The Option Investor Newsletter Thursday 3-30-2000 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) ****************************************************************** 3-30-2000 High Low Volume Advance Decline DOW 10980.30 - 38.40 11144.10 10916.30 1,193,480k 1,554 1,448 Nasdaq 4,457.89 - 186.78 4683.88 4355.69 1,925,183k 1,185 3,123 S&P-100 813.81 - 13.69 831.35 807.17 Totals 2,739 4,571 S&P-500 1487.92 - 20.60 1517.38 1474.63 37.5% 62.5% $RUT 531.57 - 11.43 545.89 524.27 $TRAN 2679.47 - 10.77 2692.94 2661.22 VIX 27.55 + 1.59 28.72 25.69 Put/Call Ratio .47 ****************************************************************** Down, Up, Down, Up If today wasn't enough volatility for you, check your pulse for signs of life. The action was fast and furious all day. The Nasdaq is where it was at too. The tech-heavy index (the key word being heavy) opened down 100 points before staging a quick comeback to positive territory in the first 30 minutes of trading. That should be bullish right? Wrong, call buyers on the recovery got taken to the cleaners as the Nasdaq made an even quicker reversal and never even came close to the plus column for the rest of the day. From there it was a stair- stepping pattern down from one support level to the next. The first one was 4500, which held for about an hour, then broke. Next up the famed 4450 support level that saved the Nasdaq just over a week ago. It also held for a brief period before giving way to selling pressure. From there traders were talking about 4400 holding up, but that support level lasted for about 30 seconds and it was bombs away from there. The Nasdaq started dropping in ten point intervals. Finally, some signs of a capitulation. It went as low as 4355 and started to stall. From there it was rubber band time as the Nasdaq sprung back towards 4500 before closing at 4457.89 or back above the key 4450 level. The final tally left the Nasdaq down 186.78 or the fifth biggest point decline in history. Not too bad when you consider that it would have been the biggest decline if it closed 30 minutes earlier. All in all, it was the kind of market that would leave you feeling drained if you had been playing all day. The DJIA was a different and more positive scene. It held gains for most of the day and even pushed into triple-digit territory for awhile mid-day. In the end there was too much drag from the Nasdaq to close with any gains, but it still proved to be the leading index of the day, only finishing down 38.47 to 10,980.56. This is back under 11,000, but you have to give credit where credit is due. This index was building a nice upward trend all morning and broke above long time resistance of 11,100 before the buyers packed up for the day when they realized they were fighting an uphill battle. Volume was strong on both indices with the NYSE turning in 1.2 bln and the Nasdaq at 1.9 bln. Like I said above, anyone in the market today was ready for vacation when it was all said and done. The market was jittery and I started wondering why I had some open long positions. I had to rely on some old trading advice...when in doubt, get out. It didn't take long for me to find my way into some QQQ puts either, which I closed out at the first uptick off 4355. That made for a nice recovery against the early long plays that gave me a few lumps. Nevertheless, it may be time to start looking long again with today's late day bounce on strong volume, with a lot of large blocks buying in at the close. Could we be in for one massive window dressing day after all? Hey, I'd settle for not dipping another 150 on the Nasdaq. The VIX has been bordering on useless lately as it isn't heavily weighted in tech stocks. It finally started to push above 27 in the final hour, but no where near the 30 level, which signals a major turning point. You may have got your turning point this afternoon despite what the VIX is reading. There has been talk that a new indicator is needed to gauge fear in tech stocks. Some sectors experiencing fear today included Biotech, Internet and High-tech. While the winners were in areas like Insurance, Retail and Chemicals. Part of the afternoon capitulation was due to Yahoo. It was reported that YHOO was the target of an FTC inquiry for its consumer information practices to see if they comply with federal consumer protection laws. This sent YHOO plummeting from $180 to $160 within an hour and really put fear into some sellers. It did bounce back late to close at $169.31, -7.75 and was up over a dollar after-hours too. This might have been that last chance entry for the earnings run. They are set to report Wednesday after the close. INTC had some good news after-hours, which may help spur a market recovery tomorrow. There has been talk for weeks of a possible upside surprise for Intel's bottom line this quarter. That news was announced tonight when INTC said they will be adding $0.17 to their first quarter earnings. Unfortunately, it is not based on operating performance. Instead, the IRS has ended the review of INTC's 1998 taxes and determined that INTC is due an adjustment of $600 million dollars to be used in the first quarter of 2000. That 6-mil turns into an extra $0.17 cents profit. INTC closed down $4.88 to $127, but was up after-hours as high as $130. Alan Greenspan did his best to calm fear today, although you have wonder if he was laughing inside. He said, "The Federal Reserve is not 'jawboning' the stock market or targeting stock prices," and he went on to say "I do not believe our short-term monetary policy operating procedures have a significant effect on stock prices." Interesting comment seeing how he has hinted towards a bubble in the markets and that the Fed is trying to curb growth in the economy. But if it helped improve market sentiment today, we'll take it. Besides, a market free-fall would likely help stop the current streak of interest rate increases. Alan has always been market-friendly in times of distress. Tomorrow morning will start the day off with some fresh economic numbers. First up, February factory orders is expected to fall 0.9%. Also, the release of personal income is expected and the expectations are for a 0.3% increase, with personal consumption expenditures, expected to increase by 0.8%. The economic numbers will probably be an after thought unless something is really out of line. Most traders will be trying to asses today's action and if we did see the short-term bottom this afternoon. It's my impression that we did, but tomorrow morning may have a retest of today's lows. You will get those longer-term investors that will come home tonight and check there stocks and get scared into selling. Assuming we confirm that the lows are in place, that would be the time to buy. Sure the Nasdaq is getting whipped and it may stay that way for months, but traders will always overdue everything to both the downside and upside. Today was a case for downside. Don't get me wrong, if the trend wants to go lower, I will jump back into those QQQ puts, but it feels like the sky is falling. Usually a contrarian view that a rally is in sight. With the rebound to close over 4450 on what appeared to be some good institutional buying at the close, it would seem the stage is set for a rally. The futures confirm that thought as they are currently up 4.40 at the time of this writing. In all cases, keep this thought in mind...when in doubt, get out. Ryan Nelson Asst. Editor ********** STOCK NEWS ********** Pacific Exchange Lists Five New Options By Cindy Christ The Pacific Exchange (PCX) announced the listing of five new options issues this week: CIBER Inc. (NYSE: CBR; PCX) options began trading on the February expiration cycle on March 29. Position and exercise limits are set at 31,500 contracts. The underlying stock is available on the Pacific Exchange. CBR options are allocated to lead market maker John Brown of MJT Securities, L.L.C. Inktomi Corporation (Nasdaq: INKT; PCX: INKT/QYK/KYQ/KAY/KFN) options began trading on the January expiration cycle on March 29. Position and exercise limits are set at 75,000 contracts. Inktomi options are allocated to lead market maker John Thomas of BOTTA Trading LMM, L.L.C. WorldGate Communications Inc. (Nasdaq: WGAT; PCX: WAQ) options began trading on the March expiration cycle March 29. Position and exercise limits are set at 31,500 contracts. WAQ options are allocated to lead market maker Ryan Sabol of Cole, Roesler Trading Group. Packeteer Inc. (Nasdaq: PKTR; PCX: PDU) options will trade on the February expiration cycle starting March 31. Position and