The Option Investor Newsletter Sunday 7-02-2000 Copyright 2000, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/070200_1.html Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 6-30 WE 6-23 WE 6-16 WE 6-9 DOW 10447.89 + 43.14 10404.75 - 44.55 10449.30 -164.76 -180.70 Nasdaq 3966.11 +120.77 3845.34 - 15.22 3860.56 - 14.28 + 61.46 S&P-100 790.25 + 9.18 781.07 - 7.67 788.74 + 9.04 - 12.99 S&P-500 1454.60 + 13.12 1441.48 - 22.98 1464.46 + 7.51 - 20.31 RUT 517.23 + 6.82 510.41 - 3.33 513.74 - 9.32 + 10.03 TRAN 2645.37 + 14.66 2630.71 - 42.48 2673.19 -116.98 - 39.19 VIX 22.26 - 3.63 25.89 + 2.34 23.55 - 1.64 + 1.08 Put/Call .48 .61 .53 .45 ****************************************************************** Russell shuffle combines with quarter end window dressing to close the week on an up note. What a week. The Dow traded in almost a 300 point range but ended the week only +43 points from where it started and all of those points came at the close. The Nasdaq closed the week up +120 points which is +130 points over Thursday's low. To say that Friday was pivotal would be an understatement. The news that moves came in the form of the Russell shuffle and the end of quarter window dressing. The Russell shuffle was a significant portion of the almost 600 million shares that traded in the last 15 minutes of the day. The NYSE traded 400 million in the last ten minutes and the Nasdaq traded well over 200 million in the last 15 minutes. End of quarter window dressing was obvious as well. Huge "buy-on-close" orders for big cap blue chips while avoiding broader stocks were clearly window dressing. In the last 5 min on the NYSE there were block buy orders for 3 mil of GE, 1 mil of LU, 1 mil of PFE. This was very encouraging. Funds don't place single orders for $153 million of GE stock if they think there is weakness ahead. Similarly $57 million of Lucent and $47 million of Pfizer represents a significant vote of confidence in the market going forward. The Nasdaq was not left out in the buying frenzy. Almost 5 million shares of MSFT traded in the last 15 min as well as 4 million shares of ORCL. The Russell was not the only index juggling the numbers on Friday. The S&P was also reclassed with stocks moving from growth to value or value to growth which causes more Maalox moments for fund managers as they move into and out of their different fund families. In spite of the lackluster numbers logged by the major indexes I thought the week was bullish. The Nasdaq recovered from a bout of profit taking on Thursday to close near the high of the week. Traders tried to take it down on Thursday but were unable to break below the low set on the previous Friday. They also tried to retest 10300 on the Dow with no luck. 10340 was hit several times on Friday at the open and again near the close but that was as close as they could get. With the Fed out of the way until August there could be a positive surprise ahead. The inflation numbers were tame this week and signs of life are creeping back into the market. The IPO market has been reborn. A large slate of new stocks hit the market this week and some racked up really impressive numbers. There were some losers but the point I focused on was the number of stocks coming to market, over 15, and the big wins by several, up +200% or better. If the IPO market is showing a pulse then the broader market should not be far behind. Internet stocks are also showing a pulse. Even AMZN which traded at an 18 month low got some help from Henry Blodget, Internet analyst at Merrill Lynch. Drawing an analogy from AOL in 1996, at $1.56 a share, unloved and called a permanent loser, he felt Amazon will also rise again. He felt a 400% gain over the next couple years would not be unreasonable. Whether it happens or not the point here is some major analysts are coming out of the closet and starting to say positive things about beat up Internet stocks. When talking about beaten up stocks look at MSFT. After a bounce when the stock moved into the current phase of the trial MSFT consolidated all week. The rally into the close on Friday and the apparent bottom of $77 for two weeks has got investors nibbling on it again. With Windows2000 sales coming in higher than expected, several new products recently announced and trial news several months away, the possibility of an earnings run is gaining strength. That cannot be bad for the Nasdaq going forward. Oracle is coming close to testing the March high of $90 again, closing at $84. Oracle shareholders are rooting for a breakout to give them a 400% return from the July 1999 price of $19.94. Dell is close to breaking over $50 again after spending much of the last two months in the low $40 range. Even CSCO appears to have bottomed at $61 and is moving up again. INTC is the laggard of the Nasdaq four but after slowly giving back most of the big gains made on June 15th it appears that the back filling is almost complete and with the announcement of the Pentium 4 this week it may be time for INTC to move into a "buy" status. Since the Nasdaq lives and dies on the fortune of these five stocks the future is actually looking up. Monday will be shakeout and settlement day for the Russell shuffle last week and is a wildcard. Monday is also likely to be the lightest volume trading day of the entire year and as such it is impossible to forecast direction. When we come back from the July-4th holiday the earnings warning season should be about over and the only major dip in the road ahead will be the non-farm payroll numbers on Friday. Shucks, even stocks that warned were gaining cheerleaders on Friday. Ericsson warned on Thursday that the higher cost of the new high tech phones may crimp sales and tanked the entire sector. Friday Goldman Sachs added ERICY and NOK to their recommended list and Lehman Brothers said the market over reacted and mentioned good things about the sector. The drug sector hit a new all time high as well as the networking index. The advance decline line actually was positive most of the week. Not all things were rosy. Some analysts point to the new high on the drug index as a defensive move showing that many are looking for a safe harbor during the coming summer months. Morgan Stanley analyst Byron Wiens stopped just short of calling himself a bear in a TV interview. He has been bullish in the recent past. Financials remain weak even after the no-hike announcement from the Fed. Money flowed out of equity funds last week to the tune of -$427 million. Internet funds saw some of their biggest outflows in some time. Part of the blame for the Internet outflows was the high profile failures of Boo.com, Craftshop.com and Toysmart.com as well as the recent negative press on the Ecommerce sector. Using these negative events like fund outflows as contrairian indicators, the herd is normally wrong on entry and exit points, then now would be the time to buy. While I am feeling positive today and the Nasdaq close over 3900 looks like a possible breakout, I am not ready to fire the starter pistol but it is definitely cocked and locked! The thing holding me back is the descending diamond pattern on the Dow. While it appears 10300 support should hold, the Dow still needs to move above 10700 and hold to confirm a breakout to the upside. There are plenty of stocks available to contribute to the cause. The Dow 30 is littered with flaming wrecks. IBM is dropping like a rock on earnings and currency concerns. GM looks like the wheels came off their marketing campaign as the stock hit an 18 month low. AT&T needs to phone home for help as it too hit an 18 month low. Alcoa is only one dollar from a 52 week low. CAT is trading at a three year low. Dupont is also at a three year low. HON a 12 month low. IP is trading at levels not seen since 1993. Need I go on? If it was not for the tech stocks in the Dow we would be singing a very different tune as to market outlook. If we had a high profile tech warning or two and the tech stocks in the Dow pulled back a little in sympathy we could be in real trouble. 30% of NYSE stocks are already trading at 52 week lows. We all know the Nasdaq does not need the Dow to rally but it will need its help to make a major move. Of course, it is always possible for a Nasdaq rally to pull the Dow out of its slump. (We can hope for miracles!) All Dow Charts http://members.OptionInvestor.com/misc/dow30.asp The key here is the Fed. With no more hikes at least until August this is the first time in since Y2K began that we are free to focus on earnings and not the Fed. With earnings warnings almost over and the bond market poised to rally there is some excitement in the air. Muted, but it is there. The first six months of Y2K are history and the markets are bruised and battered but the fight is not over. Investors are not ready to go into hiding and start hoarding cash under their pillow just yet. Even with stocks like T, PG, XRX, HON trading at -50% off their recent highs there are other stocks that got an early start on the fourth. Looking like bottle rockets, RMBS, SDLI, RBAK and others are bringing back memories of QCOM from last year. Bear markets are in the eyes of the beholders as well as bull markets. T, PG, HON stockholders are losing hundreds of millions of dollars while RMBS shareholders are cheering all the way to the bank. Clearly we are in a stock pickers market. Now that the Fed has gone into hibernation for the summer we can be hopeful that the gains from individual stocks will spread into the broader market. Still we need to be vigilant if we have money invested in anticipation of any summer rally. If money comes off the sidelines into those beaten up Dow stocks above then other investors will feel more confident about spending cash now on the sidelines. The cash is there and ready to go to work. Bear trap rallies, and any rally starting next week will be suspect, are short, sharp and die on low volume. This makes volume the warning flag. After Wednesday we need to watch the volume as the truth or consequences indicator. Strong volume means it is real, low volume signals another run to the sidelines. Get your track shoes ready. The prize in either instance goes to the swiftest. Now that I have you all pumped up and looking for a rally behind every tick, I am going to throw in my dose of reality. Our friend the VIX is flashing red at 22.26. Those of you who have been readers for some time know that the VIX is a measure of market volatility based on option contract prices on the OEX. VIX values below 22 normally correspond to market tops while values over 30 generally correspond to market bottoms. The VIX is seldom wrong and then only by a day or two. Also the VIX is more of a broader market indicator than a Dow or Nasdaq indicator. Of the stocks in the S&P only 39% are tech stocks. Therefore the Nasdaq can move contrary to the VIX for short periods of time. Still at 22.26 we need to be even more cautious about opening new long positions. Wait for that volume before making a move. Remember, non-farm payrolls are Friday. Trade smart, don't buy too soon. Jim Brown Editor **********************ADVERTISEMENT****************************** FREE! FREE! FREE! FREE! Investor's Business Daily - Free Two Week Trial! No obligation! No invoices! And nothing to cancel! Limited time offer! Click Here! http://ibd.infostreet.com/cgi-bin/freeoffer.cgi?source=ARZOJES ***************************************************************** Employment opportunities: Sunset Investment Group, parent of OIN, is rapidly adding to its suite of investment websites. We are preparing some new features and additions to the existing products and we need qualified people to fill the many new positions. If you feel you could fulfill any of the qualifications below please email us immediately. Denver only: Editors Asst editors Writers Customer service reps Network administrator HTML Programmers ASP/SQL programmers Delphi programmers Graphic artists Marketing reps Remote positions, commute by email: Internet stock analyst, writer Researcher, play writer Editorial, writer Graphic artists Email to: Contact Support *************** SEMINAR RESULTS *************** Technical Analysis, Stock and Option Seminar Three days of indepth education. The next seminar is a three day event in New York on July 13-15th. 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. July 13-15 New York 3 day July 21-23 Seattle 3 day July 27-29 Atlanta 3 day Aug 10-12 Orange County 3 day NEW !!!!!!!!!!!!!! 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: 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 ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.nextcard.com/index6.html?ref=aff0049911 ************************************************************ ************** EDITOR'S PLAYS ************** Last week I reviewed three stocks which I thought would be good plays for Monday. Two of the three charged off and never looked back. The third, HGSI, did a perfect "buy on rumor, sell on news" -$25 drop at the open to give us a great entry but then faltered the rest of the week. Here are the follow ups to last weeks column. For the charts and recommendations from last week, click here: http://members.OptionInvestor.com/editorplays/062500_1.asp RBAK The chart last week showed a stair step pattern with a small intraday pull back on Friday when the Nasdaq was very negative. The chart indicated underlying strength in an otherwise weak market. Go back and look at the pattern again and you will see the consolidation levels clearly. Using the same chart I would project a possible pull back in RBAK soon since four of the last five days have been up. Nothing goes up or down in a straight line. Congratulations if you played this on Monday. BRCD Brocade also showed a pattern of pull backs after strong runs. The key on BRCD to me was the double bottom intraday on the previous Friday. If you look at the charts from last week it was very clear and gave me a strong buy signal. BRCD added almost +$30 since the open on Monday. Somebody please tell me you played BRCD based on last Sunday's column! HGSI - Human Genome HGSI - "watch for a buy the rumor, sell the news dip" These were the closing words on the HGSI chart last week. WOW! Did we get one. If you were waiting to play HGSI on Monday you were greeted by a -$25 drop at the open. If you patiently waited until after amateur hour and then for the rebound to begin you could have made some decent money. After dropping as low as $127 after the open it rebounded to almost $150 by the close. Volatility anyone? New plays ******************* MRVC - MRV Communications MRVC looks like it is coiling under $68 and could be getting ready for a breakout. The candles are getting longer since June 27th as buyers and sellers battle for control. However, the strong trend of higher lows looks like a forecast of who the winners will be. I would buy on a breakout above $68 and a positive market. JNPR - Juniper Networks JNPR has had a good strong run with few weak spots. The drop on Friday could hhave been profit taking from the recent gains before the holiday weekend. I like the apparent bottom at $138 all day. I would want to see some confirmation of direction after the big spike at the close before taking a position. Conservative traders should wait for a breakout over $150 and a positive market. MSFT - Microsoft Microsoft is looking better now that the case is out of judge Jackson's court. $80 was tested several time last week and I would be a buyer on a breakout over $80 for an earnings run into the July 19th earnings announcement. Conservative traders shold wait for a breakout over the recent high of $82 and a positive market. As always we do not recommend holding over an earnings announcement. ********** My current positions are still VOD, NOK, MSFT leaps. I came real close to closing my Nokia leaps on the Ericcson weakness last week. I think they have seen a bottom and I am still holding. I am not currently trading due to pressing business requirements related to bringing you, the reader, an entire new wave of products to aid your trading. Until this crush is over I will continue to pick three stocks from the current OIN picks that I think have a good chance for success and diagram my reasons. This is strictly for educational purposes only and are not recommendations. You should use the stocks profiled in OIN as a starting place for your personal research. As always, wait for positive stock, sector and market before opening new positions. Good Luck Jim **************** MARKET SENTIMENT **************** A Thirty Minute Session By Austin Passamonte All those who remained awake through six hours of market slumber on Friday were treated to 30 minutes of action before the bell. A typical day before holiday weekend had all the buyers and portfolio decorators rush back to their tickers after a nice morning round of golf. I know that's where they were because the course I played was clogged with Mercedes in the parking lot! Seriously though, this late-day rally was panacea to the bulls tired of watching quote screens scroll red. By market close the Dow added 43.14 for the week and the Comp 120.78 - hardly what we've seen in prior pre-earnings season but it's still progress. From lush green pastures of the bullish camp it was nice to see market leaders on both boards post solid gains. If a sustained rally is to materialize our generals must lead the charge, including the financial sector. We can probably toss out this coming Monday's "action" from the bell-curve while waiting for Wednesday to indicate where we go from here. Over in the woods at the bear's den, evidence is gradually piling up to convict this market of stagnation at best and maybe we won't talk about the worst. Key leading indicators keep rolling over to the warning zone one by one. Will the alarm eventually go off? For those who've been around awhile, we've seen rallies appear from deep within the crevices of doom and market crashes spurred by a spoken sentence or two on CNBC. No doubt the markets are winding themselves into the tightest coil witnessed in quite some time. An eventual explosion is inevitable to major highs or lows. May we suggest you watch the signs objectively and prepare to buy calls or puts to profit handsomely from this release? Remember, put options will add huge returns to your account just as call options can in the right direction. With the luxury of being unidirectional equity traders, we shouldn't care which way the market chooses to run so long as it runs long and hard! Wouldn't that be a most pleasant change? MARKET SENTIMENT INDICATORS --------------------------- VIX The CBOE Market Volatility Index measures certain S&P 100 option pricing to determine investor sentiment. Historically, readings near 30 signal possible market bottoms while levels near 20 indicate possible market tops. Thur 6/29 close: 22.02 Fri 6/30 close: 22.26 CBOE Equity Put/Call Ratio The CBOE equity put/call ratio is a contrarian-sentiment indicator. Numbers above .75 are considered bullish, .75 to 40 neutral and bearish below .40 ************************************************************* Tues Thurs Fri Strike/Contracts (6/27) (6/29) (6/30) ************************************************************* CBOE Total P/C Ratio .57 .48 .48 Equity P/C Ratio .47 .42 .47 Peak Open Interest (OEX) CBOE index put/call ratio is a contrarian-sentiment indicator. Numbers above 1.5 are considered bullish, 1.5 to .75 neutral and bearish if below .75 ************************************************************** Tues Thurs Fri Strike/Contracts (6/27) (6/29) (6/30) ************************************************************** All index options N/A N/A .97 OEX Put/Call Ratio .91 .97 .61 OEX Maximum Open Interest Strikes/Contracts: Puts 700 / 6426 770 / 5410 770 / 5496 Calls 880 / 6308 800 / 3949 790 / 6370 Put/Call Ratio 1.02 1.37 .86 OEX S/R (Support/Resistance) Ratio Index The OEX S/R ratio is a formula to gauge possible support or resistance based on open-interest disparity. Divergence of numbers may indicate future market direction. OEX Fri Tues Thurs Benchmark: (6/30) N/A (7/6) Overhead Resistance: (815 - 830) 38.41 (810 - 790) 4.84 OEX Close: 790.25 Underlying Support: (790 - 770) 2.28 (765 - 750) 1.90 What the S/R measure indicates: Net open-interest ratios are very high above current OEX level while underlying support is comparatively light. The OEX has considerable downside pressure with little upward support in comparison. A large move in either direction seems favored to the downside. CBOT Commitment Of Traders Report: Biweekly COT report discloses positions held by small specs, large specs and commercial traders of index futures contracts on the Chicago Board Of Trade. Small specs are the general public, large specs primarily funds with commercials being financial institutions. Commercials are historically on the correct side of future trend while small specs are not. Extreme divergence between each signals a possible market turn in favor of commercial trader's direction. Large Specs Small Specs Commercials DOW futures Total O/I; 7,161 8,435 28,719 Net contracts; 2,219 short 1,281 short 3,501 long %long/short; 31% short 15% short 12% long NASDAQ 100 Total O/I; 10,771 17,334 89,812 Net contracts; 4,777 long 6,423 long 11,200 short Percent S/L 44% long 37% long 12% short S&P 500 Total O/I; 35,404 215,951 613,538 Net contracts; 840 long 36,659 long 37,498 short Percent S/L; 2% short 17% long 6% short BULLISH SIGNALS The end of earnings warnings The time has come for warnings to fade and profits to appear. Most of the pre-announcements should have trickled out by the end of last week. Interest rates 5.89% on the 30-year Treasury Bond may be signaling the rate fears are over. Fed-Fund futures are pricing in one more hike of .25 at this time, subject to change. Corporate Earnings Last quarter earnings expected to be very strong, especially for the tech sector. ****** BEARISH SIGNALS Failing NASDAQ Although it hasn't broken major support levels, failure to hold above 4,000 is a concern. A close above this crucial mark next week would be important. Energy Prices Relief may be a long time coming. It will be difficult to curb inflation with gas and oil prices remaining high. Ultimately, this affects profit margins. August Crude closed @ $32.50 Friday with bullish technical futures charts. A run towards $40 per barrel is considered possible, but seasonal energy patterns typically bottom by late summer. Volatility Index (22.26) Today's close at 22.26 warns us that a top may be near. COT Report Friday's updated figures show small spec traders heavily long S&P 500 contracts while commercial positions remain at several-year lows, net short. Divergence suggests possible market turn in favor of commercials. OEX Put/Call Ratio Friday's OEX put/call ratio slipped below the .75 neutral