The Option Investor Newsletter Sunday 04-16-2000 1 of 5 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com Entire newsletter best viewed in COURIER 10 font for alignment ******************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ******************************************************************** WE 4-14 WE 4-7 WE 3-31 WE 3-24 DOW 10305.77 - 805.71 11111.48 +189.56 10921.92 -190.80 +517.49 Nasdaq 3321.29 -1125.16 4446.45 -126.44 4572.89 -390.04 +164.90 S&P-100 731.94 - 89.58 821.52 + 6.46 815.06 - 17.59 + 45.91 S&P-500 1357.31 - 159.04 1516.35 + 17.77 1498.58 - 28.88 + 62.99 RUT 453.72 - 89.27 542.99 + 3.90 539.09 - 34.93 - 0.76 TRAN 2727.04 - 100.68 2827.72 + 64.48 2763.24 + 75.09 + 64.32 VIX 39.33 + 12.39 26.94 - .27 27.21 + 1.40 + 2.14 Put/Call .94 .37 .48 .42 ******************************************************************** Eyewitnesses to History It was bad, real bad! The worst I heard was Bill Gates from MSFT. He lost $11.1 bln in net worth due to the drop in MSFT stock. Don't start feeling sorry for him, he still has gas money. As investors today we had a birds eye view of history in the making. The Dow was down over -720 points late in the afternoon and only rebounded slightly to close at -617 for the worst single day point loss ever. The next three biggest losses were -554 12/27/97, -512 8/31/98, -508 10/19/87. Yes, Friday was even bigger than the 1987 drop in terms of points. Only -5.6% today compared to -19.10% then. All 30 of the Dow stocks were down for the day. The Nasdaq was not any better and Friday capped off a week of days traders would rather forget. Friday's closing drop of -355 was only slightly less than the -400 point deficit late in the afternoon. That loss ended a string that started on Monday with -258, -132, -286, -93 bringing the total for the week to -1125 or -25%. This brought the total drop from the recent high to -35%. Friday was the second largest volume day with 2.5 bln shares traded and the second largest percentage drop ever. The next three biggest point drops were -349 4/3/00, -286 4/12/00, -258, 4/10/00, two of which were also this week. Yep, three of the top four point drop days were this week. Volatility anyone? The carnage is incredible but if your 401k was turned into a 201K this week then you are already feeling the pain. The wealth effect Greenspan is always referring to became the debt effect this week. The $1.4 trillion that investors made all last year was shredded as more than $2.1 trillion was lost in the market this week alone. Margin investors are feeling more than pain as margin call after margin call has wiped out many over leveraged accounts. If you think this week was bad for margin calls the don't get out of bed on Monday. The huge losses Friday will produce record margin calls again for investors still hanging on by their fingernails rather than take the loss. Market cap was bleeding at record rates. Microsoft lost -$239 bln this week, CSCO -$167 bln, INTC -$100 bln. This was not simply a big cap problem. For example Akamai has lost -$25 bln from its high and now has a market cap of only $500 mln. Down from a high of $345 AKAM is now only $64. Microstrategy had a high of $335 and is now selling for $33. The brokerage community came under pressure this week and Friday turned into a real rout. Many brokers make a substantial portion of their profits off margin interest. Ameritrade for instance counts on margin interest for 25% of their total revenue. As investors accounts are liquidated to cover falling stock prices the brokers are exposed to margin shortfalls and then the loss of the margin income. Thirdly, they lose the trading commissions as accounts are closed or go quiet in the reaction to the losses. The major brokers all took big hits on Friday. LEH -17, SCH -12, MWD -8, MER -8. The surface trigger for today's sell off was blamed on the CPI but in reality the CPI just added speed to the downward slide. The base rate was much higher than expected at +0.7%, the highest in a year. The core rate was also much higher at +0.4% which was the highest in the last five years. This was twice the expected rate and puts the projected annual inflation increase at +3.2% which is much higher than the +1.9% rate from last year. The inflation monster suddenly became visible and bidders quickly evaporated as fears of a stronger than expected rate hike flared. There was significant worry that the Fed could raise immediately and not wait for the next meeting in May. In reality the Fed could have pulled the trigger today except for the market crash already in progress. Not wanting to be accused of pouring gas on the fire there was no announcement. Greenspan spoke at a noon luncheon and again was quiet on the markets and on economic matters that would have fueled the fire. Financial stocks took the change in Fed sentiment hard and many were double digit losers. AXP -12, JPM -7, GS -12. Another reason for the drop was comments attributed to a Fed governor on Thursday which were very bearish and set the tone for the CPI backlash. Declines continued to beat advancers substantially and this string on the Nasdaq stretched to ten days. Stocks previously immune to major selling events are now just another symbol on the ticker. Stocks like AOL, EBAY, YHOO, AMZN, PCLN have all lost more than 50% of their value. Entire sectors are on the endangered species list with major drops from their recent highs. For instance the Semiconductor sector (SOX) lost -33%, the Internet sector (IIX) -37% and the Biotech sector (BTK) -48% just to name a few. With the Dow, Nasdaq and S&P all managing their biggest point losses ever there were very few stocks untouched. To add insult to injury Microsoft not only is on trial, lost $239 bln in market cap but finished at a 52 week low of $74 as well. The Nasdaq managed to drop not only -1125 points last week but also brought the PE ratios of the Nasdaq stocks down from their stratospheric heights. On March 10th the Nasdaq PE was a soaring 264. To put this in perspective the ten year average PE of the Dow stocks amounts to only 54 and the current Dow PE is even less than that. If you are waiting for the Nasdaq PE to reach Dow levels then you are in the wrong lifetime. This would require the Nasdaq to drop to something like 1030 and I hope we don't see it any time soon. Even after the historic drop this week the Nasdaq PE is still a lofty but more realistic 174. Compared to the S&P PE of 28 even the Dow seems lofty. You can easily see why many old time analysts still feel the Nasdaq is grossly overvalued. Not only are the big cap stocks taking a hit in their stock prices but they are also taking a hit in their profits. Many large companies have huge stock holding of other listed companies. Intel for instance has over $8 bln in stock holdings and reported $327 mln in profits from these holdings in January. They expect to report $500 mln in this qtr. Compaq held $8.3 bln in publicly traded stocks in January and Microsoft had a portfolio of almost $20 bln. Now if their portfolios took the same hit that yours did then how do you think that will impact their earnings for the current quarter when reported in July? Most of these companies use these surplus profits to pad their balance sheets when times are rough and they need another penny or two per share to keep from missing estimates. If the correction continued there would be some negative surprises next quarter. Many of these large companies may warn in their earnings conference calls next week that the market may impact their next quarter profits. Do you see the circle forming here? Another assault on the web is taking its toll on the web retailers. A report from Forrester Research suggests that as many as 25,000 etailers of the more than 30,000 currently on the web will be bankrupt by year end. The stiff competition by hundreds of clones in the same product category and the click and motar stores as well is named as the cause. Sites like Etoys are being targeted by Toys-R-Us and general retailers like Walmart and JC Pennys. The promise of instant riches by selling to the masses on the Internet has put many mom and pop sites with several thousand dollars of capital up against sites with tens of millions of venture capital. When it gets right down to it how many ways can you sell books and music anyway? Sites like Etoys, CDNow, Peapod, Webvan have seen their stocks drop faster than they could say MasterCard or Visa? and some are now in the low single digits. This is not new news to investors but just another factor in the decline of the Internet sector as a whole over the last several weeks. With both the major indexes dropping more than -1000 points this week you would think the carnage would be over. There were reports of huge numbers of OEX calls being purchased just before the close on Friday with one transaction for 1600 contracts. The QQQ calls were also in high demand. While almost everyone expects a rebound soon there is still more selling to come. Greenspan said in his speech today that the "extended leverage in the markets is all too evident" and warned of the associated problems. The leverage he spoke of includes the excessive use of margin. In March the total margin debt was over $278 billion and was up +78% from the year before. After Friday margin users will have to pay the piper his due. According to several brokers margin calls were up over twice the normal rate and many investors will get that unwelcome notice in their email this weekend. Sell stock or be liquidated. While the -1000 point drop this week may have been due to seasonal trends and tax selling there are repercussions that will carry over to next week. We are likely to see a bounce at the open on Monday followed by another bout of margin selling. The selling could drag over the next three days as investors decide to wire money or take the loss. The selling this week was not the panic selling you see in times of economic crisis. All the portfolio managers knew that the April depression was coming and they simply stood aside as the tax selling began. With no buyers the simple act of selling only a few shares coupled with others trying to turn stocks into tax cash pushes prices downward. Market makers faced with no buyers continually adjust the prices lower and lower. Sellers faced with bleeding stock prices are caught chasing the bid with each modified order. Not that there was a rush to sell this week, there just was not any buyers. The midnight oil will be burned this weekend as each portfolio manager tries to decide what to buy when faced with the large number of incredible choices. Still they are likely to wait until the margin selling stops and an upward trend is established again. I want to congratulate Molly Evans, a new staff writer that started this week. In her article on Thursday she extrapolated a closing price for Friday of 3320.78 through simple technical analysis of the Nasdaq chart. The actual closing price on Friday was 3321.29. She missed it by only .49 and that was from 355 points and a day away. Good detective work Molly! Now can you tell us the close in advance for next Thursday? We would all love to know! This was not a week I want to repeat but it seared into my brain once again that trying to pick the bottom is an expensive proposition. After deciding Thursday to sit out on Friday I did not even set the alarm clock. (The market opens at 7:30 here.) Of course once I did wake up and turn on CNBC I ran straight to the PC and remained glued to the screen the rest of the day. Did I break my vow to sit out and open new positions? You have to read Jim's Plays for the answer. Next week should be real exciting. We have a four day week due to the market closure on Friday and it is also an options expiration week. Add to those factors the -1000 drop and the expected margin selling on Monday and the word volatility should come immediately to mind. Hopefully we can get past the selling on Monday and get a big enough spike to send the shorts running for cover. If volume picks up then maybe this train wreck will stop. The two major indicators I follow are both screaming buy. The VIX at 39.33 is the highest it has been since Oct-1998 and we all know what a buying opportunity we had then. The other indicator is the TRIN or the Short Term Trading Index also known as the Arms Index. This is calculated by dividing the advance/decline volume into the advance/decline ratio. It is also called the fear or panic index. The TRIN normally hovers around the 1.00 level and anything over 2.00 represents a strong buying opportunity. Currently the TRIN is at 4.48. The only time it has been this high in the last two years was in Oct-1999 and Oct-1998. Dates that will live in our collective memory forever. I know people who live by the TRIN and people who live by the VIX. When they both line up you should buy a lottery ticket. As you can see by the two charts below we should currently be at the mother of all buying opportunities. These indicator levels and $3.00 will get you a cup of coffee at Starbucks but will not guarantee that there is not another day or two of selling in our future. Still, don't let anybody tell you there is not enough fear in the markets to create a bottom. (These are available on Qcharts or Interquote as $TRIN and $VIX) Trade smart, wait for the bounce, don't buy too soon. Jim Brown Editor Disclosure: My current long positions: see Jim's Plays *************************** Other big losers this week: *************************** Charles R. Schwab, chairman and co-CEO of Charles Schwab Corp., lost $2.6 billion on his 175.2 million shares. Jeffrey P. Bezos, chairman and CEO of Amazon.com, lost $2.4 billion on his 117.5 million shares. Michael S. Dell, Chairman and CEO, Dell Computer Corporation lost $2.3 billion on his 306.1 million shares. Jerry Yang, Chief Yahoo! of Yahoo!, lost $1.6 billion on his 45.4 million shares. Stephen M. Case, chairman and CEO of America Online, lost $122.4 million on his 8.90 million shares. Larry Ellison of Oracle lost $2.9 billion on his 3.5 million shares. *********** JIM'S PLAYS *********** Hi, my name is Jim and I am an option trader. Please forgive me for I have sinned. Yep, you guessed it. I bought the dip. I could not stand to sit and watch the Nasdaq down -400 and the Dow -720 just knowing that there was a bounce lurking in the numbers somewhere. I did wait until late in the day at lows at least. After being burned several times this week I was very calm but very logical. Logic said a -1000 point drop would produce a bounce so I picked several of the strongest stocks I could find and rolled the diec. I sold DITM April naked puts on EBAY, CMVT, PMCS and NTAP. I bought VIGN stock at $42 and plan to write May covered calls on it after any bounce on Monday/Tuesday. EBAY $139.63 - APR $180 Naked Puts @ $37.63 Ebay struggled all day and flirted with both sides of the line but even when the Nasdaq and Dow were down the worst it struggled back positive again. Ebay is the category killer of the auction world and still a potential merger partner for YHOO. After being written up favorably several times recently Ebay simply refused to close under support at $139. Any Internet stock that was positive on Friday looks like a potential breakout prospect on any rebound by the Nasdaq. I wrote the DITM $180 naked put to capitalize 100% on any rebound. A breakout to $160 would net me $17 for a quick trade. I will close on Wednesday to avoid being put unless the market is exploding. My breakeven point is $143 and anything over that is profit. NTAP $50.38 - April $80 naked put @ $26.63 Network Appliance held support all day until the final gasp but then rebounded strongly at the close. I could see a breakout to $60 easy and I sold the $80 put to capture all of whatever it gives us next week. I will close on Wednesday to avoid being put. My breakeven is $53.38 and anything over that is pure profit. CMVT $74.19 - April $100 Naked Put @ 24.25 After being up two days in a row with the Nasdaq crashing CMVT looked like a breakout candidate for the next rebound day. I sold the $100 put to capture 100% of any breakout. My breakeven is $75.75 and pure profit above that. PMCS $118.44 - April $180 Naked Put @ 60.00 PMCS held $118 all day and it is one of the Super Seven Tech stocks from last week. I have played this on many times and I think it has a good chance for a strong rebound next week. This stock can move $20 a day and I sold the $180 put to capture everything it gives me. I will close on Wednesday to avoid being put. My breakeven is $120. VIGN $42.19 - Stock @$42.13 - Covered call planned. I really like VIGN and after trading at $300 recently I thought the 3:1 split today would make the stock attractive and affordable to anyone. It stayed positive almost all day and finally lost only -1.75 at the close to give me a buying opportunity. The high for the day was over $50 with the Nasdaq down over $200. I think this favorite Ebusiness stock could breakout on any rebound. Once it reaches $50 I am going to sell the $50 May call. The call closed today at $5.00. At today's closing price being called out at $50 would be 61% but if I wait for the stock to reach $50 and then sell the call for a higher price my return should be much greater. The key, it needs to hit $50 next week to maximize time value. QQQ - calls. My lottery ticket play of the April 100 calls for $1.00 is looking grim. The odds of the QQQ hitting $100 again in the next four days is slim. Possible but slim. That is why lottery plays are high risk. If the Nasdaq had turned around today and started up again $100 would have been in easy reach but what a difference a -355 day can make! ******* Hopefully the selling will stop on Monday and the Nasdaq will give us some really incredible buying opportunities but remember - wait for the volume. There could be a real suckers rally at the open on Monday so either wait for volume confirmation or be ready to jump back out again on a moments notice. Good Luck Jim ***************** EARNINGS CALENDAR ***************** Week of 4/17 NEW YORK, April 14 (Reuters) - The following Standard & Poor's 500 companies are expected to report quarterly earnings the week of April 17-21. Reporting dates and analysts' mean estimates are provided by First Call/Thomson Financial. QTR YR AGO EST EPS 4/17 Alcan Aluminium Ltd. (NYSE:AL) Q1 0.16 0.70 4/17 Archer-Daniels-Midland (NYSE:ADM) Q3 0.02 0.17 4/17 BankAmerica Corp. (NYSE:BAC) Q1 1.08 1.24 4/17 Bank Of New York Co. (NYSE:BK) Q1 0.41 0.45 4/17 Briggs & Stratton Corp. (NYSE:BGG) Q3 1.79 1.92 4/17 Comerica Inc. (NYSE:CMA) Q1 0.98 1.09 4/17 Crown Cork & Seal Compa (NYSE:CCK) Q1 0.20 0.17 4/17 Dover Corp. (NYSE:DOV) Q1 0.32 0.54 4/17 Eastman Kodak Co. (NYSE:EK) Q1 0.80 0.93 4/17 Eaton Corp. (NYSE:ETN) Q1 1.17 1.64 4/17 First Data Corp. (NYSE:FDC) Q1 0.32 0.37 4/17 Ford Motor Co. (NYSE:F) Q1 1.46 1.58 4/17 Johnson Controls, Inc. (NYSE:JCI) Q2 0.70 0.89 4/17 Lilly (Eli) & Co (NYSE:LLY) Q1 0.53 0.61 4/17 Merrill Lynch & Co. (NYSE:MER) Q1 1.44 1.77 4/17 Millipore Corp. (NYSE:MIL) Q1 0.25 0.42 4/17 Northern Trust Corp. (NASDAQ:NTRS) Q1 0.41 0.47 4/17 Sears, Roebuck And Co. (NYSE:S) Q1 0.38 0.65 4/17 Texas Instruments (NYSE:TXN) Q1 0.33 0.53 4/17 U.S. Bancorp (NYSE:USB) Q1 0.51 0.53 4/17 Vulcan Materials Co. (NYSE:VMC) Q1 0.26 0.27 4/18 ALZA Corp. (NYSE:AZA) Q1 0.28 0.29 4/18 AmSouth Bancorporation (NYSE:ASO) Q1 0.35 0.40 4/18 America Online Inc. (NYSE:AOL) Q3 0.05 0.09 4/18 Automatic Data Processi (NYSE:AUD) Q3 0.36 0.41 4/18 Bank One Corp. (NYSE:ONE) Q1 0.88 0.60 4/18 Becton, Dickinson, & Co (NYSE:BDX) Q2 0.40 0.41 4/18 Boston Scientific Corp. (NYSE:BSX) Q1 0.25 0.23 4/18 Caterpillar Inc. (NYSE:CAT) Q1 0.57 0.58 4/18 Cendant Corp. (NYSE:CD) Q1 0.21 0.23 4/18 Coca-Cola Enterprises (NYSE:CCE) Q1 (0.15) (0.08) 4/18 Dana Corp (NYSE:DCN) Q1 1.00 1.01 4/18 Delta Air Lines, Inc. (NYSE:DAL) Q3 1.32 1.10 4/18 Dun & Bradstreet Corp. (NYSE:DNB) Q1 0.36 0.36 4/18 EMC Corp (NYSE:EMC) Q1 0.20 0.29 4/18 FirstEnergy Corp. (NYSE:FE) Q1 0.60 0.62 4/18 Freeport-McMoRan Copper (NYSE:FCX) Q1 0.11 0.12 4/18 Genuine Parts Co. (NYSE:GPC) Q1 0.48 0.50 4/18 Inco Ltd (US$) (NYSE:N) Q1 (0.13) 0.45 4/18 Intel Corp. (NASDAQ:INTC) Q1 0.57 0.69 4/18 International Business (NYSE:IBM) Q1 0.78 0.78 4/18 Johnson & Johnson (NYSE:JNJ) Q1 0.80 0.91 4/18 Mallinckrodt Inc. (NYSE:MKG) Q3 0.75 0.75 4/18 Maytag Co. (NYSE:MYG) Q1 0.95 0.85 4/18 McGraw-Hill, Inc. (NYSE:MHP) Q1 0.12 0.14 4/18 Mellon Financial Corp. (NYSE:MEL) Q1 0.44 0.49 4/18 Milacron Inc. (NYSE:MZ) Q1 0.40 0.37 4/18 Molex Inc. (NASDAQ:MOLX) Q3 0.23 0.29 4/18 NICOR, Inc. (NYSE:GAS) Q1 0.82 0.82 4/18 Paine Webber Group (NYSE:PWJ) Q1 1.01 1.09 4/18 Parametric Technology (NASDAQ:PMTC) Q2 0.16 0.00 4/18 Parker Hannifin Corp. (NYSE:PH) Q3 0.70 0.88 4/18 Philip Morris, Inc. (NYSE:MO) Q1 0.80 0.89 4/18 Pitney Bowes Inc. (NYSE:PBI) Q1 0.52 0.57 4/18 Progressive Corp, Ohio (NYSE:PGR) Q1 1.39 0.15 4/18 Public Service Enterp (NYSE:PEG) Q1 0.85 1.02 4/18 Qualcomm (NASDAQ:QCOM) Q2 0.10 0.24 4/18 Southern Co. (NYSE:SO) Q1 0.32 0.36 4/18 Southwest Airlines Co. (NYSE:LUV) Q1 0.18 0.16 4/18 Sprint (NYSE:FON) Q1 0.47 0.47 4/18 Sprint PCS (NYSE:PCS) Q1 (0.71) (0.58) 4/18 St. Jude Medical, Inc. (NYSE:STJ) Q1 0.40 0.43 4/18 State Street Corp (NYSE:STT) Q1 0.74 0.87 4/18 Tellabs, Inc. (NASDAQ:TLAB) Q1 0.25 0.26 4/18 Teradyne Inc. (NYSE:TER) Q1 0.10 0.52 4/18 Timken Co. (NYSE:TKR) Q1 0.27 0.29 4/18 Tyco International Ltd. (NYSE:TYC) Q2 0.35 0.50 4/18 US Airways Group Inc. (NYSE:U) Q1 0.49 (1.39) 4/18 Washington Mutual (NYSE:WM) Q1 0.79 0.81 4/18 Wells Fargo Inc. (NYSE:WFC) Q1 0.53 0.60 4/18 Weyerhaeuser Co. (NYSE:WY) Q1 0.51 0.92 4/18 Whirlpool Corp. (NYSE:WHR) Q1 1.15 1.36 4/19 ALLTEL Corp. (NYSE:AT) Q1 0.59 0.66 4/19 AMR Corp. (NYSE:AMR) Q1 (0.01) 0.40 4/19 American Home Products (NYSE:AHP) Q1 0.49 0.51 4/19 Apple Computer, Inc. (NASDAQ:AAPL) Q2 0.60 0.81 4/19 Avon Products, Inc. (NYSE:AVP) Q1 0.28 0.30 4/19 Bard (C.R), Inc. (NYSE:BCR) Q1 0.51 0.60 4/19 Boeing Company (NYSE:BA) Q1 0.50 0.35 4/19 Ceridian Corp. (NYSE:CEN) Q1 0.28 0.22 4/19 Chase Manhattan Corp. (NYSE:CMB) Q1 1.32 1.55 4/19 Citrix Systems Inc (NASDAQ:CTXS) Q1 0.15 0.19 4/19 Coca Cola Co. (NYSE:KO) Q1 0.29 0.21 