The Option Investor Newsletter Sunday 07-16-2000 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/071600_1.html Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 7-14 WE 7-7 WE 6-30 WE 6-23 DOW 10812.75 +176.77 10635.98 +188.09 10447.89 + 43.14 - 44.55 Nasdaq 4246.18 +222.98 4023.20 + 57.09 3966.11 +120.77 - 15.22 S&P-100 815.52 + 12.52 803.00 + 12.75 790.25 + 9.18 - 7.67 S&P-500 1509.98 + 31.08 1478.90 + 24.30 1454.60 + 13.12 - 22.98 RUT 542.63 + 14.41 528.22 + 10.99 517.23 + 6.82 - 3.33 TRAN 2919.04 +134.40 2784.64 +139.27 2645.37 + 14.66 - 42.48 VIX 22.61 + .79 21.82 - .44 22.26 - 3.63 + 2.34 Put/Call .38 .48 .48 .61 ****************************************************************** The rally gains steam as inflation news comes in tame. Investors cheered when the economic results were announced Friday morning. The PPI headline number came in only slightly stronger than expected with a +.6% increase but the core rate actually fell -.1% for June. No rampant inflation there! The Retail Sales however did show a slight increase of +.5% for June showing that consumers were still braving the heat and the market downdraft to hit the shopping malls. Industrial Production was up +.2% and Capacity Utilization steady at 82.1. All appears to be well in the economy and the markets are responding positively. The Nasdaq is streaking for the sky while the Dow is still suffering from sector rotation back into techs. The big news of course was the record $145 billion judgement against the tobacco industry. The tobacco stocks reacted with a yawn trading down only fractionally. Tobacco analysts and investors had anticipated the event for some time. They called the trial constitutionally flawed and a sure win on appeal. The tempers and emotions ran high on the announcement with the attorney for the smokers actually yelling a verbal challenge to the Phillip Morris CEO to step up to the table and face the music. Some analysts expect appeals could last a decade. On the opposite side of the news ledger Salomon Smith Barney issued a research note that said, "Clearly, we believe the concerns over Amazon.com's bankruptcy are overstated." Contrary to a Barrons article claiming they would run out of cash in 22 months or less, SSB said "Amazon won't run out of cash within the next year or the next 10 years." AMZN soared +7.50 on the news. That along with the YHOO earnings on Tuesday helped pump new life into the Internet sector. The Internet incubators CMGI, ICGE, SFE all posted solid gains with ICGE closing the week +30% off its lows. The Nasdaq soared to close at 4246 the highest close since April 7th and clearly in breakout mode. The Nasdaq gained +5.5% for the week and is now up +4.3% for the year. The Dow is the only major index that is still below its Y2K level and down -6% YTD. Drug stocks provided the major drag on the Dow on Friday with MRK and JNJ falling to profit taking after the denial on their over the counter cholesterol medication application. The good news bad news story in the chip sector was Altera and Vitesse. Altera (ALTR) beat earnings by $.05 and jumped +$8.38 and Vitesse only matched estimates and dropped -$11. Takes guts to hold over earnings in my opinion. The 90/10 rule always seems to impact my hold over plays. The 90/10 rule? There is a 90% chance the company will miss estimates on any stock I own. This also works inversely as well. There is a 90% chance of a blowout on any stock I don't own. The 10%? That is the profit I make on any stock I actually guess right on after the premiums deflate before I can get my closing order executed. I have people sending me emails with so much excitement they are like kids in a candy store with a pocket full of new money. All memories of the March/April market drop have been forgotten as investors rejoice at double digit moves in their favorite stocks. Bullishness abounds in every corner. Warning season is over although there may be some stragglers yet to confess. The focus is entirely on earnings. Blowouts abound, stock splits are like popcorn. There is no negativity in the news other than the tobacco judgement. Nasdaq 6000 is already being mentioned before year end. Scary! Before we start targeting 6000 I think we need to focus a little closer first. The market is totally focused on earnings with the Fed a distant memory, at least until August. Earnings are incredible with 14% of the S&P already announced with a +23% average growth in earnings. Only two of the S&P companies that have announced actually missed their estimates. Tech stocks are coming in at almost +35% and analysts can't say enough good things. Next week should be another love fest with over 200 S&P companies announcing. This is the busiest week of the season. Fourteen Dow stocks announce including GM, BA, KO, EK, MSFT, INTC. It is a party with guests squeezed into every corner guzzling champagne and raking gourmet portions off the buffet table. Tick tock, tick tock. As the calendar quickly counts off the days, the week we have waited for the last three months is finally upon us. The Cinderella ball is in full swing. Enjoy the party! Join the fun! Remember what happened to the last big party you hosted? As the evening wore on the entertainment faded the revelers with too much to eat and drink started slipping away. Home to baby sitters and Alka Seltzer. Fickle friends making excuses to leave once the drinks dried up and the food turned brown around the edges. The Cinderella market may also find its carriage turned back into a pumpkin and the horses into angry bears. Once the smorgasbord of earnings turns into a trickle of crumbs after next Friday the attention of traders will then focus on summer vacations, family events, kids returning to school and staying out of the heat. That is when the real strength of the rally will be tested. Investors will start to focus on the August Fed meeting and July economic data. Is it for real? We will find out week after expirations. Meanwhile enjoy the party and don't forget the Alka Seltzer. The hangover may not be fun. Austin Passamonte makes an interesting point in the Market Sentiment Section today. Institutional traders, the ones that trade in mega-millions of dollars and are seldom wrong, are shorting the S&P-500 and even added to their positions last week. The short interest is at a five year high. Now this can work two ways. If the market does a nose dive next week as they expect then they will profit handsomely. However, if there is enough retail sentiment to nudge the markets up another couple hundred points then we could see the father of all short squeezes. Record short interest could create a record rally. It is a showdown at Wall and Main. A game of chicken between the retail traders who are adding to long positions with reckless abandon and the huge commercial traders like hedge funds who are shorting like there is no tomorrow. Either outcome is likely to produce some serious financial fireworks. Money coming into funds slowed last week. AMG Data claimed only $1.8 bln in new cash went into equity funds and TrimTabs.com only reported $1.1 bln in the week ended on Wednesday. This is a far cry from the almost $7.5 billion that TrimTab.com said flowed into equity funds the week before. I would say that was a significant difference. If you have been following Mary Redmond’s articles on "Follow the Money" you know how important these numbers are. Also, the put/call ratios are the lowest in five weeks and the VIX is still stuck around 22. These are both bearish signals. The economic calendar is light this week with the only major release being the CPI report on Tuesday. This is not normally a market mover. More important in my opinion is the testimony by Greenspan on Thursday to the Senate Banking Committee. He has been very tame recently in his public comments but you never know when the tide will turn. Maybe the oncoming election will keep him muted and on the sidelines but be aware. Don't forget the 3-day stock/option seminar in Seattle starts next Friday and there are still a few seats available. Instructors include Chris Verhaegh, Steve Rohades and Scott Zimmerman. See the rest of the schedule below. Trade smart, sell too soon. Jim Brown Editor ****************************Advertisement************************* Trade Options Online with an Established Expert! Mr. Stock has put over 20 years of experience into a site specifically designed for the most important aspects of your options trading. Our recognized, easy-to-use interface allows you to trade spreads, straddles and covered calls with one-mouse-click. Visit Mr. Stock today! http://www.OptionInvestor.com/tracking.asp?co=OIMrStock682000 ****************************************************************** **************** SEMINAR SCHEDULE **************** Seattle 3 day seminar begins next Friday July 21st. Don't miss it! Technical Analysis, Stock and Option Seminar Three days of indepth education. The next seminar is a three day event in Seattle on July 21-23rd. 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 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 **********************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 ***************************************************************** ************** EDITOR'S PLAYS ************** Last week was a mixed bag with the Nasdaq negative on Monday and Tuesday. Each play went a different direction and despite the rally the four described here were lackluster at best. I am adding two this week, YHOO and MUSE. Maybe the market will be nice to us before options expiration. Patience is still the key and you can't lose any money in cash. MRVC - MRV Communications MRVC finally broke out over $68 but not until suffering another bought of selling. I don't like the Friday pattern or the trouble it had getting over $68. I would drop this play and close any positions. It looked good several times but never worked. JNPR - Juniper Networks Operator error! I had been writing on this stock here for two weeks and was focused strictly on the chart pattern. While waiting for the breakout over $150 we ran smack into earnings. Had I really been trying to trade this stock I should have checked the earnings date beforehand. Fortunately earnings were positive but we should not have been trying to enter the play three days before. The chart is a really good example of a technical entry but luck played a major part. MSFT - Microsoft I hate it when this happens. We just get setup with an apparent breakout and the earnings rumors take fun right out of the play. The gap down on Monday and lack of follow through from the Friday spike should have been the signal to move on to something else. The negative expectation is building but with only three days from earnings on Tuesday to expiration on Friday I would just close the play and not hope for a blowout. This one is dead. TIBX - Tibco Software Can't say I did not warn you. The chart was just too pretty and it was due for a serious pull back. For those waiting for the rebound as suggested, you got a great entry point. The writers jinx was in full bloom but the negative market on Mon/Tue was the real key. Too much profit on the table from the great runnup. New players shold wait for the next bounce off the bottom of the channel. New Plays ************* MUSE - Micromuse The dip on Friday for profit taking appeared to give us a little safer entry point for Monday. That dip should have taken out the nervous Nellies and the quick recovery was a good sign. I would wait for at least two hours on Monday before taking a position. It is possible we could get some market instability on profit taking so we want to confirm direction of both the market AND the stock. Ideally we would like to see a sub $180 entry point but with a positive market and positive stock I would be a buyer on Monday. YHOO - Yahoo! !! PUT PLAY !! I am a firm believer in trends and the trend for YHOO is to drop after earnings. The depressed Nasdaq and the negative press before earnings had artifically depressed the stock. The positive earnings helped by the Nasdaq rally injected new hope into YHOO. However the new hope still has not been able to break through resistance at $130. When/if the market turns south for profit taking or a repeat of the last two July sell offs YHOO, with a PE over 500, will suffer. This is definitely not a blind play. WAIT FOR WEAKNESS before buying puts on YHOO. No trend continues forever but with the July trend AND the YHOO trend converging I think there is a better than 50/50 chance YHOO will see $110 again. This is a personal opinion but one I intend to play. QQQ - Nasdaq Puts This is strictly a play based on the July sell off trend. The QQQ has broken out and is following the Nasdaq to three month highs. Profit taking will occur soon and more than likely before Tuesday July-25th. An aggressive trader could follow this chart all week and look for the roll over. I think you could safely buy puts on any break through $105 but I would want to see weakness first. This is a probable play for Thr/Fri/Mon. Be patient. Wait for confirmation. ********** I have no current positions. I am in cash and looking for a sell off after expiration Friday. I set stops on my NOK, VOD and MSFT leaps and all were hit on the weak market early in the week. I can now bask in the luxury of indecision. If I do not see something that looks like free money then I can just wait patiently on the sidelines. You read my market wraps and you saw the charts from last week on the July drops in 1998/1999. If the market rockets up from here and never looks back then so be it. I will lose profit but not capital. If the market does what I expect then I want to be ready to capitalize on the first down trend and then be ready for the next up trend. I have a lot of things on my plate and I can't afford to be glued to a PC all week. Profits come to those who wait. I am waiting! As always, wait for positive stock, sector and market before opening new positions. Good Luck Jim **************** MARKET SENTIMENT **************** Record Levels Predicted Soon By Austin Passamonte Everywhere I look market pundits are predicting record levels for the major indices by mid-August. Music for bullish ears! Heavy volume amid neck-breaking sector rotation is evidence enough that momentum traders are back. A mild PPI report was the green flag waving in front of buyers seated with feet on both pedals. Looks to me like most bulls dumped their clutch and floored the gas. Is this the start of an Indy 500 or just a quarter-mile drag race? Investors and traders are salubrious. The glory days are upon us once again! You just know that unsold cases of "Irrational Exuberance" hard-covers are being used to stoke barbecue grills this weekend. All is well in lush, green bullish pastures under the summer skies. Lest we forget, this is a balanced report. Forgive me for predicting possible showers amidst the bear roast. The VIX stubbornly remains at the 22 range with no signs of budging. A move up from here might signal tilted pressure is waning. On the other hand, a sudden dip below 20 followed by release to higher numbers may suggest you buy puts with abandon. The biweekly COT report was issued at 3:00pm on Friday. Did the S&P 500 commercials lose their nerve, throw in the towel and cover shorts? Certainly not. As we guessed, they had the audacity to add even more net-short positions to set another 5+ yearly extreme. Same goes for commercials in the NASDAQ 100 market as well. Remember, these are the big boys (and girls). Financial institutions. People who trade positions with more zeros than a long Siberian winter. The broad market rallies and they go even shorter? These pros are betting that the shorts they sell today will cover eventually at lower prices. Much lower prices. You can bet they are hedged with options and made sure time is on their side. I wonder what they think the market may do after earnings season draws to a close? My guess for what it’s worth is further upside over the rest of a stellar earnings season. Be sure to watch the VIX and don’t be in a hurry to buy any major dips should they occur. Some are betting the next bottom is a long ways off. Enjoy the market moves while profiting in both directions. Calls or puts as conditions dictate will facilitate early retirement sooner than you think! 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 7/13 close: 22.75 Sat 7/15 close:22.61 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 Sat Strike/Contracts (7/11) (7/13) (7/15) ************************************************************* CBOE Total P/C Ratio .53 .42 .38 Equity P/C Ratio .47 .37 .33 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 Sat Strike/Contracts (7/11) (7/13) (7/15) ************************************************************** All index options 1.16 1.16 .81 OEX Put/Call Ratio 1.27 1.82 1.05 OEX Maximum Open Interest Strikes/Contracts: Puts 790/6,095 790/6,762 790/7,085 Calls 800/5,632 825/9,423 825/9,340 Put/Call Ratio 1.08 .72 .76 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. Values above "5" considered excessive. Divergence of numbers may indicate future market direction. OEX Tues Thurs Sat Benchmark: (7/11) (7/13) (7/15) Overhead Resistance: (840 - 820) 58.88 74.99 58.87 (815 - 800) 2.8 1.87 1.75 OEX Close: 801 808 815 Underlying Support: (800 - 785) .86 1.10 1.21 (780 - 760) 2.59 2.84 3.15 What the S/R measure indicates: Net open-interest ratios are high above 815 OEX level while underlying support is very light. The OEX has mounting downside pressure from 815 with little upward support in comparison. A large move in either direction seems favored to the downside. Sustained levels above 815 may prove very difficult before July contract expiration 7/21 unless overhead O/I clears. 200 Day Moving Average (as of 7/10) The 200 DMA is widely considered the major benchmark for critical support in a market. DOW; 10,740 10,727 10,788 10,812 NASDAQ; 3,789 3,956 4,174 4,246 NDX; 3,505 3,744 3,956 4,041 SPX 1412 1480 1495 1510 OEX 758 801 808 815 CBOT Commitment Of Traders Report: Friday 7/14 Biweekly COT report discloses positions held by small specs and commercial traders of index futures contracts on the Chicago Board Of Trade. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs are not. Extreme divergence between each signals a possible market turn in favor of the commercial trader’s direction. Small Specs Commercials DOW futures Net contracts; +326 long +59 long Total Open Interest % 2.3% net-short .4% net-long NASDAQ 100 Net contracts; +6,183 long -10,731 short Total Open Interest % 4.9% net-long 11.9% net-short S&P 500 Net contracts; +36,908 long -44,272 short Total Open Interest % 9.8% net-long 11.8% net-short BULLISH SIGNALS Broad Market Strength: All major indices are showing strength on rally with high volume. Interest rates 5.87% on the 30-year Treasury Bond may be signaling the rate fears are over. Fed-Fund futures are pricing a less than 50% chance of one more hike, .25 basis at this time. Corporate Earnings Last quarter earnings expected to be very strong, especially for the tech sector. Major stalwarts in the Dow and NASDAQ began the three-week session last week. Many issues beating the street with a majority still to report. IPO’s Recent IPO’s have been met with positive enthusiasm. ****** BEARISH SIGNALS VIX Today’s close near 22.61 warns of impending market top danger. Energy Prices Prices are still too high. Ultimately this affects profit margins and inflation. August Crude closed $31.40 today amid rumors of more production. Seasonal energy patterns typically bottom by late summer. COT Report Latest updated figures show small spec traders heavily long S&P 500 contracts while commercial traderss continue to build five-year extreme short position. Widening divergence in NASDAQ 100 futures market with commercials becoming heavily net-short. Divergence suggests possible market turn in favor of commercials soon. Equity Put/Call Ratio Equity option ratio has slipped into bearish zone, as did total CBOE option ratio. ************** MARKET POSTURE ************** As of Market Close - Sunday, July 16, 2000 Key Benchmarks Broad Market Bearish/Bullish Last Posture/Since Alert **************************************************************** DOW Industrials 10,450 10,850 10,801 Neutral 7.07 SPX S&P 500 1,435 1,510 1,509 BULLISH 7.13 OEX S&P 100 775 816 815 BULLISH 7.13 RUT Russell 2000 470 545 542 BULLISH 7.13 NDX NASD 100 3,450 4,055 4,041 BULLISH 7.16 ** MSH High Tech 965 1,082 1,080 BULLISH 7.13 XCI Hardware 1,440 1,600 1,549 BULLISH 7.13 CWX Software 1,160 1,300 1,285 Neutral 6.06 SOX Semiconductor 1,060 1,281 1,238 BULLISH 7.16 ** NWX Networking 1,150 1,385 1,381 Neutral 7.13 INX Internet 470 637 593 Neutral 7.16 ** BIX Banking 520 565 558 Neutral 7.07 XBD Brokerage 480 590 587 BULLISH 7.11 IUX Insurance 610 660 649 Neutral 6.20 RLX Retail 860 960 932 Neutral 7.07 DRG Drug 380 430 394 BULLISH 7.11 HCX Healthcare 795 880 813 BULLISH 7.11 XAL Airline 152 180 176 BULLISH 5.25 OIX Oil & Gas 285 315 292 Neutral 7.13 Posture Alert The NDX, SOX and INX took out further resistance warranting upgrades. Markets can get nervous when so many indicators are bullish. A few facts...The SPX is up 2.7% for the YEAR. The XBD is up 15.5% for the WEEK. The DRG is down 7.7% in 3 days. Snug up those stops ************* SECTOR TRADER ************* Runs, Hits, and Errors By Buzz Lynn sectortrader@OptionInvestor.com We had some nice plays last week in the QQQ, BBH, PPH (that is if you sold the latter two too soon), and the BDH. We gaffed one as well in our negative slant on HHH. Investors were quite happy with Yahoo’s results earlier in the week. With Salomon Smith Barney riding to the rescue of AMZN on Friday with a Buy rating based on what they think will be a net gain cash position over the next 18 months, plus Lehman’s Buy rating on EBAY and price target of $72, the B2C sector caught fire. Oh well, if you can’t beat ‘em, join ‘em! It rubbed off nicely on other Internet sectors too. Note that we’ve added IAH as a new play this weekend. With all the technology interest lately, you’d think the drug stocks would be looking pretty ugly now and you’d be right - bye bye PPH. So why not drop biotech (BBH) from the lineup after an equally big slide? Check out the technical analysis below. While we could see some pullback from last week’s strong gains, earnings season is in full swing, and this week could shape up to be a good one for those long. The sentiment has shifted to the positive thanks to strong earnings from those technology companies that have already reported. While the gravy train won’t last forever, an earnings run has emerged in many sectors and we ought to play them for all they are worth. That said, let’s see how we might make some money this week! Index Last Mon Tue Wed Thu Fri Week QQQ NASDAQ-100 100.56 -1.56 0.53 2.50 1.44 2.06 4.97 HHH Internet 120.00 -4.25 -1.13 9.38 2.63 8.13 14.75 BBH Biotech. 184.00 -0.88 0.31 -2.19 -11.88 1.44 -13.19 PPH Pharm. 97.38 2.50 1.00 -2.44 -4.25 -2.88 -6.06 TTH Telecom 77.44 -0.94 -1.25 0.75 1.75 0.31 0.63 IAH I-net Arch. 97.96 -0.38 -0.69 2.31 2.06 2.00 5.31 IIH I-net Infr. 66.63 0.06 -2.38 4.94 4.69 0.00 7.31 BHH B2B 52.50 0.38 -0.88 7.19 3.56 1.06 11.31 BDH Broadband 100.25 -1.75 -0.31 3.56 3.94 3.44 8.88 SMH Semicon. 101.38 -0.13 -1.50 2.32 2.44 3.00 6.13 RKH Reg. Banks 99.00 -0.56 -0.25 0.50 -1.88 2.25 0.06 UTH Utilities 93.00 1.81 1.19 -0.50 -0.13 0.00 2.38 ************** Updates ************** QQQ - NASDAQ 100 $100.56 (+2.91 last week) The NASDAQ rally continued on Friday as a new recent high of 4246 was reached. The strength continues to amaze us. Actually the QQQ has lagged the whole NASDAQ market ever so slightly telling us that on a relative basis, it’s the smaller to medium cap issues that are gaining the most ground relative to the giants like MSFT, INTC, CSCO, ORCL, WCOM, and DELL. Even the giants, except maybe MSFT are doing well. Well enough so that the resistance we’d recently seen at $100 is getting squeezed up with impressive volume, even for a Friday. In fact, QQQ closed at its highest level since the April selloff began. Given the strength of the tech issues during this earnings season, it seems that this trend can continue. Just remember too that nothing goes up in straight line and there will be a day or two of adjustment from time to time. Assuming QQQ can continue its climb over $100 from here, we might expect $100 to become new support. But until then, $99 and $97.50 should continue to make excellent support. The next level of resistance is $102.50, then $105. Any chance of a back slide into the $92-$97 range? Remotely possible, but unlikely in our opinion given the strong earnings numbers from the tech stocks so far. That also means more upside potential as earnings get into full bloom. Short Strangle: Part of the appeal of a strangle is its ability to make us money in a sideways market. While is still works, it becomes less appealing when the market gets a directional bias - up in this case. It means we keep having to adjust our short positions to remain out of the money on both puts and calls. Now that QQQ trades over $100, if it doesn’t roll over from here, you may want to consider closing the position entirely. But at the very least, it’s probably a good idea to roll up to a higher strike price on the short call. This can get expensive, so don’t try this unless you are a spread wizard. For example, that might mean buying back the 100C and selling the 103C if QQQ doesn’t fall back from here. So here’s the plan. Wait to see if QQQ holds $100 to show us support. If it does, consider closing the strangle and getting directional (see long play below). That would mean buying back the put and the call simultaneously. On the other hand, if negative sentiment gets a foothold (and it could if MSFT earnings jitters prove true on July 18th, or some other big cap tech stock disappoints), or if you see a substantial rollover from $102.50, or even a drop from here, you can adjust your strangle or enter a new one. $100 is a critical mark. Wait for a confirmation either way. SELL CALL AUG-100 QVO-HV OI=4903 at $ 6.50 SELL PUT AUG- 95 QVQ-TQ OI=1645 at $ 3.38 Net Credit = $ 9.88 or better Stop Loss = $13.00 SELL CALL AUG-103 QVO-HY OI= 63 at $ 5.00 SELL PUT AUG- 98 QVQ-TT OI=1268 at $ 4.38 Net Credit = $ 9.38 or better Stop Loss = $12.50 Covered Call: $100 held up as support on Friday and will become a critical number to watch next week. Like a strangle, covered calls do their best work in a sideways market, while upside is capped at the amount of the premium collected in a rising market. Our inclination here is to do a buy/write (simultaneously buy shares and sell calls) on a dip and bounce off $100 or, even better, $97.50. If you are a bit more aggressive, you can consider buying any dip and selling calls on the rebound to capture a bigger premium. However you can lose more too if the price of QQQ continues falling after you buy it. Remember, you want to get called out at expiration (or at least have QQQ close just under your sold strike so you can sell calls again next month), not become a long term investor in QQQ waiting for a recovery. QQQ = $100.63 SELL CALL AUG-100 QVO-HV OI= 4903 at $ 6.13, ND = 94.50 or less SELL CALL AUG-102 QVO-HX OI= 345 at $ 5.13, ND = 95.50 or less SELL CALL AUG-105 QVO-HA OI= 866 at $ 3.75, ND = 96.88 or less Calendar Spread: Nearly the same as writing a covered call, except you DON’T want to called out . . you’d have to give up the time value of the underlying long term call you bought. That’s expensive. So to cover your position here, you would buy back the sold near-term strike. While that is not our suggestion, you may nonetheless want to consider that if QQQ keeps moving up. However, we would look at a rollover as a reason to stay in your current position or as an opportunity to buy the underlying cheaper, while selling the call on the recovery. The idea here is to let time (theta) decay eventually pay for the underlying purchase over time, in effect giving you a "free" longer term option. BUY CALL DEC- 94 QVQ-LP OI= 1589 at $17.00 SELL CALL AUG-100 QVO-HV OI= 4903 at $ 6.13, ND = 10.88 or less SELL CALL AUG-102 QVO-HX OI= 345 at $ 5.13, ND = 11.88 or less SELL CALL AUG-105 QVO-HA OI= 866 at $ 3.75, ND = 13.25 or less Long Calls The new upward trend looks pretty darn good. We’d expect it remain intact throughout earnings season, give or take a bad day. Careful though, we’ve had a strong days in a row and could be due for a dip. How far? Most likely, not much. Perhaps this level at $100 can hold, which would then become new support. If not, $97.50 would be the next level down to target shoot. At Support: BUY CALL AUG- 98 QVQ-HT OI= 844 at $7.63 SL=5.25 BUY CALL AUG-100 QVO-HV OI= 4903 at $6.50 SL=4.50 Naked Puts While not quite free money from God, we couldn’t resist throwing a naked put in this weekend. With the strength of the market thanks to excellent tech earnings so far, we think the risk of assignment is slim for a 5-day hold. Former resistance of $95 has now made good support. If your broker will let you do it, the margin requirement is about $2000 per contract. $50 may not seem like too much of a reward, but the downside is pretty small too. SELL PUT JUL- 95 QVQ-SQ OI=13844 at $0.50 SL=1.00 Average Daily Volume = 24.77 mln ----- BBH - Biotech $184.00 (-13.19 last week) We know, we said we’d drop it this weekend if it didn’t get back over $188 by Friday. It didn’t so we’re dropping it, right? Not yet. Here’s why. The reason is purely technical. BBH tested a previous level of support at $181 and moved back up to finish over Thursday’s close. The candlestick pattern now shows two hard days of selling off with a bounce at major support on day three. That’s not unusual to see in a group that has run so hard. It’s a star reversal pattern forming, and a classic sign of a bottom. It’s by no means a sure thing. However, the expected candlestick for Monday has a good probability of moving up. Fundamentally, nothing has changed for BBH that would keep it down. We’ll wait for a move over Thursday and Friday’s resistance at $187 before taking a position. If you don’t see that, it’s probably wiser to find another play. Average Daily Volume = 605 K ----- HHH - Internet $120.00 (+14.75 last week) The funny thing about technical analysis is that it makes no room for changes of sentiment. YHOO’s future revenue outlook was good enough that investors for the first time in a long time didn’t make a rush for the exits on the news. That news alone stopped the shorts dead in their tracks. The final nail in the coffin came Friday when EBAY and AMZN were both upped to Buy ratings. Particularly noteworthy was Salomon Smith Barney’s defense of AMZN, wherein they stated that AMZN would be in a stronger cash position next year. In other words, things aren’t so bad and AMZN CEO Jeff Bezos was right all along. Rumors of AMZN’s death are greatly exaggerated. But this isn’t about just AMZN, YHOO and EBAY. The bigger implication is that this news has investors dancing in the streets rather than wringing their hands. The new crowd mentality isn’t likely to go away tomorrow. Investor sentiment has changed. Is the market wrong? Maybe. But you’ve heard the cliché. . .don’t fight the tape. Fact is that the market is never right or wrong; it just is. J.D. Rockefeller noted that it is better to consider evidence than defend a position. Thus we play the hand we’re dealt. In other words, if you can’t beat ‘em, join ‘em. To that end we’re switching to a bullish position on HHH. It has now smashed through its 5,10, 30 and 50-dma in an extremely bullish move. On a historical basis, it also broke resistance at $113 and $116 without a hiccup. RSI, MACD, and the stochastic have all turned back up thanks to Friday’s action. the next logical level of support is in the $126-$128 range, so it looks like there’s room to run. Don’t get complacent though. With such a big move in a short period of time, not to mention a decimated trail of DMA’s (the 30 and the 50) back at $114, QQQ could correct with any market weakness. We think it’s smarter to wait for a pullback to the nearest support around $116 before taking a position. The current direction is good, but wait for a better entry. BUY CALL AUG-115 HHH-HC OI= 56 at $11.38 SL=8.50 BUY CALL AUG-120 HHH-HD OI= 65 at $ 8.63 SL=6.25 BUY CALL AUG-125 HHH-HE OI=202 at $ 6.50 SL=4.50 Average Daily Volume = 928 K ----- BDH - Broadband $100.25 (+8.88 last week) More stellar gains for BDH last week with Friday no exception. JDSU, SDLI, GLW, NT, SCMR, and almost anything else optical was in the limelight. Why? Here's s direct quote from JDSU's CFO Tony Muller in an SEC filing: "Further, the preliminary results for the quarter for each of these three companies [JDSU, SDLI, ETEK] is for SALES AND INCOME TO BE HIGHER THAN INVESTMENT COMMUNITY ESTIMATES [emphasis ours], and you will learn of these results later in the month when we announce results." This sector is on fire. BDH gave us the breakout over $97 we were looking for and kept on moving. There isn’t any resistance to speak of since BDH broke into blue sky at $99.25 without a whimper. The closest support is at $95, then $96.50. While we think the current level is buyable, the components with earnings coming may be susceptible to some profit taking, especially the recent big movers, which would obviously affect BBH. Target shoot to your comfort level. BUY CALL AUG- 95 BDH-HS OI= 40 at $ 8.75 SL=6.25 BUY CALL AUG-100 BDH-HT OI= 10 at $ 5.13 SL=3.25 BUY CALL AUG-105 BDH-HA OI= 0 at $ 2.69 SL=1.25 SELL PUT AUG- 95 BDH-TS OI= 4 at $ 4.38 SL=6.25 Average Daily Volume = 153 K ************** New Plays ************** IAH - Internet Architecture $97.94 (+5.31 last week) Similar to BDH, this issue is a really a subsector of "Bandwidth". With CSCO, SUNW, EMC, SCMR, JNPR, FDRY, and COMS leading the gains in the components of IAH, it’s easy to see that IAH will benefit from the same trends as BDH. That said, former resistance at $96 was handily broken and acted as support on Friday, especially on the heals of JNPR’s killer earnings. Volume on IAH is moving up and slightly exceeded the ADV on Friday. Technical indicators, MACD, RSI, and stochastic have turned up nicely over the last few days. If support at $100 can hold, feel free to take a position at this level. Otherwise, dips to $94.50 and $96 are buyable. Resistance is up at $100. BUY CALL AUG- 95 IAH-HS OI= 4 at $6.13 SL=4.25 BUY CALL AUG-100 IAH-HT OI= 3 at $3.25 SL=1.75 BUY CALL AUG-105 IAH-HA OI=23 at $1.63 SL=0.75 Average Daily Volume = 153 K ************** Drops ************** PPH - Pharmaceuticals $97.38 (-6.06 last week) Short leash gets jerked! Seriously, with all the sentiment funneling into technology, drug stocks have been fed to the wolves. Nothing in particular wrong with these companies. It’s just that they tend to fall out of favor when tech stocks rally. PPH will return, but we have to drop it now that techs are in the spotlight. ************** No Play ************** PPH IIH BHH SMH TTH RKH UTH ********************************Advertisement******************* Looking to buy or sell a new or used vehicle? Autobytel.com has been ranked #1 in J.D. Power and Associates Dealer Satisfaction with Online Buying Services study three years in a row. Autobytel.com has revolutionized the way vehicles are bought and sold, with a no-haggle, no-hassle buying experience. http://www.OptionInvestor.com/tracking.asp?co=OIAutobytel7102000 ***************************************************************** ************* COMING EVENTS ************* For the week of July 17, 2000 Monday Business Inventories May Forecast: 0.3% Previous: 0.4% Tuesday CPI Jun Forecast: 0.4% Previous: 0.1% Core CPI Jun Forecast: 0.2% Previous: 0.2% Wednesday Trade Balance May Forecast:-$30.5B Previous:-$30.4B Thursday Initial Claims 07/15 Forecast: 315K Previous: 319K Housing Starts Jun Forecast: 1.570M Previous: 1.592M Building Permits Jun Forecast: 1.540M Previous: 1.511M Philadelphia Fed Jul Forecast: 7.0% Previous: 1.7% Friday Treasury Budget Jun Forecast: $55.0B Previous: $53.6B Week of July 24th 07/25 Existing Home Sales 07/25 Consumer Confidence 07/27 Employment Cost Index 07/27 Durable Orders 07/27 Initial Claims 07/27 Help-Wanted Index 07/28 GDP 07/28 GDP Chain Deflator 07/28 Michigan Sentiment ************************Advertisement************************* Tired of waiting on trades to execute? 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The Option Investor Newsletter Sunday 07-16-2000 Sunday 2 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/071600_2.html ************** TRADERS CORNER ************** Watching Pivot Points By Mary Redmond After attending an excellent OIN technical analysis seminar in NY this week I picked up several insightful ways to combine key technical indicators. One of them is a pivot point. I used a pivot point earlier in the week without even realizing it had a formal name. A pivot point can be described as a key turning point in a stock's trading pattern. It can be the start of a reversal of a trend. If it occurs after a downtrend, the pivot will tend to look like a U. If it occurs after an uptrend, the pivot will tend to look like an upside down U. The trading pattern of CMGI for the first few days of this week was a classic example of a bottom pivot. The stock had been in a strong downtrend for several months. From a high of over $150 earlier in the year, the chart went down almost in a straight line. On Thursday July 6 the stock closed at $44.63. On Friday July 7 CMGI closed at $41.25, down over 3 points for the day on strong volume. This was particularly bad considering the fact that both the Dow and Nasdaq rallied strongly on Friday on a benign employment report. If the stock closed down on a day like that, the technical support was about as weak as you can get. If you had purchased a CMGI put on July 10 you could have sold it for a nice profit the next day, as the stock closed at $36.50 on Tuesday. However, the news media was abuzz about Yahoo's earnings which were to be reported Tuesday after the close. Nowadays if you are trading options you should watch the earnings of the other stocks in the sector you are trading. Holding a CMGI option over Yahoo's earnings could have been as risky as holding it over CMGI's earnings. Certain sectors are less sensitive to this risk. However, the internet stocks tend to move in tandem more than the stocks of other sectors. The key turning point occurred on Wednesday. Yahoo reported much better than expected earnings, and the internet stocks took off. CMGI closed at $43.44 on Wednesday, up almost seven points for the day. This was an example of a bullish engulfing candlestick pattern. It may not have been strong enough to completely erase the weakness in the stock over the last few months, but it did break the down trend for the week. The key point was at about $41. This was higher than the previous close. I had considered buying a leap on the stock when it was $36.5 but I didn't want to watch my premium bleed away. Could it have gone lower? You bet - if Yahoo's earnings had been a disappointment a leap purchased at $10 could have gone to $5. It is best to wait until a stock breaks the downtrend pattern and starts a clearly defined new trend before committing capital. When the stock hit $41 On Wednesday I felt that the chances of it hitting $45 in the next day or two