The Option Investor Newsletter Sunday 09-10-2000 Sunday 2 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/091000_2.asp ************** TRADERS CORNER ************** Liquidity Drain and Earnings Warnings By Mary Redmond We were deluged by newly unrestricted stock this week. 15 new companies had their shares unlocked for sale for the first time since they went public. IPRT, RVDP, HOMG, OPHM, SLTL, ONIS, OTGS and DTAS have charts which showed large spikes of volume and wild price swings indicating heavy selling. 30 additional companies will be unlocked in the next three weeks. This is over $50 bln of stock which could potentially be sold by insiders and drag the markets down further. The IPO schedule was light this week, probably because investment bankers wanted to test the waters after Labor Day before selling new IPOs. Further weakness in the NASDAQ may delay additional IPOs. However, there are over 80 companies waiting in the wings to be priced in September, and if the investment banking community is very aggressive, this is going to drain additional liquidity from the markets, most likely the NASDAQ. Statistics released from the Investment Company Institute indicate that American and foreign investors are still making regular contributions to equity funds. It is important to note that the year-to-date cash flows to equity funds totaled over $200 bln, which is more than the amount deposited during 1999. During January, February and March of 2000 equity funds showed a net monthly inflow of over $40 bln. February was the highest month on record, with over $54 bln going into equity funds. For the last four months, the cash flows into equity funds have been consistently between $17 and $22 bln. The majority of the money is being deposited to aggressive growth and growth funds. Value funds are taking in practically no money, which may indicate that the main sectors to invest in continue to be growth sectors, as that is where the money is flowing. It is interesting to note that over the last 12 months, over $250 bln went into equity funds and over $350 bln went into money market funds. This is more than double the levels from five years ago. As the stocks in the major averages increase in market capitalization, it takes higher levels of cash flow to drive the prices higher. When the Dow was 8000, volume of 1 bln shares a day was sufficient to move the average up by a significant percentage. With the Dow at 11,200 it may take up to 20 to 30% more volume to drive the index higher. In August of 1999, money market funds had $1.481 trln in assets. Last month, money market funds had $1.747 trln in assets. It is also interesting to note that the rate of flow to money market funds has increased over the last three years. Also, the percentage of money deposited to money market funds increased, as compared to that deposited to equity funds. Currently, money market funds are taking in significantly more cash than equity funds. At year end 1998, the percentage of money in money market funds compared to equity funds was 23%. At year end 1998, it was 25%. Currently, money market funds have over 40% of the total assets in the mutual fund universe. If you look at a chart of the Dow since 1995, you can see that just around the time when the Fed started their program of increasing interest rates last year, the Dow started stalling and the money market funds started taking in increasing levels of cash. Considering the fact that retail and institutional investors are contributing heavily to money market funds, and are only contributing moderate amounts of cash to equity funds, we may have a liquidity problem with the IPO lockup expirations. Last week, the Investment Company Institute reported that retail money market funds took in $8.74 bln and institutional money market funds took in $5.73 bln, to bring the total up to $1.756 trln. At the same time, AMG Data reported that equity funds received only $600 mln in cash, nowhere near the previous levels. Since most analysts are convinced that the Federal Reserve's program of interest rate hikes is over, the attention will turn to the Fed's post-election action. The 10-year bond yield is currently under the Fed Funds rate. The last three times this happened, in 1989, 1995, and 1998, the Fed reacted by reducing rates. There are some analysts who are convinced the Fed will reduce rates in 2001. The question for option traders now seems to be is the implied volatility of the options we want to target low enough yet? If a stock has recently made a sharp move down, the options can be overpriced, as the volatility moves higher whenever the stock is volatile. The ideal time to buy an option may be several weeks after the stock has sold off when it has been flat for a long enough time for the implied volatility of the option to decrease. Sycamore sold off this week for no apparent reason other than overall market weakness. This can be a fun stock to trade because of the erratic swings in price. It has now broken the uptrend of the last two months which means it could exhibit further weakness. Once it broke through support at $135, the next support level was $125. Once that was broken, it was all downhill. There is support at $110, and if that is broken it may be possible to buy the stock at $100. Next week is options expiration week, and this may effect individual stocks more than the indexes. For example, CMGI has been unable to penetrate $50 for the last couple of weeks. This may be due in part to the large number of Sept 50 calls outstanding. The Sept 50 calls are 25 cents and there are 11,918 options outstanding, a call to put ratio of over 5 to 1. When these either expire or are exercised next week, this could help to remove overhead resistance, as the October 50 call open interest is lower. Options expiration may give an upward bias to the market, but unless we see higher cash flows to the market, we might be in for a rough market this month. Contact Support ***********************ADVERTISEMENT************************ Save Up To 80% Off At Everything Wireless! Click On The Link Below For Store Wide Discounts. The largest range of accessories and products you use every day including Cellular and PCS phones, batteries, chargers, hands-free kits, wireless data products and more. http://www.sungrp.com/tracking.asp?campaignid=425 ************************************************************ ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* IDTI - Integrated Device Technology $93.13 (+0.56 last week) See details in sector list Put Play of the Day: ******************** DIGL - Digital Lightwave $73.75 (-15.88 last week) See details in sector list ************************Advertisement************************* Attention Online Traders: NobleTrading.com has become the first online trading firm to offer both Direct Access Trading, and web based trading to its customers. Trade Direct using any ECN, SOES, and SelectNet, or trade right through your browser using our web based trading application. FREE DSL service for active traders. Visit our website and sign up for a Free real-time demonstration! http://www.nobletrading.com/newaccount/optioninvest.html ************************************************************** ************* DAILY RESULTS ************* Index Last Week Dow 11220.65 21.09 Nasdaq 3978.41 -255.92 $OEX 812.90 -16.93 $SPX 1494.50 -26.27 $RUT 535.70 -6.21 $TRAN 2732.78 31.00 $VIX 20.69 1.24 Calls AFL 60.25 6.81 New, 52-week high on strong volume CMRC 71.38 5.38 New, investors looking at this B2B bull COF 65.16 5.03 New, finance stocks enjoying prosperity CFLO 113.38 3.88 Rallying into the end of the week AZA 78.00 1.44 Specialty drug stock in sweet spot IDTI 93.13 0.56 Delightful performance despite $SOX CHKP 146.25 -3.19 Rolling despite NASDAQ problems AGIL 70.88 -3.88 Holding up well, consolidating VRTS 117.25 -4.50 Dropped, Too many support violations AAPL 58.88 -4.56 Jobs at it again touting the Mac MERQ 121.38 -5.13 Good day trade candidate lately ORCL 86.56 -6.06 Dropped, further weakness in store??? VERT 48.50 -6.25 Dropped, solid support yet to be seen SNDK 81.31 -7.19 Bulls and bears fighting for control BEAS 63.06 -7.69 B2B sector might have some bounce left TIBX 98.31 -9.75 Dropped, poor technical position YHOO 104.13 -9.81 Added Wednesday as news related play INKT 119.00 -11.75 Dropped, sell-off sealed its fate ITWO 160.50 -18.75 Painful last week, ready for rebound? JNPR 197.63 -24.00 Dropped, earnings jitters and weak NAZ CIEN 199.63 -30.50 Dropped, Telecom spending worries Puts SCMR 116.25 -26.56 New, lower revenues and slower growth DIGL 73.75 -15.88 New, quickly eroding - Telecom worries CREE 123.25 -7.75 Chip with a lot of overhead resistance CMTN 50.50 -7.63 New, shorts love it, bulls avoid it PCS 47.09 -3.41 Bounce last week, entry near resistance? MMM 89.94 -2.56 Break below 200-dma, bias is down UK 38.00 -1.56 Earnings warnings, downgrades, new lows AT 51.75 1.94 Dropped, found bottom - we're finished ************************** 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 CIEN $199.81 (-30.31) We feel the pain in CIEN. The bears argued a compelling case last week by knocking CIEN down four consecutive days on increasingly heavier volume. The rumors of a slowdown in capital expenditures by the telecom service providers took a toll on the equipment makers last week. The Kings of Networking including NT, CSCO, LU, and our CIEN, all shared punches from the bears. Let's not forget that CIEN warned of a six cent EPS shortfall early last week, which only complicated matters. CIEN's four straight days of selling last week might lead to a bounce early Monday. If the stock does bounce, you might look to exit the play on strength as CIEN faces major resistance just above at $210. ORCL $86.56 (-6.06) Stumbling out of the gate on Tuesday, ORCL was looking a bit weak right from the start. Finding support near $89, our play recovered enough on Thursday to stay in the race. That brief stability wasn't long-lived though as ORCL was knocked down and trampled by the rampant selling on the NASDAQ. Giving up nearly $5 on heavy volume is not a good sign, as our play plunged through the 10-dma, a level that had acted as support since the beginning of August. Friday's close at the low of the day leads us to believe that further weakness is in store, with the $84 support level being a logical recovery point. While ORCL may recover and head higher, this is a sprint, not a marathon, and we don't have the patience to watch and hope. VERT $48.50 (-6.27) As it turned out, the bounce on Thursday was just a waypoint on VERT's trip down to more solid support, which is yet to be seen. Although $51 support was looking like the final destination Friday afternoon, that concept went out the window with the nearly $3 decline in the final 30 minutes. As if the point decline wasn't bad enough, it came on heavy volume (over 400K shares) and VERT ended up closing very near the low of the day. With several support levels in the rear-view mirror now (including the 10-dma), our play is resting just fractionally above the converged 30-dma and 50-dma. We were looking for our play to start moving vertically, but down was not what we had in mind. It wouldn't be surprising to see more weakness before the buyers return, and there are too many great plays out there to keep waiting for VERT to recover. INKT $119.00 (-11.75) INKT shadowed the NASDAQ's pullback this week. It ultimately retraced back under earlier resistance of $120 signaling this momentum play is over. By Wednesday, INKT was perched on 10-dma line and we warned of an impending collapse. Friday's performance sealed the fate. INKT broke down despite a promising report from its CFO, Jerry M. Kennelly, at the Robertson Stephens Net conference. Kennelly said new products would focus on delivery of "rich media content". Remember the previous headlines of a content "Bridge Alliance" with EXDS and AOL ignited a fire under INKT. The more recent news, unfortunately, didn't spark another run to challenge $135. So all in all, we're back where we started and it's time to move on. JNPR $197.63 (-24.00) A perfect example of how the Net stocks can wield a wretched wrath. Ok that may be a bit much. But here's a stock that provided lots of profitable prospects and then stomps out of the play range with a -$17 point loss in one session. On Friday, the NASDAQ's slump below the psychologically key 4,000-level (for the first time since mid- August) and earnings' jitters cut the legs off JNPR. Nevertheless, those traders playing this momentum runner knew that along with the great profit opportunities came HIGH-RISK. JNPR's position is currently under former resistance of $200 and the 10-dma ($206.76). When it shows signs of rebounding and once again confronting its recent all-time high of $228, we'll bring JNPR back aboard. Until then, it's time to exit this lucrative mover. Earnings are expected around October 12th. VRTS $117.25 (-4.50) Too many violations and they don't give you anymore "get of jail free" cards. The 10-dma infractions and VRTS's inability to recover on Friday was the final straw. VRTS was not only unable to hold the near-term support of $121 and $122, but also couldn't move back through the $120 mark to save its life. The evidence is clear - we've cashed in about all we can on VRTS recent momentum. Plus there is the economic pitfalls to contend with next week. Since VRTS is unlikely to escape further scarring, we're dropping VRTS this weekend. TIBX $98.31 (-9.75) Taken Out Behind the Woodshed, The Sequel! It was a rough week for the NASDAQ and TIBX followed suit. Tuesday, Tibco closed at $110.13, the closing high for the week. It was all downhill from there! On Wednesday, TIBX closed down over $8, flat on Thursday and Friday got slammed. Friday's close occurred below the 5-dma, 10-dma, and 50-dma, (currently $104.80, $100.90 and $105.20), respectively. The next levels of support could possibly be found at the 100-dma or the 200-dma (currently $88.40 and $79.80, respectively). What is more troubling than the recent breach of and the closing below support is the potential triple-top formation. This formation began on July 14th with an intraday high of $129, then a lower high was traced on August 9th at $119 and finally this week the third lower high was clocked in at $111.38 on Tuesday. Add the poor NASDAQ sentiment, together with the poor technical action in TIBX and it feels like a good time to step aside. PUTS AT $51.75 (+1.94) On Thursday, we reported on Alltel's guidance call concerning a projection of missed estimates. The company boosted its spending to add a greater number of wireless subscribers than previously anticipated. The gyrations in trading reflected the investors' uncertainty about the overall outlook. However on Friday, the storm settled and AT rebounded on long-term sentiment. Fred Moran, an analyst at Jefferies & Co, commented that "when management acknowledged that it would have some negative impact -- but the impact would not be devastating -- that's when the stock bounced back. The uncertainty was scaring investors". With that said, AT plowed through the $52 ceiling and advanced $3.00, or 6.2% in heavy trading. Analyst John Bright at Johnson Rice & Co also reiterated a short-term Buy for AT. The recent series on new 52-week lows was indeed rewarding, but now that AT found a bottom the play is finished. *********** 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 ************** COF - Capital One Financial $65.16 (+5.03 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. With interest rate fears rapidly becoming a distant memory, Financial stocks are enjoying continued prosperity. As if that wasn't enough, continued speculation of mergers and acquisitions is adding still more fuel to the sector. COF is enjoying the party too, and rightly so. With the bulk of the company's business being credit card related, stable interest rates just means stable and, more than likely, increasing profits. We last played COF in late July and early August, and as it turned out, we might have been a bit too quick with the eject button. After putting in a solid bottom at $55 in the middle of August, buyers have been propelling the stock higher, and after closing above $60 for the first time on Tuesday, every day is seeing new highs. If you love to see increasing volume to confirm your trades, then you are going to love COF's chart over the past week, as the volume continues to increase. Although volume weakened a bit on Friday (probably due to the day of the week), traders still managed to exchange 20% more shares than the daily average. The 5-dma (currently $62.56) is supporting the stock's rise, and the 10-dma (currently $61.13) isn't far behind. Combine these moving averages with a volume-backed move above $60, and it looks like the $60 support level may have some staying power. Look to open new positions as the stock pauses to consolidate near the 5-dma, and then jump on board as the volume picks up again. More conservative players will wait for our play to tick off another new high, and enter the play as COF moves above $66. Although PaineWebber downgraded COF from Attractive to Neutral on Thursday, investors hardly noticed, as they pushed the stock to another all-time high on Friday. Of the 26 analysts that follow COF, 24 rate the stock either a Buy or a Strong Buy, putting PaineWebber in a very small minority. BUY CALL OCT-55 COF-JK OI= 31 at $10.75 SL=8.00 BUY CALL OCT-60 COF-JL OI= 296 at $ 7.50 SL=5.25 BUY CALL OCT-65*COF-JM OI=1056 at $ 4.38 SL=2.50 BUY CALL DEC-60 COF-LL OI= 856 at $ 9.88 SL=7.00 BUY CALL DEC-65 COF-LM OI=2699 at $ 7.00 SL=5.00 Picked on Sep 10th at $65.16 P/E = 33 Change since picked +0.00 52-week high=$65.88 Analysts Ratings 12-12-2-0-0 