The Option Investor Newsletter Sunday 6-18-2000 Copyright 2000, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 6-16 WE 6-9 WE 6-2 WE 5-26 DOW 10449.30 -164.76 10614.06 -180.70 10794.76 +495.52 -327.61 Nasdaq 3860.56 - 14.28 3874.84 + 61.46 3813.38 +608.27 -185.29 S&P-100 788.74 + 9.04 779.70 - 12.99 792.69 + 56.61 - 16.87 S&P-500 1464.46 + 7.51 1456.95 - 20.31 1477.26 + 99.24 - 28.93 RUT 513.74 - 9.32 523.06 + 10.03 513.03 + 55.66 - 22.33 TRAN 2673.19 -116.98 2790.17 - 39.19 2829.36 +141.81 - 54.45 VIX 23.55 - 1.64 25.19 + 1.08 24.11 - 3.38 - 1.28 Put/Call .53 .45 .41 .65 ****************************************************************** Get out the Raid, the cockroaches are running. The market was staggered this week as a flurry of cockroach sightings sent institutional traders to the sidelines. The earnings warnings sent shivers up the spine of even the most aggressive traders. The problem is not so much the ones that warned as the ones that have not warned yet. Using whatever analogy you want, cockroaches, mice or moths, there is never just one. If you see one you can bet there are many others still in hiding. Roger Perry calls this the "cockroach theory." When referring to earnings warnings the analogy is very true. When one company in a sector warns it is likely only the first one to appear. Using the warnings in the financial sector recently you can see how this works. One broker warns that slowing volume would impact earnings and others follow suit on the heels of analysts downgrades of the sector. A major bank warns this week and smaller banks follow suit. Sector downgrades after the announcements push prices down even further. Last week I said any Dow rally would have to be led by the financials which were already bloody. After the Wachovia warning this week the financials are still leading the Dow, down not up. Sector leaders were racing toward the cellar on Friday on fears of the continued impact of higher interest rates. JP Morgan had a huge drop of -$9 along with the most recent earnings warning UnionBanCal also -$9. Adding to the overall stink was TER which said bookings would be flat for the second quarter compared with previous estimates of +10%. Xerox joined the parade with a warning that earnings would be below estimates due to soft sales. As more and more companies confessed their sins, investors became more unsure of which way to jump. The only sectors that were showing strength were Oil Service, on $31 oil, and some defensive stocks like drugs. There simply appeared to be no safe haven. Tech stocks, which are very susceptible to warnings, managed to hold their own but the Dow drag prevented any rally. The Dow, which had been flat on good economic news Wed/Thr, dove at the open then firmed at lunch as bargain hunters came off the sidelines. The bears slammed the door behind them as the waves of selling began again about one hour before the close. The volume was heavy with over one bln shares trading on the NYSE. The end of day volume was very heavy for a summer Friday. There were huge order imbalances at the close with large blocks of "sell on close" and almost no buyers. The Dow was showing -234 at the bell but dropped another -30 points as trades settled out over the next 10 minutes. Closing at the absolute low of the day on exceptionally strong closing volume does not bode well for open on Monday. Some analysts think it could have been due to the triple witching options expiration but it would be contrary to this weeks action over the last year. Volatility due to witching has been taking place earlier in the week for quite some time and heavy Friday trading has been non existent. I think it was fear of future warnings that finally pushed some institutions over the edge. Economic reports on Friday were very market friendly on the surface. With housing starts coming in at the lowest in a year, down -3.9%, and housing permits dropping -4.3% you would have expected the market to rally as Fed fears decrease. What overcame investor optimism was the worry that the economy was slowing too fast. The ripple down impact of just the housing drops would hurt wood and paper companies as well as appliances, furniture, etc. Some analysts are now predicting only a +12% growth in earnings for the S&P compared with previous estimates of +18%. This is a huge drop of -33% and considering the heaviest warnings do not occur for two more weeks the worst may still be ahead of us. The most warnings occur the last week of June and the first week of July. I started planning this commentary with a bullish bias, again. However, my outlook changed the farther I got into my research. On the positive side I felt the Nasdaq was still building support just under 3900 and preparing for an explosive breakout. To support my positive market bias I felt the OEX and SPX, which are better indicators of the broader market, were also building support at the higher end of their recent ranges. Also the QQQ failed to break support at $90. What changed my view was the high volume selling at the close Friday and the realization that the worst is still ahead of us in terms of warnings. Now remember it is the perception of reality that governs our fate, not reality. If institutional investors feel that the next three weeks are going to be very rough and they move to the sidelines then it makes no difference if the warnings actually come to pass. The move to the sidelines in advance will control the market direction next week. Factor in the Fed meeting on the 27/28th and you get another rocky week. It makes no difference that most expect no hike from the Fed. It is the Fed dread that causes the volatility. A bull could look at the three charts above and visualize a possible breakout since all are trading at or near the high points in their range. A bear would look at the three charts and visualize a possible roll over on each since that is the current trend. A bounce off upper resistance and fall back again. The key here is still "planning your trades and executing your plan." Our plan from last Sunday was to be market neutral. I suggested that 3900 was the current target benchmark. A breakout over 3900 on strong volume would be a signal to go long and I suggested staying flat under 3900. If you took my advice you saved a lot of time, money and emotional headaches last week. With the Dow looking like an EKG and likely to continue back down to a retest of 10300 we want to be very careful in the market. By setting a benchmark like 3900 it takes all the complicated decisions out of the market. The Dow will drag on the Nasdaq so the one we want to watch is the Nasdaq. By focusing on the 3900 you eliminate the noise of the market. Last week was VERY NOISY. If you attempted to trade it your results may not have been very satisfactory. Sure there were individual winners like SDLI but overall it was very choppy. The game plan for this week is still the same. Wait for a breakout over 3900 on strong volume and then go long. The economic calendar is very light which could give us some positive bias but institutional investors will be listening with a stethoscope for signs of possible earnings warnings. WHEN they come, the sector for each offender will be hit with downgrades and selling. Your stock may not warn but if another leader in the same sector warns then your stock will drop in sympathy. Trade smart, don't buy too soon. Jim Brown Editor P.S. This week I am reprinting my "Exact Instructions" Options 101 article from last fall. This article was in answer to readers requests on how to turn $10,000 into $50,000 in one year using options. Check it out on the website. http://www.optioninvestor.com/page/oin/education/opt101/1999/12-05.html *************** SEMINAR RESULTS *************** Technical Analysis, Stock and Option Seminar Three days of indepth education. The next seminar is a three day event in Los Angeles on June 22-24th. We guarantee you will not be disappointed. The class size is small so you will get plenty of individual attention from Chris Verhaegh and the staff. At less than the cost of a bad trade you can learn how to analyze stocks and trade options like the pros. Don't wait, do it now. June 22-24 Los Angeles 3 day June 27-28 Washington DC 2 day July 13-15 New York 3 day July 21-23 Seattle 3 day July 27-29 Atlanta 3 day Aug 11-12 Pittsburg 2 day Aug 17-19 Orlando 3 day Aug 28-29 Detroit 2 day Australia coming soon! Has the market been beating you up? Did you give back your gains from April? Would you like to understand all the technical indicators our writers use? Does the alphabet soup of technical terms like RSI, DMA, MACD, ROC, Stochastics, Bollinger bands, sound like Greek to you? You can learn from the experts how to interpret all these indicators, read charts, pick stocks and which option strategies to use on those stocks for less than the cost of one bad trade. Reserve your seat now for one of our regional seminars. Click here for more info: http://www.OptionInvestor.com/seminar/seminar.asp *************************** OptionInvestor/Optionetics Summer Seminar Series Back by popular demand! *************************** We are proud to announce the summer OptionInvestor & Optionetics seminar schedule featuring options guru, money manager and best selling author George Fontanills. The OptionInvestor/Optionetics Seminar was designed to help you gain the know-how necessary to compete in the marketplace. Over the course of the last 7 years George Fontanills has developed a series of high profit, low risk, low stress trading techniques that will empower you to systematically approach the markets. Learn how to intelligently combine options to maximize profits and minimize risk. Designed to fit the needs of novice and seasoned traders, this workshop and home study course will show you how to use managed risk options strategies in today's highly volatile markets. The seminar and home study course materials include: Delta neutral non directional trading 28 options strategies including Spread Trading, Straddles, Strangles, Condors (low risk trades), Butterflies George Fontanills' "5 Minutes a Day to find a trade" How trade volatile markets 911 Repair Strategies - what to do when a trade goes wrong trade action plan "How to get Started". With our unique tuition package you will receive: Before the event: Home Study Course with 8 digitally mastered video tapes and a 500 page manual "Trading for the 21st Century" plus your personal coach available to answer your questions. Live Seminar: 2 days of live trading with George Fontanills and Tom Gentile plus FREE partner attendance - two people for the price of one. You may bring a friend, spouse and business partner to the event for FREE. Both teachers available for our personal questions and you get a full Money Back Guarantee. Venues: George Fontanills, together with his chief options strategist Tom Gentile, will personally teach two days live trading delta neutral strategies in the following cities: June 25 & 26 New York July 10 & 11 Atlanta (Tom Gentile only teaching) July 16 & 17 Houston July 23 & 24 San Francisco Our Home Study Course is available for the same price if you can't make these dates and you may attend a later seminar when your schedule allows. Order today as seating is strictly limited to first come first served basis. You will receive a $5,000+ value package, but pay only the special price of $2,400 for your tuition. Please reserve your place now to not be disappointed when we sell out. Click here for more info: http://www.OptionInvestor.com/seminar ************** EDITOR'S PLAYS ************** I took my own advice last week and waited patiently for 3900 which never came. I did get stopped out of my VIGN and YHOO plays on the Tuesday dip. I was in no hurry to jump back into the fray. I am currently flat with the exception of my LEAPS on MSFT, NOK, VOD. MSFT $72.56 VOD $49.56 NOK $58.75 ********** I am paitiently waiting for 3900 and heavy volume. Choppy summer markets are very hard to trade and you must follow the plan. Sure, I will probably lose some potential profits on a couple stocks that break the rules I can't lose any money sitting on the sidelines. Patience is a virtue. It is not fun but it is cheap. Cash is king! Good Luck Jim **************** MARKET SENTIMENT **************** Oracle, Tibco, and Micron Technology! Blue chips ended the week on a sour note, as the DOW got clobbered for -265 points while the NASDAQ closed up +14 points on average volume. Volume was above average for the NYSE, as Xerox led the active list after pre-releasing earnings that would disappoint Wall Street. The list of negative pre-announcements continues to grow at an above average rate, and with several weeks before the July earnings run we will probably see quite a few more disappointments ahead. Even though we are still several weeks from the major earnings run, there will be a handful of companies that are due to report their earnings. Now, below is a small list of equities (that should be reporting their earnings this next week) and our Pinnacle Index for those particular stocks. The Pinnacle Index is a proprietary product that determines current market sentiment and expectations for underlying equities and indexes, which is based upon speculation in the option markets. Also included are their expected earnings, the infamous whisper number (if available), their estimated earnings release date, as well as the put/call ratio if available. What we look for are liquid stocks/options that garner a lot of interest from the investment community. Most of the issues are high tech, and are thus more aggressive. We then filter out many of the equities, only to show stocks with excessive optimism or pessimism. From a contrarian standpoint (a high number is a good indication of extreme optimism, and a low number is a good indication of extreme pessimism) you should buy when its low, and sell when its high. Last quarter, we highlighted some stocks with a Pinnacle Index that were stratospheric (as high as the upper 20's). Needless to say, these stocks had so much pent-up enthusiasm, that after their earnings, they tanked. It is the old adage, buy the rumor - sell the news. There were also numerous companies with a Pinnacle Index less than one. However, once these companies came out with their bad quarter, the stocks rallied due to the oversupply of pessimism. Company Symbol Pinnacle Expected Whisper#: Put/Call Index(PI): Earnings: Ratio: Oracle ORCL 4.45 .26 .28 0.56 Tibco Soft TIBX 1.30 .01 .02 n/a Manugistics MANU 2.23 -.04 -.03 0.63 Micron Tech MU 3.16 .34 .37 0.78 Now looking at the above list, there is neither an extremely optimistic or pessimistic security in the group. They are all middle of the road, which is consistent with the sentiment that is being witnessed in the market currently. Tibco Software's Pinnacle Index is the lowest out of this group, which may indicate the potential for a rally, but considering the positive move that the stock has made during the last week makes us a little more cautious. Micron Technology and Oracle both show signs of being a high expectation stock, so the chance of these issues selling off after earnings is greater than average. Not only are their Pinnacle Indexes slightly higher than average, but their whisper numbers are expecting a blowout quarter. The perfection that is priced into these companies is great, and should they hint at a slowdown or mention any other negatives, a fall could be in store. We will watch the activity in these issues at the beginning of the week, because the two trading days ahead of earnings is when the biggest speculators come out to play, which then could dramatically change the sentiment. However, until a change occurs, we will continue to play the put side on this market. Have a good week! BULLISH Signs: Interest Rates (5.875): 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. Mixed Signs: Volatility Index (23.18): 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. Based solely on the VIX, we are getting close to a selling opportunity. 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, NBC Internet, Wachovia Bank, Perot Systems, Xerox, and Qualcomm have all warned of poorer times ahead or have had earnings cut by analysts. 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 (6/16) (6/20) (6/22) ***************************************************************** Overhead Resistance (805-825) 10.47 Overhead Resistance (775-800) 1.38 OEX Close 788.74 Underlying Support (745-770) 1.32 Underlying Support (715-740) 4.53 What the Pinnacle Index is telling us: Overhead is still strong, but with June expiration done with, the July data is a little light to be evaluating. We will be interested to see what side the speculators choose this upcoming week. Put/Call Ratio ***************************************************************** Friday Tues Thurs Strike/Contracts (6/16) (6/20) (6/22) ***************************************************************** CBOE Total P/C Ratio .53 Equity P/C Ratio .47 OEX Put/Call Ratio 1.23 Peak Open Interest (OEX) ***************************************************************** Friday Tues Thurs Strike/Contracts (6/16) (6/20) (6/22) ***************************************************************** Puts 680 / 4,419 Calls 800 / 2,669 Put/Call Ratio 1.66 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 16, 2000 23.55 ************** MARKET POSTURE ************** As of Market Close - Friday, June 16, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,200 11,400 10,449 Neutral 5.05 SPX S&P 500 1,350 1,500 1,464 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 3,787 Neutral 5.30 MSH High Tech 800 1,050 998 Neutral 6.06 XCI Hardware 1,250 1,600 1,517 Neutral 5.30 CWX Software 1,050 1,300 1,258 Neutral 6.06 SOX Semiconductor 850 1,200 1,158 Neutral 5.30 NWX Networking 900 1,100 1,180 BULLISH 6.02 INX Internet 500 800 587 Neutral 5.30 BIX Banking 520 640 524 Neutral 6.09 XBD Brokerage 450 495 498 BULLISH 6.15 IUX Insurance 540 620 624 BULLISH 5.16 RLX Retail 900 1,000 840 BEARISH 6.09 DRG Drug 355 400 399 Neutral 4.28 HCX Healthcare 710 800 819 BULLISH 6.15 XAL Airline 140 155 160 BULLISH 5.25 OIX Oil & Gas 265 300 317 BULLISH 5.11 Posture Alert Several earnings warnings sent the Dow into a tailspin Friday, as the blue chip index closed down -265 on above-average volume. The NASDAQ held up like a champ, but it too is a few pre-announcements away from selling off. Regardless, sectors showing continued strength were Oil & Gas (+2.66%), Semiconductors (+2.28%) and Networking. On the downside Friday was the Banking and Insurance indexes, which posted losses of -6.37% and -3.82%. ************* SECTOR TRADER ************* Biotechs Provide the Leadership, as Internets Prove There is No Free Lunch. By Buzz Lynn Index Last Mon Tue Wed Thu Fri Week QQQ Nasdaq-100 93.78 -2.69 3.13 -1.75 1.63 0.50 0.81 HHH Internet 118.88 -7.06 1.19 -1.19 1.00 0.38 -5.68 BBH Biotech 164.00 -7.75 5.75 -2.06 2.06 6.00 4.00 PPH Pharm 98.81 -0.69 3.44 1.69 0.13 0.38 4.94 TTH Telecom 77.25 -0.94 1.81 -0.13 -0.19 -0.06 0.50 IAH I-net Arch 91.00 -1.06 0.94 0.06 2.06 0.50 2.50 IIH I-net Infr 55.75 -4.06 1.19 -0.13 0.38 0.25 -2.38 BHH B2B 38.13 -2.44 0.81 -1.38 -0.31 -0.31 -3.62 BDH Broadband 88.50 0.88 2.13 -2.44 2.13 0.25 2.94 SMH Semicon 96.00 -3.81 4.00 -4.25 -0.81 0.63 -4.25 ************** New Plays ************** TTH - Telecom $77.19 (+0.44 last week) Not optionable. Put this one on your short candidate list. It's not as though the sector forgot how to grow and utilize bandwidth. However SBC, AT&T (T) and WCOM carry the most weight in TTH's composition, all which act as the ball and chain on the index. FON isn't helping since it is unlikely to get anti-trust clearance to merge with WCOM. Meanwhile BEL and GTE were finally given FCC approval to merge, but not without first agreeing to spin off some long distance and Internet assets. There should be no doubt that the long-term outlook over a period of years is good. Nonetheless, on a short- term sentimental and technical basis, this HOLDR is rolling over. $77-$78 is providing tremendous resistance. That figure use to provide support until a breakdown in early May from which TTH hasn't been able to recover. While the 10-dma has held as support (currently $76.50), the 50-dma (currently at $78.53) is in descent mode and will likely provide resistance. The recent gains have come on low volume with last week's consolidation on lower volume still. The last three days show a series of lower highs. There just isn't any interest here, yet the stochastic is deep in overbought territory. That means that if interest wanes further, selling volume could increase noticeably. That could take TTH down to support around $74 in a hurry - perhaps $73 if it decides to fill the gap created from the gap up two weeks ago. Look for a descent below $76.50 with a general market rollover. That would confirm the direction. ************** Updates ************** QQQ - NASDAQ 100 $94.50 (+0.94 last week) Optionable. We feel like Christopher Columbus insisting the world is NOT flat, although the NASDAQ is proving us wrong on that score. In fact, the NASDAQ world is proving to be flat, flat, flat. QQQ has been stuck in range between $91 and $94 in general, and $90-$95 in the extreme, and currently near the top of its range at $94. Though despite the weakness in the Dow on Friday, NASDAQ has shown remarkable staying power all week by establishing a series of higher lows. That's a good sign. Yet still the NASDAQ and QQQ continue to bump their heads on firm resistance - $95 in the case of QQQ. That said, we would not be surprised to see QQQ continue to trade in this narrow range until some of the uncertainty on the Fed's next move is eliminated. While we see plenty of signs that inflation is well in check (meaning that Greenspan has no reason to raise rates again), four of the last six rate hikes have yet to take effect while the price of oil is marching up again. Both speak volumes about corporate profit growth going forward. It's pretty hard for stocks to rise when profits are slowing. Accordingly, we look for the narrow trading to continue. Here's what to look for if you want to play the Q's. Watch for a move over $95 with swelling volume if you contemplate going long or buying calls. Friday didn't count because of the volume substantially under the ADV coupled with typical triple witching volatility. Otherwise look for a bounce at $90 or $91. If contemplating going short or buying puts, watch for the breakdown at $95, like on Friday afternoon, or for a breakdown under $91. Sound too tough to trade? It is. There is no shame in sitting out until a trend is established. At Support: BUY CALL JUL-88 QVQ-GJ OI= 854 at $10.00 SL=7.00 BUY CALL JUL-90 QVQ-GL OI= 2511 at $ 8.50 SL=6.00 BUY CALL JUL-91 QVQ-GM OI= 1046 at $ 7.88 SL=5.75 SELL PUT JUL-86 YQQ-SH OI=20957 at $ 2.44 SL=1.25, Huge OI At Resistance: BUY PUT JUL-98 QVQ-ST OI= 505 at $ 7.63 SL=5.25 BUY PUT JUL-95 QVQ-SQ OI= 706 at $ 5.88 SL=4.00 BUY PUT JUL-94 QVQ-SP OI= 1116 at $ 5.50 SL=3.50 Average Daily Volume = 27.74 mln /charts/charts.asp?symbol=QQQ ------ BBH - Biotech $163.75 (+5.75 last week) Optionable. Forget the stairway to Heaven. We'll take the double helix route to profits. BBH finally broke out of the trading range by piercing $160 to the upside. Helping confirm the move were two nice bounces at $161 intraday. Volume exceeded the ADV by 18% too. While it isn't stellar, it's a welcome site. So what's it all about? Banc of America Securities re-initiated their biotech coverage. Two of BofA's favorites, AMGN and IMNX are two of the largest components of the BBH, which sent the index soaring. It didn't hurt either that most of the other issues acted in sympathy to BofA's strong sector recommendation. Overall, we expect that sentiment to continue for the next few days, which could keep the sector advancing. It's amazing what a whole sector upgrade can do to change sentiment. DNA was the only drag on the index. That happens if you announce that your heart drug failed in trials. While Friday's BBH close looks strong going forward, it could encounter mild resistance at $164, the same level encountered at a recent peak on June 6th. Good technical support can be found at the 5-dma and 10-dma, both of which are at about $157.50. Historical support is at $160 and $161. Consider target shooting at these levels depending on your level of risk tolerance. Otherwise, look for the move over $164 as a sign of confirmation to make your entry. At support: BUY CALL JUL-155 BBH-GK OI= 93 at $18.25 SL=13.25 BUY CALL JUL-160 BBH-GL OI= 157 at $15.63 SL=11.25 BUY CALL JUL-165 BBH-GM OI= 95 at $13.13 SL=10.00 At resistance: BUY PUT JUL-165 BBH-SM OI= 42 at $13.50 SL=10.25 BUY PUT JUL-160 BBH-SL OI=1257 at $10.88 SL= 8.25 BUY PUT JUL-155 BBH-SK OI= 58 at $ 8.50 SL= 6.00 Average Daily Volume = 654 K /charts/charts.asp?symbol=BBH ------ IAH - Internet Architecture $91.50 (-1.38 last week) Not optionable. We're still hard pressed to call this a breakout though