The Option Investor Newsletter Tuesday 3-21-2000 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) ************************************************************ 3-21-2000 High Low Volume Advance Decline DOW 10907.30 + 227.10 10907.30 10603.60 1,058,476k 1,791 1,154 Nasdaq 4,711.68 + 101.68 4630.23 4467.53 1,725,082k 1,760 2,508 S&P-100 791.14 - 1.44 794.17 780.07 Totals 3,551 3,662 S&P-500 1465.46 - 7.84 1472.13 1446.06 49.2% 50.8% $RUT 540.55 - 8.65 549.20 530.87 $TRAN 2641.70 + 42.11 2650.00 2584.93 VIX 24.73 + 0.56 26.00 23.85 Put/Call Ratio .43 ************************************************************* Barrons burgers anyone? Are we having fun yet? You all know the story by now. The bull rally from last Thursday was turned into barbecue by the now infamous "Burning Cash" article in Barrons over the weekend, After applying flawed logic to old data Barrons had concluded that 211 Internet startup companies would run out of cash sometime this year and leave stockholders holding the bag. The promising beginning to a Nasdaq rally that started on Thursday afternoon was squashed on Monday morning as traders ran for the exits. After many companies, including many brokers, came out an strongly disagreed with the article and the logic, bargain hunters slowly started to ease back into the Nasdaq today. With the Dow not bothering to even slow after last week's huge bounce investors in the old economy issues are having a picnic. Up +1120 points from last Wednesday's low there is rampant euphoria that the correction is finally over. Even the Fed raising rates by +.25% today had no impact and only a minimal blip in prices. The rate hike was widely expected and the rate hike language was the same as February. Analysts had expected a more bearish statement and the "same inflation risks as seen in February" statement was thought to be tame. After a momentary pause the markets put on their party hats and broke out the champagne. The NASDAQ dropped -143 at the open and stopped just above 4450 support and again crawled back from the brink of disaster. Turning in an impressive range from -143 to +101, which qualified as the third widest range ever, the NASDAQ looked much stronger at the close. The big cap favorites appeared to shake off the profit taking and some added impressive gains. YHOO +20, CSCO +7, CMGI +10, EBAY +18, CHKP +25, JNPR +24, AMCC +20, EMLX +19, BRCM +15. Did you ever notice there is never a +1, +2 day? These stocks are almost always moving in double digits and appear to go from oversold to overbought on a daily basis. With the DOW very extended from the recent rally it is possible we could see some money moving back into tech stocks soon. Market bull Abby Joseph Cohen was forced to raise her "year end" estimates for the S&P to 1575. Since that is only 81 points from where we closed today this is a double edged sword. While the bullish sentiment is welcomed the implications are immense. Since we could hit that number next week this means she either expects the market to go into a coma and flat line for the next nine months or she really expects another correction and she is trying to warn us without actually saying the words. The S&P closed at a new record today of 1493. Earnings warning season is in full bloom but not like you would expect. GE pre-warned today that they would beat estimates and the stock soared over +$9. GE contributed almost +25% of the DOW's +227 gain, or +60 points. In the "should have warned" column falls MU. Announcing results after the bell Micron fell way short of the $.74 estimate with only a +$.58 actual. The conference call was even worse. They cited a drop in chip sales of -20% and a drop in Q2 PC sales of -17%. Margins were down to 37% from 51%. The bad news for us was the claim of falling PC sales and drop in chip prices. The news will not be taken well by the rest of the chip/PC sector. Micron is down -$12 in after hours trading. Warner Lambert is going to need a prescription in the morning. After the close today they announced they were pulling their Diabetes drug Rezulin from the market at the request of the FDA after the drug had been linked to liver failure. WLA had been counting on big revenues from this product and the morning sickness on Wednesday is likely to be severe. Now that the Fed meeting is out of the way the economic calendar is rather slim. The focus should turn to earnings only three weeks away. The Fed did moderate fears of a bigger than +.25% rate hike in the future since this was the meeting most feared. The farther we get into the Fed rate hike cycle the less we have to fear about larger than normal increases. Alan Greenspan uses the example of the economy being a huge tanker and the rate increase a minute change in the rudder. Even a small change in the rudder will eventually change the course of the ship but the length and weight makes the change almost invisible for sometime. Each rate increase takes 6-9 months to be seen in the economy and the increase today was the fifth one in the current string which began last June. Analysts now expect at least two more rate increases in May and June. The May Fed Fund futures are indicating a 100% chance of another +.25% rate hike in May. Bond yields are now 5.96% and moved in agreement with today's expected rate increase. This is the first time in six months that the yield has been under 6%. The bond yields have not been below the fed funds rate since the Russian debt problem in 1998. The NASDAQ struggled back to end with a nice gain but still less than Monday's third largest point drop ever. I will not look this gift horse in the mouth but with the DOW so extended as to be in imminent danger of profit taking the NASDAQ may have a tough time making back to back big gains. This tag team has the divergent market dance down to a science recently and a positive NASDAQ could mean a negative DOW. Nothing goes up or down in a straight line and the DOW has been vertical for five days. I am positive on the NASDAQ on Wednesday as long as the Micron earnings does not trip up the PC sector. Possibly this will be seen as a company specific shortfall and the rest of the group will continue on. Still I am not holding my breath. Protect your positions and wait until after amateur hour before opening any new ones. Trade smart and sell too soon. Jim Brown Editor Disclosure notice: Current long positions include; YHOO, MSTR ****************************** 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 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 ********** The Perils of Momentum Investing By S.P. Brown Yesterday, it was MicroStrategy's (MSTR) turn to be taken to the woodshed, today, it was Protein Design Labs' (PDLI) turn. PDL, which develops human antibodies to prevent and treat certain diseases, fell 47 percent to $72 a share in early morning trading before recovering to $96 a share to close the day off 29 percent. Today's sell-off was disastrous enough for PDL's shareholders. Unfortunately, it was preceded by a $45 a share dip on Monday. Over the past two day's, PDL shareholders have seen the value of their holdings cut in half. To get an idea of just how fast and furious the sell-off has been. At its all time high of $338 a share set only two short weeks ago, PDL had a $6.3 billion market cap. Today, that market cap has shrunk to $1.8 billion. The impetus for PDL's merciless pummeling came yesterday when the company announced that the European Patent Office had revoked its European humanization patents related to antibodies for fighting autoimmune and inflammatory diseases. Following the decision, PDL announced it would appeal the European Patent Office decision. However, the appeals process could take several years to resolve. There was one positive note that came out of Europe, though, the Patent Office did uphold PDL's claims to protect its kidney rejection drug Zenapax, which is licensed to Hoffman-La Roche. In hindsight, PDL investors should have been wondering long before this week if all was kosher with the company. In February, PDL halted the pricing of its planned $100 million private debt offering to give it more time to complete quality- control testing of a new lot of an antibody required to continue one of its clinical trials. What's more, the company doesn't exactly resemble a typical momentum play. PDL isn't some new fast-growing IPO issue. The company has been around for over a decade, and it hasn't exactly been a fast-mover. Over the past five years, revenues have been growing at a 15 percent annual rate - respectable, but not outstanding. During that time, the company posted an annual loss for each of those years. For the most recent fiscal year ended December 31, revenues totaled $35.8 million, compared with $30.8 million during 1998. PDL's net loss for the year was $10.3 million ($0.55 per basic and diluted share), compared with a net loss of $9.5 million ($0.51 per basic and diluted share) during 1998. But as we are all well-aware, last month the biotechs were white-hot. The AMEX Biotechnology Index (BTK) was up 64 percent in February, lead in no small part by PDL, which was up a stunning 233 percent. There is little doubt many investors were acting first and asking questions second, lest they miss out on the next big momentum push. But that's not to say momentum investing can't work, if applied with a little forethought and sagacity. With the massive 52- week run-up in the Nasdaq Composite