The Option Investor Newsletter Tuesday 3-14-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 3-14-2000 High Low Volume Advance Decline DOW 9811.20 - 135.90 10043.30 9811.20 1,094,060k 1,283 1,697 Nasdaq 4706.63 - 200.61 5013.49 4706.61 1,977,816k 1,503 2,780 S&P-100 730.75 - 12.25 749.00 730.71 Totals 2,786 4,477 S&P-500 1359.15 - 24.47 1395.38 1359.15 38.4% 61.6% $RUT 572.99 - 17.15 600.45 572.56 $TRAN 2381.77 - 10.17 2420.84 2381.70 VIX 26.43 + 1.07 27.20 24.31 Put/Call Ratio .43 ************************************************************* Biotech research proves the need for stop losses. President Clinton presented the biotech sector with a huge going away present today. He announced today that he and British Prime Minister Blair were going to suggest that biotech companies should make public data on discoveries related to the human genome. While just a suggestion and a well meaning initiative, investors in the biotech sector, which is counting on huge windfall profits from gene research, ran for the exits. At least that is the way it appeared. The many biotech stocks that had been on a record run for several weeks immediately went into a power dive. Many were down $30, $40, $50 even $60+ dollars per share at one point. It should be noted that the volume was light and all retail in small lots but there was a real panic. The AMEX biotech index went into free fall and closed down -32% from its recent high. The markets opened up strong even in the face of a stronger than expected Retail sales report. Sales in Feb were up +1.1% with Jan revised +.4% upward. This showed the consumer is alive and well, spending their children's inheritance and having fun doing it. The joys of sales were short lived however and the biotech slide crippled the Nasdaq and one by one all the leaders from the past two weeks fell victim to profit taking. I had nine open positions from yesterday and I had all nine charts running on Qcharts as I watched the day progress. It was as if someone was looking over my shoulder as the day progressed. First ARBA, up over $15 at the open and then the obligatory sell off to a reasonable level. Things were moving fine with a nice slow uptrend when suddenly a gap down at 11:30. Bang, I pull the trigger and out. 20 min later another, gap down almost instantly. Out, then another and another. All day several of the traders in the office were sending instant messages. ALLR died! NTAP died! EMLX died! YHOO died! Unlike the biotechs that had been moving down from the open these stocks were doing fine and even posting gains and then suddenly double digit drops. It was as if the day traders of the world were looking for the only stocks holding their ground and shot them down one by one. With leaders dropping like dead soldiers left and right the markets never had a chance. Actually, in retrospect, I am glad to see the extreme drops. We were due for that painful exercise called a Nasdaq correction. No long drawn out slow leak like the Dow. -423 points, three days. Nothing tame about the Nasdaq. I said I was glad and it is because it is that time of the month. You know. The week that is littered with economic reports and followed by a Fed meeting and rate hike. We needed the correction to be sharp and swift with capitulation events for all stocks. Boy did we get it! When we get past these next five days, and it may be a struggle, we should be ready to run into April earnings. No PPI/CPI/FED and the correction should be over. What more could you ask for? If you are going to hold a correction this is the way to run it. Record setting, attention getting and NOBODY is going to miss it. If you are sitting around next week wondering when we are going to get a good entry point then give your money to your kids now. You can't be trusted with it. Today was the second biggest point loss in Nasdaq history and followed the fourth biggest loss yesterday. Today was also the largest trading range in Nasdaq history. Over 300 intraday points! This was also the first time in history that the Nasdaq has posted back to back days over -100 points down. The Nasdaq is now down -8.5% from the intraday high last Friday. Only -90 points to go for a technical -10% correction. There were some positive events after the close today that would have moved the market under normal circumstances. Oracle announced earnings after the close of $.17 that beat the streets estimates of $.13 very easily. Profits were up +80% and the stock was up $6.00 after hours. Good profits and a good outlook never hurts the street. VRTY also announced profits of $.34 beating estimates of $.12 and was up almost +$10.00 in after hours. In case the earnings news was not enough the blockbuster of the day was the announcement on CNBC that YHOO and EBAY were in talks to merge. Incredible, YHOO, EBAY and AOL all in the same fold. Although AOL is merging with Time Warner there are strong ties to YHOO and EBAY separately and together they will dominate the Internet sector in terms of eyeballs and profitability. EBAY soared +$23 on the news and the Nasdaq futures headed north to the tune of +25 points. The futures gain was short lived. With the Dow and Nasdaq both heading in the same direction for a change there was money flowing back into bonds as investors had enough of the good market, bad market switcheroo and just wanted someplace to park the money until the smoke clears. The bond market was already volatile after the government announced they were going to buy back another $1 billion in 30 yr bonds, only the second buyback since 1930. The S&P-500, not wanting to be left out of the news today, managed a seldom seen total of new highs. You guessed it, zero. Of the 500 stocks not one managed a new high today. For tomorrow the biohazard scare should be over. There was another press release to correct the damage of the first. The initiative is not supposed to cover intellectual property or patent capable secrets. The initiative is to broadcast the raw data to allow other companies to do research as well. Most analysts think the sell off today was very over done and the stocks represent a real bargain compared to their previous highs. Analysts say just making the raw data available will have no impact on any biotech firm. Just having access to the billions of words of data will not help you unless you know where to look and what you are looking for. Then you need some method to use the data to create a new medical process. The sell off was the equivalent of saying CNBC has no value because all the market news is readily available everywhere. I would like to think of it like OIN. Everyone has access to more stock, options symbols, charts, news and price data every day than you could use in a lifetime but it is useless unless you know what to do with it and when. At OIN we mine this data every day so that our readers will have a head start. The biotech companies could make all the raw data available they want but the key is of course how to put the data to use in a real medical procedure. That intellectual property will never go away. The second press release qualified that patented processes were not at risk. Look for prices to continue back up tomorrow unless another interpretation surfaces. In reality the human genome project is being funded in part by the government and it has always been understood that the results would be combined with all other results into a public database. Much ado about nothing! Just when you would think that the continued market drop is bound to stop any day, even in the face of the PPI/CPI, there is another hurdle we have to cross. The Nasdaq-100 and the S&P-500 will be reweighted this Friday. Since these indexes are weighted by market cap (number of shares outstanding x share price) any stock buybacks by companies in the index impacts the weighting. With the broader markets down so far recently many companies have been aggressively buying back stock at the cheaper prices. If a companies weighting is impacted by buybacks then the index funds that try to mimic the S&P and Nasdaq must sell stock to rebalance their portfolios. Some companies have been buying back stock so aggressively that as much as 10% of their float may be at risk. Not all companies will have stock sold. CSCO for instance has more outstanding than in the past and funds could be forced to buy CSCO stock. The majority of transactions this Friday will be sales. The new weighting will be made known Wednesday night and fund managers will know what they need to do by Thursday morning. The PPI/CPI may not be the biggest problem we face this week. Did I mention that this is a triple witch options expiration week as well? Triple witch weeks are normally volatile in the beginning and then move to a bullish bias by Thursday. We have certainly had the volatility lets hope we get the bullish bias as well. S&P futures are down -5.00 and Nasdaq futures are back to zero at 8:25ET. Fasten your seatbelts! Trade smart and sell too soon. Jim Brown Editor Current long positions include: IDPH, AFFX, HGSI, CRA, KSU *************************Advertisement**************************** Options Traders ! Mr. Stock's new online trading site has been designed for you. Trade spreads, straddles, covered writes, and stocks online. Get real-time market data throughout our site. Advanced options tools include volatility graphs, implied volatilities, and more. http://mojofarm.mediaplex.com/adserver/click_thru_request/565-58-1875-3 ****************************************************************** ********** STOCK NEWS ********** Excite@Home Finally Turns Vision into Reality By S.P. Brown It seems everyone's talking about merging narrowband Internet access with broadband access, but no one's really doing anything about it. That is, until yesterday when Excite@Home (ATHM) introduced its long-awaited portal for high-speed Internet access. The new service, dubbed @Home 2000, marks the first new tangible offering to come from last year's merger of @Home Network and Excite. The new Excite@Home high-speed service is unique in that it offers a broadband portal with personalization capabilities, full media content and always-on cable-access connectivity. Excite@Home plans to make @Home 2000 service available to US @Home subscribers the week of March 27, with prices averaging $40 a month per subscriber. Despite the overall glowing market prospects for the new service, Excite@Home investors have their concerns. One, has been the proposed merger of America Online (AOL) and Time Warner (TWX), whose emergence as a powerful broadband player is seen as a threat to Excite@Home's broadband market dominance. In addition to AOL-Time Warner, many market watchers expect additional competition to arise from other cable operators, digital subscriber lines (DSL), satellites and wireless technologies. Satellites, in particular, have some analysts furrowing their brow. "From a capital cost perspective, it's as cheap or cheaper to launch satellites than to upgrade the cable in this country," says Tom Moore, CEO of Internet satellite provider iSky. "And we don't have to wait for the cable companies to make that investment." The biggest investor concern, though, comes from Excite@Home's exclusivity agreement with AT&T (T), which is set to expire in 2002. AT&T confirmed recently that it plans to move to an open network after 2002 and has even held talks with AOL for that company to gain access to its cable systems. All of these concerns has sent Excite@Home's stock into a tail- spin, falling from a high of $94.66 last April to its current levels of $30 a share today. However, the sell-off now has some analysts wondering if many of these concerns are much ado about nothing. The