4/19 Colgate-Palmolive Co. (NYSE:CL) Q1 0.32 0.37 4/19 Conexant (NASDAQ:CNXT) Q2 0.04 0.19 4/19 Cooper Tire & Rubber Co (NYSE:CTB) Q1 0.41 0.35 4/19 Danaher Corp. (NYSE:DHR) Q1 0.39 0.46 4/19 Enron Oil & Gas (NYSE:EOG) Q1 (0.09) 0.26 4/19 Equifax, Inc. (NYSE:EFX) Q1 0.31 0.31 4/19 FMC Corp. (NYSE:FMC) Q1 0.92 1.04 4/19 General Dynamics Corp. (NYSE:GD) Q1 0.78 0.88 4/19 Georgia Pacific Group (NYSE:GP) Q1 0.57 1.02 4/19 Household International (NYSE:HI) Q1 0.65 0.77 4/19 ITT Industries (NYSE:IIN) Q1 0.45 0.55 4/19 Illinois Tool Works (NYSE:ITW) Q1 0.62 0.70 4/19 Ingersoll-Rand Co. (NYSE:IR) Q1 0.73 0.82 4/19 Jostens, Inc. (NYSE:JOS) Q1 0.23 0.26 4/19 Liz Claiborne, Inc. (NYSE:LIZ) Q1 0.70 0.78 4/19 Lucent Technologies (NYSE:LU) Q2 0.17 0.22 4/19 Mattel Inc. (NYSE:MAT) Q1 0.02 (0.03) 4/19 Mead Corporation (The) (NYSE:MEA) Q1 0.22 0.27 4/19 Meredith Corp. (NYSE:MDP) Q3 0.41 0.47 4/19 Nabisco Group Holdings (NYSE:NGH) Q1 -- -- 4/19 New Century Energies (NYSE:NCE) Q1 0.88 0.89 4/19 Occidental Petroleum Co (NYSE:OXY) Q1 (0.20) 0.63 4/19 Owens-Illinois Inc. (NYSE:OI) Q1 0.41 0.36 4/19 PepsiCo, Inc. (NYSE:PEP) Q1 0.25 0.28 4/19 Placer Dome Inc. (US$) (NYSE:PDG) Q1 0.03 0.08 4/19 Raytheon Corp. (B) (NYSE:RTN.B) Q1 0.71 0.24 4/19 Regions Financial Corp (NASDAQ:RGBK) Q1 0.57 0.58 4/19 Rohm & Haas Co. (NYSE:ROH) Q1 0.61 0.62 4/19 Southtrust Corp. (NASDAQ:SOTR) Q1 0.62 0.70 4/19 Stanley Works (The) (NYSE:SWK) Q1 0.48 0.51 4/19 Sysco Corp (NYSE:SYY) Q3 0.22 0.29 4/19 TRW, Inc. (NYSE:TRW) Q1 0.85 1.21 4/19 Textron, Inc. (NYSE:TXT) Q1 0.93 1.03 4/19 USX-Marathon Group (NYSE:MRO) Q1 (0.04) 0.66 4/19 United Technologies (NYSE:UTX) Q1 0.63 0.72 4/19 Wachovia Corp. (NYSE:WB) Q1 1.18 1.30 4/19 Warner- Lambert (NYSE:WLA) Q1 0.45 0.56 4/19 Winn-Dixie Stores Inc. (NYSE:WIN) Q3 0.40 0.22 4/20 Allstate Corp. (NYSE:ALL) Q1 0.81 0.64 4/20 Amgen (NASDAQ:AMGN) Q1 0.23 0.25 4/20 Andrew Corp. (NASDAQ:ANDW) Q2 0.09 0.16 4/20 Baxter International (NYSE:BAX) Q1 0.61 0.64 4/20 BellSouth Corp. (NYSE:BLS) Q1 0.46 0.51 4/20 Black & Decker Corp. (NYSE:BDK) Q1 0.44 0.49 4/20 Bristol-Myers Squibb (NYSE:BMY) Q1 0.53 0.60 4/20 Brunswick Corp. (NYSE:BC) Q1 0.62 0.65 4/20 Burlington Resources (NYSE:BR) Q1 0.00 0.37 4/20 CMS Energy (NYSE:CMS) Q1 0.80 0.67 4/20 Central & South West Co (NYSE:CSR) Q1 0.21 0.20 4/20 Consolidated Edison Co. (NYSE:ED) Q1 0.76 0.84 4/20 Cooper Industries, Inc. (NYSE:CBE) Q1 0.80 0.87 4/20 Coors (Adolph) Co. (NYSE:RKY) Q1 0.32 0.37 4/20 Crane Co. (NYSE:CR) Q1 0.49 0.42 4/20 Deluxe Corp. (NYSE:DLX) Q1 0.59 0.61 4/20 Duke Energy Co. (NYSE:DUK) Q1 0.83 0.89 4/20 Ecolab Inc. (NYSE:ECL) Q1 0.26 0.29 4/20 Edison International (NYSE:EIX) Q1 0.40 0.30 4/20 Fort James Corporation (NYSE:FJ) Q1 0.53 0.44 4/20 Fortune Brands Inc. (NYSE:FO) Q1 0.32 0.41 4/20 Franklin Resources, Inc (NYSE:BEN) Q2 0.44 0.55 4/20 Gillette Co. (NYSE:G) Q1 0.24 0.22 4/20 Helmerich & Payne, Inc. (NYSE:HP) Q2 0.15 0.26 4/20 Houghton Mifflin Co. (NYSE:HTN) Q1 (1.29) (1.47) 4/20 Intl Flavors & Frag (NYSE:IFF) Q1 0.46 0.48 4/20 Keycorp (NYSE:KEY) Q1 0.57 0.54 4/20 Knight Ridder (NYSE:KRI) Q1 0.65 0.73 4/20 Leggett & Platt Inc. (NYSE:LEG) Q1 0.33 0.38 4/20 McDonald's Corp. (NYSE:MCD) Q1 0.29 0.32 4/20 Microsoft Corp. (NASDAQ:MSFT) Q3 0.35 0.41 4/20 Mirage Resorts Inc. (NYSE:MIR) Q1 0.28 0.24 4/20 Nucor Corp. (NYSE:NUE) Q1 0.32 0.96 4/20 PPG Industries, Inc. (NYSE:PPG) Q1 0.81 0.92 4/20 Peoples Energy Corp. (NYSE:PGL) Q2 1.56 1.58 4/20 Praxair Inc. (NYSE:PX) Q1 0.58 0.68 4/20 Quaker Oats Co. (NYSE:OAT) Q1 0.51 0.60 4/20 Quintiles Transnational (NASDAQ:QTRN) Q1 0.31 0.32 4/20 Ryder System Inc. (NYSE:R) Q1 0.31 0.32 4/20 Schering-Plough Corp. (NYSE:SGP) Q1 0.36 0.42 4/20 Sigma Aldrich Corp. (NASDAQ:SIAL) Q1 0.44 0.44 4/20 Silicon Graphics, Inc. (NYSE:SGI) Q3 (0.23) (0.07) 4/20 Sunoco, Inc. (NYSE:SUN) Q1 0.13 0.54 4/20 Times Mirror Co. (NYSE:TMC) Q1 0.60 0.75 4/20 Torchmark Corp. (NYSE:TMK) Q1 0.62 0.68 4/20 UST, Inc. (NYSE:UST) Q1 0.60 0.63 4/20 Union Pacific Corp (NYSE:UNP) Q1 0.52 0.70 4/20 Union Planters Corp. (NYSE:UPC) Q1 0.63 0.71 Copyright 2000, Reuters News Service ********** Stock News ********** Ford Announces Shareholder Value Plan By: Matt Paolucci Ford Motor Co. (F) said Friday it will spin off its Visteon parts operation later this year and offer shareholders new shares as part of a plan to boost the automaker's stock value. Visteon makes a variety of automotive parts, including chassis and steering systems, climate control systems, energy management systems, interiors, rear-seat entertainment systems, bumpers and glass parts. In addition to the 100-percent spin off of the $19 billion unit, the world's No. 2 automaker plans to offer each shareholder the chance to exchange their shares for new shares and the option to take $20 in cash or the equivalent in stock. Visteon is well positioned to capitalize on key industry trends. The company is recognized as a leader in the areas where the industry is moving, such as systems integration and electronics. The plan will allow common and Class B shareholders to increase their equity in the company by electing to receive additional Ford common shares. For example, if a Ford share is worth $60 before the exchange, shareholders will receive shares worth $40 and the option to take the cash or share equivalents. The long-awaited move by Ford to spin off its parts operation is designed to unlock shareholder value and give the world's No. 3 auto supplier more freedom to capture non-Ford business. "This innovative and unprecedented Value Enhancement Plan reflects our confidence in the outlook for our business and an absolute commitment to rewarding our shareholders," said Ford Motor Company Chairman Bill Ford. "We believe independence for Visteon will result in it being a stronger competitor and is in the best long-term interest of both Visteon employees and Ford Motor Company shareholders." "These pioneering actions will allow us to immediately reward our shareholders and accelerate our transformation into a leading consumer-focused company," Ford CEO and President Jac Nasser said. The record and effective dates as well as other details regarding the plan will be included in a proxy statement, which the company expects to mail to shareholders in the early summer. The Visteon spin-off also is expected in the summer. Ford also plans to adjust its dividend so that those shareholders choosing to receive the stock instead of cash ill receive about the same amount of annual dividends. The moves are subject to U.S. Securities and Exchange Commission approval. But Standard & Poor's and Moody's Investors Service reacted to the news by downgrading Ford's long-term corporate and debt ratings over concerns about the large outlay of cash as part of the share-exchange program. The ratings services continue to rate the company as stable, but worry about its liquidity being eroded by the plan. Some analysts feel a share buyback would have been an easier way to boost shareholder value. "Let's be clear, Ford is 'swinging for the fences' by uncorking its $10 billion shareholder value initiative," said Gary Lapidus of Goldman Sachs. He also dismissed concerns about Ford hurting its cash pile as he expects Ford to have $18 billion on its balance sheet at the end of the year. Ford hasn't had a large buyback since 1989, partly because it could dilute the voting strength of the Ford family's Class B shares, analysts said. Advising Ford on the shareholder plan and spin off is Goldman Sachs & Co. ******* Ask OIN ******* There is no Ask the Analyst article this weekend. ************** Market Posture ************** As of Market Close - Friday, April 14, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,850 11,250 10,306 BEARISH 4.14 ** SPX S&P 500 1,410 1,475 1,357 BEARISH 4.14 ** OEX S&P 100 780 800 732 BEARISH 4.13 RUT Russell 2000 470 580 454 BEARISH 4.14 ** NDX NASD 100 3,800 4,700 3,208 BEARISH 4.13 MSH High Tech 900 1,150 822 BEARISH 4.13 XCI Hardware 1,480 1,510 1,337 BEARISH 4.13 CWX Software 1,450 1,670 1,081 BEARISH 4.04 SOX Semiconductor 1,050 1,360 892 BEARISH 4.13 NWX Networking 1,070 1,190 851 BEARISH 4.04 INX Internet 800 940 528 BEARISH 4.04 BIX Banking 520 615 537 Neutral 3.16 XBD Brokerage 450 580 421 BEARISH 4.14 ** IUX Insurance 520 620 555 Neutral 3.16 RLX Retail 900 1,000 907 Neutral 4.13 DRG Drug 330 380 359 Neutral 3.30 HCX Healthcare 680 760 718 Neutral 3.30 XAL Airline 130 160 141 Neutral 3.10 OIX Oil & Gas 265 300 285 Neutral 3.16 Posture Alert Friday's catastrophe will eventually turn into someone else's treasure; however, at the moment investors are left in the dust to figure out the brutal losses incurred during this past week. Losers for Friday were led by Brokerage (-12.73%), Semiconductors (-11.64%), Software (-10.10%), and the NASDAQ 100 (-9.73%). Sectors that ripped through support levels, and thus were downgraded to Bearish from Neutral, include Brokerage, Russell 2000, the Dow, and S&P 500 Indexes. **************** Market Sentiment **************** Sunday, April 16, 2000 Is Capitulation Just Around the Corner? The market took a bath this week, and no matter what sector you were in, you obviously felt the pain. Or as our beloved President would say: "Iya feeyal yor pain." Sorry, couldn't resist that, but the market just lost $2 trillion on Friday alone. Regardless, sector after sector is now having a fire sale, and the million-dollar question is whether to buy-sell-or hold. Recently, we talked about the complacent sentiment in the bulls' camp, and it was obviously reflected Friday, as traders shied away from any significant investments. If an investor had $100,000 in new money from a CD that just rolled over, odds are; they might have put $20,000 in the market on Friday, with the remainder waiting it out until a reversal occurs, and that is for an optimistic investor. With all of the turmoil in the market, and with so many quality stocks getting torched, most people did nothing except watch everything drop, or cry. This complacency is killing this market at the moment. If you have 10 traders, we would rather have all 10 of them be bearish, or all 10 of them be bullish, but not all 10 stuck right in the middle. This is the type of complacency that we have been referring to. From a sentiment standpoint, we need a majority of these people to jump in the bearish camp! Once this happens, you will see a bottom put in. It is always amazing to see how quick sentiment can change. Now granted, we have had numerous interest-rate hikes over the last year, and the markets were already expecting another. Did Friday's CPI really change that much in the marketplace? Did it justify this sell-off, or was it spin control by the bears. Will slightly higher interest rates slow down the growth of the biggest technology revolution in history, the Internet? How about the growth in the telecommunications industry? I guess the Biotechnology sector will now stop trying to find a cure for AIDS or cancer now that we had a poor CPI! And since when did the stock market look for Greenspan to stop the bleeding in the market? He usually starts a sell-off, not stops one. Greenspan's stockmarket risk speech and his 100-year flood quote will probably be spun by the bears all weekend long, but did these comments change anything? By now, you should get our point, and that is there will be some good entry points in the upcoming weeks. Option expiration is just days away, and we are going to be in for a wild ride as traders clear out positions. This roller coaster is just beginning, and we have yet to see the throw-in- the-towel capitulation that many are looking for, but it is close, so be prepared! Corporate earnings could be a white knight for this market (in terms of stopping the bleeding and putting in a bottom), and this next week will be critical with so many bellwethers due to report. So far, however, earnings have not helped the carnage felt by the bulls, and if one of the major companies whiff on earnings this week, the pain will continue. But just imagine the potential short squeeze, if IBM, Intel, Microsoft, Texas Instruments, EMC, Qualcomm, Apple, and AOL beat expectations and talk about the rosy future like Sun Microsystems did. It could be pretty powerful! Regardless, here is a quick list of companies reporting (estimated dates), and their whisper numbers. The Pinnacle Index has been left off this week due to a lack of credible statistics due to the major sell-off (everything is now low expectation). If anything major changes, like this last week with Advanced Micro Devices, we will alert you on Tuesday's letter. Company Symbol Expected Whisper#: Earnings: April 17th Doubleclick DCLK -.11 -.09 Novellus Systems NVLS .37 .40 Xircom XIRC .39 .41 April 18th America Online AOL .09 .11 IBM IBM .77 .84 Inktomi INKT -.02 .00 Intel INTC .69 .71 Texas Instruments TXN .53 .57 Qualcomm QCOM .24 .25 RealNetworks RNWK .04 .05 Sprint PCS PCS -.57 -.57 Tellabs TLAB .26 .28 EMC Corp EMC .29 .32 April 19th Apple Computer AAPL .80 .86 Atmel ATML .18 .20 Citrix Systems CTXS .19 .20 April 20th Microsoft MSFT .41 .45 Xilinx XLNX .21 .22 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. Interest Rates (5.782): The current yield is in bullish territory. Volatility Index (39.33) The VIX continues to prove that the low 30's are an excellent buying opportunity, and the low 20's continue to be a great selling opportunity. Mixed Signs: None BEARISH Signs: Liquidity Crunch: With the fear of inflation, and the most likely scenario of several more rate hikes, liquidity in the marketplace will become a more significant issue and put more pressure on equities. 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. 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 sell-off 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 (4/14) Overhead Resistance (765-800) 0.53 Overhead Resistance (735-760) 0.28 OEX Close 731.94 Underlying Support (700-735) 18.30 What the Pinnacle Index is telling us: Based on Friday's sentiment, new support is overwhelmingly strong, and both overhead resistance levels are light. This would indicate the potential for a powerful relief rally this week. Put/Call Ratio Friday Strike/Contracts (4/14) CBOE Total P/C Ratio .91 CBOE Equity P/C Ratio .77 OEX P/C Ratio 1.40 Peak Open Interest (OEX) Friday Strike/Contracts (4/14) Puts 700 / 8,755 Calls 845 / 18,490 Put/Call Ratio 0.47 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 14, 2000 39.33***** *****= Levels not seen since October of 1998. October 8, 1998, the VIX hit a high of 60.63 before retracing back. ************* COMING EVENTS ************* For the week of April 17, 2000 Monday None Scheduled Tuesday Housing Starts Mar Forecast: 1.740M Previous: 1.781M Building Permits Mar Forecast: N/A Previous: 1.631M Wednesday Trade Balance Feb Forecast:-$28.5B Previous:-$28.0B Thursday Initial Claims 04/15 Forecast: 265K Previous: 264K Philadelphia Fed Apr Forecast: 20.0 Previous: 25.0 Treasury Budget Mar Forecast:-$23.0B Previous:-$41.7B Friday None Scheduled Markets Closed in Observance of Good Friday Week of April 24th 04/25 Existing Home Sales 04/25 Consumer Confidence 04/26 Durable Orders 04/27 Employment Cost Index 04/27 GDP 04/27 GDP Chain Deflator 04/27 Initial Claims 04/27 Help Wanted Index 04/28 Personal Income 04/28 PCE 04/28 Chicago PMI 04/28 Michigan Sentiment ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? 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The Option Investor Newsletter 04-16-2000 Sunday 2 of 5 ************* WOMAN'S WORLD ************* Memories of the October 1987 Crash and Using Volume To Decide Upside Breakouts Part II By: Renee White All jokes aside this time. This has been bad. Very, very bad. When I first started writing for OI, I mentioned that I had a Series 7 license (Brokers License) in 1987, during a temporary diversion from medicine. I've always been interested in both fields. Today (Friday), I had flashbacks of the feelings felt on that disturbing day in mid October of the 1987 crash. Gosh, do I ever remember that awful feeling! I remember sitting at my desk, frozen, trying to assimilate information quickly. Trying to make sense of things in the middle of a panic, is not something most people do well. I actually worked for a firm that did estate planning, so my investment customers were small in comparison. During the panic, I went down the elevators to a first floor brokerage firm. As soon as the elevator doors opened, I saw this huge crowd outside their doors, staring inside, looking for quotes, help, direction, or at least someone with more answers than questions. All they could really do is find comfort in others, with the same concerns and fears. Everyone knew they were in trouble. Everyone knew it was too late to do anything. There was a loud quiet hush, to the panic. At that time, we did not have computers with instantaneous data before our eyes. There was no CNBC. Most of us relied upon phones to get information. The internet did not exist. Phone lines were jammed and phones were literally taken off the hook as everyone tried to figure out how to find their footing. No one had time to answer anyone's questions, including professional to professional. No one had the answers. No one knew what to say, much less what to do. No one! Panic got most people nowhere. With phones not being answered, retail brokers were lucky to take care of their own accounts, then their biggest customers. The little guy, the one who can least afford the damage, always seems to get lost in the crowd. It was very sad because these people turned to you, who they trusted, to protect their interest. They never even considered that in a worse case scenario, you would be helpless too. I remember clearly, how sick I felt in the pit of my stomach. Part of that discomfort was due to the investment I had made just 2 weeks earlier, with a chunk of my Aunt's money. My Aunt was not "market savvy". I knew that she would not understand that it was not my poor decision, but a major stock market event. For years, it tore at my heart, knowing I was part of her loss and knowing she did not fully understand. I had tried to convince her to diversify the investment, but she was more interested in getting a commission price break from a lump sum in one thing. Back then, commissions were very high and it took time to recover from a big commission hit. The commission charges influenced her investment decision against my recommendation for diversification. She was hit twice, once with the commission and then with the crash. I was never able to gather the strength to discuss what happened, even 10 years later, before her death. I always felt so guilty that I couldn't protect her investment, or the investments of many who looked up to me. No matter what, people do not understand the risks involved, until they face it head on and feel their own pain. The inability to help others, led me to loose interest in the markets, for almost 8 years. It was because of the emotional effects of October 1987, that I decided I did not want to invest other people's money any more. If I got back in, it would be for my own account and risk alone. I'm not going to discuss risk management now. All levels of traders get hit in this environment and hind site is a perfect 20/20. From here, we must decide to either go on or exit. This crash will wash many out of the system again. Some will never return although others will gradually trickle back in. Regardless, their trading style will be different due to the latest lessons learned. I suspect this will affect our rebound to a larger degree than many expect and it could prove more delayed then many ever dreamed. So, after a sell-off, when do we know it is safe to buy? Are we feeling the flutter of death here, or is it the flutter of life? Technicians look for support levels to hold as a key indicator that a bottom is close for both the broader markets and leading companies. A capitulating downside slide on major volume is what tends to get the attention. The question becomes, "When will it end?" After support has been broken on several levels, the concern becomes, "Which level of support will finally hold?" Buyers of dips are now scared to risk again, still hurting from the last support that did not hold. At some point, sellers see the equities they've kept, as now too cheap to sell. Everyone seems to stop, wait and watch, everyone else. With buyers and sellers drying up, the market stagnates and volume quiets down. Some nibble, only to run again when the first person sneezes. Rolling consolidation occurs as head fakes and bear traps gobble up the brave trying to out smart the crowd. When trying to decide if you want to buy now, ask yourself this, Would you want to be the front soldier first to come up on the enemy? Or would you rather wait, watch and understand their patterns? Dead Hero or Live Trader? Eventually and slowly, the bravest begin to test the market and things inch up, working their way back through the bear trap resistance levels. This is a tough time to trade options because on one hand, you're hit with time decay in a jittery market slow to recover and on the other hand, jumping in to a short-term rally may cause you to over-pay due to implied volatility. Trading the equity does not have this problem and a safer play on the bounce. One could day-trade a liquid option, but it's still risky. There's too many people financially hurting this time. In fact, I am really curious how our foreign readers are handling the pain and how it is affecting their own markets. As memories of a sell-off fade during consolidation, average daily volume returns. Then, as interest continues and resistance levels broken to the upside, volume begins to pick up. Breaking resistance levels on higher than average volume returns you to a buyable uptrend and a more comfortable entry for option traders. Watch for confirmation of continued upside, as the equity takes out the previous day's high on stronger than average volume. Recall all the comments you have read in the OIN Call Section, telling you to wait for the stock to hit a certain price on strong volume before you enter. This is to protect your upside chances, using volume to assist profits, instead of risking your money bumping