines... are women! Good Luck Janar Wasito Contact Support ******************** OPTIONS 101 ******************** "Volatility skew re-visited" By Lee Lowell I would like to thank all the readers for the kind words you've e-mailed me and for all the great questions too. I want to devote part of this week's article to answering some questions that I feel might benefit most of the readers. Plus we'll get into more examples of using volatility skew. First I want to clarify one of the calculations I made in last week's piece. Thanks to a very sharp eye of one of our readers, I want to further explain the point I was trying to make. If you followed me on the ratio spread examples using the flat and smile skew, I did use incorrect numbers for the break-even points. But the numbers that I published were meant to make a different point. My break-even numbers were $73 and $70 respectively for the 1x2 and 1x3 call spreads of XYZ corp. What I really wanted to say was that your profits on these spreads start to diminish at these levels. I should not have said that those numbers were the break-even points. The real break-even points were $83 and $75 respectively. Thanks for looking out! I've gotten a lot of questions on how to go about finding options with certain skew characteristics. Unfortunately there is no way of finding or filtering out stocks with certain skew shapes. I am continuously searching for such a helpful tool. The only way to know what kind of skew your stock exhibits is to look at the implied volatility numbers associated with each option in the chain. You can then compare each strike's volatility to the others in the chain within the same month and against other months. You will either see most of the options within same month as having the same implied volatility (flat skew), or you will see each strike having a different volatility number (smile or variation skew). Look at the spreadsheet below. This is a custom spreadsheet that I had someone design for me to use with MS Excel. This is a spreadsheet for Cisco April call options. In another section of the spreadsheet, (which I did not put here) it has all the information on the underlying security itself, i.e. last price, change, high, low, etc. For the spreadsheet above, all the option information I need is right here. I've got the strike price, days to expiration, bid & ask price, and the two most important columns show "bid implied volatility" and "ask implied volatility". Like I've been saying to most of the readers - if you want too be a serious option trader and put the odds on your side, you need to have good implied volatility data. Some datafeed vendors will just give you the implied volatility figure based on the last trade of the option. Well, that is really of no value because the last trade could have happened days ago. You need to know what the bid implied vol. and the ask implied vols. are because it is current and you can compare it to the other strikes and and to its past history too. This is why I have this custom spreadsheet. Let's take a look at the chain above. Cisco was trading around $132/share, so the $130 and $135 calss are closest to the money. What kind of skew is Cisco showing? Look at either the "imp vol bid" or "imp vol ask" columns. Above $130, the volatilities start to decrease and below $130, the volatilities start to increase. So, from the ATM (at-the-money) $130 strike and lower, the volatilities slope upwards and the strikes above $130 slope downwards. This could be a classic case of where many people are writing covered calls. As holders of the underlying stock, you sell upside calls against your position. If enough people are doing this on the same stock, it will drive down the premiums on the calls therefore lowering the implied volatilities. At the same time people are long the underlying, they may also buy puts for added insurance against a down move in the stock. As more people buy the puts, this increases their premiums and the implied vols at the same time. These last two columns that show the bid and ask volatility are easily attained. Just as you can figure out the implied volatility by using the most recent option price, you can figure out the bid and ask implied volatility too. By using the actual bid and ask price of the option, you then run it through the Black-Scholes model and it will spit out the bid or ask implied vol. This spreadsheet is Excel based and can be programmed with a Black-Scholes model to do such calculations. I also have this spreadsheet connected to a real-time datafeed so it is updated continuouslt tick for tick. This done using the Excel DDE link that is compatible with certain data vendors. I highly suggest this for all serious option traders. Even though the chain above is for the calls, the chain for the puts will have the same charateristics. The lower strikes will have higher vols than the closer-to-the-money purs. This is where doing debit put spreads would give you an advantage from the start because you'll be buying an option with lower volatility than the one you're selling. If you have access to historical volatility data, you can compare the levels seen in your option chain to the past levels, and instantly know where these options are trading relative to its past. If it's in the low end of its historical range, buying options would be a good play. You could outright buy calls or puts, dpending on your outlook for the stock's future direction. If the volatility is in the high end of its range, look for selling strategies. Or if you still want to buy options when its volatility is high, make sure you do spreads. This way you'll be buying and selling high volatility which can minimize the negative effect of a volatility drop. This is how I conduct my research for my own options trading. I've been asked the question of what my routine is like before I actually take a position. Once I've decided on a stock I'm interested in, I'll check the chart patterns and then look at the option prices. I then look at the past historical volatility levels of the underlying and the past implied volatility levels of the option. Looking at these numbers on a graph is really helpful. I'm still looking for the best vendor that shows this type of data. Usually, both the historical volatility and the implied volatility will move in tandem with each other. Most of the time, the implied volatility will be higher than the historical because it's a projection of the future price range of the stock. Most market makers and traders are unwilling to bring the implied volatility down lower than the historical because everything is still unknown about the future. Nobody wants to sell options too cheaply or below its historical range. That could be costly. If the implied and historical are moving in the same direction, I then compare the implied to its past levels to see where it's at. I only concentrate on the implied volatility at this time. If you're going to trade the option, you'll either buy it or sell it based on where it's trading in the marketplace. And those prices in the marketplace are based on implied volatility. It doesn't matter at this point how the historical vol. compares to the implied vol. What matters is that you know where the implied is compared to its past. The only other pattern you need to look at is if the IV (implied vol) and the HV (historical vol) are moving in the opposite directions. I touched on this briefly in the last article. What will usually happen is that implied will start to make a move higher but the historical will stay the same. This is due in part to speculation on the near term future of the stock. There may be some rumors flying around, maybe someone got some inside information, earnings are due out, or the Fed is having a meeting. All these factors will lead to a temporary bump higher in the IV which is where the disparity can be seen when compared to the HV. I want to show you a graph of a smiling skew. Someone e-mailed me and asked if I could include graphs with my discussions. This is a skew chart for AOL. AOL closed around $61/share so that means $60 is the ATM (at-the-money) strike. The calls are on the left and the puts on the right. You can see that the further you move away from the ATM strike for both calls and puts, in both directions (higher and lower than the ATM ), the IV gets higher. This is a classic "smiling skew". The best ways to take advantage of the smiling skew is to use the strategies I discussed last time. And next time I will discuss how to use the other skew patterns in your options trading as I've run out of time for this week. Good luck. Lee Lowell Contact Support ****************** OPTION CLUB UPDATE ****************** PUT A LITTLE SPRING INTO YOUR TRADING BY JOINING AN OPTION INVESTOR TRADING CLUB!!! Visit the trading club message boards and see what others have to say: http://boards.OptionInvestor.com/tradersclubs/ UPDATE FROM NJ/PHILLY AREA ************************** Hello all members, There will be an OIN Meeting next Friday, March 17th. We'll begin gathering around 7:30 at the Hyatt in Cherry Hill, NJ for dinner or snacks. The meeting will follow. Come in anytime, the last meeting we had such a good time we didn't leave until after 11pm. Covered calls will be one topic, the rest of the agenda will be open. The Hyatt in Cherry Hill is on Rt. 70 (eastbound) in Cherry Hill, NJ. There is only one restaurant on the ground floor with a reserved room in the rear. The Hyatt is near the Garden State Racetrack. Regards, Jim Bowman - email@example.com If you would be interested in meeting regularly with other investors, drop us a line at Visit@OptionInvestor.com or Contact Support LAST WEEKS CHANGE FOR THIS WEEKS PICKS: *************************************** Daily Results Index Last Week Dow 9928.82 -438.38 Nasdaq 5048.62 133.83 $OEX 749.50 -16.45 $SPX 1395.07 -14.10 $RUT 603.81 5.93 $TRAN 2365.29 -93.01 $VIX 23.80 2.51 Calls Week CHKP 279.88 50.13 New deal furthers positive sentiment NTAP 236.88 36.94 Just over a week of split run left CLRN 169.25 31.25 Sellers are having a staring contest EMLX 215.50 25.25 Square the books and start again Monday QLGC 178.81 23.38 Dropped, all good things must come to end VERT 273.19 21.47 Low float powering incredible split run YHOO 178.06 20.06 New, let the earnings run begin! RRRR 88.00 20.00 Revving its engine last week TIBX 138.19 16.19 New, time to start your engines! AFCI 79.81 14.31 Buyout rumors and a timely upgrade BWEB 58.00 13.50 New, strong trend last week DSTM 43.44 11.44 Timely trading alert captures a big move AMD 52.00 11.13 Price war with Intel dampens sentiment SEBL 162.88 8.16 Dropped, volume sinking like a stone CMVT 233.63 6.13 New, short trigger on this split run DELL 51.25 5.00 New found enthusiasm like DELL of old WCG 57.88 3.63 Time for Williams to get to work NITE 49.56 3.13 New, brokers are catching fire lately ATML 54.44 2.00 Dropped, cooling off at resistance ANDW 28.56 1.06 Waiting for an increase in volume CSCO 136.38 -1.06 Will they be entering the DJIA?? MER 104.94 -2.06 Dropped, better roads to travel ERICY 100.63 -4.19 Technically driven ahead of the split NOK 215.00 -5.00 Shareholder meeting is approaching TXN 181.75 -5.88 Trend line is signaling entry point GLW 191.50 -13.75 Dropped, looks in need of a breather INSP 244.94 -14.88 Dropped, selloff was nail in the coffin SNE 243.75 -55.69 Rumors of problem brings an entry point Puts BVF 50.25 -10.75 New, patent problems and new debt issue EK 54.00 -5.63 New, usually good for an earnings warning DD 45.94 -4.81 No telling how far left to drop UAL 47.19 -3.25 Anything but a smooth ride for United PPG 46.69 -2.38 Attracting little more than yawns ******************************** CALLS CONTINUED IN SECTION THREE ******************************** ************************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 3-12-2000 Sunday 3 of 5 STOCKS ADDED TO THE PICK LIST ***************************** Calls CMVT - Comverse Technology YHOO - Yahoo! Inc NITE - Knight/Trimark Group TIBX - Tibco Software BWEB - BackWeb Technologies Puts EK - Eastman Kodak BVF - Biovail Corp *************************** 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 ATML $54.44 -1.13 (+2.00) ATML is cooling off. They have been hot for awhile with no real resistance. It looks like things are changing. On Friday they hit near a 52-week record by trading up to $58.13, but it was all downhill from there. Showing that resistance is set. Mostly due to profit-taking would be our guess. Volume was nothing to write home about, just under average. Support is the 10-dma of $52. They gave us a great little run and it's time to move on to something else. There has been no news effecting ATML. INSP $244.94 (-14.88) Patience is indeed a virtue, but there's limits and we've reached ours. The 12-point loss in Friday's surging market was the nail in the coffin. The descent brought INSP down to an shaky position at the 10-dma ($246.10). While volume levels remained creditable this week and INSP traded in a sensible entry range ($250 to $260), the current level is unnerving. Let's not forget INSP is splitting its stock 2:1 and going ex-div on April 7th. In other words there's still a good probability of a resurgence. However, we no longer think it's a good time to open call positions and are exiting the split play this weekend. QLGC $178.81 (+23.38) All good things must come to an end. QLGC has given us quite a run since we picked it on February 22nd down near $115. The momentum began to wane by the middle of last week and we were waiting for a break, either up or down, from the consolidation pattern. Showing that the enthusiastic reception of all the good news was running out of gas, sellers stepped on the brakes in the last hour on Friday. With the conviction of increasing volume, they pushed QLGC down through the $182 support level, closing the issue at the low of the day. There will likely be more weakness while QLGC refuels, so we'll move on to other issues that have just topped off their tanks. GLW $191.50 (-13.75) In common with JDSU last week, GLW benefited from exposure at OFC 2000 and a media day of its own. Unfortunately that's over. Optical equipment manufacturers took a well deserved break anyway last week as investors again focused on semiconductors. GLW just couldn't get any traction and volume on Friday confirms it - only 80% of the ADV. While they will likely announce a split with earnings on April 17 (followed by a shareholder meeting with a scheduled authorized share increase agenda item), investors seem to think it's too early to take a position for the eventual run. So it is this weekend that we drop GLW from our list. It doesn't mean bail out at all costs - keep it on your radar, as we too will be watching for an opportunity to bring it back. Volume swells will be the key. SEBL $162.88 (+8.16) While support over the last few days appeared to hold pretty well at $162, successive volume sank like a stone - only 72% of the ADV on Friday. Until volume returns, it appears that SEBL has seemingly run out of reasons to move up and consolidation appears at hand. While SEBL is a split candidate, they will not likely make the announcement until earnings in late April - too far a way to motivate an earnings or split announcement run. We can't feel too bad though; SEBL gave us a very nice run. MER $104.94 (-2.06) Wednesday looked bleak with MER falling through its $104 support level and Thursday we began to see a bit of a turnaround. But Friday's session was a telling one. And what it told us was that it is time to go. See ya later. After valiant effort to break $110, MER just plain ran out of gas. In the final two hours of trading, MER fell to the hands of profit-takers, and on heavy volume as well. So there you have it, it was a volatile and rocky road this past week which allowed for some good quick trades but looking on down the road, I'd rather be going somewhere else. Time to move on. PUTS No dropped puts this weekend STOCK SPLIT CANDIDATES *********************** Current Split Candidates EMLX - Emulex CLRN - Clarent TIBX - Tibco Software TXN - Texas Instruments Split candidates that are not current plays EMC - EMC Corporation PHCM - Phone.com FDRY - Foundry Networks EBAY - EBay Inc. Recent announcements we predicted CHINA - China.com CMVT - Comverse Tech STOCKS WITH UPCOMING SPLITS **************************** We don't list all splits available, only those we feel may have play possibilities. Symbol - Stock Splits/Date 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 TTPA - Trintech Group 2:1 03-22-00 ex-date 03-23 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 BWAY - Breakaway 2:1 03-23-00 ex-date 03-24 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 COVD - Covad Comm 3:2 03-31-00 ex-date 04-03 QSFT - Quest Software 2:1 03-31-00 ex-date 04-03 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 CMVT - Comverse Tech 2:1 04-03-00 ex-date 04-04 ENGA - Engage Tech 2:1 04-03-00 ex-date 04-04 ASGN - On Assignment 2:1 04-03-00 ex-date 04-04 RDBK - Redback Networks 2:1 04-03-00 ex-date 04-04 ADRX - AndrxCorp 2:1 04-03-00 ex-date 04-04 GRDN - Guardian Tech 2:1 04-03-00 ex-date 04-04 CTCI - CT Comm 2:1 04-05-00 ex-date 04-06 VITR - Vitria Tech 2:1 04-05-00 ex-date 04-06 NAVI - NaviSite 2:1 04-05-00 ex-date 04-06 UTCI - Uniroyal Tech 2:1 04-05-00 ex-date 04-06 SBL - Symbol Tech 3:2 04-05-00 ex-date 04-06 ABGX - Abgenix 2:1 04-06-00 ex-date 04-07 LINK - Interlink Elec 3:2 04-07-00 ex-date 04-10 WDR - Waddell & Reed 3:2 04-07-00 ex-date 04-10 HDI - Harley Davidson 2:1 04-07-00 ex-date 04-10 MKTY - Mechanical Tech 3:1 04-12-00 ex-date 04-13 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 KSS - Kohls Corp 2:1 04-24-00 ex-date 04-25 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 AEG - AEGON N.V. 2:1 05-30-00 ex-date 05-31 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 RMBS - Rambus 4:1 06-14-00 ex-date 06-15 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: ********************** TXN - Texas Instruments $181.75 (-5.88) See details in sector list Chart = /charts.asp?symbol=TXN **** NITE - Knight/Trimark Group $49.56 (+3.13) See details in sector list Chart = /charts.asp?symbol=NITE Put play of the day: ******************** BVF - Biovail Corp $50.25 (-10.75) See details in sector list Chart = /charts.asp?symbol=BVF ************* 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 *********** DELL - Dell Computer $51.25 (+5.00) Dell Computer is the world's #1 direct-sale computer vendor and one of the world's top PC makers. Therefore it's understandable that the company designs, develops, manufactures, markets, services, and supports a variety of computer systems including desktops, notebooks, workstations, network servers, and storage products. Dell's clients include the government, corporations, the medical and education industries, as well as the individual consumer. Founder Michael Dell is still the CEO and maintains a 14% stake in the company. A strengthening sector, signs that corporate customers are interested in purchasing more PCs, and recent news that Dell will introduce a new line of servers to offset any slowing in overall PC sales and we have the ingredients for a short-term momentum play. By February 9th, DELL plummeted to a low of $35.56 before regaining its present composure. After such a devastating decline, DELL remarkably just set a new 52- week record high on Friday ($54.03) and is poised to move higher. The "bump in the road" as Dell puts it is over and analysts agree. Granted Dell admits it won't be making stellar earnings number like the 50% increases from year earlier quarters, but a 30% goal is very much within their grasp. Ashok Kumar, analyst for USB Piper Jaffray, is confident that Dell "should have no problem exceeding the re-calibrated earnings" and noted he rates DELL as a Strong Buy. Earlier in the week, he upped DELL's price target to $65 from $55. And in regard to PC sales, Trent May, manager of the Invesco Growth Fund, declared that "over the last two weeks, we've seen reports of improving corporate PC demand, which obviously Dell would be the biggest beneficiary of". These comments follow Thursday's press release that Dell Computer became the global market leader in both portable and desktop personal computer shipments to medium and large businesses in the 4Q of 1999 according to the market research firm IDC. This puts rivals Compaq (CPQ) and IBM in the backseat as they struggle to move from largely indirect to direct sales models. Additionally, Dell will introduce "appliance servers", a new line of servers as early as this month aimed at small businesses that use the Internet. These new servers increase power of Web sites and manage Internet traffic, but the kicker is that they are much cheaper and user friendly than conventional servers. On Thursday, the stock's dynamism demonstrated a growing intensity and sprung off the 5-dma (then at $47.24) and didn't look back at the comfortable support zone. The bold move was backed by heavy volume (more than double the ADV) of over 71 mln shares exchanging hands. Friday's performance was also very bullish. Analyst Donald Young of Paine Webber gave DELL a boost with an upgrade to a Buy from an Attractive. He also upped the price target by 56% to $78 from a mere $50. DELL shot up immediately and cleared the path of resistance by first setting a new all-time high at $54.03. The rest of day it held firm trading in a tight range between $53 and $54. A typical late day pullback before the weekend did knock a couple dollars off the share price, but this effectively offered traders entries. A lower level of support is at $47 and $48. Although if there's a severe correction, and the stock returns to $44 and $45 near the 10-dma ($45.72) take out the red flag. At the moment, earnings aren't expected until the beginning of May. Therefore let's keep in mind this play is based on sheer momentum and always, always keep your eyes peeled for the profit mongers. Dell along with IBM and Hewlett-Packard are to be the "chosen ones" to roll out Intel's new 1GHz Pentium III, a chip they claim is faster than anything fierce competitor, Advanced Micro Devices (AMD), has in its inventory. Talking about chips...Dell warned owners of a faulty memory chip in its Latitude and Inspiron computers shipped between February 1 and November 20, 1999. As many as 400 K, or 48% of the notebook computer are likely to contain the defective memory chip. On a more positive note, Dell announced it began online product sales in Hungary. This new online venture marks the first of its kind in central and Eastern Europe according to Glenn Jones, Dell marketing director in Europe, the Middle East and Africa. BUY CALL APR-45 DLQ-DI OI=16608 at $7.88 SL=6.25 BUY CALL APR-50*DLQ-DJ OI=18161 at $4.50 SL=2.75 BUY CALL APR-55 DLQ-DK OI= 3409 at $2.38 SL=1.25 BUY CALL MAY-50 DLQ-EJ OI=20884 at $5.63 SL=4.00 BUY CALL MAY-55 DLQ-EK OI=17806 at $3.36 SL=1.75 Picked on March 9th at $50.44 P/E = 85 Change since picked +0.81 52 week high=$54.03 Analysts Ratings 14-18-3-0-0 52 week low =$31.38 Last earnings 12/99 est= 0.15 actual= 0.16 Next earnings 05-18 est= 0.16 versus= 0.16 Average daily volume = 32.4 mln /charts/charts.asp?symbol=DELL ************* SEMICONDUCTOR ************* AMD - Advance Micro Devices $53.00 (+11.13) AMD is a global supplier of integrated circuits for the personal and networked computer and communications markets. They produce processors, flash memories, programmable logic devices, and products for communications and networking applications. the company ranks #2 in the microprocessor market behind Intel, however it has captured about a 60% share of the sub-$1000 PC market. AMD also makes embedded chips and nonvolatile memories. They have manufacturing operations in Europe, China and Japan, with about 55% of its sales outside the U.S. AMD gets about 12% of its revenues from Compaq Computers. How does that saying go? "Into each life some rain must fall" Well on Friday it not only rained, on one the recent additions to our play list, it poured. The storm came in the form of news that Intel had managed to snatch away the role as the primary chip vendor of the new Microsoft X-Box game from AMD. Industry analysts said AMD had been rumored to be nearly guaranteed the spot as the primary vendor for over a year, when Intel somehow won the bid in an llth hour deal. Rumors were still circulating Friday, but Microsoft had no comment on it. A company spokesman for AMD said they were not prepared to get into a "scorched-earth price war with Intel to get the Microsoft business, and now the end result is they don't have it." Shares of AMD fell almost $7 at the open on Friday, and continued to decline until hitting the recent support level at $50. The bright spot, if there is one, showed AMD clawing its way back to end the day at $53. Depending on your view point that kind of decline can either present a buying opportunity or be the beginning of a trend to lower prices. For now we will look at the decline as a potential buying opportunity, only because we believe the reaction to the news may have been exaggerated. The selling was swift and sharp, and may be just a bump (all-be-it a big bump) in the road for our play. The fact that AMD did find buyers on three different occasions in the $50 to $51 area is what we are going to hang our rain gear on for now. If AMD can wring itself out and move higher we would look to buy calls. Another decline through the $50 level could put a premature end to the life of this play. The news earlier in the week that AMD had beat Intel to the punch with the release of their 1GHZ chip was overshadowed by Friday's Microsoft debacle. Earlier this week analysts at Gruntal did their best to help by reiterating their short-term Outperform rating of the AMD. We will keep our eyes peeled for any new reiterations or recommendations for AMD early next week. BUY CALL APR-45 AMD-DI OI=3507 at $11.63 SL=9.25 BUY CALL APR-50*AMD-DJ OI=4403 at $ 8.63 SL=6.50 BUY CALL APR-55 AMD-DK OI=6271 at $ 6.50 SL=4.75 BUY CALL APR-60 AMD-DL OI=6303 at $ 4.75 SL=3.00 SELL PUT MAR-50 AMD-OJ OI= 982 at $ 1.50 SL=3.00 (See risks of selling puts in play legend) Picked on Mar 07th at $53.25 PE = N/A Change since picked -0.25 52 week high=$60.00 Analysts Ratings 8-6-8-0-0 52 week low =$14.56 Last earnings 01/00 est=-0.06 actual= 0.43 Next earnings 04-19 est= 0.37 versus=-0.81 Average daily volume = 3.86 mln /charts/charts.asp?symbol=AMD **** TXN - Texas Instruments $181.75 (-5.88) Texas Instruments is in the semiconductor business. They specialize in real-time technologies, digital solutions for applications where waiting isn't an option. Their DSP and analog chips are the brains behind many of today's most attractive opportunities such as digital wireless phones and broadband. To quote their President, "Texas Instruments is gaining significant market momentum, and is well positioned going forward as the global market for DSL continues to ramp up." TXN is currently engage with several other manufacturers to provide advanced DSL solutions and plans to announce additional customers throughout the year. A well placed investment in the chip sector has proven to be one of the best places to park your money since the first of the year. One of the reasons we've added TXN to our play list is that time and again the semiconductor company has provided us with some outstanding plays. Well we believe it is time again. After making a new high at $200 on Monday, TXN did experience some normal profit taking. Early on Thursday TXN bounced off its trend-line near $168, which has followed the stock's move higher since late January. It's amazing how a stock will trend higher or lower, pull back to its trend line and bounce again. Well, TXN has bounced and we believe is poised to make an assault on its recent high. A report released late Wednesday from the Semiconductor Industry Association(SIA) showed year-to-year growth is at 32.9%, for the 3 months ending in January, compared to the same three month period in 1999. The SIA's Global Sales Report is a three-month moving average of sales activity, which represents some 70 companies. The first three months of the year is typically the slowest time of the year for semiconductor companies, so it would appear that TXN and others in the industry are in for a banner year. Although it may be a bit early, TXN is scheduled to report earnings around April 24th. They will also hold their annual stockholders meeting on April 20th. On the agenda is a request to double the amount of authorized shares from 1.2 billion to 2.4 billion, which may provide TXN with a pre-split announcement, pre-earnings boost. Although TXN spent most of the day on Friday, trading between $173 and $175, it did see some buying going into the final hour with the volume picking up and may follow through early next week. On Friday, TXN signed a deal with a Belgian firm, Barco, to supply it with its Digital Light Processing(DLP) Cinema technology. This agreement will allow Barco to develop a completely new range of projectors that will have the capability of replacing 35 millimeter film projectors in cinema theatres around the world. BUY CALL APR-170 TNZ-DN OI=1444 at $23.00 SL=17.75 BUY CALL APR-180 TNZ-DP OI=1980 at $17.75 SL=13.75 BUY CALL APR-190*TXR-DR OI= 550 at $12.75 SL=10.00 BUY CALL APR-195 TXR-DS OI= 397 at $10.88 SL= 8.50 SELL PUT MAR-170 TNZ-ON OI= 987 at $ 2.06 SL= 3.75 (See risks of selling puts in play legend) Picked on Mar 09th at $180.38 PE = 108 Change since picked +1.38 52 week high=$200.00 Analysts Ratings 15-13-4-1-0 52 week low =$ 45.50 Last earnings 01/00 est= 0.47 actual= 0.51 Next earnings 04-24 est= 0.53 versus=-0.32 Average daily volume = 4.59 mln /charts/charts.asp?symbol=TXN ******** Internet ******** YHOO - Yahoo! Inc $178.06 (+20.06) Yahoo! Inc is a global Internet media company that offers an online guide to web navigation, a branded network of comprehensive information, communication services, and shopping access to millions of users daily. Over 32 mln users visit the Web site each month. Yahoo! operates in the black with the bulk of its revenues derived from advertisements commissioned by its list of about 3800 clients. Put me back in the game coach! Yahoo finally regained consciousness on Monday after suffering a steady decline from the record high of $250.06 it set on January 4th. While the pop out of its two-month long descent unquestionably consoled long- term holders, the 12.7%, or $20.06 gain this week encouraged momentum and technical traders to start chomping at the bit. Two Internet conferences hosted by Paine Webber and PlaNet.WallStreet certainly brought attention to the sector on Monday, but overall we're betting Yahoo!'s upcoming earnings will be the prevalent factor to keep the momentum rolling. YHOO is reporting in little more than three weeks on April 4th, after the bell. Typically YHOO accommodates traders with a great run right up to the report, then dives deep on the announcement. So take heed and don't even consider holding over earnings. If anything, be prepared to buy some puts! On an outside chance let's delve into the possibility of another split. Currently Yahoo! has 900 mln shares authorized and about 527 mln issued so the BoD would need shareholders' approval for an increase. But that shouldn't pose too much of a problem. It's more of a question of whether the company will have a second split this year. Recall YHOO recently split 2:1 on February 11th. And honestly, YHOO historically only becomes a split candidate at the $200 level. Regardless it's good to know what the future may hold. It'd be nice to see enough intraday volatility for an entry around the 10-dma ($167.44), but upward bounces off the 5-dma ($176.25) are more probable at this point. Opposition is at Thursday's intraday high of $185. So watch for resistance at that mark and look for stronger volume to back the climb. On Thursday, YHOO got a boost from the announcement that Network Appliance would be its sole system provider for the increasing data that it stores and delivers over its global network. Yahoo! currently has about 120 mln users accessing its site each month so it's extremely valuable to have a top-notch storage company managing the system. In other news, Yahoo! recently introduced a finance show called "Yahoo Finance Vision" that allows users to trade stocks, get up-to-date news, and submit questions to guests during live interviews. BUY CALL APR-170 YUU-DN OI=3594 at $23.00 SL=18.00 BUY CALL APR-175 YUU-DO OI=5904 at $20.25 SL=15.75 BUY CALL APR-180 YUU-DP OI=5611 at $18.00 SL=14.00 BUY CALL APR-185*YUU-DQ OI=2112 at $15.88 SL=12.50 BUY CALL APR-190 YUU-DR OI=2813 at $14.00 SL=11.25 Picked on March 12th at $178.06 P/E = 1729 Change since picked +0.00 52-week high=$250.06 Analysts Ratings 14-13-4-0-0 52-week low =$ 55.00 Last earnings 12/99 est= 0.15 actual= 0.19 Next earnings 04-05 est= 0.09 versus= 0.03 Average Daily Volume = 8.63 mln /charts/charts.asp?symbol=YHOO **** NTAP - Network Appliance Inc. $236.88 (+36.94)(+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. NTAP really didn't have that bad of day on Friday. After all it did gap up over $6 at the open and make a new high in the early moments of the session. For the rest of the day, NTAP struggled a bit more than we would like to have seen, especially after announcing a strategic relationship with Yahoo, on Thursday after the close. NTAP fell about $15 before buyers stepped in attempting to save the day. $228 did provide support and should be used as a reference for traders that are looking for entry points this play in the first part of the week. $233 may be a more likely target as NTAP continues its split run. If NTAP breaks those support levels with any conviction, there are a couple of minor areas of support below, but the next solid support doesn't show up until near $213. NTAP will be splitting after the close on the 22nd so all positions will need to be closed out by then. Until then, sit back and enjoy what has already been a stellar split run. BUY CALL APR-230 ULM-DF OI=190 at $38.25 SL=28.50 BUY CALL APR-240 ULM-DH OI=605 at $34.63 SL=25.00 BUY CALL APR-250 ULM-DJ OI=256 at $29.88 SL=22.50 SELL PUT MAR-230 ULM-OF OI= 17 at $ 8.25 SL=11.00 (See risks of selling puts in play legend) Picked on Mar 05th at $199.94 PE = 658 Change since picked +36.94 52-week high=$248.00 Analysts Ratings 10-5-1-0-0 52-week low =$ 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 **** VERT - VerticalNet, Inc. $273.19 (+21.47)(+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. As the 2:1 split date of March 31st nears, VERT has been on the move, but nonetheless had trouble piercing and holding its current and previous resistance level of $290. After nearly a $40 move up from its open on Monday, we wouldn't be surprised to find a couple of days of consolidation. Despite a loss on Friday, we think the current upward trend remains intact. $260 to $265 used to provide resistance, but proved to be support on Friday where the typical mentality is to sell in order to avoid potential disaster over a weekend. Throughout the afternoon, VERT had a steady downward trend, but was met in the final 10 minutes with a surge of buying orders that propelled it up $7 from it's $266 low. Historical support is way back at $240. Moving averages are slightly higher, but still a long way back at $244 (10-dma) and $257.41 (5-dma). If the market continues positive this coming week, we think $265 would provide a good entry. If it starts out shaky, look for at least the moving averages to hold. If you want to play the run a bit safer, wait for a breakout over $280 backed by volume above the ADV. Just beware that resistance again pops up at the all-time high of $296.75. After that? Blue sky. With a currently low float of 14.8 mln shares, 1.5 mln share days can help VERT to really rock. So watch the volume for a clue to direction. Also note the expensive options. May strikes are not available yet and July contracts are price out of this world. Don't play this one if your intestinal fortitude isn't strong. In the big picture, there should be no doubt that VERT is one of the undisputed leaders