Index (COMPX), and many of the technology indices, momentum investing has indeed proven to be a wealth-enhancing strategy. However, like PDL and MicroStrategy have both demonstrated, momentum investing in only one security can prove to be a poverty-enhancing strategy. ************** Market Posture ************** As of Market Close - Tuesday, March 21, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,850 11,250 10,907 Neutral 3.16 SPX S&P 500 1,410 1,475 1,494 BULLISH 3.21 ** OEX S&P 100 780 800 807 BULLISH 3.21 ** RUT Russell 2000 510 530 553 BULLISH 2.24 NDX NASD 100 4,000 4,150 4,449 BULLISH 2.24 MSH High Tech 975 1,000 1,113 BULLISH 2.24 XCI Hardware 1,480 1,510 1,684 BULLISH 2.24 CWX Software 1,430 1,670 1,525 Neutral 3.21 ** SOX Semiconductor 1,130 1,360 1,194 Neutral 3.21 ** NWX Networking 1,000 1,040 1,128 BULLISH 2.24 INX Internet 770 800 862 BULLISH 3.09 BIX Banking 520 600 558 Neutral 3.16 XBD Brokerage 450 480 521 BULLISH 2.31 IUX Insurance 500 560 537 Neutral 3.16 RLX Retail 900 1,000 936 Neutral 3.16 DRG Drug 340 380 353 Neutral 3.16 HCX Healthcare 700 750 709 Neutral 3.16 XAL Airline 110 140 138 Neutral 3.10 OIX Oil & Gas 265 300 282 Neutral 3.16 Posture Alert Positive remarks from General Electric about their current quarter helped spark a rally today, as investors shrugged off the expected interest rate hike and bought everything across the board. Leading sectors included Internet (+5.67%), Banking (+4.69%), the NDX (+4.42%), Airlines (+3.61%), and Insurance (+3.53%). With this most recent action, we have upped the S&P 500 and S&P 100 to Bullish from Neutral. However, on the downside, we have lowered Software and Semiconductors to Neutral from Bullish. **************** Market Sentiment **************** Tuesday, March 21, 2000 They Bring Good Things to Light! General Electric helped lead the Dow to a strong close today, as the blue-chip bellwether stated that they will "modestly exceed" analyst expectations. This nice surprise helped spark the broad market as well as GE's stock price by almost ten points. With corporate earnings just around the corner, it was refreshing to get some confirmation from a bellwether like GE, that their quarter was on track. However, we are still in the middle of pre-release season, so caution should be had. A prime example of a high expectation stock, which also was a big momentum play, was MicroStrategy (MSTR). This high-flyer came to light several weeks ago, as Forbes made some negative remarks in their monthly publication regarding MSTR and their revenue recognition. Obviously, no one paid any attention nor did anybody do any due diligence regarding this issue, as the stock tanked yesterday and is now down $250 points in a matter of weeks! Now we have never traded this issue (even though we wish we shorted it!), however, when we saw the stock drop $140.00 dollars in one day, we were intrigued to see the Pinnacle Index and what the speculators felt regarding this issue. Our immediate feelings were confirmed, as the out-of-the-money call options outnumbered the OTM puts by a 13-to-1 margin. This was incredibly optimistic, and the Pinnacle Index was off the charts, suggesting a potential sell-off. Unfortunately, we never looked at this issue until it became the triple-digit loser of the day. However, as traders, you can start reviewing the stocks/options in your account now, and gather the important information for the upcoming earnings run. Check out the earnings expectations and dates, and then take a look and see what the sentiment seems to be indicating. If it looks anything like MicroStrategy, then you may want to run for the hills, or play the other way. And for those of you who enjoy other people's misery, the CEO of MSTR, has lost $10 BILLION on paper over the last couple of weeks. And how is your week? Finally, the Pinnacle Index for the OEX is currently indicating an overbought market, which overhead increasing with every point. Based on the current figures, we would not be surprised to see profit taking in the near term. BULLISH Signs: Corporate Earnings: Major corporate earnings continue to come out strong and ahead of analyst expectations. General Electric is the latest bellwether to give positive comments regarding earnings. Cash Flow: The cash that has been sitting on the sidelines has been put to use as of late, as record volumes for the major indexes have been shattered. With the NASDAQ surpassing volume of 2 billion shares again, this money is obviously flowing into technology. Short Interest: Short interest continues to climb as quickly as the market. The short interest on the NASDAQ increased another +8.51%, for a 5th consecutive record. Interest Rates (6.148): The current yield is now safely off of 52-week highs and is temporarily out of the danger zone. Mixed Signs: None BEARISH Signs: Pre-Release Season: With April just around the corner, we have the beginning of pre-release season. Over the next several weeks, companies will let Wall Street know that their profit/sales goals are not being met, and their stocks will get brutally punished. The first major corporation to do just this is Proctor & Gamble, with it's 27 point decline, followed by MicroStrategy and it's 140-point decline! Volatility Index (23.34): The VIX continues to prove that the low 30's are an excellent buying opportunity, and the low 20's continue to be a great selling opportunity. At current levels, the VIX is within one good day of being in overbought territory. Energy Prices: With the rapid rise in crude oil, everything from manufacturing to transportation will be affected by higher costs. These higher costs will be felt 1-2 quarters out, and could put pressure on profit margins. Investor Expectations: More and more investors are now expecting high double-digit growth if not triple-digit expansion in their portfolios. This extreme positive sentiment could help fuel a future selloff in technology shares. The Power of Sentiment Analysis It has often been said that the crowd is right during the market trends but wrong at both ends. Measuring and evaluating the sentiment of the crowd, therefore, can give savvy option traders a decided edge. Pinnacle Index OEX Friday Tues Benchmark (3/17) (3/21) Overhead Resistance (830-860) 21.25 25.67 Overhead Resistance (800-825) 6.36 8.34 OEX Close 786.74 806.87 Underlying Support (770-795) 0.88 0.92 Underlying Support (740-765) 1.31 1.33 What the Pinnacle Index is telling us: Based on the current sentiment, overhead is heavy and building. This may indicate that the OEX will stall at current levels and pull back. Put/Call Ratio Friday Tues Strike/Contracts (3/17) (3/21) CBOE Total P/C Ratio .41 .43 CBOE Equity P/C Ratio .35 .36 OEX P/C Ratio 1.11 1.56 Peak Open Interest (OEX) Friday Tues Strike/Contracts (3/17) (3/21) Puts 720 / 7,621 720 / 9,271 Calls 750 / 3,890 880 / 4,217 Put/Call Ratio 1.98 2.20 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 21, 2000 23.34 Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Daily Results Index Last Mon Tue Week Dow 10907.34 85.01 227.10 312.11 Nasdaq 4711.68 -188.13 101.68 -86.45 $OEX 806.87 -1.44 21.57 20.13 $SPX 1493.87 -7.84 37.24 29.40 $RUT 552.79 -25.57 3.59 -21.98 $TRAN 2667.81 -24.24 68.22 43.98 $VIX 23.34 0.50 -0.83 -0.33 Calls Mon Tue Week YHOO 191.75 0.91 19.72 20.63 Everybody yell "Yahoo!" NOK 211.00 2.13 9.50 11.63 Wow! Nice recovery! INTC 138.44 5.13 3.44 8.57 Set on uncharted territory CSCO 140.84 -0.88 6.72 5.84 Dropped, exit due to split EXDS 155.25 -8.75 12.75 4.00 Could retest old highs XRX 28.19 0.19 3.75 3.94 New, things are lookin' up IBM 113.50 2.75 0.75 3.50 New, Ol' Beam on a run HWP 141.88 5.19 -2.13 3.07 Support @ $140 AOL 67.50 2.13 0.50 2.63 5% gain in 2 days-not bad! DELL 58.00 1.25 0.31 1.56 May challenge $60 soon BMCS 54.56 -3.56 3.06 -0.50 Resistance @ $55, then $56 SCH 54.44 -1.25 0.44 -0.81 New, Chuck is breaking out NITE 49.00 -3.25 0.50 -2.75 In the center of a channel IDPH 115.59 -12.44 9.09 -3.35 Biotech regaining ground SEG 65.19 -2.75 -0.81 -3.56 Moves with VRTS RATL 83.00 -1.63 -3.88 -5.51 Pullback: chance to enter BGEN 78.13 -5.63 -1.13 -6.76 Support held up well BWEB 40.75 -5.75 -2.75 -8.50 Dropped, time to move on CHKP 223.50 -37.19 25.19 -12.00 Volatility anyone??? TIBX 106.00 0.97 -14.59 -13.62 Dropped, early earnings!?! MRVC 118.13 -18.50 3.75 -14.75 Look for quick plays here SCMR 127.25 -13.50 -3.75 -17.25 Pure momentum play VERT 197.00 -37.63 14.00 -23.63 Splits 2:1 on 03/31...run!!! VIGN 197.94 -36.31 -2.00 -38.31 Dropped, Okay, that's it! Puts ISLD 70.25 -12.56 0.19 -12.37 Just like a perfect put TERN 176.97 -16.25 4.66 -11.59 Dropped, too much momentum RHAT 57.19 -3.63 -2.06 -5.69 New, end for Linux mania? CKFR 66.00 -5.44 1.25 -4.19 So far so good EK 57.75 0.31 0.00 0.31 Waiting for pre-announce? ************** TRADERS CORNER ************** There is no Traders Corner article tonight. 