The Option Investor Newsletter Tuesday 6-13-2000 Copyright 2000, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 6-13-2000 High Low Volume Advance Decline DOW 10621.80 + 57.60 10653.66 10492.80 914,116k 1,742 1,185 Nasdaq 3851.07 + 83.15 3851.43 3695.35 1,397,255k 2,049 1,988 S&P-100 789.43 + 15.18 790.13 772.35 Totals 3,791 3,173 S&P-500 1469.44 + 23.44 1470.42 1442.38 54.4% 45.6% $RUT 513.75 + 5.24 513.76 500.91 $TRAN 2754.87 - 26.63 2796.98 2746.19 VIX 24.37 - 1.00 26.36 24.10 Put/Call Ratio .61 ****************************************************************** A Cool Down In Spending Spurs Market Rally All eyes were on the Retail Sales report due out this morning and the outcome further signaled the economy is slowing. It was apparent that consumers kept their wallets idle this past month as sales fell 0.3% versus an expected 0.1% rise. The icing here was an unexpected downward revision for April Retail numbers. They were revised down from an 0.2% decline to an 0.6% decline for the month. All of this was construed on Wall Street as further evidence that the Fed's rate hikes were doing their job and, perhaps, no further hikes are needed. Despite that, the market was nervous about the CPI report due out tomorrow and most major indices spent the morning below the unchanged line. So where did the rally come from? The main man himself, Alan Greenspan, spoke to the New York Association of Business Economics early this afternoon. In prepared remarks, he said there's evidence of an improvement in the productivity growth. What? He went on to say that "most of the gains in the level and the growth rate of productivity in the United States since 1995 appear to have been structural, largely driven by irreversible advances in technology." Wait a minute. Did I hear that correctly? Is he now stating that productivity will help curb the tide of inflation? Many analysts walked away unsure as to what he may do this month at the FOMC meeting, but you can tell from Wall Street that some are assuming Greenspan feels less inclined to make a move. This speech from the Fed Chair put the buyers into action and they quickly erased the losses. When it was all said and done, the DJIA climbed by 57.63 to 10,621. Volume was so-so at 915 million shares. The Nasdaq really started to cook on those comments and closed right smack-dab on the day high at 3851.07, up 83.16 on the day. Volume came in just under 1.4 billion. The S&P 500 finished up 23.44 to 1469.44. All in all, it was an encouraging day for stocks, despite many players sitting out ahead of tomorrow's CPI. For those that know me (or for those that don't), I am a Nasdaq watcher and I like the looks of today's action. We have been stuck in a range for some time, but 3700 support held up just fine today. The levels I am watching are support at 3700 and resistance at 3900. Some of the individual charts are just as pleasing to look at, most breaking out over resistance. SDLI took off again after some recent consolidation, +21.09 today. RMBS broke out over $240 on a nearly $30 move. CHKP rallied by $18.41 and is sitting right under resistance at $230. RBAK scorched a $15.15 gain from yesterday, but more like a $20 move from the intraday lows. Thank goodness we had the four highest point gainers on our call list, right? Even GLW added another $9 after yesterday's mammoth move. One of the sectors that looked strong included the Drug group. Shares of large U.S. drugmakers jumped because investors are concerned about a possible slowdown in the U.S. economy and rotated into the sector, which is considered a safe harbor. Other sectors on the move were Retail, Insurance, Fiberoptics, and Healthcare. The losers included Transports and Cyclicals. The individual stories were just as impressive with big moves all around. NBCI sticks in my mind as the loser of the session after they warned they will miss estimates. The company blamed a soft advertising market and expenses due to acquisitions as the culprit. Investors took it out on their stock by sending NBCI down $7 to $17.63. First call had expected a $0.70 loss for the quarter. Hewlett-Packard also dropped today on word that investment firm Sanford Bernstein cut their rating and earnings numbers for the HWP. This caused the stock to drop seven dollars to $119 and took about 35 points off the DJIA. There were winners in this market too. Shares of ENT jumped more than 14% on takeover rumors. The report says that either Global Crossing or France Telecom are the potential suitors. ENT finished up $6.75 to $49.13. CMGI was the big news after the close today. The Internet incubator reported earnings far ahead of expectations with a loss of $1.53 per share. This was $0.30 better than First Call expectations, but down versus last quarter when they only lost $0.74. The real numbers to watch were the revenues which grew by nearly 50% from the first quarter. They reported net revenue of $225.9 million for the fiscal third quarter ending April 30th. Shares of CMGI were being well received in after-hours trading, moving up to $60 from a $56.63 regular session close. The interesting thing about some of the big movers from today is, given the two weeks of consolidation, they haven't really got away from us. I don't endorse running out and buying something that traded up $25 in one session, as we've all been skinned doing that before. But, considering some of the individual charts is what is leaving me with an upside bias. Lots of stocks are looking healthy as we head into July on an earnings run. CMGI will definitely help that cause with their stellar report. Nothing like 47% quarter-over-quarter revenue growth to justify the current PE levels. Obviously though, the key will be the CPI. The expectation is for a gain of 0.2%, with the core rate also growing by 0.2%. With the PPI coming in under expectations on Friday, I don't expect the CPI to be out of line. The question is, how will traders react? Strong volume would be nice. Maybe to the tune of 2 billion shares like we did in the old days...way back in March! A breakout over 3900 is the key. The lines have been drawn between buyer and seller at this level for the past week. A good CPI and the inability to crack resistance at 3900 would be disheartening. Speaking of disheartening, one of those gap up openings that slowly bleed and leave you with the high of the day on the first trade would do the trick too. As for me, barring any CPI disaster, I expect a rally. It could be delayed with a sell-the-news morning, but I doubt it. Support on the Nasdaq has been strong and an earnings run is starting to take shape. One of the sectors I have been watching for past two weeks and that will continue to stay on the top of my radar is Fiber-optics. The momentum is strong in this group of late. Two quick items on after-hours news which will be important in tomorrow's action. First, NVLS was added to the S&P 500 to replace Champion, who is being purchased by International Paper. America Online will take the place of CHA in the S&P 100 as well. Tiffany (TIF) is also being added to the S&P 500. The second big non-earnings news was on Microsoft. It was announced that the U.S Circuit Court of Appeals, acting at the earliest opportunity, would hear MSFT's appeal of the breakup order imposed last week. This was announced even before Judge Thomas Penfield Jackson could hear the government's case to bypass the Court of Appeals. The court said it was acting "in view of the exceptional importance of these cases." Needless to say, this is a legal victory for MSFT. After-hours MSFT was up $2.50 to $70.25, NVLS was up $4.50 to $56, AOL traded up fractionally, while TIF had not traded. Keep your eyes on 3900 tomorrow. As I said above, this is the battle line and something has to give eventually. Plan your trades accordingly. Ryan Nelson Asst. Editor **************** MARKET SENTIMENT **************** Tuesday, June 13, 2000 Risk to Reward Level! Equities closed higher Monday, thanks in part to Greenspan's speech, which included some optimistic comments regarding productivity growth that many pundits thought to be positive. The war on inflation seems to be working, and like we've stated before, the bond market is acting like the war is already won! With the slowing economy, comes slowing profits. This has been evident as numerous companies have already pre-released negative news during the last two weeks. This weeks' blowups include Citrix Systems, Harmonic Lightwave (analyst's comments), and NBC Internet, which all got pounded heavily. Now when stocks start giving back many months (or even years) of positive gains in a short time frame, you know your risk-to-reward level is not even. Just ask shareholders of any of these companies. However, there will always be good growth opportunities even in a slowing market. We now have had several technology companies' pre-release positive news these last two days. Fiber-optics company Corning (GLW) made strong remarks Monday, as did Kemet (KEM) and now CMG Information Systems (CMGI) after the close today. We think there will be many good opportunities such as these in the weeks to come. But with the risk-to-reward level being so poor, we would be very cautious before jumping on any potential land mines, especially during this time of the pre- release season. We will be interested to see how CMGI performs in the near term, now that good news it out. Will it go up +20 on this good news? Doubtful! Would it have gone down -$20 if it warned the street like Citrix Systems? Yes! Now that, is our point when we refer or talk about the risk-to-reward level. Nobody can precisely predict what will happen with the stock market or individual equities in the future, but you can watch the potential risk-to-reward on the companies that are making news now! BULLISH Signs: Interest Rates (5.937): With the long bond breaking below the crucial 6% benchmark, fears of higher rates may finally be subsiding. NASDAQ Short Interest: As of May 15, the level of short sales not yet closed out, known as short interest, climbed 4.80% to 2,780,161,105 shares. Many individual equities will continue to show major (and quick) gains as stocks get squeezed. Volatility Index (24.37): The VIX has proved 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: Slowing Economy: If the economy is truly slowing down, we will start feeling the effects once corporate earnings report over the next couple of quarters. This has just occurred as Circuit City, Electronics for Imaging, Proctor & Gamble, Lands End, H&R Block, McDonalds, Electronic Data Systems, Mylan Labs, Harmonic Lightwave, and NBC Internet, have all warned of poorer times ahead. 