your head against a double or triple top which then breaks down to the downside. When breaking out to the upside from specific trading patterns,(triangles, head-and-shoulders, downward trendlines, etc.) a large increase in volume provides a strong buy signal. Also, volume usually decreases inside of triangles, so waiting on confirmation of the side of the breakout, will increase your odds of success. I personally like trading triangles and I expect a lot of these patterns in the months ahead, due to the recent carnage. When a stock price starts an uptrend and maintains it, usually the average daily volume increases because it starts attracting more and more investors. Again, these volume figures are posted in newspapers and web sites. When the volume has increased for several days and is exceptionally high for one or two days, the attention of the price gains accompanying this volume should sustain the uptrend for a while. Pistolese writes of three volume characteristics of uptrends are: the volume of trading increased as the uptrend started, the volume fluctuated as the uptrend continued, and in spite of the fluctuations, the volume of trading was generally higher than average while uptrending. And I'll add to that: if the start of the uptrend is not accompanied by increased volume while taking out the previous days high, you may be seeing a failed rally attempt. Times like these, I can't stress enough that anyone who wants to trade options successfully MUST learn basic technical analysis. It is easy, like Show-N-Tell. Check out Clifford Pistolese's introductory book, Using Technical Analysis in the OI bookstore. Pistolese feels the larger the increase in volume, the greater the price rise potential from the breakout. He thinks the best time to buy a stock is just after it has made a high volume breakout to the upside of a bottom formation. He says the combination of an upside price breakout and a large increase in volume, represents a strong buy signal. When the volume (on the equity) has increased for several days, or has been exceptionally high for one or two days, there is a higher probability that the uptrend can sustain itself. Uptrend? I don't know about you, but that feels like a very distant memory! Like Jim said, "Don't buy too soon". There's no hurry this time. And to make things worse, Thursday is expiration Friday. Everything is weird this year!! Contact Support ****** What is the real value of "value investing?" By: Mary Redmond Since Saturday is April 15, many people who invested in the market last year had heavy capital gains taxes to pay this week. This may have impacted the market this week and last week, partly because of the decreased liquidity which comes from tax bills. In addition, when the Nasdaq crashed last week many investors got margin calls. If an individual gets a margin call and also has to have cash to pay taxes, one of the methods of raising the cash can be selling his or her mutual funds. A lot of weak hands were shaken out of the market in the last month, and a lot of them won't be back anytime soon. Hopefully the worst of this may be over and the services which track fund flows reported statistics for the week ending April 12th that the money is starting to come back in. On the investment company institute's web site it was reported that retail money market funds decreased by 3.73 billion to 1.014 trillion for the week ending April 12th. Assets of institutional money market funds increased by 2.64 billion to 705 billion. Total money market mutual fund assets were 1.719 trillion for the week ending April 12. There's a lot of cash out there! AMG Data services reported that equity funds took in 8.4 billion for the week ending April 12, and over 4 billion went in to large cap growth funds. 1.8 billion went into aggressive growth fund, and tech funds took in 922 million. Let's hope those fund managers start to put it to work. For investors to start to buy again aggressively we may need a strong catalyst. However, everything in the market today moves at warp speed considering that the Dow went from 11700 to under 10,000 to back over 11300 again in less than four months. This brings up the topic which has been over-discussed in the media lately of growth vs. value investing. Growth and value are classifications of some mutual funds. Recently there has been such incredible divergence in performance between the Dow and Nasdaq and the "old economy" and "new economy" stocks that some individuals have started to believe that a stock can be classified as either a "growth" stock or a "value" stock. The value of a stock is usually considered to be the shareholders equity. It makes no difference what industry the company is in, if it makes tires or optical networking equipment. If the company's earnings are growing and the profit margins are high enough that the return on shareholders equity is high then it is likely that the value of the company will grow. If the company has to spend most of it's earnings on upgrading its equipment then it will have less left over to reinvest back in the company. Over the long run, if a company cannot grow its shareholders equity, the shareholders will actually lose because the purchasing power of money declines over time. Momentum investors often scoff at returns of 50% a year when you can make 50% in a day or a week if you are right. There really is no better strategy, only one which is more suitable for the person implementing it. However, there are a couple of important points to consider. Momentum players make alot more money quickly if their strategy and timing are accurate. Momentum investors can also hedge their bets by going long and short simultaneously. However, long term investors sometimes win when it comes time to pay taxes. You can use a Texas Instruments BA35 solar calculator to calculate present value and future value if you know the rate of interest you can expect to receive. For example, say you start with 100,000 and you make a 50% annual return on your investment. You can plug in the numbers. PV= 100,000. %i=50. N=5 CPT FV. After five years the 100,000 turns into 759,375. Now suppose you sold and paid 39% capital gains taxes every year. After five years you would have only approximately 378,486. That's quite a difference. One of the most important factors to consider in long term vs. short term stock investing is the magic of compound interest with out any capital gains taxes eating into your profits. This is the reason some of the richest people are the long term holders. Contact Support ****** Is Your Portfolio Half Empty or Half Full? By: Lynda Schuepp I'm reminded of a Bobby Darren song, "When the shark bites, with his teeth dear, scarlet billows start to spread". I guess old "Mack the Knife" was back in town on Friday. Regardless of how you look at Friday, your portfolio ain't what is used to be. No one escaped Mack's knife, unless you were fortuitous enough to be in "all cash" and not have an IRA, yeah right? First, most of you readers know that I like to hedge my positions by having a long and short side (spreads). This strategy allows me to be able to buy back the short side if and when the market dips. Unfortunately for me, I covered most of my short legs earlier in the week. I thought I was a genius for selling my OEX 810 puts on Tuesday for a 3-point profit. Even smarter for buying back my short calls on PUMA, GE, IMNX and QCOM, right? I got a measly 2 or 3 points off of each. The real douser this week was some "dead in the water" April 740 OEX puts. I bought them for 24 back on March 8th. I left for vacation and the Denver seminar with what I thought was some good blue-chip portfolio insurance. During the week while skiing at Vail, the S&P climbed straight up from 750 to 846. In case your thinking, what an idiot, no stops in place? You're right! I actually believed that I was effectively hedging my blue chip positions. My OEX puts tanked from 24 to 1. Then, I was able to justify my position by noting that the OEX had formed a tower top, one of my favorite candlestick patterns, if you attended one of my chalk talks in Denver. Sure enough, the tower came back down on April 4th. My puts were worth 10 (for about a minute). If I could have sold them at that point, my loss would only have been 14 points instead of 23. Only 14 points, listen to me. I never should have stayed in this trade. Greed not brains kept me from pulling the trigger that day. I told myself, the recovery was too fast, we would go back again and test these lows, my only hope was that would happen before expiration. Well it did just that on Friday. On April 4th the OEX got to a low of 770 and the puts were then worth 10. Friday at 9:45 the OEX was down to 742 and my puts were only worth 8-1/4. Time value was evaporating by the minute so I decided that if I could get 10 today I would be lucky. The OEX seemed to be bottoming out around 750 for a whole hour during lunch. My fear was that the Wall Street crowd would come back from lunch and see all these bargains and drive the market back up. Vix was up around 38 and you probably know the old saying, "When VIX is high, it's time to buy, when VIX is low, it's time to go". I knew I was not the only person who knew this so I figured we were putting in a short-term bottom. I really didn't think the VIX would go higher, another big mistake. Better get what I can for these puts, because I might not get another chance like this before expiration. Right? I sold the puts for an average price of 9-1/4. Well, the rest is history. The puts got as high as 25-1/2. So now I'm stuck with the long side of all my leaps and no short legs to offset them. Real smart! The rest of the day I shorted some stocks and made a weeks pay, but I lost a year's pay by not keeping myself hedged. CNBC presented a Warburg Dillon Reed study that showed the recovery time after corrections. The Bear market of 1973-74 corrected 59% and took 48 months to get back to the previous highs. The October '87 crash was a correction of 35% and took 20 months to fully recover. The 1989-90 correction of 33% took 7 months to get back and it's highs. The July to October 1998 29% slide took only 2 months to get back. So my prediction, probably more wishing and hoping, is that the Nasdaq will fully correct back in a about a month. Being the optimist that I am, I see my portfolio as half full. Let's hope we won't have to wait too long for Mack to leave town. Contact Support *************** TRADERS CORNER *************** Bulls Make Money, Bears Make Money By: Molly Evans It's a shame that my writing tenure here with OIN will be cut so short. Since having drawn the line in the sand for the NAS to stop at 3320 on Thursday night, I'm now moving on to CNBC to be a market technician and commentator. *laughing* Just kidding! But hey! Wasn't that a pretty neat illustration of how even the most basic of technical analysis is at least a flashlight in a raging storm? A couple of you wrote asking about that chart and pointing to the "other" undrawn trendline. That is a less positive trend and I don't like that one! Of course you are correct and I should indeed have drawn that one in. This is for all of you wondering about it. There, don't like this one do you? No! Not if you're sitting on calls or other bullish positions. Feh! What's another 350 points anyway? We, the well rounded players know that we can be adept at trading both sides of the market. Play the market, don't let it play you. As one of my very nice fellow readers commented, "Good traders know that money can be made in an up or down market. You just have to know when to make the turn within a day or two. So why is everyone looking for a bottom? Who cares? When a stock rolls over, it goes down quicker than it goes up. Well placed short positions pay big bucks fast." Well spoken and concise! As I am still relatively new to actual options trading, I've not had a bear market to play this side. Heck, I've never seen down! But...I kinda like it! I had the good fortune to pick up a small treasure trove of Citgroup puts when the Dow was up 200 on Wednesday. There was "C" sitting up there all fat and happy at it's all time high while the Nasdaq was plunging and all the pundits saying the Dow was the workhorse now. Yeah! Ripe for the pickin' if you ask me. Cheap puts become fairly expensive puts in this market and I walked off with a 233% gain in two days. Cool! Of course, everyone is a genius in a bear market right? Oh...well, something like that. Alright, where to now? We finished on the low of the day and that's not good. Surely Mr. and Mrs. Margin are knocking on people's doors again so soon and we'll likely have the ramifications of that to deal with on Monday. On the other hand, we're still in earnings season and fundamentally things have been looking very positive in the tech sector. We can look forward to a huge slate of numbers coming in from some of the big dudes. SUN Microsystems was a bull Friday after their great story, as was PMC Sierra though it finished down on the day. It was a real war there. So, do you wait for the bounce and then jump on the moving train? Do you sit it out until a solid trend is established again? I don't know of course but five days of carnage is begging for a relief rally. I have to believe that the next week is going to end up. I stepped a toe in the water by buying a small sample of calls and selling out my short positions but it seems that I'm always a little early to the party. Whatever you decide for Monday, I think you should go out and enjoy the weekend. You notice that the Dow is down 7% and the NAS is down 26% for the week and yet, the birds are still singing and the sun is shining even warmer now? Amazing how that works. Contact Support LAST WEEKS CHANGE FOR THIS WEEKS PICKS: *************************************** Daily Results Index Last Week Dow 10305.77 -805.71 Nasdaq 3321.29 -1125.16 $OEX 731.94 -89.06 $SPX 1357.31 -128.66 $RUT 453.72 -89.26 $TRAN 2727.04 -100.68 $VIX 39.33 12.39 Calls Week VSTR 90.00 3.63 New, nice base between $84 and $88 CMVT 73.94 1.63 New, actually showed gains last week GMST 41.25 1.31 New, one of Friday's star performers ENE 69.00 -0.94 Has been redirecting its energies VIGN 42.25 -1.75 New, sprint to Wednesday's earnings WLA 101.50 -2.50 Bounced off $98.50 with strong volume MERQ 58.75 -3.13 New, attracted buyers after losing 32% CL 55.75 -3.56 Dropped, pure panic on Friday UAL 59.00 -3.88 Dropped, from merely good to plain ugly LTD 44.19 -4.56 Dropped, no respect for retailers SDLI 143.00 -9.25 New, a $34 move up intraday on Friday AMAT 80.31 -11.56 Dropped, semis got hurt in the brawl LXK 102.31 -17.19 Watch for a repeat bounce at $97 INTC 110.50 -26.31 Dropped, earnings Tuesday after bell ADBE 97.81 -27.19 Looking for a reversal of fortune DISH 42.81 -30.06 Dropped, they all are broken HWP 123.00 -33.00 Dropped, say good bye to this hero ABGX 66.88 -36.13 Earnings set for April 25th NXTL 104.88 -37.56 A 7% decline on Friday and $100 support SEBL 86.56 -40.25 A quick run before earnings Tuesday? SCMR 59.75 -64.50 New, one of best positioned optical co. Puts FIBR 30.44 -39.81 Brutal is the term that comes to mind ICGE 38.97 -33.72 Dropped, profit on cliff diving IIJI 33.00 -33.50 Dropped, take the money an run CNXT 46.09 -31.63 A 12% drop Thursday and 15% drop Friday MCLD 54.63 -25.38 Bleed along with rest of telecom sector LVLT 73.38 -16.75 Dropped, nearing a bottom, bye-bye LU 52.63 -7.69 Dropped, didn't get kicked around KO 47.00 1.38 Dropped, it has fizzled out STOCKS ADDED TO THE PICK LIST ***************************** Calls GMST - Gemstar SCMR - Sycamore SDLI - SDL Incorporated CMVT - Comverse Technology MERQ - Mercury Interactive VSTR - VoiceStream VIGN - Vignette Puts No new puts today *************************** 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 INTC $110.50 (-26.31) Whoa! Let's just take a breather for a moment. Okay, the carnage was ugly on Friday and the entire week for that matter. It really changed the way investors and traders think. With very little green on the screen Friday, INTC felt the pain of this unprecedented sell-off. Call holders across the board got hurt. And although the stock fell out of bed this week, the Semiconductor Index($SOX) is one of the few bright spots in the market. At this level, INTC doesn't look too bad for an entry, yet we must drop this call play due to earnings on Tuesday after the bell. Any existing call positions could rebound on Monday or Tuesday with a relief rally. Remember that the NASDAQ was down over 1000 points last week, that's 25%. Just be sure to exit your positions by the close on Tuesday as we do not hold over earnings announcements. CL $55.75 (-3.56) Trepidation? No, it was more like pure panic on Friday. CL's share price dropped just like every other stock trading on the NYSE. While CL manage quite well under the horrific circumstances, the play is over. Plus the stock's precarious position just above the 200-dma is a bearish sign. If you take a look at a three-month chart you can visually confirm the imminent danger of a further technical slide. UAL $59.00 (-3.87) UAL was "just merely good" Thursday, but turned into just plain ugly Friday. Airline stocks went into freefall Friday as investors tried to salvage recent gains. After a short-term gain of 30 to 50%, traders looked for reasons to sell the airline sector. If the terrible market conditions weren't enough, investors worried as negotiation talks between UAL and their pilots commenced. Issues in the negotiations include wages and benefits, along with United's ability to form alliances with other carriers that use smaller regional jets on more routes. The fear surrounding negotiations and turbulent market conditions combined to push UAL below its 10-dma. The 10-day is a critical level that has provided major support for UAL during its recent uptrend. In light of the sector weakness and broken trendline, it's time to use the parachute and bail. AMAT $80.31 (-11.56) In the past month AMAT received 4 upgrades from the omnipotent Wall Street analysts. In the past week AMAT was downgraded by the omniscient market. The once beloved Semi's didn't stand a chance in Friday's market massacre. We warned last Thursday that AMAT was positioned at a key technical level in its current uptrend. Well the uptrend is no longer as AMAT failed to make a higher low and fell through the key support level of $89. The massive growth in areas like wireless and optical networking, which are producing huge gains for the Semi's, hasn't stopped no matter what the market is doing. In fact, it appears that the semiconductor equipment stocks have another two to three years growth in their infamously cyclical industry. However, for the time being the momentum has left the Semi's and so must we. DISH $42.81 (-30.06) See what happens when you let a bull run around too long near the DISHes? It looks like they all got broken, as DISH gave up over $30 this week, crashing through every conceivable level of support. The carnage that overtook the broader markets this week accelerated the losses of DISH investors as darkness approached on Friday, and the issue closed near the low of the day at major support. While we doubt DISH can fall much further, today's action puts the issue at the level where it consolidated from December, 1999 to mid-February of this year. It appears unlikely that it will move higher in the near term, so we'll go home and let someone else pick up the pieces. HWP $123.00 (-31.50) Our conquering hero from last week must have had one too many celebratory drinks, as it fell out of its chariot and was trampled by the retreating troops. HWP was doing all right up until today; although it had lost all of its gains from the week before, it was still holding support at $130. Then came today's looting and pillaging and HWP was knocked down repeatedly, falling below $121 before finding any support to lean on. A mild recovery allowed the computer company to move off its lows near the close, but with volume approaching double the ADV, we've had enough of HWP's drunken antics. LTD $44.19 (-4.56) So much for retailers getting respect on Wall Street during the shift into "old economy" stocks. The woodshed keeper was indiscriminant and spared nobody on Friday. While LTD may have closed near support on Friday, it's not going to get as much attention if investors get their wallets out to go bargain shopping for tech stocks in coming weeks, thus we're moving on. This play would have likely worked out better if the market were not in panic mode. However, as it is, we're sending this soft goods retail giant back to the closet with fresh mothballs - too many holes in the fabric right now. PUTS IIJI $33.00 (-33.50) To say this put play was lucrative is quite an understatement. IIJI lost $36.75, or 52.7% of its share price since we added it two weeks ago. The current level is mere points from its IPO days in August 1999. Honestly we can't ask for more out of a play than that. Remember, greed will get you every time! So with that in mind, deposit the hefty profits into your pockets and close up shop. LVLT $73.38 (-16.75) This Internet gave us a good downturn for our money, but now it's time to exit. LVLT is now very likely near its bottom or close to it. If you look back to October and November of last year you can see how the trading levels between $70 and $80 served as strong support. We're taking an OIN mantra to heart and "selling too soon". We don't want to get caught in an updraft and give back any profits. KO $47.00 (+0.81) In what was a tumultuous market for every other stock Friday, KO held up relatively well, which bodes poorly for our put play. In a wicked twist of fate, KO was the best performing stock in the Dow Jones on Friday, or should I say the least losing stock? KO fell through its $47 support level early Friday morning as it gapped down by $1, but managed to bounce from its session lows and trade flat for the rest of the day. CEO Douglas Daft told reporters Friday that the company is going to look to creative minds in the entertainment and technology industries for marketing alliances. Keeping with its new decentralized approach KO plans