The Option Investor Newsletter Sunday 4-9-2000 1 of 5 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at www.OptionInvestor.com Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 4-7 WE 3-31 WE 3-24 WE 3-17 DOW 11111.48 +189.56 10921.92 -190.80 11112.72 +517.49 +666.41 Nasdaq 4446.45 -126.44 4572.89 -390.04 4963.03 +164.90 -250.49 S&P-100 821.52 + 6.46 815.06 - 17.59 832.65 + 45.91 + 37.24 S&P-500 1516.35 + 17.77 1498.58 - 28.88 1527.46 + 62.99 + 69.40 RUT 542.99 + 3.90 539.09 - 34.93 574.01 - 0.76 - 29.04 TRAN 2827.72 + 64.48 2763.24 + 75.09 2688.15 + 64.32 +258.54 VIX 26.94 - .27 27.21 + 1.40 25.81 + 2.14 - .13 Put/Call .37 .48 .42 .42 ****************************************************************** Lots of jobs but they missed the whisper number! Now that is one whisper number I am glad we missed! The March Jobs report showed 416,000 new jobs were created in March but that was far less than the 600,000 whisper number and tech stocks celebrated by continuing their rally. The unemployment number remained steady at 4.1% instead of dropping to 3.9% as some feared. The only negative news was the rise in average hourly wages of +0.4% for the third month in a row. The market ignored this news and brushed aside any concerns over higher inflation. Compared with the market volatility earlier in the week, Friday was a sleeper. (Qcharts had incomplete data for the Nasdaq on Saturday) After a historic week in the markets Friday was a very slow news day. When deciding what to write about this weekend I was faced with General Janet Reno and the Cuban crisis or Phillip Morris and the 187th liability suit against tobacco. Given the choices this will not be your normal market wrap and more like an Options 101. If you want tobacco news try www.yahoo.com. What a week! The highest volatility ever in the markets the largest volume ever on both the Dow and Nasdaq on Tuesday. Friday, normally a clean up or clear out day, logged the sixth lightest volume day of the year on the Nasdaq at 1.5bln and only 892mln on the NYSE. Fortunes were lost this week. I have heard numbers from readers that would cause some people to start looking for a high window. Several traders lost literally millions of dollars. The highest I heard was $12mln. That would be really painful. Still the markets came right back, again, and those that sold at the bottom are licking their wounds. Eventually there will be a drop that will not come back and numbers I heard this week will be small potatoes compared to the real money that may be lost then. With this backdrop to the current earnings cycle there may not be much stability in the market. The markets are becoming increasingly reactive to bad news. Earnings warnings, comments by politicians, economic reports and world news is combining to create an environment that is very difficult to trade and sometimes downright impossible. The intraday swings for stocks that previously were measured in $2 to $4 ranges are now measured in $5 to $10 ranges. Internet and networking stocks can move $25 to $50 intraday. This is great if you are on the right side of the trade but very painful if you are caught betting the other way. Will the old market volatility ever return? I doubt it. The higher we go the bigger the swings. Short of dropping back to a Nasdaq at 2500 and a recession we are stuck with high volatility. The only method for trading these swings is successful entry points. Successful entry points require patience and perseverance. If you are going to whine every time a stock runs away from you then you need to focus on longer term options like leaps. Entry points for leaps are much less important. I did not say "unimportant" just less important. If you are trading shorter term options I suggest you target several different stocks each day and pick a price where you would be very happy to enter a trade. If you get your price on one stock a day you should be highly profitable in the long run. I know the thought of not making a trade tomorrow causes lost sleep from some readers but rushing into multiple trades simply means you will lose more than you win. If your average win is 50% and your average loss is 25% and half of your trades are winners then you will be ok. If your ratios are different then maybe you should consider reducing the number of losing trades. (You do that with patience) Most successful professional traders will tell you that they are only right 30% to 40% of the time. Yes, you read that correctly. One noted trader who makes documented gains of over $100mln per year only averages a 38% win/loss ratio. Only one out of three trades is a winner but he makes over $100mln a year. His secret is recognizing a loser early and cutting his losses. The point I am trying to make here is simply we need to adapt to the market because we have zero chance of the market adapting to us. If you are rushing into the market the morning after a newsletter to place trades on newsletter picks then you are going to lose money. NEVER buy options the morning after a newsletter. I believe that entry points only come once each week for every stock. The odds of an entry point coming at the open on the morning after a newsletter are only about 20%. Entry points are comprised of many things. Market movement, sector movement, economic news and stock movement. When you buy a call option on a stock you want that stock to act like a helium balloon and rise out of sight in the clouds. News events and sector movement are like pin holes in that balloon. Helium is leaking out as fast as it is going in. In a perfect environment the news would all be good and investor sentiment for the sector would be gushing bullishness. Would your balloon be going up in that environment? What if your balloon was in an elevator going down? You could fill that balloon with helium until it was about to burst and if the elevator (market) was going down, the balloon would go down as well. In a bad market your stock may drop slower than the rest of the sector but it will still drop. 99% of all stocks dropped last Tuesday but many have rebounded $20-$30-$40 dollars since then. Our challenge is to wait for the right entry point and only ride up elevators. Sounds simple but it is not. We are our own worst enemy when it comes to opening trades. Our emotion gets in the way. We want to pick winners and we convince ourselves that the play is a winner based on our personal bias. There are readers who believe that XYZ stock is a buy regardless of what the chart looks like. Would you enter a play with a bad chart just because of which company it was? Don't say no so quickly. What if I said the chart was Dell or QCOM or JDSU? Would that change your thought process? At our recent seminar I showed the attendees a chart of Dell Computer and asked if they would buy Dell based on that chart. About 85% said yes. Later I showed them three other charts without names and asked them if they would buy those stocks based on the charts. Only about 5% said yes. There was no name so the decision had to be based solely on the chart. 95% said no. The point here? They were all charts of Dell only from a different time perspective. We are all subject to different emotional prejudices. The bias we bring to the trade will determine our success or failure. Have you ever made trade after bad trade on the same stock because you kept convincing yourself that it was going to move up again any minute? I have. I have tried to force trades on stocks that were winners last week simply because we are biased by our previous wins. Just because a stock moved in one direction yesterday or last week does not mean it has to move that way again today or tomorrow or ever. We all know how to make those stocks rocket again, quit playing them. I tried to force several trades on Juniper during the seminar last week because I had made a ton of money on it the week before. I was reading "between the lines" on the JNPR chart and applying my bias to the trade. Guess what? I lost every trade on JNPR last week at the seminar. This week I had deleted it from my daily watch list and it rose +$85. My bias from several losing trades last week caused me to ignore it this week. Our market bias causes the same problem. I launched about a dozen trades on the very bottom of the big drop on Tuesday. On Thursday I was very profitable and almost every play was a long way from my stop losses. When the Nasdaq and Dow appeared to be rolling over Thursday afternoon I closed all my positions for a nice profit because I "thought" the market was going to move down again. At today's close those positions would have been worth more than double what I closed them for. Am I unhappy? Sure, but the profit I made for two days in the market was more than I made working full time the first twenty years of my adult life. Would I do it again given the same circumstances? You bet! Experience has taught me to take what the market gives me and fight as hard as I can to keep from giving it back. When I find that crystal ball that will tell me when intraday dips are just dips then I will hold my positions until five minutes before expiration but until then I will take profits when offered. Entry points, the original topic here, will be increasingly more important as volatility increases. I am still out of the market and will stay out of the market until this cycle runs its course. I will study stock charts every night and load up my Qcharts for the next morning but until I am confident the Nasdaq is going to continue the current rally past tax day I will just watch. After a big win it is a common problem for traders to race back into the market and give back their gains due to improper timing. Janar has talked about this many times. If you trade just to trade then you are going to find it harder and harder to have more wins than losses. Last year in mid April the Nasdaq tanked and started a down trend that lasted until mid June. With three minor corrections and one -28% heart attack in the last three months there may not be a repeat performance this year. Still, with taxes due next week and most traders still invested I want to err on the side of caution. I have had a dozen or so traders email me and ask about selling calls next week in front of the crash or buying puts on the QQQ. This shows me that I am not the only one that is expecting another market event. The contrarian view of course is a rally over that wall of worry as traders on the sidelines rush to buy stocks if the crash does not come on schedule. This unknown is what keeps us on our toes. If there was a big read X on April 17th on every calendar you bought saying "tax crash day" I bet calls would be cheap the day before. So, here I am standing on the sidelines at the Indy-500 trying to decide if I should jump into a car as it races by at 200MPH or hope for a wreck like we had last Tuesday and a yellow caution flag saying BUY - BUY - BUY! The Dow seems to be echoing my concern. It is earnings season but it cannot make any progress. To be fair it is consolidating from a very good run of over +1000 points from two weeks ago but now that the Nasdaq is moving up again you would think the Dow would follow. At 4446 the Nasdaq is only -150 points from the beginning of some overhead resistance at 4600-4800. With Yahoo having already announced the Internet parade is lacking a leader and thus one less Nasdaq sector will be offering support. The biotechs are up about +25% in three days and are due for a rest. Chalk up another weak link. Financial stocks are trending back down after Greenspan indicated that rate increases are here to stay and the market might even ignore stronger increases, hint, hint. Greenspan appears to be steadfast in his rate increase policy and the age old adage about "don't fight the Fed" is going to become more true with each passing rate increase. Just to further cloud the issue we have Import/Export prices, PPI and CPI next week and traders are worried a strong report could prompt the Fed to raise rates between meetings. The strong wage increases three months in a row are sure to be weighing on Greenspan as well. Tuesday Fed Gov Laurence Myers speaks on monetary policy and Wednesday Greenspan speaks on his favorite topic, "The Future of the Securities Markets" to the Senate Banking Committee. I may be missing the boat if the market charges off again next week but I just want to be sure it is not the Titanic. The Nasdaq volume has declined for three days straight and finished as the sixth lightest for the year. This is not a good sign considering the earnings rush next week. The Nasdaq is up over 700 points from the Tuesday low and we could see some profit taking any day. Remember, profit taking by others is a good entry point for smart traders. Buy the dips but only when the rebound starts. Trade smart, sell too soon. Jim Brown Editor Disclosure: My current long positions: none, sold too soon My current short positions: none *************************Advertisement**************************** Options Traders ! Mr. Stock's new online trading site has been designed for you. Trade spreads, straddles, covered writes, and stocks online. Get real-time market data throughout our site. Advanced options tools include volatility graphs, implied volatilities, and more. http://mojofarm.mediaplex.com/adserver/click_thru_request/565-58-1875-3 ****************************************************************** *********** Jim's Plays *********** As I have mentioned earlier this week and in the market wrap today I aggressively bought the dip on Tuesday. In reality I actually "sold" the dip by selling some deep in the money naked puts. This is the same thing as buying calls except the premium decay works for you not against you. My personal preference is to sell deep in the money and capture the intrinsic value decay as well as the stock price moves up. I am constantly asked how I can justify the "huge risk" by selling deep in the money. People have a hard time understanding that my risk is exactly the same, or less, than buying straight calls. If you buy calls on a stock for $20 and set your stop loss at $15 then your risk is $5 per contract. Would it make a difference if you bought $10 calls and set your stop loss at $5.00? How about buying $50 calls and setting your stop loss at $45? See my point? It is all the same risk, $5. The same is true if I sell naked puts $10 out of the money, say $140 puts on a $150 stock. If I set my stop loss at $15 then my maximum loss is $5. If I sell $50 in the money or a $200 naked put for say $50 and set my stop loss for $55 then I still only lose $5. This is exactly the same risk as the out of the money play, $5. When you buy calls the premium decay works against you. When you sell puts the premium decay works for you. The longer you have the position the less time value. The stock can stay perfectly flat and you still make money. When we are experiencing strong runs by the market leaders selling naked puts is the equivalent of buying the stock for 25% margin. You get the benefit of the big gains almost dollar for dollar because the delta on deep in the money is almost 1.0. These were the stocks and strikes I sold on Tuesday: Stock Strike/Premium/Friday EBAY 200 - 54.97 - 26.00 AMAT 95 - 10.00 - 1.06 did not sell deep enough! AMCC 160 - 58.13 - 25.50 EMC 130 - 16.09 - 1.50 QCOM 160 - 30.08 - 13.75 DISH 80 - 19.25 - 10.13 SUNW 100 - 22.25 - 6.38 TERN 210 - 40.35 - 39.00 ARBA 125 - 26.57 - 25.25 EXDS 150 - 50.00 - 16.13 I added these on Wednesday morning ITWO 130 - 32.81 - 10.38 PMCS 210 - 45.81 - 27.38 VIGN 200 - 42.00 - 19.38 As I stated in the market wrap above I closed all of them way too early on the Nasdaq dip on Thursday. Had I kept them I could have doubled my profits. Hindsight is 20:20 unfortunately. If I can ever get my foresight to 20:20 I will raise the price on the newsletter and it will still be worth it! This week I am going to try my hardest to follow the market. If it looks like we are going to roll over I am going to sell calls on high priced stocks that have announced earnings already, buy puts on the QQQ and the OEX. If the market appears to be moving up I may try to leg into some call spreads for free so I can capture some upside with zero downside. I am not going to sell naked puts because of the possibility of a dip by April 17th. This week may try the patience of Job but I am determined not to give back a large chunk of my profit trying to force trades. Good Luck Jim ********** Stock News ********** Time To Look at Optical Cable Corp? By Matt Paolucci Shares of Optical Cable Corp. (OCCF) are down more than 50 percent from their 52-week high of $67.38 reached just a month ago, currently trading at $33. Surprisingly, the decline has occurred while the company has been racking up orders for its cable products. Optical Cable manufactures and markets a broad range of fiber optic cables for "high bandwidth" transmission of data, video, and audio communications over moderate distances, typically ten miles or less. OCCF's cables can be used both indoors and outdoors and utilize a tight-buffer coating process that protects the optical fiber. Earlier this week, OCCF announced record orders booked in March amounted to $6.0 million, outpacing its previous record of $5.8 million set back in June of 1997. In the last five months, measuring from November to March, orders booked increased 36 percent, from 860 to 1,170. "We continued to see momentum build on order input throughout March, up 30 percent versus the $4.6 million reported for February. The order input is strengthening and broadening out from a more diverse customer base with increasing order frequency," Robert Kopstein, President and Chief Executive Officer, said. Kopstein added, "Historically, we have realized in excess of 100 percent of order input. Since most orders are booked upon shipping within 2-3 weeks, this strong order input should be reflected as stronger sales for March and April." The Company said it has been expecting a ramping up of business for the last two quarters, noting that as Y2K concerns have wound down and new budgets started to appear for 2000, spending for communications items designed to improve efficiency were very strong. The Company's revenues and profitability are also looking better. For its most recent quarter, ending January, net sales for the first quarter of fiscal 2000 increased a modest 4.6 percent to $11.3 million from $10.9 million in the same period last year. But net income surged 40 percent to $2.0 million, or $0.054 per share, versus $1.45 million, or $0.038 per share in the year ago period. What's even more encouraging were comments uttered by Kopstein last month regarding the future of OCCF, saying, "We could be 50 times, 60 times bigger than we are today." The Company also said it expected sales growth of 20 percent for fiscal 2000. Wall Street still has no coverage on the stock. OCCF may be undiscovered now, but don't count on that for very long. With Wall Street's love for anything optical, it is bound to show up on analysts' radar screens soon. One note of caution: With only about 2 million shares in the float, the stock can be volatile. But when you consider net profit margins of 17 percent, no debt and accelerating order flow, Optical Cable offers investors an opportunity to own a piece of a fast-growing industry at a substantial discount to the overall sector. ******* Ask OIN ******* How Did You Fare This Week? By Ryan Nelson The answer might be different than you think. For example, after taking a beating on Monday and early Tuesday, I asked myself one question. What am I doing watching my long plays slowly bleed to death in this failing market? That was early enough on Tuesday that I closed everything out before it got really ugly. I took the small losses and sat in cash waiting to strike when the time was right. You all know how this story ends. The market cratered early afternoon to a point when the Dow and Nasdaq where down over 500 points. At that point, I headed for the hot list on Q-charts and looked for stocks that were the most beaten. ISSX, BRCM and PILT stood out the most to me and I loaded up. Not to mention, a boat load of QQQ calls as well. Needless to say, Tuesday was one of my greatest days in the market. Doubling or tripling those plays by the end of the day. Was that the answer you expected to the title question listed above? If you had similar success, congratulations to you. But there are others out there who may have bought high and sold low. Today we are going to review how you could have been prepared to strike when the time was right for what some consider a year's worth of profit in one day. The reason I went long calls on Monday is because the week before saw the biggest one-week decline for the Nasdaq. It was down 390 points. Traders were screaming for a relief rally and were poised to buy. Insteasd, the Nasdaq dropped another 300+ on Monday. Now those same traders were selling everything they owned. Why the sudden change? Are we not still oversold and due for a bounce? By Tuesday, you had margin call selling and panic from longer-term investors really start to kick in. This is the kind of entry points you wait months for. In truth, I haven't seen such beautiful entries in a year and a half. So when the momentum to the downside started losing steam and the sellers were finally exhausted, it was time to buy. The key that most people forget was the market was in need of a bounce on Monday. By Tuesday, you had stocks down 30-50% that day. Unless the world is going to end with a violent -2000 Nasdaq day on Wednesday, the downside from here was limited. Those who kept a cool head and were prepared with cash on hand for just such a day, well...let's just say you have to be pleased with the outcome. Take the rest of the year off and enjoy your profits. Believe me, as an ex-broker, we had clients we never heard from until days like this. They would call in, buy up all they could, call back the next day after the bounce, sell it all, and head back to their yacht for the year. One day's work for a year's worth of profit. That is exactly why these dips can only go so low. There is way too much cash ready to be injected at a moment's notice. These are the real market-savy investors of the world. Patience, patience, patience, and then strike when the fire is hot. The suckers are the ones that laughed and said, "no way ARBA ever gets back to $100" and