The Option Investor Newsletter Wednesday 5-10-2000 Copyright 2000, All rights reserved. Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com Also provided as a service to The Online Investor Advantage ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 5-10-2000 High Low Volume Advance Decline DOW 10367.80 - 169.00 10533.10 10292.10 1,006,469k 887 2,099 Nasdaq 3,384.73 - 200.28 3584.83 3367.06 1,580,113k 912 3,254 S&P-100 739.91 - 17.91 757.25 735.46 Totals 1,799 5,353 S&P-500 1383.05 - 29.09 1410.53 1375.14 25.2% 74.8% $RUT 474.28 - 16.58 490.86 470.57 $TRAN 2863.17 - 40.99 2905.95 2851.20 VIX 33.30 + 1.59 34.83 31.37 Put/Call Ratio .68 ****************************************************************** Is This Big Game Over For The Summer? There was a winner in the Big Game lottery last night, but winners on Wall Street were harder to find. In fact, whoever took home that record $366 million dollar lottery prize probably did better than anyone CEO on Wall Street today. The markets went lower once again on interest rate and Fed worries. I know, it sounds like a broken record. Believe me I would rather write about a more interesting catalyst, but that is the dagger still sticking in the market's back. Some are expecting this summer lull to...well, last the entire summer. So the question is, should the new lottery millionaire be heading to their broker to invest the prize or are they better off stuffing it under their mattress? The big fear out there today was the PPI, pending release on Friday. This was the report that started the carnage last month before the CPI really dropped the hammer. The higher oil prices had finally cut into producer prices, signaling the dreaded "I" word is flowing down the pipeline. But, there are others who are less fearful of the PPI. Those are probably the same individuals who are buying off support at the 200-dma on the NDX. Their feeling is that oil was hitting highs in March near $35 a barrel and thus hindered the March PPI. By mid- April though, oil was back to $25 a barrel and thus should translate into a more subdued PPI for April. Even if it comes in at estimates, you could get a relief rally based on how high the fear level is. Traders are digging in for a mammoth number. Not to mention, the Fed meets on Tuesday and that has never been something to gleefully anticipate. And bingo! We have a VIX that closed over 33. This is tough market, no doubt about it, but I am leaning to the side of the optimists, thinking a calm PPI and 50-point move by the Fed may signal the end of the near-term troubles. Yes, we could be in a Nasdaq bear market, but how long have these Nasdaq bear markets really lasted in recent years? One of the key technical indicators that we've been watching is the 200-dma on the Nasdaq 100. It has bounced off this level during the recent crisis and did so again today. The NDX closed at 3245, a touch below the 200-dma at 3252. The Nasdaq closed heading lower once again and finished at 3384, down 200. That is a 5.6% move today and a 10.6% drop on the week for the Composite. Volume was still awful at 1.1 billion. Volume continues to get weaker and weaker, which makes me wonder if the sellers are running out of steam as most technicians would suggest. It makes sense too. Buyers strike on one end and diminishing sellers on the other. Here is a chart of the NDX and its recent ability to hold at the 200-dma. The NYSE went along for the ride. The DJIA dropped 168 points to 10,367 on volume of 693 million shares. There isn't a lot to get excited about here. Financials, Transports and Techs all went down amidst the rate fears. Utilities and Retail held up a little better. The S&P 500 lost 29 points while the bond rose slightly to yield 6.17%. The big loser of the day was Motorola. MOT was hammered today on news of a downgrade from Salomon Smith Barney analyst, Alex Cena. In a change of heart, Cena foresees a negative latter half of 2000 for MOT. Although he still believes that MOT will be among the winners in the future wireless world, Cena is no longer comfortable with his high-end estimates, which were based on expectations of increased profit-margin improvement. Cena attributes his reconsideration to two things: supply problems and a lost contract. MOT intends on being a frontrunner in the move to data-enabled phones, yet they are finding that key component supplies are already spoken for, or under-produced. The main reason, according to Cena, is that MOT lost its contract with Nortel Networks(NT) for a 3rd generation wireless network. As a result, he cut MOT's rating from a Buy to an Outperform. He also lowered his 12-month price target to $120 from $200, a fairly significant move. MOT took it on the chin today in a volatile trading session, ending down $18.50 at $86. Today was MSFT's opportunity to propose its own remedy for its antitrust violations. The company asked a federal judge to throw out the government's proposal to break up the software giant, stating that such a punishment is not warranted. In its filing, MSFT said, "Unlike the government's requested relief, which seeks to reengineer the entire software industry and impose extremely burdensome restraints on Microsoft that are wholly unrelated to the case that was tried, Microsoft's proposed final judgment fully redresses the antitrust violations found in this case." They also vowed