fact is, AOL has done little to turn its huge dial-up subscriber base into broadband customers. Last year, the ISP giant announced a deal with Bell Atlantic (BEL) to provide DSL service, but nothing has yet come of that agreement. On the cable front, Excite@Home is still the largest provider of cable broadband services in the world, with roughly 1.4 million subscribers. True, once AOL merges with Time-Warner, AOL will have access to Time-Warner's cable company Road Runner, but Road Runner only has half the subscriber count of Excite@Home. What's more, Excite@Home has a great first-mover advantage over AOL. "This is the first convergence between the narrowband side of Excite and the broadband delivery side of the business," said Gary Arlen, president of Arlen Communications, a consulting and market research company. "This is about content that takes advantage of high-speed connections." As for the expiration of Excite@Home's exclusivity relationship expiring with AT&T, little will probably come of that, either. While that bond won't be exclusive come 2002, the telecom company remains a majority owner with 58 percent of Excite@Home's voting stock, so AT&T will likely continue to offer Excite@Home the most traffic over its cable lines. Furthermore, through AT&T and its other cable owners, Excite@Home has contracts giving it the first shot at 72 million homes in the regions controlled by these cable partners worldwide, compared with AOL-Time Warner's 13 million. Going forward, Excite@Home CFO Ken Goldman recently stated he expects the company to exceed projections that it would add 2.5 million to 2.8 million high-speed subscriptions this year, which has led some analysts to believe the company could add 6.5 million subscribers by 2002. Given Excite@Home's leading position in the broadband market and its expectations to triple its subscriber base over the next two years, the company's stock makes a compelling investment at its current low-levels. ************** Market Posture ************** As of Market Close - Tuesday, March 14, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,700 11,250 9,811 BEARISH 2.17 SPX S&P 500 1,410 1,450 1,359 BEARISH 3.07 OEX S&P 100 765 780 731 BEARISH 3.07 RUT Russell 2000 500 520 573 BULLISH 2.24 NDX NASD 100 3,800 4,000 4,228 BULLISH 2.24 MSH High Tech 1,850 2,000 2,077 BULLISH 2.24 XCI Hardware 1,300 1,460 1,554 BULLISH 2.24 CWX Software 1,200 1,470 1,476 BULLISH 2.24 SOX Semiconductor 800 900 1,229 BULLISH 2.24 NWX Networking 940 1,000 1,091 BULLISH 2.24 INX Internet 700 800 834 BULLISH 3.09 BIX Banking 500 550 466 BEARISH 11.30 XBD Brokerage 400 450 468 BULLISH 2.31 IUX Insurance 500 550 452 BEARISH 11.30 RLX Retail 950 1,000 795 BEARISH 1.28 DRG Drug 340 380 317 BEARISH 2.18 HCX Healthcare 700 750 638 BEARISH 2.18 XAL Airline 110 140 121 Neutral 3.10 OIX Oil & Gas 280 315 272 BEARISH 1.27 Posture Alert Where's the flight to quality? The broad market suffered losses across the board today, as all major sectors felt the pain. The ever-strong NASDAQ is starting to show signs of fatigue, as some of the biggest winning sectors are starting to show a top. Sectors leading the loser-board Tuesday include Semiconductors (-6.56%), Software (-5.56%), the NASDAQ 100 (-4.50%), and the Morgan Stanley High Tech (-3.65%). There are no current changes in posture, however, several sectors may be showing a top, so keep posted for future downgrades. **************** Market Sentiment **************** Tuesday, March 14, 2000 An Oracle of Things to Come? The broad market suffered significant losses Tuesday, as the NASDAQ posted a huge loss by giving back 200 points on heavy trading. Biotechnology helped lead the fall, as President Clinton and British Prime Minister Tony Blair advocated "unencumbered access" to human genome data. These comments, plus a negative article in the Wall Street Journal, as well as valuation concerns, helped spark huge selling pressure in the Biotechs (BTK), as that index closed down -13.23%. Now considering that the Biotech index was the second best index this year, it was just a matter of time before the selling pressure spread. It didn't take long, as other sectors began to bleed, with Semiconductors closing down -6.6% and Software trading lower by -5.6%. So, is this the start of something more significant, or just a continuation in the extreme volatility of 2000? The Biotech blow-off was definitely overdone and was exaggerated to the bear's benefit. If you think these biotechnology companies have spent many years and many dollars, just to give it all away (like politicians' say) then think again. So strike one for the bears. Number two would be the fear of corporate earnings in the "new economy" stocks. Oracle just reported earnings after the close, which beat expectations handily. Their earnings of $.17 even surpassed the whisper number of $.16. This quarter was a blowout, and the future looks even brighter. So strike two against the bears. Interest rates are significantly off the highs, so strike three. Toss in an Ebay-Yahoo mega-merger, and the shorts will easily run for cover. So strike four. Right now, the biggest threat to the "new economy" stocks are inflation. With a boatload of economic data coming out the next couple of days, along with the Fed-meet next week, rallies will most likely be contained with selling pressure. During the last two trading days, we were not surprised to see rallies being met with heavy selling, which was obviously evident today. However, we should see a nice pop off the open tomorrow, as the Oracle earnings and the Ebay-Yahoo merger rumor will easily help spark some interest in the early going. However, with so many economic indicators out later this week, any rallies will most likely fail at previous levels. Now, we think Oracle presages some good things to come for technology investors, but this week will most likely continue to be trading range bound with higher highs not occurring until after option expiration. BULLISH Signs: Corporate Earnings: Major corporate earnings continue to come out strong and ahead of analyst expectations, with Oracle being the latest to blow away 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 (6.106): The current yield is now safely off of 52-week highs and is temporarily out of the danger zone. Mixed Signs: Volatility Index (26.43): 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 oversold territory. 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. 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 Tues Benchmark (3/10) (3/14) Overhead Resistance (790-820) 18.34 19.45 Overhead Resistance (765-785) 6.26 6.12 Overhead Resistance (740-760) 0.78 1.07 OEX Close 749.50 730.75 Underlying Support (700-735) 4.16 5.06 What the Pinnacle Index is telling us: Based on Tuesday's readings, underlying support is strong (700-735), and gaining strength. Direct overhead is light (740-760), so a relief rally is very possible. However, the next two overhead resistance levels are heavy. Put/Call Ratio Friday Tues Strike/Contracts (3/10) (3/14) CBOE Total P/C Ratio .39 .43 CBOE Equity P/C Ratio .31 .34 OEX P/C Ratio 1.81 1.31 Peak Open Interest (OEX) Friday Tues Strike/Contracts (3/10) (3/14) Puts 700 / 11,436 700 / 13,210 Calls 750 / 9,088 750 / 9,247 Put/Call Ratio 1.26 1.43 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 14, 2000 26.43 Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Daily Results Index Last Mon Tue Week Dow 9811.24 18.31 -135.89 -117.58 Nasdaq 4706.63 -141.38 -200.61 -341.99 $OEX 730.75 -6.50 -12.25 -18.75 $SPX 1359.15 -11.45 -24.47 -35.92 $RUT 572.99 -13.67 -17.15 -30.82 $TRAN 2381.77 26.65 -10.17 16.48 $VIX 26.43 1.56 1.07 2.63 Calls Mon Tue Week DELL 55.94 3.50 1.19 4.69 Immune to the downdraft ANDW 27.50 -0.25 -0.81 -1.06 When will it breakout?? SNE 241.31 -18.25 15.81 -2.44 Is it time to bounce?? AFCI 75.63 0.44 -4.63 -4.19 Cisco rumors floating AMD 48.63 -1.25 -2.88 -4.63 Dropped, INTC beats them CSCO 131.75 -0.19 -4.44 -4.63 Split is next week WCG 52.38 -3.25 -2.13 -5.38 Dropped, sector weakness NITE 47.94 -1.38 -4.13 -5.50 More upgrades today TIBX 131.38 -4.19 -2.63 -6.81 Ready to run?? ERICY 93.38 -3.31 -3.94 -7.25 Dropped, we'll be back DSTM 35.31 -3.44 -4.69 -8.13 Right back to the 10-dma YHOO 168.75 -2.25 -7.06 -9.31 Rumors of deal with EBAY NOK 206.50 -0.88 -8.50 -9.38 Solid support at $205 BWEB 48.50 -3.88 -5.63 -9.50 Waiting on the Nasdaq CLRN 158.00 0.50 -11.75 -11.25 New high didn't last RRRR 76.00 -7.13 -4.88 -12.00 Due for a pullback TXN 157.06 -9.00 -14.69 -23.69 Dropped, Semis hammered VIGN 272.75 -23.00 -1.25 -24.25 New, B2B entry point IDPH 105.00 -13.56 -10.75 -24.31 New, enough is enough FDRY 174.50 -9.44 -17.25 -26.69 New, support at $170 CMVT 202.13 -23.88 -7.63 -31.50 Dropped, ugly start EMLX 183.00 -16.00 -16.50 -32.50 Back to support level CHKP 246.88 -11.69 -21.31 -33.00 Quick and brutal VERT 230.00 -19.19 -24.00 -43.19 It has gone inverted NTAP 197.06 -13.63 -31.06 -44.69 Splitting in one week Puts CIEN 134.00 -15.75 -13.13 -28.88 New, closed near low BVF 49.56 -4.38 0.69 -3.69 Big-time sector woes PPG 46.00 -0.75 0.06 -0.69 Used as defensive play EK 54.00 0.44 -0.44 0.00 Watching and waiting UAL 46.81 0.31 0.25 0.56 High oil prices DD 47.81 2.50 -0.63 1.88 More entry points today ************ WOMANS WORLD ************ Excuse Me While I Wipe The Blood Off My Hands. By Renee White Today was painful. I'm dripping blood from catching falling knives. Did you find an entry point? I did. At 4900, 4850, 4800, 4720, etc. I found so many fake entry points, those falling knives cut my fingers off and I had to type with my nose. Someone recently asked me when I knew to sell. Well, on days like today when your entry point is wrong!! I hope you did better. Let's see now, a 200 point Nasdaq dive today, another 3 digit loss yesterday, a steep Dow correction, gasoline approaching $2.00/gal, biotech leadership sinking faster than the titanic. Alan, are you noticing? Pretty soon, you'll be hurting too. You know, sometimes I just don't understand the math. On the one hand we are told that the Fed isn't attacking the stock market. On the other hand, I hear the concern over the wealth effect caused by the market. By reasonable deduction, that means the Nasdaq. I'm in the camp that doesn't understand the problem with the wealth effect. To me, and I'm obviously not an economist, if they wanted to curb the rapid growth in the Nasdaq, why haven't they raised margin requirements? High margin debt is scary on days like this and I feel sorry for people who will be learning what a margin call is all about. But for those who can buy & then sell stock at a profit, pocket the proceeds and do it over again, is just good at business. If the government spent $10 on something and made $1.00 profit selling it, wouldn't they be bragging how well they managed money? Just like intellectual property must be protected, so should a clever man's ability to buy & sell goods, services or stocks. The real concern should be the easy availability of borrowed funds to buy stocks at risk for a sharp correction. Sure, high oil prices cut into profit margins and attempts at raising prices might be seen. But the other edge of the coin is the neutralizing effect on prices by the internet. A margin rate adjustment would do more to curb the stock market buying frenzy. All this talk about 2 or 3 more rate hikes, in lieu of all the technical damage and high oil prices, sure doesn't add up in my book. High consumer spending should be good, as long as it isn't mostly by borrowed money. Anyway, back to trading. Last week, I unloaded the balance of my March options. With the FOMC meeting scheduled next Tuesday, option expiration Friday