The Option Investor Newsletter Tuesday 04-18-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier 10 font for table alignment) ****************************************************************** 4-18-2000 High Low Volume Advance Decline DOW 10767.40 + 184.90 10773.90 10571.30 1,093,776k 1,975 1,009 Nasdaq 3,793.57 + 254.41 3794.97 3563.83 2,151,278k 3,271 1,055 S&P-100 785.92 + 30.55 785.92 761.84 Totals 5,246 2,064 S&P-500 1441.61 + 44.13 1441.61 1397.81 71.8% 28.2% $RUT 486.09 + 26.83 486.09 459.26 $TRAN 2769.53 + 90.95 2771.77 2673.49 VIX 29.37 - 2.82 31.34 29.20 Put/Call Ratio .65 ****************************************************************** Back to back record gains wipes out Friday's loss. Just another normal day on the Nasdaq. Record gains following record losses, etc, etc, etc. Fortunately the back to back record gains are a lot easier to take than the three days of the top three losses from last week. With the bears still going from interview to interview in the media you would think that this is a perfectly constructed bear trap rally. Could it be? Don't count them out just yet. The Dow was the laggard today as the Nasdaq rallied from the -35% lows from last week. The Dow however may be about done for the current rally. As more and more Dow components announce earnings and the reason for the rally subsides the Dow will have a much harder time recovering the high ground. For instance IBM and INTC announced today and missed the whisper numbers. The Nasdaq is rapidly approaching the first real test for the current rebound. Closing today at 3790, only +15 points above the days upper resistance on end of day momentum only, the index will encounter real resistance at 3800-3900. Buyers tomorrow will have to fight profit taking and immediate resistance. The Nasdaq scored a several records today. The largest single day point gain ever at +254, eclipsing yesterdays biggest one day point gain ever of +218. This was the first time ever that the Nasdaq posted two +200 point gain days back to back and only two days since the largest ond day point drop ever. Volatility is still the name of the game. The challenge here will be maintaining the current momentum. Even after the huge drops the +450 point two day gain is a sure target for profit taking. We have rebounded +14.2% in two days and that exceeds the +10.8% two day rebound from the Oct-1987 crash. After that rebound the Nasdaq headed down again and retested the lows again several weeks later. Almost all the analysts have avoided calling Friday the bottom and most are expecting the Nasdaq to head back down again. The next two days will be the real test as we enter resistance from above and natural profit taking before the long holiday weekend. Four of the big boys announced earnings after the close today with mixed results. IBM announced $.83 vs estimates of $.78 but below the whisper number of $.84. IBM also announced a -5% drop in revenue from the Y2K impact but said future quarters would be strong. Still the stock got hammered in after hours trading for -3.63 as details of the lower revenue became public. Intel also announced and beat the street estimates of $.69 with a $.71 actual but also missed the whisper number of $.73. Intel split the revenue range expected and said business was good but an easing of the chip shortage could occur in coming quarters and warned that margins could suffer as AMD and Intel battle is out on the front lines. INTC was down -4.50 in after hours trading. Those two stocks alone will account for a significant drop in the Dow at the open if this sentiment carries forward into Wednesday. AOL also announced earnings and beat the estimates of +.09 with a +$.11. The whisper number was also $.09. AOL managed to beat the revenue numbers and the new subscriber numbers but still traded down initially but rallied back to close flat in after hours. QCOM was the big winner in the after hours earnings parade. Announcing +$.26 they beat estimates of $.24 and matched the whisper number of $.26 as well. However, "it is all in the call" and the conference call was very upbeat and positive with a strong forecast for coming quarters and upbeat comments about the new product mix. Revenues were down substantially from estimates of $1.1 bln to the $717 mln they actually posted. However the street did not seem to care and QCOM was up +8.00 in after hours trading. Lets see if I understand this. AOL beat all the estimates including revenue and hit the whisper number and traded down to flat. QCOM hit the estimates and the whisper number but missed revenues by -34% and traded up +$8.00. This is why sentiment is so important and also why you should never hold over an earnings announcement. Had you owned IBM, INTC, AOL and QCOM, four big names, the odds of losing money at the open tomorrow are very good. -$3.63 on IBM, -$4.50 on INTC, flat on AOL but probably down at the open on lack of interest and up +$8.00 on QCOM if it holds. Not a pretty picture. With Thursday being option expiration day this month this week would normally have an upward bias but after the big bounce it would be impossible to predict which way the bias might be leaning. Ralph Block said on CNBC this afternoon that there has not been a major sell off after a TRIN spike, like I reported on Sunday, since records were kept beginning in 1962. That does not mean we will not retest the 3300 level again before moving upward. There were 13 occurrences of just such a spike and none had a meaningful drop below that bottom in the weeks following. Now a contrarian indicator would be Ralph Acompora who was quoted today as calling for Nasdaq 2900 as a retest low. While I do not agree with him he has been right before. Lately however he has been late to the party and not exactly in top form. Several people emailed me today and commented that "if Ralph is saying 2900 now, Friday was the bottom." I would have to say that the rally is convincing on the surface with NYSE advancers beating decliners 2:1 and Nasdaq advancers beating 3:1. Second tier stocks on the Nasdaq finally joined the action today after the big cap rally on Monday. Volume was decent as well with over 1 bln on the NYSE and 2 bln on the Nasdaq. Still I am cautious. I see it and I want to believe but I keep looking over my shoulder expecting Freddy Kruger to be coming through the door. Historically the Nasdaq has been down the last half of April. However the day before Good Friday is typically up as well as the last three days of the month. These small trends can easily be flattened by the major moves we have been seeing. So lets recap. We were blindsided by a lower retest of the April 4th low. We were told we would have to retest that low. WHAM! Now we have a significantly lower low and they are telling us we will have to retest that lower low. Retests normally occur within one-to-five weeks. Earnings are here and traders will either sell before for a profit or after for a loss, but they will sell. The last half of April is normally down. Tax contributions cease this week. Liquidity is in question. Yes, everything looks like it is bargain priced but didn't it look that way last week also? And the week before? Quiz: What pattern is characterized by continuing lower lows and lower highs? A down trend! This is what the Nasdaq looks like now. Until we break out of this pattern with a close over 4000 to start and over 4400 to confirm then we are still going down. We all want to look at the chart and see a rally in progress. It is human nature. We ignore the negative because we are focusing on the positives. Since March 10th we have been in a solid down trend of a week down followed by 2-3 up days. We have to break this trend this week or repeat the process again next week. We had our two free up days and everything we get from this point forward we are going to have to work for. The Dow will take a shot at the open in the morning from IBM and INTC and that could set the tone for the day. The Nasdaq closed at its high and could easily continue the rally effort. I would be very cautious of any roll over on the Nasdaq after the open. Everyone will be watching and any sign of weakness will evoke the flight response from the thousands of traders that got burned in the last two weeks. Remember, the Fed is still in our future and although I do not expect it there are those who are calling for a +.50% rate hike and that would be a killer. I went flat at the start of the roll over this afternoon and I am going to watch from the sidelines until next week. Trade smart and protect your profits. Jim Brown Editor Current long position: none ********** STOCK NEWS ********** Tyco International Posts Strong Results By Matt Paolucci Tyco International Ltd. (TYC), a diversified manufacturing and service company, reported second quarter (ending March 31,2000) diluted earnings per share before non-recurring charges and credits and extraordinary item, were 50 cents per share, a 47 percent increase over 34 cents per share for the same quarter last year. Analysts' estimates were for 50 cents as well. Tyco is the world's largest manufacturer and servicer of electrical and electronic components and undersea telecommunications systems, the world's largest manufacturer, installer, and provider of fire protection systems and electronic security services, and is the largest manufacturer of flow control valves. TYC expects fiscal 2000 revenues to exceed $28 billion. The company also is big in laying undersea fiber optic cable. TYC filed last month for a $1 billion IPO for its TyCom fiber optic unit. Tyco bills itself as the world's leading independent, integrated, supplier of undersea fiber optic networks and services, having installed more than 350,000 kilometers of undersea cable, more than any other supplier. Net income for the second quarter rose to $853.6 million, an increase of 50 percent compared to $567.8 million last year. Sales for the quarter rose 35 percent to $7.07 billion compared with last year's $5.24 billion. Shares of the Exeter, NH-based company closed at $43.00, down $2.50. The results for 1999 have been restated to reflect its merger with AMP, which occurred on April 2, 1999 and was accounted for as a pooling of interests. Results are also before acquisition-related and non-recurring charges and extraordinary items. After charges and other related expenses, diluted earnings per share were 50 cents, or $855.9 million, in fiscal 2000 compared to 7 cents, or $119.5 million, in fiscal 1999. "Each of our four businesses had strong organic growth and generated positive free cash flow in