The Option Investor Newsletter Sunday 08-06-2000 Copyright 2000, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/080600_1.html Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 8-4 WE 7-28 WE 7-21 WE 7-14 DOW 10767.75 +256.58 10511.17 -222.39 10733.56 - 79.19 +176.77 Nasdaq 3787.36 +124.36 3663.00 -430.86 4093.86 -152.32 +222.98 S&P-100 795.85 + 19.67 776.18 - 28.37 804.55 - 10.97 + 12.52 S&P-500 1462.93 + 43.04 1419.89 - 60.30 1480.19 - 29.79 + 31.08 RUT 503.63 + 13.41 490.22 - 32.48 522.70 - 19.93 + 14.41 TRAN 2886.81 +117.28 2769.53 - 38.89 2808.42 -110.62 +134.40 VIX 21.54 - 2.76 24.30 + 2.83 21.47 - 1.14 + .79 Put/Call .41 .59 .38 .48 ****************************************************************** I hate it when this happens! It was a great open for the Nasdaq but it turned into a classic gap and crap as the gains burned off before 11:00. Euphoria to boredom in 60 minutes flat. The Dow turned a positive jobs report into a negative result in less than 30 minutes. What happened to the trend of the post announcement rally? Was there a component in the jobs report that you needed a decoder ring to decipher? For whatever the reason the markets traded flat to down all day until the Dow started to sprint just before the close. After falling back below 3800 after the open the Nasdaq made two attempts to get back to that level and both failed. Still the positive momentum at the close had analysts saying good things about the outlook for next week. Just when you think everything is finally going right, the wildcard pops up and ruins your entire day. Maybe I am just being too cautious. Maybe I am trying to hope a rally into existence before its time. I had supper Friday with Austin Passamonte and his wife Wendy. We were comparing notes on the market, good trades, bad trades and trading psychology in general. When the market closed I was ready to write about an impending rally but the more we talked something kept nagging me about the facts. We talked about trades we should not have made. We talked about charts that said one thing and yet we believed another. We talked about expectation and mindset getting in the way of fact. One of the biggest things that ruins traders is ignoring the facts and trading when we shouldn't. We laughed about these stupid errors as though we would never commit them again. (Now that IS stupid!) While I wanted to believe that the markets are going to rally from here the facts kept gnawing at my subconscious. Yes, the jobs report was benign at -108,000 jobs. However after factoring out those pesky 290,000 census workers the government laid off in July the number of new jobs created soared to +182,000. Yes, the Fed is probably on hold until after the elections. According to the bond futures there is only an 18% chance of a rate increase at the August FOMC meeting. Yes, the financials went into vertical mode on the expectations of no more rate increases with the S&P Financial Index hitting an all time high. Yes, the Dow Jones, rate sensitive, market leading, Utility Average has broken out into a new all time high. Yes, Elaine Garzarelli has proclaimed a bottom in tech stocks. Yes, we retested support just above 3500 that we last saw on June 1st and it generated a +265 point rebound. Yes, the Thursday rebound was on huge volume of 1.8 billion shares. So why do I still feel like I am the last bull in the trailer and I don't want to follow my buddies down that narrow chute into that noisy building? Why didn't advancers beat decliners on Thursday? (17:22) Why were there 197 new 52 week lows compared to only 39 new 52 week highs? That was a really good jobs report on Friday but why didn't the markets celebrate? What are we missing? What important piece of information are we overlooking? Maybe I am just making a mountain out of a molehill when we just had a little profit taking on a summer Friday. After all both the Nasdaq and the Dow closed up nicely after trading in the negative column during the day. It just bothers me when the markets don't react like they should at significant events. They have rallied on recent jobs reports when the data was much worse. Why not rally when you have good data and the market is over sold? Maybe we are not done yet? I went back yet again and looked at prior Augusts. In 1999 the August rally began on the 10th, in 1998 Sept 1st, 1997 on August 18th. Now I realize every year is different, every market move is punctuated by news and earnings events specific to that year, but the trend is definitely weighted toward a recovery later in the month. Maybe I was jumping the gun in calling the 3521 bottom on Thursday a bottom. Lets look at the hard facts and then decide. The VIX at 21.58 is only .14 away from a five month low. Yes, I know the VIX is based on the OEX and that is not a Nasdaq indicator but it is a broad market indicator. It can also change in a heartbeat with the market as well. It could be 25 by lunch on Monday but you would not want to see that happen if you are long since it would mean the Dow/OEX tanked pretty drastically. Another indicator is the put/call ratio which at .41 is only .03 higher than it was on July 20th when the Dow posted a two month intraday high of 10874. The Dow is less than 75 points away from upper resistance at 10825. The Nasdaq gapped open to break above 3800 but then fell back to trade in a very narrow range all day Friday just slightly above previous resistance at 3750. Am I being too optimistic in thinking that it was just profit taking that held us back on Friday? The good news is still a positive Nasdaq holding over 3750 with no divergence on the Dow. Both indexes positive on a summer Friday cannot be a bad thing. The broadest representation of the market health is the Wilshire Total Market Index (TMW.X) which rebounded nicely from the Thursday lows. A nice trend there since the July 28th low and with the Friday move is now back over its 200 DMA at 13,428. The 200 DMA on the Dow and Nasdaq are not so positive. The Dow closed only 6 points under its average but the Nasdaq is still fighting to reach its average at 3901. Even the Russell-2000 closed only .6 below its 200 DMA. Why is this important? The 200 DMA normally provides significant support or resistance for each average. Many institutions have rules that require positions to be liquidated if a 200 DMA is breached. Conversely they will buy again when the stock/index moves back above the 200 DMA. I think the Dow and Nasdaq may have some trouble getting over those moving averages but once over they would provide good support. I think the markets on Friday looked under the headline numbers on the Jobs Report and even though the three month jobs average showed the slowest rate of growth since 1992, there is still strong growth. They remember the 5% GDP number and they may be listening to rumors that there would be more jobs except there are no qualified employees. They know within reason that the Fed will not raise again in August but with the very high GDP Greenspan will act strongly again after the elections. There are persistent rumors that an entire new SERIES of rate increases will begin in November. If this comes to pass then profit estimates may be too high for companies going forward. I don't think this will keep us from having a rally soon but with storm clouds building on the long term horizon the rally may be subdued. The term we have grown to hate worse than "correction" is "range bound" and we may be headed for that until the long term Fed policy is understood. Our challenges on the economic front next week will be the Productivity report on Tuesday, Wholesale Inventories on Wednesday, Import/Export Prices on Thursday followed by super Friday with Retail Sales and the Producer Price Index. CSCO will announce earnings on Tuesday and Dell on Wednesday. There will be lots of tech apprehension in advance of those announcements. Rumors abound that Dell may not hit their estimates but analysts feel they will post a good quarter. I am going into this week cautiously optimistic. I want to believe a rally is forth coming. The VIX and the put/call ratios are saying otherwise but remember the VIX is weighted toward the Dow not the Nasdaq. With the heavyweight economic reports at the end of the week any up moves should be early but the bounce on Thr/Fri has taken much of the oversold condition out of the market. Traders will be watching to see if the 200 DMAs will hold and if volume holds as well. With 1.4 billion shares on the Nasdaq on Friday it was decent but not great. Remember the NDX.X and the QQQ holders both closed in negative territory on Friday despite the Nasdaq gains. With the VIX/PC ratios moving into extreme conditions the likely hood of another dip is strong. If it comes and does not break the 3521 from last week then it could be seen as a successful retest and a definite bottom. Have I confused you yet? The key point here is let’s don't let our "hope" for a rally cause us to trade when the "facts" are warning us to wait and watch. Let’s obey the warning signs and wait for confirmation of the Thursday rally. Get out of the heat and into a seminar! Orange County Aug-10/12, Dallas Aug-24-26, Detroit Aug-28-30 are all three day technical analysis, stock and option seminars which will improve your investing profits. Be ready for the fall rally with more confidence and a better understanding of the markets. Why invest without all the knowledge available? http://www.OptionInvestor.com/seminar/seminar.asp Trade smart, 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 !! Starts Thursday !! 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=165 ***************************************************************** ************** EDITOR'S PLAYS ************** This week it was hard to find plays that had not spiked +$10-$20 in the Thr/Fri rally. Stocks that did not take part in the rally you don't want to own and those that did participate have highly inflated premiums. The three current plays I picked are DNA, IVX and MERQ. Please do not open call positions on these stocks unless the market, sector and stock are moving up. There is too much risk of another retest of the Thursday lows to just blindly buy calls. DNA $164.12 Call Play DNA was on the play list for Thursday night but did not make the cut. Bad decision! The gap open on Friday held for a nice +5.50 gain. The daily chart shows a nice saucer shaped recovery formation and the 60 min chart shows a very strong move since July-25th. I think the next resistance is $177 and a breakout from there could take IVX to the $200 range. I would look to play calls on it until the $177 test and then take a profit. If it breaks $177 on good volume then jump back in and hope for $200. MERQ $100 Call Play I like this chart formation. I call it a bullish wedge. I have found that when a stock breaks out of this formation it can be explosive. The key word here is "breakout." If it fails again and it has five times now, then I would wait for the next run or double up at the $90-95 level. A more conservative play would be to wait for the breakout before starting the play. You will pay a little more for the option but you already have confirmation at that point. The next congestion/resistance is at $110 and I would look to close the position and wait to see if it forms another positive chart or stumbles again. IVX - $45.75 Call Play We added IVX as a momentum play on Tuesday and then they announced an acquisition of Wakefield for an undisclosed amount. Investors don't like the unknown and took lots of profit off the table. The solid bottom at $42 on Friday looks like an entry point and the risk could be minimal. Still, confirm upward movement before starting a new play. *************** Try to maintain a market neutral outlook and react to what the market gives us instead of trying to force plays to fit your market view. Maintain stops on all long calls in case we do get a retest of the 3521 Thursday low. Jim Brown ************************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 ************************************************************** **************** MARKET SENTIMENT **************** Not Without A Fight By Austin Passamonte If this market is destined to fall it won’t happen without a fight. The last two sessions had market bulls prove such by coming off the ropes an hour after Thursday’s open to buy all their beaten-down favorites at scintillating prices. Our buy- the-dip crowd remains alive & well. One of the most volatile two-days we’ve seen in quite some time. Just when inaction lulls you to sleep ZOOM! We can expect the next session or two may offer a taste of the same. Who said summer trading isn’t fun & exciting? This market wants to rally in the worst way and very well might. Just the same, be careful in directional trades. There is plenty of room to roam in either direction. All eyes look to next week’s action for directional strength. A benign PPI report PPI Tuesday could be the rockets touching off our next vertical sprint up the charts. Looks like there’s cause for major indexes to move up or down. I’m ready to buy calls or puts but can’t decide which. Technical studies on my charts are mixed with long-term inklings of a rally brewing. Why then isn’t this a wildly bullish report? Our old, trusty friend the VIX has slumped to dangerous lows once again. Equity put/call ratios are bottom of the barrel as well. Two weeks ago it was summer rally time. Last week we were due for new market lows. This week the party’s on again. Do you see a pattern? We do - a pattern of extreme indecision. It’s our opinion that the broad markets are very near a major breakout of the trading range pattern for serious capitulation. Which way is the question. Personally I expect the FOMC meeting to be the catalyst. We could very well rally or tank from there. Reports from both trading floors are that this new round of buying has mostly been a "retail rally", small traders buying from large traders. Hmm, we don’t like that. Also, large-block short selling on NASDAQ shares has built as well. Another run early next week could flush these shorts out of bed but big traders going short while you & I get long is some cause for concern. Also, seeing the NASDAQ 100 close in the red on Friday after such a "bullish" payroll report leaves us wondering why the divergence between good news and overall NDX behavior. Sentiment changes faster than summer weather these days. Every bit of new information is clung to for direction of the Fed and trend. When profits show up in your account do not let them slip away. Enjoy the ride, it promises to be wild! MARKET SENTIMENT INDICATORS --------------------------- VIX The CBOE Market Volatility Index measures certain S&P 100 option pricing to determine investor sentiment. Historically, readings near 30 signal possible market bottoms while levels near 20 indicate possible market tops. Thurs 8/3 close: 22.87 Sat 8/5 close: 21.54 CBOE Equity Put/Call Ratio The CBOE equity put/call ratio is a contrarian-sentiment indicator. Numbers above .75 are considered bullish, .75 to 40 neutral and bearish below .40 ************************************************************* Tues Thurs Sat Strike/Contracts (8/03) (8/05) (8/07) ************************************************************* CBOE Total P/C Ratio .41 Equity P/C Ratio .35 Peak Volume (OEX) CBOE index put/call ratio is a contrarian-sentiment indicator. Numbers above 1.5 are considered bullish, 1.5 to .75 neutral and bearish if below .75 ************************************************************** Tues Thurs Sat Strike/Contracts (7/25) (7/27) (7/29) ************************************************************** All index options 1.26 OEX Put/Call Ratio 1.29 OEX Maximum Open Interest Strikes/Contracts: Puts 790/6,631 790/6,515 Calls 800/5,636 800/5,658 Put/Call Ratio 1.18 1.15 OEX S/R (Support/Resistance) Ratio Index The OEX S/R ratio is a formula to gauge possible support or resistance based on open-interest disparity. Numeral listed for resistance is the ratio of calls to puts. Support is ratio of puts to calls. Values above "10" considered firm. Divergence of numbers may indicate future market direction. OEX Tues Thurs Sat Benchmark: (8/03) (8/05) (8/07) Overhead Resistance: (900 - 835)* 531.82* 12,772.5* (830 - 815) 24.26 27.96 (810 - 790) 1.75 1.49 OEX Close: 791 795 Underlying Support: (790 - 775) 2.59 2.53 (770 - 750) 7.64 8.00 What the S/R measure indicates: Net open-interest ratios are off the scales above 835. 25,545 open calls vs 2 open puts from 835 to 900 is what we label disparity. A large index move now has clearance in either direction between 770 and 815. Market-makers would love to pin the OEX index between it’s two largest strikes of 790 & 800 for maximum expiration of worthless contracts. Too soon to predict. 30-yr Bond: 5.74% 5.71% Light, Sweet Crude, Barrel: $28.66 $29.96 200 Day Moving Average (as of 8/05) The 200 DMA is widely considered the major benchmark for critical support in a market. DOW; 10,769 10,767 NASDAQ; 3,901 3,787 NDX; 3,620 3,618 SPX 1428 1462 OEX 769 795 CBOT Commitment Of Traders Report: Friday 7/28 Biweekly COT report discloses positions held by small specs and commercial traders of index futures contracts on the Chicago Board Of Trade. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs are not. Extreme divergence between each signals a possible market turn in favor of the commercial trader’s direction. Small Specs Commercials DOW futures Net contracts; +445 (long) - 345 (short) Total Open Interest % 6.2% net-long 2% net-short NASDAQ 100 Net contracts; - 16,052 (short) + 445 (long) Total Open Interest % 22% net-short 3.5% net-long S&P 500 Net contracts; + 40,665 (long) -53,521 (short) Total Open Interest % 24% net-long 9.5% net-short BULLISH SIGNALS Interest rates 5.71% on the 30-year Treasury Bond may be signaling the rate fears are nil. Fed-Fund futures are pricing a 15% chance of one or more rate hikes, .25 basis at this time. Benign Government Reports Latest statistics hint the economy is cooling and no further rate hikes may be needed. Renewed Strength In Market Leadership Two day’s broad rally after the rapid sell-off proves firm buying interest remains near key levels of support. COT Report - NASDAQ 100 Sentiment reversal with small speculators growing net-short while commercials begin accumulation may suggest expected strength in the sector over the next weeks or months. ****** BEARISH SIGNALS VIX Friday’s close below 22 places us back in the danger zone. Equity Put-Call Ratio Friday’s reading of .35 is lowest in some time. Massive call- option buying across all equities is skewed too bullish for contrarian sentiment. End Of Earnings Season Lack of positive news will direct market focus on August FOMC fears should future reports prove bearish. Third-Quarter Earnings Warnings A number of companies pre-warning slowed earnings later in the year are being met with extreme selling pressure. IPO Glut Large numbers of IPOs this week could greatly dilute market capital and pressure existing issues. Energy Prices Prices are still too high. Ultimately this affects profit margins and inflation. September Crude closed $29.96 today. Seasonal energy patterns typically bottom by late summer, but all petroleum expected to be very high this fall. Prices in low $20s would be welcome relief but may not arrive. COT Report - S&P 500 Latest updated figures show small spec traders were heavily long S&P 500 contracts while commercial traders continued to build ten-year extreme short position. Widened divergence strongly implored market turn in favor of commercials. The bottom is likely still ahead. Seasonal Tendency The last two years have seen weeks following expiration Friday result in market decline. Broad market must sustain rally or history may repeat. ************** MARKET POSTURE ************** As of Market Close - Sunday, 08/06/00 Key Benchmarks Broad Market Last Support/Resistance Alert **************************************************************** DOW Industrials 10,767 10,450 10,950 SPX S&P 500 1,462 1,410 1,470 COMPX NASD Composite 3,787 3,400 4,000 OEX S&P 100 795 770 810 RUT Russell 2000 503 470 540 NDX NASD 100 3,618 3,250 3,900 MSH High Tech 987 935 1,025 BTK Biotech 664 565 700 XCI Hardware 1,468 1,360 1,530 GSO.X Software 428 385 445 SOX Semiconductor 921 880 1,020 NWX Networking 1,253 1,150 1,295 ** INX Internet 501 440 580 BIX Banking 592 550 610 ** XBD Brokerage 610 570 655 ** IUX Insurance 715 680 725 ** RLX Retail 845 835 895 DRG Drug 409 385 430 HCX Healthcare 846 800 855 XAL Airline 168 158 178 OIX Oil & Gas 287 272 304 The Financials were talking, was anybody listening? The past couple of days were excellent examples of how the market views risk/reward. On Thursday bullish traders may have looked at the NWX at 1150 and said "risk 5 to make 120?" The bears were on the other side risking 120 to make 5. Today the NWX exceeded our resistance to 1271. Raising support (DOW,MSH,BTK,BIX,XBD, IUX,OIX). Lowering resistance (XCI,SOX,RLX). Raising resistance (NWX,BIX,XBD,IUX). ********************************Advertisement******************** American Express. Cardmembers are buying online Find out more! http://www.sungrp.com/tracking.asp?campaignid=177 ***************************************************************** ************* SECTOR TRADER ************* Rally Fizzles on Low Volume By Buzz Lynn sectortrader@OptionInvestor.com