The Option Investor Newsletter Wednesday 05-17-2000 Copyright 2000, All rights reserved. 1 of 1 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) ****************************************************************** 5-17-2000 High Low Volume Advance Decline DOW 10769.70 - 164.90 10930.60 10752.60 817,840k 1,000 1,882 Nasdaq 3,644.90 - 72.60 3717.57 3616.27 1,201,780k 1,470 2,511 S&P-100 772.53 - 11.70 784.23 769.45 Totals 2,470 4,393 S&P-500 1447.79 - 18.24 1466.04 1441.67 36.0% 64.0% $RUT 499.66 - 6.32 505.98 497.57 $TRAN 2840.43 - 24.84 2880.67 2832.95 VIX 27.20 + 0.49 28.10 26.69 Put/Call Ratio .55 ****************************************************************** A New Perspective Let's try to stay away from the usual market rhetoric. You know, the market declined on unusually light volume over concerns of the Federal Reserve's future interest rate policy. Instead, let's focus on the internal picture of the market. The trading range we've come to love in the DJIA is narrowing. The Industrial Average ran into resistance Tuesday at 11,000, right on schedule. Wednesday's consolidation may have been warranted, considering the four day rally we enjoyed. If the pattern of higher lows is going to continue, the DJIA should next find bottom somewhere near 10,450. The wedge formation in conjunction with declining volume is indicative of a trading range. With the DJIA quickly approaching the apex of its wedge, we should see a breakaway from congestion in the next few weeks. Whether it's going to be up or down remains to be seen. The NASDAQ is forming the same wedge pattern, except it is much tighter than the Dow's. If the NASDAQ's trading range is going to hold, the next bottom should be traced near 3450. Despite the recent rally, many of the NASDAQ's generals, such as CSCO, MSFT, and DELL are trading just above key support levels. The next several trading days will be critical for the NASDAQ. If the index traces a higher low, and rebounds, we may see a small breakout above congestion. But with so many market participants sitting on the sidelines, it's going to be hard to make a move with any substance. The consensus among Wall Street professionals is that the market will remain range bound well into the Summer. The uncertainty surrounding the Federal Reserve and continued questioning of the high valuations in the tech sector has many market participants straddling the fence. The indecisiveness among investors points to range bound trading. Many analysts believe that a sideways market is good for the long-term health of the market. In that, the sky-high multiples seen in the tech stocks will come back to earth as earnings catch up with valuations. While the churning of the market may be good for the long-term bull, it has many traders stepping away from the market. Margin and momentum players have been scared away from the market, and day traders have been humbled. That doesn't mean you can't make money in this market, it's simply a matter of working harder than the next trader, and honing your skills. And continue doing the things that make you money. Profit taking and interest rate worries were the themes on CNBC Wednesday. But there were a few other factors that weighed on the major indices. HWP was a drag on the DOW after reporting results Wednesday. Some analysts questioned the quality of HWP's earnings report. Pointing out the slew of one-time charges to profits. HWP was also hurt by the sell-off seen in Agilent (A), H-P's spin-off. Revenue concerns surfaced after A reported earnings that met expectations. Analysts cut their price targets over concerns of problems in the healthcare group and flattening margins in its test and measurement unit. LCOS set the tone for the Net stocks Wednesday. LCOS tumbled 20% after analysts downgraded the stock. Analysts said the stock is reasonably valued for the short-term considering the buyout offer from Terra Networks (TRRA) and the risk associated with the deal. Additionally, LCOS reported better-than-expected earnings after the bell Wednesday. The Internet portal reported 7 cents per share profits, versus a 5 cent estimate. LCOS edged slightly higher in after-hours trading. The controversial Salomon Smith Barney analyst, Jack Grubman, sent a shock through the telecom sector Wednesday. Grubman lowered his revenue and earnings estimates for AT&T (T). Grubman said T is unprepared to meet the demands for high-speed data transmission. The bearish comments sent T lower by $0.69 to $38.06, just above its 52-week low. But the rest of the telecom sector suffered greatly. NXLK lost 12%, NXTL fell 8%, and WCOM lost $1 closing at $42. As the light trading activity continues, the online brokers suffer. Stocks such as SCH, NITE, EGRP, and AMTD have been in a downward spiral since volume began drying up last month. And Wednesday proved to be another slow volume