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: $58.6 billion of stock was freed up for trading in March, $67.3 billion April, 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. ***************************************************************** 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 (6/9) (6/13) (6/15) ***************************************************************** Overhead Resistance (805-825) 16.42 18.67 Overhead Resistance (775-800) 2.53 2.67 OEX Close 779.76 789.43 Underlying Support (745-770) 1.89 2.25 Underlying Support (715-740) 5.71 5.67 What the Pinnacle Index is telling us: With only a couple of days until June expiration, we would expect the OEX to stay trading range bound similar to the last couple of weeks. Put/Call Ratio ***************************************************************** Friday Tues Thurs Strike/Contracts (6/9) (6/13) (6/15) ***************************************************************** CBOE Total P/C Ratio .45 .48 Equity P/C Ratio .42 .53 Index Put/Call Ratio .77 .64 Peak Open Interest (OEX) ***************************************************************** Friday Tues Thurs Strike/Contracts (6/9) (6/13) (6/15) ***************************************************************** Puts 740 / 8,917 740 / 9,124 Calls 795 / 9,394 785 / 8,364 Put/Call Ratio 0.95 1.09 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 June 13, 2000 24.37 ************** MARKET POSTURE ************** As of Market Close - Tuesday, June 13, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,200 11,400 10,621 Neutral 5.05 SPX S&P 500 1,350 1,500 1,469 Neutral 5.30 OEX S&P 100 725 800 789 Neutral 5.30 RUT Russell 2000 450 550 514 Neutral 5.05 NDX NASD 100 3,000 4,000 3,766 Neutral 5.30 MSH High Tech 800 1,050 1,002 Neutral 6.06 XCI Hardware 1,250 1,600 1,499 Neutral 5.30 CWX Software 1,050 1,300 1,251 Neutral 6.06 SOX Semiconductor 850 1,200 1,171 Neutral 5.30 NWX Networking 900 1,100 1,150 BULLISH 6.02 INX Internet 500 800 592 Neutral 5.30 BIX Banking 530 640 586 Neutral 6.09 XBD Brokerage 400 500 483 Neutral 5.05 IUX Insurance 540 620 654 BULLISH 5.16 RLX Retail 900 1,000 843 BEARISH 6.09 DRG Drug 355 400 390 Neutral 4.28 HCX Healthcare 710 800 800 Neutral 4.28 XAL Airline 140 155 164 BULLISH 5.25 OIX Oil & Gas 265 300 314 BULLISH 5.11 Posture Alert A Greenspan inspired rally sent many of the indexes higher Tuesday, as most of Monday's losses were all wiped out. Sectors on the move include Semiconductors (+5.05%), Software (+3.76%), Drugs (+3.26%), and Healthcare (+3.17%). There are no current changes in posture. ************* SECTOR TRADER ************* "Oh, Henry!" Ending, But Still a Rangebound Market By Buzz Lynn For those who e-mailed, or tried to e-mail comments to sectortrader@OptionInvestor.com, thank you in advance for your input. Unfortunately, due to a faulty link in the introductory column, we were not able to receive them. If you have comments or suggestions, we would still like to hear from you so that we can make Sector Trader a really useful tool in your trading arsenal. Please try sending that e-mail one more time! Thanks again for your support! We've already made a small but helpful change to the site. Now it is broken up into New Plays, Updates, Drops, and No Play, which should make it easier to track a play through its life cycle. Again, let us know what you think! Now, off to the plays. Index Last Mon Tue Wed Thu Week QQQ nasdaq-100 94.25 -2.88 3.88 0.56 HHH Internet 118.69 -7.06 1.19 -5.88 BBH Biotech 158.00 -7.75 5.75 -2.00 PPH Pharm. 97.00 -0.69 3.44 2.75 TTH Telecom 77.56 -0.94 1.81 0.88 IAH I-net Arch. 90.00 -1.06 0.94 -0.13 IIH I-net Infr. 55.50 -4.06 1.19 -2.88 BHH B2B 40.13 -2.14 0.81 -1.63 BDH Broadband 88.56 0.88 2.13 3.00 SMH Semicon. 98.81 -3.81 4.00 0.19 ************** Updates ************** QQQ - NASDAQ 100 $94.19 +3.44 (+0.63) optionable. The NASDAQ gave us that rollover we were looking for and promptly started back up again from roughly $90, keeping us firmly in the $90 to $94 range yesterday and today. Nice tweezer bottom if we do say so ourselves. Here's what we mean. On a daily candlestick chart, you'll see one red candlestick going down (sometimes followed by a doji star the next, but not this time), and a white candlestick going back up the next day. The psychology behind it is that sellers have taken it down as far they can before buyers regain confidence and take it back up. The bulls just tuckered out the bears. Making it all the more telling of a real bottom is that support came just under $90, which coincides with near- term historical support, and the 50-dma of $89.71. After today's retail sales release, it's pretty clear that the economy is slowing, making it less necessary for the Fed to raise rates. The final positive technical sign is that QQQ closed at its high of the day. The only big technical negative is the high stochastic, which usually portends a downturn. Careful. Going forward, there is mild resistance here at $94; $95 would be the next level for the QQQ to test. While today was bullish, history suggests that it will turn back down again at $95. If it can clear that however, the breakout would be a strong bullish signal that money is again moving off the sidelines into equities. Just make sure you see market-wide volume as a confirmation. At Support: BUY CALL JUL-86 YQQ-GH OI= 561 at $11.88 SL=9.00 BUY CALL JUL-88 QVQ-GJ OI= 751 at $10.50 SL=7.75 BUY CALL JUL-91 QVQ-GM OI= 857 at $ 8.25 SL=6.00 SELL PUT JUL-86 YQQ-SH OI=20674 at $ 2.81 SL=4.50, Huge OI At Resistance: BUY PUT JUL-98 QVQ-ST OI= 525 at $ 8.38 SL=6.00 BUY PUT JUL-95 QVQ-SQ OI= 631 at $ 6.75 SL=4.75 BUY PUT JUL-94 QVQ-SP OI= 944 at $ 6.25 SL=4.25 Average Daily Volume = 27.1 mln /charts/charts.asp?symbol=QQQ ------ BBH - Biotech $158.00 +5.75 (-2.00) Not optionable. AMGN +4.69, DNA +4.56, BGEN +3.38, IMNX +1.69. . .is it any wonder this index is up so strong today? While it is not immune to market pressure, this is one sector that still holds a lot of sentimental strength. Technically, it looks strong too. From Sunday, we noted, "the support level will now likely be closer to April and May's resistance of $148 to $150. Watch that level for new support and consider a long position if it bounces up from there." Sometimes it's better to be lucky than smart. As if on cue, BBH descended all of yesterday, opened low this morning, sank to $150.25, then ascended steadily into its close at $158, also its high of the day (strong sign). This would have made a beautiful entry if you were watching. We especially like the successful retest of $150 since it also happens to be BBH's 10- dma. With resistance at $160, a breakout may not be far off if tomorrow's CPI, coupled with today's finishing momentum, carries BBH through and holds $160 tomorrow. Feel free to take a position then. Careful though. Since this index is capable of moving over $5 per day, it's possible that it could test higher resistance too at $165, then fall. Just be sure to use a stop so you don't lose your shirt on an equally quick descent under $160. Average Daily Volume = 701 K /charts/charts.asp?symbol=BBH ------ IAH - Internet Architecture 90.00 +0.94 (-0.13) Not optionable. Just like getting your truck stuck in the mud, it's going to take some rocking to get it unstuck. $90 is proving to be strong resistance and we had suspected that IAH would need to retest $82 before it would be safe to take a position. It looks more like $87 made a better figure today. As the lows get higher, the case gets stronger that a breakout will occur from here ($90). We may yet see that tomorrow morning on favorable CPI numbers. Just don't get tripped into a play during amateur hour (the first hour of trading) only to see the issue fall back under $90 following an initial spike. We need to see $90 hold. That would confirm the "old resistance equals new support" theory and perhaps give us a satisfactory entry. If it doesn't hold $90 and the rest of the market rolls over with it, it will confirm the resistance, in which case you may want to consider going short and covering at $87. For the gunslingers, you can consider hanging in there down to $83 (that's the opening gap from two weeks ago), but no guaranties. Internet stocks are currently getting a bit of a cold shoulder from investors. Since this index isn't moving up with the market, we think there is better potential for a downside play here. Average Daily Volume = 77 K /charts/charts.asp?symbol=IAH ------ IIH - Internet Infrastructure $55.50 +1.19 (-2.88) Recall that we were looking for resistance and a rollover at $60. Sure enough, we got the rollover we were looking for yesterday right from the open at nearly $59, which continued down this morning taking IIH under what we thought would be good support at $53.50. Wrong! Try $51.81. Despite today's improved market, IIH did not keep pace. The lows get lower and it can't get back up to $57.50, its previous level of intraday support. We look for more relative weakness for now. Assuming we get a rally on good CPI numbers tomorrow, we would again consider going short at $60 or any rollover from a lower value. Just make sure IIH is NOT keeping pace with the market before you take a position. Within the components of the index, volumes are generally above the ADV on the losers and below the ADV on the gainers indicating greater overall selling conviction than buying conviction. While overall the index went up today, it doesn't look good for the future, especially with the overbought stochastic indicator. Keep it on your short candidate list and wait for an entry. Average Daily Volume = 311 K /charts/charts.asp?symbol=IIH ------ BDH - Broadband $88.56 +2.13 (+3.00) Not optionable. Despite a gap up two weeks ago, BDH has refused to backfill the island. In fact, the lows keep getting higher as it continues to bump its head against $88.50 resistance. Hmmm. . .look familiar? Yep! An ascending wedge. The good news is that today's move came as a steady ascent, not a gap up, which lends more credibility to the move. It wasn't a grade-school dog pile, but a growing sentimental belief that BDH components really are good companies. NT (+3.06) was the heavy weight winner today, but smaller components, GLW (+16.00) and SDLI, (+21.20) took center stage on rumors that SDLI was in GLW's acquisition gunsites. JDSU was also a winner (+5.81). Not only that, but the rumor reminded investors that smaller players were ripe for the picking too in what analysts think will be a wave of consolidation. Since closing at its high today, BDH sits right on the edge of a breakout. A move over $89 would be our signal to take a position. With the CPI out tomorrow, we could see that. Careful