The Option Investor Newsletter Thursday 3-23-2000 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) ****************************************************************** 3-23-2000 High Low Volume Advance Decline DOW 11119.90 + 253.20 11136.60 10831.00 1,071,456k 1,830 2,179 Nasdaq 4,940.61 + 75.86 4975.66 4864.75 1,714,155k 1,157 2,062 S&P-100 831.70 + 21.15 834.12 806.19 Totals 2,987 4,241 S&P-500 1527.36 + 26.71 1532.50 1492.39 41.3% 58.7% $RUT 573.79 + 2.60 577.91 571.19 $TRAN 2720.76 + 69.11 2724.35 2642.97 VIX 24.22 + 1.23 24.91 23.16 Put/Call Ratio .41 ****************************************************************** 10,000 to 11,000 in Just 7 days You used to have to wait for months to pass from one millennium mark to the next. Welcome to the next generation of investing where it only takes 7 days to ramble over 1300 points on our blue-chip index. The DJIA was sitting at 9800 last Wednesday when the bulls dug in and made a charge like none other we have seen in this index. 11,000 tried in vain to act as resistance this morning, but before the day was over, the curbs were in place due to the dramatic rise. You can thank the stocks that have been working there way higher for the past week for today's gains too. Strong Financials like Citigroup +2.94, Chase +6.94, Morgan Stanley +4.63 and good old American Express +8.25. You wouldn't likely have found many traders saying "good old American Express" just two weeks ago when it was holding on by its fingernails to support at $130. But here it is at $156 just two short weeks later. Hewlett-Packard tacked on another +1.06, Alcoa chipped in +2.63, General Electric added +9.13 too, but the big winner of the day was Microsoft +8.63. This was due to news that settlement talks have increased and some are expecting a resolution as early as next week. The potential deal is not expected to result in a break-up or restructuring either. Hey, either way is fine with me. The sooner this gets put in the past, the better. This will have a direct impact on the DJIA too, with MSFT now in the index. You have to give credit to the "old economy" stocks. A month ago they were being tossed around like a hot potato with no one willing to buy and hold. Now they are like diamonds (no pun intended) and are leading this next leg of the rally in a continuing sign that sentiment is still strong. It's not a matter of getting out of stocks, just shifting to the next sector set to rally. The DJIA closed up a whopping +253 and just 12 points under the day's high. Volume was steady once again at 1.07 bln shares. Remember that little downtick yesterday where the DJIA closed off 40 points. Apparently, that was the short- term correction because back to the rally it was today. In fact, lots of the Financials closed right on their day-high and aren't showing signs of stopping. INTC took a breather today and may be back to rally mode tomorrow and who knows how high MSFT will run before stopping. Don't be surprised to see a continuation even though common sense tells us that some profit-taking is in order. Nothing surprises me anymore in this market. Take a look at the chart to see today's steady rise until it stalled somewhat at 11,100. The second chart shows why this happened. You have some historic resistance at this level. Today's close near the high may be a sign of more to come, but don't bet the farm. This thing has to take a break at some point and more than just for a half of a day like we saw Wednesday. The Nasdaq managed to rally again today. It try for a 100+ day for the third day in a row, but gave way in the afternoon. It closed at 4940, up 75.86. Volume was identical to yesterday at 1.7 bln. It had a strong trend all day before rolling over as you see in the chart. Without a 2 billion plus volume day this week to confirm the rally, it leaves me somewhat suspect of a continuance. Especially, if the DJIA remains the leader. But, with earnings season nearing and the Nasdaq creeping back to old highs, it will always stay high on my market monitor. The test tomorrow will be if it can shrug off the late day profit-taking and maintain a good solid rally. You almost have to figure more profit-takers will be looming ahead of the weekend and after this week's rebound. Oddly enough, the VIX went up on a day like today. Can't explain that one for you, but it closed at 24.55, +1.56. Anyway, it is middle of the road, giving us the all clear signal. Even news that from the FOMC minutes from February couldn't disrupt this bull market day. It was reported that several members had favored a 50-point move in February. As soon as that hit, I was expecting some sort of retracement in the averages, but not even a hint of selling emerged. Traders must have figured that they got their 50-point move with the 25 in February and the other 25 this week. They were even quoted as saying that "relatively high real interest rates would be needed" to curb the economy. Still they admitted that inflation is not in sight just yet. GM was another big winner today on a report from CNBC that News Corp. was entertaining a bid for GM as a way to get at its Hughes subsidiary, operator of DirecTV, the nation's most popular and largest satellite television service with more than 8 million customers. This was quickly denied at News Corp, but someone must be a believer since GM climbed $5.25 to close at $87. This is one of those rumors you scratch your head about since it sounds like a stretch to go after GMH that way. News Corp's exact words on the matter, "entirely false and without merit." Oil dropped today by $0.15 to $27.31 a barrel as the waiting game to Monday's OPEC meeting is in full force. Unless the rumors start to fly (and we all know that is possible in this commodity), don't expect much movement on Friday. The OPEC oil ministers are expected to increase production by at least 1 million gallons a day, but some wonder if that will be enough. Energy Secretary Bill Richardson believes there's an estimated 2 million barrel per day shortfall in supply compared to demand. Some companies like Federal Express today announced an additional surcharge for deliveries based on the high fuel costs. You can bet that more increases like this will show up on the inflation scale soon so next week will be crucial. All in all, this has been a tame earnings warning season so far. First Call has already indicated that there is more upside surprises likely than downside. In truth, it is not likely to matter if Compaq or Eastman Kodak or some other already tattered stock warns to the downside. You still have to fear the MicroStrategy warnings, but that was likely an isolated incident. With that said, we could see a strong April for the markets. Whether it is in cyclicals or back in the Nasdaq, there are stocks to play. As always, let volume be your guide to which stocks are carrying current momentum. Again, today's Nasdaq afternoon rollover may be setting the tone for tomorrow as traders take gains of the table ahead of the weekend. That wouldn't surprise since there weren't any profits to take home last week. The DJIA continues to have a mind of it's own. If it trek's above this general 11,100 range again tomorrow, we could be back to new highs in a heartbeat. Keep your eye on the financials and old school tech stocks like MSFT, INTC, HWP, and DELL that have had one mighty resurgence lately. In all cases though, be smart and sell too soon. Ryan Nelson Asst. Editor ********** STOCK NEWS ********** Earnings Estimates Don't Always Matter By S.P. Brown Meeting quarterly earnings estimates used to be a big deal, even in the gravity-defying tech-sector. If a company missed the consensus estimate, its stock invariably took a beating. But the times they are a-changin', as Micron (MU) proved on Tuesday. The DRAM chip maker missed its second-quarter (ended March 2) consensus earnings estimate badly, posting earnings of $0.58 a share compared to the consensus estimate for $0.74. In fact, Micron even failed to meet the low analyst estimate of $0.61 a share. At first, the earnings shortfall was met with much consternation. During regular trading on Tuesday, Micron's stock closed at $130.50, down $3.13. Then, in after-hours trading, the stock slid another $11.25 to $119.25. On Wednesday, though, investors had a change of heart, pushing Micron stock up $4.63 from Tuesday's regular trading session close to $135.13. Admittedly, what's happening at the present is irrelevant in valuing an invest, the future is what counts. But the future for Micron isn't particularly clear. Compared with the first quarter, the average selling price for memory chips fell 20 percent. As a result of the decline in prices, gross profit margins for Micron's semiconductor operations dropped to 41 percent in the second quarter from 58 percent in the previous quarter. Furthermore, some analysts don't expect DRAM prices to gain much ground until the latter part of the year - if they gain at all - when PC makers begin to increase production in anticipation of the holiday buying season. On the flip side, though, there are analysts forecasting demand for DRAMs to grow between 80 and 100 percent, but for supply to grow by only 60 to 70 percent, which, according to the laws of supply and demand, should cause prices to rise. Despite the schizophrenic outlook for the DRAM chip industry, many of the big investment houses jumped on the Micron bandwagon yesterday anyway. Deutsche Banc Alex. Brown hiked its Micron share-price target to $210 from $130, while Warburg Dillon Read raised its 12- month price target to $160 a share. Meanwhile, Robertson Stephens raised its earnings estimates following the second quarter release, and is expecting profits of $2.95 a share in fiscal year 2000 and $5.50 a share in fiscal year 2001. Finally, adding his two cents, Merrill Lynch's Joseph Osha wrote in a message to clients, "We think the outlook is extremely positive for Micron." Osha rates the stock a long- term buy. All these differing estimates and opinions amalgamate to a First Call consensus earnings forecast for fiscal year 2000 of $3.42 a share. While for the nearer term, the third-quarter First Call consensus estimate is for $0.67 a share. As Micron has proven this quarter, the estimate might be a mute point. However, if the company misses it's earnings estimate again for the coming quarter, it will still be interesting to see if investors remain as forgiving as they did in the last quarter. ************** Market Posture ************** As of Market Close - Thursday, March 23, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,850 11,250 11,120 Neutral 3.16 SPX S&P 500 1,410 1,475 1,527 BULLISH 3.21 OEX S&P 100 780 800 832 BULLISH 3.21 RUT Russell 2000 510 530 574 