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 = 967 K CMRC - Commerce One Inc $71.38 (+5.38 last week) Commerce One has become one of the signature names in the emerging B2B environment. They provide e-commerce solutions that enable buyers and suppliers of goods and services direct access to trading communities over the Internet. Founded in 1994 as DistriVision, the company was renamed Commerce One in 1997 and is based in Walnut Creek, CA. Major players in the B2B arena recently surged in anticipation of another round of strong quarterly results. B2B analyst Patrick Walrayens at Lehman Brothers commented, "If you look at any of these companies individually, all of them are going to have a strong September, and people are getting a sense of that." Granted CMRC is at depressed levels and is way off its split-adjusted high of $165.50 reached last year, but it appears investors are taking another look at CMRC. There's the partnership between Commerce One and Germany's Sap, plus the big industry exchange concept that may revolutionize the B2B market. The concept is coined "direct B2B" and involves buying and selling major supplies, like steel for the big auto makers, instead of the typical office supply paraphernalia. Whether it'll catch on and work is another matter. But for now, there are signs that sentiment is shifting in Commerce One's favor. Our objective is to take advantage of the volatility and parlay some profits. In the coming weeks, there'll likely be a lot of developments with upcoming conferences and earnings to report. The projection is for a sizzling hot run-up. But since it's impossible to predict concrete results, it may be a good idea to set stops for protection. If you recall from last Spring's slaughter, this sector is not only fast and furious, but also merciless. Simply put, don't be blinded by Greed. It's absolutely essential to play the up-trend with your rose-tinted glasses in your pocket. Light support is at $70 and $71 with a firmer platform at $65 for the more aggressive entries. The conservative will however wait for a bullish move through immediate resistance at $75 before opening positions. The volume's been just fantastic with levels reaching three and four times the ADV on the up take, so look for continued activity to back another breakout. More positive comments from analysts would also be welcome. This week Dain Rauscher Wessels reiterated its Buy rating and upped the price target on CMRC to $75 from $56. Salomon Smith Barney also initiated coverage on the stock with a Buy recommendation. Commerce One announced it linked up with another German firm, Intershop Communications, who specializes in sell-side products for the e-commerce market. The agreement expands the scope of their global strategic alliance to connect suppliers to e- marketplaces. Intershop's enfinity software is tailored to sell products, which enhances the overall marketing and sales ability of suppliers. In addition, the deal includes some other technical integration of the firm's products. CMRC also reported that Trade Alliance, its global MarketSite partner in Singapore, successfully launched its global e-marketplace on August 17th and successfully completed $500 mln in transactions, the first day of operations. BUY CALL OCT-60 RJC-JL OI=1934 at $15.88 SL=11.50 BUY CALL OCT-65 RJC-JM OI=1140 at $12.50 SL= 9.25 BUY CALL OCT-70*RJC-JN OI=8251 at $10.13 SL= 7.00 BUY CALL OCT-75 RUC-JO OI=3188 at $ 8.00 SL= 5.75 BUY CALL JAN-75 RUC-AO OI= 465 at $15.88 SL=11.50 Picked on Sep 10th at $71.38 P/E = 91 Change since picked +0.00 52-week high=$102.25 Analysts Ratings 12-15-0-0-0 52-week low =$ 11.44 Last earnings 06/00 est=-0.10 actual=-0.14 Next earnings 10-18 est=-0.12 versus=-0.08 Average Daily Volume = 8.14 mln AFL - Aflac Inc. $60.25 (+6.81 last week) American Family Life Assurance Company of Columbus (AFLAC) is a subsidiary of the parent corporation AFLAC, Inc. AFLAC's primary business is supplemental life and health insurance marketed in both the U.S. and Japan. They believe they are the world's leading writer of cancer expense insurance. In addition to the supplemental life and health insurance, AFLAC also sells products such as, accident and disability, long term care, short term disability and hospital intensive care insurance, to name a few. In short, AFLAC's insurance is designed to provide supplemental coverage for people who already have major medical or primary insurance coverage. AFLAC is a Fortune 500 company with over 40 million insured worldwide. Aflaac! Aflaaac! Aflaaaac! If you don't recognize this company yet, surely you have seen their recent round of TV ads this year. You know the ones. For instance, the one with the guys in the sauna talking about insurance and in comes the star of the show, the Duck, starring as the towel rack. I must admit, the ads are fantastic! Earlier this year the CEO was interviewed on CNBC and he admitted that the ads were a little on the aggressive side for a conservative business like AFLAC's, but, that they were effective. If stock price is any indicator, it is telling us that the ads are working and business is robust. Furthermore, a potentially benign interest rate environment going forward would be deemed as a huge positive for AFL. After hitting an intraday low in March of $33.56, AFL has been in a steady uptrend. On July 6th, AFL did pullback to touch its 200-dma ($45.40 at that time), after having run up to an intermediate high of $53.94, June 2nd. Since that time AFL has continued its ascent, breaking out into new high territory again on August 1st and running to a higher high of $58.81, on August 14th, all the while providing investors with minor pullbacks along the way, to gain entry. Late this week, AFL defied gravity and the market by moving into new high territory again. Friday's tape action was where it all happened as it advanced $2.75 on volume of 1.56 mln shares (3.5 times ADV) to close on the high for the day. You have a couple of options for entry at this point. For aggressive traders, an intraday pullback to the $58.81 area, the site of the old intraday high from August 14th, may provide a good entry. Conservative traders may want to witness a light-volume move back down to the 5-dma (currently at $56) or the 10-dma (currently at $54.90), followed by a volume supported bounce from there to gain entry. The 50-dma and 200-dma are currently, $52.80 and $46.80, respectively. As always, watch for profit taking and market and sector sentiment as you look to enter new trades. Thursday AFLAC Inc. announced that AFLAC Japan has entered into an agreement to form a strategic marketing alliance with Dai-ichi Mutual Life Insurance Company. Friday, Raymond James started coverage with a Market Perform rating. Earlier this year they were added to the S&P 500. BUY CALL OCT-50 AFL-JJ OI= 0 at $11.13 SL=8.25 Wait for OI! BUY CALL OCT-55 AFL-JK OI= 10 at $ 7.25 SL=5.50 BUY CALL OCT-60*AFL-JL OI= 39 at $ 4.25 SL=3.25 BUY CALL NOV-55 AFL-KK OI=943 at $ 8.25 SL=6.25 BUY CALL NOV-60 AFL-KL OI= 48 at $ 5.63 SL=3.50 Picked on Sep 10th at $60.25 P/E = 27 Change since picked 0.00 52-week high=$60.25 Analysts Ratings 6-2-9-0-0 52-week low =$33.56 Last earnings 06/00 est=0.58 actual=0.59 Next earnings 10-24 est=0.61 versus=0.52 Average Daily Volume = 446K ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 09-10-2000 Sunday 3 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/091000_3.asp ************************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 ****************** YHOO - Yahoo! Inc. $104.13 (-9.81 last week) Laying claim to the top spot among Internet portals, YHOO draws more than 120 million visitors every month. With more than 5000 advertisers, the company is one of those rare Web-based companies that is operating in the black. Offering a wide range of services, from e-mail, chat rooms and online shopping to personal Web pages and Web-based audio and video, YHOO has earned its position as one of the most recognized brands associated with the Internet. Collaborating with Kmart's BlueLight.com, the company has also entered the free ISP arena. As we mentioned on Thursday, this stealth play may look unfamiliar since we added it on Wednesday, at the bottom of the Matt Russ Market Wrap. Given the news-related after-hours trading on Wednesday, we decided that the valuation of YHOO, brought upon by what we consider unwarranted selling, was an attractive point to gain entry into this call play. In case you haven't read the recent updates on this YHOO play, it is based on comments made by YHOO CEO Tim Koogle at the Robbie Stephens Internet Conference. Many analysts mistook his comments for an admission that YHOO would have earnings problems going forward and YHOO dropped to a low near $103 in after hours trading. Then, Koogle appeared on CNBC in an interview clarifying that Yahoo in no way has changed their guidance. Consolidation in the market place will actually help YHOO since they will be able to dictate terms from a stronger position and use their strength to offer advertisers more benefits due to scale that smaller companies cannot. With YHOO earnings on October 10th confirmed, we felt that these pre-earnings-run price levels offered a good entry and limited downside risk. On July 10th, YHOO made a dip just below $100, and subsequently recovered to $140. Prior to that, YHOO hadn't traded at $100 since November of last year. Typically, YHOO finds momentum going into the earnings announcement, and at these levels, a recovery may very well be in the works. To gain entry, look for any pullbacks to $102 accompanied by a bounce. This level appears to be holding at intraday support. On Friday, YHOO dipped to $100.56 where it received high volume buying ($99.75 was a bad tick). Overhead resistance may be found at $113, and then at the 10-dma at $117.63. A breakdown and close below $100 would be concerning, and we would probably stay away. A bounce around that level, however, would be buyable. All news that is fit to print can be found above. On Friday, SG Cowen analyst Scott Reamer said that advertising growth may be coming down permanently, likely affecting media players like YHOO and DCLK. Yet, on the contrary, Robbie Stephens senior Internet analyst Lauren Cooks Levitan confirmed that Koogle's comments on Wednesday were "consistent with comments that [Koogle] and other management have been making" and "that their outlook for their potential online advertising remains very robust." ***September contracts expire this week*** BUY CALL OCT-100 YHV-JT OI= 524 at $12.75 SL=10.25 BUY CALL OCT-105 YMM-JA OI= 461 at $10.25 SL= 7.50 BUY CALL OCT-110*YMM-JB OI=1310 at $ 8.25 SL= 6.25 BUY CALL OCT-115 YMM-JC OI= 802 at $ 6.50 SL= 4.75 BUY CALL JAN-120 YMM-AD OI=2351 at $12.13 SL= 9.50 SELL PUT SEP-100 YHV-UT OI=1854 at $ 2.13 SL= 3.50 (See risks of selling puts in play legend) Picked on Sep 6th at $107.88 PE = 281 Change since picked -3.75 52 week high=$250.06 Analysts Ratings 17-16-3-0-0 52 week low =$ 55.00 Last earnings 07/00 est= 0.10 actual= 0.12 Next earnings 10-10 est= 0.12 versus= 0.07 Average Daily Volume = 8.47 mln IDTI - Integrated Device Technology $93.13 (+0.56 last week) The company's high-performance semiconductor products and modules are found in computers, peripherals, and communications and networking devices. About 70% of sales are from communications and high-performance logic components, specialty memory, clock management circuits, and networking devices. IDTI also makes static random-access memories (SRAMs). Simply put, we're delighted with the performance of our beloved IDTI last week. Despite the 9% drubbing in the $SOX, our IDTI edged ever-so slightly higher. IDTI's relative strength bodes extremely well for the health of our play going forward. As we've seen in the past, IDTI spends a few days in consolidation after making a big run. IDTI's basing action last week might position the stock for a big rally next week if the $SOX stabilizes or even rallies. The fact that IDTI is trading near its all-time high of $95.25, which was traced last Thursday, also presents a bullish case for our play going forward. To gain new entry into the play, aggressive traders might consider getting in early Monday morning if the $SOX shows signs of strength. A dip down to support at $90 might also provide a favorable entry into the play for those willing to take on a little more risk. For the risk averse OIN readers, wait for IDTI to gain momentum and look to enter the play on a rally to new highs. Watch for a momentum-based move accompanied with healthy volume above the $95 level. Pay close attention to the action in the $SOX; a reversal in the Chip index might unleash the IDTI bulls and carry the stock substantially higher. Also of note, for those of you who've been in the play for awhile consider using a trailing stop to protect the big profits we have accumulated. IDTI attended the Salomon Smith Barney Seventh Annual Global Technology Industry Conference last week. Although no specific analyst actions came from the conference, IDTI must have told a good story, which might explain the stock's strong relative performance last week. Over the next two weeks, IDTI will be attending two more analyst conferences with SG Cowen and Bank of America Securities. If the results of the two preceding conferences are similar to the outcome of the SSB conference last week, we might see IDTI headed even higher. ***September contracts expire this week*** BUY CALL OCT- 90 ITQ-JR OI= 729 at $12.13 SL=9.00 BUY CALL OCT- 95*ITQ-JS OI= 92 at $ 9.88 SL=7.00 BUY CALL OCT-100 ITQ-JT OI= 329 at $ 7.75 SL=5.75 BUY CALL NOV- 95 ITQ-KS OI=2338 at $12.38 SL=9.25 BUY CALL NOV-100 ITQ-KT OI= 26 at $10.13 SL=7.25 SELL PUT SEP- 90 ITQ-UR OI= 242 at $ 2.31 SL=3.75 (See risks of selling puts in play legend) Picked on August 15th at $66.88 P/E = 51 Change since picked +26.25 52-week high=$95.25 Analysts Ratings 6-1-0-0-0 52-week low =$15.06 Last earnings 06/00 est= 0.47 actual= 0.58 Next earnings 10-16 est= 0.70 versus= 0.18 Average Daily Volume = 3.22 mln ITWO - I2 Technologies $160.50 (-18.50 last week) I2's RHYTHM supply chain management software helps manufacturers plan and schedule production and related operations such as raw materials procurement and product delivery. Companies that use RHYTHM include: 3M, Dell, Ford, and Motorola. Maintenance, training, and other services account for more than a third of sales. I2 is using acquisitions of complementary technologies and companies to position itself as a leader in the market for Internet-based production process applications. To see ITWO shed nearly $20 last week was painful. However, to glance over ITWO's chart and see its month-long string of higher lows intact is, in a word, impressive. Despite the bloodbath in the B-2-B sector in later-half of last week, ITWO's relative strength has convinced us to hang around a little longer. For the most part, ITWO's bloodletting last week stemmed from the weakness in the broader Tech sector, particularly the NASDAQ. The concerns surrounding the Semi and Telecom sectors spread throughout the broader market to impact our play in a bearish way. With no real clear and present danger in the B-2-B sector, ITWO might be ready for a quick rebound if the NASDAQ stabilizes next week. What's more, there has been no fundamental change to ITWO, or the B-2-B sector for that matter, over the past week, which presents a compelling case for a quick ITWO rebound. Wall Street attempted to get the ITWO ball rolling last Friday; Dresdner initiated coverage on the stock with a Buy rating. If the B-2-B bulls return early next week aggressive traders might look for a quick entry into the play on a bounce off support at the $160 level. The $160 level is significant in that it marks a higher low in ITWO's ascending channel. Buying ITWO's dips has been a profitable strategy over the past month and might continue to produce. However, consider your risk level before entering into ITWO's recent dip. Another possible entry might be provided on a quick pop back above the stock's 10-dma at $166.50. The conservative traders among us might consider waiting for ITWO to regain its momentum and look to enter the play on a strong rally out of its trading range and above the $170 level. Make sure to confirm any ITWO rally attempt with healthy volume as a sign the B-2-B bulls are back. The highly anticipated investor and analyst conferences we've been waiting for will swing into full gear over the next two weeks. ITWO will be attending the Ariba 2000 and the eB2B Marketplace conferences in the coming weeks, which could result in upgrades and higher price targets. A little encouragement from the Wall Street crowd might be enough to get our B-2-B play bouncing higher. BUY CALL OCT-155 QYI-JK OI= 4 at $19.75 SL=14.50 BUY CALL OCT-160*QYI-JL OI=104 at $17.50 SL=12.50 BUY CALL OCT-165 QYI-JM OI=146 at $15.13 SL=11.00 BUY CALL NOV-160 QYI-KL OI=218 at $30.13 SL=22.50 BUY CALL NOV-165 QYI-KM OI=299 at $22.00 SL=16.50 Picked on August 27th at $166.50 P/E = 500 Change since picked +6.00 52-week high=$223.50 Analysts Ratings 11-19-3-0-0 52-week low =$ 15.19 Last earnings 06/00 est= 0.08 actual= 0.10 Next earnings 10-20 est= 0.10 versus= 0.06 Average Daily Volume = 3.57 mln AZA - ALZA Corporation $78.00 (+1.44 last week) As a research-based pharmaceutical company, AZA applies its leading drug delivery technologies to develop products with enhanced therapeutic value for its own portfolio and many of the world's leading drug companies. The company commercializes products it develops, as well as those it acquires from third parties. AZA is currently focusing its sales and marketing efforts on products for urology and oncology disorders, as well as products for the treatment of pediatric and