zone to .61, considered bearish territory. ************** MARKET POSTURE ************** As of Market Close - Sunday, July 2, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,200 10,775 10,447 BEARISH 6.29 SPX S&P 500 1,350 1,500 1,454 BEARISH 6.29 OEX S&P 100 725 800 790 BEARISH 6.29 RUT Russell 2000 450 550 517 Neutral 5.05 NDX NASD 100 3,000 4,000 3,763 Neutral 5.30 MSH High Tech 800 1,050 1,015 Neutral 6.06 XCI Hardware 1,250 1,600 1,524 Neutral 5.30 CWX Software 1,050 1,350 1,279 Neutral 6.06 SOX Semiconductor 850 1,280 1,140 Neutral 6.29 NWX Networking 900 1,240 1,235 BULLISH 6.02 INX Internet 500 650 551 BEARISH 5.30 BIX Banking 485 565 508 BEARISH 6.30 ** XBD Brokerage 450 515 495 Neutral 6.22 IUX Insurance 575 650 616 Neutral 6.20 RLX Retail 810 920 865 BEARISH 6.09 DRG Drug 360 425 421 BULLISH 6.27 HCX Healthcare 725 850 859 BULLISH 6.15 XAL Airline 140 165 158 BULLISH 5.25 OIX Oil & Gas 275 310 295 Neutral 6.30 ** Posture Alert The DOW Industrials continued to find support at the 10,335 level, while the NASDAQ Composite struggles with resistance at 4,000. A break either way in one of these indexes could trigger equity markets in the prevailing direction. ************* SECTOR TRADER ************* "When a Person is Wrong, The First Thing He or She Should do is Cease to be Wrong!" By Buzz Lynn sectortrader@OptionInvestor.com Or, if you can't beat 'em, join 'em. This weekend we implement new strategies to profit from this sideways market. The words captioned above? Jesse Livermore, one of the greatest traders of the last century, brings them to you. In my opinion, his chronicles of his market experience are the most timeless and helpful of any other individuals that I've read. (If you want to discover his wisdom for yourself, pick up and read a copy of Reminiscences of a Stock Operator by Edwin LeFevre.) His belief was simple. If we aren't getting our expected outcome, we should change our approach. In other words, we should be trading what the market gives us rather than sticking to a play that has gone against us in hopes that it will come back. If you have been trying to trade this market for a direction, either up or down, you are likely frustrated and a bit lighter in the wallet for your efforts. We aim to give you a starting point to change that this weekend by giving our slant on the strategy we like best for playing a particular sector. It still means we can go short or long. But we can also do strangles, straddles, or spreads that ease the need for us to be right about the short-term direction. For instance, instead of giving you rangebound support and resistance on the QQQ, then suggesting a long or short play (depending on the market) where time decay (theta) has lately outstripped intrinsic gain, why not try to profit by selling a strangle to let time decay work in your favor? Sound interesting? Look for it below. On a related note, our aim at Sector Trader is to help you trade sectors more profitably without having to be right on just one stock pick. We want to know what you like so far about Sector Trader, or what you'd change. Have a favorite strategy that works for you? Have an index you like to trade that you think other readers may like too? Is there a piece of information you'd like to consistently see in the write-ups? Tell us your success stories - or your worst nightmare and the wisdom you gained from it. What would help you to trade sectors for better more consistent profits? Rest assured we'll do our very best to deliver what you want in concise readable, tradable and hopefully profitable form. Let us know. We want to hear from you! Now, without further delay, we bring you the weekend sector trades. Good luck! Oh, one other item. Remember the RKH (regional banks) and UTH (utilities) HOLDRS that began trading the week before last? In what must be a new record, they began trading options last Tuesday, a mere week after their introduction. Though they are now available, we won't offer them in our plays until they develop more of a track record with some steady trading volume. No reason you can't keep them on your own radar though. We'll be keeping it on ours too. Index Last Mon Tue Wed Thu Fri Week QQQ NASDAQ-100 93.31 2.50 -1.28 1.63 -2.34 1.69 2.19 HHH Internet 108.25 -3.19 2.63 0.00 -2.69 1.69 -1.56 BBH Biotech 177.75 5.75 -5.00 7.88 -3.88 1.50 6.25 PPH Pharm. 105.81 2.19 0.81 0.00 2.69 2.06 7.75 TTH Telecom 74.38 -0.25 -0.50 -0.94 -0.75 0.56 -1.88 IAH I-net Arch. 91.50 1.94 -1.69 2.19 -2.19 1.69 1.94 IIH I-net Infr. 62.44 2.38 -0.63 3.00 0.25 0.94 5.94 BHH B2B 41.19 -0.81 -0.63 1.69 -0.50 2.00 1.75 BDH Broadband 89.81 2.06 -1.81 1.25 -1.44 1.69 1.75 SMH Semicon. 94.00 0.00 -3.13 0.50 -2.19 1.31 -3.50 RKH Reg. Bank 91.75 0.75 0.81 -0.50 -2.13 -2.25 -3.31 UTH Utilities 88.44 -0.25 -2.88 1.63 -0.69 -1.56 -3.75 ************** Updates ************** QQQ - NASDAQ 100 $93.31 (+2.19 last week) Stuck in between the rails on the train track? That headlight coming at us isn't a beacon in the night. It's time decay, or theta, steeling away the value of our options just by the passage of time. There are two ways to profit in this situation. The first way to trade this is to sell a strangle. That means simultaneously selling an OTM call and an OTM put with the expectation that QQQ will remain in the trading range until expiration. In this case, we might sell the $95 call and 90$ put. Ideally, both would expire worthless on July 21st if QQQ remains in the $90 to $95 trading range. The second is to derail the train, or hope the QQQ breaks from its rut. We attempt to profit from this by buying a straddle, which is the simultaneous purchase of a put and a call at the same strike price of the same month. With volatility and time premium far from historical lows, we would be hoping for a big enough break from the trading range in either direction with enough profit to cover the net cost of buying the position. The big break will also result in higher implied volatility, which should re-inflate time premiums - a bonus!. We can win directionally and mathematically, but we need to buy enough time to be right and still have about two months remaining if we need to sell the position back if it's not working. However, time decay would be working against us. Sticking to old axiom of "buy low volatility and sell high volatility", we favor selling the strangle since the volatility is falling and we want to profit from having time decay work against the guy who BOUGHT the strangle. Just be sure to protect yourself with a stop loss to buy back the position if the market decides in a major breakout of the range (say 25% loss, but your risk tolerance may differ). If your broker won't let you enter these positions, you can always trade straight puts and calls using $90 as support and $95 as resistance, but that's a tough way to make a living right now. Short Strangle: SELL CALL JUL-95 QVQ-GQ OI= 7856 at $3.25 SELL PUT JUL-90 QVQ-SL OI=20538 at $2.50 Net Credit = $5.75 or greater Stop Loss = $7.25 Average Daily Volume = 26.9 mln /charts/charts.asp?symbol=QQQ ----- PPH - Pharmaceuticals $105.81 (+7.75 last week) MRK, PFE, JNJ, BMY and SGP are floating this sector very nicely. Meanwhile LLY only gave up $1.75 since it's spectacular $15 gain on Thursday resulting from its successful sepsis drug trials. As long as the economy is perceived in a state of flux regarding inflation, drug stocks should remain a safe haven. So, were you able to buy that dip to the first level of support at $102.50 suggested on Thursday night? For those who pulled the trigger, congratulations on a nice entry. PPH closed at $104 and tacked on another $1.81 after Friday's closing bell in a breakthrough of intraday resistance at $104. Given the strength, we'd view that as new support and a suggested target at which to shoot. PPH has broken out into blue sky and has no lingering overhead resistance. The chart is about as pretty as we've seen lately with the 5-dma also at the $102.50 support level if $104 doesn't hold. That said, remember to use a trailing stop to protect your profits and enjoy the ride. BUY CALL JUL-100 PPH-GT OI= 24 at $6.50 SL=4.50 BUY CALL JUL-105 PPH-GA OI=115 at $2.94 SL=1.50 BUY CALL AUG-105 PPH-HA OI= 24 at $4.75 SL=3.00 SELL PUT JUL-100 PPH-ST OI= 0 at $0.38 SL=1.00, no OI Average Daily Volume = 118 K /charts/charts.asp?symbol=PPH ----- TTH - Telecom $74.38(-1.88 last week) There's going to be a shuffle of the components this week thanks to the merger of BEL and GTE. They will combine to become Verizon (VZ) and will become a single component of TTH in the other two's place. VZ will then become the largest component of this HOLDR. It's tough to call this issue right now so tighten up your stops if you are playing the short side. Here's why. Support appears to be forming at $73, a point of former resistance, and Friday's recovery from that low going into the close was pretty strong. Before you think we've become bullish on the sector though, note that TTH also ran bearishly into resistance at $74.50. This also happens to be the 30-dma, which could provide resistance going forward in addition to the pressure that TTH is already getting from the downward trending 10 and 50-dma. Every time it fails at resistance, the technical pressure gets worse. Now MACD too has crossed into negative territory. For that reason we remain interested in the short side, but will approach it with caution. Look at any bounce south of Friday's close as a potential entry level. If it continues to move up though, you'll want to consider an exit. Otherwise, a descent under $73 could be a conservative put buying opportunity that takes TTH under water. BUY PUT JUL-80 TTH-SO OI= 0 at $6.50 SL=4.50, no OI BUY PUT JUL-75 TTH SO OI= 0 at $2.94 SL=1.50, no OI BUY PUT JUL-70 TTH-SN OI= 0 at $0.94 SL=0.25, no OI BUY PUT AUG-70 TTH-TN OI= 0 at $1.69 SL=0.75, no OI Average Daily Volume = 79 K /charts/charts.asp?symbol=TTH ------ BBH - Biotech $177.75 (+6.25 last week) A great performance came from biotech this week as CRA made it official - they had completed a map of human genome. The anticipation of the announcement sent the index up with overall profit taking limited to a small handful of issues. Otherwise AMGN, DNA, SEPR, QLTI, and MEDI provided the lift on Friday. Selling the news was limited in scope. Notice that has created a consolidating 5-10 day long stair step with a short 5-day lift up on two occasions over the last month? It looks like it's getting ready to move up again. Note that $172.50 and $175 are acting as historical support, while the 5 and 10-dma, both roughly $176.50 are providing technical support. BBH is getting a bit congested here so keep your stops in place to protect your profits. Otherwise a bounce from the 5 and 10-dma could make a good entry. If you see a move under $174 without any hope of recovery, better step aside and move on to another play as that would indicate a loss of strength in the sector. BUY CALL JUL-170 BBH-GN OI=1264 at $14.88 SL=11.00 BUY CALL JUL-175 BBH-GO OI= 130 at $12.00 SL= 9.00 BUY CALL JUL-180 BBH-GP OI= 466 at $ 8.88 SL= 6.00, MORE RISK BUY CALL AUG-175 BBH-HO OI= 25 at $18.38 SL=13.25 SELL PUT JUL-170 BBH-SN OI= 127 at $ 5.25 SL=7.50 Average Daily Volume = 637 K /charts/charts.asp?symbol=BBH ------ IIH - Internet Infrastructure $62.44 (+5.94 last week) Nice move last week for IIH which continues to show higher lows on the chart at its 5 and 10-dma, both roughly at $60.25. Friday, IIH closed at its high of the day in a final burst of strength. AKAM was the big mover Friday on what looks like plain old window dressing or index shuffling at the end of the second quarter - no specific news. Only four of the components were in the red with all others nicely in the green. That said, continue to look for resistance at $63. If you like, you can consider going long on a move over $63, however that may get you into the position with some congestion since the next resistance would be a breakout at $64. We think a more prudent strategy would be to go long at support in the $60 to $60.50 area. Wait for the play to come to you. Just make sure you see a bounce first. If it falls under $60, that would be a violation of support and our cue to move on to another play. BUY CALL JUL-60 IIH-GL OI=203 at $4.88 SL=3.00 BUY CALL JUL-65 IIH-GM OI= 37 at $2.63 SL=1.25 BUY CALL AUG-60 IIH-HL OI= 0 at $7.00 SL=5.00, no OI BUY CALL AUG-65 IIH-HM OI= 7 at $4.50 SL=2.75 Average Daily Volume = 296 K /charts/charts.asp?symbol=IIH ************** No Play ************** IAH BHH SMH BDH HHH RKH UTH *****************************ADVERTISEMENT************************ FFFOOOOUUUUURRRRR!!!!! Golf Digest is the most preferred golf publication. Only $1.48 per issue,63% off the news stand price. Learn how to Cure your slice, and other valuable lessons! http://www.OptionInvestor.com/tracking.asp?co=OIGolfDigest6302000 ****************************************************************** ************* COMING EVENTS ************* For the week of July 3, 2000 Monday Auto Sales Jun Forecast: 6.8M Previous: 6.8M Truck Sales Jun Forecast: 7.4M Previous: 7.3M NAPM Index Jun Forecast: 53.0% Previous: 53.2% Construction Spending May Forecast: -0.2% Previous: -0.6% Tuesday Markets Closed in Observance of Independence Day Wednesday NAPM Services Jun Forecast: 61.5% Previous: 61.5% Leading Indicators Jun Forecast: -0.2% Previous: -0.1% Thursday Initial Claims 07/01 Forecast: 305K Previous: 306K Factory Orders May Forecast: 2.9% Previous: -3.9% Friday Nonfarm Payrolls Jun Forecast: 260K Previous: 231K Unemployment Rate Jun Forecast: 4.0% Previous: 4.1% Hourly Earnings Jun Forecast: 0.4% Previous: 0.1% Average Workweek Jun Forecast: 34.5H Previous: 34.5H Week of July 10th 07/10 Consumer Credit 07/11 Wholesale Inventories 07/13 Initial Claims 07/13 Export Prices ex-ag. 07/13 Import Prices ex-oil 07/14 Retail Sales 07/14 Retail Sales ex-auto 07/14 PPI 07/14 Core PPI 07/14 Industrial Production 07/14 Capacity Utilization 07/14 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 7-02-2000 Sunday 2 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/070200_2.html ************** TRADERS CORNER ************** Liquidity Trends And Straddling The Dow By Mary Redmond In recent years, some bearish market analysts have stated that the bull market of the 1990s may be responsible for a "wealth effect" which could potentially lead to inflation, and that Americans may have become overexposed to equities, which may be contributing to market volatility. However, a study of some of the liquidity trends may indicate otherwise. For example, in 1999 investors deposited a total of $193,854 billion to money market funds and $187,530 billion to equity mutual funds according to the investment company institute's web site. The year to date flows to money market funds for 2000 are $34,748.8 billion, and this includes a large net redemption of over $50 billion in April of this year, which was most likely attributed to margin calls. Statistics have shown that the vast majority of the total market capitalization of stocks in the US is owned by a small percentage of the population. However, a study of the very long term trends of fund investing by the investment company institute show that the vast majority of equity funds in the US are owned by people with an annual income in the five figure range who do not redeem in either bull or bear markets. Once again, during the months of May and June the pattern of cash flows to equity funds showed a strong correlation to the pattern of the market, and a similarity to the pattern seen during the first quarter of this year. According to the investment company institute, during May equity funds received $16.94 billion in new cash. Aggressive growth funds received $5.7 billion, and growth funds took in $7.76 billion. Growth and income funds experienced an outflow of $1.03 billion. AMG Data Services reported that US equity funds experienced a net redemption of $427 million last week, with the flows to aggressive growth decelerating. The majority of the outflows came from international funds. However, the net total for the four weeks in June is a positive flow of over $8.5 billion to equity funds, with over $7.6 billion going into growth funds, and a net outflow from both international funds and growth and income funds. This may be part of the reason the Nasdaq rallied from 3100 to over 3900 over the last 8 weeks while the Dow stayed relatively flat. The ICI reported another large outflow from money market funds of over $7.9 billion last week. While there has not been a clear correlation between the market and outflows from money market funds, it seems likely that this money may be going into the market. For the last five years the equity fund inflows have been slowest during the months from June to October. Also, the ipo schedule is picking up, with several high profile ipos which had strong gains of the first trading day this week. It is also important to note flows in the bond sector. For example, US bond funds showed a net outflow of cash every month for the last twelve months. In 1999, a net total of $5.46 billion was redeemed from bond funds, and in 2000 over $50 billion has been redeemed from bond funds. At the same time, the US Treasury Dept redeemed over $50 billion in US treasuries in the first quarter of this year. This adds needed liquidity to the system. We know that the Dow cannot stay in the same trading range forever. At some point it is going to break out. The question is when, and in what direction. Fewer people trade options on the Dow than on the OEX, but if you are anticipating a possible breakout you might be able to profit from a Dow straddle or strangle. A straddle is a simple concept to understand. It is a call and a put with the same strike price and expiration date. The key to profiting on a straddle is usually timing. For example, at 10,423 the Dec 104 DJX calls were 7.75. The Dec 104 DJX puts were 4.87. If you bought the call alone you are betting that the Dow will be above 11,198 by December. If you bought the put alone you think the Dow will be below 9936 by December. If you are unsure of the direction the Dow will move you could buy the call and the put, which would be a straddle. The total cost of this straddle would be $12.62. If you held the straddle to expiration you would need the Dow to be above 11,685 or below 9,161 for this position to be profitable. The stock or index generally has to move by more than the price of both options by the date of expiration in order for the straddle to be profitable. This may be a realistic bet. For example, for the last year the Dow has struggled to break out above 11,700 without any success. It has also shown strong support at 9,700. Some influential analysts have given the Dow a year end target price of 12,500 which would give the call a profit of 13.02 points and the straddle a profit of 8.06 points. The best time to buy a straddle is when a stock or index has been relatively flat. If we do have an explosive move in either direction, a Dow straddle might be profitable. Contact Support ****** Where Did They Put Old Jesse and Does Anyone Care? By Lynda Schuepp Most of the time I have CNBC on mute, but Thursday and Friday were so boring that I actually had the volume turned up and was alerted to an important market sentiment indicator. A grave in Texas was dug up, believed to contain the body of Jesse James. Oops, it wasn't Jesse; this body only had one arm and was buried in 1927. It doesn't get better than this does it, or does it? Now we have two of the talking heads doing movie reviews about chickens! Well that says it folks, we are in a sideways market. So what can we do in a sideways, range-bound market? One option is to sit on the sidelines, go camping, boating or enjoy the summer with your kids, friends, or significant other. The other option if you are hell-bent on trading is to employ some sideways trading strategies, using options. In a sideways market, the trading range is typically support and resistance. Covered Calls are usually a good bet; unfortunately, volatility is currently so low that it probably isn't worth selling the call. Any increase in volatility will offset theta decay. Most of you know that I am partial to spreads, so I'll tell you a spread strategy that works best in a sideways market. Probably the simplest, is a long butterfly, which consists of a bull and bear spread, using all calls or all puts. The structure of a butterfly spread consists of a body made up of 2 short options and one long option for each wing, using all calls or all puts, all expiring in the same month. Using calls to construct this spread, you would sell 2 calls at a strike price in the middle of the stocks trading range and buy one call at support and buy one call at resistance. The bottom half is a bull call spread and the top half is a bear call spread. The maximum profit is when the stock closes in the middle of the range (your short calls). Since time decays fastest in the last 30 days, you would ideally like to use 30 days or less to expiration. However, if the underlying has been trading in a sideways range for 2 or more months you may find that you have to go out a month because volatility is so low. Let's quantify the Risk/Reward scenario: Maximum risk: cost of the spread Maximum reward: strike range from body to wing less spread cost Downside Breakeven: lower strike plus spread cost Upside Breakeven: higher strike less spread cost Risk/Reward: Only do if 150% - 200% is possible Exit: if gain is 100% or at expiration (less commissions) Now lets look at a specific example to see how this would work. See Chart for GE: Looking at GE, we can see it has been in a trading range since the third week in March. Support is at 48 and resistance is at about 55. We would look at the July 45, 50 and 55 calls or the July 50, 55, and 60 calls to see if the risk/reward scenario meets our criteria of 150 to 200%. The July 45, 50, and 60 calls do not meet out criteria but the July 50, 55, 60 calls do. For the sake of brevity, trust me on the calculations on these. By taking the higher range of strikes, we are making a more bullish call. The reason is this--to make the maximum amount of money you want GE to close at the middle strike at expiration. You do not want it to close at the upper or lower strikes. So if you did not think GE would close at 55 by July expiration, you could go out to August and check those premiums. For the sake of this example we will use the July 50, 55, and 60 calls. The July 50 calls (1 contract) would cost about 2-1/2; the July 55 calls (2 contracts) could be sold for about 1/2 each; and the August 60 calls (1 contract) would cost about 1/8. Total cost for the spread would be about 1-5/8. Maximum reward is about 3-3/8 or 200%, which is the difference in strikes (5) less the cost (1-5/8) divided by