day, consequently the online brokers continued to slide. SCH dropped $1.94 to close at $43.75 and NITE lost nearly 4%, closing at $29.94. There were a few bright spots in the market Wednesday. INTC reversed early-day losses after the Board of Directors declared a stock split and dividend increase. INTC said the 2-for-1 split will be payable on July 30th. Shareholders will vote on the proposal to increase authorized shares at the company's annual meeting. Mattel (MAT) jumped over 13% after the company named Robert Eckert as the new Chairman and CEO. Veritas (VRTS) rose $7 to $111 after the company announced a deal with IBM to supply enterprise computing solutions. Shares of Analog Devices (ADI) bucked the earnings sell-off cliche and surged 8% higher Wednesday after the company beat expectations and forecasted higher third-quarter results. ADI said that the booming demand for chips should continue and revenues could rise more than 65% in the next year. Another event to keep an eye on is the MSFT courtroom hearing expected to commence next week. MSFT has made it clear that they plan to appeal Judge Jackson's findings. MSFT claims the proposal to split the company isn't warranted by the evidence that has been presented by the Justice Department. Instead, MSFT has counter-proposed a plan to restrict its business practices. Jackson set a remedy hearing for May 24th. The government filed its final arguments Wednesday. So what is it going to take to get us out of this trading range? About a month ago, Jim suggested that we will be stuck in congestion until second quarter earnings season. We're still about a month away until we get the next wave of earnings reports. And there is no major economic news due out for the next couple of weeks. Simply put, there is no reason to buy or sell right now. With the Summer slowdown approaching and a lack of catalysts to push the market either way, we're probably stuck in this trough for a while. Unless a few of those money managers who have been stockpiling cash put some money to work before their Summer retreat to the beach. With such an illiquid market, institutions can move stock prices very quickly. If the professionals decide to commit to new positions, we could see a break from congestion. While there isn't any major market moving event in the next few weeks, we will face options expiration on Friday. The May expiration probably won't move the market substantially, but it will provide more volatility. And where there is volatility, there is opportunity to profit. Speaking of profits, there are still a few remaining earnings reports yet to be announced. ADC Telecom (ADCT), Barnes and Noble (BKS), Ciena (CIEN), and Network Appliance (NTAP) will report earnings Thursday followed by Sycamore Networks (SCMR) on Friday. The Trade Gap numbers for March will be reported Friday. Wall Street's consensus estimate for the Trade Gap is $29.4 bln. So what is a trader to do? I agree with what Matt suggested in Tuesday's Market Wrap. Watch for entry and exit points near support and resistance levels. Money can still be made in a sideways market, it just requires more work and a lot of patience. While there is volatility, there is room for taking profits from the market. There are still plenty of stocks trading with wide intra-day ranges. And believe it or not, there are a few stocks emerging from congestion and tracing new highs. In fact, right now may be a good time to look for new market leaders before the next bull run begins. But before you commit you hard earned capital to new positions, consider your risk tolerance. Wait for the stocks that you are watching to cross key pivotal points and practice patience in this market. No one ever became poor taking profits. Sell too soon, and save your money for another day. Trade smart! Eric Utley Research Analyst *********** IN THE NEWS *********** A Federal Reserve Primer By S.P. Brown Unless you've been living in Antarctica for the past year, you've undoubtedly become acquainted with the Federal Reserve and interest rate hikes. It seems a day doesn't go by anymore where Fed Chairman Alan Greenspan's name isn't featured in a news headline or a business roundtable discussion. Nevertheless, despite the omnipresence of Greenspan & Co., there are still many investors who really don't understand what the Federal Reserve does, or what its purpose is. With that said, here's a truncated look at the Fed's structure and its modus operandi. Most countries have a central banking authority that regulates its money supply and conducts monetary policy. The United States is no different. Here, that central bank is the Federal Reserve. The major purpose of the Fed, or any central bank, is to provide a monetary climate that's in the best interest of the economy. To that end, Congress has instructed the Fed to conduct monetary policy in a manner