the second quarter," said L. Dennis Kozlowski, Tyco's Chairman and CEO. "Our core businesses are well positioned to continue that trend for the remainder of the year," he added. Its Telecommunications and Electronics unit reported a revenue increase of 75 percent over the prior year period. Even more impressive was the 44 percent jump in net profit margins from 15.9 percent to 22.9 percent. Acquisitions within the T&E unit included Temasa and Raychem in 1999, and Siemens Electromechanical Components and Praegitzer in fiscal 2000. Increased volume attributed to the unit's strong results. In its Healthcare and Specialty Products, revenues grew 14 percent versus the second quarter of 1999. The impact of revenues from acquired businesses in the Healthcare and Plastics businesses was offset by a decrease in revenues associated with divested healthcare businesses. Net margins fell slightly, though still a very strong 23.8 percent. Tyco's Fire and Security Services division grew modestly. Revenues were $1.47 billion versus $1.31 billion. Profit margins fell due to tougher competition, and the reorganization of its sales force and dealer programs. Lastly, revenues in its Flow Control Products and Services segment grew 22 percent to $991.5 million versus $811.8 million in the prior year. Operating profits surged 35 percent and net profits margins jumped 170 basis points to 18.1 percent. Second quarter free cash flow, net cash generated from operations less capital expenditures and dividends, exceeded $500 million. For the first six months of fiscal 2000, free cash flow was $954.5 million versus a negative $12.5 million in the prior year period. Of the sixteen analysts keeping tabs on Tyco, all have either a Strong Buy or Moderate Buy rating on TYC. Earnings estimates for fiscal 2000 are $2.15, and $2.63 for fiscal 2001. Tyco is ranked third out of 21 companies in Zack's Investment Research's Protection and Safety category. In an interview with OptionInvestor.com, regarding the ongoing SEC inquiry into possible accounting problems, a company spokesman said Tyco would be updating the public once a conclusion of the inquiry emerges. ************** MARKET POSTURE ************** As of Market Close - Tuesday, April 18, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 11,000 11,400 10,767 BEARISH 4.14 SPX S&P 500 1,500 1,550 1,442 BEARISH 4.14 OEX S&P 100 800 850 786 BEARISH 4.13 RUT Russell 2000 550 600 486 BEARISH 4.14 NDX NASD 100 4,000 4,500 3,716 BEARISH 4.13 MSH High Tech 1,000 1,150 953 BEARISH 4.13 XCI Hardware 1,600 1,700 1,538 BEARISH 4.13 CWX Software 1,500 1,670 1,277 BEARISH 4.04 SOX Semiconductor 1,200 1,300 1,053 BEARISH 4.13 NWX Networking 1,070 1,190 959 BEARISH 4.04 INX Internet 800 940 611 BEARISH 4.04 BIX Banking 530 620 562 Neutral 3.16 XBD Brokerage 500 580 466 BEARISH 4.14 IUX Insurance 540 620 563 Neutral 3.16 RLX Retail 900 1,000 914 Neutral 4.13 DRG Drug 355 380 374 Neutral 3.30 HCX Healthcare 710 760 752 Neutral 3.30 XAL Airline 130 155 140 Neutral 3.10 OIX Oil & Gas 265 300 278 Neutral 3.16 Posture Alert The NASDAQ surged for its second straight (point-gain) record, as volume topped 2.1-billion shares. The positive earnings run has temporarily saved this market and has made the shorts run for cover in dramatic fashion. Sectors leading the way today include Internet (+10.03%), Brokerage (+9.95%), Software (+6.50%), and the Russell 2000 (+5.84%). There are no current changes in posture. **************** MARKET SENTIMENT **************** Tuesday, April 18, 2000 Super Tuesday! With a plethora of strong corporate earnings, the markets rebounded in dramatic fashion Monday and Tuesday. This relief rally was a welcome sight, and was helped by the short sellers, who ran for cover in any and all directions. The NASDAQ, which lost 1125-points last week, has now gained back nearly half in two days. This major gyration in the market is making bulls and bears sleepless in Seattle, or wherever they reside. Regardless, with 2 trading days left before April expiration, we are due for more extreme volatility! After the bell, we had a continuum of earnings from numerous bellwethers, and so far, Super Tuesday looks to be an extremely positive one! Intel, IBM, America Online, Qualcomm, Inktomi, and Covad all came out with stellar numbers. Lucent Tech is due to report before the open tomorrow, so we may have a clean sweep. These positive earnings have helped save the bulls from the plunge last week, but in two weeks, what does this market have to look forward to? Once we get through earnings season, the trading bias will definitely favor the bears, as inflation worries and Fed Watch will take control of the media. And with many key sectors still trading below important benchmarks, it is important that you take advantage of this rally and not get greedy (for those of you with good entry points) or lighten up positions if your are margined to heavily. In the mean time, enjoy the positive media spin, and the short squeeze that may continue! One great gauge for sentiment analysis is following the option activity for the S&P 100. The OEX is the most actively traded options contract, and following this contract can be very beneficial as well as rewarding. In Sunday's letter, we highlighted in the Pinnacle Index section for the OEX that: "new support is overwhelmingly strong, and both overhead resistance levels are light. This would indicate the potential for a powerful relief rally this week." Well, we got the rally we were looking, and hopefully some of you took advantage of this sentiment analysis. 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 Tues Thurs Benchmark (4/14) (4/18) (4/20) ****************************************************************** Overhead Resistance (805-840) n/a 3.69 Overhead Resistance (765-800) 0.53 1.57 OEX Close 731.94 785.92 Underlying Support (735-760) 0.28 1.85 Underlying Support (700-735) 18.30 15.89 What the Pinnacle Index is telling us: In Sunday's letter, we stated that: "new support is overwhelmingly strong, and both overhead resistance levels are light. This would indicate the potential for a powerful relief rally this week." Well, we got the rally we were looking for, but with 2 days until option expiration, we believe the OEX will be stuck in a trading range. Put/Call Ratio ******************************************************************** Friday Tues Thurs Strike/Contracts (4/14) (4/18) (4/20) ******************************************************************** CBOE Total P/C Ratio .91 .65 CBOE Equity P/C Ratio .77 .55 OEX P/C Ratio 1.40 1.31 Peak Open Interest (OEX) ******************************************************************** Friday Tues Thurs Strike/Contracts (4/14) (4/18) (4/20) ******************************************************************** Puts 700 / 8,755 700 / 9,546 Calls 845 / 18,490 845 / 19,543 Put/Call Ratio 0.47 0.49 Market Volatility Index (VIX) ******************************************************************** 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 Bottom? 39.33 April 18, 2000 29.37 ************* WOMAN'S WORLD ************* Fire Sale, Anyone? I Smell Smoke! By: Renee White A two day rally. Feel better now? Don't be too quick to say, "Yes". Today certainly felt better. I love the color green. The Nasdaq always makes us smile when it points due north. Nasdaq advancers beating decliners 3:1, largest point gain, generals standing tall, breadth broadening out and easily erasing two resistance levels (3650 and 3750) we were anticipating hitting our heads against a few times. I was beginning to wonder if this was an exercise in "scream therapy". More than a few of you jumped in to this euphoria and few took profits at the end of the day. There is something eerie about the feeling this time. I don't feel good. On the one hand, there are good reasons for that. Just a look at my account balance change over the last month and you will understand. Filtering out my pain, against the backdrop of strange market conditions, makes interpretation more difficult than usual for me. Never the less, I will share my thoughts to massage the mental processes. Am I the only one who has noticed that even after a severe market correction, almost all companies are still selling off after their earnings announcements even when they were good? Earnings ARE coming in great, aren't they? Doesn't that strike anyone a little odd? We had a ton of companies who had their split runs ruined, due to the first leg of this correction starting in March. Then the slide continued, just to make sure no one was that good at dodging. We were set-up. All other dips had been correcting quickly. Moreover, buying the dips had rewarded many since last October. Well in case no one has noticed, the short-term rules have changed again. I know, I know. We had a big rally today. Sorry for the eye rolling but it was about a week too late to help me! The worst sell-off one can get is shortly before option expiration. The recovery is then fighting time decay (theta) and what may have been deep ITM may then be way OTM. That's a mean trick! Even buying the surging relief can cost you. JDSU had a low of 74 yesterday, came off the lows then traded pretty range bound all day before taking off the last 30 min. of the day. I have been watching this stock closely, for several weeks. It is a favorite amongst many and prices this low just looked too lucky to get. I jumped in for a one-day trade in the afternoon, since I knew this stock well and felt few would let it stay at these levels long. It had a nice run up into the close with strong volume....usually a good sign. I held, deciding to exit today on continued strength instead of taking my profit at the close. BUT, someone turned the lights out on me and slammed the barn door on my fingers!! I hate it when that happens! That booger sold off right after the open, then played ping-pong with yesterdays high before sinking this afternoon. My options opened lower and never had a chance to see my profits from yesterday's close again. It was a one day trade alright, just not what I was expecting. I had been victimized by a fight between buying into the high volatility yesterday and the loss of time value this close to expiration. TAKE THAT! A lesson to which one carries the bigger stick. On top of that, my time and sales data was wrong and I realized I exited 3/4 point lower than necessary since it wasn't posting all the exchanges orders. Oh, it doesn't matter now. It's pennies compared to the last month. Most of you have read by now that many expect a retest of Friday's low, before feeling