Though the NASDAQ closed higher on Friday, it’s hard for bulls to get excited by the gap-up followed by the intraday descent. That the NASDAQ’s move over previous resistance at 3750 was accompanied by volume of only 1.45 bln shares is strong evidence that market sentiment hasn’t switched convincingly to the upside. Don’t get us wrong, we’ll take any gain for the week that we can get, especially on market friendly inflation-indicating numbers. Nonetheless, tis the season NOT to rally now that earnings are over and summer is here, not to mention that PPI and CPI could throw cold water on the party, and the FOMC meeting is in just over two weeks. Anybody see a reason to rally to new highs? Not only that, in the bigger scheme of things, NASDAQ was not able to get through it’s 50-dma of 3871 during the opening gap-up. Even if it did, it would quickly encounter resistance at 3900, its 200-dma, then again at 3960, its 30-dma. Suffice it to say, there’s a bunch of congestion overhead and a lack of motivating forces to push it through. On a shorter technical basis, Friday’s amateur hour gap-up was met with selling into strength followed by descent, then flat trading for the rest of the day with half-hearted attempts to push back through 3800. While it’s hard for us sometimes to hide a bullish bias, I not convinced that Thursday’s breakout was the real thing. The one bullish factor that impressed me was the willingness of investors to support the 3750 level after lunch and into the final hour of trading. Yet the follow-through in the final few minutes before the close did not come close to making an assault at intraday resistance of 3800. In short, this has been a weak rally. And it’s a good thing since more than a couple of us on the OIN staff have been gritting our teeth. Why? A few of us (myself included) own QQQ and OEX puts. While we were tempted to sell our puts and buy calls on those bounces at 3750, we opted to hold the puts in anticipation of a rollover. While our entries could have been a bit better in retrospect, the rationale for buying them remains intact: no follow-through Friday and events on the immediate horizon coupled with resistance on the technical chart point to the down-side, or still rangebound trading at best. To that end, we’re keeping our IAH, IIH, and BDH plays focused on puts. We’ve also added SMH to the put side. What about QQQ? Check out "the missing link" and more evidence of weakness in the write-up below. Also note, we’ve stayed away from shorting anything this week. That’s because volatility remains low (VIX is 21.58, its lowest level since March 3rd) and any big price swings will inflate volatility making it costly to buy back, or cover. We were wrong in our bias last week, but only slightly so, and we could be again this week. But nothing goes down (or up) in a straight line. Based on the above factors, we still favor the downside, but are prepared to reverse course immediately if we see some follow-through from Thursday. Trade smart and wait for your entry. Index Last Mon Tue Wed Thu Fri Week QQQ NASDAQ-100 90.19 2.63 -1.38 -1.50 4.13 -0.25 3.63 HHH Internet 104.69 2.13 -1.31 -0.50 3.38 0.81 4.50 BBH Biotech 184.81 0.19 8.38 2.13 3.00 2.81 16.50 PPH Pharm. 101.63 -1.25 3.75 0.75 0.38 0.88 4.50 TTH Telecom. 68.38 0.75 0.50 0.06 0.19 -0.38 1.13 IAH I-net Arch. 93.54 2.56 -1.69 -1.88 3.44 1.31 3.75 IIH I-net Infr. 52.13 1.19 -2.44 -0.31 2.81 0.63 1.88 BHH B2B 45.25 2.13 -1.50 1.50 2.06 0.31 4.50 BDH Broadband 88.81 1.88 -1.25 -0.19 1.19 1.44 3.00 SMH Semicon 78.69 1.88 -1.25 -0.19 1.19 -2.19 -0.56 RKH Reg. Banks 105.00 -0.06 1.00 0.56 4.13 4.13 9.75 UTH Utilities 98.13 -1.50 2.38 2.13 1.19 0.63 4.81 ************** Updates ************** QQQ - NASDAQ 100 $90.19 (+3.63 last week) How is it that the NASDAQ can rise on Friday while the QQQ dropped? The answer is that the NASDAQ, as a whole, measures the value of all 4500- 5000+/- of the stocks on the index while the QQQ is comprised of only the top 100 in market cap. So if the NASDAQ moves up while the QQQ moves down, that must mean that small-cap stocks are showing some strength, but the big-caps are not keeping pace. In fact, MSFT, INTC, WCOM, JDSU and SUNW finished Friday with a loss. CSCO was a gainer, but has earnings on August 7th to help explain that away. The generals are not leading the charge in the NASDAQ gain. That is "the missing link" and the reason the QQQ isn’t keeping up with the whole NASDAQ. The divergence is bad sign since the generals comprise roughly 40% of the Q’s. Even with the ticks up on MSFT and INTC going into the close, the Q’s did not follow. Technically, the hard bounce south of the 50-dma, and its continued descent below the close under the 200- dma of $90.75 is another bright red flag of weakness. If that was not enough, historical support that became resistance last week is also at $90-$91. Should there be a strong reason to rally on Monday (we don’t know of one yet), the 30 and the 10-dma of $93 and $91, respectively, are going to apply more downward pressure. Support is at $87, then again at $85. While it looks bad for playing calls, this is a strong case for puts. No major volume here either - it again signifies that the Thursday’s rally lacked any follow-through conviction. Now for the plays. ***August options expire in 2 weeks*** Long Straddle: Still putting our feet to sleep, this low relative volatility has got to end some day. Someday can seem like a long time to an option trader. That’s why we have to give ourselves enough time to be right. If we are wrong, we need to still have enough time value left in the premiums to sell back to the market. That generally means 30 days to be right and another 60 days to sell back. That’s why we suggest DEC strikes for this play. Any drastic move in price is going to inflate the volatility and we will profit accordingly. Remember, we are buying both a put and a call so one position will protect the other from a move in either direction. It doesn’t matter which way it moves - just that it moves big. Our objective is to profit as the time value portion of our options grow in proportion to the rise in volatility, which will come from a big move. $90-$91 is resistance with support first at $87, then $85. Target shoot for an "or less" figure by placing a limit order at $0.25-$0.50 less than the natural net debit figure. ***August options expire in 2 weeks*** Straddle: BUY CALL DEC- 90 QVQ-LL OI=1875 at $11.75 BUY PUT DEC- 90 QVQ-XL OI=2419 at $ 9.75 Net Debit = $21.50 or less Strangle: BUY CALL DEC- 94 QVQ-LP OI=1778 at $ 9.63 BUY PUT DEC- 86 YQQ-XH OI=1411 at $ 7.75 Net Debit = $17.44 or less Calendar Spread: This play is almost like a covered call except instead of actually owning the shares you may be required to deliver, you own a long-term call option as a proxy. But you don’t want to get called out of the underlying long call because you’d have to give up all that time value you paid so dearly for. The objective here is to have the sold near-term call expire worthless by having the stock price close just under your sold short strike price. Then you are free to sell another one the next month, and again the next - repeat until collected premiums reduce the cost basis of your long underlying position under zero. At that point, your return is mathematically infinite! It’s like getting a free option! There are risks. If the price of the stock rises above the sold strike price, you will need to have enough cash on hand to buy back the sold position just before expiration or sooner if the stock price takes off, thereby squeezing the time value out of the ever-increasing deep ITM premium. Remember, our job is to have time premium evaporate on the short position. If you are a good market timer, consider legging in by selling the short-term call on strength and buying the long-term call on weakness, whichever occurs first. Otherwise, initiate the play at will. ***August options expire in 2 weeks*** BUY CALL DEC- 86 YQQ-LH OI= 1422 at $13.75 SELL CALL AUG- 90 QVQ-HR OI= 6243 at $ 3.50, ND = 10.25 or less SELL CALL AUG- 92 QVQ-HR OI= 2427 at $ 2.63, ND = 11.13or 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." Remember that from Thursday night? What a juicy entry opportunity! Unfortunately, we also coupled it with a suggestion not to enter if the price went over $92, which was the 10-dma at the time. Drat! - because it ran nearly into its 50- dma to $92.75 during amateur hour then backed off. In the interest of keeping our suggestions safer for those new to trading, we sometimes miss extremely profitable but riskier entries. A gunslinger would have gone for it at that level, but we are still encouraged by the $90-$91 resistance to make this put play. An entry at this level still looks good to us, especially if NASDAQ gets an opening pop to $91 and rolls over after amateur hour. Not much volume on the opening pop would also mean lack of conviction. Again, consider it an entry opportunity. Same with market weakness on Monday - feel free to get in on a rollover under $90. Support is at $87, then $85. ***August options expire in 2 weeks*** At Resistance: BUY PUT AUG-92 QVQ-TN OI= 3744 at $4.50 SL=2.75 BUY PUT AUG-90 QVQ-TL OI=10419 at $3.25 SL=1.75 BUY PUT AUG-86 YQQ-TH OI= 9490 at $1.75 SL=1.00 BUY PUT SEP-92 QVQ-UN OI= 5794 at $6.88 SL=4.75 BUY PUT SEP-90 QVQ-UL OI=14261 at $5.88 SL=4.00 Average Daily Volume = 22.01 mln ----- IAH - Internet Architecture $93.54 (+3.75 last week) This one is a bit too close to call. But by keeping it on the put side, we will be ready to follow the action anticipated on the NASDAQ and QQQ - down. The fact is that IAH was decidedly up on Friday thanks to strength in EMC, NTAP, SCMR, JNPR, CIEN and GTW. However, SUNW, IBM, and HWP kept a lid on the euphoria. Another case of the generals not leading. Volume was huge (over 650 K shares) indicating lots of support at $92.50. It now rest right on its 30-dma of $93.55, which is also a level of historical resistance and could go either way. It looks like an entry point to us if we are right in our assessment of the QQQ about to fail. It really depends on the fate of SUNW, IBM, and HWP on Monday and Tuesday. There are two ways to enter. First, consider buying a weak opening market after amateur hour. The 30-dma would not have likely held. Otherwise wait for a drop under the 50-dma of $91.25. That would give a clearer signal that the rollover is in place. Mild support is at $87.50 with stronger support at $86. ***August options expire in 2 weeks*** BUY PUT AUG-95 IAZ-TS OI= 20 at $3.13 SL=1.50 BUY PUT AUG-90 IAZ-TR OI= 80 at $1.25 SL=0.50 BUY PUT SEP-90 IAZ-R OI= 135 at $3.50 SL=1.75 BUY PUT SEP-85 IAH-UQ OI=300 at $2.44 SL=1.25 Average Daily Volume = 54 K ----- IIH - Internet Infrastructure $52.13 (+1.88 this week) IIH too appears to be rolling over. We can look at the candlestick formation of a doji star on Friday as evidence. It ended the day about where it started, which shows indecision on part of investors and an unwillingness to take it very far in either direction. While we suggested that buying any downward bounce from $53 might make a good entry, IIH actually moved up to $53.44 before bouncing south. There’s a lot of congestion above $54, which IIH will have to move through to get a breakout to get a breakout. And with the tenuous condition of the NASDAQ, that could be tough. We would consider any weakness in the NASDAQ on Monday or Tuesday to be a buying opportunity (after amateur hour of course) or on any rollover from $54. Mild support is at $48, otherwise $46. Confirm market direction before entering. ***August options expire in 2 weeks*** BUY PUT AUG-55 IIH-TK OI= 36 at $4.38 SL=2.75 BUY PUT AUG-50 IIH-TJ OI= 76 at $1.69 SL=0.75 BUY PUT SEP-55 IIH-UK OI=185 at $6.38 SL=4.25 Average Daily Volume = 199 K ----- BDH - Broadband $88.81 (+3.00 last week) Ouch! Here’s a play that looks technically painful. BDH ran up and over its 50-dma of $89.22, but could not hold the gain, and finished below that level in Friday’s action. So much for the big rally. With all the formerly hot stocks like LU (new low), JDSU, MOT, QCOM, and AMCC all searching for a spark from just one match, this sector may have trouble keeping its head above water until next earnings season. Make no mistake though, this is the fastest growing business segment of the bandwidth explosion - they will be back, just unlikely that it will be right now with the NASDAQ technically weak too. Resistance is really firm at $90, while there is some support in the $85-$86 range. After that, look for $83 to the down side. On any further market weakness, we would consider this an entry point. Otherwise, look for any bounce down from $92 as an entry. Let LU and NT be your guides on this one as they make up just under 50% of the value of the BDH. ***August options expire in 2 weeks*** BUY PUT AUG-90 BDH-TR OI=31 at $4.38 SL=2.75 BUY PUT AUG-85 BDH-TQ OI=73 at $2.13 SL=1.00 BUY PUT SEP-90 BDH-UR OI= 3 at $6.88 SL=4.75 Average Daily Volume = 126 K ************** New Play ************** SMH - Semiconductor $78.69 (-0.56 last week) Well, if the analysts say so and investors believe them, who are we to fight the tape? Seriously, the semis have been hammered lately as even the mighty INTC, TXN, AMAT, and MU have been unable to escape the selloff. Selling volume has been increasing too. The basic fear is that semiconductor manufacturers may be engineering excess capacity, which could hurt chip prices in the future. OK, but that doesn’t seem to concern fiber optic component makers who will increase capacity dramatically (by 400% for SDLI!!) over the next two years. What gives? We think there are two things at work here. First, it’s seasonal - this is a time in the trading year where it’s tough to get stock prices moving up the chart under their own power. Second, semis were one of the few sectors that weathered the selloff rather well in April and March. Now it’s the semis turn for a selloff. So while this level may look historically low for SMH, a good number of its major components still have room to fall until they hit support. Besides that, it just doesn’t look good that SMH had a series of lower highs and lower lows last week, when other sectors were moving up. SMH couldn’t even break back over its 5-dma. Ideally we’d like to see a move back to $81 resistance, then a failure at that level. That would make a nice entry in our book. Otherwise a generally weak market right from Monday’s start would be our signal to take a position. Support isn’t available until $75. After that it’s brown dirt (as opposed to blue sky) since SMH would then be setting new closing lows. We look for the current trend to continue, especially if we are right about the direction of the QQQ (down). If not, all bets are off since semis are one of the first sectors to recover when things look rosy. They generally lead tech rallies but have been noticeably absent during the most recent pop. ***August options expire in 2 weeks*** BUY PUT AUG-80 SMH-TP OI=121 at $4.25 SL=2.75 BUY PUT AUG-75 SMH-TO OI= 40 at $1.88 SL=1.00 BUY PUT SEP-80 SMH-UP OI= 4 at $6.50 SL=4.50, Low OI BUY PUT SEP-75 SMH-UO OI= 0 at $4.00 SL=2.50, No OI Average Daily Volume = 326 K ************** No Play ************** BBH HHH PPH BHH TTH RKH UTH ************* COMING EVENTS ************* For the week of August 7, 2000 Monday Consumer Credit Jun Forecast: $8.0B Previous: $11.8B Tuesday Productivity Q2 Forecast: 4.5% Previous: 2.4% Wednesday Wholesale Inventories Jun Forecast: 0.3% Previous: 0.8% Fed Beige Book --- Forecast: --- Previous: --- Thursday Initial Claims 08/05 Forecast: 285K Previous: 276K Export Prices ex-ag. Jul Forecast: NA Previous: -0.1% Import Prices ex-oil Jul Forecast: NA Previous: 0.0% Friday Retail Sales Jul Forecast: 0.4% Previous: 0.5% Retail Sales ex-auto Jul Forecast: 0.4% Previous: 0.2% PPI Jul Forecast: 0.1% Previous: 0.6% Core PPI Jul Forecast: 0.1% Previous: -0.1% Michigan Sentiment Aug Forecast: NA Previous: 108.3 Week of August 14th 08/14 Business Inventories 08/15 Industrial Production 08/15 Capacity Utilization 08/16 Housing Starts 08/16 CPI 08/16 Core CPI 08/16 Building Permits 08/17 Initial Claims 08/17 Philadelphia Fed 08/18 Trade Balance 08/18 Treasury Budget ************************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=183 ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "Contact Support" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. 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The Option Investor Newsletter Sunday 08-06-2000 Sunday 2 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/080600_2.html ************** TRADERS CORNER ************** Liquidity Issues May Delay A Sustained Rally By Mary Redmond While there are opportunities to make quick profits on some days in this market, most traders are wondering when the VIX and the volatility of their individual stocks will change enough to signal a possible sustained rally ahead. The historical volatility of a stock can be measured using different time periods. On the CBOE's web site you can see the 30 day historical volatility for optionable stocks. This can change dramatically for each 30 day period. For example, the 30 day historical volatility for NT for June is 41.323. NT's 30 day historical volatility was 73.24 in May, and 93.02 in April. Using Cisco as an example, the 30 day historical volatility was 45.377 in June, 76.479 in May, and 125.88 in April. It is not surprising to see a huge spike in volatility during the month of April because the Nasdaq made a huge move of over 40% from March to April. This had an effect on the volatility of many stocks. If you are using historical volatility to help determine if options are overvalued, it is best to average over a long period of time to gain perspective. On an average trading day, the VIX.X will usually move from about a half a point to one point range. For example, on Thursday of this week, the VIX.X was above 23.4 in the morning and dropped to 22.89 by mid day. Some people use the intra-day swings in combination with other technical indicators to make a quick day profit. On a very volatile day in the market the VIX may move 5 points or more. For example, when the Nasdaq dropped 500 points one day in April the VIX moved up over 5 points. But generally we have seen major moves in the VIX from an oversold to overbought condition and vice-versa take a month or longer. The VIX may move to a very high level of over 29 or 30 only a few times a year. By using the VIX in combination with other technical and stock fundamental indicators, you can sometimes make a quick profit. For example, on Thursday morning the Nasdaq futures were down over 90 points and the Nasdaq dropped over 120 points in the morning primarily on concerns over Motorola's warning. When a major tech company warns of a slowdown, the entire sector will usually take a hit. In this case, many other key sectors like the networking sector took a hit as well. For example, you can see the chart of Sycamore in the morning on Thursday. At the market open the stock slipped way out of the Bollinger bands, indicating that it was likely SCMR would rise into the middle of the range. The stochastic indicators also showed an oversold position. I bought the stock at 102 in the morning and it rallied to over 124 by the end of the day, when the VIX dropped below 23. This type of wide deviation from the bands is rare, and usually does not occur on a daily basis. It is possible that the lower levels of liquidity in the market may make it difficult to sustain a prolonged rally. AMG data reported that equity funds had a total net outflow last week of $1.6 billion. The four week moving average of cash to equity funds is still a positive of $2.5 billion, but significantly lower than in previous months. During the months of last fall and winter when the Nasdaq moved from 3000 to 5000 the average weekly flow into equity funds was over $8 billion, and some weeks the majority of the money went into technology funds. Perhaps even more astonishing is the fact that retail money market funds took in a whopping $8.75 billion in cash last week, and institutional money market funds took in $6.59 billion. That is over $15 billion in cash going into money market funds and not the stock market. The four week moving average of cash to money market funds is in the range of $9.98 billion. During the sustained rallies of last fall, we saw this type of cash going into the market. The total amount of cash in money market funds is over $1.71 trillion. This may be indicative of public sentiment. This sentiment can change very rapidly as we know if the market starts to rally, but we may need a higher level of liquidity for the type of rallies we saw last fall. At the same time, the investment banking community has increased the number of ipos, and some of them have had significant gains. 