The Option Investor Newsletter Wednesday 07-19-2000 Copyright 2000, All rights reserved. 1 of 1 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/071900_1.html Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 07-19-2000 High Low Volume Advance/Decline DJIA 10696.10 - 43.80 10790.50 10685.50 909 mln 1120/1679 NASDAQ 4055.63 -121.54 4159.39 4047.43 1.44 bln 1428/2551 S&P 100 802.95 - 4.24 809.08 801.59 totals 2548/4230 S&P 500 1481.96 - 11.78 1495.63 1479.92 37.6%/62.4% RUS 2000 527.86 - 8.42 536.28 527.79 DJ TRANS 2805.73 - 93.64 2899.97 2786.28 VIX 22.52 - 0.03 23.37 21.89 Put/Call Ratio .61 ****************************************************************** Investors Cautious Before Greenspan Testimony It seems that investors woke up on the wrong side of the bed again today. I know I did. Investors ignored a slew of earnings reports, good ones at that, and continued the selling from Tuesday. It was a steady bleed for the NASDAQ today as tech stocks were dumped with a vengeance. So what struck the fear? Good ol' Uncle Alan. Scheduled to speak tomorrow at 10am EDT, Fed Chairman Greenspan will be giving his semi-annual Humphrey-Hawkins testimony before the Senate on Monetary Policy. After a dismal day yesterday for the NASDAQ on concerns over the CPI data, Wednesday proved to be even rougher. The NASDAQ sold off 121 points today as the waiting game continues. And as the investment community awaits Greenspan's testimony, we wonder, will he really give us any hint to the Fed's next move in August? Possibly a nervous grab for his glasses, or maybe a certain inflection in his voice. Certainly far-fetched, but as for him revealing some subtle clue, I wouldn't bet on it. In fact, he probably doesn't even know what lies in store for the next FOMC meeting. Nevertheless, all eyes will be glued to CNBC analyzing every move Greenspan makes. In the meantime, profit takers have been raking in their recent gains since the NASDAQ made its move to 4100 last Wednesday. The victims: high-flying tech issues. Looking at the 60-minute chart of the NASDAQ, we can see that we have had one heck of a run since July 12th. Quite impressive. The NASDAQ has now gone, within that week span, from in the red for the year to up 5.5% on the year to back below the starting point for 2000, 4069. Today's close of 4055 broke the 10-dma at 4094, after a midday bounce from that level. Sellers knocked down the market to close near the low of the day, yet the NASDAQ did manage to stay above the 100-dma at 4046. We will be watching closely tomorrow to see if a test of this level occurs. A break and close below the 100-dma would indicate that the summer doldrums Jim has mentioned in his Wraps could be arriving right near expiration. To reiterate Jim's point, once July expiration passes, historically, the markets become relatively inactive as traders packed up their trading tools until late August and early September. With a lack of numbers, buying power typically just doesn't hold in an illiquid market. Not to mention, markets get whippy due to the low volume. We would be cautious with long positions, keeping tight stops, as a breakdown may be around the corner. As for the INDU, the index continued rolling over, closing just below 10700 at 10696. After trading in a tight range between 10750 and 10850 for most of the past week, the INDU began slipping yesterday and continued its descent today. It is beginning to look like 10800 resistance is winning this battle. Today's close has brought the INDU under its 10-dma, currently at 10711. Note from the chart below how congested the 10800 level has become. This type of trading pattern is only making that resistance stronger. If the INDU were to give up its gains since rallying on July 7th, like the NASDAQ, it wouldn't be out of the question to see 10500 as the next stop. Then what would we have to show for our much hyped "summer rally?" Well, it's earnings season and earnings are what should be driving this market. There was a handful of techs that reported last night that gave up ground today. MSFT, mentioned in last night's Wrap, reported better-than-expected earnings but lost $5.38 today, accounting for 30 points in the NASDAQ. Investors were concerned about lower margins and future business with the Office suite of software. Adding to the pain, SG Cowen downgraded the stock from a Buy to a Neutral, and Prudential cut its rating to an Accumulate from Strong Buy. INTC shed $4.88 after better-than-expected earnings. Helping out the INDU minimize the losses today were IBM, KO, and C. IBM ran up $4.44 in anticipation of its earnings after the bell. Big Blue came in six cents ahead of estimates at $1.06 per share, yet they reported that their revenue declined by 1%. This is particularly alarming to analyst. Traders are not afraid to let it be known that they have they eyes fixed on what the 3rd and 4th quarters will look like for major companies, rather than concentrating on the 2nd quarter headline numbers. Dow component KO also added nice gains of $2.31 today before beating the Street estimates by three cents, $0.44 vs $0.41. C announced earnings this morning and topped analyst estimates with $0.87 per share. In addition to stellar earnings, the financial service company decided to raise its quarterly cash dividends and declared a 4-3 stock split. C added $1.31 to close at $68, just off its all-time high. Today's earnings slate was chalked full of friendly tech issues. On the NYSE side, EMC announced this morning with at 50% jump in earnings from the year previous with $0.19 per share, surpassing estimates by two cents. The news that really drove investors to rewarding the company was the revenue forecast, predicting that it would accelerate for the rest of the year. EMC closed at $84, up $5.44. AMD also beat estimates as semi demand has outstripped supply in recent quarters. They also announced a 2-1 stock split effective August 21st. At the NASDAQ, QCOM reported earnings of $0.27 per share, in line with Street estimates. The company cited record shipments of its phone chips, yet concerns over weaker sales in South Korea and China have investors running. QCOM closed NY trading at $63 and has shed $1.38 in after-hours. Continuing the trend of beating the estimates in the Networking sector, EXDS posted narrower-than-expected losses of $0.10 per share vs $0.12. The revenue news was very strong, with a year-over-year increase of 321% and an 34% increase from the first quarter. After-hours investors boosted the stock almost $5 from its NY close of $50.81. In deal-making today, CNET agreed to acquire one of its top rivals, Ziff-Davis(ZD), in a $1.6 bln stock deal. The deal unites CNET with ZD's subsidiary ZDNet, which will give CNET a major presence in 25 markets throughout Europe, Asia, North America, and Latin America. CNET not only knocked off one of its biggest competitors for users, but also for advertisers. Dan Rosensweig, CEO of ZDNet said, "marketers will be able to target the most active buyers through our powerful, trusted brands." This Internet deal added $1.88 to ZD as arbitrageurs sold off CNET by $2.56. Two pieces of news rolled in after the market