BULLISH 2.24 NDX NASD 100 4,000 4,150 4,661 BULLISH 2.24 MSH High Tech 975 1,000 1,146 BULLISH 2.24 XCI Hardware 1,480 1,510 1,764 BULLISH 2.24 CWX Software 1,430 1,670 1,592 Neutral 3.21 SOX Semiconductor 1,130 1,360 1,285 Neutral 3.21 NWX Networking 1,000 1,040 1,160 BULLISH 2.24 INX Internet 770 800 903 BULLISH 3.09 BIX Banking 520 600 587 Neutral 3.16 XBD Brokerage 450 480 557 BULLISH 2.31 IUX Insurance 500 560 557 Neutral 3.16 RLX Retail 900 1,000 923 Neutral 3.16 DRG Drug 340 380 350 Neutral 3.16 HCX Healthcare 700 750 706 Neutral 3.16 XAL Airline 110 140 139 Neutral 3.10 OIX Oil & Gas 265 300 276 Neutral 3.16 Posture Alert The major exchanges witnessed a good rally today; however, it was concentrated within a few big names. Five stocks accounted for 185-points of the Dow's 253-point rally, including Microsoft, American Express, JP Morgan, GE, and General Motors. Leading sectors Thursday include Brokerage (+4.70%), Insurance (+4.34%), and Banking (+3.98%). There are no current changes in posture. **************** Market Sentiment **************** Thursday, March 23, 2000 Combining Forces! Blue chips and technology shares both raced ahead Thursday, as the S&P 100, S&P 500, and the NASDAQ 100 all broke record highs. Technology shares got a boost from a potential settlement between the Department of Justice and Microsoft, in which Microsoft would not be divided up. Because of this rumor, shares of Mr. Softy rose +8 5/8 to help contribute to the NASDAQ's gains, as well as boosting the Dow by 43 points. The combining forces of blue chip and technology stocks are also helping short sellers run for the door, which in turn, has helped propel this market into higher highs. Earnings continue to be impressive, the long bond is safely off of the highs, and there has been (so far) a lack of major negative announcements, so higher highs should come soon. One important gauge of sentiment is the level of short interest on the major exchanges. Investors who sell securities "short" borrow stock and sell it, betting that the stock's price will decline and that they will be able to buy the shares back later at a lower price for return to the lender. Short interest reflects the number of shares that have yet to be repurchased to give back to lenders. In the past, stocks that have heavy short interest, when combined with some sort of positive news, has witnessed very quick and powerful up-moves. At times, short sellers are forced to cover, which only helps the buying pressure, and this is known as a "short squeeze." The short interest on the NYSE increased +5.7% to 4,110,510,698 shares on March 15. This bearish level would suggest further upside potential. Below is a list of the most shorted securities on the NYSE. Largest Short Positions Rank Mar. 15 Feb. 15 Change 1 Qwest Comm Int'l 75,993,604 72,997,555 2,996,049 2 At&T 74,216,583 69,387,948 4,828,635 3 Sprint (Pcs Grp) 65,490,493 79,492,948 -14,002,455 4 VodafoneGrp(Ads) 61,938,122 65,300,068 -3,361,946 5 Walt Disney-Hldg 60,746,141 58,845,710 1,900,431 6 America Online 54,528,042 61,665,635 -7,137,593 7 Lucent Technologies 47,408,985 39,394,215 8,014,770 8 Nortel Networks 41,791,043 33,806,519 7,984,524 9 Time Warner (Hldg) 34,392,577 40,295,634 -5,903,057 10 Pfizer 32,851,919 16,813,732 16,038,187 11 Wal-Mart Stores 32,244,310 33,951,697 -1,707,387 12 Columbia/HcaHlth 31,722,058 32,209,396 -487,338 13 Kmart 31,093,503 33,396,771 -2,303,268 14 TELDeMexico(Ads) 29,008,399 31,096,795 -2,088,396 15 Bell Atlantic 28,136,197 23,043,174 5,093,023 16 Alcatel 23,535,678 4,478,995 19,056,684 17 Schwab (Charles) 21,254,433 14,080,429 7,174,004 18 TelefonicaSA(Adss) 21,200,986 15,667,145 5,533,841 19 LoralSpace&Comm 21,074,014 17,446,530 3,627,484 20 Compaq Computer 21,006,497 20,734,725 271,772 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. Short Interest: Short interest continues to climb as quickly as the market. The short interest on the NYSE increased +5.7% to 4,110,510,698 shares on March 15. This bearish level would suggest further upside potential. Interest Rates (5.904): The current yield is in bullish territory. 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 its 140-point decline! Volatility Index (24.22): 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. 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 (3/17) (3/21) (3/23) Overhead Resistance (830-860) 21.25 25.67 31.20 OEX Close 786.74 806.87 831.70 Underlying Support (800-825) n/a n/a 0.33 Underlying Support (770-795) 0.88 0.92 2.20 What the Pinnacle Index is telling us: Based on Thursday's sentiment, we would expect some profit taking to occur very shortly, as the sentiment on overhead seems too bullish. Put/Call Ratio Friday Tues Thurs Strike/Contracts (3/17) (3/21) (3/23) CBOE Total P/C Ratio .41 .43 .41 CBOE Equity P/C Ratio .35 .36 .35 OEX P/C Ratio 1.11 1.56 1.31 Peak Open Interest (OEX) Friday Tues Thurs Strike/Contracts (3/17) (3/21) (3/23) Puts 720 / 7,621 720 / 9,271 700 / 8,431 Calls 750 / 3,890 880 / 4,217 785 / 4,271 Put/Call Ratio 1.98 2.20 1.97 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 23, 2000 24.22 Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Daily Results Index Last Mon Tue Wed Thu Week Dow 11119.86 85.01 227.10 -40.64 253.16 524.63 Nasdaq 4940.61 -188.13 101.68 153.07 75.86 142.48 $OEX 831.70 -1.44 21.57 3.68 21.15 44.96 $SPX 1527.35 -7.84 37.24 6.77 26.71 62.88 $RUT 573.79 -25.57 3.59 18.40 2.60 -0.98 $TRAN 2720.76 -24.24 68.22 -16.16 69.11 96.93 $VIX 24.22 0.50 -0.83 -0.35 1.23 0.55 Calls Mon Tue Wed Thu Week YHOO 191.00 0.91 19.72 5.44 -6.19 19.88 Tough day EXDS 171.00 -8.75 12.75 14.13 1.63 19.75 Running NOK 219.63 2.13 9.50 7.50 1.44 19.75 Split 4/7 INTC 142.63 5.13 3.44 5.63 -1.44 12.75 Breather HWP 147.25 5.19 -2.13 4.31 1.06 9.25 Steady NT 137.25 -2.56 3.31 4.50 3.25 8.50 New IDPH 126.13 -12.44 9.09 15.66 -5.13 7.19 Still up SCH 61.50 -1.25 0.44 3.13 3.94 6.75 Break out AOL 70.75 2.13 0.50 4.38 -1.25 6.38 Lookin up IBM 115.25 2.75 0.75 0.75 1.00 5.25 Basing RATL 93.56 -1.63 -3.88 3.50 7.06 5.06 Nice move BAC 54.19 -0.37 1.37 0.44 2.75 4.19 New SEG 69.88 -2.75 -0.81 3.00 1.69 1.13 Fights on XRX 26.88 0.19 3.75 -2.75 -0.13 1.07 Needs ink DELL 57.50 1.25 0.31 0.13 -0.63 1.06 Holding NITE 52.75 -3.25 0.50 5.94 -2.19 1.00 Pulled up BMCS 54.06 -3.56 3.06 0.94 -1.44 -1.00 Ready BGEN 76.13 -5.63 -1.13 3.38 -5.38 -8.75 Dropped SCMR 134.94 -13.50 -3.75 14.75 -7.06 -9.56 Dropped MRVC 123.00 -18.50 3.75 13.88 -9.00 -9.88 Teetering CHKP 219.00 -37.19 25.19 -5.94 1.44 -16.50 Coming up VERT 190.03 -37.63 14.00 5.00 -11.97 -30.60 Dropped Puts ISLD 75.06 -12.56 0.19 11.00 -6.19 -7.56 Down time CKFR 62.88 -5.44 1.25 -0.56 -2.56 -7.31 Retest$59 RHAT 57.50 -3.63 -2.06 0.81 -0.50 -5.38 Seein red FON 55.63 -0.87 1.06 -3.25 -1.13 -4.19 New EK 56.25 0.31 0.00 -1.69 0.19 -1.19 Flattened CPQ 30.00 0.19 0.00 1.56 -3.13 -0.75 New ************ WOMANS WORLD ************ Lessons Learned During Extreme Volatility By Renee White Have we learned any new lessons this month? Boy, I know I have. Some have made me money and some have lost me money. Then there was also a lesson that scared the heck out of me and caused me to lose my sense of humor for a couple of days. More on that one later. I'm sure after the damage done the last 2 weeks, many are wondering if it is safe to come out and play again. I think so. For now anyway. My plan (as of today) is to play April earnings and then exit the market for May and June. I may have a couple of light plays then, but for the most part, my inertia will end as earnings wind down late April, probably until late June. But for now, I think the worst is over and soon we will be taking out new highs. Let's see if I get this right twice in a row: I doubt we will close over 5,000 until Monday, but it could be Tuesday. Once we do, I expect full momentum. I feel fortunate that I'm recovering well from the sell-off. I could not watch the markets closely last week, due to other responsibilities, and several of my plays took a beating when I wasn't looking, before I could exit. I lost some good money on some great companies caught up in the downdraft. Like many of you, I kept thinking each dip was the last. I did not know which companies would come back quickly but I did believe the NASDAQ would rebound for April. Several times, when major support levels were broken, I tried to buy more April QQQ options on the bounce, both ITM and ATM, with my last purchases being last Thursday. Some of these hurt for a day or two, but I felt certain that I would be rewarded once the carnage was over and the attention focused on earnings again. Although I had to take hits exiting many equity plays, I decided to hold the QQQs. Luck was in my corner because on Monday, QQQ split 2:1 and suddenly I had twice as many contracts, right when the market was bottoming out! That sort of thing could make anyone very happy! When the market started back up, these QQQs helped heal the pain of lost equity premiums, due to the sheer number of contracts I have. I wish I had remembered it was splitting because I would have bought more for the rally that I expected after FOMC. Anyway, I cannot complain. These QQQs are already close to 100% profit. Looking over entries from the last week and a half, my best entries were BRCM, YHOO. Last week's entries have already returned 125% and I am still adding to my positions because I think YHOO is soon to take out 200 and fly. How about JDSU @ 121 1/2 (now 134) and GE @ 126 7/8 (now, 160!). These look great, but trust me, I lost plenty on INSP, VERT and CMVT. I have been playing QQQ with every 10% NASDAQ correction this year and it has proved very profitable. I may be more cautious loading up during the summer sell off, but I will load again next October during the anxiety, panic, and fear of the October curse. The other lesson I learned this week had to do with a Reg T Violation. Have you ever heard of Reg T? I always find it interesting when there are laws that affect you, but no one has told you anything about them. I've been trading for many years but only recently have bounced into this regulation. Monday, I found myself frozen out of one of my accounts due to violating Reg T. I was forced to wire transfer $10K immediately, to meet a Regulation T call. No, this is not a Margin Call. This is Regulation T, a separate pain of its own. A nasty rule concerning the equity in your account at the start of the day that follows day traders around like a shadow in the dark. I had no intention of playing the markets on Monday. My entries were ready for Greenspamming and I needed the time to take care of other business. But, something started telling me to look at my account. You know how that little voice keeps telling you