bought at $300 last month, only to cough up their shares at $100 on Tuesday in a margin call. Smart money quietly walks away with their shares. And where does smart money reside? Yep, yachts, mansions, castles...you name it. So who do you want to be? Let's look at some charts and see if we can't further our progression to in the future be lumped in the smart money, market-savy category. ---------------------------- Nasdaq 100 Tracking - Stock OK, let's start with my mistake. I got to admit, I felt like a rookie here, but I will come clean with the story. Tuesday morning I had closed out everything and begin to wait for a bottom to start a buying spree. I had a feeling it was going to get ugly and I wanted to be prepared. So when the Nasdaq was trading down towards 4000, I thought "pyschological level, round number, gotta bounce". So I bought some calls to test the water as soon as it hit 4000. What a mistake! It didn't even think about bouncing. It fell to 3900 in five minutes after I bought. If you learn anything about trading, remember for it to show some signs of bottoming before you jump in. I decided to hold this position based on the fact that the Nasdaq was still overdue for a bounce. Besides the increasing volatility was keeping my contracts a float. To keep a long story short, I weathered the quick downdraft, set a limit at double what I paid and was filled by the end of the day. Life is good when your mistakes turn into doubles. Unfortunately, that usually doesn't happen. Are you starting to understand why this was such a big day and a once a year opportunity? Let me say one more thing. These events are becoming more rare because investors realize the buying opportunity gold mine it presents and are always anxious to buy the dips. I am hoping for a retest of last week's lows, but it is unlikey that it will be so dramatic because everyone will be ready this time. (note: Q-charts was experiencing some difficulty and didn't show Friday's results) ---------------------------- ISS Group - ISSX This was the most successful play I had on Tuesday and I want to show you what attracted me to it. I had never played ISSX myself, although we do play it in the newsletter from time to time so I was comfortable with the stock. The attraction was the low float which caused the big intraday dip. Stocks with less shares outstanding are subject to more pronounced moves. I couldn't resist buying April 80 calls when the stock was at $73. I closed the position later that day with the stock at $88 and the options at $12.50. ---------------------------- Xcelera - XLA Please give me your view of Xclera (XLA). Thank You This is one of the more volatile stocks in the Nasdaq. It had a wildly successful year, with one stock split after another. In fact, on Friday they held a shareholder meeting to increase the authorized shares for their next split later this month. I am bearish on XLA here though. It sunk as low as $80 on Tuesday and sprung right back to where it currently stands at $158. My feeling is XLA was overdone on the sell-off and now overdone on the recovery. Not to mention it has run back into resistance here. This column is obviously not here to tell you what to do with your stock, but you can see from the chart why it may struggle in the short-term. With that said, split runs sometimes have a mind of there own. If you catch the right move, XLA can be a very profitable play due to the big swings. Just make sure you identify the trend first. I will be looking for a put play entry if it rolls over from here. It is stocks like this that have had incredible moves up in the past year and the valuations are now suspect. Use caution if you are going to play this stock. Stop losses are mandatory. ---------------------------- 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, April 7, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,850 11,250 11,111 Neutral 3.16 SPX S&P 500 1,410 1,475 1,516 BULLISH 3.21 OEX S&P 100 780 800 822 BULLISH 3.21 RUT Russell 2000 470 580 543 Neutral 4.04 NDX NASD 100 3,800 4,700 4,292 Neutral 4.04 MSH High Tech 900 1,150 1,077 Neutral 4.04 XCI Hardware 1,480 1,510 1,683 BULLISH 2.24 CWX Software 1,450 1,670 1,425 BEARISH 4.04 SOX Semiconductor 1,050 1,360 1,223 Neutral 4.07 ** NWX Networking 1,070 1,190 1,055 BEARISH 4.04 INX Internet 800 940 770 BEARISH 4.04 BIX Banking 520 615 565 Neutral 3.16 XBD Brokerage 450 580 498 Neutral 4.04 IUX Insurance 520 620 577 Neutral 3.16 RLX Retail 900 1,000 997 Neutral 3.16 DRG Drug 330 380 360 Neutral 3.30 HCX Healthcare 680 760 728 Neutral 3.30 XAL Airline 130 160 149 Neutral 3.10 OIX Oil & Gas 265 300 287 Neutral 3.16 Posture Alert This last week was witness to the biggest NASDAQ drop, the biggest intra-day swing, the biggest reversal, and the biggest gainer, which we got on Friday! Sectors that were the benefactors of once-again-confident investors included Semiconductors (+5.77%), Networking (+5.53%), the NASDAQ 100 (+5.01%), and Software (+4.64%). Losers Friday included Brokerage (-2.99%), Banking (-2.43%), and Oil & Gas (-2.27%). With Friday's action, we have upped Semiconductors to Neutral from Bearish. **************** Market Sentiment **************** Sunday, April 9, 2000 Great Expectations! This last week was about as exciting as you can get. For the NASDAQ, we witnessed the biggest down day, the biggest inter-day swing, the biggest reversal, and then the biggest point gainer to end out the week. Hopefully, many of you caught the entry points that were given, because you will be a happy camper this weekend. Either way, earnings season is now under way, with Motorola on deck and ready to step up to the plate. 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), their estimated earnings release date, as well as the put/call ratio for that security if available. 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#: Put/Call Index(PI): Earnings: Ratio: April 10th Adtran ADTN 1.60 +.35 +.38 .31 Ariba ARBA 1.10 -.07 -.06 n/a Biogen BGEN 1.20 +.43 +.45 .85 Motorola MOT 1.76 +.60 +.61 .72 April 12th Advanced Micro AMD 7.50 +.45 +.48 .48 Altera ALTR 1.42 +.34 +.36 .93 Checkpoint Soft. CHKP 2.23 +.35 +.37 .55 Genentech DNA 3.29 +.26 +.28 n/a April 13th Ameritrade AMTD 2.94 -.03 -.02 .29 Iomega IOM 4.02 +.02 +.03 .28 KLA-Tencor KLAC 1.37 +.31 +.35 .92 Juniper Networks JNPR 1.92 +.03 +.05 .75 PMC-Sierra PMCS 1.55 +.16 +.17 .48 Sun Microsystems SUNW 2.66 +.22 +.23 .76 Gateway Computer GTW 2.18 +.41 +.42 .54 *=Estimated earnings dates Now with the exception of Advanced Micro Devices and Iomega, the Pinnacle Index is extremely low across the board. We view this as a result from this last Monday/Tuesday's dramatic selloff, where many investors may have purchased protective puts on the way down to hedge themselves. Due to the major capitulation that occurred, our Pinnacle Index may be skewed to one side, which is why we also showed the put/call ratio this week. Regardless, if these companies meet or beat the whisper number and have a positive conference call, the sentiment seems to be indicating a potential rally for many of these securities. We will update any major changes in Tuesday's letter, because the last several trading days leading to an earnings event can be the best gauge of sentiment. 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 (5.708): The current yield is in bullish territory. Mixed Signs: Volatility Index (26.94) The VIX continues to prove that the low 30's are an excellent buying opportunity, and the low 20's continue to be a great selling opportunity. BEARISH Signs: IPO Dilution: With so many IPO's hitting the market, there seems to be dilution occurring where shares of finally freed up to sell by insiders. $58.6 billion of stock was freed up for trading in March, $67.3 billion this month, and $118.3 billion in May. This is too much stock for the system to handle. 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, and most recently, Tellabs. 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) 9.83 OEX Close 821.52 Underlying Support (800-825) 1.25 Underlying Support (770-795) 2.17 What the Pinnacle Index is telling us: Based on Friday's figures, overhead continues to remain significant. It is doubtful that the OEX will significantly break into this level by April expiration, unless the put buyers come rushing into this level. Put/Call Ratio Friday Strike/Contracts (4/7) CBOE Total P/C Ratio .37 CBOE Equity P/C Ratio .32 OEX P/C Ratio .71 Peak Open Interest (OEX) Friday Strike/Contracts (4/7) Puts 800 / 9,650 Calls 830 / 11,175 Put/Call Ratio 0.86 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 April 7, 2000 26.94 ************* COMING EVENTS ************* For the week of April 10, 2000 Monday None Scheduled Tuesday None Scheduled Wednesday Export Prices ex-ag. Mar Forecast: N/A Previous: 0.5% Import Prices ex-oil Mar Forecast: N/A Previous: 0.3% Thursday Retail Sales Mar Forecast: 0.3% Previous: 1.1% Retail Sales ex-auto Mar Forecast: 0.6% Previous: 1.0% PPI Mar Forecast: 0.6% Previous: 1.0% Core PPI Mar Forecast: 0.1% Previous: 0.3% Initial Claims 04/08 Forecast: 265K Previous: 260K Friday CPI Mar Forecast: 0.5% Previous: 0.5% Core CPI Mar Forecast: 0.2% Previous: 0.2% Business Inventories Feb Forecast: 0.5% Previous: 0.5% Industrial Production Mar Forecast: 0.4% Previous: 0.3% Capacity Utilization Mar Forecast: 81.8% Previous: 81.7% Michigan Sentiment Apr Forecast: 107.1 Previous: 107.1 Week of April 17th 04/18 Housing Starts 04/18 Building Permits 04/19 Trade Balance 04/20 Initial Claims 04/20 Philadelphia Fed 04/20 Treasury Budget ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? 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The Option Investor Newsletter 4-9-2000 Sunday 2 of 5 ************* WOMAN'S WORLD ************* IRA Trading - Leaping Thru The Sell-Offs By: Renee White The most frequently asked question I get from readers involves information regarding trading in IRA accounts. It seems that many people are unaware that this is a possibility. Unfortunately, I about mistaken information given to them by their brokerage firms. Many of the things they are told, have been flat out wrong. Perhaps the new employees have never worked anyplace else and do not know that rules vary. The bottom line for trading options and Leaps in your IRA account is that it is up to the descretion of the individual brokerage firm. It depends on just how much liability they have agreed to accept with their own business practices. Each firm is different. Some only allow Leaps. Others allow long calls and puts, or anything that does not require the use of a margin account. Covered Calls are commonly used in IRAs. Before I go any further, I want to stress to everyone that trading options in your IRA is dangerous and risky. Yes there are conservative strategies, but they are conservative for options. Options in general are considered risky investments and are not suitable investments for everyone to attempt. One's risk profile must be well understood as well as a strong thorough understanding of option trading and the markets in general, to be successful. Please understand this: I am not recommending that anyone trade options in their IRAs and I certainly do not believe or recommend that beginners learn how to trade options using IRA money. This is just careless and basically a really dumb thing to do. Don't learn how to trade with IRA money. No one can learn options without losing money and IRA money is not easily replaceable, if at all. Many people immediately think of using IRA money because they see money just sitting there and they don't have other money available to risk. But this is exactly the opposite from what one should be thinking. DO NOT trade options with money you can not afford to lose. Why? Because option traders do lose money and it doesn't always come back. In an IRA, you can not replace it. It is not a place to learn. I'm sorry to stress this so much, but I don't want to be misunderstood. This is not a rocommendation. Now before I get 100 emails asking me who allows this, let me say that I am in the process of setting up new IRA accounts, while I try some new firms. I have used Fidelity and Wall Street Access, but I am still looking for something better. Fiding firms that allow option trading in an IRA are harder to find even when not looking for perfecton. You just have to look around. Every trader's needs are different. You will have to call and ask questions that are pertinent to your own situation. I have George Fontanill's book, Trade Options Online (see OI bookstore), which has an excellent section in the back that not only reviews online brokers for option traders but also gives their phone numbers and addresses. I find this valuable because getting a list of firms that cater to options traders, is difficult in general. It's a great reference book and the review section makes an easy phone list to call from. I have changed the way I trade my accounts through the years. Many years ago, I traded only options in my personal account and held no equities. That changed after I went through several bad months with bad economic data which affected the markets. I started exercising some of my winners, in order to hold equities in the account. Since then, my account has been more resilient. During big sell-off periods, these long positions did not vaporize like the decaying time premium of short term options. It also kept me from investing in options with 100% of my money. I've only exited one position from a declining stock I had exercised, which was Compact Computers. This has given me an extra opportunity for growth, a cushion, a form of taking some money off the table while still playing with it...all mostly from stock that I got "for free" which was paid for by other contracts I chose to sell. Last year though, when things got to rocking with Y2K, I was going nuts. I was ferverishly trading several accounts in my IRA and my personal accounts. Some positions were duplicated, others completely different. Splits here, there and yonder, earnings runs, end of year buying frenzy, exercises and QCOM race horses. Slow transactons, executions and page loadings in my IRA, constantly caused palpitations and angina. By the end of the year, I was worn out keeping up with several accounts and exhausted remembering to be more conservative in my IRA. Something had to give because I was beginning to lose money in my IRA accounts, while I played with the personal one and vice versa. Although I am still hunting for the perfect firm for my IRA, I am happy with the changes I've made. I exercised a lot of options over the last 9 months to hold long stock positions, but instead of using the balance to feverishly continue trading, I keep only a small portion for short term trades and use the rest to buy Leaps in a multitude of companies to diversify my stock portfolio. Now I keep a list of positions I want to buy during the next big market sell-off. I buy as much time as I can afford and I choose stocks with good financials, good earnings and great market sentiment and interest. I love to buy Leaps on companies with split histories to my favor, especially if I can catch them approaching split range before a sell-off. Sometimes I buy slightly ITM, while other times I buy slightly OTM depending on the trade and my time horizon. Usually the longest Leaps are OTM. Choosing the strike price centers around knowing the movement of the equity in general. The first time I went shopping to load up on Leaps was during the October '99 sell-off, before the November FOMC meeting. The month had already been bad, so the premiums really got cheap during the fear of the Fed. Those positions were really fat and juicey by the end of December. In the past, I had bought Leaps here and there, but I had never bought so many at one time diversifying out to so many different positions before. There are different ways to play Leaps. It is up to you to decide if you want to hold till January '01 or 02 expiration to exercise, allowing you to ride out the dips and rallies. Some buy at dips in order to sell on market highs during rallies. Some set stop losses, others hold. Some use them as leverage and trade against them. The Leaps I have bought during major dips have held up well through the next dip. I have continued to load with positions on every major sell-off and in fact I keep cash sitting in reserve for these events. Only occassionally do I chose to place shorter term trades now, with positions I feel have a high probability of going up. I don't want to baby-sit that account anymore because my routine bills are paid out of my personal account. This allows for a better use of my time. Profits from those short term trades go into the cash pool, waiting on the next big dipper. This small adjustment to my IRA has been a very healthy change. The higher delta of the long term Leaps helps move these positions nicely. Entering the positions when implied volatility is deflated, also has proven to show nice rewards during recovery. Even with the huge sell-off this week, it did not show the damage that my short term personal account did. These Leaps just kept on going. What a comfort! Sweating bullets in multiple accounts is just not worth it to me. I am still recovering in my personal account, from the sell-off this week. The shock has now passed but I'm still licking my wounds. Luckily, I am only 3 points OTM on about 60 contracts of QQQ while the other 40 are now all ITM. If my fingers don't get uncrossed, I may just sneak by this next week with only mild scars from the last 2 weeks. That is my opinion as of today. Next week is another story and still unknown. I am still nursing those positions with the eye of a hawk, highest risk and highest concentration. But these IRA Leaps just keep on performing, with small hiccups. They aren't as wild and crazy, but there movement is consistent. I may add them to my personal account starting with the next sell-off. With the long time premium in your favor, market sell-offs are not as worrisome, while giving you nice flexibility with higer delta movement. It seems to be a great blending of owning the stock and playing the option, slower motion with greater appreciation potential. The long term capital gains will feel good too. In April, I will re-evaluate all my IRA Leap positions. Any that have not moved up nicely from their purchase price, will get sold right before their earnings. Why? Because I want to sell when their implied volatility is the highest, during their earnings run (or a split run). The potential downdraft of the April post-earnings depression, which bleeds into a typically weak period in the markets from May through September, will be shrinking the premiums with lower I.V. Also, July is when the January '03 options start coming out. Anything I want to sell should be done now, so cash is available for longer term Leap purchases during the summer slowdown or next correction. Also, this gives me an opportunity to roll-out profitable Jan '01 positions and buy further out. There are some people who only trade with Leaps. That's not a bad plan. I could see buying on the sell-offs with low implied volatility, then selling right before earnings or right before a stock split to capture the inflated premiums to your favor. Also, on those that are held, one can always sell short term covered calls against them to generate extra income. Read up on calendar spreads if you want to know more about that. I don't routinely do calendars only because I don't have enough time to do everything. But I will do them during the summer slow season, along with covered calls against the equities. For several months I have wanted to discuss Leaps in an IRA, but I have always been afraid that people who should not trade options in their IRA would run there with the glassy-eyed dreams of riches all new options traders begin with. Learning with money that is not meant to be at risk, with money you can't afford to lose is not a long term goal, but a short term exit. Many people plan on making tons of money trading options but few are around several years later. It's just not that easy. Learning how to trade in an IRA is not wise. Hopefully, with the big hit over the last few weeks, people will think twice before considering it. It should be left to experienced traders and then, only if your risk tolerance is appropriate and your understanding of the markets and options, is sound. For me it became a wonderful investment tool allowing for more flexibility than I have time to do. *************** Making Money On The Downside By: Mary Redmond Sometimes you can make even more money on the downside of a bad market than you can in a rising market. The reason for this is that downside selloffs have a tendency to be faster and more severe than the gains which can be made on the upside. If you look at a chart of the Dow or the Nasdaq over a period of time you usually see a long period of rising prices followed by a quick, intense sell off. This week was an example. The Nasdaq lost over 1500 points in only a couple of weeks. Some people feel the easiest way to make money while the market or a stock is dropping is by buying puts. This can be highly profitable if you are accurate in your timing. For example, if a stock or index drops below a key support level this is usually indicative that a larger drop will follow. If you are long a stock and it drops below a key support level you can buy a put to help offset the loss. There are others ways to profit on the downside also. For example, if you buy a call and sell the stock short you are creating what is known as a synthetic put. Before put options were listed traders used synthetic puts to make money in a down market. This can give you a certain amount of protection if the stock rises and the opportunity to profit greatly if the stock drops. Another method is to buy a convertible bond and sell the stock short. In this situation you are protected from both downside and upside risk. You can profit if the stock drops dramatically and you don't have the element of time decay which exists in option strategies. It is important to determine if the bond has call features before implementing this strategy. A safer method for relatively longer term investing is to hold onto cash until the market crashes and you can buy your favorite stocks at bargain basement prices. When everyone is running scared there can be buying opportunities of a