in the B2B sector along with ARBA and CMRC. Recall that in January VERT entered a joint venture with Softbank and four days later got an equity infusion from Kingmaker, Microsoft. The big news propelling VERT this week was two-fold. First, VERT announced their acquisition of privately held Tradeum for $500 mln, which is to immediately add to earnings. Second, upon the news, Lehman Bros. reiterated their Buy recommendation with a price target of $350. BUY CALL APR-260 URE-DL OI=264 at $47.50 SL=37.00 BUY CALL APR-270 URE-DN OI= 67 at $43.25 SL=33.75 BUY CALL APR-280*URE-DP OI=111 at $38.88 SL=30.25 Picked on Feb 24th at $221.00 P/E = N/A Change since picked +52.19 52-week high=$296.75 Analysts Ratings 4-6-3-0-0 52-week low =$ 25.44 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 **** CSCO - Cisco Systems Inc $136.38 (-1.06)(+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. CSCO came aboard our call list last weekend as a candidate for a split run. The stock splits 2:1 in just a little less than two weeks on March 22nd. There's plenty of shares for the stock split with 5.4 bln shares authorized and only 3.42 mln outstanding. Some may have wondered why we started CSCO without a breakout first, but the early notice was to give our readers opportunities for solid entries at the stock's firm support levels of $130 and $135. Our position is that pre-split excitement will give CSCO a shot of adrenaline as the split dates draws closer. As it turned out on Thursday, CSCO led the pack on rumors that it would oust PG as a member of the DOW Industrials and take their place. The stock made gains of $7.25, or 5.5% on strong volume. Another boost also came from analyst Tim Luke of Lehman Brothers who repeated his Buy rating and commented that "Cisco remains a core holding in our universe of Internet infrastructure stocks". On Friday, volume did taper back to average levels, but it proved to be just as thrilling. CSCO reached another record high as it powered up to $141.88 in the early morning session. The pre-weekend profit-taking did however pull CSCO down a smidgen to near-term support at $135 and $136. But essentially this level is a safe haven. From a technical standpoint, CSCO is above the 5-dma ($135.31) and 10- dma ($134.13) and solid upward bounces off these marks certainly make great entry points. Here's a few of the highlights swirling around Cisco this week. Cisco won a $280 mln equipment bid from Cogent Communications, a specialized Internet Service Provider (ISP). This fiber optic gear order is the largest optical networking sale to date. Notably it will provide Cogent with the first end-to-end all optical network to deliver Internet access service with speeds 100 times faster than a T-1 connection. There was also big news surrounding Cisco and Cap Gemini SA, Europe's largest computer- services company. They recently entered into a Web alliance to sell and service Internet and telecommunications systems. Currently this is a market where sales are increasing by 30% a year! According to the terms, Cisco will invest $671 million in Cap Gemini and $164 million for a 4.9 percent stake in the new venture company while Cap Gemini will contribute 12% of its workforce. BUY CALL APR-130 CWY-DF OI= 9226 at $14.50 SL=11.50 BUY CALL APR-135*CWY-DG OI= 8612 at $11.50 SL= 9.25 BUY CALL APR-140 CWY-DH OI=11393 at $ 8.88 SL= 6.75 BUY CALL APR-145 CWY-DI OI= 7813 at $ 6.75 SL= 5.00 BUY CALL APR-150 CWY-DJ OI=10370 at $ 5.13 SL= 3.25 Picked on March 5th at $137.44 PE = 187 Change since picked +1.06 52-week high=$141.88 Analysts Ratings 23-15-0-0-0 52-week low =$ 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 = 23.9 mln /charts/charts.asp?symbol=CSCO **** RRRR - Rare Medium Group $88.00 (+20.00)(+14.19) Originally known as ICC Technologies, the company divested itself of its old business (air-conditioning operations) in favor of newer technology after purchasing Web-site developer, Rare Medium in 1998. RRRR provides planning, consulting, technology, marketing and Web-hosting services to large and mid-sized corporations looking to develop their e-commerce businesses. The company employs a service delivery methodology that ensures rapid speed to market of business solutions, iterative refinement of the solution, and a solution that is linked to business benefit. The company runs six offices in the U.S., one in Canada, and another in Australia and has the ability to conduct projects on either fixed price, fixed time, or a time and materials basis. Revving its engine early in the week, RRRR tore down the track, posting a new 52-week high of $94.75 Friday morning. Finally pausing to allow for a (hopefully) brief pitstop, investors began taking profits mid-day on Friday. Consolidating for the remainder of the session, RRRR looks to be building support near $88, backed up by $84 and then the 5-dma (down at $80). The 10-dma ($70) hasn't been a factor since the stock began racing higher in late February. Confirming the move higher, volume picked up throughout the week, stabilizing in excess of 2 million shares, a healthy 25% over the ADV. One unsettling signal appeared in the last 30 minutes of Friday's session; volume picked up sharply (trading over 300,000 shares), as the price dropped $2.25. Ending the day near its low may be cause for concern, so keep an eye on volume on Monday. The selling may continue, providing us with an attractive entry point. With the gains achieved this week, tighten up your stops on any open positions so you don't give back all your profits. Look to enter new positions when RRRR confirms it is ready to drive higher by moving off of support with the added fuel of increasing volume. The latest news for RRRR occurred on February 24th. Sylvan Learning Systems, Inc. announced that it plans to launch a venture subsidiary that will invest in and incubate emerging internet technology companies in the education and training marketplace. RRRR is one of several companies that will invest in and support the venture. BUY CALL APR-85*RRU-DQ OI= 77 at $15.00 SL=11.75 BUY CALL APR-90 RRU-DR OI=195 at $12.88 SL=10.25 BUY CALL APR-95 RRU-DS OI=225 at $11.00 SL= 8.75 BUY CALL MAY-90 RRU-ER OI= 52 at $16.63 SL=13.00 BUY CALL MAY-95 RRU-ES OI=700 at $14.75 SL=11.75 Picked on Mar 7th at $72.44 P/E = N/A Change since picked +15.56 52-week high=$94.75 Analysts Ratings 0-1-1-0-0 52-week low =$ 4.44 Last earnings 02/00 est=-0.21 actual=-0.24 Next earnings 05-15 est= N/A versus=-0.22 Average Daily Volume = 1.48 mln /charts/charts.asp?symbol=RRRR **** EMLX - Emulex Corp. $215.50 (+25.25)(+33.13)(P3W+49.13) 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 OEM and end users, through other distribution channels including value-added resellers, systems integrators and others. What's going on with EMLX you ask? That's a good question, let's see if we can shed some light on this fibre channel tech play. On the positive side, despite a volatile session on Wednesday, when it fell to the $180 level in the first ninety minutes of trading, EMLX did manage to finish each session in with a gain. We did see a fair amount of buyers enter the market after the decline, which is a plus in the overall picture. EMLX also managed to make a new high in four out of the five sessions, with the last coming on Friday at $224.38. Now lets look at the other side of the coin on EMLX. EMLX did close in the lower end of its range on Friday, which would normally indicate either some consolidation or weakness in the next day or two. The volume Friday was very light, at just under half the ADV for our play. At this point we believe the close in the lower end of the range is probably due more to the fact that traders had made a little money and preferred to spend the weekend in cash, rather than with open positions, as the broad markets did deteriorate late in the day, after a choppy session. That is not meant to be construed as a negative, rather a "We've had a decent week, let's square the books and see what the new week brings" type of mentality. Intraday charts do paint a picture that is indicative of a stock beginning to roll over. EMLX closed on intraday support at $215. Minor support levels show up at $211, $203 and $198. A decline to any of the support levels could present new buying opportunities, as could a move to the upside. A new week may bring new buyers to the market, however keep your stops in place and check the volume prior to entering any new plays. On Thursday EMLX did receive a nice endorsement from Michael Cohen senior analyst for the Alpha Analytics Digital Future Fund. Cohen said EMLX is one of the top holdings in the fund which has returned more than 61% in the first two months of the year. BUY CALL APR-190 UEL-DR OI=148 at $44.00 SL=34.25 BUY CALL APR-200 UEL-DT OI=161 at $38.25 SL=29.75 BUY CALL APR-210*UEL-DB OI=177 at $33.50 SL=26.00 BUY CALL APR-220 UEL-DD OI=121 at $30.25 SL=23.50 SELL PUT MAR-180 UEL-OP OI=125 at $ 1.56 SL= 3.00 (See risks of selling puts in play legend) Picked on Feb 13th at $123.88 P/E = 392 Change since picked +91.63 52-week high=$224.38 Analysts Ratings 3-4-0-0-0 52-week low =$ 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 = 1.09 mln /charts/charts.asp?symbol=EMLX ********* SOFTWARE ********* TIBX - Tibco Software $138.19 (+16.19) Headquartered in Palo Alto, California, TIBCO Software Inc. is a leading provider of real-time infrastructure software for e-business. TIBCO's products and services enable computer applications and platforms to communicate efficiently across networks. The TIB/ActiveEnterprise(TM) product suite facilitates the distribution of information and integration of business processes by connecting applications to a network through its patented technology. (That's code for B2B enabler.) TIB technology was first used to "digitize" Wall Street and has been adopted in diverse industries, including manufacturing, energy, telecommunications, and electronic commerce. TIBCO Software's global client base includes Cisco, Yahoo!, NEC, 3Com, Sun Microsystems, SAP, Philips, AT&T and AOL/Netscape. OK, Sparky, here's the deal. With only minor backfires, TIBX has risen from a split adjusted $50 on February 1st to its current level. In late February and early March, $125 showed great support as TIBX consolidated during those few days. Following a hard dip'n'bounce to $110, TIBX has been on the move. Support has been moving up intraday $4 at a time from $120 ($124, $128, $132, $136, and $138). Resistance is at $140. TIBX is now staring at breakout country through the windshield. Earnings to be announced on March 23rd should be the driver. It was just Thursday that TIBX announced it expects Q1 revenues to more than double from $18 mln last year to $41+ mln in the same quarter this year. Here's the real beauty of the play. TIBX announced a 3:1 split on January 24 when it traded at a pre-split value of $156. Don't look now, but we're heading there again in a hurry. TIBX executed the split on February 22 taking the stock to a split adjusted $82, from which it has climbed to current levels. Man, can this baby accelerate! Now on the agenda for the annual shareholder meeting April 12 is an item to increase the authorized shares from the current 300 mln to 1.2 bln shares. Here's our read on the lineup - another 3:1 split announcement on March 23rd, with shareholder approval on April 11th and execution within two weeks thereafter. Ladies and gentlemen, start your engines! (But confirm that the racetrack is safe to drive first. You don't want to wreck on the first lap.) In a separate statement from PRNewswire, Tibco said it had taken a $4 million stake in WebEx Inc., which provides Web-based meeting services. BUY CALL APR-130 PIW-DF OI=102 at $26.75 SL=21.00 BUY CALL APR-140*PIW-DH OI=362 at $22.63 SL=17.75 BUY CALL APR-150 PIW-DJ OI=117 at $18.38 SL=14.25 BUY CALL MAY-140 PIW-EH OI= 33 at $28.50 SL=22.25 BUY CALL MAY-150 PIW-EJ OI=161 at $25.00 SL=19.50 Picked on Mar 12th at $138.19 P/E = N/A Change since picked +0.00 52-week high=$147.00 Analysts Ratings 3-0-0-0-0 52-week low =$ 6.56 Last earnings 12/99 est=-0.03 actual= 0.01 surprise=133% Next earnings 03-23 est= 0.00 versus= N/A Average Daily Volume = 684 K /charts/charts.asp?symbol=TIBX **** BWEB - BackWeb Technologies $58.00 (+13.50) BackWeb Technologies provides Push software for e-business solutions that solve the problem of timely, accurate information delivery across corporate networks and the Internet. They provide an automated and reliable way to communicate any data type over any network connection. Their customizable software, helps manage sales, software distribution, e-commerce and other tasks, and can set up broadcast channels that download preferred data directly to users with out delays or interruptions. It's all about speed with BWEB. If you look at the speed at which BWEB has climbed to new highs, you can see why we added Internet infrastructure company to our play list. Actually the charts don't tell the whole story on this one, but do show how fast this investors are jumping into this relatively new company. This past Tuesday BWEB announced a major alliance with SAP AG a provider of inter-enterprise solutions. SAP is working with BackWeb to provide a "push" platform for its popular mySAP.com business-to-business online community and solution set. In looking at the analysts comments it is a bit surprising that not more brokerage firms haven't jumped on the bandwagon with BWEB. At this time only four firms are following the company, with just one rating BWEB a Strong Buy and the other 3 coming in with a Buy rating. On Friday, analysts at Lehman did at least reiterate their Buy rating. Another interesting note is the volume. For a company that has a 3 month ADV of 948K, BWEB has averaged about 1.6 million shares per day since the first of the month. In the past nine trading sessions BWEB has seen only 1 close in the red. Since the first of March, BWEB has rallied about 52%. The next question that comes to mind is how do we approach this new play. BWEB picked up 3% Friday, making a new high on a day the broader markets couldn't decide which direction to go. This would suggest there is certainly more upside potential ahead. In addition, the price and volume picked up the pace late in the day when the major indices were back-tracking. On a daily basis BWEB could be getting a bit over-bought, however we wouldn't expect a large pullback. BWEB has support near $54 with the next level back at $47. If traders come back to work ready to sell on Monday those levels should find buyers waiting in the wings. If BWEB continues its recent momentum, we would also look to enter this new play. However it may be prudent to keep your stops close, just in case investors that bought BWEB earlier this month decide to take some money off the table. Other than the reiteration form Lehman analysts this week and the SAP announcement there has been very little news come out on BWEB. With the recent run up in price we will look for more analysts come out pounding the table on BWEB. BUY CALL APR-45 UBW-DI OI=205 at $15.88 SL=12.25 BUY CALL APR-50 UBW-DJ OI=259 at $12.88 SL=10.00 BUY CALL APR-55*UBW-DK OI= 55 at $ 9.63 SL= 7.50 BUY CALL APR-60 UBW-DL OI=198 at $ 8.00 SL= 6.25 BUY CALL JUN-50 UBW-FJ OI=288 at $16.88 SL=13.00 SELL PUT APR-50 UBW-PJ OI= 18 at $ 5.13 SL= 7.00 (See risks of selling puts in play legend) Picked on Mar 12th at $58.00 P/E = N/A Change since picked +0.00 52-week high=$59.13 Analysts Ratings 1-3-0-0-0 52-week low =$15.00 Last earnings 01/00 est=-0.08 actual=-0.04 Next earnings 04-26 est-=0.06 versus= N/A Average Daily Volume = 948 K /charts/charts.asp?symbol=BWEB **** CHKP - Check Point Software $279.88 (+50.13)(+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. Some investors and media analysts still seem to be perplexed about what is going on with Nasdaq stocks and some of the old bellwether stocks in the NYSE. A look at one of our more profitable plays could provide some insight. This past week CHKP closed with a gain of over $50. That's a profit of more than 22%. If you consider the new high made on Friday at $295, the profit picture is closer to a gain of 29%. A profit of 29% in 7 days, how many of the "old economy stocks" perform that well even in the so-called good times? Fund managers, investors and traders have developed the need for "instant financial gratification." Many of their trades or investments are viewed with the "What have you done for me lately" kind of attitude. It's not that we endorse or disagree with this philosophy, but it is prevalent in today's market place. Traders now spend anywhere from hours to days in the current hot stock or sector and then roll out to jump into the next opportunity. The point here is that CHKP, for whatever perceived reason, has provided those wonderful opportunities, actually since its stock split in late January. CHKP is in the business of providing security for company's involved in the Internet. The Internet is here to stay and anyone that can make life easier for ISP's or Internet users will profit quite handsomely for their efforts. The real boost for CHKP came this week when they signed a deal with Telecom Italia. Telecom Italia is the leading provider of three key services telephone lines, wireless service and the Internet. With the broad market experiencing a choppy session on Friday, CHKP ended the day with a gain of +9.50, which supports the above theory. CHKP is way above its recent channel and may be forming a new one. Support is found at $275 and $263. If you have a current position move your stops up. Further moves higher would be viewed as a buying opportunity as CHKP doesn't appear to be running out of gas just yet. As we mentioned earlier this week, CHKP may have found new buyers after analysts at Prudential Securities upped their rating on CHKP from an Accumulate to a Strong Buy. Eric Zimits, an analyst at Chase Hambrecht and Quist also commented on the agreement with Telecom Italia, saying it was an important win for CHKP, adding that it will act as another distribution channel for Check Point. BUY CALL APR-270 KGE-DN OI= 36 at $40.50 SL=31.50 BUY CALL APR-280*KGE-DP OI=184 at $36.50 SL=28.50 BUY CALL APR-290 KGE-DR OI= 0 at $32.13 SL=25.00 Wait for OI! BUY CALL APR-300 KGE-DT OI=256 at $28.25 SL=22.00 SELL PUT APR-240 KGE-PH OI= 45 at $13.63 SL=17.50 (See risks of selling puts in play legend) Picked on Feb 27th at $205.63 P/E = 241 Change since picked +74.25 52-week high=$295.00 Analysts Ratings 8-6-2-0-0 52-week low =$ 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 = 836 K /charts/charts.asp?symbol=CHKP ********************************* 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=OINM ************************************************************** ******************************* CALLS CONTINUED IN SECTION FOUR ******************************* SEE DISCLAIMER IN SECTION ONE