that promotes "full employment and price stability." To achieve this heady goal, the Fed has into three major decision-making centers: (1) the Board of Governors, (2) the district and regional banks and (3) the Federal Open Market Committee. Without a doubt, the leading decision-making center of the Federal Reserve System is the Board of Governors. This powerful cabal consists of seven members. Each member is appointed to a staggered 14-year term by the U.S. President (with the approval of Congress). The President also appoints one of the seven members as chairman for a four-year term. Of course, the current chairman is Alan Greenspan. It's difficult to understate the power of the Fed Board, for this body establishes the rules and regulations applicable to all depository institutions. It sets the reserve requirements and regulates the composition of the asset holdings of these institutions. Because of the importance of monetary policy and the power of the Board of Governors wields over the financial markets, the Fed chairman is often said to be the second most influential (and in Greenspan's case, the most influential) person in U.S. The Fed is physically structured into 12 district banks with 25 regional branches spread throughout the nation. These districts and regional branches operate under the supervision of the Board of Governors. These district banks are essentially bankers' banks; commercial depository intuitions and the federal government are the only banking customers of the Fed (so, don't go there looking to open a checking account). To that end, the Fed plays an important role in clearing checks through the banking system. The district and regional banks handle approximately 85 percent of all check-clearing services of the banking system. The focal point for policy-making within the Federal Reserve system is the FOMC, the Federal Open Market Committee. This committee consists of seven members of the Board of Governors, whose chairman is also chairman of the FOMC, and five of the presidents of the 12 district banks, though all 12 district bank presidents participate in the FOMC meetings. The FOMC meets every five to eight weeks. And as many market watchers are well-aware, through the FOMC comes those much anticipated decisions on interest rates. The interest rate most often targeted is the federal funds rate, which is the rate one bank will charge another for a short-term loan (generally, up to seven days). The other rate often mentioned in the same breath as the fed funds rate is the discount rate, the rate at which banks can borrow from the Fed, which doesn't happen often. In fact, borrowing from the Fed amounts to less than one-tenth of 1 percent of the available loanable funds to commercial banks. So, in essence, the discount rate is a symbolic rate at best. Since the Fed operates primarily on the short end of the yield curve, its initial impact is on short-term interest rates, e.g. credit cards and variable-rate credit instruments. However, the effects on long-term or intermediate interest rates may be much attenuated and late to arrive. Many, though by no means all, economists believe that it's the long-term rather than the short-term interest rate that has the biggest impact on investment and price stability, which has many economists questioning the Fed's interest rate policies. Countering this belief is Robert Hall of Stanford University, who has argued that it's the short-term interest rate that is relevant for investment decisions. Hall reasons that in any one year a firm has to decide whether to invest this year or postpone the investment until next year. In theory, then, a firm compares the yield from investing this year with the costs of investing this year instead of next year. Even though interest rates are the headline grabbers, the Fed has two other powerful tools at its control for manipulating the economy - reserve requirements and open market operations. The Fed requires banking institutions to maintain reserves against the demand deposits of their customers. Banks are required to maintain reserves to meet any sudden increase in withdrawals and to prevent bankers from making imprudent loans. More importantly to the Fed, though, it can use reserve requirements to alter the money supply. Since we live in a fractional reserve banking environment, a change in reserve requirements will change the amount of funds a bank has to lend. An increase in reserve requirements will force banks to extend fewer loans, while a decrease in reserve requirements will allow banks to extend more loans. In recent years, the Fed has seldom used its regulatory power over reserve requirements to alter market liquidity. The Fed can also alter market liquidity through its open market operations, which is the buying and selling of U.S. Treasury securities on the open market. Unlike everyone