were very high. So I bought a Jan 02 55 leap at $15 and a Jan 02 1000 leap at $9. The 55 leap went up 4 points and the 100 leap is up 2. However, the stock is still way below both the 50 day and 200 day moving averages, and the money flow has been weak for some time. It may take more time for true technical strength to return. One of the best ways to detect pivot points is to use a five day chart. The first day is a down day, the second day opens and closes even lower, and the third day reaches an even lower level. The fourth day is a strong upday, with an intra-day high and close above the third day. In these circumstances, the fifth day will usually, but not always, be an up day. You have to consider other factors, for example if dramatic news occurs which impacts your stock, or if a key economic indicator is released which can impact the entire market. There was an interesting pattern among ipo trading this week. Approximately $6.1 billion worth of new issues started trading. Tuesday's ipos traded at slight premiums from their offering prices. Tuesday included ACLS priced at $22 which traded to $25, ENTG priced at $11, now at $14.18, ASH which traded from $10.5 to $12.3 and TKC which was priced at $17.60 and traded to $17.75. On Wednesday and Thursday SOHU, DVIN, NENG, IMNY, TNSI,and SRTI all started trading with moderate intra day price moves. However, on Friday two ipos traded with dramatic increases, as OVTI was up $ 22 13/16 from its offering price and FTIE was up $11 5/16 from its offering price. This may be indicative that investors are showing renewed excitement over the ipo market. This might be a short term bullish technical indicator. However, a very heavy ipo schedule can sometimes drain cash from the market and lead to liquidity problems on a longer term basis. According to Edgar Online, approximately $2.10 billion in new issue stock was priced to begin trading next week. However, underwriters can cancel ipos at the last minute if the market conditions are poor. In addition to watching ipos and equity and money market fund inflows, large cash corporate takeovers like the UBS-Paine Webber deal can help to add liquidity to the market. If you had shares of Paine Webber in your brokerage account and you received cash for your shares, it would most likely go back into the market. According to AMG Data Services, $1.8 billion dollars in new cash went into equity funds. The majority was deposited to growth funds. According to the investment company institute retail money market funds took in $2.68 billion in new cash, and institutional money market funds took in $12.07 billion in new cash. The total cash deposited in money markets funds as of July 13 totalled $1.695 trillion. There is still plenty of cash on the sidelines, which I think may indicate that many investors are more prudent than they are believed to be. Contact Support ****************************Advertisement************************* Trade Options Online with an Established Expert! Mr. Stock has put over 20 years of experience into a site specifically designed for the most important aspects of your options trading. Our recognized, easy-to-use interface allows you to trade spreads, straddles and covered calls with one-mouse-click. Visit Mr. Stock today! http://www.OptionInvestor.com/tracking.asp?co=OIMrStock682000 ****************************************************************** *********** OPTIONS 101 *********** Diversification, the key to success! By Jim Brown As I have mentioned before the key to success is never put all you eggs in one basket. If disaster strikes the resulting omelet will not be very tasty. If your risk capital is only $10,000 and you spend it all on SDLI calls, your financial outlook on trading is best described as a lottery ticket play. Sure, SDLI could gap up Monday another $20 but gaps go both ways. A $10 call option on Friday can be $1 by the time options open for trading on Monday. You know this to be true. It happens every day to somebody. A critical downgrade to the stock or sector before the market opens and your dreams of riches became a nightmare of regret. How do we dodge this minefield of market disasters waiting to happen? The first and easiest method is to never invest more than 25% of your trading capital in any one stock or 50% in any one sector. Safety is not defined as having 25% of your capital in four different Internet stocks. I would define that as suicide. If you spread your risk you increase your chances of reasonable returns over time. Sure Merck or Delta are probably not going to rise $50 in one week like SDLI but they are not going to drop $50 either. I can hear you now. "But, I made 200% last week!!" Yes but triple digit moves seldom occur in one direction more than once. If you had a triple digit loss how much would that be? After a -100% loss how much capital would you have left? -0- Several big moves upward can be wiped out by only one big move downward. This is why we try to offer many recommendations across several sectors each week. Sure, Home Depot may not be as sexy as Yahoo but it will put your kids through college safely. Don't get me wrong. I strongly advise a portion of your "risk" capital to be used in high risk plays. Check out the recommendations this week and you will see we have more high risk plays than normal. The time to play "higher risk" stocks is when the market is in rally mode. When money is flowing fast and loose everything goes up. The more exciting the stock the faster the rise. Let the market stop to take a breath and consolidate and those same "exciting" stocks will be the leaders on the down board. The second way to spread your risk is with longer term plays. Murphy's law states that the worst will always happen when you are the most exposed and can least afford the loss. The key here is don't expose yourself to unnecessary risk. If you can't sleep at night because of some play at risk then you should reevaluate your trading strategy. If you snap at your spouse when they ask how your day went then it is time to change your tactics. Alan Knuckman had a great article in the brokers corner about "buying time". While you can't buy an extra Saturday every week you can buy more sanity with every play. Instead of playing the current "front" month (July) try going out a little farther. August, September or even January. The delta is not as great as a front month but the "time premium" will increase rapidly with a strong multiple day move on options farther out. Remember this "longer term" play only insulates you from the intraday drops or an occasional bout of profit taking. It does not protect you from a falling stock or market. You still cannot "buy and forget" but need to monitor closely. Placing stop losses and sticking to them is the best defense against total loss. If you are prepared to spend $4.00 for a current month option then your immediate risk on a sharp move is probably $3.00 on any given day. Why not spend $5-8 for a month or two more time. The $3.00 risk is the same but the options react more slowly giving you more time to react. Try paper trading longer term options and compare the results with shorter term options on the same stock. There are differences and you need to decide which is best for you. Option trading does not have to resemble gambling. Option investors sleep more soundly than option traders. Because of the stigma attached to options there are just fewer investors than traders. Before you start firing off those emails about a change in my mindset to longer term options let me through in the caveat. I always recommend buying whatever time you need to make yourself comfortable. I just recommend not using it. You can "trade" January options just as frequently as July options. But if you get caught with a gap down on a July position it could be much more financially painful than the same position in a January option. You buy insurance with time but that insurance does not protect you from a falling stock or market. Both will cost you if you fail to sell when the technicals change. Trade smart, buy time. Just don't use it! Jim Brown ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* MUSE - Micromuse $184.50 (+15.44 last week) See details in sector list Chart = Put Play of the Day: ******************** LLY - Eli Lilly and Company $94.50 (-6.50 last week) See details in sector list Chart = **********************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 ***************************************************************** ************* DAILY RESULTS ************* Index Last Week Dow 10812.75 176.42 Nasdaq 4245.93 222.50 $OEX 815.52 12.47 $SPX 1509.95 31.00 $RUT 542.64 14.42 $TRAN 2919.04 134.40 $VIX 22.61 0.79 Calls SDLI 369.50 74.19 The sweet smell of an entry point! GSPN 146.00 26.44 Momentum is the name of the game SEBL 193.88 22.94 Dropped, earnings on Tuesday after close BRCD 205.94 20.38 Like the Energizer Bunny: keeps going... CREE 149.19 16.25 Advice: Don't bet against the semis MUSE 184.50 15.44 True to form with a minor pullback Friday CFLO 83.00 15.38 New, turning cache into cash TIBX 127.00 11.75 It's full steam ahead for the B2B sector SCMR 138.19 11.25 New, two ways to play fiber optic boom MRVC 72.63 10.69 It doesn't take a rocket scientist... PRSF 70.38 10.63 Uptrend looks spectacular on the chart AMSC 58.25 9.63 New, never of it? That's no surprise KANA 70.44 9.50 Slow and steady wins the race NT 78.19 7.44 Broke out and is in full stride ISSX 102.50 0.50 Dropped, earnings before the bell on Tues. INCY 91.13 -4.75 Dropped, watch for earnings on Tuesday CIEN 162.63 -9.25 Dropped, rumors bringing this one down HGSI 153.25 -10.75 They call it the Genomic Gold Rush Puts LLY 94.50 -6.50 Downgrades and valuation concerns MYGN 145.88 -4.75 New, protecting the world from mutants ICIX 25.00 -3.44 Dropped, stabilized for the time being LCOS 49.19 -0.06 Dropped, provided nice short term trade RMBS 105.00 4.00 Dropped, no hiding this one IP 35.81 4.38 New, looking for a "sell the news" play YHOO 128.00 11.50 Playing the wait-and-see game still ************************** 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 SEBL $192.69 (+21.75) For the second consecutive day, the OIN Play Of The Day shined brightly. SEBL opened with a modest gap higher Friday and steadily rose into the weekend to trace yet another new 52-week high at $194.69. The rally came on the heels of the announcement that SEBL would acquire privately held MOHR Development. Investors applauded the deal and so did Robinson Humphrey by initiating coverage with a Buy rating and a $225 price target. SEBL is slated to announce its second quarter results on Tuesday which has prompted us to step aside. The play has treated us very well over the past month and we'll anxiously await the return of SEBL to the OIN call list. CIEN $162.63 (-9.25) The Telecom sector charged higher for the third consecutive day last Friday, with particular strength in the optical networking related issues. Yet, despite the positive group movement, CIEN fell for the second straight day. The stock slipped past support at $165 in the final hour of trading Friday and accelerated to the downside on increasing volume. There was no news to spur the selling, but instead, continued investor concern over the rumors of accounting irregularities spurred by a report issued by CFRA last Wednesday. The rumors of bad books has proved to be the enemy to CIEN and our play as well. In light of the rumor mongers, we must regrettably leave CIEN. INCY $91.13 (-5.78) We were looking for a nice quick earnings run from INCY when we added it last Tuesday. Unfortunately, our play fell victim to poor timing. The enthusiasm for Biotech stocks seemed to fade as soon as we wrote the play and this deteriorating sentiment kept us from getting a decent entry point. Rolling over at the 100-dma Wednesday morning, it was a quick downhill slide for our play and we are now out of time. Although it looks like support may hold at $90, the company reports earnings on Tuesday after the close, and it is now time to go. Consider INCY dropped as we go looking for better plays. ISSX $102.50 (+0.50) With the rapid approach of the company’s earnings announcement on Tuesday after the close, it is time to close out our play on ISSX. After the dramatic drop below $90 on Tuesday, our play gave us a nice run, hitting a high of $108.75 by mid-day on Friday. By the end of the day, the stock had given back most of the day’s gains, bringing it right back to the $102 support level. Although there may be more upside to the play, we want to make sure we are out of it before the earnings release to avoid the typical post-announcement drop. PUTS LCOS $49.19 (-0.06) Back where we started. When we picked this put play on July 6th, the stock was at $49.25. And as we drop it today, LCOS finished the week almost exactly where we started. Yet, it was a very good play considering the short time frame. After hitting $51.38 on the 7th, LCOS quickly slipped to $40.69 within three sessions. It certainly was a quick and profitable put play, but after the YHOO earnings report, the Internet sector recovered with the rest of the tech issues. We are dropping LCOS for technical reasons, in particular, the stock closed above its 10-dma at $48.11. Yet, Friday's $4.31 gain was a 10% move, so there is a good chance that LCOS may give back some of it, giving an attractive exit point. This strength is related to the recent uptrend in AOL, whom Merrill Lynch analyst Henry Blodget considers "the most solid of the big three," referring to YHOO and LCOS as the other two internet players. RMBS $105.00 (+4.00) There's no hiding this one. Our RMBS put play went against us as the Semi stocks were very strong Friday on the heels of the ALTR earnings/split announcement. RMBS gapped up and showed us exactly why it is considered a volatile issue. The stock was up $10.50, or 11%, and closed above the 10-dma at $99.08. Apparently the news of a pending anti-trust suit against RMBS was shaken off and investors shifted their focus to earnings due out on Tuesday. With a stock as volatile as RMBS, we do not recommend holding this play over earnings, especially considering the strong business in the Semis over the last six months. We are exiting this put play today, licking our wounds as we go. ICIX $25.00 (-3.44) Despite the announcement of an earnings shortfall, the prospects of a possible sale of its Digex Web hosting unit have appeared to stabilize ICIX, for the time being. The stock opened the day near the $24 level Friday morning and steadily rose into the weekend on relatively healthy volume. The renewed interest in the overall Tech sector also helped ICIX to recoup some of its losses after announcing a profit problem. In light of the stabilized price action and pick-up in volume, it's time to the leave the lowly ICIX. Although, we have to admit, it's been a nice ride down from the low $30's at which we first greeted ICIX. *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. 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. ************** NEW CALL PLAYS ************** SCMR - Sycamore Networks $138.19 (+11.25 last week) Sycamore markets optical networking products that enable network service providers to upgrade their existing fiber-optic networks to offer more bandwidth. Its SN 6000 transport node helps companies provide high-speed services. The company also designs add/drop nodes, optical switches, and network management software. The company targets telecom service providers, Internet service providers, and cable operators. There are two ways to play the fiber optic boom. You can buy the optical component makers such as JDSU or SDLI. Or, you can buy the networking equipment makers. For this play, we chose the latter. SCMR is a relatively young company when compared to the likes of fiber optic giants such as GLW or NT. Yet, despite its rookie status, SCMR plays the game with an all-star status. The company recently won a contract to supply 360 Networks (TSIX) with optical switches, optical transport products and network management system. The deal was worth $420 mln, SCMR's largest contract to date. Analysts said the deal would have an immediate impact on revenues in the second half of the year and would greatly increase SCMR's sales for the first half of 2001. The TSIX contract added credence to SCMR's roster of clients. Along with the freshly minted contract, SCMR benefited from the news that JDSU would acquire SDLI for $41 bln. The mammoth deal sent a bullish wave through the Fiber Optic sector as bells of consolidation rang on Wall Street. With a market cap north of $30 bln, SCMR is an unlikely takeover target. However, the prospects of continued M&A activity in the optical networking arena may continue to carry the stock higher. Since reversing its course northward in late April, SCMR has been on a steady climb. Needless to say, SCMR's chart is looking pretty strong. The stock faces resistance just above at $140. Look for an entry on a strong move through this level. The stock has been clustering around its 10-dma, currently at $133.75, during intraday pullbacks which may provide an entry for active traders. Below the 10-day, the stock has major support at the $130 level, watch for a bounce upon any profit taking. Speaking of support, SCMR has received plenty from Wall Street after winning its largest contract ever. Wit SoundView reiterated its Strong Buy rating and set a $170 price target on the heels of the announcement. And, DLJ jumped in and raised its price target to $150. We'd happily accept either price target for our play! BUY CALL AUG-130 QSM-HF OI=443 at $18.13 SL=13.00 BUY CALL AUG-135 QSM-HG OI=180 at $15.63 SL=11.25 BUY CALL AUG-140*QSM-HH OI=589 at $13.13 SL= 9.75 BUY CALL SEP-140 QSM-IH OI=260 at $17.75 SL=12.75 BUY CALL SEP-145 QSM-II OI= 96 at $11.25 SL= 8.50 Picked on July 16th at $138.19 P/E = 142 Change since picked +0.00 52-week high=$199.50 Analysts Ratings 7-4-2-0-0 52-week low =$ 47.25 Last earnings 04/00 est= 0.02 actual= 0.05 Next earnings 08-18 est= 0.06 versus= N/A Average Daily Volume = 4.48 mln CFLO - CacheFlow $83.00 (+15.38 last week) CacheFlow makes network caching equipment and technology to keep Internet pipelines flowing smoothly. Its products store and automatically update frequently requested Web sites so users can access them quickly from a cache rather than from an originating server. Company intranets and Internet service providers use CFLO's appliances to increase efficiency, and e-commerce customers use them to speed response times. CFLO is expected to turn profitable in four quarters. You could say the company is turning cache into cash. Wall Street likes that idea! More businesses are moving to the Web to conduct routine operations. As more content makes its way onto the Internet, the need to serve up data and complete transactions smoothly has become vital. CFLO sits between Net-users and content. CFLO makes the appliances that store previously viewed content. So when a user wants to view their favorite Web site, say OIN, the previously viewed content is delivered much more efficiently. CFLO recently unveiled the Adaptive Content Exchange (ACE), which is an architecture of caching appliances and intelligent networks that will greatly increase the performance of the Internet. CFLO is collaborating on the project with 15 other Net heavyweights including AKAM and FDRY. AKAM will sell and market CFLO's products as part of the deal. The joint effort with AKAM will provide yet another significant distribution channel for CFLO's entire product line. Since announcing the deal, CFLO has steadily climbed higher. The stock broke out of a 14-week consolidation last Thursday by rallying above the $80 level. After