it did technically break resistance. Nonetheless, Friday's trading range remained mostly higher than Thursday's close, which by definition means it didn't fall through previous resistance in failure - thus we're keeping it. IAH is encountering mild resistance now at its intraday high of $92, while inching up to a more solid resistance level at $93. The biggest component, CSCO appears on the right track for more gains. However, despite HWP's whacking at someone's utterance of revenue shortfall, analysts and investors alike are coming to its defense, which should keep it and IBM (golden by association) moving up in the coming days. We like IAH's newfound support at $91, but that could give way to $89 on a bad day, so be careful if the NASDAQ shows any weakness. That said, greet any pullbacks to $89 as a target shooting opportunity. Otherwise, it might be better to wait until IAH moves over $92 with some conviction before taking a position, especially if it's a recovery bounce from a lower number. Average Daily Volume = 71 K /charts/charts.asp?symbol=IAH ------ BDH - Broadband $88.50 (+2.94 last week) Not optionable. Despite our favorite broadband issues like JDSU, CMTN and GLW giving back ground on Friday, the monsters (LU and NT) held their ground. Coupled with nice gains in CNXT and RFMD, BDH squeezed in a higher low before turning back up into a decent finish. The volume was a little low for our liking though. So make sure the general market is moving in your favor before you pull the trigger. The overall technical picture is that the lows are getting higher as the highs get capped at $89 - a slowly ascending wedge. We sure like the continued bounces off the 10-dma (currently $86.88) as BDH has been moving up. Look for that support to continue. Even the 5- dma of $87.58 worked on Friday. You might want to target shoot one of those levels based on your risk tolerance (not like there's a big difference) for the best entry. Otherwise, it might be best to wait for a move over $89.50 to get in. For those who missed Thursday's write-up, here's a trader trick that might make/save you money if you employ it. It's pretty much universal and not just limited to this play. "Following a spike up through resistance during amateur hour, then a pullback where a stock again finds support at its former resistance, look for it move above its amateur hour high by $0.25 to $0.75. If it does and you see a flood of buyers rushing in at that level to take it cleanly over the earlier morning high, it's more than likely a real breakout. If on the other hand, you see it roll over, it probably isn't for real. One of the simplest ways to enter this kind of trade is to enter a buy/stop order so that your entry is triggered only when the issue trades substantially through that earlier amateur hour high. It doesn't always work, but the odds are better than guessing." Average Daily Volume = 197 K /charts/charts.asp?symbol=BDH ************** DROPS ************** IIH - Internet Infrastructure $56.00 (-2.38 last week) Not Optionable. This rat in a cage got frustrated. IIH continues to flatline and would have dropped substantially on Friday had the EXDS component not been up over $10. With EXDS splitting this week, it won't be long until it runs out of gas too leaving nowhere to go but down for the whole index. While we'd expect a breakout, we don't know in which direction that will happen, so we're taking off the play list this weekend until we see a new trend. Our best guess says that IIH breaks to the downside, but there isn't enough evidence to label this as a short play either. Average Daily Volume = 301 K /charts/charts.asp?symbol=IIH ------ SMH - Semiconductor $96.00 (-2.63 last week) Not optionable. We noted Thursday, "Here's another case of support holding, but highs falling - a descending wedge, which doesn't normally look good for the technical future. However, this one is so short term, we're hesitant to even call it a trend." After Friday's successive lower high, we're calling it a trend. Support is still good at $93.50, but SMH can't gather a head of steam to carry it over $100. With all the "hot money" excitement coming earlier in the month, it appears as though the 5-dma ($95.91) and 10-dma ($96.43) are setting up to provide resistance now. Time to step aside and wait for a clear trend to emerge. Average Daily Volume = 195 K /charts/charts.asp?symbol=SMH ************** No Play ************** BHH HHH PPH ************* COMING EVENTS ************* For the week of June 19, 2000 Monday None Scheduled Tuesday Trade Balance Apr Forecast: -$29.5B Previous: -$30.2B Current Account Q1 Forecast: -$109.5B Previous: -$99.8B Treasury Budget May Forecast: -$2B Previous: -$24B Wednesday None Scheduled Thursday Initial Claims 06/17 Forecast: N/A Previous: 296K Friday None Scheduled Week of June 26th 06/26 Existing Home Sales 06/27 FOMC Meeting 06/27 Consumer Confidence 06/28 Durable Orders 06/29 GDP - Final 06/29 GDP Chain Deflator 06/29 Initial Claims 06/29 New Home Sales 06/29 Help-Wanted Index 06/29 FOMC Minutes 06/30 Personal Income 06/30 PCE 06/30 Chicago PMI 06/30 Michigan Sentiment ************************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 Sunday 6-18-2000 Sunday 2 of 5 ************** TRADERS CORNER ************** Watch The Money Flow And Volume By Mary Redmond It is always important to become familiar with the trading pattern of each stock before placing trades. Some stocks have more predictable patterns than others, and the better you know the company, the more likely you are to trade profitably. For example, in the last couple of weeks I made over 100% return on an original purchase of NT leaps. I had been watching the stock carefully for several months. On January 13th the stock traded at $50 (split adjusted). The third week in March it hit a high of over $71. The week of the April crash the stock hit a low of $45. However, it did not dip below the 200-DMA of $43.57, which I interpreted as a sign of technical strength. From April to May it basically traded in a tight range from $50 to $60. When the Nasdaq was down to 3100, I bought NT Jan-01, $60 leaps at $8.75 when the stock dipped to $48. The stock crossed the 50-DMA of $54.98 on May 31th on strong volume. From there it easily cruised up to $60 as the Nasdaq recuperated. I sold my Jan-01, $60 leaps at $13 and bought Jan-02, $70 leaps at $16. The stock pushed through resistance at $60, possibly on the steady stream of good news which was released in the last few weeks. This week NT has continued to climb on steady volume. Currently the leaps are trading at $20.50. I think the stock may move further in the next few weeks, so I wanted to hang onto my leaps. However, it is usually best to sell at a profit when you can. If you can't resist hanging onto a winning position, sometimes you can sell half of your position. For example, if you bought 10 leaps which are at a profit, you can sell 5 of them and keep the rest. With short term options it is always best to take a profit when you have it. One of the reasons I felt the company had solid technical strength was the fact that the on-balance volume was steadily increasing as the price was rising. This is a measure of the money flowing into a security. When a security closes higher than the previous day and the volume is also higher, this is considered up volume. This indicator can actually become very complicated, but you can get a basic idea of the money flow and the on-balance volume on the OIN live charts. In addition, watching the daily volume can give an indication of institutional buying. NT had consistently high volume for the last several weeks. In fact, almost every day in the last couple of weeks it was one of the most actively traded stocks on the NYSE, and almost each day showed a gain. The money flow index indicator is also published in many financial newspapers, and measures the dollar value of composite uptick trades minus the dollar value of composite downtick trades. In Wednesday's Wall Street Journal, several stocks were included in the positive money flow index. One of these was Qwest communications, a stock which has recently moved up over ten percent. It is also important to note that a stock with a very large market capitalization will generally require a larger inflow of money to move the price than a small cap company does. It takes a lot more money to move a company like Cisco up a point than it does to move a two or three billion dollar company's stock up the same amount. This is one of the reasons that it is more difficult for a mega-capitalization company to become increasingly bigger at the same rate as a small one. AMG Data reported another large inflow of $8.6 billion into equity mutual funds for the week ending June 14th. Over 58% of the total went into growth funds. In addition, the investment company institute's web site reported a large outflow from money market mutual funds for the week ending June 15th. Retail money market funds experienced a net outflow of $6.56 billion, and institutional money market funds experienced a net outflow of $4.57 billion. It seems likely that this money is flowing into the market. There is still plenty of cash left on the sidelines, as the ICI reports that $1.682 trillion is deposited in US money market funds. I think the retail investing public as well as the institutional investors have become far more sophisticated in the last decade. Most Americans have at least a percentage of their net worth in the stock market. Stock market investing has become a national pastime, and most people watch the news or read the newspaper to get some idea of market fundamentals. Due to the popularity of market TV shows and bestselling books on investing, many people have a basic concept of investing principles. I think the public is becoming more attentive to the actions of the Fed, and market sentiment, and the pattern of cash flows seems to confirm this. It is likely that many people feel this may be a good time to invest. Contact Support ****** Straddling Volatility By Lynda Schuepp Volatility trading is a secret known to most successful option traders. Currently, volatility is actually quite low now. Look at the QQQ'. The implied volatility is .49 and the historical is .66 (1 month). Similar numbers exist for OEX and SPX. In fact, most stocks are wedged in a narrow range, with the bollinger bands quite narrow. Narrow bands means low volatility. See chart below on QQQ's When implied volatility is low (cheaper than historical) then options are cheap. Volatility tends to revert towards the mean. That means that volatility will increase and the cost of comparable options will also increase. How do we use this to our advantage? BUY options! You can make a directional trade by buying calls or puts, or making a non-directional trade by buying a straddle. Although many stocks have consolidated and one would think they are poised for a run up, there are several factors that may prevent them from doing so. First is Mr. GreenSPAM! Oil is over $30 a barrel and gas is up to $2 a gallon at the pumps, labor is still tight, and consumers are still spending. Housing prices haven't come down yet. The estimate for debt in the good ole' U S of A is $35 trillion. If interest rates continue up -that won't be good. But there are gaps to the downside in most charts that might need to get filled, and it is summertime, and the living is easy. On the other hand, it's an election year and the discount rate is at 6% now. History has shown that when the discount rate goes above 6%, the stock market goes south and potentially the economy goes into a recession. So the real question is would Big Al rather wrestle with inflation or a recession? All this translates into confusion and lack of apparent direction for the market. So how does one use this period of low volatility and make an option play? My bet is straddles for two reasons. I hate to lose money and I like to be right. Let me explain. By playing straddles, your only risk is if we continue sideways-volatility would remain stable and your options would decrease in time value. However, consolidation can't last forever and when stocks breakout, it will be with a big bang. The question is to which direction. Because I like to be right, I give myself plenty of time. When buying a straddle, it is good to go out 3-4 months, that way if the stock doesn't move in the first month, you can bail out with a minimal loss or stay in if you feel the move is impending. Lets look at what can happen, using the QQQ's and analyze the three scenarios that can happen. The three scenarios are: 1. QQQ's go up 2. QQQ's go down 3. QQQ's stay range bound. We will look at the "at the money" strike (95) for all three scenarios and assume a 10 point move in the QQQ's. The Jan01 calls are selling for about 15-1/8 and the puts for about 12-5/8, total cost of the straddle equals 27-3/4. Scenario 1: The QQQ's move up 10 points in the next month. With that kind of move you would expect that volatility would revert back to its mean and that the options would go up in price. We can project what our options would be worth by looking at the December options with a strike that is 10 points LOWER than our current strike price. Unfortunately, there are no Dec 85 strikes, so we'll have to average the price of the 84 and the 86 strikes. The estimated December 85 calls are worth about 19-3/8 and the puts are worth 7-5/8. However, using the higher volatility, those options would more likely to be priced at 22-7/8 and 11-7/8. Now lets' calculate our potential profit in this scenario. Our initial cost was 27-3/4 (15+12-5/8). The value of our straddle one month later would be worth 34-3/4 (22-7/8 + 11-7/8)for a 7 point profit in one month or a 25% monthly return. Scenario 2: The QQQ's move down 10 points in the next month Again with that kind of move you would expect that volatility would revert back to its mean and that the options would go up in price. We can project what our options would be worth by looking at the December options with a strike that is 10 points HIGHER than our current strike price of 95. Unfortunately, once again there are isn't a 105 strike, so we'll have to average the price of the 104 and the 106 strikes. Using the projected prices with the higher volatility, the 105 calls are worth about 14-5/8 and the puts are worth 23-3/8 for a total of 38 or a 10-1/4 point profit or 37% monthly profit. Note that the value of calls hardly dropped and that the value of the puts did not accelerate as quickly. Because of a general upward bias to the market, it is more likely here that the QQQ's will go up not down. Therefore, the calls are priced higher and the puts are "cheaper". Scenario 3: The QQQ's stay at the same level Since the price did not change, one can expect that volatility, a measure of the underlying price change would remain about the same. We could project what our straddle would be worth by looking at an "at the money" strike in December. Once again, there is no 95 strike so we will average the 94 and 96 strikes. The calls would be worth 13-7/8 and the puts would be worth about 11-15/16 for a total of 25-13/16 or a loss of 1-15/16. You could take your loss or let this ride for another month since there is still considerable time value left. Now let's look if we did the directional play. Had you bought the calls and the QQQ's went up 10 points you would have made 7-7/8 points versus the 7 points on the straddle. If you had bought the puts and the QQQ's went down 10 points you would have made 10 3/4 versus the 10-1/4 points on the straddle. The choice is yours. Since I am a more conservative investor, and I really hate to lose money, I would buy the straddle and take my chances of winning between 7-10 points without having to be right on market direction. Of course, I would tie up more money, but for my portfolio, this strategy makes sense. Remember the higher the risk, the higher the gain but the higher the potential of greater losses. After coming through April and May moderately scarred, my money is on the straddle here. Contact Support *********** OPTIONS 101 *********** This is a reprint of an article I wrote last fall and has been in the top five most requested since then. Since we have so many new readers recently we are reprinting the Options 101 series I did from reader requests. The stocks and charts used in the examples are from December when this article was first written but for example purposes they are still very valid. Take the points discussed in this article and apply them to the picks from this weekend and see if your results improve. Exact instructions By Jim Brown Hi Jim, You wrote: "I estimate that a trader who will follow instructions EXACTLY can net $50,000 on a $10,000 account every year without fail. Notice I said follows instructions EXACTLY. " If you give me your exact instructions I would follow them. I seem to be floundering in the wind with the worst picks, worst entries, and worst exits. I actually do worse now that I think I know something. So what are those Exact instructions? (sentiments sent by dozens of different readers after an article I wrote last fall) Now before you read this article, remember I said EXACTLY. If you have decided that buying options has profit possibilities but you just do not seem to be able to get the right combination of techniques to work in your favor then maybe it is time for the teacher to appear. Many readers find us, take the trial and then just start blindly buying options just like they would stock. This is not the same as stock investing. It is not even close. This is also why the returns are so much greater. Readers that blindly buy call options on faith after reading two or three newsletters have about as much chance of success as a novice bettor walking up to a craps table in Vegas and putting $2,000 down on the pass line. Actually your odds would be better on the craps table. An educated options trader however should profit from 70% of their trades. It is all a question of timing. Like a surfer facing endless waves or a batter in batting practice, eventually you will get that perfect setup. You may swing at a few extra pitches that were not perfect out of boredom but if you wait long enough that perfect pitch will arrive. A surfer on a calm day may sit on his surfboard for long periods of time waiting on the best wave. The memory of the time and effort he spent just getting to his launch point hundreds of yards off the coast will force him to wait for the right one. So our task is to prepare ourselves to execute and execute only when the time is right. I know I lost half of the readers with that last sentence. The type "A" personalities would rather throw money at dozens of plays, hoping that the winners made up for the losers, instead of only playing the winners. In reality they need to make more money, more often in order to make up for those losers. This is failure at a fast pace. It never ceases to amaze me how so many people can read the same play recommendation and get a different answer. People emailed me asking for "exact instructions" because they were losing on almost every play and others are emailing us with success stories on the same plays. If you have not read the Traders Corner articles by Janar you should stop and do that right now. I don't know if it is his marine training or something else but when he reads the newsletter he "reads" the newsletter. He follows the instructions exactly on each play and he is constantly profitable. In his case the key is discipline. He waits for the entry points, EXACTLY. He sells for a profit. He cuts his losses quickly. He is not in the market every day. The data you need to have successful investments is in the newsletter. It is up to me to show you how to use it. These are the points you need to focus on in order to succeed. I will cover each in detail. Selection Targets Plays Entry point Stop loss Expectations Selling for a profit Selection: The type of stock YOU decide to play is crucial to your success. A fact we have discovered since we started publishing the newsletter is people with small accounts take the biggest risks. Investors with large accounts tend to be less aggressive and manage risk better. I think the people with only $5,000 are so driven to double or triple their capital that they will play only the high risk - high reward plays. The large account holders are content with 20%-30% per month safely because they don't need the money to make their mortgage payments or Porsche lease. This proves the old axiom "the rich get richer and the poor get poorer" again but on a different scale. Since the number of emails I received appeared to be from traders that were not having much success I am going to slant this article to traders with less than $10,000 to invest. If you use more than that to trade options this will still give you a basic understanding of the right way to trade. When selecting a stock/option trade you need to take into account the difference between the bid and ask (spread) on the options. If you can only afford to lose $500 on a trade then a stock like QCOM with a spread of $2.00 is not where you want to be. Yes, options on QCOM can be profitable due to the trading range but the spread is tough to overcome when the trade goes against you. If there is a $2 spread when the stock is moving up, then there is likely a $5 hit when the stock turns sharply down. I know you have seen it. Take this example: QCOM $384 DEC-390 call AAF-LX Bid=$16.13 x Ask=$18.13 You buy the call and imediately you are down -$2.00 from the spread alone. If the stock turns down and you know QCOM can drop $5 in mere seconds, the ask may drop to $16 and the Bid to $14 before you can even see it and react. If you have several contracts you can be down -$2,000 in a heartbeat. Don't even take into account stop losses on this stock until you are profitable. The intraday option price swings can be $10 and will knock you out for a loss and then rebound in seconds. This is a stock not to play with a $10,000 account. Does this mean you can't score the big gains? Of course not. Using the example above only 2 contracts would cost you $3,600 or 1/3 of your trading capital. Using the same capital in a lower risk stock will let you sleep better and you can still make the same returns. Example: VOD $49 - Jan-50 Call VOD-AJ Bid=$3.25 Ask=$3.38 You can buy longer calls (Jan) and get 10 contracts for less money. ($3,250) Now a $2.00 move in VOD x 10 will net you the same as a $10 move in QCOM x 2 contracts. Now what is the difference in risk? The spread is only $.13 -NOT- $2.00. You can set a stop at -$.50 below the ask and not get thrown out on intraday swings. If you do get stopped out you only lose $500 not 1/3 of your investment. If you buy farther out, April, July, etc, it will cost you more money and lower your margins but you have the implied safety of time working for you. Personally I feel more than two months out is a waste of money because you should never hold an option for two months under any circumstances. If it is flat you should sell it and enter another play. If it goes up over 200% you should sell it and use half of the money to enter a higher strike. You have no risk at the higher strike because you already took your initial investment off the table. If you keep the first position your entire investment is still at risk. Invest smart not greedy. When VOD was $53 a couple weeks ago the VODAJ option was $6.25. Remember, we are going to buy it at $3.38 while VOD is at $49.00. When it hits $53 again next week the option will again be $6.00. That is a 75% return on your investment in two weeks or less and it is very safe. Why would you want to be reckless? Recap: To get a 400% return on your investment in one year you need to invest WISELY not recklessly. Minimize spreads, maximize contracts to get the same returns safely. TARGETS: When a duck hunter has a flock of ducks fly overhead he does not just jump up and start firing at the whole flock. He must single out one bird, identify it as to type, lead it according to range and speed and then fire. The same is true with the 3,000 optionable stocks. You must narrow your universe to a manageable number. Normally ten stocks is all a normal person can follow without missing the moves. The more you follow, the more you miss. The fewer you follow the more you get to know the individual characteristics of each stock. There are people who make a good living only trading AOL. Many others only trade Dell. They may only be in a trade one or two weeks out of the month but when they are in a trade they know exactly what to expect and when to get out. Pick five stocks you want to trade from the current newsletter plays. Watch them carefully for a week. Chart their support and resistance. See how close you can come to timing their next pull back. Practice, practice, practice. Recap: To get a 400% return on your investment in one year you need to invest WISELY not recklessly. Narrow your targets to only 5-7 