The Option Investor Newsletter Thursday 3-16-2000 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) ************************************************************ 3-16-2000 High Low Volume Advance Decline DOW 10630.60 + 499.20 10632.50 10138.30 1,484,781k 2,431 648 Nasdaq 4,717.39 + 134.77 4717.76 4455.10 2,041,269k 2,256 1,994 S&P-100 781.93 + 32.63 782.00 750.65 Totals 4,687 2,642 S&P-500 1458.47 + 66.33 1458.47 1394.90 63.9% 36.1% $RUT 574.24 + 15.37 574.24 546.22 $TRAN 2678.88 + 157.17 2678.88 2523.20 VIX 23.20 - 1.86 24.55 22.18 Put/Call Ratio .54 ************************************************************* Correction? What correction? Pain, fear and worry were replaced today by excitement and greed, but it did not come from the usual suspects. The Nasdaq was still hell bent on going back to February lows after gapping open this morning but was dragged back from the brink of disaster by the mother of all short squeezes. According to floor traders at the NYSE there was a large number of fund managers who, faced with a falling Dow and Nasdaq, had shorted the S&P-500 and went long the Nasdaq expecting a Nasdaq bounce. Not expecting the Dow/S&P to recover anytime soon they were caught off guard by traders moving out of the Nasdaq and into S&P stocks. When they realized the rotation was for real and that the options expiration on Friday would put a serious crimp in their accounts, they were forced to buy S&P stocks to cover their shorts. With the Dow and S&P already severely oversold the increased volume supercharged stocks and the race was on. The "I have to cover at any price" mentality drove over 60% of the S&P up over 5% today. Many of these managers thought the combination of PPI/CPI/FOMC meeting would keep prices low until at least next Tuesday and safely out of March options. As you can see, even "experts" are humbled by the markets from time to time. (There was a massive quote failure on the Internet today and many of the chart services have incomplete data. Hence the intraday chart is the old style.) If this is a bear trap rally the next drop is going to be a killer. The Dow soared to the largest point gain ever at +499.19 and a giant step over the previous high of +380 on Sept-9, 1998. The advance decline line was not even close with a 7:1 advantage to the advances. The volume at 1.48 bln shares was a new record high. The markets shook off a slightly higher than expected expected PPI and forgot their worries about the CPI on Friday since PPI was not out of line. We all know the Fed is going to raise rates on Tuesday so that is not an unknown. With nothing to hold it back the drastically oversold Dow became extremely overbought in only 48 hrs. Whatever happened to "normal" markets? The Nasdaq, which gapped open +80 points at the open lost no time heading south again. In a power dive to Late February support and an intraday correction to the -13.2% level, even the soaring Dow could not slow it. But true to Nasdaq form the correction was short and sharp and marked the third -10% drop in three days this year. The intraday volatility was again extreme with a 262 point trading range. It was a tale of three markets. The Dow performing like a herd of stampeding bulls would be the obvious hero but inside the Nasdaq there was a real battle being waged. The leaders were soaring to new highs but there was an equal number of double digit losers as well. Capitulation was the name of the game and those that had already been there, done that, were off to the races and those who had previously resisted were taken out and beaten severely. Stocks like SMCR, MSTR, RBAK were down -$20 to -$40 and stocks like SDLI +33, INSP +29, PMCS +19, EBAY +28, AFFX +29, YHOO +12 were sprinting out ahead of the pack. The winners paid their dues yesterday but most of the big losers intraday today also recouped most of their losses by the close. Many stocks recovered +$15 to $20 once the February support levels were reached. The tech rally gained steam after Dow component Hewlett-Packard, whose stock price had been battered recently on confusion about the Agilent spin off, announced that earnings were on track and their stock was undervalued. After being down -7 early in the day HWP managed to close +1 for a quick injection of +40 points into the Dow. With the help from HWP and their positive comments, Dell computer shook off some profit taking and rebounded +4 off its lows. The semiconductors were the biggest rebounders on the promise of strong computer sales. Not to be left out the biotechs blasted off again after the Wall Street Journal tried to dispel some of the worries of the Clinton press conference on Tuesday. There was real life in every sector by the close. Of course you know what is next. The nagging question of can we hold it. Can the Dow overcome the potential for profit taking after the +819 point gain in the last two days? If there was ever a case for profit taking this is it. The biggest single day gain, double day gain, volume, etc, etc. Investor sentiment has gone from "get me out of the market now!" to "I want back in, NOW!" in only two days. The VIX which normally goes from top to bottom over the period of a week or two went from almost 28 (buy) to almost 22 (sell) in only two sessions. Famine to feast to famine again? Strangely enough, even with the massive buying the VIX came off the bottom even with the Dow closing at the High of the day. Not far off the bottom but enough to give us hope that the rally may have legs. Over 60% of the S&P-500 stocks were up over 5% today. Over 16% of these Stocks were up on twice their daily volume. Of the record 1.45 bln shares traded on the NYSE today 1.3 "billion" shares was up volume compared with 113 "million" of down volume. This was broad based buying, very broad based on huge volume. If this was a bear trap I don't want to find this bear. I simply cannot in good conscience tell you to buy something tomorrow when I am buying OEX puts at the close but I can't make a case for not buying either. Other than overbought, everything just looks too good to be true. (Where have you heard that before?) Even though the obvious suggestion would be to wait for the other shoe to drop. I would also caution you to not let this rally get away from you. Remember the Dow was down almost -2000 points from its January high so we have a lot of ground to make up. Another factor that was evident today was the tremendous liquidity coming off the sidelines. Huge amounts of cash were put to work and by applying historical norms there could be five to seven times that amount still in the wings. Once traders gain confidence that the rally is for real and not the mother of all head fakes, previous record highs could be old news in days instead of weeks. While the CPI is not likely to cause any grief tomorrow after the PPI was benign, there is still a FOMC meeting on Tuesday and Greenspan will not be happy about the record gains. The suggestion for tomorrow is walk softly, we could be on very thin ice. Because we closed at the highs of the day we could see a follow through at the open but this is a triple witching options expiration Friday and all bets come off the table by the close. Monday after options expiration can be rocky also as traders are exercised and have to shuffle their portfolios. Trade smart and sell too soon. Jim Brown Editor Disclosure notice: Current long positions include; SNE, SCMR, AMCC, CMRC, HWP, INSP, MSTR, PMCS, RBAK, SDLI, VRSN, YHOO No shorts *************************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 ****************************************************************** ****************************** OptionInvestor/Optionetics Spring Advanced Seminar Series ****************************** The spring dates for the OptionInvestor/Optionetics seminar series are approaching fast. This is the advanced seminar taught by George Fontanills and Tom Gentile. If you feel you need more option strategies in your trading arsenal like the Delta Neutral Straddles George is famous for then this seminar is for you. Remember, you can bring a friend for free and retake this seminar as many times as you want for free. The cost of the two day seminar is about what you would lose in only one trade. Invest it, don't lose it. Here are the spring dates: Mar 19/20 Chicago Mar 26/27 Dallas Apr 2/3 San Francisco For complete details http://www.OptionInvestor.com/seminar/ There is a 100% money back guarantee and you can take a friend for free. What else could you ask for? ********** STOCK NEWS ********** Palm Opens Japanese Unit By Cindy Christ Recent 3Com spin-off Palm Inc. said Thursday it had opened a new subsidiary to sell handheld computers in Japan. Based in Tokyo, Palm Computing K.K. will sell Japanese versions of Palm branded products through 300 computer and consumer electronics stores throughout the country. Palm also unveiled Japanese language versions of its Palm IIIc and Palm Vx handheld devices that will be for sale starting April 15th in Japan. The suggested retail price for the Palm IIIc is 49,800 yen, or about $472. The Vx version will cost 41,800, or around $396. "The handheld computing industry is growing and diversifying rapidly in Japan today," said Palm CEO Carl Yankowski in a news release. "The Palm Computing K.K. team will focus on driving adoption of Palm branded products and the Palm OS platform, utilizing Palm's strengths in wireless Internet and data access and electronic messaging to drive Palm's expansion in Japan," he added. Palm (NASDAQ:PALM) began trading independently from parent company 3Com (NASDAQ:COMS) on March 2nd. After rocketing more than 200 percent on its debut, shares in Palm have settled down to trade near its opening price. PALM shares closed down Thursday $0.19, or 0.34 percent, at $55.56. In the first half of 1999, Palm posted revenues of $435 million, up 65 percent from the year-ago period. Profits were $22.5 million, a 39 percent increase. International sales account for 32 percent of Palm's total sales, up from 25 percent last year. According to market research firm International Data Corp., Palm holds 70 percent of the market for handheld devices called personal digital assistants (PDAs), which help people on the go keep track of appointments, names and addresses, to- do lists, and other information. In late February Palm introduced its first PDA with a color screen, and promised to introduce a device with wireless connectivity for the European market by the end of this year, most likely in partnership with Vodafone Airtouch Plc (NYSE:VOD). Analysts say that expansion in Asia and Europe, which lead the U.S. in mobile communications, is a must for Palm to keep its dominant market position. IDC estimates that the worldwide market for handheld devices from pocket-sized computers to PDAs and cell phones will triple by the year 2003. With mobile communications set to explode, Palm faces stiff competition in the device arena from U.S.