to appeal U.S. District Court Judge Jackson's April ruling that MSFT violated antitrust laws. MSFT's proposal basically states that a break up remedy is extreme and that a fair remedy would be imposing restrictions on the company's future business conduct. The software giant also argued that the government has no justification for expediting its proposal. The government has until May 17th to respond. MSFT's stock was off $1.63, closing at $66.19. AMAT posted record earnings for its second fiscal quarter after the bell on Wednesday. The company was in line with Street estimates of $0.55 per diluted share, a net income of $454 mln, up 37.5% from first quarter earnings of $0.40. Yet in today's market, the motto is "beat or be beaten," and that's exactly what happened. During regular session trading, AMAT was down $6 to close at $84.63. In after-hours trading, investors reacted to the report by beating down AMAT shares another 9%, or $7.63, to $77. Looking at the company numbers, AMAT had record net sales of $2.19 bln, up 87% from the same period last year. They also had record new orders of $2.93 bln. This is indicative of what AMAT CEO James Morgan calls "a major industry upturn." He expects to see continued strong demand for semiconductor devices that enable Internet-related and telecommunication products. Regardless, AMAT and other semiconductor stocks are coming under selling pressure in after-hours trading. In considering the thought that the we may continue to be range- bound for awhile, keep these facts in mind. Since 1950, the markets have always gone up from May to December during a presidential election year. Greenspan knows this and his goal may be to hike by 50-basis points to finally end this recent run of hikes. His last move during the 1994-1995 hikes was by 50 and the Fed then sat pat for over a year before cutting rates. Also, traders love to jump the gun. Any buying spurt could feed off itself and quickly take the markets back up. It will definitely be selective buying, but when you get a chance to buy companies like MOT 60% off the highs, it doesn't take much enticing. This still reminds me of October 1998 when so many solid companies were trading down 50-70% and everyone was sitting around scratching their heads as to why. Needless to say, that was one of the last buying opportunities for long- term investors. So watch cautiously for a jump-the-gun, don't fear the PPI, VIX is at 33, relief rally. You know, one of those everyday garden variety types. If the markets decide to tank big tomorrow then I will be sitting here scratching my head as well. On the bright side, if the Nasdaq heads towards 3000, you have to wonder if Greenspan would really hike rates by 50 in such an environment. In times of panic, he has typically been market-friendly. A quick morning market meltdown based on AMAT's earnings could provide entry points, just make sure it starts to turn first. I imagine it will be a quick dip. Still not the kind of market you would want to be putting on any big positions. And in all cases, when in doubt...get out. Ryan Nelson Asst. Editor ****************************Advertisement************************* Do You Trade Options? Mr. Stock offers state-of-the-art trading capabilities & specialized options tools designed by experienced market makers. Trade spreads, straddles, covered calls and stock online. Get real-time market data throughout our site. Learn basic to complex option trading strategies. www.mrstock.com http://mojofarm.mediaplex.com/adserver/click_thru_request/565-58-1875-3 ****************************************************************** ********** STOCK NEWS ********** IP Sweetens Offer For Champion By Matt Paolucci Champion International Corp. (CHA) on Wednesday said it received a $75 a share bid from International Paper Co. (IP), challenging Champion's merger plans with UPM-Kymmene Corp. of Finland. The IP offer represents an almost 14 percent premium over Champion's Tuesday closing price of $65.94 on the NYSE. International Paper's shares fell $1 to close at $37.25, which is also traded on the NYSE. International Paper said its new bid values Champion at about $7.3 billion, excluding $2.3 billion in net debt. Champion International said its board believes the International Paper proposal is superior to the UPM-Kymmene proposal. UPM-Kymmene's offer works out to be roughly $70 per Champion share. But UPM, the world's third biggest paper and board maker after world leader IP and second-ranked Stora Enso, said the game was not over and it would consider making a counter bid by the close of business, New York time, on Friday. "We are considering the situation," UPM's Senior Vice President for Investor Relations, Kari Toikka, told Reuters. Analysts were uncertain whether UPM-Kymmene would make a new bid or walk away from the table, but it seemed that the all- cash offer would not be enough to beat IP's part-cash-part- stock offer. "The situation is difficult for UPM as the bids for Champion have raised the relative price level in the United States and potential new aquisition targets know how much more they could ask for," said analyst Eva Makela at Leonia Bank. IP said back on Monday that it signed a confidentiality agreement with Champion. UPM would get a break-up fee of around $200 million if Champion decides to team up with IP. The battle for Champion is