confident to jump back in. Am I wrong or was it just last week when we were expecting the retest of a different low? I think it was a higher low than the one we got Friday. What happened there? Another surprise? I don't know about you, but I am tired of surprises lately. I just want a present worth keeping. The damage has been so severe that I hear many statistically explain why we should feel free to be buying. Perhaps I should believe them. Before I do though, I will go back to the basics of watching volume, advance/decline lines, the market and the sectors. I will be keenly aware of the markets' ability to take out yesterdays high and its ability to barrel through resistance levels. Each play I place may not work, but each one will have a sound reason with firm justification for entering it. My stops will be tight. Don't try to wish or hope anything in this environment. Also, I will be reviewing the moving averages of stocks I plan to enter and making sure that they are recovering well, from the damage. Are they pulling back over there 200-dma, or is their 30-dma crossing up over their 50? Whatever the pattern, it must continue to confirm a buy signal. This is not a time for indiscriminant buying. Remember, if it feels too good to be true, it usually is. Also, this is a good time to review "stages" which the price movement of a stock goes through, for any who are unfamiliar. Volume may be a boring topic, but understanding how it helps in determining if a rally will continue isn't so boring if you lose money because you ignored it. The articles last week about using volume to determine upside or downside breakouts is an easy place to start if you do not have a good book to review. Okay, so here's the picture that is forming in my mind that will affect my trading decisions in the near term. Who knows if we have really seen the bottom. I sure don't. The next one may even be lower still. Unheard of you think? That's what they said last week! Earnings have been great this quarter, yet most companies are selling off after their reports. But wait! Didn't they just go through a correction? How much lower can they go if they do not have earnings again for another 3 months? Good question. The biggest threat to the recovery I see is the fear. It will soon hang heavy, once most companies have reported, while selling off during the post-earnings period. That threat will be the overwhelming fear of a 50 basis point increase at the next FOMC meeting on May 16th. Can't think we can't go lower? Then check out the fear in October '99 after several weak months and before the dreaded FOMC meeting. Until that is known, every economic report will be worried about and dissected even closer than usual. This time around I will not be placing trades in front of the announcements as I have since October. Of course, that could change, but the risk seems much higher now. Even in the best of times, late April is the beginning of a weak period for our markets. With the recent carnage, the uncertainty of severe punishment by the Fed and a post earnings depression heading into the summer doldrums......well, I don't know about you, but things just don't feel as easy as before. Like I said Sunday, take your time. There is no hurry. Enough damage has been done that most would like to see a consolidating base form here, in both the overall market and individual stocks. What that means to you is that although some days seem to race off due north, others will fall back. On a daily chart one would see rolling or baseline patterns range bound over a period of time....days, weeks or months? There would be difficulties breaking through resistance levels on the first or second try. Entries should be on pullbacks or on breakouts over resistance levels. I guess what I am saying is it just might not be that easy this time. I will use some of this consolidation time to work on repairing my account. Most likely, I will sell some of my long stock positions into rallies when a stock is appearing very strong. I will wait for a pull back day (preferably 2 or 3 if I get it) and purchase OTM Leaps of the underlying but at today's lower prices. This will keep me in the companies I want to hold long term (at good entries) and free up cash. I will be trading fewer positions, so I can watch them more closely and keeping more cash available. My time frames will change, either much shorter or much longer than usual. Uncertain times require an adjustment to trading style. I have already seen the difference between the damage in my short-term trading account which is the risky aggressive account, and my more conservative long term, IRA account. It is a good time to make long-term adjustments. No one likes anyone who spoils the party but everyone likes to hear the rumor which can help them with a "heads-up". This morning it just felt a little too quiet to me, even though we were in a rally. It almost felt eerie, like others were watching and waiting. I wondered if it were the short sellers, trying to decide to hold or cover. When the volume picked up, it became clear. Someone yelled "FIRE-SALE" and they started covering their shorts fast and furious. That's always good for people holding stocks and options that they want to exit when the next rally occurs. Uh oh, is that another surprise? Did you enter today? Will they dump tomorrow so they can build up their cash? So, what happens now? Without help from the shorts covering their you-know-whats, can we continue going up from here? Your theory is as good as mine. Until I know for sure, I will be trading very cautiously because I see no reason for a sustained upward move at the moment. Let's all hope I'm wrong. Contact Support *********** OPTIONS 101 *********** Lessons Learned By: Lee Lowell Nobody needs to hear anymore how bad it was on Wall Street last week. We've just gone through one of the harshest weeks on record. Did you have your money management plan at work, or did you let greed, your ego, and hope take over? When we first learn about the markets and how to trade, you always hear of that one rule about preserving cash and taking profits from time to time. That rule has never hit home more than it did last week. All those profits built up from November 1999 to March 2000 have just about vanished for many people. I know I have given away a nice chunk of change. It hurts bad! You never think that it will happen to you. That only happens to the other guy. Well, guess what? No matter how hard you've researched your picks, and how good you think the company may be, most likely you lost some money too. Kudos to all those great investors who sold out of all their positions two weeks ago. Do you know anyone who did? As an active stock and commodity trader, most of my positions are short-term. My option trades usually never last more than two months. I do own some stocks for the long haul and some leaps options, but 95% of the trades I make are to get in and out relatively quickly. But nevertheless, all my stocks and long call options took it on the chin last week. Anyone who has traded for awhile has success and failure stories. But the ones who have more success stories are the ones who have a good money management plan. There's nothing wrong with taking a profit. Ever! No matter how small it may be, a profit is a profit. I know I saw too many of my profits dwindle last week. Setting stop-loss orders is a great way to automatically lock in a profit or keep a loss to a minimum. Use it! You'll be happy you did, especially after you've seen how much money you could've saved after last week's meltdown. You can always buy back in after the fall. After last week, many people probably had to re-assess their career choice. I know I always do after a bad spell. Trading for a living is a tough job. The stress level is about as high as you can get for any career. And the stakes are just as high. Are you playing with your retirement money or your kid's college money? Are you able to keep a clear mind in times like these? Do you have nerves of steel? Before you get into a career of trading, you need to assess your own ability to handle these kinds of pressures. Also, how well you do in the market is totally black and white. You either make money or you lose money. You're either up or down. You're either happy or sad. There's no in-between. You're not providing a service for anyone, you're not creating a product, nor are you adding any immediate benefit to the economy. You're out there for yourself to make money. Most people don't realize the psychological effect trading can have on a person. When the bottom line is whether you made money or not, it can be a great burden on someone's psyche. You're totally judged on how well you've done in the market and how much moolah is in your bank account. There's no great feeling of teamwork or comradery when you trade. Or that feeling of satisfaction you've gotten after helping build the only functioning hospital in a third world country. It's every man for him/herself. The mood swings can be so erratic. You're incredibly happy and feel invincible when you make money, but you feel like the biggest loser when the trades go sour. While I was in the midst of being a floor trader some years back, there was a study that said the average burnout rate for a floor trader was five years. I made it to five years, three months. Woohoo! It's as much a physically demanding job as it is mentally. It's also why the average age of the floor trader is usually under 35. It's hard standing on your feet for 6-7 hours a day, every day. Getting pushed, shoved, elbowed, spit on. It ain't pretty. I've since moved my trading operation to my home where I can focus on the mental part of the game. The physical aspect is no longer needed. And I don't have to shower if I don't want to. Getting back to the greed, ego and hope thing. These are the three most important psychological obstacles to overcome if you want to be successful in the markets. Greed is what keeps you in the market for that extra eighth of a point on your stock/option. Your ego is what keeps you from selling your stock/option when you don't want to admit defeat and take a loss. And hope is what you do after you've realized that greed and ego have taken most of your money away. It's very hard to admit that you made a losing trade. It's against human nature to want to be a loser. We should fight as hard as we can and not give up. Unfortunately, that fighter mentality can cause big losses in the market. You can't single-handedly stand in front of the big bad bear train. Once again, the