gaining nearly 60% in the last three weeks, the much despised profit-takers showed up last Friday, and sold CFLO lower on extremely light volume. The light selling has provided the entry point we have been looking for. Watch for momentum to return early next week and look for an entry if CFLO moves above the $85 level. A full-fledged return of momentum may drive CFLO past $88 which may provide a more conservative entry. A bounce off major support just below at $80 may provide an entry if the profit taking on weak volume persists. Although CFLO's next earnings announcement is a month away the analysts have been busy recently giving their love to the stock. Just last week, Dain Rauscher reiterated its Strong Buy - Aggressive rating of CFLO. Bear Stearns recently initiated coverage on the stock with an Attractive rating preceded by Morgan Stanley initiating an Outperform. BUY CALL AUG-80*FUJ-HP OI=10 at $10.50 SL= 7.25 BUY CALL AUG-85 FUJ-HQ OI= 0 at $ 8.50 SL= 6.00 Wait for OI BUY CALL AUG-90 FUJ-HR OI= 0 at $ 6.13 SL= 4.00 Wait for OI BUY CALL OCT-85 FUJ-JQ OI= 0 at $15.50 SL=11.25 Wait for OI BUY CALL OCT-90 FUJ-JR OI= 0 at $13.50 SL=10.00 Wait for OI Picked on July 16th at $83.00 P/E = N/A Change since picked +0.00 52-week high=$182.19 Analysts Ratings 2-4-0-0-0 52-week low =$ 27.00 Last earnings 04/00 est= -0.22 actual= -0.20 Next earnings 08-14 est= -0.17 versus= N/A Average Daily Volume = 538 K AMSC - American Superconductor $58.25 (+9.63 last week) American Superconductor is looking to capitalize on the move to increase the quality and reliability of the nation’s power infrastructure. The company develops and commercializes high temperature superconducting wire, wire products and systems, electromagnetic coils, and electromagnets and subsystems integrated with appropriate cooling systems. The company’s two business segments are High Temperature Superconducting (HTS) and Superconducting Magnetic Energy Storage (SMES). The focus of the HTS segment is on power transmission cables, motors, transformers, generators, and fault current limiters for large-scale applications. Never heard of AMSC? That’s no surprise, unless you’ve been following the buzz about the coming (or is it already here?) shortage of high quality, high reliability power. It’s not a big deal for your refrigerator, but Semiconductor fabs can’t afford the disturbance created by the hundreds of short-duration (less than a second) power dips, commonly referred to as brownouts. As more and more power (and clean, reliable power, at that) is required for making and using all the neat electronic gadgets we all depend on, the national power grid will have to be upgraded and enhanced to pick up the increasing load. AMSC is uniquely positioned to help improve and expand the existing power distribution system. Like everything else technology-related, AMSC got caught in the downdraft that engulfed the NASDAQ this past spring. Yet, after one last bounce at its 200-dma in late May, the stock has definitely found its running shoes again. Since conquering resistance at $40 and turning it into support last month, AMSC is marching higher, supported by the 10-dma (currently at $51.50). Before last week’s strong gains, the stock had solidified its support between $48-50, and we would look at pullbacks to this area (or the 10-dma) as excellent entry points. Volume has been slightly above the ADV and helped to push the stock through resistance between $53-55 late last week. A mild session of profit taking could be just the ticket to provide an entry near this milder level of support. Even with the strong gains seen to date, there is nothing to say the stock can’t continue up from here. Entering on strength is definitely a possibility, but we would wait for the stock to move above $60 on continued strong volume. There has been little in the way of company specific news over the past 6 weeks. The most recent was on June 5th, when the company announced its acquisition of Integrated Electronics, a company that designs, develops and manufactures power electronic converters that utilize state of the art power semiconductors. When the deal was announced, AMSC was only trading at $30 per share, so the recent price increase would seem to indicate that investors really like the company’s prospects going forward and feel this acquisition makes a lot of sense. BUY CALL AUG-55*QAY-HK OI= 21 at $7.38 SL=5.25 BUY CALL AUG-60 QAY-HL OI= 30 at $4.75 SL=2.75 BUY CALL OCT-60 QAY-JL OI=317 at $7.75 SL=5.50 BUY CALL OCT-65 QAY-JM OI= 35 at $6.75 SL=4.75 BUY CALL OCT-70 QAY-JN OI=169 at $4.38 SL=2.75 Picked on July 16th at $58.25 P/E = N/A Change since picked +0.00 52-week high=$75.13 Analysts Ratings 9-5-2-0-0 52-week low =$11.81 Last earnings 04/00 est=-0.28 actual=-0.29 Next earnings 07-?? est=-0.22 versus= N/A Average Daily Volume = 420 K ********************************Advertisement******************* Looking to buy or sell a new or used vehicle? Autobytel.com has been ranked #1 in J.D. Power and Associates Dealer Satisfaction with Online Buying Services study three years in a row. Autobytel.com has revolutionized the way vehicles are bought and sold, with a no-haggle, no-hassle buying experience. http://www.OptionInvestor.com/tracking.asp?co=OIAutobytel7102000 ***************************************************************** ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
The Option Investor Newsletter Sunday 07-16-2000 Sunday 3 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/071600_3.html ****************************Advertisement************************* Trade Options Online with an Established Expert! Mr. Stock has put over 20 years of experience into a site specifically designed for the most important aspects of your options trading. Our recognized, easy-to-use interface allows you to trade spreads, straddles and covered calls with one-mouse-click. Visit Mr. Stock today! http://www.OptionInvestor.com/tracking.asp?co=OIMrStock682000 ****************************************************************** ****************** CURRENT CALL PLAYS ****************** KANA - Kana Communications $70.44 (+9.50 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. Slow and steady has been the trend for KANA since mid-April. No matter, the stock has made a nice recovery from the mid-$20s. This 180% relief rally for KANA has brought the stock to a key technical test of the 100-dma, currently at $71.98. Thursday's stellar gains came on the heels of ARBA's better-than-expected earnings report. The B2B sector that has been beaten down as of late is beginning to show some life. Continuing Friday with that same B2B euphoria, KANA gapped up and quickly traded to $74.63, at which point the sellers stepped in to collect their profits. The stock did find buyers at the $68 level which has proved to be solid intraday support. Like we mentioned, this is a slow and steady play that is quickly approaching earnings scheduled for Wednesday, July 26th. Yet, we think that investors will continue to drive this trending stock higher based on the overall earnings euphoria we are currently seeing in the market. In order to make progress, KANA will have to move through resistance at the 100-dma, mentioned above. The $75 level may have some mild resistance, but the 200-dma at $77.36 will most likely provide a greater challenge. As far as trading this play, ideal entry would come on a pullback to $68 which held on both Thursday and Friday. It was encouraging to see KANA close over $70 after late session weakness. If this $70 level becomes support, look to gain entry on bounces from there, confirmed with strong volume. More conservatively, wait for a high volume move through $72.50. There hasn't been any news lately for KANA. The renewed interest in the B2B sector following ARBA's earnings has caught investors' eyes. Remember that KANA is approaching earnings, so look for increasing volume to help drive this stock higher. BUY CALL AUG-65 URW-HM OI=1074 at $11.88 SL=9.50 BUY CALL AUG-70*URW-HN OI= 88 at $ 9.13 SL=6.75 BUY CALL AUG-75 URW-HO OI= 33 at $ 6.75 SL=5.00 BUY CALL SEP-80 URW-IP OI=1101 at $ 8.13 SL=6.00 SELL PUT AUG-65 URW-TM OI= 17 at $ 5.50 SL=7.25 (See risks of selling puts in play legend) Picked on July 2nd at $61.88 P/E = N/A Change since picked +8.56 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 07-26 est=-0.27 versus=-0.18 Average Daily Volume = 1.76 mln GSPN - GlobeSpan, Inc. $146.00 (+26.44 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 possible real-time video conferencing, telecommuting, high-speed Internet surfing, and video-on-demand. Momentum is the name of the game. The current buying euphoria in the markets brings back memories of the first quarter of the year. This circuit-provider for DSL applications has been no stranger to the twists and turns of the market. GSPN had a incredible day on Thursday, posting a $19.00 gain and lifting the stock to heights not seen since early March. The catalyst driving GSPN is the massive tech buying and an early earnings run, which are due out on July 31st. Friday's trading was bit more subdued after we got favorable economic data. Investors and traders tested GSPN on the downside, tanking the stock in the first half hour of the day. It was a fast and furious $15 drop before GSPN found support at $131.13. This pattern mirrors what the NASDAQ and other tech issues did on the opening bell. An entry at this point would have been ideal as GSPN spread its wings and soared to a $1.38 gain on the session. Volume has been increasing throughout the week for GSPN and we look to see a continuation of this trend as GSPN approaches earnings. Given the support test on Friday, GSPN looks good going forward. Yet, we would caution that with such stellar gains in the past three sessions that profit-takers just might be lurking. Also, watch the NASDAQ sentiment next week as we near Expiration Friday. Resistance may be encountered at $150. A move through that level with heavy volume would establish a formidable run at its 52-wk high of $167. This would also provide a conservative entry. More aggressively, targetshoot off bounces at support, currently $140 and then down $5 increments from there. The trend is your friend and these kind of entries can provide handsome profits. Nothing really in the news as of late. GSPN is on a pure momentum run. Earnings euphoria is high. Given the recent semiconductor earnings reports and the strength in last quarter's business, it looks like the Semi sector will continue to run. Watch for GSPN to react to INTC and RMBS earnings, due out on Tuesday. ***July contracts expire on Friday*** BUY CALL AUG-140*GRX-HH OI=63 at $22.50 SL=17.50 BUY CALL AUG-145 GRX-HI OI= 0 at $20.00 SL=15.50 Wait for OI BUY CALL AUG-150 GRX-HJ OI=84 at $17.75 SL=13.75 BUY CALL AUG-155 GRX-HK OI= 3 at $15.63 SL=12.00 SELL PUT JUL-135 GHY-SG OI= 0 at $ 3.00 SL= 4.00 (See risks of selling puts in play legend) Picked on July 2nd at $122.06 P/E = N/A Change since picked +23.94 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 07-31 est= 0.04 versus=-0.14 Average Daily Volume = 1.14 mln PRSF - Portal Software, Inc. $70.38 (+10.63 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. The uptrend that began at the end of May looks spectacular on a chart. We absolutely love it. With little skips and hops off of its 10-dma, PRSF has put together a nice recovery. We mentioned in the Thursday update that a break below $70 may take PRSF to the $65 area of support. Well, it broke $70, but got a bounce at $67.13, higher than we anticipated. By definition, the uptrend continues. However, we would proceed rather cautiously when initiating new plays or exiting currents. The reason is this: if you look at a daily chart, PRSF tends to have five to seven uptrending days, followed by a minor pullback to its 10-dma. Notice how the stock did this on June 6th, after seven uptrending days. Friday was the sixth day of the most recent upmove, and PRSF only managed a quarter point gain. Sellers may test the waters again soon, taking some nice profits with them. Keep this in mind because such a pullback would give you a fantastic entry point. Currently, the 10-dma is at $64. If that happens, expect a bounce and watch for a continuation of the trend. If the NASDAQ maintains its recent moves, PRSF may follow. Intraday entries in this case could be initiated on bounces from short term support at $68. Expect resistance at $75, the point of the mid-March top just before the market selloff. A move through this $75 level could be sustained with strong volume, yet we think that a 10-dma bounce will precede such a breakout. After that, PRSF will have its sights set on its 52-week high of $86. Earnings are not until August 17th, yet we cannot deny a trend like this. One piece of non-essential news did come out on Friday. Louis Giglio, Senior Portfolio Manager at American Express, highlighted PRSF in an interview with The Wall Street Transcript on portfolio management strategies. He simply stated that PRSF is a research name that attracts him based on its current price relative to its recent high of $86. Like we said, non-essential, yet news nonetheless. BUY CALL AUG-60 PUS-HL OI= 120 at $14.25 SL=11.25 BUY CALL AUG-65*PUS-HM OI= 164 at $11.13 SL= 8.75 BUY CALL AUG-70 PUS-HN OI= 51 at $ 8.13 SL= 6.25 BUY CALL OCT-80 PUS-JP OI=1147 at $ 9.75 SL= 7.25 SELL PUT AUG-65 PUS-TM OI= 0 at $ 4.50 SL= 5.75 (See risks of selling puts in play legend) Picked on June 29th at $61.00 P/E = 5894 Change since picked +9.38 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 = 1.77 mln SDLI - SDL Inc. $369.50 (+74.19 this week) SDL's products power the transmission of data, voice, video and Internet information over fiber optic networks to meet the needs of telecommunications, dense wavelength division multiplexing, cable television and satellite communications applications. They enable customers to meet the bandwidth needs of increasing Internet, data, video and voice traffic by expanding their fiber optic communications networks much more quickly and efficiently than would be possible using conventional electronic and optical technologies. SDL's optical products also serve a variety of non-communications applications, including materials processing and printing. Oh, the sweet smell of an entry point! That is what we got from SDLI this week as the stock moved down in sympathy with JDSU, who announced they would be buying SDL, Inc. before the open on Monday. When we added SDLI as a play Tuesday evening, we were cautioning that JDSU must bottom first. Thankfully, it did just that on Wednesday and began turning up. That day gave us a golden opportunity to jump aboard for some SDLI calls. Unfortunately, even we didn't know the move upwards would be so swift. Now, we have to re-evaluate the play and decide if it is time to take some short-term profits. Again, we will base SDLI on the movement of JDSU, which traded right up to the 10-dma at $111.15. This is somewhat worrisome. If JDSU fails to rally above this mark, it may be time to take some profits to the bank. It is never healthy to see a call play knocked down by the 10-dma. With that said, JDSU could just be looking for a few days of consolidation. If so, that is fine. We will let it occur and wait for a move over the 10-dma to re-establish a position. This will have to be determined by the relative strength it is showing to the NASDAQ and if the stock appears to be selling off with a vengeance. A move below Friday's low of $106.81 would be disheartening and likely set up JDSU for a retest of $100. Of course, if JDSU powers above the 10-dma Monday morning (after amateur hour) then all this will be in vain as SDLI will continue to soar. In all cases, remember, you are dealing with one of the more volatile issues and need to give it your undivided attention. In the news, some analysts are still talking about the regulatory hurdles that might hinder this deal as a short-term negative for the stocks. Plus, the fact that some consider the purchase price a little lofty. At 3.8 shares of JDSU for each share of SDLI, the deal was originally priced at $41 bln. But, keep in mind that 3.8 shares of JDSU put SDLI currently worth $423 a share. The discount is based on the above fears and may already be priced into SDLI's stock. BUY CALL AUG-350 OSL-HJ OI=202 at $42.25 SL=32.00 BUY CALL AUG-360*OSL-HL OI=768 at $36.75 SL=27.50 BUY CALL AUG-370 OSL-HN OI= 54 at $32.50 SL=24.25 BUY CALL SEP-380 OSL-IP OI= 2 at $27.00 SL=20.25 BUY CALL SEP-400 OSL-IT OI=533 at $30.13 SL=22.50 SELL PUT AUG-310 QJV-TA OI= 98 at $10.13 SL=14.00 (See risks of selling puts in play legend) Picked on July 11th at $318.00 PE = 736 Change since picked +51.50 52-week high=$370.50 Analysts Ratings 13-7-0-0-0 52-week low =$ 26.19 Last earnings 04/00 est= N/A actual= 0.22 Next earnings 07-20 est= 0.30 versus= 0.08 Average daily volume = 5.70 mln TIBX - TIBCO Software $127.00 (+11.75 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%. It's full steam ahead for the B-2-B sector. Who thought the summer rally would be ignited by the once dormant Internet sector? Judging by the action in our TIBX play early on, we could have told Wall Street two weeks ago to watch out for the B-2-Bs. TIBX has been on a seamless rise since late May and has received recent help from its B-2-B brethren. The sentiment shifted to bullishness last week after heavyweight ARBA wowed investors with its second quarter results. And the momentum within the group might continue to build as CMRC reports results Tuesday followed by ITWO on Thursday. If the numbers from ARBA are a sign of things to come, our TIBX play is positioned well for further upside. By now, we all know that profits matter, at least to Wall Street. The fact that TIBX is one of the few profitable B-2-B players bodes well for our play going forward. While the company's next earnings report is not until September, the sheer force behind the rekindled momentum in the B-2-B sector might be the ticket to build upon our profits. Despite the profit taking in the broader sector last Friday, TIBX marched higher displaying its magnificent relative strength. The stock reached an intraday high of $129 Friday which is the next level to look for an entry upon clearing. The 5-dma continues to provide unrelenting support for TIBX which is currently located $119.38. The intraday pullbacks have proved to be good entry points into the play. Should the profit takers show up, TIBX has support just below at $125, again at $120, and of course at the 5-day. Target shoot to your risk level on any pullback and consider entry if TIBX bounces off support. Use volume to decipher whether the bulls are still buying actively or if the bears are taking profits on light selling. Along with building sector momentum there are two other issues that might take our play higher. First, Prudential initiated coverage on TIBX with a Strong Buy rating Friday and set a $155 price target, which helped the stock buck the profit takers. Second, TIBX is trading well into split territory and has plenty of authorized shares for a 2-for-1. More companies are declaring stock splits which also boosts our play. ***July contracts expire this week*** BUY CALL AUG-120*PIW-HD OI=330 at $18.50 SL=13.25 BUY CALL AUG-125 PIW-HE OI=637 at $16.00 SL=11.50 BUY CALL AUG-130 PIW-HF OI=434 at $13.88 SL=10.50 BUY CALL NOV-125 PIW-KE OI= 27 at $28.63 SL=20.75 BUY CALL NOV-130 PIW-KD OI= 87 at $27.38 SL=19.75 SELL PUT JUL-120 PIW-SD OI= 33 at $ 3.38 SL= 5.25 (See risks of selling puts in play legend) Picked on June 27th at $98.94 P/E = 3175 Change since picked +28.06 52-week high=$147.00 Analysts Ratings 4-1-1-0-0 52-week low =$ 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 = 1.60 mln