this week and a slue of economic numbers due this week, it was a crisis waiting to happen. I hope no one was still holding their March options, hoping to ride them through this Friday. One of my personal rules for trading involves unloading any option that is not performing as expected or that appears weak, one month or absolutely no later than 3 weeks, before expiration. Three weeks is the absolute cut off on anything that was borderline at one month. With options that are performing really well, I take profits the week before expiration week on any signs of weakness. Sometimes, I sell off part (or most) of my position if it is still strong and hold on to the balance, to see if I can get a little more out. If I am holding several strike prices that are all performing strongly and still have inflated premiums, I sell the riskiest ones first. By the end of last week, I had unwound all March options, except for those I planned to exercise. I believe it was the 3rd week of February when I wrote about possibly getting another opportunity to enter with a VIX around 30 and a sharp market sell-off right before the next FOMC meeting, which would make it this week. So in anticipation of another entry point, I cashed out last week and slept late Monday. Imagine my shock when I finally got enough coffee to make my brain work. By that time, the recovery was in progress. I did not jump in to buy because the whole thing seemed so bizarre to me and I was not anticipating a sharp correction until later mid week or so. When it sold off into the close yesterday, I was glad I had not bought in. Today though, I got faked out. When the market gapped up at the open, I identified some support levels on Nasdaq that I didn't think I would be lucky enough to see again. I could not watch the markets closely today but I thought, if I saw 4900 I would be lucky. I also noticed the 4847 range and the 4800 area. I entered some cheap option prices, just in case there was a sell-off while I was attending to other business. Sure enough, after 4900, I had bought several things, as I did after the 4850 dip, and the 4800 dip. I had gotten filled all the way down. Ugghhh!! Some were down 20-30% before I came back to realize how "lucky" I had been to get filled. OUCH! Talk about catching falling knives!!! I certainly wasn't expecting to get everything filled. I looked at the VIX hoping it confirmed a good entry, but it just seemed to be sitting in a range today, oblivious to the carnage, and nowhere close enough to 30. I do expect that to change tomorrow, when it may approach 30 for us, before rebounding (back down) later in the week. I had been away from trading most of the day so when I returned to see all my purchases, I was faced with exiting decisions or risking further losses by holding. That was a really hard decision for this trader. Normally, bad entries require getting out quickly. But since quick was 3 hours earlier when I wasn't around, I was left with consequences to deal with. For right or for wrong, this is how I thought it through. First of all, I recalled the reason I set cheap prices to enter my trades. The trades I entered were either pre-split, split-run candidates or QQQ options. All were April expirations with one June. I expected weakness this week, just not this soon, and I expected to be a buyer on that weakness, again, just not this soon. A major sell-off now makes an April earnings run potentially stronger. I expect strength to return to the broader market either the end of this week, but no later than next Wednesday. I am expecting their split runs to accelerate into April earnings. Since April and January earnings are the ones I play the strongest, exiting now needs to be careful. I still agreed with all the reasons I entered the plays and my market sentiment. My thoughts turned to looking at individual charts. Several plays seemed to be sitting on their new found support, trying to hold where they were late in the day. I thought, if I exit now, and a relief rally occurs tomorrow as I expect, that may be a bigger loss than necessary. For the most part, I held, but things looked really weak going into the close. This proved to be a very expensive day for me to not watch the market carefully! After the bell, Oracle's surprise earnings and YHOO's potential deal, made me feel tomorrow may firm up. If I am really lucky, the VIX will spike on up towards 30 and confirm entry and the market will rapidly rebound. My purchases won't look as bad and my entry point may prove to be not as bad as I think now. Only time will tell. The other scenario is that the weakness in the morning continues and I will have to make a decision to eat my losses. If so, I may get a better entry by Friday if a rebound doesn't occur tomorrow. I'm just not convinced though, that this play is over yet. In the meantime, I've done all the damage I can do for the day. I think I'll go soak my wounds and see if I can get some stitches. Tomorrow's another day and I'll either feel worse, or a whole lot better. Renee White Contact Support ************** TRADERS CORNER ************** Preparation Tips for New Traders By Janar Wasito Since I have been rounding out my trading strategy arsenal, I have been neglecting some of the fundamental disciplines that new traders need to be aware of. So, as I sit here on Sunday morning, I am just going to chronicle what I am doing to give you a sense of what you need to do each weekend, and several times a week to be a successful options trader. The most important point is that you cannot just "wing it." Like everything else in life -- school, sports, relationships -- you get what you "pay for" in time and effort. Here is what I've been doing, and am doing: - Last night, I looked at the newsletter, read the market wrap, market sentiment, and market posture segment. I also read through the naked put and call section and entered each symbol into my quote software. Next to each naked put selection, I entered the support level. - I have been reading, which I consider to be an essential discipline to develop the background skills you need to be successful. My book of the moment is The Millionaire Mind by Tom Stanley, which goes into the lifestyle, attitude, and personal qualities of financially successful people. I especially appreciate the emphasis on religious faith, sports, and accepting/ managing risk. - I picked up my copy of the San Jose Mercury News, which does an excellent job of covering the local technology sector. I subscribed to it last week, and also subscribed to a number of other periodicals (Investors Business Daily, Red Herring, Wired) which give me important background information. - I printed out the entire newsletter this morning. On the back of the Market Wrap Section, I scribble my plan for the week. Sell LT Stock & Implement a Covered Strangle strategy with VRSN in one account. Use the newsletter call picks to build some bull put spreads. Review the Naked Puts and consider committing a certain amount of capital to that strategy. Be Prepared To Buy LEAPs/ LT Options (as part of a calendar spread operation) in another account on a few stocks I like. Execute a covered strangle strategy in another account where I already own some VRSN LT Options. A word of caution: This is just meant as an example of what I am doing. The beginning option trader should probably focus on one strategy with a certain amount of capital (a small % of total assets, maybe 10%) in one brokerage account. For example, most beginning traders will focus on trading straight calls. The best thing to do is to put all the underlying stock symbols for those straight calls in your quote software. Then also put in the call options you want to trade. When the stock hits the price you have predetermined as an entry point in non market hours, then consider buying the call option. This can be done automatically with a broker like Preferred Trade, but use caution at first, both in how many automatic orders you set up, and in the amount of capital you put in. - As I go through the newsletter, I scribble in the margins. Next to Jim's note about the economic reports in the upcoming weeks, I scribble, "Entry Points?" Next to the next paragraph, I scribble notes about the VIX and the Put Call Ratio. I enter alerts on the VIX at key levels. Here is where my military background really pays off. Marines are obsessive compulsive about preparing for every possible contingency. If the enemy shows up at point X, then I will shoot that artillery mission; if he shows up at point Y, then I shoot another one. I actually play a video game simulating combat in WWII fairly often. Similar scenarios each time. Every maneuver is a risk/ reward calculation. Having done that as a professional for 4 years with real bullets and mortar shells, it is kind of interesting to me to see how realistic the game can be. Trading is a lot like military planning. As Jim notes, you plan for an up market, a down market, and everything in between. Marine officers are trained to never send a Marine where they can send a bomb or artillery shell, and they are trained to be paranoid about every eventuality. By the time I've gone through this thought process, I am ready to face the market. My sports background is also really beneficial. Having played football for 5 years, boxed, and coached football for 2 years really helps. You come into the game with a plan, and a lot of practice. On game day, things happen that you never dreamed of, but if you have enough plays ready, you can adapt to the situation. Is luck involved in warfare, sports, and trading? Absolutely. But success is where preparation and luck meet. - As I read through the Market Sentiment section, I note the high Put Call Ratio on the QQQ. Like a good fire support coordinator, I put price alerts at 220, 210, 200. Where will support hold? There's a story of a Marine fire support coordinator in Desert Storm who just knew that the enemy would concentrate at a certain spot -- he read his map, over and over. He set up an artillery target on the grid. Sure enough, the Iraqis concentrated there. He pulled the trigger on the mission, destroying several hundred vehicles. When I was on active duty, we did a joint exercise with the Kuwaitis in 1994. They have these huge parks in the desert, a square mile or more. One park, we dubbed, "Artillery World," the other "Tank World." Literally, there are tanks stacked 2 and 3 high on top of each other, each with different types of entry exit wounds. The Marine officer who shot that mission went by the call sign, Evil One. - I read through the Market Posture section. The tech sectors are pegged to the right, the old economy sectors and indexes to the left. I note that these are often contrarian indicators. By the time the techs are all pegged to max over bought, it is often time to rest. I make a mental note to close more positions that have profits in them. - By the time I get to the recommended call list, I have an overall sense of the market and my strategy. I will be looking for good picks for April earnings or split runs. I can't possibly keep track of the 27 call targets on the list. Sometimes, I enter them all in my quote sheet, but then don't go the extra step of paring down the list. I end up in paralysis by analysis mode during the trading week as all those symbols hit their entry targets, but I don't know enough about each play to make an effective decision. My first screen is do I know something about these companies? I ultimately want to cut this list down to about 12 stocks that I really want to play. - Throughout this all, I am emailing other traders. One trader from our group recommends an article on the effect of a George