-based Handspring, which developed the Palm operating system, Casio, Compaq Computer (NYSE:CPQ) and Hewlett-Packard (NYSE:HWP), and Psion PLC (LSE:PON.L) in the U.K. In the operating system market, Palm competes with rivals Symbian, a consortium of global cell phone makers majority owned by Psion, and Microsoft (NASDAQ:MSFT), which has developed a pared-down version of Windows called Windows CE that powers a variety of personal electronics, including pocket-sized computers, electronic books and digital music players. Separately, The Philadelphia Stock Exchange said it began listing options on Palm (PHLX:UPY) Thursday. The options trade on the February expiration cycle, with initial expiries in April, May, August and November. Opening strike prices are 60, 65 and 70. Specialist Susquehanna Investment group will offer automatic execution guarantee of up to 50 contracts for orders executed through AUTOM, PHLX's automated system for equity and sectors index options. The Pacific Exchange (PCX) also began trading options on Palm (PCX: UPY) Thursday, trading on the February expiration cycle with opening strike prices of 60, 65 and 70 for the months of April, May, August and November. Position and exercise limits have been set at 60,000 contracts. Palm options on the PCX were allocated to lead market maker Ali Saadat of LETCO L.L.C. ************** Market Posture ************** As of Market Close - Thursday, March 16, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,000 11,500 10,631 Neutral 3.16 * SPX S&P 500 1,400 1,475 1,458 Neutral 3.16 * OEX S&P 100 760 800 782 Neutral 3.16 * RUT Russell 2000 500 520 574 BULLISH 2.24 NDX NASD 100 3,800 4,000 4,353 BULLISH 2.24 MSH High Tech 1,650 2,000 2,129 BULLISH 2.24 XCI Hardware 1,300 1,460 1,571 BULLISH 2.24 CWX Software 1,200 1,470 1,528 BULLISH 2.24 SOX Semiconductor 800 900 1,227 BULLISH 2.24 NWX Networking 940 1,000 1,100 BULLISH 2.24 INX Internet 700 800 819 BULLISH 3.09 BIX Banking 500 600 553 Neutral 3.16 * XBD Brokerage 400 450 499 BULLISH 2.31 IUX Insurance 500 600 530 Neutral 3.16 * RLX Retail 900 1,000 923 Neutral 3.16 * DRG Drug 340 380 358 Neutral 3.16 * HCX Healthcare 700 750 721 Neutral 3.16 * XAL Airline 110 140 135 Neutral 3.10 OIX Oil & Gas 240 300 285 Neutral 3.16 * Posture Alert Wow! The Dow Jones Industrial average is had its biggest single point gain after advancing close to 500 points or 5%. The DJIA confirmed an important support point at the 10,000 level the past few days. As such we have turned neutral across several of the previously Bearish industry sectors including Financial, Retail, Drug and Oil & Gas. Please make a note. After today's stunning reversal, we have updated several of our key benchmark levels. **************** Market Sentiment **************** Tweezer Bottoms By Pinnacle Capital Advisors Thursday, March 16, 2000 One of the important candlestick reversal signals we look for in the volatile market is a tweezer bottom. A Tweezer bottom is a long down day followed by a big up day. Talk about a big up day. The Dow Jones Industrial average is had its biggest single point gain after advancing close to 500 points or 5%. These profitable reversal signals become more significant if they occur near a meaningful technical measure such as moving average and support levels. The DJIA, for example, confirmed an important support point at the 10,000 level the past few days. Attached are several broad market indices that registered important tweezer bottoms. 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 (6.39): The current yield is now safely off of 52-week highs and is temporarily out of the danger zone. Mixed Signs: Volatility Index (23.06): 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. BEARISH Signs: Pre-Release Season: With April just around the corner, we have the beginning of pre- release season. Over the next 3 to 4 weeks, companies will let Wall Street know that their profit/sales goals are not being met, and their stocks will get brutally punished. Energy Prices: With the rapid rise in crude oil, everything from manufacturing to transportation will be affected by higher costs. These higher costs will be felt 1-2 quarters out, and could put pressure on profit margins. Investor Expectations: More and more investors are now expecting high double-digit growth if not triple-digit expansion in their portfolios. This extreme positive sentiment could help fuel a future selloff in technology shares. 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 Thurs Benchmark (3/10) (3/14) (3/16) Overhead Resistance (790-820) 18.34 19.45 18.34 Overhead Resistance (765-785) 6.26 6.12 5.45 Overhead Resistance (740-760) 0.78 1.07 .98 OEX Close 749.50 730.75 781.93 Underlying Support (700-735) 4.16 5.06 8.12 What the Pinnacle Index is telling us: Based on Tuesday's readings, underlying support is strong (700-735), and gaining strength. Overhead (790-820) the next two overhead resistance is 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 Thurs Strike/Contracts (3/10) (3/14) (3/16) Puts 700 / 11,436 700 / 13,210 700 / 12,411 Calls 750 / 9,088 750 / 9,247 750 / 8,341 Put/Call Ratio 1.26 1.43 1.49 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 March 14, 2000 23.06 Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Daily Results Index Last Mon Tue Wed Thu Week Dow 10630.60 18.31 -135.89 320.17 499.19 701.78 Nasdaq 4717.39 -141.38 -200.61 -124.01 134.77 -331.23 $OEX 781.93 -6.50 -12.25 18.55 32.63 32.43 $SPX 1458.47 -11.45 -24.47 32.99 66.33 63.40 $RUT 574.24 -13.67 -17.15 -14.12 15.37 -29.57 $TRAN 2678.88 26.65 -10.17 139.94 157.17 313.59 $VIX 23.20 1.56 1.07 -1.37 -1.86 -0.60 Calls Mon Tue Wed Thu Week SNE 250.00 -18.25 15.81 13.63 -4.94 6.25 Hvy vol. DELL 55.00 3.50 1.19 -2.25 1.31 3.75 Bounced BGEN 86.81 -3.93 -3.12 1.25 8.63 2.75 New ANDW 27.38 -0.25 -0.81 -0.19 0.06 -1.19 Dropped CSCO 131.66 -0.19 -4.44 -3.13 3.03 -4.72 Split NITE 47.00 -1.38 -4.13 -2.00 1.06 -6.45 Hang in YHOO 170.19 -2.25 -7.06 -10.25 11.69 -7.88 Caution IDPH 119.88 -13.56 -10.75 3.56 11.31 -9.43 Entry pt AFCI 69.94 0.44 -4.63 2.00 -7.69 -9.88 Dropped BWEB 48.06 -3.88 -5.63 -0.25 -0.19 -9.94 Momentum DSTM 29.94 -3.44 -4.69 -2.38 -3.00 -13.50 Dropped HWP 133.00 -0.44 -6.50 -8.00 1.00 -13.94 New NOK 200.00 -0.88 -8.50 -10.50 4.00 -15.00 LookinUP RRRR 62.63 -7.13 -4.88 -9.81 -3.56 -25.38 Dropped FDRY 175.00 -9.44 -17.25 -3.53 4.03 -26.19 Volatile TIBX 111.25 -4.19 -2.63 -12.13 -8.00 -26.95 Ern.Run VERT 230.38 -19.19 -24.00 -12.69 13.06 -42.81 core B2B CLRN 125.00 0.50 -11.75 -27.50 -5.50 -44.25 Dropped NTAP 182.56 -13.63 -31.06 -24.00 9.50 -54.31 Split VIGN 242.50 -23.00 -1.25 -20.50 -9.75 -54.50 Selloff EMLX 160.00 -16.00 -16.50 -20.38 -2.63 -55.50 Dropped CHKP 219.13 -11.69 -21.31 -38.19 10.44 -60.75 Bounce Puts CIEN 133.47 -15.75 -13.13 -8.69 8.16 -29.41 Rollin' BVF 50.56 -4.38 0.69 0.31 0.69 -2.69 Down EK 58.13 0.44 -0.44 1.13 3.00 4.13 Risky PPG 52.81 -0.75 0.06 4.19 2.63 6.13 Dropped DD 53.50 2.50 -0.63 2.81 2.88 7.56 Dropped UAL 54.50 0.31 0.25 5.44 2.25 8.25 Dropped ************ WOMANS WORLD ************ Shake, Rattle, and Roll By Renee White Not even Little Richard's rhythm could compare to the beat of this market. Talk about moving to a different beat of a drummer! In less than 5 trading days, we have gone from classical Bolero, singing Nasdaq 6,000 (and even 10,000), to singing the BB King Blues, only to dance the jig, fall flat with a heart attack and be revived for a little Saturday Night Fever dancing. Talk about a Fever!!! I can only imagine the confusion and bewilderment of new traders, much less new option traders. I am wondering how some of you feel now, after doing so well from October through December when you were considering quitting your jobs for full time trading. There was a time in the past when I defended my honor, claiming adamantly, "I am NOT a day-trader!" I have a good friend who evaluates deals for venture capitalists in the Silicone Valley. He doesn't play the market. Usually, I don't mention my trading to non-trading friends, which is most of them. Knowing I was ready to make some changes in my life, he began passing me some very interesting opportunities that became very tempting during last summer's sell-off. At one point, I realized I just couldn't turn my back on the opportunity to trade Y2K, so I had to tell him about my option trading. Even though a couple of the deals were once in a lifetime opportunities, so was Y2K. A good opportunity wouldn't be so good, if I couldn't trade. Not only that, I tend to go into everything with a passion to excel. I didn't want the distraction of a new deal competing with mental maneuverings around Y2K. My admissions though, lead to an unexpected realization. He categorized me as a day-trader and nothing I said could clarify the difference. I was just as surprised at my own reaction to the misunderstanding. After several exhaustive discussions and listening to his lectures of how I was wasting my talents playing Vegas markets, we agreed to avoid the discussion until after January. Times do change quickly. Not only is he very interested in learning more and more about option trading, but in this market, if one hasn't learned day-trading skills, they can go broke quickly! I've noticed how much younger and younger the pits are getting and I wonder how many older fund managers and high-roller traders, still exist. New technology versus old technology? Let's talk about day-traders versus the Warren Buffets. We've all laughed at Stuart in the Ameritrade commercials, but I think that scenario is very real. The younger hot shots always learn the newest tricks first. The older ones who are smart, get on board as quickly as they recognize a trend, usually introduced by the younger up-coming hotshots. Fortunes were made and lost in the last several days. The really superb traders made fortunes on both ends of the extremes, not once, but several times! I want to emulate those traders. Online momentum traders are here to stay. I think swings like this are going to become more and more common. It's the power of the internet. The little man (the day-traders), collectively can and will, start moving markets without the fund managers participating, like Monday morning showed us. And gee wiz, when they both buy in harmony that is one explosive firecracker! I learned two big lessons this week. In anticipation of this major sell-off, which I even forecasted in an article shortly after the Feb 22nd sell-off, I took profits last week in order to free up cash for my new entries this week. In my last column I wrote about missing the big dip Monday and staying out after the rebound. I did nibble though on some shares and leaps for my IRA account, QLGC, CMRC, GLW, AXF, SBC. The gap up on Tuesday's open, made me think I had missed my entry for April earnings. Since the sell-off came earlier in the week than I was anticipating, I looked at support levels and started entering cheap option prices for open orders in case a retest of those levels occurred again later this week. Some were really cheap entries, that I felt sure would not be filled. I had other non-market obligations this week, that would keep me away from trading. I read the early sell-off as odd. Odd enough not to jump in on the rally Monday. Unfortunately, not odd enough to stop me from entering all those open