successful traders are the ones who can keep their greed and ego in check. If the trade goes against them and hits their stop-loss, then they're out and on to the next trade. Don't fall in love with your picks and don't "hope" the market higher. It doesn't work. We've all tried it. This sounds like an advertisement to stay away from trading altogether. Not at all. It's just a primer to help you be aware of what it takes to become a successful trader. It's always easier said than done. But that's where experience and the "school of hard knocks" will help in the long run. Before you jump into the trading waters, make sure you've read some basic investment books, spent some time on financial websites, talk to others who've invested for awhile, know your own temperament, and don't quit your other job just yet. Don't be afraid to take some money off the table. Even long-term investors/buy-and-holders should take profits every once in awhile. I wish I had recently. But don't discount the great buying opportunities that can arise after free falls like last week. Just when it seems the darkest, that is sometimes the best time to buy back in (if you have some spare cash). Don't get me wrong, I love trading for a living, but sometimes it takes a big move like last week for you to re-read all the money management rules. I wouldn't give up this profession for anything else. (o.k., maybe to become a pro baseball player. What man wouldn't?). Good luck and be ready for the next buying opportunities. Contact Support ************* DAILY RESULTS ************* Index Last Mon Tue Week Dow 10767.42 276.74 184.91 461.65 Nasdaq 3793.57 217.87 254.41 472.28 $OEX 785.92 30.55 23.43 53.98 $SPX 1441.61 44.13 40.17 84.30 $RUT 486.09 5.54 26.83 32.37 $TRAN 2769.53 -48.46 90.95 42.49 $VIX 29.37 -7.14 -2.82 -9.96 Calls Mon Tue Week SEBL 126.88 26.19 14.13 40.31 Dropped, earnings 4/18 SCMR 75.69 2.13 22.56 24.69 Wow! Now that's a rebound MERQ 79.63 17.97 2.91 20.88 36% bounce this week ADBE 117.00 15.50 3.69 19.19 Reversal came to light SDLI 160.50 14.38 3.13 17.50 Dropped, earnings 4/19 LXK 118.00 -2.00 17.69 15.69 Surge gives buy signal ABGX 81.94 -2.25 17.31 15.06 Now that's more like it VERT 43.00 5.63 9.38 15.01 New, coming back strong VIGN 56.75 4.50 10.00 14.50 Dropped, earnings 4/19 NXTL 118.56 5.06 8.63 13.69 Price improves with volume TIBX 61.25 7.63 5.31 12.94 New, B2B "plumbing" CMVT 83.38 2.44 7.00 9.44 Continued it winning ways VSTR 98.81 4.88 3.94 8.81 Nice start to a new play WLA 107.50 1.38 4.63 6.00 Dropped, earnings 4/19 GMST 46.38 -2.25 7.50 5.25 Recovery from Monday VOD 50.13 2.75 2.38 5.13 New, back over 200-dma ENE 68.00 -3.00 1.25 -1.75 Found support at $66 Puts DCLK 51.63 -0.75 -8.19 -8.94 New, dot-com now dot-bomb EK 58.50 0.31 -3.31 -3.00 New, rolling over again WY 53.50 -0.31 -1.50 -1.81 New, old economy put play FIBR 36.88 -1.22 7.66 6.44 Bounce may be entry point MCLD 63.88 6.19 3.06 9.25 Resistance at 10-dma CNXT 56.94 6.34 4.50 10.84 Dropped, earnings 4/19 PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** SEBL $126.88 +14.13 (+40.31) With a huge sigh of relief, investors jumped into SEBL shares yesterday in advance of earnings which came out today after the close. Although SEBL still looks great technically, as we mentioned in the weekend newsletter, we are dropping the issue due to earnings. Starting out yesterday with a gap down below $80, there was a strong move through $90 in amateur hour. There were several opportunities to jump on board, and we hope you managed to grab one of them. VIGN $56.75 +10.00 (+14.50) Well, are you out of breath from that sprint? This was a quick play but well worth it, as VIGN gave us several attractive entry points over the past 2 days and has moved strongly higher, climbing as much as $20 since yesterday's low at $38. Unfortunately we have to let this one go tonight as VIGN reports earnings tomorrow after the close, and we don't want to be the last one standing when the music stops. If you still have open positions, use any strength tomorrow to provide for a more profitable exit. SDLI $160.50 +3.13 (+17.50) As we noted when we wrote this play up in the Sunday newsletter, it would be a really short play thanks to an earnings announcement tomorrow after the close. As a leader along with JDSU and GLW in the fiber optic revolution, SDLI had found good closing support at $140 and intraday panic level support at $130, and those levels proved to be a buying opportunity for a fast $17+ price move. No news today, but it's apparent institutional investors were taking nibbles as evidenced by the 17 block trades and volume that today exceeded the ADV by 65%. It probably helps that SDLI will hold a shareholders meeting on May 18, in which there is an agenda item to increase the outstanding shares. Split candidate, anyone? No matter, with earnings here, it's time to exit and move on to another play. We'll keep an eye on it for a possible addition later on. WLA $107.50 +4.63 (+6.00) Time to close up shop on our play in WLA. At least this one is going out with a bang. So far this week WLA has managed to recover all of Friday's losses, and then some. They are scheduled to report earnings before the open tomorrow. Today, its merger partner Pfizer, posted better than expected results, beating street estimates by three cents per share. PFE added about 4% today. Analysts are looking for WLA to come in with earnings of $0.56 per share. It's certainly possible Warner-Lambert could see better than expected results and continue to move higher. Going into the close, buyers were adding this one to their portfolio's, with the volume picking up along with the price. We had a couple of chances to profit from this play, but for now we will stick with rule number two. PUTS: ***** CNXT $56.94 +4.50 (+10.84) While this play was short in time, it was sweet. A light started to flicker at the end of trading yesterday hinting CNXT wasn't going to fall much further. In heavy trading it resurfaced above $50 for a strong close. The intraday volatility was superb though with an early dips to October 1999 levels at $41! The broad-based rally today put significant upward pressure on CNXT. Granted the stock hasn't moved through its 10-dma at $62.43, but we'd rather exit too soon. Plus recall the company is reporting earnings tomorrow, after the close. This event is unlikely to spark much excitement, but why take unnecessary risks especially considering CNXT's upswing today. *************************** PLAY UPDATES IN SECTION TWO *************************** ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "Contact Support" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 DISCLAIMER ********** This newsletter is a publication dedicated to the education of options traders. The newsletter is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The newsletter picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. The newsletter staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control.
The Option Investor Newsletter Tuesday 04-18-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. ******************** PLAY UPDATES - CALLS ******************** GMST $46.38 +7.50 (+5.25) GMST got blind-sided on Monday by news that its takeover target, TV Guide's (TVGIA), 1Q earnings fell 93% due to expenses related to the upcoming acquisition. Despite the rallying markets, GMST lost $2.25 pushing it just a fraction from Friday's bottom. The more aggressive used this slide on bad news as a prime buying opportunity, while others waited until GMST moved through the stabilizing 5-dma (now at $42.64) today. The result of today's bull session was near-term support developing at $44 and $45. It'll be important to see this level establish itself; especially if you're still shy about jumping into this recovery play. A positive sign that GMST can make headway in the immediate future is the robust volume (at almost triple the ADV!) that backed today's $7.50 climb. Plus its strong close above $46 clears the way for the next line of opposition at the $50 level. Recovery for GMST appears to be a good bet, but as always, pay close attention to the overall market sentiment to foreshadow direction. ABGX $81.94 +17.31 (+15.06) Now that's more like it. After a scary gap down at the open on Monday, ABGX zoomed up over $15 and then pulled back over $10 - all during the first hour of trading. Can you say volatility? ABGX pulled back to consolidate just above $60 in the afternoon, providing us with one last entry point before moving up in the last 15 minutes and then tacking on over $17 today. The movement this week has confirmed support at the 200-dma ($53.56) and closing near the high of the day today is encouraging. Volume has been dropping for 5 days, but today was still significantly above the ADV. Bumping into resistance near $82, we need to see volume stay strong in order to push ABGX higher as earnings approach on April 25th. Intraday support is firming near the $74 level, and as long as the broad markets and the Biotech sector can stay healthy, look for a renewed bounce at support to get you into the play. LXK $118.00 +17.69 (+15.69) Continuing to vacillate all day yesterday, LXK gave us a clear buy signal this morning as the price began to surge in late-morning trading, backed up by increasing volume. This move closely coincided with the company's announcement of price reductions across their entire line of inkjet printers. This may be indicating that LXK is poised to take more market share from Hewlett Packard, or the move may be the beginning of our earnings run. With the health in the NASDAQ improving the past 2 days, and earnings less than a week away (before the open on April 24th), the printer company looks like it may be ready to run even further. Today saw a price increase of more than 17.5% on volume nearly 50% over the ADV, and we are now approaching resistance at $120. Any weakness could provide another entry near support at $110, while continued buying that breaks resistance is also buyable. For those with open positions, keep in mind that the NASDAQ has retraced almost 500 points of last week's losses, so protect those profits by moving up your stops. ENE $68.00 +1.25 (-1.75) So long safety, back to tech we go. Investors have backed off completely on volume (registering just 83% of the ADV today) while their attention has been distracted by a technology rebound. The good news is that despite a non- directional day yesterday, today ENE found support and moved north again from $66. If it gets there again, consider it a buying opportunity since any dips below