CREE - Cree Research $149.19 (+18.69 last week) Cree makes silicon carbide (SiC) diodes and wafers. Its blue and green light-emitting diodes (LEDs), which account for about half of sales, are used by companies such as Siemens to make dashboard lights, market tickers, and other products. Cree also provides SiC wafers, which work at higher temperatures and voltages than standard silicon wafers, primarily to research labs. U.S. government research contracts account for 10% of Cree's sales. Don't bet against the semis. That's what the bulls were shouting last week after Jonathan Joseph of Salomon downgraded the entire sector a week prior. The slightest hint of a slowdown in the infamous chip cycle sent major semiconductor stocks into the dumpster after the contrarian call from Joseph. However, since the downgrade, the Chip sector has moved nearly 13% higher. CREE has been one of the stocks that has lead the rebound. The Semiconductor Industry Association predicts that chips sales will blossom by 31% this year and 25% next year. What's more, the Semicon West conference, an exclusive gathering of industry leaders and analysts, concluded last week with an overwhelmingly bullish bias coming from the meeting. For CREE's part, the company is linked to the overall performance and direction of the Chip sector. So, the positive reports from chip equipment makers such as ALTR last week bodes well for our play. Also worth noting, Intel, the mother of all chip companies, is set to report earnings Tuesday and should set the stage for the overall performance of the Chip sector. After showing off for our Play Of The Day on Thursday, CREE shed some its gains Friday in what appeared to be a natural reaction noting the light volume. The light sell-off late last week might prove to be a solid entry point, figuring the stock clustered around support at $150. Watch for momentum to pick-up next week as the chips begin reporting earnings. Consider entry at current levels if the bulls show up early next week. A more conservative entry might be found if CREE can clear congestion near the $155 area. Make sure to confirm the return of buyers with healthy volume in conjunction with any CREE rally. Two weeks and counting until CREE announces its second quarter results. As we have mentioned in the past, CREE has the propensity to surpass analysts' estimates by a healthy margin. The boom in the wireless handset market remains healthy from which CREE directly benefits. Investors will be looking for good numbers this quarter and a swift run might begin next week. BUY CALL AUG-145*RNC-HI OI= 58 at $20.13 SL=14.50 BUY CALL AUG-150 RNC-HJ OI= 62 at $17.75 SL=12.75 BUY CALL AUG-155 RNC-HK OI= 77 at $15.75 SL=11.25 BUY CALL SEP-150 RNC-IJ OI=128 at $23.63 SL=17.00 BUY CALL SEP-155 RNC-IK OI= 29 at $21.25 SL=15.50 Picked on July 11th at $140.75 P/E = 201 Change since picked +8.44 52-week high=$202.00 Analysts Ratings 6-1-0-0-0 52-week low =$ 23.50 Last earnings 03/00 est= 0.21 actual= 0.26 Next earnings 07-27 est= 0.27 versus= 0.26 Average Daily Volume = 819 K HGSI - Human Genome Sciences $152.63 (-11.38 last week) HGSI licenses a proprietary database of gene sequences to such pharmaceutical heavyweights as SmithKline Beecham and Merck. The company has eschewed the race to decode the entire human genome in favor of focusing on patenting gene sequences involved in disease. HGSI is one of the few genome companies involved in developing gene-based therapeutics, its four compounds in clinical trials are intended to limit the toxic effects of chemotherapy, promote repair of damaged cells, stimulate antibody production, and spur re-growth of blood vessels. They call it the Genome Gold Rush. Just when you thought you heard the last cliche related to the California Gold Rush, the pundits revived the financial metaphor once again. In keeping with fashion, HGSI is right in the middle of the speculators and miners providing the picks and shovels. The road to riches for those operating in the genome field seems as far-off as the gold did to the brave few who ventured into the hills of California. Although HGSI is also attempting to develop gene-based drugs, the company is one of the premier providers of the tools necessary to unearth profits from the completion of the human genome. Akin to CSCO and the Internet, HGSI is the proverbial backbone of the genome arena. The prospects of billions upon billions of dollars being funneled into research and development has caught Wall Street's attention this year and has been the fuel behind HGSI's momentum. HGSI has a competitive advantage by being the first genomics company formed. HGSI was also the first company to have a copy of all the human genes which is one of the reasons it's a leader in its respective field. Although the company is still unprofitable, HGSI has built its business on a recurring revenue model of product sales and licensing agreements which has garnered Wall Street's attention. The ongoing battle with the bears continues to provide good entry points with HGSI's wide intra-day swings. The $150 level has proved to be a strong support level and may provide entry upon bouncing from that level. A move back above the 10-day at $155 is another possibility, with a rally above $160 providing a more conservative entry. The wires have been increasingly filled with announcements of stock splits with the recent improvement in overall market conditions. HGSI might be a company considering a 2-for-1 given its stock's current level and the fact the company has a plethora of authorized shares to issue a split. HGSI last split its stock in January of this year when it was trading around $150. BUY CALL AUG-150*HHA-HL OI=161 at $20.38 SL=14.75 BUY CALL AUG-155 HHA-HM OI= 0 at $18.25 SL=13.00 Wait for OI BUY CALL AUG-160 HBW-HL OI=171 at $15.88 SL=11.50 BUY CALL OCT-155 HHA-JM OI=126 at $31.88 SL=23.00 BUY CALL OCT-160 HBW-JL OI=479 at $30.13 SL=21.75 Picked on July 13th at $153.75 P/E = N/A Change since picked -1.13 52-week high=$232.75 Analysts Ratings 1-5-3-0-0 52-week low =$ 23.00 Last earnings 03/00 est= -0.33 actual= -0.35 Next earnings 08-08 est= -0.20 versus= -0.05 Average Daily Volume = 1.70 mln BRCD - Brocade Communications $205.94 (+20.38 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 is the stock that keeps going and going. After breaking above resistance at $170, the stock has been moving ever upwards, aided over the past week by improving strength in the Networking sector. Of course, it doesn’t hurt that the early earnings reports from technology related companies is coming in strong, lifting the NASDAQ back into the plus column for the year. The stock continues to be pushed upwards by its 5-dma (currently $198.81), occasionally coming back to test the 10-dma (now at $189.50). Setting new highs is becoming something of a daily habit for BRCD, with Friday’s high-water mark set at $207.50. Of course, with all this good news, there has to be a dark cloud somewhere, and that cloud is the volume. Gradually decreasing over the past week, we only saw volume of approximately 60% of the daily average on Friday. Although the intraday volume is still strong on the upward price moves and significantly reduced on the retracements, the general trend towards lower volume is a warning sign that BRCD is running out of buying volume. Up almost 50% from where we picked the stock a little over a month ago, it could be getting a little ahead of itself. Accordingly, tighten up those stops to protect the stellar gains you have accumulated. The best approach for new positions is to wait for a pullback to support, now seen at $200 and then $194. With earnings still a month away for BRCD, there could yet be some significant gains ahead, especially when we take into account that the stock is over $200, which is historically the level where we can expect a split announcement. With BRCD, the fun never stops. On Thursday, the company announced yet another strategic alliance, this one with JNI Corporation (JNIC). As a part of the BRCD Fabric Aware and JNI SANpartners interoperability programs, the two companies will collaborate on product development, service and support, and marketing and sales initiatives to advance the adoption of open SANs in enterprise environments. BUY CALL AUG-200*GUF-HT OI=4000 at $22.50 SL=17.00 BUY CALL AUG-210 GUF-HB OI=1213 at $18.13 SL=13.00 BUY CALL AUG-220 GUF-HD OI= 377 at $13.75 SL=10.50 BUY CALL OCT-220 GUF-JD OI=6428 at $24.13 SL=18.00 BUY CALL OCT-230 GUF-JF OI= 30 at $20.38 SL=15.25 SELL PUT AUG-190 GUF-TR OI= 21 at $10.63 SL=14.00 (See risks of selling puts in play legend) Picked on June 6th at $138.88 P/E = 943 Change since picked +67.06 52-week high=$207.50 Analysts Ratings 9-5-2-0-0 52-week low =$ 21.75 Last earnings 05/00 est= 0.08 actual= 0.11 Next earnings 08-16 est= 0.13 versus= 0.01 Average Daily Volume = 3.05 mln MRVC - MRV Communications $72.63 (+10.69 last week) MRV Communications is in the business of creating and managing growth companies in optical technology and Internet infrastructure. The company has created several start-up companies and independent business units in these areas. MRVC’s core operations include the design, manufacture, and sale of products in these areas, primarily Network Element Management, and physical layer, switching and routing management systems in fiber optic metropolitan networks. The company also produces fiber optic components for the transmission of voice, video and data across enterprise, telecommunications and cable TV networks. It doesn’t take a rocket scientist to see that investors insatiable demand for Optical stocks is showing no signs of letting up. Even JDSU has started moving nicely higher after a brief panic ensued following the announcement that the company would be acquiring SDLI. It is widely anticipated that further consolidation in the industry will follow, as the leading companies jockey for a dominant position in this fast-changing marketplace. MRVC should benefit from this move towards consolidation, whether any company-specific deals are announced or not. After the strong move upwards early last week, the stock spent the balance of the week consolidating its gains in advance of what we hope will be a nice earnings run. With its announcement set for July 27th after the close, there is just enough time to get into a position ahead of the next move up. Fortunately, the stock held much of its gains from Tuesday and has stabilized at support (previous resistance) of $72. Except for the sharp dip early in the month, MRVC is finding support at its 10-dma ($69.50) which just happens to correspond to the resistance level the stock broke through on its stellar rise on Tuesday. Look to initiate new positions on a drop to support, but make sure the bounce is confirmed by strong buying volume. Weakening volume over the past 2 days would seem to indicate that we are running out of sellers, and when MRVC does move again, strong volume should be the beacon that lights our way. There has been no recent company-specific news on MRVC, but the recent announcement that JDSU will be buying rival SDLI, is fueling speculation of more deals in the Optical sector. While MRVC may or may not be directly involved in this move towards greater consolidation, the general sentiment will likely continue to create an upwards bias for the stock. BUY CALL AUG-70*RVY-HN OI=353 at $12.25 SL= 9.00 BUY CALL AUG-75 RVY-HO OI=312 at $ 9.88 SL= 7.00 BUY CALL AUG-80 RVY-HP OI=535 at $ 8.13 SL= 5.75 BUY CALL OCT-80 RVY-JP OI=319 at $14.38 SL=10.75 BUY CALL OCT-85 RVY-JQ OI= 94 at $13.00 SL= 9.75 SELL PUT AUG-65 RVY-TM OI= 74 at $ 6.13 SL= 8.50 (See risks of selling puts in play legend) Picked on July 13th at $74.88 P/E = N/A Change since picked -2.25 52-week high=$97.44 Analysts Ratings 1-1-0-0-0 52-week low =$ 6.50 Last earnings 04/00 est=-0.01 actual= 0.03 Next earnings 07-27 est= 0.03 versus= 0.01 Average Daily Volume = 2.14 mln MUSE - Micromuse $184.50 (+15.44 last week) Making software that monitors and manages the elements of an information technology infrastructure, MUSE sells its products directly and through distribution partners such as Cisco Systems. Its Netcool suite collects and consolidates network data and events. Netcool includes a desktop tool that customizes network information and allows operators to automatically resolve service problems with reporting in multiple formats such as 3-D charts and spreadsheets. Major customers include AOL, Cellular One, and Charles Schwab. True to form, MUSE pulled back a bit on Friday. This keeps alive its pattern over the past 3 weeks of moving up for 3 days before a day of profit taking. If you were watching for it, you got a great entry point, as the stock dropped to bounce at $176, right on the 5-dma. After flattening out mid-day, the stock moved up into the close as the investors just couldn’t keep their finger off the "Buy" button. There is one thing that does concern us though, and that is the volume pattern. Up until this last 3 days up, 1 day down cycle, each of the up days was coming on increasing volume with markedly reduced volume on the correction day. This time, volume was nearly flat for the entire cycle, making us think that maybe the move is running out of steam. Of course, part of this behavior could be due to the fact that MUSE ran into solid resistance at $187, but either way it means we will need a resurgence of buying volume to move higher from here. July earnings are just around the corner, scheduled for Wednesday after the closing bell. Accordingly, we will be dropping our play on Tuesday, and with all the profits built up over the past week, it would be a good idea to tighten up those stops. At this point, we would be cautious about initiating new positions, unless MUSE gives us another great entry. A dip to the $175-176 level, followed by a volume-backed bounce would certainly qualify, although such a move would present a deviation from the 3 days up, 1 day down pattern mentioned above. In an interview on Radio Wallstreet on Tuesday, MUSE’s CEO was very upbeat on the future of the company, citing strong growth and a high level of customer retention. Over the past 3 quarters, the company has added over 100 customers per quarter and is seeing 60% of its revenue being generated by repeat customers. The company is seeing increasing revenue per customer and over the past 6 quarters, top-line revenue growth has been in excess of 100% on a year-over-year basis. And don’t forget, with the price above $170, MUSE is in split territory again and we could get an announcement with earnings next week. BUY CALL AUG-185 UZQ-HQ OI= 0 at $20.50 SL=15.25 Wait for OI BUY CALL AUG-190*UZQ-HR OI= 0 at $17.75 SL=12.75 Wait for OI BUY CALL AUG-195 UZQ-HS OI= 0 at $16.50 SL=12.00 Wait for OI BUY CALL OCT-190 UZQ-JR OI= 0 at $33.25 SL=25.00 Wait for OI BUY CALL OCT-195 UZQ-JS OI=100 at $31.50 SL=23.50 BUY CALL OCT-200 UZQ-JT OI= 57 at $29.63 SL=22.25 SELL PUT AUG-170 UZQ-TN OI= 0 at $13.50 SL=18.75 (See risks of selling puts in play legend) Picked on July 9th at $169.06 P/E = N/A Change since picked +15.44 52-week high=$206.00 Analysts Ratings 9-4-0-0-0 52-week low =$ 20.03 Last earnings 04/00 est= 0.07 actual= 0.08 Next earnings 07-19 est= 0.09 versus= 0.05 Average Daily Volume = 618 K NT - Nortel Networks $78.19 (+7.44 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. After shifting its feet and trying to make up its mind, NT has broken out and is at full stride in advance of its earnings report, due out July 25th after the close. The stock spent the better part of a week trying to get through resistance at $72, but once it did, the buyers were lining up with cash in hand. NT took off like a shot in the last half hour of Tuesday’s session, and didn’t slow its ascent until finding resistance up at $78 on Thursday. The positive PPI report, combined with strength in Networkers in general and Optical stocks specifically, pushed NT even higher on Friday, tagging a new all-time high of $79.56 before investors took some profit off the table ahead of the weekend. The share price continues to be supported by the 5-dma as it heads higher, but we are a little concerned about the strong move towards the end of the week. Friday’s close at $78.19 is more than $3 above the 5-dma ($74.50) and above the upper Bollinger band, leading us to suspect the stock will need to consolidate a bit before heading higher. Of course, with earnings so close at hand, positive sentiment could continue to drive the price higher from here, but prudence demands that we tighten up those stops to protect our profits. If you are looking to initiate new positions, we would recommend waiting for a pullback to the $76 intraday support level, or even the 5-dma before jumping aboard. Adding to the positive sentiment surrounding NT this week was their deal with CoreExpress, announced on Thursday. The terms of the deal call for NT to provide CoreExpress with $100 mln of optical Internet products, including options and the multi-year contract could be worth up to $300 mln. With Friday’s announcement of the latest enhancements to the NT Reunion system, broadband wireless service providers will soon have more options for increasing the revenue potential of their most precious commodity, the radio spectrum. Scheduled for commercial availability by year end, the enhanced Reunion broadband wireless access system will enable improved spectral efficiency and flexibility in base station sector provisioning. BUY CALL AUG-75*NTV-HO OI=2939 at $7.00 SL=5.00 BUY CALL AUG-80 NTV-HP OI=2435 at $4.38 SL=2.75 BUY CALL AUG-85 NTV-HQ OI=1183 at $2.56 SL=1.25 BUY CALL SEP-75 NTV-IO OI=3778 at $8.50 SL=6.00 BUY CALL SEP-80 NTV-IP OI= 0 at $5.88 SL=3.75 Wait for OI BUY CALL SEP-85 NTV-IQ OI= 10 at $3.88 SL=2.25 SELL PUT AUG-75 NTV-TO OI= 227 at $3.13 SL=5.25 (See risks of selling puts in play legend) Picked on June 15th at $67.00 P/E = N/A Change since picked +11.19 52-week high=$79.56 Analysts Ratings 19-10-3-1-0 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 **********************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 ***************************************************************** ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
