The Option Investor Newsletter Thursday 08-03-2000 Copyright 2000, All rights reserved. 1 of 2 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/080300_1.html Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 08-03-2000 High Low Volume Advance/Decline DJIA 10706.60 + 19.10 10744.30 10623.40 1.05 bln 1327/1529 NASDAQ 3759.88 +101.42 3761.07 3521.14 1.83 bln 1753/2197 S&P 100 791.14 + 8.12 793.39 776.71 totals 3080/3726 S&P 500 1452.56 + 13.86 1454.19 1425.43 45.3%/54.7% RUS 2000 499.45 - 0.77 500.22 489.24 DJ TRANS 2887.11 + 12.57 2890.10 2860.18 VIX 22.79 + 0.03 23.81 22.46 Put/Call Ratio .50 ****************************************************************** Capitulation anyone? It does not get much better than this. After a blowoff drop at the open this morning the Nasdaq rallied back from a -140 drop to post a triple digit gain of +101. The Nasdaq gave us the entry point we have been writing about for over a week at 3521, dead center in my 3500-3550 projected support range. The open was a classic. Futures down leading into a huge gap down open with the leaders touching lows not seen in several months. If you want to see the leader capitulate and then rebound to lead the rally then you have to look no farther than today. CSCO traded as low as $58.50 fifteen minutes after the open only to rebound to a high of $64.88 near the end of the day. The bounce for CSCO occurred almost exactly on its 200 DMA of $58.75. Intel also took part in the drop with a low of $60.44 at the open and a high of 65.38 near the close. Dell traded as low as $37.63 and ORCL had a low of 71.63 but closed +4.31 at $77.50. SUNW mounted an incredible $98 to almost $108 swing and was shooting up strongly at the close. As big as these swings were for the big cap leaders, they were nothing compared to the hot sectors like the networking stocks. Brocade, BRCD, dropped on the open to $162.25 only to close +28 higher at $190. SCMR hit $101.38 and closed 25% higher at $123.81. Juniper, JNPR, traded in a $20 range between $118.06 and $141.63 near the close. Semiconductor stocks were hit hard at the open with the $SOX losing almost -8% to a low of 880 but rebounded to close almost even at 950. AMCC for example traded as low as $116 but closed at the high of the day $141.12, +25 points higher. There were the required winners and sinners on the earnings front and the market took most of them in stride. The big name for the morning was Motorola. Lehman Brothers said MOT had a conference call with suppliers and told them they would only produce 80-85 million handsets compared with previous estimates of 100 million. While the 80-85 million was what analysts were basing their earnings estimates on, the bigger number was common knowledge and suppliers all traded down on the decreased outlook. Suppliers SSTI, AMD, SNDK and TQNT all dropped early but recovered well off their lows after several analysts reiterated their ratings. Also warning was The Gap Stores. GPS said they would miss 2Q earnings by 2-3 cents and the stock got killed dropping -$8 from $38 to $30. KLIC also warned of delayed shipments impacting earnings and dropped -35% from $22 to $13.56 but recovered slightly after positive comments by several brokers. The big winner after hours was Disney. The mouse network roared with earnings that beat the street significantly. Posting $.21 versus estimates of $.14 DIS traded as high as $43 in after hours up from a close of $40.75. The retail sector was mixed with apparel retailers taking it on the chin as results showed that consumers were buying less clothes but more hard goods. Blame it on the weather, the Fed or the market down turn, many did, but whatever the reason the sector was a black eye on the market. The IPO calendar rumbled forward with nine issues coming to market today. Only 5 of 9 finished higher with Screaming Media being one of the high profile issues that did poorly. SCRM dropped -1.50 to close at $10.50. If you look at an intraday chart on SCRM you can see someone, probably the firm that brought them to market, setting a solid bottom at $10.50 all afternoon. With out that bottom it could have been really ugly with the low for the day under $10. With the barely better than breakeven winners and losers for today, promoters may think twice before pricing some of the weaker issues for next week without a soaring market. The Dow, suffering from the Motorola news, traded down substantially at the open but quickly rebounded and moved up slowly the rest of the day UNTIL THE NASDAQ STARTED TO RALLY! Once the Nasdaq broke 3700 the flight out of the old economy stocks began. Fair weather investors fled the blue chips in favor of the Nasdaq once the tech rally appeared to have legs. The gold star definitely went to the Nasdaq. The gap down to 3521 was exactly what traders wanted to see. Actually they wanted to see if 3500 would hold and if money would come off the sidelines. Considering the nonfarm payrolls are Friday morning this was a gutsy move. The last several months have produced a rally on the announcement and I am sure this was part of the incentive to buy the dip as strongly as they did. I said it was a gutsy move based on the surge in Factory Orders this morning. The report showed a +5.5% jump in June which was the biggest advance in nine years since July 1991. This was led by a +42.2% increase in orders for aircraft and other transportation products. Do you think maybe there was an increase in jobs to produce those orders? The Factory Orders report was tamed by a lag in retail sales in what has been a disappointing summer for retailers. The key here of course is the view that the Fed may not raise rates again in August. If the nonfarm payrolls comes in stronger than expected, +68,000, then the market could start adding 2+2 with stronger GDP, factory orders, durable goods, the biggest increase since 1991 as well and jobs, etc and start factoring in another rate hike two weeks from now. The PPI/CPI reports start next week as well and will provide the last real solid info for Greenspan. Still this was an amazing rally today. The strong bounce off support at 3500 could, and I repeat "could", be the bottom of the July/August correction. Money is waiting on the sidelines with an eye toward a fall rally and at 3500 the risks are perceived as very light. The millionaire question that will stump all the analysts tonight is "can the market hold these gains?" Remember there is still the contingent out there that is calling for a Nasdaq 3200 before September. Somebody, of course, is always wrong and provides the wall of worry for the market bulls to climb. I personally stated that I would be a buyer at the 3500 level and I stand behind that. If this is a bear trap rally then it is one of the best I have ever seen. I like the sideways action since the 28th with the blowoff capitulation today. Call me a sucker but if we get a decent jobs number on Friday I think we may have seen the bottom. From the intraday high of 4289 on July 17th to the low of 3521 today was a -768 point drop of -18%. To those of you who took my warnings in early July, when everyone else was yelling summer rally, congratulations. But before you jump back on the bandwagon with both feet I should caution you that the Nasdaq has not broken the prior weeks resistance at 3750. Yes, it closed 9 points over but that is a technicality. A good jobs report could catapult it significantly upward and break the 3750 jinx but just be aware. Secondly, the VIX is back down at 22.79 and may give the OEX traders a headache. Just like when everything looked bleak last Sunday we said it is always "darkest before the dawn." Things look "too good to be true" for the Nasdaq at this point. Let’s just hope that saying doesn’t come to pass also. The Orlando seminar is sold out. Due to strong demand we have changed the Detroit seminar Aug-28th to a full three day advanced seminar instead of the two day that was scheduled. Good luck and sell too soon. Jim Brown Editor **************** SEMINAR SCHEDULE **************** Orange County California is the next three day Technical Analysis, Stock and Option Seminar Three days of indepth education. Don't miss it! The next seminar is a three day event in Orange County California on August 10-12th. We guarantee you will not be disappointed. The class size is small so you will get plenty of individual attention from Chris Verhaegh, Steve Rhoades and 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. Aug 10-12 Orange County 3 day NEW !!!!!!!!!!!!!! Aug 17-19 Orlando 3 day SOLD OUT Aug 24-26 Dallas 3 day Aug 28-29 Detroit 3 day *** changed to 3 day advanced *** 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******************** 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.sungrp.com/tracking.asp?campaignid=163 ***************************************************************** **************** MARKET SENTIMENT **************** A Wild Day Of Trading By Ryan Nelson Raise your hand if you thought a crash was upon us when the Nasdaq futures were down 92 before the open this morning. With the SOX.X breaking below the 200-dma and the Nasdaq breaking short-term support, it looked grim early. Surprise, the Nasdaq ends up over 101 point! How about that for a reversal. There were some stocks that had 20-40 point intraday moves with all the volatility. Scott Bleier, chief investment strategist at Prime Charter, said it best..."There was tremendous pessimism in the market early in the day. It reached a climax, producing a wave of short-covering." A wave that rippled into a 2.8% gain for the Nasdaq. The early dip gave the Treasury market a lift ahead of Friday's employment report. This new data is one of the few big reports left ahead of the next FOMC meeting. A polling of economists would currently reveal a less than 50% chance of a rate rise. The key word being "currently" as economists are known for changing on a dime. The 10-year note gained 5/32 to 103 29/32 and a yield of 5.92%. The 30-year rose 11/32 to 107 7/32 with a yield of 5.74%. There was a strong showing in the IPO department today with Resonate gaining 72%. The e-business software application firm was the standout among the eight new deals that went public today. We saw a total of 19 deals done in a heavy week. The IPO market usually