that have been intraday, and ENE has not had a close below that level since February. If tech stocks demand an Alka-Seltzer from swallowing so many points so quickly, ENE may yet see renewed interest. The stochastic too has just reversed from a previously oversold condition. On the way up, ENE should encounter resistance at $71, $74, and $77. Pick your entry carefully and consider ENE as more of a defensive position that will shine on days when the technology sector is down. No news except that ENE and OXY are jointly responding to a request for proposal on business ventures in Saudi Arabia -- sprinkles in the frosting, but not the cake. SCMR $75.69 +22.56 (+24.69) Wow! Now that was a rebound! While SCMR skipped along $50 a few times yesterday to inch up at the close, today fund managers lit the volume rocket by trading more than 6.9 mln shares (three times the ADV of 2.2 mln). Most of those were buy orders as evidenced by the 47 block trades and $22+ price gain. Another factor adding to the huge rise is that there are only 48.9 mln shares in float. High demand and low supply equals big price move. However, there was a perceived danger here and some readers were right to point out that SCMR's IPO lockup period ended over the weekend. While that use to matter, the real danger in lockup expiration is the anticipated selling before it actually happens. It's like investors learning to bail on YHOO about one week before earnings. Once the pattern is known, traders and investors will try to run it early creating a new pattern. Sometimes this matters. However in the case of SCMR, only 11% of the total shares came out of the lockup compared to an average amount of 20-25% for other companies. It just wasn't an issue in this case since SCMR was also coming off its lows. Not many insiders are going to bail at the bottom. We look for the move to continue as we suspect the bargain prices and the potential for an earnings run into the mid-May earnings date (actually the "third week of May" according to IR) will keep fund managers coming back for more of this scrappy CSCO competitor. Careful though. It won't go back to $200 in a straight line. Intraday support is at $65, firm support at $60, and "back up the truck" support at $50. Mild resistance is at $80, and stronger at $100. With today's gains, there will likely be a better buying opportunity. Consider waiting for it. NXTL $118.56 +8.63 (+13.69) "A day or two of improved investor sentiment and this one could fly." That was a comment from our weekend update on NXTL. Investor sentiment improved and so did the price of our play. It took a while yesterday, as NXTL languished near its recent lows, hovering near the $100 level for most of the session, but late in the day buyers emerged driving NXTL higher by $5.06. The volume on Monday was solid with over 6.7 million shares changing hands. After adding about $7 today, it appeared as though our play was beginning to roll-over late this afternoon, but once again investors came to the table with money in hand bidding Nextel to its high of the day in the last thirty minutes of the session. Is the Nasdaq and NXTL out of the woods? Time will tell, but with the volume at the end of the day, most signs point north. NXTL has jumped up about 18% in the past two days. If we see a pullback, we would look for support at $114 and again at $108. Overhead the 100 and 10-dma sitting at $120.41 and $121.24 respectively. A move through those levels with, decent volume and we could be off to the races. NXTL is scheduled to report quarterly results next Wednesday before the open, which could put the finishing touches to a bumpy yet profitable play. VSTR $98.81 +3.94 (+8.81) It's always nice to start a new play with a gain. A gain of just under 10% gives traders a chance to regain their confidence, especially after last week. Although VSTR did penetrate the $83-$84 base yesterday, it didn't take long to attract investors attention. Once the buyers showed up, VSTR began to climb back up the chart, ending the day with a $4.88 gain. Today the results were similar, before running into resistance near $100. The volume has been a little better than average, the past two sessions as investors began to buy stocks they sold last week. Merrill Lynch analyst Linda Mutschler, went out on the limb, reiterating VSTR as a near-term Accumulate this morning before the open. She also reiterated her long term rating as a Buy. Last week, if you'll remember, VSTR was rated a Strong Buy and Buy at two other firms. This morning BUYPHONE.com announced it had signed a marketing agreement with VSTR, for nationwide distribution of wireless services. VSTR now has support at $97 and $94. Only its 10-dma at $101.18, stands in its way until it hits $110 where the next resistance level is seen. MERQ $79.63 +2.91 (+20.88) Lets see, a better than $20 gain in two days, with just over 4.5 million shares traded. Not a bad start to our new play. Last Thursday, MERQ reported better than expected earnings, beating street estimates by a penny. Compared to a year earlier profits at MERQ were up 83%. The news seemed to excite analysts, as the company received five reiterations of a Buy or Strong Buy rating. After the strongest quarter in the history of the company, you already know what happened on Friday. The sell-off Friday was completely over done, as investors returned to work on Monday bidding shares back to the $80 area, where it started the previous week. The announcement that IBM would begin to use some of MERQ products probably hasn't hurt this new play either. Can MERQ maintain the rebound? With the momentum seen the past two days it would appear, investors have seen the error of the ways late last week. A pullback to the $76 or $71 area probably wouldn't be out of line, as MERQ has bounced about 36% so far this week. ADBE $117.00 +3.69 (+19.19) The reversal that we mentioned in Sunday's write-up came to light Monday as ADBE ramped higher. The stock opened lower along with the NASDAQ Monday morning and traded in a range between $100 and $105 for most of the afternoon. In the last half-hour of trading, ADBE exploded higher, gaining $10. The momentum spilled over into Tuesday as ADBE gapped higher this morning by $2.25. The momentum faded a bit this afternoon as traders took a break from ADBE and focused on some of the big tech names reporting earnings on Tuesday, such as INTC and QCOM. The stock drifted along into the close, bouncing off support of $115. We're looking for momentum to return to ADBE in the next few days as traders anticipate the upcoming Annual Shareholder Meeting. Investors will vote on the proposed increase of authorized shares, paving the way for a split. The chart continues to look strong as ADBE moves toward a new high. An aggressive trader might target shoot for an entry point as ADBE bounces off support at $115. While those of you looking to minimize risk might wait for ADBE to breakout above resistance at $120 on heavy volume. A move above $120 would position ADBE to retest its 52-week high of $125. However, if the broad market falls to profit-taking or shows general weakness, you might consider setting a stop. ADBE doesn't have much support below its current levels, a trailing stop in the $110 - $115 range might limit any downside risk. CMVT $83.38 +7.00 (+9.44) CMVT continued its winning ways early Monday morning as the stock surged $6 in the first 15 minutes of trading. The early morning buying was seen again Tuesday morning as CMVT gained another $6 in the first 15 minutes of trading. Volume continues to remain robust for CMVT during its recent rally, as investors accumulate the stock. The telecom equipment sector has shown impressive strength in the last two days, providing additional lift to CMVT. Another big boost for CMVT came Tuesday as ULCM, a subsidiary of CMVT gained a whopping 64%! CMVT spun off the software company two weeks and retains 82% of the company. From here, CMVT has major resistance just above at $84. The stock had trouble moving above that level all day Tuesday. A breakout on heavy volume above $84 may provide an excellent entry point. Above $84, CMVT will next find resistance at $90. After the early morning run-up Tuesday, CMVT cleared most major resistance levels. Consequently, the stock now has little support as it current price. The stock will most likely find support in the $84 to $82 range. Below that level, CMVT doesn't have much help until the low $70 range. Consider a trailing stop after entering into the play in case of profit- taking after the recent rally. ******************* PLAY UPDATES - PUTS ******************* FIBR $36.88 +7.66 (+6.44) Finally a bounce! Not that it helped those with open put positions, but further weakness could provide us with one more entry to our play. On Monday FIBR tested the $25 area. Buyers did show up, in pretty good numbers today. What we are going to hang our hat on for now, is either the folks that entered yesterday and early today may want to pull some money off the table if FIBR advances. Also some of the traders that couldn't believe their eyes as Osicom was falling and didn't get out, may use a bounce an opportunity to sell. The other side of the coin would suggest that FIBR has been beat up so badly, the only investors left to buy are the die- hards that really believe in the company, and their long term goals. Time will tell, but for now, FIBR is sitting just above an intraday support level at $35. The next levels of resistance are found between $40 and $43. If the bounce continues, and is followed by weakness, look to buy puts one more time. MCLD $63.88 +3.06 (+9.25) Sometimes a rising tide lifts all ships, even the sinking ones. The NASDAQ Telecom Index rose 6.2% Monday, after sinking 27% last week. Along with broad sector strength, MCLD benefited from positive analyst comments Monday. Jack Grubman of Salomon Smith Barney, possibly the most influential telecom analyst on Wall Street, reiterated his Buy ratings on emerging local phone carriers. Interestingly, Grubman is also an investment banker for Salomon, raising capital for many of the companies he follows. Despite the positive comments, many investors remain unconvinced about MCLD. The company will face increasingly stiff competition from rival CLECs, driving prices down, and cutting into profits or adding to losses in MCLD's case. The rally in MCLD may be short lived as overly optimistic traders refocus on the companies rising debt levels and increasing competition. Watch for the selling to resume, and confirm any downward move with heavy volume. MCLD has