the cost or risk (1-5/8). Now lets look at a couple of scenarios for this spread. Downside Break-even is 51-5/8 (50 plus the cost of 1-5/8), and the upside breakeven is 58-3/8 (60 less the cost of 1-5/8). Therefore, you will make money if GE closes above 51-5/8 but less than 58-3/8 by July expiration, with the maximum gain at a close of 55 at expiration (the middle strike you are short). Had you used the August 50, 55, and 60 call options, your cost would have been 1-13/16 with a downside breakeven at 51-13/16 and an upside breakeven of 58-3/16. As long as GE closes above 51-13/16 and lower than 58-3/16 you would make money, but you make the most money if GE closes at the middle strike of 55. If GE closes at 55 at expiration, your 50 call would be worth 5, the 55 short calls would expire worthless and the 60 call would be worth nothing. Therefore your gain would be 3-3/16 or 175%. However, in this case, it is riskier to go out to August, because you have to wait longer for the middle strike to erode in time value and you have a greater chance of GE breaking through its channel. Stocks don't stay range-bound forever. So when CNBC starts talking about Jesse James and reviewing movies like Chicken Run, it's time to consider Butterfly spreads. A butterfly spread is similar to a short strangle without the big risk, or margin. This strategy is not a get rich quick scheme, simply an appropriate strategy to use in a sideways market with minimal risk. If the butterfly strategy sounds good, then read up on condors and iron butterflies, they get even better, but quite frankly are complicated to manage. Happy Fourth of July to everybody. P.S. If you want the spreadsheet I constructed of the various scenarios I looked at, please email and I'd be happy to send it to you. The email version doesn't do well with charts so it is not included in the article. Contact Support **********************ADVERTISEMENT****************************** FREE! FREE! FREE! FREE! Investor's Business Daily - Free Two Week Trial! No obligation! No invoices! And nothing to cancel! Limited time offer! Click Here! http://ibd.infostreet.com/cgi-bin/freeoffer.cgi?source=ARZOJES ***************************************************************** ****** Fishing For Profits By Jim Brown This article was first published in Nov-1999. The charts and plays are for that period but as an educational piece they are still appropriate. The concept is still the same and the point is easily discernable. "Give a man a fish and you feed him for a day, teach him to fish and your feed him for a lifetime." (Chinese proverb) I hope this helps you learn how to fish. -- Jim Picture yourself fishing. Maybe you are on the bank of a lake, leaning back against a shade tree. You are thinking about when you went fishing with your dad as a kid. Or maybe you are the dad and your kids are with you. You have several lines in the water angling out in different directions and maybe each has different bait. If you are as successful as my fishing trips then you spend many more hours fishing than catching. In an eight hour fishing day you may spend only 10-15 min catching fish. To some the best part about fishing is the trip itself, not the catching. Sure catching is more fun and it makes it worthwhile. If you are a dad, to pass the time, you might be fishing with your kids for perch in the shallows while back in your mind you are watching that pole that is baited heavy and cast way out from the bank in hopes of catching one of those lunkers you know are out there. Why should trading be any different? Fishing is fun but you can't do it every day. Trading should be fun also. If it is too stressful then you are over trading and probably not very successful. The key to profitable trading is entry points. Exit points are much easier when you have a great entry. See if this sounds like more fun than fishing. You get out of bed loaded with optimism and ready to see what the market has for you today. You gather and prepare all your fishing equipment. (PC, quote servers, optionsnewsletter, option montages, news reports, CNBC/Bloomberg, coffee, etc.) You check the weather forecast (pre-open market news). You find a nice comfortable shade tree. (a recliner in front of your PC) Now the hard part. You have to decide what to fish for today. BVSN-walleyes, QCOM-sharks, DELL-trout or the generic "winner" fish, etc. But just because you want to fish for them today does not mean they are worth catching. Have you ever been fishing and caught something you wish you hadn't and had to cut the line to get rid of it? Sure, any serious fisherman has. Turtles, snakes and any number of ocean dwellers. The trick is to only catch the ones worth catching. Did you know that the biggest fish don't live near the top? They live in underwater creeks, canyons, trenches and potholes. Lets go fishing in the market. Every week almost every stock falls into a pothole, trench or canyon. The size of this fall and the damage done is directly related to the speed at which they were going when they hit it. Our task is to predict where these potholes are going to be and throw out our lines before the fish/stock arrives. Normally we can see the accident before it happens and prepare for it. How should we go about fishing in the market. The best method I know we call "target shooting". For the rest of this analogy I am going to refer to it as "fishing for winners". Broadvison had been on a feeding frenzy for several weeks. In order to fish for BVSN we need to know where the next pothole will occur. Using the regression channel I taught about last week we can see here that BVSN started heading for the bottom of the channel on Wednesday. That was our clue that we should prepare the bait. The bait in this case is limit buy on the $80 call option (BDVKP). This can be accomplished in two ways. You can place a limit order to BUY OPEN at a specific price. You can also place a BUY OPEN based on the stock hitting a specific price. (see my stop loss article tonight) Either way works. I like the stop on the stock method better because I can chart the stock more reliably than the option to determine the entry point I am looking for. I do not have to guess what the option price might be if the stock does what I expect. Looking at the option chart. On Wednesday when BVSN started to correct the option was trading for $11-12. Looking at the previous range between the 2nd-8th you could guess that a correction might bring the price back down to the $6 level. You could put in a bottom fishing limit BUY OPEN order at $6.00 on the option itself or a BUY OPEN stop order on the stock at $82. Either way the order gets executed and you are starting out at 40% less basis than the investors that bought the day before. In the example above you would have been filled and have a 66% profit the very next day. Had you not waited for the pull back and bought on the 8th or 9th, because you were afraid it was going to run away from you, the option would still not have returned to the price you paid. If you were trading correctly you would actually have been stopped out on Thursday with a loss. ENTRY POINT, ENTRY POINT, ENTRY POINT. In the example above buying on five of the ten days would have produced a profit. Had you bought on the other five days you would have produced a loss. On which five days do you want to buy? Bottom fishing would have paid off in this instance. JDSU - An example not so clear. I apologize for the busy chart. The concept here is the retracement theory. When a stock has had a strong extended run there is a good possibility of a 50% retracement of the gains on profit taking. It is not always 50%, sometimes 40%, sometimes 60% but you understand the concept. If you had started fishing when if fell out of the channel on the 9th you could have bought and sold for a profit but the more likely event would have been a buy that kept going down. Had you gotten a bite on your limit order on the next drop after it fell out of the channel then you probably would have filled in the $7-8.50 range. In hindsight this would not have been a bad trade but you would probably have sold when it dropped under $6 and lost money. This is a tricky one since we did have a head fake on the 11th that made it look like a rebound although there was no follow through. The correct entry point would have been the rebound after the strong drop took out all the sellers on Friday the 12th. Only a psychic would have known in advance but I really like to confirm the rebound on strong volume before making a buy. If you do catch one that you find out later you didn't want then cut the line fast and cut your losses. The roadmap to the perfect fishing hole. AOL This one had buy written all over it. AOL had consolidated for several days after a strong run and a $25 gain. The closer we got to the -50% retracement, the closer we got to the bottom of the channel. This is one instance where the itchy trigger fingers just would not wait for the bottom. Still an astute fisherman would have seen the bottom of the channel approaching and baited his hook. The bottom was clearly visible on an intraday chart and a limit order at $6.00 or a BUY OPEN stop at $142 for AOL would have been a winner. The option price at $6.00 would have been a 50% retracement from the high and a good place to start bottom fishing. The concept please ! As I am sure you see by now the concept of bottom fishing, waiting for the big ones, is simply another way to attack the entry point problem. I always have two or three BUY OPEN orders outstanding just in case the market give me a gift. Why would anyone want to buy at market and after two or three up days is beyond me. I guess somebody has to pay too much so someone else can make a profit. Put it in Practice So when you are busy chasing some of the little momentum trades, (perch fishing) always leave a couple lines out for the big ones. If you get a bite it could be a big win. If you don't get a bite then it did not cost you anything. If you only practice the methods above and don't get caught up in the flurry of "trading just for the sake of trading" then you will trade less but be more profitable in the long run. You can still have the excitement of fishing with out all the hassle of throwing back the small ones. If you will go back and look at the option charts you will see that the movement of the option price on the rebound is very strong. Much stronger than the normal day to day movement. Isn't that what we are looking for? Could you use less stress in your trading? Catch a few big ones for me and send me an email with the descriptions. Jim Brown ************* DAILY RESULTS ************* Index Last Week Dow 10447.89 43.14 Nasdaq 3966.09 120.75 $OEX 790.25 9.18 $SPX 1454.60 13.12 $RUT 517.23 6.82 $TRAN 2645.37 14.66 $VIX 22.26 -3.63 Calls BRCM 218.94 53.88 Dropped, short but oh how sweet! RBAK 178.00 42.50 Up, up and away! We love this stock! GLW 269.44 32.22 Bulls have been winning the war GSPN 122.06 29.06 New, breaking out to a new range BRCD 183.47 27.47 It keeps going and going and going JNPR 145.56 22.75 New, all systems go for liftoff CIEN 166.69 21.25 New, awarded Best NASDAQ 100 performer ENTU 82.75 18.31 On an upswing and we want a piece TIBX 107.22 17.71 Becoming a Wall Street favorite PRSF 63.88 15.31 Time to hand out report cards MRVC 67.25 12.25 Well-positioned in the fiber industry ARBA 98.03 9.47 Whew! It has been a busy week for ARBA! AGIL 70.69 9.00 Recovery potential looks real KANA 61.88 8.38 New, slew of analyst say "buy KANA" RSAS 69.25 6.75 An internet company that is a good value? NT 68.50 2.84 An "Uncommon Value" in Lehman's eyes MSFT 80.00 2.31 A small feather in its cap for its close QLGC 66.06 -1.50 Dropped, likely out of steam LNUX 43.00 -4.13 Dropped, tradable range but no gusto PDLI 164.94 -7.69 Dropped, biotechs sold but for how long? HGSI 133.38 -12.00 Dropped, post-announcement profit-taking INKT 118.25 -22.13 Dropped, dead cat bounce that never was Puts PHCM 65.13 -9.50 Can't keep its head above water ICIX 29.75 -4.13 Mired in losses and little Street support DD 43.94 -1.69 New, trading near a four year low IMNX 49.44 -0.94 New, this one has seen better days F 43.00 -0.03 Macro factors have management scrambling DCLK 38.13 0.50 Tug of war continues STOCKS ADDED TO THE PICK LIST ***************************** Calls GSPN - Globespan Inc. KANA - Kana Communications JNPR - Juniper Networks CIEN - Ciena Corp Puts IMNX - Immunex Corp DD - Du Pont De Nemours ************************** 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 LNUX $43.00 (-4.13) With various box makers beginning to look at the Linux Operating System as a viable alternative to Windows, we thought that LNUX would see a renewed interest and a boost in the stock price. The trading range for the week we covered this play was very conducive to quick intraday trades off support and resistance. While long-term prospects seem very good for the company, LNUX may be in a holding pattern with this new short-term range. The concern we have going forward is LNUX's inability to hold the $44 level late in Friday's trading session as the rest of market rallied on huge volume. With this support broken, and the lack of buying interest, we are dropping LNUX from the call list. HGSI $133.31 (-12.06) In the aftermath of the human genome announcement on Monday, biotechs did sell-off but not horribly. Our intent on holding this stock through Friday's was due to thought that we could get that euphoric, last-day-of-the-quarter pop that so many stocks had with huge volume at the end of the session. Although the volume increased into Friday's close, HGSI did not get a price spike to go with it. In retrospect, we probably should have dropped this play in Thursday's newsletter, but we took the gamble. Looking forward, we may very well see this and other biotechs back on the play list, as they don't stay out of favor too long. For now, we will drop this call play and go along with the profit-takers. QLGC $66.06 (-1.50) It's time to close up shop on this momentum play. Today's action signaled that QLGC is likely out of steam. While it tried to rebound during the last hour of trading, it just wasn't enough. The 10- and 50-dma violations can't be thrown aside either. We were looking for the momentum to renew and carry into an earnings' run next month, but unfortunately we can't wait around. Time is money in option trading. Qlogic is confirmed to report on July 17th, after the market, so keep your eyes open for future trading opportunities closer to the announcement. PDLI $164.94 (-7.69) After holding up well on Wednesday and Thursday, we were looking for a nice pop in Friday's action. Unfortunately, the biotechs weren't at their best and PDLI turned on us. Not only did it fall back into its consolidation range, but PDLI took a dive under the firm support at $160! The share price lingered in the vicinity of $155 before finally bouncing back on a late afternoon spike. In hindsight, the day wasn't disastrous, but we could have let this one go on Thursday. The stock's inability to hold the $160 mark, coupled with the deteriorating technicals, force us to exit this momentum play. PDLI is a tough one to retire. We've watched it advance its share price by over 100% since it began its climb at the end of May. A multitude of trading opportunities were abundant, but now it's time to move on to other lucrative plays. Next month's earnings may generate an upswing so we'll be watching this high-flyer. Protein Design Labs are expected to report around July 17th. INKT $118.25 (-22.13) The thrill is gone. Ever since Monday's large sell-down, the stock has consolidated in a tight range. With support holding at the $113 level, the stock spent the rest of the week attempting to break through $126 but to no avail. Not only that, the stock has had trouble breaking through its 5-dma, which INKT closed at on Friday. The $126-127 level also happens to be the 20-dma and 50-dma which will provide heavy resistance. There is also strong overhead resistance at $130. The stock may have temporarily found a bottom but with volume drying up, strong overhead resistance and its inability to finish decisively above its 5-dma, we choose to move on to more exciting and profitable plays. For those who have the patience, support can be found at $113 and its 200-dma, currently $109.61. BRCM $218.94 (+53.88) Our BRCM play was short, but oh how sweet it was. In case you missed the pre-holiday fireworks show Friday afternoon, BRCM blasted $15 higher in the final fifteen minutes of trading. An amazing 4 mln shares traded in the last five minutes of trading! BRCM actually drifted lower for a better part of the day, but the index fund buyers we mentioned last Thursday showed up right on cue to take our play higher. The stock traced an inverted head-and-shoulders pattern in the latter half of the day. Once BRCM lifted from its right shoulder the stock didn't look back. We decided to sell too soon, and take the quick profits and run. PUTS No dropped puts today. ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* TIBX - TIBCO Software $107.25 (+18.19 last week) See details in sector list Chart = /charts/charts.asp?symbol=TIBX Put Play of the Day: ******************** ICIX - Intermedia Communications $29.75 (-4.13 last week) See details in sector list Chart = /charts/charts.asp?symbol=ICIX ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.nextcard.com/index6.html?ref=aff0049911 ************************************************************ *********** 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. ********** CALL PLAYS ********** ******** HARDWARE ******** RBAK - Redback Networks $178.00 (+42.50 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. Up, up and away! On Thursday night, we called the stock a superhero, after posting a strong up day on heavy volume with a weak Nasdaq. True to form, our hero came through again, posting a $11.31 or 6.79% gain to end the week up over 30%. Resistance levels were broken easily all week. What was thought to be formidable resistance at $145 was broken on Monday. From there $155 was a little more difficult but fell after the second attempt. What was a technically important resistance level at $160 was next to go, and from there the buyers piled in driving the stock higher on strong volume. All week long bounces off the 5-dma line, currently at $160.58, has been the target to shoot for as an entry point. There is support at $160 which was tested successfully on Friday. Below that, each previous resistance level now represents support. Overhead, there is resistance at $180, which RBAK encountered on Friday. Breaking through that level will find RBAK ready to challenge its all-time high and then the psychological $200. On the news front, there was no news all week long, just pure sweet momentum, with RBAK posting gains 4 out of the last 5 days. With earnings less than two weeks away, a history of surprising to the positive side, and trading volume continuing to increase, this stock looks poised to move onward and upward. BUY CALL JUL-170 BKK-GN OI= 351 at $22.38 SL=18.25 BUY CALL JUL-175 BKK-GO OI= 99 at $18.63 SL=13.75 BUY CALL JUL-180*BKK-GP OI= 294 at $16.25 SL=12.25 BUY CALL JUL-185 BKK-GQ OI= 176 at $13.50 SL=10.25 BUY CALL AUG-180 BKK-HP OI= 75 at $26.63 SL=20.75 SELL PUT JUL-170 BKK-SE OI= 34 at $10.75 SL=14.00 (See risks of selling puts in play legend) Picked on May 28th at $72.06 P/E = N/A Change since picked +105.94 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 = 3.20 mln /charts/charts.asp?symbol=RBAK GLW - Corning Inc. $264.00 (+24.31 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 bulls and bears duked it out over GLW Friday. The result was a tie. But, the bulls have definitely been winning the war. And no wonder, considering GLW is the leading provider of optical cable in the blistering hot fiber optic area. GLW has made quite a run so far this year, in fact, the stock is one of the best performing names on the NYSE year-to-date. Analysts feel that the stock has at least $100 more upside potential this year. Which doesn't sound too bad for those of us on the long side of things. Furthermore, with GLW trading at such high levels, many are expecting a split announcement from the fiber optic giant, including us at OIN. Given its high-profile status on Wall Street, a split announcement may have a significant impact on our play. What has attracted investors to GLW so far this year is the company's explosive earnings growth. What's more, GLW's fundamentals rival those of any other company operating in the fiber optic business. The stock trades at a healthy multiple, but relative to the likes of JDSU and SDLI, GLW is fairly cheap. GLW's relatively low P/E explains why analysts expect the stock to continue to climb this year and expand its multiple. There are little, if any, signs of demand slowing for GLW's fiber optic cable. And the robust business GLW is enjoying is the catalyst that can take our play higher. With GLW trading at such high levels the stock is volatile, to say the least. An aggressive trader might look to the intra-day dips for entry points. GLW has support at the $260 level, which may provide an entry if the stock bounces from that level. For our more conservative readers, look for an entry if GLW can clear resistance near its 52-week high at $270. Further proof that business is booming in the fiber optic market came last week when GLW announced a host of new contracts it had won. The company said it would provide optical cable to the new venture that is building an undersea network that will connect 15 countries. Also, GLW said it had signed a $1 bln contract to supply cable to Aerie Networks to build a nationwide broadband network. BUY CALL JUL-260 GRJ-GZ OI=1019 at $18.00 SL=13.00 BUY CALL JUL-270*GWD-GN OI=1380 at $12.63 SL= 9.50 BUY CALL JUL-280 GWD-GP OI= 731 at $ 8.38 SL= 6.00 BUY CALL AUG-270 GWD-HN OI= 319 at $25.38 SL=18.50 BUY CALL NOV-280 GWD-KP OI= 64 at $40.00 SL=29.00 Picked on June 6th at $217.25 P/E = 141 Change since picked +46.75 52-week high=$271.00 Analysts Ratings 8-5-0-0-0 52-week low =$ 60.00 Last earnings 04/00 est= 0.55 actual= 0.64 Next earnings 07-24 est= 0.67 versus= 0.49 Average Daily Volume = 2.89 mln /charts/charts.asp?symbol=GLW BRCD - Brocade Communications $183.47 (+27.47 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. Like the Energizer Bunny, BRCD keeps going and going. Seemingly oblivious to the largely-sideways action on the NASDAQ, BRCD has broken out of its consolidation pattern and is knocking on the door of new all-time highs. Strong volume continues to increase, allowing the stock to set a new closing high on Friday of $183.47. It isn't hard to see the reason for the recent move, as the news is full of positive stories and analyst comments (see