lifetime. If you are expecting a particular stock to drop you can also put on a put debit spread. This means you buy a put and sell a put with a lower strike price. For example, if XYZ stock was 100, you could buy a 95 put and sell a 85 put if the two options were not yet 10 points apart in price. The maximum potential gain would be 10 points, the maximum potential loss would be the cost of initiating the spread. I had sold my two year leaps on At Home at 17 when the stock went up to 38 last Wednesday for a 5 point profit. I did not have any open short term option positions this week, only NT, Dell and cash. I had written a covered call on Dell. I didn't mind taking a small loss on NT. I thought the Nasdaq could recuperate later in the month. I wasn't completely prepared for the carnage which occurred on Tuesday, but then how could anyone really be prepared? I grabbed Qualcomm at 127 on Tuesday during the severe capitulation, and it closed at 146 1/2. I also took advantage of the drop to buy back some of the covered calls I had written for a fraction of the price I wrote them at. Then on Wednesday I loaded up on leaps. I bought CMGI Jan 01 100 leaps for 2500. I also bought more Nextlink options, NT stock and Qwest leaps. I think there were great opportunities this week as I saw alot of high quality stocks being thrown out in the garbage. Some people think that puts can provide a significant amount of protection on their stock positions. Sometimes this can be true; if you buy a stock and a put you have some downside protection. However, if the stock has been very volatile the call and put options will both have high premiums, as the premiums refect the volatility of the underlying security. If you buy a volatile stock and a put you can end up paying so much for the put that the stock has to practically skyrocket to make up for the loss on the put. According to AMG Data Services, mutual funds showed a net cash outflow for the first time in months. For the week ending March 5 technology funds experienced a net outflow of approximately 756 million, versus average weekly inflows of over 2 billion which have been occuring this year. Is it any surprise that the technology stocks crashed? Large cap funds saw an inflow of about 766 million. The total net was an outflow of approximately 271 million. Since liquidity is a key short term technical indicator we might be in for a choppy market if this continues. I have heard some market analysts say that they believe this is the start of a trend, and people have been so scared out of the technology sector that they will not put money into tech funds for a very long time. This seems unlikely. I think this may be a temporary event, partly related to heavy 1999 tax bills. Americans have shown that they have a love affair with technology funds for a very long time, and during active periods, mutual funds have shown cash inflows of up to 50 billion dollars per month. No one knows for sure, but it seems that patterns over a longer period of time are more indicative than one or two week blips. ************* Is VIX a Vixen? By: Lynda Schuepp Webster's defines vixen as "a shrew ill-tempered woman" and she showed up in the market this week. When the market started dropping on Tuesday, I was ready. On my desk, I keep two beanie babies given to me by my daughter- Snort and Curly. To you non-Beanie Mom's-that's a bear and a bull. They are my constant companions during the day when I do battle. Normally old Snort, the bull, sits on top of my monitor, but today it was time for Curly, the bear to have his ride. Volatility plays such a large part in options pricing, I felt I should share some of my volatility plays from Tuesday. When the sharp fall in prices hit my screen, I knew I wanted some of this action. I was watching the QQQ's and when they dropped under 100 I was ready to buy puts and calls. Call me a chicken but I wasn't sure which end would be the real winner, but I knew one of them would put some food on the table this week. I bought the April 100 calls on the QQQ's (yes calls) for 6-3/8 points when the QQQ's were at 101 and bailed out at the end of the day for 7 when the QQQ's were only at 99 3/4. The "At the money" calls had a delta of .56. They shouldn't have moved but instead moved up 5/8! What was going on here? Enter stage left--the diva of option traders, Lady VIX. After the big drop in the QQQ's and then its subsequent run up, implied volatility got pumped into the options pricing. VIX went from 26.5 to 35. Once the QQQ's looked like they would run into resistance at 100, I sold my calls. I have found that the option's pricing is usually somewhat laggard in a fast market. The VIX had dropped but the Implied volatility had risen, so I decided to get out because I really was siding with Curley (the bear) going forward. Just to show you how much volatility changed the option's price, the April 100 calls, now 6 points in the money, are only selling at 8-3/4. The QQQ's went up 6 points and the option only went up 1-3/4. During this same roller-coaster period I shorted the QQQ's (no up tick needed) because I couldn't get fast fills on the options. I rode them down for a 6-point gain and got out at the first bullish candle on my 10-minute charts. I also bought the April 105 puts when the QQQ's were trading at 100 9/16 for 8-3/4. I sold them later for 11. They went as high as 16-7/8 but I was afraid of a volatility crush, leaving me holding the bag with overpriced options. In a fast market the options makers spread the bid ask so far apart you can drive a Mack truck through it. While I am not an advocate of buying overpriced options, there are times when the price will become even more overpriced. Tuesday was one of those days. Another volatility play I did on Tuesday was to buy back calls I had written against some positions for some nice tidy profits. In my article last week, I wrote about a leap spread on GE that I legged into and was into the trade for nothing. Many readers wrote and asked would I have to wait until Jan 02 to profit? Well here's your answer: NO, NO, NO. On Tuesday, I bought back my GE Jan 02 180 leaps I had originally sold at 30 the previous week, for a profit of 5 points. On Friday I sold them back again for 29 3/4. I pocketed 5 points, and the spread is still worth 18 points if I wanted to sell it! I am often asked why I just don't sell the profitable long leg and move on instead of writing the second short leg. If I had sold the long leg I would have made 16 points total. Granted, I would have the 16 points to put into other trades, but when I am very bullish about a stock and I can stay in the trade for free and have the ability to have some short-term action, I opt for the later. By putting on the second leg, I made 5 points, with a potential to make 40 points (180 - 140), have no money in the trade and the spread is now worth 18 points. I have free money to do a volatility play on this spread whenever the opportunity arises and I think we will see another test of the lows this coming week. Friday's gain on weak volume says to me, the vixen will return, and if so, I'm ready. *************** TRADERS CORNER *************** When in Doubt, Run in Circles, Scream and Shout By: Janar Wasito "When in Doubt, Run in Circles, Scream and Shout" -- that is a phrase that is handed down from one generation of Marines to another through the hands of drill instructors who run the stress indoctrination training which recruits and officer candidates face to earn the title, Marine. It describes what Drill Instructors love to do in order to assess how individuals pampered by a liberal society will react under stress. At the end of the day, the Marines don't care about your GPA or your family, they want to know if you will act spasmodically under stress -- if you will spas out, as in, "that candidate was a spas, he would have gotten his whole platoon killed." Drill Instructors, and eventually fellow candidates love seeing the weak go -- it makes those who remain stronger. The Marines want an individual who will sit at the bottom of a foxhole with a radio and calmly call in artillery fire and close air support on the enemy as he breaks through the wire. Run in Circles, Scream and Shout -- the phrase came back to me again and again this past week. How did you trade Black Monday & Blacker Tuesday? I stuck to my plan, I didn't have a trade in my calender spread strategy, and I didn't do a thing. And here is the only statistic that counts. Since March 20, the first day of the April Options Cycle when I started my Calender Spread Strategy in size, I am up 19%, and the NASDAQ is down 8%. I have beat the tech index by 26%, and I plan on widening that lead. I know exactly how I am going to do it. I have a plan. I haven't had any margin calls due to naked puts. I haven't even traded that much -- basically only selling OTM Calls at market, sector, and stock tops; buying them back at the bottoms; and using the proceeds to buy more LEAPs. Here's the Frag Plan: Situation: Abby Cohen said it was going to be a good, not a great year. Well, it already was a great year by early March, so... The market, especially the techs, got way ahead of themselves because of 1. End of Millennium artificial liquidity 2. NASDAQ Momentum carrying over from 1999 3. Individuals buying tech funds and stocks (with lots of margin) due to #2 Therefore, my major assumption is that the next 6 months or so will be basically range bound, perhaps between NASDAQ 4000 and 5000. The trend will be sideways to up, with very large swings. Individual stocks will significantly outperform the market and their sector. Mission: Dominate the NASDAQ by executing a calendar spread strategy. Execution: 1. Use Gorilla Game analysis to select Gorilla Technology Stocks capable of outperforming the NASDAQ (ie, the market, for me), and their sector (Semis, Biotechs, Networking, Internet, Computer Software). Look for repeat split candidates in the OIN Call Section. 2. Buy LEAPs with 50% intrinsic and 50% time value on these stocks when the market dips (VIX over 28, NASDAQ & sectors hitting lower bollinger bands) 3. Sell Current Month (ie, 10 - 30 Day) Calls against the LEAPs when the market, sector, and stock get over bought (VIX under 22, NASDAQ & sectors hitting upper bollinger bands). Calls sold should be 10 - 20% OTM, and should be worth 5 - 10% of the value of the LEAP holdings in the stock. 4. Buy back the short calls on the dips (#3), reinvest the positive cash flow into more LEAPs. 5. If the short calls go in the money, buy them back at expiration (Thus PM); immediately sell the next month OTM Calls. Admin & Logistics: I have a Excel Spreadsheet, imbedded with real time quote feeds, to calculate my criteria for #3 above. I am imbedding all of my key criteria for decision making into the spreadsheet. I pull the trigger when I have the trade I want in my sights. Command & Control: As always, Preferred provides almost instantaneous execution. Big kudos to their professionalism. My other brokers are chosen for speed also. Every Friday afternoon, I take a technique out of Marine Corps operations and write a quick situation report. Here's what it looks like: Gain in Value of LEAPs since start of April Cycle: $______ % Gain in LEAPs: 7.26% Cash Flow from ST Options Sold: $______ % Gain from ST Options Sold: 11.78% NASDAQ Performance during Cycle: -8% Total Performance of Calendar Spread Strategy During Cycle: 19% % Beating NASDAQ: 26.60% NASDAQ 4446.22 NASDAQ 10 Day SMA: 4472 VIX 26.99 NAS TRIN: .47 At the end of a crazy week, the calendar spread strategy is up, both for the week, and for the April Cycle. At +___k, we are almost back up to last Friday (+__k). However, the gain in Cash Flow from ST Calls Sold is +__k, thus exceeding our target of +__k. The total of gain in LEAPs + cash flow from ST Calls Sold puts us over where we were last Friday. During the April Options Expiry Cycle, the NASDAQ is down -8%, and lots of margined, weak players have been shaken out of the market. During the same period, the calendar spread strategy is up 19%. Over this period, we are beating the NASDAQ by 26.60%. This is due to the portfolio of LT Options outperforming the NASDAQ, and the cash flow from sale of ST Options. The NASDAQ is just below its 10 day simple moving average. The VIX is off of its high of 30, where it stayed for 3 days this week. The NASDAQ TRIN is .47, which is a low reading indicating a strong close. After 3 days of recovery from the Tuesday sell off, it is uncertain where the market is headed next week. End of SitRep. That is pretty much it. I have written two rough drafts of papers that are approaching 40 pages each. I have started to catch up on a semester's worth of classes. I bought a new road bike, and I am riding it across the Golden Gate instead of watching Joe Kiernan hype something. CNBC is designed to make the greatest number of traders make the wrong decision at the wrong time. Michael Lewis writes in Liar's Poker that in every market there is a fool. If you don't know who it is, look around, it might be you. I would submit that the overactive day trader of options reacting to every gust of wind is the fool in the options market. Thanks. You are driving up the volatility, which, from time to time, I sell at opportune moments. I know. Last year, I was that fool. Net net, I did not make money between February and October because I over traded, followed every shadow of a rumor, etc. Not this year. In the final stage of the Marine Corps known distance rifle qualification course, Marines have 10 minutes to take 10 shots at a man sized target at 500 meters. This encourages patience, discipline, attention to good fundamentals like proper marksmanship posture, good sight picture, etc. Look at the flags on the poles at 200 and 300 meters to make sure that the shot is taken when wind dies down. BRASS: Breath.... Relax... Aim... Steady Squeeeze. Pow. There is my shot. 50 shots -- 40 at the 200 & 300, 10 at the 500 -- 5 points each. Perhaps the best thing I did in the Marines to earn the respect of those I served with was to shoot the high score when my Company was on the range. Marines wear three classes of marksmanship badges, so your once a year rifle qualification is there for everyone to see for 12 months. This ethos pervades everything that Marines do, from leading a platoon of trucks, to flying an attack jet... to trading options. I sit there in front of my spreadsheet, and I want to make a trade, but the numbers don't line up, and I keep saying, not my trade, not my trade, not my trade. Wait for the wind to die down, wait for the right moment, breath, relax, aim, steady squeeze... So, make the right trades now, and the money will be in your account for a long time to come. Make the wrong trades, and it may be a long time before you get an option account running again. Be patient. have a plan. Execute your plan. ************* An Osmotic Tech 150% Review By: Harrison Frolick Before I forget, in my last soap box article I said "I am convinced that if the price of admission to the Super Bowl were 3 neurons that worked, that you would not see anyone there with a US Government ID." I was not referring to anyone in the Military. Only the Fed Reserve Board, and certain individuals in the Executive Branch and the Judicial Branch. Glad that I could get that cleared up! By the way, thanks for the bazillion emails. For those of you that missed the 150% challenge, go to the side bar and click on Traders Corner and read the 150% challenge. This is my do or die challenge to myself to see if I can make 150% return in one year using options starting with $25,000. I bummed the 25k off one of my partners. He said he wants his money back eventually too. What is up with that? Well so far I must say that I am not dead yet but, definitely bruised. Now I kind of wish that I was a cat. Well, I did the first two trades on Friday March 24, 2000. Did I pick a great time to try this out or what? Well, we can all learn from my mistakes too. Plan on learning a lot...arghh... Who's idea was this? I picked up 5 contracts of RBF JT's at 30 3/8. These are the MERQ October 100 calls. The last trade was around 25 but, the current ask is $20 1/8. I also picked up 500 shares of DSLN at 23 3/16 with the ask at 19 1/2. Can everyone say crater? The following Monday after the trades, everything was copecetic. Tuesday through Friday morning I was on various planes and in Ft. Worth dodging tornadoes, literally. For those of you in that area, we had reservations at Rinatas (spelling?) but, decided to go elsewhere that night. Good thing, as it was wiped out that evening. Anyway, I was unable to look at a ticker during market hours at all. Needless to say that I probably would have bailed on both of these plays. However, I did get into them with an idea we were in for a bumpy ride. That is why I got Octobers and did not use up all of my margin on the stock purchase. Although my definition of bumpy did not include a giant sink hole in the middle of the road! As I always say, this too shall pass. Here is the plan with my picks. Sell the RBF's at a profit. Sell calls on DSLN when it gets to $25 or so. How is that? Yea I know, some help I am but, that is really the plan! Really! I did pick up some MERQ the stock at $61 on Tuesday and sold out at 84 1/2. Going to use the money for some AKAM options. Does anyone have any horror stories about margin calls? I am looking for some material. If you have one, please send it to me. I have a doozy that happened to one of my partners. I wish that I could warn everyone about these royal boneheads but, I don't want Jim to get into trouble. All I can say is that they are in Great Neck, NY. Thank goodness the market came back! I have to cut this short if I want to make this in the Sunday Edition as I am off early Saturday morning. I have some stuff up my sleeve for next week. I should have some material from one on one interviews with a couple of executives from some pretty neat companies. They might help you get a handle on this "New" economy that so many people just don't get! Remember, it is Ok to make money! Happy Trading!...Who is John Galt? Contact SupportHarrison LAST WEEKS CHANGE FOR THIS WEEKS PICKS: *************************************** Daily Results Index Last Week Dow 11111.48 189.56 Nasdaq 4446.45 -126.38 $OEX 821.52 2.13 $SPX 1516.35 13.89 $RUT 542.99 3.90 $TRAN 2827.72 64.48 $VIX 26.94 -0.27 Calls Week CHKP 196.47 25.41 Great comeback, earnings are Wednesday MEDX 72.63 22.38 Nearly 85% off its highs on Tuesday dip HWP 154.00 21.63 Breakout higher contrary to the markets AMAT 114.88 20.63 Fueled by high Semiconductor demand LXK 119.50 13.75 Let the earnings run begin WLA 103.94 6.13 Managed to hold its own this week SUNW 98.81 5.13 Remember, get out before Thursday IBM 123.13 5.13 Only seven trading days before earnings INTC 136.81 4.88 Increasing spending to increase profits KSS 106.19 3.69 Split run with pullbacks to the 10-dma CL 59.31 2.94 Solid "old economy" play EXDS 141.63 1.13 Take profits and run after last week HYSL 33.50 1.00 New, time to catch the recovery PCAR 46.88 -3.13 Dropped, reason we rarely play Trucking NXTL 142.44 -5.81 Tow firms reiterate Buy rating DISH 72.88 -6.13 Finally back above $70 resistance SILK 102.69 -7.31 New, leverage play on recovering KANA INKT 180.88 -14.13 Steadily climbing ahead of earnings NXLK 107.25 -16.44 Showing solid support near $100 Puts FIBR 70.25 -42.00 Losses on all kinds of levels FDRY 120.13 -23.63 New, looks bad but possible earnings run ICGE 72.69 -17.63 Daily highs still getting lower LVLT 90.13 -15.63 No signs of a bounce coming yet IIJI 66.50 -3.25 Weak, but needs to breakdown again LU 59.75 -1.50 "Burn me twice, it's my fault" KO 46.19 -0.75 The stock is taking a breather STOCKS ADDED TO THE PICK LIST ***************************** Calls HYSL - Hyperion Software Corp SILK - Silknet Software Inc. Puts FDRY - Foundry Networks LU - Lucent Technologies FIBR - Osicom Technologies *************************** 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 PCAR $46.89 (-3.13) The strength we saw at Thursday's close carried through to Friday as PCAR gapped slightly higher at the open. The momentum didn't last long though as the stock quickly retraced the gap and sold off sharply in the first hour of trading. In fact, PCAR hit an intraday high of $50.75 at the open and was sold down to $47.50 within an hour. PCAR diverged from the broader market for the rest of the day as traders moved money from the briefly popular value stocks back into the technology sector. The momentum that we saw earlier in the week disappeared as quickly as it appeared as traders evacuated the trucking sector. Stocks like OshKosh Truck (OTRKB) and Federal Signal (FSS) were hammered Friday. While the renewed interest in the tech stocks bodes well for our other plays, it spells trouble for PCAR. Although the stock did managed to bounce from its low of the day at $46, we don't want to stand around to get run over by PCAR should the rotation continue. EXDS $141.63 (+1.13) Hosting and network providers received positive comments from Lehman Brothers analyst Bill Garrahan Friday morning. Garrahan said, "Exponential growth in bandwidth, increased Net users and usage, and increased richness in applications over the next several years are ingredients for a tremendous opportunity for Internet e-commerce network providers." On the heels of the positive remarks, EXDS gapped higher by $3 Friday morning. However, by mid-morning EXDS began to drift lower as traders quickly forgot about the positive comments from Lehman. The participation in EXDS Friday was anemic with only 3.9 mln shares trading, versus an ADV of 5.7 mln. Net stocks showed substantial gains Friday as the Goldman Sachs Internet Index ($GIN) gained 4.7%. While the rest of tech stocks shined, EXDS slid down to support at $140, filling its early morning gap. We said last Thursday to wait for EXDS to break through resistance at $140. Although the stock moved above that level Friday, it came with little conviction. While the long-term prospects for EXDS remain promising, the lack of action Friday has prompted us to move on. We'll take our profits after a tumultuous week and run. PUTS No dropped puts this newsletter. STOCK SPLIT CANDIDATES *********************** Current Split Candidates INKT - Inktomi CHKP - CheckPoint Software HWP - Hewlett Packard INTC - Intel Corporation Split Candidates that are not current plays TXN - Texas Instruments EMC - EMC Corporation PHCM - Phone.com STOCKS WITH UPCOMING SPLITS **************************** We don't list all splits available, only those we feel may have play possibilities. Symbol - Stock Splits/Date 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 TRAC - Track Data Corp 3:2 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 COGN - Cognos Inc 2:1 04-27-00 ex-date 04-28 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 KPN - KPN Telecom 2:1 06-02-00 ex-date 06-05 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: ********************** SUNW - Sun Microsystems $98.81 (+5.13) See details in sector list Chart = /charts/charts.asp?symbol=SUNW **** HWP - Hewlett Packard $154.50 (+21.63)(-9.50)(+4.38)(-8.94) See details in sector list Chart = /charts/charts.asp?symbol=HWP Put play of the day: ******************** ICGE - Internet Capital Group Inc. $72.69 (-17.63) See details in put list Chart = /charts/charts.asp?symbol=ICGE ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** **************************** SEE DISCLAIMER IN SECTION ONE