begins to pick up in full effect in September. Watch out for a false rally after the employment report in the morning. Today was a perfect example of how fierce a market reversal can be. (Editor's note: Austin P. was traveling today, but will be back the helm for the weekend edition of Market Sentiment.) ************** MARKET POSTURE ************** As of Market Close - Thursday, August 3, 2000 Key Benchmarks Broad Market Last Support/Resistance Alert **************************************************************** DOW Industrials 10,706 10,400 10,950 SPX S&P 500 1,452 1,410 1,470 COMPX NASD Composite 3,759 3,400 4,000 OEX S&P 100 791 770 810 RUT Russell 2000 499 470 540 NDX NASD 100 3,623 3,250 3,900 ** MSH High Tech 984 925 1,025 BTK Biotech 652 560 700 XCI Hardware 1,469 1,360 1,550 GSO.X Software 420 385 445 SOX Semiconductor 950 880 1,060 NWX Networking 1,232 1,150 1,270 INX Internet 495 440 580 ** BIX Banking 568 525 575 XBD Brokerage 587 550 590 IUX Insurance 695 660 705 RLX Retail 843 835 910 DRG Drug 413 385 430 HCX Healthcare 851 800 855 XAL Airline 168 158 178 OIX Oil & Gas 282 264 304 The NDX and INX broke support levels this morning, but the reward/risk ratio for further damage was minimal and fueled short covering. The SOX and NWX came within a fraction of support levels and they too were snapped up on early weakness. Watch the Financials here they are very close to resistance once again. Lowering support (COMPX, NDX, INX). Lowering resistance (SPX,COMPX, NDX, MSH,XCI,CWX,SOX,NWX,INX). Raising support (SPX,OEX,MSH,CWX). ************** TRADERS CORNER ************** Buy A Call, Sell A Put or Sell A Call, Buy A Put? By Molly Evans That is the question these days isn't it? Which should I use, which way is this market going? I really don't know but at least I knew to bail on all of those puts I had this morning. Whew! Taking a solid position (either way) in this market could be hazardous to your wealth. I got out with my clothes on but the dogs were sure tugging at the hem of my dress! Geez! What a run! Ok. Enough of that, I’ll spare you and won’t harp on this tonight. I'll drop my obsessions about market psychology and direction and will try my hand at playing teacher. Here's the question put to me the other day: Is buying a call nearly the same thing as selling a put and would selling a call be pretty much the same thing as buying a put? The short answer is "no" but I would, of course, love to expand upon this. Let's pick apart the first example: When one is bullish on a stock, believing that it will appreciate sometime in the near future, he or she may wish to buy a call or sell a put. Both are ways of capitalizing on a rise in stock price. If one is bearish in sentiment towards a stock's price, he may want to either sell a call or buy a put. That's where the similarities end. Depending on prevailing market conditions at the time that one is introduced to options trading, he is likely to be familiarized first with buying a call or a put. Buying options is a fairly straightforward strategy. Bullish Sentiment: Buying Calls The call is the contract that provides you the right to purchase 100 shares of stock at a specified and fixed price by a specified date in the future. When you purchase a call, you're putting up money that says you believe that said stock will be above both a strike price that you purchased and the amount that you had to pay for the option. You retain the right to sell the option at any time from point of purchase to the date of expiration or you may choose to carry it to the specified date so that you may purchase shares of stock at the call's strike price. As a call buyer, you believe the stock's price will rise and the option will rise along with that, resulting in a profit oftentimes at a much higher percentage of gain in the call than in the stock. That's leverage. That's what we love about buying options in stocks that move. There are a couple of problems inherit with buying calls. The first is that there is usually a sizable bid/ask spread. One is immediately in the red when the purchase of the call is made at the ask or at least over the next highest bidder. You need to be fairly accurate as to the entry point to not go deeper in the hole when you buy a call. You are not making any money until that stock price rises and the bid is upped. The other nasty about being a buyer of options is that they are wasting assets. A call's price is basically determined by the amount that it is "in the money" the amount of underlying volatility in the stock, and the amount of time that is left until expiration (ex - a $50 strike price call when the stock price is $65 is $15 ITM so the call would cost $15.00 plus time value and an amount for volatility pricing if any). If the stock does not move or moves down, the call's value declines incrementally with the stock and does so more quickly as the time to the expiration date approaches. The call holder has a couple of choices: hold onto the call in the hopes that the stock will rise before expiration or sell the call now and take the limited losses as opposed to forfeiting the entire amount that was paid when the time of expiration arrives if the stock has not moved to the strike. So, buying calls is easy. You pay your money; you want the price to go up; the option's value goes up too and you either sell the call to take the profits or you have the right to acquire the stock at the strike price you specified by purchasing. The risk to capital is limited to the amount that was paid for the call(s). Bullish Sentiment: Selling Puts Another way one can capitalize on stock price appreciation is by selling puts. To understand why it's so attractive to sell puts when bullish you have to keep in mind those aspects that are unattractive about buying calls. Again, the spread on the bid and the ask comes to mind. When you're a seller, you're the one doing the asking. You don't have to agonize whether that's a fair price to pay for rights to a stock. You're the seller, ask what you want. Consider also that when you buy calls, your outlay of cash is heavy, and that's why we play options, to use less capital to control more shares = leverage. However, when you sell puts, the buyer pays YOU, your account, for time and his right to sell you 100 shares of stock at the strike you're selling by the expiration date. Just as your time value of calls bought decays with each passing day, so too does the time value of the puts you sold. That is to your advantage. If the stock isn't dropping, those put values are. You sold them and you can buy them back cheaper to close out the position if and when the stock price goes up or the time value is lost. The risk to putting on this bullish play is that you could wind up having to buy stock at the specified price if you are exercised. Don't sell puts on stock you wouldn't mind owning. The other negative to this method is that your broker requires the highest level of trading privileges (I even have to call my online broker to do it)and the broker requires a lot of margin to back this up should you be "put" the shares. Margin requirements vary from broker to broker but if you're wrong about the move of the stock, you could very well receive a not-so-friendly note from Mr. Margin Call and/or end up having to buy shares of stock at a price higher than market value. This is a great play and one that many of the more experienced options traders utilize. To be a seller of time and volatility...you can't beat it! Depending how aggressive you want to be determines how you pick the strike price to sell. Jim has talked in the past about selling deep ITM puts. I'd be selling OTM puts below support. Jim has much deeper pockets than does Molly obviously. That's a whole nother kettle of fish though and we can talk about that sometime if there is an interest . . . in ITM and OTM puts that is, not how deep Jim’s pockets or mine are. Moving right along... Bearish Sentiment: Selling Calls As stated previously, option sellers grant rights to the buyer to claim 100 shares of a specified stock, at a fixed price per share by a specified date. In return, the seller is paid a premium but has the obligation to furnish those shares if the buyer wishes to exercise his right. If the market value of the underlying stock rises, the call option rises too. The buyer likes this but the seller realizes that he’s potentially going to have to deliver those shares. An option will be exercised if the stock’s current market value is higher than the striking price. If the seller has the shares at hand, he is simply called out and is paid the strike price for his shares. This is the "covered call." The shares were already covered or already owned. Again, the advantages to doing this for the seller is that time decay is working for him. He would like to see those calls expire worthless, thus keep his stock and do it all over again for the next month. He just keeps raking in some money and lowering the cost basis for his own shares until he is eventually, but maybe not, called out of his shares. The seller always has the right to cancel his position at any time up to the expiration moment by buying back the calls sold. He hopes to have sold them at a crest and then is able to close out that position for a reduced outlay and pocket the difference. This scenario isn’t really considered "bearish" as the seller is simply taking the chance of being called to tack on higher percentage gains overall of stock ownership. When a seller is feeling particularly bearish and brave, he may sell naked calls. That is, he doesn’t own the underlying stock. This is considered the riskiest of options strategies as the potential loss is unlimited. Stocks have been known to take fantastic leaps in a short time frame and if the seller is "short" an uncovered call position, it could be very costly for him to have to go in and buy those shares or calls at market price to stop the bleeding of that trade. From a broker’s standpoint, the selling of calls matters a great deal in terms of whether or not there are already shares present in the account. Covered call selling is considered the safest and therefore it is very easy to obtain those privileges. You can do that in an IRA and in minor’s accounts. Uncovered call writing is the riskiest