The Option Investor Newsletter Sunday 09-17-2000 Sunday 2 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/091700_2.asp ************** TRADERS CORNER ************** A Few Good Trades In A Weak Market By Mary Redmond There was a lot of excitement in the telecom equipment sector early this week. Starting last Friday and continuing into Monday and Tuesday, Nortel, Lucent, JDSU and others in the sector sold off heavily. The news services reported that institutional blocks of NT were offered for sale, and people were puzzling to figure out why. Part of the reason may have been due to an article which was published stating that capital spending on telecom equipment would likely slow due to a slowing economy. However, although large blocks of stock were being sold, it was a relatively small percentage of the amount of stock held by institutions. 44% of the float of NT is owned by institutions. This equals 1.835 bln shares, or approximately $82.8 bln in stock market value. A few block trades of 500,000 shares is a relatively small percentage of the institutional ownership, and can be absorbed. While people were running around in a tizzy trying to find out if anything was wrong, the CEO of NT was at an analyst conference, and stated that the company was on track to meet the previously announced expectations for earnings and revenue growth this year. So what was all the excitement about? Possibly institutional profit taking. The important thing to remember is that any information nowadays can cause major disruptions in the market, regardless of the source or the accuracy. As traders, we can profit from movement as long as we follow the rules. In this particular situation, a put or downside play could have been profitable, but not necessarily the best strategy. A put on a company which has been fundamentally and technically strong for a long period of time and is experiencing temporary selling can be a bad idea unless it is a one day strategy. It is best to find out if the company has stated anything about their forward projections, or if there were just a few rumors floating around. A better play might have been to wait until the selling trend abated and buy cheap calls or LEAPs. How do you know? There is no way to be 100% accurate about anything in the market, but using several different tools as guidelines you can often make a trade when a pivot point occurs which has a high probability of success. For example, the selling seemed to abate as NT hit 66. You see the big spike of volume where the bullish candlestick formation is? This is right when the stochastics and MACD turned to the positive from negative. In this situation, LEAPs bought at $12.5 on Tuesday sold for $17.5 on Thursday. We have to remember when using the technical indicators such as stochastics, MACD and Bollinger bands that they work best on a particular type of stock. This is generally a stock which has been public for several years, has a large daily trading volume, a somewhat predictable trading pattern, and a large market capitalization. The tools are sometimes useless on companies which just went public and illiquid or microcap stocks. It is not surprising that the IPO market was light this week. This may signify that investment bankers may be finding it difficult to raise interest in IPOs. Remember, a market crash as intense and severe as the one we experienced this Spring can leave memories of being scalded that can last a very long time. In addition, we had over 22 companies' lock up periods expire in the last two weeks, and over 20 more will expire in the next two weeks. This is a lot of stock to hit a nervous market. We have had very low flows of cash to equity funds over the last two weeks. AMG Data reported that last week equity funds had an outflow of $527 mln. The four week moving average of cash to equity funds is approximately $2.9 bln. The cash keeps pouring into money market funds in record amounts. Last week, the Investment Company Institute reported that retail money market funds took in $3.53 bln, and institutional money market funds took in $9.28 bln. For the last several weeks, with the exception of one week, we have had flows of nearly $12 bln per month in to money market funds. If this continues by the end of the year, we will have $2 trln in money market funds. Currently, money market funds have $1.769 trln in investors' cash, and are taking in nearly $50 bln per month. This is a sign of a nervous market. If investors were to deposit about half of the money they are putting in money market funds into equity funds, we could have a good run up in the market. However, the cash deposits to money market funds seem to be in a strong uptrend, and this pattern may not be broken easily. This flight to the safety of money market funds may not be coming entirely from U.S. investors. Europeans are more likely to deposit their cash in to U.S. money market funds because their own currency has depreciated dramatically. In addition, over $50 bln is expected to be raised in European debt and equity issuance over the next several weeks. Billions in American IPOs are waiting on the sidelines to be brought public. If the market sentiment remains weak, it is possible that some of these companies will not be brought to market in the near future. It is interesting to note that the Treasury yield increased by two full basis points in two days, lifting the yield to a high of 5.90%. This may have been caused in part by the increase in oil prices which may cause inflation. In addition, over $10 bln in high yield corporate debt hit the market this week, and there are expectations for additional large bond offerings in the coming weeks. Several European telecom companies are attempting to issue corporate bonds. This can impact the bond market by raising the rates on 10 year bonds and Treasuries. ****** Sometimes It's Better to Pay Your Taxes By Lynda Schuepp Fortunately, or unfortunately, depending on how you view it, I was scrambling all week to meet the September 15th deadline for tax extensions for my corporation, and because of that I wasn't trading. My aversion for paperwork means that I always file my returns on the last possible day of the extension. The market was pretty nasty this past week so I'm glad I wasn't in it. I am now sitting down in my office with my coffee and looking back over the week and trying to set a game plan for the coming week. First, I like to look at price trend using a 10, 50 and 200 day moving averages. Next, I look over the past week and determine some short-term support and resistance lines. Volume is the next most important indicator so I like to run a 10-day moving average on the volume to see where each day's volume falls in relation to the average. Ideally you would like to see volume trending in the same direction as prices. A divergence can signal a possible reversal of the trend. The QQQ's are a pretty good representation of the Nasdaq. I like to look at the OEX for the broader market, but you can't see volume so I look at GE, which is highly correlated and tends to track the market pretty closely. Daily chart for the QQQ: Looking at the chart for the QQQ's above, we see that the QQQ's are below the 10, 50 and 200-day moving averages. The QQQ's have been in a downtrend since 9/1 and have been down 7 out of the last 9 days on above average volume. There is some decent support at 90 and 87 and 84. The peak on 9/1 was on extremely low volume. In fact, the volume has been decreasing since 8/3 when a short-term bottom was hit. After its peak on 9/1, the prices dropped 14 points while the volume steadily increased, a classic sign of distribution. The question remaining is this now a bottom? We have closed below the 200-day moving average for the last 5 days. Wednesday, the QQQ's dipped down to 90 and bounced up to close at 93-1/2 still under the 200 day moving average. This might have been a dead cat bounce. If prices continue down, I will wait for volume to decrease. If the QQQ's turn back around, I will make sure there is plenty of volume. I hate trading a choppy, sideways market. Volume will lead the way, regardless of direction. Next lets look at the daily chart for GE: GE is a long way from its 200 day average and hasn't touched it since March, and then, only briefly. Friday's action was rather nasty and on about double the average volume. However, when we look back, we see the number of up days with greater than average volume far exceeds the number of down days with heavy volume. It looks like the big boys are accumulating, so it can't be all bad. The next level of support is 56, just about the 50-day moving average. It is key that GE holds here or we could be looking at 52. On the upside, 60 will be a key level of resistance. Don't expect the market to move unless GE is moving. So going forward this week, I will remain cautious. You must be patient and let the market give you the clues. Don't try to force fit your hunches. My guess is that Monday we'll get a bounce, but watch the volume to ascertain where it is legitimate. Monday is usually an up day so we have that working for us. Remember this is just a "guess" and you should never trade off of guesses, particularly somebody else's. If your not confident, don't feel bad, you are not alone. Most of my friends, many of whom I have a great deal of respect for are also scratching their heads trying to figure out their next move. You don't have to trade everyday. Your broker won't like to hear me saying that but it's your money that is playing the game, so don't be gambler. Wait for your favorite indicators to show you the way and enjoy the time to polish up on your trading skills by picking up a good book or video, or maybe reviewing one you've already read. ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.sungrp.com/tracking.asp?campaignid=465 ************************************************************ ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* SEBL - Siebel Systems Inc. $99.00 (+5.44 last week) See details in sector list Put Play of the Day: ******************** CREE - Cree, Inc. $115.94 (-7.31 last week) See details in sector list ************************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.sungrp.com/tracking.asp?campaignid=473 ************************************************************** ************* DAILY RESULTS ************* Index Last Week Dow 10927.00 -133.18 Nasdaq 3835.23 -143.18 $OEX 789.77 -23.13 $SPX 1465.81 -28.69 $RUT 530.88 -4.82 $TRAN 2671.46 -27.30 $VIX 21.93 1.24 Calls ITWO 172.19 11.69 Solid last week, entry point at 10-dma CFLO 122.38 9.00 Persistence pays off, roll on CFLO! PEB 106.50 8.84 New, momentum building after breakout ABGX 79.63 8.09 Profit taking pullback, entry point? CDWC 83.50 6.75 New, steady climb despite Tech turmoil CORR 60.44 6.06 New, bright spot in Biotech sector SEBL 99.00 5.44 New, B2B on the verge of breakout PALM 50.13 5.13 Climbing, entry on recent pullback? CHKP 151.25 5.00 Market weakness Friday, possible entry QCOM 66.25 4.69 New, CDMA back in business in Asia AGIL 75.25 4.38 Happy about performance last week YHOO 105.88 1.75 Yahoo, keep on rolling!!! BEAS 64.06 1.00 Dropped, sideways trading AFL 60.88 0.63 Holding at $60 support level NT 72.69 0.44 New, optic play about to light up COF 64.00 -1.16 Dropped, bulls quit, bears at work CMRC 70.19 -1.19 Big B2B conferences this week IDTI 91.00 -2.13 Battled the bears, split Friday??? NTRS 85.25 -2.38 Dropped, Financials fading AZA 75.25 -2.75 Dropped, momentum has dissipated Puts SCMR 105.50 -10.75 Lashing in the Telecom Equipment sector PWAV 37.06 -10.00 New, breakdown on big volume Friday CMTN 43.00 -7.50 Sliding lower on increased volume CREE 115.94 -7.31 A lot of resistance above current level MMM 85.13 -4.81 Old-line hurt by euro of oil prices LVLT 74.56 -4.75 Poor technicals and pessimism to boot PCS 45.44 -1.66 Bears mounting an attack on Telecoms UK 36.59 -1.41 Euro slide and high oil - bears delight DIGL 72.88 -0.88 Buoyed by upgrade, biding time above $70 ************************** 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 NTRS $85.25 (-2.38) Once the fate of JP Morgan (JPM) became known, the clouds moved in on the Financials. NTRS was holding firm at the elevated near-term support of $88 and $89, but in Friday's session it finally succumbed to the negative pressure of the broader markets. The analyst firm, Robinson Humphrey, began coverage on NTRS with an Outperform rating too, however it had no positive effect on trading. The share price eventually slid back to former resistance at $85 and violated the 10-dma line ($86.46). NTRS needs to go into early retirement this weekend; especially