close today that really moved some stocks in after-hours. First, CNBC reported that Deutsche Telekom(DT), who has been scouring the wireless landscape for a takeover target, made a bid for Voicestream(VSTR) in a $53 bln stock and cash deal. The German telecom is prepared to pay $205 per share of VSTR, a 41% premium over today's close of $145. VSTR is trading up to $170 in after-hours. The second piece of news that jolted some of our favorite fiber-optic stocks was the announcement that JDSU will be added to the S&P 500 after the close on July 26th. It will be replacing Rite-Aid, which is being removed for lack of representation. JDSU soared in after-hours on the news, trading up to $122.50 from its NY close of $106.75. SDLI, which trades in tandem with JDSU due to their recently announced deal, traded to $410 a share in after-hours, over $60 higher from its NY close. SDLI will be reporting earnings after the bell on Thursday, so watch for some fireworks in the fiber-optic sector tomorrow. Looking forward, trading activity is being watched closely with a short-term outlook, given the current market environment. We have expiration on Friday, which typically is one of the last active times during the summer. After two huge days of selloff for the NASDAQ, we will be looking to see if investors shift their focus from the Humphrey-Hawkins testimony to the real catalyst, earnings. There is a good chance for a rebound tomorrow, yet any move higher will mostly likely be short-lived. We have reached a point in the year where the markets trading behavior begins to change. So keep your stops tight and take your profits when they're in front of you, as this market sentiment can change on a dime. Matt Russ Asst. Editor ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** *************** ASK THE ANALYST *************** We've some great readers' requests today. By Eric Utley But first, more on the VIX. Several readers sent in some exquisite questions about the VIX discussion last week. Let's get right to them. Gene requested, "Please explain why the VIX does not move in the opposite direction of the market." Gene, the VIX is a sentiment indicator, it does not correlate with the direction of the broader market in a relative way. The value of the index is determined by market participants and expresses their consensus view about future volatility. The VIX and the market diverge all the time because sentiment can be bearish even while the market direction is bullish, and vice versa. Brian requested, "Can you provide some insight in how to use the VIX as a PREDICTIVE tool, rather than just a current conditions indicator." Brian, like so many indicators, I believe that utilizing the VIX requires right-brained ability, which I greatly lack. Anyway, I'll pull a quote from last week's column to fulfill your request. I said, "The VIX did advance Wednesday in light of the broad rally in the market. That suggests traders are expecting a sell-off in the coming days... [which] bodes well for the health of the current rally." Let me translate. Last Wednesday the market rallied quite nicely and the VIX rose. That meant investors were buying more puts expecting a sell-off. The crowd was wrong, and the market extended its rally into the weekend. Today, for example, the NASDAQ tanked and the VIX fell as well. That means investors met today's sell-off with complacency and are expecting a quick rebound. That's not good, and could lead to further downside in the next two days. Remember that the VIX is a contrary indicator, and we assume that The crowd is wrong. Regarding my statement last week, "If the market declines and the demand for puts increases, the VIX will rise." Jon sent this rebuttal, "I think that this is not how you read it." Essentially, Jon asked why the VIX does not rise when the demand for calls increases. Jon, excellent question! A rise in the VIX translates into increased investor fear. Increased fear translates into higher expected future volatility. Such fears are reflected in stock prices. So, if expected future volatility increases, investors demand a higher return from stocks, so prices fall, and the demand for puts increases. Just the reverse is true for calls and a decreasing VIX. It's not a perfect relationship, there are anomalies to this rule. But for the most part, when volatility increases stock prices fall. I received a ton of great e-mails this past week, I only wish I had more time to review more stocks. Persistence pays off, so if I have yet to review a request of yours, let me know and I'll make an attempt to do so. Keep those stocks coming and send your requests to Contact Support. Please put the symbol in the subject line of the e-mail. ---------------------------- Sycamore Networks - SCMR What is your short-term opinion on Sycamore Network? Thank you. - Jesse & Carla To be quite frank, Jesse & Carla, I'm bullish on Sycamore in the short-term. The stock is after-all on the OIN call list. The primary driver of the stock in the short-term is earnings, earnings, and earnings! SCMR is one of those unique companies that reports its second quarter results in August. As it is, a SCMR-specific earnings run is probably in its early stages. However, the risk is that the prospects for better-than-expected profits is already discounted into the stock noting its recent rise. Although here at OIN we believe there is more upside. The incredible profit report from Corning earlier in the week definitely gave SCMR a boost. And the upside surprises from the fiber optic group will persist in the coming days from the likes of JDSU and SDLI. The positive reports from the aforementioned optical equipment makers might carry SCMR to higher prices. Of course, the broader Tech sector needs to cooperate in the next few weeks if SCMR is going to move substantially higher. You can see on the chart that SCMR is very sensitive to the movements in the broader market, particularly those of the NASDAQ for obvious reasons. And what would be a discussion about a fiber optic stock without mentioning the "C" word? The proposed mega-merger between JDSU and SDLI sent a consolidation wave through the sector two weeks ago. It was reported that Corning was also bidding for SDLI. That may have left Corning searching for another acquisition. Now, even though JDSU offered a hefty premium for SDLI, Sycamore would be an awful large takeover target, making a deal unlikely. Nonetheless, M&A activity is generally bullish for investors. SCMR is expected to earn 6 cents per share when it reports in August. Jesse and Carla, I know you asked for the short-term view of SCMR, but a glance over the company's balance sheet has prompted me to delve into the fundamentals and its long-term prospects. SCMR has zero debt, over $1 bln in cash, and is expected to grow earnings by more than 50% annually over the next five years. Now that's an impressive financial position! Of course, you have to pay up for that growth, but it might be worth it five years from now. Furthermore, the proposed merger with Sirocco Systems is expected to be completed by year's end and will greatly add to SCMR's product line. Enough with the