central nervous system disorders. Sitting in the sweet spot between the big pharmaceutical companies and the profitless Biotechs, AZA is what is known as a specialty pharmaceutical company. Unlike the Biotechs, these companies are typically profitable and AZA is no exception. In contrast to the big drug companies, which can't afford to bring a new product into production unless the market for the product exceeds $1 billion, firms like AZA can profitably market a new drug with a $200-300 million annual demand. AZA has a strong pipeline of new products and continues to receive positive press and analyst coverage. Benefiting from the strength in the Biotech sector lately, AZA has a unique feature. Moving up when the Biotechs have a good day, our play just consolidates when the sector has a bad day. Need proof? Look at the action on the first 2 days of last week. AZA barely moved, closing both Tuesday and Wednesday at $76 (fractionally below Friday's close), while the Biotech Index (BTK.X) gave up over 10% in the same period of time. Then, as the Biotechs recovered, AZA started moving again too, checking off new highs both Thursday and Friday. Our play closed out the week in fine fashion, eclipsing the $80 level and posting a new all time closing high on solid volume. The 5-dma ($76.81) continues to be supportive, with the 10-dma ($74.50) not far behind. Given the strong rise into new high territory over the past month, it is hard to find historical support, with the exception of intraday levels found at $76 and then the $71-72 range. Target shoot dips to your favorite support level (moving average or chart support), but keep in mind that nothing moves in a straight line. If selling volume increases dramatically and support levels aren't holding, stand aside until the dust settles. More conservative players will want to buy on strength, so look for continued strong volume to push AZA back above $80 before playing. As if AZA needed any more help last week, the stock got a nice boost a week ago Thursday from the reported positive results from clinical trials of the company's flagship incontinence drug, Ditropan XL. This followed positive analyst comments on August 29th and 30th. First, SG Cowen issued a Strong Buy rating, and then Banc of America Securities added the stock to its Fresh Money List and issued a Buy rating. BUY CALL OCT-70 AZA-JN OI=1631 at $10.38 SL=7.50 BUY CALL OCT-75*AZA-JO OI= 63 at $ 6.75 SL=4.75 BUY CALL OCT-80 AZA-JP OI= 217 at $ 4.13 SL=2.50 BUY CALL JAN-75 AZA-AO OI= 191 at $10.88 SL=8.25 BUY CALL JAN-80 AZA-AP OI= 159 at $ 8.13 SL=5.75 Picked on Sep 7th at $77.25 P/E = 64 Change since picked +0.75 52-week high=$80.19 Analysts Ratings 8-5-3-0-0 52-week low =$26.00 Last earnings 07/00 est= 0.35 actual= 0.44 Next earnings 10-19 est= 0.44 versus= 0.40 Average Daily Volume = 1.65 mln MERQ - Mercury Interactive $121.38 (-5.13 last week) As a provider of integrated performance management solutions that enable businesses to test and monitor their Internet applications, MERQ is looking for growing e-commerce demand to continue to fuel its business. The company's products perform such tasks as analyzing and eliminating Web site performance bottlenecks and automating quality assurance testing. MERQ's client base spans a wide range of industries including Internet companies such as Amazon.com and America Online, infrastructure companies Ariba and Oracle, as well as Apple Computer, Cisco Systems and Ford Motor Company. Looking for a profitable day trade? MERQ has delivered a nice $10 range over the past 3 days with consistent support at $120 and resistance at $130. Although it didn't make for a profitable position trade last week, more nimble players managed a healthy profit for their troubles. After moving through the $120 resistance level a little over a week ago, it is encouraging to see this level successfully transition to support, especially in light of the NASDAQ weakness. The strong volume that accompanied MERQ's rise over the prior two weeks has fallen off significantly, and this was an early sign that the stock would need to consolidate a bit before making a run at its all time high of $134.50. Friday's profit taking dropped our play down for a bounce at the 10-dma ($120.19), so we need to see this level hold as support going forward. Although there is some mild intraday support near $114, the next level of solid support is found at $110. A drop to these levels would provide a great entry point if the recovery was immediate, but more than likely it would represent an end to MERQ's recent upward momentum. Continue buying the bounces near $120, and tighten up your stops as the stock approaches $130. If MERQ can get through that obstacle, new highs will likely be close at hand. Don't forget, MERQ could very well be a candidate for a split, as it typically does so over the $90 level, and there are more than enough shares authorized. Adding to its first rate management team, MERQ announced on Thursday that Doug Smith, former Chase H&Q Internet Group managing director, would be joining the company as the Executive VP of corporate development. The real driver for recent price action has been the positive sentiment created by IDC's report on August 25th which stated that MERQ was the 1999 worldwide leader for automated software quality tools, with a 41% market share and 55% revenue growth from 1998 to 1999. ***September contracts expire this week*** BUY CALL OCT-120 RBF-JD OI=509 at $14.75 SL=10.75 BUY CALL OCT-125*RBF-JE OI=342 at $12.50 SL= 9.50 BUY CALL OCT-130 RBF-JF OI=384 at $10.00 SL= 7.00 BUY CALL JAN-125 RBF-AE OI=113 at $23.38 SL=17.50 BUY CALL JAN-130 RBF-AF OI= 99 at $21.38 SL=16.00 SELL PUT SEP-120 RBF-UD OI=158 at $ 4.13 SL= 6.00 (See risks of selling puts in play legend) Picked on Sep 5th at $129.06 P/E =265 Change since picked -7.69 52-week high=$134.50 Analysts Ratings 9-3-1-0-0 52-week low =$ 26.25 Last earnings 07/00 est= 0.12 actual= 0.14 Next earnings 10-17 est= 0.16 versus= 0.11 Average Daily Volume = 1.78 mln AGIL - Agile Software Corp. $70.88 (-3.88 last week) Agile Software is the leading provider of Collaborative Manufacturing Commerce solutions that speed the "build" and "buy" process across a virtual manufacturing network, thereby improving time to volume, customer responsiveness and cost of goods sold. Agile's solutions manage product content, and the critical communication, collaboration and commerce transactions among Original Equipment Manufacturers (OEMs), Electronic Manufacturing Service (EMS) providers, suppliers and customers in Internet time. Current customers include Agilent Technologies, Dell Computer, Flextronics International, GE Medical Systems, Hewlett-Packard, Jabil Circuit, Lucent Technologies, Philips, and Texas Instruments. While many Tech stocks this week were treated to a post Labor Day bellyache, AGIL has been holding up well, spending this shortened week digesting its breakout of the previous Friday. With many stocks breaking below their up-trends started in early August, it is encouraging to see that AGIL's is still in place. Since the high volume roar over the $70 resistance level, volume has drifted ever-lower. This is good news for our play considering the heavier volume accompanying the sell-off in the broader market. Despite being down for the week, at this point AGIL's movements are well within the parameters of a consolidation, though just barely. On Friday AGIL continued lower in sympathy with the NASDAQ, losing $2.19 or almost 3% on 95% of ADV. Selling off sharply during amateur hour, the stock attempted to come back. Encountering resistance at $73, the bears took over to close the day. In doing so, AGIL finished below its 5- and 10-dma, currently at $73.17 and $71.43, respectively. Despite this, support at $70 is still holding. At this level, aggressive traders may find this to be an attractive entry, but make sure it bounces before entering. Below $70, there is support at $67 and then the 50- and 200-dma in the $65 area. Another aggressive entry might be found on a strong break above $71.43; the 10-dma. Conservative traders will want to make sure that AGIL can break through the $73 area and the 5-dma with conviction before entering. From there, resistance can be found at $75. With a shaky market, it cannot be stressed enough to make sure that volume confirms a bounce before entering. Only one piece of news to report last week. On Monday, AGIL announced a partnership with Andersen Consulting to promote and deliver e-commerce solutions to manufacturing firms around the world. BUY CALL OCT-65 AUG-JM OI=25 at $12.25 SL= 9.00 BUY CALL OCT-70*AUG-JN OI=61 at $ 9.50 SL= 6.50 BUY CALL OCT-75 AUG-JO OI=48 at $ 6.75 SL= 4.75 BUY CALL JAN-70 AUG-AN OI=30 at $18.50 SL=13.50 BUY CALL JAN-75 AUG-AO OI= 0 at $16.50 SL=11.75 Wait for OI! Picked on Sep 5th at $74.06 P/E = N/A Change since picked -3.19 52-week high=$112.50 Analysts Ratings 2-7-0-0-0 52-week low =$ 18.31 Last earnings 08/17 est=-0.04 actual=-0.03 Next earnings 11-16 est=-0.02 versus=-0.05 Average Daily Volume = 519 K BEAS - BEA Systems, Inc. $63.06 (-7.69 last week) Founded in 1995, BEA Systems, Inc. has become widely known as a leading provider of middleware for enterprise applications. This is largely because of the success of BEA Tuxedo and BEA WebLogic, which together comprise approximately 46 percent of the transaction server market (according to IDC). But the vision of BEA's founders has always been bigger than middleware. Their goal from the beginning was to provide a comprehensive infrastructure for development and deployment of reliable, scalable business applications for e-commerce. Connecting the highs and lows of BEAS since the beginning of August, an upward sloping regression channel can easily be discerned. Spanning approximately 13 points, the stock hit the top of that channel last Friday. Since then, BEAS has moved to the bottom of the channel in the space of just four days. Volume has been decreasing on the way down and this compares well to the previous week, when the stock was gaining share price on accelerating volume. On Friday BEAS followed the NASDAQ lower as it said goodbye to $3.50 or 5.26% on 66% of ADV. Some of its peers such as ARBA and ITWO also drifted lower on light volume. Others such as CMRC and PPRO were able to buck the trend and move up on strong volume. That suggests the B2B sector might have some strength after all. Nonetheless, Friday saw BEAS close below its 10-dma (at $64.50) for the first time since mid-August. This may not be of great concern since BEAS has managed to overcome that level on previous failures. As well, there is strong support at $62.50, and it is holding. The 5-dma (now at $66.50) however, has been acting as resistance for the past couple of days. At this point, depending on the whims of the market and the B2B sector, this could either be the perfect entry point or the end of the up-trend, so make sure your stops are in place if you enter. As further precaution, confirm bounces with strength in the B2B sector. For those who want to make sure, wait for BEAS to move back above its 5-dma before entering the play. BEAS was busy on Tuesday as the company announced an alliance with KPMG Consulting to develop enterprise products based on the company's software. On Friday, BEAS extended its partnership with data caching software maker TimesTen to speed up performance in data-driven Internet-enabled applications. BUY CALL OCT-60*BUC-JL OI= 430 at $10.13 SL=7.00 BUY CALL OCT-65 BUC-JM OI= 600 at $ 5.50 SL=3.50 BUY CALL OCT-70 BUC-JN OI= 571 at $ 3.63 SL=1.75 BUY CALL DEC-65 BUC-LM OI=5590 at $ 9.38 SL=6.50 BUY CALL DEC-70 BUC-LN OI=1074 at $ 7.25 SL=5.25 Picked on Aug 27th $59.63 P/E = N/A Change since picked +3.44 52-week high=$78.88 Analysts Ratings 11-4-0-0-0 52-week low =$ 5.81 Last earnings 08/15 est= 0.04 actual= 0.05 Next earnings 11-14 est= 0.06 versus= 0.03 Average Daily Volume = 5.88 mln CFLO - CacheFlow Inc. $113.38 (+3.88 last week) CacheFlow Inc. designs, manufactures, and markets Internet caching appliances. These easy-to-use appliances speed Web page response times, while saving network bandwidth. Because of these key benefits, caching appliances are becoming an integral component of the network infrastructure - much like routers and switches. Explosive growth is forecasted for the caching appliance market, with revenues projected to exceed $3 billion by 2003. Company partners include Akamai, Alcatel, CSC, EDS, Hewlett-Packard, Lucent, Real Networks, Secure Computing Websense and Westcon. CacheFlow is a global organization with offices throughout Asia, Europe, and North America. Did you get your entry point? After powering through resistance at $110 on Thursday, CFLO continued higher into end the week, even in the face of a weak NASDAQ. When we started this play on Thursday, we mentioned a number of possible ways to enter this play. Aggressive traders were able to take advantage of an early morning dip to its 5-dma. From there the stock bounced, and even attempted to rally. Encountering resistance in the $115-116 area, the cash flowed out of the stock and then settled down to a narrow trading range to close the day up fractionally. Volume came in at 89% of ADV. Even in a shaky market, it's hard not to be bullish on this play. This stock finds support where you expect it and for the past couple of weeks, has been breaking through resistance points with conviction. Fans of candlestick charting will notice that there are more white candles on CFLO's chart than evening Mass at St. Patrick's Cathedral. This is not an invitation to pray but rather, a comment on CFLO's ability to consistently close above its opening price on any given day. As well, with an upward regression channel spanning almost 30 points, if this stock decides to move up, it has plenty of room to do so. Aggressive traders will continue to find a bounce off the 5-dma (now at $110.35) to be an attractive entry point. A bounce off the 10-dma near support at $105 is another possible entry point as is a successful test of support at $110. Overhead resistance can be found in increments of $5 at $115, $120 and $125. A break through the $115-116 area on high volume would be a safer entry point. On Thursday CFLO announced that it had formed a partnership with Top Layer Networks Inc. In doing so, the two companies will team up to provide solutions to speed up delivery of Internet content to their respective clients. ***September contracts expire this week*** BUY CALL OCT-110*FUJ-JB OI=304 at $14.88 SL=11.00 BUY CALL OCT-115 FUJ-JC OI= 12 at $12.63 SL= 9.50 BUY CALL OCT-120 FUJ-JD OI= 33 at $10.25 SL= 7.25 BUY CALL JAN-110 FUJ-AB OI= 0 at $24.00 SL=18.00 Wait for OI! BUY CALL JAN-115 FUJ-AC OI=200 at $21.50 SL=16.00 SELL PUT SEP-110 FUJ-UB OI= 40 at $ 2.38 SL= 4.00 (See risks of selling puts in play legend) Picked on Sep 7th at $113.00 P/E = N/A Change since picked +0.38 52-week high=$182.19 Analysts Ratings 3-4-0-0-0 52-week low =$ 27.00 Last earnings 08/16 est=-0.17 actual=-0.14 Next earnings 11-15 est=-0.11 versus=-0.22 Average Daily Volume = 593 K SNDK - SanDisk Corporation $81.31 (-7.19 last week) Founded in 1988, SanDisk pioneered industry development of flash memory cards for data storage and played a key role in setting many flash industry standards. It was the first company to introduce a removable flash MultiMediaCard, an ultra-small size form factor memory card. SanDisk embedded flash data storage devices also are widely used for numerous commercial and industrial applications in various markets. Market research firms have concluded that SanDisk is the flash card market leader with approximately 28% share of the market. Volatility, thy name is SanDisk. This shortened week has seen the bulls and bears take turns riding the stock. Monday began on a positive note as the stock broke through resistance at $90 on strong volume. SNDK came storming out of the gates, trading up sharply in the first hour of trading. Encountering resistance just below the $95 mark brought in the sellers and for the rest of the day the bulls and bears battled it out with the decision a stalemate. On one hand, SNDK managed to close above the $90 mark. On the other hand, the stock barely made it, at $90.06. The next day, it was apparent that the bears had won the contest, if only for a day. Selling down strongly during amateur hour, the stock spent most of the day in a narrow trading range but in the final hour of trading, continued lower. On Thursday, it was the bulls' turn to take command, though the stock appeared to find resistance at $87.50. Friday saw the advantage switch again to the bears' favor as the stock gapped down at the open. From there the stock attempted to rally but encountering resistance at $83.50, sold off to close down $5.19 or 6% on 81% of ADV. There is strong support at $80, which if tested successfully, would be the ideal aggressive entry. The next support below that would be at $75. On Friday SNDK encountered resistance at its 10-dma near $84. A break through on strong volume is another possible entry point. This past week of trading has formed the beginnings of a downtrend channel. Currently the top of that channel has converged with the 5-dma at $85.75. Those who are more risk averse will want to make sure SNDK has enough momentum to clear this level before entering. Thursday and Friday were made especially bumpy as Lexar Media filed a patent infringement lawsuit against SNDK. In response, SNDK called the suit unfounded and lacking in merit. SNDK President and CEO Eli Harari described the suit as a desperation move. While it may seem that SNDK is on the defensive, it should be noted that a court has previously ruled that Lexar's current CompactFlash and PC card products infringe on SNDK's patents. ***September