though. With big moves in SDLI, GLW, JDSU, and NT, these four are subject to some pullback, which would make it tough for BDH to advance. Keep these four on your radar as indicators. If the sector experiences any weakness, a pullback to support of $86 from yesterday might make a good entry - we favor waiting for the pullback to go long over taking a position at the breakout, but both are acceptable risks in our book. Average Daily Volume = 202 K /charts/charts.asp?symbol=BDH ------ SMH - Semiconductor $98.81 +4.00 (+0.19) Not optionable. Of the 20 in this group, only four were in the red today - three of them fractionally, with only AMKR down more than $2. The rest were BIG GREEN, led by none other than INTC (+6.44) and TXN (+4.13) on news that DRAM prices had risen substantially overnight. Yet it only made up for yesterday's losses. Where do we stand? Bullish. SMH closed at its high today not far from stiff $100 resistance. With any positive action tomorrow from what we hope is a favorable CPI, we could see that easily penetrated. Especially encouraging was that SMH again found support at $93.50, a level of old resistance and now intraday support from last week. On a daily candlestick chart, this is a perfect tweezer bottom, which makes the future look good in real and relative terms. Our thinking from Sunday still holds. Consider taking a position on a breakout over $100 backed by volume, or target shoot support at your level of risk tolerance ($93-$94 or $96). $95.75 is also the 10-dma, which could lend good support for this sentimental favorite. Average Daily Volume = 208 K /charts/charts.asp?symbol=SMH ************** No Play ************** BHH HHH PPH TTH ************** TRADERS CORNER ************** Things Are Different And Possibly The Same By Mary Redmond In the last week we have had several companies warn investors that their earnings and profits might not meet expectations. This is probably one of the main reasons the market has not moved higher on benign economic data. Some people think that companies have to continuously project and report increasing earnings in order for their stocks to rise. In certain cases this may be true. We have all witnessed how a company's stock price can lose billions in market capitalization merely by missing estimates by as little as a few cents. However, there is another interesting point to consider. Some market analysts have compared the present market conditions to those which existed in February of 1995. At that point, the Federal Reserve raised rates for the last time after a series of rate hikes during 1994. The circumstances are different this time, as they are different every time the market rallies and corrects. However, if you examine the earnings growth of the S & P 500 in 1995 and the market during that period you will see an interesting and perhaps surprising correlation. From February 1995 to February 1996, the profit growth of the companies in the S & P 500 index decreased on average from approximately 20% to approximately 10%. And yet, the S & P 500 rallied over 30% during those same twelve months. In fact, the market rallied from 1995 to 1998 without a major correction. This doesn't necessarily mean that the same thing will happen after the Fed stops raising rates, or raises for the last time in June(hopefully!). But, it is indicative that the markets can rally in an environment of decreasing earnings and profit growth. There are several possible explanations for this. One is that the market tends to rally on expectations. The Dow average and the S & P 500 have been nearly flat for over a year. They were also flat in 1994 during a period of multiple rate hikes. It is possible that the market may rally in the second half of this year if investors' expectations are that the rate hikes are over for a while. For example, many financial service stocks have performed poorly for the last twelve months due to the ongoing expectation of increasing interest rates. If the expectations change to a perception of stabilizing, or possibly decreasing rates, the financials may be able to rally. In the meantime, some options traders may have felt frustrated in the last couple of weeks. Many people I know lost up to 50% of their capital during the severe correction, and have only made back a fraction of the amount lost. In a choppy market, some traders use certain strategies such as writing covered calls on LEAPs to take advantage of mispriced short term options. One point to consider when using this strategy is that there is always a risk that you will be assigned. If you buy an option, you have the right but not the obligation to buy 100 shares of the underlying stock at or before the expiration. If you sell a call or put option, you could be assigned any time at or before expiration. In most cases, assignment will not occur until the Saturday following expiration. For example, suppose you bought a QCOM Jan '01 80 call at $21. You could write a QCOM July 100 call at $3.13. This would be a possible way to earn income from your longer term call. If QCOM closed below $100 on the third Friday in July, you would keep the 3.13 points. However, any time you sell a call you have to realize that you may be assigned by the Options Clearing Corp, which means you would have to exercise your leap or longer term call and deliver the shares. If some phenomenal news comes out tomorrow or next week which drove the price of QCOM over $100, you might not have a chance to buy back the short term call. You could end up losing your longer term call. This could be very disappointing if the call ended up worth five or ten times more than you paid for it. Usually, if I have very high expectations for a LEAP and I think it could increase by 400% or 500% in a year, I don't write shorter term calls to earn a few points. However, in certain instances it can be a profitable strategy. Assignment usually does not happen in the middle of the option's expiration period. One of the reasons for this is that some professionals have to pay a holding cost for keeping stocks. However, it does happen on occasion. This is one of the reasons brokerage firms require a fairly high margin for naked call and put writing. If a person is assigned and does not have enough money to cover, the clearing firm can be at a substantial risk. Contact Support ************* DAILY RESULTS ************* Index Last Mon Tue Week Dow 10621.84 -49.85 57.63 7.78 Nasdaq 3851.07 -106.93 83.16 -23.77 $OEX 789.43 -5.45 15.18 9.73 $SPX 1469.44 -10.95 23.44 12.49 $RUT 513.75 -14.55 5.24 -9.31 $TRAN 2754.87 -8.67 -26.63 -35.30 $VIX 24.37 0.18 -1.00 -0.82 Calls Mon Tue Week SDLI 283.19 11.97 21.22 33.19 Steaming freight train GLW 242.00 17.75 9.00 26.75 Wowed Wall Street! RMBS 248.56 -14.75 29.75 15.00 Dropped, split tomorrow JDSU 121.38 5.00 5.81 10.81 New, fiberoptics hot again RBAK 123.78 -7.38 15.28 7.90 Spiking buying volume SEBL 150.25 -4.94 10.88 5.94 Conquered $145 resistance PLXS 104.44 0.25 5.00 5.25 Battle of analysts CIEN 144.94 -0.50 5.56 5.06 Ready to breakout! CHKP 228.59 -15.31 18.41 3.10 Continuing stellar gains MU 82.75 -0.81 3.50 2.69 Earnings on June 22nd LLTC 69.56 -3.00 5.44 2.44 Now that's more like it MRVC 48.38 -2.56 4.94 2.38 How about a pop? ADI 94.50 -2.22 2.00 -0.22 Is this déjà vu? BRCD 145.75 -12.69 11.44 -1.25 Nice recovery! CMTN 93.50 -1.81 -0.25 -2.06 Quiet trading after lunch MUSE 142.25 -1.75 -0.38 -2.13 Holding support EXDS 89.56 -3.63 0.44 -3.19 Still time before split YHOO 139.50 -5.75 2.06 -3.69 Blodgett to the rescue ITWO 124.44 -8.56 -0.44 -9.00 Dropped, dot com blues ABGX 111.50 -12.88 2.88 -10.00 Just a normal pullback PDLI 155.13 -14.56 4.13 -10.44 Waiting to exhale HGSI 128.50 -12.69 1.63 -11.06 Slight pullback SEPR 104.97 -16.56 5.03 -11.53 Dropped, full circle VRSN 167.06 -23.06 -5.88 -28.94 New, a vital stock Puts CTXS 24.94 -18.94 2.69 -16.25 Dropped, fast money UTX 57.19 -0.38 -1.06 -1.44 New, bang that fizzled NXLK 73.13 -5.38 4.13 -1.25 Entry point bounce MMM 81.88 0.00 -0.06 -0.06 Channeling along TGT 56.63 -1.75 2.13 0.38 Retail data does help MMC 103.13 -0.44 2.63 2.19 Dropped, found bottom 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: ***** SEPR $104.97 +5.03 (-11.53) We've come full circle with our play in SEPR. The stock shed nearly 15% Monday after Bank of America downgraded the stock to a Market Performer from a Buy rating. Analysts at Bank of America said SEPR had reached full valuation after the recent run-up in the Biotech sector. Analysts at Montgomery Securities jumped on the bandwagon and also downgraded SEPR on a valuation basis. Sometimes analysts can be convincing enough to have a big impact on a stock. Unfortunately, Monday was one of those cases. In light of the cold shoulder from Wall Street, we too must leave SEPR. ITWO $124.44 -0.44 (-9.00) ITWO suffered from a case of the dot com blues Monday. The stock sank right at the opening Monday, and found solid support at $125 for most of the day. But, support failed in the final moments of trading Monday, and ITWO continued to fall into Tuesday's trading. ITWO announced Monday that it had completed its acquisition of Aspect Development, and instead of helping our cause, it hurt our play. Investors raised concerns over the merger Monday which provided undue pressure to ITWO. The B-2-B sector rallied Tuesday but left ITWO behind. With its poor relative showing Tuesday and concerns over the completed merger, we've decided to leave ITWO behind. RMBS $248.56 +29.75(+15.19) Depending on your trading style, you may have been stopped out yesterday or this morning when Rambus fell through several areas of support. For traders looking for a last minute split run, the opportunity came their way late this morning when the chip company bounced off $210. After being down -$8.25 for the session, RMBS began to move up the chart with solid volume adding momentum to the move. We are dropping RMBS tonight, as the company will begin trading on a split adjusted basis on Thursday morning. Those wanting to hang on for that last minute profits will find intraday support near $233. A decline back through that level could also signal it's time to go. RMBS once again provided us with a great play, and could be back again soon. PUTS: ***** CTXS $24.94 +2.69 (-16.25) When we picked this play less than a week ago, we were looking for continuing concerns about the company's ties to the Microsoft woes to create downward pressure and maybe test the $39 level. In light of the carnage on Monday, we were way too conservative. After the sharp selloff on Friday, CTXS really got brutalized on Monday after the company warned of an earnings shortfall. The company