considering that JPM is no longer pumping up the DOW, and the NASDAQ is on shaky ground to boot. BEAS $64.06 (+1.00) For the most part, BEAS held up strong this week in the face of a down market for most Tech issues. This was most likely helped by sector sympathy as B2B stocks fared much better than issues in weaker sectors such as the Semiconductors or the old-school Internets. While the stock appeared to find bottom at the $60 level and bounced strongly, it has since failed to break through light resistance at $68. Despite being up a dollar for the week, it's been basically a week of sideways trading. Sideways trading means decaying premiums on options. Volume has also been light suggesting that interest in BEAS may have waned. As well, the up-trend line from early August has not only been broken, but is now acting as resistance. Rather than watch our calls possibly lose value due to sideways movement, we are moving our money elsewhere to more promising opportunities. AZA $75.25 (-2.75) It looks like the 2-for-1 split announced on Tuesday was AZA's last hurrah. After the announcement, the bulls made one last run at the $80 resistance level, but the Biotech sector was in an uncooperative mood and it dragged our play back to the $76 support level, where it spent most of the day on Friday. We were on the fence as to whether we should keep the play until the selling at the end of the day pulled AZA below support. While it is a small violation and a positive market on Monday could push the stock higher, we've lost patience with a play that has essentially gone sideways for over a week. It looks like the momentum that pushed AZA to a new high a week ago has dissipated, leaving the stock to drift aimlessly. Rather than wait for a significant breakdown, we're putting AZA on the drop list this weekend and moving on to more lively plays. COF $64.00 (-1.16) Putting together anything approaching a strong rally in this market has been tough for our COF play. Tuesday's gains took the price to a new high, but just barely, and after one last attempt on Wednesday morning, the bulls appear to have given up and gone home. In typical "sell the news" fashion, the Financial sector lost its luster shortly after Wednesday morning's Chase/JP Morgan merger announcement and dropped for the balance of the week. Although none of COF's major support levels were broken this week, the momentum that propelled shares to a new high has disappeared, and it looks like the probable direction next week will be down. Rather than wait for the chart to get ugly, we'll get out this weekend while the getting is good. PUTS No dropped puts today *********** 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 ************** QCOM - Qualcomm Inc $66.25 (+4.69 last week) Qualcomm develops and manufactures communications technologies and products. It's best known for its CDMA (code division multiple access) technology which is the industry standard for mobile communications. This technology is used in cellular phones, wireless telephone system equipment, and satellite ground stations. In addition, Qualcomm provides the trucking industry with a monitoring system call OnmiTRACS and is currently in a joint venture to develop a low-earth-orbit satellite communication system called Globalstar. They are also the #2 supplier of digital cell phones following Nokia. Who can forget the maniacal fervor that sent shares of QCOM up more than 20-fold in 1999, making it the fastest rising stock on the NASDAQ? But that was before the abrupt setbacks in Asia and the slower-than-expected acceptance of Qualcomm's current CDMA technologies. Can the exuberance that propelled QCOM to astonishing levels return? Qualcomm has seen its share price dwindle 64%, dropping from $200 in January to its current $60 range. According to money manager Graham Tanaka, who heads Tanaka Capital management, QCOM is poised for a strong comeback. He cited China's long-awaited decision to use CDMA for wireless phones coupled with the rising sales of wireless products in Korea as positive signs. The go-ahead by the Chinese government opens the door for Qualcomm to gain exposure to seven mln existing customers as well as access to the fastest growing wireless market in the world. Also, there's the next generation of CDMA technology to be introduced in 2001, which will provide full wireless Internet access. In his recent interview with Business Week, Tanaka forecasted that shares of QCOM will hit $150 within three years. Prudential Securities also estimates that by the year 2005, royalties from the CDMA licenses will bring the company upwards of $3.1 bln a year, up from an estimated $632 mln in 2000. Granted some investors may sit on the sidelines until there's proof of the pudding, so to speak. But it's the technical and momentum traders that we're anticipating will start nibbling on QCOM over the short-term. Friday's strong break above the stubborn $65 level signals QCOM may be getting revved up for a run. The recovery potential is promising. The first adversary is the 100-dma line ($71.61), followed by an $80 objective. Consider taking aggressive positions on strong dips off the converged 10 & 50 DMAs, which are in-line with a firmer support level at $61 and $62. Otherwise, use the former resistance at $64 and $65 as a launching platform on high-volume moves. On Wednesday, Sands Brothers began coverage with a Buy recommendation, but offered no other comments. Qualcomm is expected to report earnings late October, early November. BUY CALL OCT-60 AAO-JL OI=19684 at $ 9.38 SL=6.50 BUY CALL OCT-65 AAO-JM OI=28705 at $ 6.63 SL=4.75 BUY CALL OCT-70*AAO-JN OI=12715 at $ 4.25 SL=2.50 BUY CALL JAN-65 AAO-AM OI= 3471 at $12.38 SL=9.25 BUY CALL JAN-70 AAO-AN OI= 6275 at $10.13 SL=7.00 Picked on Sep 17th at $66.25 P/E = 91 Change since picked +0.00 52-week high=$200.00 Analysts Ratings 8-10-4-0-0 52-week low =$ 43.00 Last earnings 06/00 est= 0.27 actual= 0.27 Next earnings 11-02 est= 0.24 versus= 0.23 Average Daily Volume = 15.3 mln CDWC - CDW Computer Centers $83.50 (+6.75 last week) CDWC is a direct marketer of multi-brand microcomputer products including PCs, printers, software, and networking equipment. They sell mostly through catalogs and online, however the company also has two retail showrooms in Illinois. Nearly 95% of sales is derived from big business, government, and institutional customers. Founder and CEO Micheal Krasny currently maintains a 40% stake in the company. You've got to give CDWC much-deserved recognition for its steady climb from the depths of $47. After shedding nearly 40% of its share price, despite beating 2Q estimates in July, the outlook was dismal. However, the strong NASDAQ rally in August prompted investors to take another look at CDWC. And so, the stock's recovery took a foothold. Then two weeks ago, the gains came to an abrupt halt as the share price neared the $80 level. Without the NASDAQ's power to drive it upward, it appeared the stock's own momentum was limited. But, the Techs weren't to stay down for long. On Wednesday, as the NASDAQ tried to regain composure above the 4000 level, CDWC's momentum was resuscitated. The momentum regained its energy and the stock was launched through $80 on strong volume. And you can't beat this week's track record either. In the previous four sessions, CDWC set a series of new 52-week highs. The record stands at $83.75, just a fraction from Friday's strong close! CDWC currently sits above the 5 and 10 DMAs at $80.39 and $78.28, respectively. Use these supportive indicators as entry gauges to take positions into this momentum play. A lower entry is quite risky. CDWC is expected to report earnings next month around October 19th. CDW Computer Centers announced it climbed 32 positions to #23 on this year's InformationWeek 500 list. The magazine ranks the most innovative corporate users of information technology. Earlier in August, Banc of America Securities reiterated a Strong Buy recommendation. MSDW also restated an Outperform rating and issued a $70 price target, which CDWC recently surpassed. BUY CALL OCT-75 DWQ-JO OI=225 at $13.00 SL= 9.75 BUY CALL OCT-80 DWQ-JP OI=190 at $10.00 SL= 7.00 BUY CALL OCT-85*DWQ-JA OI=105 at $ 7.50 SL= 5.25 BUY CALL JAN-80 DWQ-AP OI= 22 at $15.88 SL=11.50 BUY CALL JAN-85 DWQ-AA OI= 40 at $14.63 SL=10.75 Picked on Sep 17th at $83.50 P/E = 57 Change since picked +0.00 52-week high=$83.75 Analysts Ratings 3-3-0-0-0 52-week low =$21.59 Last earnings 06/00 est= 0.44 actual= 0.39 Next earnings 10-19 est= 0.45 versus= 0.30 Average Daily Volume = 641 K SEBL - Siebel Systems Inc. $99.00 (+5.44 last week) Siebel Systems, Inc., is a provider of eBusiness applications. Their products are used by organizations that wish to enhance their ability to sell to, market to and service their customers across multiple channels such as the Web, call centers, resellers, retail and dealer networks. The unique thing about these applications is that they are designed in and available in industry-specific versions. The founder and CEO, Mr. Siebel got his start as a salesman for the Oracle Corporation. Most recently, SEBL announced that Gemplus, a provider of plastic and smart card-based solutions will use Siebel eBusiness Applications to standardize its customer-facing operations on a worldwide scale. Also of note, on September 11th Siebel announced it would be acquiring Canadian based Janna Systems Inc., (TSE:JAN), a provider of eBusiness solutions for the Financial industry, for approximately $1.4 bln Canadian. SEBL recently split its shares two-for-one on September 8th. This chart is a thing of beauty. You can see the pattern of higher highs and higher lows on the chart since the beginning of the year. The 200-dma, currently at $65.20 has held all closes this year and there have only been 6 closes below the 50-dma, currently at $86, since June 1st. Pretty impressive considering the volatility in the marketplace this Summer. Friday, SEBL really flexed its muscles, bucking the negative sentiment in the NASDAQ, by moving up $4.19 to close at $99.00 near its high for the day. The boost for SEBL Friday may have occurred in sympathy with the strong earnings reports of one of Siebel's competitors, Oracle. Their numbers were above the estimates although investors sold the stock off on Friday, as they may not have been up to the whisper levels. If this type of strength continues, it should be fairly easy for SEBL to eclipse its last bit of overhead resistance, at the old high of $101.25. If SEBL decides to pullback and rest a bit first, watch for a move down to the 5-dma or 10-dma, currently $93 and $94.40, respectively, along with a volume-supported bounce from there as an ideal entry point. The current 50-dma is a ways away at $86. In any event, it is imperative to monitor NASADAQ sentiment and market direction before entering new trades. Revenues for the 2nd quarter of 2000 came in at $387.4 mln, up from $176.7 mln in the 2nd quarter of 1999, a 119% increase. Last week SEBL was the recipient of two brokerages initiating coverage. JP Morgan initiated coverage with a BUY rating and a target of $115 and ING Barings initiated coverage with a Strong Buy and a target of $125. BUY CALL OCT- 90 EZG-JR OI= 587 at $14.63 SL=10.75 BUY CALL OCT- 95 EZG-JS OI=1612 at $11.50 SL= 8.50 BUY CALL OCT-100*EZG-JT OI=1500 at $ 8.50 SL= 6.00 BUY CALL JAN-105 EZG-AA OI= 602 at $15.38 SL=11.00 SELL PUT OCT- 90 EZG-VR OI= 757 at $4.50 SL=6.00 (see risks of selling puts in play legend) Picked on Sep 17th at $99.00 P/E = 868 Change since picked +0.00 52-week high=$101.75 Analysts Ratings 15-4-0-0-0 52-week low =$ 15.92 Last earnings 06/00 est= 0.09 actual= 0.11 Next earnings 10-17 est= 0.11 versus= 0.07 Average Daily Volume = 8.25 mln NT - Nortel Networks Corp. $72.69 (+0.44 last week) Nortel Networks is a leading global supplier of data and telephony network solutions and services. Covering all the bases, its business consists of the design, development, manufacture, marketing, sale, financing, installation, servicing and support of networks for both carrier and enterprise customers. With a presence in over 150 countries, NT serves local, long-distance, personal communications services and cellular mobile communications companies as well as cable television companies, Internet service providers and utilities. It's been a dark month so far for Nortel Networks but it appears that things are about to light up. The stock had been selling off relentlessly on accelerating volume since the beginning of the month, riding down the 5-dma and breaking below major moving averages with ease. First to go was the 50-dma (now at $77.45), then the 100-dma (at $68.39). This past Wednesday saw NT get close to its 200-dma near $62. At this point however, bargain hunters stepped in and the stock has since made a complete about-face. On Thursday, the stock saw the right side of the 5-dma for the first time this month. In doing so, the stock also closed above its 100-dma. On Friday, the stock held up strong all day, trading sideways until some last-minute buying came in to close the stock up $1.19 or 1.66% on almost twice the ADV. An aggressive entry could be had on a bounce off the 100-dma or the $70 level, which is just above the 5-dma. NT encountered resistance near the 10-dma at $73.50. A break through this level with volume would be the signal for conservative traders to make an entry. Overhead, the stock may also encounter some resistance at the $75 level but the real test is the 50-dma. Looking at the intraday charts, it can clearly be seen that any major moves in the stock has been accompanied by high volume so in making an entry, make sure the volume is in your favor. The recovery this week has been strong and in evaluating the risk/reward ratio, it appears that the potential upside greatly outweighs the potential downside. News this Friday that NT would take its fiber-optics unit public by next year may have given traders something to be excited about. The unit is valued at about $100 billion. Nortel plans to sell 10 to 15 percent of its stake through the IPO. BUY CALL OCT-70 NTV-JN OI=3650 at $ 7.75 SL=5.50 BUY CALL OCT-75*NTV-JO OI=4310 at $ 5.13 SL=3.00 BUY CALL OCT-80 NTV-JP OI=5507 at $ 3.00 SL=1.50 BUY CALL DEC-75 NTV-LO OI=2844 at $ 8.13 SL=5.75 BUY CALL DEC-80 NTV-LP OI=3517 at $ 5.88 SL=4.00 Picked on Sep 17th at $72.69 P/E = N/A Change since picked +0.00 52-week high=$89.00 Analysts Ratings 19-10-3-1-0 52-week low =$23.00 Last earnings 06/00 est= 0.14 actual= 0.18 Next earnings 10-24 est= 0.17 versus= 0.14 Average Daily Volume = 11.2 mln CORR - COR Therapeutics $60.44 (+6.06 last week) CORR is engaged in the discovery, development and commercialization of novel pharmaceutical products to establish new standards of care for the treatment and prevention of severe cardiovascular diseases. The company's research and development programs target critical needs in diseases such as unstable angina, acute myocardial infarction, venous thrombosis and restenosis. Leading the company's portfolio of product candidates is INTEGRILIN, currently being copromoted with Schering-Plough. The next product likely to emerge from the pipeline is an oral glycoprotein IIb-IIIa inhibitor for the prevention of platelet aggretation. Another company sandwiched between the big Pharmaceuticals and the Biotechs, CORR's central (or core) focus is in providing drugs to improve the survivability of cardiac related ailments. Although the Biotech sector had a rough week, CORR was a bright spot, tacking on more than 11% while the rest of the market languished. Buying volume was strong all week, with more than 1.2 million shares trading hands on Friday. Setting a new closing high is encouraging, especially when you consider the number of stocks getting punished on Friday. MACD and Stochastics are still looking positive, but some late day selling pulled the price back from the upper Bollinger band, to form a doji candlestick pattern. This could portend some weakness in the near future, so we would look for a pullback to support before initiating new positions. Mild support is found at $58, with the rising 5-dma ($57.69) close behind. The 10-dma (currently at $55.25) may provide some help on a sharper pullback, but we need to look at $54, and then $52 for strong support. This market is known for doing the opposite of what we expect, so it wouldn't be out of the question to see our play continue to charge higher from here. If that does happen, conservative players may want to nibble at new positions as CORR charges though $62 on its way to new highs. As always, strong volume will be the key; its absence will be an early warning that the bulls are weakening. In their daily stock update on September 6th, Robertson Stephens reiterated their Buy rating on CORR, citing rapid acceptance of Integrilin in both the ER and the cath lab. This came the day after positive results of the PUSUIT study were released, showing that the addition of Integrilin to the traditional unstable angina treatment regimen, significantly reduced the chance of heart attack. BUY CALL OCT-55 CHQ-JK OI=137 at $ 9.13 SL=6.25 BUY CALL OCT-60*CHQ-JL OI= 97 at $ 6.38 SL=4.25 BUY CALL OCT-65 CHQ-JM OI= 54 at $ 4.13 SL=2.50 BUY CALL JAN-60 CHQ-AL OI=164 at $11.13 SL=8.25 BUY CALL JAN-65 CHQ-AM OI= 15 at $ 8.88 SL=6.25 SELL PUT OCT-50 CHQ-VJ OI=209 at $ 1.50 SL=3.00 (See risks of selling puts in play legend) Picked on Sep 17th at $60.44 P/E = N/A Change since picked +0.00 52-week high=$63.00 Analysts Ratings 1-6-0-0-0 52-week low =$ 8.44 Last earnings 07/00 est= -0.29 actual= -0.24 Next earnings 10-18 est= -0.06 versus= 0.01 Average Daily Volume = 704 K PEB - PE Biosystems Group. $106.50 (+8.84 last week) PE Biosystems Group is engaged in the development, manufacture, sale and service of instrument systems and associated consumable products for life science research. The company's products are used in various applications including the synthesis, amplification, purification, isolation, analysis, and sequencing of nucleic acids, proteins, and other biological molecules. PEB consists of four business units; Applied Biosystems, PerSeptive Biosystems, PE Informatics, and Tropix. Although each unit serves essentially the same customer base, each is responsible for the development and marketing of products within its particular business area, and there is amazingly little overlap in their respective product offerings. Gradually emerging from the depths of the spring decline, PEB has been following the Biotechs higher for most of the past three months. Higher highs and lows are always a good sign, and with Friday's close above the $105 resistance level, our play is looking fairly healthy. Even though the sector traded flat last week, PEB managed to tack on a healthy gain of more than 9%, indicating the relative strength of this research equipment supplier. The company provides many of the tools that are needed for research in the rapidly growing Biotechnology field, making it an ideal "pick and shovel" play. The strong run over the past week is being supported by both the 5-dma ($101.31) and the 10-dma ($98.31), making a strong case for support near the $100 level. It looks like our play may need to consolidate a bit before running higher, as evidenced by the doji candlestick pattern on Friday and the relatively weak volume over the past week. Although volume has been on the light side, buying volume has been increasing over the past 3 sessions, with Friday's action back above 80% of the ADV. Recent gains have pushed PEB into its upper Bollinger band, and fast Stochastics have just entered the overbought zone on a daily chart. So you can see we are at a bit of a crossroads here. Which way PEB goes next week will likely be determined by the strength of the broader market, but we are favoring a pullback to support before entering new positions. Once PEB confirms support, new positions can be opened as buying volume returns and our play takes a run at the $110-111 resistance level. The positive analyst ratings on PEB have been flying fast and furious recently. On Sept 6th, CS First Boston initiated coverage of the stock with a Strong Buy Rating, and this came the day after Dain Rauscher Wessels initiated coverage with a Buy rating. These announcements followed that of Robert W. Baird, who initiated coverage on August 25th with a Strong Buy. BUY CALL OCT-105*BVE-JA OI= 355 at $10.25 SL= 7.25 BUY CALL OCT-110 BVE-JB OI=1256 at $ 7.75 SL= 5.50 BUY CALL OCT-115 BVE-JC OI= 351 at $ 6.00 SL= 4.00 BUY CALL DEC-110 BVE-LB OI= 798 at $14.75 SL=10.75 BUY CALL DEC-115 BVE-LC OI= 15 at $12.75 SL= 9.50 SELL PUT OCT-100 BVE-VT OI= 53 at $ 3.88 SL= 5.75 (See risks of selling puts in play legend) Picked on Sep 17th at $106.50 P/E = 121 Change since picked +0.00 52-week high=$160.00 Analysts Ratings 9-4-1-0-0 52-week low =$ 30.63 Last earnings 07/00 est= 0.26 actual= 0.26 Next earnings 10-26 est= 0.18 versus= 0.14 Average Daily Volume = 1.57 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.sungrp.com/tracking.asp?campaignid=480 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 09-17-2000 Sunday 3 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/091700_3.asp ************************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.sungrp.com/tracking.asp?campaignid=481 ************************************************************** ****************** CURRENT CALL PLAYS ****************** IDTI - Integrated Device Technology $91.00 (-2.13 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). Amazingly, IDTI fought off the Tech bears last Friday to finish the week on a positive note. While nearly every major Tech sector suffered the bears' fury Friday, including the Semi sector, IDTI held strong. Albeit the volume was a little lackluster, but we'll take the gain nonetheless. IDTI's relatively strong performance in spite of the broad market sell-off speaks of just how strong our play is. A reversal in the $SOX could very well send IDTI above the century mark. However, IDTI might not need any help from the $SOX next week. The company will be presenting at both the SG Cowen Technology Conference and the Bank of America Investment Conference over the course of next week. Positive press in the way of upgrades or comments from either conference might lift IDTI to record highs. What's more, IDTI will hold its highly anticipated Shareholder Meeting on Friday. What's exciting about the meeting is that investors will vote on a proposal to increase IDTI's number of authorized shares. IDTI became a split candidate when the stock crossed $50. So, a split announcement is likely given the stock's recent run. Although a split announcement is possible, we still must use sound trading skills to gain entry into the play. IDTI has been bouncing around the $90 level and its 10-dma, which is currently at $88, for the past two days. Aggressive traders might consider buying a bounce off $90 if IDTI stumbles a bit early Monday. The stock has had a hard time clearing the $95 level, which might be a good exit point if IDTI rolls over. However, if IDTI breaks resistance at $95 on convincing volume, the more conservative traders might consider jumping into the play. Another possible catalyst for our IDTI play is the IPO of Monolithic System Technology (MOSY), a memory chip company. MOSY filed with the SEC last week for IPO. IDTI is one of MOSY's biggest investors, which means if MOSY pops on its first day of trading, IDTI might receive a nice boost. BUY CALL OCT-85 ITQ-JQ OI= 303 at $12.88 SL=9.50 BUY CALL OCT-90*ITQ-JR OI= 832 at $10.13 SL=7.00 BUY CALL OCT-95 ITQ-JS OI= 864 at $ 7.88 SL=5.75 BUY CALL NOV-90 ITQ-KR OI= 526 at $13.13 SL=9.75 BUY CALL NOV-95 ITQ-KT OI=2343 at $11.00 SL=8.25 Picked on August 15th at $66.88 P/E = 51 Change since picked +24.13 52-week high=$95.25 Analysts Ratings 7-1-0-0-0 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 = 3.29 mln ITWO - I2 Technologies $172.19 (+11.69 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. The big news in the Tech sector late last week was the blowout number reported by Oracle. The enterprise software giant blew past consensus estimates with a boost in sales of its application software. Although ORCL was slaughtered by the bears last Friday, its excellent earnings report foreshadows good numbers for fellow application software maker ITWO. ITWO also felt the pain of the bears last Friday, but its sell-off was more market-related. With that said, ITWO's dip last Friday might have provided a favorable entry into the play given the prospects for a blowout quarter when the company reports its results about a month from now. In fact, several analyst have publicly stated that ITWO should have a blockbuster third-quarter earnings report. Melissa Eisenstadt of CIBC World Markets spoke on ITWO last Friday, and told of the company's prospects for a strong third and fourth- quarter. We might hear more from the Wall Street crowd early next week as ITWO will be attending several high-profile investor conferences, which we'll detail below. If the analysts bring out the bulls early next week, aggressive traders might look to enter the play if ITWO breaks back above the $175 level. A more conservative trader might wait for ITWO to gain momentum and look to enter the play on a breakout above $180. On