below). After re-testing support at $155 early in the week, BRCD acted like it got a shot of adrenaline. Blasting through resistance near $165 on Wednesday and continuing with the strong momentum all week, the stock is now being supported by the 5-dma ($170.83) and then the 10-dma ($165.06). After almost a $30 move this past week, be on the lookout for profit taking. A drop to intraday support at $170 looks buyable, but we could get really lucky and see a retest of the $165 level before the stock heads higher again. Of course, with the strong momentum seen last week, the move could just as easily continue higher from here. Consider new entries on a bounce from support or a strong break through the $185 resistance level. Watch the volume, as it will continue to telegraph the strength of the move. With the large gains from last week, tighten up your stops to make sure you keep your profits when the sellers appear. Good news about BRCD continued to flow last week. After announcing several product enhancements on Monday, the company released an end-to-end interoperability program for SANS, called Fabric Aware, which was immediately endorsed by 25 industry partners including EMC, Hewlett Packard, Sun Microsystems, and VERITAS Software. On Tuesday, Chase H&Q initiated coverage of the stock with a Buy Rating and then on Wednesday the company announced an expansion of their OEM partnership with Hewlett Packard. HP is now shipping the BROCADE SilkWorm® eight-port 2400 Fibre Channel fabric switch as part of the networking foundation for HP SAN solutions for the Windows NT® departmental and workgroup markets, thereby expanding the range of BROCADE products available through HP BUY CALL JUL-180*GUF-GP OI=3271 at $11.00 SL= 8.25 BUY CALL JUL-185 GUF-GQ OI= 199 at $ 8.75 SL= 6.00 BUY CALL JUL-190 GUF-GR OI=1147 at $ 6.38 SL= 4.25 BUY CALL AUG-185 GUF-HQ OI= 55 at $17.13 SL=12.25 BUY CALL AUG-190 GUF-HR OI= 461 at $12.13 SL= 9.00 BUY CALL OCT-190 GUF-JR OI= 32 at $25.25 SL=19.00 SELL PUT JUL-175 GUF-SO OI= 30 at $ 5.25 SL= 7.50 (See risks of selling puts in play legend) Picked on June 6th at $138.88 P/E = 809 Change since picked +44.59 52-week high=$185.00 Analysts Ratings 9-4-2-0-0 52-week low =$ 21.75 Last earnings 05/00 est= 0.08 actual= 0.11 Next earnings 08-14 est= 0.13 versus= 0.01 Average Daily Volume = 3.30 mln /charts/charts.asp?symbol=BRCD MRVC - MRV Communications $67.25 (+12.25 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. With the benefit of hindsight, we can say that the profit taking on Friday, June 23rd was nothing more than profit taking. The selling dropped MRVC back to its 10-dma (then at $55.38), and the recovery this past week had a very nice feel to it. All week, the 10-dma continued to support the move higher, and has now moved up to $62.63. Support by volume 50% over the ADV all week long made investors happy and they continued to buy the stock, bringing MRVC right up to the $68 resistance level. This level was created in early March as the NASDAQ began its historic slide. Moving above it could give the stock a launching pad for an assault on the almighty $100 level as earnings approach on July 27th. There really is no confirmation of any spinoff plans (remember our comments last week about chatroom conversations on the possibility of the company spinning off its Luminent division), and we really don't want to use anything like that as a basis for trading anyway. Let's go with what we know. Buying volume was strong all week, allowing the stock to move back up to its nearest resistance level. Another rebound from the 10-dma is buyable, but we would prefer to see buyers push the price through resistance before opening new positions. If volume stays strong and the price traces above $70, that will be your cue for entering this play on convincing strength. Other than speculation of a spin-off, news has been light on MRVC. The company is well positioned in the fiber industry and has benefited recently from its strength relative to the broad markets. Continued momentum in the industry could also help our play continue to surge higher. BUY CALL JUL-65*RVY-GM OI=1090 at $ 7.75 SL= 5.50 BUY CALL JUL-70 RVY-GN OI=1416 at $ 5.88 SL= 4.00 BUY CALL JUL-75 RVY-GO OI= 843 at $ 3.75 SL= 2.00 BUY CALL AUG-70 RVY-HN OI= 113 at $ 9.88 SL= 7.00 BUY CALL AUG-75 RVY-HO OI= 92 at $ 8.13 SL= 5.75 BUY CALL OCT-70 RVY-JN OI= 244 at $15.13 SL=11.00 SELL PUT JUL-60 RVY-SL OI= 202 at $ 2.94 SL= 5.00 (See risks of selling puts in play legend) Picked on Jun 11th at $46.00 PE = N/A Change since picked +21.25 52 week high=$97.44 Analysts Ratings 1-1-0-0-0 52 week low =$ 6.19 Last earnings 04/00 est=-0.01 actual= 0.03 Next earnings 07-27 est= 0.03 versus= 0.01 Average daily volume = 2.12 mln /charts/charts.asp?symbol=MRVC NT - Nortel Networks $68.88 (+3.69 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. The pressure seems to be building for a break to new highs, but there are nagging doubts. After recovering from the $64 level a week ago, NT has been gradually moving higher. Volume has been strengthening, with over 11.4 mln shares changing hands on Friday. The buyers are trying to push the price through resistance at $72, but have so far been turned away at every attempt. Over the past few days, the stock has found support near $68, which is just above the 10-dma ($67.56). Friday was actually looking to be a good day, as the stock was trading near $71 with only 30 minutes to go until the weekend. Then a rash of selling took place, primarily in the final 5 minutes, dropping the price below $69 at the close. We would like to see the 10-dma hold as support, but market weakness early next week could be just the catalyst for a retest of support at $66. We would consider a bounce at either of these levels as an attractive entry point, but keep an eye on the broad market and on NT's volume. If strong volume comes in to propel the price through resistance, consider it a good opportunity to enter the play on strength. NT's popularity continues unabated as it showed up Wednesday on the Lehman Brothers' "10 Uncommon Values" list. Tim Luke at Lehman says Nortel is "one of the best-positioned global players in communications equipment." Its lead position in optical equipment is one of the factors that should propel it forward. On Thursday, NT formed an alliance with Juniper Networks to provide a compelling combination of advanced optical and core routing solutions to help service providers and carriers build powerful Internet infrastructures. BUY CALL JUL-65*NTV-GM OI= 9287 at $5.13 SL=3.00 BUY CALL JUL-70 NTV-GN OI=10167 at $2.13 SL=1.00 BUY CALL AUG-70 NTV-HN OI= 1169 at $4.63 SL=2.75 BUY CALL AUG-75 NTV-HO OI= 1323 at $2.75 SL=1.50 BUY CALL SEP-70 NTV-IN OI= 4588 at $6.13 SL=4.00 Picked on June 15th at $67.00 P/E = N/A Change since picked +1.88 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 = 10.10 mln /charts/charts.asp?symbol=NT CIEN - Ciena Corp $166.69 (+21.25 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. We're bringing back an old favorite. With the end of the second quarter last Friday, CIEN earned the award for best individual performer in the NASDAQ 100 for the first half of 2000, rising 183%. CIEN's P/E is approaching four digits, again. But, it seems investors don't mind forking over the big bucks as long as they receive earnings growth in return. And, there is no area of the U.S. economy that is growing faster than the fiber optical networking arena. CIEN, of course, supplies optical networking equipment to telecom carriers. The pace at which CIEN receives orders from its customers is stunning. The company recently told analysts that it expects demand for its products to continue to double every six months. And, that's just in the U.S.! The demand for optical equipment in international markets is picking up as countries scramble to upgrade their ailing telecom networks in order to tap into the power of the Internet. CIEN is positioned to be one of the premier providers of optical equipment to foreign countries. With the second quarter coming to an end, we might see some of the sidelined cash move into leading stocks like our CIEN play. Wit Soundview got a jump on the ratings game last week when they reiterated their Strong Buy rating on CIEN. CIEN is coming off five winning days in a row using its 10-dma as support along the way. CIEN edged past a key resistance level last Friday, prices not seen since early March. Consider entry at current levels if institutions put money to work in CIEN next week. A more conservative entry may be found if CIEN moves above the $170 level. Make sure to confirm a CIEN rally with healthy volume. The stock has major support at $160 and again at its 10-dma, currently at $157.75. We are gradually starting to see a few more companies announce stock splits. With its recent resurgence, CIEN is trading well into split territory. The company has plenty of shares to authorize a split. We'll listen for an announcement in the coming weeks which would add even more momentum to our play. BUY CALL JUL-160*UEE-GL OI=1947 at $15.38 SL=11.25 BUY CALL JUL-165 UEE-GM OI=3766 at $12.63 SL= 9.50 BUY CALL JUL-170 UEE-GN OI=2962 at $ 9.88 SL= 7.00 BUY CALL AUG-170 UEE-HN OI= 114 at $20.00 SL=14.50 BUY CALL OCT-175 UEE-JO OI=5498 at $28.13 SL=20.50 Picked on July 2nd at $166.69 P/E = 958 Change since picked 0.00 52-week high=$189.00 Analysts Ratings 12-9-2-0-0 52-week low =$ 29.06 Last earnings 04/00 est= 0.10 actual= 0.12 Next earnings 08-17 est= 0.17 versus= 0.01 Average Daily Volume = 6.45 mln /charts/charts.asp?symbol=CIEN JNPR - Juniper Networks Inc $145.56 (+22.75 last week) Juniper Networks develops and provides next-generation Internet infrastructure systems that are designed to meet the scalability, performance, density, and compatibility requirements of IP networking systems. The company's M40 and M20 Internet backbone router use JUNOS network traffic management software, ASICs. Its clients include some of the world's leading service providers such as Ericsson and MCIWorldCom. All systems are go for JNPR to fly high and break through the clouds. On Wednesday, JNPR was one of the technologies stocks that shot upwards after being included on the Lehman Brothers' list of "10 Uncommon Values". Shares of JNRP rose $10 to $136.44 on nearly double the average volume. The break out extended into Thursday despite the earnings woes of the broader markets. The acceleration in gains was a direct reaction to the Nortel marketing pact announcement. Nortel Networks, North America's No. 2 phone-equipment maker, agreed to market and sell Juniper's Internet backbone routers. JNPR rose another $11.50, or 8.4% for the highest close it's seen in nearly three months. The resale deal is important because it gives Juniper access to Nortel's customer base, which includes big boys like British Telecommunications, Sprint, and WorldCom. Bottom line - more revenue. There's also an earnings report just around the corner. Juniper is confirmed to announce on July 13th, after market, and so far all looks good for a solid report. Near-term support is relatively firm at $138 and $140, with a stronger base near the 10-dma ($132.23) level. If you're partial to using DMA technicals as guideline, then the 5-dma (currently at $137.14) should serve as decent gauge for entry points on the climb. For the moment, keep in mind that JNPR is a simple momentum play powered by news and a technical breakout. It needs your undivided attention. In other words, playing the Internet stocks can be the ultimate adrenaline rush as long as you have a parachute packed for an unexpected downdraft. On Friday, Mark Sue of Lehman Brothers reiterated a Buy rating and issued a hefty target price for JNPR at $180 per share. BUY CALL JUL-140 JUY-GH OI=1008 at $13.00 SL= 9.75 BUY CALL JUL-145 JUY-GI OI= 663 at $10.50 SL= 7.50 BUY CALL JUL-150*JUY-GJ OI=2517 at $ 8.13 SL= 5.75 BUY CALL JUL-155 JUY-GK OI=1162 at $ 6.25 SL= 4.25 BUY CALL AUG-150 JUY-HJ OI= 251 at $14.38 SL=10.75 BUY CALL AUG-155 JUY-HK OI= 203 at $12.25 SL= 9.00 Picked on July 2nd at $145.56 P/E = N/A Change since picked +0.00 52-week high=$156.47 Analysts Ratings 12-4-1-0-0 52-week low =$ 20.33 Last earnings 03/00 est= 0.03 actual= 0.06 Next earnings 07-13 est= 0.04 versus=-0.02 Average Daily Volume = 4.84 mln /charts/charts.asp?symbol=JNPR ******************************** CALLS CONTINUED IN SECTION THREE ******************************** *****************************ADVERTISEMENT************************ FFFOOOOUUUUURRRRR!!!!! Golf Digest is the most preferred golf publication. Only $1.48 per issue,63% off the news stand price. Learn how to Cure your slice, and other valuable lessons! http://www.OptionInvestor.com/tracking.asp?co=OIGolfDigest6302000 ****************************************************************** ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
The Option Investor Newsletter Sunday 7-02-2000 Sunday 3 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/070200_3.html *************** CALLS CONTINUED *************** **********************ADVERTISEMENT****************************** FREE! FREE! FREE! FREE! Investor's Business Daily - Free Two Week Trial! No obligation! No invoices! And nothing to cancel! Limited time offer! Click Here! http://ibd.infostreet.com/cgi-bin/freeoffer.cgi?source=ARZOJES ***************************************************************** ******** INTERNET ******** ENTU - Entrust Technologies Inc $82.75 (+18.31 last week) Entrust Technologies' security software ensures the privacy of electronic communications and transactions across corporate intranets and the Internet. The Entrust solution automates the management of digital certificates through public key infrastructure (PKI) technology designed to assure the privacy and authenticity of internal and external electronic communications. Customers include Customers include Citibank, JP Morgan, NASA, and the Royal Bank of Scotland. Nortel Networks (NT) has a 32% stake in the company. ENTU is on the upswing and we want a piece of the action. On Wednesday, Greenspan sputtered "no rate hike" and warned of his watchful eye. A rally ensued which was enough to propel ENTU out of its trading range ($65-$70). Even though the post-FOMC party waned towards the end of the session, ENTU still managed to close a fraction over the $70 mark on moderate volume. The following two sessions most certainly confirmed a developing momentum run. ENTU advanced 5.6% on Thursday, and Friday's session was excellent too with a $8.63, or 11.6% gain. The NASDAQ explosion during that last hour of trading launched ENTU through intraday resistance of $75 and propelled it to $83.50. The strong close, just a fraction from this high, further establishes a bullish sentiment. Additionally, ENTU received a Strong Buy reiteration from analyst David Zale at Sands Brothers & Co. He also upped his price target to $100 from $75. The company's earnings date is also on the horizon, which may further fuel the momentum in the near-term. ENTU is confirmed to report in just a few weeks on July 18th, after the bell. Currently, we have a short-term support level at $73 and $75. Be aware that additional support is found lower in the $65 to $70 range. And take note too that the 5-dma ($72.73) and 10-dma ($70.01) haven't caught up with ENTU's swift upward moves. However, these technicals should act as entry gauges if there's a pullback. If you choose to be aggressive and enter on the climb, be prepared for a quick in-and-out. Otherwise, play more conservatively and be patient for your entry. On Tuesday, Entrust Technologies completed the acquisition of closely held enCommerce, Inc. for $703.4 mln in stock. The acquisition expands the company's product line, thus attracting a larger corporate audience to pump up the revenues. Earlier in June, analyst Christopher Russ at First Union Securities initiated a Buy rating for ENTU and issued a $80 price target, which ENTU easily overcame in Friday's trading. BUY CALL JUL-75 QYE-GO OI=449 at $10.13 SL= 7.00 BUY CALL JUL-80*QYE-GP OI=353 at $ 7.13 SL= 5.00 BUY CALL JUL-85 QYE-GQ OI=208 at $ 4.75 SL= 2.75 BUY CALL JUL-90 QYE-GR OI=173 at $ 2.94 SL= 1.50 BUY CALL AUG-75 QYE-HO OI=277 at $14.13 SL=10.50 Picked on June 29th at $74.13 P/E = 524 Change since picked +8.63 52-week high=$150.00 Analysts Ratings 9-3-1-0-0 52-week low =$ 18.31 Last earnings 03/00 est= 0.06 actual= 0.06 Next earnings 07-18 est= 0.08 versus= 0.02 Average Daily Volume = 1.30 mln /charts/charts.asp?symbol=ENTU ARBA - Ariba Inc. $98.03 (+9.47 this week) As a leading provider of B2B solutions and services to leading companies around the world, including more than 20 of the FORTUNE 100, Ariba helps companies cut through the complexity of opportunities presented by the new economy. Ariba provides the most comprehensive and open commerce platform to build B2B marketplaces, manage corporate purchasing, and electronically enable suppliers and commerce service providers on the Internet. Made up of a complete set of integrated commerce solutions and open network-based commerce services, the Ariba B2B Commerce Platform offers a single system for managing buying, selling, and marketplace eCommerce processes. Whether automating enterprise-wide procurement processes, building state-of-the-art B2B exchanges, or bringing new commerce services online, the Ariba B2B Commerce Platform delivers the fastest time to market, the most comprehensive solution, and the greatest long-term flexibility and scalability. Whew! This has been a busy week for the company, and for the stock as well. Ariba rallied over 10% this week on steadily increasing volume. From Monday to Thursday, $97 was an obstacle that was tested but to no avail. On Friday, however, the stock broke through that elusive mark. Though the volume was light (a little over 70% of the average daily volume), it is still stronger than most of the week when it consolidated in a range of about 8 to 10 points. Aggressive traders were able to play this by range buying just above $87 and selling in the $95 area all week long. With the break above the $97 resistance level, ARBA should find support there. Bounces off the 5-dma, currently at $94, and the 10-dma at $91.63 can also serve as entry points. The next level of resistance now stands exactly at $100. A break through this level of strong volume will find the next resistance levels at $105 and $110. As mentioned earlier, there was much news for ARBA this week. Monday was the announcement of the acquisition of Suppliermarket.com. Tuesday saw ARBA forming a partnership with B2B infrastructure startup EC Company. On Wednesday, an alliance with Inforte to help companies quickly and smoothly implement a variety of eCommerce solutions. As well, Ariba introduced the Ariba Content Delivery and Discovery Services, a comprehensive set of solutions enabling buyers, suppliers and marketplaces to be implemented on the Ariba B2B Commerce Platform. BUY CALL JUL-95 IUR-GS OI=2574 at $ 8.63 SL=6.00 BUY CALL JUL-100*IUR-GT OI=2976 at $ 6.38 SL=4.50 BUY CALL JUL-105 IUR-GA OI= 829 at $ 4.50 SL=2.75 BUY CALL AUG-100 IUR-HT OI=1830 at $11.50 SL=8.25 SELL PUT JUL-90 IUR-SR OI= 680 at $ 2.88 SL=4.50 (See risks of selling puts in play legend) Picked on Jun 25th at $88.56 PE = N/A Change since picked +9.47 52-week high=$183.31 Analysts Rating 13-12-1-0-0 52-week low =$ 15.25 Last earnings 3/00 est=-0.08 actual=-0.06 Next earnings 7-12 est=-0.09 versus=-0.12 Average Daily Volume = 7.05 mln /charts/charts.asp?symbol=ARBA RSAS - RSA Security $69.25 (+6.75 last week) RSA Security Inc. is a trusted name in e-security, helping organizations build secure, trusted foundations for e-business through its two-factor authentication, encryption and public key management systems. As the global integration of Security Dynamics and RSA Data Security, RSA Security has the market reach, proven leadership and unrivaled technical and systems experience to address the changing security needs of e-business and bring trust to the new, online economy. A global company with more than 5,000 customers, RSA Security is renowned for providing technologies that help organizations conduct e-business with confidence. We don't know whether it is the approach of July earnings (scheduled for July 13th), or all the positive press, but clearly shares of RSAS have gotten investors' attention again in the last week. After consolidating near $61, RSAS got a nice jump early last week when it inked a licensing deal with E.piphany. On the heels of the announcement, buyers were lining up to buy shares of the Internet security company. At current price levels, RSAS just looks like a good value (can you believe I just said that about an Internet company?), and a relatively cheap way to participate in the increasing demand for security on the Internet. The broad markets were mixed for the bulk of the week, and it was encouraging to see how well RSAS held up. After its strong move on Monday, support has continued to build near $68, which is just below the 5-dma of $68.63. Current levels look attractive for new entries, although weakness early in the week could provide an intraday dip to the 10-dma, currently at $65.75. The daily chart on RSAS shows a pattern of higher highs and lows, and as long as volume remains strong, RSAS looks like it will continue its winning ways. The newswires were busy keeping up with all of RSAS' activity this week. In the space of only one week, the company has inked deals with the likes of Firstar, WM-data, Baltimore Technologies, E.piphany, and GE Global exchange Services. All of the above have selected RSAS to help them keep their websites and online transactions secure. BUY CALL JUL-65*QSD-GM OI=522 at $7.88 SL=5.75 BUY CALL JUL-70 QSD-GN OI=520 at $4.88 SL=3.00 BUY CALL JUL-75 QSD-GO OI=239 at $2.88 SL=1.50 BUY CALL AUG-70 QSD-HN OI= 0 at $7.00 SL=5.00 BUY CALL OCT-75 QSD-JO OI=151 at $9.63 SL=6.75 SELL PUT JUL-65 QSD-SM OI=283 at $2.38 SL=4.00 (See risks of selling puts in play legend) Picked on June 27th at $68.38 P/E = 17 Change since picked +0.88 52-week high=$93.06 Analysts Ratings 4-6-3-0-0 52-week low =$15.88 Last earnings 04/00 est=0.19 actual=0.20 Next earnings 07-13 est=0.21 versus=0.15 Average Daily Volume = 520 K /charts/charts.asp?symbol=RSAS ********* SOFTWARE ********* AGIL - Agile Software Co. $70.69 (+9.00 last week) Agile develops and markets product content management software, which is software that enables companies to collaborate over the Internet by interactively exchanging information about the manufacture and supply of products and components. Agile's collaborative suite of software products is designed to improve the ability of all members of the manufacturing supply chain. Since their start in 1996, they have licensed their products to approximately 300 customers including Gateway, Texas Instruments, Philips