orders when I wasn't going to be around to watch it. As I said, all of them got filled, all the way down the bloody slide on Tuesday. By the time I looked at things, I was hurting. I will not ever do that again. Markets move too fast these days and stops only work if you place them. I got filled on a ton of open orders when I wasn't looking and had not yet entered stops, before a further drastic drop occurred. By Wednesday, I was ready to start practicing my smile in front of the mirror, dye my hair and go apply for a job at the local ice cream parlor. I mean, if you're going to buy the dips, might as well enjoy the flavor! Instead, I kept waiting on a rally. I jumped in, then back out, getting whip-sawed about, not wanting to get stuck holding more bad plays but wanting to buy the dip. It's a dog eat dog world and I was beginning to feel like I was wearing milk bone underwear! One minute, my plays looked to be recovering, the next minute sinking. Each new rally failed and bit the dust. I exited a few plays from Tuesday but many seemed to hold up well with the slides. I kept reminding myself I was expecting this sell-off. Most of my plays were April splits, so if they held up, I thought the rebound could be strong since the split runs coincided with earnings. Yes, climbing uphill would be hard, but many were bought ITM with premiums already deflated. Since the worse appeared over, I felt the risk was in my favor to hold for one or two more days to evaluate the re-bounders. I decided that I would add to the stronger plays when the market turned and buyers jumped in and I would exit any that acted like they didn't want to play anymore. This would lower my cost basis in the plays I kept and add quantity contracts that were cheap and re-bounding. My confidence Wednesday though, was shot. Wednesday was nasty, with lots of head fakes intra-day. I focused so much on Nasdaq, that I totally missed the DOW surge. Playing OEX was the place to be for sure! Actually, entering those plays a day early cost me more than the slide. It cost me big in the distraction and not seeing the whole market, except I did get GE & JDSU at cheap prices. I had a trading buddy Wednesday and we discussed if we should buy going into the close. At that time, Nasdaq was pointing due south without a hint of changing course. On days like that, I typically make my call in the last 5 minutes of the day. Typically, a bad day with a big last hour sell-off, followed by a sharp reversal running fast into the close, is a buy signal for me. He jumped on it like a flee on a dog, but I just stared at it and couldn't pull the trigger. At seconds before the close, I realized my bleeding from the Tuesday entries had completely shot my ability to play a good risk. Of course, he made out like a bandit with the gap up on the open this morning, while I hammered myself for not being willing to risk in front of the PPI. My knees had gotten wobbly and I had melted into a puddle. What a wimp! But today, I felt better. The gap up sold off in what was a nice put play. I could tell volume was huge when we hit the bottom because my charts and quotes went out. That is the second lesson I've learned this week. I have reached the point of having to have a back-up system. I can't be exposed without it much longer. My rebound of the day was INSP and I loaded up. I also added to positions in CMVT, VERT, TXN. I've been buying QQQ options over the last couple of days and these too performed well today. CREE and VIGN who announced a 3:1 split yesterday, did not show signs of strength with Nasdaq, so I vaporized them to stop the pain. By end of day, recovery from Tuesday was occurring faster than I had expected, mostly due to adding to strong positions that took off today. At one point in the last couple of days, I had thought of writing puts to help offset some of the lost premiums from these early entries. That's still a possibility. But right now, I want to keep things simple and just get through next Tuesday. I've learned enough lessons this week. Actually, I am not worried any more. This gave me an opportunity to buy more contracts on good plays, cheaply. I still like the plays and April earnings are still going to be good. Day trading causes people to go where the money and momentum are. It's just that everyone is a day-trader in one form or fashion these days, if they're a player. The confidence in techs will be back soon, because that is where the earnings will be. As the Proctor & Gambles of the world, try to figure out how to play the internet game, new technologies are being patented including the next generation of chips, requiring the next generation of equipment to handle them. Profit taking is due in the Dow and where do you think they will look for bargains for April earnings? My guess is positioning for April earnings will occur soon and a lot of options will be bought by next Tuesday. See you on Tuesday. Renee White Contact Support ************** TRADERS CORNER ************** The Exit Plan By Janar Wasito When I was in the Marines, my platoon almost conducted an embassy relief operation. We sat on an amphibious ship, practiced "fast roping" down a fire pole sized rope in the back of a helicopter, and studied maps of possible extraction points and the surrounding areas. The plans we developed were never complete without the final part -- the exit plan. This is a key part of what new traders need to think through. Come to think of it, this is something that experienced traders need to review, as I recently learned again. Let's say that you are a new trader and that you decided to play straight calls. You set up your targets on your quote software. You put alerts on the stocks at the entry points that you want. You have rehearsed your plan mentally. You know which trades you will make to establish the position. If you are using a broker like preferred trade, you can "target shoot" your entry into a position. Take, for example, YHOO, which went below 175, which was the target support level that the newsletter noted in the Sunday newsletter. YHOO spent some time below that level today, but closed above it. You could enter an order as follows: Buy to Open, YHOO Apr 185 Call, market, stop on stock @ 175. When YHOO hit 175, the order would be executed, and you would probably be filled at the ask price for that contract. Now, when should you think about your exit? After YHOO earnings on April 4? That makes sense, right? YHOO always runs up to earnings, then sells off afterwards. You could just buy puts on the day after earnings. Why not wait until April 1 to figure out when and at what price you will sell your options. Yeah, that's the ticket. That makes about as much sense as landing on the roof of the embassy and then starting to plan how you will get back to the helicopter carrier 500 miles back over the jungle and the sea. You might be able to figure it out, but that's not how smart traders operate. The most valuable thing about options trading that my experience in the Marines gave me was this concept -- go to the point of maximum risk, then work hard to eliminate the risk. The right answer to the above question is that you MUST decide on an exit strategy BEFORE you put on the position. It is one of the basic 10 rules of option trading (see the left hand column link) So, you enter the YHOO Apr 185 Call for 15. Realize that your option has no intrinsic value, that is, if you exercise the option you can purchase YHOO at 185, but since YHOO is at 175, you would lose 10 points per share if you sold it. Your option is out of the money. Your purchase price of 15 points is pure volatility and time premium. You have just bought a ticking time bomb, and your mission is to toss it to someone else who will pay a higher price in the next few weeks. It is a ticking bomb because as each day passes, time value erodes. It is a trade off that you must learn about, but for the new trader it is enough to realize that time works against you as (you hope) price movement works in your favor. What is a reasonable exit? That varies by individual trader. But the important point is that you should place an exit order as soon as you get filled. There are two basic types of exit orders you should consider -- stops & limits. A stop loss order is designed to prevent you from losing too much of your capital. For example, you could enter a sell to close, YHOO Apr 185 Call, market, stop at 11.75 order. You might get filled below 11.85, but you would preserve about 80% of your capital in the event that the stock moves against you. Stops look like a great way to protect yourself when you first get into option trading, but the reality is that a lot of 20% losses will tear a huge hole in your portfolio very quickly. One trader in our local club basically says that you need to be able to weather the down turns in stocks that you think are on overall up trends. The only real safety comes from a good entry point. That takes awareness of the market, sector, and stock. There are several approaches which you can use to enter a limit sell order. One approach would be to shoot for a high reward. Go for 100% profit. Place a limit sell at 30, so if the stock goes through the roof, you automatically sell at a price of 30. Often, you will wish that you were still in the play, but trust me, 100% profit in 3 weeks is a great play. If you get filled, you can take half of the money, and put it into a higher strike call. Alternately, You can place one order to sell half of the position at 100%, and let the other half of the play run. If you do this, the remaining part of the play is a "free play" because the profit from the first half of the play has paid for the cost of the second half of the play. If the stock tanks after you get out of the first half, you still have a profit built into the second half of the play, even if you let it drop quite a ways. A higher probability approach would be to place a limit sell order at 25% for part of the order. At just about this time of the year in 1999, I was just recovering from a disastrous DELL trade which had wiped out my profits from a very good January. I recovered from that situation by taking 25% profits, over and over, until I took some big swings at the fence during April earnings. 25% profits combined with a high percentage of winners (entry point is essential) will result in big gains in your portfolio. The other advantage of taking 25% profits over and over is that you will exit plays more quickly, go back to cash, and be able to look for new trades. This translates into a more efficient use of capital. A third approach which new and veteran traders alike should consider is to set two exit points. Put in one limit sell for half of those YHOO Calls at 15 + 25%, and put in a second one for the other half at 15 + 75%. The 25% limit sells will often fill in a few hours or a few days. You should also consider a time limit (3 days?) after which you automatically exit the play if it doesn't move substantially in your direction. A final approach to taking a profit on a call which is moving up is to use a "trailing stop." Say YHOO goes to 200... 210... 