The Option Investor Newsletter Wednesday 6-21-2000 Copyright 2000, All rights reserved. 1 of 1 Redistribution in any form strictly prohibited. Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 6-21-2000 High Low Volume Advance Decline DOW 10497.70 + 62.50 10521.10 10410.10 1,000,012k 1,258 1,599 Nasdaq 4064.01 + 50.65 4073.16 3961.30 1,538,168k 1,974 1,992 S&P-100 800.00 + 2.44 802.03 792.48 Totals 3,232 3,591 S&P-500 1479.13 + 3.18 1482.19 1468.00 47.4% 52.6% $RUT 527.61 + 1.92 528.44 522.17 $TRAN 2649.41 - 13.31 2669.60 2646.26 VIX 23.57 - 0.08 24.31 23.25 Put/Call Ratio .47 ****************************************************************** MSFT Leads Both DJIA and NASDAQ Higher After the first close above 4000 on the NASDAQ since April 11th, a slow day like this was very welcomed. Although slow, it was steady. We saw some encouraging signs in the NASDAQ's trading pattern as the sellers made the bulls work for it early. Yet, the real highlight today that drove both the DJIA and the NASDAQ was MSFT. We have been waiting for this day for what feels like an eternity. The software giant is back on the block and investor were just throwing money at it. It's beginning to feel like the old days again. It certainly feels good when your number one player, who has been out indefinitely with an injury, finally starts to get some good news from the doctors. Well, it's been a long time coming but MSFT finally is back on the field. Right now, the markets are at a pivotal point, preparing to make a run at that summer rally. After that, the late summer slowdown occurs as investors take a break until September. With MSFT back in the green, this just could be the catalyst that the NASDAQ has been waiting for. The DJIA is a different story. Hitting its highest levels since April, MSFT surged $5.75 to close at $80.69. An almost 8% move! Last time MSFT did that was on the downside. Sparking the move was news last night that U.S. District Court Judge Jackson initiated a stay order that would delay a series of broad conduct restrictions on MSFT's business practices. These were scheduled to begin September 5th but now will be on hold until the appeals process is complete. Considering this being the largest antitrust case ever and its economic significance, the outcome will be profound. Today's move in MSFT propped up the ailing DJIA as it tacked on 62 points to finish just shy of 10500 at 10497. The NASDAQ finished up 50.65 at 4064. The NASDAQ's close today above 4050 is quite relieving. Even though we are not getting those triple digit gains of the first quarter, today's steady climb from sub-4000 levels spoke volumes. Gapping open to the downside at 3961, there was a bit of nervousness as to whether yesterday's close above 4000 was just an aberration. We constantly hear about follow-through for confirmation. That's exactly what we got. Within a half hour, the NASDAQ traded over 4000 and didn't look back. What was so encouraging was the three minor retests of that level. Notice on the chart that each time we got a bounce, and the third sent the NASDAQ off on a 63 point run. So from start to finish, the buyers lifted the NASDAQ 100 points on decent volume of 1.5 bln shares. It looks like the NASDAQ is ready to test resistance at the 100-dma, currently 4113. Yet, it's not as easy as it sounds. Any upside move will meet resistance at 4100 as this level roughly coincides with 4000 on the NASDAQ 100(NDX.X). That is a level that many analysts and technicians will be watching. Today's rally was more broad based than yesterday. The likes of AKAM(+21.38), FIBR(+18.81), and DNA(+13.00) produced sizeable gains for the Internet, Broadband, and Biotech sectors. A renewed leadership role for MSFT, and we just might have the chemistry to test these resistance levels. We don't rule out the possibility of a retest of 4000 support. A strong bounce from there and I'll be rushing to buy more calls. MSFT also was a tremendous performer for the DJIA, which is looking pretty unhealthy right now. You can see from the DJIA's narrowing descending wedge that it may be reaching a breaking point very soon. Today's gain looks miniscule in comparison to the April levels. The downtrend cannot be mistaken. A breakdown would take the DJIA to 10300 and perhaps even further. It just can't seem post higher highs since April 11th, the same day the NASDAQ last saw 4000. Volume today at the NYSE was good at 1 bln shares, but the decliners still beat out advancers 1600 to 1258. Lending a hand to MSFT today was MMM(+4.06) and HWP(+3.00). GE was down $1.56 to close under the key $50 level at $46.44. If not for MSFT, the DJIA would not have been in the green today. In a much anticipated meeting today in Vienna, OPEC announced that they would increase oil production by 3%, or 700,000 bpd. NYSE and oil traders were watching this outcome closely yet the news didn't really have the desired effect. August sweet crude futures added 72 cents, bring a barrel to $31.37. OPEC nations are already exceeding their quotas by 500,000 bpd so today's announcement in effect only will result in an increase of approximately 200,000 bpd. Non-OPEC nation Mexico decided to increase its production by 70,000 bpd to defend its market share. Exorbitant gas prices have been plaguing the U.S. but don't expect relief anytime soon. Analysts think today's decision will cap the highs for oil and gas prices, but an easing in gas prices probably won't happen until September, when these excess barrels from the Middle East finally reach U.S. ports. Not what I wanted to hear considering I just paid $28 to fill the tank. Currently, the national average for gas is $1.681 per gallon. A rough rule of thumb is a $1 drop per barrel in oil prices equals 2.5 cents in a gallon of gas. Showing a sign of health today was the IPO market as both the NASDAQ and the NYSE showcased their new members. In what has been a beaten down market, New York debuted China Unicom(CHU)'s huge $4.9 bln IPO. CHU is a wireless telecom provider. At the NASDAQ, Handspring(HAND) found some happy buyers who took the stock $6.94 higher to close its