Mobile Computing, Lucent Technologies, Solectron, GE Marquette Medical Systems and FSI International. About 40% of sales come from additional material procurement applications, consulting, implementation, support, and training services. On June 22nd, OIN initiated coverage on AGIL for its recovery potential and the positive sentiment surrounding the company. The technical breakout above the nearly invincible 200-dma (then at $61) was also was a key factor. Attractive comments from analysts and the company's announcement of its partnership with Symix Systems ignited the stock's leap out of its narrow channel between $56 and $59. Investors really liked the news concerning Symix Systems. The partnership was formed in order to provide mid-market manufacturing customers with extended supply chain collaboration capabilities. The companies' combined technologies will work in conjunction to deliver comprehensive e-business-driven supply chain and collaboration solutions, which should increase revenues for all concerned. The anticipation of the FOMC strained the markets and AGIL laid trapped between $60 and $64. Although once the Fed Meeting became a cast shadow, the stock came off the support at the 200-dma line and sprung back to life. By Friday AGIL tacked on an impressive 17.9% in active trading. The momentum is intact. Short-term support is at $68-$69, but the 5-dma at $66.04 offers a firmer platform, especially if you're considering an entry. New readers, AGIL is a pure momentum run. Play it for what it is and don't anticipate an earnings announcement to generate any excitement. The company isn't expected to report until late August. In the news this week, Amkor Technology, the world's largest provider of contract microelectronics manufacturing solutions, announced that it will be using the Agile Anywhere product content management software solution as the backbone of its Module Business Unit. In the analyst arena, Michael Micciche at DLJ came forward twice in June to reiterate his Buy recommendation and $100 price target on AGIL. And on the 21st, Southwest Securities stepped in with a new Buy rating and an $86 price target. BUY CALL JUL-65*AUG-GM OI=175 at $ 9.75 SL=6.75 BUY CALL JUL-70 AUG-GN OI= 89 at $ 6.88 SL=5.00 BUY CALL JUL-75 AUG-GO OI= 79 at $ 4.50 SL=2.75 BUY CALL AUG-70 AUG-HN OI= 1 at $10.88 SL=8.25 BUY CALL AUG-75 AUG-HM OI= 9 at $ 8.25 SL=5.75 Picked on June 22nd at $63.63 P/E = N/A Change since picked +7.06 52-week high=$112.50 Analysts Ratings 2-7-0-0-0 52-week low =$ 17.13 Last earnings 03/00 est=-0.06 actual=-0.02 Next earnings 08-26 est=-0.04 versus=-0.09 Average Daily Volume = 711 K /charts/charts.asp?symbol=AGIL PRSF - Portal Software, Inc. $63.88 (+15.31 last week) Portal is building the business infrastructure for the Internet. As the leading provider of customer management and billing software for Internet and emerging, next-generation communications services, their real-time solutions enable service providers to manage customers, support services and collect money. Portal has an unsurpassed track record of helping Internet and next-generation communications service providers around the world to generate more revenue and be more competitive by enabling them to bring new services to market quicker than ever before and by establishing innovative ways of supporting customers' needs. Now that the month of June and the first half of the year 2000 is over for traders, we can look back and hand out the report cards. While PRSF for the year is up just over 24%, this month has been nothing short of stellar for the stock, gaining almost 59% in a market which for the most part, has traded sideways. Starting out strong for the month, the stock rocketed from $40.25 only to find strong resistance at $57 last week and selling off. Since then, the stock has rallied all this week gaining over 30% in the last 5 trading sessions on increasingly strong volume, easily steamrolling past the $57 mark. During this time, entry points have been found at the 5-dma, currently at $58.50. Pullbacks to this level can provide reliable entry points. Use patience in doing so. Support from 10-dma is at $55.64. You can more aggressively shoot for entries on bounces from here. The next point of resistance is at $65 and then at $70. The trend is strong, so look for pullbacks to jump on board. The only news this week was on Monday when the company announced that it signed contracts with three industry leading Chinese companies: China Railway Communications Company and Ji Tong Communications Co. Ltd., which are two of China's largest communication service providers, and Xinhua News Agency, a national Chinese news agency. The market has rewarded positive news for any company that can successfully deal with China and for the week, PRSF was handsomely rewarded. With volume increasing on the rise, momentum is clearly behind PRSF. BUY CALL JUL-55 PUS-GK OI= 243 at $10.50 SL= 7.50 BUY CALL JUL-60*PUS-GL OI=1447 at $ 7.25 SL= 5.00 BUY CALL JUL-65 PUS-GM OI= 971 at $ 4.63 SL= 2.75 BUY CALL AUG-65 PUS-HM OI= 0 at $ 8.38 SL= 6.25 SELL PUT JUL-55 PUS-SK OI= 94 at $ 2.63 SL= 4.25 (See risks of selling puts in play legend) Picked on June 29th at $61.00 P/E = 5788 Change since picked +2.88 52-week high= $86.00 Analysts Ratings 7-5-0-0-0 52-week low = $17.13 Last earnings 05/00 est=-0.01 actual= 0.02 Next earnings 08-17 est= 0.01 versus= 0.00 Average Daily Volume = 1.88M /charts/charts.asp?symbol=PRSF TIBX - TIBCO Software $107.25 (+18.19 last week) TIBCO's ActiveEnterprise enables businesses to connect resources with customers and automatically deliver event-driven information across networks and the Web in real-time. The company also offers e-commerce, consulting, and support services. Customers license the software to integrate, personalize, and distribute content. TIBCO is enhancing its business-to-business trading capabilities. Reuters owns more than 60% of the company, and Cisco holds a minority stake of 7%. TIBX was one of the many stocks last Friday that benefited from end-of-the-quarter window dressing. You know, the old technique that money managers use to make their portfolios look better at the midway point of the year. But, we can't blame them for buying TIBX, and we certainly wouldn't mind if they continued to do so. TIBX is one of the few companies operating in the e-business services arena that is actually making money. Imagine that, a B-2-B that is profitable. The company has an all-star list of customers, and one of the biggest Internet names as an investor, Cisco. In fact, TIBX and CSCO are developing an open source protocol together that they are working on to address further scalability of its software. TIBX investors like the idea of CSCO teaming with the company. TIBX's software is widely used by companies running Web sites of a wide variety. In fact, you may have noticed TIBX's name at the bottom of Yahoo Finance after pulling up a stock quote on that Web page. TIBX provides Yahoo with that quote technology. And, Yahoo extended its alliance with TIBX last week when the Web portal said it would use TIBX's software and services to build a new corporate portal. The stock has been on essentially an uninterrupted climb since hitting bottom in late May. TIBX faces congestion directly above current levels, although it has been taking out resistance levels with ease recently. You might consider an entry at current levels if momentum continues next week. An aggressive trader might look for intra-day pullbacks and target shoot for entry points. Pay close attention to volume to decipher if the institutions are accumulating TIBX which will aid the stock in clearing its overhead resistance area. Also of note, TIBX charged past its highest front-month contract last Friday, look for the new OTM options, and wait for OI! While TIBX's institutional sponsorship is relatively low, that number has been climbing recently. TIBX's name is getting tossed around more and more on money shows such as CNBC and CNNfn by prominent money managers. The company's further push into profitability is certainly helping its cause on Wall Street and will help our cause if professionals continue buying. BUY CALL JUL- 95 PIW-GS OI=168 at $17.00 SL=12.25 BUY CALL JUL-100*PIW-GT OI=574 at $13.50 SL=10.00 BUY CALL JUL-105 PIW-GA OI= 14 at $10.75 SL= 8.00 BUY CALL AUG-110 PIW-HB OI=468 at $15.00 SL=11.00 BUY CALL NOV-115 PIW-KC OI= 92 at $24.63 SL=18.00 SELL PUT JUL- 95 PIW-SS OI= 15 at $ 4.13 SL= 6.00 (See risks of selling puts in play legend) Picked on June 27th at $98.94 P/E = 2680 Change since picked +8.31 52-week high=$147.00 Analysts Ratings 4-0-1-0-0 52-week low =$ 6.56 Last earnings 05/00 est= 0.01 actual= 0.04 Next earnings 09-21 est= 0.05 versus= -0.01 Average Daily Volume = 1.74 mln /charts/charts.asp?symbol=TIBX MSFT - Microsoft Corp $80.00 (+2.31 last 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. Let's give our new readers a little background on why we added MSFT as a call in mid-June. Amid all the hubbub of the anti- trust issues surrounding MSFT, the share price was showing signs of recovery. It rose above $70, then exuberantly jumped over the $75 mark on news of the surprise Restrictions Stay issued by Judge Jackson on Tuesday, June 20th. The court, however, did send the anti-trust case directly to the Supreme court, bypassing a federal appeals court where Microsoft preferred to go next. The days that followed offered an unveiling of the company's future business model - a blueprint of plans to develop software to connect PCs, the Internet and smaller devices such as cell phones and handheld computers. Put another way, Microsoft would be able to procure revenues from the subscription of software services as well as stand-alone products. While all this was "fine & dandy" and MSFT peaked at $82.19 that week, the stock is currently range bound. Therefore, we've put Mr. Softee on a very short leash and recommend a "wait and see" policy. The concern is whether or not MSFT is consolidating at these higher levels or finding a permanent resting place while the Supreme Court contemplates the software giant's anti-trust case. The return of trading volume in Friday's session and somewhat of a response to the upsurge in the late afternoon prompted us to keep MSFT over the weekend. We gave MSFT a small feather for its cap because it closed smack on its intraday high at $80. But again, wait for further confirmation. Look for definitive moves off this $80 mark plus a break through the above-mentioned $82.19 before opening new positions. The goal is for MSFT to make a charge for the 200-dma, currently at $90.38, on respectable volume. One of this week's news highlights was the joint announcement by AT&T's Liberty Media Group and Microsoft that they would merge their respective Japanese cable interests, Tokyo-based Jupiter Telecommunications and Titus Communications to provide broadband services throughout the country. The stock-for-stock deal is expected to be completed by September 1st. Under the terms, Titus (60% owned by MSFT) would become a wholly owned subsidiary of Jupiter and retain a 24% stake. Liberty's John Malone and Jupiter's Sumitomo would each own 35% of the new company. The combined company, with an estimated worth of about $5 bln, would likely initiate an IPO in the near future. BUY CALL JUL-70 MSQ-GN OI=30219 at $10.38 SL=7.50 BUY CALL JUL-75*MSQ-GO OI=32508 at $ 6.13 SL=4.00 BUY CALL JUL-80 MSQ-GP OI=51013 at $ 2.81 SL=1.50 BUY CALL JUL-85 MSQ-GQ OI=51398 at $ 1.13 SL=0.50 BUY CALL AUG-80 MSQ-HP OI= 5460 at $ 5.00 SL=3.00 BUY CALL AUG-85 MSQ-HQ OI= 3846 at $ 2.88 SL=1.50 Picked on June 15th at $72.38 P/E = 48 Change since picked +7.62 52-week high=$119.94 Analysts Ratings 9-16-2-0-0 52-week low =$ 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 = 36.7 mln /charts/charts.asp?symbol=MSFT GSPN - GlobeSpan, Inc. $122.06 (+11.06 last week) GlobeSpan, Inc. is a leading provider of integrated circuit, software, and system designs for digital subscriber line (DSL) applications which enable high-speed data transmission over existing copper wire telephone lines at rates over 100 times faster than today's 56 Kilobit modems. Globespan's business is accelerating communications through high-speed solutions based on DSL technologies. The company's innovations make it possible to do the things that technology companies have been promising for years - real-time video conferencing, telecommuting, high-speed Internet surfing, and video-on-demand. Unlike cable, wireless, and direct broadcast satellite transmission services, DSL operates over the "local loop", the vast network of over 800 million copper telephone lines that connect end users to central office switching centers. Connecting the higher lows since finding bottom in late April, we find a nice uptrend line showing us that while the market has been moving sideways, GlobeSpan has been on the move up. Breaking through much overhead resistance at $105 at $113, the stock has paid its dues and rewarded investors who were patient with a break through a key resistance level at $120 on Friday on strong volume to close up $4.06 or 3.46%. This past week saw the stock rallying over 30% on increasing volume. Using the 5-dma as a support, the stock has moved up strongly while the NASDAQ has been trading sideways. There is support for the stock at $120, $113, its 5-dma which is currently at $110, and its 10-dma which is currently at $105. Overhead, the next level of resistance is at $128, $130 and then $135. Short term GSPN has moved up this week on a steeper channel. Trading on this short-term channel this past week allowed for swings of 7 to 10 points intra-day. Bounces off the lower part of the channel, currently at $113, which is also a horizontal support level, is an ideal entry point. A bounce from support at $120 could lead to a tradable range up to resistance at $128. However, with break below $120, look to support at $113. This allows for a 7 point trading range between those two levels. The run up this week by GSPN has been accompanied by increasing volume. As long as the volume remains strong, we expect the stock price to continue its trend. This week saw little news for GSPN but the news it did receive was good. Monday started off with Putnam OTC & Emerging Company Fund Co-Manager Steve Kirson giving GSPN the thumbs-up to GSPN as well as the DSL market. On Wednesday, GSPN announced that it is the first chipset manufacturer to offer an ISDN-based DSL (IDSL) software upgrade that will deliver DSL service to end-users previously denied DSL service. According to GSPN, this new chip set leaps over deployment hurdles and enables equipment manufacturers to cost-effectively provide DSL service to all customers on a single, manageable platform. BUY CALL JUL-115 GHY-GC OI= 639 at $15.63 SL=11.25 BUY CALL AUG-120*GHY-HD OI= 94 at $20.63 SL=14.50 BUY CALL AUG-125 GHY-HE OI= 45 at $18.50 SL=13.25 BUY CALL NOV-130 GHY-KF OI= 41 at $30.13 SL=25.00 SELL PUT JUL-110 GHY-SB OI= 0 at $ 5.50 SL= 7.50 (See risks of selling puts in play legend) Picked on July 2nd at $122.06 P/E = N/A Change since picked 0.00 52-week high=$167.00 Analysts Ratings 2-4-0-0-0 52-week low =$ 11.25 Last earnings 03/00 est= 0.01 actual= 0.03 surprise=200% Next earnings 08-14 est= 0.04 versus=-0.14 Average Daily Volume = 1.17 mln /charts/charts.asp?symbol=GSPN ******* TELECOM ******* KANA - Kana Communications $61.88 (+8.38 last week) Kana Communications is a leading provider of comprehensive online customer communications solutions for marketing, sales and service. These mission critical applications support multiple channels of online contact including inbound and outbound e-mail, web based customer self-service, web forms, real-time messaging and voice over the Internet. The company offers a comprehensive suite of online customer communication products for managing the entire customer lifecycle. This specialist in management of online communications is finally attracting the investors once again. And what did it need to spark a bit of excitement? How about a slew of analysts clamoring round the table exclaiming "Buy KANA!" The first enticement came on June 22nd from analyst Greg P. Vogel at Banc of America Securities who started coverage with a Buy recommendation and a $77 price target. He commented "the market for Internet-based customer relationship software continues to rapidly expand as adoption of e-commerce proliferates" and that he expects the company to be profitable in the fourth quarter of 2001. The analyst spoke and the interest built. Transactions that day alone topped 5.13 mln, which is quite convincing in comparison to the ADV of 1.84 mln. Although KANA was unable to maintain the intraday high of $62.69 due to the weak overall markets, it did maintain levels within $53 and $57. The close above the resistance at $58 on Thursday coupled with Friday's breakout through $60 finally convinced us to add KANA as a momentum play. In a positive market, KANA is now poised to test the $70 target area. Out of the 7 analysts following this stock, all have Buy or Strong Recommendations and recently ING Barings issued a $100 price target. The likely reason for the positive sentiment is obviously the attractive share price. And let's face it, as online e-mail and communications volume increases, KANA will reap the benefits of profitability. Traders should look for confirmation of support at the intraday level of $58, letting KANA rebound off this mark and push through overhead resistance at $62.68 before entering. If you're looking for a more assertive route, then target shoot the dips near the 10-dam ($55.98) and 5-dma ($57.58). No matter what your strategy, only enter the play when it's profitable to do so. This means a rising market, a positive series of ticks, advancers outnumbering decliners, and of course, a conclusive uptrend in the stock. Analyst Ben Rose at Adams, Harkness, & Hill started the week off with a new Accumulate rating for KANA. And in other news, Chumb.com, who some call "the ultimate source in software", chose Kana Communications to provide complete customer service solutions for its online software store. BUY CALL JUL-55 URW-GK OI=189 at $ 9.75 SL=6.75 BUY CALL JUL-60*URW-GL OI=658 at $ 6.88 SL=5.00 BUY CALL JUL-65 URW-GM OI=123 at $ 4.38 SL=2.75 BUY CALL AUG-60 URW-HL OI= 33 at $10.00 SL=7.00 BUY CALL AUG-65 URW-HM OI=512 at $ 7.50 SL=5.25 Picked on July 2nd at $61.88 P/E = N/A Change since picked +0.00 52-week high=$175.50 Analysts Ratings 4-3-0-0-0 52-week low =$ 22.78 Last earnings 03/00 est=-0.23 actual=-0.19 Next earnings 07-19 est=-0.27 versus=-0.18 Average Daily Volume = 1.84 mln /charts/charts.asp?symbol=KANA ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.nextcard.com/index6.html?ref=aff0049911 ************************************************************ ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
The Option Investor Newsletter Sunday 7-02-2000 Sunday 4 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/070200_4.html **********************ADVERTISEMENT****************************** FREE! FREE! FREE! FREE! Investor's Business Daily - Free Two Week Trial! No obligation! No invoices! And nothing to cancel! Limited time offer! Click Here! http://ibd.infostreet.com/cgi-bin/freeoffer.cgi?source=ARZOJES ***************************************************************** ********* PUT PLAYS ********* F - Ford Motor Company $43.00 (-1.44 last week) Ford is the world's largest truck maker and the #2 maker of cars, behind General Motors. It makes vehicles under the Aston Martin, Ford, Jaguar, Lincoln, Mercury, and Volvo brands. Two of its biggest successes are the Ford Taurus and the F-Series pickup. The company also has a controlling stake in Mazda, and recently acquired BMW's Land Rover operations. Its finance subsidiary, Ford Motor Credit, is the US's #1 auto finance company. F completed the spin-off of its parts unit known as Visteon (VC) last Friday. The spin-off of VC is part of a value enhancement plan that F has set forth to boost its ailing stock price. As part of the plan, F will use up to $10 bln to buyback stock from shareholders. The real objective of the value enhancement plan is to distribute the $10 bln in cash among shareholders in a tax efficient manner. The plan also calls for a complex transfer of shares in VC to F common stock holders. The plan did little to enhance F's stock Friday as it fell in the wake of the spin-off. Management at F is scrambling to boost its sagging stock price. The company has been on a acquisition binge recently in hopes to stimulate its business, especially in international markets. F recently acquired the ailing Land Rover unit from BMW, in which it received regulatory approval just last week. And, the company is aggressively pursuing the insolvent South Korea auto manufacturer known as Daewoo Motor. Last week, F offered about 7.7 trln won, or about $6.9 bln for Daewoo. But, there is little that F's management team can do to combat the macro factors that are affecting their stock. Namely, rising interest rates and a slowing U.S. economy. Those two factors have wreaked havoc on F's stock over the past three months. F did stabilize a bit last week by staying above support at $42.50. But, the stock is precariously hovering above that level. Look for an entry if F falls below $42.50, while an aggressive trader might look for an entry if F bumps into resistance at its 10-dma, currently at $43.75. BUY PUT JUL-50*FOD-SJ OI=1103 at $5.63 SL=3.50 BUY PUT JUL-45 FOD-SI OI=1605 at $1.56 SL=0.75 Average Daily Volume = 3.80 mln /charts/charts.asp?symbol=F ICIX - Intermedia Communications $29.75 (-4.13 last week) Intermedia is an integrated communications provider to high volume business and government customers. It offers local access and private line phones, high-speed data transmission, Internet access, and Web hosting. The company is developing an Internet protocol based backbone to allow data and voice applications to be carried over a single network. It has fiber optic networks in 14 southeastern US cities. ICIX is one of the few technology related issues that didn't benefit from window dressing last Friday. Which comes with no surprise considering the company is mired in losses and has little support from the Wall Street crowd. ICIX is viewed by analysts as a company that has spread its operations too widely. The company has delved into a wide range of business services including Web hosting and Internet access, among others. But, ICIX's main business is providing local phone and data transmission services. The company is known as a CLEC (competitive local exchange carrier). Like the name might suggest, the business is highly competitive. The Telecom Act of 1996 opened the gates for local phone companies to compete with the Baby Bells in local phone markets. Companies such as SBC, BEL, and