else, the Fed can actually write a check without funds in its accounts. So, when the Fed buys a Treasury security it creates money. The reason being, the Fed's buying of Treasury securities affects both the supply of money directly and the reserves available to the banking system. When the Fed purchases a Treasury security, it injects "new money" into the economy in the form of an increase in either the currency in circulation or the deposits with commercial banks. Essentially, the seller of a Treasury security receives a check drawn on the Fed. If a seller cashes the check, the amount of currency in circulation expands because money has to be manufactured to cover the check. On the other hand, if, as is more likely to be the case, the seller deposits the check with a commercial bank, the supply of checking-account deposits increases and new bank reserves are created. If the Fed wants to remove liquidity, it sells Treasury securities. When the Fed sells a Treasury security, the buyer usually pays for it with a check drawn on a depository institution. As the check clears, both the buyer's checking account and the reserves on the bank on which the the check was written decline. Thus, reducing the amount of money in circulation. In a nutshell, through buying and selling Treasury securities, changing bank reserve requirements and manipulating short-term interest rates, the Fed can add or subtract liquidity from the market, which, in turn, has a direct effect on the economy's ability to grow. *********** OPTIONS 101 *********** Surviving a Sideways Market By David Popper For weeks, I have talked about the need to eliminate emotion from trading. I confess to you that my trading goes from good/adequate (meeting my goals) to poor when emotions invade my thinking. Over the past several weeks, I have discussed possible "systems" that can be utilized in sideways markets to reduce emotions and thus, increase your chances of success. Now, I would like to review several of these items: 1. In a sideways market set reasonable goals for each account based on time parameters and based on market conditions. Is your goal cash flow on a monthly basis or, alternatively, is it long term accumulation? Long term accumulation is a much easier goal to attain. Time can make up for many mistakes. Trading for monthly cash flow in a sideways market requires much more acumen. I would suggest initially that your monthly goal should be broken into twelve mini goals. I realize that there are twenty trading days in a month, but some days stocks just won't cooperate. It is unreasonable to think that you can win every day in a sideways market, so shoot for 60%. I would suggest that once your mini goal on any day is met, the trade should be exited unless there is a darn good reason for you to remain in the trade. Nothing is more disheartening than attaining your goal, yet staying in the play because there is a chance for a big hit, only to see your profit dissolved. 2. In a sideways market trade only stocks that are leading stocks in leading sectors of the economy. When you only trade leaders, a great deal of pressure is removed. If, for some reason, you make a mistake and are left holding the stock--it is still a great stock. Avoid trading stocks that you would not like to own, no matter how good the chart looks at the time. If you are trading only great stocks and the stock takes an unexpected turn and you fail to exit properly, the chances are excellent that the stock will eventually return and place you in a profitable position. 3. In a sideways market trade only a small amount of stock. A small amount of stock can easily help you reach your short term goals. For example, I have traded PMCS over the past month and have managed about a $500 profit per day. This stock is rated either a "buy" or "strong buy" by nearly every analyst and is considered one of the strongest stocks in its sector. The stock has a high relative strength and technically is in a trading range between $140 and $190. This stock maintains a great deal of volatility and typically will trade in a range of twelve to twenty points per day. 4. Pay attention to events affecting your stock. Events such as earnings, splits, analyst meetings, and participation in conferences can affect your stock. Additionally, news on other stocks within the sector will have an impact on the stock you are trading. 