27 new ipos came out this week, and in combination with the GS secondary raised in the range of $6 billion. This is alot of stock to hit a weak market. It is interesting to note that AOL Latin America was expected to come out this week, and has been postponed. The success of this ipo may be a very strong indicator of the short term public sentiment toward internet stocks. Contact Support ****** How to Handle the Cup and Handle By Lynda Schuepp Most of you know about chart patterns, but do you really know how to trade them? One such formation is William O’Neil’s "Cup and Handle" which you all have heard about, and if traded correctly can reward you handsomely. Stock patterns are very powerful, and if you understand the sentiment behind them, they will make a lot more sense. See Daily chart below of Apollo for all references in this article: First let’s look at the different stages within this trading cycle. There are four stages. In the first stage, you have a sell-off preferably with volume decreasing. Eventually the stock levels off as the shorts come in to cover and day-traders and short-term players start selling on any upward movement. This is the second stage, where you will see the stock trade sideways in a relatively narrow range. This stage represents the bottom of the cup. As you know, consolidation can’t last forever. Eventually the stock will breakout, either to the upside or downside. Once the buyers start coming in to bottom fish, the stock starts to rise. In the third stage, everyone wants to get in on the action and volume should increase as more buyers find this "depressed" stock suddenly attractive. More buyers than sellers equates to higher prices. Prices should increase up to the highest level of the left side of the cup. At this point, the stock will usually find resistance. This may be the beginning of a handle and would signify the beginning of stage 4. Traders who bought at the left side of the cup are selling now, looking to break-even. How many of us, have been there? Bottom-fishers are also selling, making a nice profit from the run up from the bottom of the cup. The stock should start to decrease in price as well as in volume. Once the handle is apparent you are clearly in the final stage. This final stage is a tricky one. A lot of people identify the pattern and jump the gun. Sometimes this produces a false rally, and then the stock tanks. If you are patient, this formation can lead to some very nice profits. This is a powerful formation and the moves are very big and fast. Although you can take a lot of liberties with shape of the cup, handles need to be treated more strictly. For instance, the cup could contain a double bottom, and doesn’t need to be symmetrical. However the criteria for the handle is as follows: - Handle must be downward, this is a pullback. - Prices should not drop lower than 10% on a daily chart or 15% on a weekly. - Volume MUST be decreasing along with price - Handle should have at least 3 bars with lower highs and lower lows. If prices drop lower than 10-15%, it is probably more likely that this handle is a reversal. And if volume is increasing as the handle is being formed, it is more likely that the trend is no longer in tact, and could also be a sign of a reversal. This is why you don’t want to jump the gun. Cup and handle formations are not that common. Now for our buying criteria. Once you identify the handle, put in a mental "buy stop order" for the call when the stock is 1/8 point above the high of the last two days on big volume (at least 30% more than previous day if using end of day data or 100% if using intra-day data. Once filled put a mental "sell stop order" when the stock is 1/8 below the low of the handle. In the chart of Apollo Group, we see a classic cup and handle formation. Note that the volume at the beginning of the handle was about 600,000 shares with a stock price of 33. Volume decreased to 300,000 at the bottom of the cup. This is where the momentum players and bottom-fishers usually come in. Eventually, the bigger players notice the action and the price and volume start to increase. Funds own 38% of this stock, so we can expect them to increase their positions here. I use the 5 and 13 day moving averages on prices and the 5-day moving average on volume. It is helpful to look at the 5 day moving averages to help you see these patterns. Notice how the 5-day mimics the shape of the cup and is quite helpful in discerning volume patterns. Apollo is a good quality company with real earnings. All of Apollo’s IBD ratings like EPS, Accumulation, and Industry RS are all extremely high. Apollo, true to form, runs up to its previous high of 33 and stalls. This is the beginning of a potential handle. The stock then drops to a low of 30-3/8 on July 13th with an 8% drop on lower volume, which meets our criteria. The following day, Apollo met our buy target but there wasn’t a corresponding increase in volume. We had to wait 5 more days until the 20th to get our buy signal with confirming volume. When the stock hit 33-1/8 on July 20th, the Aug 30 call was trading at 3-3/4. In the chart below you can see by 11 AM the volume was giving us a clear signal to buy. You end of day traders would have bought at the opening on the following day when the stock was about 33-3/4. The stock dipped back down to 31-1/4 but never hit our stop loss. Apollo closed Friday at 39 15/16 on incredible volume. That represents a 30%+ increase in 11 days. It doesn’t look like Apollo will drop for a while but it will run out of steam and at least consolidate. Now is the time to adopt good money management, like implementing 8-10% trailing stop. Lynda@OptionInvestor.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 ************************************************************** ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* HGSI - Human Genome Sciences $142.56 (+15.19 last week) See details in sector list Chart = Put Play of the Day: ******************** TERN - Terayon Communications Systems $55.13 (+1.25 last week) See details in sector list Chart = ********************************Advertisement******************** American Express. Cardmembers are buying online Find out more! http://www.sungrp.com/tracking.asp?campaignid=178 ***************************************************************** ************* DAILY RESULTS ************* Index Last Week Dow 10767.75 195.41 Nasdaq 3787.36 124.36 $OEX 795.85 19.67 $SPX 1462.93 43.05 $RUT 503.63 9.23 $TRAN 2886.81 117.58 $VIX 21.54 -1.51 Calls ABSC 99.63 24.06 Not just hopes & promises of future profit LEH 129.63 21.50 Now that's what we call a breakout! IDPH 137.00 21.00 Breaking a number of resistance levels HGSI 142.56 15.19 New, reasserting leadership in the market DNA 164.13 15.13 New, Millionare? What about Billionaire? MERQ 100.00 14.88 New, growing interest at the century mark MER 135.75 13.75 Looking to challenge most recent highs PVN 112.72 9.09 Sights set on Halloween's high of $118.50 MVSN 86.22 8.78 New, poised to challenge all-time highs GENZ 73.00 7.88 Setting another new intraday high FRX 116.69 6.44 Michael Dell should be envious of this HWP 111.75 4.44 Let the run begin! Earnings are coming AMGN 69.13 2.75 Who better to capitalize on the mania? AFL 55.56 2.13 Running with the Financials on good data COF 58.88 2.06 Financials leading the way at the NYSE IVX 45.75 -2.75 Capitulation could be prime entry point Puts EFNT 51.88 -10.38 New, looking to slide through $50 support AMD 62.75 -9.25 Chips diverging from the broader techs MU 73.13 -5.50 New, Semi magic seems to be fading AFFX 139.63 -4.88 Dropped, time to go after mild recovery TERN 55.13 1.25 Still can't find any legs to keep running MRVC 60.00 1.50 Watch for a breakdown back through $55 GTW 62.00 6.88 Dropped, two day pop and we're out ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS No dropped calls today. PUTS AFFX $139.63 (+3.00) Biotech revisited. Affymetrix was a great put play earlier in the week, continuing last week's post earnings blues. Sadly for our play, buyers are taking advantage of the recent price weakness, pushing the stock to higher territory. Closing above the 5-dma of $138.01, and with intraday highs continuing to inch towards the 10-dma of $149.08, AFFX has failed to give us the convincing drop through $130 we were wanting. The heavier volume on the Friday morning spike up was also concerning. Hence, with its unsustainable downtrend and what appears to be a short-term bottom, we are discontinuing the play. GTW $59.00 (+3.87) The late-day buying we witnessed last Thursday afternoon culminated into an upgrade Friday Morning. Banc of America Securities raised its rating from a Buy to a Strong Buy and set an $80 price target on GTW. The analyst, Kurt King, said GTW's recent 20% haircut created a buying opportunity, and added that he was comfortable with the company meeting its September quarter revenue estimates. GTW gapped over $2 higher on the heels of the upgrade, which should have prevented entry into new positions. The stock actually traded $1.50 higher in after hours Friday evening, which gave us a valid reason to drop the play. *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************** NEW CALL PLAYS ************** HGSI - Human Genome Sciences $142.56 (+15.19 last week) HGSI licenses a proprietary database of gene sequences to such pharmaceutical heavyweights as SmithKline Beecham and Merck. The company has eschewed the race to decode the entire human genome in favor of focusing on patenting gene sequences involved in disease. HGSI is one of the few genome companies involved in developing gene-based therapeutics, its four compounds in clinical trials are intended to limit the toxic effects of chemotherapy, promote repair of damaged cells, stimulate antibody production, and spur re-growth of blood vessels. The Biotech sector is where it's at. Despite the rampant volatility in the broader markets last week, the Biotech sector managed to reassert its leadership role. The Amex Biotech Index ($BTK) tacked on nearly 2% last Friday, in what was its fourth consecutive session of gains. The genomic-related issues led the charge last week to bring momentum back to the group. The late July sell-off in the Biotech sector induced a spree of bottom- buying in HGSI. Earlier in the week, HGSI bounced off a critical support level at $120, which brought out the bargain hunters. The stock catapulted from its two-week inverse head-and-shoulders bottom, which culminated with a breakout above the right shoulder at $140 on Friday. Along with its attractive price, HGSI received a boost early last week after fellow-genomes PDLI and CHIR reported bullish second-quarter results. The better-than- expected profit reports from the two companies stoked investors' interests in anything-genomic. The budding momentum in the Biotech sector combined with last week's reversal has brought us back to HGSI. The stock's strong finish Friday and equally strong technical position might warrant consideration for entry into the play first thing Monday morning. If the Biotech bulls return early next week, look for an entry point if HGSI clears resistance at $145. If the profit takers return, HGSI has strong support just below at $140, and again at its 50-dma around $136. An aggressive trader might look for an intraday entry if HGSI bounces off one of its support levels after any selling subsides. Before entering the play, confirm direction in the Genome sector using QLTI, MLNM, and CRA as reference. A little over a week ago, HGSI reported a wider-than-expected second quarter loss due to a one-time expense. But, the CEO reiterated, "HGSI is the first company to have four genomic derived drugs in human clinical trials." That fact has garnered Wall Street's attention and capital. ***August contracts expire in two weeks*** BUY CALL AUG-140*HHA-HH OI=301 at $12.50 SL= 9.25 BUY CALL AUG-145 HHA-HK OI= 84 at $10.13 SL= 7.00 BUY CALL AUG-150 HHA-HL OI=319 at $ 7.88 SL= 5.75 BUY CALL SEP-145 HHA-IK OI= 55 at $17.50 SL=12.75 BUY CALL OCT-150 HHA-JL OI=225 at $18.63 SL=13.50 Picked on August 6th $142.56 P/E = N/A Change since picked +0.00 52-week high=$232.75 Analysts Ratings 1-4-2-0-0 52-week low =$ 25.94 Last earnings 06/00 est= -0.22 actual= -0.16 Next earnings 10-25 est= -0.26 versus= -0.21 Average Daily Volume = 1.77 mln MERQ - Mercury Interactive $100.00 (+14.88 last week) Mercury makes testing software for enterprise resource planning applications, client/server software, and e-business applications. The company's products perform such tasks as analyzing and eliminating Web site performance bottlenecks, and automating quality assurance testing. Customers include AOL, American Airlines, Citigroup, and ETrade. Mercury is looking for the growing demand for e-commerce to fuel its business. Investors are returning to select Net stocks slowly but surely. The boom-to-bust cycle in the Internet sector left its scars on many investors' portfolios and many Web stocks alike. Yet, even the wounds from the Tech bear last spring were not enough to hinder the exponential growth of the Internet. It's that growth that the seven-year old MERQ is capitalizing on in a big way. The company reported its fourth consecutive quarter of estimate beating profits in early July, which, of course, prompted the typical post-earnings sell-off. The post-announcement profit taking has appeared to run its course in MERQ. The company has recently announced a host of new alliances with several Tech heavyweights such as Oracle and I2, which have re-ignited MERQ's momentum. The rate at which MERQ is winning business prompted DB Alex Brown to bestow its love on the stock recently with the reiteration of its Strong Buy rating, which we'll expand upon below. MERQ's technical position strengthened last week after the stock established a solid bottom around $90. Last Friday's attempt to clear $100 marked MERQ's third try at eclipsing the psychologically and technically significant century mark in a little over a week. The built-up pressure at MERQ's triple top at $100 might lead to an explosive rally if the stock can clear that level. With that said, consider entering the play if MERQ moves above $100 Monday morning. A more conservative trader might wait for momentum to build and shoot for entry if MERQ sails past resistance at $105. If the Tech bears gain control early next week, MERQ has strong support near its 10-dma, around the $95 level. At the beginning of each month the brokerage house DB Alex Brown announces its Showcase of Best Ideas. The monthly compilation lists their analysts' most compelling stock recommendations. The firm announced its August list last Friday, which included CSCO, EXDS, FDRY, and our beloved MERQ. ***August contracts expire in two weeks*** BUY CALL AUG- 95*RBF-HS OI=296 at $ 7.00 SL=5.00 BUY CALL AUG-100 RBF-HT OI=426 at $ 6.75 SL=4.75 BUY CALL AUG-105 RBF-HA OI=238 at $ 4.63 SL=2.75 BUY CALL SEP-100 RBF-IT OI=210 at $11.63 SL=8.50 BUY CALL OCT-105 UDA-JT OI=364 at $11.75 SL=8.75 Picked on August 6th $100.00 P/E = 204 Change since picked +0.00 52-week high=$134.50 Analysts Ratings 9-3-1-0-0 52-week low =$ 19.88 Last earnings 06/00 est= 0.12 actual= 0.14 Next earnings 10-16 est= 0.16 versus= 0.11 Average Daily Volume = 1.79 mln MVSN - Macrovision Corporation $86.22 (+8.78 last week) Macrovision Corporation was founded in 1983 to develop and market innovative video and communications security technologies for major motion picture studios and independent video producers. During 1983-1984, Macrovision was granted several key patents that laid the foundation for the company's future growth, including a United States patent that described what is now widely known as the Macrovision Copy Protection Process. That technology has now become the industry standard, and to date has been used on over 2.5 billion videocassettes. Since the dreaded tech sell-off this spring, MVSN has not only made a strong recovery, but now looks poised to challenge its previous all-time high. Finding a bottom at $35 in April and successfully bouncing off its 200-dma (now at a distant $53), the stock has been making higher lows and higher highs. Using its 100-dma (currently at $65) for support, the stock has made a stellar comeback these past three months. So where to from here? The theme this week for MVSN has been earnings. On Monday, the company reported second quarter earnings with net revenues of $13.5 mln versus $8.1 mln in the second quarter of 1999 for an increase of 68%. For the first six months of 2000, net revenues increased to $26.2 mln from $15.2 mln for the first six months of 1999, an increase of 72%. With earnings per share of 16 cents, this was good enough to easily beat the Street consensus of 9 cents per share. Bucking the trend of a post-earnings sell-off, MVSN has since moved higher on strong volume, a testament to the strength in momentum and interest in the stock. Aggressive traders looking for an entry point may want to buy bounces off the 5- and 10-dma (at $82.50 and $78, respectively) with additional support at $85 and $80. The next level of resistance can be found at the $90 level. From there, the stock would look to challenge its previous all-time high at $94.75. As a trading note, the bid/ask spread in the options are quite wide. For example, for the August 75 call the bid/ask is $10.50/$12.50, a $2 wide market! Those looking to trade this play may not want to go with a market order, but rather a limit order inside the market(i.e. $11.50 bid), narrowing the market. This wide spread just does not seem justified considering the low price volatility of the stock, which doesn't fluctuate like some of the true high-fliers. Aside from earnings, the stock is being helped by bullish comments from CEO Ian Halifax, who noted that, "Our revenues benefited from continued strong demand for both our DVD and digital pay-per-view copy protection products." ***August contracts expire in two weeks*** BUY CALL AUG-75 MVU-HO OI= 69 at $13.88 SL=10.75 BUY CALL AUG-80*MZM-HP OI=1000 at $ 9.75 SL= 6.75 BUY CALL SEP-80 MZM-IP OI= 83 at $14.00 SL=10.50 BUY CALL SEP-85 MZM-IQ OI= 6 at $11.50 SL= 8.50 BUY CALL OCT-90 MZM-JR OI= 121 at $13.50 SL=10.00 SELL PUT AUG-75 MVU-TO OI= 31 at $ 1.25 SL= 2.50 (See risks of selling puts in play legend) Picked on August 6th at $86.22 P/E = 211.88 Change since picked +0.00 52-week high=$94.75 Analysts Ratings 4-0-0-0-0 52-week low =$13.31 Last earnings 07/31 est= 0.09 actual= 0.16 Next earnings N/A est= 0.12 versus= 0.06 Average Daily Volume = 415 K DNA - Genentech, Inc. $164.13 (+15.13 last week) Using human genetic information to discover, develop, manufacture and market human pharmaceuticals for significant unmet medical needs is DNAs quest. Thirteen of the currently approved Biotechnology products came as a direct result of the companys science. DNA markets and manufactures 7 of these with the eighth just getting ready to go into production. The products include Rituxan, Activase, Nutropin, NutropinAQ, Nutropin Depot, Protropin, Pulmozyme, and Actimmune. The firm is developing other cancer drugs with ImmunoGen and earns royalties for hepatitis B vaccines, bovine growth hormones, and Humulin (human insulin). Who wants to be a Millionaire when you could be a Billionaire? The Holy Grail of biotechnology companies is The Billion Dollar Drug. A yearly income stream of a billion dollars discounted is the stuff that dreams are made of for scientists, accountants and investors alike. Many times we have seen some small unknown biotechnology company bid up over 100% in a day on the slight glimmer of hope that maybe, just maybe, that new treatment still in Phase I could be The One. Market cap leader Amgen has just two of them. Biogen has only one. All it takes is just one Billion Dollar Drug. That's all that separates the leaders from the unknowns. With what is agreed by many analysts to be the strongest pipeline of the biotech sector, Genentech is considered a favorite in this elusive quest. The early part of July was a difficult one. After a stellar month in June, the stock found resistance at the $180 level before engaging in a pre-earnings sell-off. Finding support above the $140 level near its 50- and 100-dma (now $145 and $142, respectively), the stock has since formed a 3-week base which it now appears to be breaking out of. This past week has seen DNA move above its 5- and 10-dma ($157.75 and $153.89, respectively), turning resistance into support. On Friday, DNA gapped up at open to $160 and from there, moved steadily up to close at its high of the day. A move above $165 with conviction would be a comfortable entry for the conservative, with bounces off its 5- and 10-dma as an entry for the more aggressive. Resistance ahead can be found in increments of $5 at $165, $170 and $175. Aside from a positive analyst report on Genentech about its pipeline on Thursday, there has been little news of consequence. Sector sympathy will be a driver of stock price movement so confirm technicals with sector direction before initiating a play. ***August contracts expire in two weeks*** BUY CALL AUG-160 DNA-HL OI= 146 at $ 9.13 SL= 6.25 BUY CALL AUG-165*DNA-HM OI= 121 at $ 7.50 SL= 5.25 BUY CALL AUG-170 DNA-HZ OI=1090 at $ 4.13 SL= 2.50 BUY CALL SEP-170 DNA-IZ OI= 298 at $10.75 SL= 8.00 BUY CALL SEP-175 DWN-IO OI= 142 at $ 9.38 SL= 6.50 SELL PUT AUG-155 DNA-TK OI= 529 at $ 2.63 SL= 4.25 (See risks of selling puts in play legend) Picked on August 6th at $164.13 P/E = N/A Change since picked +0.00 52-week high=$245.00 Analysts Ratings 6-8-3-0-0 52-week low =$ 66.88 Last earnings 07/17 est= 0.29 actual= 0.29 Next earnings N/A est= 0.31 versus= 0.25 Average Daily Volume = 1.09 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! 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The Option Investor Newsletter Sunday 08-06-2000 Sunday 3 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/080600_3.