in the eyes of a broker and the privilege is reserved for those who have a nice pad of capital and the experience to understand and deal with the risk. Bearish Sentiment: Buying Puts Buying puts is the opposite of buying calls. One would have enough foreboding about the future of a particular stock to buy puts just as he would have to be bullish enough to buy calls. The same principles apply as to call buying: there would have to be enough downside in the stock to overcome the spread of the bid and the ask to be profitable and once again, time is working against the buyer. Puts may be traded just like calls but their real purpose is to grant the buyer the right to "put" his shares of long stock at the specified price to the seller should the stock price take a dive by the expiration date of the option. Let’s say I own 100 shares of INKT at $150 and I had then let it run up to $160 and bought myself a protective $150 put for $12.00. Now INKT is down around $100 and I’m thinking I don’t like that any more. I can exercise my put (which raised my cost basis on INKT to $162) and get back $150/share now. I’m out only $1200 on 100 shares instead of the $5000 I would be if I were to dump INKT at market now. Puts, like calls in a bullish market, are great in a bearish market. Stock prices typically go down much faster than they go up. However, one must be quick to take the profit because the market is usually looking for an excuse to rally. There is a lot of money on those sidelines and buyers have been waiting for a moment to seize an opportunity. I had put positions but could feel the energy in that comeback this morning and my puts were leaving ITM status rather quickly. Volatility was the only thing to hold the premium prices up for me to get out even to slight profitability. Having been burned on the bull side in the spring, I realized that if any kind of a rally got underway here, I’d repeat all those same mistakes from the spring just from the opposite side. Nuh uh. No more. This is a trader’s market and it’s a very fast game. Puts, calls, they all work but once again, the man behind the screen (yourself) is the one who determines the outcome of the play. Trade smart and take your profits soon. This isn’t a market of five baggers no matter how you’re playing it. At least it’s not yet. email@example.com ************************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 ************************************************************** ************* SECTOR TRADER ************* Mother of All Headfakes or Bullish Reversal? By Buzz Lynn sectortrader@OptionInvestor.com You'll find both opinions on our staff as most of us sit on the fence waiting to jump in one direction or the other following tomorrow's job news. 25% of us are of the belief that this may be a short-term reversal and that tomorrow numbers will support a rally back over 3750. 50% are tentative/iffy/undecided - name your favorite instinct. The remaining 25% say we've hit resistance again at 3750 and to expect a rollover. That same 25% also think that if there is a rally, it will be short-lived since investors will forget any euphoria in front of the PPI numbers next week, not to mention the end of earnings season and the FOMC meeting, which will also keep a lid on unbridled optimism. So, how are we going to play it? By sitting on the fence and waiting for direction. Personally, I'm in the latter 25% camp, which explains why we left the put plays in place tonight and have added no new call positions. That does not mean to enter market orders for puts at tomorrow's open. Don't do that!! What it does mean is to wait patiently for an entry to the downside if the market begins to turn over from roughly 3750 after amateur hour tomorrow morning. If this were at the middle of the trading day, it would look like the starting line of a car race with 30 seconds to go before the green flag. You have to see the flag waving before you step on the gas, but you're pretty sure it's coming unless something postpones the start. That would be good for the drug sector if NASDAQ does turn down. With that in mind, still watch PPH - it was flat yesterday and today and showed a doji on the candlestick chart - indecisive investors right now. HHH on the other hand could easily turn into a call play on a move over $106. But that's only going to happen if the market moves up on well-received jobs numbers, and would likely be a short-term swing play until sometime next week. Don't jump the gun unless you are a gun-slinging, market-timing expert. Otherwise watch the 3750 level, trading volume, and the direction of the market leaders comprising your targeted HOLDR. Our job as traders first and foremost is to preserve capital. The VIX is historically under average and still needs to move up closer to 30 to signal a market bottom. Don't buy too soon! ************* Results ************* Index Last Mon Tue Wed Thu Fri Week QQQ NASDAQ-100 90.81 2.63 -1.38 -1.50 4.13 0.00 3.88 HHH Internet 104.88 2.13 -1.31 -0.50 3.38 0.00 3.69 BBH Biotech. 182.00 0.19 8.38 2.13 3.00 0.00 13.69 PPH Pharm. 102.50 -1.25 3.75 0.75 0.38 0.00 3.63 TTH Telecom. 68.75 0.75 0.50 0.06 0.19 0.00 1.50 IAH I-net Arch. 92.25 2.56 -1.69 -1.88 3.44 0.00 2.44 IIH I-net Infr. 51.50 1.19 -2.44 -0.31 2.81 0.00 1.25 BHH B2B 44.94 2.13 -1.50 1.50 2.06 0.00 4.19 BDH Broadband 87.38 1.88 -1.25 -0.19 1.19 0.00 1.63 SMH Semicon. 80.88 2.69 -2.81 -0.81 -0.13 0.00 -1.06 RKH Reg. Banks 100.88 -0.06 1.00 0.56 4.13 0.00 5.63 UTH Utilities 97.50 -1.50 2.38 2.13 1.19 0.00 4.19 ************** Updates ************** QQQ - NASDAQ 100 $90.81 +4.13(+3.88 this week) Finally, a decent show of strength in the NASDAQ recovery, yet it remains firmly planted at resistance of 3750. That extra 10 points gained in the final two minutes before the close came on weak volume for that time period, and was probably borne of "not gonna miss that train" euphoria. We don't put much weight in it. The fact is that resistance is still at $90-$91 on a historical basis, while the 50 and 200-dma ($92.89 and $90.60, respectively) have yet to be penetrated. That will likely be tough to get through. Yet, it's anyone's guess what might have happened with another hour left to trade. That said, only tomorrow will tell. If QQQ (read that NASDAQ-100) takes off tomorrow after amateur hour - great - don't enter a put play. If it starts to roll over or otherwise show signs of weakness, that would be a clue to buy those puts, or sell the short call on any combination positions you may have been trying to enter. Resistance is $90-$91 with a bunch of congestion at $94-$95; support is $87, then $85. Now for the plays. Long Straddle: As long as volatility doesn't budge, watching these straddle/strangle plays can turn an otherwise energetic afternoon into a snooze-fest. This is a play in which you can go to the beach and forget about having a drastic move up or down kill your position. In fact, a drastic move is exactly what we want to make this play profitable since any increase in implied volatility will inflate the time value component of the premiums we bought. Remember though, we must be expecting a big move in QQQ over the next 30 days. Second, we must be buying cheap (relative to historic volatility) time premium in our options. Third, we must still have some time value left to sell back to the market if we are wrong in our assessment of condition #1. Thus we pick options with strikes 90-120 days out. We list only one straddle tonight since it is almost exactly at the money. However, if you want and you have a directional bias of your own, you can pick a straddle (same strike price on put and call) a few dollars out of the money in either direction since the total value of the put and call will be roughly the same. Remember, this play is all about buying cheap time for a good entry and selling expensive time as an exit. Resistance is $90-$91 with a bunch of congestion at $94-$95; support is $87, then $85. Straddle: BUY CALL DEC- 90 QVQ-LL OI=1875 at $12.25 BUY PUT DEC- 90 QVQ-XL OI=2419 at $ 9.50 Net Debit = $21.75 or less Strangle: BUY CALL DEC- 94 QVQ-LP OI=1778 at $10.13 BUY PUT DEC- 86 YQQ-XH OI=1411 at $ 7.50 Net Debit = $17.63 or less Calendar Spread: This is real similar to a covered call, except you don't want to get called out of the underlying position here as you might with a covered call. The reason is that you have likely spent a small fortune in time value to buy the underlying long-term option. You don't want to exercise it to cover your short position because then you lose all that time value. Your objective should be to sell short-term time premiums (ATM, ITM) month after month to have it buy down the cost of the long-term position. The idea is to end up with a free underlying option. For those of you taking our suggestion to "leg in" to the position, we had a great opportunity to buy the long-term underlying leg near yesterday's close, and especially this morning when QQQ tanked to $83.31. Here's the math. The DEC-86C would have cost $10.25 this morning on leg one. Leg two - selling an AUG-90 near today's close would have credited $4 to your account against the long position for a net debit of $6.25. Ideally the $90 August call expires worthless in two weeks. You then sell the September strike for a similar amount on a price spike, and so on for each successive month. The only catch is that sometime you may be forced to repurchase the short if the QQQ exceeds the strike price near or at expiration. That's OK though because while it may seem like you are losing money by paying more to buy back something that you sold "cheap", remember the underlying value has been growing in value slightly more than the sold position. You are still net money ahead on a net basis. Legging in works well if you wait for the buying opportunity at support, and selling opportunity at resistance. BUY CALL DEC- 86 YQQ-LH OI= 1422 at $14.25 SELL CALL AUG- 90 QVQ-HR OI= 6243 at $ 4.25, ND = 10.00 or less SELL CALL AUG- 92 QVQ-HR OI= 2427 at $ 3.25, ND = 11.00 or less Long Puts Until we see that the recovery is for real, we remain on the put side. $90-$91 remains resistance, which would make current levels an excellent buying opportunity on a rollover after amateur hour. Just make sure you see the rollover first. Don't