first day at $26.94. We would like to see an increasing amount of successful IPOs as a sign that money, both institutional and retail, is expanding its reach once again. On the earnings front, Bed Bath & Beyond(BBBY) beat Street estimates by 1 cent, coming in at $0.16 per share, a 31% increase over last year. The company opened 10 new superstores last quarter and plan to open at least 50 more. BBBY closed up $0.75 to $35.81. E-business infrastructure software provider Tibco(TIBX) posted $0.04 earnings per share, beating expectations of a penny a share. This was a get improvement from a 5 cent loss a year ago previous. The gain was attributed to strong revenue growth of 157%, recording $54 mln from $21 mln last year. Shares of TIBX finished down $2.50 to $83.06. After hours trading shows continued selling pressure. Verity(VRTY) blew away estimates by 17 cents with earnings of $0.32 per share, more than double. VRTY added $2.31 to $44.31 in trading. Yet, all is not rosy for earnings. As Ryan mentioned in yesterday's wrap, it is earnings warning season. Tyson Foods(TSN) saw its shares tumble 5% after the company warned that its quarterly earnings would fall shy of consensus estimates of 26 cents. They predict a more realistic number would be $0.18 to $0.20. TSN cited weaker domestic demand for its chickens. TSN closed at $9.06, down $0.50. How much lower can they go? Looking forward, it feels like the NASDAQ is ready to make that run at 4113 in the next couple of days. Tomorrow after the bell, MU reports earnings which definitely will set the tone for Friday's trading. Talk around here has a bullish feeling ahead of next week's FOMC meeting. We think a rally into it wouldn't be surprising with slight profit-taking on the interest rate news. A move through NASDAQ 4100 and I am going to be hunting for more calls, but watch the overhead resistance carefully. Matt Russ Research Analyst *************** ASK THE ANALYST *************** Lessons from Tiger By Eric Utley There's much to be learned from the next - Michael Jordan? In case you missed it, Eldrick "Tiger" Woods conquered the US Open last Sunday by shooting a record-breaking 12 under par. A feat deemed next to impossible! Tiger's unanimous success is not a fluke. Woods' dominance can be linked directly to his desire, focus, and hard work. Not by coincidence, the aforementioned attributes are common among the world's top traders. What separates the winners from the losers (In all walks of life) is their drive to succeed. Like Tiger, most successful traders have a vision or a goal. And every trade they place is centered around their long-term goal. Super-traders display focus and discipline, and stick to their thoughtful strategies. Above all, successful traders work hard! So whether you combing the annals of Investor's Business Daily, or pouring over stock charts, the amount of hard work you put into your trading is directly correlated with your results. Whether your game is golf or options, if you practice, and learn, and do the right things consistently, you win! And when you win the game of trading, you make money! I filled this week's column with several tech stocks and an old energy concern. No matter if their New or Old Economy, keep sending your requests to Contact Support. Please put the symbol in the subject line of the e-mail. ---------------------------- El Paso Energy - EPG What do you think about El Paso Energy? Pending merger with Coastal (Oil & Gas) as well as intro into fiber optics? - RCH EPG has every corner of the natural gas business covered. And the pending merger with Coastal (CGP) will only strengthen its operations. The combination will create the world's largest and fastest growing integrated energy concern. The synergies created by the merger are expected to save the two companies $200 million in costs, a significant boost to the bottom-line. EPG said Tuesday that the merger is expected to be completed in the fourth quarter of this year. As for their entry into fiber optics, EPG plans to trade bandwidth through its merchant energy group. EPG has the largest pipeline in the country and they plan to lay fiber optic cable along their natural gas pipelines. I don't see the bandwidth trading having a significant impact on the stock just yet, the real driver will be the direction of natural gas prices. For obvious reasons, EPG's profits are tied to the price of natural gas. Gas futures are trading at healthy levels, and inventories are low going into the third and fourth quarters. The cause for the high price of natural gas is due to the short supply of electricity. It takes a lot of gas to turn the turbines that make the juice. July's natural gas futures are trading at $4.39, which in a roundabout way equates to roughly $45 for a barrel of oil. Oil is currently selling for $31.25, which shows you just how high gas prices are. So, EPG is trading at a discount relative to current gas futures, which reflects investors' expectations for lower prices. I see that pessimism reflected on EPG's chart. Although EPG continues to trace higher lows, you can see the rounding top which loosely resembles a bearish head-and-shoulders. Investors may be expecting the trend of warmer winters to continue this year which may explain EPG's unwillingness to move higher. If you're long EPG, hope for a bad winter, because colder weather equates to bigger profits. ---------------------------- RF Micro Devices - RFMD Looks like entry at bottom of channel? Please review. Thanks. - Bill Please give me your opinion and analysis on (RFMD). Today 06/14/00 it went lower on twice the normal volume. Thank you. - Ron I will address both of your points Bill and Ron, but first, let me review a few fundamental factors that may lift RFMD higher. Month over month chip sales continue to increase according to the most recent figures from the Semiconductor Industry Association. Additionally, Motorola and Texas Instruments recently told analysts to expect strong growth for the rest of the year and to raise estimates, respectively. So, the Semi sector looks strong as a whole. As for RFMD