5. Have a plan if things go south. Many people enter a trade without considering the potential downside of such a trade. There are a myriad of books that discuss when to sell stocks, including many advertised on this website. Personally, since I am trading a small amount of stock within a well defined trading range, I typically will sell the stock only when it breaches the trading range on the downside for more than a day. At that point, I feel that the stock can no longer be trusted and perhaps there may be a fundamental problem with this stock. It may have changed from being a leading stock to a has-been. Before making this decision, however, I will look at the sector and the market as a whole to determine whether this stock is trading in sympathy with the larger forces or whether it is suffering for its own sins. In any event, I have a lot of leeway because I am only trading a small amount of stock. In short, if you can follow these above rules, you will have designed a system which should be profitable and which should usually protect you from any devastating loss. Living within such a system should increase your confidence and allow you to trade with much less emotion. Contact Support ********************** PLAY OF THE DAY - CALL ********************** SEBL - Siebel Systems $138.13 -2.69 (+9.13 this week) Call it The King of CRM (customer relations management) software. Siebel Systems, Inc. is the world's leading provider of eBusiness applications software. Siebel provides an integrated family of eBusiness applications enabling multi-channel sales, marketing and customer service systems to be deployed over the web, call centers, field, reseller channels, retail and dealer networks. Siebel Systems' sales and service facilities are deployed locally in more than 28 countries. Most Recent Write-Up Breakout!!! Pull up a chart and look at the action starting around 2:00 ET Monday. A big move above $130 with huge volume to back it up made this a textbook breakout. It moved up to $140 where it held flat until the Fed announcement. Despite a re-test to $134 immediately following the Fed rate hike announcement, the rebound was swift and actually pushed SEBL through $140, a previous level of resistance. Despite low overall daily volume, this is a technically bullish pattern. Why? Because not only did the move occur at a historical level of resistance, it also occurred at the 50-dma (then about $127) and held. When you have a technical wedge, historical support, and a moving average at roughly the same place, volume is a slightly less important factor in the equation for a breakout. Every technical trader in world was probably all over this one. We look for the technical trend to continue with the next resistance level at the late March (just before the first selloff) high of $147. A target shooting level of support is harder to find. Comments After Monday's breakout to the $140 level, SEBL has found support in the last two sessions around $135. Today, SEBL traded in a $5 range. It bounced early in the day off of $135.50 and then found its second bounce later at $137, just about where it opened. Both of these levels are short-term support that represent good entry points, depending on risk profiles. More intermediate support is below at the 10-dma of $131.88. Conservative traders may want to wait for the surge through $140 on strong volume before entering, but the return of volume may not be necessary for this uptrend to continue. BUY CALL JUN-130 SGW-FF OI=734 at $16.75 SL=13.00 BUY CALL JUN-135*SGW-FG OI=327 at $14.00 SL=11.25 BUY CALL JUN-140 SGW-FH OI=884 at $11.63 SL= 9.25 BUY CALL JUN-145 SGW-FI OI=155 at $ 9.38 SL= 7.00 BUY CALL AUG-150 SGW-HJ OI=487 at $17.13 SL=13.25 SELL PUT JUN-120 SGW-RA OI=110 at $ 4.50 SL= 6.00 (See risks of selling puts in play legend) Picked on May 14th at $129.00 P/E = 200 Change since picked $9.13 52-week high=$175.13 Analysts Ratings 14-3-0-0-1 52-week low =$ 19.94 Last earnings 04/00 est= 0.14 actual= 0.17 surprise= 21% Next earnings 07-18 est= 0.18 versus= 0.12 Average Daily Volume = 4.78 mln /charts/charts.asp?symbol=SEBL ***************************************** BIG CAP COVERED CALLS & NAKED PUT SECTION ***************************************** Now that interest rates are higher, where will the market go? Lets hope today is no indication as stocks stumbled while traders took profits from the recent rally. The weakness was expected with many investors simply trying to lock-in returns from last week's gains. Some find it strange that stocks rallied Tuesday when the Fed raised interest rates 50 basis points, the highest increase in five years. Generally, any increase in borrowing costs is bad for corporate earnings; in the end it reduces net profits. Investors had bid the market higher on the hopes that this hike would be the last for some time. Unfortunately, the FOMC left just enough doubt about their inflation outlook that most analysts are speculating on another increase in June. With the earnings season almost over, the summer doldrums will soon be upon us and the potential for a future rise in rates may indeed threaten stock prices. Based on that perspective, our approach can only be one of cautious optimism and we will draw upon that attitude in today's selection of plays. 