The Option Investor Newsletter 4-9-2000 Sunday 3 of 5 ************* 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 *********** IBM - Int'l Business Machines $123.13 (+5.13)(-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. Our play is for IBM to continue marching higher in the short- term powered by more good news, a reasonable market environment, and a strong outlook for first-quarter earnings. The company is confirmed to report on April 18th, after the bell. That leaves us with seven more days to profit from IBM's momentum. Near- term support developed a pattern of higher highs and is now clearly established at $122. For those who like the technicals, the 5 and 10 DMA indicators are comparative and provide a good entry devise into this play. This week's performance also proved IBM is not range bound between $118 and $122; although resistance is strong around $128. On Thursday, the stock just missed cracking the stubborn opposition ($128.25) set on March 27th, but got stopped out at $128.13 early in the session. Once IBM moves through this force field then it faces the 52-week high at $139.13. Volume is respectable, but a sharp spike on a breakout would certainly help this predicament. Again this week the news surrounding IBM was abundant. Early on they announced a leading-edge development process to make microchips up to 30 percent faster, which ultimately will make for faster Internet access and more powerful wireless devices. According to Bijan Davari, VP of IBM Microelectronics' Semiconductor Research & Development Center, this new process "is an absolutely essential process without which you couldn't continue making both the Internet and its devices more powerful and capable". Overseas IBM Japan won a 10-year $1 bln computer- outsourcing contract from major life insurer, Mitsui Mutual Life Insurance. The company also snagged a three-year $250 mln equipment contract with ABB's Engineering and Technology Group and on Friday, announced it entered into an 11-year $200 mln partnership with Canada's Irving Oil. ***April contracts expire in two weeks*** BUY CALL APR-120*IBM-DD OI=19143 at $7.13 SL=5.00 BUY CALL APR-125 IBM-DE OI=15445 at $4.63 SL=2.75 BUY CALL APR-130 IBM-DF OI=16089 at $2.63 SL=1.25 BUY CALL MAY-125 IBM-EE OI= 1902 at $7.63 SL=5.25 BUY CALL MAY-130 IBM-EF OI= 2176 at $5.63 SL=3.50 Picked on March 21st at $113.50 P/E = 30 Change since picked +9.63 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 = 7.98 mln /charts/charts.asp?symbol=IBM **** HWP - Hewlett Packard $154.50 (+21.63)(-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). All hail the conquering hero! Very few stocks held up as well as HWP during the turbulent week we just saw. Already sitting on very solid support at $130 before the Tuesday panic, HWP led the charge as the markets recovered, closing over $138 with volume of almost 5 million shares. Although that looked good, it was nothing compared to the heroics we have seen from the computer company since then. Adding over $20 for the week, HWP has broken through resistance at $140 and $150 on strong volume and looks like it is ready to challenge its all-time high of $155.50. Now that the stock has built some momentum, and is solidly above the $140 level, the likelihood of a split announcement is increasing. With more than enough shares authorized, this event could come to pass any time between now and earnings which are currently set for mid-May. After pronouncements from the company that revenue and earning growth is on target and news that they have left poor Compaq in the dust, HWP should continue on its charge higher. Look for new entries to appear as HWP tests support at $150. The 10-dma is now sitting at Continued strength could produce a break to new highs as early as Monday, and this event could be used for a more conservative entry. Hungry for more? On Friday, HWP set the terms for the remainder of its Agilent (A) spinoff. With a record date of May 2, the company will distribute its 84% stake in A on June 2nd. In the terms of the spinoff, the holder of each share of HWP will receive a distribution of 0.37 shares of A. ***April contracts expire in two weeks*** BUY CALL APR-150*HWP-DJ OI=1854 at $ 8.25 SL=5.75 BUY CALL APR-155 HWP-DK OI=1281 at $ 5.63 SL=3.50 BUY CALL APR-160 HWP-DL OI= 372 at $ 3.75 SL=2.25 BUY CALL MAY-155 HWP-EK OI= 427 at $11.88 SL=9.00 BUY CALL MAY-160 HWP-EL OI= 408 at $ 9.25 SL=6.50 SELL PUT APR-145 HWP-PI OI= 514 at $ 2.75 SL=4.50 (See risks of selling puts in play legend) Picked on Mar 16th at $133.00 P/E = 51 Change since picked +21.50 52-week high=$155.50 Analysts Ratings 10-11-7-0-0 52-week low =$ 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 = 3.86 mln /charts/charts.asp?symbol=HWP **** LXK - Lexmark International $119.50 (+13.75)(-19.06) Wrapping its arms around the entire life-cycle of printers, LXK develops and manufactures a broad range of laser, inkjet and dot matrix printers for the office and home markets. The company is also the exclusive source for new print cartridges for the laser and inkjet printers it manufactures. Additionally, LXK provides supplies for IBM printers and offers after-market laser cartridges for the large installed base of a range of laser printers sold by other manufacturers. Getting its correction out of the way early proved to be a boon to LXK as the markets melted down on Tuesday. After running as high as $135.88 a couple weeks ago, investors decided it was time to take some profit off the table. By the time Tuesday's debacle arrived, LXK had already shaken out most of the weak hands and was trading down at $106. With a slight hiccup to $99, the printer company hitched up the wagon and headed to town. Ending the day Tuesday fractionally above Monday's close, LXK has been marching steadily higher ever since. With volume oscillating around the daily average, investors have been gradually bidding the price higher, with Friday's gain of $8.25 looking particularly impressive. Now sitting just above the 30-dma ($119.19) and with the 10-dma turning up, LXK could be ready to take a run at new highs as earnings approach on April 24th. In Thursday's write-up we mentioned that the two primary obstacles to the stock running to new highs were breaking through the 30-dma and the 50-dma ($114.75). Obviously these have both been accomplished, and if buyers are still waiting in the wings, resistance at $120 and $125 could fall in short order. Temper your enthusiasm with caution though. LXK has had 6 up days in a row, and a bit of consolidation would not be out of the question. Look for a bounce near the 50-dma to trigger your entry as the stock readies itself for a run into earnings. For those with a more cautious nature, breaking through Friday's high at $120.50 would be a good signal that LXK is ready to run. News has been sparse on LXK, with the most recent item of note being the rating given by Prudential. On March 17th, the firm began coverage with an Accumulate rating. ***April Strikes expire in 2 weeks*** BUY CALL APR-115*LXK-DC OI= 91 at $ 8.00 SL=5.75 BUY CALL APR-120 LXK-DD OI=473 at $ 5.25 SL=3.25 BUY CALL MAY-120 LXK-ED OI=137 at $10.50 SL=7.50 BUY CALL MAY-125 LXK-EE OI=166 at $ 5.25 SL=3.25 Picked on Apr 6th at $111.25 P/E = 48 Change since picked +8.25 52-week high=$135.88 Analysts Ratings 6-4-1-0-0 52-week low =$ 49.50 Last earnings 01/00 est= 0.68 actual= 0.73 Next earnings 04-24 est= 0.58 versus= 0.48 Average Daily Volume = 1.14 mln /charts/charts.asp?symbol=LXK ********* BIO-TECH ********* MEDX - Medarex Inc. $72.63 (+22.38) Medarex is a biopharmaceutical company developing monoclonal antibody-based therapeutics (drugs) to fight cancer and other life-threatening and debilitating diseases. The company has developed a broad platform of patented technologies for antibody discovery and development, including the HuMAb-Mouse system for the creation of high affinity human antibodies. Yes, their claim to fame is that they've engineered a mouse with a human immune system! Medarex's HuMAb-Mouse technology is a transgenic mouse system that creates high affinity, fully human antibodies instead of mouse antibodies. Using standard laboratory techniques, scientists can produce these fully human antibodies in a matter of months. Medarex creates and develops human antibodies for itself and others, offering a full range of antibody development capabilities, including pre-clinical and clinical manufacturing services. Giving new meaning to "the mouse that roared", MEDX has genetically engineered those fuzzy critters with the immune system of humans. The mouse has taken the biotech sector by storm because for the first time, research can be conducted for human results without subjecting humans to the risks. But the real story is in the technical picture. Following a top at $206 early last month, MEDX shrank 85% in value by falling to $33.25 in Tuesday's major sell-off. It's been moving up swiftly ever since. While we were looking for a pullback to $65, unfortunately, it gapped up to $70 at the opening Friday and continued up to $77.75 during amateur hour, but never came back to support at $65 for the ideal entry we'd outlined. No matter, for those with an itchy trigger finger and a bent for risk, a $67 entry one hour from the close might have worked. With an overdone sell-off as indicated by the stochastic, the recovery has been strong and we expect it to continue as long as the Biotech sector and markets cooperate. Intraday support comes at $65, $67 and $70. Otherwise, you may be better served waiting for a move over Friday's high of $77.75, backed by strong volume before taking a position. Earnings have been "confirmed" with the company for "the first week in May" before the bell. A big part of the Biotech recovery was sparked when President Clinton clarified and apologized last week for his comments a few weeks earlier, when he stated that the results of gene mapping should be shared with all. Not so he says now, clarifying that proprietary research is patentable and can be commercially utilized by its holders. Whew! Other than that, no news. ***April contracts expire in two weeks*** BUY CALL APR-65*MZU-DM OI=264 at $12.00 SL= 9.00 BUY CALL APR-70 MZU-DN OI=301 at $10.75 SL= 8.00 BUY CALL APR-75 MZU-DO OI=241 at $ 8.00 SL= 5.75 BUY CALL MAY-70 MZU-EN OI=270 at $17.25 SL=12.50 BUY CALL MAY-75 MZU-EO OI= 44 at $15.13 SL=11.00 SELL PUT APR-60 MZU-PL OI=152 at $ 2.88 SL= 4.75 (See risks of selling puts in play legend) Picked on Apr 06th at $68.00 P/E = N/A Change since picked +4.63 52-week high=$206.00 Analysts Ratings 1-7-1-0-0 52-week low =$ 2.88 Last earnings 02/00 est= N/A actual= N/A Next earnings 05-15 est= N/A versus= N/A Average Daily Volume = 1.5 mln /charts/charts.asp?symbol=MEDX ************* SEMICONDUCTOR ************* INTC - Intel Corporation $136.81 (+4.88)(-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. INTC survived its day of probation with a surging gain of $7 on Friday. The chip stocks were the attraction Friday as traders threw money at them. On the day, the Semiconductor Index($SOX) soared almost 6%. Driving the sector was a keynote speech by Intel Senior VP Sean Maloney at Spring Internet World 2000. Mr. Maloney stressed that they are seeing strong demand in a wide spectrum of networking products and an interest in its e-commerce capabilities. INTC currently is expanding its New Economy presence to both the networking and internet arenas. He addressed the importance of cost controls as we go forward into the 21st century. Interestingly enough, CMP Media reported on Saturday that Intel is expected to increase its capital spending this year to $7 bln from its original projection of $5 bln. Yes, those are billions! This move will allow INTC to accelerate its processing and to add needed capacity for growing demand. And along with earnings on April 18th, traders may be pushing the buy buttons in a preemptive run to the numbers. Many feel that INTC's earnings will drive the NASDAQ higher. Looking at the technicals, the stock conquered the 50-dma at $133.13 and never looked back. For most of Friday's session, INTC built an intraday base at $135 and spiked up smartly to close at the high of the day. Trading patterns have been very choppy the last couple weeks. With the NASDAQ in a trading range and the potential retest of lows in the back of traders' minds, it has become difficult to determine when the sellers will step back into the game. Next week, earnings are going to influence the market. Watch for the market trend on Monday and see if we get a slight pullback after Friday's late rally. Enter positions based on personal risk levels. ***April contracts expire in two weeks*** BUY CALL APR-130*INQ-DF OI=22372 at $10.63 SL=8.25 BUY CALL APR-135 INQ-DG OI=13929 at $ 7.50 SL=5.75 BUY CALL APR-140 INQ-DH OI=18405 at $ 5.00 SL=3.25 BUY CALL MAY-140 INQ-EH OI= 4415 at $ 9.50 SL=7.00 Picked on Mar 19th at $129.88 P/E = 62 Change since picked +6.93 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 **** AMAT - Applied Materials $114.88 (+20.63) Applied Materials is the world's #1 maker of complex manufacturing equipment used in semiconductor factories. Its machines have a big share in most industry segments, including deposition (layering film on wafers), etching (removing excess material during patterning), and ion implantation (altering electrical characteristics of certain areas of wafer coating). Applied Materials also makes metrology systems and inspection equipment. Their customers include Advanced Micro Devices, Intel, Lucent, and Motorola. After a heart-stopping week, the Semiconductor stocks lifted the market from the mire. While investors remain gun shy on buying other tech stocks, they have accumulated the semi's aggressively. The strong fundamentals and prospects for stellar earnings have attracted traders to the group recently. Further proof of strong earnings came late last week when the Semiconductor Industry Association (SIA) reported worldwide sales of semiconductors rose 33.4% in February to $14.6 bln from $10.9 bln a year ago. The SIA projects another good year for the industry as continued expansion of communications networks and the Internet will provide growth for all chip sectors. The action in the semi's should intensify next week as earnings season kicks into full swing. Although AMAT's earnings are still a month away the stock could benefit from positive reports from companies like KLAC, slated to report next week. From here, we can look for a couple of possible entry points into AMAT. The stock closed strongly Friday, nestled near $115, its 52-week high. That level is the only resistance preventing AMAT from moving higher. Watch for a strong move above $115 on heavy volume as a possible entry point. AMAT has made quite an advance in the past week and some profit taking may lie ahead. If that happens, the stock has major support at $110 and may bounce from that level providing a possible entry. Volume has been especially strong lately, confirm any pullbacks with light volume as a sign of profit taking. Whatever transpires, choose an entry point that is suitable for your risk level. Dutch semiconductor equipment maker ASM International (ASMI) said Friday it had set the issue price for its secondary offering of 5 mln shares. ASMI is offering 3.5 mln shares and AMAT is supplying the other 1.5 mln. Through investment activities, AMAT acquired shares of ASMI. Payment and delivery of the shares is on April 12th, and may provide further fire to the flame of AMAT. ***April contracts expire in two weeks*** BUY CALL APR-110*ANC-DB OI=5257 at $ 9.50 SL=6.50 BUY CALL APR-115 ANC-DC OI=1509 at $ 6.75 SL=4.75 BUY CALL APR-120 ANC-DD OI=1242 at $ 4.50 SL=2.75 BUY CALL MAY-120 ANC-ED OI= 530 at $11.13 SL=8.25 Picked on Apr 4th at $98.13 P/E = 70 Change since picked +16.75 52-week high=$115.00 Analysts Ratings 14-15-2-0-0 52-week low =$ 24.19 Last earnings 01/00 est=0.38 actual=0.40 Next earnings 05-10 est=0.54 versus=0.18 Average Daily Volume = 8.13 mln /charts/charts.asp?symbol=AMAT ******** Internet ******** SUNW - Sun Microsystems $98.81 (+5.13) Since its inception in 1982, a singular vision -- "The Network Is The Computer(TM)" -- has propelled Sun Microsystems to its position as a leading provider of industrial-strength hardware, software and services that power the Internet and allow companies worldwide to "dot.com" their businesses. OK, they make servers, but the above is what branding is all about. With $13 billion in annual revenues, Sun can be found in more than 170 countries. Here's a conservative big-cap technology stock that we can play for an earnings run. When's the date? Thursday, April 13th, after the bell. So plan to be out of the play by then since we never recommend holding over earnings. Don't look now, but SUNW is also a split candidate following its most recent 2:1 in December of 1999. However, don't expect that to figure prominently in the play since SUNW does not have enough shares authorized to effect the split, nor is there a shareholders meeting planned (as of this writing) with an agenda item to do so. Technically, we are looking for a big SUNW rise. Here's why. A week ago Friday and last Monday, SUNW was bumping its head on $96 resistance just before the slide into Tuesday's black hole from which SUNW powered out all week. Friday afternoon, SUNW began bumping its head on $96 again, only this time it broke through on a surge of volume in the final hour of trade. The breakthrough of resistance was confirmed by volume on an otherwise slow afternoon, which is a reason to get excited in our book. It's a graphical representation of traders saying to themselves, "Yep, there's $96+; all market systems GO; I'm in." As long as the market cooperates, earnings could drive this play hard on Monday. Support is $96; next resistance is mild at $100, then stronger at $105; blue sky at $108. Target shoot at support or wait for the breakout over resistance levels before taking a position. In the news, Bear Stearns noted at an analyst conference that they see SUNW's server business growing at 25% in FY2000. However Michael Dell notes that while SUNW is DELL's only meaningful competitor in the server business, their hype is now greater than their ability to deliver. Time will tell. Meanwhile, SUNW, feeling emboldened by Judge Jackson's Microsoft ruling, is considering a private anti-trust suit against Microsoft. While traders may like that in the short run, vengeance has never made a good long-term success strategy. ***April contracts expire in two weeks*** BUY CALL APR- 95*SUX-DS OI= 8605 at $ 8.13 SL=5.75 BUY CALL APR-100 SUX-DJ OI=15946 at $ 5.50 SL=3.50 BUY CALL MAY-100 SUX-EJ OI= 8768 at $ 9.50 SL=6.50 BUY CALL MAY-105 SUX-EA OI= 2462 at $ 7.38 SL=5.25 SELL PUT APR- 90 SUX-PR OI= 8846 at $ 2.19 SL=3.75 (See risks of selling puts in play legend) Picked on Apr 04th at $90.00 P/E = 117 Change since picked +8.81 52-week high=$106.75 Analysts Ratings 9-11-1-0-0 52-week low =$ 24.88 Last earnings 01/00 est= 0.20 actual= 0.21 surprise=5% Next earnings 04-13 est= 0.22 versus= 0.18 Average Daily Volume = 15.37 mln /charts/charts.asp?symbol=SUNW ********* SOFTWARE ********* CHKP - Check Point Software $196.47 (+25.41)(-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. Welcome back to the new economy. After a brief hiatus, wherein every bear came out of hibernation to proclaim the end of the sky high Internets with their excessive valuations, CHKP came roaring back to remind everyone that business is still taking place on the Internet and security software hasn't lost its luster. Although the short-term pain was severe, a quick glance at a chart shows CHKP trading over $25 above where it began the week. As a sort of trial by fire, the turbulence this week served to separate the strong from the weak. The latter had a hard time recovering with the rest of the market, while the former came back even stronger, attracting the cash shaken out of the weaker issues. With earnings season now in full swing, and CHKP reporting on Wednesday before the open, look for the beginning of the week to produce more upside. Last Tuesday's drop provided a successful test of the 100-dma, and Friday's strong gain on healthy volume brings CHKP solidly above the 50-dma ($191.25). The next area of resistance will be the all-important $200 level, followed by $210 and $220. The fuse on this play is getting short as we do not want to hold over the earnings announcement. Since the announcement comes Wednesday morning, we will be dropping CHKP on Tuesday, so start planning your exit now. You will want to be out of all open positions before the close on Tuesday to avoid the usual post-earnings depression. Given the proximity of earnings and the strong run in the tail end of last week, we are not recommending new positions; if you have open positions, congratulations on a great entry, and keep those stops set. Aside from the confirmation of the earnings announcement, there has been little in the way of news for CHKP. On Thursday, the stock did get an additional boost from a Sands Brothers upgrade from Neutral to Strong Buy. ***April contracts expire in two weeks*** BUY CALL APR-190 YKE-DR OI=160 at $21.75 SL=16.25 BUY CALL APR-200*YKE-DT OI=617 at $18.50 SL=13.50 BUY CALL MAY-200 YKE-ET OI=315 at $36.50 SL=27.25 BUY CALL MAY-210 YKE-EB