fundamentals, let's get to the chart. ---------------------------- Juniper Networks - JNPR Could you comment on CMRC, RFMD, NOK, FDRY, and JNPR? Especially JNPR because its PE is scary. Thanks. - Liwei Please review JNPR and SDLI please. - Victor Victor and Liwei, I thank you both for the excellent requests. Unfortunately, I'm constrained by the limits of time and space. So I'll take on JNPR. The company makes high-speed Internet routers that convert optical bandwidth into scaleable Internet protocol services. The word 'routers' should bring another company to mind, namely Cisco. John Chambers and Co. are a formidable force and fierce competitors. JNPR's ability to grow its market share will depend upon how well the company executes. And lately, JNPR has been executing. The company smashed estimates last week by reporting 8 cents versus an estimate of 4 cents per share. The blowout numbers were a result of a 77% sequential increase in revenues. And there are no signs of a slowdown in JNPR's sales. Revenues are expected to increase by another 26% next quarter. That's just quarter-to-quarter! That rapid rise in sales may justify the lofty P/E you mentioned Liwei. Another thing that JNPR has going its way is that the market it targets is expanding at a rapid rate, and is expected to grow to huge numbers in the next five years. So, the proverbial town may be big enough for the Cisco Kid and the Juniper Juvenile. While the long-term prospects for JNPR remain rosy, you'll have to endure plenty of volatility over the years. The stock was nearly cut in half from the peak to trough of the bear market last spring. If those type of gut-wrenching drops don't bother you, JNPR is a great way to play the build-out of the Internet. On the other hand, if you can't stand the wide swings but still want exposure to the Internet infrastructure arena you're better off owning CSCO. But for you adventurers out there, JNPR has definitely established itself in the infrastructure space and has a stellar roster of clients. A few of the Internet service providers that use JNPR's products include Cable&Wireless, Verio, and MCI WorldCom. After its 100% rise since late May and subsequent new 52-week high traced after the blowout earnings report last week, a little consolidation may be in order for JNPR in the near-term. Don't get me wrong though, the chart looks very good, and I'm by no means bearish on JNPR. But, I don't see a major catalyst carrying JNPR higher in the short-term. Of course, if the NASDAQ extends its recent rally JNPR will lead the way. ---------------------------- Boeing - BA Can you please give me your opinion and analysis on Boeing. Thank you. - Glen Jack Welch, the eternal CEO of General Electric recently stated, "There is no such thing as the new economy. Only new technology." With that said, I will refrain from using the phrases "new economy" and "old economy" when discussing Boeing. The stock seemed a likely target of the latter label. Enough with that, onto your request. It has been a turbulent ride for BA shareholders over the past three years. It all began in 1997 when BA paid $16 bln to acquire its rival McDonnell Douglas. The acquisition proved to be hard to swallow and prompted a series of restructurings. While BA was attempting to integrate McDonnell into its operations, the company was waging a price war with rival Airbus. The price wars cut BA's profits, which in turn, grounded the stock. As of late, it would appear that BA has put most of its problems behind. The streamlining efforts have resulted in massive divestitures of low-margin operations and a host of job cuts. Essentially, BA has been cutting costs with fervor in an attempt to boost its bottom-line. As you probably know Glen, BA reported its second-quarter results Wednesday morning which sailed past estimates. Although profits were lower than the previous year, it would appear the cost-cutting is working, and BA may be back on its way to the blue sky. BA's management delivered a pretty upbeat message during the company's conference call. The CEO, Philip Condit, told analysts that he was comfortable with estimates going forward and that the company was close to earning double digit margins on a consistent basis. What's more, Condit said that BA was diversifying its operations into less cyclical segments. The recent acquisition of Hughes Electronics (GMH) is a testament to his statement. The merger with GMH is expected to be completed during this quarter and will greatly add to BA's revenue stream. GMH will position BA to meet the booming demand for the satellites necessary to facilitate wireless communications. The core of BA's operations remains the manufacturing of planes. Analysts expect the demand for airlines to continue to increase over the next year. Along with the commercial airlines, BA has won recent contracts valued up to $10 bln to provide the U.S. military with aircraft. Also, the company is a front runner for a $400 bln contract which is part of a large upgrade of the military's aircraft. Overall, I'd say the outlook for BA is improving. The continued cost-cutting along with more contracts will boost profits and take the stock higher. The current valuation warrants a close look for an investor with patience and a long time horizon. ---------------------------- JDS Uniphase - JDSU - Ben By now, we all have heard about the proposed buyout of SDLI for $41 bln. Despite the selling pressure from the arbitrageurs, I think JDSU presents a compelling opportunity for the long-term investor, and possibly a little profit for the short-term trader as well. I'll begin with the latter. The current Department of Justice (DOJ) has proved to be the Trust Busters of the new millennium. I believe somewhere around 500 cases have been reviewed by the DOJ. They've been busy. The reason I bring that up is that many industry analysts believe the DOJ won't allow the merger between JDSU and SDLI. JDSU's recently completed merger with ETEK squeaked by with regulatory approval and the DOJ imposed several stipulations on the combined entity. So the first scenario is that the merger won't receive the DOJ's blessing and JDSU pops higher as the arbitrageurs cover their short positions, similar to what happened with WCOM after its proposed merger with FON was blocked. Now for the second scenario which pertains to the investors in it for the long-haul. Suppose the DOJ approves the proposed merger. That would complete JDSU's sixth acquisition of a key competitor in less than a year. Of the competition, the most notable has been ETEK, and SDLI would be even bigger. JDSU is already one of the leading manufacturers of optical equipment, and SDLI would only strengthen the company's market position. In fact, if the SDLI merger were to go through some analysts have had the audacity to mumble the "M" word. While monopolies hurt consumers they definitely help investors. Just ask Microsoft shareholders of ten years. Whether or not JDSU, or MSFT for that matter, is a monopoly is beyond my scope. But I will say this, JDSU has successfully merged with five of its key competitors in under a year, and now possibly six with SDLI. JDSU operates