admitted to overestimating sales related to the Microsoft new server operating systems Company executives said their missteps will set the company back by around six months (an eternity in this market) in terms of targeted growth. So why are we dropping the play tonight? After hitting bottom at $21.69 yesterday on nearly 95 million shares of trading volume, the stock firmed and actually headed gradually higher all day today on very strong volume. After bouncing from major support near $22, it looks like the stock has reached bottom, and we are more than happy to take our profits and move on to the next play. MMC $103.13 +2.63 (+2.19) Continuing to drift lower throughout yesterday's session, MMC found a bottom this afternoon. Traders came back from lunch in a better mood, and began buying as the stock touched the $100 support level. Although still below resistance at $104, today's positive move came on increasing volume and looks like confirmation of support at $100. Economic reports are indicating that the economy is slowing, lending credence to the theory that the string of interest rate hikes may be nearing an end, giving support to the Insurance sector. In light of the improving economic picture, MMC looks like its downside is limited, so rather than fight the market, we are dropping it tonight. ************************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 6-13-2000 Copyright 2000, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. ******************** PLAY UPDATES - CALLS ******************** RBAK $123.50 +15.00 (+7.63) What can we say? After a rocky morning of trading, RBAK shot up and blew right through $110. The search for some driving news on the wires turned up nothing. Then, after a brief rest near $115, RBAK overtook $120. Quite an incredible burst of buying! So what's driving this? Maybe a change of sentiment. Maybe investors are finally starting to put some of that sidelined money to work. Volume was coming in throughout the afternoon. No matter what the reason is, a late session rally in techs had all the charts turning up, including the NASDAQ. Very positive. Maybe a preemptive CPI rally. At any rate, RBAK's engulfing candlestick today is a good technical indicator, especially closing at the high. Look for possible entry points on any pullbacks to the $118 level. Confirm with overall market trends and a bounce. If the NASDAQ rallies tomorrow, RBAK could break for $130 with little resistance overhead. It looks like a bit of volatility is creeping back into the market, so be prepared to trade in and out, taking intraday profits if the market turns. SEBL $150.25 +10.88 (+5.94) SEBL stumbled Monday in unison with the weak Tech sector. The stock dipped below support at $140 near the close, and continued to slide into Tuesday's trading. SEBL's brief dip turned into a good entry point as the stock regained its early morning losses and rallied higher during the latter half of trading Tuesday. SEBL's resurgence came on the heels two announcements. Nice Systems said it planned to form a new technology for managing customer contacts, the company established partnerships to promote the product, including an agreement with SEBL. Also, in a midday announcement, SEBL said it had aligned with LEXIS-NEXIS to provide its Siebel eBusiness 2000 product. The latter of the two announcements sent SEBL into rally mode as the stock sailed past resistance at $148, to close near its day high. Given the strong showing into the close Tuesday, consider an entry at current levels if the momentum continues. However, if the CPI spooks investors, look for SEBL to find support at $145 and again at $140. Wait for a bounce off support, and consider an entry if the stock turns north. PLXS $104.44 +5.00 (+4.75) The battle between the analysts intensified Monday when Robert W. Baird downgraded PLXS from a Strong Buy to a Market Outperform rating. But, CIBC stepped in and defended PLXS by reiterating its Strong Buy rating, raising its earnings estimates, and setting a $120 price target. PLXS set another 52-week high at $105.13 Monday despite the downgrade, but gave back much of its gains in what appeared to be a case of profit-taking in conjunction with a weak Tech sector. But, PLXS resumed its rally Tuesday with a little help from CIBC. After bouncing off support at $95, PLXS rallied sharply higher into the close of trading Tuesday. The volume picked up considerably in the final hour of trading, confirming the strong interest in the stock. Going forward, look for PLXS to continue to march higher despite the conflicting views of analysts. Watch for a strong move above resistance at $105. PLXS's nearest support is at $100, look for entry if the stock bounces from that level. CIEN $144.94 +5.56 (+5.06) CIEN gapped $5 higher Monday morning on the back of the early morning rally in the Telecom sector and positive analysts comments from DLJ. Yet, the stock ran into resistance at $145, and finally broke down in the final hour of trading as the tech sector sank. Tuesday's trading proved to be a little more constructive for our play. CIEN provided a nice entry point after tracing a double bottom at support at $135. After hitting bottom at $135 for the second time Tuesday, CIEN erased its morning losses to finish the day with a substantial gain. The stock closed just below $145 Tuesday, a level that has proved to be major resistance for the stock in the last two weeks. Watch closely Wednesday morning for a breakout above $145, and confirm any rally with volume. Target shoot for entry points by using the wide price swings in the stock. If the Telecom sector weakens Wednesday, look for CIEN to bounce from support at $140 or again at $135. GLW $248.00 +15.00 (+33.00) GLW wowed Wall Street Monday by announcing it would surpass second-quarter earnings estimates of 69 cents. GLW said due to strong demand for its optical fiber and cable the company would earn between 78 and 80 cents per share. Additionally, the company told analysts to expect between 35% and 45% earnings per share growth for the full year. The upward earnings revision announcement sent the analysts alight Tuesday. First Union reiterated its Strong Buy rating and set a $300 target, and Sands Brothers initiated coverage with a Buy. The earnings announcement Monday morning sent GLW into orbit as the stock gapped over $17 at the open. Investors were rewarded with a new 52-week high in Tuesday's trading, and volume returned to confirm the breakout. GLW closed right near its day high Tuesday, look for the momentum to continue to carry the stock higher. Use intra-day dips to target shoot for entry points. Should GLW stumble, the stock will find support first at $240 and again at $235. ABGX $111.50 +2.88 (-10.00) The Biotech sector fell flat on its face Monday as traders took profits from the group. But, considering the Biotech sector is up 50% since its April lows, maybe a little consolidation isn't such a bad idea. In fact, several analysts said Monday that the decline in the group was just a normal pullback which was expected after the recent run- up. Since there no was detrimental news on ABGX Monday, the drop was simply caused by sector weakness and profit taking. ABGX did manage to regain its footing Tuesday to erase some of Monday's losses. Technically, ABGX remains strong, as the stock continues to trace higher highs. Consider an entry at current levels if momentum returns to the Biotech sector. A more conservative trader might wait for ABGX to clear congestion in the $114 range before entering the play. If the profit taking persists, watch for a bounce off support at $105 for a possible entry. BRCD $145.75 +11.44 (-1.25) Nice recovery! After a big selloff yesterday, BRCD managed to firm this morning near $128, and then meandered aimlessly right through the noon hour. Buyers must have had spinach for lunch, because when they came back, they handily beat back the bears and drove shares of BRCD up for the remainder of the day. Volume increased throughout the afternoon, and by the closing bell, BRCD had tacked on over $18 from the daily low on volume exceeding 4 mln shares. Add to this the fact that the stock closed at the high of the day, solidly above resistance at $140-141, and BRCD is looking good. Driving the move higher this afternoon was news that the company entered into a technology development agreement with Cisco. Under the terms of the agreement, the 2 companies will jointly develop a Fibre Channel interface for Cisco's 6000 family of high-performance multilayer switches, facilitating the interconnection of islands of Storage Area Networks (SANs) over IP-based network infrastructures. As long as the market can stay healthy in the face of tomorrow's CPI report and the continuing string of earnings warnings, look for BRCD to hold support near $140, and use bounces near this level as your trigger for new entries. CMTN $93.50 -0.25 (-2.06) Even tame Retail Sales numbers this morning were not enough to allay investor concerns, and CMTN followed the NASDAQ lower at the open. Finding support between $88-89, CMTN saw quiet trading until after lunch. Buyers returned in a better mood than when they left, and spent the afternoon driving the share price modestly higher. The strength continued right into the close, pushing CMTN back above the $92 level, and hopefully this level will hold as support as the week progresses. Near-term resistance is firmly entrenched at $96, and we will need to see some conviction (in the form of strong volume) to clear this level. Conservative traders will want to wait for CMTN to move through resistance before initiating new positions. More aggressive players may want to target shoot intraday dips to today's support levels as a way to get a better entry. The one concern today is the relatively light volume. We need to see it above the daily average of 1.6 mln shares to confirm the strength of any move higher. LLTC $69.56 +5.44 (+2.44) Now that's more like it. After allowing the share price to drift lower all day yesterday, buyers drew their line in the sand at the $62 support level. The market weakness today kept LLTC from moving strongly higher all morning, as volume remained weak. Then the buyers got serious after lunch, pushing through resistance at $67 on increasing volume. The day's total volume was still only two-thirds of the daily average, but the intraday volume is much rosier, consistently rising throughout the afternoon, with more than 500 K shares changing hands in the final 20 minutes of trading. The strong close today puts LLTC at a new 52-week high, and if the Semiconductors continue to be strong, our play should be able to ride the wave