the other hand, if the Tech bears continue to wreak havoc on the NASDAQ early Monday, aggressive traders might look to enter the play if ITWO bounces from its major support level at $170, or a little lower near the 10-dma at $167.50. The Fall investor conference season is in full swing. ITWO was a premier presenter at the Ariba-sponsored Miami Live conference this weekend, which might lead to some analyst noise early Monday. ITWO will also be attending the eB2B Marketplace World gather on Monday and the Logistics 2000 conference in the same day. Later in the week, ITWO will show its face at the DellDirect conference. All the events this week should lead to some discussion amongst the analyst, which might lead to upgrades. BUY CALL OCT-170 QYI-JN OI=348 at $18.88 SL=13.75 BUY CALL OCT-175*QYI-JO OI=188 at $16.63 SL=12.50 BUY CALL OCT-180 QYI-JP OI=255 at $14.50 SL=11.00 BUY CALL NOV-175 QYI-KO OI=159 at $23.63 SL=17.75 BUY CALL NOV-180 QYI-KP OI=247 at $21.50 SL=16.00 Picked on August 27th at $166.50 P/E = 500 Change since picked +5.69 52-week high=$223.50 Analysts Ratings 12-19-3-0-0 52-week low =$ 18.25 Last earnings 06/00 est= 0.08 actual= 0.10 Next earnings 10-20 est= 0.10 versus= 0.06 Average Daily Volume = 3.63 mln CMRC - Commerce One Inc $70.19 (-1.19 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. It's been a fun-filled week packed with news and analyst comments. On Monday it was "Welcome to Breakout City"! The FTC's approval of an Internet auto-exchange in conjunction with an upgrade from Prudential launched CMRC out of its five-month consolidation period. The stock peaked at $78.13 before the weakening broad markets brought the party to an untimely close. Nevertheless, with all said and done, CMRC remains perched at light support of $70 and $72. And there was a roar of bullish comments on the Street too. USB Warburg, Bear Stearns and Thomas Weisal all reiterated Buy recommendations early in the week. On Friday, SG Cowen initiated coverage on CMRC with a Strong Buy recommendation and a $94 price target. They stated that Commerce One is a "leading player in accelerating eProcurement/eMarketplace space. Seeing success in landing big consortia accounts with potential for high recurring revenue. Positive indicators include key alliance with SAP, international presence & partners, and strong top-line growth". There's obviously not a lack of optimism surrounding CMRC! And coming up next week, Commerce One and Ariba will kick off conferences to showcase what's in their product pipeline, expand on recent developments, and boast about partnerships and customer wins. The excitement before and during these events generally creates an upswing in the company's share price. This coupled with the anticipation of another round of strong quarterly results within the sector is keeping CMRC on our docket. CMRC is expected to report next month on October 18th. All in all, it's the optimism of things to come that's keeping many of the B2B's in the limelight. Consider taking an aggressive entry on high- volume moves through $72 or else look to enter the play on definitive bounces off the first line of opposition at $75. More conservative traders might want to confirm strength in the NASDAQ before taking positions and then target shoot into the play. Remember, the resistance becomes more prominent as CMRC nears the $80 mark. But once it penetrates this critical level, the path is clear for CMRC to make its way back to its split- adjusted high of $165.50! Alright, that may be too optimistic, but there is technical support around $100-$110. Some news highlights include CMRC's plans to develop a global content network to compete with a partnership made last week between IBM, I2 Technologies, and Ariba to form an online business exchange directory. The company also announced it completed its stock-for-stock acquisition of AppNet (APNT), a leading provider of end-to-end Internet services. The addition of AppNet's comprehensive services is expected to dramatically accelerate CMRC's ability to bring marketplaces online and improve business functionality. The deal is valued at approximately $2 bln. BUY CALL OCT-65 RJC-JM OI=1072 at $11.00 SL= 8.25 BUY CALL OCT-70*RJC-JN OI=8387 at $ 8.50 SL= 6.00 BUY CALL OCT-75 RUC-JO OI=4175 at $ 6.50 SL= 4.50 BUY CALL OCT-80 RUC-JP OI=6063 at $ 4.75 SL= 2.75 BUY CALL JAN-70 RJC-AN OI=1285 at $16.38 SL=11.75 BUY CALL JAN-75 RUC-AO OI= 585 at $14.50 SL=10.75 Picked on Sep 10th at $71.38 P/E = N/A Change since picked -1.19 52-week high=$165.50 Analysts Ratings 10-16-0-0-0 52-week low =$ 11.96 Last earnings 06/00 est= -0.10 actual= -0.14 Next earnings 10-18 est= -0.12 versus= -0.08 Average Daily Volume = 8.72 mln AGIL - Agile Software Corp. $75.25 (+4.38 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. Considering the rough week had by many stocks on the NASDAQ, traders of AGIL have much to be happy about. This week could be summarized in one phrase: entry point followed by a breakout. Early in the week, AGIL moved lower with the Tech sector. Despite this, volume on the downside was low. In fact, as the Stock price drifted lower, volume dropped to anemic levels. Monday and Wednesday saw the stock successfully bounce above its 200-dma (currently at $66.07), offering traders with an ideal entry point. There was some minor resistance at the $71-72 area, which was easily cleared on Thursday. Starting the day above that level, the stock spent the rest of the day moving ever higher on accelerating volume. In doing so, formidable resistance at $75 was cleared on high volume. For the day, AGIL was up 8.54% on 541% of ADV. While Friday's open was below the $75 support, the stock bounced off its 5- and 10-dmas (both in the $73.50 area). Spending most of the day in a narrow trading range, AGIL moved up strongly an hour before the close but some last minute pre-weekend profit-taking erased part of the move up. AGIL ended the day down $1.81 or 2.35% on over twice the ADV but managed to close above $75 support. At this point, trading volume in AGIL has increased greatly. This is a bullish sign as previous rallies have been accompanied by strong volume. Support at $75 is strengthening, thanks to the rising of the 5- and 10-dma. A bounce off the two moving averages or $75 support could be a buying opportunity, but make sure the volume supports the bounce and market sentiment is in your favor before entering. There appears to be resistance at the $77-78 level and then at $80. Only one news item to report for AGIL this week. On Tuesday, the company announced that it signed a contract worth over $1 million with Universal Scientific Industrial Ltd. AGIL will implement its Agile Anywhere and Agile Buyer solutions worldwide. BUY CALL OCT-70 AUG-JN OI= 61 at $11.88 SL= 9.00 BUY CALL OCT-75*AUG-JO OI= 61 at $ 8.50 SL= 6.00 BUY CALL OCT-80 AUG-JP OI=549 at $ 6.50 SL= 4.50 BUY CALL JAN-75 AUG-AO OI= 2 at $17.25 SL=12.25 BUY CALL JAN-80 AUG-AP OI=309 at $15.38 SL=11.25 SELL PUT OCT-65 AUG-VM OI= 40 at $ 3.75 SL= 2.00 (See risks of selling puts in play legend) Picked on Sep 5th at $74.06 P/E = N/A Change since picked +1.19 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 = 532 K CFLO - CacheFlow Inc. $122.38 (+9.00 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. This week's action in CFLO is a storybook example of how persistence can pay off. The sellers put up a good fight this week but the buyers put up an even better one. Prior to this past Thursday, CFLO had spent the past four trading sessions attempting to break through formidable resistance at $115. Each and every time the bulls were denied, as any visits near that level were swiftly and strongly rebuffed. Not to give up easily, the buyers kept on pushing all week long. With support building up and strengthening at the $105 to $110 levels and the relentlessness of the buyers, the good guys finally broke through on Wednesday as some late-day buying pushed the stock up to close just 13 cents above $115, providing conservative traders with an excellent entry. Thursday saw the stock move up strongly in the first hour of trading. Spending the rest of the day digesting its gains, the stock rallied again in the last hour of trading to close up 4.62% on 150% of ADV. On Friday, CFLO bucked the trend of a down market and gained another $1.81. Trading in the past couple of days has seen CFLO find support at $117. Traders looking to enter this play on a bounce may target shoot off $115 or $117. A bounce off $120 or the 5- and 10-dma at $115.38 and $113.04 is an aggressive entry possibility. Overhead, resistance can be found in increments of $5 at $125 and $130. While there was no news for CFLO this week, the charts in themselves tell an interesting story. Despite the NASDAQ struggling, CFLO broke through strong resistance and moved higher. The upward regression channel connecting the highs and lows since early August suggests that if the market is in our favor, there is a lot of potential upside to this play. This is not an invitation to throw caution into the wind but rather, pointing out the upside potential above and strengthening support below. BUY CALL OCT-120 FUJ-JD OI= 41 at $13.63 SL=10.00 BUY CALL OCT-125*FUJ-JE OI= 11 at $11.00 SL= 8.25 BUY CALL OCT-130 FUJ-JF OI=313 at $ 9.13 SL= 6.25 BUY CALL JAN-125 FUJ-AE OI=100 at $22.75 SL=16.75 SELL PUT OCT-110 FUJ-VB OI= 12 at $ 5.50 SL= 7.75 (See risks of selling puts in play legend) Picked on Sep 7th at $113.00 P/E = N/A Change since picked +9.38 52-week high=$182.19 Analysts Ratings 4-3-0-0-0 52-week low =$ 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 = 617 K PALM - PALM, Inc. $50.13 (+5.13 last week) Known for its ubiquitous Palm-branded handheld devices, PALM brought handheld computing to the masses. Although Apple pioneered the concept of the Personal Digital Assistant (PDA) with its ill-fated Newton series, PALM, which was spun off from 3Com (COMS) in March, has managed to convince consumers they can't live without these little electronic gadgets. The company's product offerings have grown and now include the Palm III, Palm V, and the Internet-enabled Palm VII product families. These pocket-sized PDAs allow users to use pen-based input and to copy and synchronize information between the device and a personal computer. The company's primary competition comes from Windows CE devices manufactured by the likes of Hewlett-Packard, Casio, Compaq. Remember the IPO fever from last spring? It was responsible for propelling PALM as high as $165 on its first day of trading, but the next three months were painful for those who participated in the buying frenzy. Shares of the leading PDA company finally bottomed in late May and have been gradually recovering ever since. The latest run, which began about a month ago, has propelled PALM from a low of $32 to nearly $53. A 65% run in less than a month; now that's not too shabby! After 3 strong days of gains last week, it looks like PALM finally agreed to pull back and give us a shot at an entry point. Nothing goes up forever, and our play was due for a bit of profit taking, especially in light of the weakness in the broader markets on Friday. Volume above the ADV has been fueling the run higher, so it was good to see Friday's decline come on significantly lower volume. PALM had moved deep into oversold territory on the daily Stochastics chart and Thursday's trading pushed the price well above the upper Bollinger band, making our play ripe for selling, especially on a triple-witching Friday. Intraday, the stock found support near $49, which is supported by the rising 5-dma (currently $48.44). The next support level looks like the 10-dma (currently $45.81), reinforced by historical support at $45. Overhead resistance now sits at $53, just above Thursday's high, and waiting for strong buying volume to penetrate this level looks like the best conservative entry strategy. Highlighting PALM's efforts to drive handheld industry developments in the areas of wireless and communication technologies in the international marketplace, the company announced on Friday the election of Jean-Jacques Damlamian to the PALM Board of Directors. Damlamian is a group executive VP for France Telecom, and is expected to provide a European perspective on mobile communications and technical expertise in the telecom industry. According to Eric Benhamou, PALM's Chairman of the board, these assets will be vital to PALM's immediate and long-term growth. BUY CALL OCT-50*UPY-JJ OI= 3438 at $4.50 SL=2.75 BUY CALL OCT-55 UPY-JK OI= 643 at $2.56 SL=1.25 BUY CALL OCT-60 UPY-JL OI= 737 at $1.31 SL=0.75 BUY CALL NOV-50 UPY-KJ OI=15637 at $6.00 SL=4.00 BUY CALL NOV-55 UPY-KK