in one of the fastest growing segments of the economy, which by the way, shows no signs of slowing down. The company will grow its earnings at a break-neck speed over the next five years, and will probably continue to surpass analysts' estimates for the remainder of this year. In fact, in conjunction with the merger announcement, JDSU's CEO came right out and said that the company will beat profit projections when it reports next week. Also, as a little sweetener, it's only a matter of time before JDSU is added to the S&P 500. The folks at Standard & Poor's were planning on adding JDSU to their index after the completion of the ETEK merger. The proposed buyout of SDLI has delayed that, but upon completion, JDSU should be added to the index. The way I see it, it's a win/win situation with JDSU right now. If the merger goes bust, the stock pops. If the merger goes through, you own a powerhouse in the fiber optic arena. Obviously, JDSU is subject to the fluctuations in the NASDAQ which presents some risk in the near-term. ---------------------------- Northwest Airlines - NWAC Would you consider reviewing the potential mega-merger deals in the airline industry, specifically AMR's proposed buyout of NWAC? NWAC Aug 40 or Sept 40 Calls look very attractive to me, especially with the target price for NWAC in the $55-60 range. What do you think? A faithful reader. - Darrell Darrell, I'd be happy to review NWAC for you, but I have to reiterate that I cannot comment on which options to buy. Now with that out of the way, let's get to NWAC. I also have to say this Darrell, I'm constantly reminded that there is no free lunch on Wall Street. I hate using those types of cliches, but they're true. Every time I think that I've found a sure way to make money it backfires! Although a buyout of NWAC seems imminent, there are just so many risks in buying a stock in hopes of a takeover alone. Instead, I suggest that the primary reason for buying a stock should be good or improving fundamentals. The possibility of a takeover should be secondary, but a bonus nonetheless. Like I have said before, M&A activity is almost always good for a sector. And, the investment bankers have been busy in the Airline sector recently. US Airways recently agreed to be acquired by United. And, it's almost a foregone conclusion that American Airlines (AMR) will buy NWAC. But recently, it has been rumored that AMR and NWAC can't agree upon a takeover price. NWAC executives feel that the stock is worth $100 while AMR was rumored to be willing to pay $56. Of course, either price is a significant premium over NWAC's current levels, with the former an absolute landslide. So, it's obvious why a speculator would look into buying NWAC at its current levels. But, let me highlight the risks. The deteriorating outlook for the Airline sector bodes poorly for NWAC. United Airlines said Wednesday that it would fall short of Wall Street's current estimates for its third quarter and the remainder of the year. United blamed the shortfall on lower passenger levels, flight cancellations, and higher wages. Needless to say, the announcement sent the sector into a tailspin. Strike one, bad fundamentals. There is the risk that the omnipresent Justice Department wouldn't allow a merger between NWAC and AMR. It was reported earlier this week that the DOJ extended its antitrust review of the proposed merger of United and US Air. Strike two, government intervention. And finally, some believe that the combination of NWAC and AMR would create bad synergies. Let me quote an industry analyst to make it clear. Helane Becker said, "I think it will be a disaster for both companies. In order to do a successful merger, the airlines have to have reasonably good labor relations and both have horrendous labor relations." Strike three, bad karma. I know that the possibility of making 500 or 600% on some call options is tempting to say the least. But there are definitely some risks to buying NWAC at its current levels. Of course, a deal could be announced tomorrow Darrell, and you could make a ton of money. ---------------------------- DISCLAIMER: This column is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The Ask the Analyst picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable, but is not guaranteed as to its accuracy. *********** OPTIONS 101 *********** Become an Expert By David Popper When I first began to trade, I felt a bit like a person who goes through the cafeteria line for the first time - it is overwhelming. In a cafeteria, you can choose a balanced meal or find desserts, or mashed potatoes, or an all vegetable fare. You must make the choice, you pay the price. One person can enter the cafeteria every day and be healthy. Another can enter the cafeteria every day and eat so poorly that he needs medical attention. Most people would fall into the middle category and have mediocre results. So too, in the market, the freedom is overwhelming. One person can turn $10,000 into a retirement, while another can lose it all quickly. It all depends on how we choose to play the game. Often beginning traders become intoxicated with the concept of easy money. Beginning traders tend to measure their success against the very best traders and feel intimidated when they don’t measure up. Traders often trade with no visible goal in mind and no strategic framework placed to achieve any goal. To me, the most important concept in trading is to trade with your goals in mind. What are reasonable goals? For each person it is different. As for me, I have two accounts with two different goals. I have a cash account and an IRA account. In the cash account, my goal is to achieve a 5% return per month. This allows me to do "the extras," like a better vacation, painting the house, buying my daughter a car, etc. The 5% can be achieved without extraordinary risks. Because it can be achieved, and the risk is small, I can count on it today, next week, and hopefully next year. Greater risks may yield better results, but I want the consistency. In the IRA account, I can be aggressive. Time can make up for errors. Cash does not have to be produced today. I have 20 years to achieve the results. In this account, I shoot for 10% per month, knowing that some months I will fail. I find sanctuary in the thought though that $10,000 compounded at 50% per year will easily bring a retirement in 20 years. Once goals are established, then groups of stocks must be selected that will most reasonably help you to achieve that goal. For me, there is no question that techs are still the place to be. Again, I operate from the premise that the technology revolution is here to stay, and therefore, dips are buyable, and earnings are tradable. I am cognizant that they are subject to major moves, therefore, I trade very conservatively, meaning I use no margin, buy no options and keep a comfortable amount of cash to buy the dips. After a couple of years, I realized that OIN, Investors Business Daily, and other sites were constantly talking about the same 50 stocks. I chose to really learn 20 of these stocks. I review their charts, know their news, understand their sectors and learn