higher. Intraday dips to support at $67 and then $64 are the most likely levels to provide new entries. This is a momentum-driven play, so look for increasing volume to confirm the bounce before jumping on board. EXDS $89.56 +0.44 (+3.19) On Monday, it appeared EXDS was providing a solid entry into a pending split run. The share price waggled down to shorter-term support at $90 and even dipped to $88.25 at one point. The downside was the lack of trading activity, which only reached about 43% of its ADV. The good news was new Buy coverage by analyst Kevin Giboney at D.A. Davidson & Co. He also issued a 12-month price target of $145. Today actually turned out to be a better day for EXDS, volume wise anyway. Buyers came back into the game after the share price parlayed down to $83 and took our nerves to the limit. The upward bounce on strong volume was the saving grace. Now we've got to see confirming moves first through the 5-dma ($91.14), then $95 to signal another charge towards the century mark. There's still time left to capture profits. We have 7 trading days left until EXDS splits 2:1 on June 22nd. In the news, EXDS announced it added Streaming Media Performance Monitoring to its award-winning SM-WEB measurement offering and is expected to be available in 3Q 2000. This new capability is in response to the growing need to measure and optimize streaming Web content performance levels. PDLI $155.13 +4.13 (-10.44) Waiting to exhale, and exhale it did on Monday. PDLI cast off 8.8% or in monetary terms, a hefty $14.56, although the volume was light. The downdraft continued in this morning's session. However it was evident that when PDLI hit $140 the temptation was too much for buyers to ignore! And let's keep this all in perspective. The pullback to the first two levels of support was healthy. Take into consideration the astonishing gains (+78%) in mere weeks and you really can't scold traders for taking some cash off the table. Plus the downdraft provided a multitude of entry points to get your foot in the door for another momentum rush. On Thursday the shareholders will vote on a proposal to increase the number of authorized shares to 90 mln at the company's Annual Meeting of Shareholders. If it's approved then we've got a potential splitter in our midst! MUSE $142.25 -0.38 (-2.13) The stock's ability to maintain itself at its short-term support levels is promising. Remember MUSE's been a NASDAQ shadow lately and so the downdraft of the past two days was easily anticipated. First $140 held, then as the market sunk deeper MUSE managed well at the $135 level. The master key was the stock's upward bounce today. It proved the momentum was intact and that MUSE could potentially challenge the resistance at $150. Positive moves off the current level, which is now corresponding to the 5-dma ($141.78) indicator, provide reasonable entries into this momentum driven play. Although it's vitally important that you confirm the market sentiment and direction. There was good news on the wire about Micromuse yesterday too. The company announced it received ISO 9001 certification from the International Standards Organization for its core software development facilities and processes based in London. Helen Fairclough, Micromuse's Senior Vice President, Customer Care, commented that "this accreditation underscores Micromuse's commitment to provide products and services recognized worldwide for their standard of quality in design, development, integration, testing, installation and support". MRVC $48.38 +4.94 (+2.38) How about that pop up in the last 15 minutes of trading today? MRVC joined the broad markets in drifting lower on Monday, but today was a whole different story as investors bid the price over 11% higher by days end. No company news, but the rumors the were flying concerning potential takeover deals in the industry. Whether anything will develop remains to be seen, but one thing is for sure, buyers returned late today gathering shares of MRVC and the fiber companies in mass. The volume today was solid with 3.2 million shares changing hands. The late day rally certainly suggest the momentum could continue. Economic data due out in the morning could push MRVC higher, however the benign data today really didn't do much after the opening minutes of the session. Support is now sitting at $46, $44 and $43. If investor sentiment stays strong, new positions could be considered on further moves higher. If not bounces off support could be considered as long as the participation is solid. HGSI $128.50 +1.63 (-11.06) Remember stocks rarely go up in a straight line. The pullback yesterday and today could have provided traders with a much better entry point. At this time the action the past two days does not appear to be a change of trend, rather profit taking after last weeks, 32% gain. With the 10-dma and 100-dma sitting near $114, HGSI found buyers willing to return to the market late this morning as the genomics company hit a low of $116.50. Technically, HGSI is still sitting in overbought territory, but the volume and the momentum behind the late day move suggests higher prices. If the bulls get edgy a move back through the $123 area could signal its time to step aside and wait for a new entry point. More conservative traders may choose to wait until HGSI takes out the $134 area with solid buying before entering a new trade. YHOO $139.50 +2.06 (-3.69) Here's another company struggling from the earnings warning season. No, YHOO didn't pre-announce, but NBCI did earlier today. The warning seemed to set the tone for YHOO and the Internet sector. After dropping to support near $131, traders began to test the waters once again, bidding shares of our current favorite back to a more respectable level. We may have Henry Blodget at Merrill Lynch to thank for the bounce. Late this morning the respected analyst reiterated his near-term Buy rating on YHOO. With investors focusing more on earnings Yahoo! is one of only four major Internet companies showing a profit at this time. While YHOO penetrated its 200-dma at $136.93, the fact it managed to come back and close above that number is a plus for our play. YHOO could continue to consolidate or may catch fire and move higher. The $130 level of support is becoming increasingly important. A decline through that mark and it may be time to stand back and take another look. If sentiment gets more positive, then we would certainly look to buy calls, as long as the volume is present. SDLI $283.19 +21.44 (+33.19) Mix an upgrade, an award, and a potential acquisition and what do you get? What you get is a stock that jumps better than 13% in two days. That's the case with this one. This morning analysts at Sands Bros, a private investment bank initiated coverage of SDLI with a Buy rating. The company also initiated coverage of JDSU and Corning with Buy ratings as well. Speaking of Corning, industry analysts and observers expect the company to acquire SDLI, in an attempt to keep pace with JDSU. A day after Corning issued a pre-announcement that earnings would come in higher than current estimates, rumors were flying concerning a possible buyout of SDLI. Naturally neither company would comment on the rumors, however it did bring buyers back to the table with over 7.54 million shares traded. The award? SDLI was honored by the Silicon Valley Chapter of the Association for Corporate Growth(ACG), with the Emerging Growth Company Award. The award recognizes a company with a distinctive strategic positioning and superior growth, dynamic evolving leadership, and a sharply focused organization. SDLI hit a new high today at $285. Support now shows up at $275, $270 and $263. If you have open positions, move your stops up. This is a stock that's absolutely on fire. New positions could be considered with continued momentum, however a pullback to a support level may provide a better entry for new plays. CHKP $228.59 +18.41 (+3.09) Here's another that tagged along with the major indices the past two days. The one thing that sets this one apart, is once investor sentiment improved a bit early this afternoon, traders bid the price higher by over 8%. What we are saying is that CHKP followed the broad markets lower yesterday and today, but when the bulls get loose, they run right back to recent favorites. Now the question comes up, was the strength late today another head-fake? It doesn't appear to be that way, but honestly we won't know until tomorrow. The only news came in the form of a company press release, that Internet Security Systems had chosen CHKP SiteManager-1 as its managed security solution to address the needs of the small to medium size business market. Nice, but not enough to move the stock 8% today. Technically support is seen at $221 and back at $210. Prior to entering new plays we would check not only the movement in CHKP but the in the Nasdaq as well. MU $83.50 +4.00 (+3.50) Greenspan didn't mention the much feared notion of future rate hikes and analyst John M Geraghty at Gerard Klauer Mattison & Co upped the FY00 and FY01 EPS for MU. The estimate hike is likely in response to the industry's positive revenue outlook despite the US International Trade Commission's decision to block plans to impose punitive duties on certain semiconductor imports from Taiwan. He also maintained his Buy recommendation and 12-month price target of $95. Now what else could you ask for to boost a stock's trading activity to nearly double the ADV? Well to top it all off, Micron confirmed it's reporting earnings on Thursday June 22nd, after the bell. A momentum turned earnings' run is always a great bonus! MU gained 5% and closed just a fraction from its daily high amidst the day's excitement. The climb was classic straight up bull-style on nearly double the normal volume to boot. Near-term support is at $80 and $81, but MU should demonstrate strength with upward bounces off $82 or better. The overhead opposition is at today's new all-time high of $83.69 so be prepared for a little bit of resistance. In other news Texas Instruments (TXN), who has a 15% stake in Micron, took advantage of MU's rising share price (which have more than doubled this year) and sold about $120.5 mln worth of its holdings after the market close yesterday. The sale was not unexpected as TXN never planned on being a long-term holder of MU. ADI $94.50 +2.00 (-0.22) Is it deja vu of last week? Depending on your risk portfolio, ADI's downdraft with its sector once again offered ample opportunity for entry points into this momentum play. The big difference however was the elevated support level. ADI sustained itself first at $92 and then showed strength at $90. Today's pullback