contracts expire this week*** BUY CALL OCT-80 SWQ-JP OI= 476 at $10.13 SL= 7.00 BUY CALL OCT-85*SWQ-JQ OI= 571 at $ 7.75 SL= 5.50 BUY CALL OCT-90 SWQ-JR OI= 901 at $ 6.13 SL= 4.00 BUY CALL JAN-85 SWQ-AQ OI= 149 at $15.50 SL=11.25 BUY CALL JAN-90 SWQ-IP OI=2297 at $13.63 SL=10.00 SELL PUT SEP-80 SWQ-UP OI= 318 at $ 2.25 SL=4.00 (See risks of selling puts in play legend) Picked on Sept 3rd at $88.50 P/E = 24.03 Change since picked -7.19 52-week high=$169.63 Analysts Ratings 2-2-0-0-0 52-week low =$ 18.88 Last earnings 07/19 est= 0.22 actual= 0.33 Next earnings 10-18 est= 0.27 versus= 0.10 Average Daily Volume = 2.62 mln AAPL - Apple Computer $58.88 (-4.56 last week) Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the colorful Macintosh. Other products include the Mac OS operating system, the portable iBook, and a variety of multimedia tools. Apple is committed to bringing the best personal computing experience to students, educators, creative professionals and consumers around the world through its innovative hardware, software and Internet offerings. The company is still run by the original founder, Steve Jobs. Advance and retreat, advance and retreat. That describes AAPL's interesting trading behavior of late. A quick review concludes it was news and events that generated recent spikes while, for the most part, overall sector persuasion took the share price to the downside. Last weekend we began coverage on APPL based on its strong recovery prospects. Despite industry wide concerns over slowing PC sales, the solid presentations and keynote addresses by Steve Job pumped up AAPL's momentum. The share price is returning to levels not seen since early March. Furthermore, the research firm, IDC, reported an expected rise in worldwide PC shipments for the 3Q. They estimate that growing unit volume should reach 33.4 mln in the 3Q, resulting in an 18.5% increase over the same year-ago period. The reason behind this resurgence is pretty simple. According to Bruce Stephen, IDC group VP for Worldwide Personal Systems research, "consumer demand for PCs is especially strong in Asian markets, and US home PC volume is expected to improve based on back-to-school sales". Plus, the upcoming holiday season is typically good for PC manufacturers. The timing couldn't be better! APPL is now trading at the key resistance level of $60. In the next few sessions, near-term support should solidify at $61 and $62 accompanied by high-volume moves through the next line of opposition at $65. We're anticipating this Apple will ripen and revisit old highs. Be patient for better confirmation. Next week the Apple Expo opens in Paris. The renowned city is gearing up for the launch event of the Mac OS X public beta. It's being presented as the first truly international event for the Mac community in Europe. BUY CALL OCT-50 AAQ-JJ OI=1955 at $11.00 SL=8.25 BUY CALL OCT-55 AAQ-JK OI=3743 at $ 7.63 SL=5.25 BUY CALL OCT-60*QAA-JL OI=5066 at $ 4.88 SL=3.00 BUY CALL OCT-65 QAA-JM OI=3076 at $ 2.94 SL=1.50 BUY CALL JAN-65 QAA-AN OI=1894 at $ 7.25 SL=5.00 Picked on Sep 2nd at $63.44 P/E = 29 Change since picked -4.56 52-week high=$75.19 Analysts Ratings 10-7-2-0-0 52-week low =$28.72 Last earnings 06/00 est= 0.44 actual= 0.45 Next earnings 10-13 est= 0.45 versus= 0.26 Average Daily Volume = 4.46 mln /charts/cahrts.asp?symbol=AAPL CHKP - Check Point Software Tech Ltd. $146.31 (-$3.19 last week) Check Point Software Tecnologies, Ltd is in the Internet security business. They develop, market and support Internet security solutions for enterprise networks and service providers, which also include Virtual Private Networks and Managed Service Providers. There are three main product lines for CHKP and they are security products, traffic control for bandwidth management, and finally management products. In a nutshell, Check Point delivers solutions that enable secure, reliable and manageable business-to-business communications over any Internet Protocol network including the Internet, intranets and extranets. Check Point was the first company to offer easily installable software designed to place a firewall between a corporate network and the Internet. Furthermore, they are truly a leader in Internet security with a reported market share of 52% in the VPN market. Revenue for the second quarter this year came in at $90 mln compared to $50 mln for the second quarter last year, representing an 81% increase in sales. On April 4th, CHKP hit an intraday low of $57.97. Trading remained choppy until May 30th, at which time CHKP closed at $94.38, above its 50-dma ($87.10 at that time). From there, it has remained somewhat range-bound between $102 and $132. This recent climb and breakout to all-time highs began on August 14th, when CHKP closed above its 10-dma. Since that day all closes have settled above the 10-dma (currently at $145.20). That is not to say that there is no volatility in this stock. Last week's action could be likened to that of a yo-yo. For example, Tuesday +$5.06, Wednesday -$8.48, Thursday +7.17 and Friday -$6.94. Even in the face of the steep NASDAQ sell-off last week and specifically Friday's down move, CHKP managed to close down just -$3.19 for the week at $146.31. Not too bad for a volatile issue like this one. Traders may want to look for a pullback on light volume to the 10-dma (currently at $144), along with a bounce, for an ideal entry point. It is possible that we could see a pullback to last week's intraday low of $140.75, so watch for a volume-backed bounce off the above mentioned levels for confirmation. You will be waiting until $123.70, if you want to see a pullback to the current 50-dma. In any event, it is imperative that you watch the NASDAQ for sentiment and market direction before entering new trades this coming week. Always keep a watchful eye out for profit taking. CHKP is co-sponsoring a six-city Microsoft Exchange Security Seminar Tour that begins this week on September 12th. BUY CALL OCT-145 KGE-JI OI= 313 at $16.75 SL=12.50 BUY CALL OCT-150*KGE-JJ OI=1780 at $14.38 SL=10.75 BUY CALL OCT-155 KGE-JK OI= 98 at $12.38 SL= 9.25 BUY CALL OCT-160 KGE-JL OI= 119 at $10.25 SL= 7.25 BUY CALL JAN-160 KGE-AJ OI=1540 at $26.75 SL=20.00 SELL PUT OCT-140 KGE-VH OI= 211 at $10.63 SL=13.25 (see risks of selling puts in play legend) Picked on Sep 3rd at $149.44 P/E = 194 Change since picked -3.13 52-week high=$158.50 Analysts Ratings 13-4-0-0-0 52-week low =$ 14.40 Last earnings 06/00 est=0.21 actual=0.25 Next earnings 10-20 est=0.25 versus=0.15 Average Daily Volume = 1.58 mln ************************Advertisement************************* Attention Online Traders: NobleTrading.com has become the first online trading firm to offer both Direct Access Trading, and web based trading to its customers. Trade Direct using any ECN, SOES, and SelectNet, or trade right through your browser using our web based trading application. FREE DSL service for active traders. Visit our website and sign up for a Free real-time demonstration! http://www.nobletrading.com/newaccount/optioninvest.html ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 09-10-2000 Sunday 4 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/091000_4.asp ***********************ADVERTISEMENT************************ Save Up To 80% Off At Everything Wireless! Click On The Link Below For Store Wide Discounts. The largest range of accessories and products you use every day including Cellular and PCS phones, batteries, chargers, hands-free kits, wireless data products and more. http://www.sungrp.com/tracking.asp?campaignid=426 ************************************************************ ************* NEW PUT PLAYS ************* CMTN - Copper Mountain Networks $50.56 (-7.56 last week) CMTN helps its clients climb to the peak of connectivity. The company is a leader in digital subscriber line (DSL) communications products for telecom and Internet service providers, which enable high-speed broadband connectivity over existing copper phone lines. The company has partnerships with 3Com and Lucent. NorthPoint Communications accounts for about 40% of CMTN's sales. The once mighty CMTN now looks more like a tarnished mole hill. Once adored by Wall Street as a king of the DSL buildout, CMTN has become a favorite of the shorts over the past two months. The story starts way back in early July when CMTN was attacked by the bears in a vicious way. The company announced second-quarter results that edged past estimates, but fell short of the whisper number. Apparently the whisper number was more important than once thought as CMTN has fallen under control of the shorts ever since missing. Now, to add to CMTN's bearish momentum, the bears are pointing to the slowdown in capital expenditures of the telecom service providers. Simply put, phone companies are buying less networking equipment from the likes of CMTN. Analysts at Morgan Stanley brought the fears to surface early last week with a research report. Morgan predicted the Telecom carriers' spending would peak later this year, and start to slow down early next year. Of course the market loves to discount future events and that's exactly what happened to CMTN last week. More fear and compounded worries about a slowdown in capital spending might continue to pressure CMTN in the coming week. Although the bearish sentiment is mounting in CMTN, the stock has one last level of support we need to be cognizant of. The $50 level marks CMTN's low during the bear market last spring. The shorts almost pushed the stock below that level last Friday with their 9% attack on two times the ADV. If the bears show up with strength early Monday, look to enter the play on a fall below the key $50 level and make sure to confirm a sell-off with heavy volume. If the stock bounces like a dead cat next week, the more aggressive traders might target shoot for an entry on a bump against resistance at $52, or higher near $54. BUY PUT OCT-55 KUA-VK OI=402 at $10.00 SL=7.00 BUY PUT OCT-50*KUA-VJ OI=297 at $ 7.13 SL=5.00 Average Daily Volume = 2.48 mln DIGL - Digital Lightwave $73.75 (-15.88 last week) Digital Lightwave serves the growing fiber-optic networking industry. It provides products and technology monitor, maintain and facilitate the management of voice, data and multimedia communications networks. The cost-effectiveness of the company's products are used to effectively verify and qualify service during network installation and to ensure optimal performance. The company is headquartered in Clearwater, FL. For a stock that was recently trading at impressive split-level prices, DIGL is quickly eroding. Back in August, DIGL diverged from the NASDAQ's bullish path and headed south. Perhaps the management changes around that time acted as a catalyst and sparked some controversy. But nonetheless, it spurred a downtrend that has brought DIGL to the brink of destruction. The stock's current disposition is however directly related to the discouraging news swirling in the telecom sector. The forecast is that capital spending amongst the major telecoms will drop into the single digits from about 30% this year. A pullback of that magnitude would effectively create a ripple effect through the whole Networking sector; and thus, lower revenues. The adverse technical perspective further adds credence that DIGL will take more hits over the short-term. On Thursday, it slipped under the 100-dma ($83.34) and followed up with detrimental losses in Friday's session. The $6.44, or 8.7% decline cracked the 200-dma line ($74.81). Look for the volume levels to remain robust and confirm the decline before opening positions. Take entries into this momentum play on downward bounces off Friday's intraday resistance at $75-$76 in a cooperating market. If there's an uprising, confirm the downtrend before entering off the higher levels near the 5-dma ($82.02). The extremely bearish close on Friday, recent technical infractions, and overall sentiment within the sector prompted us to add DIGL to our put list this weekend. BUY PUT OCT-75 DGU-VO OI=43 at $9.63 SL=6.50 BUY PUT OCT-70*DGU-VN OI=22 at $5.13 SL=3.00 BUY PUT OCT-65 DGU-VM OI=52 at $4.75 SL=2.75 Average Daily Volume = 824 K SCMR - Sycamore Networks $116.25 (-26.56 last week) Sycamore Networks was founded in 1998 and is headquartered in Chelmsford, Massachusetts. The company combines significant experience in data networking with expertise in optics to develop intelligent optical networking solutions for carriers and service providers. Sycamore's products are based on a common software foundation, enabling concentration on the delivery of services and end-to-end optical networking. Chairman Gururaj Deshpande and CEO Daniel Smith each have a 20% stake in the company. You better live up to expectations while you're in the spotlight or be prepared for a severe lashing. Sycamore Networks should have taken that advice to heart before it reported earnings on August 25th and disappointed investors. Despite beating the consensus estimate by $0.02 and hitting profitability in its first year as a public company, investors still had some bones to pick. How could that be with revenue at $90.4 mln, reflecting the sector's incredible growth this year? It's a little word called deferred revenues, which slipped $1.3 mln, or 4%. It's a measurement of future sales in the pipeline and with all the other numbers rocking, this decline could be the warning signal of slowing growth ahead. Investors' radar piqued and went on full-alert. Subsequently they cut SCMR down an astounding $41.75, or 26.4% since report hit the press. In other news, Sycamore Networks also announced it completed its acquisition of privately-held Sirocco Systems, which develops and markets optical access aggregation, switching and network management products. Under the terms of the merger agreement, SCMR exchanged approximately 28.4 mln shares of common stock for all the outstanding shares of Sirocco. Now granted the market was on the downslide, but this news obviously didn't help SCMR's fate. The share price took another severe hit with a $8.75, or 6.7% drop that day. To add insult to injury, the WSJ reported the following day that telecommunications-equipment makers could be threatened by slower increases in spending by big telecom companies. The forecast that capital spending will drop into the single digits from about 30% this year was initiated by MSDW analyst, Simon Flannery. Other analysts are skeptical because these concerns repeatedly resurface this time every year. An analyst from CSFB even reiterated a Buy, but it didn't generate any enthusiasm. Altogether though, the bearish sentiment sprinkled stinging salt on SCMR's already bleeding wounds. The share price sunk below $120 on more than double the normal volume in Friday's session. Thursday's volume was nothing to sneeze at either. The downtrend line is convincing. The first objective to move towards the lower-lows of recent months at the 100-dma ($111.25) technical, then look out below. Take aggressive entries off the upper resistance at $122 and $120 or enter on high-volume moves off SCMR's current level. BUY PUT OCT-120 QSM-VD OI=214 at $16.25 SL=11.75 BUY PUT OCT-115*QSM-VC OI=224 at $13.00 SL= 9.75 BUY PUT OCT-110 QSM-VB OI=301 at $10.63 SL= 7.50 Average Daily Volume = 4.64 mln ***************** CURRENT PUT PLAYS ***************** UK - Union Carbide $38.00 (-1.56 last week) Chemical giant Union Carbide, which Dow Chemical is buying, keeps a hand in basic chemicals and specialty chemicals. The company produces wire insulation, cleaners, catalysts, personal care items, paint and adhesives, and solvents. UK leads the world in ethylene oxide production, which is used in the making of polyester fibers, as well as ethylene glycol, which is used in the manufacturing of antifreeze. The last thing the Chemicals sector needed was a high-profile earnings warning. Late last week, DuPont (DD) told analysts that the company would fall well short of third-quarter EPS estimates. Among DD's explanations for the earnings shortfall included, rising oil prices, a slowing domestic economy, and foreign currency pressures. Industry analysts expect to see more earnings warnings from the major Chemicals makers as the quarter progresses. To fuel the aforementioned speculation, several Wall Street firms cut their ratings across the Chemicals sector last Friday, following the DD warning. DLJ and UBS Warburg both slashed their EPS estimates on DuPont, and, PaineWebber lowered its earnings estimates for Dow, the UK acquirer. Had the NASDAQ not bled so much red last Friday, UK might have felt a lot more pain from the Dow downgrade. As it was, the Tech sector took a beating late last week, which in turn stabilized the UK free fall through sector rotation. If the Tech sector stabilizes early next week, look for traders to leave the Chemicals sector to the bears, and consider entering new positions at UK's current levels. The bearish sentiment surrounding the Chemicals might not yet be fully discounted into the stock prices, given last week's flight to value due to the NASDAQ sell-off. UK's intraday rallies to resistance levels proved to be profitable entry points during last week's trading. If UK advances early Monday, an aggressive trader might look to enter the play on a bump against resistance at $39, or higher near the 10-dma around the $40 level. Make sure to watch for light volume during any rally attempt before entering the play on an advance. As for the conservative traders, wait for UK to fall below its $37.38 low and confirm such a move with continued heavy volume. BUY PUT OCT-45 UK-VI OI=39 at $7.00 SL=5.00 BUY PUT OCT-40*UK-VH OI=75 at $3.38 SL=1.75 Average Daily Volume = 802 K MMM - Minnesota Mining and Manufacturing $89.94 (-2.56) Commonly known as the maker of the ubiquitous, adhesive-backed