their business. I understand how these stocks typically react to earnings and what price they generally split. I learned their trading ranges. The more I understand their subtleties, the better I trade them. I can achieve all of my goals on these stocks. Occasionally, a stock will have a problem and will be dropped from my list, but not often. They say that experts are people that know more and more about less and less. That may be true, but experts make money. By knowing more and more about fewer and fewer stocks, my focus is sharpened. By having my goals in mind and knowing my stocks, greater peace of mind is achieved and better results are obtained. Contact Support ************** TRADERS CORNER ************** Exiting Directional Trades By Austin Passamonte So we fine-tuned a trading model and covered proper entry signals in depth. Now what? Why, harvesting profits and protecting capital - the most important pieces of all! First, let me say that there’s no perfect exit plan for each situation or trader. No hard & fast rules you can follow to hit it right every time. Never letting profits turn to loss is probably rule #1. It can’t always be helped but that’s our primary goal. Preserving capital comes mainly from proper trade entry which we exhausted and then careful stop usage. Here we go. I like to enter trades with a potential profit target in mind. Of course, I’m thrilled if the market races right through my expectations on the way to more but how often does that happen for you? Probably less for me. The first goal is to secure these gains before holding out for more. Carefully moving our stops to capture gains without killing the trade is important. Let’s say we’re trading a daily chart of the OEX. Big shock for you on my choice of market, isn’t it? The OEX was trading near the 730 level end of May when the surprise rally began. Shouldn’t have been a surprise to us if we used these charts back then, but by golly we’re ready for ‘em next time! Say we bought in at 740 after clear signals converged. Four trading days later the index is over 790. That’s a 50-point run in less than one week. I don’t care which call options you purchased they are now worth hundreds percent more than you paid. I hope you bought a bunch of them. We’ve already drawn lines near the 782 level and around 790 where previous congestion is heavy. Expect prices to struggle near here, especially after the straight-up run from last week. Premium volatility soared while calls were in hot demand but soon cools as buyers shift heavily to puts betting on an inevitable correction. Time is very much our enemy on long, front-month contracts. Honestly, if I’m following a daily chart trade and watch this play run to the moon I’d simply trail it with stops until a intraday reversal kicked me out. My first move would have been to open the trade and set the protective stop. Soon as the play reached 50% profit on purchase price I’d move the stop from below entry up to entry plus 1 point. This ensures that any quick breakdown won’t result in a debit, I’ll cover purchase cost plus commissions with a tad left over. This trade went beyond that real quick. I start getting nervous when prices reach 100% profit and the index begins to falter. My trailing stop would continue moving up 2 points below current bid until the market pulled back enough to stop me out. Beautiful, we milked that cow dry enough. The only time I’d consider moving from there is to tighten further and harvest gains. Our stops must only move one way - towards the market. NEVER move stops further from the action and risk wider losses! We placed those stops there for a purpose, and markets moving against us are exactly that reason. Trailing stops on large moves is discretionary. How much time you bought and strongly you feel about the trade plays a part. I’m as greedy as you are and more; it pains me to close out at 50% profit and watch the play go to double but let’s keep things in perspective here. Taking chunks out of the middle more often than not should be our ultimate goal. Aggressive trend-followers might choose to stick with a trade until the next reversal signal begins to emerge. I think this is fair to do when trading back-month options on stocks or 30 minute charts on the indexes. Buying back-month index options to swing-trade is tough. Prices are high, volume is very thin and bid/ask spreads can move widely as bored floor-traders probe for wayward stops they can trigger to kick us out. Doubt that ever occurs? I’ve watched it happen to me many times. Distant-month stock options usually have narrow price spreads and volatility relative to the underlying is more predictable. Stock options are more likely to increase 200 - 300% than index options are due to individual price fluctuation. I still pick a stop price to protect when entering the play and move up to entry cost plus a little extra when the option increases 50% over purchase. This time I’m in no hurry to set a price target or close out to save melting premiums. Let’s ride it out until our moving stop gets hit or the next reversal signal looms. The single caveat to this (and it’s a big one) is the danger of a market’s gap-move against you. Holding out for bigger gains leaves you exposed to adverse news on your position. Hate it when that happens, but it does. Let your level of daring decide whether to sell at a target or hang on for the big one. Just remember the big one could either be forward or reverse. Picking price targets and sticking to them is less fun but I feel the best way to earn maximum returns over time. Can you get good enough to win 50% of the trades you take? I think so. Should that be the case, what if your losses were stopped out on average of 33% drawdown or less while the winners averaged a 50% profit margin. How would your balance fare over time? Let’s flip coins and see; heads I win and you pay me $33. Tails you win and I pay you $50. Hey forget that, I prefer to do it the other way around! Seriously, can you visualize the accrued gains over time? It’s infallible if your bankroll is large enough and each position small enough to ride out the inevitable string of consecutive heads that comes your way. Said easy, done hard. Picking markets to use 25 - 30% of entry cost stops will average 33% loss with commissions and the occasional gap against you added in. By the same token, if you move stops wisely to snug up 25 - 30% gains, the frequent 50% winner and occasional home run will keep your gains higher than losses overall. That’s positive cash-flow, my friend. Now work on patience & discipline for proper trade entry to hit 50% or better winning trades. The line to learning forms behind me, no butting ahead. Pulling things together, you can use trailing stops to carefully scale up potential gains while experiencing some slippage. You might opt to stay with one trade until chart signals indicate a reversal and take the other side, suffering some slippage. Or you could simply target shoot profits and close out when hit, suffering some slippage. See a common theme here? There is no possible way I’m aware of to buy the bottom and sell the top. Except perhaps for the