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 ************************************************************** ****************** CURRENT CALL PLAYS ****************** FRX - Forest Laboratories $116.81 (+9.81 last week) Forest Laboratories develops, manufactures and sells both branded and generic forms of ethical products which require a physician's prescription, as well as non-prescription pharmaceutical products sold over-the-counter, which are used for the treatment of a wide range of illnesses. Forest products are marketed principally in the United States and western and eastern Europe. Marketing is conducted by Forest and through independent distributors. FRX is continuing to behave like a winner. Closing the week well above technical supports, the stock made a move to a 52-week high of $118.50 in early trading Friday. Although it was a bit choppy early in the week, giving great entry points to the play on lows of $105.75, FRX was really right in step with the overall bumpy market. The stock edged higher throughout the week, finding support at the 10-dma of $111.48 in Friday's trading, hitting a low of $112.75. After briefly encountering resistance at the previous 52-week high of $114.50, FRX made a break for higher ground on a strong volume move, establishing yet another 52-week high! Profit takers found an opportunity, pushing the stock back to the $116 range, where it remained until a volume surge in the last hour of trading pushed FRX to close $2.19 above it's previous record. FRX has had a banner year, trading up 39.3% for the last 13 weeks, and an impressive 120% for the 52-week period (Michael Dell should be envious!). With continued enthusiasm in Forest's antidepressant drug Celexa, which captured 11.3% of last quarter's sales, analysts continue a Buy & Strong Buy ratings on the stock, citing a repeat of last quarter's above-estimate results is very attainable. With this in mind, the stock continues to appear in good shape to maintain it's current uptrend. Look for entry points to the play at the $112-$113 levels, with support being offered by the 5-dma at $112.43 and the 10-dma. Beware of profit takers at prices near the newly established highs, and keep your eyes open for increasing volume on the stock which seems to favor upward surges in price. Standard and Poor's calls the Healthcare and Biotech sectors "Best Bets" in their midyear review of top performing sectors, naming FRX as one of their top picks. FRX has recently entered into an agreement with Merz & Co. of Frankfurt, Germany for development and marketing in the U.S. of their neuropathic-distress inhibiting drug Memantine. Memantine, developed in the U.S. by Neurobiological, is used in the treatment of diabetic neuropathy, AIDS-related dementia, vascular dementia, and Alzheimer’s. This partnership was supported by a grant through the National Institute of Health. Under the agreement, FRX has U.S. rights to develop and market Memantine for all indications. ***August contracts expire in two weeks*** BUY CALL AUG-110 FRX-HB OI= 60 at $ 9.33 SL= 6.25 BUY CALL AUG-115*FRX-HC OI=347 at $ 6.13 SL= 4.50 BUY CALL SEP-105 FRX-IA OI= 0 at $13.50 SL=10.50 Wait for OI BUY CALL SEP-110 FRX-IB OI= 9 at $10.63 SL= 8.25 BUY CALL SEP-115 FRX-IC OI= 4 at $ 8.13 SL= 6.50 SELL PUT SEP-105 FRX-UA OI= 10 at $ 3.13 SL= 1.50 (See risks of selling puts in play legend) Picked on July 27th at $113.50 P/E = 88.43 Change since picked +3.31 52-week high=$118.50 Analysts Ratings 7-6-5-0-0 52-week low =$ 41.75 Last earnings 07/19 est= 0.27 actual= 0.31 Next earnings 10-19 est= 0.50 versus= 0.32 Average Daily Volume = 695 K ABSC - Aurora Biosciences $99.63 (+23.56 last week) ABSC develops and sells drug-discovery technologies and services. Along with such collaborators as Bristol Myers, Eli Lilly, Merck, and Pfizer, ABSC is developing a system using fluorescent assay technologies to allow researchers to overcome many limitations of traditional drug-discovery processes. Many of ABSC's tests are designed to be performed with living mammalian cells to better model human disease processes. Many Biotech stocks are built on the hopes and promises of future profits. Not ABSC! Get this, the company is expected to increase its bottom-line by an amazing 1800% this year over last year's losses. ABSC is benefiting from the explosion in gene based research, which was ushered in with the completion of the Human Genome earlier this year. The company is one of the proverbial pick and shovel providers in the race to deliver new drugs to the market. ABSC makes drug discovery systems and technologies, which accelerate the development of new medicines. The company has gained commercial acceptance for its products and technologies through revenue generating agreements with 21 major Pharmaceutical and Biotechnology companies. The resurgence in the Biotech sector recently has once again attracted investors to anything genomic-related. The fact that ABSC is one of the most profitable players in the group bodes well for our play. The rebirth of the Biotech sector last week, signaled by the four-day consecutive rally of the Amex Biotech Index ($BTK), has positioned ABSC on the brink of a major breakout. The stock has traced an enormous cup-with-handle chart formation over the last five months. Trading activity picked up last week as ABSC edged higher toward its pivot point at $100. An extended rally in the Biotech sector next week might boost ABSC into breakout mode. Consider your risk level, and target shoot for entry points if ABSC distances itself from the $100 level. Minor resistance at $105 and $110 might also be worthy entry points if ABSC rallies above those respective levels. Support at $95, and lower around the 5-dma at $92, might provide an aggressive trader with entry points during an intraday pullback. With the kind of EPS growth ABSC has reported, it's no wonder the stock boasts only Buy and Strong Buy ratings from the analysts covering the company. The number of brokerage houses following the stock might increase after ABSC presents at the Drug Discovery Technology 2000 Conference in Boston, which is scheduled to commence in one week. ***August contracts expire in two weeks*** BUY CALL AUG- 90 UDA-HR OI= 54 at $12.00 SL= 9.00 BUY CALL AUG- 95*UDA-HS OI= 54 at $ 8.88 SL= 6.25 BUY CALL AUG-100 UDA-HT OI= 85 at $ 6.00 SL= 4.00 BUY CALL SEP- 95 UDA-IS OI= 1 at $14.25 SL=10.50 BUY CALL OCT-100 UDA-JT OI=148 at $16.50 SL=11.75 SELL PUT AUG- 95 UDA-TS OI= 2 at $ 3.63 SL= 5.50 (See risks of selling puts in play legend) Picked on August 3rd $99.44 P/E = 199 Change since picked +0.19 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 = 451 K AMGN - Amgen $69.13 (+2.75 last week) Amgen makes and markets therapeutic products for hematology, oncology, bone and inflammatory disorders, and neuroendocrine diseases. Anti-anemia drug Epogen and immune system stimulator Neupogen account for about 95% of sales. The company has a pipeline of promising drugs in various stages of development. Amgen has research and marketing alliances with several companies, including Hoffman-La Rouche and Johnson and Johnson. The Internet mania was miniscule compared to what Wall Street expects from the Biotech sector. Many industry analysts expect the Biotech sector to dwarf almost all major market sectors in the next decade. The revolutionary completion of the Human Genome Project last spring opened the floodgates to new drug discovery. Who better to capitalize on the exciting developments than the industry's largest independent Biotech company AMGN? For the time being, AMGN derives the majority of its sales from two products, Epogen and Neupogen. But, the company's pipeline is long and littered with a host of promising products. In fact, AMGN is expected to reveal the results of several new products currently in clinical trials over the next few months. The anticipation of new revenue generating drugs entering AMGN's portfolio of products has many on Wall Street expecting the stock to rally into the Fall. The same analysts don't expect much consolidation within the Biotech sector for the time being. But, many believe the young genomic companies will continue to align with major Biotech firms with marketing muscle. AMGN has one of the biggest sales forces in the business, which should lead to further collaborations and strategic alliances with young and upcoming companies in the coming months. The rebirth of the Amex Biotech Index ($BTK) last week combined with the daily developments within the group bodes well for our bellwether play. AMGN consolidated its gains from earlier in the week last Friday, and looks poised to start its next leg up. An aggressive trader might look for an early entry into the play if AMGN moves above the $70 level Monday morning. A more conservative entry point might be found if the stock clears $72. Confirm direction in the BTK and wait for the Biotech bulls to show up before entering the play. Included in AMGN's pipeline are two drugs in Phase III clinical trials. The two products, known as ABARELIX and SD-01, are intended to treat prostate and breast cancer, respectively. The company has seven other drugs in trials, ranging from treatments for Lou Gehrig's disease to combating obesity with its highly anticipated Leptin drug. ***August contracts expire in two weeks*** BUY CALL AUG-65 YAA-HM OI=3691 at $5.63 SL=3.75 BUY CALL AUG-70*YAA-HN OI=5023 at $2.50 SL=1.25 BUY CALL AUG-75 YAA-HO OI=8616 at $0.81 SL=0.00 BUY CALL SEP-70 YAA-IN OI=1007 at $5.00 SL=3.00 BUY CALL OCT-75 YAA-JO OI=5290 at $5.25 SL=3.25 Picked on August 1st at $69.00 P/E = 65 Change since picked +0.13 52-week high=$80.44 Analysts Ratings 11-11-5-0-0 52-week low =$37.00 Last earnings 06/00 est= 0.27 actual= 0.28 Next earnings 10-20 est= 0.27 versus= 0.25 Average Daily Volume = 7.07 mln HWP - Hewlett-Packard $111.75 (+4.50 last week) HP is a top provider of computers, imaging and printing peripherals, software, and computer-related services. More than half of HP's sales come from outside the US. To further fuel its growth, HP is restructuring itself as an Internet specialist providing Web hardware, software, and support to corporate customers. To that end the company has spun off its test and measurement equipment and medical electronics businesses as Agilent Technologies (A). Let the run begin! We are a little less than two weeks away from HWP's third-quarter earnings announcement. HWP's CEO, Carly Fiorina, shifted HWP's focus to capitalize on the Internet over a year ago. Proof of HWP's commitment to the Internet was solidified last week when the company teamed with AT&T to develop a boutique of e-business services and applications. The result of Fiorina's strategy shift has been quarter after quarter of estimate beating EPS. The company has surpassed analysts' estimates by an average of a little over 5% in its last five quarters. While the upside surprises have not been monumental, they have been enough to capture investors' interests. It is that expectation for better-than-expected profits that we will attempt to capitalize upon. The profit warning from printer maker LXK and the news of slowing PC sales in late July plunged HWP's stock well into oversold territory. But, with the help from several analysts and a strengthening Tech sector over the last two weeks, HWP has been emerging from the sell-off mire. The stock formed the early stages of an ascending channel last week, with a series of higher lows and highs. Furthermore, HWP's 5-dma and 10-dma are converging around the $111 mark. A possible entry might be found if HWP bounces off its moving averages and rallies above resistance at $112. A more conservative trader might wait for momentum to build and look to enter the play if HWP moves above its near-term high at $115. A bounce off support at $109 might provide an intraday entry if a weak Tech sector delays HWP's earnings run. Volume has been a good indicator of higher prices as of late, make sure to confirm healthy trading activity with a rally. The announcement of HWP's third-quarter results is followed by the company's much-hyped HP World 2000. In a similar fashion to Apple's Mac World, HWP will demonstrate new products and describe new services to industry watchers and analysts. Although the event takes place after the earnings announcement, it might add a little potential to a HWP earnings run. ***August contracts expire in two weeks*** BUY CALL AUG-105 HWP-HA OI= 479 at $ 9.50 SL=6.50 BUY CALL AUG-110*HWP-HB OI=3845 at $ 6.38 SL=4.50 BUY CALL AUG-115 HWP-HC OI=2293 at $ 4.00 SL=2.50 BUY CALL SEP-110 HWP-IB OI= 396 at $ 9.50 SL=6.50 BUY CALL NOV-115 HWP-KC OI= 220 at $12.38 SL=9.25 Picked on July 30th at $107.25 P/E = 34 Change since picked +4.50 52-week high=$156.00 Analysts Ratings 9-10-4-0-0 52-week low =$ 67.00 Last earnings 04/00 est= 0.82 actual= 0.87 Next earnings 08-16 est= 0.85 versus= 0.85 Average Daily Volume = 3.81 mln IDPH - IDEC Pharmaceuticals Corp $137.00 (+21.00 last 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). So far so good. It's been a great week for IDPH, rallying for the past 5 trading sessions with a few pauses intraday. In doing so, a number of resistance levels were broken. On Monday, finding support at $115, the stock spent the day moving up, finding resistance at $125. The next day the stock cleared that area during amateur hour. Encountering resistance at $130, IDPH drifted lower for the rest of the day in a narrow trading range. Wednesday on high volume, IDPH blasted through the $130 mark closing not only about that level, but also resistance at $135. On Friday morning IDPH made an attempt to break $140. With formidable resistance there, the stock moved down to support at $130 and by the end of the day, edged its way back up above the key $135 level. Aggressive traders who bought the bounce off of its 5-dma (currently at $131.95) were rewarded with a great entry point and a profitable play. If the current trend continues, look for resistance at $140 to be surpassed early next week. A break through that level on high volume would serve as a conservative entry point. Support for the stock can be found at the 5-dma and in increments of $5 at $135 and $130 as can resistance which can be found at $140 and $145. One point of caution is that volume has been drying up the past three days despite the move up. Make sure the volume confirms the direction before entering. As stated on Thursday, 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. ***August contracts expire in two weeks*** BUY CALL AUG-130 IDK-HF OI=785 at $13.38 SL= 9.75 BUY CALL AUG-135*IDK-HG OI=387 at $10.25 SL= 7.00 BUY CALL AUG-140 IDK-HH OI=300 at $ 7.88 SL= 5.50 BUY CALL SEP-140 IDK-IH OI= 44 at $15.50 SL=11.25 BUY CALL SEP-145 IDK-II OI= 24 at $13.25 SL= 9.75 SELL PUT AUG-125 IDK-TE OI= 66 at $ 3.63 SL= 5.50 (See risks of selling puts in play legend) Picked on August 3rd at $135.88 P/E = 202.80 Change since picked +1.13 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= 0.26 versus= 0.21 Average Daily Volume = 1.14 mln IVX - IVAX Corporation $45.75 (-2.75 last week) IVAX Corporation, headquartered in Miami, Florida, is a holding company with subsidiaries engaged in the research, development, manufacture, and marketing of branded and generic pharmaceuticals in the U.S. and international markets. IVAX also has subsidiaries specializing in veterinary products, diagnostic products, and nutraceuticals. The company and its subsidiaries employ approximately 3,700 in 13 countries throughout the world. IVAX and its subsidiaries focus primarily on branded and generic pharmaceutical products. It's been a tough week for IVX. After months of moving steadily up, with bounces off the 5-dma and the occasional rare visit to the 10-dma, IVX has made an even rarer visit to its 50-dma. The week started off normal enough, with IVX making a new intraday high on Monday on over twice the ADV. On Tuesday, the stock soared to a new all-time high and in doing so, cleared the psychological hurdle of $50 with authority and conviction. Wednesday saw some profit taking but the signs for a move lower were there, despite the close above the $50 level as the move down was on the same strong volume as the move up the previous day. On Thursday morning, after a delay due to a trading imbalance, the stock opened late (at roughly 10:30 EST). When it did, it opened below its 10-dma but from there, after some hesitation from traders, the stock moved higher and ended the day down only fractionally. While the day's action was still consistent with IVX's uptrend, the trading imbalance and gap down open was another note of caution. On Friday, news of an acquisition brought the stock tumbling. Finding resistance at the $50 level, the stock moved down on accelerating volume as traders digested the news. Finding a bottom at $40 near its 50-dma, buyers jumped into the stock in force to close it strongly above support at $45. While the selling to the 50-dma was a cause for concern, we were encouraged by the huge buying volume that came in to support the stock after what looked like capitulation selling. Looking back at IVX's chart, successful tests of the 50-dma have been the most ideal of entry points which is why we are continuing this play. Support now lies at $45, $44.50 and $43.50 with resistance at $47, $48.25 and the psychological $50. The news that sent IVX lower was the announcement of the acquisition of privately-held Wakefield Pharmaceuticals, as seller and marketer of respiratory products, in a move to broaden its product line. While it is not uncommon for shares of an acquiring company to trade lower on news of an acquisition, with the stock lower in after-hours trading on Friday, the risk profile of this play has increased so caution is advised when entering. ***August contracts expire in two weeks*** BUY CALL AUG-40 IVX-HH OI= 126 at $6.63 SL=4.50 BUY CALL AUG-45*IVX-HI OI= 204 at $2.88 SL=1.75 BUY CALL AUG-50 IVX-HJ OI=1255 at $1.06 SL=0.00 BUY CALL SEP-45 IVX-II OI= 158 at $5.38 SL=3.50 BUY CALL SEP-50 IVX-IJ OI= 433 at $3.63 SL=1.75 Picked on August 1st at $52.00 P/E = 78.97 Change since picked -6.25 52-week high=$52.88 Analysts Ratings 5-4-0-0-0 52-week low =$9.63 Last earnings 07/27 est= 0.13 actual= 0.19 Next earnings N/A est= 0.20 versus= 0.11 Average Daily Volume = 981 K COF - Capital One Financial $58.88 (+2.06 last week) As one of the top 10 credit card issuers in the U.S., Capital One’s secret weapon is its vast databases. The company uses this data to match a potential Visa or MasterCard customer to any one of its thousands of cards, varying in annual percentage rates, credit limits, finance charges and fees. Ranging from platinum and gold cards for preferred customers to secured and unsecured cards for customers with poor credit histories, the company has a credit card for just about anyone. The company also sells wireless phone services, mortgage services, and consumer lending products. Leading the DJIA higher, the Financials were one of the shining beacons in the stock market this week. All one has to do is look at the current Call list, and the preponderance of Financial stocks should be a clear signal of the strength in this sector. On Tuesday, First Union Securities decided to pour some cold water on the sector (see news below), but investors responded by putting on their swimsuits and having a party. After a bit of trepidation mid-week, the entire sector launched higher as one economic report after another came in favorably. The move higher Thursday and Friday has many of these stocks testing or setting new 52-week highs, and COF is no exception. The current high-water mark is $59.25, and Friday’s close (at the high of the day) is just fractionally below this level. Sentiment in the market is favoring a no-hike decision from the Fed on August 22nd, and the result can be seen with only a cursory glance at the COF chart. The price is rising on increasing volume which topped double the ADV on Friday. The mid-week dip confirmed support at $54 (just below the 10-dma), and the subsequent recovery re-established intraday support at $56 and then $58. Target shoot intraday dips to support for new entries, or if you are more cautious, wait for continuing strong buying volume to push COF to new highs above $60 before jumping into the pool. First Union Securities went on a tear on Tuesday, initiating coverage of MER, MWD, and SCH with a Hold rating and downgrading COF from Strong Buy to Buy. So how did the market respond? After a brief hiccup on Wednesday, all of these stocks responded with a strong surge upwards to close out the week in fine fashion. As a matter of fact, MER and MWD set new 52-week highs on Friday, and COF, which closed at the high of the day, is only $0.38 below its 52-week high. ***August contracts expire in two weeks*** BUY CALL AUG-55*COF-HK OI=1534 at $4.63 SL=2.75 BUY CALL AUG-60 COF-HL OI=3706 at $1.69 SL=0.75 BUY CALL SEP-55 COF-IK OI= 684 at $6.25 SL=4.25 BUY CALL SEP-60 COF-IL OI= 499 at $3.75 SL=2.25 BUY CALL DEC-60 COF-LL OI= 693 at $7.00 SL=5.00 Picked on July 23rd at $55.81 P/E = 29 Change since picked +3.06 52-week high=$59.25 Analysts Ratings 12-11-1-0-0 52-week low =$32.06 Last earnings 07/00 est= 0.54 actual= 0.54 Next earnings 10-11 est= 0.58 versus= 0.45 Average Daily Volume = 1.00 mln MER - Merrill Lynch & Co. $135.75 (+13.75 last 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. As the technology market continued to meander