exercise limits are set at 22,500 contracts. PDU options are allocated to lead market maker Matt Zahner of DRZ Derivatives, L.L.C. Wink Communications Inc. (Nasdaq: WINK; PCX: UII) options will trade on the January expiration cycle starting March 31. Position and exercise limits are set at 22,500 contracts. UII options are allocated to lead market maker Ron Chin of Chin Options. For expiration cycles and strike prices, visit the PCX Web site at http://www.pacificex.com ************** Market Posture ************** As of Market Close - Thursday, March 30, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,850 11,250 10,980 Neutral 3.16 SPX S&P 500 1,410 1,475 1,488 BULLISH 3.21 OEX S&P 100 780 800 814 BULLISH 3.21 RUT Russell 2000 510 530 532 BULLISH 2.24 NDX NASD 100 4,000 4,150 4,250 BULLISH 2.24 MSH High Tech 975 1,000 1,041 BULLISH 2.24 XCI Hardware 1,480 1,510 1,635 BULLISH 2.24 CWX Software 1,390 1,670 1,412 Neutral 3.21 SOX Semiconductor 1,130 1,360 1,151 Neutral 3.21 NWX Networking 1,000 1,190 1,032 Neutral 3.30 ** INX Internet 770 800 821 BULLISH 3.09 BIX Banking 520 600 560 Neutral 3.16 XBD Brokerage 450 480 535 BULLISH 2.31 IUX Insurance 520 600 585 Neutral 3.16 RLX Retail 900 1,000 980 Neutral 3.16 DRG Drug 330 380 345 Neutral 3.30 ** HCX Healthcare 680 750 696 Neutral 3.30 ** XAL Airline 130 150 141 Neutral 3.10 OIX Oil & Gas 265 300 294 Neutral 3.16 Posture Alert Abby Joseph Cohen, Mark Mobius, Tiger Funds, and plain technical selling has all contributed to this week's correction, as the NASDAQ chipped in another 4% loss today on heavy selling. Most sectors got clobbered; however, the Networking sector lead the pack with a 6.66% decline. Sectors that actually closed strong today include Insurance (+3.35%), Oil & Gas (+2.82%), and Retail (+1.10%). With this most recent action, we have upped Drug & Healthcare to Neutral from Bearish, and have downgraded Networking from BULLISH to Neutral. **************** Market Sentiment **************** Thursday, March 30, 2000 Shorts keep on Shorting! The new economy took another blow on the chin today, as the NASDAQ got clobbered for another -4% loss. Everybody seems to want to get in on the action, which started with Abby Joseph, led to Mark Mobius, and now to any joker who will appear on CNBC. It's always funny how the CNBC bears called the correction in advance of their appearance on the show! How about the Tiger Funds, has that situation helped this sell-off? Now, if you were a fund manager of a very well regarded and large hedge fund, would you sell your shares after CNBC is reporting the problem? Or would you sell weeks ago, short a bunch of technology issues, and then let the media help you out with a free advertising campaign? We'll stick to the latter scenario, which would mean that Julian Robertson & Co. probably locked in a stellar week and at least went out on a high note with his investors, even though they are probably still down on the year! Regardless, we have highlighted the short interest for the NASDAQ, and it shows that the bears are alive and well. This increase in shorts has been consistent with the NASDAQ's major moves upward. Based on what we see, the shorts keep on shorting, which means that this recent sell-off is becoming a good entry point! 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." Largest Short Positions Rank Mar.15 Feb.15 Change 1 Dell Computer 47,048,407 42,289,313 4,759,094 2 Oracle Corp 45,164,314 45,864,117 -699,803 3 Cisco Systems 37,310,669 40,551,162 -3,240,493 4 Intel 35,897,177 36,020,616 -123,439 5 MCI Worldcom 35,580,800 35,868,699 -287,899 6 Microsoft 33,050,557 33,141,796 -91,239 7 Amazon.com 32,970,344 36,801,542 -3,831,198 8 E*Trade Group 32,009,032 32,853,515 -844,483 9 Global Crossing 29,720,627 25,140,288 4,580,339 10 Yahoo 28,703,223 23,122,986 5,580,237 11 Nextel Comm. 27,671,790 29,710,974 -2,039,184 12 Excite AtHome 23,987,122 21,470,238 2,516,884 13 Globalstar Telecm 20,150,284 18,375,663 1,774,621 14 JDS Uniphase 19,133,105 31,306,852 -12,173,747 15 Ameritrade 19,098,802 20,266,943 -1,168,141 Other Notables: 16 CMGI 17,470,056 19,937,915 -2,467,859 17 Qualcomm 17,183,954 28,554,508 -11,370,554 18 SunMicrosystems 16,144,545 16,348,912 -204,367 19 Applied Materials 8,686,952 10,079,685 -1,392,733 20 Amgen 11,646,695 11,970,602 -323,907 21 3Com 9,044,443 9,188,174 -143,731 22 Ericcson 4,554,198 5,035,472 -481,274 23 Comcast 13,817,993 22,081,080 -8,263,087 24 Compuware 4,159,974 6,999,964 -2,839,990 Largest Changes Rank Mar.15 Feb.15 Change 1 Yahoo 28,703,223 23,122,986 5,580,237 2 Dell Computer 47,048,407 42,289,313 4,759,094 3 Healthn/Webmd 8,423,420 3,779,577 4,643,843 4 Global Crossing 29,720,627 25,140,288 4,580,339 5 Read-Rite 15,212,118 10,751,330 4,460,788 6 ADC Telecommun 10,388,672 6,476,386 3,912,286 7 Psinet 13,727,941 10,373,357 3,354,584 1 Informix Corp 7,298,466 22,613,375 -15,314,909 2 JDS Uniphase 19,133,105 31,306,852 -12,173,747 3 Qualcomm 17,183,954 28,554,508 -11,370,554 4 Comcast 13,817,993 22,081,080 -8,263,087 5 Broadvision 4,627,989 9,202,497 -4,574,508 6 Rambus 4,263,237 8,836,082 -4,572,845 7 Conexant Systems 11,750,589 15,675,246 -3,924,657 BULLISH Signs: Corporate Earnings: Major corporate earnings continue to come out strong and ahead of analyst expectations. General Electric and United Airlines are the latest bellwethers to give positive comments regarding earnings. Short Interest NYSE: 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. Short Interest NASDAQ: Short interest jumped +3.49% to 2,710,141,156 shares on March 15. This bearish barometer would indicate further upside potential. Interest Rates (5.873): The current yield is in bullish territory. Mixed Signs: Volatility Index (26.58): The VIX continues to prove that the low 30's are an excellent buying opportunity, and the low 20's continue to be a great selling opportunity. BEARISH Signs: Pre-Release Season: With April just around the corner, we have the beginning of pre-release season. Over the next 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! 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 (3/24) (3/28) (3/30) Overhead Resistance (830-860) 7.14 3.22 3.53 OEX Close 832.65 821.40 813.81 Underlying Support (800-825) 1.22 1.02 1.17 Underlying Support (770-795) 0.82 1.37 1.52 What the Pinnacle Index is telling us: Overhead resistance is moderate, while underlying support is still light. The OEX will most likely be trading range bound, however, it looks as if more of a pullback will occur. Put/Call Ratio Friday Tues Thurs Strike/Contracts (3/24) (3/28) (3/30) CBOE Total P/C Ratio n/a .43 .46 CBOE Equity P/C Ratio n/a .38 .39 OEX P/C Ratio n/a 1.47 1.79 Peak Open Interest (OEX) Friday Tues Thurs Strike/Contracts (3/24) (3/28) (3/30) Puts 700 / 9,113 720 / 8,654 720 / 7,972 Calls 830 / 4,363 830 / 4,637 880 / 5,841 Put/Call Ratio 2.08 1.87 1.36 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 30, 2000 27.55 Please view this in COURIER 10 font for alignment ************************************************* CHANGES THIS WEEK Daily Results Index Last Mon Tue Wed Thu Week Dow 10980.25 -86.87 -89.74 82.61 -38.47 -132.47 Nasdaq 4457.89 -4.47 -124.56 -189.22 -186.78 -505.03 $OEX 813.81 -2.48 -8.77 6.10 -13.69 -18.84 $SPX 1487.92 -3.60 -16.13 0.79 -20.60 -39.54 $RUT 531.57 -0.36 -14.61 -16.04 -11.43 -42.44 $TRAN 2679.47 -20.34 13.16 9.27 -10.77 -8.68 $VIX 27.55 0.94 -0.17 -0.62 1.59 1.74 Calls Mon Tue Wed Thu Week KSS 99.56 -0.18 -1.25 -0.75 3.69 3.00 New IBM 122.50 6.25 -4.50 -3.00 3.50 1.00 Strong PCS 64.63 0.88 -1.82 1.32 -0.25 0.13 New T 57.81 1.56 -0.81 1.13 -2.44 -0.94 Spin-off QCOM 145.22 2.94 5.88 2.69 -12.28 -0.78 Choppy BAC 50.81 -0.50 -0.56 -1.56 -1.31 -3.94 Bottomed DELL 52.19 1.44 -2.00 -2.06 -1.63 -4.25 Dropped BMCS 48.06 2.19 -2.81 -0.94 -3.19 -4.75 Dropped SCH 59.00 -5.50 0.13 -0.69 -0.44 -5.94 Holding AOL 65.00 2.50 -2.44 -4.19 -3.13 -6.38 Ready MFNX 90.44 1.44 1.63 -6.38 -4.31 -7.63 Set stops NITE 49.00 -2.06 -2.00 -4.50 -1.50 -10.06 Dropped INTC 127.00 3.63 -7.00 -3.81 -4.88 -12.06 Tax gain HWP 130.75 3.81 -5.38 -6.81 -4.25 -11.63 Holding NOK 206.00 5.50 -3.69 -7.25 -12.00 -17.13 Puzzling ERICY 85.50 -3.19 -1.63 -7.88 -4.63 -17.31 Dropped RATL 69.25 3.19 -3.06 -12.00 -5.63 -17.50 Dropped NT 124.00 1.81 -2.50 -6.44 -11.38 -18.50 Dropped ALTR 76.38 -2.38 -5.81 -2.81 -8.50 -19.50 Dropped SNDK 108.06 12.50 -13.44 -13.69 -9.88 -24.50 Dropped YHOO 169.50 6.75 -5.75 -17.94 -7.56 -24.50 Recovered EXDS 144.00 -5.50 -5.56 -10.19 -8.06 -29.31 Bouncing EBAY 207.13 -3.94 -16.00 -24.81 8.13 -36.63 New CHKP 169.50 -13.56 -6.69 -40.75 