The Option Investor Newsletter 3-12-2000 Sunday 4 of 5 ***************** CALLS - CONTINUED ***************** Telecom ******* ERICY - LM Ericsson Telephone $100.63 (-4.19)(P3wks +14.63) 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. And the roller coaster ride continues. Just when you thought you had recovered from losing your stomach on the first drop, ERICY has climbed to yet another falling point. But that's okay considering the price moves are not too harsh. They really have provided us with very nice entry points. When looking at a 10-day chart, the past three sessions have been trending up with slightly higher intraday highs and higher intraday lows. The final three hours of trading on Friday had ERICY building a steady intraday support at $100, hinting at an upwards move on decent volume. The fall from the $104 level really was both healthy and necessary for ERICY to advance. The gap opening on Friday, March 3rd had to be retraced, and the sooner the better. Remember, we are still up on this position and the past few days only represented entry opportunities into an uptrending stock. There has not been any real news this week for ERICY and trading has been technically driven. ERICY is a split play, even though it won't go ex-div until May. But with the vote to increase the number of authorized shares is coming at the end of the month, that little bit of news may start the real run. Use this time to pick good entry points and keep your seatbelts fastened, this ride isn't over yet. It isn't over yet, and there will be great opportunity to profit from ERICY. The real concern here is the overall market sentiment, and specifically, the NASDAQ. Next week has a slew of economic data coming out that could potentially be market moving. Use caution ahead of the reports. BUY CALL APR- 95 RQC-DS OI=3529 at $11.50 SL=8.50 BUY CALL APR-100 RQC-DT OI=2955 at $ 8.75 SL=6.50 BUY CALL APR-105*RQC-DA OI= 533 at $ 6.63 SL=4.75 BUY CALL APR-110 RQC-DB OI=1532 at $ 4.88 SL=3.25 Picked on Feb 15th at $86.38 P/E = 138 Change since picked +14.25 52-week high=$105.25 Analysts Ratings 8-11-4-0-0 52-week low =$ 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 **** ANDW - Andrew Corporation $28.56 (+1.06) Andrew Corporation is a global supplier of communications systems equipment and services. Major markets are wireless communications which includes cellular, government and military end use, antennas and complete earth stations for satellite communication systems, personal communications services, electronic radar systems, communication reconnaissance systems, connectivity devices for use in communication systems, and related ancillary items and services, and common carrier. When we initiated coverage of ANDW on Monday, March 6th, it was just getting ready to make that next move. ANDW had traded down to the low of the day at $26.25 where it found great support and the buying began. It quickly ran to the $29-$30 range where it traded for the duration of the day. We knew that ANDW would have to retrace that pop and it did so on Wednesday. That is a good sign to see when a stock covers that extreme fluctuations and finds support at a higher level than previous. Buyers stepped in and picked ANDW up at about $27.50. After that we were off to the races again but the most encouraging trading pattern occurred on Friday. ANDW consolidated for most of the day building a support level at about $29. Although it closed slightly below that level, volume was very light on the day as traders appeared to have called it an early weekend. As for the fundamentals of ANDW, their acquisition of Conifer Corp. and the hot "broadband"(I love that word!) market creates very positive implications. ANDW is also benefiting from an Asian recovery as 48% of their business comes from outside the U.S. Asia-Pacific highlights included large orders from customers in China, Taiwan, Australia and Japan. As for the patent infringement squabble with California Amplifier, ANDW seems to be well-positioned legally. We still feel that ANDW will continue its uptrend and test short-term resistance at $30.75. As for trading, continue to look for suitable and profitable entry points on the slight downturns. Be aware of your support and resistance levels. A bit more consolidation at $29 on Monday wouldn't be all that bad for the two week time horizon. Watch for increased volume which would indicate a more solid support. Don't forget your risk levels and stops. BUY CALL APR-25 AQN-DE OI=1045 at $5.50 SL=3.75 BUY CALL APR-30*AQN-DF OI=5345 at $2.94 SL=1.50 BUY CALL APR-35 AQN-DG OI= 480 at $1.44 SL=0.75 BUY CALL JUL-35 AQN-GG OI= 118 at $3.13 SL=1.75 Picked on Mar 05th at $26.38 P/E = 91 Change Since Picked +2.19 52-week high=31.25 Analysts Ratings 2-3-2-0-0 52-week low =11.00 Last Earnings 01/00 est= 0.18 actual= 0.21 Next Earnings 04/21 est= 0.15 actual= N/A Average Daily Volume = 1.95 mln http://OptionInvestor.com/charts/charts.asp?symbol=ANDW **** CMVT - Comverse Technology $233.63 (+6.13) Comverse makes enhanced telecommunications systems and is the 3rd largest firm in the voice mail market. Its TRILOGUE Infinity and Access NP product lines supply voice and fax messaging, automated personal assistant, and call answering services. TRILOGUE is marketed to telecom network operators and gives multiple telephone users access to integrated digital information and messaging services. Comverse's AUDIODISK and ULTRA lines are communications monitoring systems used by police and surveillance agencies, correctional institutions, emergency 911 services, financial institutions and tele-marketers. Third time's a charm. That's how we feel about CMVT and its ongoing battle with the $240 resistance level. Last week, CMVT tested this level twice, once on Tuesday where it briefly broke through to set a 52-week high at $247.75, and again on Thursday where it peaked and retreated. This time, however, things look better. The week ending March 3rd showed CMVT making a steady move to $230. Last week, there was a retracement of those previous gains, finding a bounce off $210. This was due to the fact that Tuesday, March 7th, CMVT announced a 2-1 split. A typical post-announcement depression. So what we have here is a bit of a split play until the ex-date of April 4th. The trading pattern on Wednesday was very encouraging as CMVT built a strong support at $225.50. And on Friday, it traded sideways, re-establishing a solid support level at $230 initially set on Monday. We view this as a positive basing for the next upmove on this split run. CMVT looks technically strong, having retraced its gaps and poising itself to move higher. It appears to be ready for another steady climb as it did the week ending March 3rd. With its sights set on resistance at $240 and support levels at $230 and $225.50, CMVT is due for a nice split run. Once again, CMVT is back on the play list. And we're not the only ones who see this stock as a lucrative one. Lehman Bros. upped Comverse's 12-month price target to $280 from $240 and raised its 2000 earnings estimates to $2.64 from $2.55. "Both revenues and backlog continue to show accelerating growth," the report said. They added that CMVT is poised to emerge as a key beneficiary of rapid growth in wireless data, warranting a premium valuation. Okay then, growth and wireless. That's all you had to say. By the way, U.S. Bancorp also raised its price target to $290. BUY CALL APR-230 CQZ-DF OI=136 at $25.00 SL=19.00 BUY CALL APR-240 CQZ-DH OI=277 at $20.25 SL=15.00 BUY CALL APR-250*CQZ-DJ OI= 67 at $16.63 SL=12.50 BUY CALL JUL-250 CQZ-GJ OI= 82 at $33.63 SL=25.00 Picked on Mar 12th at $233.63 P/E = 109.17 Change since picked +0.00 52-week high=$247.75 Analysts Ratings 10-3-0-0-0 52-week low =$ 49.94 Last earnings 03/00 est= 0.58 actual= 0.60 Next earnings 06-00 est= 0.58 versus= 0.48 Average Daily Volume = 1.15 mln http://OptionInvestor.com/charts/charts.asp?symbol=CMVT **** WCG - Williams Communications Group $57.88 (+3.63)(+4.75) WCG is 85% owned by Williams Company (WMB), a gas utility transmission company whose rights of way have been filled with ubiquitous strands of fiber optic cable. In 1985, WMB became the first energy company to harness its core competency as a builder of networks to enable competition in the communications industry Williams Communications is North America's only exclusively carrier- focused fiber-optic network and the largest independent source of end-to-end integrated business communications solutions-data, voice or video. Based in Tulsa, Okla., Williams Communications operates primarily in North America, with offices in Europe and Asia and investments in South America and Australia. Rolling up their sleeves to trade, then rolling them back down again before they all go to dinner (from their TV commercials), the Williams family hasn't done much for their stock price since we picked it up Tuesday. So how about getting out of the dessert trough and getting back to work?! Actually, this 100% IP digital network operator gave us a strong move on Friday, powering up $3 from its $46 opening. While we can't tell exactly why this happened, our best educated guess is that investors made an assumption that WCG might be a Deutsche Telecom acquisition candidate following US West's spurning of DT's offer. On that news, GBLX and LVLT moved up too. Aside from strong support at $53.50 displayed on Thursday morning's dip'n'bounce, there is good support at $55 too. Resistance is at $60. Target shoot to suit your risk profile, and look for the trend to continue up. However, beware that volume has fallen back over the last two days to match the ADV. So what? Well, the 10-day move from $40 came on volume of almost twice the ADV. WCG probably won't give us that breakout over $60 unless the volume picks up over the ADV again. Use the telecom index (TCX.X) as a guide too. If DT ceases to pursue any U.S. carrier, the sector may suffer. Recently, WMB announced deals to purchase 2200 miles of fiber in Michigan, Ohio, Indiana, Illinois and Wisconsin from SBC's Ameritech division. Similarly, they recently swapped network capacity with Sweden's Telia in a deal valued at $440 mln. As noted on Thursday, Lehman Bros. raised their price target to $62 from $52, while Solomon Bros. reiterated their Buy rating and raised their target to $70 from $46. CSFB was the first to notice two weeks ago when they raised their target from $38 to $65 and reiterated their Buy rating. Company specific news is non-existent. BUY CALL APR-55*WCG-DK OI=1578 at $8.00 SL=6.25 BUY CALL APR-60 WCG-DL OI= 670 at $5.75 SL=4.00 BUY CALL MAY-60 WCG-EL OI= 70 at $7.13 SL=5.25 Picked on Mar 07 at $59.00 P/E = N/A Change since picked -1.13 52-week high=$61.81 Analysts Ratings 2-3-1-0-0 52-week low =$23.25 Last earnings 02/00 est=-0.23 actual=-0.16 Next earnings 05-13 est=-0.42 versus= N/A Average Daily Volume = 986 K http://OptionInvestor.com/charts/charts.asp?symbol=WCG **** NOK - Nokia $215.00 (-5.00) Finnish Phone Firm, Nokia is the world's number one maker of wireless cellular phones, ahead of Motorola, Ericsson and Kyocera. In addition they make wireless networking equipment, PC monitors and workstations, digital satellite and cable network systems, and set-top boxes. However mobile phones make up 80% of their $19.8 bln in annual sales. Here's some background flavor of what this market leader in wireless handsets has recently accomplished. For starters, their 1999 market share grew to 30% from 23% in 1998. On February 1, NOK announced a 46% increase in previous year profits, a 2-mln- share repurchase, and a dividend increase. Net sales grew at 49%, which should be no surprise given their CEO's comments late in 1999 that they would meet their 2003 total revenue figures by the end of 2002 (cramming 3 yrs of income into 2 yrs). NOK blew out earnings as they reported a 7.5% surprise of $0.72 vs. estimates of $0.67. At the same time, NOK was keeping the Street's expectations in check by guiding analysts to a "30-40% growth" rate. That was then; this is now. Why make the play, you might ask? February 1st was also the day NOK announced it would split its shares 4:1 pending shareholder approval at a special meeting to be held on March 22nd. The actual split date would then follow roughly two weeks later, or the first week in April. Technically, we noted Thursday to look for support at $214 or dip'n'bounce from $207 as a possible entry following amateur hour. Unfortunately NOK gapped up to $217 at the open and range traded between $217 and $220 until 30 minutes before the close, where it took a nosedive (sure enough) down to $214, then recovered $1 in the final minute. Was than an entry? Pretty clever disguise if it was. With plenty of time to take a position before the split, consider the same approach for Monday. Has Nokia seen the light? There was a rumor that NOK may be nearing an agreement to purchase QCOM CDMA chips for use in its handsets. While NOK's CEO spoke to analysts in San Francisco on Friday, noting that QCOM's CDMA technology was "very important" to NOK, he stopped short of announcing the agreement. Because of the continued growing importance of CDMA in new wireless systems all over the world, we think the agreement will ultimately come if NOK wants to remain the dominant handset provider. Also noteworthy is that NOK announced a couple of weeks ago it will collaborate with AOL to bring instant messaging to the handset. Analysts have helped too. Thursday, Prudential Volpe Tech reiterated their Strong Buy with a price target of $230, citing that NOK currently trades at 10% discount to ERICY based on 2001 First Call EPS estimates. Friday, a Morgan Stanley analyst raised her price target from Euro 250 to 300. We don't know the conversion, but figure any upgrade in price from MSDW is good. The real play is in the split run. BUY CALL APR-210 NZY-DB OI=2147 at $19.00 SL=14.75 BUY CALL APR-220*NZY-DD OI=3297 at $14.13 SL=11.25 BUY CALL APR-230 NZY-DF OI=1186 at $10.25 SL= 7.75 BUY CALL JUL-220 NZY-GD OI= 710 at $27.88 SL=21.75 BUY CALL JUL-230 NZY-GF OI= 225 at $23.63 SL=18.50 Picked on Mar 09th at $214.63 P/E = 96 Change since picked +0.38 52-week high=$227.06 Analysts Ratings 16-9-1-0-0 52-week low =$ 67.69 Last earnings 02/00 est= 0.67 actual= 0.72 Next earnings 05-02 est=-0.61 versus= 0.48 Average Daily Volume = 3.45 mln http://OptionInvestor.com/charts/charts.asp?symbol=NOK **** CLRN - Clarent Corp. $169.25 (+31.25)(+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. The old attage of, what if you threw a party and nobody came, seemed be the story of the day for CLRN on Friday. On the bright side at least the uninvited "Sellers" that crashed our party on late Tuesday and early Wednesday didn't show up either. CLRN did see a little profit taking early in the day but really traded in a very narrow $6 range for most of the session. With only 265K shares changing hands, it's pretty difficult to move this stock in either direction. Here's the deal as we see it on CLRN. Since the end of February, CLRN has enjoyed a very nice run up, almost doubling in price. Investors that have bought stock on this rally have either taken some profit along the way and re-entered, or simply hung on and enjoyed the ride. Those that have shorted CLRN either have deep pockets, or have had their heads taken off on on the rally. CLRN seems to be at a crossroads as we closed the week, with few traders wanting to get out, yet few willing to lay down additional funds to jump in. The uncertainty may have come with the Nasdaq hitting the 5000 mark, and many viewing that as a psychological level, expecting traders to take profits. It's the "I'm not going to sell my positions until I see some else sell" kind of thinking. So we sit here stuck, waiting for company news or economic data to move the broad markets and CLRN. A move back through $165 or $160 with any momentum could spell trouble for our play. With the Dow and Nasdaq seeing weakness late in the day Friday, CLRN held its own pretty well. If CLRN can move higher, with average or better volume then the bulls may be back in the drivers seat. The only company news to come out this week on CLRN surfaced Tuesday with the announcement that they had signed a deal with a company named Insors, a Chicago based B2B integrated communications solutions provider. Insors plans to package Clarent's gateways and the Clarent Command Center with routers, hubs and other products, targeting Fortune 1000 companies. BUY CALL APR-145 KGQ-DI OI=17 at $45.88 SL=35.75 BUY CALL APR-150*KGQ-DJ OI=94 at $40.63 SL=31.50 BUY CALL APR-155 KGQ-DK OI=46 at $39.13 SL=30.25 SELL PUT APR-140 KGQ-PH OI=10 at $12.63 SL=16.25 (See risks of selling puts in play legend) Picked on Mar 02nd at $128.00 P/E = N/A Change since picked +41.25 52-week high=$178.50 Analysts Ratings 2-3-0-0-0 52-week low =$ 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 = 588 K http://OptionInvestor.com/charts/charts.asp?symbol=CLRN **** AFCI - Advanced Fibre Communications $79.81 (+14.31)(+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 wireline or wireless systems to smaller line-sized markets. Global clients include Alltel, Sprint, France Telecom, and Cable & Wireless Panama. AFCI experienced topsy-turvy trading patterns this week that kept us on our toes. But in all truth the intraday volatility really was an advantage. In four out of five trading