in its recent trading range, Financial stocks helped to lift the DJIA off of its recent lows. MER was one of the leaders in this respect, gaining more than $10 from its lows late on Tuesday. Helping to push MER and other stocks in the sector higher were positive economic reports sprinkled throughout the week. From the NAPM to New Housing Starts to the Employment Report, everything seemed to point to a slowing economy like Uncle Alan (Greenspan) wants, strengthening the belief that he will leave interest rates unchanged at the August FOMC meeting. MER has been in the sweet spot of the rise in the Financial sector as brokerage stocks have done the best of all. After finding it footing near $126 Wednesday morning, shares of this Financial powerhouse charged higher for the remainder of the week, with an exceptional move on Friday after the favorable jobs data was released. Setting another 52-week high of $136.94, and closing just fractionally below this level, MER is in breakout mode and looks poised for more gains in the days ahead. Sure, we still have the PPI/CPI reports ahead of the FOMC meeting, but if they come in favorably as well, it looks like MER could continue to shine. Consider initiating new positions if positive sentiment can push the stock higher from current levels. The 5-dma ($129.69) and the 10-dma ($128.56), along with historical support near $130 should provide an attractive entry point should the stock pull back before heading higher. After First Union Securities initiated coverage of MER with a HOLD rating on Tuesday, investors shook it off and started pushing the stock higher with help from positive economic reports throughout the week. The market sentiment seems to be indicating that the Fed will have a hard time raising interest rates at its August 22nd FOMC meeting, and the Financial and Brokerage stocks responded by continuing to move higher right into the close on Friday. ***August contracts expire in two weeks*** BUY CALL AUG-130*MER-HF OI=2460 at $8.13 SL=5.75 BUY CALL AUG-135 MER-HZ OI=1284 at $4.88 SL=3.00 BUY CALL AUG-140 MER-HH OI=2012 at $2.63 SL=1.25 BUY CALL SEP-135 MER-IZ OI= 153 at $9.00 SL=6.25 BUY CALL SEP-140 MER-IH OI= 263 at $6.63 SL=4.50 BUY CALL OCT-140 MER-JH OI=1316 at $9.88 SL=7.00 SELL PUT SEP-125 MER-UE OI= 144 at $3.13 SL=5.00 (See risks of selling puts in play legend) Picked on August 3rd at $130.81 P/E = 17 Change since picked +4.94 52-week high=$136.94 Analysts Ratings 3-4-3-0-0 52-week low =$ 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 = 2.90 mln AFL - AFLAC, Inc. $55.56 (+2.13 last 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. AFL decided to give buyers an opportunity to get into the stock on Friday as it fell down to its 10-dma at $53.44. As a matter of fact, it opened at this low, but then proceeded to gain ground throughout the day. The July Jobs Report was a positive for financial stocks, as a cooling economy seems to be giving traders an idea the Fed may be able to hold off on raising interest rates further at the FOMC meeting later this month. Volume on Friday was about average and though AFL reached a new 52-week high, watch for the stock to break through this high at $55.81 before adding to positions. Although, another fall and subsequent bounce from the stocks 10-dma could be buyable. Since this is a slow mover, option premiums are quite reasonable. Though this stock is light on news, the reason it fell out of the gate on Friday is that DLJ lowered its rating on the stock from Buy to Market Perform. The news couldn't keep the stock down though, as financial stocks in general rallied on the jobs report. ***August contracts expire in two weeks*** BUY CALL AUG-50*AFL-HJ OI=656 at $6.13 SL=4.00 BUY CALL AUG-55 AFL-HK OI=231 at $2.25 SL=1.25 BUY CALL SEP-50 AFL-IJ OI= 90 at $6.88 SL=4.50 BUY CALL SEP-55 AFL-IK OI= 42 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 +0.25 52-week high=$55.81 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 GENZ - Genzyme Corp. $73.00 (+7.88 last week) Genzyme is a biotechnology company that specializes in developing drugs for rare genetic diseases. And they actually make money! Their business strategy is to buy companies that can contribute to its in-house development of niche biopharmaceutical products. They are also product diversified with development, manufacturing and marketing capabilities in therapeutic and diagnostic products, pharmaceuticals and diagnostic services. Another new high for GENZ on Friday, although the stock did close flat by the day's end. The Biotechnology Index($BTK) was able to tack on 1.82%, so GENZ wasn't up to par on Friday. That being said, a day of rest isn't so bad after a rise of $8 in four days. Volume picked up a little from Thursday, but is still below the stocks ADV of 1.18 mln. The 10-dma at $69.84 continues to look like a pretty good support line, and a bounce of this area near $70 could be a good buying opportunity. A more conservative player may want to see the stock take out Friday's high at $75 before entering. Friday's release of the July jobs report was bullish overall for the markets, yet watch the $BTK and other biotechs to have continued strength when looking to enter this call play. No new news for GENZ, though the company should continue to benefit from positive comments about its technology advances. ***August contracts expire in two weeks*** BUY CALL AUG-70*GZQ-HN OI=237 at $5.00 SL=3.25 BUY CALL AUG-75 GZQ-HO OI=227 at $2.38 SL=1.25 BUY CALL SEP-70 GZQ-IN OI= 42 at $7.38 SL=4.75 BUY CALL SEP-75 GZQ-IO OI= 50 at $4.88 SL=3.00 SELL PUT AUG-70 GZQ-TN OI= 54 at $1.63 SL=3.00 (See risks of selling puts in play legend) Picked on July 27th at $71.31 P/E = 28 Change since picked +1.69 52-week high=$75.00 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 = 1.18 mln PVN - Providian Financial Bancorp $112.72 (+9.09 last week) Providian Financial Corporation provides consumer-lending products such as home loans, credit cards, and other fee-based products. The Company mainly issues secured credit cards to customers with not-so-perfect credit histories and charges a high fee and high interest rates. With the use of direct mail, phone solicitations and online advertising, Providian has been able to attract more than 12 mln customers. The company has operations in the US and the UK. PVN broke out of an ascending wedge on Friday with a vengeance. The stock gapped up on the open after the market-friendly jobs report up to $107.50 from Thursday's close of $105.06. The stock did not stop there though, continuing to climb in the first hour of trading. From there PVN was relatively flat, reaching an intraday high of $113.75 just before the closing bell. Credit card companies are directly affected by interest rates, and the jobs report has many economists and trader now believing the Fed will leave rates alone at the August FOMC meeting. Next resistance for PVN is near $118.50, the sight of the stock's high on Halloween day of last year. Volume was nearly 50 percent higher than normal, a confirmation of the strong breakout. Watch for PVN to possibly participate in some profit taking though. If this does occur, look for a possible bounce near $110 to gain entry into this uptrending issue. Otherwise, a continued rise through Friday's high at $113.75 would offer a more conservative entry point. No news on PVN, but continued comments from market-watchers that the Fed will leave rates alone should only help this stock going forward. This news could also have some brokers raising estimates on the stock in the near term. ***August contracts expire in two weeks*** BUY CALL AUG-110*PVN-HB OI=2111 at $5.75 SL=3.25 BUY CALL AUG-115 PVN-HC OI= 26 at $3.13 SL=1.50 BUY CALL AUG-120 PVN-HD OI= 20 at $1.50 SL=0.75 BUY CALL SEP-115 PVN-IC OI= 21 at $6.63 SL=4.00 BUY CALL SEP-120 PVN-ID OI= 127 at $4.63 SL=2.75 Picked on July 23rd at 102.38 P/E = 28 Change since picked +10.34 52-week high=$118.50 Analysts Ratings 16-6-2-0-0 52-week low =$ 58.13 Last earnings 06/00 est= 1.25 actual= 1.29 Next earnings 10-19 est= 1.34 versus= 1.04 Average Daily Volume = 1.02 mln LEH - Lehman Brothers Holdings $129.63 (+21.50 last week) Lehman Brothers is a global investment firm that services high- net-worth institutional investors. They provide a vast array of trading and financing services and are the lead underwriter of global equity and fixed-income securities. The firm is also leading the charge into online bond offerings in the US. They're regionally headquartered in New York, London, and Tokyo. Now that's what we call a breakout! LEH certainly did it in a brilliant fashion, skyrocketing almost 9% for a $10.38 gain. The catalyst was Friday's July jobs report that investors and traders interpreted as positive. LEH gapped open above resistance at $120 and never looked back. There were a lot of positive signs that the stock will continue higher next week. First of all, volume was nearly double the ADV. Next, the stock closed on its day and all-time high. Thirdly, the feeling is interest rates will be kept on hold at the August FOMC meeting, which should also help financial stocks out. Considering this huge gain on Friday, we would expect to see some profit-taking to occur. Yet, this uptrend is intact and technically bullish. Look for entries into this call play on a pullback to the $125 area, accompanied with a bounce on strong buying volume. LEH spend much of Friday afternoon at this intraday support level. If this level does not hold, there is a possibility that traders may want to test the $120 level, previously resistance. This would provide an excellent entry. Watch for resistance at $130. A conservative entry could be attained on a strong volume move through this level as investors pile into this outstanding Financial. LEH continues to be a beneficiary from the announcement last week that they, along with three other brokers, are starting their own online mortgage and asset-backed securities trading exchange. Since this deals with interest sensitive issues, interest rates play a part in the exchanges success. ***August contracts expire in two weeks*** BUY CALL AUG-120 LEH-HD OI=735 at $10.13 SL= 7.25 BUY CALL AUG-125*LEH-HE OI=442 at $ 6.75 SL= 4.50 BUY CALL SEP-125 LEH-IE OI=377 at $10.88 SL= 7.50 BUY CALL OCT-130 LEH-JF OI=601 at $11.13 SL= 7.75 BUY CALL OCT-135 LEH-JG OI=258 at $ 8.88 SL= 6.75 Picked on July 25th at $121.09 P/E = 10 Change since picked +8.54 52-week high=$121.63 Analysts Ratings 3-6-1-0-0 52-week low =$ 47.56 Last earnings 06/00 est= 2.43 actual= 2.78 Next earnings 09-25 est= 2.14 versus= 2.20 Average Daily Volume = 1.20 mln ********************************Advertisement******************** American Express. Cardmembers are buying online Find out more! http://www.sungrp.com/tracking.asp?campaignid=179 ***************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 08-06-2000 Sunday 4 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/080600_4.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 ************************************************************** ************* NEW PUT PLAYS ************* EFNT - Efficient Networks $51.88 (-10.94 last week) Efficient Networks, Inc. is a leading worldwide provider of broadband access products that employ digital subscriber line (DSL) technology. The company's SpeedStream family of DSL solutions provides high-performance remote access for small and medium businesses, branch offices, telecommuters, and consumers. Working globally with central office vendors, incumbent local exchange carriers, competitive local exchange carriers, international carriers and Internet service providers, Efficient's solutions enable next generation broadband applications. Efficient Networks is based in Dallas, Texas, with additional facilities in Asia and Europe. Investors hoping to capitalize on EFNT's pre-earnings rally in mid-July have been in for a landslide the past three weeks. The stock gained about $50 in the 30 days prior to the stellar earnings announcement on the 18th, rallying to a lofty $102 on July 17th. EFNT crushed earnings expectations, reporting a loss of -$0.03 per share, versus the estimate of -$0.15. Despite great revenues from successful sales of their SpeedStream SDSL router, which contributed 65% to their Q4 revenue, EFNT has been unable to withstand recent downgrades, appearing to be on a continued downtrend. Jeffries downgraded the stock on August 3rd from Buy to Hold, citing recent weakness in the Customer Premises Equipment (modems and routers) segment of the DSL industry. Touting SBC as it's biggest customer, EFNT has had to transfer provisioning of DSL installation to an SBC subsidiary due to regulatory issues related to the purchase of Ameritech. This resulted in a decreased installation rate during June and July. Now trading almost $135 under the 52-week high set in March, EFNT has been ravaged by profit takers, as well as overall sector and th NASDAQ. Unable to conquer resistance of $65.89 offered by the 10-dma, EFNT reached a high of $60 in the first moments of trading on Friday, then immediately fell through support of the 5-dma at $58.31. The slide continued through noon, where the stock bottomed out at $50.06. It attempted a recovery, struggling through intraday resistance at $52.50 in the last 90 minutes, giving up at the end to close at $51.88. With no price restoration in sight and overhead resistance at $58, any rollovers at this level look like an attractive entry to the play. If the stock continues it's undeterred weakness, however, consider opening positions as the stock falls through support of $50. ***August contracts expire in two weeks*** BUY PUT AUG-55*YTY-TK OI= 8 at $ 7.13 SL=10.00 BUY PUT AUG-50 YTY-TJ OI= 4 at $ 4.00 SL= 6.25 BUY PUT SEP-50 YTY-UJ OI= 45 at $ 8.00 SL=10.50 Average Daily Volume = 1.18 mln MU - Micron Technology $73.44 (-5.50 last week) Micron is one of the world’s leading makers of semiconductor memory components. Two-thirds of the companies revenues come from dynamic random-access memory (DRAM), flash memory, and other chips. MU has added the newer Rambus DRAM and Synchronous DRAM products to its line, and it is developing embedded memory for the digital video and other markets. The other third of the company’s sales come from Micron Electronics (61% owned by MU), which makes PCs and laptop computers and offers Internet related business services. After helping to lead the NASDAQ out of its late-May lows, the Semiconductor stocks have run out of tricks in their magic bag. After Salomon Smith Barney analyst Jonathan Joseph downgraded the whole sector, citing concerns about slowing demand, it has been a steep and painful slide for even the strongest stocks in the sector. Unable to mount anything more than a dead-cat bounce over the past 3 weeks, MU has followed the crowd lower and is now in danger of breaking its 100-dma (currently at $72.56) for the first time since February. With earnings winding down and the summer doldrums upon us, MU looks like it could be headed lower before finding a bottom. The company reports again in mid-September, so even though it is expected to be a very strong quarter, there will be no help from that area in the near term. Each attempted recovery is running into resistance at the 10-dma (currently at $80.13) and a rollover near this level would make for a beautiful entry point. Support sits below at $70 and $65, with much stronger support at $58-60. If you would prefer to enter on continued weakness, look for selling pressure to push the stock through the $70 support level before jumping into the play. Be careful though - the Semiconductors could still have a couple tricks left in its magic bag - stop losses are a must. ***August contracts expire in two weeks*** BUY PUT AUG-75*MUY-TO OI=4334 at $6.00 SL=4.00 BUY PUT AUG-70 MU -TN OI=3408 at $3.75 SL=2.25 BUY PUT SEP-75 MUY-UO OI= 164 at $9.25 SL=6.50 BUY PUT SEP-70 MU -UN OI= 564 at $7.00 SL=5.00 Average Daily Volume = 6.37 mln ***************** CURRENT PUT PLAYS ***************** AMD - Advanced Micro Devices $62.63 (-8.38 last week) AMD ranks #2 in the microprocessor market, after Intel. The company has grabbed a substantial share of the sub-$1000 PC market. AMD's microprocessors include the K6 and the super-fast Athlon (K7). The company also makes embedded chips and nonvolatile memories. AMD's major markets are computers, networking, and communications. About 60% of sales are outside the United States. The divergence between the broader Tech sector and the Chip group is leaving some investors in shambles. Despite the modest gains posted on the NASDAQ last Friday, the Semi sector suffered yet another setback. The Chip bears scoffed at the numerous comments from analysts last Friday, who attempted to recoup some of the recent losses suffered in the group. The bullish comments from analysts almost had a desperate ring. Lehman Brothers released a list of 10 reasons why the Semi sector is in good shape. Those 10 reasons didn't prevent AMD from falling closer to major support at $60. Additionally, not even the news that the company had sold its communications division for $375 mln in cash could stabilize AMD's 4% drop Friday. The future of the Semi sector is at the forefront of debate on Wall Street, which has left AMD on the brink of breakdown. The macro uncertainty within the Chip group is on top of AMD's micro problems with rival Intel and concerns over the prospects of the flash memory market, add to that slowing sales of PCs. The box makers recently warned of slowing sales of PCs, which might result in fewer orders for the chips that power computers. And, a high profile industry representative warned last week of slowing demand in the flash memory market, which AMD has a stronghold. AMD's problems are mounting, which has the stock precariously hovering above a key support level at $60. Volume was more than robust Friday as AMD sank closer to that level. Look for entry if AMD falls below $60 Monday on heavy volume. If the Semi sector enjoys a relief rally, an aggressive trader might target shoot for an entry if AMD rolls over at resistance near its 5-dma around $66, which is near the top of its descending channel. ***August contracts expire in two weeks*** BUY PUT AUG-65*AMD-TM OI=3406 at $5.88 SL=4.00 BUY PUT AUG-60 AMD-TL OI=1354 at $3.13 SL=1.50 BUY PUT AUG-55 AMD-TK OI=1664 at $1.63 SL=0.75 Average Daily Volume = 4.79 mln MRVC - MRV Communications $60.00 (+1.50 last week) MRV Communications is in the business of creating and managing growth companies in optical technology and Internet infrastructure. The company has created several start-up companies and independent business units in these areas. MRVC’s core operations include the design, manufacture, and sale of products in these areas, primarily Network Element Management, and physical layer, switching and routing management systems in fiber optic metropolitan networks. The company also produces fiber optic components for the transmission of voice, video and data across enterprise, telecommunications and cable TV networks. After the breath-taking $30 post-earnings plunge from $82 to $52, we jumped on the bandwagon and picked up MRVC as a new Put candidate on Tuesday. Well, Murphy is obviously alive and well, as the stock responded with two days of gapping lower only to recover throughout the day. This kind of movement is very difficult to trade unless you open a new position at the close and exit the position on the next day’s gap down. This is a very risky strategy. The move higher Thursday afternoon came on increasing volume and Friday saw the stock gap up near $60, and then flatline for the remainder of the session. Normally, we would be thinking about dropping the play at this point, but since the stock looked like it was weakening as the day wore on, we decided to give it one more chance. Add in that the NASDAQ is looking a little top-heavy at this point, and the downside still looks favorable. We don’t advocate initiating new positions at this point, although it looks like MRVC is just about to roll over. We need to see the conviction of strong selling volume before jumping into the play, so wait for the bears to go on a rampage before unlocking your bank vault. Support is sitting at $55, with the the 50-dma at $57.75. If strong volume can push the price through support at $55, consider buying puts, but with the understanding that there appears to be strong support at $48-50. ***August contracts expire in two weeks*** BUY PUT AUG-60 RVY-TL OI=736 at $6.38 SL=4.25 BUY PUT AUG-55*VQX-TK OI=492 at $4.00 SL=2.50 BUY PUT SEP-60 RVY-UL OI= 39 at $9.50 SL=6.75 BUY PUT SEP-55 VQX-UK OI= 0 at $7.25 SL=5.00 Average Daily Volume = 2.40 mln TERN - Terayon Communications Systems $55.13 (+1.25 last week) Terayon Communication Systems is a leading provider of broadband access systems for delivering advanced voice, data and video services over cable and DSL lines. The company's TeraComm system is designed to enable cable operators to maximize the capacity and reliability of broadband access services over any cable plant, minimize time-consuming and costly network infrastructure upgrades, and provide a range of service levels to residential and commercial end users. The Santa Clara, CA based company sells its products to cable operators throughout North America, Latin America and Europe. International sales account for almost 85% of Terayon's revenues. Alright, so