12.00 -49.00 New Puts RHAT 40.25 -3.88 -6.50 -6.00 -3.88 -20.25 Dropped ISLD 60.06 0.06 -4.44 -6.63 -4.94 -15.94 Sinking PSIX 34.06 1.06 -0.94 -0.06 -3.81 -3.75 Roll over AT 64.25 -2.56 -3.88 2.75 0.00 -3.69 Spprt=$61 GTW 53.31 -0.25 -1.38 0.06 -1.38 -2.94 Downtrend CPQ 26.81 0.56 -0.94 -0.31 -1.69 -1.75 Shortfall For more information on this play, visit www.OptionInvestor.com (See risks of selling puts in play legend) 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: ***** RATL $69.25 -5.63 (-17.50) Remember Tuesday when we said a close below the $86 area and it may be time to step aside. It's time. Actually, it was time on Wednesday as RATL plummeted to close at $74.88. It didn't get any better today as the software company dropped another 13%. Today, RATL announced that their Rational Suite won Software Development magazine's Jolt Product Excellence Award in the "Design and Management Tools" category at the 10th Annual Jolt Productivity awards. It may have won industry awards, but RATL didn't win any awards with investors the past two days. There was no company specific news as far as earnings or any other announcements, just selling pressure that seemed to feed on itself, as RATL dropped the past two sessions. The fundamentals for the company haven't changed, but for now its time to go. SNDK $108.06 -9.88 (-24.50) Tuesday's decline was not a bump in the road, it was the earth beginning to open-up and swallow our play. SNDK cut through several areas of technical support like they weren't even there. SNDK hit the $110 area in the early minutes of trading today, which held on several different attempts lower during the session today. SNDK made the headlines in a round about way earlier when Seagate announced it would go private. SNDK is one of the holdings that Seagate will sell back to Veritas Software as part of the SEG deal. The selling began Tuesday as part of the "Abby Effect", which woke up the bears, and as a famous broadcaster says, you know the "rest of the story." SNDK could become be a great call play in the near future. For our immediate future, we will look elsewhere. ALTR $76.38 -8.50 (-19.50) An overall downward spiral for Internet stocks is clearly making mince meat out of this earnings play. As a result of the broad tech correction, ALTR shed over 20% during the past four trading sessions and today it slid under the 50-dma of $79.78. A descent of this magnitude may take some time to recover and time is not something which we have an abundance. Recall that the company is confirmed to report in just two weeks on April 12th, after the bell. So while we had a great sense of optimism for a strong run into earnings, we're not going to fight the markets. ALTR is officially dropped from our call list tonight. DELL $52.19 -1.63 (-4.25) While two reputable analysts came forward with positive comments about this direct seller of PCs today, we cannot ignore the stock's sinking share price amidst the NASDAQ correction. Andy Neff of Bear, Stearns & Co reiterated a Buy rating and upped the price target to $80 from $70 citing that " near-term business trends appear on track" and the appointment of James Schneider to CFO should " provide an update on the company's initiatives to capture the growth of the Internet". CSFB's Michael Kwatinetz also viewed Schneider's promotion as "a strong positive" and believes Dell is "on track." He expects the company to meet their $7.1 bln revenue forecast and $0.16 EPS estimate. The analyst reiterated his Strong Buy recommendation. Yet, Dell is heading further south as the negative pressure builds against the techs. As of today, the stock is hovering at old resistance and is now just a smidgen above the 30-dma ($49.56). This environment is just not practical (or profitable!) for a momentum play. The past couple of weeks provided us with upward movement and gainful opportunities, but now it's time to get out the life boats and jump ship. Dell is expected to report earnings around May 11th. ERICY $85.50 -4.63 (-17.31) Ericsson said Wednesday that it had won a contract in China valued at over $630 mln to develop a cell phone network. The agreement was signed in association with Guandong Mobile Communications Co. and the development of their GSM network. The agreement is the largest to date in the development of the new network in China. We thought the news would give a lift to shares of ERICY, but it didn't. In fact, the stock dropped like a rock yesterday en route to a plunge through major support of $90 today. The concerns surrounding earnings that we mentioned Tuesday and weakness in the telecom sector have proved to be detrimental to our ERICY play. Stockholders are expected to approve a 4-for-1 split tomorrow at the company's annual meeting, which we expected to provide a boost to the stock. If the announcement of a $630 mln contract and an upcoming stock split doesn't help to move a stock higher we don't want anything to do with it. In light of the tech sell-off and weakness in the European telecom stocks, it's time to move on. NT $124.00 -11.38 (-18.50) Nortel said today that it had raised its ownership in joint ventures with Germany's DaimlerChrysler and France's Aerospatiale-Matra to give the company more leverage to expand into Europe's Internet market. Traders didn't like the news one bit, and along with the high-tech sell-off, pushed NT sharply lower this afternoon. The stock actually gapped down $8 this morning as traders couldn't sell NT fast enough. NT drifted all the way to $120 today, only to bounce slightly higher at the close. Networking equipment stocks didn't benefit any from the Cabletron Systems's(CS) announcement. The Amex Networking Index fell 6.7% today, led by a 43% drop in CS. The company warned analysts of losses for the first quarter in their report Wednesday evening. NT is now precariously positioned at support of $120. We feel there is too much downside risk to continue to hold any call positions after the gap down this morning and the bad news from CS. BMCS $48.06 -3.19 (-4.75) It looked like BMCS was going to hold its $52 support but in the final hour and a half, BMCS blew right through that level. This down move violated the lower boundary of the trading channel that it had maintained throughout the week. Most importantly, during the final twenty minutes of trading when institutional money came in to buy, BMCS did not recover from the sell-off like other issues. Earnings are not until April 27 and it doesn't appear that we will hear any good news, if there is any, until then. With BMCS moving to the basement, it's time to cut our losses and follow that institutional money. NITE $49.00 -1.50 (-10.06) As we noted in Tuesday's write-up, online brokers did not participate in the financial sector rally following Abby's comments on Tuesday, and we suggested waiting for the market to fill its sails again before taking a position. Good thing. Both the 5-dma (then $55.75) and 10-dma (then $52.07) were violated. Even at the 10-dma, the bounce (if you could call it that) had no volume to back it up. Despite a short lived attempt to get back in the ascending channel early this morning, the effort failed and NITE closed well under the bottom channel line. With earnings scheduled for April 19, an earnings run could ensue from here. But we're not willing to wait given the establishment of a new trend to the downside. PUTS: ***** RHAT $40.25 -3.88 (-20.25) Even with all the carnage in the markets today, RHAT managed to find a modicum of support at $40. The volume that surfaced each time the stock approached this level would seem to indicate a major support level. This is confirmed by the October lows, which were put in just below $40 when the recovery began. If the NASDAQ manages to move higher, the updraft will likely carry RHAT along for the ride. With all the profits on the table, we'll bid farewell to RHAT and take our money and run. ******************** PLAY UPDATES - CALLS ******************** INTC $127.00 -4.88 (-12.06) While trading in a $10 range today, INTC gave investors quite a scare, and quite a bounce. Going as low as $123.06, INTC made an about-face in the final hour of trading. We watched grimly as major indices were brought down to particularly nerve-racking levels, but when institutional money finally stepped in, INTC was one of the beneficiaries as it recovered almost $4. But the big news came after the close. The IRS decided that INTC would be able to reverse $600 mln of previously accrued taxes which will give the company a windfall of $0.17 per share for the current