to form many new alliances in hopes to boost sales and lift the stock. Daft also pledged to develop new beverage products that will appeal to specific local markets. Those comments from Daft most likely prevented KO from going down the drain Friday and we are dropping it. LU $53.00 (-6.75) We realize that it's not polite to arrive late, and leave early, but its time to go. LU was one of the few stocks that didn't get kicked around on Friday. It did loose $0.50 for the day, but going into the final thirty minutes, was actually trading higher. Shareholders of Lucent should be pleased to see that the company may actually be putting in a short-term bottom. Whether it turns out to be a bottom or not, we are dropping our play. They are scheduled to report earnings, Wednesday before the open. The volume picked up on Friday to 20.8 million shares. This indicates that at least for now there are some folks doing some bottom fishing. Considering the week many investors had, we will put our profits in the bank, and move on. ICGE $38.97 (-33.72) Ever wonder what it's like to fall off a cliff? If you don't want to experience this yourself (you probably get only one chance anyway), check out the chart on ICGE. It went from a near term high of $150 to a low of $35.38 intraday in just one month. It sunk lower than we ever imagined making for a heavenly put play. But we think its halo is about to disappear. We've probably hit a market bottom or are at least very close. With the doji star on Friday's chart, it may be that ICGE has taken all the pain it can stand and is ready for a breather or even reversal. We've wrung enough profit out of it in the last two weeks and aren't going to wait around for the last dollar. Congratulations to all those who profited on this play, but it's time to close positions and move on. ************************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 04-16-2000 Sunday 3 of 5 STOCK SPLIT CANDIDATES *********************** Current Split Candidates ADBE - Adobe VSTR - Voice Stream SEBL - Seibel Systems SDLI - SDL Incorporated Split candidates that are not current plays BRCM - Broadcom TXN - Texas Instruments INKT - Inktomi STOCKS WITH UPCOMING SPLITS **************************** We don't list all splits available, only those we feel may have play possibilities. Symbol - Stock Splits/Date 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 AMK - Am Tech Ceramics 2:1 05-15-00 ex-date 05-16 SIVB - Silicon Valley 2:1 05-15-00 ex-date 05-16 CMOS - Credence Systems 2:1 05-17-00 ex-date 05-18 RI - Ruby Tuesday 2:1 05-19-00 ex-date 05-22 SNE - Sony Corp 2:1 05-19-00 ex-date 05-22 CXR - Cox Radio 3:1 05-19-00 ex-date 05-22 PAYX - Paychex 3:2 05-22-00 ex-date 05-23 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 LMGA - Liberty Media Grp2:1 06-09-00 ex-date 06-12 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 JNPR - Juniper Networks 2:1 06-15-00 ex-date 06-16 NXLK - Nextlink 2:1 06-15-00 ex-date 06-16 EXDS - Exodus Comm 2:1 06-20-00 ex-date 06-21 XETA - Xeta Corp 2:1 07-17-00 ex-date 07-18 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: ********************** SDLI - SDL, Inc. $143.00 (-40.00) See details in sector list Chart = /charts/charts.asp?symbol=SDLI **** VIGN - Vignette Corporation $42.25 (-24.69) See details in sector list Chart = /charts/charts.asp?symbol=VIGN **** ADBE - Adobe Systems Inc. $97.81 (-27.19) See details in sector list Chart = /charts/charts.asp?symbol=ADBE ************* 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 *********** LXK - Lexmark International $102.31 (-17.19)(13.75) 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. What's this, a tech stock that actually moved higher for more than an hour on Friday? LXK did exactly that. Finding a bottom at $97 near the midpoint of the trading day, the stock marched higher for the balance of the day. Although the move was tenuous and slow, it came on increasing volume and it is encouraging to see any stock that was able to buck the overall market trend in the afternoon. On the surface, you might think the printer company had a bad day, as the numbers show a loss of $2.69, but one glance at an intraday chart shows LXK closing above the bottom of the ugly gap down from Friday's open. The $100 level, reinforced by the 100-dma ($100.88) is holding up well as support and could provide a launching point for a recovery next week. The action in LXK over the past week has been orderly, as volume has remained below the ADV. This is a far cry from the many stocks that have seen volume as high as 3-5 times the ADV while giving up large portions of their market capitalization. Earnings, confirmed for April 24th, are rapidly approaching and could provide the catalyst needed for our play to move higher. A repeat of the bounce near $97 on Monday could provide an attractive entry, but use volume as your indication that the bounce is for real. More cautious players will wait for LXK to move back through $105 before playing; remember that this level acted as support for most of last week and could be resistance in the week ahead. Be sure to check the direction of the overall markets before playing; last week should be all the evidence you need that even the best stocks will get caught in a strong market-wide downdraft. News continues to be tame on LXK, with several product-related announcements last week. On Wednesday, the company announced the first solution for printing in multiple languages from SAP's mySAP.com application using a single printer. Now, instead of maintaining a separate printer for each language or dialect, customers can save money by using a single Lexmark Optra T printer for all supported character sets. The company also announced that its Optra printers are certified to work with Macro 4's Output Management software, allowing enterprise customers to improve the appearance of business documents and enhance decision making. BUY CALL MAY-100*LXK-ET OI= 30 at $10.75 SL= 8.00 BUY CALL MAY-105 LXK-EA OI= 7 at $ 8.00 SL= 5.75 low OI BUY CALL MAY-110 LXK-EB OI= 16 at $ 5.88 SL= 3.75 low OI BUY CALL JUL-105 LXK-GA OI=350 at $16.13 SL=12.50 BUY CALL JUL-110 LXK-GB OI= 29 at $12.75 SL=10.25 Picked on Apr 6th at $111.25 P/E = 45 Change since picked -8.94 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 = 1.12 mln /charts/charts.asp?symbol=LXK ************* SEMICONDUCTOR ************* SDLI - SDL, Inc. $143.00 (-40.00) SDL was the first company in the world to successfully commercialize the integration of multiple lasers on a single semiconductor chip, and ever since has been a leader in integrating lasers with other optical or optoelectronic elements such as lenses, mirrors and light amplifiers. They make the optical parts that enable other companies like Cisco, Lucent, Nortel, Ciena, and even competitors like JDS Uniphase to produce a finished product. They hold more than 125 patents from which over 200 products are manufactured by their more than 1000 employees. In a nutshell, laser device design, semiconductor wafer technology development, device fabrication and component assembly, system integration and quality assurance are at the core of a day's work. This will be a really short relative strength/turnaround and earnings play. Yes, SDLI got clobbered like everyone else, but it also refused to drop below $118 in Friday's carnage. That was the same level as the first major dip two weeks ago. The point here is that as the overall market sold off lower, SDLI remained stable leading us to believe that it will one of the first to experience recovery on an overall market reversal. Need more evidence? The low of $118 on Friday morning was met with a investors rushing to get a piece of the next hour's move up to $152. Did you get that? A $34 move up intraday on Friday! While we weren't so lucky as to see it close there, the end of day selloff wasn't nearly as harsh on SDLI. Why might that be? As a leader in optical communications revolution along with JDSU and GLW, SDLI is well run and growing like a weed. At least investors haven't lost sight of that as SDLI moves into its earnings date of Wednesday, Apr 19th after the bell. That leaves just three trading days to take advantage of what we hope will be an earnings run coupled with a market recovery. SDLI has closing support around $142, and intraday panic support around $120. Just don't play it if the market is in panic mode. Mild resistance is at $147, but any recovery should handily push it through. That became evident near the close when SDLI moved up $13 on increasing volume. No target to shoot here. You'll just need to wait to see a bounce before taking a position. With huge time premium, aggressive traders can consider selling deep ITM puts to minimize theta decay and take advantage of big delta moves should the opportunity arise. It can be tricky, so if you aren't familiar with this strategy, pass it up in favor of something simpler. Sadly, these are traded on the American Exchange only - notoriously known for slow executions and big spreads, making it all the more treacherous. Experts only on this one. BUY CALL MAY-130*YAL-EF OI= 6 at $33.75 SL=23.00 BUY CALL MAY-140 YAL-EH OI= 0 at $31.50 SL=22.00 Wait for OI! BUY CALL MAY-150 YAL-EJ OI= 52 at $27.00 SL=18.00 SELL PUT APR-155 YAL-PK OI=497 at $23.75 SL=33.00 SELL PUT MAY-130 YAL-QF OI= 47 at $21.25 SL=30.00 (See risks of selling puts in play legend) Picked on Apr 16th at $143.00 P/E = 411 Change since picked +0.00 52-week high=$244.75 Analysts Ratings 13-7-0-0-0 52-week low =$ 19.88 Last earnings 01/00 est= 0.26 actual= 0.31 surprise=19% Next earnings 04-19 est= 0.16 versus= 0.08 Average Daily Volume = 1.7 mln /charts/charts.asp?symbol=SDLI ******** Internet ******** VIGN - Vignette Corporation $42.25 (-24.69) VIGN provides Internet Relationship Management (IRM) software products and services, a category of enterprise solutions designed to enable businesses to build sustainable online customer relationships, increase returns on internet-related investments and capitalize on internet business opportunities. VIGN's clients come from diverse sectors and include financial services, health, education and government, media, retail, technology and telecommunications. Put on your running shoes, because this one will be a sprint. Earnings for this Internet software firm are confirmed for Wednesday after the close, so we will close our play on VIGN Tuesday night. So why are we adding such a short play? Shares of the company were severely beaten up over the past few weeks, so much so that when the 3-for-1 split occurred this past Friday, there was virtually no drop in share price. In light of the surrounding market weakness, this is very encouraging. Support at $40 is holding firm and if the broad markets can regain their feet early next week, look for VIGN to benefit from the improving sentiment. Another encouraging point for our play is that even though the NASDAQ dropped significantly lower this week, VIGN did not approach the lows seen during the sell-off on Tuesday, the 4th of April. Volume has been heavy over the past 2 weeks, but it is encouraging to see the price begin to stabilize while the volume is dropping to somewhat more sedate levels. Before you run out and jump into this play on Monday, exercise some caution; the markets have yet to signal they are done falling and VIGN was still moving down when the final bell rang on Friday. Look for a bounce near the $40 level to trigger your entry, and confirm the move with increasing volume. If you want to be more cautious, wait for prices to push through resistance near $50. Keep in mind that this is a volatile Internet stock and with earnings so close, this will be a very quick play. VIGN has been busy over the past week, announcing one alliance after another. Tuesday saw the announcement of a new product offering from NetGenesis which is tightly integrated with VIGN's e-business applications. The product, NetInstrument for Vignette, links the online customer behavioral data from NetAnalysis with the dynamic, personalized content from VIGN's e-business platform. On Wednesday, PSW Technologies announced that it has developed a comprehensive e-commerce application which utilizes VIGN's V5 eBusiness platform COM interface for content management, lifecycle personalization, and cache management. There is more along these lines, but in the interest of brevity, we'll simply say VIGN looks strong going forward. BUY CALL MAY-40*UOJ-EH OI=147 at $9.50 SL=6.75 BUY CALL MAY-45 UOJ-EI OI= 9 at $7.25 SL=5.00 BUY CALL MAY-50 UOJ-EJ OI=104 at $5.63 SL=3.50 BUY CALL MAY-55 UOJ-EK OI= 14 at $4.63 SL=2.75 SELL PUT APR-40 UOJ-PH OI= 0 at $3.25 SL=5.25 (See risks of selling puts in play legend) Picked on Apr 16th at $42.25 P/E = N/A Change since picked +0.00 52-week high=$302.00 Analysts Ratings 13-4-0-0-0 52-week low =$ 21.00 Last earnings 01/00 est=-0.08 actual=-0.05 Next earnings 04-19 est=-0.06 versus=-0.18 Average Daily Volume = 1.88 mln /charts/charts.asp?symbol=VIGN **** MERQ - Mercury Interactive Corp. $58.75 (-27.81) Mercury Interactive Corp. is the leading provider of Web performance management solutions that help e-businesses deliver a positive user experience. Mercury Interactive solutions enable its customers to turn Web application performance, scalability and user experience into competitive advantage. The company's performance management products and hosted services are open and integrated to best test and monitor business-critical Web applications. When do you break the rules about not entering a play with earnings just announced? How about when the company receives five reiterations of a Buy or Strong Buy within 24 hours after reporting the strongest growth in the company's history. That's the case with one of our latest additions to our list. MERQ reported fist-quarter revenues rose 61% over the first quarter of 1999. Net income increased 98%, compared to the same period a year earlier. The driving force behind the growth was business-to-business e-commerce. A look at the chart shows MERQ did participate in the selling going on in the broad market the this week losing about 32% of its market value. What we observed on Friday that was encouraging, was in the after lunch traders began to nibble at MERQ. Mercury did finish the session with a loss of $3.13, but did attract buyers when many were falling to their worst levels of the session. The volume has been picking up as well, which is another plus for this play. MERQ announced last week that IBM will begin to use some of its products. A spokesman at IBM gave MERQ high marks, saying their products provide a more predictable, stable environment for Web users. Depending on the sentiment in the markets next week we would look for MERQ to get back on track. We realize that no man or company is an island, but if investor psychology improves, we would seek opportunities to buy calls in MERQ. Intraday support is found near $53, with the 200-dma sitting at $50.13. Before MERQ announced earnings, analysts at Prudential reiterated a Strong Buy rating on the company and raised their price target to $135. Chases and Hambrecht also raised their target for MERQ from $100 to $140 and reiterated a Strong Buy rating after an upbeat presentation at an analyst rating. BUY CALL MAY-50 RQB-EJ OI= 15 at $17.00 SL=12.25 BUY CALL MAY-55 RQB-EK OI= 0 at $14.25 SL=10.75 Wait for OI! BUY CALL MAY-60 RQB-EL OI= 0 at $10.75 SL= 8.00 Wait for OI! BUY CALL MAY-65*RQB-EM OI=654 at $ 8.75 SL= 6.25 BUY CALL JUL-60 RQB-GL OI=129 at $14.50 SL=10.75 SELL PUT APR-50 RQB-PJ OI= 97 at $ 2.19 SL= 3.75 (See risks of selling puts in play legend) Picked on Apr 16th at $58.75 PE = 134 Change since picked +0.00 52-week high=$134.50 Analysts Ratings 10-2-1-0-0 52-week low =$ 10.50 Last earnings 04/00 est= 0.11 actual= 0.10 Next earnings 07-13 est= 0.12 versus= 0.09 Average daily volume = 1.46 mln /charts/charts.asp?symbol=MERQ ********* SOFTWARE ********* ADBE - Adobe Systems Inc. $97.81 (-27.19) Adobe Systems is a leader in desktop publishing software, the company's Acrobat Reader is popping up all over the Internet as users clamor to display portable document format (PDF) documents on the Web. Three of Adobe's products, Photoshop, Illustrator, and Page Maker generate about 60% of its sales. The company also markets print technology to OEMs and has stakes in a string of technology firms whose products complement its own offerings. Adobe is hoping a restructuring effort and the introduction of its InDesign publishing package will spur sales and accelerate its product growth track record. Technology is clearly oversold. We're looking for a reversal of fortune in the next few days, with a focus on stocks that have shown relative strength recently, such as ADBE. With the exception of last Friday, ADBE has held up relatively well considering the recent market conditions. The stock hit a trading range low on Terrible Tuesday, two weeks ago. Even with Friday's debacle, ADBE didn't trace a new low in its recent range. The stock is trading in a pattern we like to see, higher highs and higher lows. Financially, ADBE is in a strong position. ADBE is not one of those cash burning Net companies made famous by Barron's a month ago. The company has amassed around $600 mln in cash, generates over $1 bln in sales annually, and has zero debt. If this market is going to turn around, stocks like ADBE are going to lead the way. Investors are wanting companies with good fundamentals, still growing, and selling at a reasonable value. ADBE has all three of the aforementioned qualities. Friday's capitulation selling pushed ADBE below $100, and may have provided traders with a chance to pick up some good growth for a cheap price. Although the stock is still within its ascending channel, it is hovering above key technical levels. From here, an aggressive trader might watch for ADBE to breakout above $100, while a more conservative trader might wait for a breakout above resistance at $105. If the rampant selling continues, ADBE will most likely find support at $90. The last time the stock hit that level, it rebounded by more than $10. ADBE has everything going its way right now. Two weeks ago, the company raised growth targets. The Board of Directors is expected to announce a stock split at its upcoming shareholder meeting. The company continues to grow its product line, and increase profitability. But this market has lost all compassion, use caution before entering into the play, and confirm direction in the NASDAQ. BUY CALL MAY- 95*AEQ-EZ OI= 43 at $12.88 SL=9.50 BUY CALL MAY-100 AEQ-ET OI= 74 at $10.63 SL=7.25 BUY CALL MAY-105 AXX-EA OI= 59 at $ 8.50 SL=6.00 BUY CALL MAY-110 AXX-EB OI=245 at $ 7.00 SL=5.00 Picked on Apr 11th at $119.50 P/E = 48 Change since picked -21.69 52-week high=$125.00 Analysts Ratings 4-7-3-0-0 52-week low =$ 27.50 Last earnings 02/00 est=0.43 actual=0.47 Next earnings 06-15 est=0.47 versus=0.35 Average Daily Volume = 2.41 mln /charts/charts.asp?symbol=ADBE **** SEBL - Siebel Systems $86.56 (-40.25) Providing sales automation and customer service software through its main product, Siebel Sales Enterprise, SEBL offers its customers the ability to access client information and decision- making support across a corporation's global computer network. The company's e-commerce applications deliver the first entirely Web-based, enterprise class family of sales, marketing and customer service applications. Among the company's heavyweight clientele are Lucent Technologies, Glaxo Wellcome, and Prudential Insurance. As was the case with just about every four-letter stock, SEBL had a rough week, falling from the lofty heights above $125 to Friday's close at $86.56. This has shares of the company just above the low set on Black Tuesday ($80) and we need to see this level hold as support going forward. Selling volume was heavy again on Friday and picked up as the price rolled over mid-day and gave up an additional $10 by the close. Some life finally appeared in the last 15 minutes of trading as SEBL bounced at $85 and moved a little higher before the carnage ended with the ringing of the final bell. There isn't a lot of time left in this play as earnings will be released on Tuesday after the close. Consistent with our policy of not holding over earnings, we will be dropping SEBL on Tuesday, but make sure you exit any open positions before the close on Tuesday. SEBL looks like it may be putting in a bottom here, but any move higher will be difficult if the broad markets can't get moving in a northerly direction. Look for a move higher from current levels to signal your entry into the play, but make sure it has the conviction of increasing volume. Resistance will likely materialize near $90 and $92 and then again at the century mark. Keep an eye on these levels, as a strong move through them could be the indication we need that SEBL is ready to run. Continuing to form powerful alliances, SEBL announced a global distribution agreement with Lawson Software on Monday. In the terms of the alliance, Lawson will integrate and sell its new line of enterprise applications with SEBL's comprehensive suite of e-business applications for sales, marketing and customer service. Friday witnessed an alliance between SEBL and Howard Systems International, wherein SEBL's eBusiness solutions can be integrated at any point within the lifecycle of a project. BUY CALL MAY- 85*SGW-EQ OI=404 at $17.75 SL=12.75 BUY CALL MAY- 90 SGW-ER OI=344 at $15.50 SL=11.25 BUY CALL MAY- 95 SGW-ES OI=123 at $13.50 SL=10.25 BUY CALL MAY-100 SGW-ET OI=617 at $12.00 SL= 9.00 SELL PUT MAY- 75 SGW-QO OI=195 at $ 9.75 SL=13.00 (See risks of selling puts in play legend) Picked on Apr 11th at $113.00 P/E = 199 Change since picked -26.44 52-week high=$175.13 Analysts Ratings 13-5-0-0-1 52-week low =$ 16.50 Last earnings 01/00 est= 0.15 actual= 0.19 Next earnings 04-18 est= 0.14 versus= 0.10 Average Daily Volume = 4.04 mln /charts/charts.asp?symbol=SEBL ******* Telecom ******* CMVT - Comverse Technology Inc. $73.94 (-18.56) Comverse Technology has become an all-star in voice messaging. The #1 voice mail firm makes enhanced telecommunications systems that let telecom providers offer call answering, voice/fax mail, and