something, when you are trying your best to ignore it? After about 4 hours, I finally booted up and found that I had this Regulation T violation. Ugghhh! I almost dropped my teeth! What happened was that I had CSCO options in my IRA account which expire in April. I also had CSCO options in one of my personal trading accounts. With all the carnage last week I did not check these options. I saw CSCO listed, but in my mind these were also April expirations. I was wrong. Monday, I realized they had been deep ITM March expirations. I have several brokerage accounts, some I trade more heavily than others. If you ever decide to change brokerage firms, make sure you know what they do with options that are ITM at expiration. I got accustomed to how my original account handled things on expiration Friday and did not think life may be different elsewhere. For example, when you have options that are deep ITM on expiration and you do not sell the options or give them exercise directions, one firm may automatically sell your contracts for you at the closing price on expiration Friday and credit your account. That is nice if you are traveling, have other distractions on expiration day, or miss exiting contracts by accident. The commission is higher but the funds show up in your cash account. But not all firms are the same. Another firm may assume that if you do not sell your deep ITM options before expiration Friday, you want to exercise the contracts and own the shares. Now my friends, that can be a very expensive lesson if you had no intention of buying all those shares of stock, due to the ITM contracts that you had neglected. Just think if you had forgotten about 10, 30, or even 50 contracts, assuming they would be cashed out! So on Monday, I booted up and found that I had a Reg T violation. All those ITM March CSCO calls were exercised unexpectedly and there wasn't enough cash and margin in the account to cover the purchase. That threw me into a Reg T violation. The really bad thing about Reg T is that it is much nastier than the infamous Margin Call. With a margin call, you can sell off any of your securities and satisfy the call obligation. But with a Reg T violation, you are not allowed to use the proceeds of anything you sell in your account to meet the obligation of the call. Plus you are frozen out from buying anything. You must supply fresh cash! Hard, cold, fresh, crisp greenbacks! Don't ask me why. I don't understand myself. I've asked for more information so I could read the ruling, but I have not received it. I do know that the NYSE has Day Trading rules which specifically address a "Day Trading Call". Evidently, Reg T is a new ruling that concerns the buying power in your account at the beginning of the trading day. You must have the funds available before you make the purchase. In other words, don't buy something without having adequate buying power in your account before THAT transaction. If you think that the next transaction will be selling off a different position that will cover the first purchase, it won't. That is a Reg T Violation. I don't understand how the exercise of options that are done automatically could put you in so much trouble. But if you do not have the funds sitting there when you have an accidental exercise, not only are you in violation of Reg T, selling off other securities in your account so that you can buy the dip right before the FOMC meeting means nothing except that you probably missed a good buying opportunity! One of my other brokerage accounts freezes your account for 90 days with any Reg T violation. NINETY DAYS!! Even if you hand deliver cash! Obviously, this regulation is intentionally ugly, in order to get your attention. Your punishment depends on the firm you use. Perhaps if anyone has readable layman information on Regulation T and how it affects option expirations, margin requirements, or why we can not sell positions we hold in order to meet the call, would you be kind enough to share it with me, with references. I would like to put this information out for all to understand, so it doesn't happen to others. I found a lot of legal jargon under the Code of Federal Regulations, Title 12-Banks and Banking, Chapter II Federal Reserve System, Part 220 Credit By Brokers and Dealers (Regulation T), but nothing readable to the layman which clearly defines non-intentional exercise or the selling of securities to cover your call. It's pretty scary to me, as a trader, that I can't find out the rules of the game. I feel lucky that I was able to handle this unexpected expense. It could have easily been much worse. Since so many people have only one brokerage account, I urge you to look at your account and make sure you understand what happens with your positions if you miss a contract on expiration Friday. Will you be forced to buy the stock? Also, make sure you know if you have a margin account and what your balance is at all times. I'm an experienced trader and I have never had a margin call. I use margin heavily at times, and not at all at other times. The riskier I feel the play is, the less likely I am to use it. Still, I was fooled by misinterpreting the display in one of my accounts and I realized too late that the margin information was not clear. Also, it was my mistake that I had forgotten options that were exercised without my knowledge. That was just stupid on my part to assume they would be cashed out. Ohhhh, if we don't learn one lesson, there is always another!! Let's all hope the stress of the last two weeks is over and that when we look back in a month, all those entry points we held have proven to be perfect timing! I look forward to meeting everyone at the OI seminar next week. Be sure and say "Hi". Contact Support ************** TRADERS CORNER ************** An Osmotic Technical Point of View: A Stockaholic View and the 150% Return Challenge By Harrison Frolick One of the things that I think everyone has a tendency to do with trading is to forget to have fun. I know that I do. What the heck is the sense of being a stockaholic if partaking doesn't give you a buzz, I ask you? This fact has a tendency to reach out and grab me at the oddest times. I realized it just a few moments ago, as I sat down at the computer to check my email at 2:24 in the AM. Which is why you are reading this now. How can I have fun when the market has a Malox moment every hour, you might ask? Well, all I can tell you is that from my personal experience, when I quit having fun trading, my returns go into the you-know-what. Not that you can't make money when you are not having fun, but I know I sure make a heck of a lot more when I am laughing while I do it. Sometimes you need to shake things up. For those of you that have access to real-time quotes and want to practice your charting capabilities, or even those of you without them, here is a two part exercise that might be worth trying to get the buzz back in being a stockaholic. The first part of the exercise is to grab 10 contracts of your favorite option of the day and see if you can't make 3/8 on it in an hour or, heck, even an entire day. We are only talking 3/8 here, how many times have you seen an option pop 3/8 in only five minutes. Easy, right? Watch the hourly charts and do it. If you figure $80 round trip for commissions, that leaves you with $300 for the hour, or day, if you are successful. The second part of the exercise is the most important part. What you need to do is make a reservation at a nice restaurant and take someone you care about with you and spend the $300 dollars! If you have any money left after that, go see that movie you have been wanting to see. The point is not to come home with a dime of that $300, unless you have to pay the sitter. But make sure that you don't keep a cent of it. If once every two weeks you do this one hour trade and enjoy the profit, you will be amazed at how much better you and the person you share it with will feel. You will find the $300 compounding in your account even though you spent it. This really works! I may be setting myself up here, and I am only speaking for myself, but I know I have a tendency to talk about how much money that you can make trading options. I have a question for all of those that read this column (I need all 4 of you to respond!). I am thinking about giving myself a test that, if I don't pass, could end my writing career (OK, so I am bored and Jim does not pay me to write anyway). I am planning to set aside $25,000 (or better yet, get one of my partners to set it aside) and trade it to see if I can make a 150% annualized return with everyone watching my back as I do it. This should be no biggy, but when you have people watching you do the simplest of tasks, Murphy has a tendency to become intimately involved. As I have been taking on more and more responsibilities with some of my other investments I have only been able to trade an hour or so a day at most, so this ought to be a fun and informative venture. Would you be happy with 150%? Let me know what you think. Happy Trading! Contact SupportHarrison ************** BROKERS CORNER ************** LEAPS OF FAITH? FAITH IN LEAPS? By Alan Knuckman and Andrew Aronson A topic of great interest within the investment community concerns the use of LEAPS. The Long-term Equity AnticiPation Security (LEAPS) function as an option with a greater time horizon. Technically, LEAPS are securities but not always treated as such by brokerage firms and most importantly, their margin departments. As we have stated many times before, one of the most common mistakes option traders make is choosing too short of time duration prior to expiration. The clock of time decay is always ticking but the most detrimental impact occurs within the last 45 days. (Example: April options currently have 4 weeks to expiration). Try to get out of the option during the same month of expiration and roll to a further month to avoid the time decay and the emotional toil of watching an option until the last day. In the final weeks, the stock CAN move the direction you had anticipated but IF IT DOESN'T, THERE IS NO TIME TO RECOVER!! To combat the unfortunate event of having options expire worthless, some traders have tried to take the time factor out of the equation with LEAPS. This may be the answer for some traders that have not developed a trading discipline. If you purchase LEAPS, the time decay is not nearly as much of a concern. It has instead extended the decision-making process of when to take a profit or loss. Unfortunately, some traders feel false security and still do not have a plan when to get out. Anybody can get into a trade but experience and discipline are crucial in deciding when to get out, right or wrong. The