specifically, the company makes RF (radio frequency) processors which send and receive digital signals in cellular phones. RFMD is a leading supplier to handset manufacturers and should continue to see strong demand as the wireless business grows leaps and bounds. The risks with stocks like RFMD are high volatility and higher valuations. But, the high multiple may be warranted considering RFMD's forecasted earnings growth of 45%, or possibly higher. Now for the technical take. Ron, there wasn't any news last week to prompt the sharp sell-off. I think it was a classic case of capitulation selling, where the weak hands were shaken out by market makers. The stock was upgraded by Prudential after the sell-off which helped RFMD trace a lower low within its range like Bill pointed out. High growth stocks usually fall 1.5 to 2 times more than the broader market during a correction, so I'm not too concerned about RFMD's steep sell-off last spring. The stock is in a strong technical position, and if the NASDAQ extends its rally, RFMD will most likely move higher. Notice how the trading range widens over time. If RFMD continues along its path of higher highs, the stock could reach $160. ---------------------------- Digital Island - ISLD Could you please look at Digital Island and tell me if it is on the road to recovery as some analysts have said. Thanks. - Greg Less than a week ago, ISLD was #177 on the infamous Barron's list of Net stocks on the road to burnout. After the announcement Tuesday, I think the writers at Barron's have some editing to do. ISLD announced Tuesday that it planned to form a broadband streaming media network with three of the biggest names in the Tech sector. Intel, Compaq, and Microsoft will invest a combined $45 mln to build the necessary infrastructure. Compaq will provide an additional $50 mln in equipment to ISLD and $50 mln for its customers. The network will exclusively stream Microsoft's Windows Media format. Growing consumer demand for streaming content prompted the deal. Analysts predict the market for streaming content will grow to $2.5 bln by 2004, up from $78 mln this year. To answer your question Greg, I think ISLD is on the road to recovery. But, the bottom-line is earnings, and ISLD is a long ways from profitability. If the new venture speeds up the profit process, ISLD will move higher. $145 mln later, ISLD rallied over 30% on nearly 9 times its ADV Tuesday. These high volume, surging price - type of events usually point to higher prices in the near-term. Was the rally Tuesday too much, too fast? Maybe. But, the long-term outlook for ISLD turned a whole lot brighter with the announcement Tuesday. There's little resistance on the chart preventing ISLD from moving higher. That's the only positive thing coming from the stock's steep sell-off last spring. ---------------------------- LSI Logic - LSI I bought LSI two years ago, and it has been doing well. After declining from the 52 Week high of around $88, the stock is range bound. What is your short and long term view of this stock? Thanks. - Phil First off Phil, congratulations on picking such a great stock two years ago and riding the profits higher. The ability to ride your winners higher definitely gives you an edge. LSI is another one of those fabulous chip companies benefiting from the boom in the Internet and wireless communications. The Communications sector is the primary driver for LSI's revenue and profit growth. Analysts expect LSI's communications business to grow 60% this year. With that said, I think the company's long-term outlook is great. LSI is consistently growing earnings and with few signs of demand slowing for chips, business should remain robust. The stock is actually cheap at these levels on a relative earnings growth basis compared to the rest of the Semiconductor sector. The risk I see with LSI, and all leading chip stocks for that matter, is that business is great right now, but can it get better? The first signs of slowing demand will drive the chip stocks lower. Until that happens, LSI looks good. In the short-term, LSI's earnings report on July 25th could be the catalyst that carries the stock higher. Wall Street is expecting great numbers from the Semis this quarter, and the anticipation might lift LSI. And, of course, if the tech rally continues, LSI should move in unison. LSI has made great strides in the past four weeks in an attempt to get back to its all-time high. It has rallied nearly 75% after hitting bottom in late May! It looks like the $70 level is the next hurdle for LSI. ---------------------------- Lexmark International Group - LXK Could I please have your opinion on Lexmark International? 11 analysts rate LXK at either a strong buy or a buy, yet the stock continues to drop, closing today at a new 52 week low at $57 15/16. With relatively strong fundamentals and consistent year over year and quarter over quarter growth, I can't see why the stock has been hit so hard. Thanks. - Jim Back in May several brokerage houses cut their growth estimates on LXK. The reason analysts lowered their estimates was due to rising interest rates and a slowing economy, which are two particularly harmful factors to LXK. A slowing economy usually slows the demand in the corporate market for products such as laser printers. Analysts were worried that LXK's growth would slow and its profit margins could contract. Ever since the downgrades last month, investors have been expecting poor numbers from LXK when the company reports second quarter earnings on July 17th. However, the same analysts that downgraded the stock in May expect LXK to rebound sharply in the second half of the year as corporate purchases should increase. Additionally, demand in international markets for printers remains robust which should help ease the pain LXK has suffered in the domestic markets. It's been a tough year for LXK, but the worst may be behind the stock. After the company reports earnings in three weeks, maybe investors will put the bad news behind and start looking to the third and fourth quarters. The stock needs to break out from its