other services. The company also makes telecom software for information processing applications. CMVT's customers include AT&T, Deutsche Telekom, and Compaq. Interestingly, Israel accounts for more than half of the company's sales. Comverse has been buying complementary companies to expand its product and geographical reach. Recently, CMVT took its telecom network software subsidiary, Ulticom (ULCM), public. It took something special to make a tech stock move higher last Friday. CMVT was one of the very few TMT (telecom-media-tech) stocks to actual show substantial gains. Money managers are beginning to concede that tech stocks got ahead of themselves and valuations are catching up with fundamentals. CMVT's fundamentals could be the reason the stock didn't succumb to Friday's selling. The company has consistent EPS growth of 30% and a forward looking P/E of 52. CMVT's competitors sport much higher multiples, such as CIEN, trading at a lofty 2400 times earnings. Although earnings are a month away for CMVT, we could be seeing the beginnings of a run. CMVT has a tendency to start an earnings run about a month before reporting. The company has managed to beat estimates in the past five quarters, this time around should be no different noting CMVT's ever-rising profit margins. The recent market panic put CMVT on sale, and late last week investors went shopping. After bottoming at $65 last Wednesday, CMVT smartly rebounded Thursday and edged higher Friday on more than double its ADV. CMVT established support at $70 last week, but found resistance at $75. Should the broad market continue its losing ways and drag CMVT down, the stock will most likely find support at $70 and again at $65. Consider your risk level before entering into the play, look for a bounce off support or wait for CMVT to clear its various resistance levels. Use caution before entering into the play, the recent market conditions leave very little room for error. Watch for volume to continue to be heavy, and confirm market direction before initiating a position. CMVT spun off its software subsidiary, Ulticom (ULCM) on April 5th. The IPO was priced at $13 and subsequently popped to $34. The broad tech weakness quickly deflated ULCM after its offering. CMVT will retain an 82% stake in the company. BUY CALL MAY-70 CQV-DN OI=139 at $8.38 SL=6.00 BUY CALL MAY-75 CQV-D0 OI=445 at $6.13 SL=4.00 BUY CALL MAY-80*CQV-DP OI=247 at $4.00 SL=2.50 SELL PUT APR-65 CQV-PM OI=466 at $2.75 SL=4.00 (See risks of selling puts in play legend) Picked on Apr 16th at $73.94 P/E = 69 Change since picked +0.00 52-week high=$123.88 Analysts Ratings 10-3-0-0-0 52-week low =$ 25.75 Last earnings 01/00 est=0.28 actual=0.30 Next earnings 05-08 est=0.34 versus=0.24 Average Daily Volume = 1.47 mln /charts/charts.asp?symbol=CMVT **** NXTL - Nextel Communications $104.88 (-37.56)(-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. A 7% percent decline on Friday, and a 30% drop in the past two weeks pretty much sums up the damage done to this play. The picture isn't pretty, but it doesn't tell the story. Our aim is not to try to convince traders that the damage wasn't really that bad, or that if investors liked Nextel between $150 and $165 last month, they ought to love it now. For investors that bought NXTL or any other stocks that have fallen out of favor, the pain and losses are very real. We choose to point out how the stock has traded in the past few sessions. Wednesday was the only day this week that NXTL just plain fell flat on its face, seeing very few buyers come in and try to bid the price. higher. The scorecard that day produced a loss of -$17.56 and suggested there may be more ahead. Thursday's drop to $104 found buyers come to the aid of the communications company, bidding the stock $13 higher late in the day, only to succumb to selling in the broader markets. Friday, NXTL fell to the century mark in the first 90 minutes of trading and tried once again to move higher. Even late in the day, when the carnage in the major indices began to increase, buyers were clicking on the buy button at the $100 level once again. The point we are trying to make, is unlike many of the tech stocks, people do seem to be willing to step in and test the waters, even with the negative sentiment in the broad market. NXTL has traded like a stock trying to find a bottom, rather than one where investors are saying just get me out. A day or two of improved psychology, and this one could fly. Support? Well the 200-dma now sits at $94.19, although as you've undoubtedly noticed, sometimes moving averages and support don't just magically stop the momentum behind a move. We believe this play still has great potential, but it can't go it alone. If traders return Monday in a more positive frame of mind, we would look for NXTL to make up some lost ground. Recent research reports have been positive for Nextel, with a price target of $200, and suggesting a solid first-quarter. Analyst's have also suggested buying on weakness. Tuesday, the latest comments came from Timothy Burke at Edward Jones. Burke initiated coverage of the communications company with a new Buy rating. BUY CALL MAY-100*FQC-ET OI=554 at $14.75 SL=10.75 BUY CALL MAY-105 FQC-EA OI=532 at $12.25 SL= 9.25 BUY CALL MAY-110 FQC-EB OI=716 at $10.00 SL= 7.00 BUY CALL MAY-115 FZC-EC OI=123 at $ 8.38 SL= 5.75 BUY CALL AUG-110 FQC-HB OI=536 at $19.38 SL=13.75 SELL PUT APR-100 FQC-PT OI= 19 at $ 3.50 SL= 5.50 (See risks of selling puts in play legend) Picked on Apr 6th at $126.56 PE = N/A Change since picked -21.69 52 week high=$165.88 Analysts Ratings 12-9-3-1-0 52 week low =$ 33.00 Last earnings 02/00 est=-0.99 actual=-0.85 Next earnings 04-26 est=-0.84 versus=-1.37 Average daily volume = 4.43 mln /charts/charts.asp?symbol=NXTL **** VSTR - VoiceStream Wireless $90.00 (-36.00) Based in Bellevue, Wash., VoiceStream Wireless is a leading provider of wireless communications services in the United States. VoiceStream Wireless with Cook Inlet Region Inc., has licenses to provide service to over 193 million people with operating systems from New York to Hawaii. With licenses in 19 of the top 25 markets VoiceStream is one of the major providers of telecommunications services in the country. VoiceStream is the largest provider of personal communications service using the globally dominant GSM technology in the United States. Shareholders of VSTR refused to participate in the Friday's debacle. Why would investors buy shares of a company that just a week earlier reported earnings that were not only in the red, but produced results that were below analysts estimates? Good question, but here's our take on the situation. March 23rd VSTR was approaching its 52 week high and closed at $155. Wednesday's low at $81.75, marked a decline of about 48% in 3 weeks. At that time investors put on the brakes and jumped in with both feet, with over 7.0 million shares changing hands. It's certainly not written in stone that VSTR will continue to hold onto the gains made the past two sessions. However in light of Friday's action, the session was encouraging. The current trend in the telecom industry is towards consolidation. Our new play is an attractive takeover candidate. Rumors have been circulating for some time, on a potential suitor, although there's no confirmation that any discussions are actually taking place. For better or worse these rumors seem to keep VSTR in the limelight. With the company experiencing strong revenue and subscriber growth, analysts have are focusing on the top line rather than the red ink, currently flowing out of the company. Thursday, analysts at Raymond James Financial raised their rating from a Buy to a Strong Buy. Wednesday, Perry Walter at Robinson-Humphrey reiterated a Buy rating on VSTR, with a 12-month price target of $180. For the past three days, VSTR has been forming a nice base between $84 and $88. Going into the final half-hour of trading on Friday, our new play was gaining momentum. Unless the wheels totally fall off next week, we would look for chance to buy calls on further upward moves. A bounce off the $83-$84 are could also provide an attractive entry point. The FCC recently approved the VoiceStream's purchase of Aerial Communications. At that time analysts initiated support for the company as well. The merger with Aerial, suggests VSTR has taken more than its fair share of market growth. As we said above, rather than concentrate on earnings, investors and analysts alike are more concerned with growth and revenues. BUY CALL MAY- 85 UVT-EQ OI= 66 at $15.00 SL=11.00 BUY CALL MAY- 90*UVT-ER OI=131 at $12.88 SL= 9.50 BUY CALL MAY- 95 UVT-ES OI= 45 at $10.63 SL= 7.50 BUY CALL MAY-100 UVT-ET OI=306 at $ 9.00 SL= 6.25 BUY CALL AUG-100 UVT-HT OI= 44 at $14.50 SL=10.75 SELL PUT MAY- 80 UVT-QP OI=410 at $ 6.75 SL= 9.75 (See risks of selling puts in play legend) Picked on Apr 16th at $90.00 P/E = N/A Change since picked +0.00 52-week high=$159.38 Analysts Ratings 14-4-4-0-0 52-week low =$ 16.38 Last earnings 03/00 est=-1.21 actual=-1.58 Next earnings 05-08 est=-1.15 versus=-0.81 Average daily volume = 2.15 mln /charts/charts.asp?symbol=VSTR **** SCMR - Sycamore Networks $51.00 (-64.50) A growing thorn in Cisco's side (but still small by comparison), Sycamore Networks develops and markets intelligent optical networking products that transport voice and data traffic over wavelengths of light. The Company combines significant experience in data networking with expertise in optics to develop intelligent optical networking solutions for network service providers. Sycamore's products are based on a common software foundation, enabling concentration on the delivery of services and end-to-end optical networking. Sycamore's products and product plans include optical transport, access and switching systems and end-to-end optical network management solutions. First of all folks, understand that this play was risky even before the recent selloff thanks to its inherent volatility. However, as far as upstart optical networking companies go, SCMR is one of the best positioned to take on the Nortels, Ciscos and Lucents of the world. When a name pops up as the next Cisco, these guys (and gals) at SCMR get the most votes. So why pick a stock that traded to its lowest price ever since going public last October? We don't like to try and pick a bottom, but we'll make an exception in this case. Frankly, we think this baby has been thrown out with the bath water as SCMR has some of the best technology available, and a capable management staff able to handle the growth. SCMR had strong support at $60. That was very nearly the low of this company's trading range in its first two days as a public company, but it was broken Friday in the worst point selloff in history. Assuming all the blood has been squeezed out of the market turnip, we just don't think SCMR is going any lower than $49, it's worst Friday print. In our opinion, the current level is buyable. To be fair though, SCMR is in terrible technical shape and has violated every moving DMA known to man. But it is precisely this reason that we think makes it a bottom fishing opportunity. Could it go any lower? You bet. As we said, this is a risky play and the market could see more pain from foreign market reaction to our market last Friday, and margin call selling on Monday. The flip side is the high reward. The point of adding it this weekend is to get it on your watch list for a possible entry on what we think will be a strong rebound. Watch for a market and stock recovery before taking a position, then use a stop loss to protect your downside. Many fingers have been lost trying to call a turnaround on this and many other issues. Note the low or no OI on the listed strikes. These are new strikes as of Friday and are expensive. You may want consider naked puts at this level too (equally speculative). Hmmm. Bet Lehman Bros. wishes they hadn't given Sycamore that year end price target of $200 along with the upgrade to Buy on Mar 30th when SCMR was trading at $125. "Our new revenue forecasts nearly double as compared to our last projections, published in February 2000, before the release of December quarter earnings", they noted. Oh well, it made sense at the time - other than price, the logic was well founded. BUY CALL MAY-60*SMZ-EL OI= 2 at $ 9.63 SL= 6.50 low OI BUY CALL MAY-65 SMZ-EM OI= 0 at $ 7.50 SL= 5.25 BUY CALL JUN-60 SMZ-FL OI= 0 at $10.50 SL= 7.50 BUY CALL JUN-65 SMZ-FM OI= 0 at $ 9.00 SL= 6.25 SELL PUT MAY-60 SMZ-QL OI=14 at $16.50 SL=21.00 (See risks of selling puts in play legend) Picked on Apr 16th at $51.00 P/E = N/A Change since picked +0.00 52-week high=$199.50 Analysts Ratings 5-3-0-0-0 52-week low =$ 48.94 Last earnings 02/00 est= 0.00 actual= 0.01 Next earnings 05-18 est= 0.01 versus= N/A Average Daily Volume = 2.20 mln /charts/charts.asp?symbol=SCMR ******* Biotech ******* ABGX - Abgenix Inc. $66.88 (-36.13) Operating in the biopharmaceutical field, Abgenix develops and intends to commercialize antibody therapeutic products for the treatment of a variety of disease conditions including transplant related diseases, inflammatory and autoimmune disorders, and cancer. Harnessing the power of the mouse, ABGX has developed XenoMouse technology, a proprietary technology which the company believes enables quick generation of fully human antibody product candidates using mice. Current internal product development programs have yielded four antibody product candidates, with ABX-CBL being the current front runner. The combination of a split on April 7th and the broad market meltdown the past 2 weeks has served to bring ABGX down to very attractive levels. Unable to buck the trend of the overall markets, ABGX showed weak relative strength this past week. Tagging a low of $67.25 Tuesday morning, ABGX refused to touch this level again until the last 30 minutes of trading on Friday. Although it is not encouraging to see a close at the low of the day, especially on increasing volume, we like the way the stock held support at $70 all week. After its plunge to the 200-dma (then at $50) on April 4th, the stock had a brief run into its split and then declined back near the $70 support level. It is encouraging because ABGX never challenged the lows set on Terrible Tuesday. Although volume levels are still well above the daily average, they are steadily declining and this looks like a bottom for the stock. Of course, finding a bottom is one thing, while moving higher is quite different in this market environment. Even with earnings set for April 25th, ABGX will have a hard time posting significant gains in the week ahead if the broad markets can't halt their slide. Risk takers can nibble at a bounce from current levels if confirmed by increasing volume, but watch out for a head fake. A more conservative strategy would be to wait for buyers to push the share price back above $70 on convincing volume. On Friday, Prudential initiated coverage on ABGX with an Accumulate rating. BUY CALL MAY-70*AZG-EN OI=10 at $10.38 SL= 7.50 low OI BUY CALL MAY-75 AZG-EO OI= 3 at $ 8.25 SL= 6.00 low OI BUY CALL MAY-80 AZG-EP OI= 0 at $ 6.50 SL= 4.50 Wait for OI! BUY CALL JUL-70 AZG-GN OI= 0 at $16.13 SL=11.50 Wait for OI! BUY CALL JUL-75 AZG-GO OI= 0 at $15.63 SL=11.25 Wait for OI! Picked on Apr 13th at $81.06 P/E = N/A Change since picked -14.19 52-week high=$206.50 Analysts Ratings 2-0-0-0-0 52-week low =$ 6.41 Last earnings 01/00 est=-0.06 actual=-0.05 Next earnings 04-25 est=-0.11 versus=-0.22 Average Daily Volume = 675 K /charts/charts.asp?symbol=ABGX ******************************* CALLS CONTINUED IN SECTION FOUR ******************************* ************************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 04-16-2000 Sunday 4 of 5 ***************** CALLS - CONTINUED ***************** Drugs ***** WLA - Warner-Lambert Co. $101.50 (-2.44)(+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. Remember the sentence from Thursday's update, "If investor psychology turns more negative, then stand aside and wait for an entry point." To say investor psychology turned more negative, is an understatement. WLA opened $2.50 lower on Friday, and fell another $6.00 before a few brave souls stepped in bidding the price back up to close at $101.50. Why do feel WLA still has potential as a call play? Let's examine where we've been. For the week WLA lost -$2.44, which is just over 2%. Compared to the losses elsewhere in the market-place, 2% is minimal. Could it continue lower? Absolutely. So make sure you see the bounce first. The drug company is scheduled to report quarterly results Wednesday morning before the open. Although time is running out on our play, we may see a move to repair the recent damage. If investors return with shopping lists in hand, then WLA may be near the top. WLA and the drug sector have held up reasonably well this week. If after the long weekend, calmer heads prevail, traders may come back buying stocks that they had confidence in, prior to the sell-off. If Friday was just a warm-up, then stand back and look for cover. A good argument could be made for either scenario. We did see the volume pick up late Friday as WLA bounced off its low at $98.50, which would normally indicate a short-term bottom and a move to higher prices. We also saw penetration the $100 level that has provided solid support. Closing back over that level is definitely a plus. If we do see the bounce continue remember to exit this play by the close of business on Tuesday. Warner-Lambert's Board of Directors declared a regular second quarter dividend on Friday. The dividend of $0.24 a share is payable May 12, 2000 to stockholders of record April 24th. WLA has paid a dividend every year since 1926, ranking it among Standard & Poor's select list of companies with an unbroken record of dividends paid for at least 50 years. BUY CALL MAY- 95 WLA-ES OI=315 at $11.38 SL=8.50 BUY CALL MAY-100 WLA-EV OI=417 at $ 7.75 SL=5.75 BUY CALL MAY-105*WLA-EA OI=518 at $ 4.75 SL=3.00 BUY CALL MAY-110 WLA-EB OI=641 at $ 2.69 SL=1.25 SELL PUT MAY- 95 WLA-QV OI= 84 at $ 3.13 SL=5.00 (See risks of selling puts in play legend) Picked on Apr 04th at $105.50 PE = 52 Change since picked -4.00 52 week high=$109.88 Analysts Ratings 12-4-8-0-0 52 week low =$ 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 /charts/charts.asp?symbol=WLA ************* Miscellaneous ************* ENE - Enron Corp. $69.75 (-0.94) For four years running, Fortune magazine has named Enron the "Most Innovative Company in America" and last year named them one of the "100 Best Companies to Work for in America." This worldwide energy giant isn't into just power generation. They also are the number 1 buyer and seller of wholesale gas, the top wholesale power marketer in the U.S., and operate 32,000 miles of gas pipelines. Not only that, they run far flung operations including paper, coal, chemicals, engineering and construction, and the emerging jewel, a fiber-optic bandwidth development and marketing business. ENE has been redirecting its energies. ENE offered up an 8% earnings surprise when they announced earnings of $0.03 more than the Street estimates last week. That's no big deal for a tech company with a low float. But for an energy company with over 700 mln shares outstanding, that means another $21 mln in profits that the Street didn't expect. That's a big number. Investors were impressed and actually moved the price up for two days following the numbers...no post earnings depression. While we originally thought $71 might make an intraday support level at which to target shoot, the only thing worth shooting was our theory, thanks to a gap down to $70 at the open followed by an ugly day in the market. It looked like the 5-dma, 10-dma, and 50-dma might hold, but only the 50-dma (now $68.97) did by the end of the day. In fact, after reaching the low of $66, ENE recovered $3 in the final 15 minutes before the close - a great recovery and excellent show of relative strength. Assuming we've reached a market bottom (obviously confirm that first), $68 should hold as support. We wouldn't be surprised to see Friday's late rebound continue, which could propel ENE back over its 10- dma of $69.90 in a hurry. We think the best entry will be off of a bounce from $68 or a move back over $72 (backed by volume), a level of resistance that began forming in January and had been broken only a few times since. $74 is the next resistance, then a breakout over $78. Nothing in the news on Friday (except the market itself) that will move the price. However, the weekly upgrades are worth noting. Salomon Smith Barney issued a Buy rating and a price target of $100, while First Union upgraded from Buy to Strong Buy and issued a price of target of $90. Dain Rauscher last week did the same with a price target of $97. BUY CALL MAY-65 ENE-EM OI= 201 at $7.50 SL=5.25 BUY CALL MAY-70*ENE-EN OI= 316 at $5.13 SL=3.00 BUY CALL MAY-75 ENE-EO OI=1439 at $3.25 SL=1.75 BUY CALL JUL-70 ENE-GN OI=1038 at $8.63 SL=6.00 BUY CALL JUL-75 ENE-GO OI=1421 at $6.63 SL=4.75 SELL PUT MAY-65 ENE-QM OI= 454 at $2.88 SL=4.50 (See risks of selling puts in play legend) Picked on Apr 13th at $73.81 P/E = 54 Change since picked -4.06 52-week high=$78.06 Analysts Ratings 7-6-4-0-1 52-week low =$30.50 Last earnings 04/00 est= 0.37 actual= 0.40 surprise=+8% Next earnings 07-12 est= 0.31 versus= 0.27 Average Daily Volume = 3.1 mln /charts/charts.asp?symbol=ENE **** GMST - Gemstar Int'l Group $41.13 (-29.94) Gemstar is the developer of VCR Plus+, an application that lets TV buffs record programs using a simple code. The technology is widespread and essentially all TV and VCR makers are licensed to integrate it into their products. Nearly 41% of the company is owned by CEO and founder Henry Yuen, Director Thomas Lau, and Thomson Multimedia. Gainers were few and far in between on Friday, but GMST was one of the star performers. Coming off a month-long descent that vanquished 65% of its share price, it appears GMST may have finally hit bottom. Bouncing off an intraday low of $37.56 at Friday's open, the stock pushed upwards to $46.50 before finally settling at $41.13 with a $1.31 gain. That's not too shabby a performance for a stock trading in a collapsing market - NASDAQ DOWN 355.49 points! It's likely other stocks who've suffered great declines will eventually start to recover too, but GMST is hinting it wants to be first in line. Technically the first goal is to move through the 5-dma (currently at $49.35). Although the more aggressive may consider a definitive break above $45 an entry point into this recovery play. Analyst Alan Gould at Gerard Klauer Mattison & Co also has high hopes for GMST's recovery. On Thursday he came forward with a $110 price target and a reiteration of his Buy rating. Bewitching hour for Gemstar's first-quarter earnings is quickly approaching next month and this event may help generate excitement too. The company is expected to report around May 10th. Recently concerns about potential antitrust problems of Gemstar's merger with TV Guide (TVGIA) have been circulating. On Wednesday, the companies squelched rumors and announced that their merger was on track and still expected to close by the 2Q. In other news, the BoD authorized Gemstar to repurchase up to $150 mln in shares of its common stock over the next 12 months. BUY CALL MAY-35 QLF-EG OI=202 at $9.88 SL=7.00 BUY CALL MAY-40 QLF-EH OI=422 at $8.38 SL=6.00 BUY CALL MAY-45*QLF-EI OI=400 at $6.50 SL=4.50 Picked on April 16th at $41.13 P/E = 97 Change since picked +0.00 52-week high=$107.44 Analysts Ratings 7-0-0-0-0 52-week low =$ 20.88 Last earnings 12/99 est= 0.10 actual= 0.13 Next earnings 05-12 est= 0.14 versus= 0.12 Average Daily Volume = 2.64 mln /charts/charts.asp?symbol=GMST ***** LEAPS ***** By: Mark Phillips With so many buying opportunities, this is the kind of market the prudent investor may wait years for. Having the leverage and time-decay insulation of LEAPS gives us the ability to maximize our returns as the market recovers. It is doubtful any of you missed the carnage over the past 2 weeks; many of you likely tried to buy one or more of the dips. If you were really disciplined though, you are being presented with a rare LEAPS buying opportunity. Our old standby, the VIX has really taken off, tagging 41.53 near the end of the day Friday, and closing the week at 39.40. So much for the low 30's, but you can see why we are so excited this weekend. After standing aside from adding new plays the past 2 weeks, we're ready to go on a buying spree. Normally, our appetite is sated by adding one or two new plays, but this week we gobbled up four before pushing back from the table. We've been cautioning about the normal drop that occurs in the weeks and months following April earnings, but with the huge decline in equity prices over the past few weeks, it is hard to conceive of prices dropping much further. With so many current plays consolidating at major support, some below their respective 100-dmas, any one of a dozen could be featured as Leap of the Week. It seemed more productive to take this opportunity provided by the market weakness to add as many new plays as we could cram into this weekend's newsletter. With that in mind, sit down at the table, tuck in your napkin, and get ready for a tasty meal. Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN EMC 11/07/99 JAN-2001 $ 80 ZOH-AP $15.38 $42.63 177.24% JAN-2002 $ 90 WUE-AR $19.00 $47.13 148.03% GPS 11/07/99 JAN-2001 $ 40 ZGS-AH $ 5.75 $ 6.88 19.57% JAN-2002 $ 45 WGS-AI $ 7.88 $ 9.38 19.05% IBM 11/07/99 JAN-2001 $100 ZIB-AT $13.63 $20.00 46.79% JAN-2002 $110 WIB-AB $16.50 $25.13 52.27% CSCO 11/14/99 JAN-2001 $ 40 ZCY-AH $ 9.56 $24.50 156.28% JAN-2002 $ 90 WIV-AI $11.00 $27.25 147.73% GE 11/21/99 JAN-2001 $150 ZGR-AU $16.25 $22.25 36.92% JAN-2002 $150 WGE-AU $25.50 $33.75 32.35% NT 11/28/99 JAN-2001 $ 75 ZOO-AO $22.25 $33.25 49.44% JAN-2002 $ 75 WNT-AO $30.25 $42.63 40.91% VOD 12/05/99 JAN-2001 $ 50 ZAT-AJ $10.75 $ 9.25 -13.95% JAN-2002 $ 50 WHV-AJ $15.00 $14.38 - 4.17% TXN 12/12/99 JAN-2001 $110 ZTN-AB $22.25 $41.25 85.39% JAN-2002 $120 WGZ-AD $28.50 $48.88 71.49% NXTL 12/19/99 JAN-2001 $ 90 ZFU-AR $23.50 $33.38 42.02% JAN-2002 $100 WFU-AT $27.25 $39.25 44.04% SUNW 12/19/99 JAN-2001 $ 80 ZJX-AP $17.63 $18.63 5.67% JAN-2002 $ 90 WJX-AR $22.00 $25.13 14.20% CY 01/16/00 JAN-2001 $ 40 ZSY-AH $ 9.13 $17.00 86.30% JAN-2002 $ 40 WSY-AH $12.63 $21.63 71.29% ERICY 01/30/00 JAN-2001 $ 65 ZYD-AM $19.75 $21.50 8.86% JAN-2002 $ 65 WRY-AM $27.00 $29.38 8.80% NSM 02/27/00 JAN-2001 $ 70 ZUN-AN $18.50 $10.13 -45.27% JAN-2002 $ 70 WUN-AN $24.25 $17.50 -27.84% AOL 03/12/00 JAN-2001 $ 60 ZKS-AL $14.00 $10.25 -26.79% JAN-2002 $ 65 WAN-AM $18.63 $15.50 -16.78% AXP 03/12/00 JAN-2001 $130 ZXP-AF $21.75 $25.00 14.94% JAN-2002 $140 WXP-AH $28.00 $31.88 13.84% WM 03/19/00 JAN-2001 $ 25 ZWI-AE $ 5.00 $ 4.38 -12.50% JAN-2002 $ 30 WWI-AF $ 5.38 $ 5.00 - 6.98% QCOM 03/26/00 JAN-2001 $150 YQO-AJ $39.25 $16.38 -58.28% JAN-2002 $160 XQO-AL $52.88 $28.13 -46.81% 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. New Plays AMD - Advanced Micro Devices $66.00 It's amazing what a difference a year can make. Last year, AMD had been relegated to also-ran status as Intel ruled the roost. This year it is AMD's turn to crow as it recently posted earnings of $1.15 per share vs. estimates of only $0.46 and a loss of -$0.88 in the year-ago period. Add in upgrades from the likes of Prudential (Accumulate to Strong Buy), DB Alex Brown (Market Perform to Buy), and Wit SoundView (Hold to Buy), and it is easy to see why AMD is one of the few tech stocks that is currently trading north of its 30-dma ($58.50). As the markets find their bearings, look for winners like AMD to lead the charge higher. Consider entries near current levels or if you have a nervous stomach, wait for a convincing break through resistance at $71. BUY LEAP JAN-2001 $70.00 ZVV-AN at $17.50 BUY LEAP JAN-2002 $70.00 WVV-AN at $26.00 /charts/charts.asp?symbol=AMD **** CMGI - CMGI Inc. $52.06 It's been a rough year for CMGI so far, but we think things are about ready to turn around. After trading north of $160 in early January, CMGI investors have watched their position melt away to less than one-third of its Y2K value. Now sitting just above major support at $50, CMGI looks like a bargain, especially for us LEAPS players. As one of the last stocks to report earnings (currently scheduled for early June), CMGI won't have that impetus to drive its stock either higher or lower in the near term, and investors should be able to focus on the strength of the company once the dust settles from the stampede of the past 2 weeks. Well below its 200-dma, we think CMGI is a value at current levels, but wait for the market to confirm it is done bucking before stepping into the corral. BUY LEAP JAN-2001 $50.00 ZB -AJ at $21.50 BUY LEAP JAN-2002 $55.00 WCK-AK at $27.75 /charts/charts.asp?symbol=CMGI **** JDSU - JDSU Inc. $79.63 It's been on our radar screen ever since the announcement in March that the CBOE was adding LEAPS on JDSU. We just weren't convinced that the stock was done correcting yet. Well, we're off the fence and think JDSU is presenting us with quite a deal. Further declines are possible if the broad markets can't find their feet, but $77, (the low from Friday), looks like strong support. Does anyone believe that the optical market is any less hot than it was 6 weeks ago? As testimony to the strength of the stock, JDSU is trading significantly above its 195-dma at$66.25. (Sorry, but not quite enough trading history yet for a 200-dma.) Look to enter new positions on a renewed bounce near $77 as long as the broader markets are able to halt their slide. Keep in mind the general weakness seen on Friday, as another downdraft could provide an even better entry for patient investors. BUY LEAP JAN-2001 $80.00 XJU-AP at $27.50 BUY LEAP JAN-2002 $80.00 YJU-AP at $39.63 /charts/charts.asp?symbol=JDSU **** VSTR - Voicestream Wireless $90.00 Practically stopping on a dime, VSTR looks like it has arrested its decline which began on March 24th. Investors have been returning the past couple days, voting with their wallets and reminding us that the wireless market is not going to roll over for something as minor as "possible inflation". Building a good base just below $83, VSTR actually moved higher Friday afternoon, as investors bid the shares up over $5 in the final hour. The $83-85 level looks like good support, and we would consider another bounce here to be a great entry point. Friday's close puts the stock just a fraction below the 200-dma, and indecision next week could create some resistance at this level. If you want to play it a little more carefully, wait for buying volume to push the price solidly above $90 before playing. BUY LEAP JAN-2001 $90.00 ZTB-AR at $23.88 BUY LEAP JAN-2002 $90.00 WWP-AR at $35.00 /charts/charts.asp?symbol=VSTR Drops MSFT $74.13 All right, it's time to throw in the towel on this play. It was bad enough with the slings and arrows tossed at MSFT by the Department of Justice, but add in an analyst downgrade here and a market meltdown there, and you have a recipe for the largest software company in the world to fall to new 52-week lows. Although the argument could be made for a great entry point, we have doubts as to the veracity of any recovery while the clouds of litigation concerns hang over MSFT's head. Eventually the stock will make its way back onto our playlist, but for now there are too many other great plays with more upside potential. ***************** 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. **** CNXT - Conexant Systems Inc $46.09 (-31.59) Conexant is the world's largest provider of modem chips and other integrated circuits (ICs) for communications electronics. With more than 30 years of experience in developing communications technology, the company draws upon its expertise in mixed-signal processing to deliver integrated systems and semiconductor products for a broad range of communications applications. The company aligns its business into five product platforms: Network Access, Wireless Communications, Digital Infotainment, Personal Imaging, and Personal Computing. About half of Conexant's $1.5 bln in revenue come from sales in the Asia/Pacific region. Investors shook their fists on news of Conexant's fourth acquisition this year. On Wednesday, the company announced it agreed to buy Canada's Philsar Semiconductor for as much as $213.8 mln in stock in an effort to boost its line of wireless products. All in all, it will put out between 2.685 and 3 mln shares of common stock for the closely held Philsar. In response, CNXT dived almost instantaneously below the established support of $70 losing $9.25, or 12.5% by the finish. The onslaught continued for the rest of the week. Thursday saw a 12.2% drop followed by another 15.3% on Friday. Of course the stormy markets are indeed the underlying force pummeling the share price. However, Conexant announcements couldn't be more ill-timed considering investor sentiment and overall market conditions. On Thursday, they announced that for an undisclosed amount Conexant is also adding Applied Telecom, a leading supplier of telecommunications software and hardware products to its corporate family. Charles Boucher, analyst at Bear, Stearns, & Co, cheered CNXT on with a Buy reiteration. And perhaps the acquisitions are good investments for the company, but the wrath of unhappy investors continued to make its mark. The 200-dma is now just a dot in the rear-view mirror at $59.07 and below is a dark abyss. $60 was an older support level, but now with that gone we're looking at the $40 level of October 1999. While CNXT has more room to fall, it'd be a good idea to keep stops in place to protect against impending buyers coming in off the sidelines. Additionally we don't anticipate the company's earnings to trigger much excitement, but be aware they are reporting on Wednesday, after the bell. BUY PUT MAY-55 QXN-QK OI=499 at $15.38 SL=11.25 BUY PUT MAY-50*QXN-QJ OI= 71 at $11.50 SL= 8.50 Average Daily Volume = 6.89 mln /charts/charts.asp?symbol=CNXT **** MCLD - McLeodUSA Inc. $54.63 (-25.38) McLeodUsa is a facilities-based CLEC (competitive local-exchange carrier). The company provides telecommunications services, including local and long-distance phone service and Internet access. It operates more than 616,000 local access lines, serving about 261,000 business and residential customers in 12 US states in the Midwest and Rocky Mountains. MCLD plans to add PCS wireless service to its offerings; it owns 27 PCS licenses. Founder and CEO Clark McLeod and his Wife, Mary, own 13% of the company. The only positive stemming from last Friday's bloodletting was owning a put. The NASDAQ Telecommunications Index ($IXTC) lost 10% Friday. The weak telecom sector isn't helping MCLD's cause, neither is the pending merger between US West (USW) and Qwest (Q). The combined entity would create stiff competition for MCLD. USW and Q already have a stronghold in the local markets, where MCLD is losing. USW said Friday that it has reached an agreement on crucial issues of the merger with state attorney generals. While the merger is still a long way from being approved, it appears likely that it will go through, which spells trouble for MCLD. MCLD's key competitors, such as GTE, SBC, BLS, Q, and USW are either merging or forming strategic alliances, while MCLD is left in the dust. Not only does MCLD continue to lose market share, the company is sinking further into to debt. MCLD added $1 bln of debt last week, to pay for their recent acquisition of SPLT. Standard and Poor's gave MCLD a sub-investment grade credit rating, citing its weak near-term cash flows resulting from expansion into 10 additional markets. Given the current interest rate environment, rising debt levels are not a good thing. The uncertain future surrounding MCLD has driven its stock price lower. The stock gapped down $1 Friday, and sank lower throughout the day. Volume continues to remain heavy as institutions run from MCLD. The stock has major support at $50, if it breaks that level, it could very easily fall to $40. Watch for the heavy volume to continue, a move below $50 may provide an excellent entry into the play. We're still waiting for the new May strikes to be added. Wait for open interest to increase before buying the newly issued contracts. And remember, any put buying at this point should be considered HIGH-RISK. BUY PUT MAY-65*QMD-QM OI=622 at $14.00 SL=10.50 BUY PUT MAY-60 QMD-QL OI= 2 at $10.50 SL= 7.25 low OI Average Daily Volume = 1.67 mln /charts/charts.asp?symbol=MCLD **** FIBR - Osicom Technologies $30.44 (-39.81)(-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, Internet Service Providers 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 top competition comes from Cisco Systems, Lucent and Nortel Networks. Brutal is the term that comes to mind for those that are or have been long. For those with the insight to buy puts, profitable best describes their trading account. That pretty much sums up the past month for those involved in FIBR. A look at the chart since the March 6th high at $149.75, shows a decline that would put fear in the heart of the most savvy investor. A 79.6% decline in five weeks. We thought FIBR could produce a nice put play, but a drop of almost $40 in a week, even caught this writer by surprise. As we said Thursday, Osicom seems to be "attempting to put in a bottom." FIBR hit $27.50 before bouncing up about $3 into the close. Investors in FIBR have seen ten consecutive days of lower closes, with no buyers in sight. In December the company said it planned an IPO for its Sorrento Networks unit. Sorrento makes equipment that increases the capacity of fiber optic networks. Analyst Joe Gladue, at Chapman Co. said this week, the decline in telecommunications and computer related shares may lead the company to delay the public offering. He went on to say much of the price rise earlier this year, was due to enthusiasm for the spin-off. The company has never set a timetable for Sorrento's IPO. So how do we play this one? If you have open positions, move your stops down. Resistance is near $35 and again at $40. A bounce up to those levels followed by weakness could provide good entry points. The next area of major support is not found until $18. It's almost hard to believe it could continue to drop that far, but who would have thought FIBR would be trading near $30 back on March 6th. BUY PUT MAY-35 QFW-QG OI= 41 at $11.50 SL=8.50 BUY PUT MAY-30*QFW-QF OI=171 at $ 8.63 SL=6.00 Average Daily Volume = 446 K /charts/charts.asp?symbol=FIBR ************************Advertisement************************* Tired of waiting on trades to execute? 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The Option Investor Newsletter 04-16-2000 Sunday 5 of 5 ************* COVERED CALLS ************* Technical Analysis: A gift from the Orient... By: Mark Wnetrzak With the growing interest in Candlestick charting techniques, we have decided to begin a new series on the subject. If you haven't used this unique method of analysis, they next few articles will familiarize you with one of the most profitable and easy-to-learn systems for the study of historical price movements. There are a number of reasons for the recent popularity of this ancient process of pattern analysis. First, candlestick charts are relatively simple to interpret and they are flexible. The techniques are useful to all types of investors, from novice to expert. Candlestick charts can be used alone or in combination with other kinds of technical analysis. In fact, that's one of the most important characteristics of the technique; it can be utilized in addition to, but not instead of, other profitable systems. For experienced traders, candlestick charting provides an extra dimension of analysis and many suggest the practice may even become the standard as it benefits from the advantages of a more precise system. It is interesting that in our technologically advanced market, candlestick analysis is a relatively unknown technique. The Japanese have used a combination of both Eastern and Western systems for many years but Americans have yet to embrace the ancient method. For those who are unfamiliar with its unique background, this tried and tested approach enjoys a centuries-old tradition in the Orient. Many of the pattern descriptions are are strange and colorful. Formations such as the "hanging man", "morning star" and "doji", are frequently identified in daily analysis and those charming titles could never be discerned from a simple bar chart. Fortunately, the (price) data required to create a candlestick chart is exactly the same that we use now; the open, high, low, and close. The benefit is that any common indicators related to bar charting, such as moving averages and trend-lines can be employed with candlestick charts. The real bonus is that candlestick charts can convey signals not available from simple bar charts. In fact, there are a number of patterns that provide much better "leading" signals than the traditional charting techniques. Through the use of candlestick analysis, a trader has the ability to merge a rare, time-honored method of pattern study with a modern evaluation of trends and formations, to create a powerful and comprehensive forecasting system. One of the few limitations in candlestick charting is that most patterns require a closing price. As with other "end-of-day" systems, you may need to wait for the final trade to get a valid signal. Of course this aspect is also a problem with many forms of technical analysis including those based on bar charts. The opening price is also important in candlestick analysis and in many cases, one can use short-term patterns to initiate a position during the session, rather than waiting for the close of the day. Candlestick formations also provide numerous other useful trading signals but they can not predict price targets. Obviously, there are many other methods to forecast these objectives such as prior support or resistance levels. In common practice, most traders begin their trades based on a specific signal and they remain in that position until an exit pattern becomes apparent. As with any system, these signals should always be viewed in context with the other indications related to the instrument being evaluated. One thing you can be sure of, this method of analysis can not be learned overnight. There are a number of different patterns to identify and each of them are subject to the interpretation of the user. With diligence and study, you will discover which formations work best for your style of trading and the market in which you participate. At the very least, the ability to discern common patterns should enhance your ability to initiate and profit from a wide variety of portfolio positions. 