support just below at $62, look for the stock to fall through that level as a possible entry point. Pay close attention to the action in the overall telecom sector as a continued rally may float shares of MCLD higher. ************** NEW CALL PLAYS ************** TIBX - Tibco Software $61.25 +5.31 (+13.06 this week) Headquartered in Palo Alto, California, TIBCO Software Inc. is a leading provider of real-time infrastructure software for e-business. TIBCO's products and services enable computer applications and platforms to communicate efficiently across networks. The TIB/ActiveEnterprise(TM) product suite facilitates the distribution of information and integration of business processes by connecting applications to a network through its patented technology. (That's code for B2B enabler.) TIB technology was first used to "digitize" Wall Street and has been adopted in diverse industries, including manufacturing, energy, telecommunications, and electronic commerce. TIBCO Software's global client base includes Cisco, Yahoo!, NEC, 3Com, Sun Microsystems, SAP, Philips, AT&T and AOL/Netscape. With earnings happening a month ago (a penny profit vs. $0.00 est.), TIBX has had plenty of time to consolidate and won't report again until June. We didn't know this until today, however, they are the plumbing that operates ARBA's, MySAP.com, and Alta-Vista systems. Not only that, listen to Scott McNealy, CEO of SUNW, from a TIBX sponsored conference today; "Businesses can create an auction-style internal transactions environment, providing the best, real-time market data available for pricing, goods and even stocks - and TIBCO is making these real-time connective portals possible." Today, TIBX reported that they will be providing a new software platform software to number of other players that want to set up B2B exchanges -- namely, Aether Systems, SingleSourceIT (a private group boasting relationships with Ingram Micro, HWP, CPQ, ORCL and IBM), and Delta Airlines. Their technology not surprisingly is embedded in CSCO equipment too. The chart and recovery look great. Technically, after finding support at $45 at its lowest point in the last few weeks, TIBX sold off 30,000 shares in a likely prearranged buy all the way to $33 in yesterday's open. One guy got it and the ensuing trades went off at over $45 for the rest of the day. It was from that point that TIBX made a great recovery over the last two trading days. Intraday support is at $45 and $53. $57 is a bit weaker, but works too. Target shoot to your level of comfort. We don't expect TIBX to remain at these levels for long since this B2B "plumbing" company traded at $120 just 30 days ago. The story is too compelling and fund managers are snapping this stuff up in big amounts. Today, the volume was almost twice the ADV. No upgrades today or in the last week, but that could change in the coming weeks. Last week, shareholders voted to increase the outstanding shares from 300 mln to 1.2 bln. It becomes a split candidate again once the price gets back over $100. BUY CALL MAY-55 PAV-EK OI= 29 at $13.63 SL=10.25 BUY CALL MAY-60*PAV-EL OI=545 at $11.00 SL= 8.25 BUY CALL MAY-65 PAV-EM OI= 43 at $ 9.25 SL= 6.25 BUY CALL AUG-65 PAV-HM OI= 11 at $19.63 SL=14.00 low OI SELL PUT MAY-50 PAV-QJ OI=111 at $ 4.88 SL= 7.00 (See risks of selling puts in play legend) Picked on Apr 18th at $61.25 P/E = N/A Change since picked +0.00 52-week high=$147.00 Analysts Ratings 3-0-0-0-0 52-week low =$ 6.56 Last earnings 03/00 est= 0.00 actual= 0.01 Next earnings 06-19 est= 0.00 versus= N/A Average Daily Volume = 1.5 mln /charts/charts.asp?symbol=TIBX VOD - Vodafone AirTouch Group, $50.13 +2.38 (+5.13 this week) Vodafone Airtouch is the world's largest mobile telecom company. The now operate in 23 countries and have approximately 28 million subscribers. They operate wireless networks, offering voice, messaging, paging and data services. They are in the process of taking control of Mannesman AG, operator of Germany's #1 wireless carrier. Their compete for market share with AT&T Wireless Group, BT and Deutsche Telekom. It's been a while, but Vodafone's back. VOD found its way back to our list of potential plays, after providing investors with a nice bounce the first two days of the week. After a 15% drop last week buyers have investors have began to focus on the telecom company. So far this week the new found enthusiasm has come on the heels of solid volume with over 11.2 million shares changing hands in the first two sessions. As with many of the issues in the sector, we believe the selling was a bit overdone. VOD is in the spotlight this week as they are currently bidding for five wireless licenses, being issued by the U.K. government. Vodafone also said today they are selling a majority stake in Atecs, Mannesmann AG's engineering and automotive business, to Siemens and Robert Bosch GmgH, in a deal valued at 9.6 billion euros($9.12 billion) VOD said the deal means the German group can focus on developing its core telecom business. The latest comments for Vodafone came last week, as analyst Mark Lambert at Merrill Lynch reiterated a near-term Buy rating on the Telecom company. VOD has been on the short end of the stick since early March when it reached its 52 week high at $64.38. The company has struggled to find buyers until yesterday morning when shares traded below $45, a level not seen since the beginning of the year. As we noted, the volume picked up as investors began to shop for bargains late yesterday. Support is now found at $49.50 and the 200-dma at $48.63. If the major indices see a pullback tomorrow we would look to target shoot near those levels. In the above mentioned bidding VOD seems to be in the lead for the second-widest bandwidth of the five permits. They are currently bidding against TIW for the license A, which has the broadest bandwidth, according to analyst familiar with the auction. BUY CALL MAY-45 VOD-EI OI= 331 at $ 7.00 SL=5.00 BUY CALL MAY-50 VOD-EJ OI= 530 at $ 4.13 SL=2.50 BUY CALL MAY-55 VOD-EK OI=1325 at $ 2.19 SL=1.00 BUY CALL JUL-40 VOD-GH OI=2262 at $12.50 SL=9.25 BUY CALL JUL-50*VOD-GJ OI= 502 at $ 6.75 SL=4.75 SELL PUT MAY-45 VOD-QI OI=1896 at $ 1.69 SL=3.00 (See risks of selling puts in play legend) Picked on Apr 18th at $50.13 PE = N/A Change since picked +0.00 52 week high=$64.38 Analysts Ratings 4-4-1-0-0 52 week low =$33.84 Last earnings 12/99 est= N/A actual= N/A Next earnings 04-99 est= N/A versus= N/A Average daily volume = 5.96 mln /charts/charts.asp?symbol=VOD VERT - VerticalNet Software Inc $43.00 +9.38 (+15.00 this week) VerticalNet is a leading owner and operator of vertical trade communities specifically targeting the B2B segment of Internet commerce. They act as an industry-specific source of information, interaction, and e-commerce for industries spanning communications, healthcare, and sciences. VerticalNet is currently expanding into Europe and Japan. Internet Capital Group owns 33% of the company. Snap, crackle, pop! That's what VERT has done in this week's rallying markets. It snapped back to life at Monday's opening bell and went on a tear. In just two days, VERT recovered $15.00, or 53.6% of its share price and is poised for a powerful run. First there's the analysts who are still bullish on the B2B stocks. Specifically Tomas Isakowitz at Janney Montgomery Scott reiterated his Buy rating on VERT today. And earlier, BB&T Markets initiated new coverage for the stock with a Long- Term Buy recommendation. So what's ahead besides pure momentum to drive VERT higher? No, it's not a stock dividend. VERT just split 2:1 on March 31st, but the company is expecting to report earnings this month. Tentatively they're scheduled to announce on Monday, after the bell, so it's possible this run will be short and sweet. Remember OIN never holds over earnings. We'll confirm the date and time ASAP. Everything seems to be in place for a profitable play, but the risk is still HIGH. VERT is one of those infamous Internets known for VOLATILITY. If you're looking for an entry, dips to near-term support at $40 are suitable. If there's an intraday pullback to the current 5-dma at $36.44, then that'd be gift. But of course that'd be more risky; especially since we expect VERT to power higher and not return bottom support. In the news today, VerticalNet announced it entered into a partnership with KnowledgePlanet.com, the leading B2B eLearning solution company. In a joint effort they will deploy co-branded eLearning portals throughout VerticalNet's 55 communities. BUY CALL MAY-40 UER-EH OI=659 at $9.38 SL=6.50 BUY CALL MAY-45*UER-EI OI=185 at $7.13 SL=5.00 BUY CALL MAY-50 UER-EJ OI=486 at $5.63 SL=3.50 BUY CALL MAY-55 UER-EK OI=305 at $4.25 SL=1.75 Picked on April 18th at $43.00 P/E = N/A Change since picked +0.00 52 week high=$148.38 Analysts Ratings 8-8-1-0-0 52 week low =$ 13.56 Last earnings 12/99 est=-0.36 actual=-0.28 Next earnings 04-24 est=-0.17 versus=-0.10 Average daily volume = 2.24 mln /charts/charts.asp?symbol=VERT ************* NEW PUT PLAYS ************* EK - Eastman Kodak $58.50 -3.31 (-3.00 this week) Holding status in our minds as a household name, EK develops, manufactures and markets a wide range of consumer and commercial imaging products such as film, photographic paper, processing services, cameras and projectors. The company also operates in the Health Imaging market segment, providing medical films, chemicals and processing equipment, which are used to capture, store and process images and information for customers in the healthcare industry. After a brief earnings run, assisted by a flight from tech stocks to value-oriented companies, EK looks like it is rolling over again. The return of investors to their favorite four- letter stocks has left a shortage of buyers for issues such as EK. After announcing earnings yesterday that were slightly better than estimates, the photo company is suffering from the "buy the rumor, sell the news" syndrome. Attempting to move higher this morning, EK succumbed to the sellers on volume 70% greater than the ADV. This does not bode well for EK investors, especially as all the major indices were strongly higher today. Losing $3.31 today, EK definitely looked weak, posting the biggest point loss of all the DJIA stocks. EK is being sucked down by the twin-power vacuum created as enthusiasm returns to the technology sector and by the usual effect of a post-earnings depression. Closing near the low of the day today, EK may find support near $58. Use a break through of this support level as a possible entry point. If we see a move up to resistance near $62, a rollover