Post-It Notes, MMM is also a leading manufacturer of a variety of industrial, consumer, and medical products. Reflective sheeting on highway signs, respirators, spill-control sorbents, and Thinsulate brand insulations are just some of the company's industrial products. MMM also makes microbiology products, making it easier for food processors to test for the microbiological quality of food. Look out below!! The recovery in shares of MMM on Wednesday, being analyst related, ended up being a head fake and a great entry point for those who took it. The analyst at CS First Boston initiatied coverage on the stock with a Buy rating. While it initially got investors' attention, it turned out they had the attention span of ferrets (that would be very short), and by the time they came back from lunch, had transitioned back to sell mode. Rolling over right at the $95 resistance level, MMM gave us a great technical signal with MACD and Stochastics rolling over on an hourly chart. Support held at $92 on Thursday, but the continued string of earnings warnings from the likes of Dupont made investors nervous enough to slice another $2 from the stock's price on Friday. MMM is now sitting just fractionally below the 200-dma ($90.06), and with the heavy economic calendar next week, it looks like the bias is down. Solid support sits at $86.50, followed by $84, with lots of congestion between here and there. Use any failed rally next week as an opportunity to buy puts, but wait for the selling to start again before jumping into the fray. If the selling intensifies next week from current levels, consider new entries as the stock moves down from the $90 level. BUY PUT OCT-95 MMM-VS OI=137 at $6.63 SL=4.50 BUY PUT OCT-90*MMM-VR OI=374 at $3.63 SL=2.00 Average Daily Volume = 1.19 mln CREE - Cree, Inc. $123.25 (-7.75 last week) Cree is the world leader in the development and manufacture of silicon carbide (SiC), which is a base material used in the fabrication of the Company's blue light emitting diodes (LEDs), wafers and gemstone materials. The company was formed in 1987 by a group of researchers from North Carolina State University, who were pioneers in the development of single crystal silicon carbide. Cree's vertical integration throughout the manufacturing process from crystal growth to device package and test, allows total control over all aspects of the production process. Products currently under development include microwave transistors, power devices and lasers. It's been said that a rising tide lifts all ships. That being said, it would make sense that if the tides waned, it could be a rocky ride. With a turbulent NASDAQ providing a stormy backdrop, our CREE play has provided a number of ideal entry points. Thanks to a down market on Friday, are play is now nicely in profitable territory. Ever since breaching support at the 5- and 10-dma the previous Friday, CREE has encountered formidable overhead resistance all week long. First there was strong opposition at the $135 level, reinforced by the 10-dma (now at $132.40) earlier in the week. If that wasn't enough, there was even stronger resistance at the $130 level as the 5- and 100-dma converged to form an impenetrable barrier. We mentioned the failure of CREE to break through $130 as an entry point. We were given a couple of chances this week to get in at that level. On Friday, the stock sold-off during the first hour of trading. It attempted to recover but by mid-day, CREE was dragged down by the rest of the Tech sector to close down $5.88 or 4.55% on 73% of ADV. It appears that the 5-dma (now at $125.98) is acting as resistance as well. With so much overhead resistance, a failure to rally above any one of these points could be an aggressive entry. The next level of support for CREE is at $120. A break through $120 on a strong downdraft would be conviction enough for conservative traders to enter. From there the next strong level of support is all the way down at the $112 area. Aside from negative momentum, this week has been punctuated by a lack of news for CREE. As a result, technical factors and guidance from the NASDAQ will play an important role in the movements of the stock. BUY PUT OCT-125 RNC-VE OI=118 at $15.38 SL=11.25 BUY PUT OCT-120*CQR-VD OI= 36 at $12.63 SL= 9.25 BUY PUT OCT-115 CQR-VC OI= 47 at $10.00 SL= 7.00 Average Daily Volume = 1.1 mln PCS - Sprint PCS Corp. $47.13 (-$3.45 last week) Sprint PCS Group is a subsidiary of its parent company, the Sprint Corporation. The formation of the Personal Communication Group was approved back in 1988, so that the performance of the domestic wireless operations could be recognized separately. They currently operate a digital wireless network in the U.S. and at the end of 1999 operated PCS systems in over 360 metropolitan markets, including the 50 largest United States metropolitan areas. In short, Sprint PCS is engaged in the wireless mobile telephone business. Recently, PCS announced the availability of PCS phones in Target Stores nationwide and furthermore announced an agreement with Charles Schwab & Co. Inc., to provide customers with nationwide Access to Schwa1s PocketBroker mobile investing services via the Sprint PCS Wireless Web. Unfortunately, none of this news has been influential enough to get investors interested. To say this chart is choppy may be an understatement. It appears that a potential triple top formation was formed and completed between March 31st and July 17th. On March 31st an intraday high was logged at $66.94, then on June 19th, PCS made a failed attempt to clear the high with a move to $65 intraday. Finally, on July 17th PCS tried again to move past the March high but failed, only reaching $65.88. If you are a skier you will recognize the look of this chart from July 17th to today, as it is straight down for the most part. Both the 50-dma and the 200-dma, (currently $55.10 and $54.30, respectively) have been violated to the downside, with the violation of the 200-dma being most recent occurring on August 21st. In addition, the current 5-dma at $48.30 and the 10-dma at $48.70 have been breached to the downside. A weak case could be made that prayerful support could be found at the $44 level, the site of an intraday low made on April 14th, but we think you can see this might be a bit of a stretch. Last week PCS traded down 3 out of 4 trading days. The intraday low for the week was $45 and occurred Thursday. Friday was the lone up day, as it traded up $1.25 on volume of 3.6 mln shares, maybe a small oversold bounce of sorts. Adding fuel to this fire has been the continuing concern in the marketplace that handset sales are slowing. A failure from here to rally above its current 5-dma or 10-dma along with volume to confirm might provide an aggressive entry point. A conservative option may be to wait for a failed rally attempt, with weak volume up to the $49-$51 range before entering a new trade. A PCS rally above the $51 level with volume would wave a big red flag. BUY PUT OCT-55 PCS-VK OI= 35 at $9.75 SL=6.75 BUY PUT OCT-50*PCS-VJ OI=133 at $4.88 SL=3.00 BUY PUT OCT-45 PCS-VI OI= 78 at $2.19 SL=1.25 Average Daily Volume = 3.66 mln ************************Advertisement************************* Attention Online Traders: NobleTrading.com has become the first online trading firm to offer both Direct Access Trading, and web based trading to its customers. Trade Direct using any ECN, SOES, and SelectNet, or trade right through your browser using our web based trading application. FREE DSL service for active traders. Visit our website and sign up for a Free real-time demonstration! http://www.nobletrading.com/newaccount/optioninvest.html ************************************************************** ***** LEAPS ***** Alert! Buying Opportunity Ahead By Mark Phillips Contact Support With the NASDAQ moving sharply lower last week, it doesn't take a rocket scientist to look at the historical market patterns and see that there may be more weakness in the near term, with more attractive buying opportunities making their appearance as the October earnings season approaches. The key will be deciding which stocks (or LEAPS) to buy, and WHEN. As the NASDAQ rolled over and headed nearly nonstop for the basement last week, the Financial and Energy related stocks continued to shine. The $64,000 question (anybody else remember that show?) is whether the NASDAQ will be able to hold the 4000 level, or if further selling is in store. I know, it didn't quite hold it at the close on Friday, but I'm willing to cut it a little slack in light of it being a September Friday. The vote seems to be in on the economy, and the consensus is that the Fed is on hold at least until next year. In a stable interest rate environment, Financial stocks tend to do well, and the current market behavior is proving this rule. Adding to the positive interest rate picture, mergers and speculation about mergers has injected new life into the sector, with JPM being the most recent target. Even our little WM play is continuing to shine, as it gets ready to take another run at the $37 resistance level. Strength in the Energy sector is a doubled-edged sword as it is coming from the continued supply crunch of petroleum products. Low stockpiles of Crude Oil have gasoline prices well above $2 per gallon here in Northern California, and Natural Gas and Heating Oil are trading 100% and 75%, respectively, above where they started the year. Heading into the Fall and Winter, this is not a good sign. While OPEC is meeting this weekend to decide on further increases to Crude Oil production, even if they do come to an agreement to open the spigots further, it is unlikely to affect the supply/demand equation here until next year. And this agreement will have limited effect on Natural Gas prices, as most reserves and production of this commodity are based here in North America. No matter how you slice it though, high prices for energy will inevitably creep into the bottom line of many companies, squeezing profit margins, and from there, earnings. Dupont and TRW have already jumped the gun on the earnings warning season (not scheduled to start until this next week), letting Wall Street know that they will be unable to meet expectations for the current quarter and citing energy prices as one of their excuses. They may be the first, but they definitely won't be the last. The VIX finally asserted its influence last week, as it moved off its lows and ran as high as 22.96 on Wednesday. Unfortunately, it has once again headed lower, and closed out the week at only 20.68, still clearly in the danger zone. For those that have just recently joined us, the VIX is an indicator of market volatility, and is a good indicator of caution and complacency in the broader markets. The saying "the VIX is high, time to buy, and the VIX is low, time to go" refer to the 20 and 30 levels. The VIX rarely stays above 30 for long without the markets putting in a near-term bottom, and it rarely stays below 20 for long without the markets putting in a near-term high. Sure enough, both the NASDAQ and S&P 500 rolled over and headed lower, just as the VIX was moving off its lows near 19. So where do we go from here? Remember that there are two components to trading profitably. The first is to find the leading high-growth stocks, and the second is to pick high reward/risk entry points. Our play list is an excellent place to find the stocks that are likely to excel over the long term, but going out and buying any of these plays at the open on Monday is unlikely to be a profitable venture. That is why we spend so much time covering the ingredients necessary for a good entry into each of our plays. LEAPS give you the flexibility of time, but that doesn't extent to allowing you to make bad entry points and ride your plays down in a correction. The quality of your entry points will make or break your investment plan, and some would argue, are even more important than your stock selection criteria. We provide detailed descriptions of what we are looking for on new entries for two reasons. First it gives you a starting point for deciding where to enter any given play. But more importantly, since we can't update all the plays on a weekly basis, we hope that the details we cover will help you to learn how to identify your own entry points. When you can do that, I will consider myself having done a good job. NT has been on our list since November, and with the recent pullback, it looks like we are getting close to a good buying opportunity. The key word here, is CLOSE. As of Friday's close, the stock (and many others on our playlist) do not look like they are quite done heading south. But when they do, entry points will abound. You need to have your entry strategies ready to go at that point, so that you can profit from the recovery as we move into the final months of the year. One final note. I enjoy all of your emails, and look forward to continuing to help you move forward on this continuing journey. Along those lines, I would like to know how I can make this section even more valuable. What would you like to see? What would you like to see added, changed, or deleted? Drop me a line and let me know. Trade smart, and I'll see you at the Boston seminar. Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN EMC 11/07/99 JAN-2002 $ 45 WUE-AI $ 9.50 $57.88 509.21% CSCO 11/14/99 JAN-2002 $ 45 WIV-AI $11.00 $27.63 151.14% NT 11/28/99 JAN-2002 $37.5 WNT-AU $15.13 $40.50 167.68% SUNW 12/19/99 JAN-2002 $ 90 WJX-AR $22.00 $49.50 125.00% ERICY 01/30/00 JAN-2002 $16.3 WRY-AO $ 6.75 $ 6.63 - 1.85% 07/23/00 JAN-2003 $ 25 VYD-AE $ 6.88 $ 5.25 -23.69% NSM 02/27/00 JAN-2002 $ 70 WUN-AN $24.25 $10.88 -55.15% AOL 03/12/00 JAN-2002 $ 65 WAN-AM $18.63 $ 9.75 -47.67% 08/13/00 JAN-2003 $ 55 VAN-AK $17.50 $18.50 5.71% AXP 03/12/00 JAN-2002 $46.6 WXP-AQ $ 9.33 $21.00 125.08% WM 03/19/00 JAN-2002 $ 30 WWI-AF $ 5.38 $ 9.75 81.23% AMD 04/16/00 JAN-2002 $ 35 WVV-AG $13.00 $11.13 -14.42% JDSU 04/16/00 JAN-2002 $ 80 YJU-AP $39.63 $55.00 38.78% 08/27/00 JAN-2003 $130 VEQ-AF $55.25 $45.75 -17.19% MOT 05/14/00 JAN-2002 $36.6 WMA-AZ $ 9.54 $ 7.75 -18.76% NOK 05/21/00 JAN-2002 $ 50 IWX-AJ $17.25 $ 9.13 -47.10% 07/30/00 JAN-2003 $ 50 VOK-AJ $17.75 $12.88 -27.46% NXTL 06/11/00 JAN-2002 $ 60 YFG-AL $19.25 $13.00 -32.47% C 06/18/00 JAN-2002 $48.8 YSV-AW $10.31 $15.38 49.13% AMGN 07/02/00 JAN-2002 $ 75 WQY-AO $20.75 $21.75 4.82% JAN-2003 $ 70 VAM-AN $28.75 $31.63 10.00% VRSN 07/02/00 JAN-2002 $190 YVS-AR $66.25 $60.75 - 8.30% 09/03/00 JAN-2003 $190 OVS-AR $86.63 $76.13 -12.12% DELL 07/09/00 JAN-2002 $ 55 WDQ-AK $12.63 $ 4.75 -62.39% JAN-2003 $ 60 VDL-AL $15.38 $ 7.13 -53.67% GENZ 07/16/00 JAN-2002 $ 70 YGZ-AN $17.13 $17.88 4.35% JAN-2003 $ 70 OZG-AN $23.13 $24.25 4.84% HWP 07/30/00 JAN-2002 $110 WPW-AB $28.25 $37.63 33.19% JAN-2003 $120 VHP-AD $32.63 $42.50 30.25% EXDS 08/06/00 JAN-2002 $ 55 WZZ-AK $20.75 $25.63 23.49% JAN-2003 $ 60 VTQ-AL $25.38 $30.25 19.19% MFNX 08/06/00 JAN-2002 $ 40 WOF-AH $13.75 $10.75 -21.82% JAN-2003 $ 45 VKW-AI $15.63 $13.13 -16.03% GM 08/06/00 JAN-2002 $ 65 WGM-AM $ 9.88 $18.88 91.04% JAN-2003 $ 65 VGN-AM $13.25 $22.63 70.75% FRX 08/13/00 JAN-2002 $ 95 WRT-AS $31.38 $32.00 1.98% JAN-2003 $100 VFB-AT $37.38 $37.13 - 0.68% BRCD 08/27/00 JAN-2002 $220 YNU-AD $65.38 $68.00 4.01% JAN-2003 $220 OMW-AD $86.50 $87.25 0.87% INKT 08/27/00 JAN-2002 $130 XOR-AF $50.13 $45.63 - 8.99% JAN-2003 $140 VFR-AH $60.88 $56.00 - 8.02% VERT 09/03/00 JAN-2002 $ 60 YER-AL $22.13 $18.00 -18.64% JAN-2003 $ 60 OER-AL $28.88 $23.75 -17.75% Spotlight Play NT - Nortel Networks $72.25 Remember when Lucent (LU) was the leading optical networking company? It's amazing how quickly the landscape can change in today's fast-paced technology market. While LU has failed to execute over the past year, it's stock price has languished, recently falling to its lowest point in nearly 2 years. NT has taken advantage of the opportunity, increasing its market share and continuing to stay at the forefront of the technology curve through internal innovations and intelligent acquisitions. After leapfrogging all of its competitors with the release of its OC-192 product line (capable of carrying data traffic at 10Gbps) last year, NT's stock has been on a steady rise as the company continues to strengthen its industry-leading position. The company's latest acquisition, Alteon Web Systems (ATON) will strengthen NT's position in the rapidly growing data storage market The deal, announced in late July and set to close sometime in the fourth quarter, is a significant blow to LU (they previously had a joint sales agreement with ATON), and pits NT head-to-head with long-time rival Cisco (CSCO) in the access and data storage market. We've been carefully watching NT for a pullback to give us another entry into this winning play, and last week's drop looks like a great setup. Solid support sits at $71, fractionally below Friday's low, and this is backed up by even stronger support between $68-69, the low point seen in early August. Wait for the stock to stabilize at support before opening new positions, and then get your piece of the pie as the buying volume returns. BUY LEAP JAN-2002 $75.00 YNZ-AO at $20.25 BUY LEAP JAN-2003 $75.00 ODT-AO at $27.50 New Plays CMRC - Commerce One $71.38 The spring decline hammered B2B stocks along with the rest of the e-commerce stocks and CMRC felt the pain too. Since mid-April though, the stock has undergone a gradual recovery with the broader sector, posting higher lows, and finding resistance at $70. In case you missed it, we've got another ascending wedge pattern that has developed, and CMRC looks like it is about to break out to the upside. Friday's close at $71.50, above the 200-dma ($68.50), is the stock's highest close since late March, and the incredible volume (nearly triple the ADV) for the past week and a half is a good measure of enthusiasm returning to this long-time OIN favorite. CMRC is a global leader in e-commerce solutions for businesses. Through its portals, products and services, CMRC creates access to worldwide markets, allowing anyone to buy anything, anytime and anywhere. The Commerce One Global Trading Web is the world's largest B2B trading community, providing unprecedented economies of scale for buying organizations, suppliers, and service providers around the globe. Investors seem to have digested CMRC's recent announcement that it will be acquiring AppNet (APNT), a move that will enable the company to accelerate the pace of implementation of its B2B exchanges. In addition to its strong market position, CMRC continues to impress Wall Street, growing revenues at well over 1000% year-over-year. Going forward, we would like to see the stock hold above the $70 level, but market weakness in the near term could mean one more test of support before heading higher. Mild support exists near $65, with the $57-58 area looking much stronger. The August consolidation near $50 looks almost impenetrable as it sits nestled below the 30-dma ($52.69), the 50-dma ($51.81), and the 100-dma ($50.06). If CMRC continues to run higher from current levels, feel free to buy into the re-emerging strength. Otherwise, target shoot entries at support, according to your level of risk tolerance. BUY LEAP JAN-2002 $80.00 YCU-AP at $30.13 BUY LEAP JAN-2003 $80.00 OCU-AP at $38.75 PHCM - Phone.com, Inc. $97.50 Are there any other tech-heads like me out there that can't wait for the days when we can reliably browse the Internet from our favorite portable device? With one foot firmly planted on each side of the fence, PHCM is clearly in a position to shape the rapidly evolving mobile Internet landscape. The company's UP Browser, a micro browser embedded in wireless handsets, is being supplied to all the major cell phone manufacturers, and is the first half of the technology that makes possible the miracle of Internet access from a mobile phone. The other piece of technology also belongs to PHCM - UP Link Server Suite is software that installs on wireless carrier's networks, enabling customers to access the Internet through wireless service provider. PHCM has the dominant position in this arena as well, supplying its UP Link Server Suite to the likes of AT&T, Sprint, Nextel, and Verizon. Growing by leaps and bounds, PHCM's market share now encompasses 45% of wireless subscribers worldwide. So now that you know WHY we love the company, I'm sure you want to know HOW to play it. The stock has been caught in a familiar pattern over the past several months, an ascending wedge. When these patterns break, the move is usually explosive, but keep in mind that it can go either way. PHCM is currently testing the upper boundary of its recent price action, with resistance nestled between $100-102. Ignoring the brief dip in early July, the ascending trendline puts support near $85, conveniently nestled between the 30-dma ($87.19) and the 50-dma ($84). Our play is looking a little top heavy right now, and with the heavy economic calendar next week, the odds favor a return to support before taking a serious run at resistance. Wait for the selling to abate near the above-mentioned moving averages, and then take a position as buying volume comes in to confirm the ascending trendline as support. The market can always throw a surprise our way, and the increasing volume that accompanied the strong move upwards over the past 2 weeks could portend a breakout sooner rather than later. If buying volume remains strong, buying the breakout over $102 is also a valid entry strategy. BUY LEAP JAN-2002 $90.00 YPH-AR at $45.75 BUY LEAP JAN-2003 $90.00 OFO-AR at $52.50 Drops None ************************Advertisement************************* Tired of waiting on trades to execute? 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The Option Investor Newsletter Sunday 09-10-2000 Sunday 5 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/091000_5.asp ************* COVERED CALLS ************* Stock Buying Basics: Some thoughts on market mentality... By Mark Wnetrzak Over the years, various types of investing strategies have been demonstrated to work better than others. In many of the older publications, much is made of the virtues of the "buy-and-hold" approach. While that may be an excellent technique for managed funds, with individual stocks it works better in hindsight than in the real world, where a company's fortunes constantly undergo major changes. In financial markets, nothing is forever except the passage of time. Companies, industries and entire economies gain or lose prominence in the blink of an eye. The darlings of the past are quickly replaced by today's favorites and rarely do they recover to become the great issues of the future. Stocks that investors once considered to be market leaders often find their historic distinction diminished in today's dynamic economy. Of course, that doesn't mean that investing in individual stocks can't provide extremely high rewards if you do it well, but it is far less likely when approached on a "buy-and-hold-forever" basis. While a short-term outlook is important in the current volatile market, a perspective on historical trends is also necessary. Major shifts in the primary trend occur slowly and we sometimes fail to notice the transition, ignoring the signs of change in the underlying cycle. The key is to maintain a balanced attitude with a near-term focus on the technical indications of specific issues or industries and a basic awareness of the prevailing economic or financial health of the market. Valuation factors such as earnings, revenue growth, cash flow, and asset ratios generally determine stock prices over the long-term. However, in many cases, the critical decisions affecting your portfolio are influenced by more immediate trends, those that are driven by current emotions and expectations in the investing community. To be successful, you must be able to separate perceived worth from actual value, since market momentum and investor enthusiasm are are the factors that determine stock prices in the short-term. Most experts believe that fundamental analysis is a requirement for successful investing. You should know whether a specific company is growing in (asset) value and of course the odds favor an investor who focuses on profitable companies. Unfortunately, identifying a good company does not mean you will automatically profit from ownership of the underlying issue. Appreciation in fundamental value and stock price movement are rarely consistent. Indeed, many investors have difficulty making the distinction between a stock and the company it represents. The stock price, at any given time, is not an accurate measure of value but rather a barometer measuring the hopes, fears and other emotions people have about that stock and its parent corporation. Ironically, most people buy a stock because they believe in the company's product or service and their expectation of future revenues is often based on how well its fundamental outlook is promoted. The inherent goodness or financial health of the company frequently blinds investors when it comes to accurately assessing the price of the underlying stock. Even though it may be a great company, the key concern for the short-term trader should be valuation not quality. In fact, a good test to use in deciding whether to hold or sell a particular stock is to ask yourself whether the issue is enough of a bargain to purchase it at its current price. If the price isn't favorable, you should consider selling the issue, regardless of how attractive the company's fundamentals might be. Successful investors learn to separate the inherent value of the company from the current price of the stock. In addition to all the complexities and risks involved in buying and selling individual stocks, investors face another formidable barrier on a daily basis. That obstacle is the "herd" mentality. Whether it is related to the overall market or a single issue, we seldom can summon the courage to "go long" near the market bottom, when all the people around us are panicking. At the same time, it is very difficult to sell at a premium, near the peak of the rally, when everybody is talking about their recent successes. Disciplined investors learn not to follow or participate in mass hysteria. This also means not buying on the announcement of good or exciting news. Upcoming earnings, a new contract or product, and particularly an upgrade by a major analyst will quickly drive stock prices higher. When the impact of the event is ultimately dissipated, the stock price retreats substantially, occasionally to levels below the previous trading range. At that point, if the announcement really did make the company more valuable, the issue can almost always be purchased at a better price. Chasing the movement of a stock or the momentum of an entire industry is similar to "buying the news." In this case, the stimulus is not a fundamental change in the value of underlying issue, but rather the allure of the rising market itself. Inexperienced investors who pursue this approach are basically convincing themselves that, "something good must be happening or the stock (or industry group) would not be performing so well, and I should be on-board for the ride!" It is important for novice investors to learn to identify these tendencies to ensure that their logically reasoned trading decisions can be executed at favorable prices, without regard to emotion and the excitement that comes from the herd mentality. The stock market and its fundamental outlook are always changing and for long-term investors, it's important that your portfolio not become a collection of former champions. We tend to become comfortable with past winners, willing to forgive their current shortcomings in the hopes that these companies will relive their past glories. Analysts only complicate matters, since they have loyalties to companies for which their parent brokerages act as investment bankers. These firms always have a bullish bias and a rosy outlook for a company they have underwritten, until its finances are clearly in trouble. Numerous issues are rated "buy" right up to the point where disaster occurs and even after the problems become public, analysts will inevitably refer to the company's long history of success while downplaying the event. Unfortunately, nostalgia will not revive a company fading into financial "has been" status. To be successful, you must accept the fact you will have some losers, and that leads to one of the most important decisions you will make in investing; determining whether you truly are prepared to sell as easily as you buy. If this proves difficult for you to accomplish, stock ownership will be financially unrewarding. Selling is the most troublesome part of investing because it denotes finality; a willingness to accept the current score as final. Buying is easy; it occurs with hopes of great potential and is always accompanied by fervent optimism. Selling for a loss is even more difficult because it requires you to embrace the reality that all the time and energy spent in the selection of the issue has produced a negative return. The fact that people have problems with this task is the main reason that managed funds are so popular. One can simply pay a professional to agonize over the situation, and make the inevitable decision to sell. Hopefully, you will decide to control your own destiny. 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 XICO 7.81 10.13 SEP 7.50 1.56 *$ 1.25 17.4% GSTRF 8.44 9.88 SEP 7.50 1.63 *$ 0.69 11.0% BOUT 37.63 36.88 SEP 35.00 5.00 *$ 2.37 10.5% PCTL 5.78 8.00 SEP 5.00 1.19 *$ 0.41 9.7% ASKJ 25.13 25.00 SEP 22.50 4.00 *$ 1.37 9.4% OSIP 45.56 48.63 SEP 40.00 7.75 *$ 2.19 8.4% LPTH 41.13 44.13 SEP 35.00 8.50 *$ 2.37 7.9% DRMD 5.72 7.09 SEP 5.00 1.13 *$ 0.41 7.8% PLNR 19.88 19.75 SEP 17.50 3.25 *$ 0.87 7.6% SGNT 12.00 11.19 SEP 10.00 2.63 *$ 0.63 7.3% SPLN 18.56 17.19 SEP 17.50 2.19 $ 0.82 7.3% PCTL 6.03 8.00 SEP 5.00 1.38 *$ 0.35 6.5% NOVN 35.00 44.69 SEP 35.00 2.88 *$ 2.88 6.5% VITR 48.94 46.63 SEP 40.00 9.88 *$ 0.94 6.1% DRXR 18.31 19.06 SEP 17.50 1.50 *$ 0.69 5.9% ECLP 12.00 14.13 SEP 10.00 2.75 *$ 0.75 5.9% ROBV 13.63 11.31 SEP 10.00 4.13 *$ 0.50 5.7% XLNK 18.00 15.00 SEP 12.50 6.25 *$ 0.75 5.5% (DLK) ORG 14.38 15.84 SEP 12.50 2.75 *$ 0.87 5.4% FHS 16.06 18.19 SEP 15.00 1.94 *$ 0.88 5.4% CLPA 30.25 29.75 SEP 25.00 6.13 *$ 0.88 5.3% CCUR 14.63 16.94 SEP 12.50 2.69 *$ 0.56 5.1% SFAM 18.63 13.81 SEP 15.00 4.38 $ -0.44 0.0% NETS 6.25 6.50 OCT 5.00 1.75 *$ 0.50 7.2% WDC 5.75 5.81 OCT 5.00 1.19 *$ 0.44 6.2% RHAT 26.69 24.13 OCT 22.50 6.00 *$ 1.81 5.7% MSTR 31.38 33.75 OCT 25.00 8.25 *$ 1.87 5.2% WGAT 22.88 20.81 OCT 17.50 6.63 *$ 1.25 5.0% TIVO 26.88 21.00 OCT 22.50 6.13 $ 0.25 0.8% *$ = Stock price is above the sold striking price. Comments: On Thursday, SpeedFam-IPEC (SFAM) reported that a delay in the delivery of a number of tools during the quarter will negatively impact operating results. Interesting how it started selling off on Tuesday - did somebody know something? Was Friday's "dead cat" bounce a second chance exit for a small loss? We believe it was and will show the position closed. Sportsline.com (SPLN) is testing a trend-line that connects all the lows from June - monitor the position closely. Keep an eye on Red Hat (RHAT) as it appears to be weakening. Tivo Inc (TIVO) experienced no follow-through from last week's rally. Is it time to exit or wait for a test of the August lows (near $19)? Positions Closed: Rostelecom (ROS) - Proof a "break-even" exit is a good thing! 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 EPTO 14.00 OCT 12.50 QTP JV 2.50 934 11.50 42 6.3% GLGC 24.75 OCT 20.00 CYV JD 6.38 141 18.37 42 6.4% IMGN 21.81 OCT 17.50 GMU JW 5.50 428 16.31 42 5.3% LBRT 30.00 OCT 22.50 IEY JX 9.13 505 20.87 42 5.7% NEOF 5.81 OCT 5.00 NUB JA 1.94 142 3.87 42 21.1% VNTR 17.00 OCT 15.00 UWV JC 3.75 198 13.25 42 9.6% WAVX 24.06 OCT 20.00 AXU JD 5.63 203 18.43 42 6.2% Sequenced by Return ***** Stock Last Call Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return NEOF 5.81 OCT 5.00 NUB JA 1.94 142 3.87 42 21.1% VNTR 17.00 OCT 15.00 UWV JC 3.75 198 13.25 42 9.6% GLGC 24.75 OCT 20.00 CYV JD 6.38 141 18.37 42 6.4% EPTO 14.00 OCT 12.50 QTP JV 2.50 934 11.50 42 6.3% WAVX 24.06 OCT 20.00 AXU JD 5.63 203 18.43 42 6.2% LBRT 30.00 OCT 22.50 IEY JX 9.13 505 20.87 42 5.7% IMGN 21.81 OCT 17.50 GMU JW 5.50 428 16.31 42 5.3% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** EPTO - Epitope $14.00 *** Back in Rally Mode! *** Epitope develops, manufactures and markets oral specimen collection devices and diagnostic products using its proprietary oral fluid technologies. Their primary focus is on the detection of antibodies to the Human Immunodeficiency Virus (HIV), the cause of Acquired Immune Deficiency Syndrome (AIDS). Epitope's lead product, the patented OraSure collection device, is used in conjunction with screening and confirmatory tests approved by the FDA. The growing acceptance of Epitope's oral fluid testing for HIV was reflected in last quarter's earnings and showed a strong increase across existing markets. Epitope plans to merge with STC Tech which should leverage their expertise in oral fluid technology. The agreement with LabOne to jointly develop and commercialize a laboratory-based oral fluid screening test for Hepatitis C antibodies should further enhance Epitope's future. The stock has resumed its stage II climb on heavy volume after consolidating from a June-July rally. OCT 12.50 QTP JV LB=2.50 OI=934 CB=11.50 DE=42 MR=6.3% ***** GLGC - Gene Logic $24.75 *** Stage I Base *** Gene Logic provides a variety of products and services in the areas of gene expression information, data management and bioinformatic software, and pharmacogenomics. These products and services are all designed to improve the efficiency of the drug discovery and development process. Their information products combine software tools with large-scale gene expression data, which specifies the degree to which genes are active in a broad range of normal, diseased, and treated conditions. This combination enables scientists to produce new biological knowledge by integrating this information with a growing amount of biological information available on the Internet. Gene Logic corrected in July prior to reporting weaker than expected earnings. Though 2nd quarter revenue increased 26% to $6.5 million, the increase was smaller than expected due to the timing of closing deals. Over the last several weeks, the technical picture has improved as the stock continues forming a stage I base. OCT 20.00 CYV JD LB=6.38 OI=141 CB=18.37 DE=42 MR=6.4% ***** IMGN - ImmunoGen $21.81 *** Own This One! *** ImmunoGen develops pharmaceutical agents, primarily for the treatment of cancer. Their product candidates are called tumor-activated prodrugs (TAPs) and are based on its proprietary technology platform. TAPs are designed to deliver powerful chemotherapy directly to a tumor. Its 97% owned subsidiary, Apoptosis Technology(ATI), develops additional technologies based on the regulation of the biochemical signals. ATI focuses its research efforts on the identification of compounds for the treatment of cancer and viral infections. ImmunoGen's Tumor Activated Prodrug for the treatment of colorectal, pancreatic and certain non-small-cell lung cancers licensed to SmithKline Beecham, is currently progressing through Phase I/II clinical trials. Successful preclincal progress on ImmunoGen's small-cell lung cancer product candidate, huN901-DM1, has the company anticipating that their development