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 17.19 APR 17.50 6.00 $ 2.10 12.1% R 24.63 21.63 APR 20.00 5.50 *$ 0.87 9.9% PAIR 19.44 18.88 APR 15.00 4.88 *$ 0.44 6.6% PRGS 23.44 21.00 APR 20.00 4.25 *$ 0.81 6.1% INSUA 33.06 36.00 APR 30.00 3.88 *$ 0.82 6.1% PXD 10.50 9.75 APR 10.00 1.13 $ 0.38 5.9% CRCL 27.63 26.81 APR 22.50 6.25 *$ 1.12 5.7% POSS 12.56 10.00 APR 10.00 3.25 $ 0.69 5.4% R 22.69 21.63 APR 17.50 5.75 *$ 0.56 4.8% VANS 16.13 15.50 APR 15.00 1.75 *$ 0.62 4.7% FSI 15.63 14.75 APR 15.00 1.25 $ 0.37 3.7% ELIX 26.00 19.56 APR 20.00 6.88 $ 0.44 2.5% COB 14.13 8.81 APR 10.00 5.00 $ -0.32 0.0% TRMB 24.75 18.44 APR 20.00 5.63 $ -0.68 0.0% Time to go? MUEI 14.50 10.75 APR 12.50 2.81 $ -0.94 0.0% No Lower! MATK 15.50 12.88 MAY 12.50 4.13 *$ 1.13 7.2% ANET 10.56 8.00 MAY 7.50 3.63 *$ 0.57 6.0% PSSI 9.13 7.81 MAY 7.50 2.19 *$ 0.56 5.8% CNJ 8.13 6.44 MAY 7.50 1.50 $ -0.19 0.0% MRL 26.88 22.31 MAY 25.00 3.25 $ -1.32 0.0% 150dma ? NUHC 22.13 14.88 MAY 17.50 6.00 $ -1.25 0.0% 150dma ? *$ = Stock price is above the sold striking price. Comments: The carnage is getting worse and the bearish technicals suggest there is little probability of a quick turnaround. Many issues are down by more than half and trying to recoup losses could be a long and potentially "endless" process. Exiting the position, though painful (Root Canal?), may offer the only recourse to stem the outflow of capital and allow an investor to be ready for more favorable conditions in the future. Positions Closed: THDO, IARC, ESCM, BYND, RMII, CRAY, MPPP, MAIL, SCUR, CYOE, CYCH, AND (2), EPTO (2), FSII, IGEN, TLXN, BIDS, CBSI, NEW PICKS ********* NOTE: We will continue to list the most favorable positions (regardless of the market condition) identified in our research. But considering the market uncertainty, waiting for a confirmed bottom and the return of a neutral to slightly bullish outlook may increase the probability of success. Sequenced by Company ***** Stock Last Call Strike Option Last Open Cost Return Return Symbol Price Month Price Symbol Bid Intr Basis Called Unchanged APC 35.81 MAY 35.00 APC EG 2.88 1566 32.93 6.3% 6.3% BSX 21.75 MAY 20.00 BSX ED 2.50 3789 19.25 3.9% 3.9% CAR 20.81 MAY 20.00 CAR ED 1.94 184 18.87 6.0% 6.0% DGX 44.50 MAY 40.00 DGX EH 6.00 0 38.50 3.9% 3.9% LPNT 16.38 MAY 15.00 PUN EC 2.25 5 14.13 6.2% 6.2% PIR 10.50 MAY 10.00 PIR EB 1.00 143 9.50 5.3% 5.3% UGLY 7.50 MAY 7.50 QRD EU 0.50 0 7.00 7.1% 7.1% 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 UGLY 7.50 MAY 7.50 QRD EU 0.50 0 7.00 7.1% 7.1% APC 35.81 MAY 35.00 APC EG 2.88 1566 32.93 6.3% 6.3% LPNT 16.38 MAY 15.00 PUN EC 2.25 5 14.13 6.2% 6.2% CAR 20.81 MAY 20.00 CAR ED 1.94 184 18.87 6.0% 6.0% PIR 10.50 MAY 10.00 PIR EB 1.00 143 9.50 5.3% 5.3% BSX 21.75 MAY 20.00 BSX ED 2.50 3789 19.25 3.9% 3.9% DGX 44.50 MAY 40.00 DGX EH 6.00 0 38.50 3.9% 3.9% Company Descriptions OI-Open Interest, CB-Cost Basis or break-even point, RC-Return Called, RNC-Return Not Called (Stock unchanged) **** APC - Anadarko Petroleum $35.81 *** Oil Service Sector *** Anadarko Petroleum is an independent oil and gas exploration and production company. Most of their proven reserves are located in the midwestern United States, offshore in the Gulf of Mexico and in Alaska. Anadarko also owns and operates gas gathering systems in its U.S. core producing areas. This week Anadarko announced oil had been found at its Marco Polo prospect south of Louisiana, in which it has 100% interest. Anadarko also recently announced the acquisition of Union Pacific Resources which it said should add at least 30% to cash flow and about 15% to earnings this year. APC has continued its uptrend even with the Market falling around it. The technicals remain bullish and we favor a cost basis within the middle of Anadarko's trading range. MAY 35.00 APC EG Bid=2.88 OI=1566 CB=32.93 RC=6.3% RNC=6.3% Chart = /charts/charts.asp?symbol=APC **** BSX - Boston Scientific $21.75 *** Stage I Base *** Boston Scientific develops, manufactures and markets minimally invasive medical devices. Its product lines include vascular products that are employed in procedures affecting the heart and systems that carry blood, as well as nonvascular products that are employed in procedures affecting other systems and organs. In March Boston Scientific received FDA approval to market their NIRŪ with SOX(TM) over-the-wire coronary stent system for the treatment of coronary artery disease, and immediately began shipment of this product. Net sales for all products for the fiscal year ending 12/31/99 rose 27% to $2.84 billion. Boston Scientific has been in a stage I base since October and our play offers a reasonable entry point into an improving sector. Earnings are due Tuesday. MAY 20.00 BSX ED Bid=2.50 OI=3789 CB=19.25 RC=3.9% RNC=3.9% Chart = /charts/charts.asp?symbol=BSX **** CAR - Carter-Wallace $20.81 ***What's Up? *** Carter-Wallace manufactures and sells a line of consumer health care products such as deodorants, toothpaste, cough and cold products, and pet supplies. Carter's products include Arrid antiperspirants and deodorants, First Response pregnancy test kits, Pearl Drops tooth polish, and other consumer health care products. A favorable study on ASTELIN Nasal Spray, manufactured by Wallace Labs, a division of Carter-Wallace, reported in March, could bode well for the future. The company announced this week that it increased its regular quarterly cash dividend from $0.06 to $0.08 per share, payable on May 30, 2000 to shareholders of record on May 3, 2000. Does this explain the jump in price last week? We favor a cost basis near a price that Carter-Wallace has traded at for over a year. Mind your stop loss point if the trend is broken. MAY 20.00 CAR ED Bid=1.94 OI=184 CB=18.87 RC=6.0% RNC=6.0% Chart = /charts/charts.asp?symbol=CAR **** DGX - Quest Diagnostics $44.50 *** Beating Estimates! *** Quest Diagnostics is one of the largest clinical laboratory testing companies in the United States. It offers a broad range of clinical laboratory testing services used by physicians in the detection, diagnosis, evaluation, monitoring and treatment of diseases and other medical conditions. These tests range from the routine (such as blood cholesterol tests) to highly complex (such as molecular diagnostics testing). Through its Nichols Institute, it performs esoteric tests in endocrinology, genetics, immunology, microbiology, molecular biology, oncology, serology, special chemistry and toxicology. Quest Diagnostics said that it expects first-quarter earnings to be about 50% above analysts' estimates and year earnings to be about 20% above estimates. Growth in earnings reflects better than anticipated clinical testing volume, improved revenue per order and accelerated realization of net synergies associated with its acquisition of SmithKline Beecham Clinical Laboratories last year. What can we say, an absolutely beautiful chart in horrid Market conditions. Breaking the strong trend-line (Oct. - Jan. - Mar. lows) should signal any change of character. MAY 40.00 DGX EH Bid=6.00 OI=0 CB=38.50 RC=3.9% RNC=3.9% Chart = /charts/charts.asp?symbol=DGX **** LPNT - LifePoint Hospitals $16.38 *** New Coverage *** LifePoint Hospitals is comprised of 23 general, acute care hospitals and related health care entities. In 21 of its 23 markets, LifePoint's hospital is the only hospital in the community. All but seven of LifePoint's hospitals are located in states that have certificate of need laws, which laws may have the effect of limiting the development of competing facilities. With increasing revenue LifePoint is drawing the attention of several analysts resulting in upgrades and new coverage. The Rural Hospital sector is strong and LifePoint's chart is a case in point. The ascending triangle (from January) is very bullish as investors continue to buy at higher and higher prices. In any case, it is wise to have a stop-loss point established. MAY 15.00 PUN EC Bid=2.25 OI=5 CB=14.13 RC=6.2% RNC=6.2% Chart = /charts/charts.asp?symbol=LPNT **** PIR - Pier 1 Imports $10.50 *** Trying for a New High! *** Pier 1 Imports is an international specialty retailer of imported decorative home furnishings, gifts and related items. Pier 1 operates over 750 stores in the United States and Canada and supports nine franchised stores in nine states. They also operates stores in the United Kingdom and supply merchandise and licenses the Pier 1 name to Sears in Mexico and Puerto Rico. Pier 1's fourth quarter 1999 same store sales rose 9.1%, leading to a 26% increase in per share profits, 9% ahead of consensus estimates. Operating expenses fell 2.22% as a percentage of sales, and expenses are being further reduced as a result of a new three-year shipping contract at significantly lower rates. We favor a cost basis near the 50 dma as Pier 1 tries to break above last year's high. MAY 10.00 PIR EB Bid=1.00 OI=143 CB=9.50 RC=5.3% RNC=5.3% Chart = /charts/charts.asp?symbol=PIR **** UGLY - Ugly Duckling $7.50 *** Speculation Only! *** Ugly Duckling is one of the largest and fastest growing used car sales company focused exclusively on the sub-prime market. The company underwrites, finances and services sub-prime contracts generated at its 75 Ugly Duckling dealerships, located in 11 metropolitan areas in eight states. Ugly Duckling, which just announced the completion of its exchange offer, has been in a stage I base for over a year. Last quarters earnings showed a 41% increase in revenues and a 16% increase in loan originations. With this quarter's earnings due next week (April 19), this issue is for speculators who maintain a disciplined stop-loss system. MAY 7.50 QRD EU Bid=0.50 OI=0 CB=7.00 RC=7.1% RNC=7.1% Chart = /charts/charts.asp?symbol=UGLY ****************** BIG CAP NAKED PUTS ****************** Naked Put Percentage List By: Matt Russ In addition to our regular Disclaimer, now at the bottom of this page, I would like to include a few words of clarification and caution. This is the last week before expiration. It also is a shorter trading week as the markets will be closed on Good Friday. That means quicker time decay. Yet, at the same time it means in order to achieve attractive returns, some of the suggested puts are closer to At-The-Money or above their primary support levels. You may choose to look at strikes that are lower. In many cases, there may not be any lower put strikes since exchanges have not create them for April expiration. Therefore, we have listed some May puts with those lower strikes. The current market condition has been extremely volatile and extra caution should be taken. Stock Stock Strike Option Option Margin Percent Support Symbol Price Price Symbol Price At 25% Return Level AMAT 80.31 80 ANC-PP 4.75 2008 24% 76 BEAS 58.63 55 BRQ-PK 3.38 1466 23% 52 BRCM 122.25 120 RDW-PD 11.75 3056 38% 114 CHKP 149.63 145 YKE-PI 8.88 3741 24% 140 CIEN 88.00 85 EUQ-PQ 5.75 2200 26% 80 CMVT 74.19 70 CQV-PN 4.25 1855 23% 63 CREE 89.00 85 CQR-PQ 5.50 2225 25% 78 CSCO 57.00 55 CWY-PK 2.56 1425 18% 50 EBAY 139.63 130 QXB-PF 6.63 3491 19% 133 HGSI 62.75 60 HQI-PL 3.63 1569 23% 55 INCY 76.00 70 IPQ-PN 3.88 1900 20% 71 INKT 100.81 95 KYQ-PS 5.50 2520 22% 91 INTC 110.38 105 INQ-PA 4.13 2760 15% 103 ITWO 78.06 70 QYJ-PN 4.25 1952 22% 69 JDSU 79.63 75 XXZ-PO 4.00 1991 20% 75 LSI 50.63 50 LSI-PJ 3.50 1266 28% 50 MEDI 137.50 140 MEQ-PH 10.25 3438 30% 130 MERQ 58.44 52.50 RQB-PX 3.00 1461 21% 50 MLNM 112.94 110 QMN-PB 5.50 2824 19% 110 MUSE 74.88 70 QVM-PN 3.13 1872 17% 69 NEWP 88.00 May-75 QNW-QO 3.88 2200 18% 75 NSOL 104.56 100 JNU-PT 5.13 2614 20% 100 NXTL 105.25 100 FQC-PT 3.50 2631 13% 100 NXTV 80.56 75 NUX-PO 4.25 2014 21% 75 PDLI 75.44 May-65 PQI-QM 5.25 1886 28% 71 PMCS 118.44 110 SDL-PB 7.38 2961 25% 100 PWAV 114.00 110 VFQ-PB 7.50 2850 26% 102 QCOM 105.00 100 AAF-PT 5.25 2625 20% 100 QLGC 62.50 55 QLC-PK 3.00 1563 19% 55 SUNW 77.00 75 SUX-PO 4.75 1925 25% 75 TERN 94.00 90 TUN-PR 5.75 2350 24% 90 VIGN 42.19 40 UOJ-PH 3.25 1055 31% 39 VRTS 80.75 75 VUQ-PY 5.25 2019 26% 71 YHOO 116.00 110 YMM-PB 4.25 2900 15% 110 To download an excel spreadsheet version of this list, click here: http://www.OptionInvestor.com/downloads/hpapr-16.xls **** ITWO AGGRESSIVE SELL PUT APR-75 QYJ-PO at $6.38 = 33% MODERATE SELL PUT APR-70 QYJ-PN at $4.25 = 22% CONSERVATIVE SELL PUT APR-65 QYJ-PM at $2.75 = 14% **** INCY There are no strikes in April below $70. AGGRESSIVE SELL PUT APR-75 IPQ-PO at $6.25 = 33% MODERATE SELL PUT APR-70 IPQ-PN at $3.88 = 20% **** LSI AGGRESSIVE SELL PUT APR-52.50 LSI-PX at $4.88 = 39% MODERATE SELL PUT APR-50 LSI-PJ at $3.50 = 28% CONSERVATIVE SELL PUT APR-47.50 LSI-PW at $2.44 = 19% DISCLAIMER: Before entering any of the positions listed above, 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. *********************** CONSERVATIVE NAKED PUTS *********************** Stock Buying Basics: Blue-Chip or Technology... There has been a lot of discussion recently about the "rotation" in the market. Unfortunately, there were no "safe havens" during the past week. Before the slide began, investors were basically divided between the slow-moving "old economy," represented by the Dow, and the technologically advanced "new economy" that is the foundation of the Nasdaq. Although the groups have a number of fundamental differences, many analysts believe that in time the diverse markets will merge into one. After today's sell-off, the big question is, "where will they meet?" At some point in almost every session we hear a remark concerning one or another of the most common stock types. In recent weeks, the consumer-products group has been identified as a favorable sector for conservative investors. For those of you who are new to investing, the basic categories of stocks include Blue-Chips, Growth stocks or Income issues, Cyclicals, Defensive stocks and Speculative issues. Blue Chip stocks are historically the best long-term investments. These companies are well established, high quality issues such as General Electric (GE) or International Business Machines (IBM). They generally pay good dividends and are considered "bellwethers" of the market. Growth stocks are those companies which have a high probability of capital appreciation. They retain most of their earnings and usually don't pay dividends. Their capital is plowed back into the company for future expansion and acquisition or research. Stocks in this group might include Cisco (CSCO) or Sun Microsystems (SUNW). Income stocks are conservative issues that have yields comparable with corporate bonds. These companies can pay competitive returns because their products or services are superior to others in the industry. Banks and insurance companies are often the leaders in this group. Most of the recent discussion has centered on defensive stocks and cyclical issues. Defensive or safety stocks are those which remain stable even in declining markets. This group generally includes utilities, drug manufacturers, and consumer non-durables or food companies. They retain their value in recessions as their products are always in demand, regardless of the economic climate. Cyclical companies are easy to identify. Their earnings fluctuate with the changes in a particular business or industry cycle. When economic conditions are favorable, the company's stock and earnings rise. As the cycle ends, the company's revenues and stock value consolidates. In the past, speculative stocks were generally identified by P/E ratios. Issues were considered aggressive when they had price to earnings ratios in the multiples of 50 to 100. Of course many of Internet stocks have P/E's well into the hundreds, or at least they did before last week. Analysts had previously suggested this basic fundamental indicator might no longer be an accurate measure for gauging investment risk. Based on the recent market demise, it appears they were somewhat premature in that assessment. With the new "low-tech" attitude, many experts expect "old-economy" stocks to make attractive buys as the market roils. In light of this new outlook, conservative investors would do well to consider the less flashy groups; pharmaceuticals, financials, transports, consumer products, and basic-materials. There may even be room for an attractive, income producing utility. Unfortunately, these classic groups won't attract much investor attention until something catastrophic occurs in the new economy of high technology. Would the recent correction be classified as catastrophic? Only if you missed last year's incredible run! Regardless of when and where the sell-off ends, most analysts believe the technology group will eventually learn to coexist with the older stocks of the market. No one will deny the importance of blue-chip companies allying with leaders in the Computing and Information Technology industries to improve productivity. Some experts foresee the World Wide Web boosting output on industrial assembly lines, enabling manufacturers and retailers to retain higher profits without raising prices. The end product is win-win; a high growth economy devoid of inflation. In any case, all we can hope for now is a reasonably soft landing for the broad market and a future climate where technology issues and old economy war-horses can exist in profitable harmony. That is certainly a tall order, but one in which we can all be sure to agree. *** 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 PAIR 19.44 18.88 APR 15.00 0.56 *$ 0.56 27.3% UPR 14.50 15.75 APR 12.50 0.56 *$ 0.56 18.6% BELM 16.44 12.50 APR 12.50 0.25 $ 0.25 15.3% TLCM 30.25 22.88 APR 22.50 0.50 *$ 0.50 11.1% SEM 17.81 15.88 APR 15.00 0.31 *$ 0.31 7.3% NUHC 17.56 14.88 APR 12.50 0.31 *$ 0.31 7.1% TLCM 32.44 22.88 APR 22.50 0.44 *$ 0.44 6.9% CDT 34.31 25.88 APR 25.00 0.56 *$ 0.56 6.6% SVGI 30.06 23.50 APR 22.50 0.38 *$ 0.38 6.5% ADLT 18.75 12.00 APR 12.50 0.44 $ -0.06 0.0% No Lower! OXGN 23.50 16.38 APR 17.50 0.50 $ -0.62 0.0% No Lower! CD 18.69 15.88 APR 17.50 0.56 $ -1.06 0.0% No Lower! MLT 30.00 19.75 APR 22.50 0.44 $ -2.31 0.0% No Lower! VANS 17.06 15.50 MAY 15.00 0.56 *$ 0.56 7.6% SUPX 30.06 23.25 MAY 17.50 0.69 *$ 0.69 7.5% CYBX 23.81 23.81 MAY 17.50 0.50 *$ 0.50 6.9% VTS 28.06 21.44 MAY 20.00 0.56 *$ 0.56 6.6% *$ = Stock price is above the sold striking price. Comments: The Bear continues to lay waste across the stock landscape and the selling storm is sparing few, if any, issues. Many of the closed positions have violated long-term technical support areas and though exiting the position is a painful task, it does halt the out-flow of money and allows you to participate in future trades. Positions Closed: MADGF, SPNW, INSO, SCUR, PCMS, MCRE, AMTD, EGRP (2), ZONA, ISIP, CYOE (2), CONV, GADZ, RSLC, PMRY. NEW PICKS ********* NOTE: We will continue to list the most favorable positions (regardless of the market condition) identified in our research. But considering the market uncertainty, waiting for a confirmed bottom and the return of a neutral to slightly bullish outlook may increase the probability of success. Sequenced by Company ***** Stock Last Put Strike Option Last Open Cost ROI Opt Symbol Price Month Price Symbol Bid Intr Basis Expired AFWY 20.06 MAY 17.50 FQD QW 0.38 0 17.12 6.5% ANLY 9.81 MAY 7.50 AQJ QU 0.38 0 7.12 16.2% CQ 19.75 MAY 15.00 CQ QC 0.38 0 14.62 8.8% KR 19.06 MAY 17.50 KR QW 0.75 170 16.75 11.0% LPNT 16.38 MAY 15.00 PUN QC 0.81 50 14.19 13.5% PPDI 15.56 MAY 12.50 PJQ QV 0.56 10 11.94 15.0% RDC 26.69 MAY 22.50 RDC QX 0.63 0 21.87 8.9% Sequenced by ROI ****** Stock Last Put Strike Option Last Open Cost ROI Opt Symbol Price Month Price Symbol Bid Intr Basis Expired ANLY 9.81 MAY 7.50 AQJ QU 0.38 0 7.12 16.2% PPDI 15.56 MAY 12.50 PJQ QV 0.56 10 11.94 15.0% LPNT 16.38 MAY 15.00 PUN QC 0.81 50 14.19 13.5% KR 19.06 MAY 17.50 KR QW 0.75 170 16.75 11.0% RDC 26.69 MAY 22.50 RDC QX 0.63 0 21.87 8.9% CQ 19.75 MAY 15.00 CQ QC 0.38 0 14.62 8.8% AFWY 20.06 MAY 17.50 FQD QW 0.38 0 17.12 6.5% Company Descriptions OI-Open Interest CB-Cost Basis or break-even point ROI-Return On Investment **** AFWY - American Freightways $20.06 *** Transport Sector *** American Freightways is a scheduled, for-hire carrier of general commodities, serving Mid-Atlantic, Midwestern, Southeastern and Southwestern states. American Freightways also provides service to the ten provinces of Canada through an exclusive alliance with Day & Ross, to the Mexican market with Autolineas Mexicanas, and to Puerto Rico in a partnership with X-PRESS Freight Forwarders. American recently expanded its coverage to include the state of Alaska, the Hawaiian Islands and Guam. Last week, Deutsche Banc Alex Brown raised its rating on AFWY to "strong buy," based on accelerated revenue growth in the latest quarter and new service initiatives that are leading to tonnage growth and pricing gains. The chart appears technically healthy and the sector is recovering from a recent slump. MAY 17.50 FQD QW Bid=0.38 OI=0 CB=17.12 ROI=6.5% Chart = /charts/charts.asp?symbol=AFWY **** ANLY - Analysts International $9.81 *** Calling The Bottom! *** Analysts International provides a full range of computer software services to computer users, computer manufacturers and software developers throughout the United States, Canada and the U.K. The company's product solutions include custom software development and remediation services; supplemental IT and software engineering staffing; maintenance of legacy systems; help desk services; and single source staffing of programmers and software professionals through their Managed Services Group. The recent acquisition of a majority stake in Sequoia, an Internet professional services organization that provides strategic eBusiness solutions, should help ANLY's strategy to become the preferred partner for companies seeking to design and build effective eBusiness operations. This is simply a bottom-fishing play on a potentially bullish issue. MAY 7.50 AQJ QU Bid=0.38 OI=0 CB=7.12 ROI=16.2% Chart = /charts/charts.asp?symbol=ANLY **** CQ - Comsat $19.75 *** Stage I Base *** Comsat is a satellite communications service provider. Comsat provides satellite capacity for telephone, data, Internet, video and audio communications, satellite telecommunications services for maritime, aeronautical and land mobile applications. They also operate an integrated group of telecommunications companies that provide individualized digital network solutions and value added services to business clients and carriers in select markets. Comsat Labs provides technical consulting services and develops advanced communications technologies and products for satellite access and networking applications. Comsat recently unveiled linkway.IP, a new addition to a family of broadband satellite networking products. The Internet Protocol-based product is designed for Internet Service Providers to connect local points of presence and for corporations to connect offices over an IP network regionally or globally. This industry group has also been in a recent slump and the probability of owning the issue at $15 appears to be low. MAY 15.00 CQ QC Bid=0.38 OI=0 CB=14.62 ROI=8.8% Chart = /charts/charts.asp?symbol=CQ **** KR - The Kroger Company $19.06 *** Own This One! *** Kroger is engaged in the retail food business and is one of the largest supermarket operators in the United States. The company manufactures and processes food for retail sale in supermarkets across America. Kroger operates supermarkets in the Midwest and South. Dillon Companies operates supermarkets operating under the names King Soopers, Dillon Food Stores, Fry's Food Stores, City Market, Gerbes Supermarkets, and Sav-Mor. In addition, the company operates convenience stores under the trade names of Kwik Shop, Quik Stop Markets, Tom Thumb Food Stores, Turkey Hill Minit Markets, Loaf 'N Jug, and Mini-Mart. The company also owns 26 manufacturing plants. Kroger