220... 234, right before earnings. As that occurs, you are thinking to yourself, "Oh my gawd, I am rich!" Well, you're not rich until you get out of the trade. One thing you can do is to move a stop order up behind the option. Sell to close, stop on stock @ 194.75... 199.75... 204.75... 209.75... 214.75... 219.75.. 224.75... 229.75 (these should trail the stock price by 5 or 10 points... place the stop price below an obvious 5 or 10 point price so that a market maker sweeping out stop orders doesn't catch you on a downswing). The problem here, of course, is that YHOO doesn't go up in a straight line. Pull backs will trigger your trailing stops, and then you will get taken out, perhaps when the stock is at 204. Then you will watch the stock go to 237. That's OK, as long as you make a profit. Prepare for it mentally. Don't get too greedy, and you can make a lot of money trading options. These concepts apply to more advanced techniques too. I went through all of my open positions (mostly spreads) today, and I set limit sells for each of the elements of the spread. I set insanely high sell to close, and ridiculously low buy to close orders. The purpose of this was both to take a close look at my open positions, and to have an order so that I could just adjust the limit back into the bid ask spread if the right situation presented itself. If you trade naked puts, you should consider two types of orders immediately after entering a position. First, a protective stop order. For example, today (Monday), I sold a RBAK Apr 380 Put for 37.125. I immediately set a buy to close, market, stop on stock @ 369.75 to protect myself from a big move down in the stock, and up in the option. In my situation, I have tossed a ticking bomb to another trader. I hope that the stock moves up, the option moves down in price, and I benefit from time decay. I also set a buy to open, RBAK Apr 360 Put, market, contingent on stock @ 389.75, to open a highly favorable Bull Put Spread, if the stock moves up in price. If I get the spread on, then I will cancel the stop on stock order for the RBAK Apr 380, and replace it with the second type of order a Put Seller should put on. I will place a Buy to Close, RBAK Apr 380 Put, limit @ 4.75. If RBAK moves up 20 points in a few weeks, then the option I sold will go down in value, and I will keep more of the premium which I sold. I want to close the play on any favorable spikes. I missed this kind of exit on several of the spreads I had on recently, but i don't want to go into too much detail. The trailing stop technique can apply to selling puts too. How do you do that? Simple. Say RBAK goes ballistic -- 390, 410, 425, 440. Well, I am protected, right? I am a spread trader. Actually, it could quite easily go back down to 350 very quickly, erasing my profit. So, I can set a buy to close, stop on stock @ 394.75, 409.75, 424.75, etc., until I get taken out. Actually, forcing myself to review lessons for new traders has made me highly aware of the basic techniques that I have been forgetting as I explore new strategies. So, as you plan your trades, think like a good platoon commander. Your job is not done until every one of your Marines is back on the helicopter headed safely out to sea. Contact Support ***************** An Osmotic Technical Point of View The DNA of picking pockets by Harrison Frolick OK, so I have decided to give up sky diving for awhile. Well, not really. So is everyone having fun? I know I sure have been. Hope some you got out of ETEK at the top and then got back in, and out, and in. You get the picture. Neat ride huh?! As Jim says, "Sell too soon!" The past couple of weeks have shown how you can make $150 on a stock even thoughit only moves $100 or so. I am still playing the usual suspects while waiting to see if good old HGSI will ever recover after the blow that the President gave it today. Biotechs have been on my radar for quite awhile and I try and keep up with most of the scientific journals. Although, I must say that it is getting tougher. The biotechs were just getting ready to come out of their shells, and then out of the blue, whamo! If you wonder why your biotech holdings may have plummeted today I am going to explain what happened, if not why. Without getting political, I am going to examine how a joint statement by President Clinton and Prime Minister Tony Blair picked the pockets of investors everywhere for 10s of billions dollars. While the stated goal was to help realize the benefits of biotech, their plan could very well set back the benefits of biotech for a decade. In a statement today they said the human genetic blueprint was, "...one of the most significant scientific projects of all time. " Oh, really? They went on to say, "To realize the full promise of the research raw funamental data on the human genome including the human DNA serquence and its variations, should be made freely available to scientist everywhere." Basically, what they have said is that all of the investors and biotech companies that have invested billions in reasearch should give it all up for free. In my experience, all that you have to do to get to the bottom of most absurd statements like these is to follow the money. The following is an excerpt from a story that I have been working on for the past week, but takes on a whole new meaning with these latest events. Read on and I will offer a few opinons and then you can draw your own conclusions. Because of one little process called PCR or Polymerase Chain Reaction the world has been forever changed. This was the brainchild of Kary Mullis who won the Nobel prize for it. He has a book out, "Dancing Naked in the Mind Field," that I highly recommend. It is not the normal droll scientific drivel. He is one of the few people that I would really like to meet one of these days. I have always found that understanding an industry to the best of your ability is the best way to profit from it. In fact, that is part of becoming and Osmotic trader. DNA, as you may well know, is pretty small stuff. Like really, really small. What PCR does is duplicate a piece of DNA millions of times so that you get a large enough sample to really see and mess with. This has made the study of the Human Genome possible. It also made cloning possible; i.e., Dolly the sheep and now the pigs and it is widely held that human cloning has already been done but, the parties have not or may not come forward because of the load of you-know-what that is going to hit them. You will probably see cloning mainstreamed through the cloning of pets and other animals first. No, I am really not kidding! In fact ,for disclosure, I am an investor in one such company. No it is not public, yet. But, while the money will probably be made from pets and livestock, the big reward will be that we will be able to save and store the DNA from the hundreds of animals that are otherwise going to be extinct in the very near future. A viable breeding population can then be established. No, dinosaurs are not allowed with us but, someone else will probably figure out a way to do it. As with most human endeavors, only a fool would say that it will never be done. On the neat side though, you will probably be able to see a real live mammoth or mastodon in the flesh shortly. Perhaps the largest benefit to be seen with cloning is that in the very near future there will no longer be a shortage of donor organs which will save literally millions of people per year. If you have a bad ticker, you will be able to clone one of own and know that it won't be rejected. While this may shock some of you, it is coming. Personally, if you have every lost a loved one for lack of an otherwise easily replaceable organ., this is indeed a blessing. The same will eventually go for people that have lost limbs or even their eyesight. The other benefits of biotek include the possibility of wiping out almost every inherited disease known to man. The revenues that this will generate will dwarf current pharmaceutical revenues. This is also why the industry may not be as far along as it could be. The large drug companies have a lot of pull with world governments and they have not exactly helped with certain aspects of biotech development. This is especially true in the US which is why you will see many of the breakthroughs come from outside our borders. The genie is out of the bottle on this one. That is what I had done on Friday. Little did I know about the statement coming out. The chilling effect for biotech companies being at the mercy of the state to the extent that the government can now come in and place your reasearch in the public domain is a frightening. Which is why the biotechs dropped dramatically. Who in there right mind is going to invest in research if they have to give it away. The original plan for the government to map the human DNA was to have government National Institute of helth run the project and I think that they said that it would take twice as long to do as it has. The reason is that private industry stepped in and streamlined the whole process. Otherwise, we would not be where we are today. This even goes against current patent policy on a world wide basis. The inovations that we have seen in the past few years is going to drastically slow down if this proposal is passed into law. Personally, I think that it will be challenged in the courts but, in the meantime biotechs are going to limp along. The part that I regret is that this action will cause suffering for millions of people. Is the biotech run over? No, but the development today bears watching closely (pun intended). If you have biotech stocks that dumped today, at least I have given you reason why they went down, if not the exact motivation behind the move. Have a fun and profitable week and watch those charts! Happy Trading, Think Osmotically! Contact SupportHarrison ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? 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The Option Investor Newsletter Thursday 3-16-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. 