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 63.25 $2.44 8.1% TIN MAY 50 48.88 54.13 $1.12 7.7% CY MAY 45 42.06 50.13 $2.94 7.1% INSUA MAY 35 32.19 34.75 $2.56 6.5% PLXS MAY 70 68.75 86.88 $1.25 6.1% SEPR MAY 75 70.75 108.00 $4.25 6.1% AMD MAY 60 55.25 85.00 $4.75 5.9% TQNT MAY 80 76.65 92.00 $3.35 5.8% CGNX MAY 55 51.34 54.94 $3.60 5.8% TER MAY 85 81.56 91.50 $3.44 5.6% NVLS MAY 50 48.06 51.31 $1.94 5.3% PDLI MAY 85 82.71 140.56 $2.29 5.3% PLXS MAY 65 62.56 86.88 $2.44 5.2% PVN MAY 85 80.38 90.19 $4.63 4.7% BRKS MAY 70 66.88 72.00 $3.12 4.7% AHP MAY 55 52.75 56.75 $2.25 4.3% CSCO MAY 68 62.88 58.00 -$4.88 0.0% At 150 dma ARBA JUN 55 51.63 67.25 $3.37 5.4% IMNX - CLOSED Naked Puts: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return PLXS MAY 70 68.50 86.88 $1.50 20.8% TIN MAY 50 48.94 54.13 $1.06 18.4% YHOO MAY 100 98.75 137.81 $1.25 14.1% CIEN MAY 100 99.00 144.13 $1.00 12.6% CY MAY 40 38.56 50.13 $1.44 12.6% SEBL MAY 105 103.88 137.81 $1.13 12.4% BBRC MAY 55 54.06 63.25 $0.94 10.8% PLXS MAY 60 58.75 86.88 $1.25 10.1% NVLS MAY 45 44.06 51.31 $0.94 9.7% TER MAY 75 73.50 91.50 $1.50 9.0% SEPR MAY 65 63.25 108.00 $1.75 8.8% INSUA MAY 30 29.06 34.75 $0.94 8.7% TQNT MAY 70 68.87 92.00 $1.13 7.5% PDLI MAY 70 69.19 140.56 $0.81 6.9% STT MAY 85 84.31 112.44 $0.69 6.0% BRKS MAY 60 58.94 72.00 $1.06 5.9% AHP MAY 50 49.12 56.75 $0.88 5.8% PVN MAY 70 68.75 90.19 $1.25 5.2% CGNX MAY 45 44.25 54.94 $0.75 4.8% ARBA JUN 50 48.00 67.25 $2.00 10.6% Naked Calls: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return PWAV MAY 80 81.46 66.63 $1.46 21.0% Adj for 3-1 split CMTN MAY 115 117.19 87.63 $2.19 12.4% JNPR MAY 260 262.25 167.81 $2.25 10.4% BRCM MAY 220 222.00 162.19 $2.00 10.2% TDS MAY 120 121.13 107.25 $1.13 10.1% ITWO MAY 185 187.25 116.25 $2.25 9.5% CHKP MAY 270 273.25 182.75 $3.25 9.3% AAPL MAY 145 146.56 101.38 $1.56 7.8% AMAT MAY 125 126.13 89.63 $1.13 7.8% NEWP MAY 160 161.25 144.44 $1.25 7.3% 2 days left... 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 *************** AFFX - Affymetrix $159.94 *** Own This One! *** Affymetrix has developed and intends to establish its GeneChip system as the platform of choice for acquiring, analyzing and managing complex genetic information in order to improve the diagnosis, monitoring and treatment of disease. The GeneChip system consists of disposable DNA probe arrays containing gene sequences on a chip, certain reagents for use with the probe arrays, a scanner and other instruments to process the probe arrays, and software to analyze genetic information from the probe arrays. Affymetrix commenced commercial sales of the GeneChip system for research use in April 1996 and currently sells its products to pharmaceutical and biotechnology companies, academic research centers and clinical reference laboratories primarily in the United States and Europe. The last few months have been tough for Biotech's and Affymetrix suffered with the rest of the group, losing 2/3 of its value in just over one month. Now the selling appears to have abated and many of the most promising companies are beginning to recover. Unfortunately, most biotech's are not profitable and they hold valuations based upon anticipated growth rather than current earnings. AFFX is one of the few stand-outs with cutting-edge technology and profitability expected in the near future. Based on the bullish technicals, investors agree that AFFX is one of the leading issues in the speculative arena of drug development. AFFX - Affymetrix $159.94 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put JUN 105 FIQ RA 0 2.06 102.94 6.1% *** Sell Put JUN 110 FIQ RB 18 2.88 107.12 8.4% Sell Put JUN 115 FIQ RC 5 3.88 111.12 11.0% Sell Put JUN 120 FIQ RD 109 5.00 115.00 13.7% Chart = /charts/charts.asp?symbol=AFFX *************** NEWP - Newport Corporation $144.44 *** On The Move! *** Newport Corporation, together with its consolidated subsidiaries, is a global supplier of high precision components, instruments, micro-positioning and measurement products and systems to the fiber optic communications, computer peripherals, semiconductor equipment and scientific research markets. The company designs, manufactures and markets components and systems that enhance productivity and capabilities of automated assembly and test and measurement for high precision manufacturing and engineering applications. Newport also provides sophisticated equipment to commercial, academic and governmental research institutions worldwide. The company operates in three business segments, two comprising domestic operations, Components and Subassemblies, and Instruments and Systems. The third business segment is comprised of the Company's Europe operations. In early April, Newport reported that first-quarter profits more than tripled, easily beating analyst's expectations, as sales to the optical communications and semiconductor equipment markets soared. The