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: ***** TIBX $106.00 -14.59 (-32.19) Wait a minute. Wasn't TIBX supposed to report earnings this Thursday after the bell? The answer was yes, but they changed their mind and blindsided investors with an early release last night. While they reported a fiscal Q1 net of $0.01 per share, two cents better than the First Call mean, vs. year-ago loss of $0.04, they refused the conference call last night and scheduled it for Thursday after the close as originally planned. TIBX was punished today anyway in a typical post earnings selloff...another unfortunate example of why we never recommend holding over earnings. Early releases are rarities, but they happen (see GE today). Note this posted to the company Web site: "TIBCO Software Inc. is currently in the process of completing a secondary offering. Therefore, we are accelerating the release of our quarterly results to provide this information in advance of the offering, which is scheduled to price after the close of market on Tuesday, Mar 21st. TIBCO Software will be reporting its first quarter fiscal year results on Monday, March 20, 2000 after market close." Thanks for the warning. Though there is still a possibility of a stock split announcement during the conference call tomorrow with a shareholder meeting on April 12th (which includes an agenda item to increase the authorized shares from 300 mln to 1.2 bln), we're dropping TIBX tonight on principle. VIGN $197.94 -2.00 (-38.31) All right, that's it for VIGN. Every time it looks like it has found support, something else scares investors, and support gets violated. The latest scare appears to be the violent abuse visited on MSTR yesterday, which caused negative sentiment to spread throughout the Internets. VIGN responded by plunging through support at $230 and then $200. Although VIGN looks like it may have found support today near $190, there doesn't appear to be much conviction to push it higher. If VIGN can put its house in order and start moving higher, we may consider adding it back to the play list for a run into its split on April 14th. BWEB $40.75 -2.75 (-8.50) Just like we said this weekend, BWEB would probably take its cue from the Nasdaq this week. And take its cue, it did. BWEB made a futile attempt to move higher at the open on Monday which lasted about 15 minutes. BWEB followed the Nasdaq lower to hit $43.25. To add insult to injury BWEB was the brunt of more selling again today as the software company fell to near $38 before buyers stepped in. Surprisingly the volume was light on Monday but picked up today to 875k. Again no news on the company, just scared traders wanting to either take profits or unload their stock. Unfortunately with no brakes the trip back down was fast as well. Although some are calling the current levels a good buying opportunity for BWEB, we will look elsewhere for now. CSCO $140.85 +6.72 (+5.85) Today our patience was rewarded with a $6.72 gain. CSCO finally another made a run on strong volume giving us opportunity to catch some profits. Dire as it may be, tomorrow is officially the last day to trade this split play. Therefore we're giving fair warning tonight to exit the play. CSCO goes ex-div on Thursday and it'd be wise to have all positions closed. Otherwise you're vulnerable to potential post-split depression and this is not worth the risk. PUTS: ***** TERN $176.98 +4.67 (-11.58) TERN followed the rest of the tech sector down on Monday, culminating with a gap down by 9 points on Tuesday. The stock bottomed early Tuesday morning at $150. After floating for much of the afternoon, TERN turned it on in the last hour of trading to close the opening gap. The stock had too much momentum going into the close to hold any put positions. We will continue to monitor this story as it plays out, but don't want to stand in the way of what could be a strong relief rally. ******************** PLAY UPDATES - CALLS ******************** VERT $197.00 +14.00 (-23.63) VERT was whacked yesterday in the MSTR malaise. After a brief continuation this morning, VERT bounced north from its low of $168.88 in a spectacular recovery on strong volume. Looking to the moving averages for support? Forgeddahboudit. Instead look to recent historical support in mid-February at $196. At $197, we cleared the hurdle. Technically, there is along tail on the candlestick formation today, conveying that investors were not content to let VERT languish in the $169 area, and bullishly bid it back up to current levels before the close. Volume confirms that. Why might that be? VERT splits 2:1 on March 31st after the close, and we expect the price to move up into that date. NOK $211.00 +9.00 (+11.13) Wow! Nice Recovery! Technically, NOK now trades back over its 5, 10, 30, and 50-dma. Support looks good at $200 and $205. The next level of resistance is at $215, then $220. We think it can surpass these levels in the next two weeks as it nears its 4:1 stock split. While there is no firm date, here is the sequence: March 22nd (tomorrow) there is shareholder meeting to authorize new shares in order for the split to take effect. We think that will handily pass. At the same time, management should also announce the actual split date, which we currently estimate to be the first or second week in April. We will let you know in Thursday's write-up. Want to know of the future of the business holds? Today, NOK and MOT announced in a BusinessWire article that they would team to begin the standardization process for 1XTREME technology, which will offer operators a cost-effective migration path to provide integrated voice and data speeds up to 5.2 Mbps on a single 1.25 MHz code division multiple access (CDMA) carrier. (Qualcomm gets paid again!) The 1XTREME proposal enables real time voice, data and multimedia services on existing cdma2000 networks allowing end users to browse the Internet from a personal computer or access email while "on the go". The Nokia and Motorola 1XTREME proposal consolidates the companies' individual efforts, including Motorola's 1X Plus, presented at a telecommunications industry trade show in New Orleans on Feb 29th NITE $49.00 +0.50 (-2.75) No news articles that would move the price this week. However, in yesterday's downdraft, NITE found support at $47, then again today at $46 before recovering to its current level. Within the parameters of an ascending channel between $42 and $54, NITE currently sits on the centerline and looks poised to continue its gain to the $54-$55 level. Today's test of $46 and subsequent recovery on the candlestick chart (long tail) speaks a bullish statement for tomorrow. It's all the more impressive because the recovery allowed NITE to close back over its 5-dma of $48.80 and 10-dma of $48.40. An earnings run may be a bit premature since the anticipated, but unconfirmed date is slated for Apr 19th. In the meantime, you may want to consider trading the predicable channel and prepare to exit with trailing stop losses. Otherwise, wait for the breakout with volume over $55. In the news, while it is not a big deal in the grand scheme of things, some founding insiders have registered to sell 500 K shares - a drop in the bucket compared to the 111 mln shares outstanding. SEG $65.19 -0.81 (-3.56) Even the old tech names weren't immune to Monday's debacle. After a sharp decline early Tuesday, SEG found support at $61. The stock formed a nice double-bottom at that level and regained momentum to close right at the 5-dma. Any dip below the 5-dma will provide a good entry point. Use a stop at the $61 - $62 range to protect any positions should SEG breakdown. Earnings are still a few weeks away, we look for SEG to pick up momentum as we approach their Apr 13th earnings date. Much of the downdraft on Monday can be pegged to the big dip in Veritas, of which SEG owns a ton. VRTS was on the road to recovery today though and will help to propel SEG if it continues. EXDS $155.25 +12.75 (+4.00) The built-up demand we mentioned in Sunday's write-up came to light Tuesday as shares of EXDS closed sharply higher on healthy volume. Over the last two days, EXDS charted an inverse head-and-shoulders, with a bottom at $135 and shoulders at $140. After hitting the second shoulder at $140, EXDS didn't look back. The stock benefited from positive comments by Robertson Stephens analyst Rick Juarez. "We believe Exodus is in an ideal position to dominate the market for integrated access, hosting, and applications services," said Juarez. He also set a new 12 month price target of $245 on a pre-split basis. Previous resistance at $150 now provides support for EXDS. Confirm direction before entering any new positions. Major resistance now sits at $165, after that point, EXDS could retest old highs at $175. MRVC $118.13 +3.75 (-14.75) Wow, what a roller coaster ride MRVC took in the last two days. The infamous Barron's article took MRVC down with the rest of the tech on Monday. The stock gapped down over 3 points Tuesday, to fall all the way to $99. Traders decided that was far enough as MRVC quickly regained ground and finished the last hour of trading with an 8 point burst. Resistance is just above at $120 with support now established at $115. The wide swings are providing plenty of entry points, with that volatility comes a lot of risk. Look for quick plays to minimize risk. Once momentum regains, the stock can really take off. Look for a breakout above $120 and upward momentum before entering new plays. HWP $141.88 -2.13 (+3.88) After moving higher last week on ideas of the company being undervalued, HWP is just treading water this week. Moving up to challenge resistance at $146-147 by mid-day on Monday, the computer maker just couldn't hold its gains and came back today to test support at $140. Volume, holding right near the ADV, is making it hard to divine the future. Although it was encouraging today to see support hold, the strength in the broader markets should have had a stronger effect. HWP has had a slew of positive press releases