quarter. Consensus earnings estimates are $0.69. INTC traded up in after hours to as high as $129.50 on the news. This recent downdraft in the market has affected INTC as it came off its high of $145.38, yet today's late session buying spree brought some relief. Tomorrow will be essential in determining which way this market will go so watch carefully and pick entries based on individual risk levels. AOL $65.00 -3.13 (-6.38) If you had a position and didn't take some money off the table or get stopped out, then the 13% decline from Monday's high has got to be weighing heavily on your mind. On Wednesday there seemed to be no question as to how investors viewed AOL. AOL accompanied the Internet index lower for both days. After today, AOL may, and we emphasize may, be setting up to provide us with another buying opportunity. With the idea of not trying to catch a falling knife in the back of our mind, we did see buyers enter the market late in the day as AOL hit $63. Could this be it for the decline in AOL? Possibly. The next strong area of support is found at the $60 level. Keep in mind that this is not an AOL issue, rather a broad market sentiment that has pushed our play and the NASDAQ lower so far this week. Traders can certainly try their hand at these levels, while conservative types may choose to wait until AOL clears the $66.50 area with good volume supporting the move. Again, we realize a decline is a decline, and a loss is a loss, but the volume has been light all week in AOL, averaging only about two-thirds the norm. As we've said before, with volatility comes opportunity, and we could be seeing a very good opportunity right now. BAC $50.69 -1.31 (-3.94) Okay, we aren't going to give you the "if you liked BAC at higher prices, you'll love it at this price" speech. We do believe however that BAC probably put in a bottom earlier this month and could continue to move higher over the long term. Narrowing our time scale a bit, BAC may have been due for a bit of profit taking after it's run up to $55.19. How much profit taking is anybody's guess, as buying intraday dips so far this week has proved hazardous. However, keep in mind the overall sentiment in the markets so far this week has been negative. Could we see more profit taking in BAC? Sure. The next levels of support are found at $50 and $48 and a bounce off either, accompanied by good volume could provide a good entry for a new play. We would caution here that it may be a good idea to check investor sentiment in the broader market before jumping into a play. The one real fly in the ointment earlier today was when the Dow was turning in a good performance and the banking sector was struggling. For BAC to get back on track, we may need to see the psychology in the broader markets improve, as well as the whole banking sector. The positive side to our play came today after the initial decline to $51.25, which was an intraday support level. For most of the session, BAC traded in narrow $0.25 range as it appeared to be putting in a bottom. BAC only fell late in the day as the major indices fell apart. A move back through $51.50 with good volume may provide good entries for this new play. HWP $130.75 -4.25 (-11.63) Saved from the drop-heap by the narrowest of margins, HWP is sitting just above the critical $130 support level. The consolidation that was building above $140 just couldn't hold out against the downdraft in the NASDAQ over the past 2 days. Fortunately, the losses over the past 2 days have come on average volume, indicating there is not a mad rush for the exits. HWP bounced twice at the day's lows, $130.13, which is right at support and backed by the 50-dma at $129.44. Continued selling through this level would be a bad sign and would force us to question the viability of our play. If the NASDAQ can put its house in order and move up from here, HWP should follow suit as we enter the April earnings season. HWP doesn't report until mid-May, but if buyers can push the stock back above $140 (the stock's historical split range), we could get a split announcement to help propel the computer maker higher. In the news today, HWP steamrolled Compaq in February retail PC sales, grabbing 42.3% of the market. Climbing from 35.4% in January, this is yet another black eye for poor Compaq and yet another area where HWP can shine. Look to enter new positions if HWP can bounce from current levels and push through resistance at $133. T $57.81 -2.44 (-0.94) For those of you just tuning in, T announced on Tuesday the IPO terms for the AT&T Wireless Group. T is looking to raise more than $11.5 bln by selling 360 mln shares of a tracking stock of its wireless voice and data operations. T set an estimated price of $26-32 per share, and after the offering, T will retain between 82 and 85% interest in the group. Tentatively scheduled for April 26th, the IPO will occur in close proximity to earnings (April 25th). The confluence of these two events should allow the Telecom giant to push higher as the dates approach. T has pretty solid resistance at $60, followed by $62 and $64. As T moved up to test the $60 level on both Tuesday and Wednesday, the overall market weakness was too much and T pulled back, only to bounce at the $57 support level. Closing just a fraction above the 10-dma ($57.63), T has stronger support at $55. Look to enter new positions on a bounce from current levels or $55, if we should get so lucky. Otherwise, take the conservative approach and wait for buyers to prove their enthusiasm for the spin-off by bidding the price through the $60 resistance level. YHOO $169.50 -7.75 (-24.50) The announcement that the FTC is inquiring into Yahoo!'s consumer information practices to determine if they comply with consumer protection laws sent shares into a downward spiral this afternoon. The disclosure in a 10-K filing that they could be also be subject to almost $250 mln in employer payroll taxes certainly didn't help matters in a market that's been frantically shedding richly-valued tech stocks. During the last 30 minutes of trading today, YHOO recovered $9.06 from its daily low of $160.25. This positive move on intensified volume prompted us to keep YHOO as we enter the tail end of the play. Yahoo! is reporting next Wednesday April 5th, after the bell, so time is precious. Keep this in mind as you plan your closing strategy. To avoid the added risk of a post-earnings sell-off consider being out of all your call positions. On the courtroom floor, Yahoo! faces a lawsuit from Sega, Nintendo, and Electronic Arts who allege the company knowingly sells illegal and counterfeit game products on its site. They are seeking an injunction on sales and auctions as well as compensation for losses caused by these sales. QCOM $145.22 -12.28 (-0.78) Not even QCOM could escape the selling pressure on the NASDAQ today. The rising share price got knocked down a notch on slightly better than average volume. It hit a low of $139.25 before resurfacing above the 10-dma ($145.17) in the last minutes of trading. This move back to near-term support ($145 and $150) is an extremely bullish sign amidst such combustible times. Yesterday, QCOM managed to tack on a couple of points while many of its Internet buddies were losing ground fast. A likely conclusion of its CDMA property disputes with Motorola was a key factor. Plus, analyst Tim Luke of Lehman Brothers raised his price target on QCOM to $180 from $160 and reiterated a Buy rating on that sentiment. The evening before, ABN Amro also repeated a Hold recommendation. We're anticipating the momentum that broke QCOM out of its three-month channel will maintain its potency in the short-term. However, with such volatile markets, you may want to watch for QCOM to trade consistently above $153 before choosing an entry. Qualcomm is reporting in about three weeks on April 18th, after the bell. The stock is also a split-candidate above $160. *********************************************** 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 Thursday 3-30-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. ******************************** PLAY UPDATES - CALLS - CONTINUED ******************************** IBM $122.50 +3.50 (+1.00) Good news once again pumped up IBM this week. At center stage was the innovative announcement that it found a way to make a mainframe act like hundreds of smaller computer servers. This is a break through that will cut into Sun Microsystems' sales since many companies that use IBM mainframes often turn to SUNW for the server end of the business. On