company's sales rose 55% on strength in the fiber optic and chip sectors. Looking ahead, Newport said it expects revenue in the second quarter to rise sequentially based on its current backlog and anticipated sales in their target markets. In addition, stockholders have approved an increase in the number of authorized common shares to 75 million from 20 million. The increase makes possible a previously announced 3-for-1 split of the company's common stock and with the potential for a pre-split rally, this is one to watch! NEWP - Newport Corporation $144.44 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call JUN 110 QNW FB 29 40.00 104.44 5.4% *** Sell Call JUN 115 QNW FY 5 36.63 107.81 6.8% Sell Put JUN 85 QNW RQ 2 1.50 83.50 5.0% Sell Put JUN 90 QNW RR 0 2.19 87.81 7.1% Sell Put JUN 95 QNW RS 10 3.00 92.00 9.5% *** Sell Put JUN 100 QNW RT 0 4.00 96.00 12.3% Sell Put JUN 105 QNW RA 0 5.00 100.00 15.0% Sell Put JUN 110 QNW RB 53 6.63 103.37 18.9% Sell Put JUN 115 QNW RY 0 8.13 106.87 22.3% Chart = /charts/charts.asp?symbol=NEWP *************** NVDA - Nvidia $110.50 *** Split Rally? *** NVIDIA designs, develops and markets 3D graphics processors, graphics processing units and related software that set the standard for performance, quality and features for every type of desktop personal computer user, from high-end machines to low cost PCs. Their 3D graphics processors are used in a wide variety of applications including games, the Internet and industrial design. The NVIDIA TNT2, TNT2 M64 and Vanta graphics processors deliver high performance 3D and 2D graphics at a reasonable cost, making them the graphics hardware of choice for a wide range of applications for consumer and commercial use. This week Nvidia announced record revenues and earnings for the first quarter of fiscal 2001. Revenues increased 109% to $148.5 million, and earnings were $0.47 per share, well above the same quarter results last year of $0.18 per share. Nvidia has also approved a 2-for-1 stock split and the company was upgraded by several analysts after the bullish announcement. Note: The stock closed up almost $17 today so there is likely to be a pull-back in the next few sessions. Use the movement to lower your cost basis in the issue. NVDA - Nvidia $110.50 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call JUN 90 UVA FR 179 25.00 85.50 5.3% *** Sell Put JUN 75 UVA RO 29 1.31 73.69 5.7% Sell Put JUN 80 UVA RP 50 2.13 77.87 8.9% *** Sell Put JUN 85 UVA RQ 36 3.00 82.00 12.1% Sell Put JUN 90 UVA RR 7 4.50 85.50 16.2% Chart = /charts/charts.asp?symbol=NVDA *************** RFMD - RF Micro Devices $115.00 *** Growing To Meet Demand! *** RF Micro Devices designs, develops, manufactures and markets proprietary radio frequency integrated circuits, or RFICs, for wireless communications applications such as cellular and personal communication services, cordless telephony, wireless local area networks, wireless local loop, industrial radios, wireless security and remote meter reading. They offer a broad array of products, including amplifiers, mixers, single chip transmitters, receivers and transceivers, which represent a substantial majority of the RFICs required in wireless subscriber equipment. As of March 1999, they marketed 158 products, with 50 more in various stages of development. RF Micro Devices is poised for growth and to meet the demand for their products, the company recently opened a new engineering design center. Located in Chandler, Arizona, the new facility is staffed with design engineers developing state-of-the-art power amplifiers, circuitry and other products used in cellular and PCS telephones. The additional design capacity is critical for the company to serve their growing customer base and it allows them to leverage premier design talent from around the country. The issue is on the move technically and analysts are bullish on its fundamental outlook. CSFB, First Union, U.S. Bancorp Piper, and Paine Webber all have aggressive "buy" ratings on the company and it appears that investors agree with their outlook. RFMD - RF Micro Devices $115.00 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call JUN 95 RFZ FS 58 24.50 90.50 5.0% *** Sell Call JUN 100 RFZ FT 151 21.13 93.87 6.6% Sell Put JUN 80 RFZ RP 94 1.31 78.69 5.5% Sell Put JUN 85 RFZ RQ 131 2.06 82.94 8.3% *** Sell Put JUN 90 RFZ RR 41 3.13 86.87 12.1% Sell Put JUN 95 RFZ RS 39 4.63 90.37 15.3% Sell Put JUN 100 RFZ RT 58 6.00 94.00 16.4% Chart = /charts/charts.asp?symbol=RFMD *************** SDLI - SDL Inc. $208.38 *** New Acquisition! *** SDL, Inc. is a provider of solutions for optical communications and related markets. Their products power the transmission of data, voice, and Internet information over fiber optic networks to meet the needs of telecommunication, dense wavelength division multiplexing (DWDM), cable television and metro