OI= 62 at $32.50 SL=24.25 SELL PUT APR-170 YKE-PN OI=285 at $ 7.88 SL=10.50 (See risks of selling puts in play legend) Picked on Mar 30th at $169.50 P/E = 146 Change since picked +26.97 52-week high=$295.00 Analysts Ratings 12-4-0-0-0 52-week low =$ 14.88 Last earnings 01/00 est= 0.65 actual= 0.70 Next earnings 04-12 est= 0.35 versus= 0.25 Average Daily Volume = 1.31 mln /charts/charts.asp?symbol=CHKP **** INKT - Inktomi $180.88 (-14.13)(-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!. Cautiously gathering its forces after the bloodbath on Tuesday, INKT is steadily marching higher as investors wade back into the shallow end of the Internet pool. Contrary to the opinion of many of bears on CNBC, the reign of the Internet sector is not over; some of the weaker hands just needed to be shaken out. Yahoo! was not the typical white night for the sector, announcing good, but not stellar earnings on Wednesday. After a brief period of indecision, investors stepped in and gingerly pushed many of the stronger Internet stocks back to where they began this tumultuous week. Friday was particularly encouraging for INKT as it broke above the $170 resistance level, and closed just above the 10-dma ($180.25) on volume 30% over the daily average. This came on a relatively light volume day for the market as a whole. Earnings season is in full swing, and INKT reports on April 18th. If the markets can stay healthy and we don't get Greenspammed, look for the stock to continue higher. The next challenge will come in the form of resistance at $190 and then $200. Consider target-shooting intraday dips to get a better entry, but stay vigilant as to the overall market direction. As we have seen, even leaders such as INKT can get caught in a downdraft. Still rather light on the news front, INKT continues to spread its tentacles throughout the industry. iXL Enterprises is spinning out its infrastructure firm AppGenesys with funding assistance from investors such as INKT. The new firm will develop and deploy Internet applications as well as perform Web hosting services. ***April Strikes expire in 2 weeks*** BUY CALL APR-180*KAY-DP OI= 565 at $14.00 SL=10.50 BUY CALL APR-185 KAY-DQ OI= 255 at $12.00 SL= 9.00 BUY CALL APR-190 KAY-DR OI= 549 at $ 9.75 SL= 6.75 BUY CALL MAY-180 KAY-EP OI=1145 at $24.13 SL=18.00 BUY CALL MAY-190 KAY-ER OI= 142 at $19.50 SL=14.25 SELL PUT APR-160 KAY-PL OI= 919 at $ 4.63 SL= 6.50 (See risks of selling puts in play legend) Picked on Apr 2nd at $195.00 P/E = N/A Change since picked -14.13 52-week high=$241.50 Analysts Ratings 8-10-1-0-0 52-week low =$ 42.00 Last earnings 01/00 est=-0.04 actual=-0.02 Next earnings 04-18 est=-0.02 versus=-0.05 Average Daily Volume = 2.79 mln /charts/charts.asp?symbol=INKT **** HYSL - Hyperion Software Corp $33.50 (+1.00) Hyperion Solutions makes analytic application software that transforms financial, customer, and e-business information into better customer relationships, increased revenues and higher profits. The company is the result of a difficult merger in 1998 of Hyperion Software and Arbor Software. Big business clients include ABN Amro and SBC Communications. This financial software company recently experienced a 64% price move in less than a month! Now it's time to take advantage of the reversal. It appears that at the beginning of March when the Nasdaq toppled from its 5000+ peak, HYSL followed the trend like a true disciple. Overlap a Nasdaq chart (COMPX) and you can see the correlation. The main divergence came when HYSL didn't respond to any positive upswings in the broad market, that is until now. Coming off an all-time high at $65 on March 10th, it plummeted to the depths of $23.44. This Wednesday HYSL began its ascent out of the gutter. This three-day uptrend is also supported by the RSI (relative strength index), a momentum oscillator that calls trend reversals. A positive move through the 10-dma ($31.16) was also a good sign that we're in the thick of a potential momentum run. Plus earnings are in a couple of weeks which may spice up the play as well. The company is confirmed to report on April 25th, after the bell. Watch for trading volume to remain strong. Consider entries on upward bounces off the current price level. News is generally scarce for this company, but on Thursday Hyperion Solutions reinforced its commitment to open standards for enterprise-wide business analysis. They joined the XBRL (eXtensible Business Reporting Language) Project Committee, a coalition of more than 30 finance, accounting, software, and government organizations. This coalition will provide interested parties with a free XML-based standard for preparing, formatting, distributing, and analyzing financial reports. ***April contracts expire in two weeks*** BUY CALL APR-30 WQE-DF OI= 56 at $4.88 SL=3.00 BUY CALL APR-35 WQE-DG OI=305 at $2.50 SL=1.25 BUY CALL APR-40 WQE-DH OI=593 at $0.81 SL=0.00 High Risk! BUY CALL MAY-35*WQE-EG OI=268 at $4.75 SL=3.00 BUY CALL MAY-40 WQE-EH OI=245 at $3.38 SL=1.75 Picked on April 9th at $33.50 P/E = 47 Change since picked +0.00 52-week high=$65.00 Analysts Ratings 2-3-5-0-0 52-week low =$ 9.88 Last earnings 12/99 est= 0.20 actual= 0.22 Next earnings 04-25 est= 0.24 versus= 0.08 Average Daily Volume = 731 K /charts/charts.asp?symbol=HYSL **** SILK - Silknet Software Inc. $102.69 (-7.31) When you make software that Microsoft wants to use, you must be doing something right. That's where Silknet Software, a maker of customer service software, finds itself. The company's eBusiness System, eService, and eCommerce brand products enable businesses to leap onto the Internet and perform marketing, sales, e-commerce, and customer service. In addition to Microsoft, Silknet's customer list includes 3Com, Bank of America, and Compaq. Internet investment powerhouse CMGI owns 19% of SILK's stock. Silknet has agreed to be acquired by e-mail management software company Kana Communications (KANA). Silknet has its eagle eye on the customers. Silknet helps e-businesses collect customer information online and make maximum use of that data. SILK provides tools that use the Web to bridge multiple customer relationship management (CRM) applications. Analysts believe that an end-to-end Web-CRM approach carries enormous potential. SILK is positioned to take advantage of the increased demand for business services on the Web, at least Kana Communications (KANA) believes so. KANA, a leading provider of online customer service, and SILK announced a merger last February. The combined entity will connect customers and partners, increase revenues, and decrease costs. The companies expect to close the transaction during this quarter. Under the terms of the agreement, each share of SILK will be exchanged for 0.83 shares of KANA on a pre-split basis. KANA has fallen from its highs in the last month, but now looks positioned to rebound. KANA was upgraded last week by Wit SoundView from buy to strong buy. As KANA regains footing and moves higher SILK is sure to follow. This is a leverage play based on the ratio of the buyout. SILK should move $1.60 to every $1 KANA moves. SILK is firmly above $100 as momentum has returned to the stock. The stock has formed an ascending triangle and looks ready to breakout. Watch for SILK to make a substantial move with above average volume. Confirm direction in KANA before entering a new position and set a trailing stop in case of a breakdown. Jay Wood, founder and CEO of SILK will be honored as the New Economy Person of the Year at the Private Equity Forum on May 9th. "Receiving the award is a great honor, not only for me, but for the entire Silknet family," said Wood. Just when we heard the last of the old economy/new economy stuff, now there's an award? ***April contracts expire in two weeks*** BUY CALL APR-100*ULI-DT OI=61 at $11.63 SL=8.50 BUY CALL APR-105 ULI-DA OI=26 at $ 8.88 SL=6.25 BUY CALL APR-110 ULI-DB OI=24 at $ 7.00 SL=5.00 BUY CALL MAY-110 ULI-EB OI=10 at $13.63 SL=9.75 Picked on Apr 9th at $102.69 P/E = n/a Change since picked +0.00 52-week high=$285.00 Analysts Ratings 1-6-0-0-0 52-week low =$ 15.63 Last earnings 12/99 est=-0.28 actual=-0.20 Next earnings 04-24 est=-0.26 versus= n/a Average Daily Volume = 222 K /charts/charts.asp?symbol=SILK ******* Telecom ******* NXLK - Nextlink Communications $107.25 (-16.44) Nextlink Communications is a competitive local-exchange carrier (CLEC). The company builds fiber-optic rings in cities to provide local and long-distance phone service, e-mail, and other Internet services primarily to small businesses. NXLK provides services in 38 major US markets, including New York, Los Angeles, and Chicago. NXLK is also adding local multipoint distribution service (LMDS) fixed wireless licenses to its portfolio of communications services. The company has agreed to buy Internet access provider Concentric (CNCX). NXLK was founded by cell phone pioneer Craig McCaw, who owns 35% of the company. The recent shifts in wireless businesses offers some attractive opportunities for traders. SBC and Bell South (BLS) said last week they will merge their wireless assets to form a new wireless services company. Also last week, Bell Atlantic (BEL), GTE, and Vodafone (VOD) said they planned an IPO for their three-way joint venture called Verizon. The recent consolidation seen in the telecom services sector bodes well for NXLK and other emerging communications companies. NXLK is attractive because it encompasses two of the hottest buzz words in the stock market today: wireless and Internet. NXLK has become the nation's largest holder of broadband fixed wireless spectrum, with FCC licenses covering the 30 largest US cities. The company built broadband networks in 19 states to provide businesses with high- speed Internet access and additional services such as Web hosting and support. NXLK has positioned itself to capitalize on the explosive growth of wireless applications and the demand for high-speed Internet access. Analysts expect strong investor interest to continue to drive the valuations of telecom stocks higher. After the meltdown last week, analysts feel NXLK is trading at an attractive level. The stock rebounded sharply last Thursday and continued its climb into Friday's trading. NXLK has resistance at $110 and support at $105. Watch for the stock to move above $110 on heavy volume as a sign that momentum has returned to the stock. A bounce from support at $105 may provide an intraday entry point. NXLK showed continued strength relative to the broader telecom sector on Friday. NXLK's competitors such as GTE and BEL fell victim to profit taking. NXLK ended with a modest gain in light of sector weakness. Watch for the strength to continue as investor bid shares of the telecom stocks higher. ***April contracts expire in two weeks*** BUY CALL APR-105 QNF-DA OI= 84 at $8.13 SL=5.75 BUY CALL APR-110*QNF-DB OI=382 at $5.75 SL=3.50 BUY CALL APR-115 QNF-DC OI=121 at $4.13 SL=2.50 BUY CALL MAY-115 QNF-EC OI=201 at $9.63 SL=6.50 SELL PUT APR-100 QNF-PT OI=731 at $3.13 SL=5.00 (See risks of selling puts in play legend) Picked on Apr 6th at $105.44 P/E = n/a Change since picked +1.81 52-week high=$132.50 Analysts Ratings 14-2-3-0-0 52-week low =$ 26.00 Last earnings 12/99 est=-1.49 actual=-1.34 Next earnings 05-01 est=-1.56 versus=-1.09 Average Daily Volume = 1.49 mln /charts/charts.asp?symbol=NXLK **** NXTL - Nextel Communications $142.44 (-5.81) Nextel communications provides digital and analog wireless communications services throughout the United States. Nextel's 4-in-1 business solution integrates guaranteed all-digital cellular service, text/numeric paging capabilities, digital two- way radio and wireless Internet services. Customers can now use the same phone number no matter where they are, whether it's across town, in another country, or around the world. With headquarters in Reston, Virginia, Nextel serves 96 of the top 100 markets in the United States. Closing near the high of the day is plus for most any stock. A close near the high, with a gain of 12.5%, is even a better way to begin a new play. Traders entering our new play on Friday had a tidy profit in their account depending on their entry point. As we said Thursday, the mid week sell-off in NXTL was completely over done. The bounce late Thursday off the $120 area appeared to provide investors with a great opportunity. The follow-through buying on Friday was a welcome sight. Earlier in the week the wireless merger between SBC Communications and BellSouth, kept the industry in the limelight. Analysts at two firms reiterated their Buy rating on NXTL. However we believe traders began shopping for bargains late Thursday, and had NXTL at the top of their list. From its high on March 10th, to its low, NXTL had given back about 28%. Take the recent sentiment towards the wireless industry, throw in fear based selling, with declines approaching 30%, and you have all the ingredients for an exceptional opportunity. Friday, Bloomberg news reported a bill was drafted after more than two years of negotiations between industry and the government, setting tax calculations for wireless phone calls using the rate for the address from which a customer most often makes calls. A similar bill has been introduced in the Senate, which if passed could benefit all wireless phone companies. While the headlines concerning the bills in the legislature will not keep NXTL moving higher, they do lend a support for investor sentiment. So where do we do from here? Most indications are point north. Our wireless play closed back above its 50-dma Friday, which sits at $135.19. A move through its 10-dma at $142.68 with conviction, would suggest continued moves higher. A bounce off support at $135 would also present another buying opportunity. The SBC Communications-BellSouth deal wasn't the only merger of the week in the wireless industry. On Monday, giants Bell Atlantic and Vodaphone cemented their joint venture, creating what will ultimately be a 23 million-customer mobile phone company. The company will be dubbed "Verizon Wireless" taking its name of the new company created by the pending merger of Bell Atlantic and GTE. ***April contracts expire in two weeks*** BUY CALL APR-140*FZC-DH OI=645 at $ 9.00 SL= 6.25 BUY CALL APR-145 FZC-DI OI=323 at $ 6.75 SL= 4.75 BUY CALL MAY-140 FZC-EH OI=852 at $15.63 SL=11.25 BUY CALL MAY-145 FZC-EI OI=129 at $13.25 SL=10.00 SELL PUT APR-135 FZC-PG OI=793 at $ 3.88 SL= 5.75 (See risks of selling puts in play legend) Picked on Apr 6th at $126.56 PE = N/A Change since picked +15.88 52 week high=$165.88 Analysts Ratings 12-7-3-1-0 52 week low =$ 33.00 Last earnings 02/00 est=-0.99 actual=-0.85 Next earnings 04-26 est=-0.81 versus=-1.37 Average daily volume = 4.39 mln /charts/charts.asp?symbol=NXTL ******************************* CALLS CONTINUED IN SECTION FOUR ******************************* ************************Advertisement************************* Tired of waiting on trades to execute? 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The Option Investor Newsletter 4-9-2000 Sunday 4 of 5 ************* Miscellaneous ************* CL - Colgate-Palmolive Co $59.31 (+2.94) Colgate-Palmolive manufactures and markets a wide variety of products for the consumer. They have two distinct business segments: oral and personal care products and pet nutrition. CL is the #1 seller of toothpaste - everyone brushes! And their Hill's Science Diet brand is a leading premium pet food worldwide. Almost 70% of their total sales revenue come from foreign accounts. As many traders consider the benefits of portfolio diversification and rotate some holdings out of the high-flying techs, CL is a solid "old-economy" pick. This consumer stock offers a low P/E and a good financial record for the long-term investor. Since mid-March CL has seen a steady increase in its share price; although amid the recent tech shedding the stock emerged from the invisible constraint of its comfort zone at $55. Despite the torrent of wide swings on the DOW, CL firmed at $59 and $60 this week. On one hand it's demonstrating it can hold the higher price level, but on the other, resistance at $60 is proving quite formidable. Conservatively wait for a definitive move through this mark on strong volume. Trading volume was moderate this week so look for at least a return to 2.25 mln or better. Once CL makes a charge, the next challenge is at $6.75, the 52-week record high. Upcoming earnings may also give CL the boost it needs. The company is confirmed to report on April 19th, before the bell, and is expected to announce solid earnings. In recent company news, Colgate-Palmolive filed with the SEC to sell as much as $800 mln of Debt Securities. The proceeds will be used for general corporate purposes. The S&P also raised the company's Senior Unsecured Rating to an A-plus from a Single-A. ***April contracts expire in two weeks*** BUY CALL APR-50 CL-DJ OI=2263 at $9.75 SL=6.75 BUY CALL APR-55 CL-DK OI= 796 at $5.00 SL=3.00 BUY CALL APR-60 CL-DL OI= 438 at $1.88 SL=1.00 BUY CALL MAY-60*CL-EL OI= 631 at $3.75 SL=2.00 BUY CALL MAY-65 CL-EM OI= 537 at $2.06 SL=1.00 Picked on April 4th at $60.69 P/E = 40 Change since picked -1.38 52-week high=$66.75 Analysts Ratings 3-10-5-0-0 52-week low =$40.50 Last earnings 12/99 est= 0.40 actual= 0.41 Next earnings 04-19 est= 0.37 versus= 0.32 Average Daily Volume = 2.25 mln Chart = /charts/charts.asp?symbol=CL **** DISH - Echostar Communications $72.88 (-6.13)(+2.88) Serving up multimedia to the masses, DISH and its subsidiaries deliver direct-to-home satellite television products and services. With four satellites, its DISH Network has the capacity to provide over 300 channels of digital video, audio, and data services. The company offers direct broadcast satellite (DBS) TV dishes and integrated receivers that receive programming for about 3 million DISH Network subscribers. Echostar also provides satellite delivery of local network stations in a few large markets and has partnered with Microsoft to provide WebTV access through its DBS system. Did you grab that entry point? The weakness on Wednesday, following black Tuesday served up two delicious entries - one at the open and the other near the close. Thursday and Friday were similarly kind, as DISH paused occasionally to allow investors to load up their plates before the next course of gains. As the NASDAQ surged toward the close on Friday, investors grabbed themselves another helping, as DISH tacked on nearly $3. Moving above the $70 resistance level, DISH is now sitting on the north side of the 10-dma (currently $71.38). If the markets can stay on the upside next week, look for DISH to challenge its next resistance levels at $75 and $80. Although volume was about 20% below average on Friday, this is likely symptomatic of the markets (Friday was a light volume day), rather than of any weakness in DISH. As earnings season continues, look for the (hopefully) rising tide to serve up even more gains. DISH doesn't report until mid-May, so don't look for that event to enter into the equation in the near future. The health of our play will be predicated on continued strength, and a pullback to the $70 area is buyable so long as it is followed by a bounce. A more cautious approach would be to wait for a breakout above $75, confirmed by strong volume - if this happens, feel free to help yourself to another serving. Thursday's introduction of DISHLink, should garner positive attention for the company in the weeks ahead. DISHLink is an affordable and convenient system for delivering broadband content and video channels to the office desktop, and will be demonstrated at the Sands Expo Center in Las Vegas from April 10-13. ***April contracts expire in two weeks*** BUY CALL APR-70*HSW-DN OI=1690 at $6.88 SL=4.75 BUY CALL APR-75 HSW-DO OI=1966 at $4.00 SL=2.50 BUY CALL APR-80 HSW-DP OI=1403 at $2.69 SL=1.25 BUY CALL MAY-75 HSW-EO OI=1218 at $8.38 SL=6.00 BUY CALL MAY-80 HSW-EP OI= 169 at $6.38 SL=4.25 SELL PUT APR-65 HSW-PM OI= 226 at $2.06 SL=3.50 (See risks of selling puts in play legend) Picked on Apr 04th at $68.38 P/E = N/A Change since picked +4.50 52-week high=$81.25 Analysts Ratings 9-6-1-0-0 52-week low =$ 9.72 Last earnings 02/00 est=-0.55 actual=-0.97 Next earnings 05-15 est=-0.35 versus=-0.29 Average Daily Volume = 2.20 mln Chart = /charts/charts.asp?symbol=DISH **** KSS - Kohl's Corp. $106.19 (+3.69)(+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. No indecision here. With many of the stocks at the NYSE taking Friday off for any early weekend, Kohl's continued its move up the charts. KSS made another new high at $106.69, closing with a gain of about 2.2%. It was a rocky week for our retail play. The drop on Wednesday to $95.13, and the subsequent bounce, did provide several good entry points. If you jumped in on the way back up, your were rewarded handsomely for your efforts. The strength seen late this week came on the heels of the a favorable retail sales report released Thursday morning. Overall retailers showed mixed results for March. JC Penny and Target showed a decline in their numbers, while Sears posted a gain of 3.8%. Our current favorite came in with an impressive performance, reporting an increase of 6.8% in same-store sales. Total sales for the five week period ending April 3rd jumped 34.4%. Analysts were quick to point out the industry's mixed results were because the Easter holiday comes three weeks later this year. If that's the case, we would look for Kohl's to have an outstanding April. The positive sales report and the upcoming 2-for-1 split on April 25th could provide the momentum for Kohl's to continue to making new highs. The volume has been a bit light however, averaging about 830K the past three sessions. For the trend to remain intact, we will need to see new buyers come to the table. With Friday's close in the upper end of its range, we would look for higher prices next week. If traders take profits early in the week, $104, $102 or the 10-dma at $100.38 may be levels to target shoot for new plays. Chat rooms are questioning location of several of Kohl's new stores. As we've said in the past KSS is not as well known as many of their competitors. They have recently got Wall Street's attention, and competed very well in the market place. The 38 year old company, will complete the Grand Opening of 19 new stores Friday April 14th. ***April contracts expire in two weeks*** BUY CALL APR-100*KSS-DT OI=2565 at $ 8.63 SL=6.00 BUY CALL