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: ***** DSTM $29.94 -3.00 (-13.50) What can you say? This had been a good little run that rode the coattails of NASDAQ 5K. Plenty of volatility and very good stock movement made this call play profitable. In the past week, DSTM traded as high as $47.50, and today, sank to as low as $28.50. Just as the NASDAQ's potent advance last week lifted DSTM to new highs, it's 12% or so deflation dragged DSTM back down to earth. DSTM proved to be a worthy call play, so thanks for playing, and it's time to start a new game. ANDW $27.38 +0.06 (-1.19) Like DSTM, ANDW provided some attractive trading opportunities throughout the past 2 trading weeks. This earnings run play, due out on April 20th, looked good, but the overall market rotation dominated money flow the last two sessions. Following suit of the NASDAQ, ANDW felt the pain of the yesterday's tech sell off. In fact, it seems that if your stock has four letters, you have been seeing a lot of red lately. Even with some relief today in the NASDAQ issues, we are going to move away from ANDW, which delivered a nice profit. Don't be surprised if you see it again in April. AFCI $69.94 -7.69 (-9.88) AFCI has been a teeter-totter: up one day, down another, up, down... But volatility has been the name of the game this past week. Today, the NASDAQ traded in a 262 point range. But AFCI's lack of participation in today's late session rally signals that this stock may be getting tired. Investor money has pumped up the DJIA stocks and has broadened the market rally. Since picking AFCI back on February 27, we are up $12.50 from $57.44. Besides the buyout rumors seem to have quieted, leaving investors in no mood to hold shares. So it is time to part and say goodbye to AFCI. EMLX $160.00 -2.63 (-55.50) Good-bye old friend. EMLX almost became part of the family after being on our list for about a month now. Unless you've been under a rock (and we couldn't blame you if you were), you know by now EMLX continued its drop which began on Monday. Today EMLX hit $141 at its intraday low, but did manage to come back to close with a loss of only -$2.63 for the session. Could EMLX find its legs and continue to bounce back? That's certainly a possibility. However the many stocks in the Nasdaq seemed to begrudgingly join in with the late day rally and EMLX was one of them. EMLX provided us with a nice run, gaining just over $100 since joining our list. For now its time to say so-long, but we will stay in touch for as EMLX, could join the family again in the near future. CLRN $125.00 -5.50 (-44.50) Well as you know, the selling continued in the Nasdaq and in CLRN. If you had your stops in place on Tuesday near $163, good for you. If you didn't then the last couple of days has been tough to sit and watch. We are letting this one go not only because of the drop in price this week, but the fact that CLRN stayed stuck in the mud, with the Nasdaq gaining momentum late in the session. Fundamentally things haven't really changed for CLRN, however the momentum and the excitement surrounding the company certainly have. CLRN has support at $120 from mid-February and earlier this month, and may begin to reverse its trend from here. However as you've seen this week, support is only good when more traders want to buy than sell once its touched. RRRR $62.63 -3.56 (-25.38) Anybody see the ripcord on my parachute? Violating one support level after another, RRRR plummeted into the ground ($60) before slowing its descent. Losing over a third of its value since last week's high of $94.75, our play is pretty badly beaten up. We reaped a tidy profit on our play until the bottom fell out of the NASDAQ - stop losses anyone? Given the recovery today in the NASDAQ, this could be the bottom for RRRR, but it may have a hard time resuming its upward momentum until it spends some time in the hospital. We'll give it some recuperation time while we move on to other plays. PUTS: ***** DD $53.50 +2.88 (+7.69) It feels like deja vu. It was about a year ago that we saw a very similar rotation where DJIA stocks began to move up while the NASDAQ's skyrocketing trend leveled off. This rotation to "old economy" stocks, which isn't all that surprising, has benefited DD and hurt our put play. A retest of the $45 level never materialized as money flowed out of the tech index and into the neglected issues at the NYSE. This play provided decent volatility since we picked it on March 2nd and good short-term trading opportunities. Yet, this strong up move for DD and the DJIA is convincing enough to drop this issue for now. PPG $52.81 +2.63 (+6.13) If we didn't know any better, we'd think that PPG changed its name to PPG.com! But no, PPG is just benefiting from the triumph of the value investors. Seeming to lend support to any stock that has been publicly flogged lately, these investors have helped PPG to add almost $7 in the past 2 days in the midst of an unprecedented recovery on the NYSE. Now that the downtrend has been decisively broken, we'll let PPG go, and move on to other plays. UAL $54.50 +2.25 (+7.31) Not only did UAL pull out of its dive, but it appears to have strapped on a couple of solid rocket boosters. Gaining $7.69 (16%) over the past 2 days on very strong volume has given the lagging transport stock new life. Value investors went on a buying spree, and virtually any stock that had been abused lately was in favor over the past 2 days. Now clearly above the 30-dma ($51), we'll step off this play before getting a nosebleed. ******************** PLAY UPDATES - CALLS ******************** IDPH $199.88 +11.31 (-9.44) The negative feeling behind the Biotechs is starting to ease. IDPH gave us a good bottoming pattern mid-week at $100 and made for a nice entry. Today's close just under $120 is the reward. It wasn't a tough call to add this play either as IDPH is a more established Biotech that actually turns a profit. A move above $120 backed by volume would be the next breakout. Waiting for a pullback? Support is looking good at $100, although a retreat to that level may be asking too much. In the news on Wednesday, IDEC announced the results of a phase 1 trial for a new drug. Preliminary findings were favorable according to the company. More news like this is what investors will need to hear to bring them streaming back to Biotechs and sending our play higher. Watch the biotech index (BTK.X) for additional signs of direction. YHOO $170.75 +12.25 (-7.31) Well, it wasn't quite a day to yell "Yahoo", but it was better than the recent action. Trader talk today was about a solid bounce off 4450 for the Nasdaq today and YHOO bounced solidly today as well. The low at $156 was a gift to this earnings run play. Hopefully the Nasdaq has gotten its jitters out of the way so that we can get to that earnings run. In reality, YHOO has held up extremely well in this week's carnage. Resistance is still overhead at $183. Until we crack that level, all cautious types may want to sit out (we all feel like cautious types after this week). The intraday dips like today's are still the best bet to jump aboard. Look for the Nasdaq relief rally to continue on Friday, but triple-witching may throw a wrench in trading so use caution. DELL $55.00 +1.31 (+3.75) DELL today mirrored the NASDAQ, selling off in the morning and turning around in the afternoon to post a gain. In the early going, DELL bounced off of $51 and built an intraday support at $52. In the final hour and a half of the session, DELL traded continually off its 5-dma, closing just off its highs for the day. Look to see if DELL can hold this $55 level where it established support during yesterday's session. DELL's future looks bright with the previous week's upgrades and upward revisions of price targets driving the stock price. St. Patty's Day tomorrow brings us CPI, triple witching, and green beer so watch for market direction and pick entry points suited to your risk levels. DELL may retest its 52-week high of $57.94. CSCO $131.66 +3.03 (-4.72) The market surged today and CSCO recouped most of yesterday's losses. CSCO has been on a slide the last two sessions from $138. Last Friday, they posted a 52-week intraday high of $141.88. In contrast, today's low was $124.31. Talk about great entry points. With their split coming next Thursday and a general market optimism, CSCO looks like it could run again. There is mild support at both $131 and $131.50 so look for a move off of these levels. Another strong day for the NASDAQ could help CSCO get back to $136 where it will meet resistance. Today's market surge overshadowed news that CSCO was buying two privately-held companies for $501 mln in an attempt to increase its business in the corporate telecom and digital home markets. Although this is not necessarily market moving, it is worth mentioning CSCO's continued efforts to grow its business into new areas. Watch for tomorrow's market direction and choose suitable entry points. Remember that this is a split play. NTAP $182.56 +9.50 (-54.31) NTAP made the cut once more. Why is that you ask? Because NTAP really may have put in a bottom the past two days. NTAP sold off early today, but found buyers entering the market for the balance of the session. Remember our interest in NTAP is for a split run. The "correction" seen in the Nasdaq and NTAP may have come at a great time, and could providing us with a very good place to buy calls. With NTAP due to split 2-for-1 after the close next Wednesday. From its high last Friday, NTAP fell $86, or about 35%. Today even with the Nasdaq struggling until late in the day, this maker of high- speed data storage servers, found buyers willing to put their money on the line. Just because we've seen a correction in the markets, doesn't change the fact that there is a high demand for storage and it will only continue to grow. Investors may be a bit more picky when rotating from sectors and hot stocks but we still believe this one is worth another look. Apparently analysts at Robertson Stephens think so too, as they reiterated their Buy rating on NTAP Wednesday. CHKP $219.13 +10.44 (-60.75) Talk about a bounce! CHKP added to losses seen the past two days hitting $189 early today. With the Nasdaq officially in correction mode with a decline of over 10% from recent highs, CHKP and others experienced wider swings in volatility. From its high last Friday at $295, CHKP fell 36%, in four days. As we said Tuesday, swift and brutal if you were long. CHKP ended the session with a gain of 5%. We've kept CHKP on our list as the volume today was heavy and the momentum picked up as the price began to bounce back. The sentiment surrounding the Internet security seemed to improve as the day went on. On Wednesday CHKP introduced Check Point SiteManager-1 System. It's a new solution designed specifically to enable telecomms and service providers to address the high growth market for delivering managed Internet security and VPN services to small and medium business. CHKP has support now at $210. Confirm direction and volume prior to entering a new play. SNE $250.00 -4.94 (+6.25) It was a long fall, but SNE looks like it has finally found its bottom. After touching $218 earlier in the week, investors seem to have regained their senses, allowing SNE to move up moderately and begin building support near $245. Volume is running a little heavier than average, and looks to be heavier on the up-moves than on the down-moves. The company seems to have weathered the debacle over the PlayStation2 release, is still well positioned in its core markets, and from the news yesterday, seems intent on capitalizing on the convergence of entertainment and technology. The company announced it will reorganize parts of its electronics business to better realize its goal of becoming a "broadband entertainment company". In light of the pending AOL-Time Warner merger, SNE has had to start thinking more about merging its products with its content properties. Look to enter new positions as SNE bounces at support found at $245 and then $240. SNE will likely run into some resistance near $258 where the 10-dma ($259) and the 50-dma ($257) appear to be converging. More conservative investors may want to wait