Gilder recommendation on a stock. I am discussing the relative merits of spread vs. naked put trading. I am corresponding with other members of our local club about which stocks look good right now. Some of my best trading ideas come from other local group members - I cut down the recommended call list to 10 that I know well, and I go to those play descriptions. - On each play description, I am, first and foremost, looking for an entry point. For example, I look at CHKP. The write up recommends two -- 263, 275. I split the difference and note 267, both putting that in the comment next to the stop, and adding an alert at that price. Then I take the recommended call play (KGEDP, Apr 280), and enter it (or its spread equivalent) into my quote sheet for rapid action if the market, sector, and stock all cooperate to give me a good entry point. On reading CMVT's description, I note that support is at 230, and that there is a split on 4/4. Split runs are great trading opportunities, especially if you have a general earnings up trend backing up the move. As I go through this process, I reject trades for a variety of reasons. I look at the options, and reject trades if there is not the volatility profile that I am looking for. This will vary by strategy. - By the time I finish going through the call section, I end up with 9 targets of opportunity. Next to each, I have noted the support level, split or earnings dates. Below, in another section of my quote software, I have my plays lined up just like artillery targets on a fire support list. The market is a battlefield, and my map is the quote software which gives me a picture of the market, sector, and stock. - Now, I am ready to tackle the naked put section. In a quick scan, I check off 14 that I know. I am in or have been in many of these plays, which is a head start to understanding the company. It is a double edged sword, though, since stocks don't remain hot forever, and yesterday's screamer can also fall out of the sky quickly. I download the excel file from the Naked Put section, and use the sort feature to rank the plays by % Return. I have already decided against selling current month puts because there is only one week left, but I will use the support levels, and change the codes on the options to April codes. This week and next week will be prime time to hunt for good entry points on these plays. Next, I cut my initial list of 14 down to 8 based on the volatilities -- I want to be well paid for taking this type of risk. Since I am not completely comfortable with the Naked Put strategy, I add a lower strike put to each recommended naked put so that I have the option of creating a spread; alternatively, I would use a stop to buy back the put if the stock moved against me. But the real safety lies in a good entry point, regardless of the strategy, so I go to the list of 8 stocks, and eliminate all of the rest. I add alerts at each of the recommended support levels. I make sure to label everything clearly so that in the heat of battle, I can go to the right contract to buy or sell. I don't want to get hung up looking up an option symbol when the stock is where I want it to be. After the whole process is done, I end up with 16 stocks with plays on each of them set up so that I can right click on the option symbols and jump directly to my broker. The entire process has taken me a little over 3 hours. Over preparation? As Henry V said before the battle of Agincourt (at least according to Shakespeare), "All things are ready if our minds be so." Now, off for a bike ride in Golden Gate Park. Strong body, strong mind. Contact Support PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** AMD $48.63 -2.88 (-4.38) The storm clouds overhead from last week continued to drench our chip play. Actually compared to some of the stocks at the Nasdaq today, AMD held up pretty well. The news concerning Intel stealing Microsoft X-Box deal from AMD may be more than the company can overcome in the near near future. AMD closed near its low of the day which again is similar to many stocks at the Nasdaq today. The one technical factor that many of those same stocks don't have to contend with is a big gap that may now get filled. AMD has a gap between $42 and $46 from earlier in the month. With the recent Microsoft news knocking the stuffing out of our play, and the technical picture beginning to look a bit bleak, we will stand aside for and let this one go for the time being. TXN $157.06 -14.69 (-23.69) Several of the fundamental reasons we liked TXN have not changed. They are on schedule to report better than expected earnings. The potential hype surrounding an expected split announcement could still come into play and continued strong sales haven't changed much in the past two days. The one thing that has changed is the price of TXN stock and the short-term trend. Could TXN reverse course and trade higher? Of course. The chip sector gave back about 6.5% of recent gains today, while TXN lost over 8.0%. The volume today was heavy as well, and the areas of any major support for TXN don't show up until near $144. The drop today in Nasdaq stocks not only dropped the price of the stocks, but it really knocked the momentum out from underneath TXN. A drop in price is one thing, while getting the wind knocked out of a play is another. For now we will stand aside and let TXN and the chip sector catch is breath. ERICY $93.38 -3.94 (-7.25) Today was a rough day for the markets as a whole and not many stocks were spared. ERICY was not an exception. Last week, after ERICY dropped below the $100, it tried in vain to recover above that level. The last two days of market selling proved too overwhelming for ERICY to sustain an attempt at $100. ERICY moved down sharply in the final two hours of trading and closed well below its 10-dma. With earnings on April 28th and the pending split off in May, ERICY seems to have stalled on us. It's time to take our profit and move on to other plays. CMVT $202.13 -7.63 (-31.50) This post-announcement depression is worse than we thought, not even Prozac looks like it will help. The last two days of selling and the jitters that are being felt throughout the market really took their toll on CMVT. Rather than retesting the $240 resistance, CMVT was hit hard yesterday, falling $23.88. And today was not much better as the short term support of $210 was violated. This violation doesn't give us much hope and we area dropping this play. WCG $52.50 -2.13 (-5.38) The Williams family has decided to take another day off to digest the recent run-up. The fact is that with the on again, off again, back on again state of affairs with Deutsche Telekom, U.S. West, and Qwest, there's too much sector pressure on WCG right now, and not enough momentum to break out of the current range. Besides that, closing near the low of the day below what we though would provide strong support ($53) is a no-no since it's now significantly enough below its 10-dma of $54.77 to boot it from the list. When Williams can roll its sleeves up and get back to work, we'll be glad to take it to dinner at the end of the day (see the commercial to understand the reference). PUTS: ***** No dropped put plays tonight. ******************** PLAY UPDATES - CALLS ******************** RRRR $76.00 -4.88 (-12.00) It's looking kind of ugly, but we'll give RRRR a couple more days to redeem itself. The need for profit-taking was just waiting for a catalyst, and the weakness on the NASDAQ was just what investors were waiting for. After the rapid run as high as $94.75 last week, some air needed to come out of RRRR's balloon before it burst. Volume is still above the ADV, but down from the 2 million plus share days seen recently. Recall that RRRR tends to build support at roughly $5 increments, so we would like to see the $75 level provide some relief from this week's decline. The 10-dma has now moved up to $74.69 and should help out, but we are concerned with the fact that the stock closed just fractionally above its daily low. The increase in volume in the last 90 minutes as RRRR gave up almost $6 is not encouraging. If you rode the wave last week your stops should have taken you out of the play. Wait for market sentiment to improve and buyers to return before initiating new positions. A bounce near support is buyable, but a more conservative approach would be to wait for buying interest to push RRRR back up through $80 first. SNE $241.31 +15.81 (-2.44) It took a little longer than expected, but SNE finally found some support yesterday at $218, near the lows posted in early January. With the gap up today, SNE has now moved and closed above the lows seen last week. Perhaps attempting to prop up the share price after the debacle over the PlayStation2 release, J.P. Morgan reiterated that SNE will be splitting their shares 2-for-1 on May 25th. JPM will be handling the split of the ADR, but the announcement does little other than repeat the original announcement from December. The decline after the release of the new game unit was not unexpected (similar to the decline that we are so familiar with after a company announces an anticipated split), but the negative press only served to exacerbate the decline. Now that SNE has declined almost $100 from its highs only 2 weeks ago, buyers should be stepping back in at these more attractive levels. SNE will likely run into some resistance near $250, and more conservative players may want to wait for a close above this level before playing. Volume remains on the heavy side, but use caution; as an ADR, SNE usually gaps at the open, reducing the effectiveness of stops. NTAP $197.06 -31.06 (-39.81) We are hanging onto NTAP for a couple of different reasons. If you had a position in this split run, we certainly hope you either had your stops in place or were able to pull the trigger as NTAP fell out of bed today. Yesterday NTAP held up reasonably well as traders reacted or over-reacted to the news out of Asia. NTAP did drop -$16 to $220, and did come back to close about in the middle of the range. Today with the Nasdaq dropping, NTAP fell to -35 for the session, before coming back to close down almost 14% at $197.06. We keeping NTAP on our list for several reasons. NTAP fell to an area of support near $190 and has solid support down near $183. Could we see follow though selling? Absolutely? However with over 4.2 million shares traded today, we may have seen or be near a bottom. We still have time for an earnings run to develop and could see some bargain hunters enter at any time. Remember a lot of folks liked this one at when it was here the last time, not to mention the investors that liked NTAP last week when it was trading near $250. Before entering a new play confirm not only the direction, but the volume behind the move, prior to placing your order. CHKP $246.88 -21.31 (-33.00) Sell-off's or profit-taking can obviously be quick and brutal. So why are we keeping CHKP on our play list? Remember that channel we mentioned last week? Remember when we said it was way above the channel? It's not anymore. The decline at the Nasdaq and the tumble experienced by CHKP brought the Internet security company not only back into its, but right to the bottom of the channel, which could be providing a great buying opportunity. We aren't suggesting you run out and jump head long into a new play, but we would look for CHKP to begin to bounce from the current levels. With the Biotech sector getting hit hard, traders may look to some of the recent winners in other sectors as a place to put their money. At this point we believe CHKP could be one of the places they may look. The bottom of the channel is seen near $242, while CHKP has support at $235. *********************************************** PLAY UPDATES - CALLS - CONTINUED IN SECTION TWO *********************************************** ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. 