string of lower highs before moving substantially higher. In retrospect, everything is obvious. But, I'd like to point out that when LXK failed to find support at $100 for the third time in early May it spelled trouble. $100 is a psychologically important and was a technically important level for LXK. ---------------------------- DISCLAIMER: This column is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The Ask the Analyst picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable, but is not guaranteed as to its accuracy. *********** OPTIONS 101 *********** The Fear of the Day By David Popper If anyone thinks that the stock market is the road to easy money, they have not traded for long. Despite the hype presented by a myriad of promoters who hawk "top secret" methods to achieve easy wealth, traders know that no "system" is fool proof and every position must be monitored. Psychologically, trading can be difficult. Each and every day traders are presented with a new "fear of the day". The economy and the market are too complex to be perfectly good or perfectly bad. There is always a catch. There is always a reason not to trade, not to put your money at risk. I am convinced that the risk/reward principle (the greater the risk, the greater the reward) is the real answer as to why trading can be lucrative. Last year, my trading partner, Tim, began keeping meticulous trading records. Besides recording his trades, he also recorded the "fear of the day". On a monthly basis, he would review charts, and observe what happened because of, or in spite of, the daily fear. This exercise has made us realize that there is often little correlation between the fear of the day and the market action. Over several weeks, most fears resolve themselves and any short term impact they have on a stock is nothing more than a short term divergence. As the Nasdaq rose over 80% last year, there was a reason not to trade a Nasdaq stock each and every day if you were to listen to CNBC. This is not to say that a trader should not pay attention to news. What it does mean is that there is difference between news and fearful speculation. Listening to analysts can paralyze a trader. It is better to listen to the markets themselves. The very best way to gauge the market is to observe the major averages and the leading stocks. If the major averages and leading stocks are setting up, it is time to trade - in spite of the fear of the day. Most bull markets are born in the midst of despair. If the major averages and leading stocks are breaking down, it is time to get out - in spite of the hope of the day. Most bear markets begin when euphoria and complacence abound. Again, hype, whether it be positive or negative simply has no place in a trader's analysis. A better use of a trader's time is to spend it selecting stocks that have superior earnings, superior growth prospects and are participants in leading sectors of the economy. Those stocks should be purchased when it is technically correct to do so. It also helps if there is a motivating event upcoming such as a split, earning season or analyst meeting. A trader's time is better spent loading the deck in his favor than it is listening to the opinions of others. What do I mean by loading the deck? By loading the deck I mean it is necessary to put every factor possible, whether it be fundamental, technical or sentiment, in your favor when executing a trade. For example, this week I have been looking at TQNT. TQNT fundamentally sports a 97 EPS rating according to Investors Business Daily. Technically, TQNT sports a 98 relative strength rating according to Investors Business Daily. Additionally, TQNT has formed a cup with a handle pattern and has just recently broken out. It is not very far away from its pivot point. Further, I expect market sentiment to operate in TQNT's favor. A recent analyst's meeting disclosed the fact that TQNT has been taking market share from PWAV. Additionally, TQNT belongs to the powerful semiconductor sector. News in this sector has been fabulous lately. Analysts have not been able to find enough good things to say about this sector in general, and TQNT in particular. Finally, TQNT is scheduled to split its stock 2:1 on July 12th. Now all of the above do not guarantee a successful play. As we all know, the market can turn on a dime. Market risk is always present. Further, there is always the unforeseen disaster. Setting aside these possibilities for the moment, a case can be made that there are fundamental, technical and sentiment reasons to purchase TQNT. This is a play that is loaded for success at this moment. Does that mean I put all of my money in TQNT? Of course not. Does it mean that there are not plays that may be equally as good or better? Of course not. It just simply means that the market conditions for this issue seem to be favorable at this point. Once a play has been identified, then you have to choose how aggressively you wish to play the issue. The most aggressive way to play the issue is simply to purchase short term calls. This, of course, provides the greatest possible return and the greatest possible risk. The second most aggressive way to play the issue is simply to buy the stock and hold it until the split. Third, you could buy the issue and write a covered call and achieve a reasonable probability of obtaining a 10% return by option expirations in July. Fourth, you could choose to write in the money puts or even choose to take an ultra conservative approach and write an out of the money puts. The return is less, but the risk is less. Fifth, you could trade the issue using spreads and hedge your downside risks. The primary point I am trying to make is that the markets themselves and the leading stocks will tell you when to trade. It is best to put all odds in your favor when executing a trade. Your risk tolerance will influence how you choose to trade a particular issue. Analysts, speculation, fear, hope and greed should not play a role in your decision making process. ********************** PLAY OF THE DAY - CALL ********************** BRCD - Brocade