part of an intensifying race by the leading overseas and U.S. paper industry groups to lead consolidation of the still-fragmented industry. Champion International can't terminate its merger agreement with UPM-Kymmene and accept the International Paper proposal until after 5 p.m. ET on Friday. This is based on an original agreement that lets UPM-Kymmene submit a counter proposal. On Tuesday, Champion International said that if it accepts the International Paper proposal, International Paper will make a $75 a share cash tender offer for two-thirds of its shares outstanding. A merger would follow which would convert the remaining shares into International Paper common shares with a market value of $75. Champion said if IP's shares fall below $34.50 per share at the time of the merger, each remaining Champion share would be converted into 2.1739 International Paper shares. International Paper expects to immediately start a tender offer for the cash portion of its proposed transaction after the three-day termination period between Champion and UPM- Kymmene ends. IP said the acquisition of Champion would generate savings of $425 million a year because of integrated manufacturing operations, reduction in overhead costs and improved purchasing efficiencies. The deal would add to International's Paper's earnings in the first full year after completion. In late day trading, IP shares were down $0.81 at $36.44, while shares of CHA were $5.88 higher at $72.19. ******************* OPTION CLUB MEETING ******************* Dear Boic Members --- This Thursday, we are fortunate to have Mike Starr, Senior Vice President of Options at Gruntal in NYC come to present information to us about options. (RSVP*) in our headline means RSVP if you haven't already done so at Here are the essential details: DATE: May 11, 2000 -- Thursday night TIME: 6 - 10 p.m. PLACE: NEWTON Sheraton ADMISSION: $20 for members, $25 for nonmembers DIRECTIONS: Newton Sheraton is literally right on top of the Mass Pike at Newton Corner exit. Their telephone number is: 617-969-3010. If you're coming from Route 128, you take Mass Pike east to Newton Corner exit. Go straight, and bear left; when you hit the lights, bear left again, but not sharp left because that will take you back on the Pike. Instead, go middle- left, down Washington Street and you'll see the entry to the hotel just past Applebee's on your left. You can park in the garage for a fee, or park on the street and walk over to the hotel. MIKE's TOPICS for Discussion: 1) Strategies for Today's Volatile Markets - Protective Puts and Hedgewrapper Strategies 2) Common Option Misconceptions - Trading Stock Splits with Options 3) Revisiting a Conservative Options Strategy - The Covered Write 4) Insights into Equity Trades Through the Use of Unusual Option Premiums and Volume MIKE's BIO: Michael Starr is a Senior Vice President with a focus on Option and Equity Trading for the Private Client Group at Gruntal & Co., LLC. He also holds a Series 4 (Registered Options Principal Classification). Since joining the firm in 1992, Michael has worked with both Institutions and Individuals to develop strategies to both protect and enhance portfolio value. Prior to joining Gruntal, Michael gained invaluable experience working on the floor of the New York Stock Exchange for LIT America. Michael has a Bachelor of Science in Management Degree from Tulane University's A.B. Freeman School of Business. Please send me all your questions that are relevant to these topics so that Michael can address them: For example, I can think of one I'd like answered: How do you pick which strike prices and months to use when buying protective puts or creating a hedgewrapper? If you send me questions tomorrow, I can forward them to Mike in time for Thursday night's event. See you there! Kim *************** ASK THE ANALYST *************** How low will it go? By Eric Utley We've been digging, but have we found bottom? The NASDAQ is approaching its low of 3227 traced on April 17th. Is it time to buy the dip, or wait for the market to rise from the mire? Let's take a look at a few indicators and see what they reveal. First of all, Investment Advisor Sentiment is converging. According to Investors Intelligence, around 48% of advisors are bullish and 32% bearish. The 32% bearishness is coming from an April 14th low of 26%. Secondly, the equity put/call ratio is hovering around 0.64. That's not real high, I'd like to see a number above 1 to confirm a bottom. Finally, there's that V-word, volume. The lack of selling capitulation suggests we may drift lower on light trading, unless of course the buyers return. My final prognosis, be patient. Well, CSCO beat estimates when they weren't expected to, and traders sold the stock. The downgrade of MOT and the motherboard problems of INTC didn't help CSCO's cause Wednesday. Of course the concerns over CSCO's valuation looms in traders' minds. It seems good earnings is not good enough. While we're on earnings, AMAT reported in-line profits after the market closed Wednesday. AMAT was expected to beat estimates, you guessed it, the stock sold-off in after hours trading. I think the odds of winning the $350 mln lottery were a little better than trying to pick a winning stock in this market. Believe it or not, there are still a few stocks reaching new highs. The energy sector has shown impressive