The Option Investor Newsletter Sunday 4-2-2000 1 of 4 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com Entire newsletter best viewed in COURIER 10 font for alignment ******************************************************************* WE 3-31 WE 3-24 WE 3-17 WE 3-10 DOW 10921.92 -190.80 11112.72 +517.49 10595.23 +666.41 -438.38 Nasdaq 4572.89 -390.04 4963.03 +164.90 4798.13 -250.49 +133.83 S&P-100 815.06 - 17.59 832.65 + 45.91 786.74 + 37.24 - 16.45 S&P-500 1498.58 - 28.88 1527.46 + 62.99 1464.47 + 69.40 - 14.10 RUT 539.09 - 34.93 574.01 - 0.76 574.77 - 29.04 + 5.93 TRAN 2763.24 + 75.09 2688.15 + 64.32 2623.83 +258.54 - 69.16 VIX 27.21 + 1.40 25.81 + 2.14 23.67 - .13 + 2.51 Put/Call .48 .42 .42 .39 ******************************************************************* A Day Trader's Dream If you're a trader who lives for bi-polar manic behavior, Friday must have seemed like a dream come true. Both the Nasdaq Composite Index (COMPX) and Dow Jones Industrial Average (INDU) experienced triple-digit intraday price swings, so could have been trading in both old-economy and new- economy stocks. Needless to say, the COMPX was the more volatile of the two market barometers. The tech-laden index finished the day up 114.70 points, or 2.6 percent, to 4,572.59. However, it was far from a straight shot. After trading as high as 4,559.62 shortly after the opening bell, the COMPX declined steadily to trade as low as 4,381 around 11:00 am EST. By noon, though, the index had regained its footing and soared to a high of 4,606 before some final hour selling clipped off 34 points. However, the COMPX's end-of-the-week run wasn't enough to off- set the heavy selling pressure it endured through the last week of March. When the pluses and minuses are tallied, the COMPX comes out decidedly in the minus column. For the week, the index tanked 390 points, or 7.8 percent, recording its biggest one-week point drop ever, which puts it 9.4 percent off its 5048.10 high set on March 10th. Year-to-date, though, the COMPX is up 12.3 percent, putting it far ahead of the other major indices. It has been a circulatory trip to the top, to say the least. During the past three months, the COMPX endured four corrections, or drops of more than 10 percent from its previous high, including two in March. But if the COMPX has proven anything, it's resilient, for each time the index dropped, it just as quickly recovered. As for the old-economy representative, the INDU finished Friday down 58.33 points, or 0.5 percent, to 10,921.92. But unlike the COMPX, which had to rally from morning selling pressure to log its gain, the INDU spent most of the day in the black. In fact, as late as 3:00 pm EST, the average was up nearly 128 points, but strong selling pressure in the likes of Walmart (WMT), International Business Machines (IBM) and Home Depot (HD) sent the blue-chip average plummeting nearly 190 points in the final hour. For the week, the INDU gave up roughly 200 points, or 1.7 percent of its value Like the COMPX, the INDU has had a quarter marked by volatile mood swings. After climbing to an all-time closing high of 11,722.98 on January 14, the INDU tumbled nearly 20 percent in late February and early March before making a Lazurus-like recovery to trade near 11,000 level, where it currently resides. However, despite logging a nearly 1,000 points gain in March, the blue-chip index is still down more than 5 percent year-to- date. The loss is due in no small part to the average's worst performer, Procter & Gamble (PG), which is off 48 percent for the quarter. Turning to Friday stock trading, the B2B e-commerce issues were definitely the headline grabbers of the day. Ariba (ARBA) lost $10.38 to $209.63, Commerce One (CMRC) tumbled $24.06 to $149.25 and I2 Technologies (ITWO) dropped $6.88 to $122.13. This lead B2B triumvirate fell victim to a bearish report issued by Prudential Securities that lowered the 12-month target for the all three companys. But the B2B guys weren't the only Internet losers. Drkoop.com (KOOP) fell $2.56 to $3.69 after auditors said they had serious doubts about the ability of the online healthcare site to stay in business. PricewaterhouseCoopers reported that DrKoop has sustained losses and negative cash flows from operations since its inception. Another big Internet loser was online auctioneer eBay (EBAY), which plummeted $31.13 to $176. In an SEC filing Thursday, the company said the Justice Department subpoenaed documents last week related to an investigation into allegations of commission price-fixing by Sotheby's and Christie's. Bucking the trend was Yahoo! (YHOO), which gained $4.88 to $174.75. However, the Internet portal still finished the week over $20 in the red. The company reported last week that it was being investigated by the Federal Trade Commission over the manner in which it gathers consumer information. Other Friday winners include leading electronic bill payment systems company, CheckFree (CKFR), which moved up $9.50 to $70.50 after Lehman Brothers (LEH) restarted coverage of the company with a "buy" rating and a $150 share price target. Shares of Net2Phone (NTOP) gained $3.75 to $59.13 after a group of telecoms led by AT&T (T) announced they would buy a 39 percent voting stake in the Internet telephony company for about $1.4 billion, or $75 a share. For its part, AT&T fell $0.69 to $57.06. Friday's IPO du jour was web-switching products maker ArrowPoint Communications (ARPT), which shot up $84.49 to $118.49 after selling 5 million shares to the public at $34 per share. High projected demand for the company's products and exposure to Internet infrastructure companies made ArrowPoint one of the hottest IPOs in recent weeks, in spite of the fact the company will be butting heads with the likes of Cisco Systems (CSCO). And speaking of Cisco, the company's shares closed the week up $3.69 to $77.31. The Internet routing and switching giant had quite a week, overtaking Microsoft (MSFT) to become the world's most valuable company. The 30-year Treasury also closed the quarter on an up note. The bellwether bond rose 16/32 to 105 25/32 on Friday, causing the bond's yield to fall to 5.84 percent. Over the past quarter, the 30-year Treasury has risen 10.3 percent, marking its best quarterly performance in over a decade. In Friday's economic news, The Commerce Department reported consumer spending increased 1 percent in February after rising 0.6 percent in January. Moreover, incomes rose 0.4 percent in February following a 0.7 percent rise a month earlier. The report suggests first-quarter consumption - which accounts for two-thirds of US economic output - is on a pace to be the strongest in almost 15 years. As for next week's Economic data, Monday brings news from the National Association of Purchasing Managers. This survey of purchasing managers will give insight into the costs of production in the manufacturing sector. The most important data set for the week, though, will be released on Friday, when the Labor Department releases its report on non-farm payrolls, the unemployment rate, growth in hourly earnings, and the average hours in the workweek. The consensus among economists is for 400,000 jobs to be added. Of course, starting a new quarter can only mean one thing, a whole new batch of earnings reports to digest. Big players releasing quarterly earnings this week include Yahoo (YHOO), which is scheduled to release on Wednesday, and General Electric (GE) and Alcoa (AA), both of which are scheduled to release on Thursday. Analysts are expecting earnings for the January to March period to be decidedly positive because few companies have pre- announced negative earnings. In fact, the number of negative pre-announcements on first-quarter earnings currently stands at 125, well below the final total of 379 for the first-quarter of 1999. What's more, the proportion of companies beating estimates in last year's fourth quarter was higher than normal, and that trend appears to be continuing. According to First Call, early reports show 14 percent of reporting companies coming in above expectations. Despite the anticipated bullish earnings reports, technicians foresee the COMPX settling into a trading range in the near- term between 4300 and 5000, with Thursday's low of 4355 providing a key support level and the 4675 to 4710 range providing upside resistance. Over on the INDU, investor appetite for value could intensify next week based on one significant contrarian indication. Last week, after 2 years of dreadful returns, renowned value investor Julian Robertson closed shop. Over that time span, Robertson saw his Tiger Funds, which had substantial leveraged positions in the likes of XTRA (XTR), United Asset Management (UAM) and US Air (U) shrink in value from $23 billion in assets to $6 billion. Whether Robertson turns out to be the the ultimate contrarian value signal remains to be seen. Nevertheless, seeing how miserable last week was for equities, this week will likely be better. After all, there was a bunch of managers busily selling their losers last week in order to spruce up their end- of-quarter statements. These folks are now sitting on a horde of cash that needs to be put to work. Whether that money gets cycled into old or new economy stocks remains to be seen. One thing is for certain, though, after witnessing the brutal sell-off in speculative tech issues over the past few weeks, investor sentiment has definitely turned to high-quality growth. S.P. Brown Senior Writer ******* Ask OIN ******* When In Doubt, Get Out. By Ryan Nelson That was the theme for the week, and it left us on the sidelines for the most part. This market is really having a tough time making up it's mind relative to the direction it wants to go. Some bulls are trying to kick start these stocks ahead of what should be a fantastic earnings season, but the bears appear to have the upper hand when it comes to sentiment. The Nasdaq has been ailing and you would be hard pressed to find an analyst willing to back the case for higher prices. Where is Joe Battapaglia when you need him? (long time bull, for those of you who are new to the markets). The DJIA may be where the action is, but when will this index make a solid close over the 11,100 level? Not to mention, summer is around the corner and most money managers are already dusting off those suitcases in advance of their annual trip to Long Island. Here they will spend their time on the beach, not trading stocks. You have to wonder if some or most of this action is profit-taking ahead of the summer doldrums. Before we jump to the charts, let me say that we had a great time getting to meet everyone at the seminars this past week. It helps to put a face to all the correspondence we've had with you for the past year. And it allows us to better tailor our newsletter to your needs and trading styles. Thanks for the support and, on behalf of the entire staff, we look forward to seeing you at a seminar in your area soon or back in Denver next year. Also, we will have a full staff back in the office next week so send in more symbols as we will have time to analyze more plays. ---------------------------- Digital Microwave - DMIC I would appreciate your opinion on Digital Microwave Corporation (DMIC). Thanks... Glen Funny you should ask. We had this on our short list to add as a put play this weekend in the newsletter, but passed for a few reasons. We like the looks of the breakdown below $40 recently as the stock showed no strength as it fell. It has also continued to move lower on decent volume. The reason we left it off though is the wild swings it has seen the past few sessions. Down to $33, up to $38, down to $33, up to $37, down to $31, and back to $33. This is indicative of indecision among traders of where DMIC is headed. Therefore, I would not play it either way until it establishes a trend again. ---------------------------- Ariba - ARBA Please discuss Ariba. I keep thinking it has found a bottom and started a rally. Then as soon as I'm in, it goes down again. Thank you, Margaret Parks What an incredible run Ariba has had. In both directions too! I know how you feel, it is extremely difficult to decipher when a bottom has taken place. I usually look for that one massive capitulation day before buying. I must have thought it was on Friday because I went long after it cratered down to $180. This happened after Prudential downgraded most of the B2B sector, including ARBA. But as you can see on the charts, ARBA has support at $180. What impressed me the most was the quick rebound. In fact, it was so quick that I closed out my position later that day as I had already reached my goal for the play. Who knows, by Monday I could be kicking myself for not holding a bit longer. The B2Bs will likely comeback to the spot light, but when is a tough question. If you play this group with options, try to keep it to the quick plays. More consolidation may be in order for this sector. ---------------------------- Good Luck to all and don't forget to send in the symbols for any stock you want analyzed. Send those requests to Contact Support. Please put the symbol in the subject line of the e-mail. ---------------------------- DISCLAIMER: This column 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 Ask the Analyst 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 its accuracy. ************** Market Posture ************** As of Market Close - Friday, March 31, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,850 11,250 10,922 Neutral 3.16 SPX S&P 500 1,410 1,475 1,499 BULLISH 3.21 OEX S&P 100 780 800 815 BULLISH 3.21 RUT Russell 2000 510 530 539 BULLISH 2.24 NDX NASD 100 4,000 4,150 4,398 BULLISH 2.24 MSH High Tech 975 1,000 1,062 BULLISH 2.24 XCI Hardware 1,480 1,510 1,662 BULLISH 2.24 CWX Software 1,390 1,670 1,442 Neutral 3.21 SOX Semiconductor 1,130 1,360 1,182 Neutral 3.21 NWX Networking 1,000 1,190 1,056 Neutral 3.30 INX Internet 770 800 824 BULLISH 3.09 BIX Banking 520 600 575 Neutral 3.16 XBD Brokerage 450 480 537 BULLISH 2.31 IUX Insurance 520 600 590 Neutral 3.16 RLX Retail 900 1,000 954 Neutral 3.16 DRG Drug 330 380 347 Neutral 3.30 HCX Healthcare 680 750 700 Neutral 3.30 XAL Airline 130 150 145 Neutral 3.10 OIX Oil & Gas 265 300 293 Neutral 3.16 Posture Alert Friday's trading capped off a volatile month, as all indexes gyrated in a fashion that made bull and bears queasy. Sectors that outperformed Friday include the NASDAQ 100 (+3.47%), Airlines (+2.98%), and Banking (+2.71%). Sectors getting hit include Retail (-2.66%), and the Dow (-.53%). For the month of March, leaders include Airlines (+24%), Insurance (+23%), Brokerage (+19%), and Banking (+18.5%), There are no current changes in posture. ****************** Market Sentiment ****************** Sunday, April 2, 2000 Yahooooo! The month of March ended in volatile fashion, which was only the way is should have ended. The NASDAQ, which has gone through the 3rd, or is it the 4th correction this year, rebounded as mutual funds ended the quarter. Many thought that window dressing was prevalent this week, but with so many different stories to talk about, you can never know the true reason for weakness in technology shares. Here at Pinnacle, we thought there were numerous entry points reached on Thursday, as CNBC was touting every bearish statistic possible. Not only were they touting the bear statistics, but also they tried to get every bear to come on live television. This is usually the sign of a good entry point. Regardless, the month is over, and many of the leading sectors were locked in a trading range motion, while some beaten up sectors rebounded sharply. To truly have made money in March, you had to trade technology shares, as many whipped violently back and forth, or you had to be long some of the sectors listed below: Airlines +24% Insurance +23% Brokerage +19% Banking +18% Oil & Gas +16% Retail +14% S&P 100 +10% Now last week, there was only one real good sentiment stock to play. Not only was it the highest expectation stock last Sunday, but Pinnacle revisited it Tuesday before earnings, which showed the same expectation level. That stock was Cabletron Systems. It not only had the highest Pinnacle Index, but was also registering bullish figures off the charts. This was a good indication of a possible pullback. Well, we got it, as the stock fell from 51 to 28 in a matter of two days. The April 50 put was going for 3 ½ Monday, and traded around 22 on Thursday. Pretty good return for those of you who had played it! Anyway, the main earnings season is still several weeks away, but there are a few companies who are expected to report this week, including Yahoo. Hopefully, the sentiment, which happens to be the third piece to the puzzle (after fundamental and technical analysis), will help some of you! Below is a small list of equities (that should be reporting their earnings this next week) and our Pinnacle Index for those particular stocks. The Pinnacle Index is a proprietary product that determines current market sentiment and expectations for underlying equities and indexes, which is based upon speculation in the option markets. Also included are their expected earnings, the infamous whisper number (if available), and their estimated earnings release date. What we look for are liquid stocks/options that garner a lot of interest from the investment community. Most of the issues are high tech, and are thus more aggressive. We then filter out many of the equities, only to show stocks with excessive optimism or pessimism. From a contrarian standpoint (a high number is a good indication of extreme optimism, and a low number is a good indication of extreme pessimism) you should buy when its low, and sell when its high. Last quarter, we highlighted some stocks with a Pinnacle Index that were stratospheric (as high as the upper 20's). Needless to say, these stocks had so much pent-up enthusiasm, that after their earnings, they tanked. It is the old adage, buy the rumor - sell the news. There were also numerous companies with a Pinnacle Index less than one. However, once these companies came out with their bad quarter, the stocks rallied due to the oversupply of pessimism. If your favorite stock is not listed, the most common reasons are: 1) there are no options traded on the underlying equity 2) lack of interest by option speculators in the security 3) lack of quality information 4) company already pre-released 5) insufficient data. Also, as we get closer to the heart of earnings season, the list will expand dramatically to reflect companies whose earnings are due out shortly. Company Symbol Pinnacle Expected Whisper#: Estimated Index(PI): Earnings: Date*: Yahoo YHOO 2.55 +.09 +.11 4/5 Circuit City CC 2.42 +.78 +.79 4/6 Ask Jeeves ASKJ 0.95 -.74 -.70 4/3 Short Interest: 3/15 2/15 Yahoo 28,703,223 23,122,986 Circuit City 2,452,493 1,087,722 Ask Jeeves 1,284,903 1,284,073 Based on the above sentiment, Ask Jeeves would be considered a low expectation stock, with Yahoo and Circuit City both being average. However, considering the wide following of Yahoo, we do believe that this expectation level is low, and would not be surprised to see a rally. However, bullishness comes into significant play at the 200 level, so we would doubt that Yahoo will move above this benchmark. Have a good trading week. 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 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 (5.846): The current yield is in bullish territory. Volatility Index (27.21): 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. 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! 