this week, many of which refer to its network products and alliances. While this normally will boost a company's share price, HWP is just holding its own. In the good news column, yesterday HWP and Xerox announced that they have settled all their outstanding patent infringement lawsuits, opting to spend the time and money serving their customers and competing in the marketplace, rather than in the courts. Sitting right on top of its 10-dma ($141.50), HWP needs to prove itself by moving higher from here. If buyers step up, look to enter new positions on a bounce from the $140 support level. A more conservative approach would be to wait for shares to trade through the $147 level on increasing volume. Now that the FED has gotten the rate hike out of the way, investors should begin focusing on the strength of the company. Remember that above $140, HWP becomes a split candidate. That would be a nice bonus to our play, if the stock can get moving again. AOL $67.63 +0.75 (+3.25) A 5.0% gain in two days, not a bad start to one of our newest plays. Although most of the business was done on Monday, AOL did manage to pick up another +0.75 today. While we are certainly pleased with such a nice start to our play, AOL did seem to be slowing down a bit heading into the close. This is not to be construed as a negative, but if we do get a bit of a pullback it may offer those who couldn't make their mind a better entry point. AOL is well above several of its moving averages, with the exception of the 100-dma which now sits at $68.99. AOL may regroup a bit before moving through that level with conviction. On Monday AOL and PurchasePro.com announced a 3-year e-commerce deal for businesses. The two will create a B2B market place that will let businesses buy and sell their products, as well as negotiate price. Today AOL formed support at $66, with the next level seen at $64. If you are still considering a play a bounce off either level would provide a good entry point. A move through $69 accompanied by strong volume could signal AOL is off to the races. CHKP $223.50 +25.19 (-12.00) Volatility anyone? Down $37.19 one day, up $25.19 the next. CHKP is certainly not for the faint of heart. On Monday several leading ISP's joined CHKP to improve and strengthen their defenses against cyber attacks. Many ISP's are beginning to find Internet security is not an option, its a necessity, which continues to make CHKP and others a hot item in the tech sector. The decline on Monday, appeared to be a sympathy move with the Nasdaq, rather than any problems as the news was certainly positive. While a few weeks ago CHKP and others seemed to be able to continue to climb the ladder higher, regardless of the strength or weakness in the broader market, things may have changed. Once the Nasdaq hit correction mode, sentiment has changed somewhat, and investors are a little more picky as to what they buy into. CHKP bounced one more time off a low at $198 and closed higher on solid volume of 2.3 million shares. What's ahead? The next levels of resistance show up at $234 and $248, with support at $210 and $205, although as we said it appears for now CHKP's immediate future may be tied more to the sentiment in the Nasdaq. BGEN $78.13 -1.13 (-6.75) Were those orders and fills we saw being passed around the trading floor or notes saying "Punish the Biotech's"? Our potential beauty got a bit of a black eye after being roughed up the past two sessions. On the bright side the lower end of the support area did hold up fairly well, although BGEN did see a good bit of selling the first two days of the week. Over 14.2 million shares have changed hands and lets hope those that bought today are willing to hang with BGEN longer than those that recently bought shares of the stock. We use the word hope as BGEN did close just below its 200-dma at $78.76. Actually BGEN may be providing those with patience a great buying opportunity at these levels. Intraday charts show the $76 area having provided good support. As we've said in past updates, the institutions and funds have been buying BGEN on the recent retracement and it is highly unlikely there opinion has changed in the past two days. The Biotech sector was down over 10% early in the day, but buyers did step in bringing BGEN and others back late in the session. *********************************************** PLAY UPDATES - CALLS - CONTINUED IN SECTION TWO *********************************************** ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. 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The Option Investor Newsletter Tuesday 3-21-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. ******************************** PLAY UPDATES - CALLS - CONTINUED ******************************** RATL $83.00 -3.88 (-5.50) The headlines today read "Rational India Unit's Sales To Double". Sometimes no matter how good the news, you just can't fight the sentiment in the markets. Actually the pullback in RATL is giving us the chance to buy calls at a better price than last week, and frankly we view that as a plus. With RATL bouncing of the $80 area twice today we believe RATL may be preparing to get back on track. The volume the past two days has been higher than average, and at this point it really appears as though the traders that had stepped last week and bought shares of RATL, may have got nervous with the Nasdaq heading back into correction mode early today. RATL did hit $77.75, but quickly bounced back over the $80 mark even with the Nasdaq trying to figure out which direction it wanted to go. RATL now has intraday resistance at $86 and support at $80. Although target shooting at current levels would be acceptable, conservative traders may prefer to see $86 penetrated with solid volume prior to placing an order. INTC $138.44 +3.44 (+8.56) Intel went for new all-time highs yesterday with great vigor. It opened just where it had closed on Friday and the bidders stepped in, trying to get their hands on this hot stock. Other than the fact that things are looking very good for INTC this quarter, the advance can also be attributed to yesterday's debut of two new Pentium III processors, an 850mHz and an 866mHz chip. These chips, although not as fast as their 1gHz chip, are designed to enhance the delivery of audio, video, animation, and 3D graphics over the Internet. They will be available in Dell computers within the next two weeks. Today was another positive one for INTC. Analysts continue to upwardly revise their estimates, or should in say under-estimates, for the company and INTC seems to be on the right track. Good news and great technicals means a fun ride into uncharted territories for INTC. BMCS $54.56 +3.06 (-0.50) Yesterday's mild downdraft provided attractive entry points as BMCS found support at $50.88 and resistance at $55.94. It is the $56 level that BMCS has not seen since the first trading week of 2000. Today was a better day though. BMCS opened at the low of the day, $51.38, and never looked back. It closed just off the high of the day which was $55, proving to be a short term resistance. In after hours trading, BMCS actually did trade at $55, on volume of 66,500. It is still in an uptrend and breaking through $55 is key. When it does, this may be a conservative entry point. Use discretion suited to your own risk levels when entering on the intraday dips. Watch for market direction tomorrow and let's see if BMCS can break through. SCMR $127.50 -3.75 (-17.25) The anticipation of today's Fed meeting and most likely profit dragged SCMR down to firmer support levels at $125 and $130. At this point, wait for the upward momentum to resurface. Only the very aggressive will use this bottom support for entry points. On the bright side, volume remains robust at nearly twice the ADV. Remember this is a pure momentum play driven by the company's expansion efforts and recent analyst backing. A positive sentiment is also a pertinent factor in how SCMR moves, so pay attention to the market. YHOO $191.75 +19.72 (+20.63) Everybody yell "Yahoo!" and jingle the gilded coins! What a solid run up this afternoon. And guess why? The Fed meeting is done and over, thank goodness! Perhaps the Nasdaq will shake off any remaining jitters and surge again. That'd certainly help YHOO continue to climb higher ahead of its earnings. The report is slated for release on April 4th, after the bell. For those following this play, you're going to hear this a few more times - make sure your positions are closed prior to the announcement to avoid the historical sell-off. If all goes well, it appears near-term support should establish itself around $184. The next field of resistance will be at the $200 mark. Recall from the initial write-up that this level is important. From a technical standpoint YHOO is a split-candidate above $200 and this event in itself could generate some of it's own momentum. There was a small news item on Monday indicating Yahoo! was seeking to increase the number of outstanding shares to 5 bln, however there wasn't any specifics available. Maybe we could have our cake and eat it too. In other news that positively effected the share price, Yahoo! announced it'd be jumping on the B2B bandwagon. They also inked a deal with Palm to bundle its services on the hand-held computers. IDPH $115.59 +9.09 (-3.34) This Biotech is clearly trying to regain its lofty position atop the pristine pedestal of not long ago. However, the sharp