relative strength in the past few weeks, and the homely paper stocks have shown signs of life. If you must go long right now, look for stocks making new highs or breaking out of solid bases on heavy volume. I have selected a couple of fallen leaders for the charts. You'll notice that several of the stocks we look at are trading at key technical levels. If you have a stock you want analyzed, send your requests to Contact Support. Please put the symbol in the subject line of the e-mail. ---------------------------- Qualcomm - QCOM Thanks for loads of fine information thoughtfully done by you and the OIN people. What about QCOM, I own a load of it and wonder if it is washed up, will come back or is has been? Thanks a million, you folks are very good. - Jay First of all Jay, thank you for the accolades, they are much appreciated. QCOM became an overnight sensation last year when the company's code division multiple access (CDMA) wireless technology gained acceptance. Optimism among analysts remains high for QCOM. The company sold its cellular infrastructure and handset businesses late last year. Since both of those divisions were unprofitable, QCOM's EPS is up substantially. QCOM's CDMA technology is becoming the wireless standard. The company has penetrated European and Asian markets with much success. QCOM has been thought of solely as a cell-tech company. But the company is evolving into a major Internet force. QCOM has developed a high data rate (HDR) technology that enables wireless access to the Web at extremely high speeds. The company is positioned to take advantage of two of the hottest sectors in tech right now, wireless and the Internet. QCOM was founded in 1985, and has since reinvented itself several times. As long as the company continues to execute and evolve, it should remain a good long-term holding. In the near-term, I don't think the QCOM story looks nearly as rosy. After Wednesday's sell-off, QCOM fell through the key support level of $100, and is hovering above critical technical levels. The stock gapped down Wednesday morning, and volume was higher than the past five trading days. If the low of $92 holds, QCOM might bounce back into its trading range between $100 and $120. ---------------------------- Oracle - ORCL Thanks. - Jack I see you're a man of few words Jack, I like that. I'll try to provide a succinct analysis of ORCL. But first, a little fun. The battle of America's richest person is tightening as Oracle CEO Larry Ellison is filling the gap on Bill Gates. ORCL introduced the $199 Internet machine last Monday. The company will target the education and consumer markets. An ORCL executive said, "We're going to sell a gazillion of these." If they succeed in selling a gazillion units, Ellison will probably be worth more than Gates. Forgive me, I'll get serious now. ORCL is one of the strongest and most profitable companies in tech sector right now. The stock has a strong long-term trend-line intact, but is in danger of breaking it. Also, ORCL is in the early stages of developing a wedge. The stock needs to continue to trade above its support levels if it's going to move higher. One thing that worries me, the stock gapped down Wednesday morning, and traded lower on relatively high volume. Watch the stock closely in the next few trading days to see if the long-term trend-line holds. ---------------------------- Conexant Systems - CNXT Could you please let me know what your outlook is for Conexant. It has good news about the company but the stock keeps going down. - Ray As you know, the semiconductor industry is an extremely cyclical business. Over the past month, a conflicting view about the future of the semis has developed among analysts. Many feel that the chip business has peaked, and the good times are soon to end. While other analysts believe that the semis have another two - three years of growth ahead. If you look at the analyst actions over the past two months, you'll see a host of upgrades and downgrades. I think it reinforces the fact that Wall Street is uncertain about CNXT's future prospects. Part of CNXT's decline in the past three months can be attributed to a slew of acquisitions the company made during its fiscal second quarter. CNXT beat the 19 cent estimate by reporting profits of 21 cents per share on April 19th. But, if you account for the merger related expenses, CNXT actually lost $132 mln for the quarter ending March 31st. Executives gave analysts positive guidance during their last earnings announcement, and said to expect around 25% earnings growth in the coming year. But traders have reacted with a more cynical attitude recently. The negative sentiment is clearly visible on CNXT's chart. You can see the big gap down in late March, and the continued selling down to current levels. Like the previous charts of ORCL and QCOM, CNXT also is hovering above a critical support level. The next few days will be a trying test for the stock. If support holds, the stock might bounce. But if it fails, CNXT could easily fall to $30 or even lower. ---------------------------- VISX, Incorporated - VISX VISX has been beaten down due to the insider trading suits. It shows that its earnings are still improving and has recently received FDA approval of the next round of laser surgery equipment. It also has an attractive PE ratio. Should this be considered a