person on the other side of a few of my plays. Pick a strategy that suits your style, personality and level of risk, but be sure to have one. By far, exiting trades successfully is tougher than most people think. Get good at it and your financial future is bright and rosy. Next week I plan on kicking around the topic of position trading. We’ll look at some long-term charts for indexes and VIX to see how trading less might earn us much, much more. Looking forward to our time together then! PS: May I ask a personal favor of you? If you have or do follow Skybox action or would be interested in a revised version to trade the OEX and possibly SPX, QQQ and other markets, please enter the Skybox site and complete the three question survey within. I would consider it a great personal favor and thank all those in advance who can do so today. Best Trading Wishes, austinp@OptionInvestor.com **********************ADVERTISEMENT************************* Free voicemail, email, fax, and paging - all in one place! Accessible over the phone & Internet. Free Local & 800 Phone Number for Life! Send & receive faxes & email via the web or phone. ThinkLink charges no monthly fees. Plus, for a limited time, sign up now and receive an airline voucher worth up to $100 dollars off any major airline. FREE NOW! FREE FOREVER! http://www.splittrader.com/tracking.asp?co=STThinkLink7172000 ************************************************************ ********************** PLAY OF THE DAY - CALL ********************** SCMR - Sycamore Networks $135.06 (-3.13 this 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. Most Recent Write-Up The fiber optic group started the week with a bang on the heels of the blowout earnings report from GLW Monday morning. SCMR launched from the $140 level early Monday and steadily rose to meet resistance at $150. However, what the market gives you one day it can take back the next just as swiftly. A questionable CPI report combined with heavy profit taking plagued SCMR all day long Tuesday. The stock battled with the bears near support at $140 and finally bounced from that level near the close of trading. The late-day rally off support may provide an entry early Wednesday morning if the bulls return to their old favorites in the fiber optic group. If the buyers show up, wait for SCMR to move past the $143 level before considering entry. A more conservative entry point might be found if SCMR can muster enough steam to clear the $145 level. Below $140, SCMR has support at $135 and again at the $130 level, near its 10-dma. If you're looking for an entry after a bounce off support, make sure to confirm sector direction. Comments Succumbing to overall market weakness today, SCMR sold off with the rest of the tech sector. Yet, the pullback of the last two days hasn't been too terrible for the stock. It traded as low as $132.19 today and bounced from that level. The 10-dma lies at $131.69 and has provided good entry points during the past couple of weeks. We will be looking for a bit of a rebound after SCMR has come off its recent high of $150 on Monday. BUY CALL AUG-130 QSM-HF OI=389 at $16.75 SL=12.75 BUY CALL AUG-135*QSM-HG OI=210 at $14.75 SL=11.50 BUY CALL AUG-140 QSM-HH OI=959 at $12.50 SL= 9.75 BUY CALL SEP-140 QSM-IH OI=337 at $16.88 SL=13.00 BUY CALL SEP-145 QSM-II OI= 98 at $14.88 SL=11.50 Picked on July 16th at $138.19 P/E = 142 Change since picked -3.13 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 ***************************************** BIG CAP COVERED CALLS & NAKED PUT SECTION ***************************************** Was it really "earnings" or "investment" income? By Ray Cummins Technology issues sustained heavy losses today as investors took profits for a second consecutive session. A number of bellwether companies reported their quarterly results and traders failed to respond positively to earnings news. Disappointment in many of the revenue forecasts caused a broad market sell-off that left little optimism for a quick recovery. The Dow Industrial Average was hammered by a major drop in Microsoft (MSFT) shares, which was slapped with downgrades following the release of its results. In the technology arena, semiconductor and Internet issues led the Nasdaq Composite lower. Advanced Micro Devices (AMD) and Rambus (RMBS) were the big losers in the chip group and Yahoo! (YHOO) was the only well-known Internet issue that finished in positive territory. Strangely enough, a new E-business software company, Support.com (SPRT) rocketed 130% in its debut, becoming the first IPO in weeks with ".com" in its name to enjoy a strong opening. In S&P 500 issues, airline companies slumped following an earnings warning from United Airlines (UAL). The majority of major drug, biotechnology and brokerage shares also moved lower in the bearish activity. Investors are likely to be conservative in the next few sessions, based on the uncertainty about earnings going forward and concern about the Fed's future economic policy. With that attitude in mind, we will continue to look for plays that offer conservative entry points into technically favorable charts, with reasonable monthly returns. Summary of Previous Picks: Covered Calls: (Margin would double the listed Monthly Return) Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return ENZ JUL 50 46.25 68.34 $3.75 6.7% ABSC JUL 55 50.75 79.50 $4.25 5.8% SDLI JUL 210 193.81 359.63 $16.19 5.8% NEWP JUL 65 60.87 100.47 $4.13 5.6% IWOV JUL 70 66.38 70.13 $3.62 5.5% ISSX JUL 80 76.81 88.00 $3.19 5.5% HGSI JUL 90 83.38 150.75 $6.62 5.5% INCY JUL 75 73.06 93.38 $1.94 5.0% INSP JUL 50 48.13 48.25 $0.12 0.5% AETH JUL 180 170.88 167.00 -$3.88 0.0% Close? AWRE AUG 50 47.00 54.13 $3.00 5.2% VRTA AUG 55 52.18 72.25 $2.82 4.4% ARTG AUG 100 95.25 110.44 $4.75 4.1% Positions Closed: Echelon (ELON) Naked Puts: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return ENZ JUL 45 42.50 68.34 $2.50 14.0% INSP JUL 48 46.50 48.25 $1.00 13.4% INCY JUL 70 68.81 93.38 $1.19 11.2% AKAM JUL 95 93.75 121.00 $1.25 8.8% TECH JUL 95 92.94 123.00 $2.06 7.9% MERQ JUL 73 71.31 105.00 $1.19 7.8% NEWP JUL 55 53.31 100.47 $1.69 7.7% IWOV JUL 45 44.53 70.13 $0.47 7.3% Adj 2-1 Split BRCM JUL 145 142.87 237.13 $2.13 7.1% AFFX JUL 140 137.12 184.38 $2.88 7.0% PDLI JUL 105 102.12 162.50 $2.88 6.9% ABSC JUL 45 43.44 79.50 $1.56 6.9% BRCD JUL 105 101.75 192.50 $3.25 6.8% PDLI JUL 125 122.37 162.50 $2.63 6.8% ISSX JUL 70 69.00 88.00 $1.00 6.7% CIEN JUL 130 128.31 152.31 $1.69 6.5% HGSI JUL 75 72.62 150.75 $2.38 6.4% TIBX JUL 80 78.94 113.44 $1.06 6.4% RBAK JUL 78 75.12 141.69 $2.38 6.4% IWOV JUL 60 58.81 70.13 $1.19 6.3% SDLI JUL 170 164.87 359.63 $5.13 6.3% AETH JUL 150 147.25 167.00 $2.75 6.2% MLNM JUL 80 77.81 111.31 $2.19 6.0% RBAK JUL 115 113.50 141.69 $1.50 5.9% IDPH JUL 95 93.87 119.50 $1.13 5.6% GLW JUL 200 195.87 269.31 $4.13 5.5% NVDA JUL 55 54.03 67.00 $0.97 5.4% Adj 2-1 Split CHKP JUL 145 142.00 224.88 $3.00 5.3% SDLI JUL 215 213.50 359.63 $1.50 5.0% ELON JUL 50 47.75 44.31 -$3.44 0.0% Close? VRTA AUG 50 48.38 72.25 $1.62 8.4% AWRE AUG 45 43.75 54.13 $1.25 8.0% TIBX AUG 90 87.63 113.44 $2.37 7.5% MACR AUG 75 73.32 110.00 $1.68 6.2% ARTG AUG 88 85.62 