communications applications. Their solutions enable customers to meet the need for increasing bandwidth by expanding their fiber optic networks more quickly and efficiently than by using conventional electronic and optical technologies. Its revenue comes from two principal markets: fiber optic communications and industrial laser products. The recent rally in SDLI shares began last week after the company announced that it would acquire Photonic Integration Research for $1.8 billion in cash and stock. SDL plans to use a silicon chip made by Photonic that allows more information to be channeled through a single fiber. The unique device would replace several components inside SDL's products and allow SDL to produce cheaper, more reliable and better-performing network systems. The move is viewed as a strategic acquisition in a rapidly growing market and very complimentary to their present business. Photonic will add to SDL's earnings immediately and based on Photonic's quarterly revenue of $20 million, it will account for over 20% of sales and profits in the combined company. Analysts agree with the company's positive future and investors have pushed the issue up 30% in just one week. Our cost basis allows a conservative position in an industry-leading company with a bullish technical outlook. SDLI - SDL Inc. $208.38 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put JUN 130 YAL RF 1649 2.88 127.12 6.6% Sell Put JUN 135 YAL RG 51 3.00 132.00 6.8% Sell Put JUN 140 YAL RH 198 3.25 136.75 7.3% *** Sell Put JUN 145 YAL RI 151 3.63 141.37 8.1% Sell Put JUN 150 YAL RJ 95 4.13 145.87 9.1% Sell Put JUN 155 YAL RK 60 4.75 150.25 10.4% Sell Put JUN 160 YAL RL 63 5.88 154.12 12.5% Chart = /charts/charts.asp?symbol=SDLI *************** YHOO - Yahoo $137.81 *** Back On Track? *** 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. Yahoo is the dominant force on the World Wide Web but the recently announced acquisition of U.S. Web network Lycos (LCOS) by Spanish Internet group Terra Networks (TRRA) underscores the major reason for Internet companies; global information. Currently, the two largest Web networks are Yahoo and American Online and with the LCOS buyout, investors are once again realizing the potential for Internet companies with strong international presence. With the recent technical history, Yahoo is now firmly established in our bullish portfolio of technology issues and we are going to list these positions for those of you that missed it the first time. YHOO - Yahoo $137.81 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put JUN 110 YMM RB 901 1.56 108.44 5.4% Sell Put JUN 115 YMM RC 1124 2.25 112.75 6.6% *** Sell Put JUN 120 YMM RD 4926 3.13 116.87 7.8% Chart = /charts/charts.asp?symbol=YHOO *************** BEARISH PLAYS - Covered Puts & Naked Calls *************** JNPR - Juniper Networks $167.81 *** Searching For A Bottom *** Juniper Networks is a leading provider of Internet infrastructure solutions to Internet service providers and other telecom service providers. Juniper delivers next generation Internet backbone routers that are specifically designed for service provider networks. The company's flagship product is the M40 Internet backbone router. The M40 combines the features of the JUNOS Internet Software, high performance ASIC-based (application specific integrated circuit) packet forwarding technology and Internet optimized architecture into a purpose-built solution for service providers. Unlike conventional routers that are developed for enterprise applications and are increasingly inadequate for service provider use in public networks, Juniper's routers are specifically designed to accommodate the size and scope of the Internet. Although the majority of well-known technology stocks have fared better than the broad market in recent sessions, there remains a significant amount of technical damage to repair before the sector leaders can recover. Juniper is certainly one of the top companies in the Internet Software group but for now the issue is simply trying to find solid footing in this volatile market. We will use the current consolidation period to benefit from overpriced option premiums with these relatively conservative, bearish positions. The probability of the share value reaching our sold strikes appears rather low but there is always the possibility of a pre-split rally so monitor the position daily for changes in technical character. JNPR - Juniper Networks $167.81 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call JUN 250 JUY FJ 714 3.13 253.13 8.6% Sell Call JUN 260 JUY FL 352 2.56 262.56 7.2% Sell Call JUN 270 JUY FN 46 2.13 272.13 6.1% *** Sell Call JUN 280 JUY FP 46 1.69 281.69 4.9% Chart = /charts/charts.asp?symbol=JNPR ************************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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