from there would provide an even better entry. The only cause for concern would be a Nasdaq rollover that sends investors back to the "safe" plays like EK. So keep eye towards market sentiment at all times. BUY PUT MAY-65 EK-QM OI= 59 at $7.00 SL=5.00 BUY PUT MAY-60*EK-QL OI=375 at $3.00 SL=1.50 Average Daily Volume = 1.74 mln /charts/charts.asp?symbol=EK DCLK - DoubleClick Inc. $51.63 -8.19 (-8.94 this week) DoubleClick is an online advertising firm that offers targeted ad delivery using it patented DART technology, a dynamic analysis tool that collects information on audience behavior and uses that data to target ad placement. DART also measures Web traffic and ad effectiveness. DoubleClick delivers ads to more than 1,300 sites in its network, including AltaVista and US News Online. Doubleclick is expanding its business through merger and acquisition. The company recently acquired software firm NetGravity and information provider Abacus Direct. The once beloved dot coms have become dot bombs. The current market conditions are not very favorable to those companies that continue to lose money. Continued losses are exactly what DCLK reported Monday evening. The company posted a loss of $13.2 mln or about 11 cents per share, in line with analysts estimates. Its not unusual for a tech stock to fall after its earnings report, but the downward trend in DCLK continues in spite of two record days in a row for the NASDAQ. The Goldman Sachs Internet Index ($GIN) rocketed 10% higher Tuesday, while DCLK showed continued relative weakness. Not only does DCLK have to deal with continued operating losses, the company is in the middle of a heated debate surrounding online privacy. Consumer advocates are increasingly pressuring Congress to develop laws to bolster privacy on the Internet. The controversy stems from DCLK's merger with Abacus. The combined entity plans to match online consumer names and home addresses with Web surfing habits. The recent market conditions and concerns surrounding DCLK's business ethics have sent the stock sliding from its 52-week high of $135.25. After the slump Tuesday, DCLK has fallen below its last major support level. The stock won't find much support until $45, a level not seen since last August. Watch for volume to continue to remain strong as traders liquidate. The stock is below its descending 10-dma, watch for DCLK to bump against that level and confirm direction before entering into the play. Also, watch for open interest to increase in the lower strike prices before, many of the strikes are relatively new contracts. BUY PUT MAY-60 TDU-QL OI=171 at $14.00 SL=10.50 BUY PUT MAY-55 TDU-QK OI= 6 at $10.00 SL= 7.00 low OI BUY PUT MAY-50*QWE-QJ OI= 11 at $ 7.50 SL= 5.25 low OI Average Daily Volume = 4.35 mln /charts/charts.asp?symbol=DCLK WY - Weyerhaeuser Co $53.50 -1.50 (-1.81 this week) Weyerhaeuser is the third-largest U.S. forestry company with operations and offices worldwide. The company primarily grows and harvests timber on about 5.7 million acres in the southern US and Pacific Northwest with cutting rights on about 33.5 million acres in Canada. They also manufacture and sell other forest products including pulp, paper, newsprint, and various types of boards. Weyerhaeuser has grown through acquisitions and is involved in real estate construction and development. We're adding WY to our put list as a classic post-earnings decline play. This morning WY reported 1Q profits more than doubled coming in at $1.04 p/s versus the lower consensus estimate of $0.92. The company said its numbers were lifted by soaring pulp prices, recent acquisitions, and the strong paper and housing markets. Yet WY added another $1.50, or 2.8% while the broad markets were on the fast track. Even in its entirety, this stock hasn't been doing very well this year. It's fallen over 26% this year in comparison to a 1.9% fall in the S&P's 500 Index. Then you tie in no positive action in the share price while the present sentiment is for investors to look at these types of stocks as an alternative to the cut-down techs. But let's keep it simple. The basis of this play is primarily focused on the fact that many stocks slide significantly after announcing its earnings, no matter how good the news. Therefore look for WY to stay below $55 and move toward bottom support at $48 and $50. Accordingly downward bounces off the 50-dma ($54.53) or even higher at the 5-dma ($56.89) on an intraday spike would then be relatively good entry points. In other news last week, Weyerhaeuser was named as a possible buyer for Fletcher Challenge's forestry division. The New Zealand-based division is being sold off for $2.5 bln in cash plus assumed debt. The company declined to comment. BUY PUT MAY-60 WY-QL OI=10 at $6.13 SL=4.00 BUY PUT MAY-55*WY-QK OI=43 at $4.25 SL=2.50 BUY PUT MAY-50 WY-QJ OI= 2 at $1.13 SL=0.00 low OI Average Daily Volume = 1.52 mln /charts/charts.asp?symbol=WY ********************* PLAY OF THE DAY - PUT ********************* MCLD - McLeodUSA, Inc. $63.88 +3.06 (+9.25 this week) 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. Most Recent Write-Up Sometimes a rising tide lifts all ships, even the sinking ones. The NASDAQ Telecom Index rose 6.2% Monday, after sinking 27% last week. Along with broad sector strength, MCLD benefited from positive analyst comments Monday. Jack Grubman of Salomon Smith Barney, possibly the most influential telecom analyst on Wall Street, reiterated his Buy ratings on emerging local phone carriers. Interestingly, Grubman is also an investment banker for Salomon, raising capital for many of the companies he follows. Despite the positive comments, many investors remain unconvinced about MCLD. The company will face increasingly stiff competition from rival CLECs, driving prices down, and cutting into profits or adding to losses in MCLD's case. The rally in MCLD may be short lived as overly optimistic traders refocus on the companies rising debt levels and increasing competition. Watch for the selling to resume, and confirm any downward move with heavy volume. MCLD has support just below at $62, look for the stock to fall through that level as a possible entry point. Pay close attention to the action in the overall telecom sector as a continued rally may float shares of MCLD higher. Comments Looking at a daily chart, MCLD has been in a downtrend since mid- March as it consistently trades off its 10-dma. On Friday and Monday, it found support at its 200-dma of $52.75 and today traded up to $66.81, right at its 10-dma. It is this point that MCLD pulled back. Using this 10-dma as a resistance indicator, pick entry points based on personal risk levels. Remember, the broad markets should lead stocks as a whole tomorrow and Thursday. BUY PUT MAY-65*QMD-QM OI=1022 at $8.38 SL=6.25 BUY PUT MAY-60 QMD-QL OI= 12 at $5.63 SL=3.75 low OI Average Daily Volume = 1.67 mln /charts/charts.asp?symbol=MCLD ************************ COMBOS/SPREADS/STRADDLES ************************ Title: Rising From The Ashes... Monday, April 17 The markets rebounded today and a final buying surge lifted the recently battered Nasdaq to a record point gain. Technology stocks recovered to boost the composite index 217 points to a close at 3,539. Blue chips also participated with the Dow Jones Industrial Average up 276 points to 10,582 on strength in market bellwethers. The broader market also pushed higher with the S&P 500 index 44 points higher at 1,401. Despite rebounding indices, market breadth remained negative with declines leading advances on both the Nasdaq and the NYSE. Trading volume was active on the technology index with 2.40 billion shares exchanged. Stocks on the Big Board were also heavily traded with a volume of 1.17 billion shares. The 30-year U.S. Treasury bond dropped 2-6/32, pushing the yield to 5.94% from Friday's close at 5.79%. Sunday's new plays (positions/opening prices/strategy): Aegon N.V. AEG AUG80C/AUG80P $13.00 debit straddle Jones JNY AUG30C/AUG30P $7.12 debit straddle Liposome LIPO AUG15C/AUG17P $5.88 debit straddle MasTec MTZ JUL75C/JUL70P $13.00 debit straddle There was little activity in our new straddle positions but the opening prices were favorable for most of the plays. Aegon and Mastec were both opened at the target entry debits and although Liposome traded in a small range, the straddle was available at a better than expected price. Remember, this issue will mimic the movement in Elan Corporation (ELN) unless the pending merger is disapproved. Jones Apparel was the most active position and our opening price was slightly above the low of the session. Portfolio plays: Stocks rallied big in small groups today as investors moved back into select, household names after last week's brisk sell-off. Most of the traditional market leaders rallied as investors put money into perceived safety stocks while a number of speculative sectors such as Internet and Bio-tech slumped. The majority of blue-chip issues moved higher with powerhouse General Electric (GE) and consumer products giant Procter & Gamble (PG) leading the way. In the technology industry, the semiconductor sector soared, recouping nearly all of Friday's losses. Major Drug and finance companies also showed strength while oil industry shares and retailers continued to lose ground. Trading was volatile and that character is expected to continue this week as investors balance today's recovery with concerns about inflation and future corporate earnings. Most analysts said the recent active selling was based on demands by brokers (margin calls) that customers bring their accounts up to minimum collateral requirements. Margin calls can create selling losses as investors liquidate their holdings to repay their outstanding loans. In addition, worries over inflation and upcoming reports on revenues from Internet and technology companies may undermine the recovery. The flight to quality is expected to reduce many of the more speculative companies back to acceptable valuations. With that type of pessimistic outlook for the short-term, most analysts believe the market will drift lower in the coming weeks, establishing a secure trading range before moving higher in a sustainable rally. The Spreads Portfolio enjoyed a number of favorable moves during the session. Proctor and Gamble (PG) was the big winner, up $6 on strength in conglomerates and market-safety issues. Our top technology issue was Sun Microsystems (SUNW) with an awesome $8 rally. The bullish move pushed our credit-spread strangle back into a profitable range. Advanced Micro Devices (AMD) led the semiconductor group with a