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 Benchmark (3/31) Overhead Resistance (830-860) 4.20 OEX Close 815.06 Underlying Support (800-825) 1.01 Underlying Support (770-795) 1.52 What the Pinnacle Index is telling us: Based on Friday's sentiment, overhead is still moderately heavy, while support is light. We would expect a trading range market leaning towards the bearish side. Put/Call Ratio Friday Strike/Contracts (3/31) CBOE Total P/C Ratio .48 CBOE Equity P/C Ratio .35 OEX P/C Ratio .79 Peak Open Interest (OEX) Friday Strike/Contracts (3/31) Puts 600 / 7,509 Calls 830 / 6,037 Put/Call Ratio 1.24 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 31, 2000 27.21 ************* COMING EVENTS ************* For the week of April 3, 2000 Monday Auto Sales Mar Forecast: 7.3 Previous: 7.6 Truck Sales Mar Forecast: 7.8 Previous: 8.4 NAPM Index Mar Forecast: 56.5% Previous: 56.9% Construction Spending Feb Forecast: 0.2% Previous: 2.7% Tuesday Leading Indicators Feb Forecast: -0.1% Previous: 0.3% Wednesday NAPM Services Mar Forecast: N/A Previous: 58.0% Thursday Initial Claims 04/01 Forecast: 270K Previous: 268K Wholesale Inventories Feb Forecast: 0.6% Previous: 0.7% Friday Nonfarm Payrolls Mar Forecast: 375K Previous: 43K Unemployment Rate Mar Forecast: 4.0% Previous: 4.1% Hourly Earnings Mar Forecast: 0.3% Previous: 0.3% Average Workweek Mar Forecast: 34.5 Previous: 34.5 Consumer Credit Feb Forecast: $10.0B Previous: $17.0B Week of 4/10 04/12 Export Prices ex-ag. 04/12 Import Prices ex-oil 04/13 Retail Sales 04/13 Retail Sales ex-auto 04/13 PPI 04/13 Core PPI 04/13 Initial Claims 04/14 CPI 04/14 Core CPI 04/14 Business Inventories 04/14 Industrial Production 04/14 Capacity Utilization 04/14 Michigan Sentiment ************* WOMAN'S WORLD ************* Bullish Call Spreads By: Mary Redmond Bullish call spreads can sometimes be a way to profit from an anticipated rise in a security without as much risk as the outright purchase of a call. It is generally best to follow the trading pattern of a particular stock before initiating a spread of any type. Once you have a good idea of the fundamentals of a company, the way the company responds to good and bad news in the market, and its key support and resistance points, you are in a better position to judge where the price will be on expiration date. For instance, if XYZ stock were 125 you could look at the 100 and 110 calls for the expiring month and one or two months ahead. The 100 calls would probably be more expensive than the 110 calls. If the 100 calls and the 110 calls were not yet 10 points apart in value there might be a possibility for a spread. To be more specific, assume XYZ is 125. If the May 100 calls were 35 and the May 110 calls were 30 there could be a potential spread. You could buy the 100 calls at 35 and sell the 110 calls at 30. If XYZ stayed above 110 by expiration the profit would equal the difference between the two strike prices, 10 points. Since you paid 5 points and made 5 points your profit would be 100%. The potential loss in this case is limited to the amount you paid for the spread or 5 points. If XYZ really tanked and closed below 100 on the expiration date you would lose 5 points. One of the difficulties of trading options is that the market makers often make it difficult to obtain optimal pricing, and in spreads it can really make a difference. I used a very simplistic example above (XYZ 100 calls at 35), but when you look at option quotes on Nasdaq stocks there is usually at least a point difference in options which are a month or more away from expiration, and sometimes as much as two points. A real life quote (as opposed to theoretical) for this would probably be something like XYZ 100 calls 35 bid 36 7/8 ask. I have found sometimes if I put in a bid 1/8 point below the ask on a Nasdaq option I will be filled, but sometimes it takes a few minutes. In certain circumstances you are at the mercy of the market makers. This is particularly pronounced when trading LEAPS as they are usually not as liquid as short term options. If you really want the thing right away you probably have to pay the ask. This is where the difference between New York Stock Exchange and Nasdaq exists as far as execution. Even now-a-days in the world of ECNs and giant market cap companies on the Nasdaq, I still think there is superior execution on the NYSE because you are dealing with specialists, not market makers. Specialists are required by the exchange to maintain an orderly market in their stock. This means they use their own judgement to open a stock if there is a severe imbalance between buy and sell orders, and constantly match buy and sell orders during the day. If you put in an order for a NYSE stock between the bid and ask you have a much better chance of execution than on the Nasdaq. In addition, the New York Stock Exchange is more heavily regulated than the Nasdaq markets. The NYSE sets trading stops and curbs if there is a severe sell off or imbalance. There are no trading curbs on the Nasdaq, it's essentially a free for all. There was a marked decrease in the amount of cash flows to equity funds this week as compared to the prior week. Trimtabs estimated that approximately 5.1 billion dollars went into equity funds this week, as opposed to 18.5 billion the prior week. AMG Data Services estimated that the cash flows were only 1.1 billion. No technical indicator is ever completely accurate, but periods of high cash flows to equity tech funds usually show a rise in the Nasdaq. ************ Spreads Are Boring-Unless You Leg In and Get Infinite Returns By Lynda Schuepp Trading spreads is like watching grass grow, unless the grass is growing at a foot a minute. I got paid $250 to make a potential of $40,000. Is anyone listening now? Two weeks is a long time to be gone, hope you all remember me. I just got back from Denver after a week of skiing at Vail with my family. I sent them home and stayed another week to attend the OIN Expo. I want to say Hi; to all the terrific people I met out there. Anyone who didn't attend the OIN Expo really missed out. Fortunately for you, there'll be another next year. My recommendation-don't miss it. It was the best seminar I ever attended. Now back to the topic of making infinite returns on spreads. First, I'd like to provide some insight into why investors choose spreads for a portion of their portfolio. I am asked, if you are bullish, why not just buy the call or sell the put. My answer is this: I love to buy calls and sell puts, just not on the major part of my portfolio. Let's say you are starting out with a portfolio of $30,000.00 and you understand the risks of option trading, you might be willing (not happily) to lose the entire amount. You also might have determined you would be willing to lose up to 10% on any one trade. With this kind of risk you should expect large returns. Let's say after 2 years you have grown your $30,000.00 into a million dollars (it has been done by some of our readers). Now I ask that same person, "Are you willing to still risk 10% or $100,000.00 in every trade you make?" The response typically is "No, I don't want to lose my million dollars." Enter stage left -"Spread Trading". Let me share with you a spread that I put on GE that might light a fire under you Spread Nay-Sayers. If I'm lazy or busy with life, I'll put on both legs of a spread at the same time. The risk and reward is easy to quantify and the expected returns are fairly predictable, assuming you buy enough time. I will use the example of a bull call spread, where you buy a lower priced strike and sell a higher priced strike. I personally like to buy the lower strike call "in-the-money" to avoid paying a lot of money for time-value and sell the higher strike call "out-of- the-money" to obtain a nice wide spread, which is the maximum profit (less the cost to get in). I particularly like to do this with leaps. There are two things I particularly like about leap spreads. First, you have a lot of time to be right and secondly, the volatility or "sleep at night indicator" is considerably less because of all that time value. Time Value decays exponentially in the last 30 days and particularly in the last week. Most people say leaps are too expensive. For example, my long leg on GE cost me 29-3/4! That was almost $30,000 on ten contracts. I purchased the Jan02 140 calls at 29-3/4 on March 15th. I had been watching GE since the beginning of the year. At the end of January, after a descent from about 160 to 135, GE formed a doji candlestick. This is a very popular trend- reversal sign but I never trust doji's at bottoms, as they are much less reliable than at a tops. I always wait for confirmation. If the doji is at a bottom I wait for major confirmation. I didn't get that major confirmation until the middle of March. This is where patience pays off. Because I was planning to buy the leap with a longer time horizon, I decided to wait until the faster moving average (10 day) crossed back up above the 50 day. On March 15th, one of my favorite Japanese Candlesticks patterns emerged (A Bullish Engulfing Pattern) which engulfed 5 days! This pattern has always proven to be a very strong one particularly, when it engulfs 3 or more days. With three of my favorite indicators all positive (candles, volume, moving average cross- over), I bought the Jan02 140 calls near the close of the day at the high. Because of the strong indications that a reversal was in play, I decided to wait before writing the short OTM call until GE hit resistance. The first level of resistance was at about 155 set back on January 13th, and the second was 160 set on December 27th. Six days later GE blew past the first level of resistance of 155 and closed at 160, the second level of resistance! After a Tower Top Candlestick pattern, fear and greed come in and battle it out. Because I'm not the only person who realizes 160 is a key resistance level, I decided to wait it out and see if the bulls or the bears would win. If GE moved down below 155 (support) I would lock in my profits. GE moved up to a high of 164 7/8 (a new high) on very big volume. The next two days the bears won and GE moved down to the first level of support (155). After it's nosebleed ascent, I thought I was pushing it (fear entering) so I decided to lock in my profits and write the Jan02 180 call in case GE continued lower. I could have written the April 160 calls for about 3 1/4 but the JAN02 180 calls were trading at about 30. At that price, my basis would be negative. I would actually cover my cost (29-3/4) and take home $250, free and clear. My maximum profit potential would be $40,000 or the spread itself (40 points) times my 10 contracts. I'll probably wake up Monday and find GE gap open above 160, but you know what? I don't care. This is a sweet deal, and now I can spend my time finding more exciting short-term plays. Here's where I need you to help me out, because I'm having trouble with the math. If the spread cost me nothing, my return would be infinite but because I actually got paid $250 for putting on the spread, and I have no further risk, how would I calculate this rate of return? *************** TRADERS CORNER *************** Friday March 31, 2000 AM - Too darn early Harrison Frolick Well, howdy sports fans. Run out of expletives for the market yet? Should have a slight bounce today. Got up early and decided to do some catching up on reading. I have been really busy with my other businesses as of late and believe it or not, was not able to look at any of my portfolios since Monday. Oye, not as bad as I thought. Anyone else get any margin calls? While the market is a concern, what I am most concerned about is our illustrious Federal Government and there interpolation of the numbers from the economy. In all my years of study of Capitalism, I have never seen as large of a disconnect from the Feds view and what is actually going on as is occurring now. Lets look at some of the facts and I am going for the short version here as the whole thing is not as complicated as most would like to make it. The economy is growing far faster than the Feds would like. Mind you, that the number that they would like is completely arbitrary. Lets face it, the economy has been on a tear since the tax reductions of the early 80's kicked in and there has been virtually no inflation. Zippo nada, unless we include tobacco which is a non-starter anyway and the artificially controlled price of oil. This is in spite of what the boneheads in Washington have done, not because of it. While the Feds have played lip service to understanding the new "Paradigm" in the economy, their recent actions prove that they do not have a clue. As an investor, you need to be aware of this as they could screw up your plans royally for a very nice retirement in short order. Most of you very bright option investors already have a pretty good handle on the reason why the economy has done what it has done, which is why you are reading this instead of the Wall Street whatever and getting your fingers black. It is the computer! Moore's law is responsible for the current economy, not anyone in the Federal Government. Just to jog your memory, Moore's Law states that the available computers will double in speed every 18 months. That is a 100 percent improvement compounded mind you, every 18 months. This has been going on since 1946 or so. Take a look at these sites if you want to see a graph and learn Moore (how often will I get a chance to make a pun like that), www.tolearn.net/marketing/moores_law.htm. and also http://riccistreet.net/gizmos/toolkit/moore.htm. Here is a great example of Moore's Law in action. If a digital cell-phone was made with vacuum tubes instead of transistors, it would occupy a building larger than the Washington Monument. Try putting that in your pocket! (Thanks to Doug Anderson for the info and the sites!) If you go to the site as Doug says, the numbers are so big and small that he can only chuckle. I would have to agree with him! What is not funny is the Feds inability to grasp the situation. My problem is that is that these guys are supposed to be smart, and have the average citizens best interest at heart, but I fear that they are truly catering to a very, very select few special interests or they don't get it. Either scenario is truly scary. What is the big deal about Moore's Law? It means that any process involving a computer (name one that doesn't), is improving at a 100% clip every 18 months compounded. I admit not all of this is translated directly into monetary improvements but, one heck of a lot of it is. So the next time you check your email, just remember that only 20 years ago it would have taken about 15 people and millions of dollars of computing power and several hours to do what you just did in 30 seconds for about .001 of a cent. Now here is the tough one! Try and figure out why the Feds can't figure out the impact of Moore's Law on the economy on their own? Let me know will you? 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The Option Investor Newsletter 4-2-2000 Sunday 2 of 4 LAST WEEKS CHANGE FOR THIS WEEKS PICKS: *************************************** Daily Results Index Last Week Dow 10921.92 -190.80 Nasdaq 4572.89 -390.04 $OEX 815.06 -17.59 $SPX 1498.58 -28.88 $RUT 539.09 -34.93 $TRAN 2763.24 75.09 $VIX 27.21 1.40 Calls Week BBY 86.00 8.06 New, the answer is in the earnings LGTO 44.63 7.63 New, swimming upstream against market KSS 102.50 5.94 Beating earnings and their peers QCOM 149.31 3.31 Settlement with Motorola is official PCS 65.50 1.00 Another all-time high on Friday NOK 222.00 0.25 4:1 split coming ex-div on the 10th MFNX 96.75 -1.31 Nice recovery, now time for split run BAC 52.44 -2.19 Holding well versus market and sector T 56.31 -2.44 Drifting lower, but IPO later this month IBM 118.00 -3.50 Will Big Blue lead the DJIA higher?? AOL 67.44 -3.56 Entry point for the earnings run INTC 131.94 -7.13 IRS coughs up $600 gain for Intel SEG 62.50 -8.50 New, VRTS deal offers new angles SCH 56.81 -8.69 Dropped, broke the current uptrend GMST 86.00 -8.75 New, entry at $80 was a gift HWP 132.88 -9.50 Late day sell-off offers entry points INKT 195.00 -21.81 New, infrastructure play YHOO 171.38 -22.63 Close up ahead of earnings EXDS 140.50 -32.81 Time for a recovery this week CHKP 171.06 -47.44 Added to Goldman's recommended list EBAY 176.00 -67.75 Dropped, bad news prevents opening plays Puts ISLD 60.94 -15.06 Dropped, time to take profits IIJI 69.75 -12.25 New, Mark Mobius comments still hurting AT 63.25 -4.69 Rollover from resistance has begun PSIX 34.03 -3.75 Be careful of a bottom forming at $33 GTW 52.97 -3.22 Investors fear earnings and revenues CPQ 27.00 -1.94 Lifetime put candidate status STOCKS ADDED TO THE PICK LIST ***************************** Calls INKT - Inktomi LGTO - Legato Systems Inc GMST - Gemstar International SEG - Seagate Technology, Inc BBY - Best Buy Co. Inc Puts IIJI - Internet Initiative Japan Inc *************************** PICKS WE DROPPED THIS WEEK *************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS EBAY $176.00 -31.13 (-69.01) We said yesterday to watch for momentum to carry EBAY higher into Friday. Well, momentum didn't carry through as the stock gapped down this morning by $7, amid a Department of Justice auction probe. The investigation is not about EBAY, it is about Butterfield & Butterfield, a fine art auction house acquired by EBAY last year. The Justice Department last week subpoenaed documents related to a price-fixing scheme, in an investigation that began in 1997. After the gap down this morning EBAY moved sharply lower on heavy volume and closed near its day low. More bad news broke late Friday as the Wall Street Journal reported that merger talks between Yahoo and EBAY had ended. The Journal reported that the two companies were close to reaching an agreement but could not finalize the details. In light of the federal investigation and merger talks ending, EBAY dropped 15%, and no one should have entered this play. SCH $56.81 -2.19 (-7.63) Our SCH play broke down today as the stock fell through its crucial $59 support level. SCH traded lower in spite of several positive announcements Friday. The company announced today that it had partnered with Dow Jones (DJ) to offer financial news in China. Also on Friday, Bear Sterns raised the 12-month price target on Schwab to $80 from $65. The good news didn't provide any relief to SCH as the stock fell along with the weakness in the e-finance sector. The broader finance sector showed solid gains today while the online brokers were down. SCH dropped below its 10-dma today, which has proved to be a point of support during the recent run. In light of the breakdown today, and continued weakness in the e-finance stocks we have decided its time to exit our SCH play. PUTS ISLD $60.94 (-15.06) We've had fun bobbing in the stormy NASDAQ seas with ISLD, managing to ride it from a crest near $82 to a trough below $55. Buffeted by the NASDAQ this week, ISLD has had 7 consecutive down days and, if it's pattern holds true, is due to bounce. Not only that, but it is sitting on major support at $60, and if the NASDAQ recovers next week, ISLD will likely go along for the ride. For now, we'll drop ISLD in favor of better plays. STOCK SPLIT CANDIDATES *********************** Current split candidates YHOO - Yahoo! INTC - Intel Corp. HWP - Hewlett Packard QCOM - QualComm INKT - InkTomi CHKP - CheckPoint Software Split candidates that aren't current plays TXN - Texas Instruments EMC - EMC Corp. PHCM - Phone.com FDRY - Foundry Networks STOCKS WITH UPCOMING SPLITS **************************** We don't list all splits available, only those we feel may have play possibilities. Symbol - Stock Splits/Date CMVT - Comverse Tech 2:1 04-03-00 ex-date 04-04 ENGA - Engage Tech 2:1 04-03-00 ex-date 04-04 ASGN - On Assignment 2:1 04-03-00 ex-date 04-04 RDBK - Redback Networks 2:1 04-03-00 ex-date 04-04 ADRX - AndrxCorp 2:1 04-03-00 ex-date 04-04 GRDN - Guardian Tech 2:1 04-03-00 ex-date 04-04 NYFX - NYFIX Inc 3:2 04-04-00 ex-date 04-05 CTCI - CT Comm 2:1 04-05-00 ex-date 04-06 VITR - Vitria Tech 2:1 04-05-00 ex-date 04-06 NAVI - NaviSite 2:1 04-05-00 ex-date 04-06 UTCI - Uniroyal Tech 2:1 04-05-00 ex-date 04-06 SBL - Symbol Tech 3:2 04-05-00 ex-date 04-06 ABGX - Abgenix 2:1 04-06-00 ex-date 04-07 RIMG - Rimage Corp 3:2 04-07-00 ex-date 04-10 PWR - Quanta Services 3:2 04-07-00 ex-date 04-10 LINK - Interlink Elec 3:2 04-07-00 ex-date 04-10 WDR - Waddell & Reed 3:2 04-07-00 ex-date 04-10 HDI - Harley Davidson 2:1 04-07-00 ex-date 04-10 DLK - Datalink.net 2:1 04-10-00 ex-date 04-11 CELG - Celgene Corp 3:1 04-11-00 ex-date 04-12 MKTY - Mechanical Tech 3:1 04-12-00 ex-date 04-13 FNSR - Finisar Corp 3:1 04-12-00 ex-date 04-13 VIGN - Vignette Corp 3:1 04-13-00 ex-date 04-14 MFNX - Metromedia Fiber 2:1 04-17-00 ex-date 04-18 MLNM - Millenium Pharm 2:1 04-18-00 ex-date 04-19 CMRC - Commerce One 2:1 04-19-00 ex-date 04-20 AHAA - Alpha Industries 2:1 04-19-00 ex-date 04-20 CLAC - ClickAction Inc 2:1 04-20-00 ex-date 04-24 ELNT - Elantec Semi 2:1 04-21-00 ex-date 04-24 KSS - Kohls Corp 2:1 04-24-00 ex-date 04-25 MCLD - McLeodUSA 3:1 04-24-00 ex-date 04-25 APH - Amphenol Corp 2:1 04-25-00 ex-date 04-26 HH - Hooper Holmes 2:1 04-26-00 ex-date 04-27 GE - General Elec 3:1 04-26-00 shareholder mtg SFO - Sonic Foundry 2:1 04-28-00 ex-date 05-01 MU - Micron Tech 2:1 05-01-00 ex-date 05-02 BALT - Baltimore Tech 5:1 05-10-00 ex-date 05-11 CYSV - Cysive Inc 2:1 05-08-00 ex-date 05-09 AXP - American Exprs 3:1 05-10-00 ex-date 05-11 ALKS - Alkermes 2:1 05-12-00 ex-date 05-15 SIVB - Silicon Valley 2:1 05-15-00 ex-date 05-16 CMOS - Credence Systems 2:1 05-17-00 ex-date 05-18 SNE - Sony Corp 2:1 05-19-00 ex-date 05-22 CXR - Cox Radio 3:1 05-19-00 ex-date 05-22 MSA - Mine Safety App. 3:1 05-24-00 ex-date 05-25 AEG - AEGON N.V. 2:1 05-30-00 ex-date 05-31 MOT - Motorola 3:1 06-01-00 ex-date 06-02 MEDI - Medimmune 3:1 06-02-00 ex-date 06-05 NXTL - Nextel Comm 2:1 06-06-00 ex-date 06-07 CMB - Chase Manhattan 3:2 06-09-00 ex-date 06-12 ANEN - Anaren Micro 3:2 06-09-00 ex-date 06-12 AA - Alcoa 2:1 06-09-00 ex-date 06-12 RMBS - Rambus 4:1 06-14-00 ex-date 06-15 NXLK - Nextlink 2:1 06-15-00 ex-date 06-16 EXDS - Exodus Comm 2:1 06-20-00 ex-date 