TERN gained a little last week. Not to worry, the stock still can't seem to find its legs. Case in point, the stock gapped open on Friday after a market friendly jobs report was released, but that was as good as it got for TERN. From there, it fell back down and closed with a loss of $0.69 on an otherwise decent day for tech stocks. TERN has formed a short-term bottom in the $48.50 to $50 range, but this gives us some room to work with. TERN also could not maintain itself above its 10-dma at $56.20. Watch for a bump off this DMA as a possible entry point. We still feel some weakness in the market could send this stock below short-term support to stronger support at $40. Remember that last week TERN agreed to buy Mainsail. Though the deal was worth just $163.8 mln, the acquirer will often struggle as shareholders and analysts digest the news and figure out if it is beneficial for the company. ***August contracts expire in two weeks*** BUY PUT AUG-60*TUN-TL OI=250 at $7.25 SL=4.50 BUY PUT AUG-55 TUN-TK OI=185 at $4.38 SL=2.50 BUY PUT AUG-50 TUN-TJ OI=490 at $2.13 SL=1.00 Average Daily Volume = 2.03 mln ********************************Advertisement******************** American Express. Cardmembers are buying online Find out more! http://www.sungrp.com/tracking.asp?campaignid=180 ***************************************************************** ***** LEAPS ***** Up, Down, or Sideways. The Debate Rages On... By Mark Phillips Contact Support Watch CNBC long enough and you can get really confused this time of year. One analyst says the markets are ready to crater, the next says they are ready to soar, while the truth likely lies with the next analyst that says we are going to stay rangebound. How do you separate the meaningful information from the meaningless chatter? If you know the answer, please email me - I’ll take all the help I can get! Seriously, we need to pay attention to what the markets are telling us, not the self-proclaimed experts. If you are still wondering where the much-anticipated summer rally is hiding, you must not be watching the Financials. This sector has been one of the few bright spots lately and you can see the results in our playlist. C and AXP are at new 52-week highs, while WM fell shy by only $0.25 on Friday. Conventional wisdom says that the Financials have to cooperate to support a sustained rally, so this is definitely a good sign. Unfortunately there are many caution flags waving on Wall Street, not the least of which is the VIX. As it continues to burrow lower and lower, the likelihood of a near-term market top increases. You’ll remember that we were encouraged last week as this indicator had finally moved, actually getting up above 24. The market pessimism (remember the VIX is a contrarian indicator) didn’t last and the VIX quickly reversed course, closing out the week at a mere 21.58. It’s 52-week low is only over 2 points away at 19.46, so we are clearly in the danger zone. With earnings effectively over, the put/call ratio in the basement, the summer doldrums upon us, weakness in key sectors like the Semiconductors, and the major indices continuing to be rangebound, there is definitely a cautionary tone to the markets. But don’t despair! This is what we want as LEAPS buyers. We live for downturns in the market so that we can swoop in and grab LEAPS on our favorite stocks at a discount. The usual pattern of the markets weakening during the summer months looks like it will repeat again this year, which is precisely why I’ve been encouraging you to lock in profits over the past several weeks. If you have heeded my advice, your account is fat with cash, and if you are like me, you are likely drooling over some of the apparent fire-sale prices on some of our current plays like NSM, MOT and NOK. There is another bright point in the markets that requires our attention as well. With the string of favorable economic reports that came out last week and CPI/PPI coming up, market sentiment seems to be favoring a no-hike decision on interest rates from the August 22nd FOMC meeting. If this in fact comes to pass, investors could very well jump the gun and try to jump start the markets after the meeting. It will be very hard to buck the historical trend without a strong catalyst however, and it seems unlikely that a strong rally will be sustainable until we pass through the spooky "Ides of October". If we do rally after the August FOMC meeting, the talking heads on CNBC will likely be going overtime on the hazard of a mid-October drop, which is likely to keep investor enthusiasm muted through late September and early October. With all that cautionary commentary, many of you may be scratching your heads and wondering why we continue to add new LEAP plays. Remember that just because we list a play, it doesn’t mean you should run right out and buy it. This is the time to pick your favorite plays and put them on your radar screen. Make a decision on what you want for an entry point. If the markets look healthy and deliver to you exactly what you asked for, then go for it. We just want you to keep in mind the hazards that are before us in the coming weeks. Although an entry point may look great today, it may get even better 3 weeks from now. If you exercise discipline and patience, you will likely sleep better and your account will prosper. Remember that we don’t have to be right, we just have to listen to the market, because it is always right. Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN EMC 11/07/99 JAN-2001 $ 40 EMB-AH $ 7.69 $47.25 514.43% JAN-2002 $ 45 WUE-AI $ 9.50 $46.38 388.21% JAN-2003 $ 90 VUE-AR $35.50 $31.38 ------ CSCO 11/14/99 JAN-2001 $ 40 CYQ-AH $ 9.56 $28.50 198.12% JAN-2002 $ 45 WIV-AI $11.00 $30.50 177.27% JAN-2003 $ 70 VYC-AN $25.13 $23.25 ------ NT 11/28/99 JAN-2001 $37.5 NT -AU $11.13 $38.13 242.59% JAN-2002 $37.5 WNT-AU $15.13 $42.38 180.11% JAN-2003 $ 80 ODT-AP $28.63 $28.63 ------ SUNW 12/19/99 JAN-2001 $ 80 SUX-AP $17.63 $33.50 90.00% JAN-2002 $ 90 WJX-AR $22.00 $39.25 78.41% JAN-2003 $105 VSU-AA $40.63 $42.63 ------ ERICY 01/30/00 JAN-2001 $16.3 RQC-AO $ 4.94 $ 3.63 -26.52% JAN-2002 $16.3 WRY-AO $ 6.75 $ 6.00 -11.11% 07/23/00 JAN-2003 $ 25 VYD-AE $ 6.88 $ 4.88 -29.07% NSM 02/27/00 JAN-2001 $ 70 NSM-AN $18.50 $ 1.50 -91.89% JAN-2002 $ 70 WUN-AN $24.25 $ 6.25 -74.23% JAN-2003 $ 40 VSN-AH $16.50 $15.13 ------ AOL 03/12/00 JAN-2001 $ 60 AOO-AL $14.00 $ 4.88 -65.14% JAN-2002 $ 65 WAN-AM $18.63 $10.00 -46.32% JAN-2003 $ 65 VAN-AM $18.25 $15.00 ------ AXP 03/12/00 JAN-2001 $43.3 AXP-AP $ 7.25 $17.13 136.28% JAN-2002 $46.6 WXP-AQ $ 9.33 $21.38 129.15% JAN-2003 $ 60 VAX-AL $18.38 $18.63 ------ WM 03/19/00 JAN-2001 $ 25 WM -AE $ 5.00 $11.63 132.60% JAN-2002 $ 30 WWI-AF $ 5.38 $10.38 92.94% JAN-2003 $ 35 VWI-AG $ 7.63 $ 9.88 ------ AMD 04/16/00 JAN-2001 $ 70 AMD-AN $17.50 $11.63 -33.54% JAN-2002 $ 70 WVV-AN $26.00 $22.38 -13.92% JAN-2003 $ 90 VVV-AR $36.75 $25.50 ------ JDSU 04/16/00 JAN-2001 $ 80 XXZ-AP $27.50 $44.25 60.91% JAN-2002 $ 80 YJU-AP $39.63 $58.25 46.98% JAN-2003 $120 VEQ-AD $52.38 $52.38 ------ VSTR 04/16/00 JAN-2001 $ 90 UVT-AR $23.88 $41.88 75.38% JAN-2002 $ 90 WWP-AR $35.00 $52.25 49.29% JAN-2003 $150 VLV-AJ $59.13 $34.00 ------ MOT 05/14/00 JAN-2001 $33.3 MOT-AY $ 6.58 $ 6.75 2.58% JAN-2002 $36.6 WMA-AZ $ 9.54 $10.13 6.18% JAN-2003 $ 40 VMA-AH $13.38 $12.13 ------ NOK 05/21/00 JAN-2001 $ 50 NZY-AJ $10.25 $ 3.25 -68.29% JAN-2002 $ 50 IWX-AJ $17.25 $ 9.25 -46.38% 07/30/00 JAN-2003 $ 50 VOK-AJ $17.75 $13.00 -26.76% HD 05/28/00 JAN-2001 $ 50 HD -AJ $ 6.25 $ 8.75 40.00% JAN-2002 $ 50 WHD-AJ $11.38 $14.75 29.61% 08/06/00 JAN-2003 $ 60 VHD-AL $15.25 $15.25 0.00% NXTL 06/11/00 JAN-2001 $ 60 FZC-AL $12.25 $10.38 -15.27% JAN-2002 $ 60 YFG-AL $19.25 $17.25 -10.39% JAN-2003 $ 60 VFU-AL $21.88 $22.50 ------ C 06/18/00 JAN-2001 $ 65 C -AM $ 7.63 $13.38 75.36% JAN-2002 $ 65 WRV-AM $13.75 $20.25 47.27% JAN-2003 $ 75 VRN-AO $20.50 $20.50 ------ AMGN 07/02/00 JAN-2001 $ 75 YAA-AO $10.75 $ 8.75 -18.60% JAN-2002 $ 75 WQY-AO $20.75 $18.88 - 9.01% JAN-2003 $ 70 VAM-AN $28.75 $27.38 - 4.77% VRSN 07/02/00 JAN-2002 $190 YVS-AR $66.25 $55.50 -16.23% JAN-2003 $180 OVS-AP $88.00 $73.63 ------ DELL 07/09/00 JAN-2002 $ 55 WDQ-AK $12.63 $ 6.88 -45.53% JAN-2003 $ 60 VDL-AL $15.38 $ 9.13 -40.64% GENZ 07/16/00 JAN-2002 $ 70 YGZ-AN $17.13 $23.75 38.65% JAN-2003 $ 70 OZG-AN $23.13 $30.25 30.78% LU 07/23/00 JAN-2002 $ 55 WEU-AK $12.88 $ 7.38 -42.70% JAN-2003 $ 55 VEU-AK $17.50 $11.50 -34.29% HWP 07/30/00 JAN-2002 $110 WPW-AB $28.25 $31.00 9.73% JAN-2003 $120 VHP-AD $32.63 $36.13 10.73% PCS 07/30/00 JAN-2002 $ 60 WVH-AL $11.88 $13.38 12.63% JAN-2003 $ 65 VVH-AM $14.38 $15.63 8.69% Spotlight Play HD - Home Depot $54.00 It took a little while for our HD play to get going, but the early July rally on the DJIA lifted the stock well off its lows and got our play moving. Up until a couple weeks ago, HD was sitting back above its 200-dma and looked like it would be ready to run after a little consolidation. Then the market got jittery again and HD plunged through the 200-dma, not finding support until reaching its 50-dma (currently $51.81). With sentiment shifting towards a no-hike interest rate decision from the Fed later this month, things are looking better again. The $2.25 gain on Friday looks like it could be a precursor to an earnings run. The company reports on August 15th before the opening bell, and shorter-term players may want to consider taking profits before the announcement (especially if you are still holding 2001 options!). Look for support to hold near the 50-dma and use bounces at this level for initiating new positions. With the proximity of earnings, it won’t pay to chase this stock higher. If you miss getting the entry you want before the announcement, hold tight and wait for a better entry as the markets drift through the summer doldrums. BUY LEAP JAN-2002 $60.00 WHD-AL at $10.50 BUY LEAP JAN-2003 $60.00 VHD-AL at $15.25 New Plays EXDS - Exodus Communications $51.13 When you think of server farms, the name Exodus Communications (EXDS) should immediately come to mind. The company is the leader in providing complex Internet hosting for enterprises with mission-critical Internet operations. EXDS delivers its services from geographically distributed, state-of-the-art Internet Data Centers that are connected through a high-performance dedicated and redundant backbone network. The incredible demand for its services is reflected through the consistent year-over-year revenue growth in excess of 300%. Although not yet profitable, the company is rapidly zeroing in on this goal and investors are hungry for the stock, even with its high valuation. After the company split its shares 2-for-1 in late June, the stock bottomed near $37 and then quickly shot up to $60 with a little help from the NASDAQ rally in early July. The 50-dma (currently at $46.38) is providing support and the daily chart shows a nice pattern of higher highs and higher lows. Since its most recent bounce last week, the stock is moving nicely, and Friday’s move came on strong volume, 33% above the ADV. Consider new entries on a renewed bounce from the vicinity of the 50-dma, and then ride the wave. BUY LEAP JAN-2002 $55.00 WZZ-AK at $20.75 BUY LEAP JAN-2003 $60.00 VTQ-AL at $25.38 MFNX - Metromedia Fiber Network $37.06 Buying into the paradigm that bandwidth will cease to be the most valuable commodity in the Internet space, MFNX takes a different approach to creating revenue. Laying thousands of miles of fiber in virtually every major metropolitan area, the company charges businesses a flat monthly rate depending on the number of fibers leased. Rather than paying by the volume of data, MFNX’s customer’s are free to install their own electronics and cram as much data down the itty-bitty glass pipe as they want. This flies in the face of the conventional fee-for-data revenue model, but it allows MFNX to generate a consistent revenue stream without having to constantly worry about how to get more data through the fiber to its customers to maintain its flow of cash. Selling off with the rest of the technology market this spring, MFNX has consistently found support at the 200-dma (currently at $31.88), with its most recent bounce occurring last Thursday. The company is usually tight-lipped about its earnings release date, but is tentatively scheduled to release its quarterly results on Wednesday, August 9th. Prudent investors will wait for the announcement and then open new positions when the price dips and bounces again at the 200-dma. Keep in mind that the NASDAQ is in a precarious position, and patience could very likely provide a better entry point (perhaps down at the $25 support level) as the summer drags along. BUY LEAP JAN-2002 $40.00 WOF-AH at $13.75 BUY LEAP JAN-2003 $45.00 VKW-AI at $15.63 GM - General Motors $59.38 After several requests for cheaper, blue-chip value plays, I went out hunting. GM looks like it could be just the ticket. With the company’s revenue stream heavily influenced by the cyclical nature of the automotive market, the stock typically bottoms in the summer months, only to surge higher as the new models come out in the fall. The decline this year is almost a carbon copy of the decline last year, as the stock plunged in mid-May to put in a double-bottom by early August. If the pattern remains consistent, we will likely see a higher low posted in the September/October timeframe before launching higher for the remainder of the year. The decline this year was even more painful than it was last year, dropping GM’s PE ratio below 7. With the company’s consistent earnings growth, and the historical pattern in front of us, this looks like a good long-term play. Consider new entries on a renewed bounce from the $57 support level, but don’t chase the stock higher at this point. If you miss your entry in the weeks ahead, keep in mind that we will likely get another pullback in the early fall. Although its low will likely be slightly higher, the confirmation provided by the higher low at that time will likely provide a lower risk entry point. BUY LEAP JAN-2002 $65.00 WGM-AM at $ 9.88 BUY LEAP JAN-2003 $65.00 VGN-AM at $13.25 Drops LU $42.44 Continuing to slide downhill for nearly the entire 2 weeks since we picked it as a new play, LU could be the poster child for deteriorating investor sentiment. Attempting to stem the flow of red, the company announced on Thursday that it would restructure its Optical business unit in an effort to boost optical network revenues more quickly. Like the little boy who cried "Wolf!", LU has now disappointed the street 3 quarters in a row and investors aren’t paying attention any more. Recall that our initial play instructions called for the stock to hold support at $50. After violating that only 3 days later, we almost dropped it last weekend, but figured we’d give the stock one more chance to straighten up and fly right. We drew our line in the sand at $43, deciding that if this long-term support level couldn’t hold, then there was little hope for our play. After a brief head-fake right at this level last Tuesday, LU resumed its descent and plunged as low as $41.56 on Friday, before recovering a bit at the close. Needless to say, we didn’t get anything approaching a convincing entry point as the stock couldn’t even penetrate the 5-dma over the past 2 weeks, and we are dropping it this weekend. VSTR $122.25 What an exciting run VSTR has given us, and the Deutsche Telekom (DT) buyout offer of $205/share in the middle of July was just icing on the cake. When the rumors first surfaced, our play shot from $125 to $140 overnight and then when the rumors were confirmed, VSTR shot up again, tagging $161 before the "sell the news" crowd showed up. Since then it has been a quick and painful slide as the stock has fallen to bounce right on the $120 support level, right where it was trading when we featured it as the Spotlight play a month ago. So, if it bounced at support, why are we dropping it? Given the buyout by DT and the hefty premium being paid, this should be helping to prop up the share price, but either it is not, or if it is, the VSTR stock is actually weaker in and of itself than the actual price would seem to indicate. Add to this the fact that DT is looking weak, having fallen all the way to major support at $40, and the outlook for our play is less than stellar. This play is a perfect example of why we use trailing stop losses to lock in our profits - even on LEAPS. After the run above $160, your stops should have taken you out long before the stock plunged through support at $140 on July 24th. *********** SPLIT PLAYS *********** Is It Safe To Come Out Yet? By Ryan Nelson Traders are wondering whether we have weathered the sell-off or are simply sitting in the eye of the storm and the winds are about to return. With the Nasdaq posting a marginal gain for the week, some traders have the impression that the worst is over. I can't say I believe that just yet and I don't expect the momentum to return the split plays this week. Instead, we are likely to see a few more announcements as we search for entry points on the split runs. With that said, let's bide our time before buying too heavily. Keep your eye on the split calendar (the link is listed below) and begin looking for splits that are payable in the next 4 to 6 weeks. We will consider plays when those companies are within 3 weeks to the ex-dividend date. Current Split Run Plays MER - 09/01 ex-date Current Split Candidate Plays PVN LEH HWP FRX DNA IDPH ABSC MERQ HGSI Candidates That Are Not Current Plays BRCM GLW SEBL TIBX HWP GMST PWER 10 Most Recent Announcements We Predicted SAPE - 08/01 (most recent announcement) AMD - 07/19 PDLI - 07/11 TXN - 04/20 CMVT - 03/07 CHINA - 03/06 VRTS - 01/27 NT - 01/25 SEPR - 01/20 YHOO - 01/11 Major Announcements So Far This Month = 6 PLCM PLXS SNWL ORBK SAPE NETE For our complete stock split calendar, click here... http://members.OptionInvestor.com/splits/index.asp ************************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! 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The Option Investor Newsletter Sunday 08-06-2000 Sunday 5 of 5 To view this email newsletter in HTML format with imbedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/080600_5.html ************* COVERED CALLS ************* Covered-Call Basics: A Simple Approach... By Mark Wnetrzak With the recent market downturn, we have received a number of requests for information on conservative trading techniques. There are many types of investors and no single strategy can work for all of them however, a position with moderate profit potential and relatively low risk can be very appealing. The technique we use to achieve this outlook is the "in-the-money" covered-call. All covered-calls involve selling a call against stock that is owned. If the stock declines, the covered writer will offset part of his loss by the amount of the option premium. The two most common approaches are the "out-of-the-money" covered-call and the "in-the-money" covered-call. Some investors prefer to strive for higher potential returns with an aggressive outlook, writing out-of-the-money calls on stocks in their portfolios. These (OTM) positions offer greater rewards but also have less downside protection. The maximum potential profit of an OTM position, while generally greater than that of an in-the-money (ITM) position, will always require an increase in price by the underlying stock. Thus, by using an OTM option, the success of the overall position depends more on the movement of the stock price and less on the benefits of writing the call. Since the premium generated from the sale of the call is much smaller, the overall position will be more susceptible to loss if the stock's price declines. ITM plays are more defensive, offering less risk but also smaller reward potential. These conservative positions appeal to those investors who are attempting to earn a relatively consistent return while striving for preservation of capital. In spite of having a smaller profit potential, the in-the-money approach can be attractive on a percentage return basis, especially when the stock is held in a margin account. The cost basis in the underlying issue is substantially reduced and even if the stock declines, the position can still return a profit. Traders who utilize this conservative approach consider both downside protection and potential profit. The combined position (both stock and options) is viewed as a single entity and the trader is not overly concerned with long-term ownership of the underlying issue. This "total return" concept represents the true focus of most successful covered call writers. The ideal investment offers limited risk and a good probability of making a profit. Our primary goal is to provide plays that make acceptable returns while still receiving an above-average amount of downside protection. For investors who decide to use OTM calls, concentrate on the "return not called." This is the return on investment that one would achieve even if the stock price were unchanged when the sold option expires. One can compare potential positions more fairly using this approach since no assumption is made about the price movement in the underlying issue. In our conservative option-writing strategy, we search for plays that return a minimum of 3-5% per month with downside protection of at least 10% (of the current stock price). The overall