sell-off this week was rather unnerving as it sunk to $89.56 before making a swift ascent back to the 5- dma ($113.89) this afternoon. The stock's direct and positive response to the Nasdaq's reversal gives us confidence IDPH will move forward in the near-term. For better confirmation, look for strong volume to back upward bounces off the current level. In the industry, rival Techniclone (TCLN) fell on the announcement that changes in its testing schedule would delay its non-Hodgkin's lymphoma injectable treatment by six to eight months. This is good news for Idec who plans to file for approval of its Zevalin in the 4th quarter. DELL $58.00 +0.31 (+1.56) Dell's upward trend is intact and encouraging. The strong momentum continues to drive the share price into new territory. For instance Dell set another new 52- week record high ($59.06) on Monday while many others in the hardware sector suffered the wrath of a Barron's article and general market jitters. Encouragement too came from Salomon Smith Barney with a Buy reiteration on Monday. Analyst Richard Gardner stated that " based on trends so far, we believe that Dell will exceed our EPS estimate and the consensus by $0.01- $0.02 this quarter". He also upped the price target to $71 from $55. Near-term support is now higher at $57 and dips to the 5- dma ($56.18) offer solid entry points into this momentum play. Dell was also after-hours, trading up to $59 tonight. Look for a strong opening and possible challenge of $60. ******************* PLAY UPDATES - PUTS ******************* EK $57.75 +0.00 (+0.31) It might take an explosion to move EK. For the last couple of days they have just been bouncing in the $57-58 area, today making no move whatsoever. We had mentioned before that we were getting sick of all the bouncing around but now its almost boring. We have also said that this is a play that requires the player to have patience. So we watch and wait. Today's unchanged position is a good sign for our play when the markets did so well. Conditions are the same, support is $55.88 and anything above $60 will cause us to drop this play. If you looked at the headlines for EK you might have thought that ever anticipated earnings warning came, but the announcement was actually for Eastman Chemical which is a spin off of EK. So not what we were looking for. However, EK still has time to make a pre-announcement which would be a big enough explosion to really get EK moving. ISLD $70.25 (+0.19)(-12.38) Continuing its slide into negative territory, ISLD is performing like a perfect put play. On Monday, an ideal entry made its appearance as ISLD rolled over at $80 and was pushed lower all day on increasing selling volume. Making it tough on the company yesterday, Barron's included it in its article talking about the high rate at which certain Internet companies are burning through their available cash. Closing just a fraction above the low of the day on volume almost double the ADV, it is having a hard time keeping its head above water. Today the issue managed to find support near $70, but given the gains in the broad market, it doesn't look good for ISLD investors. Part of the support found today is likely due to the company correcting the financial details listed in the Barron's article. The 5-dma, still clear up at $81.50, has provided good resistance during this decline, and today, buyers could only push prices as high as $73.75. Look to enter new positions as ISLD moves up to challenge today's highs and rolls over. Continuing weakness could drive shares lower from here though. If support at $70 can't hold, go ahead and jump on board as the slide continues. CKFR $66.00 +1.25 (-4.19) So far so good. The negative trend continues for CKFR. Yesterday, CKFR opened just above its close on St. Patty's Day and that was as high as it would be. It quickly fell out of bed with a hangover and traded as low as $59.31, on volume of 2.1 mln shares, almost twice the ADV. This morning, CKFR got a bounce at $59 and regained some ground with the market's post-interest rate hike rally. Tomorrow will be a telling session to see if we get follow through on these triple digit index gains. These levels for CKFR may represent good entry points, as we will be looking for a retest of the $59 level. Target shoot for entries based on personal risk levels and watch to see if CKFR follows the broader market trend. ************** NEW CALL PLAYS ************** SCH - Charles Schwab Corp. $54.44 +0.44 (-1.44 this week) For 25 years, Schwab has worked to demystify investing and empower individual investors. Schwab's goal is to provide the most useful and ethical financial services in the world. Schwab defined the discount brokerage and created the Mutual Fund Marketplace. The company is moving into the full service market by providing objective help and advice for a nominal fee. Schwab serves 6.6 million accounts with over $725 bln in assets. Brokers love volatility. These 2 bln share days on the NASDAQ spell profits for brokers, especially online brokers. Nearly half of Schwab's 6.6 mln customers are online traders. The recent volatility and massive trading volumes should bode well for SCH's Q1 profits. The stock has benefited from continual upgrades and a resurgence in the financial sector. Another variable that has been boosting shares of SCH has been recent talk of consolidation in the financial services sector. Set a light last week with rumors circulating that Chase (CMB) would buy Goldman Sachs (GS). The chart on SCH is looking great. The stock continues to bounce off the 10-dma, making higher- highs and higher-lows. Volume has been light on any down days as the stock pulls back to the 10-day finding strong support. Look for an entry at the 10-day, between the $50-$51 range. Look for increasing volume and directional confirmation as SCH continues to make new highs. Last week SCH said customer daily average trades were 355.9 thousand in February 2000, up 78% from a year ago. Net new assets brought to SCH by new and current customers in Feb totaled $13.9 billion, up 13% from Jan 2000. BUY CALL APR-50*SCH-DJ OI=4904 at $6.88 SL=4.75 BUY CALL APR-55 SCH-DK OI=2356 at $4.13 SL=2.50 BUY CALL APR-60 SCH-DL OI=2115 at $2.19 SL=0.75 BUY CALL MAY-55 SCH-EK OI= 49 at $5.75 SL=3.75 BUY CALL MAY-60 SCH-EL OI= 354 at $3.88 SL=2.25 Picked on Mar 21st at $54.44 P/E = 77 Change since picked +0.00 52-week high=$77.50 Analysts Ratings 6-5-2-0-0 52-week low =$26.94 Last earnings 10/99 est=0.18 actual=0.20 Next earnings 04-17 est=0.24 versus=0.17 Average Daily Volume = 4.41 mln /charts/charts.asp?symbol=SCH XRX- Xerox Corp. $28.19 +3.19 (+2.38 this week) Anybody not know what Xerox does? Just in case you've arrived from Planet Claire, Planet X, or just Mars, they are the largest manufacturer and marketer of copying and printing equipment in the world, almost as well known by their tag line "The Document Company" introduced in 1994. Since 1980, Xerox and Fuji Xerox have won 25 national quality awards in 20 countries, including one of the world's prestigious on two occasions: the Malcolm Baldrige National Quality Award -- for Xerox Business Services in 1997 and for Xerox Business Products and Systems in 1989. Since March 9th, XRX has been clawing its way out of the basement at $21 on what we hope will be a stairway to heaven. That's roughly when XRX announced they would offer low-end inkjet printers to compete with HP. Investors responded nicely given that XRX had been looking for a way since October to entice investors back into the issue with a good revenue story. Recall that in October, XRX warned it would miss its numbers for that quarter. With a settlement at hand yesterday over its six patent disputes with Hewlett Packard, XRX made its biggest 1-day gain in at least six months. Volume today was huge at almost 10 mln shares traded - 54% greater than the ADV. Support now is at the 5-dma of $26.54. Intraday, it can be found at $26.50 and $27.50. Target shoot at those levels expecting some backing and filling from today's move. Earnings are confirmed for April 25th. Xerox's success against HP rests on the recent announcement of a Xerox, Sharp, and Fuji Xerox link up that has the total investment by the consortium exceeding $2 bln to develop, manufacture and market those low cost printers. XRX told analysts it hopes to have 10% of the market within four years from the 1% share it has now. BUY CALL APR-25 XRX-DE OI=19375 at $3.88 SL=2.25 BUY CALL APR-30*XRX-DF OI=18823 at $1.25 SL=0.00 High Risk! BUY CALL MAY-25 XRX-EE OI= 72 at $4.75 SL=2.50 BUY CALL MAY-30 XRX-EF OI= 222 at $2.13 SL=1.00 Picked on Mar 21st at $28.19 P/E = 13 Change since picked +0.00 52-week high=$63.94 Analysts Ratings 3-4-9-0-0 52-week low =$19.75 Last earnings 01/00 est= N/A actual= 0.41 Next earnings 04-25 est= 0.26 versus= 0.84 Average Daily Volume = 5.94 mln /charts/charts.asp?symbol=XRX IBM - Int'l Business Machines $113.50 +0.75 (+3.50 this week) IBM is the world's leading provider of computer hardware with products ranging from PCs and notebooks to mainframes and network servers. "Big Blue" also makes computer software and stands only behind the giant, Microsoft (MSFT) in ranking. Currently IBM is expanding its technology focus to include the vast opportunities of Internet business. Big Blue is a steadfast leader in the computer industry and now is focusing on ways to get a piece of the Internet pie too. Recently IBM announced a technology partnership