06-21 For a complete list of all the coming splits check out the "split calendar" on the side of the online edition newsletter page. ******************** THE PLAYS OF THE DAY ******************** With all the great plays each week we can never decide on just one so take your pick. Call plays of the day: ********************** MFNX - Metromedia Fiber Network $96.75 (-1.25)(+10.00) See details in sector list Chart = /charts/charts.asp?symbol=MFNX **** AOL - America Online Inc. $67.44 (-3.56)(+6.63)(+5.63) See details in sector list Chart = /charts/charts.asp?symbol=AOL Put play of the day: ******************** CPQ - Compaq Computer Corp. $26.75 (-1.94)(-1.56)(-0.75) See details in put list Chart = /charts/charts.asp?symbol=CPQ ************* DEFINITIONS ************* SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. TP/P= True premium or Time premium RRR = Risk/Reward/Ratio ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume MTD = Move to double - amount stock must move to double option price in one week. ONE WEEK MOVE ONLY ! Numbers within ( ) are the amount of change for the week. Numbers within ( ) may be designated with PxW, like P3W, prior 3 weeks The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. *********** CALLS PLAYS *********** Hardware *********** SEG - Seagate Technology, Inc. $62.50 (-8.50) Seagate is a leading provider of technologies and products that enable people to store, access, and manage information. Seagate is the world's largest manufacturer of disk drives. The company sells its products mainly to manufacturers such as Compaq. Seagate continues to drive new solutions for the enterprise and Internet markets, where the demand for storage is ever increasing. The company continues to expand through investment and acquisition. Through investment activities Seagate has acquired 128 mln shares of VERITAS Software (VRTS). Traders have been using SEG as a cheaper way to play VRTS. After the announcement last week, traders will be watching SEG and VRTS even closer. Seagate, VERITAS Software, and an investor group led by Silver Lake Partners announced a $20 bln transaction on Wednesday. In the deal, VERITAS Software will acquire all of the VRTS shares currently held by Seagate. The investor group will then acquire the Seagate operating business for cash. Essentially, VERITAS is buying Seagate and turning them private. SEG stockholders will receive 0.467 shares of VRTS common stock and $5 cash for each share of SEG stock. Seagate executives have expressed frustration with the lagging price of the stock. They see the deal as a way to unlock shareholder value. During a difficult time for disk-drive makers, SEG is attempting to grow their core business with this large cash infusion. Analysts feel this is a win/win situation for both SEG and VRTS shareholders. Analysts say that VRTS should be a core holding as a result of its strength in management, growth potential and enhanced market position through the transaction. The deal gives SEG shares a value of $77.50, a significant premium over the closing price on Friday. What's interesting is that the deal is not affected by any subsequent moves in the stock prices due to the structure of the agreement. VRTS took a hit last week with the rest of the tech sector and dragged SEG down with it. Once the arbitrageurs are done selling VRTS and the tech sector regains footing, SEG could move much higher. We're looking for VRTS to turnaround and carry SEG higher. Watch the action in VRTS before entering into the play, look for SEG to bounce off support at $60 and confirm with direction in VRTS. Good news for VRTS is good news for SEG. Salomon Smith Barney upgraded VERITAS to a Buy from Outperform on Thursday. The brokerage house maintained its $200 price target on VRTS. Also of note, VRTS was added to the S&P 500 last week. With all the portfolio rebalancing taking place last week, some big institutions may begin adding VRTS. BUY CALL APR-60*SEG-DL OI=3403 at $6.00 SL=4.00 BUY CALL APR-65 SEG-DM OI=3403 at $3.88 SL=2.00 BUY CALL APR-70 SEG-DN OI=4306 at $2.75 SL=1.25 BUY CALL MAY-65 SEG-EM OI= 150 at $6.25 SL=4.25 Picked on April 2nd at $62.50 P/E = 15 Change since picked +0.00 52-week high=$75.44 Analysts Ratings 4-6-4-0-0 52-week low =$25.13 Last earnings 10/99 est=0.09 actual=0.14 Next earnings 04-13 est=0.13 versus=0.49 Average Daily Volume = 2.68 mln /charts/charts.asp?symbol=SEG **** IBM - Int'l Business Machines $118.00 (-3.50)(+11.50) IBM is the world's leading provider of computer hardware with products ranging from PCs and notebooks to mainframes and network servers. "Big Blue" also makes computer software and stands only behind the giant, Microsoft (MSFT) in ranking. Currently IBM is expanding its technology focus to include the vast opportunities of Internet business. The abundant reports of new alliances and products coupled with a strong earnings' outlook is sustaining IBM's uptrend. The stock's price level is currently the highest it's been since September 1999. This in itself is bringing IBM attention. The news on Monday that IBM signed a seven-year pact with Qwest Communications International to jointly build 28 new Internet date centers for Web management drove up the share price by 5.8%. Plus MSDW's upgrade to an Outperform from Neutral and a $140 price target gave it a boost. There were also other positive events to keep IBM on track this week (see update below), but the massive tech-shedding hindered its progress. But we've still got earnings coming up in a couple weeks. IBM is tentatively reporting around April 18th (to be confirmed) and the whispers are positive suggesting the company will easily beat the Street's estimate. As it turned out, the $118 and $122 range established as near-term support. The first challenge is for IBM to tackle $124 and $125 then make a valiant charge for $130 again. This move would provide definitive confirmation. Also at center stage this week was news that IBM found a way to make a mainframe act like hundreds of smaller computer servers. This is leading-edge technology will cut into Sun Microsystems' sales since many companies that use IBM mainframes often turn to SUNW for the server end of the business. IBM announced too a product alliance with Microsoft to sell a lower-cost appliance server. For Microsoft, this product launch marks its debut into a market that is expected to have cumulative revenues of $30+ bln by the end of 2004. BUY CALL APR-115*IBM-DC OI=10404 at $7.88 SL=5.75 BUY CALL APR-120 IBM-DD OI=22860 at $5.25 SL=3.25 BUY CALL APR-125 IBM-DE OI=14522 at $3.25 SL=1.50 BUY CALL MAY-120 IBM-ED OI= 4762 at $8.00 SL=5.75 BUY CALL MAY-125 IBM-EE OI= 1441 at $5.88 SL=4.00 Picked on March 21st at $113.50 P/E = 29 Change since picked +4.50 52-week high=$139.19 Analysts Ratings 12-11-3-0-0 52-week low =$ 81.50 Last earnings 12/99 est= 1.06 actual= 1.12 Next earnings 04-18 est= 0.78 versus= 0.78 Average Daily Volume = 7.64 mln /charts/charts.asp?symbol=IBM **** HWP - Hewlett Packard $132.88 (-9.50)(+4.38)(-8.94) As the #2 computer company worldwide, HWP provides computers, imaging and printing peripherals, software, and computer-related services. Taking full advantage of the tremendous international growth, more than half of the company's sales come from outside the U.S. HWP is in the process of restructuring itself as an Internet specialist, providing Web hardware, software, and support to corporate customers. In pursuit of that goal, the company recently spun off its test and measurement and medical electronics businesses as Agilent Technologies (A). Continuing to fight an uphill battle all week, HWP finally managed to find support Thursday at the $130 level. The third bounce at this level seems to have done the trick, as buyers got the upper hand for most of the day on Friday. Moving as high as $137.50 on average volume, fear of darkness set in near the end of the day, dragging HWP back down below $133 at the close. Earnings season should start to lend some support to the sector this week, although HWP doesn't report until mid-May. Comments from the company two weeks ago that revenues and earnings should be strong, seem to have fallen on deaf ears. With the triple onslaught this week of bearish comments from Abby Joseph Cohen and Mark Mobius, followed by the announcement that Tiger Management would be closing down its family of funds, it's a wonder the damage wasn't worse. If HWP can get some momentum going and close above the $140 resistance level, we'll be back in that much-ballyhooed split territory again, giving investors one more reason to buy. An additional bounce near the $130 support level would provide for an attractive entry, although more conservative players may want to wait for prices to move through $140 as an indication that the move is for real. On Friday, HWP stated that it expects its China personal computer revenues to grow 30% this year, spurred by the prospect of China's entry into the WTO and the continued Internet boom. In the news on Thursday, HWP steamrolled Compaq in February retail PC sales, grabbing 42.3 percent of the market. Climbing from 35.4 percent in January, this is yet another black eye for poor Compaq and yet another area where HWP can shine. BUY CALL APR-130 HWP-DF OI= 447 at $ 8.88 SL=6.25 BUY CALL APR-135*HWP-DG OI= 647 at $ 6.25 SL=4.25 BUY CALL APR-140 HWP-DH OI=2463 at $ 4.13 SL=2.50 BUY CALL MAY-135 HWP-EG OI= 219 at $10.88 SL=8.00 BUY CALL MAY-140 HWP-EH OI=1000 at $ 8.88 SL=6.25 SELL PUT APR-125 HWP-PE OI= 691 at $ 3.50 SL=5.50 (See risks of selling puts in play legend) Picked on Mar 16th at $133.00 P/E = 45 Change since picked -0.12 52-week high=$155.50 Analysts Ratings 10-12-7-0-0 52-week low =$ 65.13 Last earnings 02/00 est= 0.77 actual= 0.80 Next earnings 05-17 est= 0.82 versus= 0.88 Average Daily Volume = 3.73 mln /charts/charts.asp?symbol=HWP ************* SEMICONDUCTOR ************* INTC - Intel Corporation $131.94 (-7.13)(+9.19) 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. Well, it was probably the most volatile week ever for the NASDAQ and INTC saw a lot of price swings. These swings offered good opportunities to enter into call positions but given the overall market outlook at those times, fear sometimes got the best of us. You ask yourself, "How low can it go?" and begin to second guess yourself and you get gun-shy. These are the perils of being a trader. Can you pull the trigger when fear and opportunity butt heads? INTC traded as low as $123.06 on Thursday only to bounce back strongly to close at $127. That low was screaming, "Pull the trigger!" And then on top of this rebound with heavy volume, the IRS announced after the close that INTC will receive a windfall of $600 mln from taxes that it paid and did not owe. The proceeds of $0.17 per share will be credited to this quarter's earnings due out April 18th. Technically, things did get a little scary with the NASDAQ sell-off. Thursday's heavy selling got the best of INTC as it accelerated toward $120. Support is solid at $120 but fortunately, INTC never tested it. Friday was much more positive as INTC traded above $130 for most of the day. Looking forward, INTC will run into resistance at $135 and should find support at $130 and below that, $128.25. Hopefully next week will be a more normal trading week as the second quarter gets underway. Monday will be a day to assess the direction for the rest of the week. Earnings season will be in full swing and investors will be concentrating on picking the winners. INTC has potential to be one of them. Watch for the overall market direction and how INTC is positioned. Choose entry points that are suited to your risk levels and keep in mind key technical levels. BUY CALL APR-130 INQ-DF OI=16784 at $8.88 SL=6.75 BUY CALL APR-135*INQ-DG OI=12909 at $6.50 SL=4.75 BUY CALL APR-140 INQ-DH OI=18722 at $4.50 SL=2.75 BUY CALL MAY-140 INQ-EH OI= 3995 at $7.88 SL=6.00 Picked on Mar 19th at $129.88 P/E = 62 Change since picked +2.06 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 04-18 est= 0.68 versus= 0.57 Average Daily Volume = 26.03 mln /charts/charts.asp?symbol=INTC ******** Internet ******** EXDS - Exodus Communications $140.50 (-32.81)(+22.06)(-5.75) Exodus provides Internet system and network management solutions for companies with mission-critical Internet operations. The company offers sophisticated systems along with technology professional services to provide optimal performance for customers' Web sites. Exodus has a long list of customers, including: EBAY, YHOO, SUNW, and AMAT. The company continues to expand its business through acquisitions and expansion overseas. EXDS operates global data centers in Tokyo, London, and Frankfurt. Whew, what a week. The end-of-the-quarter window dressing we talked about last week turned into a window washing. The influential Internet analyst Henry Blodget released a report on Friday that may have indirectly put pressure on EXDS. Blodget warned investors to avoid stocks that are losing market share, particularly those in the business-to-consumer space. The analyst went on to say that the infrastructure and business-to- business sectors remain attractive including EXDS which is one of Blodget's core holdings in the Merrill Lynch Internet portfolio. Some traders are still mulling over the announcement last week that IBM and Qwest will join forces to run 28 Web hosting centers. Citing that Exodus will face intensified competition in the next few years. Another source of bad news Friday was in the comments made by famed PaineWebber analyst Ed Kerschner. He said in a report that some investors are indiscriminately using new measures to justify the valuations of the high-flying tech stocks. According to Kerschner, some of the "new economy" stocks could fall an additional 50%. With all the negative comments surrounding the tech sector and bearish predictions coming from analysts, we're sitting tight with EXDS for several reasons. The end-of-quarter portfolio re-balancing that was so detrimental last week may prove to be a positive after all. After locking in some big gains for the quarter, some traders feel that money managers might move back into the tech names that have led the markets higher. Another reason that EXDS remains attractive is due to the upcoming earnings season, which many analysts believe to be spectacular. EXDS is now positioned above a major support level of $136. From here, aggressive traders may look to enter the play as the stock bounces off support while conservative traders might wait for EXDS to regain momentum and move above $150. We'll be watching EXDS closely this week as the Internet blue chip Yahoo will be reporting earnings. YHOO has the propensity of carrying Net stocks higher. We expect traders to anticipate good numbers from YHOO and provide a lift to the Net sector. BUY CALL APR-140*QED-DH OI= 686 at $13.50 SL=10.00 BUY CALL APR-145 QED-DI OI= 389 at $11.38 SL= 8.50 BUY CALL APR-150 OED-DJ OI=2260 at $ 9.25 SL= 6.50 BUY CALL MAY-150 OED-EJ OI= 301 at $17.13 SL=12.25 Picked on Mar 19th at $151.25 P/E = N/A Change since picked -10.75 52-week high=$179.63 Analysts Ratings 18-11-0-0-0 52-week low =$ 12.13 Last earnings 10/99 est=-0.21 actual=-0.25 Next earnings 04-21 est=-0.24 versus=-0.14 Average Daily Volume = 5.23 mln /charts/charts.asp?symbol=EXDS **** MFNX - Metromedia Fiber Network $96.75 (-1.25)(+10.00) Metromedia Fiber Network is leading the revolution unleashing the power of fiber optics in major metropolitan areas by delivering the next generation of broadband optical networks to carriers, ISPs, content providers and enterprise users. With extensive fiber optic networks, MFNX is changing the way people think about bandwidth, enabling the explosive growth of data communications and the Internet. No news appears to be good news for our play in MFNX as the stock bolted back above its 10-dma on Friday back into the ascending channel that has carried the stock higher. The stock regained lost ground on healthy volume too. We're looking for MFNX to regain momentum after Friday's good showing. We would like to see a move back above the ever-important $100 level. If the NASDAQ can follow through from Friday's impressive rally, we could see MFNX really pick-up speed. We're now about two weeks away from MFNX splitting 2-for-1. The Board of Directors announced a split back on March 2nd, making it payable on April 17th. Traders should start focusing on the split within the next few weeks and carry shares of MFNX higher. A split-run generally starts between a week and two weeks before the actual pay-date. Although the pay-date is still a few weeks away, we could very well see traders regain interest in MFNX as we approach that date. For the aggressive trader, you might look for MFNX to bounce off weak support at $90 for entry into the play. While traders looking for less risk might want to wait for MFNX to climb back above $100 before buying any calls. On the downside, should MFNX breakdown the stock has minor support at $90, and major support at the $85 level. Many of the telecom stocks were up Friday, which helped MFNX to move higher. WCOM and SBC both made substantial gains Friday as traders moved money back into the sector. MFNX also benefited from the announcement from AT&T of a $1.4 bln investment in the Internet telephone service provider Net2Phone (NTOP). BUY CALL APR- 95*QFN-DS OI= 510 at $ 9.63 SL=6.50 BUY CALL APR-100 QFN-DT OI=1099 at $ 7.38 SL=5.25 BUY CALL APR-105 QFN-DA OI= 146 at $ 5.63 SL=3.50 BUY CALL MAY-10O QFN-ET OI= 760 at $12.00 SL=9.00 Picked on Mar 26th at $98.06 P/E = N/A Change since picked -1.31 52-week high=$103.75 Analysts Ratings 3-2-0-0-0 52-week low =$ 21.13 Last earnings 03/00 est=-0.28 actual=-0.28 Next earnings 05-00 est=-0.52 versus=-0.03 Average Daily Volume = 2.42 mln /charts/charts.asp?symbol=MFNX **** AOL - America Online Inc. $67.44 (-3.56)(+6.63)(+5.63) Founded in 1985 America Online says they are the world's leader in interactive services, Web brands, Internet technologies and e-commerce services. They operate two world-wide Internet services AOL, with more than 21 million members and CompuServe with more than 2.5 million members. Through its strategic alliance with Sun Microsystems, the company develops and offers business operating in the Net Economy easy to deploy, end-to-end e-commerce and enterprise solutions under the alliance iPlanet brand. Their other leading Internet brands include ICQ, AOL Instant Messenger, Digital City and the Netscape Netcenter. Last week we thanked our editors and staff for providing us with such a great play. This week, we look to Abby Joseph Cohen for credit. The Goldman Sachs investment strategist started the ball rolling on Tuesday, with her headline announcement concerning a suggested re-allocation of assets in investors portfolios. If you entered this play at the high of the day and week at $74.63, late Monday, you probably aren't pleased with Abby's comments. However if you've been with us from the start, in our play on AOL, we've had numerous opportunities' to jump on board. Cohen's comments triggered selling in the Tech issues at Nasdaq. The subsequent snowball effect hopefully forced traders with established long positions to take some money off the table somewhere along the lines. Again, proof that the use of a well placed trailing stop is always prudent. The damage for the week came in just over 15%, as buyers stepped in late Thursday, when AOL hit the $63 level. Buying bounces off support, normally produces favorable results, but with overall investor sentiment so negative this week, any attempts to do so proved to be futile. Investors continued to buy shares of AOL on Friday, bidding the price back up to $68.38. The obvious question that now comes to mind is, will there be more selling next week? Perhaps, but the the volume as AOL bounced of $63, was stronger than it was going down, which leads us to believe AOL is be setting up to continue higher. As we said in a previous update, the selling was not caused by an earnings warning or bad news in AOL itself, it was a change in market sentiment or sector rotation. If Friday's rotation back into Internet and tech issues continues next week, we will be back in the drivers seat. If not, it could be another long week. Technical support for AOL, is found at $66, $64 and $63. Check the pulse of the Nasdaq and the Internet index prior to entering a new position. On Friday, a consortium led by AT&T, agreed to buy 39% of IDT Corp's, Net2Phone's voting stock for $1.4 billion. IDT's CEO, Howard Jonas said in an interview, that AOL had also agreed in principle to boost its stake in Net2Phone to 7%, from 5%. IDT is an international long-distance company, and heavily involved in the Internet-telephone market. BUY CALL APR-60 AOO-DL OI=61799 at $8.88 SL=6.75 BUY CALL APR-65*AOO-DM OI=61115 at $5.38 SL=3.50 BUY CALL APR-70 AOO-DN OI=50589 at $2.94 SL=1.50 BUY CALL MAY-65 AOO-EM OI= 4146 at $7.38 SL=5.75 BUY CALL MAY-70 AOO-EN OI= 7174 at $5.00 SL=3.25 SELL PUT APR-65 AOO-PM OI=31887 at $2.50 SL=4.00 (See risks of selling puts in play legend) Picked on Mar 19th at $64.38 PE = 165 Change since picked +3.06 52-week high=$95.81 Analysts Ratings 24-13-3-0-0 52-week low =$38.47 Last earnings 01/00 est= 0.08 actual= 0.09 Next earnings 04-18 est= 0.09 versus= 0.05 Average daily volume = 27.5 mln /charts/charts.asp?symbol=AOL **** YHOO - Yahoo! Inc $171.38 (-22.63)(+22.87)(-6.94)(P4W +6.72) Yahoo! Inc is a global Internet media company that offers an online guide to web navigation, a branded network of comprehensive information, communication services, and shopping access to millions of users daily. Over 32 mln users visit the Web site each month. Yahoo! operates in the black with the bulk of its revenues derived from advertisements commissioned by its list of about 3800 clients. This week investors were just vicious when it came to the Internets and it all started with Abby Joseph Cohen admonition of the equity markets. The momentum built from there. YHOO faired well at first with a push above $205 on Monday and strength near the 5-dma on Tuesday. But no tech stock was to be excused from the carnage that came forth on the Nasdaq. Besides the dissolving market, the announcement on Thursday that the FTC was inquiring into Yahoo!'s consumer information practices to determine if they comply with consumer protection laws sent shares into a downward spiral. 