APR-105 KSS-DA OI= 188 at $ 6.00 SL=4.00 BUY CALL APR-110 KSS-DB OI= 244 at $ 3.75 SL=2.00 BUY CALL MAY-100 KSS-ET OI= 16 at $11.63 SL=8.50 low OI BUY CALL MAY-105 KSS-EA OI= 172 at $10.38 SL=7.50 SELL PUT APR- 95 KSS-PS OI=734 at $ 2.13 SL=3.75 (See risks of selling puts in play legend) Picked on Mar 30th at $99.56 P/E = 69 Change since picked +6.63 52-week high=$106.69 Analysts Ratings 7-5-4-0-0 52-week low =$ 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 = 1.03 mln Chart = /charts/charts.asp?symbol=KSS **** WLA - Warner-Lambert Co. $103.94 (+6.25) Warner-Lambert has undergone a dramatic business transformation during the last decade, a transformation marked by dynamic sales and profit growth. The introduction of breakthrough health care and consumer products has helped lead the company's rise in prominence. To foster future growth WLA is expanding its role in medical care by developing innovative pharmaceuticals. They also are striving to further bolster their position as a leader in over-the-counter health care products. WLA finds its top competition coming from Bristol-Myers Squibb, Gillette and Merck. It isn't that we are getting impatient, but since adding WLA, it's been a bit of a struggle. Actually the results could have been worse. Industry news this week could have put a real crimp in our play, but WLA has managed to hold its own. Analysts at Paine Webber downgraded BMY, yet raised their price target for the drug maker, which put a cloud over the whole drug sector on Wednesday. The analyst cited the Presidential campaign, and decreasing chances of a major Medicare benefit this year, as the reason for the downgrade in BMY. WLA fell about 2.7% on the news, however the volume was light. Thursday's obstacle appeared in the form of news from the government. The Medicaid program will revise the drug-pricing system used to reimburse doctors and health-care providers for medicines. A nationwide investigation by state and federal agencies has revealed "a pattern of misrepresentations by some drug manufacturers of the average wholesale prices", according to a letter signed by officials of the national Medicaid fraud-control organization. Analysts say the revision of the Medicaid pricing system could hurt WLA and other drugmakers. WLA finished Thursday's session with a small gain, and tacked on another 1.0% on Friday. As we said, all things considered WLA has held up well. Our play could be at a crossroads, however the damage this week has been minimal and the volume light. Technically, support is found at $101 and at its 10-dma at $99.14. The trend is still our friend, and would look at further advances as an opportunity to buy calls. Friday Shire Pharmaceuticals Group did lend support for WLA and the drug sector. The company announced a new study of its Alzheimer's disease treatment Reminyl, shows the drug can help patients function in daily life by boosting their memories and sense of direction. A five-month study showed patients taking the drug scored "significantly better" in memory, language, orientation and cognitive tests. ***April contracts expire in two weeks*** BUY CALL APR- 95 WLA-DS OI=6673 at $ 9.50 SL=6.50 BUY CALL APR-100*WLA-DV OI=4931 at $ 5.25 SL=3.25 BUY CALL APR-105 WLA-DA OI=1034 at $ 2.25 SL=1.00 BUY CALL JUL-100 WLA-GV OI=1645 at $11.13 SL=8.25 BUY CALL JUL-105 WLA-GA OI=4053 at $ 8.75 SL=6.25 SELL PUT APR-100 WLA-PV OI= 411 at $ 1.13 SL=2.50 (See risks of selling puts in play legend) Picked on Apr 04th at $105.50 PE = 53 Change since picked -1.56 52 week high=$106.75 Analysts Ratings 12-4-8-0-0 52 week low =$ 60.81 Last earnings 01/00 est= 0.52 actual= 0.55 Next earnings 04-19 est= 0.56 versus= 0.45 Average daily volume = 3.73 mln Chart = /charts/charts.asp?symbol=WLA ********************** LEAPS by Mark Phillips ********************** You want capitulation? It doesn't get much better than what we saw this past week. Remember last week, we weren't convinced that the drop to 4350 was the end of the decline, as the VIX was not confirming a market bottom. Well this past Tuesday, we got the mother of all LEAPS buying opportunities, as the VIX leaped to the north side of 35 and several of our current plays (NT, TXN, NSM, ERICY) dropped to their respective 100-dmas. As the VIX began rolling over, and the broad markets began a swift recovery from the selloff, those of you that were vigilant were presented with some delicious entry points. We are now in the midst of April earnings and with enthusiasm up, this is not the optimum time to be buying LEAPS; unless you are presented with the incredible values found last Tuesday. The VIX has now dropped into the mid-20's again, closing the week at 26.94. Don't rush out to buy at these current levels; instead, use the excitement of earnings to take profits on your winners ahead of the summer doldrums. That way you'll be flush with cash as more attractive entry points present themselves over the months ahead. As if the turmoil in the markets and the approach of the summer vacation lull wasn't enough, we still have the FED rattling its rate-hike saber and bemoaning the imminent (How soon is imminent?) arrival of rampant inflation. With all of this uncertainty, make sure you protect your profits and only enter new positions when presented with an attractive entry point. As Jim Brown frequently reminds us, trade only when it is profitable to do so. Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN EMC 11/07/99 JAN-2001 $ 80 ZOH-AP $15.38 $71.50 365.04% JAN-2002 $ 90 WUE-AR $19.00 $74.50 292.11% GPS 11/07/99 JAN-2001 $ 40 ZGS-AH $ 5.75 $12.63 119.57% JAN-2002 $ 45 WGS-AI $ 7.88 $15.00 90.48% IBM 11/07/99 JAN-2001 $100 ZIB-AT $13.63 $34.13 150.46% JAN-2002 $110 WIB-AB $16.50 $38.13 131.06% CSCO 11/14/99 JAN-2001 $ 40 ZCY-AH $ 9.56 $39.13 309.26% JAN-2002 $ 90 WIV-AI $11.00 $40.50 268.18% GE 11/21/99 JAN-2001 $150 ZGR-AU $16.25 $29.00 78.46% JAN-2002 $150 WGE-AU $25.50 $42.25 65.69% NT 11/28/99 JAN-2001 $ 75 ZOO-AO $22.25 $60.75 173.03% JAN-2002 $ 75 WNT-AO $30.25 $70.63 133.47% VOD 12/05/99 JAN-2001 $ 50 ZAT-AJ $10.75 $15.88 47.67% JAN-2002 $ 50 WHV-AJ $15.00 $21.75 45.00% TXN 12/12/99 JAN-2001 $110 ZTN-AB $22.25 $69.50 212.36% JAN-2002 $120 WGZ-AD $28.50 $76.13 167.11% NXTL 12/19/99 JAN-2001 $ 90 ZFU-AR $23.50 $63.00 168.09% JAN-2002 $100 WFU-AT $27.25 $67.75 148.62% SUNW 12/19/99 JAN-2001 $ 80 ZJX-AP $17.63 $33.75 91.49% JAN-2002 $ 90 WJX-AR $22.00 $38.75 76.14% CY 01/16/00 JAN-2001 $ 40 ZSY-AH $ 9.13 $25.75 182.19% JAN-2002 $ 40 WSY-AH $12.63 $30.50 141.58% ERICY 01/30/00 JAN-2001 $ 65 ZYD-AM $19.75 $35.50 79.75% JAN-2002 $ 65 WRY-AM $27.00 $43.75 62.04% MSFT 01/30/00 JAN-2001 $100 ZMF-AT $17.63 $11.63 -34.04% JAN-2002 $110 WMF-AB $21.63 $17.25 -20.23% NSM 02/27/00 JAN-2001 $ 70 ZUN-AN $18.50 $17.25 8.11% JAN-2002 $ 70 WUN-AN $24.25 $20.00 26.69% AOL 03/12/00 JAN-2001 $ 60 ZKS-AL $14.00 $19.13 36.61% JAN-2002 $ 65 WAN-AM $18.63 $24.25 30.20% AXP 03/12/00 JAN-2001 $130 ZXP-AF $21.75 $28.63 31.61% JAN-2002 $140 WXP-AH $28.00 $35.63 27.23% WM 03/19/00 JAN-2001 $ 25 ZWI-AE $ 5.00 $ 5.63 12.50% JAN-2002 $ 30 WWI-AF $ 5.38 $ 6.00 11.63% QCOM 03/26/00 JAN-2001 $150 YQO-AJ $39.25 $41.88 6.69% JAN-2002 $160 XQO-AL $52.88 $56.25 6.38% 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 WM - Washington Mutual $26.38 Although it won't give you the stellar gains of EMC or QCOM, WM is an inexpensive way to play the recovery in the Financial sector. With the Jan-2002 $30 LEAP trading at a mere $6, this one is affordable for all but the smallest accounts. Bottoming out near $22, WM headed higher with the rest of the Financials in mid-March. The last week has seen a weakening of the sector and hence WM becomes our L.O.W. It has been encouraging to see the drop in volume that has accompanied the falling price. Caught between resistance at the 200-dma ($29.13) and support between $25-26 (the 100-dma is at $25.50), WM may be worth playing for some quick profits. Look for a bounce near support, confirmed by increasing volume to trigger your entry. The move up will likely be signaled by a move in the entire Banking group, so use the sector as confirmation on both your entry and exit points on WM. BUY LEAP JAN-2001 $30.00 ZWI-AE at $5.63 BUY LEAP JAN-2002 $30.00 WWI-AF at $6.00 Chart = /charts/charts.asp?symbol=WM New Plays No new plays this week. Drops LU $59.75 Tossed about in the stormy markets, LU appears to have no rudder, no sails, and no captain. As if that wasn't bad enough, the ship is taking on water. After the storm on Tuesday, LU couldn't make any headway and slipped further from view, closing below $60 for the first time in six weeks. As the NASDAQ charged to new highs last month, it looked like LU might be finding its way higher, but recent action proves it was just caught in the currents of the market. LU did manage to fight its way to the low $70's before the tide turned, and cast the stock adrift. As the summer doldrums approach, we are taking to the lifeboats; a more seaworthy craft is bound to come by soon. ***************** 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. **** IIJI - Internet Initiative Japan Inc $66.50 (-3.25)(-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. IIJI defined Internet volatility this week. On Monday, IIJI easily shed $8.63, or 12.4% and slipped through the historical support level at $65. If that wasn't enough, the momentum snowballed on Tuesday. IIJI gave us the big upset we were hoping for and dived another 9.2% to bottom support at $50! Recall in the prior week, IIJI's downtrend got a shot of adrenaline from Goldman Sach's Abby Joseph Cohen remarks concerning trimming stock holdings and Templeton Fund's Mark Mobius' warning that many Internets are overvalued and due for a 50-90% corrections. While this huge drop to bottom support was welcome, it came quick. Therefore it wasn't unusual to see an initial bounce off this level. However we warned of an impending rebound because investors could see the massive drop as a prime buying opportunity. In fact on Wednesday, some bargain hunters started nibbling, but the higher share prices couldn't hold up even with the markets in rally mode. Currently IIJI is still below the 10-dma ($67.50) and in the near vicinity of higher support at $65. Although this position is not reproachable, we do need to see downward movement from here. A convincing slide through the 5-dma (now at $61.88) would certainly improve our confidence in this put play. Friday's close on the intraday low did however provide optimism for the near-term. Plus the MACD, MOM, and Stochastic technicals are still in the red zone. ***April contracts expire in two weeks*** BUY PUT APR-70*IUJ-PN OI= 48 at $7.63 SL=5.25 BUY PUT APR-65 IUJ-PM OI=130 at $4.75 SL=2.75 Average Daily Volume = 393 K Chart = /charts/charts.asp?symbol=IIJI **** LVLT - Level3 Communications Inc $90.13 (-15.63) Level3 Communications is a global telecommunications and information services company that is building an international fiber-optic network based on internet protocol (IP). Their focus is primarily on the business market. Services include local, long distance, and data transmission as well as other enhanced services. Currently they serve 20 cities in the US and Europe. LVLT also has its hands in the coal mining business. The widespread market decline earlier in the week pummeled LVLT's share price by 15%. While telecom and high-flying Internets suffered sharp pullbacks, many are now snapping back and recovering nicely. LVLT is not. It appears it doesn't have the vitality to lift it back up above its previously steadfast support of $100. On Thursday, there wasn't even a sign of recognition from investors when Banc of America Securities reiterated its Strong Buy recommendation. Plus the Nasdaq was in rally mode and LVLT simply continued to rollover. Now that's a bearish sentiment. The 5 and 10 DMA measurements are also in our favor. LVLT is well below $96.54 and $103.07, respectively. The 200-dma ($78.66) indicator may however pose opposition as it's in the proximity of historical support at $80 and $83. On Friday, LVLT did manage a small gain and traded above $90 for a short time, but couldn't maintain any upward momentum. Technically the MACD, MOM, and Stochastic are pointing south and LVLT is clearly establishing a pattern of lower-highs. Still it's always a good idea to keep trailing stops in place for protection. Entries into this technical-momentum play? Downward bounces off $90 are reasonable yet the more conservative will wait a definitive move through $87 and/or $85. Let's also keep any eye on the approaching earnings' date of April 18th. The company is now confirmed to report before the bell. As an FYI note, LVLT is a split-candidate above $80. Simply be aware of potential investor exuberance as this date approaches. ***April contracts expire in two weeks*** BUY PUT APR-100 QHN-PT OI= 632 at $13.50 SL=10.00 BUY PUT APR- 95*QHN-PS OI=2049 at $ 9.75 SL= 6.75 Average Daily Volume = 2.92 mln Chart = /charts/charts.asp?symbol=LVLT **** ICGE - Internet Capital Group Inc. $72.69 (-17.63) Like a little CMGI, Internet Capital Group is an Internet company actively engaged in business-to-business e-commerce through a network of partner companies. It provides operational assistance, capital support, industry expertise, and a strategic network of business relationships intended to maximize the long-term market potential of more than 60 business-to-business e-commerce partner companies. Headquartered in Wayne, Pa., Internet Capital Group also has offices in San Francisco, Boston, Seattle and London. Not even Robbie Stevens' Friday morning upgrade from Buy to Strong Buy and a price target of $250 could get their "favorite pick in the B2B space" to move up. ICGE lost $1.19 on Friday while the rest of the NASDAQ gained 178 points. And that's just the tip of iceberg. Multiply that by five days of similar performance and you have relative strength weakness. Technically, ICGE was on a downhill course before Tuesday's major sell-off. It's last gasp came at $80 just before the black vortex sucked it to under $56. While the rest of the market has come back roughly 700 points since, ICGE can't hold its head above $80, a critical level of support/resistance as far back as November and early December. Not only that, but volume remains high compared to the ADV. Sellers are showing up on any strength. Intraday support is just under $72, however, the daily highs are getting lower, which tells us that ICGE could keep sliding even while times are good. And with any market weakness, it could completely lose its footing down to the next level of support at $60. ***April contracts expire in two weeks*** BUY PUT APR-75*EUG-PO OI= 64 at $ 7.63 SL=5.50 BUY PUT APR-70 EUG-PN OI=346 at $ 4.88 SL=3.00 BUY PUT MAY-75 EUG-QO OI= 55 at $12.50 SL=9.25 BUY PUT MAY-70 EUG-QN OI=103 at $ 9.50 SL=6.50 Average Daily Volume = 3.95 mln Chart = /charts/charts.asp?symbol=ICGE **** KO - The Coca-Cola Company $46.19 (-0.75) The Coca-Cola Company is the largest manufacturer, distributor and marketer of soft drink concentrates and syrups in the world. The company's products include all of the Coca-Cola brand drinks, Minute Maid, Sprite, Barq's root beer, and Powerade among others. It sells more than 160 brands of beverages in some 200 nations. About two-thirds of its sales come from outside the US. The company commands 51% of the global soft-drink market. Coca-cola claims that its products account for a mere 2% of global daily fluid intake -- for now. Would you like a Coke with that bitter pill? Investors have been swallowing a lot of bitter news from KO over the past year. Most recently, executives lowered the long-term earnings per share growth rate to 15% from 20%. The high bar for earnings growth was established a decade ago by Robert Gouizetta, Coke's famed and accomplished CEO. After Gouizetta's tragic passing away, Douglas Ivester took the reigns of KO in late 1997 and problems mounted. The company faced a product contamination scare in Europe and a discrimination lawsuit in the US. After poor results, this February Ivester resigned as CEO from the beleaguered soft drink behemoth. Company officials recently announced a complete restructuring of operations, including 5,200 job cuts. Coke's Indian unit said Friday that as a part of the company's streamlining efforts they will take a $400 mln charge in the first quarter of 2000. The recent announcements and continued selling pressure has KO precariously hovering above its 52-week low. After hitting a low of $42.88 a month ago, KO enjoyed a brief relief rally. The stock now looks poised to retest its low in light of the recent developments. We mentioned last Thursday that KO might rally after its sharp decline. Well it didn't exactly rally, but the stock did manage to edge higher Friday. KO is finding resistance at its descending 10-dma, currently at $47, and support at $45. Watch for selling to resume if support fails, where the stock could retest its 52-week low. Goldman Sachs analysts lowered their 2000 and 2001 earnings per share estimates last week. Goldman said they lowered Coke's 2000 estimates to $1.43 a share from $1.45. They rate shares of KO as a Market-performer. While PaineWebber maintains its Buy rating on KO and said the stock may "take a breather." ***April contracts expire in two weeks*** BUY PUT APR-50 KO-PJ OI=3255 at $4.13 SL=2.50 BUY PUT APR-45 KO-PI OI=5572 at $1.00 SL=0.00 High Risk! BUY PUT MAY-45*KO-QI OI=6456 at $2.00 SL=1.00 Average Daily Volume = 5.13 mln Chart = /charts/charts.asp?symbol=KO **** FDRY - Foundry Networks $120.13 (-23.63) Foundry Networks is a leader in high performance end-to-end switching and routing solutions including Internet routers, Layer 3 switches and Internet Traffic Management switches. Their products are installed in the world's largest ISPs including AOL, MindSpring, AT&T WorldNet, MSN, and Cable & Wireless. Foundry products are also installed in large enterprise, entertainment, pharmaceutical and manufacturing companies as well as search engines, e-commerce sites, universities and government organizations. Here's a case of relative weakness compared to others in the switch/router/network equipment sector. FDRY has been in a downtrend anyway since early March when it reached a closing high over $207. While it has returned from a sell-off low of $90, FDRY doesn't appear to be able to hold $120, a previous level of support. This is especially troubling when compared to say Cisco, an issue that barely hiccuped last week (Tuesday afternoon excepted). Despite the announcement that they would have new products to compete with the fastest products currently available from Cisco and Juniper, investors have barely noticed. Instead, FDRY is again knocking on short-term resistance at the 10-dma of roughly $129, which also happens to be the level from which it fell beginning Monday. If the market rolls over, and we think that's possible given the 700 point NASDAQ rally, FDRY could easily find itself at $100 again. That's a level of resistance found in November before the breakout, which became support in January, and gain on Wednesday. We think any move down from $129 should make a good entry, or if you want more confirmation, consider waiting for a move under $120 with stepped up volume. This will be representation that sellers are in control and moving the issue down. However, if it breaks out over $130 with volume, forget it and move on to another play. One item that could trip up this play is if daytraders decide to use it for an earnings run vehicle over the next four days until it reports earnings on Thursday, April 13th. (confirmed with IR) The company has reported upside surprises the last two quarters and could do so again. Judging by the total open interests of April puts and calls, they are about even. That tells us that the expectation of future performance is really low, and that the worst expectation is already priced in. Any good news might be met with buying activity, thus moving the price up. Take this analysis with a grain of salt though because there are statistically too few contracts open or traded to give the analysis full credibility (it's just another indicator). It looks like a loser to us, but tread carefully. ***April contracts expire in two weeks*** BUY PUT APR-125*OQ-PE OI=285 at $13.75 SL=10.25 BUY PUT APR-120 OQ-PD OI=139 at $10.75 SL= 8.00 Average Daily Volume = 1.05 mln. Chart = /charts/charts.asp?symbol=FDRY **** LU - Lucent Technologies $59.75 (-1.50) Lucent Technologies designs and delivers the systems, software, silicon and services for next-generation communications networks for service providers and enterprises. Backed by the research and development of Bell Labs, Lucent focuses on high-growth areas such as optical and wireless networks; Internet infrastructure; communications software; communications semiconductors and optoelectronics; Web-based enterprise solutions that link private and public networks; and professional network design and consulting services. Look out below, may have been what traders were uttering as they walked off the trading floor on Friday. Since the first of March traders have been unkind to the communications company. Lucent announced early in the month it intends to spin-off their Enterprising Networking division, Pbx, Systimax Cabling Unit, into a separate company. On the news LU jumped about $15, back to the $75 level. Investors still smarting after Lucent's poor first quarter performance, took the surge in price as an opportunity to get out. At this point it seems as though the old cliche of "burn me once, it's your fault, burn me twice, its my fault" is alive and well. Investors are simply gun-shy when considering an investment in LU stock. They are schedule to report second quarter results April 19th, and it seems there may be no earnings run in sight, unless it's a run south. Friday investors ran alright, ran for cover, as Lucent lost 3.5%, with 12.5 million shares changing hands. On Tuesday, the low was $55.75 and if Friday's trade is any indication of things to come, we may see that level again soon. On Monday analysts at Dresdner Kleinwort Benson initiated coverage of Lucent with a Buy rating, but to no avail. Until they can redeem themselves, with solid earnings it could be an uphill battle. One look at the chart shows how tall that hill may be. A bounce back to the $61 to $62 area followed by further weakness may provide a good entry