long-term portfolio play or should it be avoided due to the uncertainty about the outstanding suits? - Cleve Once a darling of Wall Street, VISX has definitely seen better days. But, prospects may be improving for the laser maker. The company reported last week that they had settled several lawsuits. VISX settled the antitrust violations, the patent dispute, and the breach of contract claims. Wall Street is once again warming up to the stock, seen by the three analyst upgrades in as many months. Most recently, Chase H & Q upgraded the stock to a Buy on May 5th. You're right about the attractive PE ratio, at 15 times earnings, VISX is a compelling value. If the company can get its earnings growth back in line it might be a good long-term investment. The stock has formed an interesting chart pattern over the past two months. VISX has formed a picturesque cup-and-handle. Some technicians think that the cup-and-handle is the most reliable chart pattern. The stock has clearly formed the cup portion, and should take about 2 - 4 weeks to form the handle, if it is a true formation. A breakout above $20 needs to be confirmed by 1.5 times ADV or higher. Additionally, the stock has the unfilled gap above $20, which means there is very little resistance above current levels. Watch the stock closely in the coming weeks for a breakout. ---------------------------- DISCLAIMER: This column is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The Ask the Analyst picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable, but is not guaranteed as to its accuracy. *********** OPTIONS 101 *********** Deja Vu By David Popper When we were kids, we would often play basketball. Sometimes we would be standing on the foul line imagining that if we hit the shot, our team would win the NBA finals. Often, we would miss and then take a "do over." A "do over" permitted us to relive the experience and make it right. With enough "do overs" our team always won. Unfortunately, life does not often provide "do overs". A mistake on the job can cost you your career. An unkind word can cost you a friendship. But in the market, a "do over" is always possible. The market does not remember your past mistakes and does not care. Substantially the same situation will emerge and reemerge. Though no situation is always identical, understanding the tendencies of the market and how your particular stock acts in that environment can help you trade more effectively the second time around. I am sure that it comes as no surprise to you that in the last three months we have experienced a serious uptrend, a serious downtrend, sideways action, another weak uptrend and now, another downtrend. These sudden changes can damage one trader's account and yet be a boon to others. I personally know many people who have lost in excess of $1 million in the past two months. I also know those who have made substantial amounts of money. Most of those who made money this year suffered major losses in 1987, 1997, or 1998. In the debris of the losses, these serious students were able to analyze their trades in light of the market conditions and zero in on their cause of failure. They realized, maybe for the first time, that there is no easy way to make money. There are no gimmicks. There are no magic formulas or eight secret steps to market success. Instead, they realize that there are 1,001 different ways to trade the market. Based on one's temperament, one can trade options (long or short or in the form of spreads, strangles, straddles, etc.), trade futures, indexes, commodities, etc. Every strategy has its owns strengths and weaknesses that can only be learned through reading and actual trading. These traders analyzed not only their trading strategies, but also their money management and emotional makeup. They eventually learned which strategies they are most comfortable with and how much money they feel comfortable placing at risk. From experience, they learned to adhere to strict trading rules, such as those constantly preached on this website. They further developed their own list of favorite stocks which hopefully are leading stocks in leading sectors of the economy, such as networking, semis, etc. They learned the tendencies of these particular stocks and can recite almost from memory their different levels of support resistance. Finally, they have different strategies in trading these stocks under different market conditions. In essence, these traders have learned how to take as much of the guess work out of their trading as is possible. By incorporating all that they have learned, these traders are much more comfortable in any market environment and exude a certain confidence that can only be developed through such preparation. These days, it is obvious that the volume is low on the up and downside. Institutions simply have not bought in yet. The market will be choppy between now and the upcoming Fed meeting. In short, this is a day trader's market. Perhaps after May 16 there will be a rally. The point is that rally techniques will not work in a day trader's market. We have seen the same situation last October and also in April. If you are successful during these downturns, trade the same way. If you are not successful, trade differently or do not trade at all. Try to survive this downturn better than you have any other downturn in the past. Personally, in