position that is constructed using these guidelines will be a relatively low risk play, regardless of the volatility of the underlying stock, since the levels of protection will be large and there is still the expectation of a reasonable return. Since the primary objective of covered-call writing for most investors is increased income though stock ownership, the amount of downside protection and the return on investment are both very important considerations in determining which position to choose. Of course the technical and fundamental outlook of the underlying stock must also be favorable. While a minimally acceptable return is a matter of personal preference, it would appear that with the current market volatility, the advantages of the in-the-money position; consistent profits and lower risk, are more attractive to the majority of investors. Good Luck! SUMMARY OF PREVIOUS PICKS ***** NOTE: Using Margin doubles the listed Monthly Return! Stock Price Last Call Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return GPX 5.81 5.25 AUG 5.00 1.25 *$ 0.44 14.0% TMWD 59.50 50.13 AUG 45.00 18.63 *$ 4.13 11.0% HLYW 8.94 8.00 AUG 7.50 2.06 *$ 0.62 9.8% ASKJ 17.44 17.94 AUG 15.00 3.25 *$ 0.81 8.3% ACOM 21.75 22.38 AUG 15.00 7.50 *$ 0.75 7.6% MAIL 9.44 7.78 AUG 7.50 2.50 *$ 0.56 7.0% DLK 16.75 18.56 AUG 12.50 5.25 *$ 1.00 6.3% CGO 42.13 44.13 AUG 35.00 8.38 *$ 1.25 5.4% PSFT 18.38 24.00 AUG 15.00 4.38 *$ 1.00 5.2% WFR 18.38 15.94 AUG 15.00 4.38 *$ 1.00 5.2% PMTC 12.69 11.25 AUG 10.00 3.25 *$ 0.56 5.2% MCRE 13.06 11.81 AUG 10.00 3.50 *$ 0.44 5.0% FRNT 18.44 17.81 AUG 17.50 1.50 *$ 0.56 4.8% IMNR 11.00 7.50 AUG 7.50 3.88 $ 0.38 4.6% EPTO 15.13 13.00 AUG 12.50 3.38 *$ 0.75 4.6% MCOM 33.00 34.03 AUG 25.00 9.25 *$ 1.25 4.6% OO 13.94 16.88 AUG 12.50 1.94 *$ 0.50 4.5% IGEN 20.69 18.50 AUG 17.50 3.88 *$ 0.69 4.5% CLTR 22.00 24.00 AUG 17.50 5.00 *$ 0.50 4.3% LOOK 23.00 18.19 AUG 17.50 6.25 *$ 0.75 3.9% NLCS No Play *$ = Stock price is above the sold striking price. Comments: Pearson just had to announce their buyout of National Computer Systems (NLCS) before Monday's opening bell. Please announce "good" news after we're in the issue! Of course, the position was unplayable. Tumbleweed (TMWD) rebounded on some positive news this week but the technicals still remain week. Frontier Airlines (FRNT) appears to be experiencing a post-earnings stall. Consider exiting Immune Response (IMNR) on further weakness. Oakley (OO) - I knew I should have just bought a call! Some follow-through next week would be encouraging for Looksmart (LOOK) as it appears to have made a successful test of the late June low. Positions Closed: Ivillage.com (IVIL), Electric Fuel (EFCX), Bluestone Software (BLSW), and Itxc Corp. (ITXC). NEW PICKS ********* Sequenced by Company ***** Stock Last Call Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return ANTC 45.50 AUG 40.00 AQC HH 6.63 2951 38.87 14 6.3% NPNT 14.63 AUG 12.50 NUP HV 2.75 1129 11.88 14 11.3% REGN 29.38 AUG 25.00 RQP HE 4.88 25 24.50 14 4.4% ECLP 12.00 SEP 10.00 IQV IB 2.75 88 9.25 42 5.9% NOVN 35.00 SEP 35.00 NPQ IG 2.88 20 32.12 42 6.5% ORG 14.38 SEP 12.50 ORG IV 2.75 180 11.63 42 5.4% ROS 15.75 SEP 15.00 ROS IC 1.88 75 13.87 42 5.9% Sequenced by Return ***** Stock Last Call Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return ANTC 45.50 AUG 40.00 AQC HH 6.63 2951 38.87 14 6.3% NPNT 14.63 AUG 12.50 NUP HV 2.75 1129 11.88 14 11.3% REGN 29.38 AUG 25.00 RQP HE 4.88 25 24.50 14 4.4% ECLP 12.00 SEP 10.00 IQV IB 2.75 88 9.25 42 5.9% NOVN 35.00 SEP 35.00 NPQ IG 2.88 20 32.12 42 6.5% ORG 14.38 SEP 12.50 ORG IV 2.75 180 11.63 42 5.4% ROS 15.75 SEP 15.00 ROS IC 1.88 75 13.87 42 5.9% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** ANTC - ANTEC Corp. $45.50 *** Hybrid Fiber-Coax *** ANTEC is a developer, manufacturer and supplier of optical and radio frequency transmission equipment for the construction and maintenance of broadband communications systems. ANTEC supplies equipment and services for these systems to broadband communication providers. They have developed a full line of technologically advanced fiber optic products to capitalize on current and future upgrades of HFC cable systems. In July, ANTEC announced record results for the 2Q with of sales of $276.1 million and net income of $11.2 million. Sales were up 40.6% over last year and 10.3% sequentially. ANTEC has been stuck in a trading range over the last several months but has now shown that it is a fundamentally strong and growing at a rate in excess of the industry average. Can an upside breakout be far behind? It appears the shorts are worried, considering Friday's heavy volume. AUG 40.00 AQC HH LB=6.63 OI=2951 CB=38.87 DE=14 MR=6.3% Chart = ***** NPNT - NorthPoint Comm. $14.63 *** 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. Options activity has been extremely heavy in this issue going into the company's earnings announcement, scheduled for Tuesday of next week. 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 favor the appearance of a double-bottom (June and July lows) and the increasing volume supporting the recent rally. Two week speculation on a volatile issue with a reasonable cost basis. AUG 12.50 NUP HV LB=2.75 OI=1129 CB=11.88 DE=14 MR=11.3% Chart = ***** REGN - Regeneron $29.38 *** P&G Likes This Company! *** Regeneron Pharmaceuticals is a biopharmaceutical company that discovers, develops, and intends to commercialize therapeutic drugs for the treatment of serious medical conditions. Expanding from its initial focus on degenerative neurologic diseases, they have recently broadened their product pipeline to include drug candidates for the treatment of obesity, rheumatoid arthritis, cancer, allergies, asthma, and other diseases. Last week, REGN report a revenue increase to $16.7 million for the 2Q from $7.2 million in the same period last year. The increase was due primarily to higher contract research and development revenue from Procter & Gamble (PG) in connection with a collaboration agreement and from Amgen-Regeneron Partners related to increased clinical trial activity by Regeneron on brain-derived neurotrophic factor (BDNF) and neurotrophin-3 (NT-3). The revenue stream will continue with the news this week that Procter & Gamble agreed to extend P&G's obligation to fund Regeneron research through year end 2005. P&G now owns about 6.7 million shares of REGN stock, equal to about 18% of total shares outstanding. AUG 25.00 RQP HE LB=4.88 OI=25 CB=24.50 DE=14 MR=4.4% Chart = ***** SEPTEMBER POSITIONS ***** ECLP - Eclipsys Corp. $12.00 *** Merger Woes Are Over! *** Eclipsys is a healthcare information technology solutions provider. They provide clinical management, access management, patient financial management, health information management, strategic decision support, resource planning management and enterprise application integration solutions to healthcare organizations. Eclipsys provides other information technology solutions including outsourcing, remote hosting, networking technologies and other related services. Now that the merger between Neoforma.com and Eclipsys and HEALTHvision has been terminated agreeably, apparently by all parties, Eclipsys' stock is moving higher. Last week, after reporting earnings, Eclipsys' Board of Directors adopted a "Shareholder Rights" plan, which should bode well for the next merger attempt. We favor the bullish change of character in the stock and the heavy volume supporting the recent rally. SEP 10.00 IQV IB LB=2.75 OI=88 CB=9.25 DE=42 MR=5.9% Chart = ***** NOVN - Noven Pharmaceuticals $35.00 *** Earnings Run? *** Noven Pharmaceuticals develops and manufactures transdermal and transmucosal drug delivery products and technologies. Its principal commercialized products are transdermal drug delivery systems for use in hormone replacement therapy. Their products marketed so far have been for the treatment of menopausal symptoms, and pain relief for dental procedures. Noven was added to the Russell 3000. and Russell 2000. equity indexes in July, which sparked the current rally. With earnings due next week, it appears traders can't get enough of this stock. There hasn't been any recent news but it does appear the shorts are getting squeezed. For speculators only! A conservative investor might wait for an entry point after the earnings are announced next week. SEP 35.00 NPQ IG LB=2.88 OI=20 CB=32.12 DE=42 MR=6.5% Chart = ***** ORG - Organogenesis $14.38 *** Is Rally Mode Contagious? *** Organogenesis, a tissue engineering firm, designs, develops and manufactures medical products containing living cells and/or natural connective tissue. Organogenesis is the developer and manufacturer of the only mass-manufactured medical product containing living human cells marketed in the United States. Their product development program includes living tissue replacements, cell-based organ assist devices, and other tissue- engineered products. Currently, the company derives revenue primarily from sales of its lead product Apligraf, marketed by Novartis Pharmaceuticals. In June, the FDA approved the use of Apligraf for the treatment of diabetic foot ulcers, and starting in August, Apligraf qualifies for Medicare reimbursement when used in a hospital outpatient setting. Investors have cheered these recent developments and are looking forward to Organogenesis' next pipeline product, the VITRIX living, soft tissue replacement, a vascular graft and a liver assist device. SEP 12.50 ORG IV LB=2.75 OI=180 CB=11.63 DE=42 MR=5.4% Chart = ***** ROS - OAO Rostelecom $15.75 *** Russian Telecom *** OAO Rostelecom is the primary provider of international and domestic long distance telecommunications services in the Russian Federation. Rostelecom holds equity interests in various entities presently providing communications services, including multimedia communications, Internet access and cellular and mobile communications services in Russia. Rostelecom owns the majority of the Russian telecom market and has recently been climbing on news that the company will launch a satellite system. On August 3, Globalstar launched its satellite telephone service in Russia in a joint venture with Rostelecom. We simply favor the improving technicals and a conservative entry point in this speculative issue. SEP 15.00 ROS IC LB=1.88 OI=75 CB=13.87 DE=42 MR=5.9% 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 ************************************************************** ************************* NAKED PUT PERCENTAGE LIST ************************* By Ryan Nelson Stock Stock Strike Option Option Margin Percent Support Symbol Price Price Symbol Price At 25% Return Level AKAM 77.69 75 RUG-TO 4.50 1942 23% 75 AVNX 136.00 130 UYN-TF 9.13 3400 27% 125 CHKP 119.44 115 YKE-TC 5.00 2986 17% 116 COF 58.78 60 COF-TL 4.38 1470 30% 58 DIGL 93.38 90 DGU-TR 6.63 2335 28% 90 DNA 164.13 160 DNA-TL 7.50 4103 18% 160 EXTR 141.81 140 EUT-TU 9.00 3545 25% 140 GSPN 104.00 100 GHY-TT 6.38 2600 25% 100 HGSI 142.56 135 HHA-TG 5.88 3564 16% 135 HWP 111.75 110 HWP-TB 4.00 2794 14% 110 ITWO 126.06 125 QYJ-TE 7.00 3152 22% 125 JNPR 144.38 140 JUY-TH 6.75 3610 19% 135 MUSE 151.25 145 UZQ-TI 7.63 3781 20% 144 NTAP 84.56 85 NUL-TQ 6.63 2114 31% 80 PHCM 78.75 75 UGE-TO 3.63 1969 18% 76 PWER 126.50 125 OGU-TE 7.50 3163 24% 125 QLGC 75.88 75 QLC-TO 5.13 1897 27% 70 RBAK 139.19 130 BKK-TF 5.63 3480 16% 130 RMBS 71.06 70 BYQ-TN 5.00 1777 28% 70 SDLI 353.81 340 OSL-TH 11.13 8845 13% 340 SEBL 163.63 160 SGW-TL 7.50 4091 18% 160 SEPR 124.63 120 ERU-TD 4.38 3116 14% 120 TIBX 104.69 100 PIW-TT 4.63 2617 18% 100 TLGD 97.25 100 TQK-TT 13.63 2431 56% 90 TSTN 125.00 120 TUA-TU 7.50 3125 24% 120 TUTS 85.00 85 QSS-TQ 6.63 2125 31% 80 VRSN 162.06 160 XVR-TL 9.75 4052 24% 158 VRTA 69.63 65 UFA-TM 3.50 1741 20% 65 VRTX 117.25 110 VQR-TB 11.25 2931 38% 110 *********************** CONSERVATIVE NAKED PUTS *********************** Market Trends: Rallies and Corrections... By Ray Cummins One of the most important parts of being a successful trader is understanding the cycles that occur as a natural part of market growth. The recent sell-off in technology stocks is just one of the many examples of a historically repetitive rhythm in price action and the necessary process of a "correction" is healthy for stocks in the long-term. To avoid major losses, you must be able to discern the broader rhythms of the market and approach trading in a counterintuitive manner. In simple terms, you should be a contrarian investor. One who goes "long" in the closing stages of a bearish movement, when everyone else is pessimistic on the market's prospects, and takes profits after a bullish rally, when the public is confident that the trend is will continue forever. The first step in adopting this attitude is to learn the various stages of the market. Using the Nasdaq Composite as an example, the first phase of significant bullish activity began back in October of 1999. That's when technology stocks started to become popular and Wall Street established a premium valuation on the most dominant companies in the best, long-term growth industries. Many of the limiting factors of the previous "range-bound" trend were still present and most investors were worried that the rally would be short-lived. As we moved through the Y2K scare and into January, traders became gradually more bullish, even though some were afraid to enter the market at those extreme levels, feeling that they had already missed most of the rally. At that point, a change in market sentiment occurs. The majority of investors had previously waited for small corrections to open new positions but with the continuation rally in early February, almost everyone becomes convinced that a bull market is underway. Looking back, the technology group has been moving up for months and the bears have been wrong time and again. Investor optimism is industry-wide and almost every sector enjoys bullish activity. Even the mediocre issues are priced as if they are the dominant companies in their respective market space. During this period, the media is full of positive stories and the major brokerages are upgrading every stock in their portfolio, regardless of its price or fundamental outlook. The few remaining pessimists are still chanting "correction" but nobody is listening any more. In fact, many of them succumb to the pressure of the masses and eventually issue a bullish forecast for the market. At this stage, the wise trader must avoid the impulse to buy at the height of the rally, just because the market is popular and everyone is talking about their successes. As the trend begins to reach its apex, trading becomes choppy and even the leading stocks encounter weakness in buying support. The primary technical indicators start moving sideways and the index fails to achieve new highs. As concerns over stock valuations begin to creep into the daily news, traders with experience quietly distribute their holdings, placing the profits in a conservative money market account until a new trend is established. In late March, the speculative bubble finally bursts. Technology stocks fall sharply and the decline continues much further than even the most negative analysts had forecast. The brutal collapse is exacerbated by the fact that heavily leveraged portfolios are being "called" and investors must liquidate to cover the losses. As the first bottom is established in mid-April, the majority of traders are afraid to participate in any of the recovery rallies and the lack of conviction becomes apparent. Everyone is fearful of the dreaded "dead cat bounce." Soon the downtrend is renewed and a new low is achieved near the end of May. Fear eventually drives the public to capitulate near the technical bottom, at the worst possible time. When the selling pressure finally begins to subside, nobody is left to buy at the bargain prices. The market activity becomes subdued and trading volumes are scant. Some investors go so far as to suggest that the downward momentum will continue, ending with a repeat of the previous sell-off. Strangely enough, the final stages of bearish activity are often the most difficult to identify. The challenge is to buy during this hysteria, when it appears the market is at its worst. Of course, that is indeed the case, and it is the primary reason you should be buying while everyone else is selling. The basis for this type of thinking is a fundamental element of the contrarian viewpoint; one that opposes the views of the collective majority. By approaching the stock market in this manner, you can avoid the tendency to react emotionally in the heat of the moment and rely instead on sound and sensible investment methods, based on proven trading strategies and effective analysis. Good Luck! *** WARNING!!! *** Occasionally a company will experience catastrophic news causing a severe drop in the stock price. This may cause a devastatingly large loss which may wipe out all of your smaller gains. There is one very important rule; Don't sell naked puts on stocks that you don't want to own! It is also important that you consider using trading STOPS on naked option positions to help limit losses when the stock price drops. Many professional traders suggest closing the position when the stock price falls below the sold strike or using a buy-to-close STOP at a price that is no more than twice the original premium from the sold option. SUMMARY OF PREVIOUS PICKS ***** Stock Price Last Put Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return DRMD 5.75 5.69 AUG 5.00 0.31 *$ 0.31 24.1% HLYW 8.94 8.00 AUG 7.50 0.50 *$ 0.50 20.6% GSTRF 10.56 7.56 AUG 7.50 0.56 *$ 0.56 18.2% R 21.25 21.13 AUG 20.00 0.88 *$ 0.88 15.7% ZIXI 55.00 40.69 AUG 40.00 1.63 *$ 1.63 14.0% NFLD 17.50 16.50 AUG 15.00 1.00 *$ 1.00 13.2% ATMS 11.44 9.75 AUG 7.50 0.31 *$ 0.31 13.0% SQST 14.00 9.88 AUG 10.00 0.50 $ 0.38 10.0% PSFT 21.88 24.00 AUG 17.50 0.44 *$ 0.44 9.9% THC 31.19 31.50 AUG 30.00 0.81 *$ 0.81 9.7% ICGE 39.94 32.63 AUG 30.00 0.75 *$ 0.75 9.3% ADPT 24.00 22.25 AUG 20.00 0.31 *$ 0.31 7.6% RHAT 25.31 19.38 AUG 17.50 0.38 *$ 0.38 7.6% JEF 26.56 27.94 AUG 25.00 0.50 *$ 0.50 7.6% MRVT 22.63 20.81 AUG 17.50 0.50 *$ 0.50 7.2% GELX 28.56 30.63 AUG 25.00 0.38 *$ 0.38 6.7% NXLK 39.69 36.88 AUG 30.00 0.75 *$ 0.75 6.3% INFS 37.00 36.94 AUG 30.00 0.50 *$ 0.50 5.2% RAZF 22.25 17.00 AUG 17.50 0.56 $ 0.06 1.0% PILT 17.81 11.94 AUG 12.50 0.50 $ -0.06 0.0% BLSW 32.88 21.63 AUG 22.50 0.56 $ -0.31 0.0% WSTL 25.19 17.03 AUG 20.00 0.81 $ -2.16 0.0% WSTL 28.50 17.03 AUG 20.00 0.56 $ -2.41 0.0% NLCS No Play *$ = Stock price is above the sold striking price. Comments: Pearson just had to announce their buyout of National Computer Systems (NLCS) before Monday's opening bell. Please announce "good" news after we're in the issue! Of course, the position was unplayable. Westell (WSTL) suffered from a downgrade (to a "hold") because a "possible" strike at Verizon could negatively impact CPE modem shipments. Next week we will show the position closed. Zixit (ZIXI) continues to act weak and an early exit may still be prudent. Northfield Labs (NFLD) still remains in a precarious position. A nice bounce off the 150 dma for Tidel Tech (ATMS). Sciquest.Com (SQST) remains within a stage I base and Pilot Network (PILT) appears to be making a successful test of support - monitor closely. Bluestone Software (BLSW) may continue its rally next week and offer a profitable early exit. Keep a close eye on Tenet Healthcare (THC) as it appears to be running out of steam. Razorfish (RAZF) is testing support as it continues to forge a stage I base. NEW PICKS ********* Sequenced by Company ***** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return CLTR 24.00 AUG 20.00 QCE TD 0.56 72 19.44 14 19.8% CMRC 46.25 AUG 35.00 RJC TG 0.56 724 34.44 14 12.4% DRTE 30.38 AUG 25.00 DEQ TE 0.31 70 24.69 14 9.5% LAMR 49.88 AUG 45.00 LJQ TI 0.50 190 44.50 14 7.0% STLW 36.69 AUG 25.00 SZQ TE 0.50 92 24.50 14 13.9% WAVX 18.06 AUG 15.00 AXU TC 0.38 199 14.62 14 18.2% TLXN 19.88 SEP 15.00 TNQ UC 0.44 267 14.56 42 7.2% Sequenced by Return ****** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return CLTR 24.00 AUG 20.00 QCE TD 0.56 72 19.44 14 19.8% WAVX 18.06 AUG 15.00 AXU TC 0.38 199 14.62 14 18.2% STLW 36.69 AUG 25.00 SZQ TE 0.50 92 24.50 14 13.9% CMRC 46.25 AUG 35.00 RJC TG 0.56 724 34.44 14 12.4% DRTE 30.38 AUG 25.00 DEQ TE 0.31 70 24.69 14 9.5% LAMR 49.88 AUG 45.00 LJQ TI 0.50 190 44.50 14 7.0% TLXN 19.88 SEP 15.00 TNQ UC 0.44 267 14.56 42 7.2% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** CLTR - Coulter Pharmaceutical $24.00 *** Stage I Speculation *** Coulter Pharmaceutical is engaged in the development of novel drugs and therapies for the treatment of cancer and autoimmune diseases. The company currently is developing a family of therapeutics based upon two drug development programs: therapeutic antibodies and targeted oncologics. The company's most advanced product candidate is Bexxar(TM), a monoclonal antibody conjugated to a radioisotope. The company's therapeutic antibodies program also includes an interferon receptor antagonist. Initial efforts in the targeted oncologics program are based on tumor activated prodrug and tumor- specific targeting technologies. Coulter intends to seek expedited Biologics License Application ("BLA") review and marketing approval for Bexxar while simultaneously pursuing clinical trials to expand the potential use of Bexxar to other indications. CLTR and SmithKline Beecham announced