Communications $163.50 +4.19 (+18.56 this 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. Most Recent Write-Up Everybody loves a breakout, and that is exactly what BRCD gave us this week. As the NASDAQ moved through the long-awaited 3900 level on Monday, investors finally put their money to work in BRCD, driving the volume 30% above the ADV with a surge into the close. Shattering the $145 resistance level was like touching a lit match to gasoline as the buyers piled on, driving the price above $160, and closing the session very near that level. The enthusiasm extended into trading this morning, but $164.56 was as far as it could go before the inevitable profit taking. After pulling back to find support near $152 (another entry point), buying interest returned and the stock then spent the rest of the day consolidating above $155. Today EMC gave its interoperability stamp of approval to BRCD's SilkWorm family of Fibre Channel switches for use in Storage Area Networks (SANs). Positive news like this and continuing health in the Networking sector should continue to drive shares of BRCD higher as July earnings approach. Aggressive investors can use intraday dips to support between $152-155 as opportunities to enter the play. If you'd rather have confirmation first, wait for the momentum to return, driving the share price back above $160, before playing. Comments BRCD is all about breakouts this week and did it again as the stock moved over $160. This happened midday on Wednesday and it quickly moved up near $170. Fortunately, the Nasdaq had a subtle retreat late in the day and BRCD is now showing a good entry point in the lower $160 range. The volume is also confirming the move. BUY CALL JUL-150 UBZ-GJ OI=4471 at $25.63 SL=19.25 BUY CALL JUL-155 UBZ-GK OI=2313 at $22.63 SL=17.00 BUY CALL JUL-160*GUF-GL OI=1468 at $18.75 SL=14.00 BUY CALL AUG-165 GUF-HM OI= 1 at $22.88 SL=17.00 low OI BUY CALL OCT-180 GUF-JP OI=1043 at $28.13 SL=21.50 SELL PUT JUL-160 GUF-SL OI= 88 at $13.00 SL=18.00 (See risks of selling puts in play legend) Picked on June 6th at $138.88 P/E = 656 Change since picked +24.63 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 ***************************************** BIG CAP COVERED CALLS & NAKED PUT SECTION ***************************************** You call that a rally? Well, yes, maybe... The market enjoyed modest gains today amid strength in blue-chip issues and a rally in Microsoft shares. The outlook for the software giant was helped by news that implementations of all sanctions imposed on the company's conduct have been delayed pending appeal. Analysts followed the news with bullish ratings and new price targets. The recovery in leading technology stocks also generated additional buying interest as investors shopped for companies that will dominate the infrastructure of the Internet and global communications. Fund managers added to the bullish activity, injecting new cash into the market for end-of-quarter acquisitions. Most experts believe the technology rally will continue as fear of the Fed recedes and the new Nasdaq trading range is defined. In the broader market, drug, biotech, and oil industry shares rallied while retail, bank and brokerage stocks retreated. Investor enthusiasm in finance issues has been held in check by disappointing profit forecasts for the quarter and concerns that future revenues will deteriorate as the economy's growth rate declines. The question is, can the momentum in the Nasdaq overcome the recent slump in industrial issues and bring investors back into the stock market amid worries that a slowing economy will diminish future earnings. Summary of Previous Picks: (JUNE prices as of Friday's Expiration) Covered Calls: (Margin would double the listed Monthly Return) Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return NVDA JUN 100 96.13 149.75 $3.87 7.7% Splits 6/27 BRL JUN 50 48.38 58.44 $1.62 6.4% ARBA JUN 55 51.63 74.06 $3.37 5.4% NVDA JUN 90 85.50 149.75 $4.50 5.3% Splits 6/27 NEWP JUN 36.6 34.81 83.00 $1.78 5.2% Adj 3-1 Split RFMD JUN 90 87.62 100.38 $2.38 5.2% LLTC JUN 55 53.56 69.44 $1.44 5.1% RFMD JUN 95 90.50 100.38 $4.50 5.0% ELON JUL 60 54.69 66.00 $5.31 6.7% ENZ JUL 50 46.25 69.03 $3.75 6.7% ABSC JUL 55 50.75 70.25 $4.25 5.8% SDLI JUL 210 193.81 293.19 $16.19 5.8% NEWP JUL 65 60.87 92.50 $4.13 5.6% HGSI JUL 90 83.38 151.84 $6.62 5.5% Naked Puts: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return BRL JUN 50 48.44 58.44 $1.56 15.4% RFMD JUN 85 83.25 100.38 $1.75 14.0% LLTC JUN 55 53.50 69.44 $1.50 13.5% ARBA JUN 50 48.00 74.06 $2.00 10.6% NEWP JUN 31.6 30.66 83.00 $1.00 9.5% Adj 3-1 Split PLCM JUN 65 64.12 90.88 $0.88 9.5% NVDA JUN 85 83.81 149.75 $1.19 9.4% Splits 6/27 NVDA JUN 80 77.87 149.75 $2.13 8.9% Splits 6/27 RFMD JUN 85 82.94 100.38 $2.06 8.3% SDLI JUN 140 136.75 299.88 $3.25 7.3% SDLI JUN 195 193.94 299.88 $1.06 6.8% YHOO JUN 115 112.75 140.94 $2.25 6.6% SDLI JUN 165 163.44 299.88 $1.56 6.3% AFFX JUN 105 102.94 174.56 $2.06 6.1% CHKP JUN 150 148.87 213.75 $1.13 5.5% ENZ JUL 45 42.50 69.03 $2.50 14.0% ELON JUL 50 47.75 66.00 $2.25 9.1% NEWP JUL 55 53.31 92.50 $1.69 7.7% PDLI JUL 105 102.12 184.00 $2.88 6.9% ABSC JUL 45 43.44 70.25 $1.56 6.9% BRCD JUL 105 101.75 163.50 $3.25 6.8% HGSI JUL 75 72.62 151.84 $2.38 6.4% RBAK JUL 78 75.12 135.63 $2.38 6.4% SDLI JUL 170 164.87 293.19 $5.13 6.3% MLNM JUL 80 77.81 144.19 $2.19 6.0% GLW JUL 200 195.87 244.25 $4.13 5.5% CHKP JUL 145 142.00 228.00 $3.00 5.3% Naked Calls: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return JNPR JUN 135 136.06 113.00 $1.06 6.0% Adj 2-1 Split AMCC JUL 140 142.50 106.88 $2.50 9.7% BRCM JUL 220 222.00 171.38 $2.00 5.2% SP500 addition! New Candidates: This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any strategy or technique in which you are not completely comfortable with the potential loss, the necessary adjustments and the common entry-exit strategies. *************** BULLISH PLAYS - Covered Calls & Naked Puts *************** AETH - Aether Systems $210.38 *** The Wireless World! *** Aether Systems provide wireless data services, systems and other