enter if NASDAQ moves through $92. On the other hand, with the 50-dma at 92.90, any significant bounce down from there might still make a good put entry. But unless you understand the chart, volume and trade pattern, better stand aside at $92. At Resistance: BUY PUT AUG-92 QVQ-TN OI= 3744 at $4.38 SL=2.75 BUY PUT AUG-90 QVQ-TL OI=10419 at $3.38 SL=1.75 BUY PUT AUG-86 YQQ-TH OI= 9490 at $1.81 SL=1.00 Average Daily Volume = 22.01 mln ----- IAH - Internet Architecture $92.25 +3.44 (+2.44 this week) Technically, the recovery today in IAH was stellar. IAH opened under $87 and traded as low as $85.88 before it staged its recovery. We have yet to get a good entry on the put side unless you took a chance and bought at yesterday's close, then sold in this morning's open - profitable yes, but not recommended if you are just learning these strategies. So why keep it? The NASDAQ is at resistance; so to is IAH at historical resistance of $92.50. If it moves over $93, probably ought to pass. If it breaks down from $93 and moves under $92, feel free to jump on the put side. A move under $90 would be really solid as that would again violate the 50-dma. BUY PUT AUG-95 IAZ-TS OI= 30 at $3.63 SL=2.00 BUY PUT AUG-90 IAZ-TR OI= 88 at $1.63 SL=0.75 BUY PUT SEP-85 IAH-UQ OI=300 at $2.44 SL=1.25 Average Daily Volume = 45 K ----- IIH - Internet Infrastructure $51.50 +2.81 (+1.25 this week) Same story here as IAH. No good entry unless you were fast on the draw last night and this morning to accidentally swerve into this morning's selloff. Still, with NASDAQ running into resistance at 3750 and IIH doing the same at $51.50, this is not the time to go long on calls. In fact, if the market rolls over, it will be a put buying opportunity. We just don't see a reason to be euphoric if the job figures aren't well accepted. Nor do we see a reason to get that way in front of the PPI next week and the FOMC meeting two weeks later. Wait for the rollover to enter or for any bounce down from $53. Despite the technical bounce and today's good-looking candlestick, IIH still needs to break back over its 50-dma at $56.97 (a long way off) to clear any congestion. Watch for market pain, then pounce. Otherwise find another play. BUY PUT AUG-55 IIH-TK OI= 56 at $5.38 SL=3.25 BUY PUT AUG-50 IIH-TJ OI=111 at $2.38 SL=1.25 BUY PUT SEP-55 IIH-UK OI=185 at $7.13 SL=5.00 Average Daily Volume = 207 K ----- BDH - Broadband $87.38 +1.19 (+1.63 this week) LU, a major component of BDH hit a new low today on 150% of the ADV, however was counterbalanced by huge gains in the optical and chip sectors with JDSU, GLW, SDLI, BRCM, SCMR, and AMCC leading the charge. NT excluded. BDH gapped down big-time this morning to $82.50 where it found equally big-time support. The only reason we don't drop it tonight is that it ran right up to historical resistance of $88, with its 50-dma of $88.88 ready to block that run should the market and sector fail. That's another way of saying BDH is again at resistance and has a good chance of rolling over. Wait for the market to do so first or consider a move under $86 as a put buying opportunity. BUY PUT AUG-90 BDH-TR OI=31 at $5.00 SL=3.00 BUY PUT AUG-85 BDH-TQ OI=71 at $2.56 SL=1.25 BUY PUT SEP-90 BDH-UR OI= 3 at $7.38 SL=5.25 Average Daily Volume = 130 K ************** No Play ************** BBH HHH PPH BHH TTH SMH RKH UTH ************* DAILY RESULTS ************* Index Last Mon Tue Wed Thu Week Dow 10706.58 10.81 84.97 80.58 19.05 195.41 Nasdaq 3759.88 103.99 -81.47 -27.06 101.42 96.88 $OEX 791.14 6.46 1.37 -0.99 8.12 14.96 $SPX 1452.56 10.95 7.27 0.60 13.86 32.68 $RUT 499.45 10.42 -2.87 2.45 -0.77 9.23 $TRAN 2887.11 88.56 17.35 -0.90 12.57 117.58 $VIX 22.79 -0.86 -0.57 -0.11 0.03 -1.51 Calls ABSC 99.44 4.94 5.25 6.56 7.13 23.88 New IDPH 135.88 6.81 5.94 5.69 1.44 19.88 New LEH 119.25 3.88 0.75 5.75 0.75 11.13 Upgrade MER 130.81 7.25 -3.63 1.38 3.81 8.81 New GENZ 73.13 4.31 0.31 1.38 2.00 8.00 Confirmed HWP 112.00 1.94 -1.38 4.63 -0.50 4.69 Entry AMGN 70.19 -1.44 4.06 1.31 -0.13 3.81 Snuffed FRX 113.19 -3.25 5.19 0.88 0.13 2.94 Intact AFL 55.31 -1.50 2.88 -0.38 0.88 1.88 New PVN 105.06 -1.69 1.88 -2.19 3.44 1.44 Opportunity IVX 49.75 0.81 2.69 -1.75 -0.50 1.25 Resting COF 56.38 1.78 -1.03 -2.00 0.81 -0.44 $54 support Puts AFFX 132.38 -7.97 -1.59 2.25 -4.81 -12.13 Sliding AMD 65.50 1.50 -5.13 -5.63 2.75 -6.50 Bounced CMOS 39.00 0.75 -1.50 7.50 -9.75 -3.00 Dropped EMLX 47.56 0.63 -2.00 0.00 -0.44 -1.81 Dropped MRVC 57.25 -0.63 -5.75 1.25 3.88 -1.25 Amateur Hr. GTW 55.63 0.06 -1.00 -1.69 3.13 0.50 Got relief TERN 55.81 -2.88 0.19 2.13 2.50 1.94 At resist. CMRC 46.03 -0.81 -1.38 2.94 2.41 3.16 Dropped ELON 36.31 4.50 -1.13 0.44 -0.13 3.69 Dropped ARBA 123.06 8.31 -2.94 1.81 8.25 15.44 Dropped VRTS 109.06 14.25 -1.94 0.56 8.50 21.38 Dropped PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** No dropped calls today. PUTS: ***** CMOS $39.00 -9.75 (-3.00) It has been a wild two days for our CMOS play. The folks at Standard & Poor's announced late Tuesday evening that CMOS would replace COMSAT in their S&P MidCap 400 Index. The news spurred traders to accumulate CMOS with passion Wednesday, which drove the stock to nearly $50. But, the table turned quickly on CMOS Thursday morning after fellow chip equipment maker KLIC warned of slower growth. The cautionary comments sent a cataclysm through the capital equipment issues, which prompted a 20% sell-off in CMOS. In light of the wild trading, we feel good about exiting our CMOS play at current levels. ARBA $123.06 +8.25 (+15.44) A B2B bounce. Since finding bottom above the psychological $100 level on Monday, Ariba has held its ground and is clawing its way back up. On Wednesday, ARBA made an attempt to break heavy resistance at the key support level of $120. Getting there in the early hours of trading, the stock spent the rest of the day drifting down as volume eased off. Despite this lack of conviction, ARBA managed to finish up $1.81, or 1.60%, on 75% of the ADV. While it may not have seemed like a major move price-wise, it was important technically, as ARBA closed above its 5-dma (now at $115) for the first time in a little over a week when this downtrend first began. With a strong NASDAQ today, buyers were more interested, sending the stock up 7.19% on about 113% of ADV. This large move up allowed ARBA to break not only its 10-dma in the $117 area of resistance, but also the formidable resistance level of $120. The stock was helped by news today of Ventro's joint venture with American Express. The new joint venture MarketMile will license e-commerce technology from ARBA. With a close above key support level of $120, volume increasing to the upside, and good news driving the stock higher, we're heeding the change in sentiment and moving on. VRTS $109.06 +8.50 (+21.38) Where the NASDAQ leads, Veritas follows. The chart for VRTS has mirrored the tech index move for move this past week. Wednesday saw the stock rally in the early morning. Finding tough resistance at a key level of $105 during the middle of the day, VRTS rolled over in the final hours of trading to close up only fractionally on average volume. That put VRTS right in between support at the 5-dma (now $99.75) and resistance at the 10-dma ($103.20). Today after an early morning gap down, buyers stepped in, bidding the stock back up to $105 resistance by mid-day. After a brief pause there, VRTS charged through to the close on accelerating volume to finish up 8.45%. Today's large move up, despite the average volume, signaled an end to the current downtrend. Closing above the 10-dma for the first time in over 2 weeks, VRTS also put itself back in the good graces of its 200-dma at $103. With strong support now at the $105, $103 and $100 levels, improving sentiment in technology issues and the clear break in its downtrend, we are closing this play. ELON $36.31 -0.13 (+3.68) ELON might not be in the upper "echelon" of stocks right now, but support has proven to be strong for the stock near $32. Though the stock has had problems closing above its 10-dma at $36.20, it did so today, after bouncing again off its support. Yes, we do know the stock closed down today on a strong tech rally, but its not as much as the end result but how it got there. ELON shares opened near the low of the day and then proceeded to rise throughout the rest of the day to close near its high of the day. There just doesn't seem to be enough reward here and we will say goodbye to find better stocks to play. CMRC $46.00 +2.38 (+3.12) We mentioned in our last write-up that this stock had hit a key support point and to be aware. Unfortunately for this play, CMRC did bounce off $40 and has risen the last two days. Since this support looks like it is likely to hold, we are dropping this stock as a put play. Giving the stock a boost today, Deutsche Banc Alex Brown rated CMRC as a Buy today. At any rate, we will exit this play, which provided plenty of opportunity, on a winning note. EMLX $47.56 -0.44 (-1.81) After giving us one last entry point yesterday afternoon, EMLX broke out of its tight range this morning. The stock gapped down hard along with just about everything technology related, hitting a low of $43.06. The bulls finally chased away the bears and took control for the remainder of the day, as EMLX gradually recovered, making up nearly all of its losses by the regular close, ending at $47.56. The company announced earnings tonight after the close, and it appears the results were well received. EMLX is looking like one of the few companies that bucks the trend and actually moves up after announcing earnings; this is likely due to the negative sentiment surrounding the stock prior to the announcement, and the good news easily floated the stock higher with assistance from the recovering sentiment on the NASDAQ. Given the uptrend today, hopefully stop losses cut the position, as earnings approached. In the after-hours session, the stock was trading as high as $55, which is above both the 5-dma ($48.56) and the 10-dma ($52.31), making it clear that it is time to move on to other plays. ********************************Advertisement******************** American Express. Cardmembers are buying online Find out more! http://www.sungrp.com/tracking.asp?campaignid=174 ***************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. 