for SNE to close above this level before jumping on board. VIGN $242.50 -9.75 (-54.50) It's hard to find any "new economy" stocks that haven't been in the red over the past two days and VIGN is no exception. Sellers pushed the share price as low as $228, before the buyers couldn't take it anymore and jumped back in. A similar pattern was seen across the tech sector as the NASDAQ recovered from a huge loss, to post a respectable gain. Yesterday, VIGN cut through its 10-dma like a hot knife through butter and had to challenge the 30-dma ($233.63) today before finding support. Looking for a catalyst for the plunge (other than the correction on the NASDAQ)? Look no further than the company's announcement Wednesday morning of a 3-for-1 split, which will take place on April 14. In typical post-news fashion, the price plunged almost $40 immediately, before saner heads prevailed allowing for a modest recovery. Of course, then the bottom fell out of the NASDAQ, and the downdraft dragged VIGN lower as well. Providing some encouragement today was the stock's ability to close above $240, the support level created by the January highs. As money flows back into the NASDAQ in anticipation of strong earnings growth, look for VIGN to resume its climb. Resistance will likely appear at $248 and then $260. At the risk of repeating ourselves, remember that VIGN is a volatile Internet, commonly posting $30 intraday price swings. BWEB $48.06 -0.19 (-9.94) As we said Tuesday, a decline or drop in price is still a negative. BWEB is down over $9 for the week, but the impressive part is how well it has actually held up. We mentioned the $45 level of support Tuesday. With the Nasdaq and many of the tech favorites in the tank, BWEB had buyers waiting in the wings at $45 to $46. Volume last week when BWEB was making a new high each day was strong, averaging 1.6 million shares per day. Volume this week so far on the decline has been light averaging about 628K per session. A quick check of the math tells us that investors still believe in this stock and aren't going to let a correction scare them away. There has been no company specific news so far this week to help prop the price up or pull it down. We were expecting a bit of a pullback this week, but we believe its been exaggerated by the correction in the Nasdaq. If the major indices can maintain the momentum seen late today, we would look for BWEB to get back on track. VERT $230.38 +13.06 (-42.81) If you don't have a bad case of whiplash from playing VERT, kiss your chiropractor. From Tuesday, we recommended standing aside if VERT couldn't hold $225, as the next resistance would be $195-$200. Bingo!! VERT tagged $195.13 this morning and marched $35 out of the basement by day's end. While VERT still sits below its 5-dma ($240.98) and 10-dma ($247.05), today's big recovery off the low on volume exceeding the ADV by 42% looks technically positive. Even better is that the extreme oversold condition (stochastic) reversed itself this morning, and should continue northward as VERT again attempts a split run into its 2:1 split date of March 31st. Target shooting back at $215 will likely give the best entry. Otherwise a breakout over $240 with increased volume would help confirm the direction of the trade. The next resistance would then be $250. Note too from briefing.com, "Merrill Lynch Internet analyst initiated coverage with a near-term Accumulate, Long-Term Buy rating and a price target of $350; calls VERT a core B2B holding; notes high valuation but would recommend buying on weakness." NOK $200.00 +4.00 (-15.00) So much for $205 as a good entry point. The worst was not over. NOK, which trades as an ADR (notorious for gap openings as a result of overseas trading) gapped down at yesterday's open to $202 and fell through yesterday and this morning, touching $182 around 11:00 ET today. Credit the tech rebound for lumping NOK with it on its stellar recovery. While NOK couldn't close above yesterday's opening price, the pony in today's pile is that NOK showed more than twice the ADV as it recovered $15 off its low, and moved decisively upward from its technically oversold condition. NOK is also splitting its shares 4:1 in roughly early April following a shareholder meeting on March 22nd. We'll keep you posted on the date. Accordingly, we maintain that the worst is over for. However, one wild card to be aware of is that shipments from Finnish phone cover makers could be halted if chemical workers extend a strike until next week. That would naturally prevent the shipment of completed phones...not good for short-term business, but highly unlikely to affect the long-term prospects. NITE $47.00 +1.06 (-2.56) An initial glance at the chart shows a snoozer of a trading pattern on volume fractionally above average for the last two days. Ho-hum might be the response were it not for NITE's ability to stand firm in the NASDAQ's headwind today, and especially yesterday. Support at $45 yesterday and $46 today held up well in what should have been a route. The lack of volume with good support confirms investors desire not to jettison the issue. A small added bonus...BankBoston Robertson Stevens reiterated its Buy rating and raised is EPS from $0.70 to $0.90 citing that "According to Autex/OTC, Knight/Trimark average March quarter weekly volumes are up 100 percent over December quarter volumes". Earnings are anticipated on Apr 19th. Target shoot at your level of comfort, but confirm market direction first. Tomorrow (triple witching day) could be a bit tricky. TIBX $111.25 -8.00 (-26.94) An $8 loss on the day when NASDAQ recovers 262 points off its low? Why is this still on the list? First along with the NASDAQ's "v" bottom, TIBX recovered $10 from its low of $101 on volume of four times the ADV following a sharp sell-off this morning. Second, earnings are scheduled for announcement on March 23rd (earnings run) when we also expect another split announcement. Why do we expect it? On the agenda for the shareholders meeting scheduled April 11th is an item for approval to authorize a share increase from 300 mln to 1.2 bln shares. The close today above its previous resistance level of $109 set on February 28 is a good sign. While we don't expect the price to get or remain down for long (earnings are just a week away), triple witching and index adjusting could make this a jittery ride tomorrow. Target shoot to your level of comfort down to 101, otherwise you may want to wait for the break back over $120. A piece of news that may have benefited TIBX, they announced that they have just completed a Web-based interactive portal for RSL communication, a telecom company. FDRY $175.00 +4.03 -26.19 A big sell-off happened in almost every four-letter company symbol (NASDAQ) this morning only to be followed by a terrific recovery. FDRY was no exception, hitting $153 before its $22 recovery by the market's close. No news on the wires, so we have to look deeper into the chart for direction. Volume has been merely average running close to the ADV since Tuesday. While the rebounds were nice from the low $150's, and convey a bottoming out of the sell-off, the low prices have not been greedily met with a surge of buying volume, causing us some concern. With earnings not scheduled until April 24, there is no event to drive this play forward for now. Another concern is that the lockup period will expire on March 25, making over 85 mln shares available for trade. Most are still company owned and won't be an issue; however, insiders could still have an affect on the price with just 10 mln shares in float. If you are going to play this one, target shoot aggressively and keep a close stop set going into the end of next week. ******************* PLAY UPDATES - PUTS ******************* EK $58.13 +3.00 (+4.13) It doesn't look promising that EK will stay a put play if another day like today occurs. EK got a major boost from the Dow today. They broke through resistance and went as high as $60. Volume was impressive showing momentum in the breakthrough. So why keep EK? It is risky and that should be kept in mind when entering EK. What we think happened today is EK fed off the positive momentum of the Dow. Consider also that after they made their run up to $60, they turned right back around. At any time we still expect an earnings warning. So we will watch and wait for a little while longer. In the news EK announced they will continue Olympic sponsorship through 2008. CIEN $133.47 +8.16 (-29.41) Bungee jumping anyone? Continuing to be abused with the rest of the NASDAQ, as investors jumped to the much-maligned NYSE stocks, CIEN plunged through support near $120 this morning. Falling all the way to $115 before finding support, CIEN posted an amazing recovery in lockstep with the NASDAQ. Very heavy volume accompanied the recovery from today's lows, so we would advise caution in opening new positions. With an almost $19 range, today provided an excellent intraday trading opportunity for those watching the market. Going forward, look for CIEN to follow the lead of the NASDAQ, which could mean more choppiness ahead. Moving back above the 30-dma ($127.50) and support in the $121-123 area, Although probably not a factor in today's wild market, the announcement that Global TeleSystems (GTS) will invest approximately $100 million in CIEN's open-standards CoreStream systems. If the NASDAQ can move up again tomorrow, CIEN may go along for the ride. Watch for a rollover near resistance and then jump on for the next plunge down. BVF $50.56 +0.69 (+0.31) Just when you got a good put play developing, an analyst steps in and reiterates a Buy on the company. That may or may not have been the reason for the move up in price today of BVF. CIBC analyst, Lennox Gibbs, came out this morning reiterating his Buy rating on BVF, projecting a 12-month price target of $66. Actually BVF has given us a quick move down to $46, which may be the extent of what we are going to get. However the volume on the down days has been far heavier than the days BVF has shown gains. The fundamentals at this point haven't really changed so we are going to hang with BVF for a while longer. As we mentioned before, technically BVF could bounce all the way up to the $52-$54 area and begin to fall again keeping the current downtrend in tact. Another plus for this play? The Drug and Biotech sectors added about 5.0%-6.0% today, while BVF could only manage a gain of about 1.0%. At this point BVF hasn't joined the party, and may head back south. ************** NEW CALL PLAYS ************** HWP - Hewlett Packard $133.00 +1.00 (-13.94 this week) As the #2 computer company worldwide, HWP provides computers, imaging and printing peripherals, software, and computer-related services. Taking full advantage of the tremendous international growth, more than half of the company's sales come from outside the U.S. HWP is in the process of restructuring itself as an Internet specialist, providing Web hardware, software, and support to corporate customers. In pursuit of that goal, the company recently spun off its test and measurement and medical electronics businesses as Agilent Technologies (A). Looking for a good value in a tech stock? HWP thinks they are the ticket, touting their own stock as being undervalued (see news below). They might be right; with the successful spin-off of Agilent Technologies, (of which HWP maintains 85% ownership), shareholders should begin to focus on the core strength and value of the computer and internet side of the business. The tech-wreck this week brought HWP as low as $124 before the stock bounced (just above the 50-dma of $123.25). A quick glance at a daily chart shows this to be a good support level, tested several times since the middle of February. The solid bounce today is very encouraging, coming at a major support level and confirmed by volume over twice the ADV. Depending on the underlying strength and longevity of the bounce in the broader markets, HWP will likely see tiered resistance at $135, $139, and $142. With the continuing minefield of economic reports, the stock could remain volatile, providing some attractive entry points. HWP becomes a split candidate above $140, and the company has plenty of authorized shares. Look for a bounce from support near either the 30-dma ($132) or the 50-dma to trigger your entries. More conservative players may want to wait for a break through the first resistance level ($135) before opening new positions. This afternoon, HWP confirmed that it is on track to make its revenue growth goals of 12-15 percent and said that its stock is undervalued. After the recent spinoff of Agilent, HWP's treasurer, Larry Tomlinson, places the PE ratio of the company near 25 and says it should be closer to 35, based on the valuations of its peers. BUY CALL APR-130 HWP-DF OI= 464 at $ 9.13 SL=6.75 BUY CALL APR-135*HWP-DG OI=1121 at $ 7.13 SL=5.25 BUY CALL APR-140 HWP-DH OI=1318 at $ 5.25 SL=3.50 BUY CALL MAY-135 HWP-EG OI= 601 at $12.13 SL=9.50 BUY CALL MAY-140 HWP-EH OI=1468 at $10.13 SL=7.50 SELL PUT APR-120 HWP-PD OI= 571 at $ 4.13 SL=6.00 (See risks of selling puts in play legend) Picked on Mar 16th at $133.00 P/E = 44 Change since picked +0.00 52-week high=$155.50 Analysts Ratings 10-12-6-0-0 52-week low =$ 65.13 Last earnings 02/00 est= 0.77 actual= 0.80 Next earnings 05-17 est= 0.81 versus= 0.88 Average Daily Volume = 3.56 mln /charts/charts.asp?symbol=HWP **** BGEN - Biogen Inc. $86.81 +8.63 (+2.75 this week) Biogen researches, develops, and markets biopharmaceuticals to treat a variety of illnesses. AVONEX, is the company's claim to fame, used in the treatment of multiple sclerosis. Other drugs made by BGEN include Amevive, for psoriasis; Antova for autoimmune diseases; and Adentri, for congestive heart failure. BGEN also receives revenues from licensing drugs it has developed to other companies. BGEN has research agreements with Schering-Plough, SmithKline Beecham, Merck and Abbott Laborites. Volatility can produce huge gains and equal losses and this time we believe it's produced a very good opportunity. Late last week BGEN and the Biotech sector fell victim to the sector rotation seen so frequently. Early this week President Clinton and U.K. Prime Minister Tony Blair poured fuel on the rotation fire with a statement that they wanted the data discovered by the mapping of human genes to be made public. As you undoubtedly heard those comments prompted traders to sell the gene discovery companies and those with drugs on the market or in development like BGEN, IMNX and AMGN. And sell they did. It's amazing just how well BGEN has held up with the all that was going on around it. The $77-$80 area has provide great support for our new play the past few days, and today BGEN began what appears to us good chance to buy calls. Many traders have reconciled that investors over-reacted to the comments from the President, and recent weakness or correction in the Biotech sector may have run its course. John Borzilleri, a fund manager with State Street Research & Management said today, investors buying at these levels are going for security of known names. Borzilleri manages a fund that has about $55 billion in assets and includes BGEN. Late today as BGEN went through the $85 level the volume picked indicating this could be the start of something very good. We would look for $84 to provide support should we see a pull back in the morning. The last broker comments seen on BGEN came in late February. With the price decline seen since the first of the first part of the month we would anticipate some favorable comments from analysts to reach the market with BGEN trading back at these levels. 16 out of 27 that follow the company currently have BGEN rated either a Buy or Strong Buy. BUY CALL APR-80 BGQ-DP OI=1642 at $14.13 SL=11.00 BUY CALL APR-85*BGQ-DQ OI=1238 at $11.50 SL= 9.00 BUY CALL APR-90 BGV-DR OI=3673 at $ 9.25 SL= 7.00 BUY CALL JUL-90 BGV-GR OI= 693 at $16.75 SL=13.00 SELL PUT APR-75 BGQ-PO OI=1902 at $ 4.00 SL= 6.25 (See risks of selling puts in play legend) Picked on Mar 16th at $86.81 PE = 62 Change since picked +0.00 52-week high=$129.00 Analysts Ratings 9-7-11-0-0 52-week low =$ 45.13 Last earnings 01/00 est= 0.42 actual= 0.44 Next earnings 04-10 est= 0.43 versus= 0.29 Average daily volume = 4.35 mln /charts/charts.asp?symbol=BGEN ************* NEW PUT PLAYS ************* No new put plays today. ********************** PLAY OF THE DAY - CALL ********************** DELL - Dell Computer Corporation $55.00 +1.31 (+3.75) (+5.00) Dell Computer is the world's #1 direct-sale computer vendor and one of the world's top PC makers. Therefore it's understandable that the company designs, develops, manufactures, markets, services, and supports a variety of computer systems including desktops, notebooks, workstations, network servers, and storage products. Dell's clients include the government, corporations, the medical and education industries, as well as the individual consumer. Founder Michael Dell is still the CEO and maintains a 14% stake in the company. Most Recent Write-Up DELL today mirrored the NASDAQ, selling off in the morning and turning around in the afternoon to post a gain. In the early going, DELL bounced off of $51 and built an intraday support at $52. In the final hour and a half of the session, DELL traded continually off its 5-dma, closing just off its highs for the day. Look to see if DELL can hold this $55 level where it established support during yesterday's session. DELL's future looks bright with the previous week's upgrades and upward revisions of price targets driving the stock price. St. Patty's Day tomorrow brings us CPI, triple witching, and green beer so watch for market direction and pick entry points suited to your risk levels. DELL may retest its 52-week high of $57.94. Comments DELL has been hot for two weeks, even despite the Nasdaq woes. The last two days gave us the first real sell-off during this period. The volume was light and the bounce occurred this afternoon so we'll call it an entry point and jump on board for the next move higher. BUY CALL APR-50 DLQ-DJ OI=22655 at $6.88 SL=5.25 BUY CALL APR-55 DLQ-DK OI=10542 at $4.00 SL=2.50 BUY CALL APR-60*DLQ-DL OI=14087 at $2.25 SL=1.00 BUY CALL MAY-60 DLQ-EL OI=12356 at $3.63 SL=2.50 Picked on March 9th at $50.44 P/E = 88 Change since picked +0.81 52 week high=$57.94 Analysts Ratings 14-18-3-0-0 52 week low =$31.38 Last earnings 12/99 est= 0.15 actual= 0.16 Next earnings 05-18 est= 0.16 versus= 0.16 Average daily volume = 32.4 mln /charts/charts.asp?symbol=DELL ************************ COMBOS/SPREADS/STRADDLES ************************ To Infinity And Beyond.. Wednesday, March 15 Blue-chip stocks recovered today as investors sought refuge from the recent technology sell-off. The Dow Jones Industrial average leaped 320 points to finish at 10,131 while the Nasdaq index fell 124 points to 4,583. The S&P 500 Index rose 33 points to 1,392. On the New York Stock Exchange, advances led declines 19-11 on active volume of 1.3 billion shares. The 30-year Treasury bond rose 8/32, bid at 102 11/32, where it yielded 6.07%. Tuesday's new plays (positions/opening prices/strategy): Navistar NAV JUL45C/APR45C $2.00 debit calendar Navistar NAV JUL25C/APR35C $9.00 debit diagonal Billing Conc. BILL APR7CC/APR7NP $6.62 debit Cov/Combo Network Assoc. NETA JAN15C/APR30C $14.38 debit LEAPS/CC's The wild and woolly session did little for our three new positions with each of the issues trading in relatively small ranges. There were a number of favorable opportunities to leg-into the spreads but our prices are based on simultaneous orders. The target cost basis for the BILL combination play was not available until late in the afternoon. Portfolio plays: The flight to quality was apparent today as traders scooped up recently flagging blue-chip issues and continued to dump formerly high-flying tech stocks. Analysts say the correction was long overdue for many of the Internet/Networking and Semiconductor companies. While the Dow posted big gains, the Nasdaq registered sharp losses as bargain hunting investors rotated the new leaders into their portfolios. Many sectors enjoyed substantial gains with the majority of financial, cyclical, retail and drug stocks all finishing higher. A number of biotech issues rebounded from recent slumps and only 3 Dow components ended the session in negative territory. Now that blue-chips have begun to recover, all eyes are on the FOMC meeting next week. Experts suggest that a 25-basis-point interest-rate hike has already been factored into the broader market, but concern over rising inflation is expected to plague equities through the summer months. The big surprise came in one of our straddle issues as LHS Group (LHS) rose $12 to $52 after the firm reported it would be acquired by UK's Sema Group for $4.7 billion in stock. The debit straddle closed with a $27 credit, a profit of $21.25 on $6.75 invested. The rest of the portfolio was a horrific site with crimson quotes dominating the spreadsheet. A few of the bullish, momentum plays required action to limit potential losses (MYPT and SPLN were two obvious choices) but the recent volatile movement provided a great opportunity to talk about exit strategies. In the Credit Spreads section, Level-3 Communications (LVLT) was on our hit list and as expected, the stock displayed its new character perfectly, falling to a recent low near the previous support area at $105. The issue eventually rebounded to a closing price of $109 but the movement offered plenty of opportunity to profit from a simple roll-out. In the case of credit spreads, a favorable outcome is for the stock price to finish outside (OTM) of both positions. In this case, both options expire worthless and you are left with the original credit as the profit. There are three common ways to exit or cover a losing credit spread. You can simply close the position at a debit and register the loss. There is also Jim's popular technique; covering the short position as the stock moves through the sold strike. For LVLT, that would mean shorting the stock near $115. This is a great method for bailing out on an issue that has reversed course but you must be prepared to buy it back in the event of a recovery. Another option is to "roll-out" of