with a multitude of other big players including Cisco, Intel, Motorola, and Nokia. The big picture is for the team to design and develop product & services to link wireless phones and computers to the Internet. Now zoom in a little closer and it's IBM who is strategically placing itself as the "glue" holding the whole "shebang" together. IBM is still forging ahead in the hardware arena as well. Today it announced a new memory-chip that can send twice as much data to a microprocessor than currently exists. Of course IBM's servers will be the first to use the new chips! These types of advancements certainly prove IBM is an innovative leader, but importantly for the moment at hand, the news has positively effected the stock's share price. All month IBM has been steadily building up a pattern of higher- lows. However it wasn't until just a few days ago that it broke through the stubborn resistance at $110 and demonstrated it could hold the higher level. And today's gain put another chip in its corner. It marked the first time IBM has seen light above the 50-dma indicator (now at $112.71) since the first half of February. The next technical break through is for IBM to move above $115 and through the 200-dma. Short-term support is at $112, but firmer at old resistance of $110. Dips to these levels offer entry points into this momentum/technical play. Overhead opposition is at today's intraday high of $114.69. If the light keeps shining on this stock, it's also possible we could run right into an earnings play too! IBM is expected to report in a little more than three weeks around April 17th. BUY CALL APR-110*IBM-DB OI=13128 at $8.50 SL=6.00 BUY CALL APR-115 IBM-DC OI= 9610 at $6.13 SL=4.00 BUY CALL APR-120 IBM-DD OI=22377 at $3.88 SL=2.50 BUY CALL MAY-115 IBM-EC OI= 99 at $8.50 SL=6.00 BUY CALL MAY-120 IBM-ED OI= 3188 at $6.38 SL=4.25 Picked on March 21st at $113.50 P/E = 28 Change since picked +0.00 52-week high=$139.19 Analysts Ratings 12-10-4-0-0 52-week low =$ 81.50 Last earnings 12/99 est= 1.06 actual= 1.12 Next earnings 04-21 est= 0.78 versus= 0.78 Average Daily Volume = 7.12 mln /charts/charts.asp?symbol=IBM ************* NEW PUT PLAYS ************* RHAT - Red Hat $57.19 -2.06 (-5.69 this week) A leading developer and provider of open source software products and services, RHAT has built a comprehensive web site dedicated to the open source software community. The company provides one of the most popular variants of the Linux-based operating system, Red Hat Linux as well as providing extensive content for the open source community. RHAT currently has strategic alliances with many of the leading computer companies, among them Compaq, Dell, IBM, Intel, Oracle, and Hewlett-Packard. Is this the beginning of the end for the Linux mania? Caldera Systems, a developer of services and software for the Linux operating system jumped 110% in its first day of trading yesterday. Although nothing to sneeze at, Caldera's debut was nothing like the fervor which has surrounded other Linux-related IPOs. As the playing field becomes more crowded, companies like RHAT are beginning to feel the pinch of competition. Completing a double-top near $150 right after the first of the year, RHAT has been declining ever since. Although managing to arrest the decline in early March and moving up to almost $80, the past 6 days have been ugly. In that time, RHAT has dropped below $60 and looks like it wants to challenge the lows from earlier in the month. In this latest decline, the 5-dma ($62) has provided resistance, but that isn't the real story. RHAT has been unable to close above its 30-dma (currently $70) since January 14th, further reinforcing the strength of the downtrend. Volume will be the key to a continuation of the decline - if it can continue to bounce around the ADV, feel free to jump on board as RHAT rolls over near resistance at $60 or the 5-dma at $62. Support will likely show up as RHAT challenges lows (near $54) from earlier this month. More conservative investors may want to wait for a convincing break through this level before opening new positions. BUY PUT APR-60*RCV-PL OI=742 at $9.38 SL=6.50 BUY PUT APR-55 RCV-PK OI=615 at $6.63 SL=4.50 BUY PUT APR-50 RCV-PJ OI=671 at $4.25 SL=2.50 Average Daily Volume = 1.96 mln /charts/charts.asp?symbol=RHAT ********************** PLAY OF THE DAY - CALL ********************** NOK - Nokia Corporation $211.00 +9.00 (+11.13) Finnish Phone Firm, Nokia is the world's number one maker of wireless cellular phones, ahead of Motorola, Ericsson and Kyocera. In addition they make wireless networking equipment, PC monitors and workstations, digital satellite and cable network systems, and set-top boxes. However mobile phones make up 80% of their $19.8 bln in annual sales. Most Recent Write-Up Wow! Nice Recovery! Technically, NOK now trades back over its 5, 10, 30, and 50-dma. Support looks good at $200 and $205. The next level of resistance is at $215, then $220. We think it can surpass these levels in the next two weeks as it nears its 4:1 stock split. While there is no firm date, here is the sequence: March 22nd (tomorrow) there is a shareholder meeting to authorize new shares in order for the split to take effect. We think that will pass handedly. At the same time, management should also announce the actual split date, which we currently estimate to be the first or second week in April. We will let you know in Thursday's write-up. Want to know what the future holds for NOK business? Today, NOK and MOT announced in a BusinessWire article that they would team up to begin the standardization process for 1XTREME technology. This will offer operators a cost-effective migration path to provide integrated voice and data speeds up to 5.2Mbps on a single 1.25MHz code division multiple access (CDMA) carrier. (Qualcomm gets paid again!) The 1XTREME proposal enables real time voice, data and multimedia services on existing CDMA 2000 networks allowing end users to browse the Internet from a personal computer or access email while "on the go". The Nokia and Motorola 1XTREME proposal consolidates the companies' individual efforts, including Motorola's 1X Plus, presented at a telecommunications industry trade show in New Orleans on Feb 29th. Comments Today, NOK was relentless. Even before the post-interest hike rally, NOK was on a tear from the get-go. It made continual advances on decent volume. This is a very good sign which may be partly due to the fact that traders are anticipating the shareholder vote to authorize additional shares tomorrow. The key level tomorrow is resistance at $215. A move through there would confirm NOK's strength and would be a conservative entry point. BUY CALL APR-200 NZY-DT OI=5165 at $22.00 SL=17.00 BUY CALL APR-210*NZY-DB OI=3799 at $17.38 SL=13.50 BUY CALL APR-220 NZY-DD OI=5950 at $12.00 SL= 9.50 BUY CALL MAY-220 NZY-ED OI= 20 at $18.88 SL=14.75 Low OI SELL PUT APR-190 NZY-PR OI=1663 at $ 5.25 SL= 6.75 (See risks of selling puts in play legend) Picked on Mar 09 at $214.63 P/E = 96 Change since picked -3.63 52-week high=$227.06 Analysts Ratings 16-9-1-0-0 52-week low =$ 67.69 Last earnings 02/00 est= 0.67 actual= 0.72 Next earnings 05-02 est= 0.61 versus= 0.48 Average Daily Volume = 3.41 mln /charts/charts.asp?symbol=NOK ************************ COMBOS/SPREADS/STRADDLES ************************ Technology Stocks Join The Party.. Monday, March 20 Blue-chip stocks rallied while technology issues plummeted a day ahead of the Federal Reserve policy meeting. The Dow industrials added 85 points to 10,680. The Nasdaq composite index fell 188 points to 4,610, its third largest point-loss ever. The S&P 500 index fell 7 points to 1,456. Declining issues led advances 8-7 on active volume of 917 million shares on the NYSE. In the bond market, the 30-year U.S. Treasury rose 8/32 with the yield ending at 5.99%. Sunday's new plays (positions/opening prices/strategy): Telxon TLXN JUN12C/APR20C $6.25 debit diagonal E*Trade EGRP APR15C/APR25C $8.75 debit bull-call Xerox XRX APR20C/APR22C $2.00 debit bull-call Am.Online AOL JAN40C/APR65C $25.00 debit LEAPS/CC's Telxon traded in a large range during the session but we did not observe the target debit. E*trade was slightly more generous and the pullback came as expected with a number of opportunities near our suggested target. Unfortunately, the issue closed down on weak buying and may consolidate further. The XRX spread should have provided a better-than-expected entry but we did not see the spread prices for the first part of the session. Our recorded debit is a conservative estimate. AOL was the most difficult position to gauge with the large bid/ask spread on the LEAPS position. The posted debit was within $0.12 of the best spread price, observed at various times during the day. Portfolio plays: New weakness in the technology sector plagued the market Monday after a negative article in Barron's pressured Internet stocks. A study conducted by the Internet stock evaluation firm Pegasus Research indicated that at least 51 Internet firms will run out of working cash within the next 12 months. That's almost one quarter of the companies included in the study and the report quickly took a toll on the high-flying group. Now investors are attempting to balance their portfolios with a favorable sampling of both classic issues and new economy technology stocks ahead of Tuesday's meeting of the Federal Open Market Committee. The FOMC is expected to push interest