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The Option Investor Newsletter Thursday 08-03-2000 Copyright 2000, All rights reserved. 2 of 2 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/080300_2.html ************************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 ************************************************************** ******************** PLAY UPDATES - CALLS ******************** HWP $112.13 -0.38 (+4.88) HWP led the bounce back in the blue chips Wednesday. The company announced that it had formed a joint venture with AT&T to provide applications for Web systems management. The agreement calls for T and HWP to introduce simpler electronic business solutions to larger companies. The news caused HWP to bolt out of the gates and clear resistance at its 10-dma, at $112. However, the Tech bears showed up early Thursday morning to wreak havoc on our play. The stock gapped down by over $3, which turned out to be a great entry. HWP battled back as the day wore on to close back above resistance at $112. The reversal in the Tech sector Thursday bodes well for our play as we approach earnings. An aggressive trader might look for a quick bounce off the current levels if the Tech sector extends its rally Friday morning. A move above resistance at $115 might provide a more conservative entry, with a breakout above $116 also worth considering. AMGN $70.19 -0.13 (+3.81) AMGN led the rebound in the Biotech sector Wednesday with a strong rally above resistance at $70. We would have liked to seen a little more volume to confirm the rally, but we'll take the gain nonetheless. The stock marched higher Thursday morning in an attempt to close over its 10-dma at $70.48, but failed to eclipse that level after a light round of profit taking snuffed momentum. Although AMGN slipped modestly lower, the Amex Biotech Index ($BTK) posted gains for the third consecutive session Thursday, reflecting investors' renewed enthusiasm for the group. Thursday's brief pause might provide a good entry as AMGN managed to hold above support at $70. The stock still faces resistance just above its current levels at $72. An aggressive trader might look for a quick bounce off $70 if AMGN resumes its climb Friday morning. While a more conservative trader might wait for a breakout above $72 with healthy volume. IVX $49.75 -0.50 (+1.25) After its break to a new all-time high on Tuesday, the stock needed a rest. Wednesday saw profit takers come in, as IVX encountered resistance at $53 in the early morning. The stock spent the rest of the day moving lower, but still closing above the 5-dma near the $50 level. IVX closed down $1.75, or 3.37%, on slightly higher-than-average volume. Today, the stock opened late (at about 10:20 AM EST) due to trading imbalances. When it did open on a gap down below its 10-dma (currently at $48.80), investors were tentative, letting the stock drift in a narrow range. By the end of the day, market sentiment had improved and buyers rushed in, sending the stock back above its 10-dma. IVX closed down 1% on about 137% of ADV. Today's move below the 10-dma may be a caution signal, but looking back in the past 2 months of trading, is still consistent with its uptrend. Support for the stock can be found at $48.80, $48 and $47 with resistance at $50, $50.75 and $51.25. Traders looking for a conservative entry point will look for a move above $50 with conviction before entering. Aggressive traders may want to buy bounces above the 10-dma. FRX $113.31 +0.13 (+6.31) FRX continues to hold up despite a bit of a bungee jump earlier in the week. Setting a low of $105.75 early in the week, the stock managed a nice recovery yesterday and today, closing above the 5- and 10-dmas of $111.14 and $110.51. Still, its sights are set on last Thursday's intraday high of $114.50, as FRX broke through both resistance levels to today's high of $113.75. Opening the day at $111.50, the stock was off to the races, dipping to the intraday low of $110.43 and whipping back to the day high of $113.75, all within the first 90 minutes of trading! It then took a long lunch, hitting the low again midday, and failing to break through resistance of $112 again until after 2:00. Shortly after 3:00, however, FRX found its feet and rallied to close near the high of the day. With this strong close, FRX continues to show bullish signs. Look for entry on bounces off of the 5-dma of $111.14. With the market in an uncertain environment until interest rate fears are calmed, make sure the buyers are present to continue this uptrend with strong volume. GENZ $73.13 +2.00 (+8.00) Confirmation! After breaking through and closing above $70 on Wednesday, GENZ confirmed the move by rising on Thursday. GENZ's two dollar move on Thursday took the stock to a new all-time high. The stock also gave us a great entry point by bouncing nicely off the 10-dma at $69.36. Volume wasn't very strong on today's move, a possible sign of caution, but closing at your day's high is a bullish sign. GENZ shares have also been a beneficiary of subsidiary Genzyme Molecular Oncology's (GZMO) three licensing agreements to provide non- exclusive access to its cancer diagnostic patent rights. If we get some profit taking, look for $70 to provide some support, with a subsequent bounce a possible entry point. PVN $105.06 +3.44 (+1.44) PVN has been in a short-term range between $100 and $107 for over a week and has offered some great trading opportunities. After Wednesday's mild drop where the stock found support at $102, it popped up over $3 on Thursday with increasing volume into the close. Today's gain also moved PVN back above the 10-dma at $102.27. The $106 level provided intraday resistance today as the stock tried twice to break through. When looking for entry into this call play, watch for bounces off support at $104. If that fails to provide a bounce, look to support at the 10-dma near $102 for an entry bounce. More conservative traders may want to wait for a high volume break through the $106 level to jump onboard. Watch to see how the stock reacts to tomorrow's Employment Report. LEH $119.25 +0.75 (+11.13) LEH shares gapped open to the upside on Wednesday following news they were teaming with three other brokers to build an electronic trading platform for all-types of mortgage and asset-backed securities. Yet, the primary reason that LEH caught buyers' eyes was an upgrade from Bear Stearns from an Accumulate to a Buy. The stock soared $5.75 on better-than-average volume, bringing it back above its 10-dma near $115. Today's trading was a bit more subdued as investors digested yesterday's impressive gains. If the stock retreats back to intraday support at $117, look for a bounce on stronger volume for an aggressive entry. If you are more conservative, wait for the stock to move through July 25th's high of $121.75 before entering. Confirm a positive Financial sector prior to putting on a position. COF $56.38 +0.81 (-0.44) Managing to keep itself in play, COF bounced both yesterday and today right above the $54 support level, before heading higher into today’s close. The negative tone in the markets this morning quickly gave way to enthusiasm and COF recovered to close more than $2 off its lows. Strength in Financial stocks contributed to the recovery, and a benign Employment report tomorrow morning may be just the catalyst for further gains and a breakout to new highs. Volume is still clocking in above the ADV, with today’s volatile session seeing over 1.5 million shares trading hands. Although closing fractionally below the 10-dma yesterday, today’s recovery kept COF’s string of higher lows intact and maintains the 10-dma (currently $55.88) alive as a good point to initiate new positions. Resistance is sitting above at $59.25, the high from Monday’s session. Consider new entries on a bounce from either the $54 support level or the 10-dma, but make sure that volume continues to be strong. ******************* PLAY UPDATES - PUTS ******************* GTW $55.63 +3.13 (+0.50) The PC makers fell under heavy scrutiny again Wednesday after DELL received its second downgrade this week. USB Piper Jaffray downgraded the behemoth box maker to a Buy rating, citing long-term revenue growth concerns. The DELL syndrome quickly spread throughout the sector, which carried GTW below support at $53. However, Prudential stepped in to stabilize GTW by reiterating its Strong Buy rating and setting a $92 price target. After gapping modestly lower Thursday morning, GTW rolled along the $52 level, then surged nearly $4 higher near the close of trading before running into resistance at $56. The late-day rally might give reason to pause before initiating new plays if the buying persists Friday morning. However, an aggressive trader might consider entering the play if GTW rolls over at the $56 level. A more conservative entry might be found if the sellers return in strength and GTW falls below support at $55 or lower at $54.50. Make sure to confirm weakness in the PC sector before entering the play. AMD $64.50 +2.00 (-6.50) AMD slipped further into the void Wednesday as the Semi sector continued its woeful ways. The analysts were busy coming to the defense of AMD Thursday morning. Chase H&Q reiterated its Strong Buy rating and set a $150 price target, and Josephthal & Co reiterated its Buy rating. Yet, despite the attempts from the analysts, AMD gapped down by over $4 after several warnings were issued within the sector. Once the broader Chip sector stabilized Thursday morning, AMD was able to recoup some of its losses from Wednesday. Also, the company said Thursday that its Duron chip won't be available to PC makers until late September or October. The late delivery of chips will cause AMD to miss the back-to-school rush of computer purchases, which also might weigh on the stock if the bulls lose power in the Chip sector. If the Semis fall under the bears control again consider entering the play if AMD falls below support at $64. A more conservative entry might be found if a sell-off accelerates and AMD falls below $62. AFFX $132.33 -4.81 (-12.17) For those who kept their eye on AFFX throughout the week, it has proven to offer a number of great entry points. Although the stock appeared to be on an uptrend earlier in the week