choices and study them closely. PLAYS: If does not make any difference how much money you have to invest. We have found that the more positions you try to manage the smaller your overall returns. To maximize your returns on a $10,000 account you should never play more than three positions at any time. Two positions at $3,500 each is optimal for a $10,000 account. This does not put all your capital at risk. It gives you "breathing room" and lets you sleep at night. Only having two positions will not impact your returns over a years time. If you trade according to the plan you should be out of every position every two to three weeks or less. With two positions every two weeks you have 52 trades per year. If 25% are stopped out for a 25% loss and the other 75% avg a 40% gain using $3,500 as an average position you will have a $43,225 gain at year end. 52 * 25% = 13 losers @ 25% = -$ 875 x 13 = -$11,375 52 * 75% = 39 winners @ 40% = +$1400 x 39 = +$54,600 Net profit = $43,225 + $10,000 capital = $50,000 Yes, this is just an example. Yes, the ratio of losers/winners may vary BUT not by much if you follow the plan. Yes, there may be some plays that are flat but there will also be some plays that will rocket for more than the 40%. What if you owned RMBS last Friday? Yes, this is only calculated on 2 open plays of $3500 each at any one time for one year. Yes, you could increase your position size (and risk) or the number of open plays (and amount of risk). Increasing the size of your positions is acceptable within limits. Increasing the number of open positions over three is not acceptable. The more you have at risk, the more likely you will lose it. Recap: To get a 400% return on your investment in one year you need to invest WISELY not recklessly. No more than three positions and preferably only two. ENTRY POINT: A good entry point is 90% of the trade. Failing to wait for a good entry point causes 90% of the losses. If you did not read my Entry Point article four weeks ago please GO BACK AND READ IT before going forward. You can pick the best stocks at the wrong time and still lose money. Repeat after me - Every stock will correct. Nothing goes up in a straight line. I can wait, I can wait, I can wait. You need to remind yourself of this every trading day. The penalty for not waiting is loss of money. If you rush into a position you will have to rush out as well. If you wait for the proper entry point then everything else is easy. This chart of Nokia shows two great entry points in the last ten days. I you bought on five of the last ten trading days you would have been profitable. If you bought on the other five days you could have been stopped out when the stock corrected. BEAS gave us a great entry point when it pulled back to support at $80 on Tuesday. The previous entry point on the 12th-16th would also have provided a good profit. EVERY CHART YOU LOOK AT WILL SHOW YOU PAST POINTS OF ENTRY IT IS YOUR RESPONSIBILITY TO PICK THE NEXT ONE BASED ON THE 3-5-7 DAY RULES. That means every stock cycles every 3-7 days and all you have to do is WAIT for the next cycle. Do you remember the cartoon with the two vultures sitting high up in a tree and the caption was "To hell with patience, I am going to kill something"? In the markets "If you don't have patience, you will get killed". If you can't stand to wait then expand your possibles list and look at more stocks. In any ten stocks there should be at least one at an entry point every day. Recap: To get a 400% return on your investment in one year you need to invest WISELY not recklessly. You MUST wait for an entry point before making a play. STOP LOSS: I am not going into this very deep since I covered it just recently. The most important thing to remember is to set a loss limit before you enter a trade. The thought process should be something like, "If I buy this for $3.50 then my stop will be $2.50 for a -$500 loss" I can live with that. Once you make the buy then place your stop. Don't change it downward! Once the play starts moving upward then you can move your stop loss up higher each day as well. When the play finally corrects you will be stopped out for a profit. This is called a trailing stop. If you are using plays like the VOD mentioned above then a -25% stop loss is more than adequate. That is -$850 on a $3380 position. It would take a major event to drop the price that far in one day. On a play like QCOM it can drop that far on one large order. The most important thing about stop losses is to have one and stick to it. Money management is the only thing between you and a broken account. If you can't force yourself to sell a losing position then you do not need to be trading options. Get a high performing, high tech mutual fund and let them make the decisions for you. Recap: To get a 400% return on your investment in one year you need to invest WISELY not recklessly. You must use stop losses to save capital in case of a bad entry or serious news event. EXPECTATIONS: Be realistic in your expectations about the play. Every play is not going to double in the next two weeks. It may never double. Expectations start with the stock. Using the VOD example and the chart below a reasonable expectation would be for VOD to trade in the $52-53 range in the next week or so. It may have trouble breaking out of that range but a close over $53 could signal a move to a new and higher range. I would not go into the play expecting $60. My expectation would be to plan on closing the play on any weakness around $53. If it ran up to $53 and then started dropping again I would close and wait for another entry. There is a nice pattern of higher lows shaping up. $42 was the low in Oct, $43 in early Nov, $46 in late Nov. The next pull back could bring it back to $48. I would look to re-enter the play with a bounce off $52-53 around $48-49. The pattern on VOD should be to take a $2-3 profit in the option price and wait for another entry point. If you go into a play with unrealistic expectations you will lose. You will always be waiting for that big bounce that never comes. (read the turkey hunter article at the bottom) If your expectation is to just make $2-3 profit in each play then you will be more successful than the person that is expecting a homerun on every play. Recap: To get a 400% return on your investment in one year you need to invest WISELY not recklessly. You must lower your expectations to something realistic and plan your trades accordingly. SELLING FOR A PROFIT: This is one of the most difficult things to do in beginning option trading. The greed factor is running full speed and coupled with the hype factor it is almost a guaranteed failure. Traders do not make 100%-200%-300% profits in option trades on purpose. It does happen but it is an accident. In every major stock move somebody bought at the previous low and then sold at the exact high. This lucky person should buy a lottery ticket. Unless they had insider knowledge AND were psychic to know exactly where the top was going to be then they were just lucky. The other 98% of us have to be content with grabbing a profit out of the middle and then setting up for the next play. More likely than not the trader with the windfall 400% win will put it all back in trying to pick bottoms and tops of the next ten stocks they play. It is like the new slot machine gambler who walks in to the casino and gets $20 in coins. They walk up to a bank of machines and "invest" a few. Suddenly the bells start ringing and they have thousands of coins falling into their tray. Did they have inside knowledge? No. Did they have a special technique? No. Could they do it again if they played every day for a month? No. They were lucky but the casino will get tens of thousands of dollars of advertising for the couple thousand the player won. The promise of big winners lures thousands to the casino ready to reap the same rewards as player X. Did the casino really lose the money? No. Did you know that 94% of the people who win jackpots put the money right back into the machines and go home with less money than they came with? This is the same with huge gains in options. Once a new trader scores a double or triple they are ruined as traders. Their sights are now set on the stars and they will swing for the fences with every play, no longer content with the already huge 25%-40% monthly returns that normal traders take home routinely. Fighting the greed factor is hard work. After you have been burned over and over with large gains evaporating before your eyes, you will start to view selling for a profit in a different light. Once you understand the idea of cash flow and compounding you will see that 25% gains every two weeks really does add up to big numbers over a years time. 25% every two weeks is 650% per year with out compounding. That means if you only invested $3500 in every play and only made one play every two weeks and all were successful (this is just an example) you would have almost $25000 in 12 months. You need to learn to treat option trading like a weekly paycheck and not like a lottery ticket. After all, how many readers do you think won the lottery last week? But almost all of them got a paycheck from somebody! Recap: To get a 400% return on your investment in one year you need to invest WISELY not recklessly. You must sell for a profit before the profit becomes a loss. Conclusion: This may seem very basic for many readers but there are many people who still think this is a get rich quick scheme. It is a get rich scheme but just not as quick as most would hope. If it was as easy as some claim then there would be no profit in it. With every investment there are not equal parts of risk and reward. If that was the case then you would be better off throwing darts at the Wall Street Journal options page to decide your next play. Option trading is very profitable to those who will listen, learn and then put into practice what they learned. Option trading is very expensive for traders who think they know it all and don't bother to learn the rules. Which path you take is entirely up to you and nobody but you will ever know. Do you want to trade or do you want to be successful? There is a difference. Be successful! Jim Brown Editor HUMAN NATURE The Turkey Story from Fred Kelly's classic book Why You Win or Lose. "I learned that men (or women) win or lose not so much because of economic conditions as because of human psychology". It dawned on me that my behavior was almost exactly the same as that of an old man I knew in boyhood. He had a turkey trap, a crude contrivance consisting of a big box with the door hinged at the top. This door was kept open by a prop to which was tied a piece of twine leading back a hundred feet or more to the operator; a thin trail of corn scattered along a path lured turkeys to the box. Once inside, they found an even more plentiful supply of corn. When enough turkeys had wandered inside the box, my friend would jerk away the prop and let the door fall shut. Having once shut the door, he couldn't open it again without going up to the box, and this would scare away any turkeys lurking outside. The time to pull away the prop was when as many turkeys were inside as one could reasonably expect. I remember going out with the old man one day and seeing a dozen turkeys in his box. Then one sauntered out, leaving eleven. 'Gosh, I wish I had pulled the string when all twelve were there,' said the old man. 'I'll wait a minute and maybe the other one will go back.' "But while he waited for the twelfth turkey to return, two more walked out on him. 'I should have been satisfied with eleven,' the trapper said. 'Just as soon as I get one more back, I'll pull the string.' "But three more walked out. Still the man waited. Having once had twelve turkeys, he disliked going home with less than eight. He couldn't give up the idea that some of the original number would return. When finally only one turkey was left in the trap, he said: 'I'll wait until he walks out or another goes in, and then I'll quit.' "The solitary turkey went to join the others, and the man returned empty-handed." Know anyone like this? This market is high. The purpose of trading is to make money, not get all the turkeys or the highest price. Kelly wrote his book in 1930. Most of it could have been written yesterday. Are we turkey hunters or turkeys? ******************* OPTIONS CLUB UPDATE ******************* Update from Salt Lake City Additional Meeting To See More "CANDLESTICK CHARTING CD" For those of you who attended I hope you enjoyed the CD on charting. The info presented by Gary Griffeth was great. Thanks Gary!! I hope he will come back to give us more info in the near future. Since we only watched two segments of the CD, there was discussion about getting together again and watching several more segments. (I'LL BRING SPEAKERS THIS TIME). One of our new attendees said he has access to an LCD projector and I've e-mailed him to find out when it would be convenient. Let me hear from you if you are interested and give me two pieces of info. (1) When it would be convenient. Which evenings or perhaps Saturday AM or PM. (2) What area you are in so we can schedule to be closest to the majority of the people. Perhaps we can get a meeting room at one of the libraries. I tentatively scheduled a room at the U of U for our downtown meeting on July 13th or do you have a better suggestion for a meeting room. An agenda is needed. A voulunteer to present that agenda is needed. Let me hear from you!!! Carol Mortensen SLC OIN Group Organizer ************* READERS WRITE ************* Concerning: Technical Analysis - Moving Averages Hello OIN, Could you please explain the dma figure that OI uses and how is it derived? I think it is a daily moving average index but I am not sure. Probably best explained at one of OI's seminars that I will attend in the near future. Keep up the good work! DH ------ Regarding: Moving Averages Moving averages are one of the simplest and most useful technical indicators available. The basic definition of a moving average is that it is the average price of a security at a specific point in time. The purpose of the moving average is to show a trend over a given time period and display it in a smoothed fashion. The most common time periods are probably 15, 30, and 150 days. Each time span tells a different story and traders use different numbers to suit their individual needs. The shorter time span produces a more sensitive moving average while the longer time span reflects a smoother history. There are many types of moving averages but the most common is the 'simple' average (not weighted) that is based on the closing price of the stock for that particular day. Moving averages can become more powerful when multiple histories are plotted on one chart. An example would be 'stochastics', but stock-price reversals in the direction of a moving average are usually more reliable than the moving average crossover. Remember, false signals can occur when using moving averages, so successful traders use other indicators to confirm the direction of price. Most experts agree that the average itself can act as an area of support and resistance. Just like a trend-line, the more times a moving average is touched, the greater the significance of any violation. A violation of the moving average is usually a warning that a change in character may be taking place but confirmations of trend changes should also be sought from alternative technical indicators. You can learn more about technical analysis in "Secrets Of Profiting In Bull And Bear Markets" by Stan Weinstein, available in the OIN bookstore. Good Luck! *********** IN THE NEWS *********** Xerox Earnings Troubles Continue By Matt Paolucci Shares of Xerox Corp. (XRX) stock dropped more than 18 percent Friday after the global document company warned its second- quarter earnings would fall short of Wall Street's estimates. The Stamford, Conn.-based business machines colossus owns more than 30 percent of the copier/printer/scanner/fax machine market. Its digital copiers which, with other digital equipment, make up about 55 percent of sales, dominate the US market. Xerox also provides document outsourcing, network management, and consulting services. Xerox said its second-quarter earnings per share, before non- recurring items, would be similar to its first-quarter figures of 30 cents per share. According to First Call/Thomson Financial estimates, the Company was projected to earn 42 cents a share in the second quarter. The Company said that a shortfall in the sales of its high-end printing and publishing products is more than offsetting expected strong revenue growth from document outsourcing, color copiers and printers, thus, reducing gross margins. Compounding the problem is the fact that Xerox has shifted more towards sales of lower-margin products and services. Xerox's sales force realignment, now 18 months into its implementation assigned sales representatives by industry, rather than geography. A spokeswoman from the Company, Christa Carone, said the company still believes in the idea, but acknowledged that the transition has taken longer than expected. The realignment also has taken place while competitors were bringing out new products. "Our new team is focused on initiatives that will stabilize the direct sales force, stimulate sales productivity, and streamline the sales support operations," said Paul Allaire, Xerox's newly installed chairman and chief executive officer. Problems in its Mexican market have also been a drag on earnings. Xerox spokeswoman Christa Carone said the Company is doing an internal investigation of possible accounting irregularities. On the bright side, Xerox expects later this month to announce its next-generation of Document Centre digital multifunction devices, and the company will launch a new family of technologically advantaged inkjet printers for small and home offices supported by an aggressive and edgy marketing campaign. Despite the lower earnings projections, Allaire tried focus on a few positives, adding that document outsourcing continues to grow, turnover of its sales force is declining, sales of color inkjet and office color printer placements are up, and performance continues to improve in Brazil and Fuji Xerox. Allaire added, "It will take time to resolve our issues, but they are largely within our control and will be fixed. We will continue to focus aggressively on our productivity initiatives and improving cash flow. Our technology, products and solutions are world-class. Now our execution must, and will, improve." Wall Street is lukewarm on Xerox, for obvious reasons. Nine of the sixteen analysts who follow shares of XRX rate the stock a Hold. The other seven rate the shares either Strong Buy or Buy. With the Company's restructuring taking longer than expected, problems with Mexico, and a sales force now forced to play catch up the competition, it's probably going to be a while before the stock has any chance of reaching its 52-week high of $60.31 per share. Xerox stock was down $4.75 a share at $20.56 in late Friday afternoon trading on the NYSE. ************* DAILY RESULTS ************* Index Last Week Dow 10449.30 -164.76 Nasdaq 3860.56 -14.27 $OEX 788.74 9.04 $SPX 1464.46 7.51 $RUT 513.74 -9.32 $TRAN 2673.19 -116.98 $VIX 23.55 -1.64 Calls Week SDLI 299.88 49.88 Well, this one certainly had quite a week GLW 246.00 23.75 A week of blistering gains SEBL 157.06 12.75 The epitome of "New Economy" EXDS 103.25 10.50 Dropped, splitting after Tuesday close NXTL 67.63 10.25 New, by no means a victim of the split JDSU 120.19 9.63 Savvy strategies has the Street smiling MRVC 55.38 9.38 A 20% jump in its first week on the list! NT 67.56 8.31 So little volume, so little effect CIEN 145.25 5.38 "The premier play in optical networking" PWR 62.06 4.69 Less expensive way to play fiber-optics MSFT 72.56 3.75 We're believers in the upside potential ADCT 80.88 3.69 New, step up and meet our new friend PLXS 102.63 3.44 Turning visions into realities RBAK 119.00 3.13 Mirroring the NASDAQ with slight incline LLTC 69.44 2.31 "I think I can, I think I can!" PDLI 164.00 -1.56 Turbulent week for this high flyer! BRCD 144.94 -2.06 The waiting game continues YHOO 140.94 -2.25 May be getting ready to break loose HGSI 133.50 -6.06 Brief decline leaves play in good shape ABGX 114.50 -7.00 Watch for a breakout over $115 CHKP 213.75 -11.75 Dropped, taking profits to the bank CMTN 82.50 -13.06 Dropped, watching and waiting and gone MUSE 128.38 -16.00 Dropped, getting the boot VRSN 164.56 -31.44 Volatility is the name of the game Puts DCLK 38.50 -11.56 New, a painful year for investors A 62.63 -8.75 New, fell from March pedestal FON 57.56 -8.31 Reality has arrived HON 48.50 -3.31 New, will investors make up their minds! UTX 58.88 1.00 Finished lackluster week like it began STOCKS ADDED TO THE PICK LIST ***************************** Calls ADCT - ADC Telecommunications NXTL - Nextel Communications Puts HON - Honeywell A - Agilent DCLK - Doubleclick *************************** PICKS WE DROPPED THIS WEEK *************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS CHKP $213.75 (-11.75 last week) Other than a marginal attempt to rally late Tuesday and early Wednesday, our play drifted sideways to lower for the rest of the week. On one hand, CHKP is building a bit of a base just above $210. The other side of the coin shows a stock has lost its pizzazz, at least for the short-term. Obviously, things could change in the next day or two, however, with only 633K shares traded on Friday investors aren't really willing to buy or sell. A reiteration of a Buy rating by analysts at Dresdner Kleinwort Benson Securities on Friday also did little to bring money back to the table. Intraday charts show that some buyers need to show up soon before it falls under its own weight. For those with open positions wanting to continue on, we would consider the area near $208 a potential breaking point. For our purposes, we will take these nice profits to the bank. EXDS $103.25 (+10.50) We're exiting EXDS with a bang! The share price steadily rose 10.8%, or $10.13 in Friday's session as many investors moved back into some of the Internets. The catalyst for EXDS is its upcoming 2:1 stock split this Tuesday, after the close. This event is obviously generating some excitement! EXDS moved through the first line of opposition at $95 with ease and then was propelled above the psychological $100 mark on a spike in volume to finish just a fraction from its intraday high. You may be able to catch a bit more upswing before the actual split, but nevertheless be prepared to close your positions no later than Tuesday. MUSE $128.38 (-16.00) Prudence and patience proved to be virtues this week. On Thursday, MUSE held up fairly while flirting at what we considered a bottom support ($130) for the play. We suggested waiting for definitive bounces off higher levels before entering, which turned out to be wise. From Friday's lackadaisical behavior, it's easy to see that MUSE is apparently lost in the Internet shuffle. Playing it safe in this comfortable zone is not what we want for a momentum play. Therefore, MUSE is getting the boot this weekend for its lack of performance. CMTN $82.50 (-13.06) We've been watching and waiting for something to happen with CMTN as it has been caught in an ever narrowing trading range for the past 2 weeks. Well, we got some action on Friday, but it was in the wrong direction. Covad Communications got slammed for a 25% loss on news that they will be acquiring Bluestar Communications for $202 mln. CMTN got caught in a guilty-by association downdraft(both companies are in the DSL market), and lost over 11% as it plunged through multiple levels of support on 4 times the average daily volume. We think the selling was overdone, but arguing with the market can be a painful and costly mistake. With the dramatic change in sentiment, we have to let CMTN go this weekend. PUTS No dropped puts this weekend. STOCKS WITH UPCOMING SPLITS **************************** We don't list all splits available, only those we feel may have play possibilities. Symbol - Stock Splits/Date AVX - AVX Corp. 2:1 06-01-00 ex-date 06-02 KEM - KEMET Corp. 2:1 06-01-00 ex-date 06-02 MOT - Motorola 3:1 06-01-00 ex-date 06-02 AES - AES Corp. 2:1 06-01-00 ex-date 06-02 KEI - Keithley Inst. 2:1 06-01-00 ex-date 06-02 EMC - EMC Corporation 2:1 06-02-00 ex-date 06-05 PWER - Power-One Inc. 3:2 06-02-00 ex-date 06-05 MEDI - Medimmune 3:1 06-02-00 ex-date 06-05 DA - Danone Group 2:1 06-05-00 ex-date 06-06 ROIA - Radio One 3:1 06-06-00 ex-date 06-07 NXTL - Nextel Comm. 2:1 06-06-00 ex-date 06-07 FKL - Franklin Capital 3:2 06-07-00 ex-date 06-08 KPN - KPN Telecom 2:1 06-08-00 ex-date 06-09 CPN - Calpine Corp. 2:1 06-08-00 ex-date 06-09 CAKE - Cheesecake Fctry 3:2 06-08-00 ex-date 06-09 AA - Alcoa, Inc. 2:1 06-09-00 ex-date 06-12 CMB - Chase Manhattan 3:2 06-09-00 ex-date 06-12 LMGA - Liberty Media 2:1 06-09-00 ex-date 06-12 VSH - Vishay Intertech 3:2 06-09-00 ex-date 06-12 ANEN - Anaren Mic. 3:2 06-09-00 ex-date 06-12 RHI - Robert Half Intl 2:1 06-12-00 ex-date 06-13 IBOC - Int'l Banc 5:4 06-12-00 ex-date 06-13 HC - Hanover Comprsr 2:1 06-13-00 ex-date 06-14 RMBS - Rambus, Inc. 4:1 06-14-00 ex-date 06-15 JNPR - Juniper Networks 2:1 06-15-00 ex-date 06-16 MXT - Metris Companies 3:2 06-15-00 ex-date 06-16 IFIN - Investors Fincl. 2:1 06-15-00 ex-date 06-16 CYBE - CyberOptics Corp 3:2 06-15-00 ex-date 06-16 HSP - Hispanic Brdcast 2:1 06-15-00 ex-date 06-16 NXLK - Nextlink Comm. 2:1 06-15-00 ex-date 06-16 IPAR - Inter Parfums 3:2 06-15-00 ex-date 06-16 CKH - Seacor Smit 3:2 06-15-00 ex-date 06-16 TMS - Thomson Multi. 2:1 06-15-00 ex-date 06-16 DOW - Dow Chemical 3:1 06-16-00 ex-date 06-19 CHP - C&D Tech. 2:1 06-16-00 ex-date 06-19 TSM - Taiwan Semi. 32:25 06-16-00 ex-date 06-17 RHB - RehabCare Group 2:1 06-19-00 ex-date 06-20 MTZ - MasTec, Inc 3:2 06-19-00 ex-date 06-20 MEAD - Meade Instrumnts 2:1 06-19-00 ex-date 06-20 SEIC - SEI Investments 3:1 06-19-00 ex-date 06-20 POOL - SCP Pool Corp. 3:2 06-19-00 ex-date 06-20 DLTR - Dollar Tree 3:2 06-19-00 ex-date 06-20 RHB - RehabCare Grp. 2:1 06-19-00 ex-date 06-20 MTZ - MasTec Inc. 3:2 06-19-00 ex-date 06-20 SEIC - SEI Investments 3:1 06-19-00 ex-date 06-20 POOL - SCP Pool Corp. 3:2 06-19-00 ex-date 06-20 MEAD - Meade Inst. 2:1 06-19-00 ex-date 06-20 EXDS - Exodus Comm 2:1 06-20-00 ex-date 06-21 AAPL - Apple Computer 2:1 06-20-00 ex-date 06-21 KG - King Pharma. 3:2 06-21-00 ex-date 06-22 CDWC - CDW Computer 2:1 06-21-00 ex-date 06-22 NVDA - NVIDIA Corp. 2:1 06-26-00 ex-date 06-27 MRCL - Micrel Inc. 2:1 06-27-00 ex-date 06-28 BRL - Barr Lab. 3:2 06-28-00 ex-date 06-29 GMH - Hughes Elec. 3:1 06-30-00 ex-date 07-03 REMC - REMEC, Inc. 3:2 06-30-00 ex-date 07-03 AMFC - AMB Financial 3:2 06-30-00 ex-date 07-03 ABGX - Abgenix, Inc. 2:1 07-07-00 ex-date 07-10 TQNT - TriQuint Semi. 2:1 07-11-00 ex-date 07-12 IWOV - Interwoven 2:1 07-13-00 ex-date 07-14 XETA - Xeta Corp 2:1 07-17-00 ex-date 07-18 TBL - Timberland Comp. 2:1 07-17-00 ex-date 07-18 TIF - Tiffany and Co. 2:1 07-20-00 ex-date 07-21 INTC - Intel Corp. 2:1 07-28-00 ex-date 07-31 AIG - American Intl. 3:2 07-28-00 ex-date 07-31 POS - Catalina Mktg. 3:1 08-17-00 ex-date 08-18 For a complete list of all the coming splits check out the "split calendar" on the side of the online edition newsletter page. ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************** PDLI - Protein Design Labs $164.00 (-1.56 last week) See details in sector list Chart = /charts/charts.asp?symbol=PDLI Put play of the day: ******************** UTX - United Technologies Corp. $58.88 (+0.19 last week) See details in sector list Chart = /charts/charts.asp?symbol=UTX *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. TP/P= True premium or Time premium RRR = Risk/Reward/Ratio ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** **************************** SEE DISCLAIMER IN SECTION ONE