USW are seen as the main players in the local phone markets, and have proved to be formidable competitors to the likes of ICIX. What was once thought to be a windfall for smaller telecom providers has turned out to be a struggle to survive. ICIX's losses could widen further with the announcement from the FCC last week. The FCC granted SBC Communications (SBC) the right to offer local service in Texas. ICIX offers service to a little over 1 mln customers in Texas, and the entrance of SBC means more competition for the ailing telecom concern. Needless to say, the announcement didn't go over well with investors. ICIX fell below major support at $30 on the heels of the news. Consider entry at current levels as ICIX's future darkens. An aggressive trader might look for an entry on an intra-day rally up to resistance at $30, or at the 5-dma, currently around $32. BUY PUT JUL-35*QIX-SG OI= 152 at $6.50 SL=4.50 BUY PUT JUL-30 QIX-SF OI=1263 at $2.88 SL=1.50 BUY PUT JUL-25 QIX-SE OI= 28 at $0.88 SL=0.00 Average Daily Volume = 1.63 mln /charts/charts.asp?symbol=ICIX DCLK - DoubleClick, Inc. $38.13 (+0.50 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. The tug of war continues, as buyers show up for bottom-fishing duty whenever the share price declines to support near $35-36. Then the bears come out of hibernation and scare away the buyers each time the price rallies near the $40 level. It is a tight range, but still tradable. On Thursday, DCLK announced a joint global ad sales partnership with Real Networks where DCLK will sell advertising, sponsorships and e-commerce solutions across the international Real.com(TM) network in 16 countries outside the United States. As has been the pattern lately, investors yawned at the news. The storm clouds created by the Justice Department's probe into the company's privacy-related practices have still not cleared up sufficiently to motivate buyers. Each successive run at resistance is being driven by less force, as is seen by the pattern of lower highs. Each time the price gets driven down to support, volume tails off, indicating that the selling pressure is diminishing. As the range between the highs and lows diminishes, trading the range is getting more difficult, but indicates pressure is building for a break either higher or lower. Given the current environment, we think the break will come to the downside. Consider new positions as DCLK rolls over near the $40 level. The highs are being further pressured by the 5-dma at $38 and the 10-dma at $39. More conservative players may want to wait for the price to break down through the $35 support level before jumping in to the play. BUY PUT JUL-40*QWE-SH OI=1584 at $5.00 SL=3.00 BUY PUT JUL-35 QWE-SG OI=4051 at $2.50 SL=1.25 Average Daily Volume = 4.13 mln /charts/charts.asp?symbol=DCLK PHCM - Phone.com $65.13 (-9.50 last week) Phone.com develops and markets software that enables wireless operators to access the Internet and corporate Intranets. In other words, no matter where you are, Phone.com can help you access the Internet and obtain information on everything from the weather to your favorite sports team via your mobile phone. The company developed much of the technology behind the wireless application protocol (WAP) standard and has quite an impressive list of blue-chip clients. The vast majority PHCM's sales (about 60%) come from maintenance and support. Customers that are licensing its technology include Matsushita, Ericsson, Alcatel, Motorola, Samsung and Siemans. While many wireless stocks are known for their fluctuations with the broader markets, PHCM just can't seem to keep its head above water. PHCM's share price suffered a major blow during the March/April correction and has since been left in the lurch. Initially, it was primarily channeling between $75 and $85. Then, it dove below the bottom support at $75 a week ago last Friday. The downtrend further perpetuated this week. On Tuesday, the trading volume was at nearly double the ADV. PHCM sunk under the $70 and didn't come up for air. It was surprising to see such a strong downward move amidst the positive coverage the stock was receiving. To that date, three separate analyst voted PHCM a Buy or Strong Buy. Analyst Peter Friedland at WR Hambrecht even commented about the company's dominant position licensing QAP gateways to wireless carriers. But nada, traders weren't taking the bait. Even the Fed's decision of no rate hike and two more analysts shouting "Strong Buy" didn't prompt PHCM to rally with the other techs. Instead PHCM's share price edged lower and lower on respectable volume. The near-term bottom is now at Friday's intraday low of $64.25. The closest DMA is at the five-day line, which is 4+ points higher at $68.41. If the momentum-driven downtrend is going to continue in the short-term, PHCM should make subsequent moves off its current position. Take a look at a three-month chart and you'll notice the strong bottom $60 - expect opposition at this level. Keep stops tight to protect profits and capital. BUY PUT JUL-70*UGE-SN OI=353 at $9.75 SL=6.75 BUY PUT JUL-65 UGE-SM OI=225 at $7.00 SL=5.00 BUY PUT JUL-60 UGE-SL OI=402 at $4.13 SL=2.50 Average Daily Volume = 2.65 mln /charts/charts.asp?symbol=PHCM IMNX - Immunex Corporation $49.44 (-0.94 last week) Founded in July of 1981, Immunex Corporation is a leading biopharmaceutical company that applies immune system science to protect human health. Products under development include new treatments for cancer, asthma, rheumatoid arthritis, inflammatory, infectious and cardiovascular diseases. The Company's major product lines are Enbrel, Leukine, Novantrone and Thioplex. Enbrel is a soluble tumor necrosis factor receptor used to reduce 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. Once known as the Qualcomm of the biotechs, based on its meteoric rise and overwhelming relative strength in 1999, the name is now just as appropriate as it was then. Like its wireless friend, Immunex has seen better days (though it has fared somewhat better than its CDMA counterpart). Since its climactic high of $83.56 in early March, the stock has sold off sharply, finding a bottom in late May at $24.19. From there, the stock has moved up strongly on the anticipated announcement of the completed map of the human genome. On Monday, the announcement from Celera Genomics and scientists from the government-funded Human Genome Project unveiled a rough draft of the genetic code for human life. While this may sound like a monumental achievement (which it is), there is still much to be done. It's been said that the equivalent to this event is like discovering all the words in the dictionary. Now the job is to put them all into order so that it reads like "War and Peace." A Herculean task indeed, and one that could take a long time. So the question now is, when and how long will it take biotech companies to use this information to create new drugs which will pass Phase III trials and become blockbuster drugs. As a result, it could be argued that despite this announcement very little has changed. With the excitement of anticipated news gone, it could be another ride down for the biotechs. On Thursday, IMNX closed below the 5-dma and the 10-dma. The break through the 10-dma was especially important because this level has served as support for the stock all month long. On Friday, the stock found resistance at the 5-dma, currently at $51.57, with the 10-dma just above it at $52.26. A continuing downtrend should see the 5-dma as a target for entry points. Look for $48 and $45 to be a support for the stock which is also where it's 50-dma currently resides. A break through that area on strong volume will find the next support level at $40. Looking above, there is resistance at $53.80 and $55.50, where put positions would ideally be opened. BUY PUT JUL-55*QUV-SK OI= 363 at $7.63 SL=5.25 BUY PUT JUL-50 QUV-SJ OI= 813 at $4.50 SL=2.75 Average Daily Volume = 6.13 mln /charts/charts.asp?symbol=IMNX DD - DuPont E.I. De Nemours & Co. $43.75 (-1.88 last week) DuPont is the largest chemical company in the US. Developer of Lycra, Dacron, and Teflon. DuPont has operations in about 65 countries. Its eight business units make products including coatings, nylon, specialty polymers, and pigments and chemicals. Other units produce specialty fibers, herbicides, pesticides, and biotechnology products such as food ingredients and seeds. After Friday's wild trading it appears investors are easing back into the Tech sector. That spells trouble for the old names like DD. To prove investor's distaste for DD, the company's biotech unit announced Friday that it had signed an agreement to develop and market an oral formulation of heparin with Emisphere (EMIS). DD's stock didn't budge, it sank $0.75. The current U.S. economy and stock market are a bit of a conundrum to investors. Rising interest rates are proving detrimental to company's like DD, as we see old-line names warn of lower profits due to a slowing economy and a rising cost of money. Yet, many companies are flourishing in the high-growth Tech sector, with investors' money chasing stocks that are not affected by rising interest rates. As money flows to tech stocks, it leaves the sectors that are struggling. That ebb and flow of capital has DD trading near a 4-year low. DD not only faces macro issues, but it has company specific problems also. DD's last earnings report was in late April, when the company told analysts that earnings would weaken due to problems with operations. The company tarnished its reputation on Wall Street and has yet to restore its credibility. Just last week, Warburg Dillon Reed reiterated its Hold rating on DD, saying the company needs to prove itself. The stock has been on a downward slope since reporting last April, and shows few signs of strength. Look for entry at current levels, or wait for DD to slip past its only support at $43. On a intra-day basis, consider looking for entry if DD bumps into resistance at its descending 10-dma, currently at $45.50. BUY PUT JUL-50*DD-SJ OI=3115 at $6.38 SL=4.25 BUY PUT JUL-45 DD-SI OI=4998 at $2.31 SL=1.25 BUY PUT JUL-40 DD-SH OI=1346 at $0.50 SL=0.00 Average Daily Volume = 3.08 mln /charts/charts.asp?symbol=DD ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.nextcard.com/index6.html?ref=aff0049911 ************************************************************ ***** LEAPS ***** Beware the VIX as We Wait (and Hope) for the Summer Rally By Mark Phillips Contact Support Buying LEAPS is, by definition, a Bullish posture in the markets. If you are buying LEAPS, you are doing so because you think the markets are going to go up. The timeframe is the critical issue here. Each trader has a different definition of short-term and long-term. To a day trader, 3 hours may be long-term while 3 months is short term to a long-term LEAPS investor. As you are contemplating your open positions and considering new positions, make sure that you match the investments to your time horizon. This weekend we dropped IBM and CMGI; not because they fell out of bed, but because we don't think they will deliver the kinds of returns over the next few months that we expect from our LEAP plays. Evidence of a slowing economy continues to trickle in, and with the normal summer doldrums just around the corner, we need to be very careful in opening new positions. Recall that this market is not floating all boats. We have become accustomed to stocks like YHOO having a strong earnings run, but we are running out of time for this earnings cycle. If you can see that old standbys like YHOO are not necessarily a slamdunk, you can understand why picking the right plays is so important. The good old VIX is making us a little nervous lately as well. As the markets meander in fairly tight trading ranges, the VIX has been dropping. It moved down all week, ending at 22.26, a level many of you should recognize is very close to the bottom of its historical range. Recall that a VIX reading in the 19-21 range very often signals a near-term top in the broader markets. If the pattern of declining stock prices from August-October remains intact, you will want to think very carefully about any open LEAP positions (especially those expiring in 2001). While LEAPS are relatively immune to time decay, they will still be affected. You don't want to enter new positions and then watch the premiums melt away for the next 3 months. Now don't get me wrong. I am not bearish and I am not advocating selling all your open positions on Monday morning. Just make sure you know what you expect to happen before entering new plays and if it doesn't happen, consider getting out. Cash is always a safe place to be and at least for this weekend, I am siding with Jim in saying "Don't buy too soon." Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN EMC 11/07/99 JAN-2001 $ 40 EMB-AH $ 7.69 $37.88 392.59% JAN-2002 $ 45 WUE-AI $ 9.50 $38.13 301.37% IBM 11/07/99 JAN-2001 $100 IBM-AT $13.63 $20.25 48.57% JAN-2002 $110 WIB-AB $16.50 $26.38 59.88% CSCO 11/14/99 JAN-2001 $ 40 CYQ-AH $ 9.56 $26.75 179.81% JAN-2002 $ 45 WIV-AI $11.00 $29.13 164.82% NT 11/28/99 JAN-2001 $37.5 ZOO-AU $11.13 $34.38 208.89% JAN-2002 $37.5 WNT-AU $15.13 $38.13 152.02% TXN 12/12/99 JAN-2001 $ 55 TNZ-AK $11.13 $20.63 85.35% JAN-2002 $ 60 WGZ-AL $14.25 $25.38 78.11% SUNW 12/19/99 JAN-2001 $ 80 SUX-AP $17.63 $22.88 29.78% JAN-2002 $ 90 WJX-AR $22.00 $29.38 33.55% CY 01/16/00 JAN-2001 $ 40 ZSY-AH $ 9.13 $11.50 25.96% JAN-2002 $ 40 WSY-AH $12.63 $17.75 40.54% ERICY 01/30/00 JAN-2001 $16.3 RQC-AO $ 4.94 $ 5.88 19.03% JAN-2002 $16.3 WRY-AO $ 6.75 $ 8.25 22.22% NSM 02/27/00 JAN-2001 $ 70 NSM-AN $18.50 $10.13 -45.24% JAN-2002 $ 70 WUN-AN $24.25 $23.13 - 4.62% AOL 03/12/00 JAN-2001 $ 60 AOO-AL $14.00 $ 6.13 -56.21% JAN-2002 $ 65 WAN-AM $18.63 $11.38 -38.92% AXP 03/12/00 JAN-2001 $43.3 AXP-AP $ 7.25 $13.63 88.00% JAN-2002 $46.6 WXP-AQ $ 9.33 $16.50 76.85% WM 03/19/00 JAN-2001 $ 25 WM -AE $ 5.00 $ 6.00 20.00% JAN-2002 $ 30 WWI-AF $ 5.38 $ 5.88 9.29% AMD 04/16/00 JAN-2001 $ 70 AMD-AN $17.50 $22.25 17.14% JAN-2002 $ 70 WVV-AN $26.00 $33.38 28.38% CMGI 04/16/00 JAN-2001 $ 50 ZB -AJ $21.50 $12.38 -42.42% JAN-2002 $ 55 WCK-AK $27.75 $19.25 -30.63% JDSU 04/16/00 JAN-2001 $ 80 XJU-AP $27.50 $50.75 84.55% JAN-2002 $ 80 YJU-AP $39.63 $66.13 66.87% VSTR 04/16/00 JAN-2001 $ 90 UVT-AR $23.88 $42.63 78.52% JAN-2002 $ 90 WWP-AR $35.00 $58.50 67.14% YHOO 4/30/00 JAN-2001 $140 YMM-AH $32.13 $22.00 -31.53% JAN-2002 $140 WYZ-AH $46.38 $39.63 -14.55% MOT 5/14/00 JAN-2001 $33.3 MOT-AY $ 6.58 $ 4.13 -37.23% JAN-2002 $36.6 WMA-AZ $ 9.54 $ 7.88 - 1.82% NOK 5/21/00 JAN-2001 $ 50 NZY-AJ $10.25 $10.38 1.27% JAN-2002 $ 50 IWX-AJ $17.25 $17.13 - 0.70% HD 5/28/00 JAN-2001 $ 50 HD -AJ $ 6.25 $ 7.50 20.00% JAN-2002 $ 50 WHD-AJ $11.38 $13.13 15.38% XLNX 5/28/00 JAN-2001 $ 70 ZIZ-AN $14.63 $22.13 51.27% JAN-2002 $ 70 WXJ-AN $23.38 $35.38 51.33% NXTL 6/11/00 JAN-2001 $ 60 FZC-AL $12.25 $13.75 12.24% JAN-2002 $ 60 YFG-AL $19.25 $21.50 11.69% C 6/18/00 JAN-2001 $ 65 ZRV-AM $ 7.63 $ 6.13 -19.66% JAN-2002 $ 65 WRV-AM $13.75 $12.50 - 9.09% Spotlight Play AOL - America Online $52.63 After the merger announcement with Time Warner (TWX), shares of AOL headed lower in advance of the broad market weakness that began in March. Coming down several times to test support at $48-50, it has been encouraging to see the refusal of investors to part with their shares below this level. This lends credence to the idea that the merger will likely be good long term for shareholders of both companies. With solid support near $50, current levels look like a good point to enter new positions in advance of the completion of the merger. Shareholders of both companies overwhelmingly approved the merger, which is expected to close this fall. Since the stock has not had the wild swings of many other Internet stocks over the past 2 months, the subdued trading has served to reduce the stock's volatility, reducing the option premiums and making this an ideal LEAP play. The 2003 LEAPS are now available and considering the long time horizon provided, very cheap. Current levels look like a good entry, as the stock is very close to major support. This one is unlikely to run away from us in the next couple of weeks, so we have time to wait another dip to the support so that we can profit as the markets realize how good the merger will be for both AOL and TWX. BUY CALL JAN-2001 $55.00 AOO-AK at $ 8.00 BUY LEAP JAN-2002 $55.00 WAN-AK at $14.50 BUY LEAP JAN-2003 $60.00 VAN-AL at $17.75 New Plays VRSN - VeriSign $176.50 Internet security is vital to the growth of e-commerce, and even the government is coming to realize that fact. As digital signatures and documents receive the same legal status as handwritten signatures and documents, companies like VRSN that secure the integrity of these documents will see their business grow at a continued brisk rate. After the stock's strong move a month ago, normal consolidation brought it back to bounce at the 30-dma (then at $153.81) last week. Since then, VRSN has headed higher and by midweek it was back above the 100-dma at $169. The LEAPS on VRSN are not cheap, but given the potential growth in the Internet security arena, one could almost argue that they are a bargain at current levels. Near-term support sits at $170-172, but it would not be unreasonable to wait for a pullback to the 10-dma ($167) before jumping into the play. If the move continues, breaking through resistance at $180, it could be a quick trip to the magical $200 level. Remember that this is a volatile Internet issue and it is not uncommon for the stock to see daily swings in excess of $15, meaning that intraday target shooting may provide an even better entry point. BUY CALL JAN-2001 $180.00 JSV-AP at $56.88 BUY LEAP JAN-2002 $190.00 YVS-AR at $66.25 AMGN - Amgen $70.25 Looking for a way to participate in the Biotech sector without the volatility of daily $20 price fluctuations? AMGN might be just the ticket. Although it won't have the rapid appreciation of some of the companies involved in genomics research, it also won't fall out of bed on a single negative news announcement. The difference is that AMGN is profitable now, making the stock price more dependent on revenue than hype. The company has a strong repertoire of drugs in production and development and of the 23 analysts that follow AMGN, 21 rate the company either a Buy or a Strong Buy. After tagging the 200-dma (then at $50) in mid-April, AMGN has been on a steady climb, posting higher highs and higher lows. The stock is finding support at $67, with stronger support at $65. Any weakness in the market or Biotech sector in the week ahead could be just what the doctor ordered to bring the price down to one of these support levels, giving us an attractive entry point. BUY CALL JAN-2001 $75.00 YAA-AO at $10.75 BUY LEAP JAN-2002 $75.00 WQY-AF at $20.75 BUY LEAP JAN-2002 $70.00 VAM-AN at $28.75 Drops IBM $109.56 Unable to sustain any move higher, IBM seems to be trying to climb the down escalator. Each time the stock gets up into the low $120's, the buyers get tired and the price declines back to support between $100-105. Concerns about the slowing economy and declining profits along with the usual pattern of sideways to down markets in the summer are taking their toll and it looks unlikely that IBM will be able to move sharply higher in the coming weeks or months. Rather than wait for our profits in the play to melt away, we will let it go this weekend as we pursue other plays with more potential in the near term. CMGI $45.81 The original Internet incubator firm is suffering along with the sector and can't seem to break out of the continuing downtrend. With all of the shorter moving averages pointing down, and the Internet sector struggling to hold its ground, the near-term prospects do not look promising. Even the anticipation of earnings were only good for a trip up to the declining 50-dma 2 weeks ago, and the downtrend has resumed, dragging the price back below long-term support at $48-50. With the normal summer slowdown nearing and the next earnings over 2 months away, we feel our money can be better put to use in other plays. Accordingly we will let CMGI go until it can demonstrate its intention to behave like a winner. *********** SPLIT PLAYS *********** A Surge Of Splits Due This Month By Ryan Nelson With the earnings season upon us, I expect many companies to announce splits along with earnings. In fact, narrowing down the candidates is tough work with so many to choose from. Most companies have already held shareholder meetings (typical in the Spring time) and have newly authorized shares to be able to enact splits right away. It wouldn't surprise me at all to see as many as 30 announcements from major companies. I will add them up when the month is over to see how accurate that number is. Just don't be surprised when we encounter a heavy split announcement month. Current Split Run Plays None Current Split Candidate Plays RBAK CIEN GLW BRCD GSPN TIBX RSAS Candidates That Are Not Current Plays DNA SDLI SEBL VRSN PDLI BRCM Recent Announcements We Predicted TXN (most recent announcement) CHINA CMVT NT VRTS SEPR YHOO TMPW HGSI SNE NSOL DCLK For our complete stock split calendar, click here... http://members.OptionInvestor.com/splits/index.asp *****************************ADVERTISEMENT************************ FFFOOOOUUUUURRRRR!!!!! Golf Digest is the most preferred golf publication. Only $1.48 per issue,63% off the news stand price. Learn how to Cure your slice, and other valuable lessons! http://www.OptionInvestor.com/tracking.asp?co=OIGolfDigest6302000 ****************************************************************** ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