non-emotional trader has a plan regardless of the time horizon and could trade in and out of the same position 4-5 times, while another would ride the stocks ups and downs without exiting. LEAPS are not magic but are useful for some traders to experiment with the option market and very useful in long term planning. What has been successful is purchasing LEAPS on very well known companies that have had some earning warnings or other cause for a dramatic emotional drop but remain fundamentally solid and profitable. Examples of recent LEAP plays of this nature include IBM, ORCL, MSFT, LU, etc. In these instances, these stocks encountered a problem of meeting very high, increasing expectations but are certainly worth a long-term look. LEAPS have a place in our trading plan but HOPEFULLY AS AN INFORMED OPTION TRADER, we can do better with more exact strategies to get the best return for the dollar. Option traders with experience will set their exit parameters after solid research. They will plan for a profit with exit orders and plan for a loss with stop loss orders. By doing the proper research and choosing the right combination of strike price and time duration, option traders can get better results than those who purchase LEAPS because they "think " a stock will go up over the next year. The lesson to be learned is to have an educated opinion of whether the stock is going up, down, or nowhere, and then an appropriate strategy for your trading style. Most importantly, plan to act, not to react out of fear. Enter with a plan, exit with a plan. One newly popularized option strategy employs selling near-term options against purchased LEAPS. Mathematically, this is a variation of a covered call, yet it has some other interesting characteristics to consider. The LEAP is the anchor position and writing the short-term call against it generates premium. The problem lies with having to offset the sold call if the underlying LEAP stock makes a move. Herein lies the million-dollar problem. If the stock moves, the LEAP could be called out to meet the short-term obligation. Unfortunately, you are forfeiting a long-term option to meet a short-term obligation. You are completely covered but you are also giving up the extra time value. Why cash in an option with a huge amount of time value to meet this obligation? Your other choice is even more difficult. Should you buy back the short-term option written against the LEAP for premium to avoid being called out? It is going to be more expensive than what you sold for and require cash. If you do that, it would be a shame if the LEAP then declined in the following months, causing further potential losses. This variation on covered calls has been talked about as the next greatest strategy but is not as easy as it may seem. Another factor to consider with this strategy is the margin requirements. Because of the problem illustrated above, many brokerages firms DO NOT view this as a covered position and require margin for the "naked call" sold against the LEAP. National Financial Services, which is a division of Fidelity Investments, requires 30% of the value of the stock as margin on naked options sold. Many big-name firms require margin on this "covered play" for the reasons above and to be sure experienced, well-capitalized traders understand the potential pitfalls, and that they aren't just rookies looking for "sure things." Options strategies are tools that are used depending upon your trading style, experience, risk tolerance and account size. Unfortunately, many traders feel they have to use all of their tools, such as spread, covered call, etc., simply for the sake of using them. Develop a trading discipline for yourself and the appropriate time for each tool will become more apparent. Any trade is worth doing as long you have a plan for entry, profit, and exit. Without a plan, poor decision-making often results. Lasalle Options Toll Free 888-281-9569 www.lasalleoptions.com 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: ***** BGEN $76.13 -5.38 (-8.75) Well that's it, we aren't going to let traders kick our play around anymore. We are pulling it from our list and the bears will have to look elsewhere for something to pick on. This one took it on the chin after the close on Wednesday, when BGEN lost an arbitration against Schering-Plough Corp., over the royalty payments of SGP's hepatitis C treatment, Rebetron. Company executives from BGEN said, although they were disappointed in the results of the arbitration, they expected no loss of income. Investors not only didn't buy that answer, they didn't buy stock either. BGEN lost -$5.38 on strong volume, with just under 10 million shares being traded. The $74-$75 did hold up for now, but BGEN closed below its 200-dma sitting at $78.99. The fund managers may or may not rush back in and buy BGEN at these levels, but for now we will let BGEN go. SCMR $134.94 -7.06 (-9.56) The Nasdaq was sizzling hot today while SCMR could barely hold a simmer. Since this isn't a case of natural consolidation, we must read the writing on the wall. The stock is trapped in a basing range unable to hold the higher levels above $145. Granted the intraday volatility provided wide spreads for target shooting and profit, but it's time to retire SCMR for more decisive movers. For those with open positions, watch $148 for overhead resistance. VERT $190.03 -11.97 (-30.60) Despite a rise in the rest of the market, Internet companies have been a bit weak in the recent recovery. VERT has not participated a bit and can't mount a big enough head of steam to get out of the hole. Today, it bounced south of its 5-dma, currently at $198.53 on volume slightly exceeding the ADV. Support remains at $175. There's nothing wrong with the company that we can see - it's just not moving. Though VERT splits 2:1 on Mar 31st, we think the shares should be doing better by now, and think there are better opportunities for profit elsewhere. Thus we're dropping VERT tonight. PUTS: ***** No dropped puts this evening. ******************** PLAY UPDATES - CALLS ******************** AOL $70.88 -1.13 (+6.38) Rather than the a pullback, AOL moved through the $69 area we mentioned on Tuesday. News that the their subscriber base grew about 10% since December, brought buyers out of the woodwork. On Wednesday AOL gained about 6.6%, ending the day well above our $69 target at $72. And how about that volume. The move came with over 35 million shares changing hands. Today our confidence was bolstered by news that could have done some damage to our play. Company officials at Walt Disney confirmed they had been engaged in lobbying U.S. House and Senate members against the merger with Time Warner. Disney fears its programming would be denied fair access to AOL's Web sites if the two company's merger is allowed. AOL did trade lower for the session, but the volume was light, and with no volatility. AOL fell to a support area near $69.75 and bounced back trading in a very narrow range for the balance of the session. It almost looked as though traders were standing around saying that was bad news, wasn't it?, as there was no follow- through selling. AOL finished the day with a loss of -1.13, with 17.4 million shares traded. No one running for the exits here. AOL has good intraday support near its 100-dma at $69.13. A decline through that level may be a good point to place stops depending on you entry point. A continued move higher would signal a chance to jump on board this play. RATL $93.56 +7.06 (+5.06) No news can be good news. After a volatile day on Tuesday, traders began to test the waters on one of our software plays on Wednesday. Today they jumped in with both feet, as RATL gained over 7.0%. No company news to support the move, although news that Microsoft and the U.S. Justice Department are getting along better may have helped spur RATL and the whole software sector higher today. The volume was better on Wednesday, although today was respectable with 865K shares traded. Another plus for our play came late in the session. As the Nasdaq, was beginning to pull back a bit, RATL saw more buyers jump in. In the last fifteen minutes of the day, RATL advanced over $2 on strong volume of 110K shares. Ending the day near the high of the day certainly suggests a move to higher prices. However if we do see profit- taking set in, a move back to near $90 would not be out of the question. RATL now has support near $90 and $88 and a bounce off those levels would be a great entry point for a new play. If the momentum continues we would also look for opportunities to buy calls, however be prepared to sell too soon, just in case the water gets too hot. CHKP $219.00 +1.44 (-16.50) Ok, sometimes we just don't give up very easily. Why are we hanging onto CHKP? Elasticity, is the answer. Yes, CHKP has been volatile since its fall from its highs early last week. It could even be said that it has been a bit difficult to trade. As we've said in the past, CHKP is not a play for everyone to consider. But the fact is CHKP has hit the $190 to $200 area three times this week and bounced back shows great elasticity in our opinion. CHKP did manage to pick $1.44 today, but the volume was light with only 527K changing hands. A look at intraday charts shows that CHKP appeared to be rolling over late in the day. Support levels are seen at $215, $210 and again back near $200. A decline to one those levels, followed by a bounce may provide one more chance to buy calls, but be cautious. For those needing more proof, a move back through $230 may provide a better entry point for this play. We will stick with CHKP for now, to see if there is one more bounce left in this play. *********************************************** 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. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "Contact Support" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 DISCLAIMER ********** This newsletter is a publication dedicated to the education of options traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. The newsletter staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control.