OI= 3150 at $4.13 SL=2.50 BUY CALL NOV-60 UPY-KL OI= 9004 at $2.81 SL=1.50 Picked on Sep 12th at $47.13 P/E = 604 Change since picked +3.00 52-week high=$165.00 Analysts Ratings 6-2-1-0-0 52-week low =$ 19.88 Last earnings 06/00 est= 0.00 actual= 0.03 Next earnings 09-25 est= 0.02 versus= N/A Average Daily Volume = 8.57 mln YHOO - Yahoo! Inc. $105.88 (+1.75 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. Keeps on rollin'. Picking up where it left off on Thursday, YHOO completed another "S" curve today. The stock sold off with the broader markets in the morning before it flattened out near the $104.50 level that we mentioned in Thursday's update. In the final 15 minutes, buyers flooded the market and the stock jumped over a buck on almost 600K shares. Friday's NASDAQ slide was targeted at the big caps like ORCL, INTC, MSFT, and YHOO. There were few spared in the broader selling. By now, most of you know that the play was initiated on a valuation basis, with a limited downside. As the stock rolled between $104 and $110 last week, this play offers quick intraday and one day trades for more aggressive traders. Even in the face of a downtrending NASDAQ, YHOO has managed to find support at the $104.50 level. On a daily chart, you can see that YHOO has been in a consolidation mode for the past week. As we mentioned on Thursday, the MACD on a daily chart was nearing a crossing point, and on Friday, the fast line just crossed over the signal line fractionally. With this occurring, along with the 10-dma very near at $108.69, YHOO may be due for a break. The strong volume into Friday's close was encouraging. If YHOO continues its pattern of trading in an "S" curve, it should be ready to challenge technical resistance at the 10-dma. To trade this play, look for YHOO to continue its rounding up that began in the final 15 minutes of trading on Friday. If this occurs, look to enter at current levels, with the 10-dma resistance in mind. A strong, high volume move through the 10-dma could trigger the momentum we are looking for, and a conservative entry. Remember that $110 was the top last week, so until YHOO breaks above that level, it may still be trading in rolling range. YHOO earnings are confirmed for Tuesday, October 10th, which leaves three full trading weeks left. We are looking for momentum of an earnings run to begin and drive the stock higher. Although YHOO hasn't been dictated by the NASDAQ woes, any positive turn in the NASDAQ could help spark interest in this call play. BUY CALL OCT-100 YHV-JT OI= 865 at $12.88 SL=10.50 BUY CALL OCT-105 YMM-JA OI=1034 at $ 9.75 SL= 7.25 BUY CALL OCT-110*YMM-JB OI=1959 at $ 7.50 SL= 5.75 BUY CALL OCT-115 YMM-JC OI=1707 at $ 5.88 SL= 4.25 BUY CALL JAN-120 YMM-AD OI=3123 at $12.50 SL=10.00 SELL PUT OCT- 95 YHV-VS OI=2935 at $ 4.13 SL= 5.50 (See risks of selling puts in play legend) Picked on Sep 6th at $107.88 PE = 281 Change since picked -2.00 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 ABGX - Abgenix, Inc. $79.63 (+8.08 last week) Abgenix Inc., is a biopharmaceutical company that develops and intends to commercialize antibody therapeutic products for the treatment of a variety of disease conditions, including transplant-related diseases, inflammatory and autoimmune disorders, cardiovascular disease, infectious diseases and cancer. XenoMouse technology is a proprietary technology they have developed that produces antibodies with fully human protein sequences. There are four antibody candidates that are currently under development internally, known as ABX-CBL, ABX-IL8, ABX-EGF and ABX-RB2, respectively. In the last month, ABGX has entered into numerous agreements with companies such as ImmunoGen, CuraGen and SangStat. Most recently, they announced a collaboration with ImmunoGen, giving ABGX access to their Tumor-Activated Prodrug technology to use with Abgenix's fully human antibodies generated with XenoMouse technology. ABGX will pay ImmunoGen a $5 mln dollar technology access fee as well as potential milestone payments and royalties on net sales of any resulting products. Abgenix also agreed to purchase $15 mln dollars of ImmunoGen common stock at $19 a share. Technically, ABGX is looking fantastic. It has been in a beautiful uptrend since hitting an intra-year low of $25.91 on April 4th. Since that time, ABGX has spent equal amounts of time above and below its 50-dma, currently $64.40, however the stock has not closed below its 200-dma, currently $51.20, since April 17th. Thursday, Abgenix broke above the double top it had formed beginning with an intraday high back on July 11th of $79.94 and then another high on September 5th at $80.25. This occurred Thursday on convincing volume of 1.86 mln shares (2.7 times ADV). Friday, ABGX was affected by the overall negative tone in the marketplace as it slid $4.88 to close at $79.63, just off its lows of the day. Trading was choppy last week but, Abgenix did manage to tack on over $8 as it was up 3 days last week and down 2 days. There is resistance overhead at the high set Thursday at $84.50, then again between $90 and $92. Beyond that level, the old high of $103.25 will act as the last bit of resistance. Traders want to look for a low-volume pullback to the 5-dma or 10-dma, currently $76.20 and $74.90 respectively, followed by a bounce, as a way to gain entry to this trade. In any event, watch market sentiment and direction for confirmation before entering new trades. It is interesting to note that back in March, Abgenix signed an agreement providing Millenium Pharmaceuticals, Inc., with extensive access to their XenoMouse technology for the creation of fully human antibodies. They received an undisclosed upfront payment and potential future payments that could reach $100 mln plus royalties on product sales. BUY CALL OCT-75 AXY-JO OI=155 at $12.25 SL= 9.00 BUY CALL OCT-80*AXY-JP*OI=101 at $ 9.50 SL= 6.50 BUY CALL OCT-85 AZU-JQ OI= 55 at $ 7.50 SL= 5.25 BUY CALL JAN-85 AZU-AQ OI=843 at $16.25 SL=11.50 SELL PUT OCT-75 AXY-VO OI= 7 at $ 5.88 SL= 7.50 (see risks of selling puts in play legend) Picked on Sep 14th at $84.50 P/E = N/A Change since picked -4.88 52-week high=$103.25 Analysts Ratings 1-3-3-0-0 52-week low =$ 8.03 Last earnings 06/00 est= -0.03 actual= -0.01 Next earnings 11-01 est= 0.05 versus= -0.02 Average Daily Volume = 695K AFL - Aflac Inc. $60.88 (+$0.63 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 worlds 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. we 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. Two weeks ago, AFL defied gravity and the market by moving into new high territory again. Friday September 8th was when 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. This last week AFL did not get shaken no matter what the market sent its way, ending up 4 out of 5 days on the week and continuing to close above the old high set on September 8th of $60.25. A new yearly high was logged in on Wednesday at $61.38. There is not much in the way of technical resistance overhead, other than the high of $61.38, so you have a couple of options for entry at this point. Traders may want to witness a light-volume move back down to the 5-dma (currently at $60.70) or the 10-dma (currently at $58.40), followed by a volume-supported bounce from there to gain entry. The 50-dma and 200-dma are currently, $54.20 and $47.10, respectively and should offer further support for Aflac and potentially viable spots for entry. As always, watch for profit taking and market and sector sentiment as you look to enter new trades. Many industry watchers are expecting AFL to capitalize on the deregulation of the Japanese insurance market. Analysts on the street expect AFL to benefit because of its strong presence in the Asian markets. BUY CALL OCT-50 AFL-JJ OI= 5 at $11.75 SL=8.75 BUY CALL OCT-55 AFL-JK OI= 19 at $ 7.50 SL=5.25 BUY CALL OCT-60*AFL-JL OI=304 at $ 4.13 SL=2.50 BUY CALL NOV-55 AFL-KK OI=948 at $ 8.25 SL=6.00 BUY CALL FEB-60 AFL-BL OI=582 at $ 7.75 SL=5.75 Picked on Sep 10th at $60.25 P/E = 27 Change since picked +0.63 52-week high=$61.38 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 = 446 K CHKP - Check Point Software Tech Ltd. $151.25 (+$5.00 last week) Check Point Software Technologies, 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 $90.7 mln compared to $50.1 mln for the second quarter last year, representing an 81% increase in revenues. On April 4th, CHKP hit an intraday low of $57.97. Trading then 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 had 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 except for two, have settled above the 10-dma (currently at $148.50). That is not to say that there is no volatility in this stock, as evidenced by last weeks action which provided us with 3 up days and 2 down days. Monday CHKP got off to a bad start finishing the day down over $8, but, stabilized by midweek. On Thursday CHKP even mustered enough strength to hit another all time high, at $159. Even though the NASDAQ struggled for the week, Check Point did manage to tack on +$5.00 for the week. Not to bad for a volatile issue like this one. As long as Check Point continues to exhibit this kind of strength, traders may want to look for a pullback on light volume to the 5-dma or 10-dma (currently at $147.20 and $148.50, respectively), along with a bounce, for an ideal entry point. You will be waiting until $128.50, 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. This week CHKP benefited from an announcement stating that a subsidiary of Computer Horizons Corp., known as eB Networks, Inc., would be expanding it relationship with Check Point. Furthermore, they released a new product on Tuesday for new startup businesses known as "SVN Solution Pack for Startups." BUY CALL OCT-145 KGE-JI OI= 327 at $18.25 SL=13.00 BUY CALL OCT-150*KGE-JJ OI=1816 at $15.38 SL=11.00 BUY CALL OCT-155 KGE-JK OI= 121 at $13.38 SL= 9.75 BUY CALL JAN-150 KGE-AJ OI= 374 at $29.38 SL=22.00 SELL PUT OCT-140 KGE-VH OI= 679 at $ 8.00 SL=10.00 (see risks of selling puts in play legend) Picked on Sep 3rd at $149.44 P/E = 194 Change since picked +1.81 52-week high=$159.00 Analysts Ratings 13-4-0-0-0 52-week low =$ 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************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.sungrp.com/tracking.asp?campaignid=466 ************************************************************ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 09-17-2000 Sunday 4 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/091700_4.asp ************************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.sungrp.com/tracking.asp?campaignid=482 ************************************************************** ************* NEW PUT PLAYS ************* PWAV - Powerwave Technologies $37.06 (-10.00 last week) Powerwave Technologies designs, manufactures, and markets advanced radio frequency (RF) power amplifiers for use in wireless communications networks worldwide. Powerwave has one of the broadest and most diverse product offerings of any independent supplier in our industry. Powerwave's products continue to set new standards for performance, service, and price while carving out a rock solid reputation for reliability. Their production released products cover all major global air interface standards in all major frequency bands. They are used in cellular, Personal Communications Services (PCS), and Wireless Local Loop (WLL) base stations in both digital and analog networks. September has been a rough month so far for PWAV, and there is little to suggest that this will change soon. Ever since failing to break through resistance at $50, the stock has sold off strongly, with few if any up days. For the most part, it has been riding down the 5-dma, now at $43.27. Violations of major moving averages have also been the theme of the month. First to go was the 100-dma, now at $48.63. From therel it was a quick trip down below the 200-dma (now at $42.40), as it broke through that point Thursday. Friday, the stock broke below support at $40, which also happens to be near its 50-dma. Volume to the downside had previously been light but this week, has been steadily accelerating. On Friday, the stock lost $4.69 or 11.23% on roughly 125% of ADV. Along with the moving averages, resistance for the stock can be found in increments of $5 at $40 and $45. Those looking for an ideal entry into this play may want to target-shoot a failed rally above $40. An aggressive entry can also be had on a bounce off the 5-dma but make sure volume confirms a roll-over before entering. Looking below, support for the stock can also be found in increments of $5 at $35 and then $30. Conservative