on positive news concerning their first launch of a Genechip that can be used in agricultural research, it has failed to hold up, continuing last week's downward slide following a bad earnings report. Closing today at $132.33, it's lowest point in months, AFFX is still well below all technical support levels. The stock opened Monday at $145, which was already below Monday's 5-dma of $150.43. It has traded in a range between $129 and $147 during the week, but has settled in between $130 and $140 since Tuesday. Hopefully, some were able to capitalize on the spikes above $140 throughout the week as an entry point to the play. Today's high was $137.75, just above the 5-dma currently sitting at $137.11. After a spike down to $129, AFFX settled in and flat-lined near $132. This flat-line action normally would raise our concerns, yet given the market rally today, we are encouraged that AFFX ended in the red. Continue to look for entry points on rollovers near resistance at $135 and $137. A conservative trader would want to wait until the stock moved convincingly through the $130 level on strong volume. As always, with a stock like AFFX, keep your eye on the Biotech sector's performance. TERN $55.81 +2.50 (+1.93) The last two days, TERN shares have bounced off support at $50, closing at $55.81. We have decided the stock may be setting up to fail at resistance near $57-$58. Look for this to occur at the 10-dma of $56.90, which would be a ideal entry if we get the rollover. We would caution entering any new plays until we see the stock reverse its course and continue the downtrend. Maybe the saying is something like don't try to short a rising star. Volume has increased on the last two day's gains, so confirm the reversal rollover before buying puts. To reiterate, this play is on a short leash so use caution when initiating a new position. Wednesday, the stock did receive a Buy reiteration at Oscar Gruss & Son, Inc. with a 12-to-18 month price target of $155 per share. MRVC $57.25 +3.88 (-1.25) Need proof that opening new positions during amateur hour is dangerous? Just look at our play on MRVC. It has gapped down at the open over the past 2 days, only to recovery nicely for the balance of the day. Support is being confirmed at the $49 level, which is just above the 100-dma ($48).As a result, we really haven’t gotten a good entry point yet, but one may be lurking just around the corner. The surge in volume in the final hour of trading today pushed MRVC through resistance at $56, and allowed the stock to close above the 50-dma ($56.50) for the first time in over a week. Additional resistance sits just above at $58.50, followed by $64, which is currently sandwiched between the declining 10-dma ($63.93) and 30-dma ($66). The volatility in the technology sector is making it tough to pick a direction, and tomorrow’s session is likely to be ruled by the outcome of the Employment report. Wait for a clear reading on investor sentiment and then consider opening new positions if MRVC rolls over near resistance. Don’t try to jump the gun and pick a high; wait for investor sentiment to indicate the direction of the broad market in general and MRVC specifically. Follow the path of volume - its strength will light the way to profits if you give it the chance. ********************************Advertisement******************** American Express. Cardmembers are buying online Find out more! http://www.sungrp.com/tracking.asp?campaignid=175 ***************************************************************** ************** NEW CALL PLAYS ************** AFL - Aflac, Inc. $55.31 +0.88 (+1.88 this week) Aflac, Inc. provides supplemental insurance to individuals in the United States and Japan. The Company's products help fill gaps in consumers' primary insurance coverage. AFLAC's products include cancer expense insurance, care plans, supplemental general medical expense plans, and living benefit plans. This insurance company has recently unveiled a new ad campaign that features its notorious talking duck. AFL announced earnings on the 25th of July that beat estimates by a penny. The positive news has helped push AFL up to a new 52-week high. All the major moving averages are pointing up, a sign a nice trend is underway. Investors recently have been rotating into insurance stocks as they have sold the techs. The S&P Insurance Index, IUX.X, is trading at recent highs near 700 and looks poised for a breakout again. Since a new high has been achieved for AFL, there really isn't any upside resistance, but profit taking might take the stock to short-term support near $54. Any pullbacks to this level, accompanied by a bounce would provide good entries into this call play. Although this stock is not a fast mover, it does have a strong uptrend in place. Be patient with AFL and well-thought-out entries and exits can pay off handsomely. The time values priced into these options are neglible, therefore, intrinsic gains will be the rewards with this uptrending stock. As it currently stands, the August 50 call option is in-the-money $5.31, yet costs just $6. This means only $0.69 is being paid for time. Watch the Insurance Index to see the market sentiment. News on the stock is hard to find, though the company was reiterated as a Buy at PaineWebber on July 27th with a $58 price target. BUY CALL AUG-50*AFL-HJ OI=654 at $6.00 SL=4.00 BUY CALL AUG-55 AFL-BK OI=230 at $2.25 SL=1.25 BUY CALL SEP-50 AFL-IJ OI= 90 at $6.63 SL=4.50 BUY CALL SEP-55 AFL-IK OI= 41 at $3.25 SL=1.75 SELL PUT AUG-55 AFL-TK OI= 10 at $1.38 SL=3.00 (See risks of selling puts in play legend) Picked on August 3rd at $55.31 P/E = 25 Changed since picked +0.00 52-week high=$55.75 Analyst Ratings 7-3-5-0-0 52-week low =$33.56 Last Earnings 07/25 est= 0.58 actual= 0.59 Next Earnings 10-24 est= 0.61 versus= 0.52 Average Daily Volume = 667K IDPH - IDEC Pharmaceuticals Corp $135.88 +1.44 (+19.88 this week) Based in San Diego, IDEC Pharmaceuticals Corporation is a biopharmaceutical company engaged primarily in the research, development and commercialization of targeted therapies for the treatment of cancer and autoimmune and inflammatory diseases. The Company's first commercial product, Rituxan, and its most advanced product candidate, Zevalin (ibritumomab tiuxetan, formerly IDEC-Y2B8), are for use in the treatment of certain B-cell non-Hodgkin's lymphomas (NHL). The Company is also developing products for the treatment of various autoimmune diseases (such as psoriasis, rheumatoid arthritis and lupus). Tech stocks got you down lately? Perhaps we have the antidote. With a number biotech and pharmaceutical stocks holding up despite last week's tech sell-off, IDPH could just be the right prescription. After reporting earnings last month on July 17th, the stock became range-bound, trading between $110 and $128. For the quarter, IDPH earned $13.3 million, or 26 cents per share on revenues of $37.4 million compared to last year's $19.9 million, or 40 cents a share, on revenues of $35.3 million. This was good enough to beat the Street consensus by 8 cents or 45%. However, after failing to break through resistance at $135 in its pre-earnings run-up, the stock moved lower into and during post-earnings. Finding a bottom at $110, the stock has since not only recovered, but has broken through some key resistance levels. First to go was $128, breaking IDPH out of its almost three week range. Next up was the $130 mark which was struck down yesterday with conviction on 150% of ADV. Today, the elusive $135 mark was finally surpassed, and while the volume backing the move was lighter than usual (at only 75% of ADV), the close above a key technical support level cannot be ignored. Aggressive traders looking for an entry point will find bounces off the 5-dma this week (now at $127.35) to be worthy entry points. There is also support for the stock at $135, $130, and its 10-dma in the $125 area. Conservative traders may want to wait for IDPH to move above $137 on high volume before entering. Resistance ahead is lurking in increments of $5 at $140, $145, and $150. With little news of importance from the company since reporting earnings, movement in IDPH's stock price will largely depend on sentiment in the biotech and pharmaceutical sectors. As well, the stock's own technical picture will play a key role in its movements so confirm the technicals with sector strength before when planning your entries. BUY CALL AUG-130 IDK-HF OI=782 at $13.50 SL=10.00 BUY CALL AUG-135*IDK-HG OI=378 at $10.50 SL= 7.00 BUY CALL AUG-140 IDK-HH OI=180 at $ 8.13 SL= 5.75 BUY CALL SEP-140 IDK-IH OI= 24 at $15.25 SL=11.00 BUY CALL SEP-145 IDK-II OI= 14 at $13.38 SL= 9.00 SELL PUT AUG-125 IDK-TE OI=101 at $ 4.13 SL=6.00 (See risks of selling puts in play legend) Picked on August 3rd at $138.88 P/E = 200.65 Change since picked +0.00 52-week high=$173.00 Analysts Ratings 6-5-0-0-0 52-week low =$ 42.75 Last earnings 07/17 est= 0.18 actual= 0.26 Next earnings N/A est= 0.35 versus= 0.15 Average Daily Volume = 1.15 mln ABSC - Aurora Biosciences $99.44 +7.13 (+23.38 this week) ABSC develops and sells drug-discovery technologies and services. Along with such collaborators as Bristol Myers, Eli Lilly, Merck, and Pfizer, ABSC is developing a system using fluorescent assay technologies to allow researchers to overcome many limitations of traditional drug-discovery processes. Many of ABSC's tests are designed to be performed with living mammalian cells to better model human disease processes. ABSC is one of the few profitable Biotech firms. The company's earnings momentum combined with its stock price momentum has attracted our attention. Last Monday, ABSC reported its third consecutive quarter of profitability with a bang. The company surpasses estimates by a full 140%. With those kinds of numbers it's no wonder ABSC didn't suffer from the typical post-earnings blues. The company attributed its surge in profits to its new collaboration with JNJ, and to its existing alliances with several drug heavyweights, including PFE and AHP. After reporting blockbuster second-quarter results, ABSC received a host of praise from Wall Street. DB Alex Brown reiterated its Strong Buy and Warburg Dillon Reed reiterated its Buy rating, raised 2000 EPS estimates, and established a $100 price target. WDR might have to