The Option Investor Newsletter Sunday 6-18-2000 Sunday 3 of 5 ********** CALL PLAYS ********* ******** HARDWARE ******** NT - Nortel Networks $67.38 (+8.00 last week) Nortel Networks is a leading global supplier of data and telephony network solutions and services. Covering all the bases, its business consists of the design, development, manufacture, marketing, sale, financing, installation, servicing and support of networks for both carrier and enterprise customers. With a presence in over 150 countries, NT serves local, long-distance, personal communications services and cellular mobile communications companies as well as cable television companies, Internet service providers and utilities. How can so much volume have so little effect? Concerns about interest rates, the slowing economy and declining profits are keeping the broad markets range-bound. This sentiment finally had its effect on shares of NT as the week drew to a close. Considering the strong volume (nearly 2.5 times the ADV) on Friday, the price action was pretty boring. With a high-to-low range of only $1.50 on NT, it is clear that investors were unconvinced that the market was ready to head higher. On a positive note, it was nice to see the stock hold above intraday support at $66.50. In the absence of any significant news or improving market sentiment, expect NT to have trouble scaling the wall of worry that is being built up in investors' minds. Support is still being provided by the ascending 5-dma ($64.75), and this is confirmed by historical support near $64. Intraday dips near this level look attractive for new entries, but wait for the bounce before putting your money at risk. A more conservative strategy would be to wait for the momentum to return, pushing NT above $68. Volume will be the key here, and when it does return, NT should be able to quickly scale resistance at $72, the highs seen back in March. Good news could come on Monday as NT will be hosting a Wireless Internet summit in Paris, France. According to the newswires, the company will make several technology and business related announcements at the event, and this could provide just the fuel needed to juice the stock. Last week, the company announced two important contracts. BellSouth Mobility DCS announced that it has chosen NT to expand its GSM network in the southeastern United States under a three-year equipment and services agreement valued at an estimated $200 mln. As if that wasn't enough, NT also penned an agreement with Global Crossing for Europe's first ring-based Pan European dense wave division multiplexing (DWDM) optical fiber solution for metropolitan networks. The contract extends NT's leadership position in providing the Optical Internet with speed, scalability and reliability. BUY CALL JUL-65 NTV-GM OI=5829 at $5.75 SL=4.00 BUY CALL JUL-70*NTV-GN OI=2763 at $3.13 SL=1.50 BUY CALL JUL-75 NTV-GO OI= 279 at $1.63 SL=0.75 BUY CALL SEP-75 NTV-IO OI=1921 at $4.25 SL=2.75 SELL PUT JUL-65 NTV-SM OI= 599 at $2.63 SL=4.00 (See risks of selling puts in play legend) Picked on June 15th at $67.00 P/E = N/A Change since picked +0.38 52-week high=$72.09 Analysts Ratings 19-11-3-1-0 52-week low =$19.91 Last earnings 04/00 est= 0.19 actual= 0.23 Next earnings 07-25 est= 0.14 versus= 0.14 Average Daily Volume = 10.00 mln /charts/charts.asp?symbol=NT BRCD - Brocade Communications $144.94 (-2.06 last week) Brocade Communications is a provider of Fibre Channel switching solutions for Storage Area Networks (SANs), which apply the benefits of a networked approach to the connection of computer storage systems and servers. The company's family of SilkWorm switches enables companies to cost-effectively manage growth in their storage capacity requirements and improve the performance between their servers and storage systems. This provides the ability of increasing the size and scope of a company's SAN, while allowing them to operate data-intensive applications, such as data backup and restore, and disaster recovery on the SAN. The waiting game continues. As investors wait for the other shoe to drop (the FOMC meeting June 27 and 28), BRCD is meandering in a continually tightening trading range. The lows are getting higher and the highs are getting lower, with Friday's range a mere $4.50 from high to low. Volume is reflecting this indecision as it continues to drop -- Friday saw less than two-thirds the average number of shares change hands. While it is encouraging to see BRCD hang onto its gains from late May and early June, it is frustrating to see the lack of conviction. This will be necessary to push it through resistance. The NASDAQ is having a hard time getting moving and this is being felt throughout individual issues like BRCD as well. Support is firming near $140, with stronger support at $135, but the stock is having a hard time getting back above the $145 level. A breakout still looks imminent, but you may want to wait for a return of volume and a NASDAQ move through 3900 convincingly. Don't forget though that risks also bring rewards. Current positions can be traded in the range for quick profits. Look for buying volume to increase and push BRCD through $147 before initiating new positions. If the breakout comes and actually has some strength, BRCD should be able to easily scale the early June highs near $155. BRCD got a boost on Tuesday when news emerged 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. Then on Wednesday, the company announced a strategic alliance with Emulex to advance connectivity and end-to-end interoperability for SANs. BUY CALL JUL-140 UBZ-GH OI= 981 at $20.88 SL=15.50 BUY CALL JUL-145 UBZ-GI OI= 460 at $18.63 SL=13.50 BUY CALL JUL-150*UBZ-GJ OI=4437 at $16.00 SL=11.50 BUY CALL JUL-155 UBZ-GK OI=1264 at $14.25 SL=10.50 BUY CALL OCT-155 UBZ-JK OI= 787 at $28.63 SL=21.50 SELL PUT JUL-135 UBZ-SG OI= 31 at $13.13 SL=18.00 (See risks of selling puts in play legend) Picked on June 6th at $138.88 P/E = 656 Change since picked +6.06 52-week high=$185.00 Analysts Ratings 8-4-2-0-0 52-week low =$ 13.88 Last earnings 05/00 est= 0.08 actual= 0.11 Next earnings 08-14 est= 0.12 versus= 0.01 Average Daily Volume = 3.21 mln /charts/charts.asp?symbol=BRCD GLW - Corning Inc. $246.00 (+23.00 last week) Corning provides communications technology at light speed. The materials pioneer is one of the world's top makers of fiber-optic cable, which it invented more than 20 years ago. Corning's Telecom unit (about 50% of sales) makes optical fiber and cable and photonic components. The company's Advanced Materials unit makes industrial and scientific products, including semiconductor materials. Its Information Display segment makes glass products for TVs, VCRs, and flat-panel displays. The company operates 40 plants in 10 countries. The red-hot glowing fiber optic stocks cooled down Friday after a week of blistering gains. GLW's meteoric rise came after the company raised the proverbial bar and told analysts they had it all wrong. Demand for GLW's optical equipment has been so high that the company told Wall Street last week that it would handily beat second quarter estimates. If the revision of earnings weren't enough, rumors spread last Tuesday that GLW was in talks to buy optical-parts maker SDLI. Interestingly, both GLW and SDLI rallied on the speculation, receiving Wall Street's premature approval. However, in retrospect, the lack of arbitrage selling in GLW was warranted. Consolidation is sweeping through the fiber optic arena as larger companies use acquisitions to diversify their product offerings to provide fully-integrated solutions. GLW is already the largest supplier of fiber lines, and buying SDLI would only strengthen the optical giant's market position. Ergo investors' enthusiasm. The merger talks and earnings guidance propelled GLW to new highs last week. Although GLW has the earnings momentum and dominant market position, there's no hiding the fact that the stock is expensive. However, the size of the Internet is doubling every six months and the insatiable demand for bandwidth shows no signs of slowing. Like we previously mentioned, GLW is trading near all-time highs. In order to gain entry into the play, watch for GLW to clear resistance at $250. If GLW's consolidation continues next week, look for a pattern of higher lows to develop and watch for a bounce off support at $240 or lower at $235. GLW experiences wide intra-day swings trading at such high levels, use the volatility to your advantage and target shoot for entry points. Roger Ackerman, CEO of GLW, appeared in an interview on CNBC Friday morning. Ackerman told reporters that since demand for his company's equipment is doubling every six to nine months he sees no end in sight for the world wide build out of fiber optic networks. Ackerman was asked when the market for his company's products will reach capacity, he succinctly responded, "Who knows? We are in the infancy." BUY CALL JUL-240*GRJ-GH OI= 649 at $23.75 SL=17.25 BUY CALL JUL-250 GRJ-GJ OI= 542 at $19.00 SL=13.75 BUY CALL JUL-260 GRJ-GZ OI= 506 at $15.00 SL=11.00 BUY CALL AUG-250 GRJ-HJ OI=1447 at $22.63 SL=16.50 Picked on June 6th at $217.25 P/E = 133 Change since picked +28.75 52-week high=$249.94 Analysts Ratings 8-5-0-0-0 52-week low =$ 54.56 Last earnings 04/00 est= 0.55 actual= 0.64 Next earnings 07-24 est= 0.67 versus= 0.49 Average Daily Volume = 3.04 mln /charts/charts.asp?symbol=GLW CIEN - Ciena Corp $145.25 (+5.38 last week) Ciena makes multiplexing systems that increase the capacity of long-distance fiber-optic telecommunications networks. The company's systems transmit signals simultaneously over the same circuit. Customers such as Sprint, Bell Atlantic, and MCI Worldcom, use its lines for long-distance optical transport and for shorter distances. The company is expanding its product and geographic breadth as it transforms itself from niche market specialist to optical networking supplier. In 1996, CIEN developed its first dense wavelength division multiplexing (DWDM) system. With its DWDM technology, CIEN turned fiber into a revenue generator that met telecom carriers' need for bandwidth. Now with no end in sight for the growth of the Internet, CIEN's new challenge is to manage optically enabled bandwidth. With its suite of LightWorks networking products, CIEN is meeting the challenge. The company offers a superior product and has an infallible business strategy that has propelled its stock 400% higher in the past year. While CIEN has come a long way, its target markets are enormous, leaving room for growth. CIEN is turning to international markets to expand its revenue base. The company announced Friday that it's expanding into Central and Eastern European markets. During the press conference concerning the European expansion, CIEN's CEO, Patrick Nettles said the firm is expecting strong growth in revenues and earnings this year and that the company will easily meet consensus estimates for its current quarter and fiscal year. Despite the encouraging guidance, CIEN slipped fractionally lower Friday. Volume was muted during last week's trading as CIEN digested its gains from its impressive rally a week prior. Despite the basing price action, CIEN managed to hold its pattern of higher lows. But, the stock continues having problems putting the $145 level behind. The stock did edge above resistance Friday, you might consider an entry at current levels if CIEN shows signs of rallying early next week. Otherwise, wait for CIEN to clear the $150 for a more conservative entry point. The airwaves were a buzz with chatter about fiber optic stocks Friday. Mark Herskovitz, a Dreyfus fund manager, appeared on CNNfn touting CIEN as the premier play in the optical networking space. And the reputable David Kaslow appeared on the same network telling viewers to buy, buy, buy CIEN. A little encouragement always helps! BUY CALL JUL-140 UEE-GH OI= 801 at $20.00 SL=14.50 BUY CALL JUL-145 UEE-GI OI= 920 at $17.50 SL=12.50 BUY CALL JUL-150*UEE-GJ OI=3438 at $15.50 SL=11.25 BUY CALL OCT-145 UEE-JI OI= 720 at $31.75 SL=23.00 SELL PUT JUL-130 UEE-SF OI= 258 at $ 8.88 SL=12.00 (See risks of selling puts in play legend) Picked on May 25th at $104.50 P/E = 855 Change since picked +40.75 52-week high=$189.00 Analysts Ratings 11-8-1-0-0 52-week low =$ 26.81 Last earnings 04/00 est= 0.10 actual= 0.12 Next earnings 08-17 est= 0.16 versus= 0.01 Average Daily Volume = 6.63 mln /charts/charts.asp?symbol=CIEN RBAK - Redback Networks $119.00 (+3.13 last week) Founded in 1996 and headquartered in Sunnyvale, Calif., Redback Networks is a leading provider of advanced networking solutions that enable carriers, cable operators, and service providers to rapidly deploy broadband access and services. The company's market-leading Subscriber Management Systems (SMSs) connect and manage large numbers of subscribers using any of the major broadband access technologies such as Digital Subscriber Line (DSL), cable, and wireless. To deliver integrated transport solutions for metropolitan optical networks, Redback's SmartEdge multi-service platforms leverage powerful advances in application-specific integrated circuit (ASIC), IP, and optical technology. With this product portfolio, Redback Networks is the first equipment supplier focused exclusively on developing integrated solutions for the New Access Network. With a chart that mirrors the NASDAQ, RBAK is climbing higher with an ever-so slight incline. The intraday chart of RBAK shows plenty of trading opportunity as it whips between $105 and $120. Ahhh, volatility. It's what makes option traders' hearts pump. Like the NASDAQ, RBAK has been consolidating in this whippy trading range. This is a very good sign as buyers are most certain to pick this stock up when it gets to the $105 area. On Thursday, buyers were propping up the stock at the $110 level. Then on Friday, $115 showed support. Each of these five dollar levels are important as they provide good bounces and entries. When preparing for exits, $120 has proved to be a difficult task for RBAK to run through. Look at the intraday chart for the past ten days. It tells a story of option trading heaven. This type of option trading does require some attention though as the stock can get away from you quickly. Like on Tuesday for example. Buyers lifted RBAK from $105 and within a half hour, drove it clear up to $115. A half-hour dream trade. So watch these key levels to determine good entries. This stock can be traded rather often with its current volatility. And based on the first sentence of this paragraph, the NASDAQ is a good indicator of RBAK's movement. Currently at $119, RBAK certainly could push through $120 on Monday if the NASDAQ rallies. Strength through that level would probably take the stock to the next five dollar area, $125. If it slips, look for bounces from $115 and $110 to enter. Don't be afraid to take you short term profits and then jump in again. RBAK joined Singapore's newly formed National Cable Standards Committee(NCSC) as a pioneer member. They are strongly positioned to play a significant role in defining Singapore's broadband network. The committee is comprised of industry experts and members from research institutes which will meet quarterly to discuss related issues. BUY CALL JUL-110 BUK-GB OI= 193 at $21.88 SL=17.00 BUY CALL JUL-115 BUK-GC OI= 131 at $19.25 SL=15.00 BUY CALL JUL-120*BKK-GD OI= 549 at $16.00 SL=12.50 BUY CALL JUL-125 BKK-GE OI= 122 at $14.63 SL=11.25 BUY CALL OCT-140 BKK-JH OI=1376 at $23.50 SL=18.25 SELL PUT JUL-105 BUK-SA OI= 69 at $ 8.50 SL=11.00 (See risks of selling puts in play legend) Picked on May 28th at $72.06 P/E = N/A Change since picked +46.94 52-week high=$198.50 Analysts Ratings 9-3-1-0-0 52-week low =$ 20.00 Last earnings 04/00 est= 0.03 actual= 0.05 surprise = 33% Next earnings 07-12 est=-0.06 versus=-0.05 Average Daily Volume = 2.7 mln /charts/charts.asp?symbol=RBAK MRVC - MRV Communications $55.38 (+9.38 last week) MRV Communications, Inc. is a world-class leader in optical network components and systems. The company has leveraged its early leadership in fiber optic transmission into a well-focused range of solutions, integrating switching, routing, access servers and optical transmission systems. MRV has initiated and funded cutting edge start-up companies including Zaffire, Inc., Charlotte's Networks, Hyperchannel, Zuma Networks and most recently RedC Optical Networks, Inc., Optical Crossing and All Optical, Inc. MRVC jumped about 20% for its first week on our playlist. As we said in the updates this week, MRVC happens to be in a hot sector and benefited from industry rumors and speculation. An article in Briefing.com referred to MRVC as the "CMGI of fiber optics." Over the past two years, the company has adopted a business model of creating and managing several start-up companies as well as forming independent business units in order to take them public. Some of the enthusiasm this week came on speculation that MRVC would do just that, spin-off its Luminent division. First Security Van Kasper recently published a report in which they expect MRVC to file papers within the next month or so to spin-off Luminent. Luminent is a leading manufacturer of single mode fiber-optic components. Investors speculating on the spin-off believe that leaves the door wide open for a continued run-up in shares of MRVC. At this point, nothing has been filed, but MRVC jumped 20% and appears to be headed higher. MRVC has made its way into overbought territory, however, we can't discount the current momentum behind our play. If traders return next week with the idea of pulling some money off the table, intraday support near $53, $50 or back at $48, could provide an ideal entry point for new plays. If the momentum continues, we would also look for opportunities to enter new plays or add to existing positions. The article mentioned in Briefing.com went on to say that even if a Luminent spin-off doesn't take place, MRVC holds a considerable stake in iTouch Communications. iTouch is a leading provider of next generation Internet infrastructure solutions. MRVC also has interest in Zaffire, a new optical networking company showing a lot of promise using breakthrough technology. Both companies are in hot sectors and could help lead MRVC higher. BUY CALL JUL-45 VQX-GI OI=1413 at $14.63 SL=10.75 BUY CALL JUL-50*VQX-GJ OI=1767 at $10.75 SL= 8.00 BUY CALL JUL-55 VQX-GK OI=1117 at $ 8.25 SL= 6.00 BUY CALL OCT-55 VQX-JK OI= 424 at $15.75 SL=11.25 SELL PUT JUL-55 VQX-SK OI= 50 at $ 6.63 SL= 9.75 (See risks of selling puts in play legend) Picked on Jun 11th at $46.00 PE = N/A Change since picked +9.38 52 week high=$97.44 Analysts Ratings 1-1-0-0-0 52 week low =$ 5.00 Last earnings 04/00 est=-0.01 actual= 0.03 Next earnings 07/27 est= 0.03 versus= 0.01 Average daily volume = 1.92 mln /charts/charts.asp?symbol=MRVC ADCT - ADC Telecommunications $80.88 (+3.69 last week) ADC is The Broadband Company. ADC's network equipment, software and integration services make broadband communications a reality worldwide by enabling communications service providers to deliver high-speed Internet, data, video and voice services to homes and businesses. ADCT has annual sales of over $2.3 billion and employs more than 16,900 people worldwide. ADC's stock is included in the Standard & Poor's 500 Index and the Nasdaq-100 Index. Step up and meet our new best friend. We challenge anyone to even try to draw a better chart than this. Start from the first of December in the lower left hand corner and trace a straight line through to the right upper corner. That's ADCT's chart. It doesn't go straight up, it just marches to its own beat at a nice, steady pace. With a recent stock split announcement, we think it's poised to move higher. The 10-dma has proven to be a reliable entry point for the better part of a month. Friday was a down day for ADCT, but it didn't quite hit the 10-dma as we would have liked to have seen for a really great entry. Traders may want to watch for entry around the 10-dma, currently $76.16, or look for a volume surge through the all-time high of $83.13, set on Friday. After a three day pullback in the first week of June, ADCT has climbed steadily forward, falling back a hair every other day. Conservative traders may want to confirm this ascending trend with a breakout that continues the march to higher ground. Last Wednesday, the ADC Board of Directors approved a 2 for 1 split and traders rewarded the stock by sending it to a 52-week high. Strong buy ratings abound, so barring any detrimental news, we're along for the ride to the split scheduled for July 17. BUY CALL JUL-75 TLQ-GO OI= 809 at $10.00 SL=7.00 BUY CALL JUL-80 TLQ-GP OI= 841 at $ 7.50 SL=5.25 BUY CALL JUL-85*TLQ-GQ OI=3282 at $ 6.00 SL=4.00 BUY CALL AUG-80 TLQ-HP OI= 234 at $10.13 SL=7.00 SELL PUT JUL-70 TLQ-SN OI= 193 at $ 2.50 SL=3.50 (See risks of selling puts in play legend) Picked on Jun 18th at $80.88 PE = 128 Change since picked +0.00 52-week high=$83.13 Analysts Ratings 13-10-1-0-0 52-week low =$17.19 Last earnings 5/00 est= 0.25 actual=0.29 Next earnings 8-17 est= 0.29 versus=0.19 Average Daily Volume = 4.55M /charts/charts.asp?symbol=ADCT NXTL - Nextel Communications Inc $67.63 (+10.25 last week) Nextel is the largest independent digital and wireless communications service company in the US. The company is setting itself apart from its cellular competitors by undercutting its prices and providing users with wireless phone service, two-way radio dispatch, and text messaging all on one handset. Nextel recently added wireless Internet access and international roaming capabilities. It boosts over 5 mln subscribers and also has wireless holdings in Canada, Asia, and Latin America. Motorola (MOT) owns 14% of Nextel and Craig McCaw still retains a 13% stake. NXTL was by no means a victim of post-split depression this time around. On June 7th, NXTL split its stock 2:1 and it took only a couple of sessions for the share price to balance out. After the tame PPI data was released on that following Friday, NXTL was on the run again. By the end of this week, the share price moved through