traders may want to wait to see if PWAV moves below $35 with conviction before entering. With little news this week for the company, sector sympathy will play an important role. Look to peers such as RFMD for clues on possible short-term direction. BUY PUT OCT-40*VFQ-VH OI=188 at $6.38 SL=4.50 BUY PUT OCT-35 VFQ-VG OI= 63 at $3.63 SL=1.75 BUY PUT OCT-30 VFQ-VF OI= 10 at $1.75 SL=1.00 Average Daily Volume = 2.01 mln ***************** CURRENT PUT PLAYS ***************** UK - Union Carbide $36.63 (-1.41 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 Chemicals sector has been bruised and battered by the high cost of energy over the past month. Now, a new threat has entered the group. The sliding euro is causing concern that multinational companies will suffer from currency woes. Fortunately for us on the short-side, UK is very much a multinational company, thus very much susceptible to currency fluctuations. The currency concerns that entered the market last week were enough to push UK below its 6-day long support level at $38, and carry the stock to a new 52- week low. The breakdown of UK's support level last Friday might foreshadow lower prices ahead. What's more, volume picked up during Friday's punishing trading, which might suggest the institutional sellers have returned. Going forward, any further decline in the euro would act as a downward catalyst and drive UK lower. We're not currency analysts here, but it might be conducive to monitor the level of the euro before entering any new positions in UK. The price of oil will also be worth watching as an indicator of UK's direction. If you can't monitor the prices of the aforementioned, continue to watch the price and volume action of UK. As we've been writing, volume tends to swell during UK's sell-offs. Consider entering the play at current levels early next week as UK finished at its day lows last Friday. However, make sure to confirm heavy volume with any downward move. Aggressive traders might consider entering the play after UK fails to rally above its nearest resistance level at $37. Make sure to wait for the stock to rollover before entering on a rally. BUY PUT OCT-40*UK-VH OI=75 at $4.13 SL=2.50 BUY PUT OCT-35 UK-VG OI= 8 at $1.44 SL=0.75 Average Daily Volume = 831 K CMTN - Copper Mountain Networks $43.00 (-7.50 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. Not too long ago, the Telecom Equipment sector captivated the bulls on Wall Street. The endless growth of the Internet coupled with the high demand for bandwidth drove stocks within the sector to stratospheric heights. However, the hoopla and excitement over many of the equipment providers is a distant memory as the harsh reality of a capital spending slowdown has entered the forefront. While the news of a slowdown in spending by the big Telecom carries is several weeks old, it is still working its way into the market. CMTN fell in all five days of trading last week, on volume that was more than convincing. In fact, CMTN slipped lower last Friday nearly twice its ADV. The swell in trading activity last week in conjunction with CMTN's falling price suggests institutions are running scared from the stock. The fact that CMTN is stuck in a descending channel and the Tech sector as a whole is a little shaky, bodes very well for our put play next week. CMTN losses decelerated somewhat in the latter part of last week's trading. However, the stock did sink in the final moments of trading last Friday combined with a surge in volume. If those late-day sellers return early next week, aggressive traders might consider entering new put positions in CMTN at current levels. The more conservative traders might wait for CMTN's slide to accelerate and look to enter the play if the stock falls below support at $42 on heavy volume. Also, pay close attention to the direction in the NASDAQ and watch the action in the broader Telecom Equipment sector by monitoring LU, CIEN, SCMR, and CMVT. BUY PUT OCT-50 KUA-VJ OI=998 at $10.50 SL=7.75 BUY PUT OCT-45*KUA-VI OI=191 at $ 7.25 SL=5.25 BUY PUT OCT-40 KUA-VH OI=463 at $ 4.50 SL=2.75 Average Daily Volume = 2.73 mln DIGL - Digital Lightwave $72.88 (-0.88 last week) Digital Lightwave serves the growing fiber-optic networking industry. It provides products and technology to monitor, maintain and facilitate the management of voice, data and multimedia communications networks. The company's products are cost-effective and used to efficiently verify and qualify service during network installation and to ensure optimal performance. The company is headquartered in Clearwater, FL. We initiated coverage on DIGL when the dismal forecast amongst the major telecoms further impacted its already depressed share price. Earlier in the month, some analysts suggested that capital spending would pullback with enough magnitude to effectively ripple through the Networking sector. Hence, a sell-off. The adverse sentiment first sent DIGL reeling through the 100-dma ($84.58). It's found some light support at the 200- dma ($75.88), but the technical line continues to fail. This week, the intraday gyrations offered target shooters a multitude of entries and exits. On Monday and Thursday, DIGL peaked at $79.38 and $79.16, respectively, yet made regular sweeps to the low $70s. Although it was Wednesday's session that got the gold star. The stock opened in a weakened state and tumbled below $70 to set the near-term bottom of $68. Despite the profitability of the point spreads, DIGL is showing signs of finding support around $73. Take a look at last week's chart for visual confirmation. Granted the 10-dma, now lower at $78.14, is serving as a formidable ceiling. However, it's essential that DIGL break to the downside and kick-start the momentum. The more adventurous could take entries off the above-mentioned 10-dma, but take into account that any strength over $80 spells BIG TROUBLE. Consider waiting for DIGL to violate $70 on strong volume, unless your strategy is to play the spread. BUY PUT OCT-75 DGU-VO OI=97 at $9.00 SL=6.25 BUY PUT OCT-70*DGU-VN OI=89 at $6.63 SL=4.50 BUY PUT OCT-65 DGU-VM OI=74 at $4.37 SL=2.75 Average Daily Volume = 873 K SCMR - Sycamore Networks $105.50 (-10.75 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. The proverbial lashing continued this week as shares of SCMR lost more ground. The combination of an earnings report that didn't meet the Street's expectations on August 25th and the threat of decreased spending by the major Telecoms knocked SCMR off its feet. The share price has lost almost $60, or 36% of its recent value. SCMR is steam-rolling downhill and there's still more room to fall in the near-term. The next level of support is found about 10 points away at June's lows of $95 and $100. The critical slide under $110 in Friday's session marked the passing of the 200-dma line, which was SCMR's last hope for a buoy. This technical indicator, currently at $110.30, should now begin to serve as immediate resistance, with a stronger ceiling developing at the 100-dma line ($113.45). The volume continues to back the decline and perpetuate a convincing downtrend line. Trading levels have been peaking at more than 2.5 times the ADV. Look for this robust activity to characterize future moves to the downside. Consider taking entries on high-volume moves off $110 or utilize an intraday upswing for entry points; although it may be too risky to enter above the $117 mark. BUY PUT OCT-110 QSM-VB OI=785 at $15.13 SL=11.00 BUY PUT OCT-105*QSM-VA OI=324 at $12.38 SL= 9.25 BUY PUT OCT-100 QSM-VT OI=547 at $ 9.63 SL= 6.50 Average Daily Volume = 4.88 mln CREE - Cree, Inc. $115.94 (-7.31 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. Our put play journeyed deeper into profitable territory this week, with help from weakness in the NASDAQ and the Semiconductor sector. Even for those who have been just watching this play from the sidelines, it serves as an excellent example of how profits can be better gained in going with the flow of the market and direction in sector sympathy. CREE's chart also serves as a textbook on overhead resistance. With the 100-dma near $130, the 50-dma and 200-dmas near $125, and the 10-dma near $122, CREE has a lot of work ahead if the stock is going up. Failures to rally above these levels have and continue to be ideal entry points. The stock did however, find support on Wednesday at the $109-110 level. Bouncing strongly on Thursday, CREE failed to rally above the 10-dma and 50-dma. Friday saw market and sector sympathy take over again as the stock gave back $2.56 or 2.16% on a light volume day. At this point, a cursory glance at CREE's chart shows that since the beginning of the month, the stock has been riding down on the back of the 10-dma. With reinforcement from the 50- and 200-dmas just above, this level would be the ideal target to shoot for but make sure the stock confirms the rollover before entering. The more risk-averse will want to see CREE break below $109-110 with conviction before making an entry. From there, the next major level of support would be at the psychological $100. As there has been no news of material this week for the company, look for sector sympathy and market direction to continue to influence movement in the stock price. BUY PUT OCT-120 CQR-VD OI=374 at $15.00 SL=11.00 BUY PUT OCT-115*CQR-VC OI= 96 at $11.00 SL= 8.25 BUY PUT OCT-110 CQR-VB OI=322 at $ 8.50 SL= 6.00 Average Daily Volume = 1.1 mln LVLT - Level 3 Communications $74.56 (-4.75 last week) Billing itself as a major bandwidth merchant, LVLT is building more than 20,000 miles of fiber-optic networks in the US and Europe. Based on Internet protocol (IP) communications, the company's network also includes undersea capacity across both the Atlantic and Pacific oceans. Thinking ahead, LVLT has packed its network with fiber and conduits for future upgrades. Currently serving such data-intensive customers as ISPs and telecom carriers, the company's services include dedicated circuits, Internet access, server and network equipment collocation, and dark fiber leasing. Caught between a negative technical picture and weakness in the Telecom sector, LVLT has had a rough go of it this month. Concerns about slowing demand for Telecom equipment has pressured many companies in the sector, so LVLT is simply playing follow the loser. What is more disturbing is seeing the stock continue to show weaker performance on each attempted rally. Coming off the March highs above $130, the May and June recoveries topped out near $94, but at least they managed to, temporarily, clear the 200-dma. Such was not the case with the August rally, which turned on a dime at the 200-dma (then $87.81), and headed back towards earth. After rolling over two weeks ago at the 200-dma, our play headed lower, violating the 10-dma ($76.50), 50-dma ($74.69), and the 100-dma ($78.69) in the process. The 30-dma at $72.06, is just over $2 below Friday's close, and if it fails to hold, we'll be looking at $67 as the next level of support. The tug of war between buyers and sellers was fast and furious this week, as they pushed and pulled LVLT between resistance at $79 and support at $74. The 10-dma (now at $78.81) is increasing the downside pressure, and based on the action last week, victory appears to be favoring the bears in this ongoing saga. Thomas Weisel initiated coverage on Friday with a Buy rating, and investors responded by punishing the stock for a $4 loss. Resistance near $79 will be tough to penetrate in this market, and we would consider a failed rally near this level to be an attractive entry point. With the negative market environment, we may not get such an attractive opportunity, so conservative investors may want to wait for support at $72 to fail before opening new positions. BUY PUT OCT-75*QHN-VO OI=344 at $6.75 SL=4.75 BUY PUT OCT-70 QHN-VN OI=462 at $4.50 SL=2.75 Average Daily Volume = 2.43 mln MMM - Minnesota Mining and Manufacturing $85.13 (-4.81 last week) 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. Negative factors continue to plague old-line manufacturing companies throughout the week, and MMM was no exception. One of the chief issues troubling this sector is sky-high energy prices, and with the recent saber rattling coming from Iraq, it could get worse before it gets better. Higher energy costs are increasing production costs, and that puts a crimp on profit margins. Then you have the Euro at all-time lows against the dollar, which will impact profits due to the loss incurred when foreign sales are converted back to dollars. We are deep in the heart of earnings warning season, and the line of confessors last week was long and troubling, with energy