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 either. But this powerhouse was the first to snap back in late afternoon trading as buyers came in off the sidelines. YHOO recaptured $9.06 from a daily low of $160.25 on very respectable volume levels. Friday's volume was intensified and there was a wide spread of 17+ points with upward bounces off the $160 mark to play. However time is shutting the door on us. We're now entering the tail end of the earnings' play with just three days until the company reports. Yahoo! is announcing on April 5th, after the bell. So if you have any open call positions, remember it'd wise to get out before the end of trading on Wednesday. OIN never recommends holding over the report date because the possible gains are not worth the added risk. In YHOO's case particularly, since it's known for a deep post- earnings' sell-off. The more aggressive players may consider buying some puts! If all the stars are in alignment, it's also a possibility that Yahoo! could announce another stock split around its earnings' release even though the share price didn't hold above $200 recently. If this is the case, we could reenter the play after all the smoke has cleared. A couple of weeks ago it appeared Yahoo! was moving closer to a possible acquisition of eBay or at least an alliance. But the merger talks have ended between the two Internet companies. Neither company would comment on the situation. Yahoo! did however recently take a minority stake in Net2Phone (NTOP), an Internet telephone service provider, through a $150 mln stock swap deal. BUY CALL APR-165*YUU-DM OI=3488 at $18.50 SL=14.50 BUY CALL APR-170 YUU-DN OI=5861 at $16.00 SL=12.50 BUY CALL APR-175 YUU-DO OI=7009 at $13.88 SL=10.50 BUY CALL APR-180 YUU-DP OI=8982 at $12.13 SL= 9.00 Picked on March 12th at $178.06 P/E = 1680 Change since picked -6.68 52-week high=$250.06 Analysts Ratings 14-14-4-0-0 52-week low =$ 55.00 Last earnings 12/99 est= 0.15 actual= 0.19 Next earnings 04-05 est= 0.09 versus= 0.03 Average Daily Volume = 8.77 mln /charts/charts.asp?symbol=YHOO ********* SOFTWARE ********* INKT - Inktomi $195.00 (-21.81) Hidden behind the scenes of many of the world's largest portal sites is INKT, providing scalable software applications designed to enhance the performance and intelligence of large-scale networks. Its applications fall into two broad categories, network products and portal services. Traffic Server is a large-scale network caching application licensed to Internet Service Providers (America Online) and corporations to mitigate capacity constraints in high-traffic network routes. Current portal service applications include search, shopping and directory services, which are offered to Web site customers and Internet portals such as Yahoo!. Looking like it may be leading the recovery in the Internet sector, INKT found support at $170, closing solidly above the 30-dma ($177) on Friday. Add to that the bullish Hammer candle pattern on Friday, and we have a positive technical picture. Technical strength is nice, but how about the added incentive of earnings on April 20th. Not enough? All righty then, we'll throw in the possibility of a split. Typical split range for INKT is above $150, (yes, they just split 2-for-1 on December 30th), but there are enough shares currently authorized to do an encore. The past two days have been positive, posting gains on volume more than 50% over the ADV. INKT found some resistance at $185 on Friday, but managed to break through and close above it. If this level can now transform itself into support, INKT could be set to make a run at the $200 resistance (both psychological and technical) level. Hopefully, Friday's strong run into the close is indicative of improving sentiment in the sector. Look to enter new positions on continuing strength or another bounce at the intraday support levels of $185 or $180. Keep in mind that this is another volatile internet, and large intraday price swings are not uncommon. It was encouraging to see stocks like INKT show strength at the end of the week after the puzzling comments from Mark Mobius on Wednesday where he called for 50-90% pullback in Internet stocks. He may know emerging markets, but how does that make him an authority on Internet stocks? Investors seem to have drawn the same conclusion, but this next week will really be the key. BUY CALL APR-190 KAY-DR OI=320 at $22.13 SL=16.50 BUY CALL APR-200*KAY-DT OI=972 at $17.00 SL=12.75 BUY CALL APR-210 KAY-DB OI=332 at $12.25 SL= 9.25 BUY CALL MAY-200 KAY-ET OI=872 at $25.75 SL=19.25 BUY CALL MAY-210 KAY-EB OI=164 at $21.38 SL=16.00 SELL PUT APR-165 KAY-PM OI=133 at $ 4.75 SL= 6.75 (See risks of selling puts in play legend) Picked on Apr 2nd at $195.00 P/E = N/A Change since picked +0.00 52-week high=$241.50 Analysts Ratings 8-10-1-0-0 52-week low =$ 42.75 Last earnings 01/00 est=-0.04 actual=-0.02 Next earnings 04-18 est=-0.02 versus=-0.05 Average Daily Volume = 2.59 mln /charts/charts.asp?symbol=INKT **** LGTO - Legato Systems Inc $44.63 (+7.38) Legato Systems is a developer, manufacturer, and seller of network storage management software. Their products are designed to work with a wide range of storage, client, and server hardware. The company also offers related consulting services and is moving into the storage area network market by way of acquisitions. The volume spiked as buyers rushed in Monday afternoon to buy shares of LGTO while sellers clearly didn't want to "Leggo their Legato". The contest drove share prices up $8.44, or 22.7% and trading volume nearly reached triple its ADV. Monday was pretty good day in the markets, although it's conceivable that the selection of OnDemand business-to-business (B2B) personalized portal by Legato had some influence in LGTO's breakout. The portal called PartnerNet optimizes channel partnership and sales performance giving Legato's partners and 1,000+ sales force a distinctive edge. We watched the activity and volume among the call options rise as the stock firmed on Tuesday. Actually LGTO lost a couple of dollars by day's end, but only after trying to crack resistance at the 200-dma (now at $46.82). The rest of the week proved to be topsy-turvy amid a torrid market. To add insult to an already injured stock (trying to make a bold recovery from last quarter!) the implied volatility was worsened on news that Legato may again report lower-than-expected earnings forecasts. Costs due to an increased sales staff and unusually high legal fees needed to defend itself against a dozen or so shareholder suits filed earlier this year have effected the company's overall numbers. But despite this thorn thrust in its side on Tuesday, LGTO established a strong base at $41 just above the 10-dma ($40.48) throughout the week. And according to David Breiner of Prudential Volpe Technology Group "they may miss some of the estimates that are out there" but "I don't think the business is fundamentally broken". We're anticipating LGTO can do even better under more bullish market conditions. Dips to near-term support at $41 can be used for entries, but if you prefer less risk look for LGTO to make a move through $47 on strong volume before opening any positions on this momentum. The company is reporting earnings April 19th, after the bell. On Thursday, Jim Mendelson at Wit SoundView upgraded LGTO to a Buy from a Hold and issued a $65 price target. BUY CALL APR-40*EQN-DH OI=2041 at $7.63 SL=5.25 BUY CALL APR-45 EQN-DI OI=3854 at $4.50 SL=2.75 BUY CALL APR-50 EQN-DJ OI=2006 at $2.75 SL=1.25 BUY CALL MAY-45 EQN-EI OI= 457 at $7.13 SL=5.00 BUY CALL MAY-50 EQN-EJ OI= 151 at $5.13 SL=3.00 Picked on April 2nd at $44.63 P/E = 91 Change since picked +0.00 52-week high=$102.25 Analysts Ratings 7-7-6-0-0 52-week low =$ 11.44 Last earnings 12/99 est= 0.19 actual= 0.11 Next earnings 04-19 est= 0.10 versus= 0.10 Average Daily Volume = 4.74 mln /charts/charts.asp?symbol=LGTO **** CHKP - Check Point Software $171.06 (-47.44) 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. Looking healthy early on Friday, CHKP fell sick for the rest of the day, giving up a $16 intraday gain. Barely closing positive, CHKP did give us a sign of life at the close, moving up almost $5 in the final 10 minutes. Volume was strong both early and late in the day, with muted interest for the bulk of the session. By the closing bell, the network security firm had seen volume well over double its ADV and managed to post a close over the $170 resistance level. Friday's action strengthened the indications from earlier in the week that CHKP may have arrested the decline that began in early March. After losing almost 50% from its high of $295, it is about time we saw some life return. Support is strong at the $155-157 level, and $170 may provide support going forward. With earnings moving into full swing next week, and CHKP reporting on April 18th, the stock could be ready to run. CHKP becomes a split candidate over $200, and a strong run could put it in this range well before earnings, a likely time to make the announcement. We will run into major resistance at $188, reinforced by the 50-dma at $189, but this should fall easily if the NASDAQ can get healthy again. We need to see support hold at $170, and if it does, look to enter new positions on the bounce. A failure at this level will confirm it as resistance, and we will need to look for an entry as CHKP bounces at $155. This play is not for the faint-hearted as CHKP can easily run $30 in a day. Take your Dramamine before playing. On Friday, we finally got some encouraging news for CHKP, as Goldman Sachs added the Internet security software maker to its recommended purchase list. Analysts at the firm raised 2000 earnings estimates from $1.56 to $161 a share and 2001 estimates from $2.02 to $2.12 BUY CALL APR-170*YKE-DN OI=233 at $24.75 SL=18.50 BUY CALL APR-175 YKE-DO OI= 30 at $22.75 SL=17.00 low OI BUY CALL APR-180 YKE-DP OI=134 at $21.00 SL=15.75 BUY CALL MAY-175 YKE-EO OI= 6 at $34.75 SL=26.00 low OI BUY CALL MAY-180 YKE-EP OI= 99 at $32.25 SL=24.25 SELL PUT APR-150 YKE-PJ OI=175 at $11.00 SL=14.75 (See risks of selling puts in play legend) Picked on Mar 30th at $169.50 P/E = 146 Change since picked +1.56 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 = 1.11 mln /charts/charts.asp?symbol=CHKP ******* Telecom ******* T - AT&T $56.31 (-2.44) With over 90 million customers, AT&T is the US's #1 Telecom company. The services offered by the company include long distance, wireless phone service, Internet access, and local and international phone services for businesses. In an attempt to dominate the domestic cable TV market, T will become the #1 US cable operator with its planned purchase of MediaOne. As we anticipate the largest IPO in US history, T has given us another tidbit to chew on. Putting the finishing touches on its Internet strategy, the Telecom giant put its money to work today, investing in the Internet telephony race (see news below). The 360 million share IPO of T's wireless business was priced this past week between $26-32 per share, and is expected to raise up to $11.5 billion. After the IPO, T will retain between 82-85% of the economic interest in the AT&T Wireless Group. Finding support near $45 in late February, T has been moving higher, most recently establishing support between $55-56. News of the IPO terms and date (April 26) propelled T up to the $60 resistance level this week, but the broad market weakness yanked the price back down to earth. Friday's action was not very encouraging as T lost over $2, closing very near its low of the session. The only bright spot was the fact that volume was a "measly" 8.4 million shares vs. the norm of 11.2 million. Another positive factor for our play is earnings, with T set to report on April 25th, the day before the above-mentioned IPO. Use caution going forward as we need to see support hold at $56 before jumping blindly into this play. More conservative players may want to wait for enthusiasm (and volume) to push the share price through resistance at $60. With a $725 million investment in Internet telephone player Net2Phone today, T is putting together the final pieces of an Internet strategy aimed directly at the formidable rival created by the America Online and Time Warner merger. This gives T a leg into internet telephony, a technology that is widely regarded as a worthy rival to traditional phone networks. Although the quality of Internet phone calls has not yet reached that of traditional phones, the approach is appealing due to its ability to allow phone calls without a dedicated copper phone line between the calling parties. BUY CALL APR-55*T-DK OI=64735 at $3.25 SL=1.75 BUY CALL APR-60 T-DL OI=44522 at $1.19 SL=0.00 BUY CALL MAY-55 T-EK OI= 6232 at $5.13 SL=3.00 BUY CALL MAY-60 T-EL OI=17987 at $2.94 SL=1.50 Picked on Mar 28th at $59.94 P/E = 52 Change since picked -3.63 52-week high=$63.00 Analysts Ratings 16-8-7-0-0 52-week low =$41.50 Last earnings 01/00 est= 0.56 actual= 0.57 Next earnings 04-25 est= 0.42 versus= 0.61 Average Daily Volume = 11.20 mln /charts/charts.asp?symbol=T **** QCOM - Qualcomm Inc $149.31 (+3.31) Qualcomm develops and manufactures communications technologies and products. It's best known for its CDMA (code division multiple access) technology which is the industry standard for mobile communications. This technology and is used in cellular phones, wireless telephone system equipment, and satellite ground stations. Qualcomm also provides the trucking industry with a monitoring system call OnmiTRACS and is currently in a joint venture to develop a low-earth-orbit satellite communication system called Globalstar. They are also the #2 supplier of digital cell phones following Nokia. Their largest competitor is Motorola. After an astounding performance in 1999, QCOM is again making the headlines. The stock's recent break out its tight channel and an upcoming earnings' report is the basis for this play. For three months the stock oscillated between $125 and $145, but just a few days before the Nasdaq's butchering QCOM broke free of its bindings. Now QCOM appears to be on the move again. The converged DMAs have now caught up to the stock's rising price and are in the proximity of $149 and $151. This week QCOM clearly signaled to us that this run is no head-fake. It ran like a true bull peaking at $162.56 on Wednesday. It's likely the conclusion of a three-year battle with Motorola over patents covering QCOM's wireless communications technology was a key factor. Both sides have agreed to a three-year moratorium on patent-infringement suits; however, Motorola will now make royalty payments for use of the CDMA technology. 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. And the evening before, ABN Amro also repeated a Hold recommendation. Thursday was a different story and even QCOM couldn't escape the selling pressure. But just like a trooper, QCOM resurfaced unscathed before the trading day was out giving us confidence that it can maintain its momentum in the short- term. Upward bounces off the current level are fair entries into this HIGH-RISK and VOLATILE Internet play while intraday dips to firmer support at $140 and $145 would be a gift. Although caution must be advised. If QCOM reversed there's a long way to fall so know you're personal risk level! There's another factor besides the sheer momentum that propelled it out of its three-month channel and an upcoming earnings' announcement on April 18th after the bell to drive up the share pirce. QCOM is a split-candidate above the $160 mark! And there's no doubt Qualcomm has plenty of shares for another stock split - 3.6 bln authorized and only 660 mln outstanding. After a long stretch without any analysts' sentiment, Salomon Smith Barney raised its rating on QCOM to a Buy from an Outperform. Alex Cena also issued a $200 price target up from $150. BUY CALL APR-150 AUA-DJ OI=15798 at $10.75 SL=8.00 BUY CALL APR-155*AUA-DK OI= 6452 at $ 8.63 SL=6.00 BUY CALL APR-160 AUA-DL OI=13269 at $ 6.75 SL=4.75 BUY CALL APR-165 AUA-DM OI= 6641 at $ 5.25 SL=3.25 BUY CALL MAY-160 AUA-EL OI= 2573 at $12.63 SL=9.50 BUY CALL MAY-165 AUA-EM OI= 1049 at $10.88 SL=8.25 Picked on March 28th at $154.81 P/E = 36 Change since picked -5.50 52-week high=$200.00 Analysts Ratings 7-7-6-0-0 52-week low =$ 14.76 Last earnings 12/99 est= 0.24 actual= 0.25 Next earnings 04-18 est= 0.24 versus= 0.10 Average Daily Volume = 19.8 mln /charts/charts.asp?symbol=QCOM ****************************************** CALLS - TELECOM CONTINUED IN SECTION THREE ****************************************** ************************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 4-2-2000 Sunday 3 of 4 ******************* TELECOM - CONTINUED ******************* NOK - Nokia $222.00 (+0.25)(+21.88)(-15.13)(-5.00) 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. This will be the final week for NOK on our play list. Why's that? Veterans will recall that we never recommend holding over a split since prices fall 7 out of 10 times following the split. NOK splits 4:1 on April 7th and begins split adjusted trading on Monday, April 10th. So you should plan to exit this play by Friday. Technically, NOK is fine shape. Thursday, a particularly ugly day for technology issues, NOK descended through its lower channel boundary to touch and bounce solidly off its 50-dma (then $201.70), then close back over the lower channel line - a bullish sign. If you caught it into Thursday's close, you'd have had a textbook entry. Friday, NOK continued its rebound into the center of the channel on volume of 4.6 mln shares, 22% greater than the ADV. If the market cooperates and a last minute split run materializes, NOK would find resistance at $233, but could see as much as $240 (the top of the trading channel) by Friday. Current support is tough to find in light of the recent technology selloff, but can be found at $205 and $215. The 10-dma is $218.05. The 5-dma is $220.98. Target shoot to your level of comfort. Otherwise confirm bounce off support with the overall tone of the market before making your entry. Earnings are tentatively set for May 2nd and are not a part of the play. No news last week that will move the issue. The play is based solely on a split run. BUY CALL APR-210 NZY-DB OI=3905 at $18.00 SL=13.00 BUY CALL APR-220*NZY-DD OI=7684 at $12.00 SL= 9.00 BUY CALL APR-230 NZY-DF OI=3984 at $ 8.88 SL= 6.25 Picked on Mar 09th at $214.63 P/E = 94 Change since picked + 7.38 52-week high=$233.38 Analysts Ratings 17-8-1-0-0 52-week low =$ 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 = 3.67 mln /charts/charts.asp?symbol=NOK **** PCS - Sprint PCS $65.50 (+1.00)(+6.88) 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. Since we just added the play on Thursday, forgive us for the partial repeat of information. 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. 