110.44 $1.88 5.9% MERQ AUG 85 83.32 105.00 $1.68 5.8% Naked Calls: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return AMD JUL 95 96.19 90.25 $1.19 13.9% SSTI JUL 125 126.38 86.19 $1.38 10.7% DITC JUL 110 110.94 80.38 $0.94 10.1% RFMD JUL 150 151.75 83.50 $1.75 7.8% AMCC JUL 140 142.50 149.13 -$6.63 0.0% ** SDLI JUL 350 351.63 359.63 -$8.00 0.0% ** ** Covered with stock purchase when the underlying issue moved through the sold strike. Positions Covered: Broadcom (BRCM) New Candidates: This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any strategy or technique in which you are not completely comfortable with the potential loss, the necessary adjustments and the common entry-exit strategies. *************** BULLISH PLAYS - Covered Calls & Naked Puts *************** CLRN - Clarent Corporation $82.00 *** Big Premiums! *** Clarent provides Internet protocol or IP telephony systems. IP systems permit the simultaneous transmission of voice, fax and data over the Internet and similar communications networks. The Clarent system consists of the Clarent Gateway, the Clarent Command Center and a relational database. The Clarent Gateway is an integrated hardware and software product that converts voice, fax and data into packets that are sent over Internet protocol networks. The Clarent Command Center is a centralized cient/server software package that processes network management functions, including the routing and pricing of calls, user management, gateway monitoring and billing. This system requires the installation of a third party relational database that stores operational support data for a network of Clarent gateways. China Telecom, China's leading international telecommunications service provider, and Clarent recently announced that the two companies have successfully completed the construction of their IP telephony network. This move allows China Telecom to migrate off of its previous supplier's telephony backbone network onto the Clarent-based system. Network deployment began in May and the coverage of the new system is countrywide. This news comes on the heels of a pact with Open Port Technology to help service providers deploy enhanced messaging services on Clarent's Open Network Environment products using Open Port's IP LaunchPad Fax Suite and Voicemail Suite. In the future, the companies plan to combine marketing and business development experience to offer service providers new IP fax and voice messaging services that can be quickly and seamlessly deployed over their existing network infrastructures. Analysts are bullish on the company and the most recent rating is a "buy" recommendation from Lehman Brothers with a $100 price target. We simply favor the opportunity to be paid for trying to own the issue at a very low price. Note: Earnings are due on or about July 26. CLRN - Clarent Corporation $82.00 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put AUG 45 UKG TI 0 1.50 43.50 8.5% *** Sell Put AUG 50 UKG TJ 1500 2.38 47.62 12.9% Chart = ****** GMST - Gemstar - TV Guide $68.69 *** A New Company! *** Gemstar International develops, markets and licenses proprietary technologies and systems under the VCR Plus+ name, designed to simplify and enhance consumers' interaction with electronics products that deliver video, programming information and other data. In addition, they have acquired a large portfolio of technologies and intellectual property necessary to implement interactive program guides, called the Gemstar Guide Technology, and designed and implemented the Gemstar Data Delivery System. Gemstar's primary source of revenues to date has been license fees paid by consumer electronics manufacturers and publications for the licensing of the VCR Plus+ technology and the right to print the PlusCode Numbers,as well as from the licensing of the Gemstar Guide Technology. The recent merger of TV Guide (TVGIA) and Gemstar ended months of speculation and boosted the share value of the parent company substantially. Revenues for the combined entity, Gemstar-TV Guide International, are reported to be around $1.5 billion with an estimated cash flow of $350 million, and a market cap of $32 billion. The new company has an impressive IPG portfolio with over 200 patents for the technology that enables TV viewers to interact, search and channel surf. The interactive TV arena is expected to explode over the next few years and the developments in satellite television, along with the convergence of Internet, television and telephones should create a multimillion-dollar revenue stream for the company. A number of analysts upgraded the issue after the merger news and based on the fundamental outlook, the combined company may be a great long-term portfolio holding. GMST - Gemstar - TV Guide $68.69 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call AUG 55 GST HK 7659 16.00 52.69 4.4% Sell Call AUG 60 GST HL 7484 12.63 56.06 7.1% *** Sell Put AUG 50 GST TJ 137 1.13 48.87 7.7% *** Sell Put AUG 55 GST TK 1521 2.38 52.62 14.9% Chart = ****** ITWO - I2 Technologies $131.62 *** Solid Earnings! *** i2 Technologies is a provider of intelligent eBusiness solutions that help enterprises optimize business processes both internally and among trading partners. Its solutions enable enterprises to operate more efficiently, more effectively collaborate with suppliers and customers, and conduct business transactions over the Internet. They recently launched TradeMatrix, a robust platform of business-to-business solutions, services and marketplaces, which will allow customers, partners, suppliers and service providers to do business together in real time. Its services include procurement, commerce, customer care, strategic sourcing, product development, and more. Yesterday, i2 reported the best quarter in its history, with revenues of $242 million, up 84% compared with the prior-year period. i2 reported net income of $0.10 per share, well above consensus estimates. The acquisition of Aspect Development added $11 million to the top line, but i2 would have exceeded estimates even without those revenues. The underlying reason for i2's better-than-expected earnings were operating margins that improved during the quarter and their new business model helped boost revenues. The company is starting to generate a recurring stream of subscription revenue based on the various e-marketplaces it helps create and we think there is a bullish future in store for the company. ITWO - I2 Technologies $131.62 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call AUG 115 QYJ HC 56 22.63 109.00 5.6% *** Sell Call AUG 120 QYJ HD 228 19.88 111.75 7.5% Sell Put AUG 92.5 QYJ TZ 5 1.44 91.06 5.3% Sell Put AUG 95 QYJ TS 77 1.69 93.31 6.1% *** Sell Put AUG 97.5 QYJ TU 1 2.19 95.31 7.8% Sell Put AUG 100 QYJ TT 248 2.69 97.31 9.4% Chart = ****** MERQ - Mercury Interactive $105.00 *** A New Entry Point! *** Mercury Interactive is a provider of integrated performance management solutions that enable businesses to test and monitor their Internet applications. Their software and hosted services help e-businesses improve the user experience by enhancing the performance, availability, and reliability of