was a bit unnerving since the share price took a nosedive under the 5-dma (currently at $93). However ADI's recovery was without doubt, momentous. The charge upwards returned ADI to the higher end, which gives it the stability to now challenge the first line of resistance at $96.25, Thursday's new high. Of course we're looking for ADI to move through the $100 level and "officially" become a split- candidate. Wait for the confirming bounce and positive market before opening any new positions. You don't want to get caught in the "bought too soon" trap. ADI's latest product releases once again showered the newswire this week. Yesterday ADI introduced the world's smallest and least expensive micromachined tilt/motion sensor, the ADXL202E, and also unveiled a new family of PLL (phase locked loop) synthesizers that deliver the world's best phase noise performance for wireless applications. Importantly the company disclosed technical details of its first chip targeting 3G cellular terminal applications, which meets the performance requirements for the Wideband CDMA (W- CDMA) system. Today there was big news revolving around Card Access and ADI's technology was at the core. ADI's DSP modem chipset and software is in the industry's first Springboard(TM) modem module for the Handspring(TM) Visor(TM) hand-held computer that operates without external power. ******************* PLAY UPDATES - PUTS ******************* TGT $56.63 +2.13 (+0.69) According to LJR Redbook Research's report on Monday, same-store sales fell another 0.4% last week from a month ago, further substantiating a slowing economy. And TGT's robust volume was again prevalent at nearly one and one- half times the normal levels attesting that the stock is still struggling to regain its composure. We didn't get a clean break through the 52-week low of $53.75 yet, which would be a more definitive sign of TGT's ultimate breakdown. However in both sessions this week TGT traded down to $54.06 and $54.38, separately, and found a lower level of upper resistance at $56.88. These are all good indications that TGT can slither lower in these uncertain economic times. Look for downward moves off the current level or downward bounces off the 5-dma ($57.36). If TGT breaks out above this technical put your radar on full alert. Today's slight updraft likely was a result of the news that the ISP bellwether, AOL, and Target Corp inked a cross-marketing, co-branding Internet initiative. Although specific terms weren't disclosed, they revealed that Target.com will be an AOL premier partner and its merchandise will be sold through ShopAtAOL. The two companies will also unveil a special edition version of AOL's service marketed under both brand names and distributed through Target stores. MMM $81.88 -0.06 (-0.06) It's evident MMM is channeling - just take a look at a daily chart. The range however is bound overhead by today's intraday high of $83.81, which is good. Remember $84 served as a historical bottom support and so it's imperative MMM maintain a stance below this mark. Plus, today's late day sell-off on increasing volume was another feather for the cap. If MMM is indeed finding a bottom in the proximity of the 5-dma ($81.85) then of course we'll need to move on to more lucrative plays. But for now have a little patience. As a stock trades in a narrow channel its coil is tightening for a sharp move. Therefore if MMM does breakdown further, it should be able to manage a move (at least) through Thursday's low of $80.44. The ultimate challenge is at the all-time low of $78.19! NXLK $73.13 +4.13 (-0.25) Our play got off to a good start yesterday. Today, NXLK joined in with a bit bounce of about 6%. At this point we aren't going to let that deter us from keeping NXLK on our put list. The trend is still intact and after all the NXLK did fall about 15% last week, so a bounce is in order. While we are keeping NXLK on our list we would suggest traders consider scaling into new plays if we see the weakness resume. The reason? While the trend is definitely south, NXLK splits 2-for-1 Friday, and investors could decide at any minute to add the company to their portfolio. The other piece of the puzzle is the deal with Concentric Networks. Concentric shareholders are schedule to vote on the proposed merger Thursday. For now we will stick with the trend With NXLK approaching its 10-dma and 200-dma near the $77 area, we would look to buy puts on any failed rallies. Remember you may want to close any open positions by Thursday, as the ex-date for the split is Friday. ************** NEW CALL PLAYS ************** JDSU - JDS Uniphase $121.38 +5.81 (+10.81 this week) JDSU makes laser subsystems and equipment for fiber optic telecommunications, signal processing, and laser-based semiconductor analysis. The company's products include source lasers and passive components for modifying signals. JDSU also sells equipment for testing optical components. The company sells to manufacturers including CIENA, Lucent, Nortel, and Siemens. About 60% of sales come from outside North America. The fiber optic stocks are hot, again. It all began May 26th when optical equipment maker SDLI said it would beat second quarter earnings estimates by more than 24%. The announcement by SDLI gave Wall Street a reason to revisit the beaten down fiber optic stocks. Then came the announcement from optical fiber and cable maker GLW. Monday morning, the company said it would beat analysts' second quarter estimates by nearly 15%. The announcement by GLW really caught investors' attention. Furthermore, wedding bells began ringing late Monday night as rumors of consolidation spreading through the fiber optic arena hit the street. With sector momentum building, rumors of consolidation, and accelerating earnings growth, we just couldn't pass up the opportunity to play JDSU. For the past two weeks, JDSU has been telling analysts that the company is working around the clock to keep up with customer demand. And Wall Street likes the story it has been hearing. Analysts view JDSU as the premiere optical components company. Many believe that the company's 75% growth rate is sustainable for the next 3 - 5 years, and some analysts have said they see at least 50% more upside potential in the stock from its current levels. Speaking of current levels, JDSU has been cruising higher during the month of June. The stock is at a two month high, but will face resistance at $125 going forward. If the momentum continues in the coming days, consider an entry at current levels. A more conservative entry point might be provided if JDSU clears $125. We've seen a pattern of higher lows traced so far this month. JDSU has support at $120 and below at $115. If the stock retreats, consider entry after a bounce off support. Since the GLW announcement Monday, analysts have been scrambling to revise their outlook for companies in the fiber optic arena. Sands Brothers initiated coverage on JDSU Tuesday with a Buy rating. The brokerage house noted that JDSU has a strong management team and is the leader in the optical components arena. Analysts also said JDSU's future growth strategy is well in place. BUY CALL JUL-115 UCQ-GC OI=2441 at $16.13 SL=11.50 BUY CALL JUL-120*UCQ-GD OI=4721 at $13.00 SL= 9.75 BUY CALL JUL-125 UCQ-GE OI=2611 at $11.25 SL= 8.25 BUY CALL SEP-125 UCQ-IE OI=1760 at $19.75 SL=14.25 BUY CALL DEC-130 UCQ-LF OI= 258 at $27.38 SL=20.00 SELL PUT JUL-105 UCQ-SA OI= 556 at $ 5.13 SL= 7.00 (See risks of selling puts in play legend) Picked on June 13th at $121.38 P/E = 366 Change since picked 0.00 52-week high=$153.38 Analysts Ratings 20-13-2-0-0 52-week low =$ 16.75 Last earnings 03/00 est= 0.10 actual= 0.11 Next earnings 07-26 est= 0.12 versus= 0.06 Average Daily Volume = 19 mln /charts/charts.asp?symbol=JDSU VRSN - VeriSign, Inc. $167.06 -5.88 (-28.94 this week) VeriSign is the leading provider of Internet trust services and digital certificate solutions needed by Web sites, enterprises and individuals in order to conduct secure electronic commerce and communications over IP networks. VRSN has used its secure online infrastructure to issue over 100,000 of its Website digital certificates and over 3.5 million of its digital certificates for individuals. The company also offers the VeriSign Onsite service, which allows an organization to leverage the company's trusted service infrastructure to develop and deploy customized digital certificate services for use by an organization's employees, customers and business partners. To date, over 300 enterprises have subscribed to the OnSite service and VRSN has strategic relationships with industry leaders including Cisco, Microsoft ,RSA, Security Dynamics, and VISA. Internet security is vital to the growth of e-commerce, and even the government is coming to realize that fact (see news below). As digital signatures and documents receive the same legal status as handwritten signatures and documents, companies like VRSN will see their business grow at a continued brisk rate. Recent hacker attacks and security breaches have served to heighten awareness of the risks inherent in electronic commerce and investors have taken notice. After several bounces at the $100 support level in April and May, VRSN's stock is recovering nicely, actually tagging the $200 level late last week. The lack of follow-through to last week's NASDAQ rally triggered profit taking in VRSN, that culminated repeated bounces at the $157-158 level today. Increasing volume accompanied each of the mini-recoveries and now that the company has completed its acquisition of net-name registrar Network Solutions (NSOL), we look for the stock to continue higher. The bounce today is encouraging in light of yesterday's large drop, but we need to exercise caution going forward. Volume will need to confirm that the move is for real, and today's strong volume gives the appearance of a solid bottom. Consider new entries if VRSN retests today's lows, but wait for the bounce before jumping in. More conservative investors will want to wait for strong buying volume to push the share price through resistance at $170 before playing. Further resistance will be found at $180 and $190. If volume begins to abate at these critical levels, it will likely indicate waning momentum. The House and Senate are poised to pass legislation granting electronic signature and records the same legal status as handwritten signatures and paper documents. This will likely increase e-commerce transactions and security companies like VRSN will benefit directly. Qualys, Inc., a leader in online network security services announced yesterday that VRSN has integrated a free one-month subscription to Qualys' new