rates up 25 basis points to a target rate of 6%. While the market has already discounted the current bid to keep the economy from overheating, it remains significant as it is the Fed's fifth rate boost in nine months. The Spreads/Combos portfolio suffered a number of losses in the technology group but the majority of plays remain favorable ahead of the Fed's interest rate decision. There were few bright spots in today's session and the outcome of many of our spreads will be determined by the depth of the current correction in the Nasdaq. Hopefully the conservative outlook many of the positions are based on will pull them through. Any of the technology issues that fail to recover from the recent consolidation should be evaluated for early exits to protect gains and limit losses. Obviously there are a number of other sectors that now offer favorable issues and our goal is to position available investing capital where it can best be used. In the past week, blue-chip issues have been the market leaders and we may return that group for future plays. Tuesday, March 21 Equity markets soared today after the Federal Reserve delivered a highly anticipated interest-rate increase. The Dow Industrials rose 227 points to 10,907 and the Nasdaq composite index jumped 101 points to 4,711. The broader S&P 500 Index gained 37 points to 1,493. Advances led declines 3-2 on active volume of 1.06 billion shares on the NYSE. The 30-year U.S. Treasury bond was up 13/32, pushing the yield to 5.98%. Portfolio plays: Our portfolio recovered with the technology group today after the Fed announced the expected interest rate increase of one-quarter point. The move eased investor's concerns that economic growth would be squelched by the FOMC's recent bid to keep inflation in check. Blue-chip issues soared and the Nasdaq recovered much of the previous day's losses in a volatile and wide-ranging session. Most investors had expected a quarter point increase though some were worried that the target for overnight lending between banks might be boosted by as much as a half point. Unfortunately, the central bank's statement that it sees inflation as a risk to the economy is seen as a precursor to future rate increase. Now the difficulty will be in finding the next "hot" sector and deciding where to invest for the next big rally; the recovering classics or downtrodden technology stocks. Today's list of winners included a number of leading issues and the rally produced favorable moves in many of sectors. Our top positions were in the technology group but blue-chip stocks also found their way into the headlines. One of the recent performers has been Xerox and this week Xerox and Hewlett-Packard (HWP), the world's largest copier and printer makers, said they settled all past patent infringement lawsuits between them to avoid legal costs. The companies said they reached satisfactory terms and plan to focus on competing with each other in the marketplace rather than in the courts. The news was great for our new debit spread and the position is already approaching maximum profit. Another blue-chip issue has been on the move recently and today's move kept the trend intact. Navistar (NAV) closed $1.38 higher at $39.31 and the next test will be the recent resistance level near $40. Both new spreads on the issue are profitable in just the first two weeks. The majority of portfolio positions participated in the rally and the leading technology stocks were Advanced Micro Devices (AMD), up $3 to $54.62; BMC Software (BMCS), up $3 to $54.50 and Helix (HELX), with a $3 rally to finish at $74.50. American Online (AOL) continued its bullish trend ending at a recent high near $68 and Network Associates (NETA) also closed near session highs at $34.68. Metromedia Fibre Network (MFNX) enjoyed a nice recovery, moving up $5.50 to finish near $89. Our new diagonal position profits above $77.00. Electro Scientific (ESIO) was the worst of the best, up $1.75 at $60.12. Of course there were also some bearish issues and the most obvious losers were again in the small-cap drug and biotechnology group. Our current positions in Epitope (EPTO), Organogenesis (ORG) and Theragenics (TGX) are in danger of technical failure and they will be closed at the first sign of a significant change in character. Summary Of Monthly Positions: ****************************************************************** - CREDIT SPREAD SUMMARY - ****************************************************************** Stock Pick Last Position Credit Cost G/L Status ARBA $229.00 $266.19 MAR160P/170P $1.12 $0.25 $0.88 Closed BEAS $146.00 $106.06 MAR90P/105P $2.75 $0.75 $2.00 Closed CMGI $140.00 $120.38 MAR115P/120P $0.75 $0.75 $0.00 Closed CTXS $100.06 $98.38 MAR85P/87P $0.38 $0.00 $0.38 Closed EXDS $136.31 $151.25 MAR105P/110P $0.68 $0.00 $0.68 Closed ESIO $64.00 $58.72 APR45P/50P $1.25 New Play Open FBR $15.00 $14.88 MAR7P/10P $0.62 $0.00 $0.62 Closed IONA $67.00 $80.38 MAR45P/50P $0.62 $0.00 $0.62 Closed ISSX $97.38 $108.44 MAR70P/75P $0.75 $0.00 $0.75 Closed ITVU $139.00 $127.63 MAR90P/100P $1.12 $0.25 $0.88 Closed KLAC $84.00 $80.00 MAR70P/75P $0.88 $0.38 $0.50 Closed LVLT $124.93 $110.75 MAR110P/115P $0.88 $1.00 ($0.12) Closed MACR $84.00 $88.97 MAR65P/70P $0.68 $0.00 $0.68 Closed MNMD $91.00 $103.75 MAR70P/75P $0.50 $0.00 $0.50 Closed NSOL $151.43 $221.31 MAR105P/110P $1.00 $0.18 $0.81 Closed PEP $32.75 $33.00 MAR37C/35C $0.38 $0.00 $0.38 Closed PLCM $89.25 $106.75 MAR70P/75P $0.50 $0.00 $0.50 Closed VIGN $228.75 $236.25 M185P/190P $0.75 $0.12 $0.62 Closed Note: A number of these positions were closed early to protect gains and limit potential losses. The LVLT play was closed in two separate trades with a "break-even" target exit. The Pepsico (PEP) credit spread was originally listed as a February position. The correct expiration month was March and had it been held to the end of the period, it would have finished profitably. ****************************************************************** - CALENDAR SPREAD SUMMARY - ****************************************************************** Stock Pick Last Position Debit Value G/L Status EPIC $9.56 $8.75 JUL12C/APR12C $0.93 $0.75 ($0.18) Open KR $15.56 $16.68 JUL17C/APR17C $0.93 New Play Open MUEI $10.50 $17.75 APR12C/FEB12C ($2.38) $0.38 $2.75 Closed NAV $36.25 $39.38 JUL45C/APR45C $2.00 $2.38 $0.38 Open STRX $8.43 $6.75 MAY7C/APR7C ($0.50) $0.18 $0.68 Open The calendar (or time spread) is profitable if the value of the position exceeds the initial debit (or cost-basis) at the end of the expiration period for the long position. However, because we track the plays based on the current closing cost/value, the gains for time spreads will rarely be reflected until the play closes. Each month, as we sell a new option against the long position, the net cost should decline or the position value should increase. ****************************************************************** - COVERED-CALLS WITH LEAPS - ****************************************************************** Stock Pick Last Position Debit Value G/L Status CA $53.56 $65.56 LJAN60/APR65C ($2.38) $11.25 $8.88 Open CS $16.80 $46.00 LJAN15/APR40C $17.75 $23.50 $5.50 Open MDT $39.38 $52.69 LJAN37/APR45C $4.75 $9.12 $4.38 Open NETA $32.31 $34.81 LJAN15/APR30C $14.38 New Play Open NETA $25.12 $34.81 LJAN15/APR25C $6.88 $10.50 $7.25 Open PTEK $8.94 $8.13 LJAN5C/APR10C $3.25 $3.50 $0.25 Open VOD $49.25 $58.81 LJAN45/APR55C $7.50 $16.00 $8.50 Open ****************************************************************** - DIAGONAL SPREAD SUMMARY - ****************************************************************** Stock Pick Last Position Debit Value G/L Status ANDW $27.38 $26.62 JUL15C/APR25C $8.50 New Play Open BCGI $5.12 $8.50 JUN5C/APR7C $0.31 $1.31 $1.00 Open CDN $22.81 $23.00 MAY15C/APR20C $1.68 $4.12 $2.43 Open CRUS $14.06 $19.88 JUN10C/MAR17C $4.75 $6.25 $1.50 Open DRMD $10.12 $8.94 JUN5C/APR10C $3.25 $3.38 $0.12 Open EPTO $16.94 $14.06 JUL7C/APR15C $6.50 $5.00 ($1.50) Open ESPI $10.88 $12.44 JUN5C/APR10C $3.88 $4.25 $0.38 Open ISSI $18.00 $26.63 APR7C/MAR15C $7.00 $7.50 $0.50 Closed KEG $6.81 $11.19 JUL7C/APR10C $0.93 $2.25 $1.31 Open MFNX $89.93 $89.88 MAY60C/APR80C $17.00 New Play Open MIR $15.00 $18.25 MAY12C/MAR15C $2.12 $2.50 $0.38 Closed MSGI $20.43 $18.94 MAY12C/APR20C $3.75 $4.38 $0.62 Open NAV $36.25 $39.38 JUL25C/APR35C $9.00 $9.12 $0.12 Open ORG $14.62 $17.13 JUN10C/APR15C $3.38 $4.38 $1.00 Open PCMS $10.06 $20.59 MAY7C/APR17C $6.00 $7.75 $1.75 Open RCOT $7.50 $11.25 MAY5C/APR10C $3.43 $4.25 $0.81 Open SVGI $16.38 $26.44 JUN17C/APR25C $3.88 $6.00 $2.12 Open TERA $6.62 $7.13 JUN5C/APR7C $0.68 $1.68 $1.00 Open TGX $14.56 $13.13 JUN10C/APR15C $3.25 $3.25 $0.00 Open TTWO $18.38 $15.00 JUN7C/APR17C $8.00 $6.50 ($1.50) Open TTWO $18.38 $15.00 JUN7C/APR15C $6.50 $5.62 ($0.88) Open UIS $29.25 $26.50 APR22C/MAR30C $2.50 $6.00 $3.50 Closed WAVO $7.88 $7.06 MAY5C/APR7C $1.43 $1.38 ($0.06) Closed ZOLT $7.68 $9.63 APR7C/MAR10C $0.06 $2.38 $2.31 Closed * A number of these positions were closed early to protect profits or prevent (limit) potential losses. The diagonal spread is profitable if the value of the position exceeds the initial debit (or cost-basis) at the expiration of the long position. However, because we track the plays based on the current closing cost/value, the gains for diagonal spreads will rarely be reflected until the play closes. Each month, as we sell a new option against the long position, the net cost