their Web sites. By using Mercury Interactive's solutions to identify and assess performance problems, e-businesses can increase their ability to attract and retain customers, and improve their competitive advantage. A wide range of businesses use their products, including America Online, Jobs.com, Ariba, Cisco Systems, Ford Motor Co. and Walmart. Mercury Interactive began to rally after Standard & Poor's said it would add the Internet software testing company to its closely watched S&P 500 market index. Mercury replaced Milacron (MZ), which took its place on the S&P Small-Cap 600. Then the company enjoyed another bullish move in anticipation of earnings. MERQ reported that revenues for the second quarter of 2000 were $69.6 million, an increase of 64% over the $42.5 million reported in the second quarter of 1999. Net income was $12.4 million, an increase of 85%, compared to the second quarter of last year. The most important number, earnings per share, increased to $0.14, up 75% from $0.08 for the second quarter of 1999. Based on the recent trend, our outlook for the issue is neutral to bullish and the current upward momentum should propel the share value well clear of our target cost basis. In the event of further consolidation, this company would certainly be a candidate for any long-term portfolio. MERQ - Mercury Interactive $105.00 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put AUG 80 RQB TP 15 1.13 78.87 5.2% *** Sell Put AUG 85 RQB TQ 59 2.06 82.94 8.7% Sell Put AUG 90 RQB TR 22 3.13 86.87 10.5% Chart = ****** NTAP - Network Appliance $100.44 *** Hot Networking Sector! *** Network Appliance and its subsidiaries are engaged in the design, manufacturing, marketing and support of high performance network data storage and access devices, which provide fast, reliable and cost effective services for data-intensive network environments. The company is a supplier of network attached data storage and access devices called "filers." Network Appliance's first filer product was specifically designed to improve the storage and accessibility of data stored on a network. Their products include entry-level filers targeted for workgroups and smaller application environments along with systems for larger departments; and a new enterprise class filer. The company also has an Internet caching appliance, NetCache, which achieves Internet bandwidth savings and improves performance by moving data closer to end-users. NTAP is one of the leading companies in the Networking group and fundamentally, they are near the top of the heap. Last quarter, the data access services provider reported earnings that were well ahead of market expectations. The company said net income rose 128% in the first quarter to $24 million, up from $10 million a year earlier. Sales more than doubled to $200 million and based on the positive report, a number of brokerages upgraded the issue. Merrill Lynch, Needham, Solomon Smith Barney, SunTrust and A.G. Edwards, all moved their future earnings estimates higher with bullish price targets. From our viewpoint, the sector outlook is excellent and the issue appears to have made a successful technical recovery, moving above a recent resistance area near $80-$85. The next earnings report is due the day before August options expire and it appears there is only a slim chance the stock will test our sold strike during the next month in this bullish, low risk position. NTAP - Network Appliance $100.44 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call AUG 90 ULM HR 479 15.00 85.44 5.4% *** Sell Put AUG 75 NUL TO 168 1.13 73.87 5.4% Sell Put AUG 80 NUL TP 316 1.88 78.12 8.7% *** Sell Put AUG 85 NUL TQ 197 2.94 82.06 10.8% Chart = ****** SAPE - Sapient $120.31 *** A New Range? *** Sapient is an e-services consultancy providing Internet strategy consulting and sophisticated Internet-based solutions to Global 1000 companies and startup businesses. They helps their clients define Internet strategies to improve their competitive position. Sapient designs, develops and implements solutions to execute those strategies. Their services include digital business strategy development; experience modeling; creative design; technology development and systems integration. Analysts are bullish on Sapient and today coverage was initiated on the company by Bear Stearns. This positive review is the latest of several recent analyst recommendations on Sapient. In April and May, both W.R. Hambrecht and Pacific Crest upgraded their prior recommendations to “Strong Buy.” These opinions received some additional support at the end of June, with the release of a Forrester Research study naming Sapient as the top-ranked e-services firm in a comprehensive industry study. Forrester said Sapient's skills put the firm ahead of its many competitors for delivering differentiated user experiences across the Web and traditional channels. Sapient earned the top spot based on Forrester's detailed analysis of the company, including interviews with company executives and a Sapient client, United Airlines. Sapient came out on top compared to 40 other firms, including IBM Global Services, KPMG Consulting, and Scient. SAPE - Sapient $120.31 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put AUG 85 SUJ TQ 0 1.44 83.56 5.7% *** Sell Put AUG 90 SUJ TR 332 2.25 87.75 8.7% Sell Put AUG 95 SUJ TS 20 3.13 91.87 11.7% Chart = ****** VSTR - Voicestream Wireless $145.50 *** Merger Rumors! *** VoiceStream Wireless provides personal communications services (PCS) under the VoiceStream brand name in 11 urban markets, including large cities such as Denver, Seattle, Salt Lake City and Honolulu. They hold 107 broadband PCS licenses covering approximately 62.6 million persons. VoiceStream Wireless' services include rate plans, prepaid services, wireless e-Mail, wireless data, and text messaging. German telecommunications giant Deutsche Telekom AG has made a bid for VoiceStream that values the company at over $50 billion. Sources say the offer is over $200 per share of VSTR stock and the two companies are reportedly holding serious talks about a potential deal. Deutsche Telekom plans to enter the U.S. market and is expected to draw from an investment pool of $92 billion to finance its most recent foray. The Wall Street Journal said Deutsche Telekom's offer could trigger a bidding war for VSTR with NTT DoCoMo, the wireless affiliate of Japan's Nippon Telegraph and Telephone. Regardless of who buys the company, the competition should hold the share value at or above its current price, providing a relatively conservative position. VSTR - Voicestream Wireless $145.50 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call AUG 130 BWU HF 154 20.75 124.75 4.3% Sell Call AUG 135 BWU HG 130 18.25 127.25 6.2% *** Sell Put AUG 110 UVT TB 81 1.69 108.31 5.6% *** Sell Put AUG 115 UVT TC 150 2.38 112.62 7.7% Sell Put AUG 120 UVT TD 136 3.38 116.62 9.5% Chart = ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.nextcard.com/index6.html?ref=aff0049911 ************************************************************ ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. 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