The Option Investor Newsletter Thursday 3-23-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. ******************************** PLAY UPDATES - CALLS - CONTINUED ******************************** SEG $69.63 +1.44 (+1.13) Tuesday's momentum carried SEG up to resistance at $70 yesterday. After bouncing off solid support at $68 today the stock ran into resistance again at $70. The stock has now formed a triple top at $70. We've come to a crucial point in this play, before entering any new positions, you may want to wait for a breakout above $70 with good volume. In the meantime, you might set tighter stops in light of a selloff. Strong support is at the $68 level, below that we don't see much help until the $62 - $64 level. In the news today, SEG announced they have developed the world's highest data storage capacity for recording media applications. The new technology will allow users to store 60 gigabytes of data on a single 3.5" disk. This demonstrates SEG continued expansion into e-business markets, as consumer demand for data storage increases. SCH $62.00 +4.44 (+6.75) Planning on retiring early? Schwab is helping in more than one way. The stock has really gained momentum, as it continues to make new highs on impressive volume. The finance sector continues to show strength with the 30-year bond holding below 6% and on the heels of an earnings report out today by Morgan Stanley. Profits jumped by 49% for MWD, driven by an increase in trading revenues. Look for any pullbacks to the 10-dma for new entry into SCH. Support for SCH is currently at $58 and again at $56. At the same time, continue to ride the momentum as long as it lasts, buying the intraday dips. MRVC $123.00 -9.00 (-9.88) Volatility continues to be the name of the game with our MRVC play. The stock continued sharply higher yesterday after Tuesday's rally hitting an intraday high of $140. Traders didn't take much interest in MRVC today as the stock drifted lower on light volume. The decline today could be attributed to overall sector weakness in the Semis, in what appeared to be profit-taking. Strong support lies just below at $120 which may provide a good entry point. Look for volume to pick up with any bounce off support as traders move back into the this sector. Set tight stops on any new plays, should MRVC fall below $120, the next support is all the way down at $105. EXDS $171.00 +1.63 (+19.75) More good news for Exodus yesterday as they announced a $637 million investment in Mirror Image, a subsidiary of Xcelera.com (XLA). Together, EXDS and Mirror Image intend to enhance Web site performance for customers. The combination will create the fastest and most reliable platform for distribution of Internet content. Traders approved of the announcement yesterday as shares of EXDS rose steadily into the close. Today, CSFB reiterated EXDS as a strong buy, and Lehman Brothers raised their price target to $210, up from $175. The stock is back above it's 10-dma which now provides support. Confirm a bounce off the 10-day with direction for entry into any new call plays. INTC $142.63 -1.44 (+12.75) Well, what did you expect? INTC deserved this much-needed breather today after seven straight sessions of gains. Yes, that's seven. I think that it is fair to say that INTC is back. It has provided tremendous leadership in the market for both the DOW and the NASDAQ. As we look forward, we still have earnings on April 12th and possibly, a record quarter. Since we have added this to our play list, it has been tough to get in on the dips as there has been very few. Today did offer a chance for entry as INTC dipped to $139.44. That level appears to provide support. Let's call it $140. The market is still very bullish on the chip maker and INTC's recent alliances and acquisitions prove that it is serious about expanding into the internet realm. These dips provide quick entry points, yet watch closely to see how INTC reacts to a down day for the NASDAQ, if we get one. Resistance will be met at $144 and then $145.38, its all-time high. BMCS $54.06 -1.44 (-1.00) Talk about trading in a channel. If you look at an intraday chart you can actually visualize the upper and lower lines that make up the channel. Or you can tell your charting program to do it too. Either way, BMCS closed right in the middle of that channel. It clawed its way back from a gapped opening at $53.75 and a low of $52.06. BMCS peaked today at $55.56. This range offered plenty of entry points. We are not counting this call play out yet. The dip we saw today was due to sector woes, as Compuware was downgraded and the rest of the sector felt a brief moment of sorrow. But they got over it and BMCS established support at $54. Fundamentally, BMCS looks good. Still, word on the Street is that they are on track to a strong quarter, and with a sound technical picture, BMCS is a low volatility play that has great potential. Target shoot on the dips for entry points suited to your risk. NOK $219.63 +1.44 (+19.75) As expected, NOK shareholders approved the 4:1 split. The information was not easy to find, but from a company press release (for some reason not picked up in the U.S. Media), the split will take place after the close on April 7th. Split adjusted trading takes place on Monday, April 10th. That should keep NOK moving with an upside bias. Support is hard to discern on the current chart, but historically it's been good at $200 and $205. Even that, by definition, is old news given the confirmation of the split date. Maybe of more use is the 5-dma, currently at $210.40, but NOK was too strong to reach that far down today, managing a nice rebound from $214. In the news - more deals and alliances. First NOK was awarded a contract with Scandic Hotels (133 units) to provide them with WAP networks. Prior to that, they announced a deal with Hainan Mobile Communications of China that will add $30 mln to the revenue stream. Target shoot to your level of comfort and enjoy what we think will be a nice ride over resistance at $220 into blue sky territory by the split (maybe before that if the market holds firm tomorrow and next week). NITE $52.75 -2.19 (+1.00) After seeing Morgan Stanley and Lehman Bros. smoke analysts' estimates by a long shot earlier in the week, there is no doubt that exchange volume from the beginning of the year has made the brokerage business very profitable. NITE continues to enjoy the spoils of this strong market. It's only going to get better now that they've acquired a specialist post on Philadelphia Exchange, effectively doubling their option contract listings on the Philly. Like clockwork, NITE hit the upper end of the trading channel at $55 and moved back toward the centerline. With any round or profit-taking tomorrow (typical for a Friday), it could trade down to the $47-$48 range, which we think makes a great entry. $50 is the 10-dma (and centerline of the channel) and may also be a good place to board the train (if you see NITE bounce from there). Today's drop on low volume just isn't an issue and gets us that much closer to a buying opportunity. Helping matters even more, ABN AMRO raised their price target from $65 to $75 after management revealed plans to create a European venture that NITE says could be as big as the U.S. Expect the launch in Fall 2000. Earnings are scheduled for April 19th. Wait for the dips and target shoot to your level comfort for the best entry. XRX $26.88 -0.13 (+1.06) Just when we thought XRX was ready to produce, it looks like they need toner to replicate the $3 gain from Tuesday. Alas, XRX has been falling since Wednesday morning. Three bounces this week at $26.75 seems like near-term support to us, especially since today's decline happened on low volume (67% of the ADV). However, the 5-dma ($27.09) is just slightly above today's closing, which makes the direction tough to call. If the market finds itself in the mood for profit- taking, XRX could well decline a bit more to its 10-dma of $25.86. Unless news comes out that they forgot how to make copiers, consider it a buying opportunity. Near-term resistance is $30, then $32.50, which would constitute a breakout over the gap-down level last seen in October (very bullish). Earnings are confirmed on April 25 before the bell. Since there isn't a lot of time premium in the April option prices, consider the May strikes to capture the earnings run and maybe an increase in theta (borne of volatility on the move up). Target shoot according to your risk tolerance level. No news to report over the last two days. YHOO $191.00 -6.19 (+19.88) Readers! Please forgive a writer's "faux pas". Yahoo! is reporting earnings Wednesday April 5th, after the bell. In the past two sessions, YHOO easily slid through the ominous $200 mark. So now that that psychological barrier is behind us there's nothing to hold YHOO back. And remember the possibility of another stock split? Well it's looking good - Yahoo! is holding a shareholders' meeting May 12th to vote on an increase of authorized shares from 900 mln to 5 bln! You've got to love this Internet powerhouse! And today's profit-taking in the late afternoon gave us the opportunity to jump into positions. The current level is slightly below near-term support at $195, which serves as a reasonable entry, unless we're gifted with dips to the rising 5-dma (now at $184.62). As usual, there was news swirling around YHOO. On Wednesday, they announced a co-branded marketing blitz with beverage giant, Pepsi-Cola. Through an on-line and off-line program call Pepsi Stuff.com, consumers can earn points and discounts online from an under-the-cap logo on Pepsi and Mountain Dew bottles. The five-month promotion is expected to launch in August 2000. And more directly related to Yahoo's revenues, there was also an announcement that they acquired Arthas.com, a Web-based person-to-person electronic commerce payment service company. This addition will enhance Yahoo!'s current commerce offerings to its 120 mln individual users. Terms of the agreement weren't disclosed. IDPH $126.13 -5.13 (+7.19) The Nasdaq's positive sentiment is certainly lending a helping hand to this stock's recovery! IDPH proved it could indeed move higher and tacked on $15.66, or 13.5% yesterday. Today, near-term support established itself at $128 and $130 while IDPH experienced some mild consolidation (entry points for the less conservative!). This level is in the proximity of the 30-dma ($130.30) and a breakout above this technical indicator would be considered very bullish. And watch for increasing volume levels to signal another upward bounce too. The overhead resistance isn't that far away at $136.31, yesterday's intraday high. Just keep in mind, this is a sector play and major swings by others in Biotechs will have unmistakable effects on IDPH. HWP $147.25 +1.06 (+9.25) Like the little engine that could, HWP finally pushed up and closed above the $147 resistance level. Helped by strength on both of the major indexes and the continuing flow of positive news, the stock managed to tack on just over a dollar today. Keeping busy, HWP has announced alliances with Microsoft and LetsBuyIt.com in the last 2 days. Under the terms of the multi-year alliance with Microsoft, the 2 companies will cooperatively market, sell and support Internet-enabling solutions for service providers