recently announced a stock buy-back and received an upgrade from Bear Stearns. Options activity has been significant and the premiums offer a favorable cost basis. MAY 17.50 KR QW Bid=0.75 OI=170 CB=16.75 ROI=11.0% Chart = /charts/charts.asp?symbol=KR **** LPNT - LifePoint Hospitals $16.38 *** New Coverage! *** LifePoint Hospitals is comprised of 23 general, acute care hospitals and related health care entities. In 21 of its 23 markets, LifePoint's hospital is the only hospital in the community. All but seven of LifePoint's hospitals are located in states that have certificate of need laws, which laws may have the effect of limiting the development of competing facilities. With increasing revenue LifePoint is drawing the attention of several analysts resulting in upgrades and new coverage. The Rural Hospital sector is strong and LifePoint's chart is a case in point. The ascending triangle (from January) is very bullish as investors continue to buy at higher and higher prices. In any case, it is wise to have a stop loss point established. MAY 15.00 PUN QC Bid=0.81 OI=50 CB=14.19 ROI=13.5% Chart = /charts/charts.asp?symbol=LPNT **** PPDI - Pharma. Product Development $15.56 *** Earnings Due! *** Pharmaceutical Product Development and its subsidiaries provide a broad range of research and development and consulting services in the life and discovery sciences segments. The company's life sciences subsidiary, is the fourth largest contract research organization in the world, providing product development resources on a global basis to complement the research and development activities of companies in the pharmaceutical and biotechnology industries. The Company's discovery sciences subsidiary focuses on the new product segment of the pharmaceutical research and development outsourcing market. Earnings are due next week and the fundamental outlook is favorable. The technical support near our cost basis should provide the necessary margin for any future consolidation. MAY 12.50 PJQ QV Bid=0.56 OI=10 CB=11.94 ROI=15.0% Chart = /charts/charts.asp?symbol=PPDI **** RDC - Rowan Companies $26.69 *** Oil Sector Hedge *** Rowan Companies is in the business of contract drilling of oil and gas wells. Rowan's offshore operations consist mainly of contract drilling services using mobile rigs as well as heavy duty cantilever jack-up rigs. Onshore operations consist of drilling equipment, personnel and camps available on a contract basis for exploration and development. Rowan also owns Era Aviation, which provides aircraft services and LeTourneau, a mini steel mill, a heavy equipment manufacturing plant and a marine rig construction yard. The company also operates a marine group that designs and builds mobile offshore jack-up drilling rigs. Rowan just reported favorable earnings and a positive outlook based on expected improvement in the company's financial performance. We simply favor the diversification of an Oil-Services sector play. MAY 22.50 RDC QX Bid=0.63 OI=0 CB=21.87 ROI=8.9% Chart = /charts/charts.asp?symbol=RDC ************************ SPREADS/STRADDLES/COMBOS ************************ Capitulation? Not Hardly! By: Ray Cummins First, I must apologize for the omission of Thursday's "Spreads" section. One of the fallacies of the technology age; timely and accurate electronic mail was the culprit and unfortunately, I did not discover the problem until well after the publishing deadline. In any case, our new candidates included short-term, volatility positions in Gillette (G), Maytag (MYG) and Ethan Allen (ETH). While each of the plays benefited from Friday's active session, the brisk, bearish trend offered little opportunity to participate in any of the positions. Wednesday, April 12 Technology stocks were pummeled today and the panic spread to blue-chip issues as investors fled the equity market in a broad selling spree. The Nasdaq dropped 286 points to 3,769 and the Dow Jones Industrial Average lost 161 points to end at 11,125. The S&P 500 index fell 33 points to 1,467. Volume on the NYSE hit 1.15 billion shares. Advances beat declines 1,516 to 1,447. The 30-year bond fell 23/32 with the yield at 5.82%. Tuesday's new plays (positions/opening prices/strategy): Ryder R MAY15C/APR22C $6.88 debit diagonal Novellus NVLS APR70C/APR65C $0.50 credit bear-call Halliburton HAL MAY40C/APR40C $1.93 debit calendar Ryder traded in a relatively small range for most of the session and the initial debit was slightly above our target. Novellus opened almost $3 higher, providing a favorable entry opportunity in the bearish credit position. Halliburton required persistence as the target debit was unavailable until late in the afternoon. Portfolio plays: Investors fled from technology shares today and the down-draft affected all the major averages. Concerns over profit warnings and future revenues were seen as the cause of a sell-off that eventually turned into a panic. As the session came to an end it was apparent there would be no rebound and market-makers were left with only sell orders as investors took cash off the table. By the time it was over, the Nasdaq composite had fallen to its first close below 4,000 since January. Today's bearish activity also affected the blue-chip market, bringing the Dow industrials down 200 points in less than an hour. Earnings dominated the scene for most of the trading day, with classic, old economy stocks surging during the morning session. Financial stocks performed well even as the broad market pulled back, and Paper stocks were also stronger after the sector beat Wall Street's earnings targets. Unfortunately, as the sell-off gained momentum and trading volume climbed, sectors that moved higher in early trading eventually fell to profit-taking. At current levels, both the Nasdaq and the Dow are negative for the year 2000. The one concern that seems to be absent from trading discussions is inflation. That subject may become a primary market topic in the coming days. Federal Reserve Chairman Alan Greenspan is due to address the Senate Banking Committee on the future of the economy and the securities markets. To add to the interest rate speculation, Federal Reserve Governor Laurence Meyer said the risk of overheating in the booming U.S. economy is unacceptably high, leaving no doubt the central bank is bent on further rises in key interest rates. New inflation data will also be announced early Thursday, with the Producer Price Index report expected before the opening bell. Our portfolio again suffered the wrath of the technology decline. Fortunately, many of our new positions are in the quality groups such as major drugs, financials and consumer products. Abbott Labs (ABT) rose $1.56 to $38 and our new calendar spread moved into profitable territory, yielding a $1.12 credit. Blue-chip Warner Lambert (WLA) achieved a new closing high at $108.12. Our bullish debit spread profits above $95. Proctor & Gamble (PG) rallied $3 to close just below $70, almost $10 above the maximum profit price. The spread is trading at $1.38 credit and should be closed to protect profits. Kroger (KR) climbed to a yearly high near $21.50 and the recent diagonal adjustment appears to be in good shape. The current profit is favorable at $1 and this play may be considered an early-exit candidate. Bank One (ONE) and Summit Bancorp (SUB) also participated in the bullish, financial sector activity. The recent rally in Summit has provided an excellent premium for the move to May options. To protect the downside, we will transition to the $25 series for a credit of $2.62. There were a number of significant moves in leading technology issues. Of course the stock that interested us most was a recent bullish selection, Apple Computer (AAPL). As we noted on Tuesday, the support level near $118 was our key exit signal and the price was violated almost immediately. We had two possible plans for exit but with the rapid movement, the only alternative was to close the long position and wait for an opportunity to buy-back the short option. The decline that followed was amazing as APPL fell to a low near $104. As with any (losing) exit trade, the goal should simply be to break-even or limit losses as much as practical. In this case, we were not able to recover the entire cost of the position but we did achieve a fair closing credit ($7.00) during the volatile session. For those of you remaining in the position, the previous support (at $118-$119) will become new resistance and the success or failure at that level should be used to determine your future trades. With luck, Murphy's Law will enter the picture and AAPL will finish just above our sold strike at $120. With the Nasdaq's recent change in character, it may be time to evaluate the technical health of some of your long-term positions. Of course you should always consider an early exit in those plays that can be closed for favorable profits. In our LEAPS section that includes Medtronics (MDT) and Vodaphone (VOD). Regrettably, we missed the turn in both directions on American Online (AOL). Now the issue is threatening a bearish relapse and we can barely escape with a small loss, as opposed to a recent potential profit. Based on the current outlook, that may be the best action. Other issues that have our attention are Sun Micro (SUNW) and Computer Associates (CA). These stocks are being used in credit-spread strangles and the issues are now testing the lower boundaries of profit. In both cases, we plan to take possession of the stock (if assigned) and write covered-calls to recover any losses. Thursday, April 13 Technology stocks plummeted again today as investors fled the besieged group for a fourth consecutive session. The Nasdaq fell significantly in the final hour of trading to end 92 points lower at 3676. The Dow industrials didn't help matters, dropping over 200 points to 10,923. The S&P 500 slid another 26 points to 1440. Volume on the NYSE hit 1 billion shares. Declines beat advances 1,712 to 1,263. Nasdaq volume was heavy at 1.9 billion shares, with declines leading advances by a 2-to-1 margin. In the bond market, the 30-year Treasury rose 10/32, bid at 106 12/32, where it yielded 5.79%. Portfolio plays: A precarious morning rally by technology stocks evaporated in the afternoon session as weakness in industrial issues spread to the broader market. Equities as a whole came under pressure after a rise in wholesale inflation raised new fears about the economy. Traders were optimistic as the day began with positive earnings from a number of leading technology companies helping to support the shaky group. Advanced Micro Devices, a leading computer chip manufacturer far exceeded analysts quarterly estimates, posting a record $1.15 per share, nearly twice the consensus forecast. The announcement boosted the semiconductor sector but there were still signs of fear in the broader technology group. The majority of leading Nasdaq issues eventually fell lower as nervousness in the market continued to avert any rallies. Now investors are becoming scared of the technology group, which last year posted the sharpest gains of any index in the history of the market. This year, the Nasdaq has dropped more than 20% from its peak in early March, with the deep correction exhibiting early signs of a bear market. Analysts say the sell-off is based on a belief that many of the new companies enjoy undeserved valuations. Some experts suggest that technology stocks could see their share prices trimmed another 25% before they are in line with their earnings potential. For most investors, the rotation to blue-chip issues offered a safe haven from the demise of the high-flying technology sector. After today's second consecutive sell-off, that option appears to have limited potential. Finance and Consumer Products stocks have been the market leaders but today, those issues were weighed down by the latest government report on inflation. The U.S. Labor Department's Producer Price Index indicated that wholesale prices rose unexpectedly in March, led by the biggest jump in energy costs in almost ten years. Some traders looked to blame the Fed for its lack of success in fighting inflation and many see their actions as detrimental to both the economy and the market. In defense of the current FOMC policy, Federal Reserve Chairman Alan Greenspan dismissed charges the Fed has tried to drive the stock market lower by boosting interest rates. The majority of issues in our portfolio fell during the bearish session. There were a few positive moves with Kellog (K), Helix (HELX) and Vodaphone (VOD) enjoying small rallies but overall, the day offered little reason for happiness. Fortunately, most of our bullish positions have been closed to protect profits or limit losses. With the trend decidedly bearish, the best we can hope for is consolidation rather than correction and if the fear and worry subsides, we may even see some bullish activity near the end of the expiration period. Black Friday, April 13 Stocks plummeted today after an unfavorable inflation report drove nervous investors from the equity market. The announcement sent the Nasdaq tumbling and left the Dow Industrial Average with its biggest point loss on record. The Nasdaq slid 355 points and the Dow fell 617 points. The S&P 500 index took the brunt of both declines, losing 83 points to close at 1357. Nasdaq volume was heavy at 2.5 billion shares with declines beating advances 3-to-1. Trading on the NYSE was also active at 1.2 billion shares and declines led advances 2-to-1. In the bond market, the 30-year Treasury rose 6/32, bid at 106 14/32, where it yielded 5.78%. Portfolio plays: Equity markets continued lower today and the falling share values prompted further margin calls and accelerated the selling pressure. The Nasdaq continued a recent bearish trend, moving below a number of significant levels including the index's 200-day moving average. In its current condition the Nasdaq is oversold, but traders are not convinced the index has reached a bottom. Analysts believe that many technology stocks remain vulnerable, particularly the high-flying semiconductor group, which has avoided much of the recent carnage. Friday's activity had conviction and the selling spread to all the major markets in afternoon trade. The declines in technology issues weighed heavily on blue-chips, dragging the Dow Industrial Average to its biggest point loss on record. All 30 components ended in the red, with financial issues leading the way down. The free-fall began after the release of stronger than expected CPI data. The report indicated that consumer inflation rose 0.7% in March, the largest gain in almost a year. Outside the volatile energy and food categories, the core inflation rate also rose by 0.4%, the strongest increase in five years. It now appears the Federal Reserve Board will be forced to raise interest rates more aggressively than previously expected. On the S&P 500, gold mining and gaming stocks advanced while investment banking, retail, healthcare and the majority of other sectors were slashed in value. With most issues closing near session lows, the outlook for stocks is bleak in the near future. After today's brutal treatment, the portfolio was left with few bullish positions. Those that survived the consolidation earlier in the month have been closed to protect profits or limit losses. Of course the bearish positions are performing well but that fact does not alleviate the monetary pain suffered in the most recent correction. Looking back, it's apparent that we chose to ignore the ominous indications, quietly joining the herd for the trip to the slaughter-house. Fortunately, many of the positions provided favorable profits early in the expiration period and for those of you who were wise enough to seize them, we commend your sensible judgment. From this point, we must simply press-on and endeavor to rebuild our shrunken portfolio with a new group of profitable positions. Questions & comments on spreads/combos to ray@OptionInvestor.com ****************************************************************** - STRADDLES - ****************************************************************** This week we received a number of requests for conservative debit straddles. Unfortunately, with the recent market volatility, the number of theoretically favorable candidates is quite low. That is not to suggest that you can't make money in the strategy, it just means you cannot focus entirely on historical volatility as a method of analysis. In today's search, we have identified a number of favorable candidates. Profitable debit straddles are relatively simple to uncover and there are three rules to identifying favorable conditions for a straddle purchase. First, the trader should select options that are undervalued (cheap). Next, the underlying security must have the potential to move (high or low) enough to make the straddle profitable. Finally, the underlying stock should have a history of multiple movements through a sufficient range in the required amount of time to justify the overall risk/reward of the position. Based on analysis of the historical option pricing and technical background, these positions meet the fundamental criteria for favorable straddles. As with any recommendation, the play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. As you have come to expect, 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 theoretical 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. Good Luck! **** JNY - Jones Apparel Group $30.00 Jones Apparel Group is a leading designer and marketer of women's sportswear, suits, dresses and jeanswear. The company pursues a multi-brand strategy by marketing its products under several nationally known brands, including Jones New York, Evan-Picone and Rena Rowan, and the licensed brands Lauren by Ralph Lauren and Ralph by Ralph Lauren. Jones Apparel primarily contracts for the manufacture of its products through a worldwide network of quality manufacturers. The company has capitalized on its nationally known brand names by entering into licenses for the Jones New York brand name and the Evan-Picone brand name with select manufacturers of apparel and accessories. The company's brands cover a broad array of categories for both the women's and men's markets. Within those brands, various classifications include career and casual sportswear, jeanswear, dresses, suits, and a combination of all components termed lifestyle collection. PLAY (conservative - neutral/debit straddle): BUY CALL AUG-30 JNY-HF OI=433 A=$3.62 BUY PUT AUG-30 JNY-TF OI=130 A=$3.50 INITIAL NET DEBIT TARGET=7.25-$7.38 TARGET ROI=50% Chart = /charts/charts.asp?symbol=JNY **** LIPO - Liposome $16.50 Liposome is a biopharmaceutical company engaged in the discovery, development, manufacturing and marketing of proprietary lipid and liposome-based pharmaceuticals, primarily for the treatment of cancer and other related life-threatening illnesses. Their main products include ABELCET (Amphotericin B Lipid Complex Injection), a treatment for systemic fungal infections such as candidiasis, aspergillosis and cryptococcal meningitis and EVACET, liposomal doxorubicin (formerly TLC D-99), a treatment for metastatic breast cancer. Other products are currently in clinical testing. This position has a twist! Liposome shareholders are considering a merger with Elan Corporation (ELN). The vote is currently in progress and consummation of the transaction remains subject to Liposome stockholder and regulatory approvals and satisfaction or waiver of customary closing conditions. Upon completion of the merger, stockholders would receive 0.3850 of an Elan ADS plus one contingent value right for each share of Liposome common stock that they own. This position may require additional transactions and certainly suggests further research. Our position involves to opposing ITM options. There is also an aggressive position in the May options, for those who want to speculate on the outcome of the vote. PLAY (conservative - neutral/debit straddle): BUY CALL AUG-15.00 LPQ-HC OI=81 A=$3.25 BUY PUT AUG-17.50 LPQ-TW OI=52 A=$2.88 INITIAL NET DEBIT TARGET=5.75-$5.88 TARGET ROI=50% Chart = /charts/charts.asp?symbol=LIPO **** MTZ - Mastec $73.00 Mastec is one of the preeminent builders of internal and external voice, video, data, Internet and other computer and communications networks for leading telecommunications service providers, cable television operators, corporations and power companies. Mastec designs, installs, constructs and maintains aerial, underground and buried copper, coaxial and fiber optic cable networks as well as wireless antenna networks. The company also provides external network services to the electric power industry that are similar to the services it provides to telecommunications customers. Mastec also designs, installs and maintains integrated local and wide area networks and provides systems integration and other value added services for corporate customers and organizations with multiple locations. PLAY (conservative - neutral/debit straddle): BUY CALL JUL-75 MTZ-GO OI=7 A=$6.75 BUY PUT JUL-70 MTZ-SN OI=19 A=$6.62 INITIAL NET DEBIT TARGET=$13.00 TARGET ROI=50% Note this is a strangle purchase (different strikes) as opposed to a straddle purchase. We often use this strategy when the stock price is between two option strikes. Chart = /charts/charts.asp?symbol=MTZ **** AEG - Aegon N.V. $80.50 AEGON N.V. is an international insurer with a major presence in five key countries: the Netherlands, the USA, the United Kingdom, Hungary and Spain. The majority of AEGON's core business is life insurance, pension and related savings and investment products. With these products, the company has the edge in markets that are large, growing and international. The remaining portion of the company's business is in health insurance, property and casualty insurance and banking. PLAY (conservative - neutral/debit straddle): BUY CALL JUL-80 AEG-GP OI=21 A=$7.00 BUY PUT JUL-80 AEG-SP OI=50 A=$6.25 INITIAL NET DEBIT TARGET=$13.00 TARGET ROI=50% Chart = http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************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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