software enabling people to use handheld devices for mobile data communications and real-time transactions. Aether's strategy initially focused on developing services for the financial services sector. Their current services include TradeRunner, a real-time wireless trading and financial information service offered to the online customers of Morgan Stanley Dean Witter Online, and the Reuters MarketClip service for financial market price quotes, alerts and information. Aether is also developing wireless trading and financial services for other major financial institutions, including Charles Schwab. With recent acquisitions, the company has expanded its services into the healthcare, sales force automation and transportation logistics industries. Aether has been on the move since early June and last week, the stock began a new up-trend after Merrill Lynch reiterated its short-term "buy" rating with an 18-month price target of $350. The move was based on potential revenues from a collaboration between Aether and Critical Path, a leading provider of Internet business-to-business messaging. The companies said their aim is to provide businesses with access to messaging information at any time, anywhere. Aether plans to provide wireless users with access to Critical Path's Internet messaging services and will assist Critical Path in becoming a reseller of the Blackberry wireless, e-mail services of pager-maker Research In Motion. In addition, Aether recently announced that OmniSky Corporation has filed a registration statement with the SEC for a proposed initial public offering of common stock. OmniSky, a company formed by Aether and 3Com, is pursuing opportunities in wireless e-mail, Internet access and other electronic transactions. The service features an easy-to-use, wireless Internet portal for handheld mobile devices, that organizes information into various categories, including entertainment, finance, news, shopping, sports, travel and local information. Aether owns 28% of OmniSky. Our position is conservatively optimistic with little downside and a favorable risk/reward ratio. AETH - Aether Systems $210.38 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call JUL 180 HEX GP 145 39.50 170.88 5.4% *** Sell Call JUL 185 HEX GQ 19 36.25 174.13 6.3% Sell Put JUL 150 HEX SJ 14 2.75 147.25 6.2% *** Sell Put JUL 155 HEX SK 41 3.50 151.50 7.8% Sell Put JUL 160 HEX SL 36 4.38 155.62 9.6% Sell Put JUL 165 HEX SM 47 5.38 159.62 11.5% Chart = /charts/charts.asp?symbol=AETH *************** AFFX - Affymetrix $194.50 *** On The Move! *** Affymetrix has developed and intends to establish its GeneChip system as the platform of choice for acquiring, analyzing and managing complex genetic information in order to improve the diagnosis, monitoring and treatment of disease. The GeneChip system consists of disposable DNA probe arrays containing gene sequences on a chip, certain reagents for use with the probe arrays, a scanner and other instruments to process the probe arrays, and software to analyze genetic information from the probe arrays. Affymetrix commenced commercial sales of the GeneChip system for research use in April 1996 and currently sells its products to pharmaceutical and biotech companies, academic research centers and clinical reference laboratories primarily in the United States and Europe. Stocks in the genomics sector rallied at the beginning of the year amid excitement about the potential to use genetics to develop new and improved treatments for a host of diseases, ranging from diabetes to cancer. The Spring quarter was tough on Biotech's as investors became concerned about a lack of profits. Affymetrix suffered with the rest of the industry, losing 2/3 of its value in March. Now the recovery is well established and the most promising companies are climbing to previous valuations. Unfortunately, many biotech's are not profitable and they hold share values based upon anticipated growth rather than current earnings. AFFX is one of the few stand-outs with cutting-edge technology and profitability expected in the near future. Based on the bullish technicals, investors agree that AFFX is one of the leading issues in the speculative arena of genetic development and this company would certainly be a candidate for any long-term portfolio. AFFX - Affymetrix $194.50 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put JUL 135 FIQ SG 7 2.06 132.94 5.1% Sell Put JUL 140 FIQ SH 76 2.88 137.12 7.0% *** Sell Put JUL 145 FIQ SI 10 3.63 141.37 8.7% Sell Put JUL 150 FIQ SZ 124 4.75 145.25 11.0% Sell Put JUL 155 FUE SK 12 5.13 149.87 11.8% Chart = /charts/charts.asp?symbol=AFFX *************** IWOV - Interwoven $89.38 *** Split Rally? *** Interwoven is a provider of enterprise-class Internet content management software. The company's flagship product, TeamSite, controls the development, management and deployment of business critical Web sites. Interwoven solutions are based on a unique, inclusive content architecture that empowers all contributors and leverages diverse Web assets including XML, Java, rich html, multimedia and database content. TeamSite is available for both the Sun Solaris operating system and Microsoft Windows platform. In early June, Interwoven announced that its Board of Directors approved a two-for-one stock split, to be effected in the form of a stock dividend to shareholders of record on June 22, 2000. The stock split will occur on-or-about July 14 and it appears that traders are anticipating an upcoming rally. Analysts may have supplemented the recovery as the shares of Interwoven were upgraded in early June by Dain Rauscher Wessels. The brokerage upped the issue to "strong buy-speculative" with a new 12-month target price of $140 a share. Yesterday's move above a recent trading-range top near $80 suggests the issue is poised for a continued rally into the low 100's. Our position offers a conservative entry point on a fundamentally sound company with a bullish technical outlook. IWOV - Interwoven $89.38 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call JUL 70 IUW GN 60 23.00 66.38 5.5% *** Sell