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 tentatively announces earnings on April 18. In addition to high visibility in the sector, we will also use an earnings run as a catalyst for a bullish move. Technically, PCS survived last week's selloff, maintaining nice support at $63, $64 and $65. The lows have been getting higher. Friday's close was at a new high. Resistance still holds at $66. Yes, the ascending wedge is short (only five days so far), but technical convergence of the wedge could happen on Tuesday, putting PCS into breakout mode. The key will be a volume increase once PCS clears $66. Though it didn't gain much on the week, we remain impressed that PCS didn't falter as others dropped like flies. Volume remains weak too indicating nobody is itching to pull the "sell" trigger. Target shoot to your comfort level, or wait for the volume-backed break above $66. Look for an earnings run and wireless hype to move PCS up in April. News is sparse, however, W.R. Hambrecht on Tuesday rated PCS a Buy and named a price target of $85. Also last week, PCS participated with Samsung, and Qualcomm to complete the first 3rd generation CDMA voice call. BUY CALL APR-60 PCS-DL OI=1105 at $7.25 SL=5.00 BUY CALL APR-65*PCS-DM OI= 854 at $4.00 SL=2.50 BUY CALL APR-70 PCS-DN OI= 274 at $2.00 SL=1.00 BUY CALL MAY-65 PCS-EM OI= 146 at $5.75 SL=3.75 BUY CALL MAY-70 PCS-EN OI= 129 at $4.00 SL=2.50 Picked on Mar 30th at $64.63 P/E = N/A Change since picked +0.88 52-week high=$66.94 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 = 3.28 mln /charts/charts.asp?symbol=PCS ************* Miscellaneous ************* GMST - Gemstar International $86.00 (-8.75) Gemstar International Group makes video-recording systems. They develop, market and license proprietary technologies and systems under the "VCR Plus+" name. Their VCR Plus+ system lets users program VCR's simply with one-to eight-digit codes published in TV listings worldwide. Gemstar's primary source of revenues are from licensing fees paid by consumer electronics manufacturers and publications for the licensing of the VCR Plus+ technology and the right to print the PlusCode Numbers. Gemstar has signed long-term renewals of license agreements with Sony Corp, and Thomson Consumer Electronics. What makes Gemstar so attractive at this time? We'll give you a clue. Its stock dropped about 24% in four days. With the tech and Nasdaq stocks coming under fire this past week, GMST dropped from its high on Monday at $100.88, to a low on Friday at $76.88. Can you say over-done? Not only do we believe the decline in price was over extended, we really see very little fundamental reason why it should have happened in the first place. Friday, we believe investors saw the same thing we did, as they bid the price back up to $86, with GMST ending the day with a gain of over 7.0%. That said, what makes GMST special? Well, lets start off with a show of hands of those with at least one television in their home? Chances are if you aren't using Gemstar's interactive programming at this time, you probably will be in the near future. Much of the recent strength in GMST has come on the heels of increased optimism for more sales of its interactive programming guide. These devices, which help people find the shows they want to watch on television, are expected to play an increasing role in the way we watch TV. The proposed merger between GMST and TV Guide was approved last month by their respective shareholders and is scheduled to close as soon as it receives regulatory approval, which is expected to be in the second quarter. The combined entity will be a major force with the interactive program guide. GMST is a stock that has risen six-fold, and split twice in the last year. Technically the recent decline has left us with somewhat of a "V" bottom. A retracement could find support between $78 and $80. However the momentum going into the close on Friday, suggests GMST should continue to move higher, as the volume picked up late in the day as well. Although it's old news, it's certainly worth keeping in mind. GMST's Chief Executive, Henry Yuen said in an interview last month, he would consider splitting the company's stock again. Besides being the company's chairman, Yuen is the second largest shareholder. Although the company has a ways to go, Yuen said "if we are solidly over $100, we would consider splitting again". BUY CALL APR-80 GST-DP OI= 429 at $10.75 SL=8.00 BUY CALL APR-85*GST-DQ OI= 238 at $ 7.88 SL=5.75 BUY CALL APR-90 GST-DR OI= 447 at $ 5.25 SL=3.25 BUY CALL APR-95 GST-DS OI=2152 at $ 3.88 SL=2.25 BUY CALL MAY-85 GST-EQ OI=7868 at $11.63 SL=8.75 SELL PUT APR-80 GST-PP OI=2266 at $ 3.75 SL=5.75 (See risks of selling puts in play legend) Picked on Apr 2nd at $83.00 PE = 205 Change since picked +0.00 52 week high=$107.44 Analysts Ratings 7-0-0-0-0 52 week low =$ 18.00 Last earnings 02/00 est= 0.10 actual= 0.13 Next earnings 05-10 est= 0.14 versus= 0.12 Average daily volume = 2.34 mln /charts/charts.asp?symbol=GMST **** BBY - Best Buy Co. Inc. $86.00 (+8.06) When you get 360 stores in 40 states and have $12.5 bln, in annual sales, you can offer customers the best buy too. Best Buy sells home electronics, appliances, music, home office products and entertainment software through its stores averaging about 45,000 square feet. While ahead of rival Circuit City in sales, CC has more stores. However, Microsoft was impressed enough to make a $200 mln investment in BBY last December, then representing a 2% interest. Chairman Richard Schulze owns 17% of the company. The answer is "beat the whisper". The question is, how were earnings? Last Tuesday, BBY reported a 51% increase in profits over the Q4 of last year on strong digital product sales and cost cutting. They earned $0.78 vs. estimates of $0.74. Same store sales were up 11% over a year ago. Earnings are forecast to grow 25% this year. When you are the biggest, you can also be first to sell the cool new products. For instance, BBY is one of only three retailers to currently carry HandSpring products (PALM competitor). Technically, BBY has been moving up the chart following earnings, as investors take new positions in the issue. BBY has set new highs the last four days in a row even as the rest of the market tumbled into the basement. Relative strength has been excellent. $80, $81, and on Friday $84 have acted as support since the earnings news broke. Even with over 100 mln shares in float, BBY moved up $1 in the last 15 minutes of Friday's trading. The trend looks strong as BBY breaks into blue sky, but we'd suggest waiting for a slight pullback after four solid days of gains. It may come as early as Monday morning after amateur hour, so be on the lookout for an entry. While the 5-dma provided good support last week after the news, it's still lagging back at $82.11. Though it may be possible to tag it, the market tone will be more telling of a good entry than the price hitting the nearest average. Enter at your own level of risk tolerance. Are you a bit more conservative? Perhaps a move over $86.50 on increased volume would provide the best entry. One more thing -- BBY is again entering split range at $90. That was the price at the last announcement on February 22nd, 1999 when they announced a 2:1. There is a reported Board meeting on April 14 from which the announcement could be made. Since there are 400 mln shares authorized with 204 mln outstanding, they will need shareholder approval for another 2:1. However a 3:2 is possible without shareholder approval if the Board of Directors declares it. Keep your play focused on that date. Based on earnings, Moody's has put BBY's Ba1 credit rating up for review. While not a guaranty, it's a positive step. Also interesting is that Micron (MU) recently reached an agreement with BBY to place kiosks in all BBY stores. Just so you know too, there was a rumor two weeks ago that BBY may be a takeout target. If the rumors resurface, don't bet on it given the renewed interest following earnings. BUY CALL APR-80 BBY-DP OI= 984 at $9.00 SL=6.25 BUY CALL APR-85 BBY-DQ OI= 178 at $6.00 SL=4.00 BUY CALL APR-90*BBY-DR OI=1347 at $3.88 SL=2.00 BUY CALL MAY-85 BBY-EQ OI= 71 at $9.25 SL=6.25 BUY CALL MAY-90 BBY-ER OI= 67 at $7.00 SL=5.00 Picked on Apr 02nd at $86.00 P/E = 52 Change since picked +0.00 52-week high=$86.25 Analysts Ratings 5-10-7-0-0 52-week low =$40.50 Last earnings 04/00 est= 0.74 actual= 0.78 surprise=5% Next earnings 06-27 est= 0.29 versus=0.27 Average Daily Volume = 2.19 mln /charts/charts.asp?symbol=BBY **** BAC - Bank of America, $52.44 (-2.19)(+4.63) 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. Investors began to shop for bargains late Thursday and BAC was on their shopping list. At this point it appears as though another near term bottom may have been put it. Profit taking during the week drove shares of BAC down to $50.44. Why do we think that level produced a bottom? Thursday in the last hour of trading, BAC saw about 1.8 million shares change hands. As BAC made its low, almost 700K shares were traded in a 15 minute period. About 200K would be average for that time frame, depending on the volatility of the day. Traders continued nibbling on BAC Friday morning, and by the end of the day, the holding company had added another $1.63 to the price of its stock. So we've bounced off the $50 area and find BAC heading higher. The volume on the move back up has been nothing to write home about, but at this point we will take what we can get. The $52 area should be the tell tale sign, as it provided good support during the session on Friday. A break below that level and we could see another trip south. A bounce off that level and BAC may be back on track. Speaking of on track, money manager Elaine Garzarelli, said in an interview this week, she disagreed a bit with Abby Joseph Cohen's comments on moving 5% out of stock portfolio's into cash. Rather raising that kind of cash, Garzarelli said she would be putting money into beaten-down groups, that are significantly down from their highs. Any guesses as to what was included in her group of picks? Yep, BAC. Garzarelli said BAC and several of the financials are an "extremely good value." We couldn't agree more, and that's why we would look for opportunities next week to buy calls in BAC. A federal appeals court gave Bank of America a shot in the arm on Friday. The court said BAC, Wells Fargo & Co. and other banks can continue to charge non-customers to use automated teller machines in San Francisco and Santa Monica, California. The appeals court upheld a preliminary injunction granted in November, which temporarily bars cities from enforcing ordinances banning the fees. BUY CALL APR-45 BAC-DI OI= 2138 at $7.88 SL=5.75 BUY CALL APR-50*BAC-DJ OI= 4957 at $3.63 SL=1.75 BUY CALL APR-55 BAC-DK OI= 5299 at $1.06 SL=0.00 BUY CALL MAY-50 BAC-EJ OI=20340 at $4.88 SL=3.00 BUY CALL MAY-55 BAC-EK OI=10328 at $2.19 SL=1.00 Picked on Mar 23rd at $54.19 PE = 12 Change since picked -1.75 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 = 6.52 mln /charts/charts.asp?symbol=BAC **** KSS - Kohl's Corp. $102.50 (+5.94) 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. Like we said, their stores and their stock perform's better than most of their peers. Actually on Friday, KSS outperformed many of the stocks not only in the retail sector, but at the NYSE. KSS was one of only 61 stocks making a new high at the NYSE. With the retail sector was giving back 2.5% of its recent gains, our new play hit $104.25 before ending the day with a gain of about 3.0%. The volume was impressive as well with 1.89 million shares traded. What makes Kohl's so attractive to investors? Probably the same thing that makes them attractive to their customers. What they do, they do very well. They provide a good selection of merchandise, take care of the customer and do it in a cost effective manner, which all falls to the bottom line, in the form of profits and earnings. Earnings growth has exceeded 30% per year, for the last four years. Not many retailers can make that kind of claim. With the recent weakness in the tech stocks, investors have turned to company's that provide growth and earnings, and Kohl's provides both. Analysts had earlier concerns about first quarter earnings and the costs associated with recent expansion, as the company is in the process of opening 19 new stores. KSS came in well ahead of estimates and announced a 2-for-1 split, putting to rest most analysts concerns. We could expect to see more analysts jump on the bandwagon in the next week, as KSS has already surpassed many of the price targets of $90 to $95 per share, and has seen only 2 upgrades or reiterations in the last month. According to some technical indicators, KSS could be getting a bit over- extended, however we wouldn't expect to see a large pullback at this time. $102, $100 and its 5-dma at $97.88 could all provide support if profit taking does set in. For now KSS is pointing higher, and we expect the overall trend to continue. As we mentioned earlier, many of the analysts that follow the Kohl's seem to be ignoring its recent strength. The last analyst to come out with a comment was Daniel Barry, from Merrill Lynch, and that was in the middle of March. Barry raised KSS from a near term Accumulate to a near term Buy rating. At that time his projected 12-month target for Kohl's was $108.00. With KSS hitting another new high on Friday, more analyst may come forward and support the company in the coming days. BUY CALL APR- 95*KSS-DS OI=255 at $10.88 SL=8.25 BUY CALL APR-100 KSS-DT OI=118 at $ 7.63 SL=5.25 BUY CALL APR-105 KSS-DA OI=233 at $ 5.25 SL=3.25 BUY CALL MAY-100 KSS-ET OI= 4 at $11.50 SL=8.50 low OI BUY CALL MAY-105 KSS-EA OI= 5 at $ 9.00 SL=6.25 low OI SELL PUT APR- 95 KSS-PS OI=198 at $ 3.63 SL=5.50 (See risks of selling puts in play legend) Picked on Mar 30th at $99.56 P/E = 67 Change since picked +2.94 52-week high=$104.25 Analysts Ratings 7-5-4-0-0 52-week low =$ 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 = 962 K /charts/charts.asp?symbol=KSS ********************** LEAPS by Mark Phillips ********************** Where are the leaders? After its second run above the 5000 level, the NASDAQ had another brutal week, having to dip below its 50-dma before finding support near 4350. A quick look at the charts of many of our favorite LEAP plays (EMC, NT, TXN) shows a similar pattern, as the 50-dma is either being challenged or violated. Normally, we would be screaming "Entry Point" by now, but are exercising caution due to the number of our strong momentum plays that are having a hard time finding support. We are sitting on the verge of the April earnings cycle, which normally drives investors into a frenzy of buying activity. This time things may be different, as even Yahoo!, the poster child for momentum stocks, has failed to have an earnings run. After the current earnings cycle, fund managers will be taking profits so they can enjoy their vacations, and we don't want to be left holding the bag. Even the VIX has not yet confirmed that a bottom is here, as the huge decline on Thursday only produced a high of 28.72, and the indicator closed the week at 27.21. We have had huge runs in the past few months in plays like EMC, CSCO, TXN, NT, and NXTL, so take advantage of any runup in the next few weeks to lock in profits before the summer doldrums. If you are looking for candidates that may provide strength beyond April earnings, consider stocks that have scheduled events like splits (GE, TXN). Exercise caution in the week ahead; better to be in cash than watching your profits melt away. Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN EMC 11/07/99 JAN-2001 $ 80 ZOH-AP $15.38 $54.00 251.22% JAN-2002 $ 90 WUE-AR $19.00 $57.38 201.97% GPS 11/07/99 JAN-2001 $ 40 ZGS-AH $ 5.75 $15.88 176.09% JAN-2002 $ 45 WGS-AI $ 7.88 $18.38 133.33% IBM 11/07/99 JAN-2001 $100 ZIB-AT $13.63 $30.13 121.10% JAN-2002 $110 WIB-AB $16.50 $34.75 110.61% LU 11/14/99 JAN-2001 $ 80 ZEU-AP $12.88 $ 6.00 -53.40% JAN-2002 $ 90 WEU-AR $16.13 $10.38 -35.66% CSCO 11/14/99 JAN-2001 $ 40 ZCY-AH $ 9.56 $41.00 328.87% JAN-2002 $ 90 WIV-AI $11.00 $42.00 281.82% GE 11/21/99 JAN-2001 $150 ZGR-AU $16.25 $27.13 66.92% JAN-2002 $150 WGE-AU $25.50 $39.63 55.39% NT 11/28/99 JAN-2001 $ 75 ZOO-AO $22.25 $60.63 172.47% JAN-2002 $ 75 WNT-AO $30.25 $70.38 132.64% VOD 12/05/99 JAN-2001 $ 50 ZAT-AJ $10.75 $14.75 37.21% JAN-2002 $ 50 WHV-AJ $15.00 $20.38 35.83% TXN 12/12/99 JAN-2001 $110 ZTN-AB $22.25 $62.88 182.58% JAN-2002 $120 WGZ-AD $28.50 $69.38 143.42% NXTL 12/19/99 JAN-2001 $ 90 ZFU-AR $23.50 $69.00 193.62% JAN-2002 $100 WFU-AT $27.25 $73.13 168.35% SUNW 12/19/99 JAN-2001 $ 80 ZJX-AP $17.63 $28.50 61.70% JAN-2002 $ 90 WJX-AR $22.00 $33.75 53.41% LU 01/09/00 JAN-2001 $ 50 ZEU-AJ $13.63 $18.00 32.11% CY 01/16/00 JAN-2001 $ 40 ZSY-AH $ 9.13 $19.38 112.33% JAN-2002 $ 40 WSY-AH $12.63 $24.25 92.08% ERICY 01/30/00 JAN-2001 $ 65 ZYD-AM $19.75 $38.50 94.94% JAN-2002 $ 65 WRY-AM $27.00 $46.88 73.61% MSFT 01/30/00 JAN-2001 $100 ZMF-AT $17.63 $22.13 25.51% JAN-2002 $110 WMF-AB $21.63 $27.63 27.75% NSM 02/27/00 JAN-2001 $ 70 ZUN-AN $18.50 $15.00 -18.92% JAN-2002 $ 70 WUN-AN $24.25 $22.63 - 6.72% AOL 03/12/00 JAN-2001 $ 60 ZKS-AL $14.00 $21.63 32.14% JAN-2002 $ 65 WAN-AM $18.63 $23.75 27.52% AXP 03/12/00 JAN-2001 $130 ZXP-AF $21.75 $36.13 66.09% JAN-2002 $140 WXP-AH $28.00 $42.38 51.34% WM 03/19/00 JAN-2001 $ 25 ZWI-AE $ 5.00 $ 5.75 15.00% JAN-2002 $ 30 WWI-AF $ 5.38 $ 6.25 16.28% QCOM 03/26/00 JAN-2001 $150 YQO-AJ $39.25 $40.88 4.14% JAN-2002 $160 XQO-AL $52.88 $54.88 3.78% To review the play description on any of our current plays, go to the LEAPS section for the date the play was added. Option Selection: Notice that many of our LEAP plays have moved considerably since initially being picked. The listed options may therefore be deep in the money and very expensive. When entering a new position, look to buy LEAPS according to your suitability level, but note that we typically initiate strikes that are slightly out of the money from the stock's current price. Leap of the Week GPS - Gap Inc. $49.81 Not our typical pick for Leap of the Week, GPS is one of the few stocks showing stability in the midst of the violent storm in the market. Building strong support between $41-42, GPS has started moving higher over the past month and is dragging the 200-dma ($42.41) into a modest uptrend. Aided by improving health across the Retail sector, GPS is using its 10-dma at $48 as support and looks ready to challenge resistance near $50. The long tail on Friday's candlestick is very encouraging, as buyers moved in to help the retailer close near the high of the day. Eight major retailers settled federal class-action lawsuits on Tuesday, and the good news appears to have had a buoyant effect on their stocks. GPS' suit is still pending, but when it settles, the stock could get an additional boost. GPS has support at $46, and a pullback to this level would provide for a nice entry. BUY LEAP JAN-2001 $50.00 ZGS-AJ at $10.63 BUY LEAP JAN-2002 $55.00 WGS-AK at $14.13 /charts/charts.asp?symbol=GPS New Plays No new plays this week. Drops CS $29.38 If you haven't noticed, what the company has to say with its earnings announcement is often far more important than the actual numbers. CS beat estimates by a penny on Wednesday, but comments from the company related to its spin-off plans didn't sit well with analysts or investors. Stating that the spinoff of four of its business units will take longer than expected really ruffled some feathers at Goldman Sachs. The brokerage house cut earnings estimates from 15 cents down to only a penny, and dropped revenue estimates from $397 million to $305 million. CS investors responded by lopping over 40% off the share price on Thursday, and this dead cat barely bounced at all. Lehmann Bros. came out on Friday to reiterate their Buy rating, saying the sharp decline "was unwarranted and the recent volatility provides a buying opportunity". At any rate, CS doesn't hold much appeal right now, so we are dropping it this weekend. MOT $146.00 Plummeting through the 50-dma without so much as a "how do you do", MOT also sliced through support at $148 before finding its feet near the 100-dma ($142.75). Normally we'd be looking at this as a gift of an entry point, but right now are not convinced of the strength of the market heading into earnings. With little in the way of positive sentiment to carry it higher, we prefer to take our profits off the table and look for conditions to improve. ***************** PUTS, PUTS, PUTS ***************** Put plays can be very profitable but have a larger risk than call plays. When a stock is falling the entire investment community (except the shorts) is hoping it will reverse and start back up. The company management is also doing everything they can to shore up their stock price. The company issues press releases, brokers talk it up, analysts try to put a positive spin on everything. Then of course there is the death knell, the "buy recommendation" simply because the price has dropped to some level that analysts feel attractive again. Buyers who like the stock wait until it appears a bottom has been reached and then jump on it in a feeding frenzy. They may already have a large position and are averaging down. Many factors can stop a free falling stock in mid drop. **** PSIX - Psinet Inc. $34.06 (-3.75)(-11.94) Headquartered in Herndon, Va., PSINet is an Internet Super Carrier offering global e-commerce infrastructure and a full suite of retail and wholesale Internet services through