Wednesday, IBM and Microsoft announced their effort to collaborate and sell a lower-cost appliance server is now ready to make its debut. This product launch marks MSFT's entry into a market that is expected to have cumulative revenues of $30+ bln by the end of 2004. This is just the kind of news that a momentum play needs to maintain its stamina. Plus, IBM is heading into earnings next month which should also help accelerate the uptrend in the near-term. The company is expected to report earnings around April 18th. Looking at this week's chart, $119 and $122 represent a more stable support level however, $125 and $126 should evolve as the next tier. Upward bounces off the current position at the 5-dma ($122.30) and through $125 will give the conservatives better confirmation that IBM is poised to make its charge. Monday's intraday high at $128.25 still serves as the first line of resistance before the ultimate challenge at $139.19, its 52-week high. MFNX $90.44 -4.31 (-7.56) Not much news over the last couple of days for MFNX. Investors are still digesting the announcement last Tuesday when MFNX entered into an agreement with LU to build a new high-speed network for delivery of video over the Internet. In spite of the good news earlier this week, MFNX has suffered from overall market weakness. It has been a bad week for the four-letter stocks no matter how good the outlook remains for a company. In the face of the NASDAQ sell-off, MFNX found solid support at the $90 level today. In the last few minutes of carnage Thursday, MFNX did slip to $86.88, but it managed to move back to support. The $90 level is critical support for our MFNX play, below here we don't see much help until $80. We want to proceed with caution before entering into any new positions with MFNX. Aggressive traders might look for a bounce off support at $90 before entering into the play. A more conservative trader might wait for MFNX to regain momentum and move back above $100. Look for volume to pick-up on any move higher as confirmation that MFNX has regained momentum. For those of you currently holding positions in MFNX, you might want to add a trailing stop below support at $90. SCH $58.44 -1.00 (-5.94) Given the harsh environment for stocks this week, our SCH play has held up relatively well. The e-finance sector was down 5.3% Thursday while Schwab lost only 1%. There has been some interesting news on SCH in the last few days. Thursday, TheStreet.com announced the results of their Online Broker Survey 2000. Nearly 10,000 customers participated in the survey. Schwab ranked #3, behind Datek and Fidelity. If you watched the Academy Awards, you may have seen the Schwab commercial featuring Sally Field parodying her famous Oscar acceptance speech within the company's ongoing "Smarter Investors" campaign. Viewers ranked Schwab's commercial the third best commercial during the Oscars. But enough with the fun stuff, getting back to our play in SCH, the stock has been rolling off support at $59 for the last two days. However, SCH dipped below support today right at the close of the market. The stock is still above the 10-dma which is now providing support. Should SCH fall below the 10-day, we have major support at the $55 level. Volume has declined as SCH has moved lower this week, which is somewhat of a positive sign. We're looking for momentum to regain in the e-finance sector, as many of the online brokers begin reporting earnings in the coming weeks. A breakout above $60 combined with healthy volume would provide a good point to look for entry into our SCH play. EXDS $144.00 -8.06 (-29.00) The end-of-the-quarter window dressing we mentioned last Tuesday has turned against us as traders and institutions took profits from the high-flying tech stocks. Many traders are suggesting that the institutions are rebalancing their portfolios for the quarter ending tomorrow. The same people believe that many of the institutions will move back into the market leading tech stocks next week, especially with earnings season fast approaching. Traders are also suggesting that the high margin levels in the equity markets have contributed to the recent downfall in tech stocks. Margin clerks have been selling stocks like EXDS to meet account requirements. It appears that the selling may have subsided based upon the whiplash in the NASDAQ today, as it rebounded by 100 points in the last half-hour of trading. The recent decline in EXDS may have provided a good entry point for an upcoming earnings run. Be cautious though, as the stock broke through major support today at $150. The stock bottomed at $136.50 today, which has proved to be strong support over the last two weeks. We want to watch EXDS closely at these levels, the last time that EXDS bottomed at support of $136 it quickly rebounded to make an all-time high. Another bounce off support at $136 may provide a good entry point if you can take on more risk. A strong move back above $150 might provide an entry point for traders looking for less risk. Set a stop near support at $136, below that level EXDS has no support until $120. NOK $206.00 -12.00 (-17.13) Other than an oversupply of splits and split announcements starting last month, we can find no fundamental reason why NOK hasn't had a strong split run. Since NOK has run nowhere into its April 7th 4:1 split date, you might think we're nuts for keeping it. Technically, it violated its 5- dma and 10-dma in the last two days of trading. Blame the negative market and a rumor that Orange Plc., a British wireless carrier, would return large amounts of faulty WAP phones ("absolutely no foundation", says NOK) on today's drop. Here's the good news. NOK has been trading in an ascending channel since December 15. Today, NOK broke through the bottom of the channel, nearly touched the 50-dma of $201.68, then moved back up to close $2 above the lower channel line, coincidentally, the opening price. That's a bullish technical. If you are still looking for historical support, $200 and $205 offer good numbers. With six trading days remaining until the split, any technology recovery should drive the price again, but no guarantees for this puzzling performer. ******************* PLAY UPDATES - PUTS ******************* PSIX $34.06 -3.81 (-3.75) Did we not say PSIX is setting a trend for themselves? Bullish investors always come out fighting when the bell rings in the morning only to get beat down as the day progresses. This morning PSIX was as high as $37.63. You've got to love these premiums. Following along with every other day this week, PSIX hit that high and then rolled over, only today they kept going right through support. This should be a solid breakthrough because we saw a lot of volume backing the drop. We should see support of $27.31 come into view. Resistance at $38 should be used as a guideline when trying to enter positions. But make sure that PSIX stays true to this trend and does reverse. In the case it doesn't, protect your investment with stops. PSIX and Incescent announced their agreement in which PSIX will provide ISP services while Incescent will handle marketing. PSIX also announced they have finished the exchange offer for their 10.5% senior notes that are due 2006. GTW $53.31 -1.38 (-2.94) GTW closed for the third day in a row below its 200-dma. For investors looking for Gateway to turn around, this is not a good sign. One interesting development in GTW is that during the last three days, buyers have tried to step in early in the session, only to be met at the door by "Papa Bear". Technically, the trend is intact and headed lower, with little support until $52 and then near $50. Analysts and investors are concerned that GTW will miss the boat when earnings are announced on April 13th. Until this week, the hardware sector had fared pretty well, while GTW had been getting clobbered. There has been little news out this week to help prop up GTW, although we did see some light buying this afternoon as GTW bounced off $52.63. Further bounces up to the $54.50 area, followed by weakness could provide another good entry point for our play. The volume today was a little better than average at 2.6 mln shares, but not the type that would indicate a capitulation for a stock putting in a bottom. If you have a position in GTW, move your stops down. ISLD $60.06 -4.94 (-15.94) Having enough trouble keeping its head above water in calm seas, the tropical storm that hit the NASDAQ the past 3 days has ISLD completely submerged and breathing through a snorkel. If the cycle of 5-7 down days followed by 2-3 up days