Call JUL 75 IUW GO 30 19.38 70.00 7.2% Sell Put JUL 60 IUW SL 27 1.19 58.81 6.3% *** Sell Put JUL 65 IUW SM 20 2.13 62.87 10.8% Sell Put JUL 70 IUW SN 37 3.25 66.75 15.6% Sell Put JUL 75 IUW SO 31 4.75 70.25 18.4% Chart = /charts/charts.asp?symbol=IWOV *************** NVDA - Nvidia $172.94 *** Split Rally Continues! *** NVIDIA designs, develops and markets 3D graphics processors, graphics processing units and related software that set the standard for performance, quality and features for every type of desktop personal computer user, from high-end machines to low cost PCs. Their 3D graphics processors are used in a wide variety of applications including games, the Internet and industrial design. The NVIDIA TNT2, TNT2 M64 and Vanta graphics processors deliver high performance 3D and 2D graphics at a reasonable cost, making them the graphics hardware of choice for a wide range of applications for consumer and commercial use. Nvidia continues to increase market share in the fast growing industry of computer graphics and their earnings are reflecting that growth. In early May, Nvidia announced record revenues and earnings for the first quarter of fiscal 2001. Nvidia's revenues increased 109% to $148.5 million, and earnings were $0.47 per share, well above the same quarter results last year of $0.18 per share. At the same time, Nvidia approved a 2-for-1 stock split, expected to take place on June 27, and was promptly upgraded by several analysts. The world's leading supplier of performance 3D graphics processors also recently announced that the GeForce family of GPUs dominated two of the industry's most recognized benchmark reviews, Mercury Research's quarterly report and PC World's Top 10 Graphics Boards for Gamers. Most recently, NVDA earned the highest ranking for semiconductor companies in Business Week's "Information Technology Annual Report - The Info Tech 100." In addition to the #1 ranking for semiconductor companies, Nvidia earned the fourth spot overall in the yearly wrap-up of the world's top technology companies. In short, this is one great company! NVDA - Nvidia $172.94 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put JUL 110 UVA SB 169 1.94 108.06 5.4% *** Sell Put JUL 115 RVU SC 89 2.56 112.44 7.0% Sell Put JUL 120 RVU SD 123 3.50 116.50 9.3% Chart = /charts/charts.asp?symbol=NVDA *************** PDLI - Protein Design Labs $184.00 Protein Design Labs is a leader in the development of humanized monoclonal antibodies for the prevention and treatment of disease. They have licensed rights to its first humanized antibody product, Zenapax (daclizumab) to Hoffmann-La Roche Inc. and its affiliates, which markets it in the U.S., Europe and other countries for the prevention of kidney transplant rejection. They have several other humanized antibodies in clinical development for autoimmune and inflammatory conditions, transplantation and cancer. Bio-techs are on the move and the recent news that gene-researcher PE Corp Celera Genomics (CRA) has reached another milestone in the race to map the human gene gave a boost to a number of companies involved in gene research. Investors anticipate that CRA will announce this month that it completed an outline of the chemical order of the human genome; the genes that make and regulate the human body. With a complete sequencing of the human genome, the top drug makers aim to identify genes linked to major diseases and develop medicines to stop them. Now the race to explore the new discovery is underway and the leading companies in this technology will dominate the industry. Protein Design Labs is one of the top companies in the Biotech Group and among institutional investors, it is also one of the core holdings. The current technical outlook is favorable and our position offers an excellent reward potential at the risk of owning this industry-leading issue at a favorable cost basis. PDLI - Protein Design Labs $184.00 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put JUL 120 PQI SU 20 1.81 118.19 4.8% Sell Put JUL 125 PQI SV 56 2.63 122.37 6.8% *** Sell Put JUL 130 PQI SW 5 3.25 126.75 8.2% Sell Put JUL 135 PQI SY 22 4.38 130.62 10.8% Chart = /charts/charts.asp?symbol=PDLI *************** TECH - Techne $121.75 *** Technicals Only! *** Techne is the holding company of Research and Diagnostic Systems, (R&D Systems) and R&D Systems Europe (R&D Europe). R&D Systems is a specialty manufacturer of biological products. The company provides hematology controls, which are used in hospital and clinical laboratories to check the accuracy of blood analysis instruments; biotechnology products including purified proteins and antibodies sold exclusively to the research market; and assay kits, which are sold to the research and clinical diagnostic markets. R&D Europe distributes biotechnology products in Europe and has a German sales subsidiary, R&D Systems GmbH. The company also has a foreign sales corporation, Techne Export. There is not much news on this company but it appears from the recent bullish activity that investors are confident about its future. Techne is one of a select few issues in the market that have enjoyed a surge in forecasted earnings and a Merrill Lynch analyst offered the latest positive outlook with an "accumulate" rating and a new price target of $87.50. Techne was also ranked #21 in the recent list of the 200 "Best Tech Stocks" put out by Investors Business Daily. We simply favor the bullish technical indications and our conservative position offers a method to participate in the future movement of the issue with relatively low risk. TECH - Techne $121.75 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put JUL 90 TGQ SR 25 1.31 88.69 5.2% Sell Put JUL 95 TGQ SS 23 2.06 92.94 7.9% *** Sell Put JUL 100 TGQ ST 57 2.88 97.12 9.8% Chart = /charts/charts.asp?symbol=TECH *************** BEARISH PLAYS - Naked Calls *************** RFMD - RF Micro Devices $105.00 *** Failed Rally? *** RF Micro Devices designs, develops, manufactures and markets proprietary radio frequency integrated circuits, or RFICs, for wireless communications applications such as