the $63 and $64 resistance level. Obviously, there isn't much that should hold NXTL down. Analyst Peter Friedland at WR Hambrecht & CO agrees. He reiterated a Buy recommendation for NXTL and issued a $100 six-month target price. On Friday, in particular, traders just couldn't get enough of NXTL during regular hours. The stock made the TOP TEN list for after-hours activity. When a stock is fashionable, then watch the momentum push it to new heights. So simply put, this play is based on pure momentum and the growing sentiment by investors to once again dip into the technology stocks. Near-term support is evolving at $63-$64 and provides a good entry if there's no pullback. Otherwise, look to get into this momentum play at the firmer support level of $60, which is sandwiched nicely between the 10-dma ($58.01) and the 5-dma ($62.08). This week, Nextel Online wireless Internet service designed specifically for business was launched in Pittsburgh. With its arrival, "business customers can now easily receive and act on the critical information they need to do business while they are away from the office" said Linda Marshall, Great Lakes Area president, Nextel Communications. And on the global front, Nextel Communications, along with other U.S. telecommunications companies pledged to invest millions in the Argentine market. The company plans on contributing $150 mln before the year's end to complete its own expansion in Argentina. BUY CALL JUL-60*FZC-GL OI=1341 at $10.38 SL=7.50 BUY CALL JUL-65 FZC-GM OI= 743 at $ 7.38 SL=5.00 BUY CALL JUL-70 FZC-GN OI=1312 at $ 5.00 SL=3.00 BUY CALL AUG-70 FZC-HN OI=2728 at $ 7.25 SL=5.00 SELL PUT JUL-60 FZC-SL OI= 104 at $ 2.94 SL=4.00 (See risks of selling puts in play legend) Picked on June 18th at $67.63 P/E = N/A Change since picked +0.00 52-week high=$92.94 Analysts Ratings 13-7-4-0-0 52-week low =$19.59 Last earnings 03/00 est=-0.84 actual=-0.83 Next earnings 07-17 est=-0.36 versus=-0.64 Average Daily Volume = 5.10 mln /charts/charts.asp?symbol=NXTL ******** SOFTWARE ******** SEBL - Siebel Systems $157.06 (+12.75 last week) Siebel is a leading provider of sales automation and customer service software. Its main product, Siebel Sales Enterprise, offers client information and decision support across a corporation's worldwide computer network. Field personnel can access Siebel applications through wireless devices as well. Glaxo Wellcome, Prudential Insurance, and Lucent are among Siebel's clientele. SEBL is the epitome of "New Economy". SEBL is a leading provider of eBusiness products and services. Companies across a broad spectrum, both large and small, turn to SEBL seeking a competitive advantage. SEBL helps companies leverage information to increase sales, improve marketing, and manage operations. SEBL's software has become available only recently, and the market for such products is wide open. With the eBusiness services market in its infancy, SEBL is positioned well with its leading market share of 17%. Unlike many companies operating on the cutting edge of the Internet, SEBL is profitable. No, make that very profitable. The company is expected to grow its bottom-line by 58% this year, but that growth doesn't come cheap. At its current levels, SEBL has a trailing P/E of 244. Yet, on a relative growth basis, SEBL is cheap compared to the rest of the Computer-Software sector. If the NASDAQ is going to rise from the mire we call a trading range, it's going to be stocks like SEBL leading the way. SEBL displayed its impressive relative strength Friday by tacking on another substantial gain despite the relatively weak market. Interestingly, the same action unfolded Friday afternoon as we saw during Thursday's closing moments. That is, the stock began to rollover in the final hour of trading, finding support near $154, then rallying in the final thirty minutes of trading with a surge in volume to close near its day high. Akin to our Play of the Day last Thursday, SEBL's late day rally deserves our consideration. Watch for a continuation of momentum Monday morning, and consider an entry if SEBL clears resistance at $158. If SEBL stumbles, watch for a bounce off support at $150, or the 10-dma at $145. Wall Street continues to give our play a helping hand. In a late call Thursday, Thomas Weisel initiated coverage on SEBL with a Strong Buy rating. That follows a price target of $190 set by Piper Jaffray the same day. It never hurts to have the analysts on our side! BUY CALL JUL-155 SGW-GK OI=370 at $16.00 SL=11.50 BUY CALL JUL-160*SGW-GL OI=496 at $13.63 SL=10.00 BUY CALL JUL-165 SGW-GM OI= 0 at $11.00 SL= 8.25 BUY CALL AUG-160 SGW-HL OI=653 at $19.00 SL=13.75 Picked on June 11th at $144.31 P/E = 244 Change since picked +12.75 52-week high=$175.13 Analysts Ratings 13-4-0-0-1 52-week low =$ 23.44 Last earnings 03/00 est= 0.14 actual= 0.17 Next earnings 07-21 est= 0.18 versus= 0.12 Average Daily Volume = 5.00 mln /charts/charts.asp?symbol=SEBL MSFT - Microsoft Corp $72.56 (+3.75 this week) Microsoft is the #1 software company in the world. They develop, manufacture, license, and support a broad range of software products including Windows operating systems, server applications, the popular MS Office suite, and a Web Browser. As most of you know, the company is presently involved in anti- trust issues with the government. CEO and co-founder, Bill Gates still owns 15% of Microsoft. Yes indeed, we're believers in MSFT's upside potential. We're looking at it from this perspective. It's pretty safe to assume the Justice Dept. won't be pulling any more rabbits out of their hats. The District of Columbia Appeals Court is willing to accept the landmark case for review, which would stall Judge Thomas Penfield Jackson's ruling that the company must be broken up into two separate entities. And it's now known the only move the government has left is to try and implement a rarely-used 1974 law called the Expediting Act, which allows federal antitrust cases to skip the lower appeals court process and head straight to the Supreme Court. Therefore, all the bad news revolving around the anti-trust issues of Microsoft Corporation is out of the bag. Furthermore, we believe the stock price bottomed out at $65 and is now on the road to recovery. The positive move through $72 on Thursday followed by Friday's intraday high of $73.13 insinuates that MSFT is getting geared up. The stock's recent finishes in close proximity to its daily highs are bullish signs too. Importantly, the technical break above the 50-dma ($70.94) and the robust volume adds credence that the momentum is building. MSFT is, however, at a resistance point that it has yet to crack since the devastation of last April. A breakout from this level would provide a conservative entry. Otherwise, targeshoot the intraday dips from solid support at $70. In the industry, Red Hat, a developer of the free Linux computer operating system that competes with Microsoft's Windows, reported its 1Q loss widened. The loss was largely due to soaring expenses in its effort to take the market share from Microsoft, which it's far from doing in the near-term. The software giant's product menu continues to roll-out advances in the midst of its fight with the Justice Department. On Thursday, Microsoft unveiled a new version of Windows CE 3.0, its operating system for handheld devices, which offers more features and lower prices. This advanced platform demonstrates it's not taking the competition from rival the Palm Corporation lightly. Globally, Microsoft and Japan's largest electronics maker, Hitachi Ltd, unveiled plans to enter into a joint venture in the system solutions business. This partnership unites two of the biggest companies in the world's IT market and targets annual sales exceeding $190 mln by 2003. BUY CALL JUL-65 MSQ-GM OI=11267 at $9.13 SL=6.25 BUY CALL JUL-70 MSQ-GN OI=36151 at $5.25 SL=3.25 BUY CALL JUL-75*MSQ-GO OI=33835 at $2.63 SL=1.25 BUY CALL JUL-80 MSQ-GP OI=34245 at $1.19 SL=0.50 BUY CALL OCT-85 MSQ-JQ OI= 7939 at $3.25 SL=2.50 SELL PUT JUL-70 MSQ-SN OI=16041 at $1.94 SL=3.75 (See risks of selling puts in play legend) Picked on June 15th at $72.38 P/E = 44 Change since picked +0.19 52-week high=$119.94 Analysts Ratings 11-16-3-0-0 52-week low =$ 60.38 Last earnings 03/00 est= 0.41 actual= 0.43 Next earnings 07-19 est= 0.42 versus= 0.40 Average Daily Volume = 38.8 mln /charts/charts.asp?symbol=MSFT ************* SEMICONDUCTOR ************* JDSU - JDS Uniphase $120.19 (+9.63 last 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 industry is currently facing a capacity shortage. The demand for fiber optic equipment far exceeds what the industry is capable of producing. The challenge for companies such as JDSU is trying to grow fast enough to keep up with the market demand. According to JDSU's CFO, Anthony Muller, the company is doing all the right things. Muller recently said, "We certainly do not plan on falling short of meeting our customers' needs. We invest aggressively. We make acquisitions to strengthen our strategic position and give opportunities to do more for our customers." JDSU's management has earned the respect of Wall Street with its savvy strategies and efficient business execution. JDSU's management will get a chance to build upon its reputation this coming Thursday when the company hosts its analyst meeting. The conference could act as a catalyst for our play in the coming days. With the recent upward revisions of earnings by the likes of SDLI and GLW, many are looking for JDSU to pre-announce at the meeting. The company's next earnings report is a few weeks away, and the analyst meeting would give JDSU the chance to pre-announce any good news. While its mere speculation that the company will surprise analysts, the anticipation may be enough to lift the stock higher. JDSU closed just above the $120 level Friday. The stock's pattern of higher lows remains firm, but it had problems hurdling $120 last week. An aggressive trader could look for a bounce off $120 early next week for an entry point. While those of you seeking less risk might wait for JDSU to clear resistance at $125 before entering the play. Trading activity has been an accurate indicator as of late, make sure to confirm a rally with above normal volume. Analysts were busy expressing their views of JDSU ahead of the company's meeting next week. PaineWebber reiterated its Buy rating and set a $200 price target Friday morning. In an informal announcement on CNBC late Friday, Paul Meeks of Merrill Lynch made his feelings known by reiterating his Buy rating on JDSU and establishing a price target of $175. BUY CALL JUL-115 UCQ-GC OI=2782 at $14.50 SL=10.75 BUY CALL JUL-120 UCQ-GD OI=5802 at $11.75 SL= 8.50 BUY CALL JUL-125*UCQ-GE OI=2743 at $ 9.63 SL= 6.50 BUY CALL SEP-125 UCQ-IE OI=1884 at $18.38 SL=13.25 SELL PUT JUL-105 UCQ-SA OI=1072 at $ 4.75 SL= 6.75 (See risks of selling puts in play legend) Picked on June 13th at $121.38 P/E = 366 Change since picked -1.19 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 SDLI - Spectra Diode Laboratories Inc. $299.88 (+49.88 last week) SDL's products power the transmission of data, voice and Internet information over fiber optic networks to meet the needs of telecommunications, DWDM, cable television and satellite communications applications. They enable customers to meet the bandwidth needs of increasing Internet, data, video and voice traffic by expanding their fiber optic communications networks more quickly and efficiently than would be possible using conventional electronic and optical technologies. SDL's optical products also serve a variety of non- communications applications, including materials processing and printing. Well, this one certainly had quite a week. Speculation that SDLI could be acquired by rival Corning drove our play over 19% higher. Corning also issued a pre-announcement that earnings would come in ahead of current estimates. This helped propel SDLI and fellow fiber companies higher as well. Jafar Rizvi, an analyst at Sands Brothers & Co. initiated coverage of SDLI with a Strong Buy rating. In commenting on the potential merger, Rizvi said "the market is so huge that two or three players can all fit in at the same time and grow at high rates." U.S. Bancorp Piper Jaffray analyst Conrad Leifur said the Corning-SDL speculation "has been out there for a while" and he didn't think an agreement was near. Together the two "would emerge as the clear No. 2" to JDSU, Leifur said. Neither company would comment on the merger speculation. So we have a play that made a new high everyday this week, with the latest coming at $300.63, and added almost 20% to its market cap in five sessions. How do we proceed? If the momentum continues, we would consider following the trend. Yet, the volume did fall off a little on Friday, indicating a round of profit taking could be on the horizon, which could give traders with patience a better entry point. Intraday support has developed near $290, $285, $275, with the 10-dma back at $267.25. We would not ignore further moves higher, just be prepared to pocket any profits. Friday, James P. Parmelee, of Credit Suisse First Boston chimed in with a reiteration of his Buy rating for SDLI. Although no 12 month price target was given, the majority at this time have the fiber company pegged near $325. Another item to keep in mind is the company held its annual meeting in late May. On the agenda was a proposal to increase the number of authorized shares from 140 mln to 280 mln. The only other news this week for SDLI came Thursday when the company announced it had completed an agreement with Siemens Information and Communications Networks Group to supply high- speed optical modulators for SIEMENS'10Gb/s DWDM transmission systems. The agreement plan is for years 2000 and 2001. BUY CALL JUL-280 QJV-GP OI=251 at $48.13 SL=35.00 BUY CALL JUL-290 QJV-GR OI=143 at $43.25 SL=31.50 BUY CALL JUL-300*QJV-GT OI=807 at $38.00 SL=27.50 BUY CALL SEP-300 QJV-IT OI=784 at $62.75 SL=45.50 SELL PUT JUL-280 QJV-SP OI= 97 at $25.88 SL=35.75 (See risks of selling puts in play legend) Picked on May 21st at $196.00 PE = 600 Change since picked +103.88 52 week high=$300.63 Analysts Ratings 14-8-0-0-0 52 week low =$ 23.50 Last earnings 04/00 est= 0.16 actual= 0.22 Next earnings 07-19 est= 0.27 versus= 0.09 Average daily volume = 3.88 mln /charts/charts.asp?symbol=SDLI LLTC - Linear Technology Corp. $69.44 (+2.31 last week) Linear Technology designs, manufactures, and markets a broad line of standard high performance linear integrated circuits. These circuits translate analog data (such as sound, pressure, temperature, and speed) into digital information that can be used by electronic devices, and to regulate and control power and voltage. The company's amplifiers, regulators, interface circuits, and other chips are used in a wide variety of products, including cellular phones, radar systems, satellites, computers, and factory automation systems. Primarily through its distributor network, LLTC sells its products to more than 15,000 manufacturers, with more than 50% of sales generated by non-US customers. "I think I can, I think I can" seems to be LLTC's attitude. Mirroring the action of the Semiconductor sector over the past 2 days, the stock has continued to edge higher. After Wednesday's slide, the bulls reappeared Thursday morning, proving that the $63-64 level is still providing support. We got a nice entry point as buyers continued to appear in ever increasing numbers, pushing the stock up to close at the high of the day, but the daily volume was still a bit weak. Friday was almost a non-event, as the upward momentum halted at $71, and LLTC gradually declined throughout the remainder of the session. We are still in a holding pattern and waiting for a convincing breakout over $70. Yet, it was encouraging to see the price hold above the highs from Tuesday and Thursday as traders packed up for the weekend. The pattern of higher highs and higher lows is intact, but in the absence of strong volume, LLTC will have a hard time moving significantly higher. Intraday support is beginning to form near $67, which is just below the 5-dma, while stronger support is confirmed by the 10-dma ($65.44). Remember this play is based on the momentum that began in the last week of May, and entry points can still be had as the stock bounces at support. This play is entirely momentum and technically driven, as there hasn't been so much as a peep in the news about LLTC since the company posted record sales numbers with its April earnings report. The company's CEO, Robert H. Swanson impressed investors by stating, "The March quarter was an outstanding quarter for us as we achieved record levels of bookings, sales and profits with sales increasing 14% and profits 17% sequentially from the December quarter." With numbers like that, it's easy to see why investors are making a bee-line for shares of LLTC. BUY CALL JUL-65 LLQ-GM OI= 684 at $8.50 SL=6.00 BUY CALL JUL-70*LLQ-GN OI= 545 at $5.88 SL=4.00 BUY CALL JUL-75 LLQ-GO OI=1201 at $3.88 SL=2.50 BUY CALL AUG-75 LLQ-HO OI= 543 at $6.38 SL=4.25 SELL PUT JUL-60 LLQ-SL OI= 275 at $2.31 SL=3.75 (See risks of selling puts in play legend) Picked on June 11th at $67.13 P/E = 89 Change since picked +2.31 52-week high=$71.00 Analysts Ratings 7-10-2-0-0 52-week low =$27.63 Last earnings 04/00 est= 0.22 actual= 0.23 Next earnings 07-18 est= 0.25 versus= 0.17 Average Daily Volume = 4.00 mln /charts/charts.asp?symbol=LLTC ******** INTERNET ******** YHOO - Yahoo! Inc. $140.94 (-2.25 last 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. Friday's gain of $1.25 would appear to have done little to further our cause. A closer look reveals our play in YHOO just may be getting ready to break loose. The volume was a little better with 6.9 mln traded, although it probably can be attributed to expiration. Not only was the bounce off support near $135 refreshing, but the buying in the last 15 minutes of the session. Again, it could be tied back to expiration activity. Other than a brief test of support at $132, YHOO has been quietly building support between $135 and it's 200-dma at $137.95 for most of the week. Some suggest the lack of follow-through early in the week when our favorite stubbed its toe near $145, may signal coming weakness. That may be, however, the amount of buying seen each time Yahoo! approached support indicates to us that the Internet company could be garnering the momentum necessary to move higher. The FED is still in the picture, but for a week where warnings seemed to capture the headlines, YHOO held up pretty well. Granted some say with all the good economic data this week, the broad markets should have taken flight. What they should have done and did do are two different things. So you must play the hand you dealt. YHOO is forming a triangle pattern and a breakout over the area between $143 and $145 would indicate a move higher. A move below previously mentioned support near $135 and it may be time to step back, at least temporarily. Confirm the volume in either case. With uncertainty or consolidation, many times its better to pick a point and say "I'm long here and out of the at this level" and stick to it, rather than try to out-guess investors' reactions to news and events. Yahoo! and four others got a bit of a shot in the arm this week from Henry Blodget of Merrill Lynch. The noted analyst reiterated his Near-term Buy and Long-term Buy on the company saying the B2C industry is transitioning from hyper-growth to Long-term growth. Moving into the fall, Blodget believes things should be more solid in terms of numbers and catalysts. BUY CALL JUL-130 YMM-GF OI=1282 at $19.00 SL=13.75 BUY CALL JUL-135*YMM-GG OI=4147 at $16.00 SL=11.50 BUY CALL JUL-140 YMM-GH OI=4034 at $13.88 SL=10.50 BUY CALL JUL-150 YMM-GJ OI=5895 at $ 9.50 SL= 6.50 BUY CALL OCT-145 YMM-JI OI=1075 at $23.63 SL=17.25 SELL PUT JUL-140 YMM-SH OI=5979 at $11.63 SL=16.25 (See risks of selling puts in play legend) Picked on May 28th at $112.06 PE = 641 Change since picked +28.88 52 week high=$250.06 Analysts Ratings 16-14-3-0-0 52 week low =$ 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 = 10.1 mln /charts/charts.asp?symbol=YHOO VRSN - VeriSign, Inc. $164.56 (-31.44 last 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 surging higher with the NASDAQ in late-May and early June, VRSN has settled into a consolidation pattern as investors wait for a reason to drive the price higher. The stock continues to move in a tradable range, finding resistance near $180 and support near $162. The heavy volume seen early in the week gave way to rather light trading on Friday, as the buyers stood aside and let the bears have their way. After an opening spike to the $180 level, the price gradually declined all day, with a sharp drop of over $5 at the close. This closing action is a bit disconcerting, and we will need to see buyers step back in next week to confirm support. If volume picks back up, consider initiating new positions as the price bounces at support, as we continue to trade the range available to us. Until some news emerges to push the stock out of this range, you'll want to consider taking profits as VRSN runs out of steam near $180. The House passed the Electronic Signature Bill last Wednesday, granting electronic signature and records the same legal status as handwritten signatures and paper documents. The Senate is expected to pass the bill and President Clinton has indicated his support as well. This will likely increase e-commerce transactions and security companies like VRSN will benefit directly. BUY CALL JUL-160 XVR-GL OI=381 at $21.63 SL=16.75 BUY CALL JUL-165 XVR-GM OI=745 at $19.25 SL=13.75 BUY CALL JUL-170*QVZ-GN OI=382 at $17.25 SL=12.25 BUY CALL JUL-175 QVZ-GO OI= 89 at $15.38 SL=11.25 BUY CALL SEP-180 QVZ-IP OI=151 at $24.88 SL=18.50 SELL PUT JUL-155 XVR-SK OI= 68 at $13.50 SL=18.75 (See risks of selling puts in play legend) Picked on June 13th at $167.06 P/E = N/A Change since picked -2.50 52-week high=$258.50 Analysts Ratings 10-10-1-0-0 52-week low =$ 27.25 Last earnings 04/00 est= 0.02 actual= 0.02 Next earnings 07-19 est=-0.02 versus= 0.00 Average Daily Volume = 4.59 mln /charts/charts.asp?symbol=VRSN ******* BIOTECH ******* ABGX - Abgenix Inc $114.50 (-7.00 last week) Abgenix uses genetically engineered mice to develop antibody therapeutics for inflammatory and autoimmune disorders, cancer, and transplant-related conditions. The company's four antibody products use the XenoMouse technology, which Abgenix bought from Japan Tobacco. Treatments for disorders, cancer, and psoriasis are in clinical trials. The company has alliances with Millennium Pharmaceuticals, Pfizer, and Amgen. The Biotech sector came back to life Friday in the face of options expiration and a weak market. The rally in the group came on the heels of a Banc of America research note Friday morning. Eric Ende, senior analyst at BofA said conditions in the industry have "never been better". Ende explained that developments in the sector should accelerate profitability for many companies and the outlook for the industry should continue improving over the next five to seven years. While Ende didn't specifically mention ABGX, his report carried enough clout to lift the entire sector, which is relevant to our play since the group moves in unison. With the human genome nearing completion, new discoveries are made on a daily basis, positioning genomics such as ABGX in a lucrative place. With profitability expected next year, ABGX has Wall Street's attention. But, profits may come sooner for ABGX, noting the company's history of surpassing estimates by a wide margin. ABGX's next earnings report is a ways off, so we're looking for sector momentum to carry our play higher. After the late day rally we mentioned in Thursday's update, ABGX gapped higher Friday morning and gained momentum into the weekend. What's more, the late day buying returned Friday as ABGX soared nearly $5 in the final fifteen minutes of trading. After a week of consolidation, the Biotech sector may be ready for another run given Friday's late buying and favorable analyst comments. Be on your toes Monday morning, and watch for a breakout above $115. You might wait for sector momentum to build and look for ABGX to clear resistance at $123 for a more favorable entry. On the downside, ABGX has support at $110 and again at $105, where you may find entry if the stock bounces. The recently fallen, but still influential financier George Soros had good things to say about the Biotech sector in a rare interview on CNBC late Thursday. Soros said he believes there are many opportunities in the group, and investors will be well rewarded ten years from now by investing in Biotech sector. BUY CALL JUL-110 AXY-GB OI= 51 at $18.63 SL=13.25 BUY CALL JUL-115 AXY-GC OI= 45 at $16.38 SL=11.75 BUY CALL JUL-120*AXY-GD OI=153 at $14.38 SL=10.75 BUY CALL OCT-120 AXY-JD OI= 7 at $29.00 SL=21.00 SELL PUT JUL-100 AXY-ST OI= 56 at $ 8.00 SL=10.50 (See risks of selling puts in play legend) Picked