creating applications and services over the Internet. After investors confirmed the $142 support level this morning, it was a nice smooth move up to $149.50, where profit-taking began to appear. As the major indices rolled over in the last hour, HWP gave up $2.25, but managed to close over $147 for the first time since March 9th. It was nice to see HWP move up, but the light volume (only about two-thirds of the ADV) raises a caution flag. If HWP is going to break through resistance at $150, we need to see buyers drive up the volume. We would like to see HWP hold support at $147 and move up from here, but in the absence of confirming volume, it may need to test support at $142 again before launching higher. A bounce at either support level is buyable, as is a break through of resistance at $150. Solidly above the $140 level, HWP is into its traditional split range. With 4.8 bln shares authorized and only 1 bln outstanding, the announcement could come at any time. DELL $57.50 -0.63 (+1.06) DELL suffered a bit today as chip leader, Intel (INTC), dragged down the hardware sector. It's great that the mother of all chipmakers (which happens to be on our call list!) powered up to another all-time high yesterday. But unfortunately the whole sector got caught in its consolidation trap. However since we're bulls and chock-full of optimism, the bright side of the coin is entry points into this momentum play. On mild pullbacks (like today), DELL dips to the 5-dma ($57.56) and typical bounces upward from there. So where's resistance? Well on Wednesday the stock delighted us with another 52-week record at $59.69, but this mark is considered strong resistance. Obviously a move through this psychological level would provide solid confirmation that there's enough driving force to carry it to higher levels. In other words at this point in the play, you're entry points are dependent on your personal risk profile. In the news, Dell Computer, announced a price reduction on select units of its Precision Workstation. According to Dave DuPont, senior marketing manager, Dell Precision Workstations, "The inherent advantages of Dell's direct model, combined with our ability to pass along component cost savings, enable us to offer the newest RDRAM workstations at prices lower than most of our competitors' recent SDRAM-based workstations". IBM $115.25 +1.00 (+5.25) Wow! Traders got a nice entry this morning as IBM slid to short-term support in the $112 range before climbing back up above $115. Besides the raging Nasdaq, company news likely played a vital role in this momentum play's eventual performance. In the news, IBM joined forces with TDK to develop more solutions for the award-winning ThinkPad family. B2B anyone? IBM is teaming with CommerceQuest to deliver five e-marketplaces to customers in a broad range of industries with 60 more in the pipeline. John Patrick, vice president of Internet technology at IBM stated that "more than ever, industries are looking to IBM and integrators, such as CommerceQuest, to provide the hardware, software and services to build their online trading communities". And perhaps IBM is a bit late catching the server bug, but look out Dell, Compaq, and HWP because Big Blue is making up lost time with the release of a wide collection of models within their Netfinity line. All these events and further demonstrates the diverse nature of IBM and its intent to continue to be a market leader. We're betting this kind of news and the positive market sentiment will power IBM higher in the short-term. If you're waiting for a more definitive breakout, look for IBM to move through $115.88, today's intraday high before opening new positions. ******************* PLAY UPDATES - PUTS ******************* EK $56.25 +0.19 (-1.19) EK finally got moving on Wednesday after flattening out just under $58 as it broke out of the old trading range. Meeting up with support and dropping as low as $55.75. But it stalled again by quickly flattening out at $56. We like the fact that EK is testing that support level, but is unable to bounce, especially during good trading days for the DJIA. Still EK seems to be lingering around. Earnings are due out Apr 16th and traders don't seem eager to go with or without EK. As we've stated before patience is the key and hopefully all this waiting will pay off. Still no word on a warning for those upcoming earnings. However there is still time left in the warning season. If you are looking for an entry, wait for a drop below $55.75. Otherwise, any move substantially higher from here will result in a drop from our put list. CKFR $62.88 -2.56 (-7.31) Things are looking good as CKFR continues its decline even as the NASDAQ posts another strong gain. We almost saw another triple digit advance for the NASDAQ. which would have been three in a row. Let me ask you, what do you think CKFR will do when we see a down day for the NASDAQ? CKFR opened today just where it closed yesterday and closed down, $0.25 above its low of the day. We still feel that CKFR could sink to its support level of $59 which it tested on Monday and Tuesday. CKFR's range of $4.63 today provided some entry points. So look for market direction tomorrow and let's see if CKFR retests $59 for the third time this week. ISLD $75.06 -6.19 (-7.56) Entry point? We've got your entry point right here! Moving up to almost touch the 10-dma (currently at $87.63), ISLD gave investors a head fake this morning. Don't you feel sorry for those investors that bought the gap at the open? After tagging $87, it was all downhill for ISLD, closing at the low of the day. Need confirmation? How about 50% greater volume than the daily average, and a drop of over $4 in the last 30 minutes. Although minor news stories have been coming out fairly regularly, investors seem to still be fixated on the Barron's "burn-rate" article. With the strong volume today, especially with the accelerating decline into the close, look for ISLD to continue to sink. We may see some minor support near $73, but look for the real support to be at $70. If $70 can't hold, it could be a quick slide to $60. Continue working entries as ISLD struggles up to resistance at $79-80 and then rolls over. Keep an eye on volume as a drop below the ADV could be our first sign that a bottom is forming. RHAT $57.50 -0.50 (-5.38) Helped by positive news this morning, RHAT gave us a gift of an entry point. The announcement that eToys uses more than 500 machines running Red Hat Linux gave the stock a boost, but the excitement didn't last. RHAT reached as high as $61.19 this morning, but there was no volume to keep it above resistance at $60. With a lack of follow-through buying volume, the sellers came out of the woodwork, pushing RHAT back below the 5-dma (currently at $59). Dropping fractionally for the day on average volume, and staying below all the moving averages, RHAT's downtrend is still very much intact. Over the past couple days, the stock has been finding support near $57, with stronger support near $55. As long as we don't see a resurgence of the Linux mania from a few months ago, RHAT looks to be headed lower still. Consider new entries if the stock rolls over near either the 5-dma or resistance at $60. Alternatively, wait for increasing selling volume to push RHAT down through support at $57, and enjoy the ride. ************** NEW CALL PLAYS ************** NT - Nortel Networks $137.25 +3.25 (+9.25 this week) Nortel is a maker of telecom products. Their products include switching, wireless, and broadband network systems for service providers. Today, Nortel is creating a high performance Internet that is faster than ever. The company is using acquisitions to keep up with LU and to challenge CSCO in the data networking market. With 70,000 employees, Nortel has presence in 150 countries across Europe, Asia, the Middle East, Africa, Canada, and the United States. What does Nortel want the Internet to be? A cash cow. With a one year return of 350%, NT has become a cash cow for investors. With the recent rotation out of second-tier tech stocks into the big-cap names, NT continues to plow higher. Nortel continued it's shopping spree this week by purchasing optical component maker CoreTek. The purchase will strengthen Nortel's offerings for an all-optical Internet and secure their lead in the hot optical networking market. Today, good news flowed from Europe. Metromedia Fiber Network (MFNX) signed an agreement with NT to connect area networks across Europe, using Nortel's OPTera technology. The project will connect 16 major cities, providing one of the fastest, most reliable networks in the world. Nearly 50% of Internet traffic in Europe now travels over Internet equipment made by Nortel. Turning to the chart, NT broke out of congestion yesterday by closing above overhead resistance at $130. Over the past week, the stock formed an ascending triangle. With the breakout yesterday, and the continuation today, the stock is poised to make higher-highs. The stock has been finding solid support at the 10-dma, showing little weakness. Any dip below the 10-day would provide a good entry point. Strong support for NT is at previous resistance of $130, any bounce off this level would provide another good entry into this play. Earnings are still a month away and NT last announced a split on Jan 25th. The payable date will be set at the next shareholder meeting. However, the company has not yet announced the date of the next meeting. With the stock trading at new highs, an announcement could come at any time, providing further fire to the stock. BUY CALL APR-135*NTV-DG OI=1183 at $11.00 SL=8.25 BUY CALL APR-140 NTV-DH OI=2506 at $ 8.75 SL=6.25 BUY CALL APR-145 NTV-DI OI=2014 at $ 6.63 SL=4.50 BUY CALL MAY-145 NTV-EI OI= 130 at $11.50 SL=8.50 BUY CALL MAY-150 NTV-EJ OI= 170 at $ 9.50 SL=6.50 Picked on Mar 23rd at $137.25 P/E = N/A Change since picked +0.00 52-week high=$138.38 Analysts Ratings 13-13-4-0-0 52-week low =$ 29.16 Last earnings 01/00 est=0.43 actual=0.55 Next earnings 04-25 est=0.19 versus=0.36 Average Daily Volume = 6.20 mln /charts/charts.asp?symbol=NT **** BAC - Bank of America, $54.19 +2.75 (+4.19 this week) Bank of America is one of the largest holding companies in the U.S. and offers a wide array of banking and financial services. They have over 11,500 branches in 47 states and almost 40 countries. BAC is the nations first coast-to-coast bank. They provide services throughout the Mid-Atlantic, the Mid-west and the South. BAC offers consumer, commercial, and global corporate banking, which include commercial real-estate investment and brokerage services, insurance and mutual funds. Don't look now but this "old laggard" has gained over 27% in the last seven sessions. This old