point for our new play. Otherwise further selling would be a chance to jump on board. ***April contracts expire in two weeks*** BUY PUT APR-65 LU-PM OI=17862 at $6.25 SL=4.25 BUY PUT APR-60*LU-PL OI=21673 at $2.88 SL=1.50 BUY PUT MAY-60 LU-QL OI= 6529 at $4.50 SL=2.75 Average daily volume = 22.2 mln Chart = /charts/charts.asp?symbol=LU **** FIBR - Osicom Technologies $70.25 (-42.00) Osicom is a Santa Monica, California-based business which designs, manufactures and markets integrated networking and bandwidth aggregation products for enhancing the performance of data and telecommunications networks. The Company's products are deployed to telephone companies, ISPs and corporate/campus environments to provide transport within and access to their networks. They also market remote access servers and make embedded networking chips. Their competition comes from Cisco Systems, Lucent and Nortel Networks. FIBR has traveled a rocky path so far this month. In just the last 5 sessions, FIBR has lost about 38% of it market cap. While admittedly the NYSE and Nasdaq saw a steep sell-off earlier this week, many of the tech stocks have rebounded. Not FIBR, it just keeps losing ground. Unfortunately there seems to be little for investors to look forward to, which is keeping pressure on the optical and network technology company. In late March, FIBR reported fiscal fourth-quarter results. On the bright side revenues and gross margins did increase. The bottom line showed a loss of $4.9 million or -$0.44 per share. At that time they also announced a management buyout of its Far East division, which reported a loss of $9.8 million in the fourth quarter. Osicom recorded a loss of an estimated $3.6 million on the sale of the division. We realize the word "loss" just keeps creeping into this play, and for now that appears to be what lies ahead for FIBR. Estimates for the current quarter are for the losses to improve, to about -0.14. The one broker following the company must be a die-hard, as they do have the company listed as a Strong Buy. FIBR has initial support near $64 and then not again until the $60 level. With the decline this week so steep, FIBR could see a bounce back to its 5-dma at $81.39, so be cautious. ***April contracts expire in two weeks*** BUY PUT APR-80*QFW-PP OI=238 at $16.63 SL=12.00 BUY PUT MAY-75 QFW-QO OI= 6 at $18.38 SL=13.00 low OI BUY PUT MAY-65 QFW-QM OI= 13 at $12.13 SL= 9.00 low OI Average Daily Volume = 392 K Chart = /charts/charts.asp?symbol=FIBR ************************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 4-9-2000 Sunday 5 of 5 ************* COVERED CALLS ************* Technical Analysis: When is a trend at an end? Today we continue our discussion of fundamental technical analysis with an evaluation of the most common reversal signals. For those traders who study chart formations, it is not necessary to know the cause of a market condition, rather it is only important to understand there is a relationship between the historical pricing of an issue and its future potential. While there are no simple maxims or directives which will absolutely prevent loss and ensure profits, we can use the knowledge of basic patterns and formations to maximize our trading success. Just as all good things must end, so too will trends invariably wither and fade away, generally to be replaced by a new direction or character. Unfortunately, trying to identify every unique situation in which these changes tend to occur is impossible. We can however become familiar with the basic formations that often precede the change. First are the common reversal patterns such as multiple tops and bottoms as well as head-n-shoulders patterns. The presence of an exhaustion gap, climax pattern or an island formation may also signal a trend reversal and break-outs from channels or through trend-lines can provide early indications of a character change. The decision points with classic patterns are clearly defined but the most difficult assessment comes when the issue achieves a new high, then retraces slightly before continuing upward, but fails to penetrate the previous level. Is it simply a prolonged consolidation or the beginning of a correction? While we can't possibly know the answer, the key is to be aware that the trend may be coming to an end. In the stock market, success is based on profit and loss. To be successful, you must learn to remain in a position while it is profitable and get out when the trade begins to lose its potential. Identifying a technical change in character is one method that can help you reduce the losses that occur when a position is held past the point of maximum potential. The first step is to evaluate the primary trend and its boundaries. As long as the trend is intact; the issue remains above a trend-line or short-term moving average, no action is taken. When the issue penetrates the trend-line, a new set of lines is drawn on a parallel, horizontal axis with the upper line at the current high (failed rally point) and the lower line at the recent minor low. The new boundaries will define a box pattern or channel and when the issue closes below the channel, it should be sold (or the associated call-option position closed). Here is an example: It's a very simple system that anyone can use. When the market fails to make a new high, the trend is in jeopardy. A move below the lower boundary (the recent minor low) indicates that a major change in character is occurring. Unexpected news or earnings data is often the cause of this type of reaction and if the issue fails to close above the previous support area, a new downtrend is likely to follow. Occasionally, the issue may recover and attempt to remain in the channel. If the trend begins to move sideways in an indecisive fashion, a trading range will emerge. At that point you must monitor the issue for a breach of the boundaries of the prevailing trend. A key test will occur when the price approaches the extreme channel limits - where buyers and sellers get nervous. A continuation pattern or a significant correction will eventually emerge and that outcome will determine the new primary trend for the issue. With any technical trading system, correctly placed entry and exit STOPS are mandatory. Using this technique, the exit strategy for investors is quite simple. A stop is placed below the recent minor low, allowing for a small amount of retracement in the event of a short-term market correction. For traders, the task is more difficult as the goal is to maximize profits and also avoid being in the position during stagnant periods. Experienced technicians would suggest a STOP below the trend-line and near the top of the last area of congestion. That location affords the highest level of profit and yet prevents any significant loss. Next week, we will evaluate another successful system for position management. 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 18.50 APR 17.50 6.00 *$ 2.41 13.9% PXD 10.50 9.88 APR 10.00 1.13 $ 0.51 7.9% BIDS 7.13 5.63 APR 5.00 2.63 *$ 0.50 6.9% FSI 15.63 16.00 APR 15.00 1.25 *$ 0.62 6.2% PRGS 23.44 21.00 APR 20.00 4.25 *$ 0.81 6.1% COB 14.13 12.19 APR 10.00 5.00 *$ 0.87 5.9% AND 12.75 10.88 APR 10.00 3.38 *$ 0.63 5.8% CRCL 27.63 26.63 APR 22.50 6.25 *$ 1.12 5.7% EPTO 14.00 11.00 APR 10.00 4.75 *$ 0.75 5.0% ELIX 26.00 24.25 APR 20.00 6.88 *$ 0.88 5.0% TRMB 24.75 24.31 APR 20.00 5.63 *$ 0.88 5.0% R 22.69 24.63 APR 17.50 5.75 *$ 0.56 4.8% VANS 16.13 17.06 APR 15.00 1.75 *$ 0.62 4.7% POSS 12.56 9.88 APR 10.00 3.25 $ 0.57 4.4% MUEI 14.50 12.88 APR 12.50 2.81 *$ 0.81 4.3% IGEN 28.25 22.00 APR 22.50 6.88 $ 0.63 2.6% TLXN 25.75 19.00 APR 20.00 7.13 $ 0.38 1.5% MAIL 17.25 14.19 APR 15.00 3.00 $ -0.06 0.0% FSII 22.88 18.00 APR 20.00 4.75 $ -0.13 0.0% CYCH 14.38 11.25 APR 12.50 2.69 $ -0.44 0.0% SCUR 22.88 15.88 APR 17.50 6.50 $ -0.50 0.0% AND 16.13 10.88 APR 12.50 4.75 $ -0.50 0.0% MPPP 29.25 18.38 APR 20.00 10.25 $ -0.62 0.0% EPTO 16.94 11.00 APR 12.50 5.25 $ -0.69 0.0% CYOE 12.06 8.56 APR 10.00 2.69 $ -0.81 0.0% CRAY 8.81 5.94 APR 7.50 2.00 $ -0.84 0.0% New Ticker CBSI 25.75 20.25 APR 22.50 4.38 $ -1.12 0.0% NUHC 22.13 20.06 MAY 17.50 6.00 *$ 1.37 5.3% CNJ 8.13 6.56 MAY 7.50 1.50 $ -0.07 0.0% *$ = Stock price is above the sold striking price. Comments: Tera Computer is now called Cray (CRAY) as it completed the sale from SGI. Several of the above issues are testing support areas: 150 dma's; previous lows; long term trend-lines. Closing below a technical support area increases the probability for further downside movement and when this occurs, exiting the position is the most viable way to preserve capital. In the Summary Section, we will exit a position when the underlying issue penetrates and remains below one or more of these areas (on a closing basis). Positions Closed: 3do Company (THDO), Information Architects (IARC), Esc Medical (ESCM), Beyond.Com (BYND), Rmi.Net (RMII). 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 INSUA 33.06 APR 30.00 ISQ DF 3.88 57 29.18 2.8% 2.8% PAIR 19.44 APR 15.00 PQG DC 4.88 903 14.57 3.0% 3.0% R 24.63 APR 20.00 R DD 5.50 687 19.13 4.5% 4.5% ANET 10.56 MAY 7.50 QTE EU 3.63 10 6.93 8.2% 8.2% MATK 15.50 MAY 12.50 KQT EV 4.13 20 11.37 9.9% 9.9% MRL 26.88 MAY 25.00 MRL EE 3.25 417 23.63 5.8% 5.8% PSSI 9.13 MAY 7.50 PYQ EU 2.19 1107 6.94 8.1% 8.1% 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 R 24.63 APR 20.00 R DD 5.50 687 19.13 4.5% 4.5% PAIR 19.44 APR 15.00 PQG DC 4.88 903 14.57 3.0% 3.0% INSUA 33.06 APR 30.00 ISQ DF 3.88 57 29.18 2.8% 2.8% MATK 15.50 MAY 12.50 KQT EV 4.13 20 11.37 9.9% 9.9% ANET 10.56 MAY 7.50 QTE EU 3.63 10 6.93 8.2% 8.2% PSSI 9.13 MAY 7.50 PYQ EU 2.19 1107 6.94 8.1% 8.1% MRL 26.88 MAY 25.00 MRL EE 3.25 417 23.63 5.8% 5.8% Company Descriptions OI-Open Interest, CB-Cost Basis or break-even point, RC-Return Called, RNC-Return Not Called (Stock unchanged) **** INSUA - Insituform Technologies $33.06 *** Technicals Only*** Insituform Technologies is a worldwide provider of technologies and services for rehabilitating municipal sewers, water mains and industrial pipes without digging and disruption. Since 1971, Insituform has rehabilitated more than 7,500 miles of underground piping systems for cities and industrial plants throughout the world. Insituform's methods allow them to repair and rehabilitate pipelines from inside the pipe, allowing for the repair of pipeline in difficult-to-access areas, as well as saving the expense of excavation. Insituform has had record operating income for seven consecutive quarters and investors have noticed. The stock has been climbing since early 1998 and shows no sign of stopping. A reasonable entry point on a bullish issue for those with a long term outlook. APR 30.00 ISQ DF Bid=3.88 OI=57 CB=29.18 RC=2.8% RNC=2.8% Chart = /charts/charts.asp?symbol=INSUA **** PAIR - PairGain $19.44 *** Conservative Speculation *** PairGain is the leader in the design, manufacture, marketing and sale of DSL networking systems. Service providers and private network operators worldwide use PairGain's products to deploy DSL-based services such as high-speed Internet access, remote LAN access and enterprise LAN extension. More than 1.7 million PairGain DSL nodes are installed in over 100 countries. PairGain recently introduced its StarGazer4.0 Element Management System, which enables its customers to remotely configure DSL line profiles, monitor equipment performance in real time and easily identify any system failures, all from one integrated system. In February, PairGain agreed to be acquired by ADC Telecom (ADCT) where each common share of PAIR will be converted into 0.43 of a common share of ADCT with a fixed exchange ratio. The transaction, subject to approval, is expected to close before August. New option interest and the inflated premiums caused by speculative call-buyers offer a short-term conservative entry point. APR 15.00 PQG DC Bid=4.88 OI=903 CB=14.57 RC=3.0% RNC=3.0% Chart = /charts/charts.asp?symbol=PAIR **** R - Ryder System $24.63 *** Restructuring *** 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. This week's correction did little to hinder Ryder, which rebounded quickly. Thursday's announcement that Ryder is combining the Company's two European business units, helped the stock take out the March high. The move on heavy volume suggests the January high will soon be breached, as investors cheer Ryder's global restructuring. APR 20.00 R DD Bid=5.50 OI=687 CB=19.13 RC=4.5% RNC=4.5% Chart = /charts/charts.asp?symbol=R **** ANET - ACT Networks $10.56 *** Asian Expansion *** ACT Networks develops, manufactures, and markets multi-services access products that enable the convergence of voice, video and data onto one managed network. Service providers and enterprise customers use ACT Networks' products to build converged networks that are bandwidth efficient, cost-effective and easy to manage. The company's most significant product offerings are NetPerformer and ServiceXchange. Though last quarter was disappointing, new distribution agreements with Sumitomo (in Japan), as well as LAN Systems, Cisco's largest second tier distributor in Australia, bode well for the future. ANET's Netperformer was just selected by China and could lead to a very productive spring build season. The issue recently corrected, but with Friday's volume supported rebound off support (November - February consolidation area), ANET has confirmed a six month trendline and moved back above its 150 dma. Earnings are due near the end of April. MAY 7.50 QTE EU Bid=3.63 OI=10 CB=6.93 RC=8.2% RNC=8.2% Chart = /charts/charts.asp?symbol=ANET **** MATK - Martek Biosciences $15.50 *** New Infant Formula? *** Martek develops, manufactures and sells products from microalgae. The company's products include: specialty, nutritional oils for infant formula, nutritional supplements and food ingredients; high value reagents and technologies to visualize molecular interactions for drug discovery and development and; new, powerful fluorescent markers for diagnostics, rapid miniaturized screening, and gene and protein detection. Those investors that picked up a March issue of Developmental Medicine & Child Neurology, and read about the study that demonstrated a significant improvement in the mental development of term infants fed formula supplemented with two essential nutrients produced by Martek, were able to ride the rocket ship up. The stock quickly came back to earth with the general biotech selloff, but the future still looks bright. On Tuesday, Abbott Labs (ABT) signed a non-exclusive license agreement for Martek's technology relating to the use of long-chain polyunsaturated fatty acids in infant formulas. This caused another jump (much more modest) in price and the recent speculation has inflated the option premiums. We favor a cost basis near long term support on a potentially hot issue. Research thoroughly! MAY 12.50 KQT EV Bid=4.13 OI=20 CB=11.37 RC=9.9% RNC=9.9% Chart = /charts/charts.asp?symbol=MATK **** MRL - Marine Drilling $26.88 *** Oil Service Sector *** Marine Drilling Companies is engaged in offshore contract drilling of oil and gas wells for independent and major oil and gas companies. Operations are conducted in the U.S. Gulf of Mexico and internationally. They own and operate a fleet of 18 offshore drilling rigs. The oil service sector is heating up with profitability expected in the second half of the year, as independent and national oil firms ramp up oil and gas exploration and production spending. Marine Drilling is one of the few expected to turn in a first quarter profit with the company capitalizing on the strength of the Gulf of Mexico market where it is the fourth largest rig operator. The position offers favorable speculation with a reasonable cost basis supported by several upgrades and a bullish chart. Earnings are due near the end of April. MAY 25.00 MRL EE Bid=3.25 OI=417 CB=23.63 RC=5.8% RNC=5.8% Chart = /charts/charts.asp?symbol=MRL **** PSSI - PSS World Medical $9.13 *** What's Up? *** PSS World Medical is a specialty marketer and distributor of medical products to physicians, alternate-site imaging centers, long-term care providers, home care providers, and hospitals through 111 service centers to customers in all 50 states and three European countries. Back in January, PSS announced that it has engaged DLJ Securities to advise its Board in considering various strategic alternatives to maximize shareholder value, including alternatives which may involve the entire Company or its separate operating divisions. This was after the PSS missed earnings and was subsequently downgraded. The stock dropped nearly a third and has been languishing around $6.75. Until Wednesday anyway...then a 50% rise in price with no news? PSS said they wouldn't comment further on any strategic alternative "until it is completed." Is the tape telling us something the company isn't? MAY 7.50 PYQ EU Bid=2.19 OI=1107 CB=6.94 RC=8.1% RNC=8.1% Chart = /charts/charts.asp?symbol=PSSI ****************** BIG CAP NAKED PUTS ****************** Naked Put Percentage List 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 122.00 120 A-PD 6.13 3050 20% 115 AFFX 131.13 130 FIQ-PF 13.75 3278 42% 125 CHKP 196.48 175 YKE-PO 14.13 4912 29% 175 CIEN 132.50 120 EUQ-PD 4.88 3313 15% 115 CMGI 93.75 90 GCD-PR 5.00 2344 21% 90 CMRC 140.00 130 RJC-PF 6.25 3500 18% 125 CMVT 89.25 85 CQZ-PQ 5.38 2231 24% 85 DIGL 71.00 65 DGU-PM 3.75 1775 21% 65 ELON 65.00 55 EUL-PK 3.63 1625 22% 55 ENTU 75.13 65 QYE-PM 3.00 1878 16% 65 ETEK 219.50 210 FNY-PB 10.13 5488 18% 200 EXDS 141.63 130 QED-PF 5.38 3541 15% 130 GMST 69.06 65 GST-PM 2.88 1727 17% 65 INKT 180.88 170 KAY-PN 8.13 4522 18% 165 ITWO 136.94 125 QYJ-PC 7.50 3424 22% 120 JDSU 121.88 115 UCQ-PC 5.25 3047 17% 110 NEWP 134.00 125 NZZ-PE 6.75 3350 20% 115 NTAP 79.94 75 NUL-PO 4.25 1999 21% 70 PDLI 111.00 95 PQI-PS 6.25 2775 23% 100 PHCM 140.25 135 UMN-PG 7.50 3506 21% 135 PMCS 194.75 180 SZI-PP 9.63 4869 20% 180 RIMM 99.56 90 RUL-PR 5.13 2489 21% 90 RMBS 246.56 220 BYQ-PD 14.63 6164 24% 220 SCMR 115.50 110 QSM-PB 7.13 2888 25% 110 SDLI 183.00 165 YAL-PM 9.63 4575 21% 165 SEBL 126.81 115 SGW-PB 3.88 3170 12% 110 SEPR 80.50 75 ERQ-PO 4.75 2013 24% 75 SNDK 116.00 105 SWF-PA 4.25 2900 15% 105 SONE 72.25 65 QFB-PM 4.75 1806 26% 65 TERN 179.50 165 YGT-PM 10.13 4488 23% 165 VIGN 200.94 180 GVV-PP 9.00 5024 18% 180 VRTS 126.25 120 VUQ-PD 7.75 3156 25% 120 To download a spreadsheet version of this chart please click here: http://www.OptionInvestor.com/downloads/hpapr-09.xls CMGI AGGRESSIVE SELL PUT APR-95 GCD-PS at $7.38 = 31% MODERATE SELL PUT APR-90 GCD-PR at $5.00 = 21% CONSERVATIVE SELL PUT APR-85 GCD-PQ at $2.88 = 12% RIMM AGGRESSIVE SELL PUT APR-95 RUL-PS at $7.25 = 29% MODERATE SELL PUT APR-90 RUL-PR at $5.13 = 21% CONSERVATIVE SELL PUT APR-85 RUL-PQ at $3.88 = 16% ETEK AGGRESSIVE SELL PUT APR-220 FNY-PD at $15.00 = 27% MODERATE SELL PUT APR-210 FNY-PB at $10.13 = 18% CONSERVATIVE SELL PUT APR-200 FNY-PT at $ 6.25 = 11% ********************** COSERVATIVE NAKED PUTS ********************** Hope, Greed, and Fear... To be a successful investor, it is necessary to have a fundamental understanding of the philosophy that drives the stock market. The psychology of human nature is the biggest single factor you must comprehend if you expect to trade profitably on a consistent basis. This emotional ingredient has absolutely nothing to do with the state of the economy, but it does have an overwhelming affect on the movement of stocks and other financial instruments. Emotions such as hope, greed and fear have significant effects on the way everyone trades and in a public market, that is a major factor in stock valuation. When humans reach extreme levels of emotion (ecstasy and despondency), they often act without logic or control and the concept of money management is lost in the passion of the moment. Since the stock market is significantly influenced by the public's attitude, a widespread panic can trigger selling by millions of investors. If this occurs in a brief period, the market can move violently in one direction and also reverse dramatically; precisely what we experienced last week. There is debate concerning the accurate description of Tuesday's move but most traders felt it was simply an overdue correction rather than a market crash. The differences are subtle but a correction is generally a sharp, and yet not extremely deep, downswing. This often occurs when the market has been surging for some time and the feeling begins to grow that stocks are becoming overpriced. Since Wall Street tends to follow a herd mentality, that enthusiasm suddenly can turn to pessimism and fear. A crash is a much more severe downturn, driven by financial crisis and often triggered by negative economic or international news. Its foundation begins when greed-based ecstasy reaches a zenith and after the selling begins, only a significant event can reverse the trend. Once the movement achieves momentum, the results can be catastrophic. Only when panic and misery reach disturbing levels will the selling stop and the crash come to an end. The most famous one-day stock market crash occurred during the Great Depression of 1929. Its effect was so devastating that some brokers were reported to have thrown themselves out of office windows. Interestingly, the causes of the event are very similar to the conditions that plague our current market. In the depression era, traders were often margined to maximum levels. When the market optimism wavered in the late 1920's, investors were subjected to massive debt liquidations and the unexpected crash quickly became a reality. A decade ago, the stock market suffered another major collapse. It lost more than $1 trillion between August 25 and October 19, 1987. On Black Monday, the market experienced its second-worst, one-day fall in history. Once again the conditions were comparable as institutional fund managers, who had leveraged their accounts to extremes, unknowingly thought the new market safety limits (trading curbs) would prevent a financial catastrophe. Unfortunately, no one considered the effects of everyone trying to sell at once. In the crash of 1929, the emotional buying climax occurred well in advance of Black Sunday; in 1987, it started about two months prior to the crisis. In this most recent case, the final mania reached extremes a few weeks ago. It's obvious that we chose to overlook the historical trends. After the event, analysts were quick to point out this fact; markets that reach euphoric levels such as those achieved in recent weeks generally end with forced selling. The current attitude of bullish, carefree investing; buying stocks and fund shares month after month, regardless of what the market does, is certainly part of the problem. The concern now is whether we can find a healthy balance between the incredible growth that is occurring in our economy and the share values that dominate the equity markets it supports. The most important factor to be aware of is the power of human nature on the movement of stocks and other investment vehicles. When you understand the changes produced by emotional factors, then you can begin to discern the broader technical movements in the market. Hopefully we will learn from history's previous lessons and remain guarded against human emotional excesses, thus avoiding their damaging effects on our investments. With caution and diligence, we can recognize the signs of an impending major correction and take action to avert potentially devastating losses. Of course that's an ambitious goal, but it is one we should all strive to achieve. 