on June 8th at $112.00 P/E = N/A Change since picked +2.50 52-week high=$206.50 Analysts Ratings 3-3-0-0-0 52-week low =$ 7.38 Last earnings 03/00 est= -0.11 actual= -0.09 Next earnings 07-27 est= -0.05 versus= -0.11 Average Daily Volume = 801 K /charts/charts.asp?symbol=ABGX HGSI - Human Genome Sciences $133.50 (-6.06 last week) Human Genome Sciences, Inc., founded in 1992, is a pioneer in the use of genomics, the study of all human genes, and the development of new pharmaceutical products. They are a leader in moving these genomics-based drugs into patient-based clinical trials. In 1999, three HGS drugs were tested in patients. Their goal is to become a global pharmaceutical company that discovers, develops, manufactures and sells our own genomics-based drugs. Considering the previous move up the chart, last week's 4.3% decline, or we should say consolidation, leaves our play in good shape. HGSI did retest the $116 area on Tuesday, giving traders another chance to jump on board. While investors spent most of the week reacting to earnings warnings, earnings is one thing that HGSI and others can temporarily keep on the backburner. If you remember, our play hit the list after Celera Genomics announced earlier this month that it expects to complete an outline of the human genome. While Celera may be the leader in the industry in terms of being the most aggressive, some investors seem to favor HGSI for their ability to stay in the game for the long haul. Some suggest they are more established and may deliver on their promises to the market. It was a slow week for the analysts' comments or news concerning HGSI, but the move up on Friday came on just over 1 mln shares, which was better than mid week. What lies ahead for our play? The buying seen late in the day on Friday was very encouraging as HGSI surged $5 on volume of about 350K shares in the last half hour of trading. The close near the high of the day is also a plus going into the new week. Intraday support is building between $120 and $125 which also suggests the momentum may return to our play. The sentiment in the broad markets could also be the key, however, HGSI held up pretty well this week with the broad market sentiment in question. If HGSI begins the week where it left off, we would look for chances to participate. For those with open positions, keep your stops in place. The latest brokerage firm to comment on HGSI came from analysts at AG Edwards. Alex Hittle and Craig West initiated coverage of HGSI with an Accumulate rating and a price target between $140 and $150 per share. BUY CALL JUL-130 HHA-GF OI=453 at $19.88 SL=14.50 BUY CALL JUL-140*HHA-GH OI=305 at $15.50 SL=11.50 BUY CALL JUL-150 HHA-GL OI=348 at $12.25 SL= 9.25 BUY CALL OCT-130 HHA-JF OI=190 at $36.00 SL=26.00 SELL PUT JUL-120 HHA-SD OI=195 at $10.75 SL=14.25 (See risks of selling puts in play legend) Picked on June 8th at $117.56 PE = N/A Change since picked +15.94 52 week high=$232.75 Analysts Ratings 1-5-2-0-0 52 week low =$ 19.38 Last earnings 04/00 est=-0.33 actual=-0.35 Next earnings 07/27 est=-0.20 versus=-0.05 Average daily volume = 2.16 mln /charts/charts.asp?symbol=HGSI PDLI - Protein Design Labs $164.00 (-1.56 last week) Protein Design Labs develops human and humanized monoclonal antibodies to prevent and treat diseases. The FDA approved the company's first humanized antibody product, Zenapax (daclizumab), for the prevention of kidney transplant rejection and there are seven other antibodies in the developmental pipeline. Global patents have been issued for the PDLI's humanization technology and currently they have business agreements with Eli Lilly and Genentech. It was a turbulent week in the markets for PDLI! But, the intraday volatility and wide spreads offered lots of opportunity for solid entries and profitable exits - if you were day trading. For those of you not hot-glued to your terminal, this is a time in the play where PDLI is considered to be consolidating. However, the range is wide with lows on Wednesday dipping near $140 and heights just exceeding $165 on other days. PDLI is fast, furious mover and simply not for the more conservative type. Since it began its charge upwards this month, PDLI tacked on almost a 80% premium to its share price. Thus, you want to be especially careful not to buy at the upper levels in case of a nasty reversal. While a freefall is not anticipated, the market never makes any guarantees. Look at a chart. The rising 5-dma at $156.75 has acted as a launching point for PDLI during the uptrend. But, you should also note that in recent sessions the share price has slipped lower to the 10-dma ($150.97) before bouncing back up. It was promising to see PDLI propel itself through the 5-dma on Friday. Unfortunately, it once again failed to penetrate $165 and hold the gains. It came close though, so look for confirmation with more positive moves off the current level. In other words, plan carefully and at least have a mental stop on your agenda. On Thursday, the company held its Annual Meeting and shareholders voted on a proposal to increase the number of authorized shares from 40 mln to 90 mln. As of this write-up, there's no word on the outcome. Technically, at $150, PDLI is a split candidate. This kind of news would surely give PDLI a big shot of adrenaline. BUY CALL JUL-160 RPV-GL OI= 73 at $27.63 SL=21.50 BUY CALL JUL-165 RPV-GM OI= 33 at $24.00 SL=18.75 BUY CALL JUL-170*RPV-GN OI=100 at $23.38 SL=18.25 BUY CALL JUL-175 RPV-GO OI= 6 at $17.13 SL=12.25 BUY CALL AUG-180 RPV-HP OI= 33 at $25.00 SL=19.50 SELL PUT JUN-150 RPV-SJ OI= 24 at $15.13 SL=20.75 (See risks of selling puts in play legend) Picked on June 4th at $125.13 P/E = N/A Change since picked +38.87 52-week high=$338.00 Analysts Ratings 2-2-4-0-0 52-week low =$ 19.88 Last earnings 03/00 est=-0.04 actual= 0.04 Next earnings 08-04 est= 0.19 versus=-0.14 Average Daily Volume = 1.41 mln http://www.optioinvestor.com/charts/charts.asp?symbol=PDLI ********************************* CALLS - CONTINUED IN SECTION FOUR ********************************* ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ******************************* SEE DISCLAIMER IN SECTION ONE
The Option Investor Newsletter Sunday 6-18-2000 Sunday 4 of 5 ***************** CALLS - CONTINUED ***************** **** MISC **** PWR - Quanta Services $62.06 (+4.69 last week) Quanta installs, repairs, and maintains electric transmission lines, cable TV, and telephone and data lines in North America. Quanta also works on traffic control systems and designs and installs communication towers. Major customers include PG&E, Enron, and Western Resources. Other clients include contractors, commercial establishments, and government entities. Quanta is a widely diversified firm. The company provides specialized contracting services, delivering network solutions for telecommunications, cable television and electric power industries. It's the company's telecom network services division that has caught Wall Street's attention. PWR plays an integral role in the current build-out of high-speed networks. The company provides services such as installing fiber optic cable, and building DSL networks and wireless telecom towers. Wireless communications and Internet services are two of the fastest growing segments of technology and PWR is behind the scenes, building the necessary infrastructure to make it all work. While the sexier names in fiber optics, such as JDSU or SDLI, are expected to grow well over 100% this year, PWR is predicted to improve its bottom-line by nearly 50%, not too shabby. Unlike the aforementioned stocks, PWR trades at a modest value. And PWR's high growth, low multiple, and price momentum are the catalysts behind our play. Many analysts see PWR as a less expensive way to play the fiber optic boom, and Wall Street's increasing sponsorship is driving the stock higher. PWR is tracing new 52-week highs on increasingly heavier volume as institutions horde the stock. PWR broke out from a six week base last week, and edged to a new high Friday despite the volatile triple witching trading. Watch for the professionals to continue accumulating the stock next week and consider an entry at current levels if momentum carries PWR higher. If a round of profit taking ensues, watch for PWR to bounce off support at $60 or below at $58. Confirm the pattern of higher lows and target shoot for entry if PWR resumes its climb. Historically, PWR has rallied into its earnings announcement. The company has beat Wall Street's estimates each of its last five quarters. Considering the ongoing boom in the fiber optic arena, this time around should be no different. With earnings less than a month away, we'll watch for mounting anticipation to carry the stock higher. BUY CALL JUL-55 PWR-GK OI=131 at $ 9.88 SL=7.00 BUY CALL JUL-60*PWR-GL OI=120 at $ 6.88 SL=5.00 BUY CALL JUL-65 PWR-GM OI= 0 at $ 4.63 SL=2.75 BUY CALL AUG-60 PWR-HL OI= 21 at $ 8.63 SL=6.00 SELL PUT JUL-55 PWR-SK OI= 27 at $ 2.19 SL=3.75 (See risks of selling puts in play legend) Picked on June 15th at $61.50 P/E = 52 Change since picked +0.56 52-week high=$62.13 Analysts Ratings 8-1-1-0-0 52-week low =$13.38 Last earnings 03/00 est= 0.21 actual= 0.28 Next earnings 07-10 est= 0.37 versus= 0.06 Average Daily Volume = 511 K /charts/charts.asp?symbol=PWR PLXS - Plexus Corp $102.63 (+3.45 last week) Plexus is a contract developer and manufacturer of electronic products for companies in the medical, telecom, industrial, and computer markets. The company operates in two divisions: product design and engineering, and assembly of circuit boards, memory chips, and other electronic components. Lucent and GE account for 16% and 12% of sales respectively. Plexus is ramping up manufacturing in efforts to establish an international presence. PLXS helps the likes of Lucent and Motorola realize their potential. Leading companies in the Tech sector come to PLXS with a product idea. PLXS, in turn, takes their visions and turns them into realities. PLXS absorbs the costs of research and development for its customers, and turns a nice profit along the way. The company recently completed its acquisition of Elamex, an electronics contract manufacturer located in Mexico. The addition of Elamex's operations will allow PLXS to provide customers with a low-cost labor solution for manufacturing. The acquisition is expected to accelerate PLXS's revenue growth. Wall Street embraced the acquisition with much enthusiasm as several brokerage houses upgraded PLXS after the announcement. Since the completion of the acquisition, PLXS has charged to new highs. Volume has steadily increased while PLXS has charted new highs, suggesting institutions have been accumulating the stock. While earnings are still a month away, the sheer momentum PLXS has displayed in the past month is enough to hold our attention. The professionals took a break from buying PLXS in Friday's trading as the stock meandered on meager volume. The stock briefly dipped below $102 as traders squared their positions Friday, but managed to rally in the final moments of trading to close the week back above support. You might consider an entry at current levels if momentum returns to PLXS early Monday morning. Otherwise, wait for the stock to clear resistance at $105 for a more conservative entry point. Make sure to watch the trading activity closely, confirm any rally with above average volume as a sign the "Big Boys" are buying. The bulls argued their case for PLXS Friday. CIBC World Markets reiterated its Strong Buy rating and raised its price target to $120 from $88. Despite the attempt from analysts, PLXS slipped Friday. If CIBC has any clout, traders may revisit the revised price target next week, and take PLXS higher. BUY CALL JUL-100 QUA-GT OI= 53 at $12.38 SL= 9.25 BUY CALL JUL-105*QUA-GA OI=220 at $ 9.38 SL= 6.50 BUY CALL JUL-110 QUA-GB OI= 0 at $ 7.78 SL= 5.75 BUY CALL SEP-105 QUA-IA OI= 22 at $16.13 SL=11.50 SELL PUT JUL-105 QUA-SS OI= 6 at $ 6.13 SL= 8.50 (See risks of selling puts in play legend) Picked on June 11th at $99.19 P/E = 78 Change since picked +3.44 52-week high=$106.25 Analysts Ratings 9-5-1-0-0 52-week low =$ 24.44 Last earnings 03/00 est= 0.45 actual= 0.49 Next earnings 07-19 est= 0.52 versus= 0.39 Average Daily Volume = 294 K /charts/charts.asp?symbol=PLXS ***** LEAPS ***** Weakness in Financials = Entry Point and a New Play By Mark Phillips Contact Support I know you think I'm nuts, adding another Financial stock after the way the sector tanked the DJIA on Friday, but bear with me and I think you'll see the light. The markets historically have been unable to rally significantly without the support of the Financials. So, if we still have a long-term bullish outlook, we should be able to profit from a recovery in the strongest of the Financial stocks. Look at our AXP and WM plays; they both got dragged down near major support levels, due to guilt-by-association with some of the weaker Financial stocks. Call me crazy, but I think this is setting us up for another nice entry point in these two plays. Ok, so what's going on in the NASDAQ market? The tech sector has actually held up surprisingly well, as it continues to inch closer to the ever-elusive 3900 level. There are spots of strength (Optical is on fire), but this has become a stock-picker's market. This tide is not raising all boats, only those with a tight hull and a competent crew. So what is on the horizon, you ask? Investors are still largely standing aside, waiting for the outcome of the June FOMC meeting and hoping that Greenspan and company will give us the all clear. July earnings are approaching and barring an ugly economic event, I'm leaning towards some actual earnings runs this quarter. Before you run out and start loading up on YHOO LEAPS, let's have a sanity check. This means looking at our trusty VIX volatility index. Have you noticed it is gradually creeping down towards the lower end of its range? After spending all week in a gradual downtrend, the VIX is now sitting at 23.55, still above the danger zone (18-20), but definitely no place near the typical buy zone (low 30's). This is the time for discretion and patience. By now you have likely picked the LEAP plays you want to enter. This market is not likely to run away from us like it did last December. Decide where you want to enter those plays and wait for them to come to you. In the long run, you'll be glad you did. Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN EMC 11/07/99 JAN-2001 $ 40 EMB-AH $ 7.69 $42.25 449.41% JAN-2002 $ 45 WUE-AI $ 9.50 $44.50 368.42% IBM 11/07/99 JAN-2001 $100 IBM-AT $13.63 $23.63 73.37% JAN-2002 $110 WIB-AB $16.50 $29.25 77.27% CSCO 11/14/99 JAN-2001 $ 40 CYQ-AH $ 9.56 $31.13 225.63% JAN-2002 $ 45 WIV-AI $11.00 $33.25 202.27% NT 11/28/99 JAN-2001 $37.5 ZOO-AU $11.13 $33.00 196.50% JAN-2002 $37.5 WNT-AU $15.13 $37.88 150.36% TXN 12/12/99 JAN-2001 $ 55 TNZ-AK $11.13 $31.38 181.94% JAN-2002 $ 60 WGZ-AL $14.25 $35.88 151.79% SUNW 12/19/99 JAN-2001 $ 80 SUX-AP $17.63 $23.75 34.71% JAN-2002 $ 90 WJX-AR $22.00 $30.25 37.5% CY 01/16/00 JAN-2001 $ 40 ZSY-AH $ 9.13 $14.88 62.98% JAN-2002 $ 40 WSY-AH $12.63 $22.00 74.19% ERICY 01/30/00 JAN-2001 $16.3 RQC-AO $ 4.94 $ 7.00 41.70% JAN-2002 $16.3 WRY-AO $ 6.75 $ 9.38 38.96% NSM 02/27/00 JAN-2001 $ 70 NSM-AN $18.50 $13.50 -27.03% JAN-2002 $ 70 WUN-AN $24.25 $23.50 - 3.09% AOL 03/12/00 JAN-2001 $ 60 AOO-AL $14.00 $ 7.63 -45.50% JAN-2002 $ 65 WAN-AM $18.63 $13.25 -28.89% AXP 03/12/00 JAN-2001 $43.3 AXP-AP $ 7.25 $15.75 117.24% JAN-2002 $46.6 WXP-AQ $ 9.33 $18.38 95.95% WM 03/19/00 JAN-2001 $ 25 WM -AE $ 5.00 $ 4.88 - 2.40% JAN-2002 $ 30 WWI-AF $ 5.38 $ 5.00 - 7.06% QCOM 03/26/00 JAN-2001 $150 AUA-AJ $39.25 $ 3.13 -92.03% JAN-2002 $160 XQO-AL $52.88 $10.25 -80.62% AMD 04/16/00 JAN-2001 $ 70 AMD-AN $17.50 $27.25 55.71% JAN-2002 $ 70 WVV-AN $26.00 $37.50 44.23% CMGI 04/16/00 JAN-2001 $ 50 ZB -AJ $21.50 $17.88 -16.84% JAN-2002 $ 55 WCK-AK $27.75 $25.75 - 7.21% JDSU 04/16/00 JAN-2001 $ 80 XJU-AP $27.50 $53.25 93.64% JAN-2002 $ 80 YJU-AP $39.63 $68.13 71.92% VSTR 04/16/00 JAN-2001 $ 90 UVT-AR $23.88 $62.63 162.27% JAN-2002 $ 90 WWP-AR $35.00 $78.75 125.00% YHOO 4/30/00 JAN-2001 $140 YMM-AH $32.13 $33.38 3.89% JAN-2002 $140 WYZ-AH $46.38 $52.13 12.40% MOT 5/14/00 JAN-2001 $33.3 MOT-AY $ 6.58 $ 7.25 10.18% JAN-2002 $36.6 WMA-AZ $ 9.54 $10.63 11.43% NOK 5/21/00 JAN-2001 $ 50 NZY-AJ $10.25 $15.50 51.22% JAN-2002 $ 50 IWX-AJ $17.25 $22.75 31.88% HD 5/28/00 JAN-2001 $ 50 HD -AJ $ 6.25 $ 7.63 22.08% JAN-2002 $ 50 WHD-AJ $11.38 $13.13 15.38% XLNX 5/28/00 JAN-2001 $ 70 ZIZ-AN $14.63 $26.25 79.43% JAN-2002 $ 70 WXJ-AN $23.38 $37.38 59.88% NXTL 6/11/00 JAN-2001 $ 60 FZC-AL $12.25 $18.50 51.02% JAN-2002 $ 60 YFG-AL $19.25 $26.00 35.06% Spotlight Play JDSU - JDS Uniphase $120.19 Unless you've been living under a rock, you know that the Optical sector has been on fire since the end of May, and JDSU has joined in the party with other leading stocks like SDLI and GLW. Adding fuel to the JDSU ascent was Monday's announcement from GLW that its 2nd quarter profits would easily top estimates due to strong demand. Sands Brothers then initiated coverage of JDSU with a Buy rating and Raymond James followed suit with a Strong Buy. This served to propel the share price up to the next level of resistance, at $120-122. Volume began declining as the week wore on, but it was encouraging to see the price continue to be supported by the ascending 5-dma (currently at $119). Use any market weakness as an opportunity to enter new positions on a bounce from support near $115. If you prefer confirmation first, wait for continuing enthusiasm to lift JDSU through resistance. BUY LEAP JAN-2001 $120.00 XJU-AD at $33.25 BUY LEAP JAN-2002 $130.00 YJU-AF at $50.38 New Plays C - Citigroup, Inc. $63.00 Citigroup is a diverse enterprise, providing financial services such as banking, insurance, and investment services to consumer and corporate customers in over 100 countries. The company's strong business model and earnings growth, combined with an impressive long-term chart make C the type of stock we are looking for to lead the Financials higher in support of a broad market recovery. After the sharp pullback in the Fall of 1998, C has a beautiful chart with a consistent stair-step pattern of higher highs and lows. After surging higher, the stock pulls back to find support at the highs of the previous run up, before repeating the process. The 100-dma (currently at $58.31) frequently provides support for a move higher, and if this pattern holds (which we have every reason to believe it will), look for C to find support between $58-60. The company's continued strong financial performance allowed the stock to trace a new all-time high of $67.63 last week before earnings and revenue concerns began to spread through the Financial sector. There may yet be more downside for the Financials before they recover, so wait for market sentiment to improve and for C to bounce from support before initiating new positions. When the recovery does come, look for C to lead the charge to new highs. BUY LEAP JAN-2001 $65.00 ZRV-AM at $ 7.63 BUY LEAP JAN-2002 $65.00 WRV-AM at $13.75 Drops QCOM $65.75 Oh how the mighty have fallen! After its meteoric rise at the end of last year, QCOM had to come back to earth, but this is ridiculous. After 3 months of consolidation between $120-160, the stock looked ripe for a recovery going into April earnings. No sooner had we added the stock to our playlist, and the NASDAQ tanked, dragging QCOM with it, all the way down to the 200-dma at $95, also the site of major support. This gave us a couple of nice entry points as QCOM bounced from support and moved higher. Unfortunately, more bad news was right around the corner. China Unicom announced they would be dragging their feet on rolling out CDMA, and that support level was dashed on the rocks. The ensuing selloff once again triggered our stops and slammed the stock all the way to the $60 level on very heavy volume before anyone was willing to step forward and start buying. It then looked like all the bad news was out and factored in when QCOM began moving higher 2 weeks ago. "At last!", we thought as the upgrade to Buy came from AG Edwards, "This is the ultimate entry point for our CDMA hero." Alas, it wasn't to be. After we rode the recovery up to the low $80's, the company CFO came along to poke another hole in our inflatable raft. On Wednesday, he stated at the Bear Stearns technology conference that a failure of the Globalstar venture would impact FY2001 earnings by a dime a share. As if that wasn't bad enough, Chase H&Q analyst, Edward Snyder, came out Thursday morning, lowering his earnings estimates and issuing a price target of $50. Ouch!! The ensuing selloff triggered our stops again, and quite frankly, that's all the pain we can take. Fundamentally we still like QCOM over the long term, but there is no sense continuing to tilt at windmills. We have to let QCOM go this weekend and we will stand aside while the dust settles. ********* PUT PLAYS ********* Put plays can be very profitable but have a larger risk than call plays. When a stock is falling the entire investment community (except the shorts) is hoping it will reverse and start back up. The company management is also doing everything they can to shore up their stock price. The company issues press releases, brokers talk it up, analysts try to put a positive spin on everything. Then of course there is the death knell, the "buy recommendation" simply because the price has dropped to some level that analysts feel attractive again. Buyers who like the stock wait until it appears a bottom has been reached and then jump on it in a feeding frenzy. They may already have a large position and are averaging down. Many factors can stop a free falling stock in mid drop. **** UTX - United Technologies Corp. $58.88 (+0.19 last 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. UTX finished a lackluster week in much the same way it began. Although our play has made little headway, the damage has been negligible as well. UTX doesn't offer the excitement of double digit gains or losses in the course of a day, like many of the tech stocks, but we believe the potential for profit is still in sight. Traders bid the price up to resistance near the 50-dma on Thursday only to see investors click on the sell button late in the day and again on Friday. The volume picked up a bit and the close in the lower end of the day's range suggests the short side of this stock is the place to be. UTX managed to find support just above its 200-dma at $58.17 and we would like to see that level penetrated with conviction to keep our play on track early next week. After only three comments from analysts since the beginning of the year, UTX has had two in the past 10 days. Salomon Smith Barney reiterated their Buy rating, after the conglomerate completed its acquisition of the engine maintenance center of Braathens ASA. Thursday, Sam Pearlstein, at First Union Securities initiated coverage with a Strong Buy rating and a twelve month price target of $80. The analysts comments may have got investors attention, but caused few to pull out the checkbook, at least for now. So how do we play this one? Investors need a reason to buy stock, and right now we see little reason to jump head first into UTX. That leaves us with two other choices, sideways or down. UTX may continue to consolidate between $62 and $56, however, the pattern of lower highs since mid May is still intact. Continued weakness or declines off the resistance should be considered for new entry's. BUY PUT JUL-65 UTX-SM OI= 10 at $7.00 SL=5.00 BUY PUT JUL-60*UTX-SL OI= 49 at $3.38 SL=1.75 BUY PUT AUG-65 UTX-TM OI= 65 at $7.63 SL=5.25 Average daily volume = 1.69 mln /charts/charts.asp?symbol=UTX FON - Sprint Corp $57.56 (-8.31 last week) Sprint Corporation is involved in worldwide communications integrating long distance, local service, and wireless services. Other activities include telecom equipment distribution, directory publishing, and Internet access. Sprint is based in Westwood, Kansas and has roughly 65,000 employees nationwide. Reality has arrived. After hours on Friday, it hit the wire that Bell Atlantic Corp (BEL) won conditional regulatory approval to buy GTE Corp (GTE) for $80.5 bln. The implications of the deal are enormous for the telecom industry. The merger creates the largest U.S. phone company with control of more than one-third, or 63 mln of local lines and one-quarter of mobile customers. It replaces SBC Communications (SBC) as the largest U.S. local carrier too. The new company, to be called Verizon Communications, will extend its reach across 31 states, the District of Columbia and Puerto Rico. This combination will provide consumers with one-stop shopping for communication services. The offerings will include the full gamut of local, long-distance, wireless and high-speed Internet access. The mega-merger is expected to be completed by the end of this month. This "deal of the century" is putting serious pressure on