online security auditing service, QualysGuard, with VRSN's Global Site website service offerings. This enhancement keeps VRSN at the forefront of providing its customers with the most complete set of secure e-commerce service available on the market today. BUY CALL JUL-165 XVR-GM OI=607 at $21.63 SL=16.25 BUY CALL JUL-170*QVZ-GN OI= 51 at $19.38 SL=14.00 BUY CALL JUL-175 QVZ-GO OI= 36 at $17.38 SL=12.50 BUY CALL JUL-180 QVZ-GP OI=221 at $15.50 SL=11.25 BUY CALL SEP-180 QVZ-IP OI=105 at $26.75 SL=20.00 SELL PUT JUL-155 XVR-SK OI= 34 at $12.63 SL=17.50 (See risks of selling puts in play legend) Picked on June 13th at $167.06 P/E = N/A Change since picked +0.00 52-week high=$258.50 Analysts Ratings 3-5-0-0-0 52-week low =$ 24.00 Last earnings 04/00 est= 0.02 actual= 0.02 Next earnings 07-19 est=-0.02 versus= 0.00 Average Daily Volume = 4.54 mln /charts/charts.asp?symbol=VRSN ************* NEW PUT PLAYS ************* UTX - United Technologies Corp. $57.19 (-1.50 this week) United Technologies Corporation, based in Hartford, Connecticut, provides a broad range of high technology products and support services to the building systems and aerospace industries. Those products include Pratt & Whitney aircraft engines, space propulsion systems and industrial gas turbines; Carrier heating, air conditioning and refrigeration; Otis elevator, escalator and people movers; Hamilton Sundstrand aerospace and industrial products; Sikorsky helicopters and International Fuel Cells power systems. We welcome United Technologies to our list of new plays. Unfortunately, it's not on the call side. UTX started the month off with a bang, which fizzled as investors took the chance to sell into the spike up to $64.88. What's the problem with UTX. Well, it could be that late last week a federal jury awarded a $22.9 mln verdict against the company over a fatal 1993 U.S. Army helicopter crash in Wiesbaden, Germany. The company had tried to argue the crash was caused by pilot error, however, a jury agreed the crash was caused by a design defect. Some of the chat rooms suggest the weakness is due to a report that defense spending is going to be "lackluster". Several analysts point out the recent weakness is just cyclical in nature. Some long-term investors suggest UTX is a very attractive buy at current levels, however, for our purposes the only buy we see is the opportunity to BUY PUTS. UTX did recently complete the acquisition of the engine maintenance center of Braathens ASA. For its efforts, George D. Shapiro, an analyst at Salomon Smith Barney, reiterated a Buy rating on UTX. Actually, the majority of the analysts following UTX do have the company rated a Strong Buy or Buy, but only three firms have come out with reiterations or upgrades since the first of the year. What we really see happening at this point is the recent news has been negative, and there is little reason to buy. With so many other stocks to put money into, investors simply seem to be choosing stocks where the return could be better. Today's close put UTX back under water as far as the 200-dma at $58.28. The volume wasn't heavy, but did come with 1.3 mln. The ball was set in motion on June 8th when UTX fell about 5% on over twice its daily average. Since then traders have view intraday bounces as an opportunity to sell, and for now we would concur. Resistance is seen between $58 and $59 with a "gap" back at $60. Until the sentiment changes continued weakness and bounces up to resistance, followed by further selling could be considered a chance to participate in our new play. BUY PUT JUL-60 UTX-SL OI= 29 at $3.75 SL=2.25 BUY PUT JUL-55*UTX-SK OI= 99 at $1.44 SL=0.75 BUY PUT AUG-55 UTX-TK OI=340 at $2.13 SL=1.00 Average daily volume = 1.71 mln /charts/charts.asp?symbol=UTX ********************** PLAY OF THE DAY - CALL ********************** YHOO - Yahoo! Inc. $139.50 +2.06 (-3.69 this week) Yahoo! Inc. is a global Internet communications, commerce and media company that offers a comprehensive branded network of services to more than 145 million individuals each month worldwide. As the first online navigational guide to the Web, www.yahoo.com is the leading guide in terms of traffic, advertising, household and business user reach, and is one of the most recognized brands associated with the Internet. The company also provides online business services designed to enhance the Web presence of Yahoo!'s clients, including audio and video streaming, store hosting and management, and Web site tools and services. The company's global Web network includes 22 local World properties outside the United States. Most Recent Write-Up Here's another company struggling from the earnings warning season. No, YHOO didn't pre-announce, but NBCI did earlier today. The warning seemed to set the tone for YHOO and the Internet sector. After dropping to support near $131, traders began to test the waters once again, bidding shares of our current favorite back to a more respectable level. We may have Henry Blodget at Merrill Lynch to thank for the bounce. Late this morning the respected analyst reiterated his near-term Buy rating on YHOO. With investors focusing more on earnings Yahoo! is one of only four major Internet companies showing a profit at this time. While YHOO penetrated its 200-dma at $136.93, the fact it managed to come back and close above that number is a plus for our play. YHOO could continue to consolidate or may catch fire and move higher. The $130 level of support is becoming increasingly important. A decline through that mark and it may be time to stand back and take another look. If sentiment gets more positive, then we would certainly look to buy calls, as long as the volume is present. Comments Strength in the NASDAQ during the late-session rally was a very good sign. The NASDAQ heavyweights all turned up on the charts and it appeared that some of that sideline cash was put to use. If the CPI is benign and perceived as favorable, we could be poised for a rally. Any rally will certainly include the internet leaders. YHOO could also begin to attract buyers for its earnings run. ***June contracts expire on Friday*** BUY CALL JUL-135 YMM-GG OI=3938 at $16.75 SL=13.00 BUY CALL JUL-140 YMM-GH OI=2864 at $14.00 SL=11.25 BUY CALL JUL-145*YMM-GI OI=1560 at $12.00 SL= 9.50 BUY CALL JUL-150 YMM-GJ OI=5389 at $10.38 SL= 8.00 BUY CALL OCT-150 YMM-JJ OI= 828 at $21.13 SL=16.50 SELL PUT JUN-135 YMM-RG OI=1740 at $ 1.81 SL= 3.00 (See risks of selling puts in play legend) Picked on May 28th at $112.06 PE = 651 Change since picked +27.44 52 week high=$250.06 Analysts Ratings 16-13-3-0-0 52 week low =$ 55.00 Last earnings 04/00 est= 0.09 actual= 0.10 Next earnings 07-11 est= 0.10 versus= 0.05 Average daily volume = 10.2 mln /charts/charts.asp?symbol=YHOO ************************ COMBOS/SPREADS/STRADDLES ************************ Up And Down, Round And Round... Monday, June 12 The market ended lower today in a subdued session with investors avoiding equities ahead of the upcoming economic data. Profit warnings from leading technology companies pulled the Nasdaq down 106 points to 3767 and the Dow ended 49 points lower at 10,564. The S&P 500 Index slipped 10 points to 1446. Trading activity on the NYSE was light at 762 million shares exchanged and declines edged advances 1,482 to 1,415. Volume on the Nasdaq reached 1.27 billion shares, with declines beating advances 2,575 to 1,534. In the bond market, the 30-year Treasury rose 9/32, pushing its yield down to 5.87%. Sunday's new plays (positions/opening prices/strategy): Convergys CVG JUL35C/JUL45C $8.25 debit bull-call Int. Silicon ISSI OCT25C/JUL35C $9.00 debit diagonal Exodus EXDS JUL60P/JUL65P $0.75 credit bull-put Macromedia MACR JUL65P/JUL70P $0.56 credit bull-put Our new plays in the technology group offered few opportunities for participation in the range-bound market. The credit for the bullish Macromedia spread was less than our target and we expect to enter the position at $0.62 credit in the next few sessions. Integrated Silicon Solutions traded well beyond our suggested entry price and the position has yet to be opened. Convergys dropped almost $2 early in the session and the target entry was easily achieved. Portfolio Plays: Unfavorable earnings forecasts led the equity market lower with investors beginning to question the future of corporate profits. Rising interest rates have increased concerns that earnings will be lower than expected in upcoming quarters, due to the cost of borrowing and a slowdown in the economy. Analysts suggested that although the Fed is moving toward a neutral policy stance and the rate hikes are likely at an end, the effects of reduced consumer demand will weigh significantly on the fundamental performance of many industries. On the Dow, oil stocks were the big gainers with Exxon-Mobil (XOM), leading the way. Exxon-Mobil rallied to $80.75 after PaineWebber raised its rating on the stock and increased earnings projections for the company. A number of issues in the oil group moved higher amid rising crude oil futures and a sector upgrade from Deutsche Banc Alex Brown. Retail stocks were very weak and Home Depot (HD) led that group lower. On the Nasdaq, Citrix Systems (CTXS) was a big loser, falling by almost 50% after warning that second-quarter earnings would be well below analysts' estimates. The bearish news was unwelcome, coming in the wake of the recent warning from Electronic Data Systems (EDS). Biotech, chip and Internet stocks also mover lower today and Major Drugs slid in sympathy with Amgen (AMGN), which slumped after a federal judge handed down a negative ruling in their patent infringement case against Transkaryotic Therapies (TKTX). In the broader market, healthcare and jewelry stocks advanced while the majority of electronics issues declined. Our portfolio was led by Aetna's (AET) $6 rally to a recent high near $73. Aetna was just one of a number of health maintenance organizations that moved higher after a US Supreme Court ruling that HMO patients can't use a federal employee-benefits law to sue their health providers over business practices. Following the news, Salomon Smith Barney upped the company's price target to $87 and investors flocked to the issue. Our bullish diagonal spread position is short at $70 and we will need to make further upside adjustments if the recent rally continues. Another big surprise occurred in one of our delta-neutral positions. Lennox International (LII) rose to $13.62 during the session, bringing the total credit for our new debit strangle to a $1.75. That's a $0.50 profit on $1.25 invested for just three weeks. The only position currently in jeopardy is the bearish credit spread