sessions, this momentum driven stock has set record highs. Yet the continuous bounces off the 5 & 10 DMAs provided solid entry points. Friday's dynamic move following new Buy coverage by Syed Haider of Frost Securities however, swiftly launched AFCI beyond these technical indicators. The stock easily cracked tough resistance at $80 and pinnacled at $89.38, the latest 52- week record. AFCI did pullback in late day profit-taking, but held firm just a fraction under the $80 mark demonstrating it should manage these higher price levels into next week. Under the prevailing circumstances, entry points could be had near the 5-dma ($74.86). But let's not forget the obvious. If the momentum fizzles because traders find some other stock that fits their fancy, then there's nothing to drive the share price back up. Remember this play is based on building momentum dating back to the end of February. Initially there was a BoD meeting that may have sparked some interest, but more likely it was the slew of analysts' comments that ultimately propelled the share price to higher realms. Also, in the rumor-mill, traders are talking about a potential buyout of AFCI by CSCO. We have no idea if this is the case, but it may account for the strange movement and volume spikes. Currently there hasn't been any eminent news events to effect the share price. However there was a small piece about AFCI in a recent Robertson Stephens' report. AFCI was listed along with CIENA (CIEN) and Carrier Access (CACS) as smaller companies in the communications industry that have "the advantage of focus". Senior Analyst Paul Silverstein, also noted "Advanced Fibre, has a product that not only is extremely technologically capable but also has been out in the field for several years now" and "has the benefit of an impressive base of reference accounts". BUY CALL APR-75*AQF-DO OI=1016 at $17.75 SL=13.50 BUY CALL APR-80 AQF-DP OI= 932 at $15.50 SL=12.00 BUY CALL APR-85 AQF-DQ OI= 192 at $13.75 SL=11.00 Picked on Feb 27th at $57.44 P/E = 27 Change since picked +22.38 52-week high=$89.38 Analysts Ratings 5-8-1-0-0 52-week low =$ 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 = 2.11 mln http://OptionInvestor.com/charts/charts.asp?symbol=AFCI ************* Miscellaneous ************* SNE - Sony Corporation $243.75 (-55.69) If you like to be entertained, Sony has your fix. Its PlayStation home video game system alone accounts for about 11% of the electronics and entertainment giant's worldwide sales. As the #2 consumer electronics firm, SNE makes a host of products including cameras, DVD players, MiniDisc and Walkman stereo systems, computers, TVs, and VCRs. Rounding out the company's assets are Columbia TriStar and record labels Columbia and Epic. Looking for a catalyst for the dramatic drop in SNE shares this week? Look no further than rumors of a possible recall of their latest toy, the PlayStation2 (see news below). Let this be a lesson to all you parents out there. Never give your child a toy and then suggest you might have to take it away because it might not work right. With the heavily-hyped release of the new game unit just last Saturday, having to recall the estimated 980,000 sold in the first 3 days would be a major loss of face for the electronics giant. The degree to which SNE is dependent on sales of the PlayStation game series exacerbated the decline, as SNE investors jumped ship in droves on Thursday and Friday, finishing out a brutal week where SNE lost over 18%. Although this may seem like trying to catch the proverbial falling knife, we are actually setting up to profit from an over-blown news event. SNE shares reached their most recent peak in advance of the release of the new game system and the combination of that event occurring and the negative news immediately afterwards, has served to bring shares of SNE back down to where they are attractive again. Support on Friday seemed to be forming near $240, but don't push play until we see a confirming bounce accompanied by renewed buying volume. Just like many other ADRs, SNE tends to gap at the open, meaning it can run right over your stops. Take this into account when evaluating your risk tolerance. Denying rumors that the PlayStation2 game console will be recalled due to technical problems, the company did acknowledge there is a glitch and instructed customers with unsolvable problems to return their machines for a replacement. According to Ben Gurnsey, of Sony Computer Entertainment, the company has received some 340 phone calls so far from customers complaining about a glitch in the game system. The 8-megabyte memory card can apparently erase data that runs the system and the Digital Video Disk (DVD) player. BUY CALL APR-240 SMW-DH OI=176 at $26.00 SL=20.25 BUY CALL APR-250*SMW-DJ OI=223 at $20.88 SL=16.25 BUY CALL APR-260 SMW-DL OI= 49 at $16.13 SL=12.50 BUY CALL APR-270 SMW-DN OI=145 at $13.25 SL=10.75 Picked on Mar 9th at $259.06 P/E = 71 Change since picked -15.31 52-week high=$314.75 Analysts Ratings 1-1-0-0-0 52-week low =$ 89.25 Last earnings 01/00 est= N/A Next earnings 04-?? est= N/A Average Daily Volume = 464 K http://OptionInvestor.com/charts/charts.asp?symbol=SNE **** DSTM - Datastream Systems $43.44 (+11.44) Datastream Systems helps companies ensure plant efficiency through intelligent asset management and online industrial procurement. The company's products and services help a wide range of customers in 129 countries -- including more than 60% of the Fortune 500 -- increase equipment uptime, reduce maintenance, repair and operations costs and ultimately, streamline business procurement processes. The company has sold over 55,000 systems worldwide, accounting for more than 56% of the unit market share* in CMMS/EAM. The company's iProcure network, located at www.iProcure.com , provides procurement capabilities for the industrial market. This was a great week for DSTM as we picked this one on Thursday. With good strength, swelling option and stock volume, DSTM has made a strong and convincing move through its key psychological resistance level of $40. Friday's trading session gave DSTM an all-time high of $47.50, while it settled into a trading channel between $42 and $45. Although DSTM has been relatively quiet in the news, the company did put out a press release announcing the completion of an 18-month installation of the MP5i(TM) enterprise asset management(EAM) system at Slovnaft, the largest oil and gas company in Slovakia. The feat was that DSTM provided the only true Slovak-language product available that included local implementation and technical support. The industry's first fully Web-architected EAM system, MP5i features an open systems architecture that permits rapid integration with other software applications such as Enterprise Resource Planning (ERP),financial management, document management and production controls. So what does all this mean? Continual progress in the procurement process. I know it's a mouth full. This business-to-business progress provides a good outlook for the company and the industry. At a closer look, DSTM has made a strong and healthy move, not to mention a profitable one. While Friday's trading pattern showed a good basing at the $43.50 level, watch closely and assess DSTM's posture for entry points that are suited to your risk level. It is important to remember that we are all digesting the NASDAQ's strong move above 5K, so Monday will be telling as to trader sentiment. BUY CALL APR-30 DQK-DF OI= 118 at $15.75 SL=11.00 BUY CALL APR-35 DQK-DG OI= 275 at $13.75 SL=10.00 BUY CALL APR-40*DQK-DH OI=1032 at $10.75 SL= 7.75 Picked on Mar 09th $37.00 P/E = 101 Change since picked +6.43 52-week high=$47.75 Analysts Ratings 2-0-1-0-0 52-week low =$ 6.63 Last earnings 01/00 est= N/A actual= 0.12 Next earnings 04/27 est=-0.03 versus= N/A Average Daily Volume = 735 K http://OptionInvestor.com/charts/charts.asp?symbol=DSTM **** NITE - Knight/Trimark Group $49.56 (+3.13) Knight/Trimark, headquartered in Jersey City, NJ, is the parent company of Knight Securities, Trimark Securities and Knight Financial Products (formerly Arbitrade, LLC). Knight is the largest wholesale market maker in U.S. equity securities, and advertise with the tagline "where the trade gets done". The four-year old Knight/Trimark Group, as the largest destination for on-line trade executions, is the unseen "processing power" behind the explosive growth in on-line securities trading. The on-line broker sector caught fire Friday as MER, SCH, DLJ, AMTD, EGRP, and yes, NITE all made moves to the upside with each issue trading in excess of their ADV. Why might that be? If you have noticed the average daily volume increase on both the NYSE and especially the NASDAQ during the first two months of the year, and you guessed that means more trading commissions, you win the prize! Not only has NITE transacted a successively greater amount of shares in each of the last three months (7.2 bln, 10.2 bln, and 11.2 bln in December, January, and February, respectively), they have seen their market share grow from 19.6% of all NASDAQ transactions to 21.8% in the same period. Nothing new in this trend - just that analysts and news pundits decided to notice that on Friday. Technically, after a big jump from $40 to $50 in the first three days of March, NITE need a rest. And rest it did in a consolidation around $44. On Friday's news, volume jumped and so did the price (up to $50 resistance where we'd normally encounter resistance), but we think the news is strong enough to generate a new upward trend. Its next encounter with resistance will be at $55. The nice long tails on the last four days of candlestick charts also convey the strength of its $44 support, though NITE closed above its 10-dma (currently at $46) each of those days. $47 and $48 also provide mild intraday support. Target shoot to your comfort level and confirm market direction first. The news is contained above, but know too that Merrill Lynch upgraded NITE from Accumulate to Neutral and raised their FY00 estimate from $1.90 to $2.35 and FY01 from $2.25 to $2.95. Their long-term growth rate projection is raised from 23% to 25% (briefing.com). BUY CALL APR-45 QTN-DI OI=4669 at $8.00 SL=6.25 BUY CALL APR-50*QTN-DJ OI=4032 at $5.63 SL=3.75 BUY CALL APR-55 QTN-DK OI=2917 at $3.63 SL=2.00 BUY CALL JUL-50 QTN-GJ OI=1622 at $9.75 SL=7.25 BUY CALL JUL-55 QTN-GK OI=1142 at $8.00 SL=6.25 Picked on Mar 12th at $49.56 P/E = 31 Change since picked +0.00 52-week high=$81.63 Analysts Ratings 4-4-0-1-0 52-week low =$21.19 Last earnings 01/00 est= 0.34 actual= 0.54 surprise=59% Next earnings 04-19 est= 0.60 versus= 0.34 Average Daily Volume = 3.45 mln http://OptionInvestor.com/charts/charts.asp?symbol=NITE ********************** LEAPS by Mark Phillips ********************** Don't look now, but this week brings (Gasp!) a value play to the LEAPS section. We actually found a DJIA stock (AXP), so badly beaten up and with so many positives to consider, we just had to add it. At the risk of putting you to sleep, we'll restate the obvious; The NASDAQ closed above 5000 this week and the VIX managed to stay out of the danger zone. The VIX this week actually saw quite a bit of excitement, starting out the week at 21.37 and moving as high as 29.06 by Wednesday morning. This provided some very nice entry points, especially on our recent Leap of the Week picks (MSFT, GE, IBM). With both the CPI and PPI reports coming, the FOMC meeting just around the corner and the market entering earnings-warning season, volatility is likely to continue. The VIX continues to be an excellent bellwether for market tops (low 20's) and market bottoms (high 20's/low 30's), and Friday's close at 23.80 has the index moving toward the sell zone. Stake out your favorite LEAPs, watch for the VIX to move into the high 20's and be ready to strike as your entry criteria are satisfied. Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN EMC 11/07/99 JAN-2001 $ 80 ZOH-AP $15.38 $59.25 285.37% JAN-2002 $ 90 WUE-AR $19.00 $62.75 230.26% GPS 11/07/99 JAN-2001 $ 40 ZGS-AH $ 5.75 $13.00 126.09% JAN-2002 $ 45 WGS-AI $ 7.88 $15.38 95.24% IBM 11/07/99 JAN-2001 $100 ZIB-AT $13.63 $21.13 55.05% JAN-2002 $110 WIB-AB $16.50 $25.75 56.06% LU 11/14/99 JAN-2001 $ 80 ZEU-AP $12.88 $ 8.88 -31.07% JAN-2002 $ 90 WEU-AR $16.13 $13.63 -15.50% CSCO 11/14/99 JAN-2001 $ 80 ZCY-AP $19.13 $64.13 235.29% JAN-2002 $ 90 WIV-AR $22.00 $66.13 200.57% GE 11/21/99 JAN-2001 $150 ZGR-AU $16.25 $14.63 -10.00% JAN-2002 $150 WGE-AU $25.50 $25.50 0.00% NT 11/28/99 JAN-2001 $ 75 ZOO-AO $22.25 $58.75 164.04% JAN-2002 $ 75 WNT-AO $30.25 $68.13 125.21% VOD 12/05/99 JAN-2001 $ 50 ZAT-AJ $10.75 $20.50 90.70% JAN-2002 $ 50 WHV-AJ $15.00 $26.50 76.67% TXN 12/12/99 JAN-2001 $110 ZTN-AB $22.25 $82.38 270.22% JAN-2002 $120 WGZ-AD $28.50 $86.50 203.51% NXTL 12/19/99 JAN-2001 $ 90 ZFU-AR $23.50 $79.13 236.70% JAN-2002 $100 WFU-AT $27.25 $82.63 203.21% SUNW 12/19/99 JAN-2001 $ 80 ZJX-AP $17.63 $28.75 63.12% JAN-2002 $ 90 WJX-AR $22.00 $33.00 50.00% LU 01/09/00 JAN-2001 $ 50 ZEU-AJ $13.63 $23.88 75.23% MOT 01/09/00 JAN-2001 $125 ZMA-AE $31.13 $64.00 105.62% JAN-2002 $125 WMA-AE $41.50 $77.13 85.84% CY 01/16/00 JAN-2001 $ 40 ZSY-AH $ 9.13 $16.38 79.45% JAN-2002 $ 40 WSY-AH $12.63 $21.75 72.28% ERICY 01/30/00 JAN-2001 $ 65 ZYD-AM $19.75 $43.50 120.25% JAN-2002 $ 65 WRY-AM $27.00 $51.13 89.35% MSFT 01/30/00 JAN-2001 $100 ZMF-AT $17.63 $20.00 13.48% JAN-2002 $110 WMF-AB $21.63 $24.50 13.29% CS 02/13/00 JAN-2001 $ 30 ZCJ-AF $14.25 $22.25 56.14% JAN-2002 $ 30 WLJ-AK $18.25 $26.50 43.84% ICOS 02/20/00 JAN-2001 $ 40 ZIL-AH $10.25 $17.13 67.07% JAN-2002 $ 45 WJI-AI $12.13 $20.50 69.07% NSM 02/27/00 JAN-2001 $ 70 ZUN-AN $18.50 $20.00 8.11% JAN-2002 $ 70 WUN-AN $24.25 $27.00 11.34% 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 TXN - Texas Instruments $181.75 Nobody will look at the price on TXN LEAPS and make the mistake of calling them cheap. But given the growth the company is seeing (not to mention the appreciation in share price), one could make the argument that they are a bargain. The stock has pulled back a bit in the last week providing what may be the best entry point for the next couple of months. That's a bold statement and here's the beef. TXN is well into its usual split territory. Nothing has been announced yet, but a vote to authorize more shares is on the agenda at the Annual BoD Meeting on April 20. Then earnings will be released on the 24th - seems like the perfect time for a split announcement, don't you think. Looking at the incredible strength of the SOX (of which TXN is a huge component), we think there is plenty more upside and want to get in early before the great unwashed masses drive up the share price. TXN has been using the 5-dma (currently at $172.50) as support for this latest move (confirmed with the bounce at $168 last Thursday). Look to open new positions if TXN gets close to this level and bounces again. With the VIX moving south of 25 again, it wouldn't hurt to wait for a return to the upper 20's before jumping on board this one. BUY LEAP JAN-2001 $190.00 ZZI-AR at $35.38 BUY LEAP JAN-2002 $200.00 WGZ-AT at $48.75 http://OptionInvestor.com/charts/charts.asp?symbol=TXN New Plays AOL - America Online $58.75 Vindication arrives for those of you who said we were nuts to drop AOL from the play list 3 weeks ago. At the time, the king-of-ISPs was hitting new lows and showed no sign of stopping. Investors were dead-set on punishing both AOL and its merger partner TWX. Investors seem to be getting more comfortable with the idea of the merger, as AOL has not only put in a solid bottom at $50, it is actually starting to move back up. Now solidly above both the 10-dma and the 30-dma ($57.88 and $57.00 respectively), AOL now needs to show us it can stay above its 50-dma and the all-important 200-dma (converging near $60.75). Good support is found at $55 and a bounce near here would make for a great entry point. Barring further weakness in the issue, look to open new positions as AOL pushes through and closes above $61. BUY LEAP JAN-2001 $60.00 ZKS-AL at $14.00 BUY LEAP JAN-2002 $65.00 WAN-AM at $18.63 http://OptionInvestor.com/charts/charts.asp?symbol=AOL **** AXP - American Express $126.69 Investors in AXP have gotten spanked hard since the first of February and we want to be in position when they stop crying over their losses. Falling from the high-160's to near $120, AXP is near its 52-week lows and major support. Driven by interest rate fears and lack of enthusiasm for any DJIA stock, the decline in AXP looks to be overdone. Another factor to consider is AXP's move into the online world by investing in and signing a joint marketing agreement with Respond.com, an online shopping service. But wait, there's more! On January 24th, the company announced a 3:1 split that takes place on May 10th. In the meantime, we will have earnings coming up on April 24th. This looks like a good time to start searching for that entry point. We don't think it is very far off either. Consider new entries on any dip back near the $120 level. BUY LEAP JAN-2001 $130.00 ZXP-AF at $21.75 BUY LEAP JAN-2002 $140.00 WXP-AH at $28.00 http://OptionInvestor.com/charts/charts.asp?symbol=AXP **** Drops Q $53.25 Giving us a great entry point at $45, Q rocketed to almost $70 as speculation began to increase that the company would be pursuing a Trans-Atlantic merger. Investors gobbled up the shares and gave us a nice inflation of our option premiums. Unfortunately, the potential of a merger with Deutsche Telekom (DT) made US West feel like the jilted lover. Sparks flew throughout the week, with the net result being a drop in share price for all three companies. DT has withdrawn their offer, leaving Q and USW to kiss and make up, but investors don't seem interested in watching the ending to this saga. With all the news and rumors out in the open, we have also lost interest and will move on to more attractive plays. ***************** 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. **** PPG - PPG Industries $46.69 (-2.38)(+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. After four down days, PPG was due for a bit of