economy stock was sitting at its 52-week low at $42.31 on March 10th, and this past Tuesday broke through a resistance level sitting at $50. Is everyone else as tired of hearing and reading the word "old" as we are? We thought so. Ok we promise no more "old" on this one. Many banking and financial stocks have been down over 10% this year, but have recently found buyers willing to lay their money on the line. Investors have decided for whatever reason, an adjustment in their portfolios was over due and have began to find BAC and others in the sector attractive. A note out earlier this week from Private Asset Management may helped propel BAC through to new "short-term" highs. The Private Bank of Bank of America, with $130.5 billion in assets under management was ranked the number one money manager of high-net-worth assets. The Private Bank focuses on building and preserving the wealth of individuals and families. Investors completely ignored Alan Greenspan and the Fed Tuesday after the 25 basis point rate hike and continued to push ahead bidding the price of BAC past the $50 mark, closing at $51. The last time BAC had seen that level was January 14th, and that was only for one day. The point here is that for now, it appears as though BAC and some of the financial stocks are now fashionable once again. The real boost came late last week when BAC saw over 34 million shares traded and the price rose $5 to hit $50. The follow through this week helps confirm the recent strength is probably not a head fake. BAC has closed higher 6 out of the last 7 days. Support is seen at $52 and $50. But sometimes the momentum doesn't stop for a breather and you can consider new positions at the present level. As financial markets reacted calmly to the rate hikes by the Fed, Bank of America led the way raising their prime lending rate to 9.0%, and was followed by Chase Manhattan and others. At this point the five rate hikes by the Fed have had little affect on the profitability of BAC or other leaders in the industry, as BAC has enjoyed strong earnings for the last three quarters. BUY CALL APR-45 BAC-DI OI= 2198 at $9.75 SL=7.25 BUY CALL APR-50 BAC-DJ OI= 5367 at $5.25 SL=3.50 BUY CALL APR-55 BAC-DK OI= 4416 at $2.38 SL=1.25 BUY CALL MAY-50*BAC-EJ OI=19093 at $6.25 SL=4.50 BUY CALL MAY-55 BAC-EK OI=10114 at $3.38 SL=1.75 Picked on Mar 23rd at $54.19 PE = 12 Change since picked +0.00 52-week high=$76.38 Analysts Ratings 13-13-4-0-0 52-week low =$42.31 Last earnings 01/00 est= 1.24 actual= 1.23 Next earnings 04-17 est= 1.24 versus= 1.08 Average daily volume = 6.38 mln /charts/charts.asp?symbol=BAC ************* NEW PUT PLAYS ************* CPQ - Compaq Computer Corp. $29.50 -2.75 (-0.75 this week) Compaq, a Fortune Global 100 company, is the second largest computer company in the world and the largest global supplier of computer systems. Compaq develops and markets hardware, software, solutions, and services, including enterprise computing solutions, fault-tolerant business-critical solutions, enterprise and network storage solutions, commercial desktop and portable products and consumer PCs. Compaq products are sold and supported in more than 100 countries through a network of authorized Compaq marketing partners and online. CPQ is #2 and needs to try harder. Despite the talk late last year of intending to switch to the online/direct model pioneered, perfected and improved by arch-rival, Dell, CPQ is rumored to again fall short of analysts' estimates when it reports earnings tentatively scheduled on April 25. Those with a long memory will recall Michael Dell pointing to a descending profitability chart referring to a "traditional competitor's" cost structure and commenting that the company would be out of business in five years. It was inferred then that he meant Compaq. While we're not willing to step out on a limb with Mikey in calling for CPQ's demise, Dell clearly has the superior business model. CPQ's biggest trouble is that they run the risk of alienating their entrenched legion of resellers, a big part of revenues, by going hog-wild into the online model. They don't seem prepared to do that to save themselves. Concerning the swirling rumors about missing the quarterly numbers, unlike Lucent who rushed to their own defense at their own shortfall accusation, CPQ has offered no comment. Furthermore, an analyst on CNBC today stated that he didn't see any reason CPQ would do any better than last quarter and expected CPQ to miss. Unlike last quarter where CPQ advised analysts to revise estimates slightly up, no such pre- announcement has yet taken place, leading us and many others to conclude CPQ is indeed likely to miss. Technicals won't play a big role here - this is more fundamental. If you need evidence that something is up, look at the volume today over twice the ADV of 23 mln shares. Two 1 mln share block trades also took place around 1:00 p.m. between $30.75 and $31. The price fell from there. Think those guys were loading up in anticipation of a blowout? Not likely. BUY PUT APR-35 CPQ-PG OI= 2994 at $6.25 SL=4.25 BUY PUT APR-30*CPQ-PF OI=19845 at $2.63 SL=1.25 BUY PUT APR-25 CPQ-PE OI=16347 at $0.69 SL=0.00 High Risk! Average Daily Volume = 23.23 mln /charts/charts.asp?symbol=CPQ **** FON - Sprint Corp $55.63 -1.13 (-4.19 for the week) Sprint Corporation is involved in worldwide communications integrating long distance, local service, and wireless services. Other activities include telecom equipment distribution, directory publishing, and interests Internet access Sprint is based in Westwood, Kansas and has roughly 65,000 employees nationwide. First it was the tech sell-off last week that pressured FON to precariously teeter at the 200-dma indicator, but today's revival about its merger with MCIWorldCom (WCOM) was the straw that broke the camel's back. Yes, the combination of these giants surely puts them in a dominant position however, the Bell companies' plans to aggressively enter the long-distance market will undoubtedly compel carriers to reduce prices as competition for market share increases. As it stands now, Bell companies have identified twelve states it intends to seek long-distance authority by the fall of 2000, which just happens to coincide with the approximate time the MCIWorldCom-Sprint merger will be completed. Now let's take it from a technical perspective. Visually it doesn't look good for FON. Take a look at a one- month chart and it's clear the stock slithered below bottom support at $58. As it is, this places FON below the converged 5-dma ($58.23) and 10-dma (58.70), which in our opinion is a bearish implication. If the stock is indeed going to head for the 52-week low at $42.63, then FON will move lower in the next few trading sessions despite any positive sentiment of the DOW. Downward bounces off $58 should provide solid entries into this play. BUY PUT APR-60*FON-PL OI= 531 at $5.63 SL=3.00 BUY PUT APR-55 FON-PK OI=1369 at $2.50 SL=1.25 Average Daily Volume = 2.44 mln /charts/charts.asp?symbol=FON ********************** PLAY OF THE DAY - CALL ********************** NOK - Nokia Corporation $219.63 +1.44 (+19.75 this week) 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 As expected, NOK shareholders approved the 4:1 split. The information was not easy to find, but from a company press release (for some reason not picked up in the U.S. Media), the split will take place after the close on April 7th. Split adjusted trading takes place on Monday, April 10th. That should keep NOK moving with an upside bias. Support is hard to discern on the current chart, but historically it's been good at $200 and $205. Even that, by definition, is old news given the confirmation of the split date. Maybe of more use is the 5-dma, currently at $210.40, but NOK was too strong to reach that far down today, managing a nice rebound from $214. In the news, more deals and alliances. First NOK was awarded a contract with Scandic Hotels (133 units) to provide them with WAP networks. Prior to that, they announced a deal with Hainan Mobile Communications of China that will add $30 mln to the revenue stream. Target shoot to your level of comfort and enjoy what we think will be a nice ride over resistance at $220 into blue sky territory by the split (maybe before that if the market holds firm tomorrow and next week). Comments NOK found support this morning at $215 and set its sights on $220. That's the same resistance level that we are eagerly watching. Although NOK did not close above $220, it did make a few concerted efforts and had an intraday high of $220.75. With a split coming April 7th, the overall feeling is bullish. But be cautious tomorrow as $220 is very key resistance. Don't go for the head fake. For a more conservative entry, wait until NOK breaks through $221 and proves convincing. That could indicate a real breakout. Less risk averse traders can target shoot for entries suited to their levels. BUY CALL APR-210 NZY-DB OI=5532 at $20.75 SL=16.25 BUY CALL APR-220*NZY-DD OI=6026 at $15.50 SL=11.50 BUY CALL APR-230 NZY-DF OI=2195 at $10.88 SL= 8.75 BUY CALL MAY-220 NZY-ED OI= 424 at $21.75 SL=17.00 BUY CALL MAY-230 NZY-EF OI= 196 at $17.50 SL=13.50 Picked on Mar 09 at $214.63 P/E = 95 Change since picked +5.00 52-week high=$227.06 Analysts Ratings 16-9-1-0-0 52-week low =$ 67.69 Last earnings 02/00 est= 0.67 actual= 0.72 Next earnings 05-02 est=-0.61 versus= 0.48 Average Daily Volume = 3.45 mln /charts/charts.asp?symbol=NOK ************************ COMBOS/SPREADS/STRADDLES ************************ Another Record Day.. Wednesday, March 22 Blue-chip stocks consolidated today as investors moved money into semiconductor and biotechnology issues. The Dow Jones Industrial Average finished down 40 points at 10,866 while the Nasdaq Index jumped 153 to 4,864. The broader S&P 500 Index gained 6 points to a record high close of 1,500. Breadth on the NYSE was positive with advances beating declines 1,642 to 1,317 in volume of 1.07 billion shares. In the bond market, the 30-year Treasury rose 6/32, bid at 103 31/32, where it yielded 5.95%. Tuesday's new plays (positions/opening prices/strategy): American Power APCC APR30P/APR35P $0.75 credit bull-put Philip Morris MO JUN25C/APR25C $0.56 debit calendar Philip Morris MO JUN22C/APR22C $0.88 debit calendar Hilton Hotels HLT MAY7C/APR10C $1.00 debit diagonal All three of our issues consolidated during the session, allowing favorable entries in each new spread position. Now the question is whether these stocks can recover to provide favorable profits. Portfolio plays: Technology stocks continued to rebound during today's session amid perceptions their future growth will be unaffected by rising interest rates. The belief is based on the opinion that earnings