in Novoste (NOVT). Our short option is now "at-the-money" with the stock price at $45. Fortunately, the issue remained in a small range during the session and has yet to break above the current technical resistance. Tuesday, June 13 The market rallied today amid light trading among bargain hunting investors. The Dow ended up 57 points at 10,621 and the Nasdaq closed 83 points higher at 3851. The S&P 500 Index rose 23 points to 1469. Trading activity on the NYSE was light at 925 million shares with advances beating declines 1,776 to 1,176. Volume on the Nasdaq reached 1.37 billion shares with advances outpacing declines 2,049 to 1,994. In the bond market, the U.S. 30-year Treasury fell 1 1/32, pushing its yield up to 5.94%. Portfolio Plays: Technology stocks rallied today as buyers came out for bargains in a volatile session marked by large swings in the major indices. Computer hardware and Internet shares remained in a recent slump but chip and networking issues posted modest gains, driving the Nasdaq to a positive close. Blue-chip issues also rebounded, led by downtrodden companies in the drug and retail industries. The retail group has been hard hit in recent months amid concerns that consumer spending will shrink as the economy slows and hurt the industry's profit margin. The defensive drug sector lifted the broad market and oil service stocks rose in conjunction with the three-month high in crude oil prices. On the downside, banks, airlines and paper stocks generally moved lower. Our portfolio leaders came in Consumer Products, Major Drugs and Technology. Network Appliances rebounded $7 to a closing high near $86. After hours, the company announced they would acquire Orca Systems, a developer of high performance virtual interface architecture software for UNIX and Windows NT software systems. Last month's credit spread roll-out, SCM Microsystems (SCM) rose $7 after the company said it would buy U.S. memory card producer Microtech International in a deal worth $20 million. SCM said it will acquire Microtech later this month to enter the consumer market. Microtech will produce flash data storage card readers for digital photography. Investment bank Goldman Sachs initiated coverage of SCM with a price target for the company of 136 euros. Johnson & Johnson (JNJ) and other drug companies rallied as the report of falling retail sales boosted hopes that the Fed will soon end its campaign of interest-rate increases. The consumer drug giant posted a $3 rally to close near $88, just short of our sold option in the bullish, long-term position. Medimmune (MEDI) and Sepracor (SEPR) also participated in today's upside activity. Medimmune rose $3.25 to end at a new high near $65 and Sepracor recovered $5 of this week's losses to close at $104. The surprise of the day was Integrated Silicon Solution (ISSI). The developer of high performance memory devices slumped early in the session, allowing a favorable entry opportunity in our new diagonal spread position. Then the issue rallied as technology buyers moved back into the semiconductor group. Now the question is whether the industry can maintain the exponential growth rate of the past few year. Ditech (DITC) is once again on the "watch" list as it has fallen to recent lows even as the technology group rallied. A close below the current trading-range bottom near $75 may indicate a new downward leg. Our cost basis in the position is near $74 and there are only 3 days remaining in the expiration period so we will monitor the issue closely. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - One of our subscribers requested that we identify some favorable spread positions on bullish, small-cap issues. Here are three candidates for your review. All of these plays offer excellent risk/reward potential but they should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. ****************************************************************** FVCX - FVC.com $10.12 *** New Financing! *** FVC.com provides video-networking solutions that integrate video with voice and data over existing network infrastructures. The company's video access products facilitate the connection of traditional room systems, desktop video equipment and personal computers to enterprise networks. FVC's video server products provide a range of critical video services such as multicasting, recording, storage and translation across the Internet and into corporate Intranets. Their broad product line enables FVCX to deliver end-to-end solutions for enterprise video applications such as distance learning, tele-medicine, video marketing and video manufacturing. FVC.com shares surged this week after receiving a substantial capital infusion million from Paul Allen's Vulcan Ventures. Vulcan purchased a 16.5% stake in FVC for $27.4 million of preferred stock, convertible into 3.4 million shares of common shares at a price of $8.00 per share. Vulcan also received warrants to purchase an additional 850,000 shares of common stock at $7.00 per share. The Microsoft co-founder has spent billions of dollars over the past several years in an attempt to build a network capable of delivering high-speed data/voice services. His plan is to go after the same market as AT&T and the combined America Online/Time Warner enterprise. Now the question is whether FVCX can put this money to good use and the new opinion from analysts is a resounding "affirmative!" PLAY (conservative - bullish/debit spread): BUY CALL JUL-5.00 FXQ-GA OI=10 A=$5.50 SELL CALL JUL-7.50 FXQ-GU OI=43 B=$2.25 INITIAL NET DEBIT TARGET=$2.12 ROI(max)=17% B/E=$7.12 Chart = /charts/charts.asp?symbol=FVCX ****************************************************************** CNC - Conseco $6.93 *** Bottom Fishing! *** Conseco is a financial services holding company that conducts and manages its business through two operating segments reflecting its major lines of business, insurance and fee-based operations and finance operations. Insurance subsidiaries develop, market and administer supplemental health insurance, annuity, individual life insurance, individual and group major medical insurance and other insurance products. Conseco sells Medicare supplement and long-term care insurance policies. Their finance subsidiaries originate, purchase, sell and service consumer and commercial finance loans throughout the United States. They also provide financing for consumer purchases of manufactured housing, which are structures, transportable in one or more sections, designed to be a dwelling with or without a permanent foundation. Conseco provides home equity and improvement loans as well as consumer and credit card products. Conseco's share value rallied today on rumors that former General Electric (GE) executive Gary Wendt was the most likely candidate to take the job of chief executive. Conseco has been looking for a permanent chief executive since the company's past CEO Stephen Hilbert and Chief Financial Officer Rollin Dick resigned in April. Investors lost confidence in Conseco's management in March after it announced it would sell its personal loan unit (originally Green Tree Financial) for $6 billion, less than two years after buying the company. In addition to the speculation on a new chief, one analyst said there is a high probability that the Conseco Finance unit will be sold later this month. Breider, Moore & Company believes that the recently announced plans to sell the subsidiary will lead to a definitive agreement in the near future. The deal is expected to help alleviate Conseco's current liquidity situation and allow the company to refocus on their core Insurance business. PLAY (aggressive - bullish/diagonal spread): BUY CALL AUG-5.00 CNC-HA OI=2471 A=$2.50 SELL CALL JUL-7.50 CNC-GU OI=2733 B=$0.75 INITIAL NET DEBIT TARGET=$1.62 TARGET ROI(max)=50% B/E=$6.62 Chart = /charts/charts.asp?symbol=CNC ****************************************************************** PSSI - PSS World Medical $10.31 *** Technicals Only! *** PSS World Medical is a specialty marketer and distributor of medical products to physicians, alternate-site imaging centers, long-term care providers, home care providers, and hospitals through 111 service centers to customers in all 50 states and three European countries. Physician Sales & Service, their primary division, is a leading distributor of medical supplies, equipment and pharmaceuticals to office-based physicians in the United States. Diagnostic Imaging is the leading distributor of medical diagnostic imaging supplies, chemicals, equipment, and service to the acute care and alternate-care markets in the United States. Gulf South Medical Supply is a leading national distributor of medical supplies and related products to the long-term care industry in the United States. There is not much news to explain the recent rally in PSS World Medical. Earlier in the year, two of the company's subsidiaries announced agreements which expand the range of products offered by PSSI. Diagnostic Imaging entered into a new agreement with Philips Medical Systems to provide integrated services between the organizations for an expanded breadth of products. PSSI also announced that Physician Sales and Service entered into agreements with Elan Diagnostics and Ortho Clinical, a division of Johnson & Johnson, to sell their chemistry analyzers. The pact provides PSS with a new source for the chemistry analyzers to compliment a wide array of products that can meet the needs of their diverse customer base. As you can see, the news is less than overwhelming. Fortunately, the technicals are favorable. In addition, the premiums for the near-term (OTM) options are slightly inflated and the potential for a successful (technical) breakout is reduced by resistance at the sold strike price; a perfect condition for a bullish calendar spread. PLAY (conservative - bullish/calendar spread): BUY CALL NOV-12.50 PYQ-KV OI=886 A=$1.75 SELL CALL JUL-12.50 PYQ-GV OI=299 B=$0.81 INITIAL NET DEBIT TARGET=$0.81-$0.88 TARGET ROI=50% 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 less neutral and more bullish type of calendar spread is when the underlying issue is some distance below the strike price of the options. This position has low initial cost and large potential profits. 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=PSSI ************************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 **************************************************************
Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.
Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.
To ensure you continue to receive email from Option Investor please add "firstname.lastname@example.org"
Option Investor Inc