wholly-owned PSINet subsidiaries. Services are provided on PSINet-owned and operated fiber, satellite, Web hosting and switching facilities providing direct access in more than 800 metropolitan areas in 27 countries on five continents. The trend that PSIX was following changed on Friday. When the market opened shares rallied up to $36 following along with the Nasdaq. However those bullish investors did get beaten down when the market dropped. About an hour before the close, PSIX was up to $36 again. So we are a little hesitant to see what PSIX will do from here. The bearish sentiment has been strong and hopefully it can use that strength to resume the old trend. But if this is a short-term reversal, we will be ready to exit PSIX in a hurry. The Nasdaq will be a key player in deciding PSIX's fate. The bottom line here is that the selling that seems from the recent acquistion announcement may be coming to an end and you know how fast an Internet play can reverse on you. BUY PUT APR-40*SQP-PH OI=1989 at $7.88 SL=5.75 BUY PUT APR-35 SQP-PG OI= 884 at $4.38 SL=2.75 Average Daily Volume = 8.41 mln /charts/charts.asp?symbol=PSIX **** GTW - Gateway Inc. $53.03 (-3.22)(-2.69) Gateway has grown from a two-person startup in an Iowa farmhouse to a $8.6 billion, fortune 250 company that employs 20,000 people around the world. They are the #2 direct marketer of PC's in the United States. Their products are delivered quickly and directly to computer users, who place orders over the phone or at the company Web site. GTW makes both desktop and portable PCs, PCTV's, and servers. They also sell component add-ons such as CD-ROM drives and offer Internet access at Gateway.net. They are second only to Dell, but find competition from IBM and Micron Technology. After a falling to support at $52, in the first two hours of trading Friday morning, it began to appear as though our play in Gateway may be coming to an end. Buyers gradually bid the price of the hardware company back to $54.44 but not with the a lot of enthusiasm. Apparently those same buyers weren't so sure of their earlier moves, as GTW fell about $1.31 in the last fifteen minutes of the session, with fairly good volume behind the move. GTW joined the Dow and many of the NYSE stocks in a late day decline. For whatever reason, it appeared as though traders didn't want to go into the weekend long. The hardware index had a tough go of it this past week, and GTW did its part to help pull the sector lower, although GTW has been on the skids for some time now. We would like to tell you GTW will continue lower and those with put positions will continue to profit. Although it really appeared GTW was trying to find a bottom on Friday, a new week could bring more selling. Gateway did announce late Thursday evening that it is buying a 7.6% stake in top Latino online community, Quepasa.com. GTW will spend $10 million in cash for its alliance with Quepasa.com, in an attempt to bring computers and the Internet to the U.S. Latino community. Last October, Gateway became the first U.S. PC maker to launch a major marketing and service program in Spanish as well. The alliance with Quepasa.com may be a great move in the long term for Gateway, but for now our play is focused on company's declining stock price, and the chances of lower revenues and earnings. At most signs still point south. A bounce back to the $54 level, followed by weakness could once again signal an entry point for this play. BUY PUT APR-60 GTW-PL OI=5173 at $8.75 SL=6.50 BUY PUT APR-55*GTW-PK OI=4392 at $5.50 SL=3.75 Average daily volume = 2.36 mln /charts/charts.asp?symbol=GTW **** AT - Alltel Corporation $63.25 (-4.75) Alltel is a customer-focused information technology company that offers telecommunications services to 8.5 mln customers in 25 US states, mainly in the Southeast and the Midwest. The company provides local phone service over nearly 2 mln local lines in rural areas, and has gained approval to offer competitive local access. Alltel's cellular operations serve about 5 mln customers. Alltel also offers long-distance service to more than 500,000 customers, as well as Internet access and paging services. The company operates in two principal areas, communications and information services. Although some telecom stocks showed renewed strength on Friday, ALLTEL stumbled lower. The situation we described last Tuesday is continuing to unfold, as the information services division of AT remains intact. Investors have been pleading with management to cut their losses with the money losing division, and focus on the communications business. Although the company has explored its options, it has yet to find any reasonable offers. We'll continue to monitor the story from AT as company officials debate about the future of the company. Now switching gears, a new development in our AT play has surfaced over the past week. By now, we all know about the mega-offering coming from AT&T in the coming month. The wireless tracking stock slated for an IPO at the end of April. The highly anticipated IPO is the biggest in history, expecting to raise somewhere between $9.3 and $11.5 bln. Many money managers are expected to sell some of their existing telecom positions to make way for the behemoth. AT may fall under additional pressure due to the IPO. Now we have two angles for our put play, the Ma Bell IPO and the dichotomy of AT. The stock is still above support at $61, and finding overhead resistance at the declining 10-dma. Look for AT to bump against resistance and fade lower. If the stock drops below support, it could be positioned to retest its low of $55.88 Watch for volume to pick-up as money managers sell AT to make room for the AT&T IPO. Friday's volume was anemic, look for selling to increase as confirmation. The stock has moved lower, settling into a declining channel, set your stops just above the 10-day, as it has provided significant resistance. BUY PUT APR-65*AT-PM OI=173 at $3.75 SL=2.50 BUY PUT APR-60 AT-PL OI=439 at $1.38 SL=0.75 Average Daily Volume = 1.38 mln /charts/charts.asp?symbol=AT **** CPQ - Compaq Computer Corp. $26.75 (-1.94)(-1.56)(-0.75) 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. Short and simple, we're looking for an earnings warning from CPQ. Aside from the warning rumors floating around two weeks ago, CPQ is still heavily dependent on its retailer network from which it derives a big chunk of its revenue. Making matters worse, HP overtook CPQ in market share in January, while DELL continues to eat CPQ's lunch with the direct sales model DELL perfected. While everyone knows of DELL's success, HP's recent share gain doesn't make CPQ look good considering they've been telling analyst's of a coming turnaround in revenue and profitability. Earnings are scheduled for release on April 25, which gives CPQ about two weeks to announce before they go into their quiet period. Technically, CPQ has been slowly eroding value since it hit the top of its channel at $32 the week before last. Now as it approaches $24 to $25 again, support could emerge. The decreasing volume supports that notion. Most of the sellers have been shaken out by now. The good news for the play is that even on Friday's NASDAQ (tech) recovery, CPQ couldn't break back above $27.13 resistance and looks like its' rolling over again. Confirm that after amateur hour and consider failure to break out over $27.13, or a break below $26 as a good entry...the latter especially if backed up by a volume increase. BUY PUT APR-35 CPQ-PG OI= 3128 at $8.50 SL=6.00 BUY PUT APR-30*CPQ-PF OI=31843 at $4.13 SL=2.50 BUY PUT APR-25 CPQ-PE OI=21051 at $1.19 SL=0.00 High Risk! Average Daily Volume = 23.34 mln /charts/charts.asp?symbol=CPQ **** IIJI - Internet Initiative Japan Inc $69.75 (-12.25) IIJI offers a range of Internet access and Internet-related services primarily to large corporations and other ISPs in Japan. The company has one of the largest Internet backbone networks (A-Bone) which connect eight Asia/Pacific countries and also leases networks that connect Japan and the US. The slicing and dicing amongst the Internets kicked IIJI's downtrend back into high gear. First it was the ominous comments by Goldman Sach's equity strategist Abby Joseph Cohen who suggested trimming current stock holdings. Then the emerging markets guru Mark Mobius of the Templeton Fund shook up investors even more on Wednesday with a warning that many Internets (including foreign issues) are overvalued and due for further corrections of between 50%-90%. IIJI just couldn't hack the bearish sentiment. Even though stronger stocks in the sector showed some sign of life late Thursday, IIJI didn't snap back. Instead it continued to roll over. There wasn't even a glimmer of hope in Friday's session either. The stock sold-off another $3.50 bringing the week's losses to almost 15%. The next level of any support is at $65, followed by a bigger upset down to $50. Basically what we've got here is a technical momentum play. The first line of resistance to crack is $67.13, Friday's daily low. After that it could get real ugly for IIJI. Investors haven't seen share prices this depressed since November 1999. Take a look at a six-month chart for visual confirmation and also take note of the 5-dma line. This technical indicator is currently hovering at $$74.25 and marks a good entry point on a bounce. There really isn't any company specific news to effect the current slide. BUY PUT APR-80*IUJ-PP OI=135 at $12.25 SL=9.25 BUY PUT APR-75 IUJ-PO OI= 44 at $ 8.88 SL=6.25 Average Daily Volume = 387 K /charts/charts.asp?symbol=IIJI ************************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 millineum with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN **************************************************************s ******************************* CALLS CONTINUED IN SECTION FOUR ******************************* SEE DISCLAIMER IN SECTION ONE
The Option Investor Newsletter 4-2-2000 Sunday 4 of 4 ************* COVERED CALLS ************* Position Management: Time For A Quick Review... With the recent volatility in the market, now is a good time to revisit the particularly complex and often philosophical subject of "When to sell." Most experienced traders are aware of an old adage, "It is harder to sell than to buy." Exiting a position is more difficult because you are forced to make a decision about an issue that you already own and previously considered attractive. When emotion enters the equation, your judgment becomes clouded and the alternatives appear limited. In addition, when a trader focuses on the performance of a single issue, anxiety increases exponentially. A decision must be made: "Do you keep the stock, trade it, or dump it?" What if the technical outlook becomes ambiguous? When you trade without a well-developed plan it's amazing how confusing the situation can become, and once you are committed, you are playing by somebody else's rules. A system of structured and pre-planned moves is the only solution. Each and every day, you have to make a decision: "Take the profit? Take the loss? Or let it run?" It doesn't matter which exit system is used, the key is that all the decisions are made in advance. You don't want to create a battle plan in the middle of a campaign. After you take a position, you should know exactly what you would do in any circumstances that may develop. Professional traders utilize various mechanical systems and exit strategies to manage their positions. The primary goal of every trader is to limit losses and maximize profits. The question is, "How far do you let the position run before eroding your profits?" Setting up rules before you enter a position will help to control your emotions and improve consistency with exit decisions. Most methods for taking profits (and preventing losses) fit into one of two categories: A pre-arranged goal, such as 25% or a trailing stop, which is moved up as the stock advances. Writing covered calls sets up a pre-arranged goal, determined by which strike a trader sells. There are many different methods using technical analysis to establish the stop loss level; trend-lines, previous lows, moving averages, etc. With a stop-loss system, you take profits (or limit losses) after a violation of a pre-established level. Traders may decide to combine both a profit goal of 30% with a trailing stop-loss as there is no guarantee the first goal will be met. Covered call writers will buy back the calls and sell the stock (or roll down), after a loss-cut point is violated. Opening a new position is easier because you can pick and choose from thousands of candidates. There is no reason to buy unless you are completely satisfied; identifying the perfect combination of sound fundamentals, bullish indicators and favorable market conditions. You can search through charts for the perfect pattern and perform extensive due-diligence until the number of reasons to buy becomes overwhelming. The choice of ownership is yours to make and timing is not a constraint or limitation. "Buy today, tomorrow, or next month...maybe never." The entry position is simply that important! It deserves your best analysis and judgment. The issue should be one you want to own and the price and upside potential must be technically favorable, with minimal downside risk. Of course, correctly timing the purchase requires a thorough knowledge of charting techniques and market trends. The entire process is something you must completely understand because a successful exit is by and large the product of a proper entry. Good Luck! SUMMARY OF PREVIOUS PICKS ***** NOTE: Using Margin doubles the listed Monthly Return! Stock Price Last Call Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return RAMP 21.09 20.13 APR 17.50 6.00 *$ 2.41 13.9% CYCH 14.38 13.50 APR 12.50 2.69 *$ 0.81 7.5% FSII 22.88 20.50 APR 20.00 4.75 *$ 1.87 7.5% CYOE 12.06 11.00 APR 10.00 2.69 *$ 0.63 7.3% BIDS 7.13 5.94 APR 5.00 2.63 *$ 0.50 6.9% COB 14.13 11.75 APR 10.00 5.00 *$ 0.87 5.9% AND 12.75 11.19 APR 10.00 3.38 *$ 0.63 5.8% CRCL 27.63 26.00 APR 22.50 6.25 *$ 1.12 5.7% CBSI 25.75 22.38 APR 22.50 4.38 $ 1.01 5.1% ELIX 26.00 23.88 APR 20.00 6.88 *$ 0.88 5.0% TRMB 24.75 25.75 APR 20.00 5.63 *$ 0.88 5.0% POSS 12.56 9.94 APR 10.00 3.25 $ 0.63 4.9% VANS 16.13 16.13 APR 15.00 1.75 *$ 0.62 4.7% IGEN 28.25 25.00 APR 22.50 6.88 *$ 1.13 4.6% MPPP 29.25 21.00 APR 20.00 10.25 *$ 1.00 4.6% MUEI 14.50 14.00 APR 12.50 2.81 *$ 0.81 4.3% SCUR 22.88 17.00 APR 17.50 6.50 $ 0.62 3.3% RMII 10.13 7.13 APR 7.50 3.25 $ 0.25 3.2% EPTO 14.00 9.38 APR 10.00 4.75 $ 0.13 0.9% AND 16.13 11.19 APR 12.50 4.75 $ -0.19 0.0% BYND 5.75 4.28 APR 5.00 1.38 $ -0.09 0.0% TERA 8.81 6.44 APR 7.50 2.00 $ -0.37 0.0% TLXN 25.75 17.56 APR 20.00 7.13 $ -1.06 0.0% ESCM 17.50 11.63 APR 15.00 4.38 $ -1.49 0.0% IARC 27.63 17.38 APR 22.50 7.75 $ -2.50 0.0% THDO 15.75 9.69 APR 12.50 4.25 $ -1.81 0.0% EPTO 16.94 9.38 APR 12.50 5.25 $ -2.31 0.0% *$ = Stock price is above the sold striking price. Comments: Remember, selling covered calls is a neutral to bullish strategy and although it offers protection against bearish moves, it isn't a panacea. Loss-cut points provide unemotional exits at pre- determined areas where probability begins to favor further downside movement. Determining whether to exit or roll down depends on an individual's risk/reward tolerance and long term outlook for the underlying equity. Some stocks to consider exiting with further downside movement: Epitope (EPTO) breaking its 150 dma; 3do Comp. (THDO) moving below $9.00; Information Architects (IARC) below $15 though Friday's bullish close (a candlestick hammer) suggests a short-term bottom; Esc Medical (ESCM) closing below the February low as it suffers post-earnings selling; Telxon (TLXN) breaking below its 150 dma. Beyond.Com (BYND) has broken below the February low on increasing volume suggesting further downside potential. Rmi.Net (RMII) missed earnings and although revenues doubled, investors have fled the issue. Evaluate the long term outlook verses exiting now for a small loss. NEW PICKS ********* Sequenced by Company ***** Stock Last Call Strike Option Last Open Cost Return Return Symbol Price Month Price Symbol Bid Intr Basis Called Unchanged FSI 15.63 APR 15.00 FSI DC 1.25 674 14.38 4.3% 4.3% MAIL 17.25 APR 15.00 UMA DC 3.00 795 14.25 5.3% 5.3% PRGS 23.44 APR 20.00 RGQ DD 4.25 46 19.19 4.2% 4.2% PXD 10.50 APR 10.00 PXD DB 1.13 650 9.37 6.7% 6.7% R 22.69 APR 17.50 R DW 5.75 187 16.94 3.3% 3.3% CNJ 8.13 MAY 7.50 CNJ EU 1.50 25 6.63 13.1% 13.1% NUHC 22.13 MAY 17.50 NTQ EW 6.00 5 16.13 8.5% 8.5% Sequenced by Return Called (& Not Called) ***** Stock Last Call Strike Option Last Open Cost Return Return Symbol Price Month Price Symbol Bid Intr Basis Called Unchanged PXD 10.50 APR 10.00 PXD DB 1.13 650 9.37 6.7% 6.7% MAIL 17.25 APR 15.00 UMA DC 3.00 795 14.25 5.3% 5.3% FSI 15.63 APR 15.00 FSI DC 1.25 674 14.38 4.3% 4.3% PRGS 23.44 APR 20.00 RGQ DD 4.25 46 19.19 4.2% 4.2% R 22.69 APR 17.50 R DW 5.75 187 16.94 3.3% 3.3% CNJ 8.13 MAY 7.50 CNJ EU 1.50 25 6.63 13.1% 13.1% NUHC 22.13 MAY 17.50 NTQ EW 6.00 5 16.13 8.5% 8.5% Company Descriptions OI-Open Interest, CB-Cost Basis or break-even point, RC-Return Called, RNC-Return Not Called (Stock unchanged) **** FSI - Freedom Securities $15.63 *** On the Move *** Freedom Securities is a full-service, regionally focused retail brokerage and investment banking firm. Their three main areas of focus are its full-service retail brokerage operations, its equity capital markets activities, and its asset management operations. Retail operations involve Freedom Securities acting as a broker or dealer for individual clients in the purchase and/or sale of equity securities, fixed income securities, mutual funds, insurance products, options and U.S. government and municipal securities. After a year of acquisitions, Freedom Securities is on the move. The recent uptrend started after FSI reported record revenues in January and has moved the stock above its near term resistance at $14.00, which now becomes support. FSI is one of the few stocks that pay dividends, recently paying $0.05 a share in February. APR 15.00 FSI DC Bid=1.25 OI=674 CB=14.38 RC=4.3% RNC=4.3% Chart = /charts/charts.asp?symbol=FSI **** MAIL - Mail.com $17.25 *** Breakout Coming? *** Mail.com provides online messaging services, feature-rich e-mail and Internet fax services to businesses, ISPs, Web sites and also directly to consumers through their Mail.com website. Mail.com recently expanded its range of operations with the formation of World.com, a conglomeration of some of the world's leading Internet domain properties, including USA.com, Asia.com, Europe.com, India.com, lawyer.com and doctor.com, among many others, making a collaborative network of major Web properties which will serve the worldwide business-to-business (B2B) and business-to-consumer (B2C) marketplaces. Mail.com appears to be doing everything right as it recently reported record revenues that had increased 750%. The company continues to chalk up new contracts and partnerships, most recently with Net2Phone (NTOP). Mail.com offers reasonable speculation as it is set to expand into Asia. Both Prudential and First Analysis Securities have initiated coverage on Mail with "strong buy" recommendations. APR 15.00 UMA DC Bid=3.00 OI=795 CB=14.25 RC=5.3% RNC=5.3% Chart = /charts/charts.asp?symbol=MAIL **** PRGS - Progress Software $23.44 *** Trading Range *** Progress Software develops, markets, and distributes application development, deployment and management technology and Internet and Intranet enabling technologies to business, industry and government worldwide. They also provide consulting, education and support to their customers through their worldwide professional services organization. Their recent release of AppsAlive!, a new initiative from their ASPEN 2000 program, gives its Independent Software Vendors (ISVs) a jump-start in getting their ASP applications deployed on the Web, and simultaneously enables end users to test-drive these ASP applications online at no charge. Progress Software's post split sell-off appears to have created a trading range from $20 to $25. Last quarter showed a 22% increase in earnings as the company continues to expand its global presence, recently opening new subsidiaries in Colombia and South Africa. APR 20.00 RGQ DD Bid=4.25 OI=46 CB=19.19 RC=4.2% RNC=4.2% Chart = /charts/charts.asp?symbol=PRGS **** PXD - Pioneer Natural Resources $10.50 *** On The Move! *** Pioneer Natural Resources is one of the largest independent exploration and production companies in the United States with three domestic and two international divisions. Their Hugoton field in southwest Kansas is one of the largest producing gas fields in the continental United States. Pioneer currently has exploratory operations underway in the Gulf of Mexico and South Africa. In February, Pioneer's first well drilled on new Neuquen Basin acreage in Argentina, acquired late last