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You may also fax the information to: 303-797-1333 DISCLAIMER ********** This newsletter is a publication dedicated to the education of options traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. 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The Option Investor Newsletter Tuesday 3-14-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. ******************************** PLAY UPDATES - CALLS - CONTINUED ******************************** AFCI $75.63 -4.63 (-4.19) The wide intraday swings are still in full force. AFCI experienced spreads of 10+ pts during past two days. There's not any "official" news regarding the scuttlebutt about a potential buyout of AFCI by CSCO, but again it may account for the topsy-turvy movement and volume spikes. This volatile momentum play continues to provide lots of room for entries and exits. Although in consideration of the present market conditions, it'd be wise to wait for an upward bounce off the 5-dma (currently at $77.09) before opening new call positions. If the stock dives the next stop is the $68 to $72 vicinity just below the 10-dma ($72.13). Aspect Communications announced yesterday it signed a new multi-year contract with France Telecom to provide its UMC1000 Multi-Service Access Platform. The terms also allow for joint development of products if the need arises. This award was well received by John Schofield, AFC's president and CEO, who boosted that "France Telecom has been a key, strategic AFC customer since 1995" and "this contract exemplifies AFC's new sales strategy of focusing on select markets and customers". CSCO $131.75 -4.44 (-4.63) This is a tough stock to knock down, but it took a couple of whollaps as the Nasdaq toppled over 200 pts. Let's not panic, no one is throwing in the towel! However we need to be aware of time. CSCO's 2:1 stock split is quickly approaching and is set to go ex-div next week on Thursday, March 23rd. So essentially there's only six trading sessions left to profit from this split play. The downdraft placed CSCO at a firm support level, however any further decline should raise concern. Conservatively wait for a move through $134 and $135. On Monday, IBM announced that CSCO along with the likes of Motorola (MOT), Intel (INTC), and Nokia (NOK) will team to design and develop products & services to link wireless phones and computers to the Internet. The objective is to combine existing technology instead of trying to re-invent the wheel. In other news, Equant NV, the world's largest data- communications network, announced CSCO provided the equipment it needed to bring the first IP network that can carry both voice and data communications using Internet Technology. DELL $55.94 +1.19 (+4.69) A slew of upgrades pushed DELL to new highs in the past two sessions. The confident sentiment drove up the share price over 13% in very heavy trading. We couldn't have asked for a better performance from this news-driven momentum play. First on Monday, Andrew Neff of Bear Stearns cited a "strengthening corporate market" as Dell "captures growth of the Internet". He lifted his rating to a Buy from an Attractive and upped the price target to $70-$80 from $55-$65. Banc of America also raised its rating to a Strong Buy from a Buy. Their analyst, Kurt King, remarked that "with estimates lower and the current quarter looking solid, Dell looks ready to get back on its old path of consistently meeting or beating estimates". He raised DELL's price target 38.5%, from $52 to $72. And Robertson Stephen's Daniel Niles surely wasn't going to be left on the sidelines Monday. He also raised his recommendation to a Strong Buy from a Buy mentioning that the company has seen "a continuing acceleration in its business following a tough fourth quarter". Considering we just added DELL to our call list on Thursday, the timing couldn't have been better. These stimulants are just what drives a momentum driven play to buck the trend of the broad markets. Again today, another analyst firm went to the plate for DELL despite the upset Nasdaq. Jimmy Johnson at AG Edwards upgraded the stock to a Buy from an Accumulate and upped the price target to $70 from $65. Looking for an entry? Near-term support is at $55-$56 and is a good entrance if DELL continues to stretch into newer territory. But on a pullback look for upward bounces off the 5-dma ($51.88) to get into the play. YHOO $168.75 -7.06 (-9.31) The game isn't over yet! YHOO managed to maintain bearings at the 30-dma support level ($168 to $170) despite the nasty sentiment on the Nasdaq. Plus it's important to note that while volume levels were respectable, they did taper off on the decline. On Monday, those that jumped into this earnings' run play on a bounce off the 5-dma saw profitability by this morning's session. YHOO charged towards Thursday's intraday resistance of $185 and nearly made it ($183.53)! Unfortunately YHOO was tackled hard, although it's now at a prime entry level at the near 10-dma (169.72). No matter though, for those who play a bit more on the side of caution, it'd be safer to watch for upward confirmation and better market sentiment before opening any new positions. Recall we've got plenty of time to get into this earnings' play. Yahoo! is confirmed to report in a few weeks on April 4th, after the bell. In the news yesterday, Yahoo! unveiled the newest member of its global network. Yahoo! Argentina, an Internet guide, is the 22nd World property in one of Latin America's most competitive markets. ANDW $27.50 -0.81 (-1.06) ANDW's trading pattern today took its lead from the NASDAQ which posted its second biggest point loss in history. After an initial rally in the market's first two hours, everything seemed to hit the floor. With a busy week ahead for economic data, the selling jitters are understandable. ANDW held up relatively well at its short term support of $27.50. Volatility has become the standard in today's market and something with which traders must live. When we added this play, we recommended April contracts for a reason. More time to weather these downdrafts and take part in the earnings run. Overall market sentiment tomorrow is what we will watch the next couple days. DSTM $35.31 -4.69 (-8.13) DSTM, which established a short-term support yesterday at $40, succumbed to the market-wide sell-off today. Few stocks were spared. Even though, DSTM bucked the trend of most stocks and actually had some buying in the final two hours of trading. It hit a low today at $32 and began a steady climb back to close above its 10-dma of $35. During a day that had very little good news, this was a bit of a glimmer. The market's move tomorrow will be key in DSTM's attempt to get back to $40. Watch to see what the overall market sentiment is tomorrow and chose entry points that suit your risk levels. VERT $230.00 -24.00 (-43.19) UGGHHH!! VERT has gone inverted. It's not the company folks; it's the market. What could we expect if the NASDAQ dumps 200 points? Not only did VERT fail to hold its 5 and 10-dma (currently $257.68 and $248.65, respectively), it couldn't hold historical support around $240. We hope you kept your stops set. The only blessing is that volume was slightly less than the ADV, and older support at $225 held as VERT bounced back $5 into the close. If $225 can't hold, stand aside until you see a firm bounce. The next support is at $195-$200. Legg Mason initiated coverage today with a Buy rating and target of $380, which did nothing for the issue. Remember that we're playing VERT for its 2:1 split run into the ex-date of March 31st. Remember too to watch the NASDAQ for signs of recovery before taking a position. NOK $206.50 -8.50 (-8.50) Much as we try, we can't fight the market. $205 has now been tested on three occasions since Mar 8th. It was also a previous level of resistance back in February on two occasions, and we think it makes a great entry point. Since it held today through a technology meltdown, we think the worst is over. If anything concerns us though, it's that the highs are getting lower. It needs to pull out of the spiral soon. With a 4:1 split coming in early April, that could be the catalyst and we wouldn't expect NOK to remain at these levels for long. Consider it as a buying opportunity. Shareholder split approval is scheduled for March 22nd, and we'd look for the split within two weeks after that. Yesterday, CSFB reiterated their Strong Buy rating and price target of $225. They are still winning equipment contracts and forming new alliances daily on a worldwide basis. NITE $47.94 -4.13 (-1.63) Monday, NITE, benefited from an upgrade from Deutsche Banc and announced that it would form a joint venture with Japan's third-largest brokerage, Nikko Securities Co Ltd. Today, it helped dig a crater along with the rest of the market. Fortunately, NITE also escaped disaster by bouncing firmly at yesterday's open and again near today's close at $47.50. Volume was right at the ADV, with no bias in either direction. With today as ugly as it was and NITE in the sweetspot of online trading, we think the worst is over. Besides that, they stand to profit handsomely from the surge in trading volume this year, a fact that the Street woke up to last Friday. Upgrades have followed, the most recent from DB Alex Brown who upgraded the issue to a strong Buy, citing that the rumored union of Goldman Sachs and Charles Schwab would be good for NITE as the leading market maker. Blessed be the 5-dma of $47.98, for it offers strong support and makes a good entry target. The 10-dma is only $0.50 behind at $47.48. TIBX $131.38 -2.63 (-6.81) For those confirming the track was safe to drive, you'd have found an oil slick so far this week. The lack of volume too is a clue that this race to earnings and a probable split announcement has yet to start. No to worry though; there's still time. While $125 looked like good support, $127 has held up well so far this week. Remember that the earnings announcement date of March 23rd is the driver of this play, where we also expect a split announcement. There is already an item on the April 11th shareholder meeting agenda to increase the shares from 300 mln to 1.2 bln shares. Can you say 3:1? Sure, we knew you could. Technically, the 10-dma ($127.43) further solidifies the previous two days support level. Looks like a shootable target to us. Confirm market direction first. Tomorrow could make a great entry if we get a strong "v" bottom rebound on the NASDAQ. OK, get ready to start your engines. EMLX $183.00 -16.50 (-32.50) If the 15% drop the past two days wasn't taxing enough, we're going to jog your memory a bit. Remember the $180 level that provided resistance for our play shortly after we added it last month. It almost seemed like it was no time at all and EMLX broke through that level and went on to new highs near $224. That same $180 level came into play today. Today EMLX did make a low at $172, but the impressive part of the picture is that it came back into its upward channel and closed just above the key level at $180. This play could still go either way, and we may see another test of today's low, but the fact that EMLX was able to return inside its channel is definitely a plus in our book. On Monday EMLX announced it would join Microsoft, EMC and other top tech leaders at Microsoft's summit 2000 for the unveiling of the new Microsoft Solutions Center(MPSC). That makes for a great looking press release, but doesn't necessarily keep traders from