the spread for profit (or at least break-even). To roll-out of a credit spread, place an order to close the short option anytime the stocks trades (and preferably closes) below technical support or a well-established trend line or moving average. Of course there are other, more precise signals that can be used but the technique is based on the probability that the stock should continue to move in that direction. After the short position is repurchased, wait for the stock to lose momentum and sell the long position to close the entire play. It is a difficult technique to perform when emotion enters the formula but it works well once you become experienced at it. The key to success is using the method at known support levels or after key reversal signals, otherwise you are just speculating about the stock's next move. That's one nice thing about spreads; once you understand them, you can turn many losing plays into winning ones with the effective use of STOPS and by rolling out-of/into new positions when the stock moves against you. When you do lose, at least you have reduced your losses by leveraging against another position. With the new CMGI play, we have another potential candidate for early exit but our approach to this position will be quite different, based on our outlook for the stock. While the issue is obviously experiencing some short-term difficulty, we favor the potential for company, once the Internet rally is re-established. Our plan would simply be to sell a slightly OTM call ($125 - $130) if the issue closed below the sold strike of the bullish, credit spread ($120). The problem of course is that you will most likely have to cover the sold calls with stock or another option position. If the stock finishes below $120 at expiration, you accept delivery of the issue, establishing the covered-call. The alternatives are numerous but our conservative approach is simple; if the stock recovers from the sell-off and begins a sustained move through the sold strike (before expiration), we will simply buy the stock or buy a deeper ITM call to create a bull-call spread. In the case of a bull-call spread, you can lower the amount of purchased time premium by moving well below the sold strike price ($100 or $105) thus reducing the losses from slippage as the stock returns to a bullish character. Of course this technique requires continuos management of the issue but it is one way to attempt salvage of a losing position and with diligence, the outcome will generally be positive. Thursday, March 16 U.S. equities enjoyed an incredible rally today as blue-chips roared and investors welcomed technology issues back into their portfolios. The Dow Industrials rocketed 499 to 10,630, its largest rise ever. The Nasdaq Composite rose 134 points to 4,717 while the S&P 500 index rallied 66 points to 1,458. Volume came in heavy at 1.48 billion on the NYSE with winners outpacing losers 24 to 7. There were 49 new highs and 41 new lows on the NYSE. The 30-year bond shed 13/32 to yield 6.04%. Portfolio plays: Today's session felt like expiration Friday with stocks moving violently in both directions. The action was fast and furious and only those with nerves of steel jumped in at the midday lows. The end result was another blow-out session for the Dow and a fairly productive recovery for the Nasdaq. Our Spreads portfolio was just as exciting but fortunately, there were only a few remaining adjustments to be made. 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 Boston Comm. BCGI JUN5C/APR7C $0.62 $0.31 Cadence CDN MAY15C/APR20C $1.25 $1.68 Cirrus CRUS JUN10C/MAR17C -$1.00 $4.75 Recoton RCOT MAY5C/AP10C $0.43 $3.43 Tera TERA JUN5C/APR7C $0.75 $0.68 Wavephore WAVO MAY5C/APR7C $0.62 $1.43 There were also a few interesting surprises in today's session. CMG Incorporated (CMGI) offered some engaging trading during the volatile Nasdaq movement and although there were a number of excellent opportunities to exit our new position, we decided to hang on for the ride and sees how it fares tomorrow. Our string of Murphy's Law recoveries continued as one of the most recently closed plays came storming back to profitability. Tupperware (TUP) rallied $1.62 to close above $18 and the APR-$15C/17C debit spread yielded a favorable exit credit for those of you in the position. It's always nice to be wrong for the benefit of the readers! With only one day to go in this month's option expiration, the trading during the final session is expected to be volatile with a potential for momentum in both directions. The recent gains in blue-chip issues will most likely be consolidated and the leading technology stocks are expected to continue the recovery from this week's losses. Our portfolio should experience little activity as the majority of positions are closed or have already been adjusted to reflect our outlook for April. With any luck, the day will end on a bullish note and we can record another profitable month of conservative, spread trading. Questions & comments on spreads/combos to Click here to email Ray Cummins **************** Reader's Request **************** I received some favorable Email on the recent Navistar calendar spread (and we have very few of those in the portfolio) so here is a new candidate. Another reader requested a bullish position in Andrew (ANDW), one of the OIN's profitable call-option plays. **** KR - Kroger $15.56 *** Bottom Fishing! *** The Kroger Company is engaged in the retail food business, and is one of the largest supermarket operators in the United States. Kroger also manufactures and processes food for sale by its 1,410 supermarkets located in 24 states under a variety of names. The company operates stores under the Kroger name in the Midwest and South while subsidiary Dillon Companies operates supermarkets under the names King Soopers, Dillon Food Stores, Fry's Stores, City Market, Gerbes Supermarkets, and Sav-Mor. In addition, the company operates convenience stores under the trade names of Kwik Shop, Quik Stop Markets, Tom Thumb Food Stores, Turkey Hill Minit Markets, Loaf 'N Jug, and Mini-Mart. They also manage the Kroger Manufacturing Group, which manufactures more than 5,000 food and non-food products in its 26 manufacturing plants. Last week the #1 U.S. grocery chain reported higher-than-expected fourth-quarter operating profits, aided by expanded sales of private-label products and cost savings from its merger with Fred Meyer. Kroger reported its income rose to $331 million, or $0.39 per diluted share, up from $0.32 in the previous year. Analysts had expected operating income of $0.38 a share and were optimistic about the results generated by a variety of merchandising programs and product offerings. The company has introduced more than 1,100 private-label items over the past year, nearly triple the number from 1998 and expanded growth in this category of sales is already generating incremental sales and enhanced profit margins. The merger with Fred Meyer has also enabled Kroger to cut purchasing costs. The future however, may be plagued by high debt levels and inflated inventory problems. This position is simply a speculation play based on the recent options activity and the excellent premium disparities. If you like the risk/reward potential, play along with us. PLAY (speculative - bullish/calendar spread): BUY CALL JUL-17.50 KR-GW OI=544 A=$1.75 SELL CALL APR-17.50 KR-DW OI=5309 B=$0.68 INITIAL NET DEBIT TARGET=$0.93-$1.00 TARGET ROI=25% 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=KR **** ANDW - Andrew Corporation $27.38 *** An OIN Favorite! *** Andrew Corporation is a supplier of communications products and systems to worldwide commercial, industrial, and governmental customers. Its principal products include coaxial cables, microwave antennas for point-to-point communication systems, special purpose antennas for commercial and government end use, antennas and complete earth stations for satellite communication systems, cellular antenna products and telephone accessories, electronic radar systems, communication reconnaissance systems, and related ancillary items and services. These products are frequently sold as integrated systems rather than as separate components with one half of them going directly to end users. Most of the remainder is sold to radio equipment companies. This issue has been in the "Call-Options" section of the OIN in recent weeks and one of our readers suggested a bullish spread position to take advantage of the inflated, front-month premiums. That sounds like a great idea, although I am not sure if the call option buyers will want us to drive their premiums lower. Regardless, the technicals are excellent and this conservative approach offers a favorable method to participate in the bullish trend. PLAY (conservative - bullish/diagonal spread): BUY CALL JUL-15 AQN-GC OI=6 A=$13.38 SELL CALL APR-25 AQN-DE OI=1155 B=$4.50 INITIAL NET DEBIT TARGET=$8.62-$8.88 INITIAL ROI TARGET=14% Chart = /charts/charts.asp?symbol=ANDW **** MFNX - Metromedia Fiber Network $89.93 *** Technicals Only! *** Metromedia Fiber Network, the leading provider of end-to-end optical network and Internet infrastructure solutions, is revolutionizing the fiber optic industry. Offering virtually unlimited, unmetered bandwidth at a fixed cost, the company is eliminating the bandwidth barrier and redefining the way broadband capacity is sold. They are extending metropolitan optical networking infrastructure to the end user in strategic top-tier markets, enabling its customers to implement the latest data, video, Internet and multimedia applications. They focus on domestic intra-city fiber optic networks in clusters of the 15 largest cities throughout the United States. MetroMedia currently operates high-bandwidth fiber optic communications networks in New York and the greater Philadelphia area, and will begin to operate similar networks in Washington, D.C. They have also begun engineering and constructing networks in Chicago, San Francisco and Boston, Massachusetts. Earnings were great in last week's report with revenues increasing 107% in 1999, up from $36.4 million in 1998. The company's total number of contracts increased 400% to $2.0 billion and their fiber network jumped 181% to 646,000 miles. To make things even better, their board has approved a two-for-one split of its common stock. The split, the fourth since the company went public in October of 1997, reflects the company's continued confidence in the success of its business strategy and it will be distributed on April 17 to shareholders of record as of March 14. That's probably one of the reasons the issue is performing so well in past weeks but we also favor the bullish sector outlook and the excellent growth forecasts for the company. PLAY (conservative - bullish/diagonal spread): BUY CALL MAY-60 QFN-EL OI=280 A=$31.75 SELL CALL APR-80 QFN-DP OI=564 B=$14.88 INITIAL NET DEBIT TARGET=$16.62-$16.75 INITIAL ROI TARGET=19% Chart = /charts/charts.asp?symbol=MFNXM ************************Advertisement************************* Tired of waiting on trades to execute? 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