The Option Investor Newsletter Sunday 07-16-2000 Sunday 4 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/071600_4.html ************* NEW PUT PLAYS ************* MYGN - Myriad Genetics $145.88 (-17.00 last week) Myriad uses bioinformatic gene mapping, family history analysis, and protein interaction identification to find inherited gene mutations that increase the risk for cancer, heart attacks, and other diseases. The company has research alliances with several pharmaceutical firms, including Bayer, Eli Lilly and Schering Plough, which fund research in exchange for licenses. Like the X-Men, MYGN is trying to protect the world from mutants. However, the real-life mutant fighter lost some its super hero powers last week. The Biotechnology sector lost some of its steam last week as a round of profit taking swept through the group. The genomic-related issues led the sector lower last week with several stocks suffering serious technical harm. MYGN was one of the stocks that suffered disconcerting damage. After announcing a multi-year agreement with Harvard Pilgrim Health Care (HPHC) to combat breast cancer last week, MYGN subsequently sold-off, and accelerated its downward slide going into the weekend. The end-of-the-week debacle came on increasingly heavier volume which is not necessarily indicative of normal profit taking. The genomic group tends to move fairly swiftly as Wall Street attempts to determine the proper valuation of the companies. We could see MYGN's losses accelerate to the downside in the coming week. The long-term outlook for many genomic companies is fairly bullish, but that doesn't mean we can't play the downward momentum in the near-term. MYGN fell beneath its 10-dma last Wednesday and has since to rebound above that level. The 10-day, currently at $149.25, has subsequently turned into a formidable resistance level. A bump against the 10-dma might provide a good entry after an intraday rally for the aggressive traders. For a more conservative entry wait for MYGN to fall below the $140 level. After that, the stock doesn't have major support until $130. Make sure to confirm a continued decline with above average volume to insure that the sellers are strong. Wait for options players to roll-over July contracts into August issues with expiration week ahead, watch for OI to increase. BUY PUT AUG-150 QGD-TJ OI=0 at $16.25 SL=11.75 Wait for OI BUY PUT AUG-145*QGD-TI OI=0 at $13.63 SL=10.25 Wait for OI BUY PUT AUG-140 QGD-TH OI=0 at $11.63 SL= 8.75 Wait for OI Average Daily Volume = 308 K IP - International Paper $35.81 (+4.38 last week) International Paper is a global paper and forest products company that is complemented by an extensive distribution system. The company produces printing and writing papers, pulp, tissue, paperboard and packaging and wood products. Additionally, the company makes specialty chemicals, panels, and laminated products. Its primary manufacturing and distribution operations are in the United States, Europe and the Pacific Rim With positive sentiment returning to the technology sector, this is a "sell the news" play. IP reported earnings last Tuesday, meeting the Street estimates, and posting strong revenue growth. Investors responded by bidding IP higher on strong volume. On Thursday afternoon, the move began to run out of steam, and the stock started rolling over right at resistance at $37, confirmed by the 100-dma ($36.44). The volume pattern shows strong volume early in the week, rapidly declining, indicating that the upward move has likely run its course. With no additional positive news likely for cyclical companies in the near term, we think IP could be on its way back to support near $30. Even the benign PPI report couldn’t lift the share price on Friday, and this does not bode well for IP investors. Before getting there though, IP will have to fall through the $33 support level. There is mild intraday support at $35.25, and we would view a drop through this level as an ideal entry point for the decline. Of course, volume will be key to the stock heading lower, and the increase in selling volume in the last hour of trading on Friday looks like it could be the beginning of the formation of that pattern. BUY PUT AUG-40 IP-TH OI= 19 at $5.13 SL=3.00 BUY PUT AUG-35*IP-TG OI=943 at $1.81 SL=1.00 Average Daily Volume = 3.45 mln ****************************Advertisement************************* Trade Options Online with an Established Expert! Mr. Stock has put over 20 years of experience into a site specifically designed for the most important aspects of your options trading. Our recognized, easy-to-use interface allows you to trade spreads, straddles and covered calls with one-mouse-click. Visit Mr. Stock today! http://www.OptionInvestor.com/tracking.asp?co=OIMrStock682000 ****************************************************************** ***************** CURRENT PUT PLAYS ***************** YHOO - Yahoo! Inc $128.00 (+11.50 last week) Yahoo! Inc is a global Internet media company that offers an online guide to web navigation, a branded network of comprehensive information, communication services, and shopping access to millions of users daily. Yahoo! can lay claim to the top spot among Internet portals. The Web site gets nearly 31 million hits each month. It's also one of the few Internet players operating in the black. The bulk of Yahoo!'s revenue comes from its 3800 advertisers and their banners. Well, despite finding the entry point we wanted on Wednesday when YHOO spiked up after their earnings report, we have yet to see the rollover. Right now, Yahoo is range-bound between $120 and $130. A move out of this range will determine what move we make next. If YHOO trades above $130, we will call on our stops to exit the play. We expect the NASDAQ to come under some profit-taking after we have a slew of earnings from major companies early in the week, but if the momentum wants to take YHOO higher, we will have to step aside. The nice thing about resistance at $130 is that it has been strong as the chart suggests. A penetration of this level should leave no doubt the play has ended. $120 is the other level to watch. If it trades under this price, the play will be intact. You could even say $121.50 is the real support level it has been bouncing on this week, but let's play it on the safe side. No new entries until YHOO breaks below $120. The company specific news on Yahoo was light in the second half of the week. Mostly investors are trying to decide which way the stock will move. We will play the same wait-and-see game with our position for now. BUY PUT AUG-125*YMM-TE OI= 760 at $8.63 SL=6.50 BUY PUT AUG-120 YMM-TD OI=1274 at $6.50 SL=4.75 BUY PUT AUG-115 YMM-TC OI= 778 at $4.63 SL=2.75 Average Daily Volume = 8.86 mln LLY - Eli Lilly and Company $94.50 (-6.50 last week) Eli Lilly makes Prozac, the world's best-selling antidepressant. It also makes Gemzar to treat pancreatic cancer, Evista for osteoporosis, and Zyprexa which is used to tread schizophrenia. Other products include antibiotics, growth hormones, anti-ulcer agents, and cardiovascular therapy medications. The company is looking to produce a replacement for bestseller Prozac, which is set to begin losing its US patent protection in 2003. If there was one group that didn't benefit from the broad rally last week, it was the Drug sector. For much of the year, drug stocks enjoyed the shift to defensive positions by investors. The debacle in the Tech sector earlier this year sent traders seeking solace in the stable names such as LLY. The overzealous buying by investors pushed LLY to extreme valuations. Because of the frenzied bullishness, many analysts have been expecting a downturn in the Drug sector due mainly to valuation concerns. That was evident in LLY after the stock was downgraded by Banc of America Securities to a Neutral rating. Coupled with the renewed interest in the Tech sector, valuation concerns were more than enough last week to roll over the Drug sector. Along with the aforementioned issues, investors remain weary about the current legislative initiatives under debate in Washington. Some politicians are pushing for a Medicare prescription benefit that could ultimately lower U.S. drug prices and reduce profitability. One brave analyst came to the defense of the group Friday. Ken Nover of AG Edwards said the selling in the sector last week was overdone. The bears didn't budge and took the sector lower despite Nover's attempt. The continued selling bodes well for our play as there looks to be more downside in the group. LLY still has a lot of empty space below current levels. After gapping down Friday morning, LLY bounced off support at $92 only to find resistance at $95. Entry at current levels is possible, but you might want to wait for the stock to roll over first. A more conservative entry might be found if LLY falls below support at $92 as there is no help after that level until $87.50. LLY is slated to report earnings on Thursday so plan accordingly. BUY PUT AUG-100*LLY-TT OI=852 at $8.00 SL=5.75 BUY PUT AUG- 95 LLY-TS OI=833 at $5.00 SL=3.00 BUY PUT AUG- 90 LLY-TR OI=237 at $2.81 SL=1.50 Average Daily Volume = 3.78 mln **********************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 ***************************************************************** ***** LEAPS ***** One Part Earnings, Two Parts Mergers - It’s a Summer Rally! By Mark Phillips Contact Support <Contact Support With the first week of July earnings behind us, the results have been decidedly positive. Strong earnings reports from the Internet and Semiconductor sectors have given the sentiment in these sectors a big boost. Add in some big name acquisitions (JDSU buying SDLI, UBS buying Paine Webber (PWJ), and rumors of DT making a bid for VSTR), and a split announcement from ALTR with their earnings announcement on Thursday, and it feels like old times. On the heels of YHOO’s positive earnings report Tuesday evening, the NASDAQ charged out of the gate, making mincemeat out of resistance at 4100 and closing out the week at its highest point since the first week of April. On the heels of the UBS/PWJ merger announcement, even the Financials participated, helping to prop up the ailing DJIA, which is now back above its 200-dma at 10750 and is making a convincing show of breaking out of its 6-month downtrend. You don’t need X-Ray vision to see the effect this is having on our LEAPS portfolio. Many of our plays are moving up nicely, with 6 of them showing triple digit gains (EMC is in a class by itself with gains well over 400% in 7 months). Even some of our newer plays like C, VRSN, and DELL are off to a great start. So that’s the silver lining; where are the clouds, you ask? The same place they’ve been all along. Taking the form of our old friend, the VIX. It is still lurking around in the low 20’s, although it was nice to see it creep ever-so-slightly upwards this week while the major indices broke out of their recent trading ranges. The VIX ended the week at 22.58, not in the danger zone yet, but precariously close to the sub-21 level, and a drop to that level should immediately send off warning flares. As long as earnings continue to come in strong, and Uncle Alan (Greenspan) doesn’t decide to lob a live grenade (bearish Greenspeak) at the markets, it looks like we are in for a modest rally as the month progresses. After the earnings start winding down though, we will be in that dangerous no-man’s land where there is little to move the markets upwards during the months of August and September. And don’t even get me started on October. Historically, this is the toughest time of year to make money in the markets, at least if you have a bullish bias. This brings me to an important point. How many of you are still holding LEAPS (or options) with expiration in January, 2001? Don’t look now, but by Friday, these will all have become regular call options, and from here on out time decay will take a larger bite out of those lofty premiums. While the markets are on an upswing, take advantage of it and consider locking in some profits, either by liquidating the position ahead of the summer doldrums or rolling out to the 2002 or 2003 LEAPS. Remember, you’ll never go broke taking profits. Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN EMC 11/07/99 JAN-2001 $ 40 EMB-AH $ 7.69 $43.00 459.17% JAN-2002 $ 45 WUE-AI $ 9.50 $49.50 421.05% CSCO 11/14/99 JAN-2001 $ 40 CYQ-AH $ 9.56 $31.13 225.63% JAN-2002 $ 45 WIV-AI $11.00 $33.00 200.00% NT 11/28/99 JAN-2001 $37.5 ZOO-AU $11.13 $42.75 284.10% JAN-2002 $37.5 WNT-AU $15.13 $47.25 212.29% TXN 12/12/99 JAN-2001 $ 55 TNZ-AK $11.13 $22.88 105.57% JAN-2002 $ 60 WGZ-AL $14.25 $28.13 97.40% SUNW 12/19/99 JAN-2001 $ 80 SUX-AP $17.63 $25.00 41.80% JAN-2002 $ 90 WJX-AR $22.00 $31.63 43.77% CY 01/16/00 JAN-2001 $ 40 ZSY-AH $ 9.13 $18.88 106.79% JAN-2002 $ 40 WSY-AH $12.63 $25.50 101.90% ERICY 01/30/00 JAN-2001 $16.3 RQC-AO $ 4.94 $ 8.13 64.57% JAN-2002 $16.3 WRY-AO $ 6.75 $10.63 57.48% NSM 02/27/00 JAN-2001 $ 70 NSM-AN $18.50 $ 8.25 -55.41% JAN-2002 $ 70 WUN-AN $24.25 $17.00 -29.90% AOL 03/12/00 JAN-2001 $ 60 AOO-AL $14.00 $10.75 -23.21% JAN-2002 $ 65 WAN-AM $18.63 $16.50 -11.43% AXP 03/12/00 JAN-2001 $43.3 AXP-AP $ 7.25 $16.63 129.38% JAN-2002 $46.6 WXP-AQ $ 9.33 $19.25 106.32% WM 03/19/00 JAN-2001 $ 25 WM -AE $ 5.00 $ 7.88 57.60% JAN-2002 $ 30 WWI-AF $ 5.38 $ 7.50 39.41% AMD 04/16/00 JAN-2001 $ 70 AMD-AN $17.50 $31.25 78.57% JAN-2002 $ 70 WVV-AN $26.00 $42.88 64.92% JDSU 04/16/00 JAN-2001 $ 80 XJU-AP $27.50 $41.88 52.29% JAN-2002 $ 80 YJU-AP $39.63 $55.88 41.00% VSTR 04/16/00 JAN-2001 $ 90 UVT-AR $23.88 $67.88 184.25% JAN-2002 $ 90 WWP-AR $35.00 $80.13 128.94% MOT 05/14/00 JAN-2001 $33.3 MOT-AY $ 6.58 $ 9.75 48.18% JAN-2002 $36.6 WMA-AZ $ 9.54 $13.13 37.63% NOK 05/21/00 JAN-2001 $ 50 NZY-AJ $10.25 $12.63 23.22% JAN-2002 $ 50 IWX-AJ $17.25 $19.75 14.49% HD 05/28/00 JAN-2001 $ 50 HD -AJ $ 6.25 $11.63 86.08% JAN-2002 $ 50 WHD-AJ $11.38 $17.38 52.72% XLNX 05/28/00 JAN-2001 $ 70 ZIZ-AN $14.63 $32.88 124.74% JAN-2002 $ 70 WXJ-AN $23.38 $43.00 83.92% NXTL 06/11/00 JAN-2001 $ 60 FZC-AL $12.25 $21.13 72.49% JAN-2002 $ 60 YFG-AL $19.25 $28.50 48.05% C 06/18/00 JAN-2001 $ 65 ZRV-AM $ 7.63 $ 9.75 27.79% JAN-2002 $ 65 WRV-AM $13.75 $16.88 22.76% AMGN 07/02/00 JAN-2001 $ 75 YAA-AO $10.75 $10.38 - 3.44% JAN-2002 $ 75 WQY-AO $20.75 $20.13 - 2.99% JAN-2003 $ 70 VAM-AN $28.75 $29.00 0.87% VRSN 07/02/00 JAN-2001 $180 JSV-AP $56.88 $66.00 16.03% JAN-2002 $190 YVS-AR $66.25 $77.50 16.98% DELL 07/09/00 JAN-2002 $ 55 WDQ-AK $12.63 $13.75 8.87% JAN-2003 $ 60 VDL-AL $15.38 $16.50 7.28% Spotlight Play TXN - Texas Instruments $72.50 Do you notice a theme developing here? Last week we spotlighted NSM and this week TXN. Remember Jonathan Joseph? Well, apparently nobody else does either. He’s the SSB analyst that downgraded the entire Semiconductor sector a week and a half ago, and sent it tumbling. That event gave us a nice drop in the price of TXN, as the stock tagged the 200-dma (clear down at $63.50), before recovering. That’s right, the positive earnings numbers coming in on Semiconductor companies is giving the sentiment in the sector a boost, and earnings always take precedence over analyst comments. With its strong position in the handset business through its DSP chip business, TXN is well positioned, and should profit handsomely as more people embrace the world of wireless communications. Before moving up in the second half of last week, TXN built some decent support at $68 and then headed higher off of the 5 and 10-dma’s as they turned positive again. Look to initiate new positions on a bounce from support near $68 and then enjoy the ride. BUY LEAP JAN-2002 $75.00 WGZ-AO at $21.63 BUY LEAP JAN-2003 $75.00 VXT-AO at $28.13 New Plays GENZ - Genzyme General Division $63.00 We’ve been waiting for an opportunity to add a Biotech to the LEAPS portfolio and the pullback in the sector over the past week looks like just the ticket. After leading the NASDAQ out of its doldrums, they have passed the torch to other sectors, giving us an opportunity to get on board for the next leg up. GENZ is a division of Genzyme Corporation, and is primarily involved in developing and marketing therapeutic products and diagnostic products and services, with an emphasis on therapies for genetic diseases. With three therapeutic products on the market and several others in varying stages of development, GENZ is one of those rare Biotech companies with both profits and 4 consecutive quarters of revenue growth. The decline last week dropped GENZ from $70 to $63, where the stock appears to be finding support. The selling volume had really dried up by Friday, as only about half the average daily number of shares traded hands, strengthening the case that this could be a decent support level. If further declines do occur, look for the $60 level to be strong support, as the chart support is confirmed by the rising 30-dma at $59.69. Consider new positions as GENZ bounces at support and moves higher, accompanied by a resurgence in buying volume. BUY LEAP JAN-2002 $70.00 YGZ-AN at $17.13 BUY LEAP JAN-2003 $70.00 OZG-AN at $23.13 Drops None *********** SPLIT PLAYS *********** The Flood Gates Open By Ryan Nelson Now that the warnings have ended, the good news has begun to flow. And flow it has with nine split announcements from major companies announced this week alone. The fun part is, this number should be dwarfed next week when we get a barge of earnings reports from the big boys. The third week of April, July, October, and January are always filled with splits just due to the number of companies reporting numbers. We all know this is the number one catalyst for split announcements. Now, you shouldn't hold over earnings to get the announcement, but knowing which ones are likely to announce can provide an extra strong earnings run. Current Split Run Plays None Current Split Candidate Plays CIEN BRCD GSPN TIBX MUSE HGSI CREE SCMR Candidates That Are Not Current Plays SDLI VRSN BRCM RBAK COHR GLW DNA SEBL ISSX AMD 10 Most Recent Announcements We Predicted PDLI (most recent announcement) TXN CHINA CMVT NT VRTS SEPR YHOO TMPW HGSI Major Announcements So Far This Month BMET WAT NMSS PDLI VRTX ALTR ACTU CDT BBBY RATL For our complete stock split calendar, click here... http://members.OptionInvestor.com/splits/index.asp ********************************Advertisement******************* Looking to buy or sell a new or used vehicle? Autobytel.com has been ranked #1 in J.D. Power and Associates Dealer Satisfaction with Online Buying Services study three years in a row. Autobytel.com has revolutionized the way vehicles are bought and sold, with a no-haggle, no-hassle buying experience. http://www.OptionInvestor.com/tracking.asp?co=OIAutobytel7102000 ***************************************************************** ***************************** SEE DISCLAIMER IN SECTION ONE *****************************