revisit their $100 price target soon as ABSC is poised to burst through that level. The renewed interest in the Biotech sector has strengthened ABSC's already impressive technical position. The stock broke out from a four-week consolidation Thursday by rallying above its pivot point at $90 on more than double its ADV. The stock flirted with the ever- important $100 level near the close of trading. Look for a catapulting rally above the century mark combined with healthy volume to gain entry into the play. The profit takers have been in hiding for the last week. If ABSC stumbles on light selling, the stock has strong support at various levels below, including $95, $90, and major support at its 10-dma around $85. Consider entering the play if the stock bounces off one of its several support levels after any profit taking. Last week, ABSC released two separate announcements that caught Wall Street's attention. ABSC was awarded a $1.3 mln grant from the National Cancer Institute to expand its project on identifying certain 'target' genes to combat cancer, among other diseases. And, ABSC said it had recognized $1.7 mln in investment gains from selling its stake in Cytovia to Maxim Pharmaceuticals (MXIM). BUY CALL AUG- 90 UDA-HR OI= 52 at $12.25 SL= 9.00 BUY CALL AUG- 95*UDA-HS OI= 51 at $ 9.38 SL= 6.50 BUY CALL AUG-100 UDA-HT OI= 57 at $ 6.75 SL= 4.75 BUY CALL OCT- 95 UDA-JS OI= 25 at $19.38 SL=14.00 BUY CALL OCT-100 UDA-JT OI=148 at $17.25 SL=12.25 SELL PUT AUG- 95 UDA-TS OI= 0 at $ 3.63 SL= 5.50 (See risks of selling puts in play legend) Picked on August 3rd at $99.44 P/E = 199 Change since picked 0.00 52-week high=$140.00 Analysts Ratings 3-2-0-0-0 52-week low =$ 7.63 Last earnings 06/00 est= 0.05 actual= 0.12 Next earnings 10-30 est= 0.05 versus= -0.10 Average Daily Volume = 445 K MER - Merrill Lynch & Co. $130.81 +3.81 (+8.81 this week) With its bull icon prominently displayed, many investors view Merrill Lynch as the leader of herd. The diversified Financial powerhouse provides investment, financing, advisory, insurance and related products and services on a global basis to both individuals and institutions. Its Corporate and Institutional Client Group offers investment banking, brokerage and clearing services to corporate and government clients. MER has been slow to move into the online world, entering the online trading ring in 1999. One of the few bright lights in the market, the Financials have been holding up rather well, reflecting sentiment that the recent string of interest rate hikes may be coming to an end. The technology sector fell this morning, but stocks like MER moved up nicely today. After announcing strong earnings on July 18th, the stock has traded in sympathy with the broad market, finding it hard to move higher. After bouncing at the 30-dma (then at $123.75) early this week, shares of the financial conglomerate have managed to march higher, and today’s price action puts the stock above the 10-dma, which is currently sitting at $128.31. Current price action seems to indicate that investors expect tomorrow’s Employment report to be favorable, making it harder for Greenspan to raise rates at the August 22 FOMC meeting. Even cautionary statements from First Union Securities (see news below) couldn’t dampen investor enthusiasm MER, as they continue to buy shares near the 52-week high ($135.50). This level will create resistance going forward, and cautious investors may want to wait for buying volume to push the stock above it before taking new positions. Support has been solidifying near $125, which is backed up by the 30-dma at $124.56. A bounce at this level could provide a very attractive entry going forward. Keep an eye on the volume and only enter when both the market sentiment and volume pattern on MER are favorable. Company specific news has been rather sparse, and investors in the Financial sector seem to be keying on each economic report to help determine which way these stocks are likely to move. Tomorrow is the Employment report, and if it comes in favorably, we would look for stocks like MER to charge to new highs. On Tuesday, First Union Securities initiated coverage on MER with a HOLD rating. BUY CALL AUG-125 MER-HE OI=1799 at $8.13 SL=6.00 BUY CALL AUG-130*MER-HF OI=2457 at $5.00 SL=3.00 BUY CALL AUG-135 MER-HZ OI=1260 at $2.69 SL=1.25 BUY CALL SEP-135 MER-IZ OI= 153 at $6.25 SL=4.25 BUY CALL OCT-140 MER-JH OI=1320 at $7.50 SL=5.25 SELL PUT AUG-125 MER-TE OI=2189 at $2.00 SL=3.50 (See risks of selling puts in play legend) Picked on August 3rd at $130.81 P/E = 17 Change since picked +0.00 52-week high=$135.50 Analysts Ratings 3-4-3-0-0 52-week low =$ 62.00 Last earnings 07/00 est= 1.71 actual= 2.01 Next earnings 10-17 est= 1.65 versus= 1.34 Average Daily Volume = 2.92 mln ************* NEW PUT PLAYS ************* No new puts today. ********************** PLAY OF THE DAY - CALL ********************** GENZ - Genzyme Corp $65.13 (-3.06 last week) Genzyme is a biotechnology company that specializes in developing drugs for rare genetic diseases. And they actually make money! Their business strategy is to buy companies that can contribute to its in-house development of niche biopharmaceutical products. They are also product diversified with development, manufacturing and marketing capabilities in therapeutic and diagnostic products, pharmaceuticals and diagnostic services. Most Recent Write-Up Confirmation! After breaking through and closing above $70 on Wednesday, GENZ confirmed the move by rising on Thursday. GENZ's two dollar move on Thursday took the stock to a new all-time high. The stock also gave us a great entry point by bouncing nicely off the 10-dma at $69.36. Volume wasn't very strong on today's move, a possible sign of caution, but closing at your days high is a bullish sign. GENZ shares have also been a beneficiary of subsidiary Genzyme Molecular Oncology's (GZMO) three licensing agreements to provide non-exclusive access to its cancer diagnostic patent rights. If we get some profit taking, look for $70 to provide some support, with a subsequent bounce a possible entry point. Comments GENZ had a very nice intraday trend today, climbing higher with higher lows and higher highs. The stock dipped just below its 10-dma at $69.36 early in the session to spring higher. Volume was a little lighter today so look for entry on a pullback to the $71 level, accompanied with a bounce. Below that, support can be found at $70, and then the 10-dma. Today's close is an all-time high for GENZ. Look for higher volume to return and drive this stock higher. BUY CALL AUG-60 GZQ-HL OI=2201 at $13.75 SL=10.75 BUY CALL AUG-65*GZQ-HM OI=1561 at $ 9.00 SL= 6.75 BUY CALL AUG-70 GZQ-HN OI= 237 at $ 5.25 SL= 3.50 BUY CALL AUG-75 GZQ-HO OI= 207 at $ 2.63 SL= 1.25 BUY CALL SEP-70 GZQ-IN OI= 42 at $ 6.63 SL= 4.75 Picked on July 27th at $71.31 P/E = 28 Change since picked +1.81 52-week high=$73.13 Analysts Ratings 4-8-2-0-0 52-week low =$30.75 Last earnings 06/00 est= 0.53 actual= 0.72 Next earnings 10-19 est= 0.55 versus= 0.49 Average Daily Volume = 1.19 mln ************************Advertisement************************* FREE local phone number and a FREE 800 number for life. Sign up now and receive 30 FREE minutes phone-to-phone domestic calling your first month! And receive an airline voucher worth up to $100 off any major airline! http://www.sungrp.com/tracking.asp?campaignid=182 ************************************************************** ************************ COMBOS/SPREADS/STRADDLES ************************ A Rout Turns Into A Rally! The Nasdaq staged a dramatic recovery today, rebounding from a precipitous morning drop to an incredible closing rally. Wednesday, August 2 Industrial stocks ended higher today as investors applauded the favorable housing report. The Dow Jones average closed up 80 points at 10,687. The Nasdaq Composite finished 27 points lower at 3,658 amid concerns about valuations in the technology sector. The S&P 500 Index ended unchanged at 1,438. Trading volume on the NYSE hit 987 million shares, with advances beating declines 1,598 to 1,272. Activity on the Nasdaq exchange was average at 1.47 billion shares traded. Technology advances beat declines 2,059 to 1,923. In the bond market, the U.S. 30-year Treasury was down 18/32 on frustration that the government failed to make the August 30-year issue its last sale of the year. The closing yield was 5.76%. Tuesday’s new plays (positions/opening prices/strategy): Mktg. Service MSGI FEB-7.50 Call $1.12 debit calendar Polaroid PRD OCT20C/AUG20C $0.93 debit calendar Lockheed LMT SEP25C/AUG30C $3.88 debit diagonal Lockheed and Polaroid both offered favorable entry opportunities during the session. A two-contract position was observed near the open in LMT and a five-contract trade in the Polaroid spread was executed at $0.93 debit. Marketing Service Group performed much worse than expected and the premium for the SEP-$7.50 call fell to 1/8 at the close. There were no contracts traded in the spread but we decided to initiate the long position (FEB-$7.50C) at $1.12. We will wait for a rally to sell the September option. Portfolio Plays: The market rotation continued today as blue-chip stocks posted solid gains while technology issues slumped amid weakness in a number of leading companies. Favorable housing data increased optimism the recent economic expansion has slowed, limiting the need for another rate hike at the August meeting of the Federal Reserve. A tame inflation report boosted interest in old economy stocks as investors believe those companies are less likely to be affected by lagging earnings growth. Hewlett-Packard (HWP) was the Dow’s biggest gainer, rallying $5 after analysts raised their earnings estimates on the company. ExxonMobil (XOM) also gave the blue-chip index a boost as oil stocks benefited from a jump in crude oil prices. On the Nasdaq exchange, semiconductor and telecom companies contributed disappointing performances and every rally attempt was thwarted by profit-taking. Analysts say the market will likely remain choppy as investors await upcoming economic reports and the FOMC’s next move on monetary policy. Our portfolio was plagued by the continued slump in technology issues. Fortunately, there were a few issues that opposed the bearish trend. Qlogic (QLGC) moved up almost $7 after a series of declines and Altera (ALTR) rebounded $4 as investors began to speculate on an end to the recent semiconductor correction. The morning rally also allowed traders who missed the first chance another opportunity to make downside adjustments in our bullish credit spreads. Our primary focus during the session was a move to September for the sold ($120) Put in Voicestream (VSTR). The new position is (short) SEP-$110 Put at $2.00 and the collateral amount is unchanged. Now, all of the big-cap technology spreads have been rolled down and forward to avoid short-term losses and we expect the recovery to begin near the upcoming meeting of the FOMC. Pall Corporation (PLL) was a surprise mover, climbing $1.56 to $22.25 amid optimism surrounding the news for V.I. Technologies (VITEX). VITEX announced today that it has signed an agreement with the American National Red Cross for a six year extension of its distribution pact for the company’s new, virally-inactivated transfusion plasma products. VITEX is collaborating with Pall on a red cell pathogen inactivation program and they are encouraged by the progress in its most significant opportunity. The program for pathogen inactivation of red blood cells is currently in Phase I clinical trials and VITEX believes it will be the first company to receive FDA approval for Phase II/III clinical programs. Our neutral position is short at $22.50 and if the trend continues, we will be forced to close the play early to remain profitable. Thermo Electron (TMO) rallied $1.25 to a recent high near $22.50 and our bullish diagonal position traded at a $2.50 credit, a 100% profit for the play in just under two months. Consider the risk of holding the position for further gains against an unexpected loss due to the volatile market conditions. Thursday, August 3 The Nasdaq staged a dramatic recovery today, rebounding from a precipitous morning drop to an incredible closing rally. The technology index ended 101 points higher at 3,759 while the Dow Jones industrial average ended up 19 points at 10,706. The S&P 500 was also up 13 points at 1,452. Volume on the Nasdaq hit 1.82 billion shares, with declines beating advances 2,205 to 1,760. Activity on the NYSE reached 1.05 billion shares traded, with declines beating advances 1,529 to 1,335. In the bond market, the 30-year Treasury was up 11/32, pushing its yield down to 5.74%. Portfolio Plays: The Nasdaq rallied today in a volatile session that began with triple-digit losses. Bargain hunters surfaced near midday in many of the big-cap technology companies with the majority of interest coming in networking and computer hardware issues. The Internet group also enjoyed substantial gains but selling pressure remained in the semiconductor sector. In the broader market, bank, brokerage and biotechnology stocks rallied along with conservative utility issues. On the downside, retail and gold stocks struggled to avoid major losses. Juniper (JNPR) was today’s big mover, up $12 on strength in the technical recovery of the networking group. Our cost basis in the flagging issue is just above today’s closing price and we may use the current rally to move the position forward and down to a lower strike price. Technology stalwarts American Online (AOL), Sun Microsystems (SUNW) and Cisco Systems (CSCO) also rebounded significantly as investors went bargain hunting for long-term portfolio issues. Altera (ALTR) and Virata (VRTA) deserve honorable mention as both issues rallied speculative buying in the semiconductor sector. In the small-cap group, American Eagle Outfitters (AEOS) jumped almost $4 after the clothing retailer said on Tuesday that total sales for the four weeks ended July 29 rose 18% to $66.6 million. The performance prompted Credit Suisse First Boston to boost its rating on the stock to "buy" from "hold" and investors responded acoordingly. Our bullish debit spread is at maximum profit above $15. Allstate (ALL) was another surprise, climbing almost $2 to close at a recent high near $29 on strength in the Property and Casualty Insurance industry. Our bullish diagonal position has returned a 25% in less than one month. Home furnishing retailer Bed, Bath and Beyond (BBBY) and software application developer Peoplesoft (PSFT) also participated in the bullish activity. The recent rally in Pall Corporation (PALL) ended in a short-term hiatus today as the stock fell $0.88 to $21. Traders who are concerned with the recent (bullish) change in technical character can close the credit strangle for a $0.50 credit. That’s a 10% profit in less than two weeks. CSX Corporation (CSX) moved into a profitable range near midday, trading as high as $26.43 during the session. The issue closed near a 180-day high at $25.75 and our bullish diagonal spread achieves maximum return above $25. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** NPNT - NorthPoint Communications $12.69 *** Options Activity! *** NorthPoint Communications is a national provider of high speed, local data network services. The company's networks use digital subscriber line (DSL) technology to enable data transport over telephone company copper lines at speeds up to 25 times faster than common dial-up modems. The company markets its network and data services to Internet service providers, long-distance and local telephone companies and network service providers. The company's customers can use its networks to provide continuously connected, economical Internet access, and other data-intensive applications to end-users. NorthPoint currently operates its DSL-based local networks in 33 major United States markets, spanning 62 metropolitan statistical areas, and expects to reach over 60 markets and 110 MSAs by the end of 2000. Options activity has been extremely heavy in this issue going into the company’s earnings announcement, scheduled for Tuesday of next week. The consensus estimate expects NorthPoint to lose $0.84 a share but traders have been buying mostly call options in anticipation of a rebound in the long-suffering issue. The company has also been the subject of takeover rumors in the past and at the current valuation, it may indeed be a merger candidate. We noticed a very large front-month disparity in the (OTM) call options and if you have an aggressive portfolio, and a bullish outlook for the issue, this position may offer exactly what you need for cheap speculation. PLAY (aggressive - bullish/calendar spread): BUY CALL SEP-15 NUP-IC OI=159 A=$2.00 SELL CALL AUG-15 NUP-HC OI=3475 B=$1.06 INITIAL NET DEBIT TARGET=$0.88 TARGET ROI=25% Chart = ****************************************************************** DISH - EchoStar Communications $42.25 *** Ready To Go? *** EchoStar Communications Corporation and its subsidiaries deliver direct-to-home satellite television products and services to customers worldwide. The company has three closely interrelated business units: the DISH Network, EchoStar Technologies (ETC), and Satellite Services. The DISH Network is a direct broadcast, satellite subscription television service offered in the United States. ETC, the engineering division, is responsible for the design of digital set-top boxes, and the satellite receivers, necessary for consumers to receive DISH Network programming, and the sale of set-top boxes to global direct-to-home satellite operators. Satellite Services provides video, audio and data services to business television customers and other satellite users. Echostar’s share value has rebounded in recent sessions after the popular satellite television service reported a net loss that was smaller-than-expected and a 10% jump in subscribers for the second quarter. Echostar reported a net loss of $132 million, or $0.28 a share, up from $76 million, or $0.20 a share, in the same same period a year earlier. The consensus of analysts surveyed was a $0.34 per share loss. In describing its success, Echostar said it added roughly 445,000 new subscribers during the second quarter, bringing its total subscriber base to 4.3 million. In addition, revenue for the quarter jumped 85% to $646 million. The recent technical trend is favorable and with the positive forecasts for growth in the company, this position offers a unique speculative opportunity for traders who are bullish on the issue. PLAY (aggressive - bullish/debit spread combination): BUY CALL SEP-42.50 UAB-IV OI=107 A=$5.12 SELL CALL SEP-47.50 UAB-IW OI=102 B=$3.12 SELL PUT SEP-35.00 UAB-UG OI=522 B=$1.75 DEBIT SPREAD COST BASIS TARGET=$1.88 NAKED PUT TARGET=$1.88 OVERALL NET DEBIT TARGET=$0.00 ROI=25% (based on collateral) We received a number of positive comments about this debit-spread combination strategy in a recent edition. In simple terms, the play is nothing more than a sold (short) Put and a bullish, debit spread. The position is actually somewhat aggressive, based on a bullish outlook for both components, but we use OTM options to reduce the potential risk. The premium from the sold put is used to finance the purchase of the debit spread. In this case, the collateral requirement for the naked put is approximately $1,150 per contract. Chart = ****************************************************************** ITWO - I2 Technologies $129.12 *** 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 outsourcing, product development, and much more. Earnings and revenues continue to dominate the market and late last month, 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 a new business model that 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. Analysts say the best is yet to come as i2 recently upped its projections for revenue growth and based on the issue’s performance in the recent technology sell-off, it appears that investors agree with the bullish outlook. PLAY (conservative - bullish/synthetic position): BUY CALL SEP-170 QYI-IN OI=43 A=$4.75 SELL PUT SEP-100 QYJ-UT OI=31 B=$4.12 INITIAL NET DEBIT TARGET=$0.00 PROFIT TARGET=25% Note: Using options, the position is equivalent to being long on the stock. The collateral requirement for the naked put is approximately $3,000 per contract. Chart = ************************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 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
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