move to $72 as the sector recovered on speculation of future growth of the computer industry. Advances were made in many of our new target sectors; Consumer Products, Finance, and Major Drugs. Spread positions in Abbott Labs (ABT), Kellogs (K), Bank Of Tokyo (MBK), Ryder (R), Summit Bancorp (SUB), Warner Lambert (WLA), and Xerox (XRX) all profited from the rally. Of course the question now is whether the current market recovery can be sustained. Tuesday, April 18 Technology stocks moved higher today, driving the Nasdaq to its biggest one-day point gain in history. Bio-tech and Internet companies helped lift the composite of technology of stocks 254 points to 3,793, surpassing Monday's record gain. Traditional stocks also rallied to boost the Dow Jones industrial average 189 points to 10,767. Tuesday's rally was broad with S&P 500 index up 40 to 1,441. The market's breadth was solidly positive with advances outpacing declines on both the NYSE and the Nasdaq. The Big Board saw 1.09 billion shares change hands while 2.13 billion shares traded on the Nasdaq. The 30-year bond was up 9/32, bid at 104 23/32, where it yielded 5.90%. Portfolio plays: The stock market rallied again today and the activity was widely recognized as the first step to meaningful change in character. The brisk recovery continued across most sectors and from our perspective, the fear of future corrections is relatively small. Leading technology issues roared back to reverse the market's meltdown as solid quarterly earnings reminded investors of strong corporate fundamentals while relatively low prices encouraged aggressive buying. Many analysts were surprised by the size of the rally and most suggest a period of basing with a potential test of the recent lows is a likely outcome. The majority of issues in the Spreads Section moved higher during the bullish session but regrettably, there are only a few plays that can benefit from any future rally. Most of the portfolio positions have previously been closed to protect gains and limit losses. However, a number of disparity positions were active in today's trading. Our new calendar spreads in Abbott Labs (ABT) and Halliburton (HAL) enjoyed favorable moves and both plays have offered profitable early-exit opportunities. In addition, one of our new straddle plays became an immediate winner as the option premiums snapped-back to theoretical value. The Mastec (MTZ) position was easily closed for a favorable, one-day profit as the overall credit for the straddle jumped to $14.75. Questions & comments on spreads/combos to Click here to email Ray Cummins ****************************************************************** - NEW PLAYS - With our long-term portfolio desperately in need of new positions and the incredibly volatility in front-month premiums, we decided to look for some conservative plays that are based on the concept of selling time. **** SEPR - Sepracor $84.00 *** Major Drug Leader! *** Sepracor is a specialty pharmaceutical company that develops improved versions of widely prescribed pharmaceutical compounds. Their Improved Chemical Entities development program identifies existing, widely prescribed drugs that might be replaced by improved single-isomer or active-metabolite forms of such drugs. Sepracor then seeks to develop ICEs that offer benefits over the parent drugs, such as reduced side effects, improved therapeutic efficacy or effectiveness for new indications. Sepracor has also licensed or is developing ICEs intended to treat a broad range of indications in areas including respiratory, gastroenterology and psychiatry/neurology. Sepracor's ICEs include a large number of well known drugs such as Fexofenadine, Fluoxetine and Bupropion. Sepracor has weathered the recent bearish activity with flying colors and today the unique drug-developer jumped $13 on strength in the biotechnology sector. The issue has been in recovery mode since the Federal Trade Commission approved a drug licensing deal between Eli Lilly (LLY) and Sepracor. Last week, Lilly announced that the FTC has closed its investigation and given the go ahead for the licensing agreement between the two companies. Under the agreement, Lilly will exclusively develop and commercialize the product Fluoxetine, an improved version of the antidepressant drug Prozac. On completion of the deal, Sepracor is expected to receive an up-front payment and license fee for $20 million, and up to $70 million in additional milestone payments based on the progression of the drug through development. That's a significant revenue enhancement and the recent trading activity suggests that investors are bullish on the issue. While we favor today's rally, our plan is to "target shoot" the position for a slightly better cost basis. PLAY (conservative - bullish/diagonal spread): BUY CALL JAN01-60 ZQT-AL OI=211 A=$36.50 SELL CALL MAY00-90 ERU-ER OI=122 B=$8.12 INITIAL NET DEBIT TARGET=$27.00-$27.25 TARGET ROI=100% Chart = /charts/charts.asp?symbol=SEPR **** JNJ - Johnson & Johnson $81.50 *** Big Earnings Rally! *** Johnson & Johnson manufactures and sells a variety of health care products worldwide. The Consumer segment produces personal care and hygiene products for oral and baby care, first aid use, non prescription drug usage, sanitary protection and skin and hair care. Some of the company's major brands are Band-Aid bandages, Carefree feminine hygiene products, Johnson's baby care products, Mylanta acid controller, Neutrogena skin and hair care products and Tylenol pain and cold symptom relievers. The Pharmaceutical segment produces prescription drugs for allergy, antibacterial, fungal, anti-anemia, contraceptive, dermatological, intestinal and pain management uses. These drugs include Ergamosil, a colon cancer drug, Floxin antibacterial, Imodium for anti-diarrhea and Leustatin, for leukemia. Retin-A dermatological cream for acne is also a major product. The Professional segment manufactures products such as surgical and medical equipment and devices for use in the professional health field. The earnings are in and Johnson & Johnson, one of the nation's largest pharmaceutical makers, reported strong revenue growth in the first quarter, easily topping analysts' forecasts. The company's profit rose 15%, fueled by strong sales of the health care conglomerate's top selling anemia and anti-psychotics drugs. The company earned $1.3 billion in the January-March quarter as sales rose 9% to $7.3 billion. JNJ's drug sales rose 18% to $3 billion and the company's top sellers; Procrit/Eprex for anemia, Risperdal, an antipsychotic pill, and Duragesic, a transdermal patch for chronic pain all contributed to the success. Their consumer goods sales also rose favorably, led by Neutrogena skin care products. The company's professional division, which also includes sales of medical devices, posted a 4% increase in sales. The future is bright but there may be some post-earnings selling after the recent rally. We will attempt to achieve a slightly lower "net-debit" entry during the next few sessions. PLAY (conservative - bullish/calendar spread): BUY CALL JAN01-85 ZJN-AQ OI=7740 A=$10.00 SELL CALL MAY00-85 JNJ-EQ OI=1494 B=$2.50 INITIAL NET DEBIT TARGET=$7.00-7.12 TARGET ROI=100% The basic premise in a calendar spread is simple; time erodes the value of the near-term option at a faster rate than it will the far-term option. A bullish form of calendar spread is when the underlying issue is below the strike price of the options. This position is generally speculative with low initial cost. The most favorable outcome occurs when the underlying stock consolidates initially, allowing the sold option to expire and then eventually rallies above the long option strike price. In some cases, the simple erosion of time value in the short option can produce a net gain. It is generally best to establish this type of spread at least 2 - 3 months before the long option expires, capitalizing on the ability to sell another option against the longer-term position. That is the basic idea in this spread play; selling time value in the options when they are overpriced (high implied volatility) and buying it back (if necessary) when they return to intrinsic value. Ideally, the spreader would like to have the stock finish just below the sold strike when the near-term option expires. If the short options are in-the-money at expiration, he will have to buy them back to preserve the long-term position. Chart = /charts/charts.asp?symbol=JNJ **** LNY - Landry's Seafood Restaurants $7.06 *** RAIN Merger? *** Landry's Seafood Restaurants owns and operates full-service, mid-priced, casual dining, seafood restaurants located in 26 states under the restaurant divisional names Joe's Crab Shack, Landry's Seafood House and Crab House. In addition, Landry's operates three limited-menu, take-out service units. Their restaurants offer a wide variety of high quality, broiled, grilled and fried seafood items at moderate prices, including red snapper, shrimp, crawfish, lump crabmeat, lobster, oysters, scallops, flounder and other traditional seafood items, many with a choice of unique seasonings, stuffings and toppings. A merger proposal with Rainforest Café (RAIN) is in the works and most analysts suggest the deal will be beneficial to the company. Under the deal, valued at about $125 million in cash and stock, each share of Rainforest stock will be converted, at the shareholder's election, into the right to receive $5.23 in cash, or 0.5816 shares of Landry common stock for each RAIN share outstanding. The merger will be voted on at a special meeting of Rainforest's shareholders on April 28, 2000. There are other circumstances regarding the transaction that require further research. This position is based in large part on the current price and previous trading range of the underlying issue. The technical history of the stock suggests that a new character is in place and the recent recovery should continue. However, the current volatility associated with a potential merger has also produced some excellent trading activity and this generally leads to favorable option premiums. Our position is that the issue will continue to provide opportunities for selling options in the historical trading range between $6 and $9. PLAY (conservative - bullish/calendar spread): BUY CALL OCT-7.50 LNY-JU OI=20 A=$1.12 SELL CALL MAY-7.50 LNY-EU OI=100 B=$0.31 INITIAL NET DEBIT TARGET=0.68 TARGET ROI=50% Chart = /charts/charts.asp?symbol=LNY ************************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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