The Option Investor Newsletter Sunday 07-16-2000 Sunday 5 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/071600_5.html ************* COVERED CALLS ************* Trading Mechanics: Execution is Everything! By Mark Wnetrzak In recent weeks, we have received a number of questions about Level II quotes and electronic trading systems. There are numerous execution routes, including the classic exchanges and electronic communication networks (ECNs), available to retail traders and all of the various avenues work differently. It is not enough to simply know these mechanisms exist, you must also understand exactly how they function to trade effectively. In today's discussion, we will review the Nasdaq Exchange and the two order execution systems that are used to provide a fair and timely market for issues traded in that domain. The Nasdaq Exchange is unique in that it does not have a trading floor where buyers and sellers participate face to face. On the Nasdaq, trades are executed over a network of computers, through which authorized traders and market-makers can post bids and offers. SelectNet and SOES (Small Order Execution System) are the trading systems the Nasdaq utilizes and depending on trading conditions, both have specific advantages and drawbacks as execution systems. SelectNet and SOES... SelectNet offers two primary execution avenues. It can broadcast orders to a wide range of market participants, including ECNs, or route orders to a specific group of traders. SelectNet is similar to an instant messaging system but orders entered in this method will not show up on the Level II quote display. The system is popular because it can preference orders, based on the price and quantity of a market-maker's offer. In this forum, participants must provide firm quotes and they must honor the bids and offers shown. Market-makers are allowed a maximum of thirty seconds to respond to a preference order at their offered price/size. They may trade beyond the original quantity but upon declining to offer more shares at that specific price, the bid/offer must be changed accordingly. In contrast, a SelectNet order to an electronic communication network results in an auto-execution, providing another trade has not already occurred at the current price with that particular market participant. The Small Order Execution System is somewhat different in that it provides retail traders immediate fills on a limited number (generally 1000) of shares of Nasdaq stocks; subject to regulations specific to the use of SOES. The primary difference with SOES is that orders will automatically execute with a market maker, regardless of his or her wishes, but the system will not transact against ECNs. Level II Quotes... There are three categories of quotes available to Nasdaq market participants. Level I provides the best bid and offer currently available in a particular issue. Level II quotes contain the bids and offers of all market participants, allowing you to view the relative buying or selling pressure, based on the balance of orders. With this proprietary information, it is relatively easy to determine the current supply/demand ratio. Level III quotes are simply what the market-makers use to transact business. They are basically the same as Level II, but with the Level III system traders can adjust their bids directly, rather than transacting through an ECN or intermediary. Profitable trade execution is all about identifying the current trading situation and knowing which tool is appropriate for a given task. In the upcoming narratives, we will discuss which trade-routing methods work best and help you understand how the type of trading systems utilized affect your ability to profit in the market. 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 EGAN 13.94 14.44 JUL 12.50 2.19 *$ 0.75 13.9% CYTO 9.69 8.63 JUL 7.50 2.94 *$ 0.75 12.1% FSII 18.25 21.75 JUL 17.50 2.63 *$ 1.88 10.5% ARQL 13.88 18.25 JUL 12.50 2.44 *$ 1.06 10.1% CCUR 13.13 14.19 JUL 12.50 1.38 *$ 0.75 9.2% TGEN 12.25 13.31 JUL 10.00 3.00 *$ 0.75 8.8% LYNX 47.56 44.00 JUL 40.00 9.63 *$ 2.07 7.9% FHS 13.13 14.31 JUL 12.50 1.63 *$ 1.00 7.6% ZD 11.38 12.19 JUL 10.00 2.25 *$ 0.87 6.9% MED 9.44 7.75 JUL 7.50 2.69 *$ 0.75 6.9% LYNX 32.63 44.00 JUL 25.00 9.75 *$ 2.12 6.7% SCUR 18.81 17.38 JUL 17.50 2.19 $ 0.76 6.6% TKTX 39.00 36.69 JUL 30.00 9.88 *$ 0.88 6.6% CYTO 7.97 8.63 JUL 5.00 3.38 *$ 0.41 6.5% RHAT 25.00 25.00 JUL 20.00 6.38 *$ 1.38 6.4% CEGE 25.56 28.88 JUL 20.00 6.88 *$ 1.32 6.1% BCGI 14.56 14.25 JUL 12.50 2.88 *$ 0.82 6.1% GENE 27.75 26.50 JUL 20.00 9.25 *$ 1.50 5.9% BCRX 27.00 29.94 JUL 22.50 5.63 *$ 1.13 5.7% CLTR 20.50 23.75 JUL 17.50 3.63 *$ 0.63 5.4% CAIR 25.50 25.69 JUL 20.00 6.63 *$ 1.13 5.2% TGEN 12.25 13.31 JUL 7.50 5.25 *$ 0.50 5.2% IBC 14.94 14.56 JUL 12.50 3.25 *$ 0.81 5.0% NERX 18.88 19.75 JUL 15.00 4.38 *$ 0.50 5.0% IFCI 23.13 25.25 JUL 20.00 4.00 *$ 0.87 4.9% LCCI 27.31 26.88 JUL 22.50 5.50 *$ 0.69 4.6% ALSC 26.88 26.50 JUL 22.50 5.88 *$ 1.50 4.4% BWEB 22.88 25.00 JUL 17.50 5.88 *$ 0.50 4.3% TSEM 30.69 30.63 JUL 25.00 6.50 *$ 0.81 3.6% GLGC 38.75 29.63 JUL 30.00 10.00 $ 0.88 3.3% PGO 19.00 17.25 JUL 17.50 2.25 $ 0.50 2.6% IVIL 8.94 7.81 AUG 7.50 2.13 *$ 0.69 7.3% DLK 16.75 18.00 AUG 12.50 5.25 *$ 1.00 6.3% PSFT 18.38 20.88 AUG 15.00 4.38 *$ 1.00 5.2% WFR 18.38 18.63 AUG 15.00 4.38 *$ 1.00 5.2% EPTO 15.13 13.50 AUG 12.50 3.38 *$ 0.75 4.6% *$ = Stock price is above the sold striking price. Comments: E-Med Soft.Com (MED) continues to weaken though it remains above its May low - monitor closely. With one week until expiration, and earnings due next Friday, it may be prudent to exit Secure Computing (SCUR) early - unless your long-term outlook warrants otherwise. Gene Logic (GLGC) has weakened considerably and an early exit from this position may also be sensible. Petroleum Geo's (PGO) action continues to be worrisome though the current rebound is helping to stem the decline. 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 BLSW 32.88 AUG 25.00 XPU HE 9.38 62 23.50 35 5.5% EFCX 14.38 AUG 10.00 FUS HB 4.88 50 9.50 35 4.6% IMNR 11.00 AUG 7.50 IMQ HU 3.88 735 7.12 35 4.6% LOOK 23.00 AUG 17.50 UOO HW 6.25 10 16.75 35 3.9% MAIL 9.44 AUG 7.50 UMA HU 2.50 1273 6.94 35 7.0% MCOM 33.00 AUG 25.00 MQM HE 9.25 36 23.75 35 4.6% PMTC 12.69 AUG 10.00 PMQ HB 3.25 2735 9.44 35 5.2% Sequenced by Return ***** Stock Last Call Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return MAIL 9.44 AUG 7.50 UMA HU 2.50 1273 6.94 35 7.0% BLSW 32.88 AUG 25.00 XPU HE 9.38 62 23.50 35 5.5% PMTC 12.69 AUG 10.00 PMQ HB 3.25 2735 9.44 35 5.2% EFCX 14.38 AUG 10.00 FUS HB 4.88 50 9.50 35 4.6% IMNR 11.00 AUG 7.50 IMQ HU 3.88 735 7.12 35 4.6% MCOM 33.00 AUG 25.00 MQM HE 9.25 36 23.75 35 4.6% LOOK 23.00 AUG 17.50 UOO HW 6.25 10 16.75 35 3.9% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** BLSW - Bluestone Software $32.88 *** Earnings Rally? *** Bluestone Software is a top provider of Enterprise Interaction Management software. Companies deploying e-business applications, such as Avnet, CDNow, Food.com, MCI WorldCom, Reliance National, Strategic Weather Services, and Time, rely on Total-e-Business, Bluestone Sapphire/Web, and Bluestone XML Suite to provide a comprehensive e-business platform, Internet-class fault tolerant infrastructures, and robust integration services that e-business success demands. Earnings are driving the market and Bluestone's recent technical break-out may be in anticipation of the company's announcement later this month. If you favor the possibility of a positive announcement, this play offers an excellent risk/reward ratio. AUG 25.00 XPU HE LB=9.38 OI=62 CB=23.50 DE=35 MR=5.5% Chart = ***** EFCX - Electric Fuel $14.38 *** New Palm Batteries! *** EFCX is engaged in the design, development and commercialization of its proprietary zinc-air battery technology for portable consumer electronic devices such as cellular telephones, laptop computers, personal digital assistants and camcorders, as well as for electric vehicles and defense applications. They offer their products through several marketing partners as well as through direct online sales. A money manager quoted by "Inside Wall Street" said Electric Fuel would be offering a new product that would sell well among users of cell phones and Palm hand-held devices. A couple days later, EFCX announced the development of the ZincAir "Instant Power" battery. The stock rallied strongly off its May low as investors look forward to an increased revenue stream. The recent correction appears to be finished and a run towards a new high seems likely. AUG 10.00 FUS HB LB=4.88 OI=50 CB=9.50 DE=35 MR=4.6% Chart = ***** IMNR - Immune Response $11.00 *** Positive Phase II Trials *** Immune Response is a biopharmaceutical company that is developing immune-based therapies to induce specific immune responses for the treatment of HIV, autoimmune diseases and cancer. They are developing a targeted delivery technology for gene therapy, which is designed to enable the delivery of genes directly to the liver after intravenous injection. Immune Response's gene therapy program is in preclinical studies for the treatment of hemophilia and hepatitis. Immune Response started its move out of a stage I base after preliminary data showed that its drug Remune stimulated the activity of the immune system's killer T-cells against the HIV virus. This week, IMNR filed with the SEC to offer 2.4 million shares and plans to use the proceeds to speed up the manufacturing of its Remune vaccine. We favor a conservative entry point in this speculative issue with a cost basis near technical support. Don't forget your due diligence! AUG 7.50 IMQ HU LB=3.88 OI=735 CB=7.12 DE=35 MR=4.6% Chart = ***** LOOK - LookSmart $23.00 *** Takeover? Merger? *** LookSmart is a global Internet search infrastructure company. They have built a suite of scaleable, customizable and high quality search products and has distributed these products to its network of approximately 100,000 partners and affiliates worldwide. They also maintain the www.looksmart.com Website, primarily as a showcase for its search products and for users who wish to search directly with LookSmart. Two months ago, LookSmart confirmed to the stock exchange it was in talks but no agreement had been reached about a business relationship with the 50.1 percent government-owned Telstra. As speculators have moved into the stock, a stage I base has been completed. Until the news is released, we will remain very conservative and take advantage of the recent volatility and positive momentum in the Internet sector. AUG 17.50 UOO HW LB=6.25 OI=10 CB=16.75 DE=35 MR=3.9% Chart = ***** MAIL - Mail.com $9.44 *** Are The "Shorts" Covering? *** Mail.com is a global provider of e-mail and advanced Internet messaging services to the business and consumer markets. MAIL provides the business market with outsourced mailbox hosting and gateway services and has a corporate customer base with over 8,500 corporations in all, including ADP, Continental Airlines, Mercedes Benz and Yahoo!. In the consumer market, Mail.com has forged alliances with premier Web sites and ISPs enabling members to access their e-mail from any location with a web connection. Mail.com's price has recently surged after news of an increase in call buying activity. Are traders speculating on earnings (July 26) or is it just a short-covering rally? We simply favor the move above recent resistance (which now becomes support) on heavy volume. AUG 7.50 UMA HU LB=2.50 OI=1273 CB=6.94 DE=35 MR=7.0% Chart = ***** MCOM - Metricom $33.00 *** A Wireless Internet! *** Metricom is a provider of mobile wireless data access to corporate networks and the Internet. For the past year, MCOM has focused its efforts on designing and developing its new high speed service, which is being marketed under the Ricochet brand name, and is being planned for launch during the late summer of 2000. Metricom has designed its new service to meet the needs of the growing number of professionals who require full access to their corporate networks and the Internet when away from the office. Metricom recently announced that in late July, the Ricochet network will be live and capable to take on subscribers in San Diego and Atlanta. Now MCOM has completed FCC certification for its GT model Ricochet 128 kbps modem. Many investors believe the move to wireless Internet will surge once speeds approach those of the current DSL and cable connections and Metricom will benefit from this next phase of Internet mania! AUG 25.00 MQM HE LB=9.25 OI=36 CB=23.75 DE=35 MR=4.6% Chart = ***** PMTC - Parametric Tech $12.69 *** Earnings Rebound? *** Parametric Tech develops, markets, and supports collaborative product commerce B2B solutions that help manufacturing companies achieve innovation and sustainable competitive advantage. Their software solutions employ powerful Web-based collaboration and flexible engineering technologies to speed product development and delivery processes. PMTC also provides training, consulting, support, and e-commerce services to customers worldwide. Last quarter, Parametric reported disappointing revenue and announced restructuring plans following a weak December report. The stock was punished severely recently and appears to be "on the mend." Over the last several months, Parametric has announced many new alliances and contracts that suggest next week's earnings could show that the company is back on track. We will use the recent option volatility to gain a conservative entry point, favoring a cost basis below recent support. AUG 10.00 PMQ HB LB=3.25 OI=2735 CB=9.44 DE=35 MR=5.2% Chart = ****************************Advertisement************************* Trade Options Online with an Established Expert! Mr. Stock has put over 20 years of experience into a site specifically designed for the most important aspects of your options trading. Our recognized, easy-to-use interface allows you to trade spreads, straddles and covered calls with one-mouse-click. Visit Mr. Stock today! http://www.OptionInvestor.com/tracking.asp?co=OIMrStock682000 ****************************************************************** ************************* NAKED PUT PERCENTAGE LIST ************************* By Ryan Nelson ***Remember, expiration is this coming Friday*** Stock Stock Strike Option Option Margin Percent Support Symbol Price Price Symbol Price At 25% Return Level ADBE 136.19 135 AXX-SG 3.75 3405 11% 136 BRCD 205.94 200 GUF-ST 2.38 5149 5% 200 BRCM 250.06 240 RDU-SH 5.13 6252 8% 240 CDWC 67.81 65 DWQ-SM 1.75 1695 10% 61 CHKP 234.25 230 YKE-SV 7.38 5856 13% 230 DIGX 78.81 75 UOM-SO 1.69 1970 9% 75 DNA 161.50 160 DNA-SL 5.00 4038 12% 152 EXTR 143.81 130 EUT-SF 2.75 3595 8% 125 GLW 267.00 260 GRJ-SZ 3.75 6675 6% 260 GSPN 146.00 135 GHY-SG 3.00 3650 8% 130 ISSX 102.50 100 ISU-ST 4.00 2563 16% 95 ITWO 139.50 115 QYI-SG 5.88 3488 17% 135 MLNM 118.50 115 QMR-SC 3.75 2963 13% 118 MUSE 184.50 175 UZQ-SO 4.25 4613 9% 175 PHCM 82.06 80 UGE-SP 2.38 2052 12% 77 PWER 130.00 125 OGU-SE 4.25 3250 13% 120 QLGC 95.13 90 QLC-SR 2.63 2378 11% 90 RBAK 155.00 150 BKK-SJ 5.18 3875 13% 150 RIMM 62.50 60 RUL-SL 2.13 1563 14% 55 RMBS 105.00 100 BWR-ST 4.63 2625 18% 100 SEBL 192.69 180 EZG-SP 3.88 4817 8% 180 SEPR 133.75 130 ERU-SF 3.25 3344 10% 125 TER 77.75 70 TER-SN 2.00 1944 10% 70 TIBX 127.00 120 PIW-SD 3.38 3175 11% 115 TLGD 148.06 140 TQK-SH 4.00 3702 11% 140 TQNT 55.63 55 TNN-SK 2.81 1391 20% 52 VRSN 192.00 180 QVZ-SP 2.44 4800 5% 180 VRTS 137.13 130 VUQ-SF 2.56 3428 7% 130 VRTX 115.00 115 VQR-SB 2.75 2875 10% 110 *********************** CONSERVATIVE NAKED PUTS *********************** Technical Analysis Basics: Trends and Averages By Ray Cummins To be successful in the stock market, it's important to understand how to evaluate historic trends. In any exchange system based on supply and demand, there are three primary stages or phases of movement. These three phases consist of a basing or range-bound condition; an upward slope or growth stage and finally, a segment where buying interest becomes exhausted. Some experts refer to these conditions as the accumulation, markup and distribution phases. The first step in any analysis is look beyond the daily gyrations to identify the overall trend. The changes in the rate of upward and forward movement can be approximated with the smoothing effect of a moving average. The basic definition of a moving average is: the mean price of a security or financial instrument at a specific point in time. With this type of analysis tool, a shorter time span produces a more sensitive indication while a longer time span reflects a smoother history. There are a number of ways to determine a primary trend but very few technical analysis tools are as versatile as moving average. The moving average offers an objective method for defining support and resistance and it can also help isolate cycles and identify overbought or oversold conditions. Traders often use moving averages to render buy and sell signals based on multiple histories plotted on one chart. The crossing of moving average lines, a major topic in the study of "Stochastics," is a very popular method of recognizing trend reversals. Unfortunately, for a trader to depend solely on a moving average is comparable to using the hour hand of a watch to check the time of day. It provides a good approximation of the time but offers little guidance for specific appointments. In market terms, a moving average will help you discern whether the primary trend is up or down but it does little to help you with timing entry and exit points with regard to a particular issue. To be profitable on a consistent basis, you need to know where the instrument is in its current cycle. Is it in the accumulation phase, markup phase or distribution phase? The movement of a specific issue is generally determined by the intensity with which the shares are bought or sold. One method of measuring this effect in a prolonged trend is to use a moving average on transaction or trading volume. Trading volume, or the number of shares traded, is an important indicator in interpreting market direction and stock price. The change in stock price is the result of supply and demand; those who want to buy versus those who want to sell. The key point is that a rise or fall in price on a small volume of shares traded is far less important than a move supported by heavy volume. If there is heavy trading on an upward movement, buyers control the market, and their enthusiasm for the stock often pushes it far beyond a reasonable value. Experienced traders know that rising volume generally accompanies any substantial change in a stock's price and that is an important characteristic to be aware of when when reviewing market trends. When combined with a moving average of trading volume, a simple moving average can help confirm that the market is transitioning into a condition of accumulation or in the case of a failed rally, a new distribution stage. Of course there are often chaotic and choppy transition phases between each cycle or trend and those can be very difficult to evaluate. The type of indicators that work best during transition periods include the Moving Average Convergence-Divergence system (MACD), or exponential (weighted) averages that are designed to be more sensitive to quick changes in market direction. Investors who develop a background in various technical analysis tools can use intricate moving average combinations to formulate different timing methods for entering and exiting the market. One popular entry technique is based on signals from a short-term MACD and confirmation from the moving average of the volume indicator. A number of exit strategies use the convergence between the price action and the volume average or diversions among different moving averages. Blending diverse combinations of indicators is one way to discover the best system for your style of trading and for new investors, this can create a unique set of tools and intuitive techniques to help you profit in the market on a regular basis. 