the other telecoms. Prior to the official announcement on Friday, the rumbles on the Street were enough to knock FON's share price down 16.4% since it peaked at $67 on June 7th. And as FON loses ground, trading volume is gyrating; at times it's reached nearly double the ADV. As of Thursday, FON sunk below its last technical life-line at the converged 30 and 50-dmas ($60.01 & $60.02, respectively). These latter indicators acted as upper resistance in Thursday's session, however, by Friday, near-term resistance developed much lower. First, $58.50 was the ceiling, then it crunched down to $57.50 within the last hours of trading. If there's a positive bounce back to $60, then look for entries at this level after confirming downward movement. If the downtrend line simply resumes, then you can look to intraday spikes for entry, but be careful. There is some bottom support at $55. Another piece of dissenting news is the distinct possibility that FON's own proposed merger with MCI WorldCom, to create the second-largest U.S. long-distance carrier, is not going to happen. While this event is unlikely to directly effect FON's trading in the short-term, it's always good to know what's behind the curtain. BUY PUT JUL-65 FON-SM OI=121 at $8.25 SL=5.75 BUY PUT JUL-60*FON-SL OI=228 at $4.38 SL=2.75 BUY PUT JUL-55 FON-SK OI=184 at $1.75 SL=0.75 Average Daily Volume = 2.63 mln /charts/charts.asp?symbol=FON *********************************************************** NEW PUTS *********************************************************** A - Agilent Technologies Inc. $63.00 (-8.75 last week) Agilent Technologies Inc. is a diversified technology company, resulting from Hewlett-Packard Company's plan to strategically realign itself into two fully independent companies. With approximately 43,000 employees serving customers in more than 120 countries, Agilent Technologies is a global leader in designing and manufacturing test, measurement and monitoring instruments, systems and solutions, and semiconductor and optical components. The company serves markets that include communications, electronics, life sciences and healthcare. Agilent began to fall from its pedestal in early March. After all, investors funding a run-up from $40 to $160 in just over two months do deserve to put some money in the bank. At that point, the decline was viewed as pure profit taking. With the company announcing a new optical switching solution about the same time, the Hewlett-Packard spin-off appeared to be ready to stand on its own. HWP was able to slow the decline for a day in early April when it announced it would distribute its stake in Agilent to HWP shareholders on June 2. The bears stayed in control until mid-May with Agilent finally hitting $54. Traders bid the price higher on speculation and finally the announcement that the company would join the S&P 500 Index on June 2. Once managers of the mutual index funds bought all of Agilent they needed in order to balance their portfolio's, the bears came back out of hibernation and took control again. Losses in their health care unit, an increase in the number of shares available for trading, and an uncertain broad market sentiment have Agilent facing an up-hill battle. Last month the company reported earnings in line with estimates, but many were expecting an upside surprise. This seems to have left a bit of a cloud over Agilent. Several analysts and many traders are questioning what they believe to be too high a valuation. Yes, investors do pay attention to valuations, from time to time. Agilent announced this week it would move some of its production to Singapore in an effort to cut costs, but investors were unimpressed and continued selling shares of A. The warning that PC sales were slowing took its toll on HWP, the broad markets, and it certainly didn't help Agilent earlier last week. Our new play appears to be preparing to challenge its recent low at $54. Intraday charts are getting a bit oversold, so a bounce up to between $64 and $66 would not be out of line. Technically, the 10-dma at $68.84 could also present a stumbling block and be viewed as an entry point on a failed bounces. BUY PUT JUL-70 A-SN OI= 886 at $11.50 SL=8.50 BUY PUT JUL-65*A-SM OI=2248 at $ 8.50 SL=6.00 BUY PUT JUL-60 A-SL OI=1717 at $ 5.75 SL=3.75 Average daily volume = 3.07 mln /charts/charts.asp?symbol=A HON - Honeywell International $48.75 (-3.31 last week) Honeywell International (formerly Allied Signal) is a global manufacturer of control systems and components for the home and industry, including the aerospace and aviation sectors. For example, they develop and supply the advanced-technology products for building-security and fire systems and other services designed to conserve energy, protect the environment, and improve productivity. Honeywell operates facilities in over 100 countries and about 40% of total revenue is derived from international sales. Will investors just make up their minds! Do they want the golden speckled techs or the traditional cyclical stocks in their portfolios? It appeared from last week's trading that investors were moving back into some of the technology stocks. And therefore, many cyclicals like HON were sent off to the sidelines to watch the game from the bench. Proctor & Gamble's (PG) profit warning on June 8th and cautious comments from analysts certainly didn't render a warm and fuzzy feeling either. HON's trading volume has yet to take on a zealous disposition, however, there's no question that the share price is suffering. All this week, HON continuously violated the 10-dma ($52.28). The overall weakness in the DOW on Friday brought HON to its knees. It slipped under the 5-dma ($50.43), which parallels the stock's old resistance levels of February and March, and closed smack on its daily low. Assuming the short-term trend to move back into the techs stays intact, then HON is likely to fall lower. The first goal line is at $45, then extra points would be awarded at the bottom support level near $40. Look for downward bounces off the $50 mark to get an entry. And please pay attention to the DJIA's sentiment and direction before making your play. There was a bit of company news last Tuesday involving Honeywell. A federal jury found Air Transport Systems of Phoenix, a Honeywell company, 8% responsible for the 1995 crash of an American Airlines jetliner in Colombia. BUY PUT JUL-55 HON-SK OI=258 at $7.38 SL=5.25 BUY PUT JUL-50*HON-SJ OI=703 at $3.50 SL=1.75 BUY PUT JUL-45 HON-SI OI= 22 at $1.06 SL=0.00 Average Daily Volume = 2.35 mln /charts/charts.asp?symbol=HON DCLK - DoubleClick, Inc. $38.50 (-11.56 last week) Providing comprehensive Internet advertising solutions for advertisers and Web publishers, DoubleClick wants to double how many times you click on online banner ads. The company has two principal service offerings, the DoubleClick Network and DART Service. The DoubleClick Network consists of highly trafficked Web sites grouped together by DCLK in defined categories of interest. The DART Service provides Web publishers, advertisers, and ad agencies with the ability to control the targeting, delivery, measurement and analysis of their online marketing campaigns. This is all done in real-time by dynamically targeting and delivering ads to Web users based on pre-selected criteria. It has been a painful year for DCLK investors as the company has been forced to deal with a government probe related to privacy issues. In February, the Federal Trade Commission (FTC) opened an inquiry into the company's privacy policies. Concerns about Internet privacy in general and how these issues might hamper the company's attempts to target advertising at Internet users has been a continual drag on the stock. After this news emerged, shares of DCLK declined rapidly, not finding support until the $40 level, 70% off the highs seen in January. Then, in late May, the stock finally got a boost on optimism that the company was close to reaching an agreement with the FTC on the privacy issue. However, the excitement was short-lived. Buying interest dried up by early June and the decline resumed. Selling volume has been increasing over the past week and served to push the share price under support at $40. This came after the FTC testified on Tuesday that it is encouraging industry self-regulation by Internet ad-server companies on issues of online privacy and online profiling. The failure of this news to move shares upwards opens the door for further declines, and we could see a return to the 52-week low of $30.25. Look for new entries to materialize as the stock moves up to and rolls over at the $40 resistance level. This level is backed up by the 5-dma ($41.50), which has been pressuring the price over the past week. BUY PUT JUL-40 QWE-SH OI=1162 at $6.25 SL=4.25 BUY PUT JUL-35*QWE-SG OI=1202 at $3.38 SL=1.75 Average Daily Volume = 3.74 mln /charts/charts.asp?symbol=DCLK ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
The Option Investor Newsletter Sunday 6-18-2000 Sunday 5 of 5 ************* COVERED CALLS ************* Candlestick Basics: The All Important Doji Last week, we discussed the significance of the "star" and its tendency to indicate a trend reversal. Another powerful reversal indicator is the doji: a candlestick in which the opening and closing prices are the same or very close. A doji can be a significant warning, especially at important market junctions or during the mature portion of a bull or bear move. The likelihood of a reversal increases if subsequent candlesticks confirm the doji's potential for marking a change in character. The Doji's greatest value is its ability to indicate market tops. This is especially important after a long white candlestick during an uptrend, where a doji represents indecision. If buyers become uncertain about the future of the issue, and the current trend is overbought, there may not be enough momentum to sustain the rally. Most forms of Western technical analysis don't infer any conclusions from a session with the same opening and closing price. To the Japanese, such an occurrence, especially after a sharp advance, is a critical reversal sign. There are other important indications associated with rare doji candlesticks such as the Long-legged Doji (Rickshaw Man) and the Gravestone Doji. The long-legged doji has extended upper and lower shadows, which indicate indecision. This type of doji is especially important near market tops and known resistance areas. If the opening and closing are in the center of the session's range, the line is referred to as a Rickshaw Man. The Gravestone Doji is another distinctive candlestick where the opening and closing prices are at the low of the day. Though it may be found at market bottoms, it's best used for signaling market tops. The longer the upper shadow (especially if it hits a new high), the more the bearish the signal given by the Gravestone Doji. Yes, the Gravestone Doji looks like a Shooting Star near the top of a trend, but it has no real body and is considered to be a more bearish indication. An Evening Star made with a Gravestone Doji does not bode well for the bulls. At significant tops and bottoms, Doji tend to define new support and resistance areas. However, Doji candlesticks are not as accurate at indicating potential reversals in downtrends and thus it is advisable to obtain other forms of technical confirmation when attempting to identify a market bottom with this pattern. Those who follow a more conservative trading style should wait for additional verification of a trend change. The trade off for less risk, of course, is the potential for less reward. Steve Nison's "Japanese Candlestick Charting Techniques" is an excellent resource for learning technical analysis. The book is available in the OIN bookstore. Good Luck! SUMMARY OF PREVIOUS PICKS ***** NOTE: Using Margin doubles the listed Monthly Return! Stock Price Last Call Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return ITXC 40.06 35.63 JUN 35.00 6.75 *$ 1.69 11.0% ARTT 18.38 15.97 JUN 15.00 3.75 *$ 0.37 11.0% PSSI 9.50 10.09 JUN 7.50 2.63 *$ 0.63 10.0% FHS 11.38 13.13 JUN 10.00 2.13 *$ 0.75 8.8% NERX 14.75 15.56 JUN 12.50 2.69 *$ 0.44 7.9% HSIC 18.25 17.75 JUN 17.50 1.31 *$ 0.56 7.2% STAA 13.50 13.63 JUN 12.50 1.38 *$ 0.38 6.8% CYBS 14.94 17.13 JUN 12.50 3.00 *$ 0.56 6.8% EGOV 15.44 15.63 JUN 12.50 3.50 *$ 0.56 6.8% CENT 11.81 11.00 JUN 10.00 2.50 *$ 0.69 6.4% SMRT 8.53 10.25 JUN 7.50 1.50 *$ 0.47 5.8% CCCG 13.50 11.19 JUN 10.00 4.00 *$ 0.50 5.7% WGR 22.50 22.00 JUN 20.00 3.25 *$ 0.75 5.6% MENT 18.31 19.69 JUN 17.50 1.25 *$ 0.44 5.6% CWST 12.63 13.00 JUN 10.00 3.00 *$ 0.37 5.6% CAIR 22.88 25.50 JUN 17.50 6.38 *$ 1.00 5.3% BEAM 12.44 18.63 JUN 10.00 3.00 *$ 0.56 5.2% ANET 12.94 13.69 JUN 12.50 1.13 *$ 0.69 5.1% AAS 22.00 29.44 JUN 20.00 2.88 *$ 0.88 5.0% WGR 21.00 22.00 JUN 17.50 4.13 *$ 0.63 4.1% LPNT 20.63 21.56 JUN 17.50 3.75 *$ 0.62 4.0% PXD 14.06 13.75 JUN 12.50 1.88 *$ 0.32 3.8% ADAC 17.38 21.75 JUN 15.00 2.75 *$ 0.37 3.7% MED 9.44 9.00 JUL 7.50 2.69 *$ 0.75 6.9% LYNX 32.63 32.75 JUL 25.00 9.75 *$ 2.12 6.7% CYTO 7.97 8.00 JUL 5.00 3.38 *$ 0.41 6.5% ZD 11.38 9.94 JUL 10.00 2.25 $ 0.81 6.4% GENE 27.75 26.13 JUL 20.00 9.25 *$ 1.50 5.9% TGEN 12.25 10.94 JUL 7.50 5.25 *$ 0.50 5.2% IBC 14.94 14.25 JUL 12.50 3.25 *$ 0.81 5.0% ALSC 26.88 25.75 JUL 22.50 5.88 *$ 1.50 4.4% *$ = Stock price is above the sold striking price. Comments: Ccc Information (CCCG) not only didn't go lower, but rallied above the sold strike. Lifepoint Hospitals (LPNT) demonstrated a text- book bounce off its 50 dma to resistance. For July, Ziff-Davis's (ZD) drop on Friday is worrisome and a test of the May low now seems likely. Alliance Semiconductor (ALSC) has pulled back and is testing the support of the March high. As always, mind your stop loss points, unless you intend to be a long-term investor. Positions Closed: Exiting Boise Cascade (BCC) after it broke its 150 dma and closing the Digital River (DRIV) position near "break-even" proved to be good lessons in the value of money management. NEW PICKS ********* Sequenced by Company ***** Stock Last Call Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return BCGI 14.56 JUL 12.50 QGB GV 2.88 71 11.68 35 6.1% CAIR 25.50 JUL 20.00 HHU GD 6.63 107 18.88 35 5.2% CEGE 25.56 JUL 20.00 UCG GD 6.88 715 18.68 35 6.1% FHS 13.13 JUL 12.50 FHS GV 1.63 8293 11.50 35 7.6% FSII 18.25 JUL 17.50 FQH GW 2.63 501 15.62 35 10.5% PGO 19.00 JUL 17.50 PGO GW 2.25 49 16.75 35 3.9% RHAT 25.00 JUL 20.00 RCV GD 6.38 480 18.62 35 6.4% Sequenced by Return ***** Stock Last Call Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return FSII 18.25 JUL 17.50 FQH GW 2.63 501 15.62 35 10.5% FHS 13.13 JUL 12.50 FHS GV 1.63 8293 11.50 35 7.6% RHAT 25.00 JUL 20.00 RCV GD 6.38 480 18.62 35 6.4% BCGI 14.56 JUL 12.50 QGB GV 2.88 71 11.68 35 6.1% CEGE 25.56 JUL 20.00 UCG GD 6.88 715 18.68 35 6.1% CAIR 25.50 JUL 20.00 HHU GD 6.63 107 18.88 35 5.2% PGO 19.00 JUL 17.50 PGO GW 2.25 49 16.75 35 3.9% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** BCGI - Boston Communications $14.56 *** Wireless Services *** Boston Communications is the leading provider of prepaid services to wireless carriers in North America. BCGI provides wireless carriers with a range of resources and support services targeted to address the unique needs of this growing industry. Boston Communications reported a record quarter in April and investors are now anticipating another bullish earnings report in mid-July. There is also speculation on BCGI exploring strategic business alternatives related to its Teleservices Division. BCGI is in a rally mode as it has climbed above the March and May highs on strong volume. Reasonable speculation in a bullish stock in a bullish sector with a cost basis at technical support. JUL 12.50 QGB GV LB=2.88 OI=71 CB=11.68 DE=35 MR=6.1% Chart = /charts/charts.asp?symbol=BCGI ***** CAIR - Corsair Comm. $25.50 *** Wireless Services - Part II *** Corsair Communications is a leading provider of software and system solutions for the wireless industry. Their PhonePrint system provides highly effective cloning fraud prevention to wireless telecommunications carriers by using proprietary radio frequency (RF) signal analysis technology. Corsair's PrePay solution has an advantage over most other competitive offerings since it enables carriers to use existing switch infrastructure equipment rather than requiring costly additional adjunct switches and voice trunk resources. Corsair attributed its strong first quarter earnings to the growth and acceptance of their PrePay product. Corsair's technical picture continues to brighten as Friday's close above the late March high appears to complete a bullish head-n-shoulders bottom. JUL 20.00 HHU GD LB=6.63 OI=107 CB=18.88 DE=35 MR=5.2% Chart = /charts/charts.asp?symbol=CAIR ***** CEGE - Cell Genesys $25.56 *** Biotech Sector *** Cell Genesys is engaged in the development and commercialization of gene therapies to treat major, life-threatening diseases, including cancer and AIDS. Cell Genesys currently has two gene therapy programs, the clinical programs and the pre-clinical programs. The clinical programs include GVAX(TM) cancer vaccines in Phase I/II studies to treat specific types of cancer, such as lung and prostate cancers, and T cell gene therapy for AIDS, which is undergoing Phase II testing. Cell Genesys also develops and commercializes human monoclonal antibodies for pharmaceutical applications, including inflammation, auto-immune disorders and cancer. The biotechnology group is on the move and traders have become interested in the issue amid reports the company's factor IX blood-clotting protein performed well in recent tests, with no discernible ill effects. The technical outlook is still bullish with support above the sold strike. Cell Genesys is expected to report earnings during the last week in July. JUL 20.00 UCG GD LB=6.88 OI=715 CB=18.68 DE=35 MR=6.1% Chart = /charts/charts.asp?symbol=CEGE ***** FHS - Foundation Health Systems $13.13 *** Break-out! *** Foundation Health is a managed health care company. FHS offers a wide range of healthcare services. They also own six health and life insurance companies, and provide health benefits to over 5.8 million individuals through group, individual, Medicare risk, Medicaid and CHAMPUS programs. In May, Foundation reported that its first-quarter operating profits rose 22 percent, meeting Wall Street estimates, driven by higher pricing for health plans and lower costs. The Health Care sector rallied this week after the U.S. Supreme Court ruled that patients cannot use a federal law to sue their HMOs for giving doctors bonuses to cut costs, which may result in inadequate medical care. FHS has recently completed a bullish “double-bottom” formation on strong volume and has become a bullish, stage II stock. JUL 12.50 FHS GV LB=1.63 OI=8293 CB=11.50 DE=35 MR=7.6% Chart = /charts/charts.asp?symbol=FHS ***** FSII - FSI International $18.25 *** Chip Sector! *** FSI International designs, develops, manufactures, markets and supports microlithography, spin-on dielectric and surface conditioning equipment for the fabrication of microelectronics, such as advanced semiconductor devices and thin film heads. FSI Surface Conditioning Division sells equipment and applications using wet, vapor and cryogenic chemistry techniques to clean, strip or etch the surfaces of silicon wafers for subsequent processing. The Microlithography Division supplies photoresist processing equipment and services for the semiconductor and thin film head markets, and dielectric materials deposition equipment and services for applications in the semiconductor industry. FSI's earnings are expected later this week and based on recent contracts and agreements, the report and conference call should be favorable. Our cost basis provides a low risk opportunity for speculation on the company's future financial outlook. JUL 17.50 FQH GW LB=2.63 OI=501 CB=15.62 DE=35 MR=10.5% Chart = /charts/charts.asp?symbol=FSII ***** PGO - Petroleum Geo-Services $19.00 *** Oil Sector *** Petroleum Geo-Services is a technologically focused oilfield service company principally involved in two businesses: geophysical seismic services and production services. PGS acquires, processes, manages and markets 3-D, 4-D and 4-C seismic data and owns four floating production, storage and offloading systems as well as operates numerous offshore production facilities for oil and gas companies. PGC's recent rally started in May after achieving first oil on its Kyle field contract for Ranger Oil. With the current strength in the oil sector, the outlook for PGS is bullish. The stock been in a stage I base for almost two years and is showing signs of moving into a stage II rally. We favor a conservative entry point and a cost basis below the 150 dma near a strong historical support area. JUL 17.50 PGO GW LB=2.25 OI=49 CB=16.75 DE=35 MR=3.9% Chart = /charts/charts.asp?symbol=PGO ***** RHAT - Red Hat $25.00 *** They Beat The Street! *** Red Hat is a developer and worldwide provider of open source software products and services. The company's product offerings include Red Hat Linux and related tools, open source software applications, documentation, manuals and general merchandise. On Thursday, Red Hat reported better-than-expected earnings, reporting a 95% increase in its first quarter revenue, suggesting the company is on track to meet its goal to double revenues and become profitable by the end of calendar 2001. On Friday, Red Hat did what few stocks have been able to do, continue to rally on the good news. With improving technicals, the short-term outlook is bullish and this position offers a speculative entry point into a stock forming a stage I base. JUL 20.00 RCV GD LB=6.38 OI=480 CB=18.62 DE=35 MR=6.4% Chart = /charts/charts.asp?symbol=RHAT ************************* NAKED PUT PERCENTAGE LIST ************************* Naked Put Percentage List By Ryan Nelson Stock Stock Strike Option Option Margin Percent Support Symbol Price Price Symbol Price At 25% Return Level AETH 186.00 180 HEX-SP 25.25 4650 54% 180 BRCD 144.94 140 UBZ-SH 13.25 3624 37% 140 CHKP 213.75 220 YKE-SU 27.13 5344 51% 210 CIEN 145.25 140 UEE-SH 13.25 3631 36% 140 ETEK 260.19 250 FNY-SJ 17.63 6505 27% 245 EXDS 103.75 95 DUB-SS 7.25 2594 28% 95 EXTR 85.00 80 EUT-SP 6.88 2125 32% 80 GLW 246.50 240 GRJ-SH 16.13 6163 26% 243 HGSI 133.50 130 HHA-SF 15.63 3338 47% 120 IDPH 104.56 100 IDK-ST 12.50 2614 48% 96 INCY 86.50 80 IPQ-SP 10.75 2163 50% 82 ITWO 115.63 110 QYJ-SB 11.13 2891 39% 110 JNPR 113.00 110 JUY-SB 10.38 2825 37% 108 MERQ 90.31 90 RQB-SR 9.25 2258 41% 88 MLNM 120.00 115 QMR-SC 11.75 3000 39% 115 NVDA 149.75 140 RVU-SH 13.38 3744 36% 142 PDLI 164.00 160 RPV-SL 24.25 4100 59% 160 PHCM 82.50 80 UGE-SP 7.25 2063 35% 80 PMCS 184.06 180 SZI-SP 16.63 4602 36% 180 RBAK 119.00 115 BUK-SC 12.75 2975 43% 115 RFMD 100.38 100 RFZ-ST 13.25 2510 53% 100 SDLI 299.88 280 QJV-SP 25.88 7497 35% 280 SEBL 157.06 150 SGW-SJ 10.00 3927 25% 150 TQNT 103.81 105 TNN-SA 11.63 2595 45% 100 VRSN 164.75 160 XVR-SL 15.13 4119 37% 160 VRTS 134.00 135 VUQ-SG 13.75 3350 41% 128 VRTX 90.00 85 VQR-SQ 10.13 2250 45% 86 YHOO 140.94 140 YMM-SH 11.63 3524 33% 136 *********************** CONSERVATIVE NAKED PUTS *********************** Option Trading Basics: You can STOP the losses... Some of the most commonly asked questions we receive are related to protective "Stop-Loss" limits. New investors often request a specific formula for limit placement and advanced traders simply want to compare techniques for position management. The recent volatility in the market provides a catalyst to discuss trading stops and today we will review some of the basic uses of this unique tool. Stop-loss orders are simply a method to follow the movement in a stock or other instrument while insuring some profit (or limited loss) if the primary trend changes character. Generally, we recommend taking profits when the position produces the target return and stops are an excellent way to remove the emotional or reactive trading that often occurs in short-term trading. When the technical outlook for the instrument changes or a correction becomes likely, one may tighten the stop (closer than usual) to guarantee a reasonable profit (if stopped out) and still allow for a greater gains and a possible resumption of the trend. Of course some movements can occur so quickly that the order will not be filled at the desired price. The problem of volatility is further compounded by the improper use of the two most common stop-loss orders. Here are the basic explanations of each order: STOP ORDER An option stop order is an order to buy or sell option contracts when the market for a particular contract reaches a specified price, called the stop price. A stop order to buy becomes a market order when the option contract trades or is bid at or above the stop price. A stop order to sell becomes a market order when the contract trades or is offered at or below the stop price. STOP-LIMIT ORDER An option stop-limit order is an order to buy or sell option contracts