partner, British Biotech, will file an IND in 2000. The stock received a boost this week when an SG Cowen analyst initiated coverage with a "strong buy" rating. A conservative entry point for those investors who believe IMGN's technologies for creating cell-killing monoclonal antibodies offer a prosperous future. OCT 17.50 GMU JW LB=5.50 OI=428 CB=16.31 DE=42 MR=5.3% ***** LBRT - Liberate Technologies $30.00 *** TV Software Wars *** Liberate Technologies is a leading provider of a complete software platform for delivering Internet-enhanced content and applications to information appliances, such as television set-top boxes and game consoles. LBRT's Internet-based client and server software allows network operators, such as telecommunications companies, cable and satellite television operators and Internet service providers to provide consumers access to network operator-branded applications and services. Lots of news out on Liberate: new partnerships; new coverage by Credit Suisse First Boston and ING Barings as interactive TV companies gain favor; and speculation that several software competitors, including Liberate, may be quietly stealing Microsoft's thunder in the new TV software market. On Saturday, Europe's largest cable TV operator UPC said it would use digital TV software from LBRT, after software from Microsoft was delayed. Liberate has been forming a stage I base since April and the recent rally has moved the stock above former resistance, which now becomes support. OCT 22.50 IEY JX LB=9.13 OI=505 CB=20.87 DE=42 MR=5.7% ***** NEOF - Neoforma.com $5.81 *** Cheap Speculation! *** Neoforma.com is a provider of business-to-business e-commerce services for medical products, supplies and equipment. Their services provide an online marketplace where manufacturers and distributors can sell medical products. With their Shop service purchasers can easily locate and buy new medical products, and suppliers have access to new customers and markets. Their Auction service provides a place for selling and buying used and refurbished equipment and surplus medical products. Their Plan service provides interactive content to healthcare planners and designers, including online interactive displays of rooms and suites in medical facilities. Now that is what I call a rally! Was it a prelude to Neoforma and Novation announcing the addition of 39 new healthcare facilities signed to purchase supplies from Marketplace@Novation, the online purchasing solution powered by Neoforma? Looks possible as this figure exceeds Neoforma's goal to have 56 hospitals signed onto Marketplace@Novation before the end of the year. We like the technical break-out on heavy volume but prefer to remain cautious with a more favorable cost basis. OCT 5.00 NUB JA LB=1.94 OI=142 CB=3.87 DE=42 MR=21.1% ***** VNTR - Ventro $17.00 *** Low Risk Entry! *** Ventro Corporation engages in the business-to-business e-commerce economy by building and operating companies that transform the supply chain in businesses around the world. Ventro operating companies allow suppliers, buyers and enterprises to streamline business processes, enhance productivity and reduce costs. Their companies offer complete E-2-E commerce solutions consisting of extensive online marketplaces, electronic procurement, systems integration to interface with third-party/back-office systems, and comprehensive services and support. The recovery in Ventro began in early August when they agreed with American Express to form a join venture to be called MarketMile, which will build and operate Internet-based marketplaces offering business products and services. Ventro will own 35% of MarketMile and with the new outlook, the issue appears to be returning to its past stature as a leader in the industry. There has also been talk of mergers in the B2B sector with speculation that Ventro would be acquired by VerticalNet. We simply favor the bullish technical outlook for the issue. OCT 15.00 UWV JC LB=3.75 OI=198 CB=13.25 DE=42 MR=9.6% ***** WAVX - Wave Systems $24.06 *** On The Move! *** Wave Systems offers powerful, next-generation 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 the buying transactions in a range of consumer electronic devices, including computers, personal digital assistants, and interactive televisions. They operate the ishosphere.com and WaveDirect shopping websites, which offer a wide selection of merchandise to consumers. Last week, WAVX announced it has completed the acquisition of Indigo Networks, and its e-commerce network, iShopHere.com. Indigo has a proven e-commerce shopping platform and an impressive base of more than 450 retailer relationships and the combination allows access to leading merchants with Wave's unprecedented technology. In addition, Wave Systems and Wavexpress are in the process of deploying a wide variety of secure next-generation hardware and software products to help companies distribute music, videos, games, text, and entertainment programs with better protection of payment processes and user information. Based on the bullish activity in the issue, investors favor the future outlook of the company. OCT 20.00 AXU JD LB=5.63 OI=203 CB=18.43 DE=42 MR=6.2% ***********************ADVERTISEMENT************************ Save Up To 80% Off At Everything Wireless! Click On The Link Below For Store Wide Discounts. The largest range of accessories and products you use every day including Cellular and PCS phones, batteries, chargers, hands-free kits, wireless data products and more. http://www.sungrp.com/tracking.asp?campaignid=427 ************************************************************ *********************** CONSERVATIVE NAKED PUTS *********************** Guaranteed Investments: Is a structured product right for you? By Ray Cummins One of our subscribers requested an explanation of this unique investment vehicle. Most people understand that investing in the stock market is one way to increase personal wealth over the long run. Unfortunately, the downside risk of stock ownership keeps many people from investing in this manner, even where long-term growth, such as planning for retirement is the objective. While there are few investments that offer the potential for favorable returns without the possibility of loss, a number of new products such as "protected growth" trusts have been developed to attract risk averse customers. These financial instruments allow you to profit from the growth of the stock market while insuring that your principal investment is preserved in the event of a severe, prolonged downtrend in the economy. There are three main categories of these guaranteed investments: Index Annuities offered by major insurance companies; Index CDs offered by institutions (such as Banker's Trust); and Protected Growth trusts offered by the larger brokerages. Merrill Lynch is the pioneer in this category and they offer a number of unique products that combine participation in the appreciation potential of stocks and other opportunities, with protection of principal. Protected Growth assets are financial instruments with features of both stocks and bonds. The benefits of these complex issues also include diversification, reduced minimum investment and liquidity. The most common products provide for a market-based return linked to a range of potential growth opportunities such as major indexes, individual stocks or other popular financial indicators. In most cases, the issues are tied to index funds that are (initially) offered at $10 a share and usually mature in seven years or less. If you retain the issue to maturity, you profit from the growth of the index. In the event of substantial price declines, these instruments guarantee repayment of their principal amount at maturity. The purpose of Protected Growth investing is simple, to allow the pursuit of growth with less risk. The low initial cost of these assets provide investors an affordable means of participating in the long-term performance of a number of financial instruments and industry groups. The diversification possibilities available through these investments is often greater, and at a lower price than that which could be achieved by purchasing individual issues. The majority of these instruments are listed on the major stock exchanges. This feature allows you to trade the assets publicly, as well as monitor their progress through daily price quotations on the Internet or in the financial pages of major newspapers. There are many advantages to investing with structured products such as Protected Growth trusts, but they are complicated assets requiring careful examination and specific strategies to maximize potential profits. One of the most critical factors associated with many of the newer instruments is the "annual adjustment factor." Typically, a structured product allows an investor to capture the percent increase of an index over the offering price, any time up to the maturity date of the issue. If there is no increase, the principal investment is returned. However, in the case of recent products, an annual adjustment factor is used to reduce the index value before the final cash settlement amount is determined. The adjustment factor will vary but even when the amount is only 2% or 3%, the reduction in overall return can be substantial. When aversion to risk stands in the way of achieving long-term personal goals, alternate solutions must be explored to remedy the situation. If your financial outlook dictates the need for capital growth, but you are concerned about the volatility or potential downside associated with stocks, you might consider including structured products as part of your portfolio. This type of investing allows you to participate in numerous growth opportunities that may otherwise be too extreme for your risk tolerance. Regardless of your personal financial outlook, a sound investing strategy includes diversification and low-risk capital appreciation, and these relatively unknown issues can be an excellent and profitable way to achieve that objective. 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 WGAT 22.88 20.81 SEP 20.00 0.63 *$ 0.63 23.1% CYTO 9.03 8.25 SEP 7.50 0.31 *$ 0.31 18.8% GSTRF 7.63 9.88 SEP 5.00 0.31 *$ 0.31 14.6% MSTR 31.38 33.75 SEP 25.00 0.38 *$ 0.38 14.5% CTIC 39.25 44.81 SEP 30.00 1.38 *$ 1.38 13.0% ADVP 27.38 28.88 SEP 25.00 0.44 *$ 0.44 12.4% IMAX 28.06 25.38 SEP 22.50 0.94 *$ 0.94 12.4% FNSR 29.00 43.19 SEP 22.50 0.94 *$ 0.94 12.1% ICIX 20.88 29.25 SEP 15.00 0.38 *$ 0.38 12.1% JDEC 21.88 24.06 SEP 17.50 0.69 *$ 0.69 11.8% LPTH 41.13 44.13 SEP 30.00 1.00 *$ 1.00 11.8% MSTR 26.88 33.75 SEP 20.00 0.44 *$ 0.44 11.0% FNSR 37.50 43.19 SEP 30.00 0.81 *$ 0.81 10.6% RHAT 23.44 24.13 SEP 17.50 0.50 *$ 0.50 10.5% GZTC 38.00 34.44 SEP 30.00 0.81 *$ 0.81 10.5% SIPX 37.50 49.13 SEP 30.00 0.75 *$ 0.75 9.9% PL 28.19 30.69 SEP 25.00 0.50 *$ 0.50 8.4% SIMG 32.06 31.94 SEP 25.00 0.38 *$ 0.38 8.1% CLTR 26.56 30.13 SEP 22.50 0.38 *$ 0.38 7.9% TLXN 19.88 17.63 SEP 15.00 0.44 *$ 0.44 7.2% CRUS 27.44 34.13 SEP 22.50 0.50 *$ 0.50 6.6% CS 34.75 35.06 SEP 27.50 0.44 *$ 0.44 6.5% REGN 33.13 32.38 SEP 25.00 0.38 *$ 0.38 5.9% NDC 30.06 28.94 SEP 22.50 0.38 *$ 0.38 5.2% DCLK 41.81 33.69 SEP 35.00 0.69 $ -0.62 0.0% TIVO 26.88 21.00 SEP 22.50 0.56 $ -0.94 0.0% ALLP 16.50 15.25 OCT 12.50 0.50 *$ 0.50 8.5% STAT 20.00 20.38 OCT 15.00 0.44 *$ 0.44 6.4% VITR 48.94 46.63 OCT 30.00 1.00 *$ 1.00 6.0% *$ = Stock price is above the sold striking price. Comments: Worldgate Communications (WGAT) is testing support near our sold strike. With one week until expiration, monitor the position closely. Imax Corp's (IMAX) gap down on Thursday is worrisome and appears to signal a change in character. Of course, Bear Stearns' downgrade to "neutral" didn't help. Our cost basis is relatively safe but the position should be monitored closely. Genzyme Transgenics (GZTC) is testing its 50 dma and appears to be forming a short-term top. Hopefully Silicon Image (SIMG) - what goes up must come down - will not violate support. Doubleclick (DCLK) and Tivo Inc (TIVO) appear to be "early exit" candidates, simply for preservation of capital. Rolling forward/down to a lower strike is another option (no pun intended), depending on your long-term outlook. 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 VNTR 17.00 SEP 15.00 UWV UC 0.38 420 14.62 7 31.9% CMNT 21.00 OCT 17.50 QDO VW 0.56 184 16.94 42 7.4% DRXR 19.06 OCT 15.00 RXQ VC 0.38 61 14.62 42 6.6% GOTO 22.75 OCT 17.50 GUO VW 0.50 16 17.00 42 7.2% PLNR 19.75 OCT 15.00 PNQ VC 0.69 0 14.31 42 10.8% SCUR 26.25 OCT 17.50 UQU VW 0.50 130 17.00 42 6.3% WAVX 24.06 OCT 17.50 AXU VW 0.63 120 16.88 42 8.3% Sequenced by Return ****** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return VNTR 17.00 SEP 15.00 UWV UC 0.38 420 14.62 7 31.9% PLNR 19.75 OCT 15.00 PNQ VC 0.69 0 14.31 42 10.8% WAVX 24.06 OCT 17.50 AXU VW 0.63 120 16.88 42 8.3% CMNT 21.00 OCT 17.50 QDO VW 0.56 184 16.94 42 7.4% GOTO 22.75 OCT 17.50 GUO VW 0.50 16 17.00 42 7.2% DRXR 19.06 OCT 15.00 RXQ VC 0.38 61 14.62 42 6.6% SCUR 26.25 OCT 17.50 UQU VW 0.50 130 17.00 42 6.3% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** SEPTEMBER EXPIRATION ***** VNTR - Ventro $17.00 *** Speculative Entry Point! *** Ventro Corporation engages in the business-to-business e-commerce economy by building and operating companies that transform the supply chain in businesses around the world. Ventro operating companies allow suppliers, buyers and enterprises to streamline business processes, enhance productivity and reduce costs. Their companies offer complete E-2-E commerce solutions consisting of extensive online marketplaces, electronic procurement, systems integration to interface with third-party/back-office systems, and comprehensive services and support. The recovery in Ventro began in early August when they agreed with American Express to form a join venture to be called MarketMile, which will build and operate Internet-based marketplaces offering business products and services. Ventro will own 35% of MarketMile and with the new outlook, the issue appears to be returning to its past stature as a leader in the industry. There has also been talk of mergers in the B2B sector with speculation that Ventro would be acquired by VerticalNet. We simply favor the bullish technical outlook for the issue. SEP 15.00 UWV UC LB=0.38 OI=420 CB=14.62 DE=7 MR=31.9% ***** OCTOBER EXPIRATION ***** CMNT - Computer Network $21.00 *** Entry Point! *** Computer Network Technology is principally a provider of hardware and software products for storage area networks (SANS). CMNT sells SAN products and its established channel networking products, as well as developing and selling enterprise application integration(EAI) software to automate the integration of computer software applications. It also markets its traditional server gateways and tools, which allow interaction between multiple desktop computers and mainframe terminals. CMNT also offers professional consulting and support services. Last quarter, CMNT continued its record-breaking pace of revenue and profit improvements in networking solutions, based on success in Storage Area Networking products and professional services. In August, the company reported that quarterly revenues were up 26% over the second quarter of 1999, and 10% sequentially over the first quarter of 2000. Revenue from Networking Solutions increased 45%, driven by strong gains in UltraNet profits. Sales of SAN-related products for both open systems and mainframes increased 61% when compared to the second quarter of 1999, and 47% for the first half of 2000. In addition, their relationship with Compaq ramped up significantly, producing $1.6 million of Fibre Channel over WAN product revenue in the first quarter. OCT 17.50 QDO VW LB=0.56 OI=184 CB=16.94 DE=42 MR=7.4% ***** DRXR - Drexler Tech $19.06 *** Technicals Only! *** Drexler Technology manufactures LaserCard optical memory cards used for immigration, ID/access, healthcare, automotive and other digital read/write wallet-card applications. The LaserCard product line currently consists of optical memory cards, optical card read/write drives, optical card data systems, chip ready hybrid smart cards and related system software and peripherals. Drexler reported favorable earnings in July, showing net income rising 70%, revenues rising 38%, and cash equivalents of $8.9 million with no debt. Drexler appears to be on the move again as the stock has rallied to a new multi-year high. Though the volume is healthy, Drexler is a thinly traded issue and there is relatively little news to explain the upside activity over the last few weeks. In any case, the tape suggests someone is interested in accumulating this stock and we like getting paid for trying to own it at a great price. OCT 15.00 RXQ VC LB=0.38 OI=61 CB=14.62 DE=42 MR=6.6% ***** GOTO - Goto.com $22.75 *** Hot Sector! *** GoTo.com operates an online marketplace between the customers of its Web site partners and Internet businesses. GoTo provides e-commerce services to Web site partners, such as Web site search, comparison shopping, and auction search. GoTo also offers directory search and auction services for business portals. GoTo has relationships with approximately 29,000 active, paying advertisers, and has an estimated 24 million unique users through its affiliate partners, which include EarthLink/MindSpring, Microsoft, Netscape and Go2Net. Last week, Internet media and services provider America Online said it had reached a $50 million multi-year agreement to place Internet search service GoTo.com listings on the search result pages of some of its brands, including AOL.com. GoTo will now offer AOL's subscribers its new online listing service, and if there are more people looking at it and doing searches, they are more likely to click on a