a bounce. Although this out-of-favor stock managed to gain more than $1 while the DJIA had yet another negative day, the move lacked conviction, coming on less than two-thirds of the ADV. Value investors couldn't even challenge the 10-dma (up at $47.50), and this level should continue to pressure PPG. With little in the way of news to support the stock, any buying interest continues to be muted and half-hearted. Even the announcement last week that the company was creating an e-commerce unit elicited little more than yawns from investors. The only bright spot for PPG was the last hour on Friday, which saw increasing volume as price moved up fractionally - not exactly a screaming buy signal, but a note of caution for our play. With the DJIA still obeying its downtrending channel, cyclical stocks like PPG will likely have trouble moving higher. Also with interest rate fears alive and well and the release of the PPI/CPI numbers later this week, PPG should continue to struggle. Look to enter new positions on a southward bounce from the vicinity of the 10-dma, and enjoy the slide, even though it is a bit slow. BUY PUT APR-50*PPG-PJ OI=9 at $5.50 SL=3.75 low OI BUY PUT APR-45 PPG-PI OI=0 at $2.00 SL=1.00 Wait for OI! Average Daily Volume = 531 K http://OptionInvestor.com/charts/charts.asp?symbol=PPG **** UAL - United Airlines $47.19 (-3.25) United Airlines is the largest air carrier in the world and the largest majority employee-owned company, offering nearly 2,300 flights a day to 135 destinations in 27 countries and two U.S. territories. It is an industry innovator with break- throughs such as E-Ticket Service, Airport Gate Readers, The Chariot(SM) mobile airport podium, United Shuttle, and the introduction of the technologically advanced Boeing 777. The dive looks like it may be flattening out, but UAL is still in trouble. Managing to bounce on both Thursday and Friday at $46.25, this beaten-up airline stock could be putting in a near-term bottom. We have seen this same pattern recently, and each time it has eventually broken, yielding an even lower low. Keep in mind that the lows this week haven't been seen since late 1996. Why do we think UAL still has further to go before regaining control? It's the triple whammy of increasing fuel costs (crude oil is still near 9-year highs), the overall weakness in transport stocks, and the announcement last week that the airline is seeing reduced occupancy rates on its flights. Add to this the ongoing competition between all the domestic carriers, making it difficult to raise fares for fear of seeing occupancy rates drop even further. Continental did raise fares on Friday, but the failure of any other airline to follow their lead makes it unlikely that the fare increase will stick. Volume is still gliding along right at the ADV. If support at $45-46 fails to hold, UAL could drop all the way to $39-40 before catching another updraft. Look to enter new positions if UAL can test and confirm resistance at the 10-dma (currently $48.19). BUY PUT APR-50*UAL-PJ OI=157 at $4.75 SL=3.00 BUY PUT APR-45 UAL-PI OI=213 at $2.00 SL=1.00 Average Daily Volume = 781 K http://OptionInvestor.com/charts/charts.asp?symbol=UAL **** DD - DuPont $45.94 (-4.81)(-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. Boy, these DOW stocks get no respect, no respect at all, in the immortal words of Rodney Dangerfield. As the DOW continues to get beat up on every few days, DD has been right in the melee, taking its licks. But who's to complain with this put play, especially with the great entry points that the weak and waning buying provides. The bears are winning this fight. What is more encouraging for our put play was the increased volume in the final two hours of trading on Friday, sending the stock down from $47 to its close. So where do we go from here? The answer may be down. On Wednesday and Thursday, DD tested a short term support of $45.25, and on both occasions buying lifted the stock up for brief moments. We will have to see how DD handles a retest of that level. Maybe third time's a charm. We certainly are not convinced that DD is on its way to a trend reversal. And until we see anything that even resembles a trend reversal, we're stickin' with this put play. The temporary pops up to $47 and $48 have been nice entry points and represent short term resistance levels. Going into next week's economic data extravaganza, DD doesn't seem to have any positive overtones. We are talking about an "old economy" stock that has fallen out of favor with investors who have become disgruntled with DD's management, who could also be considered "old economy." Watch for the selling to continue on Monday and be patient, as investors continue to lose faith. Keep in mind that support, which is nothing but a trade or two away, is at $45.25. Watch closely in the early going on Monday to see if DD goes for it or if there is a brief stint of buying. If buying does happen early, that's a great chance to put on this position. If DD heads for that support and goes through, there's no telling how far and painful this fall will be for DD. BUY PUT APR-50 DD-PJ OI= 558 at $5.75 SL=4.00 BUY PUT APR-45*DD-PI OI=1177 at $2.75 SL=1.50 Average Daily Volume = 2.95 mln http://OptionInvestor.com/charts/charts.asp?symbol=DD **** EK - Eastman Kodak $54.00 (-5.63) Since essentially inventing consumer photography in 1880 with the introduction of the first roll film camera, Eastman Kodak Company has focused its energies on making picture-taking easy and accessible to everyone, amateur and professional alike. With a full line of consumer films and cameras, single-use cameras, consumer digital cameras, inkjet media, and supporting products and services, Kodak maintains that focus -- making it easy for everyone to get his or her pictures -- through all its offerings, regardless of technology. EK hit a new 52-week low $53.94 on Thursday and a look ahead suggests more of the same for EK. Let's look what is in EK future. 1st quarter earnings. Now in the past EK hasn't been shy about giving an earnings warning before the numbers actually come out. The current estimate is $0.93. If EK does come out with a warning as in the past, EK will fall quickly. You know how "old economy" stocks have been treated lately. Some investors might already be selling, afraid the writing is on the wall. That would explain the falling stock price. Earnings will be announced on April 16th (confirmed date with company). So a warning could come at any time. Resistance is set at the 10-dma, $57. Any run into that territory will be a great entrance. Be cautious with this play as we are just assuming the past will repeat itself, which might not be the case. Setting a new low, EK will be looking for a bottom, but a warning could give them a reason to find a bottom much lower. In the news EK's annual shareholders meeting is set for May 10th, 2000. Also they announced they are selling their Kodak Blue Plus Color charge-coupled device to manufacturers of digital cameras and other imaging devices. It is going to take a lot stronger news than that for cure this ailing stock. BUY PUT APR-55*EK-PK OI=1531 at $2.81 SL=1.25 BUY PUT APR-50 EK-PJ OI= 839 at $1.00 SL=0.00 High-Risk! Average Daily Volume = 1.62 mln http://OptionInvestor.com/charts/charts.asp?symbol=EK **** BVF - Biovail Corp $50.25 (-10.75) Biovail is a full-service pharmaceutical company that applies it proprietary drug delivery technologies in developing "oral controlled release products. Biovail applies it proprietary drug delivery technologies to successful drug compounds that are free of patent protection to develop both branded and generic oral controlled-released products. They also engage in the formulation, testing, registration, manufacturing, and direct marketing of these oral controlled-released products. Its branded antihypertensive Tiazac, accounts for most of its sales, but it does have high hopes for its generic version of hypertensive Cardizem CD, which is awaiting regulatory approval. Just when you think you found a winner in the Drug and Biotech sector someone steps in and pulls the plug. For now, that's the case with one of our new put plays. On Monday, Biovail received FDA approval for its novel once daily controlled release formulation of Diltiazem Hcl. Biovail has granted to Forest Laboratories, Biovail's license of Tiazac, an option to acquire the exclusive right to market the product in the United States. Should be good news right? Well it appeared to be as shares of BVF began to bounce off support at the $59 area. The next day Biovail announced it had received consent of a majority of the holders of its 10 7/8% Senior Notes, in connection with a debt tender offer. On the news traders began to dump shares of BVF stock. It only gets worse from here as Wednesday a U.S. District Judge in Florida found that Andrx Pharmaceutical's formulation of a generic version of Tiazac does not infringe on Tiazac's patent. Andrx had claimed that Biovail's patent was invalid, but the court said otherwise. Biovail announced Wednesday it would appeal the District Court decision. It's a mess and will get sorted out through court system in time. Traders didn't spend time worrying about who's right or wrong, they just continued to sell. The only thing that stopped BVF from continuing its decline Friday was the closing bell. Technically BVF is nearing a support area at $48 and could be getting a bit over sold. Oversold or not the volume was picking up at the end of the session on Friday, which would indicate there's more to come. BVF could bounce back up to between $52 and $54 but for now that would appear to provide some tough resistance. Further weakness should be viewed as an opportunity to buy puts. BUY PUT APR-60 BVF-PL OI= 1 at $ 7.75 SL=5.75 low OI BUY PUT APR-55*BVF-PK OI=54 at $ 4.38 SL=2.75 BUY PUT APR-50 BVF-PJ OI= 0 at $ 3.75 SL=2.25 Wait for OI! BUY PUT APR-45 BVF-PI OI=22 at $ 1.50 SL=0.75 Average Daily Volume = 414 K http://OptionInvestor.com/charts/charts.asp?symbol=BVF ************************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=OINM ************************************************************** ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
The Option Investor Newsletter 3-12-2000 Sunday 5 of 5 ************* COVERED CALLS ************* Charting Basics: Trading The Trend... There are a number of ways that charts can be used to improve the profit potential of a specific investing style or strategy. The first requirement of any successful trading system is to fully understand the tools that are used to generate the entry and exit signals. Technicians study charts to forecast the future direction and character of an issue and they evaluate pricing patterns to determine what investors are thinking about a particular stock or the market in general. History has shown that the same types of patterns, with similar indications and results, occur again and again in almost every kind of market. With that in mind, it's easy to understand why chart patterns are not a specific characteristic of industry or economy but rather they are more closely related to the traits and emotions of the investors themselves. In this case of the stock market, human nature is the primary influence on the price of any issue and the perception of future potential is what the chart actually reflects. To illustrate that point, a prominent analyst suggested that an experienced technical trader could be taken back in time to a different era; confronted with stocks in a foreign system; and once familiar with the typical behavior of the market, he would perform just as well as someone who traded the issues on a daily basis. The reason of course, is there is no black magic involved in technical analysis. Identifying chart patterns is a simple and straight-forward process that requires nothing more than a basic knowledge of common indicators and their historical implications. The foundation for all chart patterns is a trend. The majority of professional traders purchase stocks after a primary up-trend is established. The reason is simple; the character of a major trend can last for months or even years without any significant interruption. A study of market-leading issues suggests that a stock in a well-defined movement will often double or triple in value before a substantial correction occurs. The key then, is to identify stocks with major trends; open positions that benefit from the current directional movement; and remain in, and add to those positions until there is evidence that the character of the trend is threatened. Obviously this is easier said than done, since every stock undergoes daily fluctuations and is affected by the overall movement of the market. There is no specific set of rules or guidelines that will prevent loss and guarantee profit but it is possible to create a system of proven techniques to maximize your trading success. The first step in any structured approach is to define your investing objectives and trading philosophy. With these principles in mind, you can create a list of operational rules and construct specific strategies that meet your criteria for risk/reward. The concept of money management; profit and loss limits along with techniques for initiating, adjusting, and closing positions will help you build an arsenal of tactics to promote successful trading. In the end, you will acquire a number of methods based on observation and experience which will help you identify profitable entry and exit opportunities and exploit those situations that require quick and precise judgment. With hard work and determination, you will eventually be able to correctly assess the market's condition; implement a profitable strategy in a timely manner; and without regard to human nature and emotion, manage the position for maximum potential. Good Luck! SUMMARY OF PREVIOUS PICKS (March options expire Friday) 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 8.38 MAR 5.00 1.06 *$ 0.72 19.0% ASPX 12.56 15.13 MAR 10.00 3.25 *$ 0.69 10.7% HEB 11.94 17.69 MAR 10.00 2.69 *$ 0.75 9.1% ANIC 6.94 7.63 MAR 5.00 2.31 *$ 0.37 9.0% PTEK 8.94 9.19 MAR 7.50 2.13 *$ 0.69 8.8% TSEM 21.00 35.06 MAR 17.50 4.63 *$ 1.13 7.8% New Symbol FSII 17.81 22.88 MAR 15.00 4.25 *$ 1.44 7.7% IMNR 15.75 15.63 MAR 10.00 6.38 *$ 0.63 7.6% GZTC 29.13 33.38 MAR 22.50 8.38 *$ 1.75 7.3% AND 8.88 14.38 MAR 7.50 1.94 *$ 0.56 7.0% SCTC 22.31 24.00 MAR 20.00 3.75 *$ 1.44 6.7% TLXN 20.78 25.75 MAR 17.50 4.00 *$ 0.72 6.2% SMSC 14.25 14.94 MAR 12.50 2.25 *$ 0.50 6.0% REMC 26.38 54.00 MAR 22.50 5.00 *$ 1.12 5.9% PCMS 23.06 23.19 MAR 17.50 6.38 *$ 0.82 5.5% MCRE 15.50 30.88 MAR 12.50 3.88 *$ 0.88 5.5% SIII 15.00 23.38 MAR 12.50 3.38 *$ 0.88 5.5% EPIC 9.56 8.41 MAR 7.50 2.50 *$ 0.44 5.4% WRLS 28.00 23.75 MAR 17.50 11.13 *$ 0.63 5.4% ELIX 21.75 23.00 MAR 17.50 4.88 *$ 0.63 5.4% RNBO 30.88 43.00 MAR 25.00 7.00 *$ 1.12 4.1% ITIG 43.44 43.88 MAR 30.00 14.25 *$ 0.81 4.0% MSGI 24.88 19.75 MAR 20.00 6.00 $ 0.87 4.0% GELX 17.81 21.13 MAR 15.00 3.75 *$ 0.94 3.6% XICO 26.13 21.69 MAR 22.50 4.75 $ 0.31 2.1% UBET 6.25 4.75 MAR 5.00 1.63 $ 0.13 2.0% DRMD 12.75 8.75 MAR 10.00 3.38 $ -0.62 0.0% ESCM 17.50 14.81 APR 15.00 4.38 $ 1.69 8.0% BIDS 7.13 8.38 APR 5.00 2.63 *$ 0.50 6.9% AND 16.13 14.38 APR 12.50 4.75 *$ 1.12 6.1% COB 14.13 17.63 APR 10.00 5.00 *$ 0.87 5.9% THDO 15.75 15.00 APR 12.50 4.25 *$ 1.00 5.4% EPTO 14.00 16.94 APR 10.00 4.75 *$ 0.75 5.0% MUEI 14.50 19.25 APR 12.50 2.81 *$ 0.81 4.3% *$ = Stock price is above the sold striking price. Comments: P-Com (PCMS) has orchestrated a brisk about-face! Standard Micro (SMSC) bounced-back, recovering from its earnings warning. There are several negative divergences, so watch the issue closely. Duramed (DRMD) continues to languish after an earnings warning and has moved below its 150 dma. Evaluate holding the position as several technical indicators have triggered a sell signal. Youbet.Com (UBET) is still suffering from a post-earnings drop but April options remain favorable for those with a long-term outlook. Xicor (XICO) has stagnated and it is overbought. The April $20 calls offer a favorable roll-down to a cost basis of $18.82 (after buying back the March $22.50 for $0.94), for those who desire more protection. Marketing Services (MSGI) is testing its 150 dma near $19.69 and breaking below that price would be a bearish move; but it is oversold in the short-term. ********* 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 KOSP 20.31 MAR 17.50 KQW CW 3.25 9 17.06 2.6% 2.6% EPTO 16.94 APR 12.50 QTP DV 5.25 812 11.69 6.9% 6.9% FSII 22.88 APR 20.00 FQH DD 4.75 217 18.13 10.3% 10.3% IARC 27.63 APR 22.50 IHU DX 7.75 63 19.88 13.2% 13.2% POSS 12.56 APR 10.00 UPQ DB 3.25 322 9.31 7.4% 7.4% TERA 8.81 APR 7.50 QIP DU 2.00 1069 6.81 10.1% 10.1% TLXN 25.75 APR 20.00 TNQ DD 7.13 220 18.62 7.4% 7.4% Sequenced by Return Called (& Not Called) Stock Last Call Strike Option Last Open Cost Return Return Symbol Price Month Price Symbol Bid Intr Basis Called Unchanged KOSP 20.31 MAR 17.50 KQW CW 3.25 9 17.06 2.6% 2.6% IARC 27.63 APR 22.50 IHU DX 7.75 63 19.88 13.2% 13.2% FSII 22.88 APR 20.00 FQH DD 4.75 217 18.13 10.3% 10.3% TERA 8.81 APR 7.50 QIP DU 2.00 1069 6.81 10.1% 10.1% POSS 12.56 APR 10.00 UPQ DB 3.25 322 9.31 7.4% 7.4% TLXN 25.75 APR 20.00 TNQ DD 7.13 220 18.62 7.4% 7.4% EPTO 16.94 APR 12.50 QTP DV 5.25 812 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) March Candidates KOSP - KOS Pharmaceuticals $20.31 *** Up, Up and Away! *** KOS Pharmaceuticals is engaged in the development of proprietary prescription products for the treatment of certain chronic cardiovascular and respiratory diseases. Sales of their lead product Niaspan (for the treatment of mixed-lipid disorder and recently approved for the treatment of low HDL cholesterol) grew 46%, the seventh consecutive quarter of double-digit growth. Kos remains on schedule for filing its NDA with the FDA for its second internally-developed product, Nicostatin(TM). Kos started a stage II climb in January after announcing that the VA has added Niaspan® to its national formulary for cholesterol therapy. At the same time, Kos announced that