this volatile time, I prefer to trade only half of my account, leaving the other half to buy the bounces after dips. Currently, I own BRCM and PMCS with covered calls against the positions. When support levels are broken, I repurchase the calls cheaper and buy puts. Specifically, I purchased BRCM at $150 and PMCS at $152 two weeks ago. I sold the May 180 calls on PMCS for $22 and on BRCM for $22.75. Both of these positions are worth about $6 today. Yesterday, I purchased puts at the $150 strike price in both stocks. The idea is to allow the calls to depreciate and the puts to appreciate. The options have all moved the correct way but I have lost ground on the stock. This is still better than I handled the last downturn, but maybe a straddle would have been better. At least owning strong stocks that I know gives me at least the confidence that any downturn should be temporary. The learning continues. In short, downturns will happen often. You will have a chance for another "do over". Contact Support ********************** PLAY OF THE DAY - CALL ********************** ADBE - Adobe Systems $106.19 -6.13 (-13.50 this week) 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. Most Recent Write-Up ADBE's relative strength is simply amazing. Over the last 12 months, ADBE has managed to outperform over 93% of stocks in the market. Though a strong performer, ADBE isn't completely immune to external factors affecting stock prices. The Barron's article proved to be one of the events that can push ADBE lower. The stock gapped down Monday morning, and sold-off into Tuesday. Traders fearing that ADBE is overvalued remembered that the stock sports a P/E of 53, much lower than the average tech stock. That revelation by investors sent ADBE into rally mode late Tuesday, as the stock gained over $7 in less than an hour of trading. However, the stock did give back much of its early gains in the last ten minutes of trading Tuesday. It appears that the selling was nothing more than profit taking, noting the weak volume in the last ten minutes. The scare by Barron's wasn't enough to knock ADBE out of its ascending channel that we've come to love. From here, an aggressive trader might look for ADBE to rebound quickly from its current levels. A conservative trader might wait for the valuation concerns to dissipate and watch for ADBE to clear resistance above $117 before entering the play. Comments As the NASDAQ has sold off by 11% during the past three sessions, ADBE has followed the selling trend. Fortunately, it has found support at $105, just above its 50-dma of $104.63. That is a solid level there. Below that is $100. ADBE is still in a decent uptrend and entry on intraday dips could provide good trading opportunity. Resistance lies at $115. Tomorrow's open will probably be down, but look for the NASDAQ to find a bounce, as well as individual tech stocks. Use caution in entering any play as the NASDAQ is sitting right at support. Targetshoot based on individual risk levels. ***May contracts expire in 2 weeks*** BUY CALL MAY-100 AEQ-ET OI= 149 at $10.00 SL=7.50 BUY CALL MAY-105 AXX-EA OI= 78 at $ 7.00 SL=5.25 BUY CALL MAY-110*AXX-EB OI= 732 at $ 4.38 SL=2.75 BUY CALL MAY-115 AXX-EC OI=1247 at $ 3.00 SL=1.50 BUY CALL JUN-115 AXX-FC OI= 88 at $ 9.88 SL=7.50 SELL PUT MAY-100 AEQ-QT OI= 505 at $ 3.38 SL=4.75 (See risks of selling puts in play legend) Picked on Apr 11th at $119.50 P/E = 58 Change since picked -13.31 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 ***************************************** BIG CAP COVERED CALLS & NAKED PUT SECTION ***************************************** When even the good news is bad... Equity markets fell sharply today on concerns of valuations in technology stocks and fears of higher interest rates. Both the Dow and the Nasdaq suffered from extensive profit-taking after bellwether issues IBM and Motorola forecast declines in future growth. Post-earnings activity in Cisco was also disappointing and the long time market favorite continued to slide after a story in Barron's magazine said the stock no longer commands a premium share value. Bargain-hunting lifted the major averages from their midday lows but technology issues eventually pulled the market to its knees. Now the possibility of a test of the April lows seems almost a certainty and the key is how to time the recovery. Until a major trend is reestablished, our focus will be on conservative positions that have a high probability with little downside risk. Summary of Previous Picks: Covered Calls: (Margin would double the listed Monthly Return) Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return BBRC MAY 60 57.56 60.19 $2.44 8.1% CY MAY 45 42.06 48.31 $2.94 7.1% INSUA MAY 35 32.19 34.63 $2.44 6.2% SEPR MAY 75 70.75 97.50 $4.25 6.1% AMD MAY 60 55.25 79.94 $4.75 5.9% TQNT MAY 80 76.65 82.31 $3.35 5.8% PDLI MAY 85 82.71 107.13 $2.29 5.3% PLXS MAY 65 62.56 78.63 $2.44 5.2% NVLS MAY 50 48.06 49.81 $1.75 4.8% AHP MAY 55 52.75 58.19 $2.25 4.3% TER MAY 85 81.56 84.00 $2.44 4.0% BRKS MAY 70 66.88 69.06 $2.18 3.3% PVN MAY 85 80.38 81.56 $1.19 1.2% Weakening CGNX MAY 55 51.34 51.88 $0.54 0.9% Weakening CSCO MAY 68 62.88 58.50 -$4.38 0.0% at 150 dma IMNX - Closed Naked Puts: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return CY MAY 40 38.56 48.31 $1.44 12.6% BBRC MAY 55 54.06 60.19 $0.94 10.8% PLXS MAY 60 58.75 