costs and currency problems showing up repeatedly on the list of corporate excuses. With the recent warning from Dupont and the downgrade of Colgate, the wolves are circling and it looks like it is only a matter of time before we get some bad news from MMM. Even without any company specific news last week our play nose-dived from $96 resistance to $84 support in seven days. Friday's candle is a mirror image of Thursday, as MMM held support at $84 and closed the session just above $85. We are waiting for the declining 5-dma (currently at $86.75) to catch up, and coupled with any negative news, it could drive MMM as low as $80 before the stock finds any relief. Selling volume continues to be heavy, with Friday's action coming in at nearly twice the ADV. While the picture looks grim, we need to exercise caution going forward. MMM is deep in oversold territory and could bounce on the slightest provocation. If you've been riding the play for a few days, tighten up your stops to protect your profits in the event of a recovery. Use any such recovery as an opportunity to initiate new positions when the bulls fail to penetrate resistance, first at the 5-dma, and then near $88, also the site of the 100-dma. BUY PUT OCT-90*MMM-VR OI=411 at $6.13 SL=4.00 BUY PUT OCT-85 MMM-VQ OI=714 at $3.00 SL=1.50 Average Daily Volume = 1.22 mln PCS - Sprint PCS Corp. $45.44 (-$1.66 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 Schwab's 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 in at $66.94, then on June 19th PCS made a failed attempt to clear that 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 $53.90 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 $46.80 and the 10-dma at $47.50 have been breached to the downside. A weak case could be made that prayerful support could be found at the $44.06 level, the site of an intraday low made on April 14th, but I think you can see this might be a bit of a stretch. Last week PCS traded down 4 out of 5 trading days. The intraday low for the week was $44.31 occurring Friday. We had been waiting for a volume acceleration associated with a downside move and Friday we got it as PCS closed down -$0.81, to $45.44 on 4.98 mln shares (1.33 times ADV). Adding fuel to this fire has been the continuing concern in the marketplace, that handset sales are slowing. For example, Friday a company known as Anadigics (ANAD) pre-announced a shortfall for their quarter due to a slip in orders from their number one wireless customer. This type of announcement can really heighten the negativity already associated with this sector. A failure from here to rally above its current 5-dma or 10-dma along with volume to confirm may 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. If PCS overcomes the $51 level with strong volume step aside. BUY PUT OCT-50 PCS-VJ OI= 133 at $5.88 SL=4.00 BUY PUT OCT-45*PCS-VI OI= 98 at $2.69 SL=1.25 BUY PUT NOV-40 PCS-WH OI= 860 at $1.63 SL=0.75 Average Daily Volume = 3.66 mln ************************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.sungrp.com/tracking.asp?campaignid=474 ************************************************************** ***** LEAPS ***** Alert! Buying Opportunity Ahead By Mark Phillips Contact Support Those who are vigilant will notice that our headline is the same as last week. The point I'm trying to make is that although we are a week closer to that attractive buying opportunity, the market has yet to reward us with convincing evidence that it is ready to straighten up and fly right. So the message is, a buying opportunity is approaching, but we need to be vigilant to make sure we don't jump in too early. I personally think we could see some attractive entries materialize as early as this week, but for the most part I expect to sit on my hands due to the host of bearish factors outlined below. Investor concerns seem to have moved away from the prospects of interest rate hikes and are now focused on the effect of those hikes now making their way through the system, namely a slowing economy. Although this slowdown is good in the eyes of the Fed, what investors see is slowing profits, and that is never good for stock prices. Further bearish sentiment is coming from the energy sector, as crude oil continues to hit new highs, stopping just shy of $36 per barrel on Friday. Despite OPEC's promise to add to current production levels by October 1st, with winter rapidly approaching, we are unlikely to see any relief at the pump before next year. Unlike rising interest rates, every sector of the market is affected by rising energy costs and this will inevitably affect profits. As if we needed another bearish factor, we have the Euro trading at record lows against the dollar, and the currency conversion will adversely affect profits of companies doing business overseas. The early birds started lining up at the confessional this week with 30 companies informing investors that they will fail to meet their estimates for the current earnings cycle. The two favorite excuses for lack of performance were (surprise, surprise) energy costs and currency problems in Europe. Expect this parade to continue, as the underlying problems don't show any signs of letting up. The VIX isn't providing any guidance for the near term as it stubbornly remains below 22, although it was encouraging to see it move up Friday, closing out the week at 21.93. The broad markets have continued lower over the past 2 weeks, but if the VIX is to be believed, there is more downside to come. Combined with the OEX, and NASDAQ approaching significant support levels, we are left with the conclusion that it is a typical September; treacherous waters indeed! In the midst of all this bearish commentary, we have to inject a note of optimism. Select LEAPS plays are showing definite signs of bottoming, with the NT the first to lead the recovery this past week. CSCO is looking better, and EMC's strength is encouraging, to say the least. It was tough deciding between EMC and CSCO for the Spotlight play this week, but given its stellar performance over the past 10 months, we thought it was high time EMC made it back into the limelight. If you've been following the Traders Corner articles by Austin Passamonte lately, you will notice that many of our portfolio plays are showing classic bottoming patterns. From JDSU to VERT, and CSCO to DELL, the price on many of these plays has penetrated the lower Bollinger band and with Stochastics deep in oversold territory, the list of possible entry points is long and enticing. The catch here is timing; just because a stock is heavily oversold does not mean that it can't become more so. Take the time to review your short list of play candidates and if necessary, update your desired entry points. The remainder of the month is likely to be just as treacherous, but the hidden treasure is great entry points. Set your plays up and wait. Although you are unlikely to get them all, if you do your homework ahead of time, you will be prepared to strike at enough new plays over the next 6 weeks to swell your account nicely in the last 2 months of the year. When the markets are uncooperative (like they have been so far this month), it is a great time to step back and improve your education. No matter what your level of trading expertise, reading, studying charts, and attending seminars is the type of activity that will pay for itself in spades when the markets recover their footing. Pick your favorite educational path and take advantage of it over the coming weeks. If you happen to be in Boston in two weeks, you can join me at the seminar as I assume the role of student and sit down to learn all I can from Chris and his team of instructors. I hope to see you there. Remember, when in doubt, stay out. Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN EMC 11/07/99 JAN-2002 $ 45 WUE-AI $ 9.50 $55.63 485.53% CSCO 11/14/99 JAN-2002 $ 45 WIV-AI $11.00 $26.50 140.91% NT 11/28/99 JAN-2002 $37.5 WNT-AU $15.13 $41.50 174.29% 09/10/00 JAN-2003 $ 75 ODT-AO $27.50 $28.13 2.27% SUNW 12/19/99 JAN-2002 $ 90 WJX-AR $22.00 $43.38 97.16% ERICY 01/30/00 JAN-2002 $16.3 WRY-AO $ 6.75 $ 5.75 -14.81% 07/23/00 JAN-2003 $ 25 VYD-AE $ 6.88 $ 4.63 -32.78% NSM 02/27/00 JAN-2002 $ 70 WUN-AN $24.25 $ 9.88 -59.28% AOL 03/12/00 JAN-2002 $ 65 WAN-AM $18.63 $ 9.25 -50.35% 08/13/00 JAN-2003 $ 55 VAN-AK $17.50 $18.13 3.57% AXP 03/12/00 JAN-2002 $46.6 WXP-AQ $ 9.33 $20.00 114.63% WM 03/19/00 JAN-2002 $ 30 WWI-AF $ 5.38 $10.13 88.20% AMD 04/16/00 JAN-2002 $ 35 WVV-AG $13.00 $ 8.25 -36.54% JDSU 04/16/00 JAN-2002 $ 80 YJU-AP $39.63 $45.38 14.50% 08/27/00 JAN-2003 $130 VEQ-AF $55.25 $37.38 -32.35% MOT 05/14/00 JAN-2002 $36.6 WMA-AZ $ 9.54 $ 8.50 -10.90% NOK 05/21/00 JAN-2002 $ 50 IWX-AJ $17.25 $ 9.63 -44.20% 07/30/00 JAN-2003 $ 50 VOK-AJ $17.75 $13.63 -23.24% NXTL 06/11/00 JAN-2002 $ 60 YFG-AL $19.25 $11.88 -38.31% C 06/18/00 JAN-2002 $48.8 YSV-AW $10.31 $14.38 39.43% AMGN 07/02/00 JAN-2002 $ 75 WQY-AO $20.75 $16.75 -19.28% JAN-2003 $ 70 VAM-AN $28.75 $25.88 -10.00% VRSN 07/02/00 JAN-2002 $190 YVS-AR $66.25 $65.63 - 0.94% 09/03/00 JAN-2003 $190 OVS-AR $86.63 $82.25 - 5.05% DELL 07/09/00 JAN-2002 $ 55 WDQ-AK $12.63 $ 3.50 -72.29% JAN-2003 $ 60 VDL-AL $15.38 $ 5.88 -61.80% GENZ 07/16/00 JAN-2002 $ 70 YGZ-AN $17.13 $18.63 8.73% JAN-2003 $ 70 OZG-AN $23.13 $24.75 7.00% HWP 07/30/00 JAN-2002 $110 WPW-AB $28.25 $24.88 -11.95% JAN-2003 $120 VHP-AD $32.63 $29.50 - 9.59% EXDS 08/06/00 JAN-2002 $ 55 WZZ-AK $20.75 $24.63 18.67% JAN-2003 $ 60 VTQ-AL $25.38 $29.00 14.26% MFNX 08/06/00 JAN-2002 $ 40 WOF-AH $13.75 $ 7.50 -45.45% JAN-2003 $ 45 VKW-AI $15.63 $ 9.63 -38.42% GM 08/06/00 JAN-2002 $ 65 WGM-AM $ 9.88 $16.63 68.27% JAN-2003 $ 65 VGN-AM $13.25 $20.38 53.77% FRX 08/13/00 JAN-2002 $ 95 WRT-AS $31.38 $35.63 13.53% JAN-2003 $100 VFB-AT $37.38 $41.13 10.02% BRCD 08/27/00 JAN-2002 $220 YNU-AD $65.38 $69.13 5.73% JAN-2003 $220 OMW-AD $86.50 $88.75 2.60% INKT 08/27/00 JAN-2002 $130 XOR-AF $50.13 $46.63 - 6.99% JAN-2003 $140 VFR-AH $60.88 $56.63 - 6.99% VERT 09/03/00 JAN-2002 $ 60 YER-AL $22.13 $13.13 -40.68% JAN-2003 $ 60 OER-AL $28.88 $17.88 -38.10% CMRC 09/10/00 JAN-2002 $ 80 YCU-AP $30.13 $28.25 - 6.24% JAN-2003 $ 80 OCU-AP $38.75 $37.25 - 3.87% PHCM 09/10/00 JAN-2002 $ 90 YPH-AR $45.75 $40.25 -12.02% JAN-2003 $ 90 OFO-AR $52.50 $47.13 -10.24% Spotlight Play EMC - EMC Corporation $94.75 We figured it was high time we reviewed our play on EMC, and the action in the markets this week has given us the perfect opportunity. A quick glance at the playlist will show you that it was the first entrant to the portfolio, and its consistent performance over the past 10 months has made it the most profitable play as well. Although the Internet sector has been under continued pressure lately, it is not a reflection on the rate of growth of the Internet itself. It is still growing at an incredible rate, and every new bit of new information created; whether on the Web, a corporate intranet, or a B2B marketplace, must be stored someplace. This is where our play on EMC comes in. The company is still the undisputed leader in enterprise storage systems, and investors' appetite for the stock is showing no signs of diminishing. Analysts love the stock (27 of 28 that follow EMC, rate it either a Buy or a Strong Buy), and given the stellar earnings reported in July, it is no wonder. Beating the street by 2 cents was good, but the real meat came in the form of 30% year-over-year revenue growth combined with bullish comments about the prospects for the remainder of the year. After a bit of indecision in the first half of August, the bulls took charge and pushed the stock above the $90 level, and even with the market-wide carnage over the past two weeks, the bears have been unable to push the stock back down to that level, which is now strong support. Testing the 30-dma (then at $92.50) on Wednesday was the extent of the damage they could inflict this week, highlighting EMC's impressive relative strength. As if we needed more incentive to feature EMC this week, we noticed that the stock typically splits when it gets above $100, a level that corresponds to the all-time high set on September 7th. Given the rate at which companies have been issuing split announcements lately and EMC's strength, we think it is more than likely that we could be rewarded with another 2-for-1 with the release of earnings, scheduled for October 18th. After the beating that many stocks took on Friday, it is encouraging that our play was able to hold above the $94 support level, losing only a fraction on the day. Below that, we have solid support at $92 and then $90. While conservative investors will want to wait for EMC to scale the $97 