selling. Remember that just because we've kept EMLX on our play list doesn't mean we are suggesting you go out and buy calls at the open tomorrow. We do believe that perhaps the selling was over done and we could see a bounce or a resumption of the long term trend. CLRN $158.00 -11.75 (-11.25) Many times the way a stock trades almost gives it a personality of its own. CLRN went along with the scare in Asia early yesterday, but seemed to be saying enough is enough and rallied back only to be met by selling early Monday afternoon. Today it CLRN shot up at the open and equaled it's all time high, only to get stepped on again. The selling this time appeared to be profit-taking, as the volume was fairly light. The area between $165 and $170 provided support surprisingly well until late in the day, when the selling in the Nasdaq picked up and traders holding CLRN would no longer hang on. CLRN is pointing south tonight. However we are keeping the communications company on our list for a couple of reasons. CLRN closed just above support at $150. The last thirty minutes of the session CLRN saw over 290K shares change hands. The total volume for the day, came in at about 710K shares. Has CLRN put in a bottom? Time will tell, but we would look for the $150 area to provide support should we see any follow through selling. Before entering a new play on a bounce from here or from the $150 area, check the volume supporting the move. CLRN acts like a stock that really wanted to continue its trend, but could no longer ignore the action in the broader markets. BWEB $48.50 -5.63 (-9.50) We mentioned Sunday BWEB was all about speed. The 16% decline the past two days has come swiftly but with no volume supporting the move down. Volume so far this week has only been 1.5 million shares which is what the software company was averaging each day on its climb to new highs. Don't get us wrong, a drop in price is still a loss in anyone's book, but at this point in time we will view the current decline as a buying opportunity. Until the Nasdaq or BWEB proves the decline the past two days is a change of trend, rather than a correction we will patiently wait for an opportunity to buy calls in BWEB. There has been no company specific news out this week to change our mind on the overall picture for BWEB, just a bit of profit taking. So how do we play this one? Be patient. There is the potential for more volatility, with the release of more economic data. Although we believe BWEB could be getting ready to bounce, it can't go it alone with the Nasdaq in correction mode. BWEB has solid support near $45. If we get a bounce, and an entry point, be prepared to sell too soon, as it could be a head fake, if it isn't supported by solid gains in the Nasdaq as well. ******************* PLAY UPDATES - PUTS ******************* EK $54.00 -0.44 (+0.00) Looking at EK's day, it appears they're lingering around waiting for something. Some might say nothing is coming and EK has bottomed out. Especially comparing the market loss today and EK's small one. We still have about 4 weeks until actual earnings are announced on April 16th and are still waiting for a possible warning of profits. If so, EK will continue lower. Look to jump in anywhere around the 10-dma of $57 or watch to see support, $53.75, broken with strong volume. EK is lacking momentum right now so any strong news should revitalize them. A resurgence in the Nasdaq will leave EK as a forgotten stock once again and back to breaking new 52-week lows. PPG $46.00 +0.06 (-0.69) Battling the continuing negative sentiment in the broad markets, PPG is trying valiantly to move higher. Posting slightly higher lows this week, resistance is still firm at $47. It will be hard to break either the resistance or support (near $45) without more volume, coming in today at a measly 60% of the ADV. PPG could be building a base here, but only time will tell. Likely catalysts for the next move will be the PPI/CPI reports due out later this week. If they come in better than expected, PPG could finally get some life injected, but any up move should be muted with interest rate fears coming back to the forefront as the FED is expected to get the next hike out of the way early next week. Whichever way PPG investors decide to jump, increases in volume will be necessary to drive the price very far. Still running into firm resistance at the 10-dma (currently at $47), look to open new positions as PPG rolls over. Use volume, market, and sector direction to confirm the move before jumping on board. UAL $46.81 +0.19 (-0.38) Finally flattening out, UAL is indicating that it may be near a bottom. Volume has really dried up, posting less than half its ADV today. While there is no longer a flood of sellers, neither is there a rush to buy. Still trading at multi-year lows, the company is attempting to boost its lagging occupancy rates. Yesterday, UAL launched an Internet fare sale on select itineraries to and from Denver for customers who purchase their tickets at the company's website. The fundamental problems are still intact though; record high prices for crude oil, and weakness in the Transports. Barring a reversal in the sector, look for UAL to continue to be under pressure. The 10-dma ($47.81) is still providing credible resistance and we would look to open new positions as UAL rolls over near this level. A drop through support near $45-46 could open the door to test the next support level near $40. DD $47.81 -0.63 (+1.88) We saw some great entry points in the early going today as DD traded up to $49.94. At midday, DD began selling off with the rest of the market and closed just slightly above the low of the day. With the NASDAQ posting its second largest point drop ever, there was a mild rotation into less volatile, "old economy" stocks. Yet, the continued selling pressure in DD is a good sign for our put play. Take advantage of the sporadic buying and pick your entry points. Watch as DD may retest short-term support of $45.06, a new 52-week low set on Monday, March 13th. BVF $49.56 +0.69 (-0.69) Ok so it's been one of those weeks where what was supposed to go up, went down, and vice-versa. Shares of BVF did drop on Monday, just like we had planned. Today with the broad markets deteriorating all around it, believe it or not, BVF did find a few buyers. Part of the enthusiasm today could have come from Monday's announcement that Biovail had been granted final approval of its generic Adalat CC, for immediate marketing in the United States. The only problem as we see it at this point was the light volume. Volume today was only 606K. Although we will reserve judgement for now, trend reversals are normally not started on average volume. We also mentioned BVF could bounce up to the $52-$54 area and provide a good entry point for this play. BVF was getting a bit oversold, at this point we will view any further bounces, followed by further weakness as an opportunity to buy puts. Biovail could also see more selling with the Andrx Pharmaceutical court decision, and the recent debt tender offer made by the company. Be patient and wait for further weakness to enter a new play. ************** NEW CALL PLAYS ************** VIGN - Vignette Corporation $272.75 -1.25 (-24.25 this week) VIGN provides Internet Relationship Management (IRM) software products and services, a category of enterprise solutions designed to enable businesses to build sustainable online customer relationships, increase returns on internet-related investments and capitalize on internet business opportunities. VIGN's clients come from diverse sectors and include financial services, health, education and government, media, retail, technology and telecommunications. Even the vaunted B2B Internet stocks have had a rough week, but VIGN has actually held up fairly well. Although shedding almost $30 from its 52-week high set last Friday, support at $270 has been successfully tested several times. Unlike the punishment that has been meted out to many stocks this week, the decline in VIGN looks like simple profit-taking. Showing good strength relative to the tech sector in general, VIGN is still over $5 above its 10-dma ($267.63). After moving up more than $100 over the past month, VIGN was due for a short break. The weakness over the past 2 days is providing us with an attractive entry, before the next leg up. Earnings are over a month away, but as earnings season kicks into full swing, expect the B2B segment in general, and VIGN specifically, to benefit from the continuing influx of cash. So what is the real meat of the play? Aside from the strong growth being posted and frequent press releases, we are looking at the Special Shareholder meeting that occurs today. The topic? You guessed it - a vote on increasing the number of authorized shares. Call us crazy, but we are looking for a split announcement following the meeting. Not for the faint-hearted, VIGN is a volatile Internet and $30 daily price swings are not uncommon. Evaluate your risk tolerance before playing and then hold on for an exciting ride. Not content to sit on its laurels, VIGN is targeting growth in India, calling that country the "top Asian market". The company expects India's mushrooming Internet firms to account for the largest share of its Asian sales this year. Allan Bagley, the firm's Asia-Pacific region director, says VIGN will soon set up a sales and support office in India to capitalize on the explosion of Internet-based businesses. Bagley went on to say that alliances in east and south-east Asia last year have allowed VIGN's customer base in the region to grow to 35-40 customers, a figure he hopes to double in 2000. BUY CALL APR-270 GGV-DN OI=526 at $41.75 SL=32.50 BUY CALL APR-280*QVG-DP OI=341 at $37.13 SL=29.00 BUY CALL APR-290 QVG-DR OI=195 at $34.13 SL=26.50 BUY CALL APR-300 QVG-DT OI=129 at $30.38 SL=23.75 SELL PUT MAR-260 GGV-OL OI=153 at $ 5.38 SL= 7.25 (See risks of selling puts in play legend) Picked on Mar 14th at $272.75 P/E = N/A Change since picked +0.00 52-week high=$302.00 Analysts Ratings 13-2-0-0-0 52-week low =$ 21.00 Last earnings 01/00 est=-0.08 actual=-0.05 Next earnings 04-25 est=-0.06 versus=-0.18 Average Daily Volume = 1.25 mln /charts/charts.asp?symbol=VIGN IDPH - IDEC Pharmaceuticals $105.00 -10.75 (-24.31 this week) IDPH researches and develops therapies for the treatment of cancer and autoimmune and inflammatory diseases. IDEC was the first-ever to received FDA approval of a monoclonal antibody, called Rituxan, that is now the most widely used treatment of non-Hodgkin's lymphomas in the U.S. The company has two other anti-cancer drugs in the approval process and five more are in the pipeline. Does a dead cat bounce? Well we're betting it can (and please, don't try this at home!). The genomics sectors recently saw huge gains only to get the rug abruptly pulled out from under them today. Granted a correction is typical following stocks that appreciate very quickly, but today's panic sell is quite honestly, an overreaction. The frantic sellers were responding to President Clinton and British Prime Minister Blair's discussion over the inevitable moral question (or is really about money?). Who owns the information spawned by the human genome project? According to the nations' leaders, the human gene date belongs in the public domain rather than private enterprises. This news sent a shock of terror through the veins of biotech investors who are of course thinking about the oodles of future revenue forfeited to government entities. Our play is this...we figure investors will come back to their senses after an emotional day at the markets. Then once they regain composure they'll realize a buying opportunity is at hand. Recall