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 SIRI 44.31 49.25 JUL 35.00 1.88 *$ 1.88 25.4% DLK 16.75 18.00 JUL 12.50 0.38 *$ 0.38 22.1% ANCC 30.22 31.88 JUL 22.50 0.44 *$ 0.44 14.8% TGEN 14.88 13.31 JUL 12.50 0.38 *$ 0.38 13.9% FSII 18.25 21.75 JUL 15.00 0.75 *$ 0.75 13.6% IMG 18.31 19.13 JUL 15.00 0.56 *$ 0.56 13.3% EFCX 10.56 14.38 JUL 7.50 0.44 *$ 0.44 12.5% CEGE 31.50 28.88 JUL 25.00 0.38 *$ 0.38 12.4% SCUR 15.88 17.38 JUL 12.50 0.38 *$ 0.38 11.6% MRVT 19.50 24.13 JUL 15.00 0.44 *$ 0.44 11.0% GENE 30.44 26.50 JUL 22.50 0.50 *$ 0.50 11.0% CAMP 29.00 42.94 JUL 22.50 0.81 *$ 0.81 10.6% TSEM 30.69 30.63 JUL 25.00 0.69 *$ 0.69 10.3% YRK 28.94 28.25 JUL 25.00 0.38 *$ 0.38 10.3% TLCM 40.06 32.94 JUL 30.00 0.56 *$ 0.56 9.5% GENE 26.13 26.50 JUL 17.50 0.63 *$ 0.63 9.3% OAKT 20.94 26.25 JUL 17.50 0.44 *$ 0.44 8.9% LBRT 29.31 34.13 JUL 20.00 0.38 *$ 0.38 8.8% NSS 20.13 19.75 JUL 15.00 0.44 *$ 0.44 8.6% FSII 16.00 21.75 JUL 12.50 0.50 *$ 0.50 8.4% PILT 15.31 17.81 JUL 10.00 0.38 *$ 0.38 8.0% CBST 49.25 54.56 JUL 35.00 0.50 *$ 0.50 7.0% CAIR 25.50 25.69 JUL 17.50 0.44 *$ 0.44 6.9% MPPP 19.19 13.50 JUL 10.00 0.38 *$ 0.38 6.5% SYMM 20.00 21.13 JUL 15.00 0.38 *$ 0.38 6.3% VITR 48.13 74.13 JUL 30.00 0.56 *$ 0.56 6.0% SIPX 27.25 26.25 JUL 20.00 0.31 *$ 0.31 5.8% CLRS 38.88 43.50 JUL 30.00 0.69 *$ 0.69 5.8% CEGE 27.25 28.88 JUL 17.50 0.44 *$ 0.44 5.4% IMNX 44.69 55.19 JUL 30.00 0.56 *$ 0.56 5.1% CREAF 28.00 21.75 JUL 22.50 0.69 $ -0.06 0.0% Closed OMKT 19.00 9.44 JUL 12.50 0.38 $ -2.68 0.0% Closed NFLD 17.50 16.63 AUG 15.00 1.00 *$ 1.00 13.2% MRVT 22.63 24.13 AUG 17.50 0.50 *$ 0.50 7.2% NXLK 39.69 44.06 AUG 30.00 0.75 *$ 0.75 6.3% *$ = Stock price is above the sold striking price. Comments: Open Market (OMKT) was closed earlier this week after warning that its second-quarter loss will be twice as large as most analysts expected. Creative Tech (CREAF) did not have any follow through this week, after last Friday's rally and continues to move below its 150 dma. Cell Genesys (CEGE) & Genome Therapeutics (GENE) are both under selling pressure as money rotates into the Tech sector. Monitor Telcom Semiconductor (TLCM) as the technicals remain weak. Friday's horrid move by Sipex (SIPX) is disconcerting and exiting this position on any strength might be prudent. Positions Closed: Us Lec Corp. (CLEC) 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 BLSW 32.88 AUG 22.50 XPU TX 0.56 21 21.94 35 6.8% GSTRF 10.56 AUG 7.50 YVQ TU 0.56 388 6.94 35 18.2% INFS 37.00 AUG 30.00 IQL TF 0.50 2 29.50 35 5.2% PILT 17.81 AUG 12.50 PTU TV 0.50 10 12.00 35 10.7% RAZF 22.25 AUG 17.50 RVZ TW 0.56 170 16.94 35 9.7% SQST 14.00 AUG 10.00 QWQ TB 0.50 69 9.50 35 13.2% WSTL 25.19 AUG 20.00 QLW TD 0.81 137 19.19 35 12.0% Sequenced by Return ****** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return GSTRF 10.56 AUG 7.50 YVQ TU 0.56 388 6.94 35 18.2% SQST 14.00 AUG 10.00 QWQ TB 0.50 69 9.50 35 13.2% WSTL 25.19 AUG 20.00 QLW TD 0.81 137 19.19 35 12.0% PILT 17.81 AUG 12.50 PTU TV 0.50 10 12.00 35 10.7% RAZF 22.25 AUG 17.50 RVZ TW 0.56 170 16.94 35 9.7% BLSW 32.88 AUG 22.50 XPU TX 0.56 21 21.94 35 6.8% INFS 37.00 AUG 30.00 IQL TF 0.50 2 29.50 35 5.2% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** BLSW - Bluestone Software $32.88 *** Earnings Rally? *** Bluestone Software is a top provider of Enterprise Interaction Management software. Companies deploying e-business applications, such as Avnet, CDNow, Food.com, MCI WorldCom, Reliance National, Strategic Weather Services, and Time, rely on Total-e-Business, Bluestone Sapphire/Web, and Bluestone XML Suite to provide a comprehensive e-business platform, Internet-class fault tolerant infrastructures, and robust integration services that e-business success demands. Earnings are driving the market and Bluestone's recent technical break-out may be in anticipation of the company's announcement later this month. If you favor the possibility of a positive report, this play offers an excellent risk/reward ratio. AUG 22.50 XPU TX LB=0.56 OI=21 CB=21.94 DE=35 MR=6.8% Chart = ***** GSTRF - Globalstar Telecom $10.56 *** On The Rebound! *** Globalstar Telecommunications provides global mobile telephone service. Their satellites form a global telecommunications network which can reach virtually every populated area of the world. Globalstar uses Qualcomm's patented CDMA technology, and Qualcomm has agreed that they will be the only provider of mobile satellite services to which it will license this technology. Funding has been a problem for satellite communications companies but earlier this month, Globalstar exercised an option giving the company access to $250 million in corporate loans. Now they can pursue their business plans, working to establish themselves as a potential competitor in the difficult communications market. The company also recently launched its commercial service in Peru and expects to provide coverage to most of South America within the next month. AUG 7.50 YVQ TU LB=0.56 OI=388 CB=6.94 DE=35 MR=18.2% Chart = ***** INFS - Infocus $37.00 *** Big Earnings! *** InFocus is a worldwide leader in data and video projection. InFocus was the first to market such breakthroughs as the flat panel overhead display and the data/video projector. Infocus' suite of projectors let users project from a variety of sources including DVD's, S-video, PC's, VCR's, and laser disc players. On Thursday, Infocus reported that second quarter revenues were up 35% over the same period last year. They also reported 72% unit growth for the quarter and in addition, product demand was strong sequentially when compared to the first three months of 2000. The the Worldwide Data Group, a consortium of leading display research companies, increased their projections for unit growth rates in the video projection market to 40% next year. Investors are happy with the results and the technical outlook is very favorable. AUG 30.00 IQL TF LB=0.50 OI=2 CB=29.50 DE=35 MR=5.2% Chart = ***** PILT - Pilot Network Services $17.81 *** An Old Favorite! *** Pilot Network Services provides a wide range of secure Internet services that incorporate high-bandwidth connectivity and enable secure electronic business over the Internet. Pilot's services include secure access and gateway services, secure hosting and electronic commerce services, and secure extranet and virtual private networking services. These services enable remote users and wide-area networks to securely communicate enterprise-wide and over the Internet. Pilot provides these services through its geographically dispersed Network Security Centers to financial, professional, technology, consumer, entertainment, education, mass media, industrial, and manufacturing customers around the world. Earnings are due next week and based on the technical trend, investors believe the report will be favorable. AUG 12.50 PTU TV LB=0.50 OI=10 CB=12.00 DE=35 MR=10.7% Chart = ***** RAZF - Razorfish $22.25 *** Hot Sector! *** Razorfish is a provider of global digital solutions. Razorfish provides an integrated, end-to-end information solution. Some examples of RAZF's solutions include a user-interface Wireless Application Protocol technology for Nokia; an open collaborative business environment delivering SAP AG's personalized ERP software solutions; and a multiple channel strategy for NatWest Bank. The company's digital solutions utilize a wide variety of platforms, including the World Wide Web, wireless, broadband and satellite communications and a variety of digital devices and information appliances, including desktop PCs, mobile phones, pagers and personal digital assistants. This industry is undergoing rapid evolution as clients move from employing technology simply as a cost-cutting tool to deploying leading edge solutions on all levels. We favor the recent technical trend but "let the buyer beware," earnings have yet to be announced for this popular issue. AUG 17.50 RVZ TW LB=0.56 OI=170 CB=16.94 DE=35 MR=9.7% Chart = ***** SQST - Sciquest.com $14.00 *** Bottom Fishing! *** SciQuest.com is an Internet-based, interactive marketplace for scientific and laboratory products used by pharmaceutical, clinical, biotechnology, chemical, industrial and educational organizations worldwide. Sciquest has made use of its extensive industry expertise to design a marketplace that streamlines the traditionally inefficient scientific products supply chain. The company's marketplace solutions allow buyers of various scientific products to cross-search content and purchase these products from multiple suppliers with a single order. The company's marketplace benefits some distinct customers including scientists, purchasing professionals and suppliers. Sciquest wants to become an online information resource that ties E-commerce into the activities of researchers and their labs. That's a favorable outlook as most successful Net Markets will be the ones that provide services or content that reduces costs and boost efficiencies. We like the low risk entry point. AUG 10.00 QWQ TB LB=0.50 OI=69 CB=9.50 DE=35 MR=13.2% Chart = ***** WSTL - Westell Technology $25.19 *** Trend Reversal! *** Westell Technologies provides telecommunications products and services. Westell Inc., their products business, supplies DSL Equipment, Telephone Access Systems and equipment to monitor and maintain telecommunications networks. Conference Plus Inc., their service business, is an Application Service Provider, hosting and providing audio, video, IP conferencing and support services. Telecom issues are becoming popular again and with a recent "buy" rating from Jeffries & Co., it appears investors are now bullish on this company. Analysts expect Westell's first profitable quarter in the company's public history to be reported on July 20 and their new 12-month target is $50. Our conservative cost basis allows favorable speculation on the new trend. AUG 20.00 QLW TD LB=0.81 OI=137 CB=19.19 DE=35 MR=12.0% Chart = **********************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 ***************************************************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Another Big Day! Friday, July 14 Technology stocks posted impressive gains today with Internet and Semiconductor issues leading the way. The Nasdaq finished up 71 points at 4246. The Dow industrials rallied for a sixth straight session amid strength in financial stocks. The blue-chip average closed up 24 points at 10,812. The S&P 500 Index ended 14 points higher at 1509. Trading volume on the NYSE reached 950 million shares, with advances beating declines 1,587 to 1,281. Activity on the Nasdaq Exchange was moderate at 1.67 billion shares traded. Technology advances beat declines 2,189 to 1,792. In the bond market, the 30-year Treasury fell 29/32, pushing its yield up to 5.88%. Thursday's new plays (positions/opening prices/strategy): Advanced Fibre AFCI AUG42P/AUG45P $0.38 credit bull put Network Appl. NTAP AUG70P/AUG75P $0.68 credit bull-put Finova Group FNV JAN7C/AUG12C $4.38 debit diagonal Advanced Fibre traded almost $4 higher in the opening minutes and never retreated. The best observed credit was well below our target price. Network Appliance was also bullish during the session but did fall into negative territory near mid-day. The entry price was based on a large order near 10:00 A.M. Finova moved in a relatively small range, and the lowest observed debit was slightly higher than our target entry. Portfolio Plays: The market moved higher today ending a second consecutive week of bullish activity. Favorable quarterly earnings continued to be the driving force behind industry leaders and technically the broad market is poised for a Summer rally. Internet companies led the technology group and on the Dow, financial stocks were robust. On the S&P 500, electronics and computer networking stocks moved higher, while industrial power, healthcare and building materials issues consolidated. The rotation out of drug and biotech companies pulled those sectors lower but a recovery in the telecom group and brokerages kept market breadth healthy. The Spreads/Combos portfolio enjoyed another bullish session with big-cap stocks dominating the leader-board. The top performers included Active Software (ASWX), Exodus (EXDS), Juniper Networks (JNPR), and Vitria (VITR). Strangely enough, 3Com Corp. (COMS) was again one of the big movers, up $8 in anticipation of the $23 billion spin-off of hand-held computing device maker Palm (PALM). The company is distributing 532 million shares of Palm stock on or about July 27 and each shareholder will receive 1.484 shares of Palm stock for each share of 3Com stock owned. Our bullish calendar spread benefited from the movement earlier in the week but the rally above $65 pushed the spread into negative territory. Fortunately, with the upside activity, the original premium disparity provided a small, one week profit ($0.43/$2.31) before the position had to be closed. Those of you that bought back the (short) $60 call when the bullish stock rallied through technical resistance last Wednesday were aptly rewarded later in the week. Another issue that has broken-out of a recent trading range is Cabletron (CS). The stock rallied another $2 on Friday and now it appears a major bullish move is underway. Our long term diagonal position (JAN15C/AUG25C) has been adjusted upward to reflect the positive outlook. In the Straddles section, Knight Trading (NITE) jumped $3 to a recent high near $35 on strength in the E-brokerage group. Our neutral debit straddle is now in profitable territory and based on the new upward momentum, the rally should result in a favorable return for the position. One the downside, Johnson & Johnson (JNJ) suffered a setback after the FDA halted phase III trials of its drug Resolor for irritable bowel syndrome. Analysts at J.P. Morgan didn't help matters, reducing their revenue estimates on the company after the news. Our bullish diagonal spread has returned more than a 50% profit and those of you with concerns about the short-term technical outlook should close the play to lock in gains. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** AOL - American Online $62.06 *** Hot Sector! *** America Online is the world's leader in interactive services, Web brands, Internet technologies and e-commerce services. AOL operates two worldwide Internet services, America Online, with more than 22 million members, and CompuServe, with more than 2.2 million members, several leading Internet brands including ICQ, AOL Instant Messenger and Digital City, the Netscape Netcenter and AOL.COM portals, the Netscape Navigator and Communicator browsers, AOL MovieFone, the nation's leading movie listing guide and ticketing service, and Spinner Networks and NullSoft, leaders in Internet music. Through its strategic alliance with Sun Microsystems, the Company develops and offers easy-to-deploy, end-to-end e-commerce and enterprise solutions for companies operating in the Net Economy. Earnings are driving the market and AOL, the leading Internet services provider, is expected to post strong quarterly results next week. Analysts say their report will reflect one of the stronger performances of the Internet sector during what would be a tough quarter. The consensus estimate for the Internet giant is $0.11 a share for its fiscal fourth quarter, $0.07 a share higher than the same quarter a year earlier. Revenues are expected to climb 35%-40% to $2 billion. AOL is also expected to address their plans for delivering high-speed Internet access via cable and digital subscriber lines, a business that the company will develop after its impending merger with Time Warner. Friday's trading-range breakout near $58 defines this position as a relatively safe play in the volatile Internet sector. Our spread offers a low risk cost basis with a reasonable expectation of profit. After the $4 rally on Friday, a brief consolidation may occur in the next few sessions. With hope to decrease the debit for the spread to a favorable amount. Our initial target will be $4.25 and we will make an adjustment based on Monday's opening prices. PLAY (conservative - bullish/debit spread): BUY CALL AUG-50 AOO-HJ OI=1589 A=$12.62 SELL CALL AUG-55 AOO-HK OI=3612 B=$8.12 INITIAL NET DEBIT TARGET=$4.25-$4.38 ROI(max)=14% B/E=$54.38 Chart = ****************************************************************** ALL - Allstate $24.88 *** Merger Rumors Again! *** The Allstate Corporation serves as the holding company for Allstate Insurance Company. The company's business is conducted principally through Allstate Insurance Company, Allstate Life Insurance Company and their subsidiaries (including the parent, Allstate). Allstate is engaged, principally in the U.S. and Canada, in the personal property and casualty insurance business and the life insurance and savings business. All's business segments include personal property and casualty; life and savings; and discontinued lines and coverages. The recent consolidation in Allstate's share value appears to be coming to an end and the buyout rumors that caused speculation earlier in the year are active again. One well-known analyst noted that Allstate has seen a fair amount of volume in its options lately and the implied volatility for front-month options is at historically high levels. ALL was the subject of takeover rumors back in May, and its expected suitor was American International Group (AIG). Speculation of a buyout in the $30 range was common and the bullish optimism is once again rampant. This play is based on recent increased activity in the stock and underlying options. Although the position offers a favorable risk/reward potential, it must be evaluated for suitability and reviewed with regard to your strategic approach and trading style. PLAY (conservative - bullish/diagonal spread): BUY CALL OCT-20 ALL-JD OI=1627 A=$5.50 SELL CALL AUG-25 ALL-HE OI=1674 B=$1.31 INITIAL NET DEBIT TARGET=$4.00 INITIAL TARGET ROI(max)=25% Chart = ****************************************************************** ALTR - Altera $119.44 *** Awesome Earnings! *** Altera designs, manufactures and markets programmable logic devices and associated development tools. Programmable logic devices are semiconductor integrated circuits that offer on-site programmability to customers using the company's proprietary software, which operates on personal computers and engineering workstations. Altera was the first supplier of Complementary Metal Oxide Semiconductor (CMOS) programmable logic devices. The company offers a broad line of CMOS programmable logic devices that address high-speed, high-density and low-power applications. Altera's products serve a wide range of markets, including telecommunications, data communications, electronic data processing and industrial applications. Altera jumped almost $10 Friday after company officials said that earnings per share were $0.49, up from $0.25 per share earned in the year-ago second quarter. Analysts polled by First Call had expected Altera to earn $0.44 per share. The maker of logic devices reported that surging sales propelled second-quarter earnings growth 93%, and industry analysts gave rave reviews to the news. One analyst called it a "blowout quarter," raising his projections on future earnings and the company's target price. Christopher Danley, an analyst with Merrill Lynch, said Altera had turned in an impressive performance in terms of revenue growth and he expects the company to show continued strong earnings and sales growth in the remaining two quarters of the year. Altera also announced it is planning a two-for-one stock split, effective on or about August 10, for shareholders of record on July 26. PLAY (conservative - bullish/credit spread): BUY PUT AUG-90 LTQ-TR OI=176 A=$1.38 SELL PUT AUG-95 LTQ-TS OI=209 B=$2.00 INITIAL NET CREDIT TARGET=$0.75 ROI(max)=17% Chart = ****************************************************************** VRTA - Virata $71.06 *** On The Move! *** Virata sells communications processors combined with integrated software modules to manufacturers of equipment utilizing digital subscriber line (DSL) technologies. These integrated product solutions enable its customers to develop a diverse range of DSL equipment, including modems, gateways and routers targeted at the voice and high-speed data network access market. Virata focuses its resources on the development and marketing of its products, while outsourcing the actual manufacturing of its semiconductors. Last week, Virata announced that its new Helium communications processor has been selected by ARESCOM for use in four of the company's new NetDSL products. In addition, Arescom has selected Virata's Magnesium voice processor incorporating their vCore software to be used in conjunction with Helium in the next generation of Arescom's DSL equipment. Arescom is a leading provider of DSL router and modem solutions for telecommunication carriers, ISPs and SOHO markets. Their selection of Virata's primary products suggests the company is designing components that meets the needs of today's fast paced communications industry. Virata has been "on the move," climbing $30 in just over one week. With that type of upside activity, there is always some potential for consolidation. Our position has a cost basis near technical support and we will "target shoot" a pull-back to increase the overall credit in the spread. PLAY (conservative - bullish/credit spread): BUY PUT AUG-55 UFA-TK OI=18 A=$1.31 SELL PUT AUG-60 UFA-TL OI=14 B=$1.88 INITIAL NET CREDIT TARGET=$0.68-$0.75 ROI(max)=15% Chart = ********************************Advertisement******************* Looking to buy or sell a new or used vehicle? Autobytel.com has been ranked #1 in J.D. Power and Associates Dealer Satisfaction with Online Buying Services study three years in a row. 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