remains intact, we could be due for a bounce. In the "who cares" department, ISLD and Digital River (DRIV) announced a strategic partnership yesterday, creating a joint e-commerce solution for Application Service Providers (ASPs). If the news had any effect on the price, it didn't last long, as ISLD very quickly resumed its descent from earlier in the week. Gapping down this morning, it looked like ISLD might find support near $60, but the markets had other ideas, pushing the stock as low as $54.88 before it hit bottom. With a sharp bounce, ISLD managed to claw its way back to the surface and closed just above $60. Whether this level acts as support or resistance will likely be dependent on the direction of the overall market. Since it is due to bounce based on its pattern over the past few weeks, tighten up your stops so that you keep your profits. Use a rollover near the $65 resistance level to trigger new entries as ISLD prepares to dive again. AT $64.25 +0.00 (-3.75) In the news Wednesday, Universal Underwriters Acceptance Corp. (UUAC) announced they had signed a long-term renewal of its remote outsourcing agreement with ALLTEL. UUAC is one of the largest insurance companies in the world, headquartered in Switzerland. The company is a leading provider of sub-prime lending for car loans. We noted in our write-up Tuesday that AT is divided into two operating divisions, communications and information services. The agreement with UUAC was with the information services division of AT, the division that continues to be problematic for the company. The announcement gave shares of AT a boost yesterday, a boost that might prove to be artificial noting the weak volume. We still remain skeptical about the company's future and the ultimate fate of the ailing information services division. After yesterday's brief rally the stock fell to support at $64 today. Watch for the stock to fall through support as a new entry point. Look for selling to continue as the stock approaches its 52-week low of $55.88. The only level preventing AT from moving lower is minor support just below at $61. CPQ $27.00 -1.50 (-1.69) Poor Compaq -- nothing is going right for this company. Today from CNET news, it was reported that Compaq lost market share in January to now #1 Hewlett Packard. Not only is DELL eating their lunch in the PC business, now HP is too. However, the reason we're playing CPQ as a put in the first place is an expected earnings shortfall. The HP news only helps that cause, and provides all the more reason why we think CPQ will have to warn at least two weeks prior to their earnings date of April 25. However, given the market's current weakness, we're surprised to see CPQ holding up unusually well compared to its peers. That could portend a bottoming out. While the story looks good, CPQ is nearing historical support at $24-$25. You may want to be prepared to exit if CPQ follows the industry on any technology turnaround. ************** NEW CALL PLAYS ************** PCS - Sprint PCS $64.63 -0.25 (+0.13 this week) Sprint PCS operates the largest all-digital, all-PCS nationwide wireless network (read that CDMA) in the United States, already serving 5.7 mln customers in most major metropolitan areas including more than 4,000 cities and communities across the country. Sprint PCS has licensed PCS coverage of nearly 270 million people in all 50 states, Puerto Rico and the U.S. Virgin Islands. First, the big picture - AT&T is doing an IPO on its wireless division on April 26th, and a Sprint shareholder meeting will take place on April 28 to approve the merger with MCI WorldCom. How the PCS shares will be treated then is unclear. However, the point of bringing this up is that wireless carriers in our opinion are going to heat up in April. Looking at candidates, we find that PCS will tentatively announce earnings on April 18. Can you say earnings run? Technically, PCS has survived the recent selloff, maintaining nice support at $63. Even over the last three days, the lows have been edging higher as the resistance holds firm at $66. Though it hasn't gained much on the week, others around it were dropping like flies. We're impressed that PCS has kept its head above water so well. In short, as soon as the technology stocks regain their footing, PCS could be the first out of the gate. Today, PCS closed nearly right on its 5-dma of $64.59. The 10-dma of $62.41 also offers good support. Even if we repeat the last four days (please, NO!), $60 should be the rock bottom. With volume really light, only two thirds the ADV of 3.2 mln shares, nobody appears in a hurry to unload either. Target shoot to your comfort level and look for an earnings run and wireless hype to move PCS up in April. News is contained above; however, W.R. Hambrecht on Tuesday rated PCS a Buy rating and price target of $85. BUY CALL APR-60*PCS-DL OI=1108 at $6.50 SL=4.50 BUY CALL APR-65 PCS-DM OI= 853 at $3.88 SL=2.25 BUY CALL APR-70 PCS-DN OI= 161 at $1.75 SL=1.00 BUY CALL MAY-65 PCS-EM OI= 131 at $5.75 SL=3.25 BUY CALL MAY-70 PCS-EN OI= 119 at $3.75 SL=2.25 Picked on Mar 30th at $64.63 P/E = N/A Change since picked +0.00 52-week high=$66.44 Analysts Ratings 5-10-7-0-0 52-week low =$20.75 Last earnings 02/00 est=-1.45 actual=-0.75 surprise=93% Next earnings 04-18 est=-0.57 versus=-0.70 Average Daily Volume = 3.24 mln /charts/charts.asp?symbol=PCS **** CHKP - Check Point Software $169.50 +12.00 (-49.00 this week) Check Point provides Internet security. The company provides secure enterprise networking solutions that enable customers to implement centralized policy-based management with enterprise- wide distributed deployment. Simply put, CHKP has benefited from rising demand for its virtual private networks software which lets remote workers, business allies and customers securely access corporate computer networks. Following a 2-for-1 split in late January, CHKP ran straight up, peaking at $295 in early March. Since then, it has been a quick and painful decline for those without stop losses. After losing nearly 50% of its value from a mere three weeks ago, CHKP bottomed at $155 late yesterday and cautiously moved up from there today. Retesting support between $155-157 several times today, the NASDAQ recovery in the last hour managed to propel CHKP up for a nice gain on more than triple the average daily volume. The abrupt halt to the decline, coupled with earnings which are only 3 weeks away (April 18th), makes this look like an attractive entry point going forward. Support looks strong at $155, followed by $150, with the first resistance found at $170. Major overhead resistance sits at $188, which also is the 50-dma. Use a bounce from support to trigger an entry into the play. More conservative players will want to wait for CHKP to burst through resistance at the $170 level before playing. For the uninitiated, CHKP is a volatile internet so fasten your seatbelt and hold on for a wild ride. Normally prolific on the news announcement front with frequent alliances and product announcements, CHKP has been rather quiet of late. The only item of note is the expansion of CHKP into the Latin American market through a distribution alliance with Intrusion.com and Uniao Digital. BUY CALL APR-165 YKE-DM OI= 25 at $25.13 SL=18.75 BUY CALL APR-170*YKE-DN OI=115 at $23.50 SL=17.50 BUY CALL APR-175 YKE-DO OI= 16 at $21.25 SL=16.00 BUY CALL APR-180 YKE-DP OI=157 at $19.13 SL=13.75 BUY CALL MAY-175 YKE-EO OI= 0 at $32.50 SL=24.50 Wait for OI! BUY CALL MAY-180 YKE-EP OI= 89 at $30.75 SL=23.00 SELL PUT APR-150 YKE-PJ OI=140 at $12.13 SL=17.00 (See risks of selling puts in play legend) Picked on Mar 30th at $169.50 P/E = 136 Change since picked +0.00 52-week high=$295.00 Analysts Ratings 9-5-2-0-0 52-week low =$ 11.50 Last earnings 01/00 est= 0.65 actual= 0.70 Next earnings 04-18 est= 0.35 versus= 0.25 Average Daily Volume = 1.06 mln /charts/charts.asp?symbol=CHKP **** KSS - Kohl's Corp. $99.56 +3.69 (+3.00 this week) Kohl's is in the retail business. They operate almost 300 department stores primarily in the Midwest and the Mid-Atlantic states, although they are continuing to expand farther west. They are a family focused department store, with a goal to offer customers the best value in any given market. Kohl's offers brand name merchandise at attractive prices. The company emphasizes apparel and shoes for men, women and children. They also carry a wide variety of other soft goods. Kohl's stores are typically located in strip shopping centers, regional malls and as free standing units. Their compete with J.C Penney, Sears