GoTo.com listing, which translates into more revenue. Investors and analysts are excited about the new deal and the enthusiasm has boosted the issue out of a recent, Stage I base on heavy volume. OCT 17.50 GUO VW LB=0.50 OI=16 CB=17.00 DE=42 MR=7.2% ***** PLNR - Planar Systems $19.75 *** No News is Good News? *** Planar Systems is a provider of high performance electronic information displays, display sub-systems and complete display systems. They market a variety of display technologies including active matrix liquid crystal displays, electroluminescent flat panel displays, and several others, which are marketed in Planar's core medical, transportation and industrial markets. The recent addition of Michael Franzi, Planar Systems' newly appointed VP of North American Sales & Marketing, was apparently the cause of a 5 point rally in mid-August but there has been relatively little news to sustain the move since that announcement. The rally came on heavy volume and the tape tells all. Someone is interested in this stock and the technical outlook is bullish, with support near the March and July highs (our cost basis). OCT 15.00 PNQ VC LB=0.69 OI=0 CB=14.31 DE=42 MR=10.8% ***** SCUR - Secure Computing $26.25 *** Own This One! *** Secure Computing develops and sells computer software products and services designed to provide secure extranets for companies involved in electronic business. Their secure extranet solutions combine perimeter defense for business networks with scalable, authenticated Web and application access control so that an organization can safely conduct business with growing numbers of customers, employees, partners and suppliers. Their primary security offerings are Sidewinder, SafeWorld and SmartFilter. This issue has enjoyed favorable gains since reporting bullish earnings and a positive outlook in mid-July. Revenues were up 60% in the second quarter, compared to last year's results and 17% higher than prior quarter revenues of $7.5 million. The company said that strong sequential products and services revenue growth, and recent endorsements of their next-generation products suggest future is bright. Secure has been an industry leader in advanced information security products and technologies for years and it appears that investors expect the trend to continue. OCT 17.50 UQU VW LB=0.50 OI=130 CB=17.00 DE=42 MR=6.3% ***** WAVX - Wave Systems $24.06 *** On The Move! *** Wave Systems offers powerful, next-generation 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 the buying transactions in a range of consumer electronic devices, including computers, personal digital assistants, and interactive televisions. They operate the ishosphere.com and WaveDirect shopping websites, which offer a wide selection of merchandise to consumers. Last week, WAVX announced it has completed the acquisition of Indigo Networks, and its e-commerce network, iShopHere.com. Indigo has a proven e-commerce shopping platform and an impressive base of more than 450 retailer relationships and the combination allows access to leading merchants with Wave's unprecedented technology. In addition, Wave Systems and Wavexpress are in the process of deploying a wide variety of secure next-generation hardware and software products to help companies distribute music, videos, games, text, and entertainment programs with better protection of payment processes and user information. Based on the bullish activity in the issue, investors favor the future outlook of the company. OCT 17.50 AXU VW LB=0.63 OI=120 CB=16.88 DE=42 MR=8.3% ************************Advertisement************************* Attention Online Traders: NobleTrading.com has become the first online trading firm to offer both Direct Access Trading, and web based trading to its customers. Trade Direct using any ECN, SOES, and SelectNet, or trade right through your browser using our web based trading application. FREE DSL service for active traders. Visit our website and sign up for a Free real-time demonstration! http://www.nobletrading.com/newaccount/optioninvest.html ************************************************************** ************************ SPREADS/STRADDLES/COMBOS ************************ The rally comes to an end... Technology stocks slumped today as worries about third quarter earnings sent semiconductor stocks sharply lower. ****************************************************************** - MARKET RECAP - ****************************************************************** Friday, September 8 Technology stocks slumped today as worries about third quarter earnings sent semiconductor stocks sharply lower. The Nasdaq ended down 119 points at 3,978. The broader market also slid lower as investors punished companies with inferior earnings forecasts. The Dow closed down 39 points at 11,220 and the S&P 500 Index fell 8 points to 1,494. Trading activity on the Nasdaq was average at 1.5 billion shares exchanged. Technology declines beat advances 2,504 to 1,514. Trading volume on the NYSE reached 962 million shares, with declines beating advances 1,518 to 1,309. In the bond market, the 30-year Treasury rose 9/32, pushing its yield down to 5.69%. Thursday's new plays (positions/opening prices/strategy): Crossroads CRDS OCT12C/OCT15C $1.25 debit bull-call Crossroads CRDS OCT12-NP $1.75 credit naked-put Qualcomm QCOM OCT50P/OCT55P $1.00 credit bull-put Covad Comm. COVD OCT15C/OCT17C $1.62 debit bull-call Crossroads fell almost $1.00 at the open and the issue never recovered. The initial credit in the combination position was higher than expected. Both Covad Communications and Qualcomm traded higher in the morning session but eventually succumbed to selling pressure in the technology group. The target entry prices were achieved late in the day. Portfolio Plays: The market moved lower today after a series of earning warnings triggered profit-taking in both blue chip and technology stocks. Several companies issued forecasts for lower revenues, creating concerns about how much the slowdown in the economy will impact earnings in the second half of the year. In addition, analysts noted that the economic environment is beginning to experience pressures from higher rates and a loss of momentum in consumer spending. On the Nasdaq, chip stocks were the biggest losers as analysts debated whether the business cycle for semiconductor companies has peaked in the near-term. Traders commented that weakness in the top 15 stocks on the technology index weighed heavily on the market as these issues account for almost half of the Nasdaq's value. On the Dow, industrial stocks moved lower as investors sold blue-chip companies amid concerns about the price of oil and how it will affect the economy and individual companies. DuPont (DD) fell to $40 after warning Thursday that it would not meet estimates this year due to higher fuel costs. Hewlett-Packard (HWP), General Motors (GM) and Honeywell (HON) also pulled the average lower. Our portfolio was also plagued by widespread selling pressure in the market. Earlier in the day, there were a number of favorable moves but by the end of the session, the majority of issues were negative. In the technology group, Protein Design Labs (PDLI) and Infocus (INFS) were the only issues with major gains. Commerce One (CMRC), Sapient (SAPE), and Vitria (VITR) deserve mention simply for ending the day in positive territory. Some of the "old economy" stocks managed small gains but they were few and far between. One of the small surprises was Anheuser Busch (BUD), which came back to profitability on the heels of our "Murphy's Law" exit earlier in the week. As we said when the position was closed, "our early departure from a (losing) position almost guarantees it will recover for the benefit of the newsletter's subscribers." Maytag (MYG) also ventured higher, closing near $38 as traders sought refuge in stocks that might be less affected by the broad market profit-taking. In the small-cap group, Ventro (VNTR) was the only bullish issue, edging back above $17 as speculative investors used the recent consolidation to open new positions prior to the next upward leg. The company has been the source of recent merger rumors in the B-2-B sector and Verticalnet (VERT) was named as a possible suitor. With one week until expiration, the majority of positions in the portfolio are profitable. At the same time, there are a number of plays that have not performed as well as expected. Some of the speculation plays on recovering issues have yet to prove favorable and more specifically, Loral Space (LOR) and Engage (ENGA) are dipping back towards recent lows. In the Reader's Request group, Lucent (LU) and Polaroid (PRD) are testing long-term, technical bottoms and there is little indication that they will recover anytime soon. Novell (NOVL) is at a key moment and Mail.com (MAIL) broke below a recent support area on Friday and volume is increasing as the issue moves lower. An early exit on the bullish diagonal position will provide a small profit and that's our plan at the open on Monday. Ryder group (R) is also weakening technically and if you agree there is additional further downside potential, consider the current profit of $0.50. Virata (VRTA) is the only other issue of concern, having fallen substantially with the chip sector over the last few sessions. Our cost basis is slightly below $40 but with the recent downward momentum, that level will be threatened soon. We will monitor the position for a potential adjustment in the coming week. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** SHOO - Steven Madden *** Cheap Speculation! *** Steven Madden designs, sources and sells fashion footwear under the Steve Madden and David Aaron brands for women and girls of ages six to 45 years. The company's popular branded products are designed to appeal to style-conscious consumers in the girls, juniors' and women's market segments. The company distributes its products through its retail stores, and outlet stores, and its e-commerce Website along with more than 3,000 department and specialty store locations in the United States and Canada. The company's product line includes core products, which are sold year-round, complemented by a broad range of updated styles that are designed to establish or capitalize on market trends. The company's business is comprised of a wholesale division, a retail subsidiary and a private label subsidiary. The company also has entered into licensing agreements for non-footwear accessory products. Steven madden is the second issue we have uncovered this week with a complex background plagued by a slew of class-action suits. Specifically, most of the complaints suggest that the defendants failed to disclose an illegal scheme between the founder of the company, and another individual who acted together in order to gain control of a primary interest in the company's common stock through a manipulation of the their Initial Public Offering. In the case, while these claims may indeed be true, it appears that investors are happy to buy the issue at what some traders suggest are "bargain" prices. If you agree with the recent technical indications, there may be some accuracy in the bullish outlook. With favorable disparities in the October option premiums, this position offers an excellent speculation play for traders who are bullish on the issue. PLAY (conservative - bullish/calendar spread): BUY CALL MAR-15.00 SEU-CC OI=95 A=$1.75 SELL CALL OCT-15.00 SEU-JC OI=75 B=$0.56 INITIAL NET DEBIT TARGET=$1.00 TARGET ROI=50% ****************************************************************** ENZ - Enzo Biochem $61.13 *** Biotech Sector! *** Enzo Biochem is engaged in the development and manufacture of innovative health care products based on molecular biology and genetic engineering techniques, and in providing diagnostic serves to the medical community. The company has approximately 200 patents worldwide, many of which cover proprietary labeling and detection products for gene sequencing and genetic analysis and are sold to the life science market throughout the world. The company's therapeutic division currently is conducting two human clinical trials, one for HIV infected patients, and one for patients infected with hepatitis B virus. Other potential future therapeutic applications of the company's proprietary technologies are directed towards cholesterol management and the treatment of inflammatory bowel disease, including Crohn's disease and ulcerative colitis. The company also holds a patent covering a method and materials for correcting point mutations or small insertions or deletions of genetic material, which would allow for editing and correcting certain abnormalities in genes. The Biotech sector is expected to perform well for the next few months and we have decided to look for unique companies that will benefit from the growth of the industry. Over the years, Enzo has been awarded hundreds of patents worldwide and the company has a similar number of patent applications pending. This vast patent estate is a major asset, allowing the company to play a major role in the rapidly unfolding world of modern day genomics and chemical diagnostics. Of course, this is just one of the company's many strengths and the recent approvals of additional patents is simply validation for the broad array of products they are bringing to market. From a technical viewpoint, the issue has excellent support near our cost basis and the over-priced option premiums will allow us to speculate conservatively on the future movement of the stock. PLAY (conservative - bullish/credit spread): BUY PUT OCT-40 ENZ-VH OI=140 A=$0.93 SELL PUT OCT-45 ENZ-VI OI=135 B=$1.50 INITIAL NET CREDIT TARGET=$0.68-$0.75 ROI(max)=17% ****************************************************************** - STRADDLES AND STRANGLES - With only one week until expiration and a big surge in volatility on Friday, we decided to offer some "premium selling" positions. These plays are based on the current price or trading range of the underlying issue and the recent technical history or trend. 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. ****************************************************************** ORCL - Oracle $86.56 *** Earnings Next Week! *** Oracle is a supplier of software for information management. The company develops, manufactures, markets and distributes computer software that helps major corporations manage and expand their businesses. The company's software products can be categorized into two categories, systems software and business applications software. Systems software is a complete Internet platform to develop and deploy applications for computing on the Internet and corporate Intranets. Business applications automates the performance of specific business data processing functions for customer relationship management, supply chain management, financial management, procurement, project management and human resources management. Based on analysis of the historical option pricing and technical background, this position meets our fundamental criteria for a favorable credit-strangle. The issue has overpriced options, a relatively well-defined trading range, and with earnings coming out next week, speculators are sure to keep the premiums high in the OTM options. The probability of profit from this position is higher (near 85%) than other plays in the same strategy based on theoretical option pricing. As with any recommendation, the play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. PLAY (conservative - neutral/credit strangle): SELL CALL SEP-95 ORY-IS OI=20371 B=$0.62 SELL PUT SEP-75 ORY-UP OI=7940 B=$0.43 INITIAL NET CREDIT TARGET=$1.00 ROI=5% (20% monthly) UPSIDE B/E=$96.00 DOWNSIDE B/E=$74.00 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 (SEP-$100) will limit the potential for loss on the upside and reduce the overall collateral requirement for the position. ****************************************************************** JNPR - Juniper Networks $197.63 *** Own This One! *** Juniper Networks is a provider of unique Internet infrastructure solutions that enable Internet service providers and other telecommunications service companies, to meet the critical demands resulting from the rapid growth of the Internet. The company delivers next generation Internet backbone routers that are specifically designed, or purpose-built, for service provider networks. The company's flagship product is the M40 Internet backbone router, and it recently introduced the M20, an Internet backbone router purpose-built for emerging service providers. The company's Internet backbone routers combine the features of the JUNOS Internet Software, a new high performance ASIC-based packet forwarding technology and Internet-optimized architecture into a purpose-built solution for service providers. This play is simply based on the current price or trading range of the underlying stock and its recent technical history. We favor the issue for a bullish position and have decided to sell premium for credit and use the earned income to offset any losses on the downside, in the event we are required to accept assignment of the stock. If the price of the issue moves through the current resistance area near $220, we will buy the stock to cover our sold options. PLAY (aggressive - neutral/credit strangle): SELL CALL SEP-220 JUD-ID OI=1831 B=$1.68 SELL PUT SEP-170 JUD-UN OI=1591 B=$1.25 INITIAL NET CREDIT TARGET=$3.00-$3.12 ROI=8% (32% monthly) UPSIDE B/E=$223 DOWNSIDE B/E=$167 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 (SEP-$230) will limit the potential for loss on the upside and reduce the overall collateral requirement for the position. ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
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