cellular and personal communication services, cordless telephony, wireless local area networks, wireless local loop, industrial radios, wireless security and remote meter reading. They offer a broad array of products, including amplifiers, mixers, single chip transmitters, receivers and transceivers, which represent a substantial majority of the RFICs required in wireless subscriber equipment. RF Micro Devices is poised for growth but recently, the stock has come under selling pressure even as the issue was upgraded by PaineWebber analyst David Wong. His report suggested that prospects for growth in the near-term quarters make for good investment opportunities in communications chip companies. He raised his recommendation on RFMD to "buy" but at the same time, left the target price at $160. Obviously, the company is fundamentally sound but for now the technical picture is less than outstanding. We will use the current consolidation period to benefit from overpriced option premiums with these relatively conservative, bearish positions. The probability of the share value reaching our sold strikes appears rather low but there is always the possibility of a recovery rally so monitor the issue daily for changes in technical character. RFMD - RF Micro Devices $105.00 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call JUL 140 RQZ GH 965 2.75 142.75 11.7% Sell Call JUL 145 RQZ GI 188 2.13 147.13 9.3% Sell Call JUL 150 RQZ GJ 232 1.75 151.75 7.8% *** Chart = /charts/charts.asp?symbol=RFMD *************** SEE DISCLAIMER *************** *********** IN THE NEWS *********** Microsoft Catches A Break By Matt Paolucci Shares of computer colossus Microsoft surged Wednesday after a surprising move by U.S. District Judge Thomas Penfield Jackson late Tuesday. Jackson, by taking advantage of a little-known rule called the Expediting Act, has effectively "fast-tracked" the landmark antitrust case straight to the "Highest Court in the Land", bypassing the U.S. Courts of Appeals in Washington, D.C. "This decision affirms the department's position that a quick and effective remedy is necessary to resolve this significant case," the U.S. Justice Department said in a written statement. However, Judge Jackson's order delayed the business restrictions on Microsoft until the appeals process was exhausted, thus allowing the software giant to basically proceed unbound with a new Windows Services strategy, expected to be announced later this week. Microsoft had previously claimed that its new strategy would be significantly hampered under limits imposed by the court. The appellate court already said on Monday that it would step aside and suspend any action on the case in the event Jackson chose to send the matter to the Supreme Court under a rarely used fast-track process. "This is bad for the rest of the industry," said George Cary, an antitrust lawyer with Cleary, Gottleib and a former Federal Trade Commission official. "It means there is no protection from Microsoft's anti-competitive conduct while the appeal is pending." Yesterday, Microsoft announced it was investing, along with Compaq and Intel, a total of $45 million in Digital Island to help fund that company's streaming media infrastructure. Some folks may see this as a straightforward funding and technology deal. But it could also be seen as a display of Microsoft's financial muscle at work, using dollars and partnerships to lock in support for its technology. Digital Island's proposed streaming media network would run on Microsoft's Windows operating system. Does this sound like a standards-focused company? Maybe, maybe not. It's already in a legal battle with Apple and RealNetworks regarding streaming media. Although conduct restrictions no longer loom in the company's immediate future, Microsoft said it still would prefer the case go through the regular appellate process. Back on June 7, Judge Jackson ordered Microsoft to be split into two companies, one based on its dominant Office software, and the other based on its so-called "monopolistic" Windows operating-system software. It was this part of Jackson's order that was delayed for a year until the appeals process had been concluded. A former member of the Justice Department trial team, Mark Popofsky, expressed surprise at the judge's move, but said it could speed the Supreme Court's decision on whether or not to take the case. "Now all they will have before them is the clean issue of whether to take it, and not whether to grant a stay, and they are still in town for another 12 days," he said. The Supreme Court's session ends in less than two weeks, and will not resume until October. The Justice Department issued a statement welcoming the direct appeal to the Supreme Court because of the case's "importance to the American economy and to all consumers." But the government's statement added that the decision by the judge to stay his order pending appeal makes a final resolution of the case even more urgent. If the Supreme does decide to hear the case, Microsoft would most likely file an appeal sometime in mid-August, 60 days after it originally filed its appeal with Judge Jackson. The Department of Justice would then have 30 days to respond. Separately, this afternoon, the White House announced that it is endorsing a major Internet industry initiative involving Microsoft, Netscape and America Online. The move is aimed at boosting online privacy by redesigning the way browser software handles personal data. The three companies have pledged to rebuild their Web browsers to support the new architecture. The architecture, called P3P (Platform for Privacy Preferences), is designed to provide an automated way to compare consumers preferences with the privacy practices of the Web sites they visit. The combination of today's ruling by Judge Jackson, along with Microsoft's initiative with AOL and Netscape sent shares of the Redmond, Washington software giant up more than $7 to $82 in late-afternoon trading. ************************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. 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