and Target. Their name may not be as familiar as the competition, but their stock has certainly performed better than most of their peers. Kohl's is fast becoming a company to be reckoned with, in more ways than one. On Tuesday, Kohl's CEO, R. Lawrence Montgomery, announced the Grand Opening of 19 for new stores on Friday, April 14th. That marks 297 stores in 25 states. Not a big deal by some standards, but KSS has certainly began to get the attention of their competition and the investing public. After trading in a $15 range for most of 1999, KSS broke through the $70 mark earlier this month after announcing better than expected earnings and a 2-for-1 split of the company's stock. The split is not scheduled until April 25th, but the recent excitement around the retailer drove the price to a new high of $101.25 last Friday. After experiencing some profit taking the first three sessions of the week, KSS began to gather momentum again today. With the NASDAQ dragging the Dow and many of the NYSE stocks lower today, KSS gained 3.8%. Call it sector rotation, call it whatever you want. We are calling it a great opportunity to buy calls. Volume the past two days has been solid, with just over 1.2 million shares being traded each day. On Wednesday as sellers were trying to take profits, the 10-dma at $94.33 held, and buyers entered the arena once again. Technically, KSS has support at $97.50 and back at its 10-dma. The analysts were a bit slow to jump on board, as the most recent upgrade came from Merrill Lynch on March 16th. Daniel Barry raised his rating of KSS from an accumulate to a buy at that time. Depending on the mood of traders tomorrow, KSS could challenge its high early in the day. If not look for a bounce off support to enter this new play. Other news from analysts that follow Kohl's came from Deutsche Banc Alex Brown analyst Joe Grillo. Grillo has a strong buy rating on KSS, and noted the retailer's expansion appears to be on track, and new store productivity continues to improve. BUY CALL APR-90 KSS-DR OI=169 at $12.25 SL=9.25 BUY CALL APR-95 KSS-DS OI=255 at $ 8.75 SL=6.00 BUY CALL APR-100 KSS-DT OI=116 at $ 6.00 SL=4.00 BUY CALL MAY-95 KSS-ES OI= 28 at $12.25 SL=9.25 BUY CALL MAY-100 KSS-ET OI= 4 at $ 9.63 SL=6.50 SELL PUT APR-90 KSS-PR OI=224 at $2.00 SL=3.75 (See risks of selling puts in play legend) Picked on Mar 30th at $99.56 P/E = 65 Change since picked +0.00 52-week high=$101.25 Analysts Ratings 7-5-4-0-0 52-week low =$ 61.50 Last earnings 03/99 est=0.69 actual=0.72 Next earnings 06-06 est=0.26 versus=0.24 Average Daily Volume = 951 K /charts/charts.asp?symbol=KSS **** EBAY- eBay Inc. $207.13 +8.13 (-37.88 this week) eBay is the electronic middleman to the world. The company pioneered online person-to-person trading by developing a Web-based community in which buyers and sellers are brought together in an auction format to trade personal items. The company provides an online auction service that has become a cyber-forum for selling nearly 3,000 categories of merchandise, from Beanie Babies to fine antiques. eBay boasts about 10 mln registered users. The firm generates revenue by taking a percentage of each sale, and has raised its profile by buying traditional auction house Butterfield & Butterfield. It has also entered the business-to-business auction market by launching eBayBusiness Exchange. The online super-seller may be up for auction. For the past month, it has been widely reported that EBAY and Yahoo have been talking about a merger. The price tag for EBAY has been estimated to be as high as $35 bln. Analysts have suggested that a merger would bring significant benefits for both companies. EBAY needs to grow their audience to accelerate their auction business and Yahoo needs a partner that will add eyeballs for a longer time, allowing the search engine to connect anybody to anything and generate larger advertising revenues. Many companies have tried to enter into the Internet auction business, including Yahoo. EBAY is the sole reason that the many of these companies have failed. Additionally, EBAY has failed to establish a dominant presence in international markets. Yahoo's growing audience outside the U.S. would help EBAY establish a dominant position in Europe and Asia. If a merger doesn't go through, many analysts believe a strategic alliance will be formed between the two companies. Traders have welcomed the idea of a mega-merger between the two companies, as shares of EBAY have steadily climbed higher over the past month. The stock hit an all-time high Monday of $255, only to sell-off throughout the week with the rest of the tech sector. However, EBAY showed impressive strength today, as traders bought the stock heavily into the close. We're looking for momentum to return to the stock as traders look for an announcement about the possible merger with Yahoo, and earnings season gets under way. Throughout the week, EBAY has found solid support at the psychological level of $200. Look for the stock to continue its momentum through today's close. Watch for EBAY to move through minor resistance at $210, which may provide a good entry point. Once EBAY clears resistance at $210, the next bump in the road is minor resistance at $230, after that we find major resistance at $240. Wait for the stock to gain steam and volume to pick-up, once that happens we could be in for ride. Further proof that merger talks are ongoing came Tuesday when PaineWebber analyst Sara Farley raised her price target on EBAY to $285 from $225. The analyst cited higher growth and cash flow assumptions. Farley went on to say that EBAY has, "articulated several new initiatives that should expand the company's reach significantly." BUY CALL APR-200 XBA-DT OI= 922 at $23.88 SL=16.00 BUY CALL APR-210*XBA-DB OI= 881 at $18.88 SL=13.75 BUY CALL APR-220 XBA-DD OI=3036 at $15.00 SL=11.00 BUY CALL MAY-220 XBA-ED OI= 224 at $27.00 SL=18.00 Picked on Mar 30th at $207.13 P/E = 1990 Change since picked +0.00 52-week high=$255.00 Analyst Ratings 12-10-5-0-0 52-week low =$ 70.25 Last earnings 01/00 est=0.02 actual=0.04 Next earnings 04-24 est=0.03 versus=0.05 Average daily volume = 3.05 mln /charts/charts.asp?symbol=EBAY ************* NEW PUT PLAYS ************* There are no new puts tonight. *************** PLAY OF THE DAY *************** CALL **** INTC - Intel Corporation $127.00 -4.88 (-12.06 this week) Intel Corporation designs, develops, manufactures and markets computer components and related products at various levels of integration. Intel's principal components consist of silicon- based semiconductors etched with complex patterns of transistors. The Company's major products include microprocessors, chipsets, embedded processors and micro-controllers, flash memory products, graphics products, network and communications products, systems management software, conferencing products and digital imaging products. Intel sells its products to original equipment manufacturers (OEMs) of computer systems and peripherals; PC users (including individuals, large and small businesses and Internet service providers) who buy Intel's PC enhancements, business communications products and networking products. Most Recent Write-up While trading in a $10 range today, INTC gave investors quite a scare, and quite a bounce. Going as low as $123.06, INTC made an about-face in the final hour of trading. We watched grimly as major indices were brought down to particularly nerve-racking levels, but when institutional money finally stepped in, INTC was one of the beneficiaries as it recovered almost $4. But the big news came after the close. The IRS decided that INTC would be able to reverse $600 mln of previously accrued taxes which will give the company a windfall of $0.17 per share for the current quarter. Consensus earnings estimates are $0.69. INTC traded up in after hours to as high as $129.50 on the news. This recent downdraft in the market has affected INTC as it came off its high of $145.38, yet today's late session buying spree brought some relief. Tomorrow will be essential in determining which way this market will go so watch carefully and pick entries based on individual risk levels. Comments The after-hours news listed above should put buyers back into the stock tomorrow. Not to mention, the rumors of a positive operating quarter continue to be heard. This should bring them back to the forefront. Any entry under $130 would appear buyable once market direction is confirmed to the upside. BUY CALL APR-125 INQ-DE OI= 7588 at $9.00 SL=6.75 BUY CALL APR-130*INQ-DF OI=13664 at $6.88 