The Option Investor Newsletter Sunday 7-02-2000 Sunday 5 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/070200_5.html ************* COVERED CALLS ************* Market Mechanics: Trading Curbs... By Mark Wnetrzak One of our readers requested an explanation of the "collars" and "circuit breakers" that are used to limit volatility in the stock market. The New York Stock Exchange, the most well known trading venue in the world, has a complex series of rules that can limit trading, or close down the market, when the activity becomes too volatile. The goal of these restrictions is to manage the flow of trading and establish price stability when a particular demand (generally selling) reaches irregular levels or the potential for arbitrage becomes excessive. In simple terms, these limits and restrictions are used to maintain a relative balance in the market and prevent a widespread collapse of equity prices. The necessity for market curbs comes from the basic law of supply and demand. The concept is fundamental; when more people want to sell a stock than buy, the share value will drop. When a great number of sellers are present, the decline can be severe. If the majority of market participants try to exit positions at the same time, the outcome can be catastrophic. The main idea behind the use of trading limits is to prevent the human emotions of fear and despair from causing a market crash. The mere existence of these restrictions seems to assure public investors they will have the opportunity to participate in the market in a fair and equitable manner. In reality, trading collars have little or no effect on the majority of retail traders. Another reason for trading collars is to limit index arbitrage at times when it could have a negative impact on the overall market. Index arbitrage is based on small differences between futures and stock prices. Using sophisticated programs, arbitrageurs exploit these discrepancies by simultaneously purchasing lower-priced (near-term) instruments and selling higher-priced (deferred) ones. They finance these futures contract positions by borrowing at favorable interest rates. When the percentage difference between the long position's purchase price and the short position's sale price is greater than the financing rate, a profit is guaranteed without assuming any risk. Since index arbitrage is based on the difference in price between a specific issue and its derivatives, the activity can increase substantially when the market becomes volatile. This practice drives the market to further extremes, exacerbating the original condition, as institutional investors reap the profits of premium disparities. The New York Stock Exchange implements limits on index arbitrage (program trading involving a group of stocks with $1 million or more in total value) when the market becomes extremely volatile. The collars are initiated when the Dow Jones Industrial Average declines (or advances) 200 points in a single session to prevent institutional traders from provoking further losses (or gains). The collars prevent index arbitrage for the remainder of the day, unless the Dow moves back to within 100 points of the previous session's close. Additional curbs or "circuit breakers" are substantially more rigid. The exchange has the power to place a temporary halt on trades or terminate market activity, including the Nasdaq and other U.S. exchanges, to limit the effects of the volatile activity. The current NYSE circuit breaker is the lower of a 10%, or 1,050 point decline, in the DJIA. If the Dow reaches the limit before 2 p.m. in a trading day, the markets will be closed for an hour. When the breaker is triggered between 2 p.m. and 2:30 p.m., the markets are stopped for a half-hour. If the limit is exceeded after 2:30 p.m., the markets continue without restriction. There are other, more severe (although seldom used) circuit breakers. In the event of a either a 2,100 point or 20% decline, the markets would halt for a minimum of one-hour and they would close for the day if the event occurred after 2 p.m. As strange as it may seem, the circuit breakers have been used only once, in 1987, and they were much more restrictive at the time. The first trigger was a 350-point drop and the second trigger, that canceled trading, was at 550 points. Based on that experience, the previous limits were revised, and to this day, they have yet to be exceeded. Opinions vary as to whether trading curbs or limits are a benefit or a disadvantage. The negative aspect is they decrease liquidity by restricting the free flow of trades. The upside of course, is they reduce the unwanted effects of program trading and prevent the widespread failure of equity markets. If nothing else, they provide investors time to examine the situation and make decisions based on sound reasoning instead of "heat of the moment" emotions. 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 CYTO 9.69 10.13 JUL 7.50 2.94 *$ 0.75 12.1% FSII 18.25 21.69 JUL 17.50 2.63 *$ 1.88 10.5% ARQL 13.88 19.38 JUL 12.50 2.44 *$ 1.06 10.1% TGEN 12.25 14.88 JUL 10.00 3.00 *$ 0.75 8.8% FHS 13.13 13.94 JUL 12.50 1.63 *$ 1.00 7.6% MED 9.44 8.00 JUL 7.50 2.69 *$ 0.75 6.9% LYNX 32.63 47.56 JUL 25.00 9.75 *$ 2.12 6.7% CYTO 7.97 10.13 JUL 5.00 3.38 *$ 0.41 6.5% RHAT 25.00 27.06 JUL 20.00 6.38 *$ 1.38 6.4% CEGE 25.56 28.00 JUL 20.00 6.88 *$ 1.32 6.1% BCGI 14.56 14.00 JUL 12.50 2.88 *$ 0.82 6.1% GENE 27.75 30.44 JUL 20.00 9.25 *$ 1.50 5.9% BCRX 27.00 28.69 JUL 22.50 5.63 *$ 1.13 5.7% CAIR 25.50 28.75 JUL 20.00 6.63 *$ 1.13 5.2% TGEN 12.25 14.88 JUL 7.50 5.25 *$ 0.50 5.2% IBC 14.94 14.00 JUL 12.50 3.25 *$ 0.81 5.0% IFCI 23.13 25.50 JUL 20.00 4.00 *$ 0.87 4.9% GLGC 38.75 35.69 JUL 30.00 10.00 *$ 1.25 4.7% ALSC 26.88 24.56 JUL 22.50 5.88 *$ 1.50 4.4% TSEM 30.69 32.63 JUL 25.00 6.50 *$ 0.81 3.6% PGO 19.00 17.06 JUL 17.50 2.25 $ 0.31 1.6% ZD 11.38 9.00 JUL 10.00 2.25 $ -0.13 0.0% *$ = Stock price is above the sold striking price. Comments: Fsi International (FSII) just filled the gap and has resumed its uptrend. E-Med Soft.Com (MED) made a horrid move on Friday and is threatening to break to a new low on heavy volume. Interstate Bakeries (IBC) also had a strong reversal on Friday? Stand by your exit points! Alliance Semiconductor (ALSC) is testing its 50 dma and becoming oversold in the short-term. Petroleum Geo (PGO) is testing its 150 dma and is nearing the bottom of its price channel. Ziff-Davis (ZD) appears to be holding support. The end of the quarter is difficult time to evaluate stocks as fund managers adjust their portfolios for appearance with issues they have no intention of holding for the long-term. 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 BWEB 22.88 JUL 17.50 UBW GW 5.88 61 17.00 21 4.3% CCUR 13.13 JUL 12.50 URC GV 1.38 784 11.75 21 9.2% CLTR 20.50 JUL 17.50 QCE GW 3.63 28 16.87 21 5.4% LCCI 27.31 JUL 22.50 QXC GX 5.50 71 21.81 21 4.6% LYNX 47.56 JUL 40.00 ULX GH 9.63 32 37.93 21 7.9% NERX 18.88 JUL 15.00 XUO GC 4.38 75 14.50 21 5.0% SCUR 18.81 JUL 17.50 UQU GW 2.19 1229 16.62 21 7.7% Sequenced by Return ***** Stock Last Call Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return CCUR 13.13 JUL 12.50 URC GV 1.38 784 11.75 21 9.2% LYNX 47.56 JUL 40.00 ULX GH 9.63 32 37.93 21 7.9% SCUR 18.81 JUL 17.50 UQU GW 2.19 1229 16.62 21 7.7% CLTR 20.50 JUL 17.50 QCE GW 3.63 28 16.87 21 5.4% NERX 18.88 JUL 15.00 XUO GC 4.38 75 14.50 21 5.0% LCCI 27.31 JUL 22.50 QXC GX 5.50 71 21.81 21 4.6% BWEB 22.88 JUL 17.50 UBW GW 5.88 61 17.00 21 4.3% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** BWEB - BackWeb Technologies $22.88 *** Stage I Entry *** BackWeb Technologies is a provider of Internet communication infrastructure software and application-specific software that enables companies to communicate time-sensitive information to their customers, partners, and employees. Their products provide a reliable solution for communicating large amounts of data through a customer-controlled system of automated data gathering dissemination. BackWeb's push solutions are growing increasingly popular among Global 2000 companies as an integral component of their standard e-business communications infra- structure for internal, business-to-business, and "customer facing" communications. Last quarter, BackWeb reported revenue growth of 117% over prior year and 13% growth over last quarter. Recent strategic alliances and new contracts bode well for the next quarter. BackWeb is nearing the top of its stage I base and its 150 dma, which is why we favor a conservative entry point that still offers a reasonable reward. JUL 17.50 UBW GW LB=5.88 OI=61 CB=17.00 DE=21 MR=4.3% Chart = /charts/charts.asp?symbol=BWEB ***** CCUR - Concurrent Computer $13.13 *** The Trend is Up! *** Concurrent Computer is a provider of high-performance, real-time computer systems and software for commercial and government markets. Their Real-Time Division focuses on market areas that include data acquisition, industrial systems, and software applications. Concurrent is also a supplier of digital video server systems to a wide range of industries. Concurrent's growth in Video-On-Demand revenue from its XSTREME Division, a leading supplier in the emerging digital video server marketplace, has been increasing for six quarters. Concurrent has continued to forge new alliances enhancing their product development and resulting in several new contracts. With the future becoming fundamentally brighter, Concurrent has moved above its 150 dma and out of a recent consolidation phase. JUL 12.50 URC GV LB=1.38 OI=784 CB=11.75 DE=21 MR=9.2% Chart = /charts/charts.asp?symbol=CCUR ***** CLTR - Coulter Pharmaceutical $20.50 *** Stage I *** Coulter Pharmaceutical is engaged in the development of novel drugs and therapies for the treatment cancer and autoimmune diseases. They are currently developing a family of potential therapeutics based upon two drug discovery programs: therapeutic antibodies and targeted oncologics. Coulter is also developing a line of proprietary ultra potent compounds, which generally are at least 1,000 times more potent than standard chemotherapy drugs. The company's most advanced product candidate, Bexxar, consists of a monoclonal antibody conjugated with a radioisotope. The company intends to seek initial approval of Bexxar for the treatment of low-grade and transformed low-grade non-Hodgkin's lymphoma ("NHL") in patients who have relapsed after, or are refractory to, chemotherapy. Coulter intends to seek expedited Biologics License Application ("BLA") review and marketing approval for Bexxar while simultaneously pursuing clinical trials to expand the potential use of Bexxar to other indications. The biotech sector continues to entice investors and Coulter is no exception. The stock entered a stage I base after the company reacquired the rights to Bexxar(TM) outside of the U.S. from SmithKline Beecham. The current technicals suggest a positive resolution to this consolidation phase and we prefer an entry point at (previously) tested support. JUL 17.50 QCE GW LB=3.63 OI=28 CB=16.87 DE=21 MR=5.4% Chart = /charts/charts.asp?symbol=CLTR ***** LCCI - LCC International $27.31 *** Up, Up, and Away! *** LCC International is one of the world's largest independent providers of Radio Frequency engineering and program management services to the wireless telecommunications industry. They provide solutions to clients for all phases of wireless system development, from initial planning and deployment, to enhancing system efficiencies and thereby competitiveness in areas where there are multiple system operators. In early May, LCC reported record revenues for the first quarter of $30.1 million, a 71% increase over the same period in 1999. Several new contracts and strategic alliances suggest LCC is reestablishing itself as the premier provider of wireless design and deployment services. Investors appear to be cheering this effort as they have driven the stock off its May lows on increasing volume. With the issue moving so quickly, we favor a more reasonable entry point near technical support. JUL 22.50 QXC GX LB=5.50 OI=71 CB=21.81 DE=21 MR=4.6% Chart = /charts/charts.asp?symbol=LCCI ***** LYNX - Lynx Therapeutics $47.56 *** Human Genome Mapping! *** Lynx Therapeutics is engaged in the development and application of novel technologies in the discovery of gene expression patterns and genomic variations important to the pharmaceutical, biotech., and agricultural industries. These technologies are based on Megaclone, a unique and proprietary cloning procedure. Megaclone is the foundation for its analytical applications, including MPSS, which provides gene sequence information, and Megatype, which is expected to offer disease or trait association information. Lynx stands to benefit immediately from the mapping of the human genome because its bead-based technology provides an easy, inexpensive way to analyze DNA. Lynx's technicals remain bullish as its stage II rally continues and is supported by heavy volume. A reasonable cost basis on a potentially volatile issue with a favorable long term outlook. JUL 40.00 ULX GH LB=9.63 OI=32 CB=37.93 DE=21 MR=7.9% Chart = /charts/charts.asp?symbol=LYNX ***** NERX - NeoRx $18.88 *** More Drug Speculation *** NeoRx develops innovative therapeutic biopharmaceuticals primarily for the treatment of cardiovascular and inflammatory diseases, as well as cancer. Their scientists have developed expertise and technologies that permit radiation, and other toxins, to be targeted preferentially to tumor cells. The stock exploded in March when a peer-reviewed manuscript in the Proceedings of the National Academy of Sciences, reported that a single dose of NeoRx's proprietary Pretarget® technology cured established human lung (10/10 animals), colon (10/10 animals) and breast cancers (8/10 animals) implanted in mice. NeoRx has also started clinical trials for Skeletal Targeted Radiotherapy. In May, Stephens Inc. and Adams Harkness initiated coverage with a "buy" and a "strong buy" rating, respectively. We simply favor the technical stage I base. Although this is a short-term play, due diligence is required. JUL 15.00 XUO GC LB=4.38 OI=75 CB=14.50 DE=21 MR=5.0% Chart = /charts/charts.asp?symbol=NERX ***** SCUR - Secure Computing $18.81 *** Technical Breakout! *** Secure Computing develops and sells computer software products and services designed to provide secure extranets for business organizations engaged in electronic business. Their extranet solutions combine impenetrable perimeter defense for business networks with scalable, authenticated Web and application access control so that an organization may conduct business safely with growing numbers of customers, employees, partners and suppliers. The company's main security products are Sidewinder, SafeWorld and SmartFilter. The upcoming earnings report is generating speculation on this issue and based on consensus estimates, the results should be favorable. Institutions have also began to participate in the stock with a number of block "buy" orders occurring during last Friday's rally. The technical momentum continued this week with heavy volume supporting the rise in price, and the issue is poised for further gains. JUL 17.50 UQU GW LB=2.19 OI=1229 CB=16.62 DE=21 MR=7.7% Chart = /charts/charts.asp?symbol=SCUR **********************ADVERTISEMENT****************************** FREE! FREE! FREE! FREE! Investor's Business Daily - Free Two Week Trial! No obligation! No invoices! And nothing to cancel! Limited time offer! Click Here! http://ibd.infostreet.com/cgi-bin/freeoffer.cgi?source=ARZOJES ***************************************************************** ************************* 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 205.00 200 HEX-ST 20.00 5125 39% 190 AKAM 118.25 110 RWU-SB 5.00 2956 17% 110 BRCD 183.47 175 GUF-SO 5.25 4587 11% 168 CHKP 212.25 210 YKE-SB 15.50 5306 29% 210 CIEN 166.69 160 UEE-SH 7.00 4167 17% 160 DNA 171.88 160 DNA-SL 5.38 4297 13% 160 EXTR 105.50 100 EUT-ST 6.00 2638 23% 102 GLW 264.00 260 GRJ-SZ 7.13 6600 11% 259 GSPN 122.06 115 GHY-SC 7.50 3052 25% 110 IDPH 117.25 110 IDK-SB 5.50 2931 19% 110 ITWO 104.25 100 QYJ-ST 7.00 2606 27% 95 JNPR 145.38 150 JUY-SJ 11.63 3635 32% 140 MERQ 96.75 90 RQB-SR 3.88 2419 16% 88 NEWP 107.38 105 NOQ-SA 10.63 2685 40% 100 PWER 113.94 105 OGU-SA 5.75 2849 20% 100 RBAK 178.00 160 BKK-SL 6.88 4450 15% 160 RFMD 87.50 85 RFZ-SQ 6.50 2188 30% 85 RMBS 103.00 100 BWR-ST 7.63 2575 30% 100 SDLI 285.19 280 QJV-SP 19.63 7130 28% 273 SEBL 163.63 160 SGW-SL 7.38 4091 18% 155 SEPR 120.63 120 ERU-SD 7.25 3016 24% 120 TIBX 107.09 100 PIW-ST 4.88 2677 18% 97 TLGD 132.50 130 TQK-SF 10.00 3313 30% 130 TQNT 95.69 95 TNN-SS 9.38 2392 39% 92 VRSN 176.31 170 QVZ-SN 9.25 4408 21% 170 VRTS 113.03 105 VUQ-SA 4.25 2826 15% 105 VRTX 105.38 100 VQR-ST 6.00 2635 23% 105 *********************** CONSERVATIVE NAKED PUTS *********************** Market Mechanics: Bond Basics... By Ray Cummins In any discussion about conservative investing techniques, the subject of bonds is sure to arise. The majority of investors regard bonds as long-term, income producing instruments or a hedge in volatile markets. In reality, some types of bonds can be more productive than blue-chip stocks, depending on the quality of the issue and the interest rate environment. In simple terms, a bond is a pledge made to an investor by an institution. The issuing entity promises to make scheduled interest payments on the money it borrows from the investor. When the bond matures, the institution is charged with repaying the principal (the face value of the bond) in full. In theory, an investor receives interest income during the term of the bond and a total repayment of the initial loan amount when the bond matures. Bonds represent one of the safest ways to store excess capital and there are only two forms of risk with an investment of this type. The primary risk in bond ownership is the timely payment of principle. The quality of the issuing institution determines the potential for loss and in the corporate bond market, there are several grades of bonds. The best private bonds are rated AAA and as you might expect, they offer the lowest interest rates because repayment is virtually guaranteed. The system of grading begins with AAA and continues through AA, AA-, A, A-, BAA, BBB, BB, B, B-, CCC, and finally down to D with small differences for each category. The lower grades provide higher interest payments in conjunction with poor credit ratings. The BBB category is considered the lowest group of "investment grade" bonds and below that range, defaults are more prevalent. The Federal Government is the most credible issuer and their bonds are generally known as treasuries. The categories of treasuries include: Bills, which mature in one year or less; Notes, which mature after one year but less than ten years; and Bonds, which mature after ten years. The U.S. treasury market is considered the benchmark for bond ratings. The second form of risk with bonds is the loss of potential associated with rising interest rates. As the cost of borrowing increases, prices for bonds go down. This inverse effect is the primary concern for all bond investors, especially those who buy long-term instruments, because the negative consequences are most pronounced in the 10- and 30-year instruments. One way to avoid interest rate risk is to purchase short-term bills (or notes) and retain them until they mature. The downside of course, is the rates for these investments are relatively low. A decline in interest rates will boost the value of bonds but this can create a new set of problems. A most unpleasant event occurs when a bond trades at 100% (par) of its face value. At that point, the instrument becomes "callable," meaning the borrower can buy it back early, reducing the amount of interest paid and the return on investment. In layman's terms, if a bond is trading above 100% of the face value and is called, the owner will lose the current market premium for the issue; the difference between par value and the trading price of the bond. Another dilemma arises when the bond approaches maturity. At the end of the term, the issuer pays only the face value to redeem the instrument. Obviously the value of the bond will return to par (no excess premium) because traders know the instrument will be repurchased in a short time. As you can see, bonds and treasuries fulfill a useful role in the financial markets but they are not necessarily the best way to achieve portfolio growth. There are however, a number of other unique vehicles that offer worthwhile opportunities for investors who need current income, yet want to invest in companies that will benefit from the bullish market trends. Although this category of investing is not well known, it can offer favorable annual returns along with potentially high rewards for those that choose to learn the fundamentals of the strategy. More on that subject next week. Good Luck! *** WARNING!!! *** Occasionally a company will experience catastrophic news causing a severe drop in the stock price. This may cause a devastatingly large loss which may wipe out all of your smaller gains. There is one very important rule; Don't sell naked puts on stocks that you don't want to own! It is also important that you consider using trading STOPS on naked option positions to help limit losses when the stock price drops. Many professional traders suggest closing the position when the stock price falls below the sold strike or using a buy-to-close STOP at a price that is no more than twice the original premium from the sold option. SUMMARY OF PREVIOUS PICKS ***** Stock Price Last Put Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return FSII 18.25 21.69 JUL 15.00 0.75 *$ 0.75 13.6% IMG 18.31 18.94 JUL 15.00 0.56 *$ 0.56 13.3% EFCX 10.56 15.31 JUL 7.50 0.44 *$ 0.44 12.5% SCUR 15.88 18.81 JUL 12.50 0.38 *$ 0.38 11.6% MRVT 19.50 22.31 JUL 15.00 0.44 *$ 0.44 11.0% CAMP 29.00 45.75 JUL 22.50 0.81 *$ 0.81 10.6% TSEM 30.69 32.63 JUL 25.00 0.69 *$ 0.69 10.3% GENE 26.13 30.44 JUL 17.50 0.63 *$ 0.63 9.3% OAKT 20.94 21.56 JUL 17.50 0.44 *$ 0.44 8.9% NSS 20.13 20.94 JUL 15.00 0.44 *$ 0.44 8.6% FSII 16.00 21.69 JUL 12.50 0.50 *$ 0.50 8.4% PILT 15.31 14.88 JUL 10.00 0.38 *$ 0.38 8.0% CREAF 28.00 23.88 JUL 22.50 0.69 *$ 0.69 7.8% CAIR 25.50 28.75 JUL 17.50 0.44 *$ 0.44 6.9% OMKT 19.00 13.81 JUL 12.50 0.38 *$ 0.38 6.6% MPPP 19.19 13.56 JUL 10.00 0.38 *$ 0.38 6.5% SYMM 20.00 25.25 JUL 15.00 0.38 *$ 0.38 6.3% VITR 48.13 61.13 JUL 30.00 0.56 *$ 0.56 6.0% SIPX 27.25 27.69 JUL 20.00 0.31 *$ 0.31 5.8% CEGE 27.25 28.00 JUL 17.50 0.44 *$ 0.44 5.4% IMNX 44.69 49.44 JUL 30.00 0.56 *$ 0.56 5.1% CLEC 28.13 17.00 JUL 20.00 0.44 $ -2.56 0.0% *$ = Stock price is above the sold striking price. Comments: Fsi International (FSII) just filled the gap and has resumed its uptrend. Ns Group (NSS) appears to have ended its consolidation and resumed its uptrend. Creative Technology (CREAF) continues to act worrisome as it nears its 150 dma. Open Market (OMKT) had a nice move on Friday and it appears to have successfully tested the May high. Us Lec Corp (CLEC) did the unthinkable, pre-warning that second-quarter core revenues would be lower than expected - a day after it sold off heavily. It looks suspicious when the sell-off happens before the news. If you are still in the play, exiting the position on any rally (if not sooner) appears prudent. NEW PICKS ********* Sequenced by Company ***** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return CBST 49.25 JUL 35.00 UTU SG 0.50 31 34.50 21 7.0% CLRS 38.88 JUL 40.00 RPU SF 0.69 136 39.31 21 5.8% GENE 30.44 JUL 22.50 GUG SX 0.50 169 22.00 21 11.0% LBRT 29.31 JUL 20.00 IEY SD 0.38 297 19.62 21 8.8% SIRI 44.31 JUL 35.00 QXO SG 1.88 291 33.12 21 25.3% TGEN 14.88 JUL 12.50 GNU SV 0.38 105 12.12 21 13.9% TLCM 40.06 JUL 30.00 TMU SF 0.56 168 29.44 21 9.5% Sequenced by Return ****** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return SIRI 44.31 JUL 35.00 QXO SG 1.88 291 33.12 21 