78.63 $1.25 10.1% NVLS MAY 45 44.06 49.81 $0.94 9.7% TER MAY 75 73.50 84.00 $1.50 9.0% SEPR MAY 65 63.25 97.50 $1.75 8.8% INSUA MAY 30 29.06 34.63 $0.94 8.7% TQNT MAY 70 68.87 82.31 $1.13 7.5% PDLI MAY 70 69.19 107.13 $0.81 6.9% STT MAY 85 84.31 103.81 $0.69 6.0% BRKS MAY 60 58.94 69.06 $1.06 5.9% AHP MAY 50 49.12 58.19 $0.88 5.8% PVN MAY 70 68.75 81.56 $1.25 5.2% CGNX MAY 45 44.25 51.88 $0.75 4.8% Naked Calls: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return PWAV MAY 240 244.38 162.06 $4.38 21.0% CMTN MAY 115 117.19 72.00 $2.19 12.4% JNPR MAY 260 262.25 156.38 $2.25 10.4% BRCM MAY 220 222.00 145.00 $2.00 10.2% TDS MAY 120 121.13 102.50 $1.13 10.1% ITWO MAY 185 187.25 93.31 $2.25 9.5% CHKP MAY 270 273.25 153.75 $3.25 9.3% AAPL MAY 145 146.56 99.31 $1.56 7.8% AMAT MAY 125 126.13 84.63 $1.13 7.8% NEWP MAY 160 161.25 106.75 $1.25 7.3% Bad news: The returns for the new plays in the Naked Calls section last week were not converted to a monthly basis. Good news: With only two weeks to expiration, the returns were double the value listed. New Candidates: This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any strategy or technique in which you are not completely comfortable with the potential loss, the necessary adjustments and the common entry-exit strategies. *************** BULLISH PLAYS - Covered Calls & Naked Puts *************** ARBA - Ariba $67.63 *** Calling The Bottom! *** Ariba is a provider of Internet-based business-to-business electronic commerce solutions. The Ariba Network is a single global business-to-business electronic commerce network that allows buyers and suppliers to automate business transactions on the Internet. Its Operating Resource Management System, the Ariba ORMS application, enables organizations to automate the procurement cycle within their internal Internet Protocol computer networks, lowering the costs associated with operating resources and other materials. When it comes to Internet B2b, Ariba is the leader of the pack. Unfortunately, with the recent market demise, there isn't much in the way of positive news to discuss. Our opinion is simply this; regardless of the current attitude toward technology issues, Ariba is an industry leader and a stock we want in our long-term growth portfolio. Technically, the issue appears to be successfully completing a consolidation phase and we expect the share value to benefit significantly from the next market rally. ARBA - Ariba $67.63 Note: June Strikes Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call JUN 55 IRU FK 1 16.00 51.63 5.4% *** Sell Put JUN 50 IRU RJ 54 2.00 48.00 10.6% *** Sell Put JUN 55 IRU RK 67 3.38 51.63 15.6% Chart = /charts/charts.asp?symbol=ARBA ***** CIEN - Ciena $129.44 *** Up On A Down Day! *** CIENA operates in the optical networking equipment market. They offer products for telecommunications service providers worldwide. CIENA's customers include long distance carriers, competitive local exchange carriers, Internet service providers and wholesale carriers. CIENA's LightWorks architecture enables next-generation optical services and increases the efficiency of service-provider networks by simplifying the network and reducing the cost to operate it. Cienna roared to a $9 gain today after announcing the company announced it has agreed to a multi-year contract with Qwest. Ciena officials said Qwest will buy equipment that improves the capacity and management of its network, including an optical transport system and optical core switch. A spokesman for the company said the new contract could be worth hundreds of millions of dollars over the next 18 to 24 months. Of course investors are focusing more on earnings recently and CIEN's report is scheduled for May 18, a day before this months expiration. With any luck, the expected FOMC rate decision will bully the market into a recovery rally and the stock will finish far above our sold position. CIEN - Ciena $129.44 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put MAY 100 EUQ QT 7948 1.00 99.00 12.6% *** Sell Put MAY 105 EUQ QA 815 1.50 103.50 17.6% Chart = /charts/charts.asp?symbol=CIEN ***** PLXS - Plexus $78.63 *** New All-Time High! *** Plexus provides product realization services to original equipment manufacturers in the medical, computer (primarily mainframes, servers and peripherals), industrial, networking, telecom and transportation electronics industries. Product realization consists of taking a product idea through the entire development process, including manufacturing. PLXS offers product development and design, material procurement and management, prototyping, manufacturing and assembly, and functional and in-circuit testing. Plexus is one of the few technology issues that has survived the recent sell-off and today the share value achieved a new, all-time high. The momentum is based on a positive outlook for future earnings and a number of analysts are bullish on the stock. Last week, Dain Rauscher Wessels analyst David Parrish started coverage of electronic manufacturing services companies and his initial recommendation for Plexus was a "Strong Buy"; 6-month price target of $103. The rating concurs with recent recommendations from Prudential, Chase H&Q, AG Edwards and Thomas Weisel. The technical outlook also agrees with their fundamental analysis. PLXS - Plexus $78.63 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call