Biotechs is still the hottest sector out there and many traders have made a mint in genomics this year alone. Let's look at it from another perspective too. We all know that, for the most part, a healthy correction will follow a sharp increase. Well the inverse is also true. Therefore, we're anticipating the dead cat will indeed bounce! Also, IDPH is much more than the genomics project. They have real products making money right now. Look for IDPH to come back to life and then pick your entry according to your risk portfolio. BUY CALL APR-100*IDK-DT OI=42 at $18.13 SL=14.25 BUY CALL APR-105 IDK-DA OI=66 at $16.13 SL=12.50 BUY CALL APR-110 IDK-DB OI=35 at $13.63 SL=11.00 BUY CALL APR-115 IDK-DC OI=52 at $11.88 SL= 9.50 BUY CALL APR-120 IDK-DD OI=56 at $10.13 SL= 7.50 Picked on March 14th at $105.00 P/E = 122 Change since picked +0.00 52-week high=$173.00 Analysts Ratings 6-5-1-0-0 52-week low =$ 21.25 Last earnings 12/99 est= 0.15 actual= 0.15 Next earnings 04-20 est= 0.12 versus= 0.10 Average Daily Volume = 1.16 mln /charts/charts.asp?symbol=IDPH FDRY - Foundry Networks $174.50 -17.25 (-26.69 this week) Foundry Networks, Inc. is a leader in high performance end-to-end switching solutions including Internet routers, Layer 3 switches and Internet Traffic Management systems for Layer 4-7 switching. Foundry products are installed in the world's largest ISPs including AOL, MindSpring, AT&T WorldNet, MSN, and Cable & Wireless. Foundry products are also installed in large enterprise, entertainment, pharmaceutical and manufacturing companies as well as search engines, e-commerce sites, universities and government organizations. Simply described, they sell optical switching and routing devices, and aim directly as Cisco's heart of electrons. FDRY bolted out of the gate from $120 on February 24th on DB Alex Brown's upgrade to Strong Buy and traded over 3 mln shares - more than three times the ADV. All good things must come to an end, and come to an end it did last Friday as FDRY topped out at an all-time trading high of $212. Two trading days later (today) we think we have an entry. FDRY pulled back to $165 intraday today, its previous level of resistance following the breakout. That also represents a current dip significantly below the 10-dma of $172.38. The close $2 above the 10-dma figure creates a long tail pattern on today's candlestick chart, and makes a bullish statement despite today's loss. Should the market decide to run into the end of the week (it's always darkest just before the dawn), we expect FDRY to emerge a winner as it could easily take out old highs. Earnings are bit off though, tentatively scheduled for April 24th. One area to watch out for is the expiration of the lockup period on March 25th. 82% of the 114 mln outstanding become available to trade. With only 10 mln shares in float, there's a double edged sword - it makes for big moves when the volume is up, but new shares will push the price down from the flood of new supply. You'll want to lighten your position or get out by next Thursday or Friday. This could be a quickie, and if you shy from volatility, you may want to check out a more conservative play. News is scarce, and without many analysts following the company, downgrades are unlikely. Keep your eyes open for news out of left field, especially if CNBC starts talking about expiring lockups. That may get current investors taking profits again. Note that May strikes are not available, and June strikes are very expensive. Thus we've listed neither. BUY CALL APR-170 QQ-DN OI=113 at $26.50 SL=20.50 BUY CALL APR-175*QQ-DO OI= 5 at $22.25 SL=17.50 BUY CALL APR-180 QQ-DP OI= 97 at $20.38 SL=16.00 Picked on Mar 14th at $174.50 P/E = 959 Change since picked +0.00 52-week high=$212.00 Analysts Ratings 2-1-0-0-0 52-week low =$ 54.00 Last earnings 01/00 est= 0.06 actual= 0.11 surprise=83% Next earnings 04-24 est= 0.09 versus= N/A Average Daily Volume = 852 K /charts/charts.asp?symbol=FDRY ************* NEW PUT PLAYS ************* CIEN - CIENA Corporation $134.00 -13.13 (-28.88 this week) Helping to satisfy our insatiable demand for bandwidth, CIEN makes dense-wavelength division multiplexing (DWDM) systems for use with long-distance fiber-optic communications networks. CIEN offers optical transport, intelligent switching and multi- service delivery systems that enable service providers to deliver and manage high-bandwidth services to their customers. The company's MultiWave DWDM systems allow optical fiber to carry up to 40 times more data and voice information without requiring more lines. CIEN's customers include long-distance carrier, competitive local exchange carriers (CLECs), Internet service providers and wholesale carriers. It's one thing to have a little profit-taking, but this is getting downright ugly. Tagging a new 52-week high ($189) just 9 trading days ago, CIEN has since given up 29% of its value and looks to be headed even lower. Stair-stepping down over the past 2 weeks, volume picks up on the down days and drops on the up days; ugly for a call, but beautiful for a put. With volume today 20% over the ADV and CIEN closing at $134, the low of the day and now well below the 10-dma ($161.50), look for the weakness to continue. On the agenda for the shareholder meeting on Thursday is a vote to increase the authorized shares from 360 to 460 million. With only 140 million shares outstanding and the significant run-up in price during the month of February, expect a split announcement to be forthcoming. Unless it is scheduled in the next few weeks though, it will be unlikely to provide much support. Resistance is forming near $152, and a test of this level followed by a move south would make for a good entry. The nearest support under today's close is found in the vicinity of $121-123. The best entry will come with a rollover near resistance, but new positions can also be considered as CIEN breaks down below $130. Conservative players may want to wait for the outcome of the shareholder meeting before opening new positions - anticipation of a split could give shares a lift, giving us a better entry point. BUY PUT APR-135 UEE-PG OI=165 at $18.00 SL=14.00 BUY PUT APR-130*UEE-PF OI=282 at $15.25 SL=12.00 BUY PUT APR-125 UEE-PE OI=170 at $12.75 SL=10.25 Average Daily Volume = 5.14 mln /charts/charts.asp?symbol=CIEN ********************** PLAY OF THE DAY - CALL ********************** NITE - Knight/Trimark Group, Inc. $47.94 -4.13 (-5.50 this week) 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. Most Recent Write-Up Monday, NITE, benefited from an upgrade from Deutsche Banc and announced that it would form a joint venture with Japan's third-largest brokerage, Nikko Securities Co Ltd. Today, it helped dig a crater along with the rest of the market. Fortunately, NITE also escaped disaster by bouncing firmly at yesterday's open and again near today's close at $47.50. Volume was right at the ADV, with no bias in either direction. With today as ugly as it was and NITE in the sweetspot of online trading, we think the worst is over. Besides that, they stand to profit handsomely from the surge in trading volume this year, a fact that the Street woke up to last Friday. Upgrades have followed, the most recent from DB Alex Brown who upgraded the issue to a strong Buy, citing that the rumored union of Goldman Sachs and Charles Schwab would be good for NITE as the leading market maker. Blessed be the 5-dma of $47.98, for it offers strong support and makes a good entry target. The 10-dma is only $0.50 behind at $47.48. Comments Today's sell-off affected just about everyone. Yesterday NITE found a resistance level at $54.75. The selling that occurred today established a mild support at $48. In after hours trading, NITE was up $1.31 at $49.25 on volume of 90,000 shares. Today's late upgrade should power the stock in a market rebound tomorrow. BUY CALL APR-50 QTN-DJ OI=5060 at $4.88 SL= 3.00 BUY CALL APR-55*QTN-DK OI=4102 at $3.00 SL= 1.50 BUY CALL APR-60 TNW-DL OI=4195 at $2.00 SL= 1.00 BUY CALL JUL-60 TNW-GL OI=2538 at $6.00 SL= 4.25 Picked on Mar 12th at $49.56 P/E = 31 Change since picked -1.63 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 /charts/charts.asp?symbol=NITE ************************ COMBOS/SPREADS/STRADDLES ************************ Bio-techs Plunge As The Nasdaq Tumbles.. Monday, March 13 Technology stocks plummeted today after market weakness overseas prompted a sell-off in the high-flying Internet sector. The Nasdaq lost 141 points to close at 4907 and the S&P 500 index was down 11 points at 1383. While the Nasdaq suffered, the Dow posted a modest gain, up 18 points to 9947. Volume on the Big Board was 995 million shares, with declines beating advances 1,849 to 1,192. There were 37 stocks at new highs and 226 at new lows. In the bond market, the benchmark 30-year Treasury rose 4/32, bid at 101 1/32, where it yielded 6.16%. Sunday's new plays (positions/opening prices/strategy): Electro Sci. ESIO APR45P/APR50P $1.25 credit bull-put MyPoint.com MYPT APR50C/APR55C $3.75 debit bull-call Sportsline SPLN APR40C/APR50C $7.00 debit bull-call Epitope EPTO JUL7C/APR15C $6.50 debit diagonal National CS. NLCS JUL50C/JUL50P $9.62 debit straddle The precipitous opening drop provided a number of excellent entry opportunities for the new bullish plays. The question is whether the discounted prices will prove to be timely with regard to the current technology consolidation. The NLCS straddle debit was based on a multiple contract order that was filled during the morning session. Portfolio plays: Equity futures were an obvious precursor to the negative opening this morning and steep losses in overseas markets, which were triggered by a drop in Japan's gross domestic product along with predictions that a pro-independence candidate in Taiwan might win the upcoming presidential election, sent a ripple of fear through U.S. investors. After a brief reaction to foreign issues, the Dow industrials rebounded as bargain hunters returned to many of the recent under-performing sectors. The tech-driven Nasdaq was unable to make a recovery but analysts said it was too early to determine whether this is the start of a significant correction. Drug, oil and cyclical issues were also weak while many of the bio-tech, Internet and semiconductor stocks that have led the Nasdaq's recent charge, were among the biggest losers. Friday's upcoming triple expiration of options on stocks, stock indexes and futures added to the volatility during the session. Our portfolio had a number of falling issues but the majority of positions remain profitable. A few of the bullish credit spreads are candidates for early exit but only if you believe the sell-off will continue through the end of the week. There are two issues that should be monitored for potential closing trades. KLA Tencor (KLAC) and Level 3 (LVLT) both ended $7 lower and while neither position is in danger, the potential for large price movements is inherent in both stocks. The logical move for KLAC is to close the position with a favorable debit of $0.38, a $0.50 profit in one week. The LVLT play is trading at break-even but the current chart pattern is more foreboding as the stock finished below the bullish 10-day trend line. If you plan to remain in the issue, watch it closely for continued downward movement. The next major support level is at the sold strike and the 30 DMA. A close below this price would signal a significant change in character and may result in position losses. There were a number of opportunities to roll long-term calendar and diagonal plays to April options and we made some favorable adjustments. Here is a summary of the positions that were moved to April along with the transition