SL=4.75 BUY CALL APR-135 INQ-DG OI=11609 at $4.75 SL=2.50 BUY CALL MAY-135 INQ-EG OI= 1678 at $7.63 SL=5.00 Picked on Mar 19th at $129.88 P/E = 66 Change since picked -2.88 52-week high=$145.38 Analysts Ratings 20-13-6-0-0 52-week low =$ 50.13 Last earnings 01/00 est= 0.63 actual= 0.69 Next earnings 04-12 est= 0.68 versus= 0.57 Average Daily Volume = 26.03 mln /charts/charts.asp?symbol=INTC ************************ COMBOS/SPREADS/STRADDLES ************************ Soaring Economy Spurs Inflation Fears.. Investors were rattled by a report that the U.S. economy rose to an annual growth rate of 7.3% in the final three months of 1999, the strongest performance in 15 years. **** There will be no "New Plays" today as the Spreads Section editor is unavailable for research. Fortunately, the recent volatility in the broad market has given us a perfect opportunity to discuss one of the lesser-used techniques in retail option trading: Spreads with Indexes... As a trader, you may be familiar with options on individual stocks where you have the right to buy (call option) or the right to sell (put option) a particular stock at some predetermined price within a predetermined period. The buyer has the rights and the seller the obligations. With index options the basic ideas are the same. Index options allow you to make investment decisions on a specific market industry or the market as a whole. Spread strategies can be constructed with index options similar to those with individual stock options. Experienced brokers employ index spreads in hedge and income strategies and today we will discuss one of the more conservative techniques available to retail traders. Indexes... Stock indexes are simply portfolios composed of numerous, assorted company's shares. Different indexes have different values because of the composite shares' performance and the way they are weighted in the index. The S&P 500 Index for example, is a value weighted combination of 500 different companies, representing approximately 80% of the value of all the shares traded on the New York Stock Exchange. Each company's weight in the index is determined by its relative market importance and their values are then computed by multiplying each company's number of outstanding shares of common stock by the share's current cash market price. These values then are summed and compared to a 1941-1943 base period to determine the final cash value. The cash market values of the S&P 500 Index represent the interaction between a market-wide rate of return and the average growth rate in earnings (and dividends) and will accurately reflect the overall market supply and demand factors. S&P 100 Index Options... A stock index option is an option on an index of common stocks. The S&P 100 Index option, also known as the OEX, was the first stock index option and has been the most popular. The S&P 100 index is a capitalization-weighted index of 100 stocks from a broad range of industries. Similar to the other broad indices, the component stocks are weighted according to the total market value of their outstanding shares. The impact of a component's price change is proportional to the issue's total market value, which is the share price times the number of shares outstanding. There a number of differences inherent in index options, the most obvious being the method of delivery upon exercise. Obviously, delivery of all the stocks represented in a stock index (when an index option expires) would be very difficult since each stock has a different weight in the index. Consequently index options are settled in cash, at option expiration. Cash settlement means that when the option buyer exercises the option at expiration, the buyer receives (from the seller) the difference between the stock index value and the strike price the option. Most options, such as the S&P 100 options are American style options. That means the option contract may be exercised at any time between the date of purchase and the expiration date. As with equity options, the expiration of most index options occurs on Saturday, after the third Friday of the expiration period. Rotation cycles are also similar as most index options have expirations for the current month and the next three consecutive months. Some index options possess expirations for the current month and a following month plus the next one or two expirations in one of the standard options cycles. Spread Trading... The majority of experienced traders use options to speculate on the movement of stocks and indexes. The appealing feature of option ownership is leverage with limited risk. If a trader correctly predicts the market direction and takes the appropriate position, he can expect to make a profit. Unfortunately, that technique historically has a low probability of success. The reason is, over short periods of time (while the trader is waiting for the option to rise in value), the position is at risk from a variety of changes in the market. One method that many traders use to overcome that problem is spreading. The basic technique involves buying and selling simultaneous but opposing positions in different option series. The most common strategies are used to reduce the cost (and the risk) of a position while providing a higher probability of a limited return. One of the most popular types of spread trading is the "credit" spread. The credit spread allows options traders to have time decay work in their favor while maintaining a manageable level of risk. To initiate a credit spread, an investor would simply buy an option and write an option that expire at the same time but have different strike prices. The written option is closer to the money than the purchased option, and thus has a higher premium. The trader will receive a net credit and that is the maximum profit available in the position. The objective is for both options to expire worthless, allowing the trader to retain the initial credit. Normally, a credit spread investor trades front-month options only, as the time decay evaporates most noticeably in the final few weeks before expiration. The rapid time erosion benefits credit spreads, assuming no change in the other variables that affect option pricing. One of the most attractive versions of the credit spread is the "deep-out-of-the-money" position as it has a very high probability of success. Traders often utilize simultaneous (OTM) bull and bear credit spreads to participate in a popular neutral strategy known as the "Long Island Condor." The technique is often used with index options and is a limited risk, limited profit strategy. Of course a favorable outcome is for the index value to finish the expiration period between the sold strikes of both positions. In that case, all options expire worthless and the trader is left with the original credit as profit. For OTM credit spread trades, we favor the actively traded S&P 100 Index options as they contain much more premium than options on individual stocks and the broad range of issues provides an underlying instrument less prone to huge, gapping moves. Studies have shown that this method of spread trading can be successful in over 80% of the potential positions. The reason is simple, the strategy has a very high probability of a profitable outcome. Probability of profit is determined by measuring the area under a log normal distribution created by the volatility of the stock or index. That standard deviation under the distribution bell curve is then converted into a probability. In layman's terms, probability is applying what you know about history to determine the potential outcome of a future event. With simultaneous (OTM) credit-spreads, we are simply concerned with the probability of the underlying instrument finishing the expiration period in a given range. If we construct our plays and positions based on known patterns in volatility and pricing, the probability of success can be increased dramatically. In fact, that's the key to successful option trading - using the knowledge of volatility to analyze the potential for profit and evaluating it with regard to the risk inherent in the position. In the next installment, we will discuss the techniques used to calculate expected ranges and probabilities and the most common methods for selecting a favorable position. Until then, you can find more information about this strategy (and many others) in the popular titles in the OIN bookstore. Good Luck! ************************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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