at a specified price or better, after a given stop price has been reached or exceeded. A stop-limit order to buy becomes a limit order when the option contract trades or is bid at or above the stop-limit price. A stop-limit order to sell becomes a limit order when the contract trades or is offered at or below the stop-limit price. An option stop-limit order is a combination of a stop order and a limit order. Stop-limit orders that have been triggered and converted into limit orders will execute if the option is thereafter offered at or below the ask price for buy orders or at or above the bid price for sell orders. In layman's terms; If you use a STOP order and the instrument trades at or below your stop, the order will become a “market” order. This is not the case with a stop-limit order. If you use a stop-limit order and the issue moves too quickly to trade at the limit price, the order will not be executed. In most cases, a simple STOP order is the best method to limit losses or protect profits. The basic guidelines for establishing protective stops suggest that the initial or opening limit should be placed at a point where important technical support is evident. Most often, this will be a relatively small range reflecting the bottom of a basing pattern or trend-line established prior to entering the position. An important objective of this initial stop-loss limit is to preserve capital if the play goes badly and yet provide every opportunity for the position to achieve its potential. If the primary trend is directional, the placement of the first stop will differ, depending on your overall risk/reward tolerance. One should also take into account the historical volatility of the issue when setting the initial loss limit. On a bullish stock you might trail the stop loss slightly below the previous day's low to lock-in profits (or preserve capital) if the trend falters. With highly volatile instruments, this can be quite difficult as they often fluctuate by large amounts. As the move progresses in your favor, the stop-loss price can be advanced more aggressively. To assist in placing these stops, we use generally use trend-lines, minor lows, and support/resistance areas. While these principles work well with the majority of situations, there will always be those cases when even the most common rules do not seem to apply. In particularly fast-moving markets where straight line advances make the placement of protective stops difficult, an arbitrary buy or sell "at the market" might be more advisable. There are also "progressive" stop order systems for traders who wish to fine tune the limit-setting process to allow for brief periods of technical consolidation. Regardless of the manner in which you determine the placement of stops, there is one fundamental principle of protective limits that remains inviolate. After an initial profit is achieved, it is very important to avoid placing stops below a point which, if violated on a closing basis, indicates a change in the primary trend. In addition, protective stops under long positions are never moved down, nor are protective stops over short instruments ever adjusted higher. As Jim often says, "A dip today may be a buying opportunity or it could be the start of something bigger. You never know so always set your stop losses and stick to them!" Good Luck! SUMMARY OF PREVIOUS PICKS ***** Stock Price Last Put Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return MED 9.44 9.00 JUN 7.50 0.38 *$ 0.38 36.4% BBSW 28.63 29.25 JUN 22.50 0.63 *$ 0.63 21.5% ITXC 40.06 35.63 JUN 30.00 0.69 *$ 0.69 17.2% ADAC 20.31 21.75 JUN 17.50 0.44 *$ 0.44 16.6% ADAC 17.38 21.75 JUN 15.00 0.56 *$ 0.56 15.8% ADVP 16.75 18.19 JUN 12.50 0.38 *$ 0.38 14.8% MSM 22.06 18.69 JUN 17.50 0.50 *$ 0.50 14.7% BBSW 17.00 29.25 JUN 12.50 0.38 *$ 0.38 14.6% MRVC 35.56 55.38 JUN 25.00 0.50 *$ 0.50 14.3% ADEX 19.56 18.81 JUN 15.00 0.69 *$ 0.69 13.0% BFO 65.13 69.69 JUN 55.00 1.00 *$ 1.00 12.8% TMAR 9.25 11.63 JUN 7.50 0.25 *$ 0.25 12.3% MATK 18.88 17.63 JUN 15.00 0.31 *$ 0.31 11.0% YRK 25.94 25.00 JUN 22.50 0.56 *$ 0.56 10.8% UNM 20.19 20.81 JUN 17.50 0.56 *$ 0.56 10.2% ADVP 17.13 18.19 JUN 12.50 0.31 *$ 0.31 9.0% GZMO 17.19 13.25 JUN 10.00 0.31 *$ 0.31 9.0% CLPA 29.38 21.94 JUN 15.00 0.63 *$ 0.63 8.4% WLV 16.94 15.75 JUN 15.00 0.50 *$ 0.50 8.1% CLPA 27.19 21.94 JUN 15.00 0.44 *$ 0.44 8.1% NGH 20.88 25.06 JUN 17.50 0.38 *$ 0.38 7.7% VRTL 17.00 17.75 JUN 10.00 0.31 *$ 0.31 7.3% NGH 21.19 25.06 JUN 17.50 0.25 *$ 0.25 7.2% XTO 17.69 20.44 JUN 15.00 0.38 *$ 0.38 6.9% VRC 20.81 24.88 JUN 17.50 0.38 *$ 0.38 6.1% New ticker ALL 26.75 22.38 JUN 22.50 0.44 $ 0.32 5.0% TRMB 36.00 46.25 JUN 25.00 0.44 *$ 0.44 5.0% EFCX 10.56 10.38 JUL 7.50 0.44 *$ 0.44 12.5% FSII 16.00 18.25 JUL 12.50 0.50 *$ 0.50 8.4% PILT 15.31 13.00 JUL 10.00 0.38 *$ 0.38 8.0% CREAF 28.00 25.69 JUL 22.50 0.69 *$ 0.69 7.8% OMKT 19.00 16.19 JUL 12.50 0.38 *$ 0.38 6.6% MPPP 19.19 17.19 JUL 10.00 0.38 *$ 0.38 6.5% SYMM 20.00 18.56 JUL 15.00 0.38 *$ 0.38 6.3% CEGE 27.25 25.56 JUL 17.50 0.44 *$ 0.44 5.4% *$ = Stock price is above the sold striking price. Comments: Allstate (ALL) moved sharply lower this week after warning about Spring storm losses. Friday's close within $0.12 of the sold strike makes it unlikely the position will be assigned, but if that occurs, it may be best to simply sell the issue for the current small profit. Symmetricom (SYMM) gapped out of reach on Monday but the recent consolidation inflated the July $15 strike well above our listed price. A test of its 30 dma seems likely. NEW PICKS ********* Sequenced by Return ****** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return FSII 18.25 JUL 15.00 FQH SC 0.75 20 14.25 35 13.6% CAMP 29.00 JUL 22.50 UMP SX 0.81 53 21.69 35 10.6% GENE 26.13 JUL 17.50 GUG SW 0.63 111 16.87 35 9.3% NSS 20.13 JUL 15.00 NSS SC 0.44 52 14.56 35 8.6% CAIR 25.50 JUL 17.50 HHU SW 0.44 0 17.06 35 6.9% CLEC 28.13 JUL 20.00 QFU SD 0.44 0 19.56 35 6.3% IMNX 44.69 JUL 30.00 IUU SF 0.56 377 29.44 35 5.1% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** CAIR - Corsair Communications $25.50 *** Wireless Services *** Corsair Communications is a leading provider of software and system solutions for the wireless industry. Their PhonePrint system provides highly effective cloning fraud prevention to wireless telecommunications carriers by using proprietary radio frequency (RF) signal analysis technology. Corsair's PrePay solution has an advantage over most other competitive offerings since it enables carriers to use existing switch infrastructure equipment rather than requiring costly additional adjunct switches and voice trunk resources. Corsair attributed its strong first quarter earnings to the growth and acceptance of their PrePay product. Corsair's technical picture continues to brighten as Friday's close above the late March high appears to complete a bullish head-n-shoulders bottom. We favor an entry point near the 150 dma. JUL 17.50 HHU SW LB=0.44 OI=0 CB=17.06 DE=35 MR=6.9% Chart = /charts/charts.asp?symbol=CAIR ***** CAMP - California Amplifier $29.00 *** Great Earnings! *** California Amplifier designs, manufactures and markets a broad line of amplifiers, down-converters, antennas and integrated products. These products are used in the reception, conversion and amplification of microwave signals used in conjunction with the reception of data transmitted from satellites or earth-based transmitters using microwave signals. CAMP also manufactures and markets two-way voice and data transceivers used for wireless communications between fixed locations. In addition, the company markets MultiCipher, a broadband analog scrambling system that decodes all channels transmitted simultaneously, and a broad line of antenna products used in GPS applications for tracking and navigation. Earlier this month, CAMP rallied after the company reported that sales for the quarter jumped 147% over the year-ago period due to continued strong demand for U.S. satellite products and revenues from new European markets. Based on the technical outlook, this issue appears ready to rally. JUL 22.50 UMP SX LB=0.81 OI=53 CB=21.69 DE=35 MR=10.6% Chart = /charts/charts.asp?symbol=CAMP ***** CLEC - US LEC $28.13 *** On The Rebound! *** US LEC is a competitive local exchange carrier that provides switched local, long distance and enhanced telecommunications services to its clientele. CLEC serves a number of telecom customers including universities, financial institutions, hospitals, hotels, Internet Service Providers and government agencies. In addition to providing typical enhanced services such as voicemail, call transfer and conference calling, US LEC offers additional value-added enhanced products to complement its core local and long distance services. The company now has switches in many Eastern U.S. cities and they are expanding on a regular basis. Telecom issues have rebounded in recent weeks and it appears that CLEC has successfully recovered from the sharp technical correction earlier in the year. JUL 20.00 QFU SD LB=0.44 OI=0 CB=19.56 DE=35 MR=6.3% Chart = /charts/charts.asp?symbol=CLEC ***** FSII - FSI International $18.25 *** Chip Sector! *** FSI International designs, develops, manufactures, markets and supports microlithography, spin-on dielectric and surface conditioning equipment for the fabrication of microelectronics, such as advanced semiconductor devices and thin film heads. FSI Surface Conditioning Division sells equipment and applications using wet, vapor and cryogenic chemistry techniques to clean, strip or etch the surfaces of silicon wafers for subsequent processing. The Microlithography Division supplies photoresist processing equipment and services for the semiconductor and thin film head markets, and dielectric materials deposition equipment and services for applications in the semiconductor industry. FSI's earnings are expected later this week and based on recent contracts and agreements, the report and conference call should be favorable. Our cost basis provides a low risk opportunity for speculation on the company's future financial outlook. JUL 15.00 FQH SC LB=0.75 OI=20 CB=14.25 DE=35 MR=13.6% Chart = /charts/charts.asp?symbol=FSII ***** GENE - Genome Therapeutics $26.13 *** Biotechs Are Hot! *** Genome Therapeutics identifies and validates novel drug targets by applying its integrated platform technologies of high throughput sequencing, disease gene identification, and functional genomics. They also posses related proprietary technologies, which they intend to use to identify and validate gene targets. Together with their partners (Schering-Plough, bioMérieux and others), they plan to develop novel therapeutic, vaccine and diagnostic products. They focus on the discovery and characterization of novel targets in pathogens that are responsible for many serious diseases. The drug stocks are climbing again and a technical breakout from a stage I base, supported by heavy volume suggests this issue is ready to rally. We prefer to speculate near technical support and our cost basis offers a conservative entry into this volatile issue. JUL 17.50 GUG SW LB=0.63 OI=111 CB=16.87 DE=35 MR=9.3% Chart = /charts/charts.asp?symbol=GENE ***** IMNX - Immunex $44.69 *** Own This One! *** Immunex is a biopharmaceutical company that discovers, develops, manufactures and markets innovative therapeutic products for the treatment of human diseases including cancer, infectious diseases and immunological disorders. Their major product lines include Enbrel, Leukine, Novantrone and Thioplex. Immunex is currently developing new products to address ailments such as inflammatory disease, infection, multiple sclerosis, asthma and cancer. IMNX jumped $7 Friday on the sales outlook for Enbrel, a drug to treat rheumatoid-arthritis. Immunex said sales could grow 15% in the next quarter. A "strong buy" rating from Banc of America also helped drive the stock higher and we believe IMNX is an excellent portfolio addition. We will "target shoot" the position initially at $0.75 credit. JUL 30.00 IUU SF LB=0.56 OI=377 CB=29.44 DE=35 MR=5.1% Chart = /charts/charts.asp?symbol=IMNX ***** NSS - NS Group $20.13 *** Technicals Only! *** NS Group conducts business in three industry segments: the energy products segment, the industrial products segment - special bar quality products, and the industrial products segment - adhesives. The energy products segment is a producer of tubular steel used in the energy industry. Products produced by this segment include welded and seamless tubular goods, primarily used in oil and natural gas drilling and production operations, referred to as oil country tubular goods; and welded and seamless line pipe. OCTG products are produced in numerous sizes, weights, grades and end finishes. The industrial segment manufactures products for a specialized niche of the SBQ market including custom water-borne, solvent-borne and hot-melt adhesives and footwear finishes. We simply favor the bullish technical outlook for the issue and its industry. JUL 15.00 NSS SC LB=0.44 OI=52 CB=14.56 DE=35 MR=8.6% Chart = /charts/charts.asp?symbol=NSS ************************ SPREADS/STRADDLES/COMBOS ************************ Another Great Month... Friday, June 16 Industrial stocks moved lower today as concerns over upcoming earnings weighed heavily on investors. In contrast, the Nasdaq posted slim gains amid speculation that technology stocks would be less affected by an economic slowdown. The Dow closed 265 points lower at 10,449 while the Nasdaq finished up 14 points at 3860. The S&P 500 Index was down 14 points at 1464. Volume on the NYSE was heavy at 1.2 billion shares as the "triple witching" expiration of options boosted trading activity. Declines led advances 1,586 to 1,310. Trading volume on the Nasdaq reached 1.4 billion shares, with declines edging advances 2,110 to 1,791. In the bond market, the 30-year Treasury was up 23/32, pushing its yield down to 5.87%. Thursday's new plays (positions/opening prices/strategy): CV Thera. CVTX JUL35P/JUL40P $0.75 credit bull-put Red Hat RHAT SEP30C/JUL30C $2.00 debit calendar Lennox LII SEP12C/SEP10P $0.81 debit straddle Our new straddle in Lennox (LII) was very active and the position is already profitable. The combined cost for both options opened near $0.81 and traded as high as $1.31 in the afternoon. There was also a few contracts of late session volume in the target options suggesting that some of you took profits as the premiums returned to theoretical value. Rhat was less-cooperative and the best observed price (on a simultaneous order basis) was in a 10 contract trade near 10:45 a.m. CV Therapeutics moved in a small range and there was little activity in our bullish position. Portfolio plays: Investors sold for profits today amid concerns that higher interest rates may be slowing earnings more than expected. The banking sector pulled the Dow lower after analysts suggested there would be future revenue shortfalls in the industry. The big loser was J.P. Morgan (JPM) with an $8 drop to $118. Those of you who participated in our bearish position earned a 17% return for the month of June. On the Nasdaq, Semiconductor stocks moved higher on strength in Rambus (RMBS) which rallied $26 after signing a new patent license agreement with Toshiba. Our leading technology stocks were Exodus (EXDS) with a $10 spike to a recent high near $103 and SCM Microsystems (SCMM) which rose $7 to $97. Biotech stocks performed well in today's session and Immunex (IMNX) led that group with a $7 move after bullish analyst comments concerning sales of its popular drug Enbrel. Our top drug issue was Medimmune (MEDI) which moved up $5 in an attempt to breach the all-time high. Our bullish covered-strangle ended at maximum profit. Oil industry issues managed mediocre gains even as the cost of crude dropped on expectations that OPEC will increase production to curb rising prices. Positions in Apache (APA), Ashland (ASH), and Falcon Drilling (FLC) all finished at maximum profit. In the broad market, computer hardware and telecom issues advanced while photo imaging, tobacco and finance companies slumped. There were a number of surprises during today's active session. The most unusual move occurred in Covad Communications (COVD) which slumped to $18 after the company said it will acquire privately held Bluestar Communications, a provider of broadband and Internet services for small and medium-sized businesses in the Southeastern U.S. Covad said Bluestar has a direct sales model that will increase revenues but will lower future DSL line growth. Investors shunned the deal and those of you who did not close the bullish debit position when the issue moved above $30 earlier in the month were shocked to see the stock trading in the teens. One issue that failed to participate in the chip sector rally was Globespan (GSPN). The stock fell $6, taking our conservative call-debit spread well into negative territory. This position had yet to provide a favorable early-exit return and thus we endured a small "expiration day" loss. On the good side, Novoste (NOVT) fell $2.75, finishing well below the sold option in our bearish credit spread. The position finished at maximum profit. Ditech (DITC) was most peculiar, rallying $8 to close at $75.50, just above the short option in the bullish, put-credit spread. Unfortunately, we closed this play for a small loss earlier in the week. That's two consecutive months in which we have thwarted the outstanding record of the Credit Spread portfolio with our own inept trading. All I can say is, "Win some, lose some!" Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** IMNX - Immunex $44.69 *** On The Rebound! *** Immunex is a biopharmaceutical company that discovers, develops, manufactures and markets innovative therapeutic products for the treatment of human diseases including cancer, infectious diseases and immunological disorders. The company's major product lines are Enbrel, Leukine, Novantrone and Thioplex. Enbrel is a soluble tumor necrosis factor receptor that reduces inflammatory activity in patients with moderate to severe rheumatoid arthritis. Leukine is a yeast-derived granulocyte-macrophage colony-stimulating factor that is used to stimulate infection-fighting white blood cells. Novantrone and Thioplex are chemotherapy drugs that are used to treat pain in cancer patients. Immunex is also currently developing new products to address ailments such as inflammatory disease, infection, multiple sclerosis, asthma and cancer. IMNX jumped $7 Friday on the sales outlook for Enbrel, a drug to treat rheumatoid-arthritis. Immunex said sales could grow 15% in the next quarter. A "strong buy" rating from Banc of America also helped drive the stock higher and after a brief consolidation, the issue should be poised for further bullish activity . We believe IMNX is one of the best companies in the industry and among Bio-tech investors, it is also one of the most popular holdings. The current technical outlook is favorable and our conservative position offers a way to participate in the issue with relatively low risk. PLAY (conservative - bullish/diagonal spread): BUY CALL SEP-35 IUU-IG OI=161 A=$14.25 SELL CALL JUL-45 IUU-GI OI=468 B=$5.25 INITIAL NET DEBIT TARGET=$8.75 INITIAL TARGET ROI(max)=14% Chart = /charts/charts.asp?symbol=IMNX ****************************************************************** TEK - Tektronix $64.00 *** Earnings Rally! *** Tektronix manufactures and distributes electronic products through two major business divisions: Measurement and Video and Networking. Measurement products include a broad range of instruments designed to allow an engineer or technician to view, measure, test or calibrate electrical circuits, mechanical motion, sound or radio waves. Video and Networking products include video distribution, production, storage and newsroom automation products. Tektronix is focused on providing advanced test, measurement and monitoring solutions to the global telecommunications and computer industries. Their partnership with leading electronics companies enables them to provide cost-effective test platforms to businesses manufacturing the building blocks of today's computer and telecommunications networking infrastructure. Textronix is the premier company in the electronic equipment testing and calibration industry and analysts are bullish on its long-term outlook. Friday’s move above the recent trading range near $60 suggests the issue is ready to rally into the upcoming earnings report. The momentum should carry the stock to a new, all-time high and our position offers a low risk cost basis with a reasonable expectation of profit. PLAY (conservative - bullish/credit spread): BUY PUT JUL-45 TEK-SI OI=75 A=$0.38 SELL PUT JUL-50 TEK-SJ OI=5 B=$1.00 INITIAL NET CREDIT TARGET=$0.68-$0.75 ROI(max)=17% Chart = /charts/charts.asp?symbol=TEK ****************************************************************** AFM - AM/FM Inc. $75.00 *** CCU Merger *** AMFM, together with its subsidiaries, is a large national radio broadcasting and related media company. AMFM has operations in radio broadcasting and media representation and growing Internet operations, which focus on developing AMFM's Internet web sites, streaming online broadcasts of AMFM's on-air programming and other media, and promoting emerging Internet and new media concerns. In addition, AMFM owns an approximate a large equity interest in Lamar Advertising Company, one of the largest owners and operators of outdoor advertising structures in the U.S. Radio and Television has been a strong sector among media shares in recent weeks and AFM is one of the top companies in the group. In late April, Clear Channel Communications (CCU) announced that their stockholders voted to approve the merger with AMFM. After regulatory approvals, the merger is expected to be finalized by September 30, 2000. AMFM shareholders will receive 0.94 shares of Clear Channel Communications stock, on a fixed exchange basis. Clear Channel Communications is a diversified media company with two business segments, broadcasting and outdoor advertising. The broadcasting segment includes both radio and television stations for which the company is the licensee and radio and television stations for which it programs and/or sells air time under local marketing agreements or joint sales agreements. The broadcasting segment also operates radio networks. The outdoor advertising segment includes advertising display faces for which the company owns and/or operates under lease management agreements. Last month, the company announced that sports and entertainment promoter SFX Entertainment (SFX) agreed to settle the pending shareholder lawsuits, clearing the way for its planned merger with CCU. With approval of the transaction by SFX's stockholders, the merger is expected to close in the next few months. The addition of both AFM and SFX is expected to significantly advance Clear Channel’s industry-leading position. We are going to participate in the bullish trend of CCU with AFM options: PLAY (conservative - bullish/credit spread): BUY PUT JUL-60 AFM-SL OI=40 A=$0.50 SELL PUT JUL-65 AFM-SM OI=270 B=$1.00 INITIAL NET CREDIT TARGET=$0.62 ROI(max)=14% Chart = /charts/charts.asp?symbol=AFM ****************************************************************** SEE - Sealed Air $53.81 *** Technicals Only! *** Sealed Air Corporation is engaged in the manufacture and sale of a wide range of protective food and specialty packaging materials and systems throughout the world. The company's principal food and specialty packaging products are its flexible materials and related systems marketed primarily under the Cryovac trademark for a broad range of perishable food applications. Products also include the company's rigid packaging and absorbent pads; foam trays used by supermarkets and food processors, absorbent pads used for the retail packaging of meat, fish and poultry, and rigid plastic containers for dairy and other food products. The company's protective packaging products include its cushioning and surface protection products and other products. These items are used by a wide variety of customers, including manufacturing, distribution and retail customers. This play is simply based on the current price or trading range of the underlying issue and its recent technical history. The position was discovered with one of our primary sort techniques; identifying potentially failed rallies on issues with bullish options activity. In this case, the premiums for the (OTM) call options are slightly inflated and the potential for a successful (technical) recovery is significantly affected by the resistance at the sold strike price; a perfect condition for a bearish credit spread. PLAY (conservative - bearish/credit spread): BUY CALL JUL-65 SEE-GM OI=348 A=$0.25 SELL CALL JUL-60 SEE-GL OI=2683 B=$0.75 INITIAL NET CREDIT TARGET=$0.62 ROI(max)=15% Chart = /charts/charts.asp?symbol=SEE ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. 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