should decline or the position value should increase. ****************************************************************** - DEBIT SPREADS - ****************************************************************** Stock Pick Last Position Debit Value G/L Status AMD $58.12 $50.00 APR37C/50C $8.62 $7.25 ($1.38) Open BEAS $84.94 $106.06 MAR50C/65C $12.38 $14.75 $2.38 Closed BILL $8.31 $7.38 APR7CC/NP $6.62 New Play Open BMCS $51.43 $55.06 APR35C/45C $8.50 $8.75 $0.25 Open BVF $56.93 $50.63 APR42/90C $5.00 $5.00 $0.00 Closed CPWR $23.56 $24.63 MAR20C/22C $1.88 No Play Closed DISH $100.00 $121.06 MAR80C/90C $9.00 $10.00 $1.00 Closed ESCM $11.31 $14.38 APR7C/10C $1.38 $1.62 $0.25 Open HELX $51.00 $68.34 APR25C/45C $15.75 $18.62 $2.88 Open ICGX $30.94 $35.06 MAR20C/25C $4.38 $5.00 $0.62 Closed IDTC $33.94 $32.81 MAR22C/30C $5.38 $7.50 $2.12 Closed MRVC $90.50 $132.88 MAR60C/70C $9.00 $10.00 $1.00 Closed MYPT $66.12 $54.75 APR50C/55C $3.75 $2.50 ($1.25) Closed NTPA $77.50 $80.88 MAR50C/65C $13.25 $15.00 $1.75 Closed RMII $11.00 $10.13 MAY5C/10C $3.62 $2.75 ($0.88) Open SPLN $57.25 $44.25 APR40C/50C $7.00 $6.00 ($1.00) Closed TUP $16.81 $17.06 APR15C/17C $1.25 $1.00 ($0.25) Closed UFS $15.50 $25.25 MAR12CC/NP $12.00 $12.50 $0.50 Closed VLNC $35.88 $33.84 MAR20C/25C $4.25 $5.00 $0.75 Closed VSTR $155.31 $124.31 MA110/130C $17.00 $14.00 ($3.00) Closed * A number of these positions were closed early to protect profits or prevent (limit) potential losses. Tupperware (TUP) actually finished at maximum profit. A debit-spread is profitable if the value of the position exceeds the initial cost of the spread when the play is closed. However, because we track plays based on the current cost/value, potential gains may not be reflected until both positions are closed. ****************************************************************** - DEBIT STRADDLES - ****************************************************************** Stock Pick Last Position Debit M/V C/V Status APLX $14.62 $16.38 JUL15C/15P $6.50 $8.25 $6.50 Open CBR $27.19 $21.25 MAY25C/30P $10.25 $12.50 $10.00 Open LHSG $25.50 $48.75 APR25C/25P $6.75 $27.00 $21.25 Closed NLCS $49.56 $47.94 JUL50C/50P $9.62 $10.75 $10.50 Open M/V = Maximum Value C/V = Current Value A debit-straddle is profitable when the value of the position exceeds the initial cost. **** Note: We trade the Spreads portfolio just as we would trade our personal account and the ongoing narrative is a service we provide to help novice traders understand how various positions might be opened and closed. It is not intended to substitute for your own trading techniques nor does it replace your duty to manage the positions in your portfolio. We post a list of the current plays after each expiration period and the summary is a reasonable representation of the positions offered during the month. Questions & comments on spreads/combos to Click here to email Ray Cummins ****************************************************************** - Speculation Plays - Today's positions are based on recent increased activity in the stock and underlying options. All of these plays offer favorable risk/reward potential but they should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. **** MO - Philip Morris $20.44 *** A Big Day! *** Philip Morris Companies is the largest consumer packaged goods company in the world. Its subsidiaries are engaged in the manufacture and sale of various consumer products. Philip Morris Capital Corporation, also a wholly owned subsidiary, engages in various financing and investment activities. Philip Morris and its subsidiaries are also the largest cigarette manufacturers and suppliers in the United States. They distribute these products internationally. Kraft Foods is the largest processor and marketer of retail packaged foods in the United States and its international subsidiaries supply the same products for the international market. Miller Brewing is the second largest brewing company in the United States. Cigarette makers rejoiced today after a Supreme Court ruling that said the Food and Drug Administration lacks authority to regulate tobacco products. Philip Morris officials opposed the FDA rule because it apparently regulated cigarettes as medical devices and the 5-4 decision ruling was a major victory for the industry as it has been hit with a number of civil lawsuits in past months. The Supreme Court ruled that the government agency overstepped its authority in 1996 when it issued sweeping regulations involving cigarettes and smokeless tobacco. After the announcement, tobacco companies suggested they could comply with actions to reduce youth smoking as long as an adult's right to smoke was not abused. The news brought a flood of traders to the options pits and Implied Volatility and Volume in call options rose to historically high levels. The busiest options were the April 20 and 22.5 calls on the American Stock Exchange and call activity was also heavy on the CBOE and the Pacifex. We noticed two positions that benefit from the volatility in front-month options and either spread is viable, depending on your technical outlook for the issue. PLAY (aggressive - bullish/calendar spread): BUY CALL JUN-22.50 MO-FX OI=9844 A=$1.50 SELL CALL APR-22.50 MO-DX OI=11551 B=$0.56 INITIAL NET DEBIT TARGET=$0.88 TARGET ROI=40% - or - PLAY (conservative - bullish/calendar spread): BUY CALL JUN-25 MO-FE OI=22881 A=$0.88 SELL CALL APR-25 MO-DE OI=17483 B=$0.25 INITIAL NET DEBIT TARGET=$0.56 TARGET ROI=25% Chart = /charts/charts.asp?symbol=MO **** APCC - American Power Conversion $41.06 ** Break-Out! *** American Power Conversion designs, manufactures and markets power protection and management solutions for computer and electronic applications. Their unique solutions include uninterruptable power supply products (UPS), electrical surge protection devices, power conditioning products and associated software, services and accessories. The company's line of UPS products ranges from 200 volt-amps (suitable for a PC) to 480 kVA (suitable for mainframe computers or facilities). The company also offers SurgeArrest, PowerManager and ProtectNet to protect against power spikes and surges. A family of software products under the PowerChute Plus name provides its users with unattended shutdown capabilities, UPS power management, and diagnostic features. American Power Conversion is on the move and today's news that they were chosen by PC and computing products maker Acer to be the exclusive power protection vendor for Acer's "shopacer.com online" outlet boosted the issue $5. The announcement follows news that Hewlett-Packard recently recommended American Power Conversion as its uninterruptible power supply vendor of choice for HP NetServer systems. Hewlett-Packard and APCC also announced a global resale agreement. The strategic alliance enables HP to exclusively offer APC's Smart-UPS series of rack-mount UPSs to customers worldwide. APCC is already the leading UPS manufacturer in many countries and in early March, a revenue-based report stated they have obtained the lead share position in China for uninterruptible power supply sales. With the recent rise, speculation is rampant. Option buyers have moved further into this issue on the break-out and although APCC enjoyed a big rally today, there may be another chance for a conservative position. With any luck, a small pullback will occur, allowing us to enter this spread at a favorable price. PLAY (conservative - bullish/credit spread): BUY PUT APR-30 PWQ-PF OI=100 A=$0.31 SELL PUT APR-35 PWQ-PG OI=188 B=$0.88 NET CREDIT TARGET=$0.75 ROI(max)=17% Chart = /charts/charts.asp?symbol=APCC **** HLT - Hilton Hotels $8.38 *** What's Up? *** Hilton Hotels is the world's leading lodging company. Hilton develops, owns, manages, and franchises hotels, resorts and vacation ownership resorts. All of Hilton's properties in the United States, with the exception of those operated by Conrad International Hotels Corporation, a subsidiary of the Company, three franchise hotels operated in Canada and three franchise hotels operated in Mexico. Hilton owns an interest in and operates 38 hotels and manages 24 hotels owned by others. In addition, 185 hotels are franchise operated under the Hilton, Hilton Garden Inn and Hilton Suites names. Flagship properties include the Waldorf Astoria, the Hilton Hawaiian Village, and the Chicago Hilton and Towers. Their other activities include the subsidiary, Hilton Grand Vacations Company, which develops markets and operates vacation ownership resorts in Florida and Nevada. This stock has everybody wondering "What's Up?" as the technical character of the issue has reversed completely in the last few weeks. New option interest is growing and the speculation lacks direction. Some suggest the bullish trend is related to the recent buyout of Mirage Resorts and others refer to the article in Barrons that said hotel industry leaders may create Internet sites that benefit from online travel reservations. Regardless of the reason, the evidence is clear in the chart and this play offers one of the easiest ways to participate (with options) in a future upward movement. PLAY (conservative - bullish/diagonal spread): BUY CALL MAY-7.50 HLT-EU OI=70 A=$1.38 SELL CALL APR-10.00 HLT-DB OI=7610 B=$0.31 NET DEBIT TARGET=$1.00 INITIAL ROI TARGET=25% Chart = /charts/charts.asp?symbol=HLT ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. 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