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 11.00 8.56 APR 7.50 0.38 *$ 0.38 21.3% UPR 14.50 16.19 APR 12.50 0.56 *$ 0.56 18.6% ADLT 18.75 20.50 APR 12.50 0.44 *$ 0.44 15.2% CYOE 10.75 8.56 APR 7.50 0.44 *$ 0.44 14.8% CONV 12.81 11.63 APR 10.00 0.56 *$ 0.56 13.0% CD 18.69 17.81 APR 17.50 0.56 *$ 0.56 11.8% TLCM 30.25 30.63 APR 22.50 0.50 *$ 0.50 11.1% RSLC 23.88 20.06 APR 17.50 0.69 *$ 0.69 11.0% PCMS 23.19 15.00 APR 15.00 0.81 $ 0.81 10.8% ZONA 10.88 7.56 APR 7.50 0.38 *$ 0.38 10.7% MCRE 25.06 18.00 APR 15.00 0.69 *$ 0.69 10.5% INSO 16.06 10.00 APR 10.00 0.44 $ 0.44 10.5% ISIP 24.00 15.56 APR 15.00 0.75 *$ 0.75 9.8% MLT 30.00 24.38 APR 22.50 0.44 *$ 0.44 7.4% SEM 17.81 19.75 APR 15.00 0.31 *$ 0.31 7.3% NUHC 17.56 20.06 APR 12.50 0.31 *$ 0.31 7.1% OXGN 23.50 19.50 APR 17.50 0.50 *$ 0.50 7.0% TLCM 32.44 30.63 APR 22.50 0.44 *$ 0.44 6.9% CDT 34.31 33.13 APR 25.00 0.56 *$ 0.56 6.6% SVGI 30.06 29.25 APR 22.50 0.38 *$ 0.38 6.5% EGRP 30.13 24.56 APR 25.00 0.56 $ 0.12 2.3% EGRP 32.00 24.56 APR 25.00 0.50 $ 0.06 0.9% PMRY 19.50 16.63 APR 17.50 0.63 $ -0.24 0.0% AMTD 24.25 18.75 APR 20.00 0.75 $ -0.50 0.0% SCUR 26.50 15.88 APR 17.50 0.75 $ -0.87 0.0% *$ = Stock price is above the sold striking price. Comments: Legato (LGTO) was kind enough to revise their earnings before the Market opened on Monday, which precluded the opening of any bullish positions. Several of the above issues are testing support areas: 150 dma's; previous lows; long term trend-lines. Closing below a technical support area increases the probability for further downside movement and when this occurs, exiting the position is the most viable way to preserve capital. In the Summary Section, we will exit a position when the underlying issue penetrates and remains below one or more of these areas (on a closing basis). Positions Closed: Madge Networks (MADGF), Shopnow.Com (SPNW). NEW PICKS ********* Sequenced by Company ***** Stock Last Put Strike Option Last Open Cost ROI Opt Symbol Price Month Price Symbol Bid Intr Basis Expired BELM 16.44 APR 12.50 QBL PV 0.25 58 12.25 7.1% GADZ 24.00 APR 20.00 EQK PD 0.38 30 19.62 6.4% PAIR 19.44 APR 15.00 PQG PC 0.56 3728 14.44 12.6% CYBX 23.81 MAY 17.50 QAJ QW 0.50 3 17.00 9.5% SUPX 30.06 MAY 17.50 TXQ QW 0.69 0 16.81 10.3% VANS 17.06 MAY 15.00 VQG QC 0.56 0 14.44 10.5% VTS 28.06 MAY 20.00 VTS QD 0.56 11 19.44 9.1% Sequenced by ROI ****** Stock Last Put Strike Option Last Open Cost ROI Opt Symbol Price Month Price Symbol Bid Intr Basis Expired PAIR 19.44 APR 15.00 PQG PC 0.56 3728 14.44 12.6% BELM 16.44 APR 12.50 QBL PV 0.25 58 12.25 7.1% GADZ 24.00 APR 20.00 EQK PD 0.38 30 19.62 6.4% VANS 17.06 MAY 15.00 VQG QC 0.56 0 14.44 10.5% SUPX 30.06 MAY 17.50 TXQ QW 0.69 0 16.81 10.3% CYBX 23.81 MAY 17.50 QAJ QW 0.50 3 17.00 9.5% VTS 28.06 MAY 20.00 VTS QD 0.56 11 19.44 9.1% Company Descriptions OI-Open Interest CB-Cost Basis or break-even point ROI-Return On Investment **** BELM - Bell Microproducts $16.44 *** Own This One! *** Bell Microproducts distributes a select group of semiconductor and computer products to original equipment manufacturers. Products include memory, logic, microprocessor, peripherals, disk, tape and optical drives, drive controllers, monitors, computers and board products. The company also provides a variety of manufacturing services to its customers, including the building of products to customer specifications, as well as certain types of components and subsystem testing services, systems integration and disk drive formatting and testing, and the packaging of electronic components. Bell recently announced that it intends to acquire Hammer Storage, a leading manufacturer of digital storage sub-systems. Hammer has among the largest and most sophisticated storage solution install base in the entertainment industry. Bell plans to integrate the new company into its recently acquired Rorke Data division. Rorke Data provides leading edge Fibre Channel and storage area network solutions to vertical markets. Earnings are due April 19. APR 12.50 QBL PV Bid=0.25 OI=58 CB=12.25 ROI=7.1% Chart = /charts/charts.asp?symbol=BELM **** GADZ - Gadzooks $24.00 *** On The Move! *** Gadzooks is a mall-based specialty retailer of casual apparel and related accessories for young men and women, principally between the ages of 13 and 19. The Gadzooks concept focuses on providing fashionable casual apparel and accessories to both male and female teenage customers. Each Gadzooks outlet store carries thousands of products including woven and knit tops, jeans, shorts, junior dresses, swimwear, T-shirts, footwear, sunglasses, jewelry and other accessory items. The company's merchandise includes high visibility names and popular fashions and branded clothing items. Gadzooks recently announced that sales for March were up 18% over last year and company officials were extremely pleased with the consistent performance of their major product categories. Sales increases were also strong in each of their geographic regions, and a 50-store expansion program began with the opening of three new outlets in March. APR 20.00 EQK PD Bid=0.38 OI=30 CB=19.62 ROI=6.4% Chart = /charts/charts.asp?symbol=GADZ **** PAIR - PairGain $19.44 *** Conservative Speculation *** PairGain is the leader in the design, manufacture, marketing and sale of DSL networking systems. Service providers and private network operators worldwide use PairGain's products to deploy DSL-based services such as high-speed Internet access, remote LAN access and enterprise LAN extension. More than 1.7 million PairGain DSL nodes are installed in over 100 countries. PairGain recently introduced its StarGazer4.0 Element Management System, which enables its customers to remotely configure DSL line profiles, monitor equipment performance in real time and easily identify any system failures, all from one integrated system. In February, PairGain agreed to be acquired by ADC Telecom (ADCT) where each common share of PAIR will be converted into 0.43 of a common share of ADCT with a fixed exchange ratio. The transaction, subject to approval, is expected to close before August. New option interest and the inflated premiums caused by speculative call-buyers offer a short-term conservative entry point. APR 15.00 PQG PC Bid=0.56 OI=3728 CB=14.44 ROI=12.6% Chart = /charts/charts.asp?symbol=PAIR **** CYBX - Cyberonics $23.81 *** New Epilepsy Treatment! *** Cyberonics designs, develops, manufactures and markets the NeuroCybernetic Prosthesis, or NCP System, a medical implant for the treatment of epilepsy and other debilitating neurological disorders. The company has approval to market the NCP System in the U.S. as adjunctive therapy for seizures in specific patients. The CYBX mission is to help improve the lives of people touched by epilepsy and other disorders which over time prove to be treatable with VNS. Their priorities are sales growth in epilepsy and the development of new treatments for depression and obesity. Last week the company reported preliminary results for the quarter with net sales increasing almost 75%. The company achieved virtually all of their sales and marketing objectives and their share value is finally responding to the news. MAY 17.50 QAJ QW Bid=0.50 OI=3 CB=17.00 ROI=9.5% Chart = /charts/charts.asp?symbol=CYBX **** SUPX - Supertex $30.06 *** Hot Sector! *** Supertex is a technology-based producer of high voltage analog and mixed signal semiconductor components. They design, develop, manufacture and market integrated circuits utilizing state of the art high voltage DMOS, HVCMOS and HVBiCMOS analog and mixed signal technologies. With respect to its DMOS transistor products, they have maintained an established position in key products for telecommunication and automatic test equipment industries. Their products are used in the flat panel display, printer, medical ultrasound imaging, telephone, telecommunications and instrumentation industries. This a solid company in a great sector but the issue is due for a correction. We will position our entry for the downside movement. Earnings are in mid-April. MAY 17.50 TXQ QW Bid=0.69 OI=0 CB=16.81 ROI=10.3% Chart = /charts/charts.asp?symbol=SUPX **** VANS - VANS Inc. $17.06 *** Retail is Booming! *** Vans is a branded lifestyle company for the youth market. Vans reaches its 10 to 24 year-old target consumers through the sponsorship of Core Sports (skateboarding, snowboarding, etc.), and through major entertainment events and venues. They operate 128 stores worldwide and design, market and distribute active lifestyle footwear, clothing and accessories. VANS has been climbing for over a year and shows no sign of stopping. Last month's earnings report shows why: a 49% increase in net sales, with earnings more than doubling, beating the street estimates by two cents. The solid technical support of the recent lateral consolidation pattern suggests this position offers a favorable risk/reward outlook. MAY 15.00 VQG QC Bid=0.56 OI=0 CB=14.44 ROI=10.5% Chart = /charts/charts.asp?symbol=VANS **** VTS - Veritas DGC $28.06 *** Oil Sector - Hedge Play! *** Veritas provides seismic data acquisition and processing, client data sales and exploration and development information services to the petroleum industry. The company acquires seismic data in land, marsh, and tidal/marine environments, and processes data acquired by its own crews and crews of other operators. When performing geophysical services under contract for oil and gas companies, the company may be employed to acquire and/or process geophysical data. Veritas also acquires and processes geophysical data for its own account, preserving its work product in a data library for later licensing on a non-exclusive basis. VTS rallied in late March after the stock was added to the S&P 600. Its future performance is based in large part on the performance of the oil industry. MAY 20.00 VTS QD Bid=0.56 OI=11 CB=19.44 ROI=9.1% Chart = /charts/charts.asp?symbol=VTS ************************ SPREADS/STRADDLES/COMBOS ************************ The Roller-Coaster Ride Continues... Friday, April 7 Technology stocks surged today as benign economic data and upbeat earnings forecasts boosted investor confidence. The Nasdaq rose 178 points, its biggest ever point gain, to close at 4446. The S&P 500 Index added 15 points to 1516 while the Dow Industrials posted slim losses, falling to 11,111. Volume on the NYSE was moderate with 895 million shares exchanged. Advancing issues led declines 1,518 to 1,397. The 30-year Treasury bond soared 1 9/32, bid at 107 24/32, where it yielded 5.69%. Thursday's new plays (positions/opening prices/strategy): Teradyne TER APR70P/APR75P $0.50 credit bull-put Tellabs TLAB APR70C/APR65C $0.43 credit bear-call Abbott Labs ABT MAY40C/APR40C $0.93 debit calendar Teradyne was active in early trading, dropping to $94.38 during the morning session. A five-contract position at $0.50 credit was observed near 10:00 AM. Tellabs was also active but the options premiums were less favorable. Abbott offered an entry at the suggested debit but the issue eventually fell to recent lows with the slump in the Dow. Portfolio plays: Technology stocks enjoyed impressive gains as investors continued to rotate money into technically oversold issues. Benign economic data spurred the market higher in early trading and most sectors continued to recover with traders focused on the positive outlook for first-quarter earnings. Bargain-hunting Fund Managers also participated in the shopping spree, buying the top performers in a variety of bullish industries. Chip companies and biotechnology stocks posted the strongest gains but telecom and computer stocks also advanced significantly. In the broader market, healthcare, investment banking and metals issues slumped and the industrials fell amid weakness in financial stocks. Oil issues also slid lower as crude prices fell to 3-month low amid expectations that supply from OPEC nations will grow. In economic news, analysts said that while the employment report was tame, it has not readily changed the outlook for interest rates. Our portfolio enjoyed a number of big winners and the leading issue was Qualcomm (QCOM) with a $13 rally to finish near $152. The move capped a great recovery to the top of a recent range and any further upside activity should propel the issue clear of a current resistance area at $155. Nvidia (NVDA) continued its recovery, rising $7 through a psychologically significant level to close at $103. Our bullish credit spread is profitable above $65. Sun Microsystems (SUNW) rallied $6 to $98.81 on strength in the computer hardware group. Our new credit-spread strangle achieves maximum return if the issue finishes the expiration period between $80 and $110. A break above $105 will be our exit signal on the bullish portion of the play. American Online (AOL) is moving up again and today the stock finished just below our sold strike (at $70) in the LEAPS/CC's position. Fortunately, the position has no upside risk and technically, the issue has another resistance area to work through at $75. A number of Diversified Electronics and Semiconductor issues made favorable moves; Advanced Micro Devices (AMD), American Power Conversion (APCC), Electro Scientific (ESIO) and Helix (HELX) all participated in the rally. In the small-cap group, Silicon Valley Group (SVGI) led the way with a $2.62 gain to $29. Network Associates (NETA) climbed $2 to end near $29 and both of our LEAPS/CC"s positions are once again profitable. Plan to roll the aggressive spread down to $30 if the new rally fails near the current price. Telxon (TLXN) finally demonstrated some strength with a solid rebound off the previous support area near $17. Maybe there IS hope for that issue... All in all, the week wasn't so bad, just a brief heart palpitation to keep you interested. Hopefully the worst is behind us and we can get back to what we do best - conservative option trading in a bullish environment. Questions & comments on spreads/combos to Click here to email Ray Cummins ****************************************************************** - NEW PLAYS - ****************************************************************** WLA - Warner Lambert $103.94 *** Drug Sector - Hedge Play! *** Warner-Lambert operates in three main segments, Pharmaceuticals, Consumer Health Care products and Confectionery products. Their principal products are within its Pharmaceutical segment, which manufactures and sells pharmaceuticals under such trademarks as Parke-Davis and Geodecke. Among these products are analgesics, anesthetics, anti-convulsants, anti-infectives, anti-virals, cardiovascular drugs and oral contraceptives. This segment also produces capsules used by other pharmaceutical companies. The Consumer Health Care segment consists of over-the-counter health care products including Rolaids, Lubriderm, Rosin, Neosporin, Sudafed, Sinutab, Benadryl, Tucks, Listerine, Efferdent, Nix and Borax, shaving products (Schick and Wilkinson Sword) and pet care products (Tetra and Whisper). The Confectionery products include chewing gum, breath mints and cough tablets under trademarks such as Chiclets, Dentyne, Bubblicious, Certs, Halls and Celestial Seasonings. When technology shares falter, drug stocks become attractive and that's exactly what happened last week. Pharmaceutical companies rallied as investors fled from speculative issues amid a sweeping technology sell-off. The price has been favorable for many of the stocks in the group, but the opportunity cost of being out of the Nasdaq has been more than most investors could tolerate. Now the drug companies are reaching new highs and quarterly earnings for the large group are expected to be 13%-18% higher. Conservative investors are also being lured by the safety of the sector and Warner Lambert is one of the leading issues in the industry. PLAY (conservative - bullish/debit spread): BUY CALL MAY-85 WLA-EQ OI=48 A=$19.75 SELL CALL MAY-95 WLA-ES OI=343 B=$11.12 INITIAL NET DEBIT TARGET=$8.50 ROI(max)=17% B/E=$93.50 Chart = /charts/charts.asp?symbol=WLA **** AAPL - Apple Computer $131.75 *** Earnings Rally? *** Apple designs, manufactures and markets personal computers and related personal computing and communicating solutions for sale primarily to education, creative, consumer and business customers. The majority of the company's net sales are derived from the sale of personal computers from its Apple Macintosh line of computers and related software and peripherals. Their subsidiary FileMaker makes database software. The company manages its business on a geographic basis. Geographic segments include the Americas, Europe, Japan and Asia Pacific. Each operating segment provides similar hardware and software products and similar services. Apple has been on the move since mid-1999 and the company is well known for sleek, low-cost computers, and most recently, their new focus on providing a range of products and services for the World Wide Web. Apple has released many unique products and teamed-up with some industry leading content partners to increase their market share in real-time information and streaming media. Now the question is whether that activity will translate to higher sales and earnings. The quarterly report is due on April 19 and with any speculative rally, this issue will be far above our maximum profit range at expiration. PLAY (aggressive - bullish/debit spread): BUY CALL APR-110 AAQ-DX OI=1766 A=$23.00 SELL CALL APR-120 QAA-DD OI=1776 B=$14.25 INITIAL NET DEBIT TARGET=$8.50-$8.62 ROI(max)=16% B/E=$118.62 Chart = /charts/charts.asp?symbol=AAPL ****************************************************************** - TECHNICALS ONLY - 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. **** CA - Computer Associates $61.61 *** Trading Range? *** Computer Associates supplies systems management, information management and business management software products for use on a variety of hardware platforms. With the company's independence from hardware manufacturers, Computer Associates has been able to offer products for use on most of the existing major computer operating systems. They offer over 500 products, many of which provide tools to measure and improve computer hardware and software performance and programmer productivity. The company's solutions, including Unicenter TNG and Jasmine, help clients use the latest technologies while preserving their investment in hardware, software and staff expertise. Their software products are generally used in a broad range of industries, businesses and applications but CA does not transfer title to products to its clients. Their products are licensed on a right-to-use basis pursuant to specific agreements. This play is simply based on the previous range-bound pattern in CA. The most recent technical history exhibits the volatility from the Nasdaq sell-off but a brisk change in character (in the current rally) is pushing the issue above a reasonably stable area of support. The prior resistance near $70 should provide plenty of opposition as the stock moves back into its old trading range. 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-75 CA-DO OI=3253 A=$0.43 SELL CALL APR-70 CA-DN OI=2672 B=$0.88 INITIAL NET CREDIT TARGET=$0.43-$0.50 ROI(max)=10% - and - BUY PUT APR-50 CA-PJ OI=2556 A=$0.31 SELL PUT APR-55 CA-PK OI=2078 B=$0.68 INITIAL NET CREDIT TARGET=$0.43-$0.50 ROI(max)=10% COMBINED ROI(max)=20% UPSIDE B/E=$71.00 DOWNSIDE B/E=$54.00 Chart = /charts/charts.asp?symbol=CA **** VNWK - Visual Networks $57.50 *** Reader's Request! *** Visual Networks designs, manufactures and sells wide-area-network service level management systems for multiplexed technologies such as frame relays, ATM and IP/Internet. WAN services are typically used to interconnect the computing facilities of geographically dispersed sites within an enterprise or from one enterprise to another. The company's Visual UpTime offers WAN access and software for performance monitoring, troubleshooting and network planning. The Visual UpTime system is designed to scale up to 45,000 circuits on a single managed network. Visual UpTime systems are used on over 25,000 WAN circuits in over 425 subscriber frame relay networks. In response to the growing WAN provider market, Visual Networks has developed relationships with major Frame Relay service providers such as AT&T, Sprint/United Management Company, MCI Telecom, Ameritech, and Bell Atlantic Network Integration. One of our faithful readers pointed out this failing issue and asked if there were any potential spread plays that benefit from its recent volatility. Unfortunately, I couldn't find any unique positions in the front-month options but based on the new trend and the current support/resistance levels, this play may be less aggressive than it appears at first glance. For those of you who are concerned about the potential for an oversold bounce, there is a much more conservative position available at the $75 strike. A close above the collar (upper neckline) at $68 will signal that a change in character has occurred. PLAY (aggressive - bearish/credit spread): BUY CALL APR-80 QVN-DP OI=139 A=$1.18 SELL CALL APR-70 QVN-DN OI=502 B=$2.43 INITIAL NET CREDIT TARGET=$1.38-$1.50 ROI(max)=17% Chart = /charts/charts.asp?symbol=VNWK ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
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