will be strong and that many of the technology companies building the Internet infrastructure can meet future capital requirements through share sales. Demand for their products is also unlikely to be reduced by inflation and they are less sensitive to increases in the cost of borrowing funds. The outlook for blue-chip issues is less favorable as money has once again began flowing out of the classic companies. The group has succumbed to profit-taking after a solid rally in recent days and the market has yet to reaffirm their attractiveness for the long-term. The leading sectors were semiconductors and biotechnology but some financial and drug issues managed to hold on to positive gains. Now the question is which group will become the new market leader as we move into the next earnings quarter and the May FOMC meeting. Federal Reserve Chairman Alan Greenspan recently commented that it is the Fed's goal to implement monetary policy that will foster a continuation of solid growth and low inflation. Only time will determine if the markets can react positively to that optimistic principal. Our portfolio enjoyed a number of rallies in the leading market groups. Technology issues such as Electro Scientific (ESIO) and Metromedia Fiber Network (MFNX) were the top performers and one of our new bullish issues, American Online (AOL) made a surprise move. AOL jumped $4.12 to $71.50 and our LEAPS/CC's position is already profitable. Of course an adjustment will be necessary to maintain upside profitability and our first choice would be a roll-out to the MAY-$70 (or $75) options. The key is to gain potential while retaining a favorable margin of downside protection and with any adjustment, the future position is based on the current technical outlook of the issue. Small and mid-cap stocks also participated in the rally and the majority of biotech and semiconductor issues made favorable moves. Advanced Micro Devices (AMD), Cirrus (CRUS), Medtronics (MDT), Organogenesis (ORG), and Theragenics (TGX) were the portfolio leaders. Tera Computers (TERA) recovered slightly from a recent slump and the move presents an excellent opportunity to close the position. The current credit is $1.88 and with the bearish technical outlook, it appears to be a favorable exit. Duramed (DRMD) is one of the few drug stocks that has failed to respond to the recent recovery in the group and we have decided to roll-down (to prevent losses) in the bullish diagonal spread. The transition credit for the move to MAY-$7.50 calls was $1.38 and the new position is JUN5/MAY7C at $1.88 debit. Thursday, March 23 Equity markets soared today on strength in both blue-chip and technology issues. The Dow Jones Industrial Average rallied 253 points to close at 11,119 and the Nasdaq Composite rose 75 points to 4,940. The S&P 500 Index gained 26 to 1,527, improving on Wednesday's record close. Advances led declines 3 - 2 on active volume of 1.07 billion shares on the New York Stock Exchange. The 30-year U.S. Treasury bond rose 23/32 pushing the yield down to 5.91%. Blue-chip stocks climbed to record levels and the Nasdaq rallied a third consecutive day after reports surfaced that Microsoft, the world's leading maker of software, will settle its antitrust case with the government. The company and Justice Department officials have discussed plans to settle the landmark antitrust case and optimism surrounding the upcoming decision overflowed into other computer-related industries. Our portfolio enjoyed another day of bullish activity and most of the positions participated in the rally. There were no clear leaders in our group but the top industries in the market were banking and brokerages, computer software, networking, paper products and conglomerates. Most of the recent winners in the semiconductor group consolidated gains and biotechnology stocks were mixed as many of the sector leaders fell to profit-taking. Of course the broad manner in which the market rallied is the best news of all. A new record for the S&P 500 index was completely unexpected and the Dow's closing number was its first above 11,000 since early February. Lets just hope the trend continues. Questions & comments on spreads/combos to Click here to email Ray Cummins ****************************************************************** - New Plays - Banking and Finance issues have rallied over the last week amid optimism concerning the outlook for future interest rates. On Tuesday, the FOMC raised the federal funds rate 25 basis points to 6%. That's the highest level in five years for the crucial rate lenders use to set rates on loans and other financial products. The good news is most analysts see the relatively small increase as a favorable measure for the economy and a boon to the finance industry as it may be the last rate hike in the near future. Most companies in the industry have also enjoyed record results in their stock businesses and investment banking subsidiaries. With the increased attention in the group, there are a number of favorable issues on which we can speculate with spread positions. ****************************************************************** ONE - Bank One $28.56 *** LEAPS/CC's *** Bank One Company is a multibank holding company formed by the merger of Banc One Company and First Chicago NBD. The company engages primarily in five lines of business: Commercial Banking, Credit Card, Retail Banking, Finance and Investment Management, as well as proprietary investment activities. Through its bank subsidiaries, the company provides domestic retail banking, finance and credit card services; worldwide corporate and institutional banking services; trust and investment management. The company also owns subsidiaries that engage in businesses related to banking and finance, including credit card and merchant processing, consumer and education finance, mortgage lending and servicing, insurance, venture capital, investment and merchant banking, trust, brokerage, investment management, leasing, community development and data processing. The big news for this issue is the possible sale of its online subsidiary Wingspanbank.com. Bank One has hired Morgan Stanley Dean Witter to advise it in the possible sale of Internet-only banking unit less than a year after it was launched. Bank One is exploring a sale of the unit as it scales back operations after a drop in its stock price when it said it would miss earnings estimates for the year. The shortfall was blamed largely on problems at Bank One's First USA credit-card unit, which was closely associated with WingspanBank.com. Now the speculators are out in force and with the recent rebound in the financial group, this position has two factors in its favor. The technical outlook for the stock is also stronger than many of its competitors and there is excellent upside potential in the issue. Note: If the short options are "in-the-money" at expiration, you must buy them back to preserve the long-term option. PLAY (conservative - bullish/diagonal spread): BUY CALL JAN01-20.00 ZBE-AD OI=470 A=$10.12 SELL CALL APR00-27.50 ONE-DY OI=3319 B=$2.18 INITIAL NET DEBIT TARGET=$7.75 ROI TARGET=50% Chart = /charts/charts.asp?symbol=ONE **** SUB - Summit Bancorp $27.00 *** Sector Play *** Summit Bancorp is a bank holding company that owns three banks and several active non-bank subsidiaries. It is the largest New Jersey-based bank holding company. The bank's subsidiaries are engaged in general banking businesses, securities brokerage, insurance brokerage, venture capital investment, commercial finance lending, lease financing, asset-based lending, letter of credit issuance, data processing, and reinsurance. The company is segmented into three lines of business: retail banking, commercial banking, and investment services and private banking. Retail banking is geared towards the banking needs of individuals and small businesses. Commercial banking focuses on the banking requirements of large and middle-market businesses. Investment services include trust services, sales of mutual funds, insurance and brokerage and discount brokerage services. We picked this issue for its unique ability to mimic the Regional Banking sector. We have offered positions on this issue in the past and noticed that it simulates the group quite well. If you think the sector has a potential for significant recovery in the coming months, this conservative position offers a simple method to participate in the bullish trend. PLAY (conservative - bullish/diagonal spread): BUY CALL JUL-20.00 SUB-GD OI=57 A=$7.62 SELL CALL APR-27.50 SUB-DY OI=268 B=$1.25 NET DEBIT TARGET=$6.12-$6.25 INITIAL ROI TARGET=22% Chart = /charts/charts.asp?symbol=SUB **** NTRS - Northern Trust $72.06 *** Rumors Are Rampant! *** Northern Trust Corporation is a banking and financial services company that operates through subsidiaries throughout the United States, Canada, the United Kingdom, Singapore and Hong Kong. Corporate Institutional Services provides trust, commercial banking and treasury management services to corporate and institutional clients. Trust offerings include custody services for owners of securities, and securities lending and asset management services. CIS also offers retirement consulting and record-keeping services and investment products. Personal Financial Services offers trust services, investment management services, estate administration, banking and residential mortgage lending. This division focuses on high net worth individuals through its Wealth Management Group. Global Investments includes products and services offered through Northern Trust Global Investments, to clients of CIS and PFS. NTGI also offers equity and fixed income research and portfolio management services. This position is based simply on recent increased activity in the stock and underlying options. The implied volatility in call options surged this week as the stock spiked to a new 52-week high. Most traders are again speculating on a potential buy-out or merger but one analyst said that Northern is one of the country's leading providers of trust, master trust and custody, asset management and banking services and it is also one of the first issues people go to when they shift into financials. Regardless of the reason for the move, we favor the recent spike in volume and the technical support near the cost basis in this aggressive position. PLAY (aggressive - bullish/credit spread): BUY PUT APR-55 NRQ-PK OI=63 A=$1.00 SELL PUT APR-60 NRQ-PL OI=140 B=$1.68 INITIAL NET CREDIT TARGET=$0.81 ROI(max)=19% Chart = /charts/charts.asp?symbol=NTRS ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************ See Disclaimer in section one ************
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