year, was a discovery. A strong rally ensued taking the stock up to the January high. On Wednesday, Pioneer announced that the Aconcagua appraisal well, in the Gulf of Mexico, was successful and confirmed the deep offshore discovery made in March 1999. This led Dain Rauscher Wessels to initiate coverage on Pioneer with a buy recommendation. Investors jumped on board Thursday pushing Pioneer's price above the January high, confirming a bullish "double-bottom" pattern. APR 10.00 PXD DB Bid=1.13 OI=650 CB=9.37 RC=6.7% RNC=6.7% Chart = /charts/charts.asp?symbol=PXD **** R - Ryder System $22.69 *** New Qualcomm Alliance *** Ryder System provides a continuum of leading-edge logistics and transportation solutions and services to local, regional and multi-national businesses. Ryder's product offerings range from full-service leasing, commercial rental and programmed maintenance of trucks, tractors, trailers and special-use vehicles to integrated services such as dedicated contract carriage (buses) and carrier management. Additionally, Ryder offers overarching supply chain consulting and lead logistics management services which support clients' entire supply chains, from inbound raw materials through distribution of finished goods. Can a strategic alliance with Qualcomm (QCOM) help Ryder become more efficient with the OmniTRACS System? Investors sure think so as they pushed Ryder's stock above its 150 dma on heavy volume. Ryder has been in a year-long base and now appears ready for an upside resolution. We favor speculating with a conservative bias. APR 17.50 R DW Bid=5.75 OI=187 CB=16.94 RC=3.3% RNC=3.3% Chart = /charts/charts.asp?symbol=R **** CNJ - Cole National $8.13 *** What's Up? *** Cole National is a provider of eyewear products, optometric services and personalized gifts through two operating units: Cole Vision and Things Remembered. Cole Vision, including Pearle and Licensed Brands, is one of the largest optical retail companies in the world. Things Remembered operates the only nationwide chain of personalized gift stores. The vision side of the company has been suffering from intense competition and is completely reorganizing with Pearle and Licensed Brands to be managed as independent business units. Cole is looking to the future as it expects to break-even or post a small loss in the first quarter of 2000. Investors have jumped on board over the last few days pushing the stock above its 150 dma. For speculators who favor a cost basis at support. MAY 7.50 CNJ EU Bid=1.50 OI=25 CB=6.63 RC=13.1% RNC=13.1% Chart = /charts/charts.asp?symbol=CNJ **** NUHC - Nu Horizons Electronics $22.13 *** Solid Sector! *** Nu Horizons Electronics is engaged in the distribution of high technology active and passive electronic components. They are also an export distributor of electronic equipment and a contract assembler of circuit boards and related electromechanical devices for various original equipment manufacturers. Active and passive components distributed by Nu Horizons include memory chips, microprocessors, digital and linear circuits, microwave, RF and fiber optic components, transistors and diodes, capacitors, resistors and related networks. A favorable news release by Individual Investor's senior analyst Luciano Siracusano on March 20, resulted in another new high for Nu Horizons. He states that Nu Horizons is an attractively valued earnings play with nice exposure to some rapidly growing markets. We favor the bullish technicals and a cost basis below the 50 dma. MAY 17.50 NTQ EW Bid=6.00 OI=5 CB=16.13 RC=8.5% RNC=8.5% Chart = /charts/charts.asp?symbol=NUHC ****************** BIG CAP NAKED PUTS ****************** DISCLAIMER: Before entering any of the positions listed below, you need to understand your risk tolerance. Selling puts can be a High-Risk endeavor depending on the strike you choose to sell. For a greater return, you run a higher risk of being exercised. Therefore, please consider other strikes than the ones listed below if you aren't comfortable with the one we choose. We are gearing these towards higher-risk players. In any case, you can always select a lower strike with a lower return if it better meets your suitability. Stock Stock Strike Option Option Margin Percent Support Symbol Price Price Symbol Price At 25% Return Level A 103.88 100 A-PT 6.00 2597 23% 100 AFFX 148.44 130 FIQ-PF 7.88 3711 21% 145 AMCC 150.00 140 AZV-PH 19.50 3750 52% 130 AMCC 150.00 130 AZV-PF 7.75 3750 21% 130 BRCD 179.06 160 GUF-PL 6.63 4477 15% 160 CHKP 171.06 160 YKE-PL 14.50 4277 34% 170 CIEN 126.25 120 EUQ-PD 8.00 3156 25% 120 CMRC 148.00 135 RJC-PG 9.00 3700 24% 135 EXDS 140.31 130 QED-PF 7.50 3508 21% 130 EXDS 140.31 125 QED-PE 5.50 3508 16% 130 FDRY 141.00 130 OQ-PF 7.13 3525 20% 130 IMNX 63.44 55 QUV-PK 2.69 1586 17% 55 INKT 195.00 180 KAY-PP 10.38 4875 21% 180 INSP 145.25 140 OHY-PH 13.88 3631 38% 150 ITWO 122.00 115 QYJ-PC 10.13 3050 33% 115 JNPR 262.31 250 JUY-PJ 15.75 6558 24% 230 JNPR 262.31 240 JUY-PH 11.38 6558 17% 230 KLAC 84.25 80 CKV-PP 5.13 2106 24% 75 NEWP 135.00 120 QNW-PZ 10.38 3375 31% 120 PCLN 80.00 85 PUZ-PO 4.25 2000 21% 75 PDLI 79.44 75 PQI-PO 7.75 1986 39% 75 PEB 96.31 90 BVE-PR 5.50 2408 23% 90 PHCM 163.06 155 UMN-PK 10.38 4077 25% 150 PHCM 163.06 150 UMN-PJ 8.38 4077 21% 150 PMCS 203.66 190 SZI-PR 13.88 5092 27% 185 PMCS 203.66 185 SZI-PQ 11.75 5092 23% 185 QLGC 135.31 115 QLC-PC 6.88 3383 20% 115 RIMM 106.50 100 RUL-PT 7.88 2663 30% 105 SCMR 129.00 120 QSM-PD 6.75 3225 21% 120 SDLI 212.97 190 QZL-PR 10.00 5324 19% 175 SEBL 119.38 110 SGW-PB 6.13 2985 21% 110 SNDK 122.56 110 SWF-PB 7.13 3064 23% 115 VIGN 160.25 160 UOJ-PL 21.38 4006 53% 160 VRTS 132.00 120 VUQ-PD 7.88 3300 24% 130 To download a spreadsheet version of the above chart, please click here: http://www.OptionInvestor.com/downloads/hpapr-02.xls CMRC AGGRESSIVE SELL PUT APR-140 RJC-PH at $10.75 = 29% MODERATE SELL PUT APR-135 RJC-PG at $ 9.00 = 24% CONSERVATIVE SELL PUT APR-130 RJC-PF at $ 7.13 = 19% PDLI VERY AGGRESSIVE SELL PUT APR-85 PQI-PQ at $15.38 = 77% AGGRESSIVE SELL PUT APR-80 PQI-PP at $12.25 = 62% MODERATE SELL PUT APR-75 PQI-PO at $ 7.75 = 39% PHCM AGGRESSIVE SELL PUT APR-155 UMN-PK at $10.38 = 25% MODERATE SELL PUT APR-150 UMN-PJ at $ 8.38 = 21% CONSERVATIVE SELL PUT APR-145 UMN-PI at $ 6.25 = 15% *********************** CONSERVATIVE NAKED PUTS *********************** Position Management: The Review Continues... Our recent discussion on historical trends and pricing patterns has generated some thought-provoking suggestions and techniques for taking profits. While there are a number of successful entry and exit systems, this week's narrative summarizes the most commonly used method for position management: Sell-Stops... Learning to correctly manage portfolio positions; maximizing gains while limiting losses, is one of the most important aspects of successful investing. There is a good reason why the majority of investors lose money in the market. Most of them have yet to learn the #1 secret of profitable trading; the market will do whatever is necessary to prevent the uneducated masses from making money while repeatedly rewarding the astute professional minority. The first thing an investor should realize is that they must never hold any position without a protective Sell-Stop. The majority of market professionals use protective trailing stops but the retail trader is far less proficient in this practice. Using Sell-Stops eliminates the risk of emotional or reaction-based judgments in difficult situations and removes fear, hope and greed from the entire equation. The consistent use of this technique provides a mechanical and disciplined method for achieving profit. Allowing the market to make the exit decision is much more precise than relying on our complex human intuition. The proper placement of Sell-Stops requires a thorough knowledge of chart analysis and basic market trends or cycles. The primary price support areas and short-term (18 - 40 dma) moving averages are the main indicators that determine the initial target exits. After a trend had been established with the stock price above the moving average, the Sell-Stop is simply adjusted higher with each successive rally. As long as the stock price remains above its rising moving average, the trend is intact. As the moving average begins to level, the effects of short-term weakness become more apparent and the consolidation period begins. When the issue enters this high-risk area, the complexity of decision-making increases exponentially. Rather than try to discern the small differences between a healthy dip and a full-scale reversal, a successful trader will focus on the positioning of the Sell-Stop. A quick review of the trend-lines and regression channels will provide the necessary information for a timely and accurate adjustment. In this manner, the profit potential is maintained without the possibility of losing previous gains. Even with the most successful positions, the time to take profits will eventually arrive. The use of disciplined, proven techniques can help avoid the confusion that occurs when hard-earned money is at stake and make the whole experience less intimidating, possibly even enjoyable. Remember, taking profits is a good thing! Good Luck! *** WARNING!!! *** Occasionally a company will experience catastrophic news causing a severe drop in the stock price. This may cause a devastatingly large loss which may wipe out all of your smaller gains. There is one very important rule; Don't sell naked puts on stocks that you don't want to own! It is also important that you consider using trading STOPS on naked option positions to help limit losses when the stock price drops. Many professional traders suggest closing the position when the stock price falls below the sold strike or using a buy-to-close STOP at a price that is no more than twice the original premium from the sold option. SUMMARY OF PREVIOUS PICKS ***** Stock Price Last Put Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return CYOE 10.75 11.00 APR 7.50 0.44 *$ 0.44 14.8% AMTD 24.25 20.88 APR 20.00 0.75 *$ 0.75 13.1% CONV 12.81 10.88 APR 10.00 0.56 *$ 0.56 13.0% RSLC 23.88 24.00 APR 17.50 0.69 *$ 0.69 11.0% PCMS 23.19 18.50 APR 15.00 0.81 *$ 0.81 10.8% ZONA 10.88 8.56 APR 7.50 0.38 *$ 0.38 10.7% PMRY 19.50 18.38 APR 17.50 0.63 *$ 0.63 10.6% MCRE 25.06 21.25 APR 15.00 0.69 *$ 0.69 10.5% INSO 16.06 13.50 APR 10.00 0.44 *$ 0.44 10.5% EGRP 32.00 30.13 APR 25.00 0.50 *$ 0.50 7.9% MLT 30.00 24.56 APR 22.50 0.44 *$ 0.44 7.4% SEM 17.81 17.25 APR 15.00 0.31 *$ 0.31 7.3% NUHC 17.56 22.13 APR 12.50 0.31 *$ 0.31 7.1% OXGN 23.50 21.13 APR 17.50 0.50 *$ 0.50 7.0% TLCM 32.44 30.25 APR 22.50 0.44 *$ 0.44 6.9% SPNW 20.75 14.63 APR 15.00 0.75 $ 0.38 6.7% CDT 34.31 33.94 APR 25.00 0.56 *$ 0.56 6.6% SVGI 30.06 27.50 APR 22.50 0.38 *$ 0.38 6.5% SCUR 26.50 17.00 APR 17.50 0.75 $ 0.25 3.0% ISIP 24.00 14.06 APR 15.00 0.75 $ -0.19 0.0% MADGF 14.25 8.50 APR 10.00 0.50 $ -1.00 0.0% *$ = Stock price is above the sold striking price. Comments: Madge Networks (MADGF) and Isis Pharma (ISIP) are testing their respective 150 dma's. A move below that support area could be a potential exit signal. Shopnow.Com (SPNW) appears to have made a successful test of the February low - but only time will tell. Secure Computing is still suffering from the bearish outlook of the recent "Barrons" article. NEW PICKS ********* Sequenced by Company ***** Stock Last Put Strike Option Last Open Cost ROI Opt Symbol Price Month Price Symbol Bid Intr Basis Expired ADLT 18.75 APR 12.50 LQY PV 0.44 30 12.06 10.5% CD 18.69 APR 17.50 CD PW 0.56 3216 16.94 8.2% CYOE 11.00 APR 7.50 QTO PU 0.38 576 7.13 14.6% EGRP 30.13 APR 25.00 QGR PE 0.56 4981 24.44 7.5% LGTO 44.63 APR 30.00 EQN PF 0.38 766 29.62 4.1% TLCM 30.25 APR 22.50 TMU PX 0.50 118 22.00 7.6% UPR 14.50 APR 12.50 UPR PV 0.56 415 11.94 12.8% Sequenced by ROI ****** Stock Last Put Strike Option Last Open Cost ROI Opt Symbol Price Month Price Symbol Bid Intr Basis Expired CYOE 11.00 APR 7.50 QTO PU 0.38 576 7.13 14.6% UPR 14.50 APR 12.50 UPR PV 0.56 415 11.94 12.8% ADLT 18.75 APR 12.50 LQY PV 0.44 30 12.06 10.5% CD 18.69 APR 17.50 CD PW 0.56 3216 16.94 8.2% TLCM 30.25 APR 22.50 TMU PX 0.50 118 22.00 7.6% EGRP 30.13 APR 25.00 QGR PE 0.56 4981 24.44 7.5% LGTO 44.63 APR 30.00 EQN PF 0.38 766 29.62 4.1% Company Descriptions OI-Open Interest CB-Cost Basis or break-even point ROI-Return On Investment **** ADLT - Advanced Lighting Technologies $18.75 *** What's Up? *** Advanced Lighting Technologies designs, manufactures, and markets a broad range of metal halide products including lamps, materials used in the production of lamps, and other components for lighting systems as well as complete metal halide lighting systems. Their materials and components are used in the manufacture of its own lighting systems for sale to end-users and are sold to third-party manufacturers for use in the production of their metal halide products. They also design, manufacture, and sell thin film deposition equipment for the lighting, ophthalmics and optics industries. Shares of ADLT's stock soared recently after they unveiled a new fiber optic telecom unit. The move will allow ADLT to streamline their R&D, manufacturing and marketing programs and General Electric (GE) agreed with the plan, increasing its stake in the company by $20 million. This play is somewhat speculative so do your homework! APR 12.50 LQY PV Bid=0.44 OI=30 CB=12.06 ROI=10.5% Chart = /charts/charts.asp?symbol=ADLT **** CD - Cendant $18.69 *** Own This One! *** Cendant is a global provider of consumer and business services. Their core competencies include building franchise systems, providing outsourcing solutions and direct marketing. As a franchiser, Cendant is among the world's leading franchisers of hotels, rental car agencies, tax preparation services and real estate brokerage offices. Cendant is the world's largest vacation exchange service, a major provider of mortgage services to consumers, and the global leader in employee relocation. In direct marketing, Cendant provides access to insurance, travel, shopping, auto, and other services primarily to customers of its affinity partners. Cendant has made a number of moves in the last few months to establish its Internet holdings and Lehman Brothers recently offered a "buy" rating with a target of $30. APR 17.50 CD PW Bid=0.56 OI=3216 CB=16.94 ROI=8.2% Chart = /charts/charts.asp?symbol=CD **** CYOE - Coyote Network Systems $11.00 *** New Entry Point? *** Coyote Network Systems provides telecommunications products, international long distance services and network services. Their products include the DSS Switch and the Carrier IP Gateway. They also provide network integration and customer support services. Coyote's new plan is to deliver applications to the desktop using a simple telephony-based Internet appliance over their own branded network. In March, Coyote announced it had entered into an exclusive agreement with e-tel corporation to deliver standards-based Voice over Internet Protocol (VoIP) technology directly to smart-card enabled screen phones. CYOE plans to acquire Group Long Distance (GLDI) and in the future, the company may be called Quentra Networks as it is seeking a name change. Even with the recent consolidation, the technical character suggests a resumption of the bullish trend. APR 7.50 QTO PU Bid=0.38 OI=576 CB=7.13 ROI=14.6% Chart = /charts/charts.asp?symbol=CYOE **** EGRP - E*trade Group $30.13 *** Second Try! *** E*TRADE Group is a provider of online investing services and has established a popular destination for self-directed investors. The company offers automated order placement and execution, along with a suite of products and services that can be personalized, including portfolio tracking, charting and quote applications, real-time market commentary and analysis, and other information services. E*trade's proprietary transaction-enabling technology supports automated, easy-to-use and cost-effective services that empower its customers to control their investment decisions and financial transactions. The brokerage group is on the move with quarterly revenues expected to exceed estimates. Analysts have upgraded the sector based on strength from unprecedented trading volumes. Friday's technical recovery demonstrates strength in the issue and support exists near the cost-basis. We suggest you try to target-shoot a higher premium on a daily pull-back. APR 25.00 QGR PE Bid=0.56 OI=4981 CB=24.44 ROI=7.5% Chart = /charts/charts.asp?symbol=EGRP **** LGTO - Legato Systems $44.63 *** On The Rebound! *** Legato develops, markets and supports advanced enterprise-strength storage management software for the network computing market. The company maintains offices throughout the United States and around the globe. The core elements of their storage solutions include scalability, heterogeneity, performance, ease of use and central administration. Legato's storage management solutions have been designed for both network administrators and end users, and can be accessed through a number of graphical user interfaces, including Windows, Windows NT and Motif. The company is recovering from January's earnings debacle and with the rally in data storage issues, analysts are starting to take notice. The demand for storage will increase with the demand for bandwidth and Legato's product offerings are well suited to meet emerging needs in the area of data security and information management. An aggressive position is available at the APR-$35 strike. APR 30.00 EQN PF Bid=0.38 OI=766 CB=29.62 ROI=4.1% Chart = /charts/charts.asp?symbol=LGTO **** TLCM - TelCom Semiconductor $30.25 *** Chip Sector *** TelCom Semiconductor designs, develops and markets a diversified portfolio of high-performance analog and mixed-signal integrated circuits for a wide variety of applications in the wireless communications, networking, computer, and industrial markets. Analog integrated circuits are used to measure or control certain variables that have an infinite number of values or states such as light, temperature, pressure, weight or speed, and are required to interface between digital electronics systems and a variety of every day applications. TelCom offers a diversified portfolio of analog and mixed-signal integrated circuit products for a wide range of market applications. A new web site, new agreements and 3 million shares placed at $25. Somebody obviously thinks it is worth more than $22. APR 22.50 TMU PX Bid=0.50 OI=118 CB=22.00 ROI=7.6% Chart = /charts/charts.asp?symbol=TLCM **** UPR - Union Pacific Resources $14.50 *** Oil Sector! *** Union Pacific Resources Group is engaged in the exploration for and development and production of natural gas, natural gas liquids and crude oil in the United States and Canada. UPR is also engaged in the hard minerals business through joint ventures and royalty interests in several coal and trona (natural soda ash) mines. Union Pacific has facilities across the United States as well as international operations in Canada, Guatemala, and Venezuela. Merrill Lynch recently issued a bullish report on a number energy exploration and production companies, saying they should benefit from higher oil and natural gas prices. Solomon Smith Barney backed the bullish outlook with a new "buy" rating on UPR and with earnings due after the April expiration, this is relatively conservative "Speculation Only" position. APR 12.50 UPR PV Bid=0.56 OI=415 CB=11.94 ROI=12.8% Chart = /charts/charts.asp?symbol=UPR ************************ SPREADS/STRADDLES/COMBOS ************************ A Great Way To End The Week! Wednesday, March 29 Technology stocks plummeted today while blue-chip issues rallied as fund managers adjusted their portfolios for the end of the first quarter. The Dow Jones Industrial Average rose 82 points to 11,018 on strength in General Electric (GE), which moved up $8 during the session. The technology-driven Nasdaq Composite fell 189 points to 4,644, the third largest decline on record. The S&P 500 Index, balanced by the two opposing trends, closed almost unchanged at 1,508. Declines led advances 2-to-1 on the Nasdaq while advances were slightly ahead on the NYSE. Volume was heavy in both markets. The 30-year Treasury rose 1/32, with the yield down to 5.97%. Tuesday's new plays (positions/opening prices/strategy): Qualcomm QCOM APR130C/A140C $8.25 debit bull-call Legato LGTO MAY30C/APR40C $8.25 debit diagonal Legato LGTO JUN50C/MAY50C $2.62 debit calendar Bank Of Tokyo MBK MAY12C/MAY15C $0.00 debit bull-call Qualcomm opened higher but fell to a mid-morning low near $152, allowing a brief but favorable entry opportunity. Of course the question now is whether it can continue to oppose the bearish trend in technology issues. Legato moved in the other direction, falling quickly at the open to a low near $40. Once again the period for entry was fleeting but prices at or near the target debits were observed on both positions. MBK was less cooperative with a higher