with Medi-Cal and TennCare acceptance of Niaspan, the drug is now reimbursable by the Medicaid programs of all 50 states. We favor the support provided by the consolidation area in February, which is near our cost basis. MAR 17.50 KQW CW Bid=3.25 OI=9 CB=17.06 RC=2.6% RNC=2.6% Chart = /charts/charts.asp?symbol=KOSP April Candidates EPTO - Epitope $16.94 *** 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 quarter's 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. Another week offers another entry point in a very bullish issue. APR 12.50 QTP DV Bid=5.25 OI=812 CB=11.69 RC=6.9% RNC=6.9% Chart = /charts/charts.asp?symbol=EPTO **** FSII - FSI International $22.88 *** Stage II *** FSI is a leading global supplier of processing equipment used at key production steps to manufacture microelectronics, including semiconductor devices and thin film heads. The company develops, manufactures, markets and supports products used in the technology areas of microlithography, surface conditioning and spin-on dielectrics. FSI recently agreed to add a two-year independent director evaluation (TIDE) provision to its Share Rights Plan as per EQSF Advisers request, to further shareholders' interests. Recent news includes several new orders and an upgrade by Banc of America to a "buy" from "market perform." The chart remains in a strong stage II climb with the February high providing near-term support. Our cost basis offers a favorable entry point. APR 20.00 FQH DD Bid=4.75 OI=217 CB=18.13 RC=10.3% RNC=10.3% Chart = /charts/charts.asp?symbol=FSII **** IARC - Information Architects $27.63 *** Bye Y2K, Hello B2B *** Information Architects, formerly Alydaar Software, has transitioned from a Y2K debugger to establishing an Internet services business providing management consulting, design, development and deployment for enterprise information portals using the Metaphoria Framework suite of products. They also provide software conversion services, such as language translations and migrations. The recent news includes several new partnerships, including Xceed and elcom; a successful new B2B application; as well as new coverage. Investors obviously were thrilled with the strategic change and have taken IARC into "blue sky" territory. We favor a cost basis below the 30 dma (near the February consolidation area) in a hot issue that is somewhat overextended. APR 22.50 IHU DX Bid=7.75 OI=63 CB=19.88 RC=13.2% RNC=13.2% Chart = /charts/charts.asp?symbol=IARC **** POSS - Possis Medical $12.56 *** FDA Approval Next Week? *** Possis develops, manufactures and markets pioneering medical devices for the large and growing cardiovascular and vascular treatment markets. Its primary product, the AngioJet Rheolytic Thrombectomy System, is marketed in the US for blood clot removal from coronary arteries, coronary bypass grafts and AV dialysis access grafts. The post earnings drop in February looked worrisome but managed to abate at the 30 dma. Recently, Possis received fresh capital ($15 Million) in a private placement, which should help fund its AngioJet stroke clinical trials. With a mid-March FDA AngioJet peripheral artery approval expected, Chesapeake Securities Research issued a "time sensitive strong buy" recommendation and 12 month price target around $25. Friday's jump in price on heavy volume suggests current momentum could take POSS above the February high. We favor a cost basis near long-term support on this very speculative issue. APR 10.00 UPQ DB Bid=3.25 OI=322 CB=9.31 RC=7.4% RNC=7.4% Chart = /charts/charts.asp?symbol=POSS **** TERA - Tera Computer $8.81 *** Tera buys Cray! *** Tera Computer designs, builds and sells high-performance general purpose parallel computer systems. Tera says its Multithreaded Architecture system represents the next wave in supercomputer technology because of its unique ability to provide high- performance, broad applicability and ease of programming in a single system. What is the best way to get rid of a competitor? Osmosis! On March 2, Tera announced it is buying most of Silicon Graphics' Cray supercomputer business in a deal valued at less than $100 million. Tera will assume ownership of Cray's primary assets, including its supercomputer product line, the Cray brand name, existing service contracts, future Cray vector products and three facilities in Chippewa Falls, Wis. This is a new venture for the much smaller Tera (soon to be called Cray) which should help broaden its potential customer base as the company is on the verge of full scale production of its MTA supercomputer. A cost basis below the 50 dma offers reasonable speculation now that the post-announcement drop appears to have ended. APR 7.50 QIP DU Bid=2.00 OI=1069 CB=6.81 RC=10.1% RNC=10.1% Chart = /charts/charts.asp?symbol=TERA **** TLXN - Telxon $25.75 *** Approaching Blue Sky Territory *** Telxon is a leading global designer and manufacturer of wireless and mobile information systems for vertical markets. The company integrates advanced mobile computing and wireless data communica- tion technology with a wide array of peripherals, application- specific software and global customer services for its customers. Telxon recently announced that it has installed a wireless mobile price verification and inventory management system for Belk, the nations largest privately owned department store chain. On Friday, Ames Department Stores announced that it will become the first major retailer to roll out Telxon's wireless LAN-based telephony system. These orders combined with an exploration into the Asian market, bode well for Telxon's future and investors appear to agree. The chart shows Telxon somewhat overbought in the short- term, which suggests a cost basis near support is a prudent and conservative entry point. APR 20.00 TNQ DD Bid=7.13 OI=220 CB=18.62 RC=7.4% RNC=7.4% Chart = /charts/charts.asp?symbol=TLXN ************************* 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. ***ONE WEEK TO GO*** Stock Stock StrikeOption Option Margin %% Support Symbol Price Price Symbol Price At 25%Return Level Comments VRTY 55.38 50 YQV-OJ 1.75 1385 13% 48 LYNX 71.50 70 ULX-ON 4.88 1788 27% 68 HIGH RISK SNDK 125.81 120 SWF-OD 6.38 3145 20% 105 ENTRY POINT? HIFN 85.00 80 HXQ-OP 3.38 2125 16% 80 AMCC 291.00 280 AZV-OP 15.63 7275 21% 275 ELON 90.50 85 EUL-OQ 4.50 2263 20% 85 RIMM 135.00 125 RUP-OE 3.75 3375 11% 130 SCMR 169.00 165 QSM-OM 7.50 4225 18% 165 SCMR 169.00 160 QSM-OL 5.88 4225 14% 165 HGSI 172.38 160 HBW-OL 5.50 4310 13% 170 WAIT FOR BOUNCE PPRO 123.63 115 PPU-OC 4.88 3091 16% 120 CRA 203.00 185 CKA-OQ 7.38 5075 15% 200 CONFIRM FIRST QLGC 179.13 170 QOV-ON 6.50 4478 15% 180 CONFIRM FIRST QLGC 179.10 175 QOV-OO 8.75 4478 20% 180 CONFIRM FIRST PLCM 116.56 110 QHD-OB 3.13 2914 11% 110 MERQ 115.00 110 RBF-OB 3.75 2875 13% 112 VPHM 95.00 90 HPU-OR 4.50 2375 19% 91 FIBR 139.00 125 QBD-OE 5.13 3475 15% 130 FFIV 115.75 110 FQL-OB 3.75 2894 13% 112 CONFIRM FIRST SEBL 163.00 155 SGW-OK 4.13 4075 10% 162 IMNX 213.00 200 QUV-OT 6.88 5325 13% 210 GERN 58.00 55 GQD-OK 6.38 1450 44% 52 CONFIRM FIRST ENZ 87.44 85 ENZ-OQ 4.25 2186 20% 87 CONFIRM FIRST ENMD 73.25 70 QMA-ON 3.25 1831 18% 73 CONFIRM FIRST AFCI 79.75 75 AQF-OO 2.19 1994 11% 75 RHAT 71.00 65 RCV-OM 2.13 1775 12% 68 CONFIRM FIRST GWRX 51.69 45 GWU-OI 1.69 1292 13% 45 GWRX 51.69 50 GWU-OJ 3.63 1292 28% 45 DITC 117.50 110 DUI-OB 6.50 2938 22% 115 PUMA 187.00 180 YCQ-OP 7.00 4675 15% 180 PUMA 187.00 175 YCQ-OO 5.13 4675 11% 180 FNSR 145.00 140 FQY-OH 6.25 3625 17% 141 DIGL 132.75 120 DGU-OD 3.13 3319 9% 125 DIGL 132.80 125 DGU-OE 7.00 3320 21% 125 DIGL 132.80 130 DGU-OF 9.38 3320 28% 125 SPYG 81.38 75 YQG-OO 3.38 2035 17% 80 VERT 272.00 260 URE-OL 8.00 6800 12% 260 ADIC 90.00 85 QXG-OC 2.94 2250 13% 90 MMCN 55.00 50 CMQ-OJ 1.31 1375 10% 53 MMCN 55.00 55 CMQ-OK 4.00 1375 29% 53 MLNM 235.00 230 QMR-OU 9.50 5875 16% 230 BVSN 259.00 240 BZV-OU 8.13 6475 13% 255 SPLITS 3:1 TUES ARBA 305.00 300 RBU-OT 9.13 7625 12% 300 SPLIT COMING ARBA 305.00 320 RBU-OD 19.38 7625 25% 300 BET ON A REBOUND? RBAK 386.00 380 BYU-CP 15.50 9650 16% 375 HIGH RISK AFFX 257.00 250 FUE-OJ 10.63 6425 17% 250 BRCD 331.00 320 GUF-OD 9.00 8275 11% 330 SPLIT COMING JNPR 282.00 270 JUY-ON 9.25 7050 13% 272 MRVC 184.50 175 RVY-OO 7.63 4613 17% 182 VIGN 294.00 280 QVG-OP 7.50 7350 10% 275 INCY 203.25 200 NGQ-OT 11.50 5081 23% 201 BOTTOM FISHING NTAP 237.00 230 ULM-OF 8.25 5925 14% 220 ARBA AGGRESSIVE SELL PUT MAR-320 RBU-OD at $19.38 = 25% MODERATE SELL PUT MAR-300 RBU-OT at $ 9.13 = 12% CONSERVATIVE SELL PUT MAR-280 RBU-OP at $ 3.13 = 04% NTAP AGGRESSIVE SELL PUT MAR-230 ULM-OF at $8.25 = 14% MODERATE SELL PUT MAR-220 ULM-OD at $4.75 = 08% CONSERVATIVE SELL PUT MAR-220 ULM-OB at $2.38 = 04% RHAT AGGRESSIVE SELL PUT MAR-70 RCV-ON at $4.13 = 23% MODERATE SELL PUT MAR-65 RCV-OM at $2.13 = 12% DIGL AGGRESSIVE SELL PUT MAR-130 DGU-OF at $9.38 = 28% MODERATE SELL PUT MAR-125 DGU-OE at $7.00 = 21% CONSERVATIVE SELL PUT MAR-120 DGU-OD at $3.13 = 09% For a Spread Sheet version of this information click here: http://www.OptionInvestor.com/downloads/hpmar-12.xls ***************** NAKED PUT SECTION ***************** Option Trading Strategies; Spreads and Combinations... Spread trading is a complex and often misunderstood subject that usually requires a great deal of study to understand completely. The trader who perseveres will find there is a simple logic to most of the concepts. These knowledgeable traders earn the right to have less money at risk and greater potential for profits. As one becomes familiar with the components of combination positions, he can begin to formulate potentially profitable strategies. One of the primary considerations for most traders is risk versus reward. In the derivatives market, buyers of options have limited risk and unlimited reward while sellers of options have limited reward and unlimited risk. With this single perspective in mind, it's obvious why most retail traders simply buy options. Most investors would never consider a position with unlimited risk and yet few understand that almost any trade that isn't fully hedged entails enormous speculation. A violent adverse move, which does not allow time for adjustments, can quickly reduce any position to a fraction of its initial value. With this in mind, it's hard to understand why novice traders would take outright long or short positions under any circumstances. The only possible explanation is that they believe the probability of catastrophic loss is very small and the potential for profit is worth the risk. Fortunately, most option traders are aware that the risk/reward characteristics of a position are not the only considerations. Equally important is the probability of profit or loss. When a trader evaluates a prospective position, the likelihood of each possible outcome must be factored into the assessment. Is the reward, even a limited one, sufficient to offset the risk? In option trading, risk comes in many forms. Luckily, there are also many ways to trade. To increase the probability of profit, the majority of successful option traders engage in some form of combination, position or spread trading. These methods are simply a way of enabling an option trader to take advantage of miss-priced options, while at the same time reducing the effects of short-term changes in market conditions so that he can safely hold an option position to maturity. While there is no perfect position for the option trader, successful investors learn to hedge their risk in as many different ways as possible, thereby minimizing the effects of volatile and adverse markets. Discover the benefits of spread and combination trading in Larry McMillan's book, "McMillan on Options" and "Option Volatility & Pricing; Advanced Trading Strategies and Techniques" by Sheldon Natenberg, both available in the OIN bookstore. Of course you can always visit our SPREADS/COMBINATIONS section, on the home page at: http://members.OptionInvestor.com/combos/index.asp Good Luck! *** 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 (March options expire Friday) Stock Price Last Put Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return EXLN 22.13 26.69 MAR 17.50 0.56 *$ 0.56 24.4% ESPI 12.75 14.44 MAR 10.00 0.50 *$ 0.50 23.7% ELIX 21.00 23.00 MAR 17.50 0.50 *$ 0.50 20.1% SCTC 24.38 24.00 MAR 17.50 0.63 *$ 0.63 16.6% PLNR 15.88 16.00 MAR 12.50 0.25 *$ 0.25 15.8% SCTC 25.00 24.00 MAR 20.00 0.38 *$ 0.38 15.3% WSTL 25.88 39.00 MAR 17.50 0.69 *$ 0.69 13.2% ANET 12.69 13.88 MAR 10.00 0.25 *$ 0.25 13.0% TSEM 27.25 35.06 MAR 22.50 0.38 *$ 0.38 12.6% WPZ 15.31 10.19 MAR 10.00 0.38 *$ 0.38 12.4% New Symbol ZONA 7.69 10.88 MAR 5.00 0.31 *$ 0.31 12.1% BCRX 32.75 29.88 MAR 25.00 0.38 *$ 0.38 11.9% WSTL 31.50 39.00 MAR 22.50 0.56 *$ 0.56 11.8% XICO 26.13 21.69 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 38.38 MAR 20.00 0.75 *$ 0.75 11.2% MSGI 23.75 19.75 MAR 17.50 0.38 *$ 0.38 10.7% TSEM 20.13 35.06 MAR 15.00 0.56 *$ 0.56 10.6% New Symbol CRUS 20.31 21.88 MAR 15.00 0.38 *$ 0.38 9.6% PTEC 20.63 27.38 MAR 15.00 0.63 *$ 0.63 9.6% RWAV 10.56 10.38 MAR 7.50 0.31 *$ 0.31 9.3% PGEX 23.13 20.94 MAR 17.50 0.50 *$ 0.50 8.5% IDTC 31.50 34.63 MAR 20.00 0.50 *$ 0.50 8.3% SKYC 28.63 40.31 MAR 20.00 0.44 *$ 0.44 8.0% PILT 33.94 49.50 MAR 22.50 0.63 *$ 0.63 7.4% EXLN 23.00 26.69 MAR 15.00 0.31 *$ 0.31 7.1% MSGI 24.88 19.75 MAR 17.50 0.44 *$ 0.44 7.1% PTEC 23.06 27.38 MAR 17.50 0.38 *$ 0.38 6.6% AXTI 31.94 40.50 MAR 17.50 0.50 *$ 0.50 6.3% RNBO 30.88 43.00 MAR 22.50 0.38 *$ 0.38 5.0% *$ = Stock price is above the sold striking price. Comments: Marketing Services (MSGI) is testing its 150 dma near $19.69 and should be watched closely. It is oversold in the short-term. It remains to be seen if Pacific Gateway (PGEX) can breakout above its 150 dma and reverse the long term downtrend. The expected sell-off (options aren't that expensive without a reason) has begun for Cell Pathways (CLPA). Monitor the position closely. Netrix (NTRX) has entered a consolidation phase forming an ascending triangle, with probability favoring an upside breakout. Xicor (XICO) has stagnated and is technically overbought. April calls remain favorable for those with a long-term outlook who wish to own the issue (though the chance may not present itself). The news that WorldPages.com (WPZ) is buying Interactive Media Services didn't please investors and dropped the stock to its 150 dma. WPZ traded below $10 on Friday though it did manage to close at the high (Hammer bottom?). Watch this issue closely as the current oversold condition could lead to a rally and a favorable early exit. Closed: Duane Reade (DRD) offered a favorable exit on the oversold rally this week for a small profit ($0.25 on Friday's down-day prices). NEW PICKS Sequenced by Company Stock Last Put Strike Option Last Open Cost ROI Opt Symbol Price Month Price Symbol Bid Intr Basis Expired CONV 12.81 APR 10.00 UVC PB 0.56 0 9.44 17.9% ISIP 24.00 APR 15.00 QIS PC 0.75 214 14.25 13.5% MADGF 14.25 APR 10.00 MQE PB 0.50 0 9.50 14.9% OXGN 23.50 APR 17.50 QYO PW 0.50 64 17.00 9.6% PCMS 23.19 APR 15.00 PQP PC 0.81 117 14.19 14.9% SCUR 26.50 APR 17.50 UQU PW 0.75 52 16.75 12.4% ZONA 10.88 APR 7.50 NQZ PU 0.38 20 7.12 14.9% Sequenced by ROI Stock Last Put Strike Option Last Open Cost ROI Opt Symbol Price Month Price Symbol Bid Intr Basis Expired CONV 12.81 APR 10.00 UVC PB 0.56 0 9.44 17.9% MADGF 14.25 APR 10.00 MQE PB 0.50 0 9.50 14.9% PCMS 23.19 APR 15.00 PQP PC 0.81 117 14.19 14.9% ZONA 10.88 APR 7.50 NQZ PU 0.38 20 7.12 14.9% ISIP 24.00 APR 15.00 QIS PC 0.75 214 14.25 13.5% SCUR 26.50 APR 17.50 UQU PW 0.75 52 16.75 12.4% OXGN 23.50 APR 17.50 QYO PW 0.50 64 17.00 9.6% Company Descriptions OI-Open Interest CB-Cost Basis or break-even point ROI-Return On Investment **** CONV - Convergent Communications $12.81 *** Own This One! *** Convergent Communications is a rapidly growing national provider of single-source data and voice communications systems, services, and solutions. Convergent supplies the networks and provides the services such as design, installation, management, and monitoring of those networks. They specialize in systems that allow small and medium businesses to control their communications without having to own and support the infrastructure. CONV supplies the data, voice and other equipment in exchange for an agreement to manage, monitor and maintain that network. The company now has 87 clients in four markets, amounting to long-term contracts of $45 million, up from $15.2 million a year ago. That's excellent growth for a small company as they plan to expand into twelve additional markets in 2000. APR 10.00 UVC PB Bid=0.56 OI=0 CB=9.44 ROI=17.9% Chart = /charts/charts.asp?symbol=CONVCONV **** ISIP - Isis Pharmaceuticals $24.00 *** Biotech Boom! *** ISIS Pharmaceuticals is engaged in the discovery and development of a new class of drugs based on antisense technology. ISIS believes with antisense technology that it can design drugs that are safer and more effective than traditional drugs. They combine an expertise in molecular and cellular biology with antisense drug discovery techniques to design drugs to fight a wide range of diseases, including infectious and inflammatory diseases and cancer. In addition, they have five antisense compounds in human clinical trials and other compounds in preclinical development. Isis soared recently after the company reported it received 20 new U.S. patents related to genomics. The patents cover the use of antisense inhibitors against genes involved in cancer, allergy and auto-immune disease and give them an opportunity to collect fees and possibly royalties for the use of antisense as a target validation. The stock is also benefiting from the current surge in biotech. Our cost basis appears to be a sensible entry point. APR 15.00 QIS PC Bid=0.75 OI=214 CB=14.25 ROI=13.5% Chart = /charts/charts.asp?symbol=ISIP **** MADGF - Madge Networks $14.25 *** Networking Is Hot! *** Madge Networks N.V. is a global managed network services and product solutions provider, working in the support of enterprises deploying mission-critical Internet applications. They specialize in managed network services, web/application hosting, enterprise