25.3% TGEN 14.88 JUL 12.50 GNU SV 0.38 105 12.12 21 13.9% GENE 30.44 JUL 22.50 GUG SX 0.50 169 22.00 21 11.0% TLCM 40.06 JUL 30.00 TMU SF 0.56 168 29.44 21 9.5% LBRT 29.31 JUL 20.00 IEY SD 0.38 297 19.62 21 8.8% CBST 49.25 JUL 35.00 UTU SG 0.50 31 34.50 21 7.0% CLRS 38.88 JUL 40.00 RPU SF 0.69 136 39.31 21 5.8% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** CBST - Cubist Pharma $49.25 *** On The Move! *** Cubist Pharmaceuticals focuses on the discovery, development and commercialization of new drugs to treat infections. It's lead product is Daptomycin, which is undergoing Phase III clinical trials as a new antibiotic for skin and soft tissue infections. Cubist has partnerships with Bristol-Myers Squibb and Merck to accelerate the discovery and development of anti-infective agents. In early June Cubist received a new "buy" recommendation based on progress in its current clinical programs. Investors took notice and now the issue is trading at a new 3-month high. Technically the stock has further upside potential but we will attempt to initiate a conservative position, below the recent consolidation area. JUL 35.00 UTU SG LB=0.50 OI=31 CB=34.50 DE=21 MR=7.0% Chart = /charts/charts.asp?symbol=CBST ***** CLRS - Clarus $38.88 *** Own This One! *** Clarus is a leader in business-to-business e-commerce, providing Web-based procurement software and services to manage corporate purchasing and create digital marketplaces. Their ClarusDirect architecture directly connects buyers and suppliers to maximize cost savings and improve procurement efficiencies. Their clients include AirTouch, MasterCard International, MetLife, and others. Clarus recently announced the first commercially available application built on Microsoft's Commerce Server platform. Clarus eMarket, enables net market makers to employ either a brokered exchange or a virtual distributor model based upon their individual business needs. Rather than having to develop the underlying B2B e-commerce technology platform for each solution, Clarus designed a broad application to solve the business issues that digital marketplaces require. The outlook for the company is positive and at this price level, the shares appear very attractive. JUL 40.00 RPU SF LB=0.69 OI=136 CB=39.31 DE=21 MR=5.8% Chart = /charts/charts.asp?symbol=CLRS ***** GENE - Genome Therapeutics $30.44 *** 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 22.50 GUG SX LB=0.50 OI=169 CB=22.00 DE=21 MR=11.0% Chart = /charts/charts.asp?symbol=GENE ***** LBRT - Liberate Technologies $29.31 *** Big Earnings! *** Liberate Technologies provides a comprehensive software platform which delivers Internet-based applications to a broad range of information appliances. Using Liberate's platform, network operators offer interactive applications to subscribers. Manufacturers of information appliances use Liberate software to add Internet capability to their products. The Liberate open platform is used cooperatively to create a uniform applications environment for developers. Liberate topped analyst's estimates in its fourth quarter report last week when it posted a loss of $11 million, or $0.13 a share, on sales of $9.1 million. The consensus was a loss of $0.20 a share for the quarter. The $9.1 million in sales marks a 78% improvement from a year-ago. The issue rallied $5 on the news and is certainly due for a brief consolidation. We will target shoot the position at $0.50 credit to open the play. JUL 20.00 IEY SD LB=0.38 OI=297 CB=19.62 DE=21 MR=8.8% Chart = /charts/charts.asp?symbol=LBRT ***** SIRI - Sirius Satellite $44.31 *** Sector Rally! *** Sirius Satellite Radio is building a subscription radio service that will broadcast up to 100 channels of audio entertainment directly from satellites to vehicles throughout the continental United States. Sirius Radio will offer a wide selection of music formats and program types, with commercial-free digital quality music and other programming. Sirius holds one of only two licenses for this field issued by the FCC, and expects to start broadcasting at the end of the fourth quarter of 2000. Public investor sentiment has been positive in the radio group since earlier this week when Robert Coen, director of forecasting for Universal McCann, raised his future estimates for advertising growth in the U.S. His new domestic forecast is that ad demand will climb almost 10% from year-ago levels and he also predicted that advertising will outpace the nation's GDP by 6.5% in 2001. On Saturday, the company announced the successful launch of the first of three satellites; the other two satellites in Sirius' constellation will be launched by November, and service will be available by the end of the year. A SPECULATIVE PLAY! JUL 35.00 QXO SG LB=1.88 OI=291 CB=33.12 DE=21 MR=25.3% Chart = /charts/charts.asp?symbol=SIRI ***** TGEN - Targeted Genetics $14.88 *** More Biotechs! *** Targeted Genetics develops gene therapy products and technologies for the treatment of acquired and inherited diseases. The company now has two lead products in clinical trials for treating cystic fibrosis and treating cancer. They are engaged in preclinical product development activities in the areas of hemophilia, rheumatoid arthritis, cardiovascular disease and HIV vaccines. TGEN is in a HOT sector and recently reported favorable Phase I clinical trial results on tgAAV-CF, the company's gene therapy product for the treatment of cystic fibrosis. As for technicals, TGEN is now comfortably above a recent consolidation area after breaking out of a stage I base on heavy volume. This position offers another favorable Biotech to add to our current selection. JUL 12.50 GNU SV LB=0.38 OI=105 CB=12.12 DE=21 MR=13.9% Chart = /charts/charts.asp?symbol=TGEN ***** TLCM - TelCom Semiconductor $40.06 *** Chip Sector Upgrade! *** TelCom Semiconductor designs, develops and markets a diversified portfolio of high-performance analog and mixed-signal integrated circuits for a wide variety of applications in the wireless communications, networking, computer, and industrial markets. Analog integrated circuits are used to measure variables that have an infinite number of values and are required to interface between digital electronics systems and a variety of other applications. Telcom offers a diversified portfolio of analog and mixed-signal integrated circuit products for a range of market applications. The Semiconductor Industry Association Friday reported worldwide chip sales surged to an all-time high last month. May, 2000 chip sales hit $15.8 billion, up from $11.3 billion a year earlier and the strong results are in line with a recently released forecast that predicts a 31% growth rate for the year. That's great news for companies in the sector and TLCM should benefit from the announcement. JUL 30.00 TMU SF LB=0.56 OI=168 CB=29.44 DE=21 MR=9.5% Chart = /charts/charts.asp?symbol=TLCM ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.nextcard.com/index6.html?ref=aff0049911 ************************************************************ ************************ SPREADS/STRADDLES/COMBOS ************************ A great way to end the week! Friday, June 30 Stocks finished higher today as fund managers adjusted their portfolios to include the market leaders for the quarter. The Dow closed 49 points higher at 10,447 and the Nasdaq rallied 88 points to end at 3966. The S&P 500 Index was up 12 points at 1454. Trading volume on the Nasdaq reached 1.81 billion shares, with advances beating declines 2,230 to 1,820. Activity on the NYSE was heavy at 1.41 billion shares. Broad market advances beat declines 1,514 to 1,512. In the bond market, the 30-year Treasury fell 10/32, pushing its yield up to 5.89%. Thursday's new plays (positions/opening prices/strategy): Applied Graph. AGTX DEC5C/JUL5C $0.00 debit calendar Knight Trading NITE OCT30C/OC30P $10.12 debit straddle Noven Pharma NOVN AUG30C/AU30P $5.25 debit straddle Natural Micro NMSS JUL80P/JU85P $0.31 credit bull-put Our new debit straddles were the only positions that offered favorable entry opportunities during the session. The NITE straddle traded as low as $10 and the NOVN debit was based on prices observed near 10:00 a.m. The NMSS credit spread did not provide the target credit and with the early slump in AGTX, the suggested (calendar spread) cost basis was unavailable. Portfolio plays: The market rallied today as institutional "window dressing" boosted market-leading shares. Technology and telecom stocks were among the biggest gainers, helping the Nasdaq recover from Thursday's sell-off. Blue-chip industrial stocks were slow to react, trading in negative territory for most of the day, but the Dow enjoyed a healthy rebound in the final hour of the session. In the broad market, waste management, media and personal care issues advanced, while jewelry, textiles and trucking stocks consolidated. The surprising bullish activity was attributed to end of quarter additions to mutual funds. Institutional buyers purchase popular stocks near the end of each quarter in an attempt to make their portfolios appear attractive before disclosing an updated list of holdings to investors. Beyond the large mutual fund expenditures, most traders continued to exhibit concerns over the Fed's next move with interest rates and future corporate earnings. Our portfolio benefited from Friday's cash infusion and a number of issues rallied during the session. AM/FM (AFM) finished up $3.25 at $68.62 amid strength in media issues. Public sentiment has been positive in the radio group since earlier this week, when Robert Coen, director of forecasting for Universal McCann, raised his future estimates for advertising growth in the U.S. His new domestic forecast is that ad demand will climb almost 10% from year-ago levels and he also predicted that advertising will outpace the nation's GDP by 6.5% in 2001. The bullish move boosted our troubled credit spread into positive territory and we expect it will finish the expiration period profitable. The Major Drug sector performed well with Johnson & Johnson (JNJ) closing above the $100 mark at a new, 6-month high. Our recent upside adjustment (JAN85C/AUG95C) may be prove to be fortuitous. Sepracor (SEPR) rebounded almost $4 from a recent downgrade and Medtronics (MDT) rallied on the heels of new coverage from USB Piper Jaffray. Analyst Thomas Gunderson placed a "buy" rating on the stock based on forecasts of increasing revenues for the medical devices group. Both of the long-term positions on these issues are trading near maximum profit. Small-cap stocks performed well in Friday's session and the big surprise continues to be Conseco (CNC). The issue has rallied over 50% in just 3 days and our bullish diagonal spread is at maximum profit. Integrated Silicon Solutions (ISSI) rebounded $4 after an upgrade from Wit Soundview and the current spread; OCT25C/JUL35C, offered another profitable exit opportunity. Cytogen (CYTO) climbed above $10 amid strength in the biotech group and that spread; AUG7C/JUL10C, is also at maximum profit. General Magic (GMGC) has recovered from the recent sell-off and appears poised to attempt a new 3-month high. Our aggressive calendar spread will need to be adjusted if the issue continues through the recent area near $8.50. On the downside, Paine Webber (PWJ) broke below the upper levels of a previous trading range top and it appears the issue is gearing for lower prices. Our bullish debit spread at $40-$45 is profitable but we will need to protect the position against further bearish movement. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** TMX - Telephono De Mexico $57.19 *** Options Activity! *** Telefonos de Mexico, S.A. de C.V. owns and operates the primary telecommunications system in Mexico through which it provides local, long-distance and cellular telephone services throughout the country. Telmex also provides other telecommunications and telecommunications-related services such as directory services, data transmission, Internet access, paging service and basic interconnection services to other carriers. Telmex's telephone network includes installed telephones and switchboards, a network of access lines connecting customers to exchanges, trunk lines connecting exchanges, long-distance transmission equipment and cellular base stations. Shares of Mexican stocks were higher this week ahead of the country's presidential elections. Some 59 million registered Mexican voters will select a president and elect representatives to both houses of Congress. Voters in two states will also pick governors, while residents of Mexico City's Federal District will choose a new mayor. The activity produced a rally in Telmex and implied volatility in options of the Mexican telephone giant rose as U.S. traders joined in the speculation. One analyst said that whatever the outcome of the vote, the results will be good. With the recent bullish technicals, we agree with that assessment and this play offers a conservative manner in which to participate in the future movement of the issue. PLAY (conservative - bullish/diagonal spread): BUY CALL AUG-45 TMX-HI OI=617 A=$13.25 SELL CALL JUL-55 TMX-GK OI=8859 B=$4.25 INITIAL NET DEBIT TARGET=$8.75-$8.88 INITIAL TARGET ROI(max)=14% This position is based on recent increased activity in the stock and underlying options. With the extreme disparities in option pricing, the play offers favorable risk/reward potential however, it must be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. Chart = /charts/charts.asp?symbol=TMX ****************************************************************** PLT - Plantronics $115.50 *** Split Rally! *** Plantronics is a leading designer, manufacturer and marketer of lightweight communications headsets and headset accessories and services. In addition, Plantronics manufactures and markets specialty telephone products; amplified telephone handsets and telephones for hearing-impaired users and unique noise-canceling handsets for use in high-noise environments. Their headsets, which can be worn over the head, in the ear or on either ear, are recognized in the industry for their safety, quality and reliability. The company's headset products are used worldwide by call centers, telemarketing personnel, reservation agents, telephone operators and the nation's air traffic controllers, whose occupations involve the constant use of a telephone or communications console. The recent Plantronics rally began early last week and on Wednesday, the issue jumped $10 in anticipation of a big announcement. The news came in the form of a stock split and investors couldn't be more excited. The company said its board of directors has approved a 3-for-1 split of their common stock, payable August 8 to shareholders of record on July 18. The issue followed the news with another $10 rally on Friday and now it appears there is no turning back. The bullish technicals and a favorable fundamental outlook are excellent reasons for the stock to continue higher. Our position is conservative with a reasonable margin for downside consolidation. PLAY (conservative - bullish/credit spread): BUY PUT JUL-90 PLT-SR OI=9 A=$0.62 SELL PUT JUL-95 PLT-SS OI=30 B=$1.12 INITIAL NET CREDIT TARGET=$0.62 ROI(max)=14% B/E=$94.38 Chart = /charts/charts.asp?symbol=PLT ****************************************************************** SCUR - Secure Computing $18.80 *** Earnings Rally! *** Secure Computing develops and sells computer software products and services designed to provide secure extranets for businesses an organizations engaged in electronic commerce. The company's secure extranet solutions combine impenetrable perimeter defense for business networks with scalable, authenticated Internet and application access control so that an organization may conduct business safely with growing numbers of customers, employees, partners and suppliers. Secure's primary products are Sidewinder, SafeWorld and SmartFilter. We have been tracking this position for the covered-calls section and this week we noticed a favorable premium disparity in the August call options. The reason for the rally is obviously the upcoming earnings report and based on consensus estimates, the results should be favorable. Institutions have also began to participate in the bullish trend with a number of block "buy" orders in recent sessions. The upward momentum has continued this week with heavy volume supporting the rise in price, and the issue is poised for further gains. We simply favor the positive technical outlook and this conservative position offers a way to participate in the current rally with relatively low risk. PLAY (conservative - bullish/debit spread): BUY CALL AUG-15.00 UQU-HC OI=10 A=$4.75 SELL CALL AUG-20.00 UQU-HD OI=5 B=$1.88 INITIAL NET DEBIT TARGET=$2.75 ROI(max)=81% B/E=$17.75 Chart = /charts/charts.asp?symbol=SCUR ****************************************************************** - TECHNICALS ONLY - This play is based on the current price or trading range of the underlying issue and the recent technical history or trend. The probability of profit from this position is higher than other plays in the same strategy based on disparities in option pricing. Current news and market sentiment will have an effect on the issue. Please review the play thoroughly and make your own decision about the future outcome of the position. ****************************************************************** IBM - Int. Business Machines $109.56 *** Rangebound? *** International Business Machines uses advanced information technology to provide customer solutions. IBM operates mainly in a single industry using several segments that create value by offering a variety of technology solutions that include, either singularly or in some combination, systems, products, services, software and financing. Organizationally, their major operations comprise three hardware product segments, Technology, Personal Systems and Server; a Global Services segment; a Software segment; a Global Financing segment and an Enterprise Investment segment. Big blue was in the news this week after reporting it has built the world's fastest supercomputer. Labeled the ASCI White, the $110 million computer is to be used by scientists at Lawrence Livermore National Laboratories to simulate nuclear weapon detonations, the first step in the elimination of U.S. tests of the weapon of mass destruction. The ASCI White is capable of over 10 trillion operations a second. That's almost 30,000 times more powerful than a desktop PC and 1,000 times quicker than the IBM computer that defeated world chess champion Garry Kasparov. Using a hand calculator to do the math that ASCI White can do in one second would take a human 10 million years. When assembled, the computer will take up a space the size of two basketball courts and the electricity needed to run it could power more than 10,000 homes. Obviously that's not the reason we are offering this position but it is an interesting technological development. This play is based simply on the recent technical pattern of the issue and favorable option premiums. IBM's earnings and conference call are expected near the middle of July but the company's outlook and future revenue prospects are fairly well known. Without any major changes in the broad market outlook, IBM should continue to trade in a relatively small range. PLAY (conservative - neutral/credit spread strangle): PLAY (Bearish): BUY CALL JUL-125 IBM-GE OI=15326 A=$0.50 SELL CALL JUL-120 IBM-GD OI=18244 B=$1.06 NET CREDIT TARGET=$0.62-$0.68 ROI=14% PLAY (Bullish): BUY PUT JUL-95 IBM-SS OI=5929 A=$0.56 SELL PUT JUL-100 IBM-ST OI=9147 B=$1.06 NET CREDIT TARGET=$0.56-$0.62 ROI=12% COMBINED ROI=26% UPSIDE B/E=$121.25 DOWNSIDE B/E=$98.75 By combining two credit spread positions, you can participate in a popular neutral strategy known as the "Long Iron Condor." It is often used with range-bound positions and is a limited risk, limited profit strategy that gives you a wide range for success. Chart = /charts/charts.asp?symbol=IBM ****************************************************************** - INDEX OPTION SPREADS - ****************************************************************** As a trader, you may be familiar with options on individual stocks where you have the right to buy (call option) or the right to sell (put option) a particular stock at some predetermined price within some predetermined time. The buyer has the rights and the seller the obligations. With index options the basic ideas are the same. Index options allow you to make investment decisions on a specific market industry or on the market as a whole. Spread strategies can be made with index options similar to those made with individual stock options. Many professional traders employ index spreads as a hedge strategy. We favor debit positions on the SPX for momentum and hedge or longer-term plays and OTM credit spreads on the OEX when the risk/reward is favorable. Low ROI disparity spreads will be listed (when available) for the conservative index trader. ******************************************************************* OEX - S&P 100 Index $790.25 OTM Credit-Spreads The Standard & Poor's 100 Index is a capitalization-weighted index of 100 stocks from a broad range of industries. The component stocks are weighted according to the total market value of their outstanding shares. The impact of a component's price change is proportional to the issue's total market value, which is the share price times the number of shares outstanding. OBSERVATIONS: For OTM credit spread trades, we like to use the actively-traded S&P 100 Index options because they contain much more premium than options on individual stocks and provide an underlying instrument less prone to huge, gapping moves. Review the 'Market Sentiment' section for specific technical information on the S&P 100 Index. PLAY (very conservative - neutral/credit spread strangle): PLAY (Bearish): BUY CALL JUL-840 OEX-GH OI=3037 A=$1.00 SELL CALL JUL-835 OEX-GG OI=1406 B=$1.25 NET CREDIT TARGET=$0.31 ROI=7% PLAY (Bullish): BUY PUT JUL-730 OEZ-SF OI=1714 A=$1.56 SELL PUT JUL-735 OEZ-SG OI=1859 B=$1.88 NET CREDIT TARGET=$0.38 ROI=8% COMBINED ROI=15% UPSIDE B/E=$835.68 DOWNSIDE B/E=$734.31 Chart = /charts/charts.asp?symbol=OEX *****************************ADVERTISEMENT************************ FFFOOOOUUUUURRRRR!!!!! Golf Digest is the most preferred golf publication. Only $1.48 per issue,63% off the news stand price. Learn how to Cure your slice, and other valuable lessons! http://www.OptionInvestor.com/tracking.asp?co=OIGolfDigest6302000 ****************************************************************** ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.
Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.
To ensure you continue to receive email from Option Investor please add "firstname.lastname@example.org"
Option Investor Inc