recently the start of Phase II multicenter investigational trial of Bexxar in combination with CHOP chemotherapy as a first-line treatment of patients with intermediate-grade non-Hodgkin's lymphoma. The U.S. Patent office also issued another patent relating to CD20 antibody therapy for the treatment of lymphoma. Technically the issue is attempting to move out of a stage I base and with the recent bullish activity, this position offers a relatively conservative entry point. AUG 20.00 QCE TD LB=0.56 OI=72 CB=19.44 DE=14 MR=19.8% Chart = ***** CMRC - Commerce One $46.25 *** Own This One! *** Commerce One is a provider of global e-commerce solutions for business. Its solutions are designed to create a network of interoperable marketplaces, trading communities and commerce portals called the Global Trading Web. CMRC has developed the Commerce One Solution, comprised of enterprise e-procurement applications, to automate the purchasing cycle between multiple buyers and suppliers. The recent quarterly results prove that business-to-business e-commerce is real, and one need only look at the dramatic revenue increases from B2B software providers like Commerce One for validation of the concept: Corporations are making B2B one of their top priorities and they are willing to spend money to exploit its potential. CMRC is one of the top companies in the group and the acquisition of consulting firm AppNet (APNT) should boost their position in the industry. The cost basis for this play is below technical support and the issue has excellent upside potential. AUG 35.00 RJC TG LB=0.56 OI=724 CB=34.44 DE=14 MR=12.4% Chart = ***** DRTE - Dendrite $30.38 *** On The Move! *** Dendrite International is a worldwide supplier of sales force software products and support services to the pharmaceutical industry. They design, develop and sell comprehensive customer relationship management solutions that enable customers to manage the activities of large sales forces in complex selling environments. Dendrite is one of the leading companies in area of healthcare information technology. Dendrite has about a $1 billion market cap, generates over 20% operating margins with huge cash flows, and maintains a very liquid balance sheet. In addition, Dendrite Japan has just completed its biggest quarter in history; signing Wyeth-Lederle (An American Home Products company) for licensing and services; adding Bristol-Myers Squibb to a global agreement; signing Pfizer Japan (which is now one of the largest sales forces in Japan) and expanding it's partnership agreement with Hitachi. The recent consolidation among drug companies has left Dendrite very well positioned and our play offers a favorable entry point of a long-term portfolio issue. AUG 25.00 DEQ TE LB=0.31 OI=70 CB=24.69 DE=14 MR=9.5% Chart = ***** LAMR - Lamar Advertising $49.88 *** New Trading Range! *** Lamar Advertising Company owns and operates outdoor advertising structures in the United States. The company also operates a logo sign business. Logo signs are located near highway exits which deliver brand name information on available gas, food, lodging and camping services. The company also operates transit advertising displays on bus shelters, bus benches and buses in several markets. Lamar recently announced record quarterly results with revenues of $173 million, a 77% increase over the previous period. Operating cash flow increased 80% to $84.1 million and after tax cash flow was $58 million, a 111% increase for the quarter. Investors were pleased with the results and Friday's rally above resistance near $48 suggests the issue is moving into a new trading-range. AUG 45.00 LJQ TI LB=0.50 OI=190 CB=44.50 DE=14 MR=7.0% Chart = ***** STLW - Stratos Lightwave $36.69 *** A New Company! *** Stratos Lightwave develops, manufactures and sells optical subsystems and components for high data rate networking, data storage and telecommunication applications. Stratos' optical subsystems are designed for use in local area networks, storage area networks, metropolitan area networks, and wide area networks and central office networking in telecommunication markets. The company's optical subsystems are compatible with the transmission protocols used in these networks, including Gigabit Ethernet, Fast Ethernet, Fibre Channel and asynchronous transfer mode. Stratos also designs and manufactures a range of optical components and cable assemblies for use in these networks. We simply favor the outlook for this new issue in the optical networking group and the opportunity to own it at a reasonable cost basis. AUG 25.00 SZQ TE LB=0.50 OI=92 CB=24.50 DE=14 MR=13.9% Chart = ***** WAVX - Wave Systems $18.06 *** Low Risk Entry? *** Wave Systems offers solutions for electronic commerce, making the process easier and more secure for consumers as well as business- to-business applications. They are involved in the research, development, and market testing of the Wave System, which performs buying transactions in a range of consumer electronic devices, including computers, personal digital assistants, and interactive televisions. Wave Systems rallied in mid-July after announcing a private placement of $122 million, and a partnership with Advanced Micro Devices. Now the issue has consolidated from those gains and appears to building a base near $15. If you have a bullish outlook for the issue, this position offers a favorable entry point with relatively low downside risk. AUG 15.00 AXU TC LB=0.38 OI=199 CB=14.62 DE=14 MR=18.2% Chart = ***** SEPTEMBER POSITION ***** TLXN - Telxon $19.88 *** Merger Agreement! *** Telxon designs, manufactures, and markets transaction-based mobile information systems. Telxon's mobile computing devices and wireless local area network products are integrated with its customers' host enterprise computer systems and third party networks, enabling mobile workers to process information on a real-time basis at the point of transaction. They also serve some areas of the mobile services market, such as field service, insurance claims processing and work force automation. Symbol Technologies (SBL) has agreed to buy rival hand-held computer maker Telxon for $465 million in stock. Under the terms of the deal, TLXN shareholders will receive 1/2 of a SBL share for each Telxon share. The stock swap is expected to be completed in the fourth quarter of 2000 but it is subject to regulatory clearance and other conditions. Review the agreement thoroughly before opening any positions. SEP 15.00 TNQ UC LB=0.44 OI=267 CB=14.56 DE=42 MR=7.2% Chart = ********************************Advertisement******************** American Express. Cardmembers are buying online Find out more! http://www.sungrp.com/tracking.asp?campaignid=181 ***************************************************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Title: Another Day Of Optimism... Industrial stocks extended their weeklong rally with the Dow enjoying modest gains following a favorable employment report. ****************************************************************** - MARKET RECAP - ****************************************************************** Friday, August 4 Industrial stocks extended their weeklong rally with the Dow enjoying modest gains following a favorable employment report. The blue-chip average ended up 61 points at 10,767. The Nasdaq also finished in the green, closing 27 points higher at 3,787. The S&P 500 index was up 10 points at 1,462. Trading volume on the NYSE hit 947 million shares, with advances beating declines 1,704 to 1,102. Activity on the Nasdaq exchange reached 1.43 billion shares, with advances beating declines 2,244 to 1,696. In the bond market, the 30-year Treasury was up 16/32, pushing its yield down to 5.703%. Thursday's new plays (positions/opening prices/strategy): i2 Technologies ITWO SEP170C/100P $0.00 debit synthetic Echostar DISH SEP42C/47C $2.00 debit bull-call Echostar DISH SEP-35NP $2.00 credit naked-put NorthPoint NPNT SEP15C/AUG15C $0.88 debit calendar Echostar and i2 technologies both slumped during the subdued session allowing entries at the target prices. Northpoint was much more exciting, opening $1.25 higher and closing near $15 amid speculation regarding an upcoming earnings report. The high option volume prevented an accurate assessment of spread trades but it is unlikely that the target debit was available on a simultaneous order basis. However, we will track the play as part of the regular portfolio, in the event there were traders that achieved the suggested entry through separate transactions. Portfolio Plays: Stocks rallied today after favorable employment data reinforced the view that the FOMC would leave interest rates unchanged at its policy meeting later this month. The Dow Industrial Average continued its recent bullish activity, ending 250 points higher for the week. Rate-sensitive financial companies were largely responsible for today's upswing with American Express (AXP), J.P. Morgan (JPM) and Citigroup (C), leading the blue-chip rally. On the Nasdaq, biotechnology and Internet stocks gave the index a boost but semiconductor stocks continued their downward trend. In the broader market, defense, waste management and investment banking stocks rose while telecommunications, major healthcare and textile issues consolidated. An independent market report from AMG data showed that equity mutual funds lost $1.5 billion during the week, with outflows of cash occurring for the first time since late June. Our portfolio enjoyed a number of favorable moves today and many of the large-cap technology companies appear to be establishing short-term technical bottoms. The top performing issues were Juniper Networks (JNPR), Network Appliances (NTAP), Qlogic (QLGC) and Virata (VRTA). Advanced Fibre (AFCI), Cisco Systems (CSCO), and Sipex (SIPX) also participated in the bullish activity. In the small-cap category, Peoplesoft (PSFT) led the way, closing at a recent high near $24 amid strength in the software group. American Eagle Outfitters (AEOS) also continued its rally, up another $1.12 to $20 and NYSE issues, Allstate (ALL), CSX Corp. (CSX), and Ryder (R), all moved higher during the session. The only major disappointment in our portfolio is American Online (AOL) and if the issue fails to rebound off technical support at the current price, we will close the position to limit further losses. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - This week we received a number of requests for candidates in the financial sector. Here are two positions for your review, based on the bullish technical outlook and increased option interest. ****************************************************************** SCH - Charles Schwab $38.50 *** Stepping Up! *** Charles Schwab is one of the nation's leading financial services providers, serving 6 million active accounts with $725 billion in client assets. Of these accounts, more than 3 million are active online accounts with $349 billion in assets. Schwab’s clients include domestic and international individual investors, independent investment managers, institutions, broker-dealers and retirement plan sponsors and third-party administrators. About 30% of Schwab's client assets and 10% of its client accounts are managed by the independent, fee-based investment advisors served through Schwab Institutional, a division of Charles Schwab, which is a registered broker dealer. Schwab's offerings include access via the Internet, hundreds of branch offices, speech recognition and touch-tone telephone technologies, multilingual technologies, and direct access to professional advisors. The brokerage sector is finally beginning to recover from the recent slump and one of the most popular investment choices in the group is the securities firm of Charles Schwab. In the last quarter, Schwab reported strong earnings with sales improving by 25% compared with the year-earlier period. The company brought in $37 billion in new money from customers and also increased its non-trading revenues by an impressive amount. Analysts say that Schwab should be able to build on these second-quarter trends in the coming months and the company has shown that it can benefit substantially from new, consumer-investment trends. With Friday’s rally, the issue may be prone to a small correction in the next few sessions and we plan to use any upcoming dip to reduce our cost basis in the position. PLAY (conservative - bullish/synthetic position): BUY CALL SEP-42.50 SCH-IV OI=482 A=$1.50 SELL PUT SEP-35.00 SCH-UG OI=816 B=$1.12 INITIAL NET DEBIT TARGET=$0.00 TARGET ROI=25% Note: Using options, the position is equivalent to being long on the stock. The collateral requirement for the naked put is approximately $1,300 per contract. Chart = ****************************************************************** CCR - Countrywide Credit $39.00 *** Bullish Activity! *** Countrywide Credit Industries is a holding company which, through its principal subsidiary, Countrywide Home Loans, originates and services mortgage loans. Countrywide originates and purchases conventional mortgage loans, mortgage loans insured by the Federal Administration, mortgage loans partially guaranteed by the Department of Veterans Affairs, home equity loans and other sub-prime loans. Countrywide Securities Corporation (CSC) is a registered broker-dealer and a member of both the National Association of Securities Dealers, and the Securities Investor Protection Corporation. CSC primarily trades mortgage-related and other securities, callable agency debt and collateralized mortgage obligations. The Countrywide Servicing Exchange is a national mortgage servicing brokerage and consulting company. Countrywide Financial Services is a fund manager and service provider for unaffiliated mutual funds, broker-dealers, investment advisors and fund managers. Investors are bullish on the outlook for Countrywide Credit and traders have noted that there's been a higher-than-normal amount of action in the company's options as its stock has rallied over the past few sessions. There’s little public news to explain the activity but some analysts say its related to the recent buyout of PaineWebber (PWJ). Countrywide has been the subject of merger speculation in the past but there are currently no candidates in the rumor mill. We simply favor the positive fundamental outlook for the company and with favorable disparities in the front-month premiums, this position offers a reasonable speculation play for traders who are bullish on the issue. PLAY (conservative - bullish/diagonal spread): BUY CALL OCT-30 CCR-JF OI=643 A=$10.25 SELL CALL AUG-40 CCR-HH OI=1543 B=$1.75 INITIAL NET DEBIT TARGET=$8.25-8.38 INITIAL TARGET ROI=21% Chart = ****************************************************************** - INCREASED OPTIONS ACTIVITY - This position is based on recent increased activity in the stock and underlying options. Although the play offers a favorable risk/reward potential, it should also be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. ****************************************************************** AHP - American Home Products $58.88 *** On The Move! *** American Home Products is currently engaged in the discovery, development, manufacture, distribution and sale of a diversified line of products in three primary businesses, Pharmaceuticals, Consumer Health Care and Agricultural Products. The company's Pharmaceuticals segment manufactures, distributes and markets branded and generic human ethical pharmaceuticals, biologicals, nutritionals and animal biologicals and pharmaceuticals. The company's Consumer Health Care segment manufactures, markets and sells over-the-counter healthcare products. In addition, AHP’s Agricultural Products Group manufactures, distributes and sells crop protection and pest control products. Their products are Triphasil, infant nutritionals, neuroscience therapies, Advil, Robitussin and Dimetapp, Centrum and Centrum Silver vitamins, and other herbal supplements. American Home Products is another issue that has experienced increased activity in its options over the past few sessions. The new interest may be related to the recent bullish earnings report from Protein Design Labs (PDLI). PDLI officials said earlier in the week that revenue for the first half of the 2000 fiscal year exceeded revenue for all of 1999. More importantly, they said that the record growth reflects increasing sales of humanized monoclonal antibodies that use PDLI’s technology. In May, American Home Products launched a new, licensed antibody product, Mylotarg, which is used to treat acute myelogenous leukemia. AHP also said that other humanized antibodies are in late-stage clinical trials or pending regulatory approval. Whatever the reason, this issue is "on the move" technically and with continued momentum, it should remain well clear of our sold position for the next two weeks. PLAY (aggressive - bullish/credit spread): BUY PUT OCT-50 AHP-TJ OI=69 A=$0.31 SELL PUT OCT-55 AHP-TK OI=63 B=$1.25 INITIAL NET CREDIT TARGET=$0.88-$1.00 ROI(max)=25% Chart = ****************************************************************** - TECHNICALS ONLY - These plays are based on the current price or trading range of the underlying issue and the recent technical history or trend. The probability of profit from these positions is also higher than other plays in the same strategy based on disparities in option pricing. Current news and market sentiment will have an effect on these issues. Review each play individually and make your own decision about the future outcome of the position. ****************************************************************** MIL - Millipore $62.63 *** Rolling Over? *** Millipore develops, manufactures and sells products that are used primarily for the analysis, identification and purification of liquids and gases. Millipore also sells products to monitor and control critical aspects of the manufacturing process for major integrated circuits (semiconductors). Millipore's separations products are applied primarily to biological and environmental laboratory research and testing, to pharmaceutical and food and beverage research, manufacturing and quality control operations and to the purification and control of process liquids and gases for integrated circuit manufacturing operations. The company operates in two business segments: Biopharmaceutical & Research and Microelectronics. Millipore recently announced that its second quarter revenues were up 28% from the same period last year, a very respectable number considering the industry. Apparently, investors did not like the performance or the outlook for the company. Since the beginning of July, MIL’s share value has fallen almost 20% and the current technical outlook is very bearish. Not only has the issue broken the neckline of a "double top" formation but it has also moved below the neckline of a broader "head-n-shoulders" pattern. Now, each of these necklines become resistance areas and based on the current outlook, it appears the probability of the share value reaching our sold position is relatively low. PLAY (conservative - bearish/credit spread): BUY CALL AUG-75 MIL-HO OI=38 A=$0.50 SELL CALL AUG-70 MIL-HN OI=48 B=$1.00 INITIAL NET CREDIT TARGET=$0.62 ROI(max)=14% B/E=$70.62 Chart = ****************************************************************** - STRADDLES AND STRANGLES - ****************************************************************** SDW - Southdown $62.44 *** Merger Speculation? *** Southdown operates cement manufacturing plants located across the United States, plus an extensive network of cement distribution terminals. Southdown also mines, processes, and sells various construction aggregates and specialty mineral products in the eastern half of the United States and in California. The company also installs highway safety systems such as guardrails, traffic signals, highway signage and lighting. In addition, Southdown markets ready-mixed concrete products in two of its largest cement markets, California and Florida. The most recent activity in Southdown began in late July amid hopes that an investment by France's Lafarge (LAF) in Portuguese cement company Cimpor, would help to keep Cimpor independent and free to make a takeover bid for Southdown. Earlier in the year, Cimpor had been preparing a takeover bid for Southdown with the help of Brazil's Votorantim. Unfortunately, Cimpor itself became the target of a takeover bid from Portuguese rival Secil, owned by Semapa, and Swiss giant Holderbank Financiere Glarus AG. Cimpor eventually suspended its talks with Southdown and now the company faces a long battle in its effort to thwart Secil's recent bid. In addition, analysts have said that Southdown has not attracted interest from any other parties in recent weeks. PLAY (aggressive - neutral/credit strangle): SELL CALL AUG-65 SDW-HM OI=777 B=$1.43 SELL PUT AUG-60 SDW-TL OI=250 B=$1.50 INITIAL NET CREDIT TARGET=$3.00 ROI(max)=19% UPSIDE B/E=$68.00 DOWNSIDE B/E=$57.00 Note: If you want to participate in the position but don’t have the ability to sell naked calls, consider a call-credit spread for the bearish portion of the play. The long option (AUG-$70) will limit the potential for loss on the upside and reduce the overall collateral requirement for the position. Chart = ************************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! 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