LAN products and video networking. Madge's goal is to optimize the implementation of enterprises' voice, video and data networks with the ultimate aim of convergence of all networking needs on Internet Protocol solutions. MADGF offers these services to many companies in the financial services, media and publishing sectors. MADGF recently debuted the Smart GigIntegrator, a high performance Gigabit backbone-class switch, and the Smart WorkStream 100Mbps workgroup switch along with a plan to offer Internet broadcasters and advertisers delivery of targeted banner ads and rich media advertising over the Madge Broadcast Network. Also completed a $30 million private placement to institutional investors, the proceeds of which will be used fund the expansion of Madge.web. A great price for a fast growing company. APR 10.00 MQE PB Bid=0.50 OI=0 CB=9.50 ROI=14.9% Chart = /charts/charts.asp?symbol=MADGF **** OXGN - Oxigene $23.50 *** New Drug Therapy! *** Oxigene is an international biopharmaceutical company engaged principally in the research and the development of products for use in the treatment of cancer. Recently they have begun to investigate certain of their developmental stage products for applications as direct cancer treatment agents, anti-inflammatory agents or in the treatment of fungal or other infectious diseases, as well as for DNA repair measurement and stimulation. Currently, Oxigene has in various stages of clinical development therapeutic product candidates; Combretastatin, Declopramide, and Cordycepin. Last year, OXGN agreed to a licensing agreement with Bristol Myers to develop CA4P as an anti-cancer therapy. Now the company will expand its product portfolio by focusing on development of non-systemic uses of CA4P for treatment of certain ocular diseases, psoriasis and arthritis. OXGN is also working with Techniclone to develop their Vascular Targeting Agent, a new vascular technology for the next generation of cancer therapeutic treatments. APR 17.50 QYO PW Bid=0.50 OI=64 CB=17.00 ROI=9.6% Chart = /charts/charts.asp?symbol=OXGN **** PCMS - P-Com $23.19 *** On The Rebound! *** P-Com develops, manufactures, and markets network access systems for the worldwide wireless telecommunications market. The point- to-point, spread spectrum, and point-to-multipoint radio links provided by P-Com are designed to satisfy the network requirements of cellular, personal & corporate communications services, public utilities and local governments. In addition, P-Com provides comprehensive network services including system planning, program management, path design, and installation. The sell-off was short and the reversal was decisive. With favorable earnings, several upgrades, and now a price target of $35, the possibility of owning the issue at $14 seems like stealing. APR 15.00 PQP PC Bid=0.81 OI=117 CB=14.19 ROI=14.9% Chart = /charts/charts.asp?symbol=PCMS **** SCUR - Secure Computing $26.50 *** Web Security *** Secure Computing designs, develops, and markets inter-operable, standards-based products for end-to-end network solutions, including fire-walls, Web filters, authentication, Extranet access control and security related professional services. Secure's customers include Fortune 500 companies, small branch offices and government agencies, all of whom rely on software solutions to maximize productivity on the Internet without compromising their information security. Their security products are designed to provide integrated enterprise security solutions for corporate networks. SCUR now offers fire-wall software that dynamically downloads policy management for an initial protocol allowing both high-security and high-performance for all web-based businesses. We simply favor the bullish technicals and the price support near the cost basis. APR 17.50 UQU PW Bid=0.75 OI=52 CB=16.75 ROI=12.4% Chart = /charts/charts.asp?symbol=SCUR **** ZONA - Zonagen $10.88 *** Short Squeeze or Biotech Rally? *** Zonagen is a biopharmaceutical company that is engaged in the development of pharmaceutical products for the reproductive system; sexual dysfunction, urology, contraception and infertility. ZONA has a worldwide sales and marketing agreement with Schering-Plough corporation for Vasomax, the company's rapidly disintegrating oral formulation of phentolamine mesylate for Male Erectile Dysfunction. The recent strength in micro-cap biotech stocks and a potential short-squeeze have boosted this issue to a new trading range. The April position offers a favorable entry price on speculative drug stock with bullish technicals. Once again, due-diligence is a prerequisite to any speculative issue. APR 7.50 NQZ PU Bid=0.38 OI=20 CB=7.12 ROI=14.9% Chart = /charts/charts.asp?symbol=ZONA ************************ SPREADS/STRADDLES/COMBOS ************************ Oil Prices and Profit Warnings Dominate The Headlines.. Friday, March 10 Industrial issues slumped Friday on concerns over earnings in the consumer products sector. The Dow fell 81 points to 9928 while the Nasdaq remained relatively unchanged at 5048. The S&P 500 index finished down 6 points at 1395. Volume on the Big Board was 1.13 billion shares, with declines beating advances 1,714 to 1,221. In the bond market, the 30-year Treasury fell 11/32, bid at 100 29/32, where it yielded 6.17%. Thursday's new plays (positions/opening prices/strategy): Advanced Micro AMD APR37C/50C $8.62 debit bull-call BMC Software BMCS APR35C/45C $8.50 debit bull-call Take Two Int. TTWO JUN7C/APR17C $8.00 debit diagonal Take Two Int. TTWO JUN7C/APR15C $6.50 debit diagonal AMD started the day off with an unexpected $5 drop and our target debit was quickly adjusted. The stock fell to a mid-day low near $50 before recovering to close at $52.75. TTWO fared slightly better in early trading but eventually succumbed to profit-taking. Our combination position at $15.00/$17.50 should provide adequate downside protection until the bullish trend resumes. BMCS traded in a small range for the entire session and the opening price was above our suggested target. Portfolio plays: Blue-chip issues struggled into positive territory during the volatile session but eventually faded as investors lightened their positions ahead of the week-end. Cyclicals and consumer issues were among the hardest hit and traders said the additional earnings warnings simply made matters worse. Drug stocks also retreated after recent gains and the biotech rally appears to be in its final stages. Fortunately, technology issues continue to support the Nasdaq's climb and they are expected to outperform value stocks for the foreseeable future. While investors have been willing to pour their savings into market-leading stocks, the American public is less optimistic about the future of the economy. The Consumer Confidence Index fell from a record high in January and some experts say the drop, which was linked to higher interest rates and oil prices, is a clear indication of a future economic slump. Regardless of the current pessimism, the incredible growth of the Internet will drive valuations in a few select groups to record highs and that's where we will focus our attention in the coming months. The majority of top performers over the last few weeks have come from the technology sector and the leaders among those issues have been in computer systems, telecommunications equipment/networking hardware, E-commerce and semiconductors. That's the primary area of attention for the Spreads portfolio and a large percentage of our winning selections have come from this group. Today's session was no different with stocks such as Exodus (EXDS), Intervu (ITVU), Kla-Tencor (KLAC), Netopia (NTPA) and Vignette (VIGN) dominating the leader-board. In the small-cap section, P-com (PCMS), Micron Electronics (MUEI) and Network Associates (NETA) led the way and a surprise rally from Zoltek (ZOLT) completed another great week. There were a couple of issues that moved against us and we acted quickly to limit potential losses. Voicestream (VSTR) attempted a last-gasp recovery Wednesday but failed exactly at the 30 dma on increasing volume. Thursday's move confirmed the trend and our belated exit was one day too late. This was a costly loss that could have been avoided had we simply followed the position diligently. Biovail (BVF) was the other culprit and the story was much the same. BVF is a failing issue that slipped past our cursory scans and relieved us of a few dollars. The sad thing is the spread could have been closed for a fair profit when the chart initially exhibited the classic signs of impending doom. Now we are lucky to be exiting at a break-even basis. With March options expiring next Friday, our goal will be to use the current volatile trends to complete the remaining adjustments in the longer-term positions. Any of the issues that exhibit poor technical character will be closed to protect gains and/or limit losses. With luck, the period will end on a positive note and the majority of plays will finish with favorable profits. Questions & comments on spreads/combos to Click here to email Ray Cummins ********* NEW PLAYS ********* Today's offerings are all momentum plays based on recent bullish trends in the hot sectors. Each of the positions have been evaluated for probability of profit using the current price and technical history of the stock. News and market sentiment will have an effect on each issue so review the plays individually and make your own decision about the future outcome of the position. **** MYPT - MyPoints.com $66.12 *** Technicals Only! *** MyPoints.com is a leading developer of Internet direct marketing services and loyalty infrastructure. Their database-driven direct marketing service, MyPoints®, enables businesses to identify, acquire and retain customers through a unique program that integrates highly targeted email and Web-based offers with incentive points to respond to those offers both online and offline. MyPoints.com is also a leading developer of Internet loyalty infrastructure, including MyPoints® Network and numerous other custom-branded rewards programs based on their proprietary technology platform -- the Digital Loyalty Engine. MyPoints.com has sales offices in cities nationwide. As the CEO says, MyPoints.com simply rewards consumers for doing things that they do every day such as interacting with targeted e-mail offers, visiting web-sites, filling out surveys, and most importantly, shopping. This seems to be the wave of E-commerce and this company is right on the mark with their current style of exploiting web traffic. A number of analysts now follow the issue and they all have promising views for the future. I favor the recent surge in buying and the solid influx of money that is being committed by retail investors. This conservative position offers an excellent, low-cost opportunity to participate in the current Internet rally. PLAY (aggressive - bullish/debit spread): BUY CALL APR-50 MYU-DJ OI=6 A=$20.12 SELL CALL APR-55 MYU-DK OI=27 B=$16.25 INITIAL NET DEBIT TARGET=$3.75-$3.88 ROI(max)=28% Chart = /charts/charts.asp?symbol=MYPT **** SPLN - Sportsline.com $57.75 *** On The Move! *** SportsLine.com is an Internet-based sports media company that provides interactive information and programming as well as merchandise to sports enthusiasts worldwide. SPLN produces and distributes original, interactive sports content, including editorials and analyses, radio shows, contests, games, fantasy league products and fan clubs. SportsLine.com also distributes a broad range of up-to-date news, scores, player and team statistics and standings, photos, audio clips and video clips obtained from CBS and other leading sports news organizations, as well as the company's athletes. Their news organization provides general sports news and information for all major professional and college sports obtained from strategic partners and a variety of leading sports news organizations such as The Associated Press, CBS, Reuters and SportsTicker. SportsLine.com also publishes editorials and analyses from its staff of writers and editors and freelance sports journalists. This company is simply one of the recent fairytale recoveries in the Internet group. The bullish momentum is growing and a number of prominent analysts are supporting the move with institutional recommendations. The technicals suggest an upcoming test of the all-time highs and this position offers a conservative way to profit from the new enthusiasm for the issue. PLAY (aggressive - bullish/debit spread): BUY CALL APR-40 QSP-DH OI=116 A=$19.88 SELL CALL APR-50 QSP-DJ OI=155 B=$12.38 INITIAL NET DEBIT TARGET=$7.25-$7.38 ROI(max)=35% Chart = /charts/charts.asp?symbol=SPLN **** ESIO - Electro Scientific $64.00 *** The Chip Sector is Hot! *** Electro Scientific Industries and its subsidiaries provide electronics manufacturers with equipment necessary to produce key components used in wireless telecommunications, computers, automotive electronics, and many other electronic products. ESI is one of the leading suppliers of advanced laser systems used to improve the yield of semiconductor memory devices, and of high-speed test and termination equipment used in the production of miniature passive electronic components, and of advanced laser systems used to fine tune electronic circuitry. The company also produces a family of mechanical and laser drilling systems for production of printed wiring boards and advanced electronic packaging, as well as machine vision products for manufacturers of semiconductors, electronics and other products. A recent industry study suggests the outlook for this sector will remain very bullish for the next 12 - 24 months and consumer and communications electronics are the key drivers in this cyclical up-turn in the group. Demand has been spurred by lower prices and better performance resulting from advanced production technologies. New materials are a key component of these new technologies, and ESIO has provided the equipment to help construct a number of these leading-edge products. The most recent news for the company is a $6 million order for multi-layer ceramic capacitor (MLCC) testing and termination equipment. The order began shipping in February and will be completed during the next four months. That should keep investors interested in the issue well into the summer. PLAY (aggressive - bullish/credit spread): BUY PUT APR-45 EQO-PI OI=0 A=$1.25 SELL PUT APR-50 EQO-PJ OI=5 B=$2.38 INITIAL NET CREDIT TARGET=1.25 ROI(max)=33% Chart = /charts/charts.asp?symbol=ESIO **** EPTO - Epitope $16.94 *** Covered-call Alternative *** Epitope develops, manufactures and markets oral specimen collection devices and diagnostic products using its proprietary oral fluid technologies. The company's primary focus is on the detection of antibodies to the Human Immunodeficiency Virus (HIV), the cause of Acquired Immune Deficiency Syndrome (AIDS). EPTO's lead product, the patented OraSure collection device, is used in conjunction with screening and confirmatory tests approved by the United States Food and Drug Administration (FDA) to test for HIV-1 antibodies and other conditions. Epitope also markets the HIV-1 Western blot confirmatory test kits used to confirm results of initial screening tests for HIV-1 infection. These products are sold to public and private-sector clients in the United States and certain foreign countries. Their technology is also used to test for drugs of abuse and other analytes. This stock has been a past winner in the Covered-calls section but with the increased attention, there are also some excellent option pricing disparities that favor specific spread techniques. As far as the fundamental outlook for the company, last quarter's earnings were favorable with increasing revenues and narrowing losses. The recent introduction of the Intercept oral fluid drug test helped spur the resumption of the current bullish trend and this spread position offers another method to speculate on the future potential of the issue. PLAY (conservative - bullish/diagonal spread): BUY CALL JUL-7.50 QTP-GU OI=557 A=$9.88 SELL CALL APR-15.00 QTP-DC OI=187 B=$3.50 INITIAL NET DEBIT TARGET=$6.25 INITIAL TARGET ROI=20% Chart = /charts/charts.asp?symbol=EPTO ********* STRADDLES ********* NLCS - National Computer Systems $49.56 *** Big Mover! *** National Computer Systems provides services and software for the collection, management and interpretation of data. The company's application software products are focused on specific problems within targeted markets, particularly K-12 education and large scale data management. The company's primary product and service offerings include assessment and testing services, enterprise software for schools, NCS services and data collection systems. NCS provides test-scoring services, which include program design, program management, software development, printing, packaging, distribution and collection logistics, scoring, editing, analysis and final reporting. Their enterprise software products include student administrative software to assist educators in student management. The company's NCS services include systems analysis and design, software development, comprehensive data collection technologies, telecommunication and telephone call center support. Early in the week, the company reported record earnings. Then the upgrades followed and now the speculation is beginning to garner attention (the option players are finally moving in). The strange thing is, no one really understands the reason for the big jump. This position came up on all of our low premium/high volatility scans and made the pages of two other newsletters. Hopefully we all can't be wrong! PLAY (conservative - neutral/debit straddle): BUY CALL JUL-50 QEZ-GJ OI=34 A=$5.38 BUY PUT JUL-50 QEZ-SJ OI=8 A=$4.38 INITIAL NET DEBIT TARGET=$9.50-$9.62 INITIAL ROI TARGET=25% A longer time frame (October) is also available at an attractive price. You will have to decide whether the additional potential is worth the cost. Chart = /charts/charts.asp?symbol=NLCS ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
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