than suggested debit. As the stock climbed during session, the position followed and we were unable to enter the spread for less than $1.50 debit. We will monitor the position for a new opportunity on Thursday. Portfolio plays: Industrial stocks enjoyed modest gains today as investors moved funds away from high-flying technology issues into areas of the old economy. The rotation was blatant and obvious with many of the classic stocks becoming safe havens from the uncertainty of recent Nasdaq profit-taking. A well-known fund manager said the current volatility in the sector could be the start of a global sell-off for the group. His remarks about lofty valuations for technology issues followed by a day a note of caution sounded by Goldman Sachs strategist Abby Cohen. With the momentum already building, there was little time to avoid the onslaught and many of the marquee companies suffered significant losses. Investors continued to sell for profits from recent big gains, driving the technology index to correction levels and for now, the bottom is nowhere in sight. With analysts lining up to take their shot at the Nasdaq and the horrid technical condition of the group, the question is, "When will the selling end?" With the attitude of impending doom and gloom in almost every technology sector, we used the morning session to adjust (and exit) a number of the potentially bearish issues. Our goal was simply to limit losses or protect current gains and in the case of favorable long-term positions, increase the downside margin for profit. In the Credit Spread Section, the obvious candidate was Electro Scientific (ESIO) and if you didn't close the spread for a profit last week, today's move below the 30 DMA certainly garnered your attention. The options were; a closing debit near the original debit or, a roll-out to attempt to profit from the potential downward move. Either method is much better than a significant loss but if you intend to hold until the end, watch for a break through support at the bottom of the current range near $52-$53. That would be the final nail in the coffin. The other credit-spread issues are still well above their recent support levels, but they will require close attention if the correction in technology issues continues. Most of the plays in the Diagonal Spread Portfolio have already been adjusted for maximum downside protection but we did notice a few issues with bearish implications. P-Coms (PCMS) offered the easiest decision with a favorable early-exit return of $1.50 profit. The Cirrus (CRUS) and Cadence (CDN) positions also offer closing profits. The only viable adjustment for Andrew (ANDW) was a transition to the MAY-$22.50 series. The new cost basis for the JUL15C/MAY22C position is $6.50. Espire (ESPI) has now broken below a recent trading range and with earnings due Friday, it may be time to hedge our bets. In this case, there are no options at $7.50 in May so the alternatives are limited; close the play or hope for better-than-expected earnings and a change in technical character. It's your call (and you already know our approach to these situations). One other issue bears attention as it has the potential to inflict large losses. The Theragenics (TGX) spread is short at $15 with the stock trading near the neckline of a head-n-shoulders top formation. A move down to the MAY-$12.50 options would yield a $1.50 credit and reduce the break-even basis to $11.75. Our LEAPS/CC's plays have enjoyed an incredible run in past weeks and the new positions in American Online (AOL) and Bank One (ONE) are performing above expectations. Our previous plan to roll the AOL position up and forward appeared to be a great move until today's closing sell-off. The debit for our adjustment to MAY-$70 options seemed favorable at $1.00 but with the current drubbing of technology issues, we may have been a bit premature. Another issue that has succumbed to the new "lo-tech" attitude is Premier Technologies (PTEK). In this case, we also decided to move out and down to the MAY-$7.50 series. The $0.75 credit reduces our cost basis to break-even at the sold strike of $7.50. The majority of Debit Spread positions are near maximum profit and can be closed for favorable returns. Obviously the decision to exit early for smaller gains is a personal one and should be made based on your individual risk/reward outlook. The only issue that has a potentially large downside risk is RMI Net (RMII) and the bearish technicals suggest that a loss-limiting departure may be the safest move. The current closing credit is $3.25. The remaining technology-based plays are correctly positioned to ride out any potential storm and with luck, the foundering Nasdaq will soon recover and return to its bullish ways. Thursday, March 30 The sell-off in technology issues continued today with the Nasdaq posting its fifth biggest point loss ever. Concerns over soaring valuations in the sector led the index 186 points lower to 4457. The bearish activity dragged the Dow industrials lower with the average closing down 38 points at 10,980. The S&P 500 Index was also down 20 points to 1487. Volume on the NYSE hit 1.18 billion shares with advances beating declines 1,563 to 1,451 on the Big Board. Bonds benefited from a flight to quality and the 30-year Treasury was up 1 12/32, bid at 105 6/32, where it yielded 5.87%. Portfolio Plays: The Nasdaq recorded its third straight triple-digit loss today as investors continued to take profits in the leading technology issues. The force of bearish momentum was significant with the composite index breaking through a number of key support levels, including its 50-day moving average. The blame for this week's sell-off lies squarely on comments from some well-known analysts. First, Goldman Sachs strategist Abby Cohen rocked the market by lowering her equity exposure. Then emerging market expert Mark Mobius finished the job, calling for a 50% to 90% decline in Internet stocks. Fund managers suggest the recent activity is related mostly to end-of-quarter selling but almost all of them expect further declines in the technology group. Mutual fund flows are also expected to slow in April, further exacerbating the potential for share value deterioration. Biotechnology and Internet stocks are seen as particularly weak, with their recent inflated levels and speculative nature while classic issues are once again considered the best investment for the long term. Just when we thought everything was under control, the technology index attempted to set a new record for the biggest one-day loss. Fortunately, investor sanity resurfaced and the panicked exodus slowed to an orderly departure. Even with the late recovery, the Spreads Portfolio endured a number of unfavorable moves. In the LEAPS/CC's Section, Cabletron Systems (CS) fell to $30 after the company beat quarterly estimates but failed to achieve targets for its most important division. In addition, Cabletron's split into four separate entities is going to take longer than expected, a situation that could temporarily dampen financial results and hamper the company's ability to focus on its business. The loss was extreme but our position still traded at a profit during the session. Espire (ESPI) however, was a different story. Recall that we had the opportunity to close the play near break-even or hope for better-than-expected earnings. Well it appears there was good reason for the recent decline. Today company officials said Espire expects to post an EBITDA loss of about $35 million for the fourth quarter and has also failed to comply with certain credit agreements. The stock closed near $9.50 but it is sure to open at much lower levels tomorrow. That certainly says something for keeping losses at a minimum! Of course there were numerous other stocks that continued lower but most are moving in sympathy with the broad technology sector and they still have the potential for a significant recovery when the group eventually rebounds. Lets hope that occurs soon! There were some pleasant surprises in the portfolio today. The new position in Legato (LGTO) enjoyed some profitable moments as the issue reached a midday high above $45. The bullish calendar spread traded at $3.25 credit, a $0.62 profit in just one day. Advanced Micro Devices (AMD) rose over $5 to a new high near $60 on news the company will not sell its Network Products Division. Company officials said growing demand for the product lines in its Network Products division led them to this decision and most analysts applauded the move. Philip Morris (MO) rallied over $2 after a newspaper report suggested that a bill making the rounds in the Florida Legislature could protect tobacco companies from huge punitive-damage awards. The bill, which may be introduced as early as Thursday, would bar a lump sum punitive damage award in a class-action suit brought in Florida. The bill's aim is not to protecting the tobacco companies, but at keeping the flow of settlement payments flowing to the state. Regardless of the reason, tobacco companies would benefit tremendously from any limitation on damage awards and investors took notice. Both of our bullish calendar spreads benefited from the upside activity and the early-exit profits were favorable. Friday, March 31 Technology stocks recovered today as momentum from bargain-hunting buyers eventually erupted into a significant rally. The Nasdaq climbed 114 points to 4,572. Late selling in blue chips took the Dow 58 points lower by the end of the session, with the average closing at 10,921. The S&P 500 gained 10 points to 1,498. On the NYSE, advancing issues led declines 20-11, with 1.2 billion shares traded. In the bond market, the 30-year Treasury was up 19/32, bid at 105 24/32, where it yielded 5.83%. Portfolio Plays: Technology stocks enjoyed a modest recovery today as investors vied for recently oversold issues with enthusiasm. In contrast, blue-chip issues ended the session lower as the interest in old old economy stocks faded. By most accounts it was a favorable session with Banks, Biotechs and Transports surging along with high quality technology issues in a show of broad strength. A few analysts said the rally was based mostly on the effect of quarterly window dressing but the successful test of technical lows indicated the potential for new bullish trend. Volatility was also scrutinized with both markets enduring triple-digit swings during the session. Looking back, the first quarter has seen unprecedented market movement with a majority of the biggest "all-time" losses and gains occurring in both the Dow and the Nasdaq. Fortunately (for option traders), the volatility is expected to continue well into the second quarter. The majority of issues in our portfolio participated in the rally and the incredible resurgence of technology stocks was surprising. Favorable moves in stocks such as Applied Power Conversion (APCC), Electro Scientific (ESIO), MetroMedia Fiber (MFNX), Nvidia (NVDA), Northern Trust (NTRS) and Titan (TTN) revitalized the outlook for the Spreads Section. A number of mid-cap stocks also enjoyed big rallies. American Online (AOL), Computer Associates (CA), and Legato (LGTO) traded higher in bullish sessions and lower priced issues such as E*Trade Group (EGRP), Network Associates (NETA) and Silicon Valley Group (SVGI) benefited from the broad technology recovery. With most of our positions comfortably back in positive territory, the key will be to identify those issues that fail to profit from the current trend and remove them from the portfolio. Positions that are questionable include: Duramed (DRMD), and of course, Epitope (EPTO). All of the remaining spread and straddle positions have excellent potential for eventual profit and we plan to manage them with an iron fist in the upcoming weeks. With any luck, today's rebound in the technology group will continue and we can resume our conservative (and previously successful) approach to spread trading. Questions & comments on spreads/combos to Click here to email Ray Cummins ****************************************************************** - NEW PLAYS - The "Index Spreads" article from Thursday's section generated a number of favorable E-mail replies and for those of you who wish to try the Credit-Spread Strangle, there are two new candidates; one in the OEX and another in Sun Microsystems (SUNW). With the recent character change in many Nasdaq issues, I have decided to offer some bearish positions to appease the weekly influx of credit-spread requests. These plays are based on the current price or trading range of the underlying issue and the recent technical history or trend. The probability of profit from these positions is also higher than other plays in the same strategy based on disparities in option pricing. Current news and market sentiment will have an effect on these issues. Review each play individually and make your own decision about the future outcome of the position. **** CAMP - California Amplifier $31.00 *** Going Down? *** California Amplifier designs, manufactures and markets a broad line of amplifiers, down-converters, antennas and integrated products. These products are used in the reception, conversion and amplification of microwave signals used in conjunction with the reception of video and audio data transmitted from satellites or earth-based transmitters using microwave signals. The company operates in three business segments: Satellite Products, Wireless Products, and Antenna Products. CAMP also designs, manufactures and markets two-way voice and data transceivers used for wireless communications between fixed locations. In addition, the company markets MultiCipher, a broadband analog scrambling system that decodes all channels transmitted simultaneously, and a broad line of antenna products used in Global Positioning Satellite systems for vehicle and asset tracking, surveying and marine and airborne navigation. CAMP has recorded substantial losses in the last few days and the recent drop below the 50-day moving average line was a very bearish signal. The stock is now mired in downward momentum fueled by selling pressure and the trend is unlikely to reverse soon. With the lack of interest by investors, the stock has begun to show significant weakness and the change in character appears to have long-term potential. A test of the 30 DMA will be the first indication of its technical strength. PLAY (very aggressive - bearish/credit spread): BUY CALL APR-45 UMP-DI OI=560 A=$1.31 SELL CALL APR-40 UMP-DH OI=683 B=$2.25 INITIAL NET CREDIT TARGET=$1.06 ROI(max)=27% Chart = /charts/charts.asp?symbol=CAMP **** IRF - International Rectifier $38.12 *** Rolling Over? *** International Rectifier is a major worldwide supplier of power semiconductors used for power conversion. Through its Hexfet product line, the company is a market leader in power MOSFETs, which are used in anti-lock braking and fuel injection systems, disk drives, printers, video cameras, power tools, electronic lighting ballasts, industrial test equipment, telephone networks and modems, and satellites. Power MOSFETs and IGBTs serve the switch function in power conversion to provide an even, usable flow of power for electronic equipment. The company's Hexfet power MOSFET products and IGBT transistors comprised 70% of fiscal 1998 sales. Major customers include Delco, Ford, IBM, Phillips, Motorola and Arrow Electronics. IR has manufacturing facilities in North America, Europe, and Asia, and markets its products through sales staff, representatives and distributors. On Thursday, IRF fell below its short-term moving average on a reversal in retail buying momentum. A continued bearish trend from this point will signal a change in character. With respect to a longer-tem outlook, IRF is at a key moment. The stock price is in close proximity to the 50 DMA and a break above or below this line on strong volume would indicate the beginning of a new trend. Watch this one closely for signs of recovery, especially if the Semiconductor sector begins to rally. PLAY (very aggressive - bearish/credit spread): BUY CALL APR-50 IRF-DJ OI=480 A=$0.62 SELL CALL APR-45 IRF-DI OI=726 B=$1.50 INITIAL NET CREDIT TARGET=$1.00 ROI(max)=25% Chart = /charts/charts.asp?symbol=IRF **** TQNT - Triquent $73.50 *** You Can't Get There From Here! *** TriQuint Semiconductor designs, develops, manufactures, and markets a broad range of high performance analog and mixed signal integrated circuits for communications markets. The company's products are used in a variety of communications systems including cellular phones and pagers, fiber optic telecom equipment, satellite communications systems, high performance data networking products and aerospace applications. The company also uses its proprietary gallium arsenide technology to enable products to overcome the performance barriers of silicon devices in a variety of applications. TQNT has also endured significant losses in recent weeks, moving lower on heavy volume. The issue is now trading well below an intermediate moving average. Obviously the stock is becoming oversold in the current downtrend but the potential for a reversal to the sold strike price is slim. Any upside movement would be tested first by the recent bearish (price) trend-line, then the moving averages and finally the neckline of the brief "double-top" formation near $100. A tall order indeed! PLAY (conservative - bearish/credit spread): BUY CALL APR-115 TNN-DC OI=173 A=$1.43 SELL CALL APR-110 TNN-DB OI=270 B=$2.00 INITIAL NET CREDIT TARGET=$0.62 ROI(max)=14% Chart = /charts/charts.asp?symbol=TQNT **** SUNW - Sun Microsystems $93.69 *** Trading Range? *** Sun Microsystems is a worldwide provider of products, services and support solutions for building and maintaining network computing environments. Sun sells scalable computer systems, high-speed microprocessors and high performance software for operating network computing equipment and storage products. They also provide support, education and professional services. The company's products are used for many demanding commercial and technical applications in various industries including telecom, manufacturing, financial services, education, retail, government, energy and healthcare. This play is simply based on the recent technical consolidation pattern in SUNW. The price history exhibits a reasonably stable range of support and resistance and a review of the volatility trends and option premiums suggests this is a favorable position for those who like to speculate with limited risk. PLAY (aggressive - neutral/credit-spread strangle): BUY CALL APR-115 SUX-DC OI=6788 A=$1.18 SELL CALL APR-110 SUX-DB OI=13368 B=$1.75 INITIAL NET CREDIT TARGET=$0.62 ROI(max)=14% - and - BUY PUT APR-75.00 SUX-PO OI=63278 A=$1.06 SELL PUT APR-80.00 SUX-PP OI=5059 B=$1.62 INITIAL NET CREDIT TARGET=$0.62 ROI(max)=14% COMBINED ROI(max)=28% UPSIDE B/E=$116.25 DOWNSIDE B/E=$78.75 Chart = /charts/charts.asp?symbol=SUNW ****************************************************************** INDEX OPTION SPREADS... ****************************************************************** 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 some predetermined time. 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 made with index options similar to those made with individual stock options. Many professional traders employ index spreads as an income strategy. We favor debit spread on the SPX for momentum and hedge or longer-term plays and OTM credit spreads on the OEX when the risk/reward is favorable. Low ROI disparity spreads will also be listed (when available) for the conservative index trader. **** OEX - S&P 100 Index $815.06 *** OTM Credit-Spreads *** The Standard & Poor's 100 Index is a capitalization-weighted index of 100 stocks from a broad range of industries. 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. OBSERVATIONS: For OTM credit spread trades, we like to use the actively-traded S&P 100 Index options because they contain much more premium than options on individual stocks and provide an underlying instrument less prone to huge, gapping moves. Review the 'Market Sentiment' section for specific technical information on the S&P 100 Index. PLAY (bearish/low ROI): BUY CALL APR-865 OEX-DM OI=1038 A=$3.75 SELL CALL APR-860 OEX-DL OI=3691 B=$4.25 NET CREDIT TARGET=$0.56 ROI=12% PLAY (bullish/low ROI): BUY PUT APR-755 OEZ-PK OI=1741 A=$3.25 SELL PUT APR-760 OEZ-PL OI=4264 B=$3.62 NET CREDIT TARGET=$0.43 ROI=9% By combining two credit spread positions, you can participate in a popular neutral strategy known as the Long Iron Condor. It is often used with range-bound positions and is a limited risk, limited profit strategy that gives you a wide range for success. Chart = /charts/charts.asp?symbol=OEX ************************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 millineum 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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