credit and the new cost-basis. Stock Ticker Position Credit C/B Duramed DRMD JUN5C/APR10C $0.68 $3.25 Key Energy KEG JUL7C/APR10C $0.50 $0.93 Marketing Svcs. MSGI MAY12C/APR20C $2.00 $3.75 Organogenesis ORG JUN10C/APR15C $0.75 $3.38 Theragenics TGX JUN10C/APR15C $0.75 $3.25 Marketing Services was the only position that required a downward adjustment to protect gains and limit losses. There was activity in the debit spreads portfolio as we chose to close the Tupperware (TUP) spread. The recent (bearish) chart pattern suggested the issue was no longer in a recovery mode and the play was in danger of significant loss. The closing credit was $1.00. Tuesday, March 14 The possibility of free access to research on human gene mapping floored the high-flying biotechnology sector, leading the Nasdaq to a dramatic sell-off. The composite of technology stocks fell 200 points to 4,706 and the Dow Jones Industrial Average skidded lost 135 points to 9,811. The S&P 500 Index slumped 24 points to finish at 1,359. On the New York Stock Exchange, decliners beat advances 4 to 3 on 1.09 billion shares traded. There were 39 stocks at new highs and 152 at new lows. The 30-year Treasury bond climbed over a point higher, with the price up 1-2/32 and the yield falling to 6.09%. Portfolio plays: The market fell victim to fear and profit-taking as selling in bio-technology stocks prompted investors market-wide to exit in droves. The genome companies fell on worries their proprietary information may be made public and the frenzied activity spread into other sectors, pummeling the technology group for a second consecutive day. Our portfolio was no different as the majority of momentum issues fell in broad sector downdrafts. Within the technology industry; computer software, chip and Internet issues were the hardest hit. In the overall market, cyclicals, drugs, precious metals, utilities and brokerage shares all lost ground. Small-cap stocks in the Russell 2000 index were also hammered by the dumping of biotech issues and a number of bullish diagonal positions fell victim to the news that President Clinton and British Prime Minister Tony Blair wanted unencumbered access to human genome data. Voicestream (VSTR) was the only surprise of the session and with the Murphy's Law reversal, the position may finish the expiration period profitable. The recently closed debit spread profits with the stock above $127. The adjustments in long-term positions continued today as recent high-flying issues came back to earth in the technology sell-off. The broad correction presented a number of excellent opportunities to transition to April options. Here is a summary of the adjusted positions along with the transition credit and the new cost-basis. Stock Ticker Position Credit C/B Cabletron CS JAN15C/APR40C -$13.50 $17.75 E-spire ESPI JUN5C/APR10C $0.50 $3.88 Medtronics MDT JAN37C/APR45C $1.50 $4.75 Network Assoc. NETA JAN15C/APR25C $1.00 $6.88 P-Coms PCMS MAY7C/APR17C -$1.75 $6.00 Premier Tech. PTEK JAN5C/APR10C $1.00 $3.25 Silicon Group SVGI JUN17C/APR25C -$1.00 $3.88 Vodaphone VOD JAN45C/APR55C $2.25 $7.50 Cabletron, P-Coms and Silicon Valley Group all incurred debits as the positions were rolled forward and up to higher strike prices. With the triple-witching of stocks and options coming up on Friday and the economic reports to evaluate later this week, the markets will be volatile and difficult to predict. Hopefully, the brief consolidation in technology issues will be met with renewed buying and we can continue to participate in the market movement with a simple and straight-forward, bullish bias. Questions & comments on spreads/combos to Click here to email Ray Cummins ********* NEW PLAYS ********* NAV - Navistar $26.25 *** The Rumors Are Back! *** Navistar International is a holding company with the Navistar International Transportation as its principal operating subsidiary. Navistar has major industry segments: manufacturing and financial services. Manufacturing operations are responsible for the manufacture and marketing of medium and heavy trucks, including school buses, mid-range diesel engines and service parts primarily in the United States and Canada, as well as in Mexico, Brazil and other selected export markets. The financial services operations consist of Navistar Financial Corporation, its domestic insurance subsidiary and their foreign finance and insurance subsidiaries. NFC's primary business is the retail and wholesale financing of equipment sold by their manufacturing operations and its dealers within the United States. They also manage the provision of commercial physical damage and liability insurance. Navistar recently returned to the roots of its proud heritage by changing the name of its principal operating company to International Truck and Engine Corporation. Navistar gained attention this week as news of a stalled European merger revived take-over talk involving the American truck-maker. Swedish truck and bus maker Volvo said on Tuesday it would again evaluate acquisition alternatives in Europe, North America and Asia, following the failed merger with rival auto-maker Scania. The European Union on Tuesday blocked Volvo's planned acquisition of the company saying concessions made already were insufficient to address concerns the merger would give Volvo a virtual monopoly for heavy trucks in Sweden and a dominant position in the Nordic region. The Financial Times reported that Volvo will now attempt to re-launch its commercial vehicles strategy and is considering various options to expand its global presence in trucks and buses. The British newspaper also said that a number of investment bankers believed Volvo was considering an approach to Navistar. Implied volatility and volume in options has picked up recently and there are a number of favorable speculation positions. With analysts suggesting the stock is undervalued (low P/E and solid earnings), these two plays have excellent risk/reward potential. PLAY (very conservative - bullish/diagonal spread): BUY CALL JUL-25 NAV-GE OI=1 A=$13.25 SELL CALL APR-35 NAV-DG OI=1283 B=$4.25 INITIAL NET DEBIT TARGET=$8.88 INITIAL TARGET ROI=12% -or- PLAY (conservative - bullish/calendar spread): BUY CALL JUL-45 NAV-GI OI=143 A=$3.25 SELL CALL APR-45 NAV-DI OI=777 B=$1.12 INITIAL NET DEBIT TARGET=$2.00 TARGET ROI=50% The basic premise in a calendar spread is simple; time erodes the value of the near-term option at a faster rate than it will the far-term option. The bullish calendar spread is used when the underlying issue is some distance below the strike price of the options. This position is speculative with low initial cost and large potential profits. Two favorable outcomes can occur: the stock rallies in the short-term and the position is closed for a profit as time value erosion in the short option produces a net gain or; the underlying stock consolidates, allowing the sold option to expire and then eventually rallies above the long option strike price. It is generally best to establish this type of spread at least 2 - 3 months before the long option expires, capitalizing on the ability to sell another option against the longer-term position. That is the basic idea in this spread play; selling time value in the options when they are overpriced (high implied volatility) and buying it back (if necessary) when they return to intrinsic value. Chart = /charts/charts.asp?symbol=NAV **** NETA - Network Associates $32.31 *** LEAPS/CC's *** Networks Associates provides and develops network security and management software. The company's Net Tools is a collection of products designed to protect enterprises from network security threats. McAfee Total Virus Defense is a product that provides virus protection at the client, server and Internet gateway. PGP Total Network Security combines security products with encryption software and management tools. Sniffer Total Network Visibility provides network fault and performance management, and Total Service Desk provides network management and help desk technology. NAI Labs is the division of NETA that performs research in the network security technology area focused on researching viruses and security threats, as well as other scientific, mathematical, cryptographic and technological issues that reside outside the product development pathway. NETA also offers professional services, educational services and technical support. NETA is one of our all-time favorite LEAPS issues and today the stock jumped $2 after McAfee, a Network Associates business, said that its Enterprise SecureCast anti-virus technology has been granted a patent relating to their proprietary system for keeping anti-virus software continuously updated over the Internet. With NETA's technology, the customer's network is automatically kept up-to-date and immunized against even the newest computer viruses being detected by the company's scientists and engineers. Using the world-wide-web to distribute anti-virus updates is the best method to provide computer protection and NETA's technology is expected to become the preferred method for updating anti-virus software. Pacific Crest Securities added to the positive news, upgrading the security software maker from a "market perform" to a "buy" and it appears the majority of investors agree. Today's move placed the issue above a recent trading range and the technicals are bullish. However, we are going to protect the downside initially with a conservative position. Keep in mind, if the short options are in-the-money at expiration, you must buy them back to preserve the long-term option. In addition, the opening spread has no initial, upside risk. PLAY (conservative - bullish/diagonal spread): BUY CALL JAN01-15 ZNE-AC OI=2356 A=$19.38 SELL CALL APR00-30 CQM-DF OI=914 B=$5.00 INITIAL NET DEBIT TARGET=$14.00-$14.12 TARGET ROI=100% Chart = /charts/charts.asp?symbol=NETA **** BILL - Billing Concepts $8.31 *** Technicals Only! *** Billing Concepts conducts operations in three principal segments: Software, Internet and Transaction Processing Services. Through its Aptis Software division, the company develops, licenses, and supports billing and customer care systems for telecommunications providers and Internet Service Providers. The company's Internet division provides Internet-based instant loan approval products to the financial services industry and is developing a new site focused on the credit union industry. In addition, the company also has a minority stake in Princeton eCom, a privately held company specializing in electronic bill presentment and payment via the Internet. The Transaction Processing Services segment provides third-party billing clearinghouse and other information management services to the communications industry. This conservative play is for our small portfolio "covered-call" investors and the outlook is simply based on the recent bullish break-out in the underlying issue. From a long-term viewpoint, it would appear that this is a low-risk entry point on a stock that has finally turned the corner and may eventually resume the position it once held in the teens to mid-twenties. Only time will tell! PLAY (conservative - bullish/covered-combo): BUY STOCK - BILL LAST=$8.31 SELL CALL APR-7.50 QBI-DU OI=147 A=$1.56 SELL PUT APR-7.50 QBI-PU OI=10 B=$0.81 COMBINED COST BASIS TARGET=$6.62 COMBINED ROI=25% (margin) As you might expect, this position has 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 the underlying issue so review the play thoroughly and make your own decision about the future outcome of the position. Chart = /charts/charts.asp?symbol=BILL ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. 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