MAY 70 QUA EN 89 9.88 68.75 6.1% *** Sell Put MAY 70 QUA QN 11 1.50 68.50 20.8% *** Chart = /charts/charts.asp?symbol=PLXS ***** SEBL - Siebel Systems $125.38 *** On The Rebound! *** Siebel Systems is a market leader in enterprise-class sales, marketing and customer service information systems. They help organizations to focus on increasing sales, marketing and customer service effectiveness in field sales, customer service, telesales, telemarketing, call centers, and third-party resellers. They design, market, and support Siebel Enterprise Applications, a web-based application software product family designed to meet the sales, marketing and customer service information system requirements of all sizes of international organizations. SEBL is another industry-leading issue that has managed a decent performance amidst the punishing sell-off in technology stocks. Now the stock is beginning to gain institutional favor and the block-volume buying has increased over the last few days. Our outlook for the issue is neutral to bullish and any market rally should propel the share value well clear of our cost basis. In the event of further consolidation, this company would certainly be a candidate for any long-term portfolio. SEBL - Siebel Systems $125.38 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put MAY 105 SGW QA 581 1.13 103.88 12.3% *** Sell Put MAY 110 SGW QB 1623 2.00 108.00 18.4% Chart = /charts/charts.asp?symbol=SEBL ***** TIN - Temple Inland $52.63 *** Merger Speculation *** Temple-Inland is a holding company with interests in corrugated packaging, bleached paperboard, building products, timber and timberlands, and financial services. The Paper Group consists of the company's corrugated packaging and bleached paperboard operations. Corrugated packaging includes the manufacturing of container-board that is converted into corrugated packaging and point-of-purchase displays. Their bleached paperboard operations produce various grades and weights of coated/uncoated bleached paperboard, bleached linerboard and bleached bristols. Temple's Building Products Group manufactures building products including lumber, plywood, particleboard, gypsum wallboard and fiberboard. The company's Financial Services Group consists of savings bank activities, mortgage banking, real estate development and insurance brokerage. Today's news in the bidding war for Champion International gave paper stocks a bullish lift and Temple Inland rallied to a short term high during the session. Companies in this industry gained attention recently after Champion (CHA) received a $6 billion takeover offer from industry giant International Paper (IP). Now Champion has received a $75 per share acquisition proposal from IP. If the proposal is accepted by Champion, International Paper will make a $75 per share cash tender offer for two-thirds of the outstanding Champion shares, to be followed by a merger in which each remaining share will be converted into International Paper common stock with a market value of $75. However, if IP's stock is trading at less than $34.50 per share at the time of the merger, each remaining CHA share would be converted into 2.17391 International Paper shares. With IP's offer to buy a major company in the industry, investors are speculating on other issues in the group and it appears this stock is now in a bullish trend for the near-term. Our position is conservatively optimistic with little downside and a favorable risk/reward ratio. TIN - Temple Inland $52.63 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call MAY 50 TIN EJ 1134 3.75 48.88 7.7% *** Sell Put MAY 50 TIN QJ 12 1.06 48.94 18.4% *** Chart = /charts/charts.asp?symbol=TIN ***** YHOO - Yahoo $118.88 *** How Low Is Too Low? *** Yahoo is a global Internet communications, commerce and media company that offers a comprehensive branded network of services to more than 120 million users each month worldwide. As the first online navigational guide to the World Wide Web, www.yahoo.com is a major guide in terms of traffic, advertising, household and business user reach, and is one of the most recognized brands associated with the Internet. They also provide online business services designed to enhance their clients' Web services, including audio and video streaming, store hosting and management, and Web site tools and services. Some bullish comments by Yahoo CEO Tim Koogle at the Chase H&Q conference in San Francisco lifted the company's share value today, even as the majority of technology stocks moved lower. An optimistic outlook is just what the company needs as its market capital has fallen significantly over the past four months. With the recent technical history, it's strange the issue showed up on our "bottom fishing" search; oversold stocks with consolidating patterns. In any case, we are going to include this position, based on the short-term support near $110 and the aloof manner in which the stock has performed throughout the technology sell-off. YHOO - Yahoo $118.88 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put MAY 95 YHV QS 306 0.88 94.12 12.1% Sell Put MAY 100 YHV QT 2453 1.25 98.75 14.1% *** Sell Put MAY 105 YMM QA 2219 1.75 103.25 16.7% Chart = /charts/charts.asp?symbol=YHOO ************************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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