resistance level before playing, better entries can be had by target shooting intraday dips to support. Just make sure that strong buying volume is accompanying the bounce, so that you don't get caught trying to catch a falling knife. BUY LEAP JAN-2002 $100.00 YME-AT at $23.13 BUY LEAP JAN-2003 $100.00 VUE-AT at $32.75 New Plays QCOM - Qualcomm, Inc. $66.25 Remember QCOM? Last year's darling stock, which humbled many investors this year as it fell through one support level after another, looks like it may have found new life. Central to the conditions that precipitated the stock's decline earlier this year was concern that China would not adopt CDMA (at least not as quickly as originally estimated), and it seemed for a few months that no support level would hold. Turn the clock forward to today, and the news is slanted the other way with China Unicom coming back into the fold and embracing QCOM's narrowband CDMA protocol, IS 95, over the competing W-CDMA that is favored by Nokia and Ericsson. With the change of heart seen in this large and pivotal market, QCOM has seen investor interest pick up substantially over the past week and a half, and it could be readying itself for a nice recovery. Bearing this out is more positive press and analyst ratings, with Sands Brothers initiating coverage at a Buy this past Wednesday and according to BusinessWeek on Thursday, shares of the CDMA technology company should hit $150 within 3 years. Support appears to be rock solid at $55, with good support at $58 and then $60. Congestion between $62-64 could provide milder support with the encouragement of the converged 50-dma ($61.63) and 10-dma ($61.88). The buying interest this week propelled the shares above the $65 resistance level for the first time in over a month, an encouraging sign in light of the action in the broader markets. The relatively quiet trading over the past few months has served to bring option premiums down out of the stratosphere, making this a good time to pick up some LEAPS on the cheap before the momentum kicks in. Pick your favorite support level and consider intraday dips as buying opportunities, so long as strong buying volume confirms the bounce. BUY LEAP JAN-2002 $70.00 WBI-AN at $22.50 BUY LEAP JAN-2003 $70.00 VLM-AN at $29.63 Drops None *********** SPLIT PLAYS *********** When The Earth Starts To Shake By Ryan Nelson Growing up in the San Francisco Bay Area, we had our share of quakes and tremors. The most interesting point of any earthquake was the first split second when the trembling begins. Your mind instantly wonders, "is this the big one?" Heading into October with a sinking market can bring about the same feeling. Friday afternoon as the Nasdaq plummeted down towards 3800, I couldn't help but to think, "is this the big one?". The support at 3800 held on Friday, but the market nearing October gives you the same uneasiness as a Calfornia quake. Nevertheless, there are stocks moving higher on split runs. Ciena is the first that comes to mind. They will be going ex-dividend on the 19th. This may be the only real strong play to watch in the short-term. Current Split Run Plays None Current Split Candidate Plays ITWO CHKP CDWC IDTI PEB Candidates That Are Not Current Plays BRCD NEWP ARBA DNA VRSN MUSE EXTR MANU GS LEH 10 Most Recent Announcements We Predicted ORCL - 09/14 (most recent announcement) SUNW - 08/17 GLW - 08/16 HWP - 08/16 CIEN - 08/15 SEBL - 08/08 SAPE - 08/01 AMD - 07/19 PDLI - 07/11 TXN - 04/20 Major Announcements So Far This Month = 12 LSCC PRHC AVT MLNM AUDC NUHC MEDX AZA ASF UTI ADBE ORCL For our complete stock split calendar, click here... http://members.OptionInvestor.com/splits/index.asp Symbol Company Name Splits Payable Executable BUD - Anheuser-Busch Companies Inc 2:1 09/18/2000 09/19/2000 NSIT - Insight Enterprises Inc. 3:2 09/18/2000 09/19/2000 ACLNF - A.C.L.N. Limited 5:4 09/18/2000 09/19/2000 XTO - Cross Timbers Oil Co. 3:2 09/18/2000 09/19/2000 CIEN - CIENA Corporation 2:1 09/18/2000 09/19/2000 HAR - Harman Intl Industries 2:1 09/19/2000 09/20/2000 IIVI - II-VI, Inc. 2:1 09/20/2000 09/21/2000 SBSE - SBS Technologies, Inc. 2:1 09/20/2000 09/21/2000 FLSH - M-Systems Inc. 2:1 09/21/2000 09/22/2000 PCP - Precision Castparts Corp. 2:1 09/21/2000 09/22/2000 EMKR - EMCORE Corporation 2:1 09/25/2000 09/26/2000 SMTC - Semtech Corporation 2:1 09/25/2000 09/26/2000 MCHP - Microchip Tech. 3:2 09/26/2000 09/27/2000 MAPS - MapInfo Corporation 3:2 09/28/2000 09/29/2000 AVT - Avnet, Inc. 2:1 09/28/2000 09/29/2000 PRHC - Province Healthcare 3:2 09/28/2000 09/29/2000 OCCF - Optical Cable Corporation 3:2 09/28/2000 09/29/2000 ABMD - Abiomed, Inc. 2:1 09/30/2000 10/02/2000 CUZ - Cousins Properties Inc. 3:2 10/02/2000 10/03/2000 UTI - UTI Energy Corp. 2:1 10/03/2000 10/04/2000 GLW - Corning Incorporated 3:1 10/03/2000 10/04/2000 RY - Royal Bank of Canada 2:1 10/05/2000 10/06/2000 SONS - Sonus Networks Inc. 3:1 10/06/2000 10/10/2000 AUDC - AudioCodes 2:1 10/06/2000 10/09/2000 MDZ - MDS Inc. 2:1 10/10/2000 10/11/2000 LSCC - Lattice Semiconductor 2:1 10/11/2000 10/12/2000 ORCL - Oracle Corporation 2:1 10/12/2000 10/13/2000 FLEX - Flextronics International 2:1 10/16/2000 10/17/2000 ASF - Administaff, Inc. 2:1 10/16/2000 10/17/2000 MLNM - Millennium Pharmaceutical 2:1 10/18/2000 10/19/2000 MEDX - Medarex, Inc. 2:1 10/18/2000 10/19/2000 NUHC - Nu Horizons Electronics 3:2 10/23/2000 10/24/2000 ADBE - Adobe Systems, Inc 2:1 10/24/2000 10/25/2000 CMRO - Comarco, Inc. 3:2 10/27/2000 10/30/2000 HWP - Hewlett-Packard Company 2:1 10/27/2000 10/30/2000 AZA - ALZA Corporation 2:1 11/15/2000 11/16/2000 PSC - Philadelphia Suburban 5:4 12/01/2000 12/04/2000 SUNW - Sun Microsystems 2:1 12/05/2000 12/06/2000 ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.sungrp.com/tracking.asp?campaignid=467 ************************************************************ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 09-17-2000 Sunday 5 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/091700_5.asp ************* COVERED CALLS ************* Success Basics: Maximizing Profit - Limiting Loss By Mark Wnetrzak The process of becoming a systematic trader is something we all must endure. The objective of any trading system is to identify and profit from, significant moves in a specific issue. Methods that allow big profits at the risk of occasional, limited losses are generally the most successful. However, there is a dilemma that frequently prevents new investors from developing effective techniques. The problem is, if you want to formulate the most productive system, you will likely need to focus on short-term indicators, thus using less stable data, which eventually leads to a higher probability of losing positions. Trading methods that rely on longer-term data are ordinarily more successful but at the same time, their profits occur at a much slower rate. The actual design of an efficient system need not be different for longer term or shorter term purposes; the key is how you act upon the data that is presented. Experienced traders, who have acquired patience, are content to wait for the correct signals. They have great respect for money and will participate only when the situation exhibits a superior potential for profit. Novice traders are a picture of contrast. They see the stock market as a means of getting rich thus, they rely primarily on instinctive as opposed to intuitive thinking, and they are often in too much of a hurry to wait for the correct signals. These traders have little respect for money and the market's complex nature, and with that kind of irreverent attitude, they are often doomed to failure. As traders, our primary task is to identify potentially profitable situations. The basic goal of a trading system is to determine when and at what price to place the initial order and how to take profits efficiently with limited losses. There are a number of different approaches to developing an effective system but they all have one thing in common; a method to control losses. The most popular method of managing a position is through the use of trailing stops but many traders have difficulty with the correct placement of these simple exit orders. Of course, there are many popular techniques to determine the proper entry and exit points including: arbitrary, fixed dollar amounts; a percentage of the price level; or a calculated value based on the volatility of the issue. Most professional traders prefer the use of consistent, similarly sized stops in a particular system however, the actual value of the loss-limit is not crucial to long-term performance. It's much more important to examine the risk of the system as a whole, following the procedure through multiple trades until an effective, yet cautious exit strategy can be determined. The most difficult aspect of profit target/loss limit development is that strategies which provide the highest potential return are also the ones that let the trade, in a short-term system, retreat back to the point where the initial stop-loss is activated. Even when the position is substantially profitable, there is a chance that the trend will reverse and turn the trade into a loss. A system of that type will generally provide the greatest net profit in the long run however, it's not as easy to manage as a procedure that uses a trailing stop. Obviously, the easiest way to achieve large gains is to make sure you capture all of the major moves in the positions that you enter, but that is easier said than done. Unfortunately, the use of a trailing stop can prematurely close a position that could eventually produce a much larger return. In fact, the primary drawback of this approach is that potentially profitable trades are often "stopped out" at much lower prices, before they have chance to fulfill their original expectations. Many traders prefer to exit with a "limit" order when a position is moving in their favor. However, that also presents a problem because it prevents the trade from achieving maximum profit when the market moves substantially in the forecast direction. At the time, if the market reacts violently against the trade, the system must limit the affects of the unexpected activity, closing the position quickly and with relatively little loss. The best trading mechanisms are those that achieve a degree of consistency, using effective exit routines that provide a high percentage of winning trades and at the same time, prevent big winners from turning into losers. Most professional traders prefer systems that allow the position to achieve maximum return initially, and as the market consolidates, also provide a method for locking-in gains at a profitable level. With this approach, the goal is to exit the trade while the issue is moving favorably, before the eventual retreat significantly erodes position profits. The end result is that portfolio growth is more consistent, and in my experience, that's the best way to approach the market. Good Luck! SUMMARY OF PREVIOUS PICKS ***** NOTE: Using Margin doubles the listed Monthly Return! Stock Price Last Call Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return XICO 7.81 10.13 SEP 7.50 1.56 *$ 1.25 17.4% GSTRF 8.44 11.50 SEP 7.50 1.63 *$ 0.69 11.0% BOUT 37.63 37.88 SEP 35.00 5.00 *$ 2.37 10.5% PCTL 5.78 6.81 SEP 5.00 1.19 *$ 0.41 9.7% ASKJ 25.13 25.06 SEP 22.50 4.00 *$ 1.37 9.4% OSIP 45.56 57.75 SEP 40.00 7.75 *$ 2.19 8.4% LPTH 41.13 44.81 SEP 35.00 8.50 *$ 2.37 7.9% DRMD 5.72 6.75 SEP 5.00 1.13 *$ 0.41 7.8% PLNR 19.88 18.44 SEP 17.50 3.25 *$ 0.87 7.6% PCTL 6.03 6.81 SEP 5.00 1.38 *$ 0.35 6.5% NOVN 35.00 41.00 SEP 35.00 2.88 *$ 2.88 6.5% VITR 48.94 49.25 SEP 40.00 9.88 *$ 0.94 6.1% DRXR 18.31 19.69 SEP 17.50 1.50 *$ 0.69 5.9% ECLP 12.00 12.25 SEP 10.00 2.75 *$ 0.75 5.9% XLNK 18.00 13.63 SEP 12.50 6.25 *$ 0.75 5.5% (DLK) ORG 14.38 15.00 SEP 12.50 2.75 *$ 0.87 5.4% FHS 16.06 17.50 SEP 15.00 1.94 *$ 0.88 5.4% CLPA 30.25 28.38 SEP 25.00 6.13 *$ 0.88 5.3% CCUR 14.63 19.94 SEP 12.50 2.69 *$ 0.56 5.1% SGNT 12.00 9.13 SEP 10.00 2.63 $ -0.24 0.0% SPLN 18.56 15.88 SEP 17.50 2.19 $ -0.49 0.0% ROBV 13.63 7.75 SEP 10.00 4.13 $ -1.75 0.0% NEOF 5.81 4.94 OCT 5.00 1.94 $ 1.07 20.0% NETS 6.25 5.75 OCT 5.00 1.75 *$ 0.50 7.2% GLGC 24.75 23.50 OCT 20.00 6.38 *$ 1.63 6.4% EPTO 14.00 14.13 OCT 12.50 2.50 *$ 1.00 6.3% WDC 5.75 5.38 OCT 5.00 1.19 *$ 0.44 6.2% VNTR 17.00 14.38 OCT 15.00 3.75 $ 1.13 6.2% WAVX 24.06 20.38 OCT 20.00 5.63 *$ 1.57 6.2% LBRT 30.00 32.19 OCT 22.50 9.13 *$ 1.63 5.7% IMGN 21.81 26.19 OCT 17.50 5.50 *$ 1.19 5.3% MSTR 31.38 29.31 OCT 25.00 8.25 *$ 1.87 5.2% WGAT 22.88 25.50 OCT 17.50 6.63 *$ 1.25 5.0% RHAT 26.69 21.19 OCT 22.50 6.00 $ 0.50 1.6% TIVO 26.88 20.50 OCT 22.50 6.13 $ -0.25 0.0% *$ = Stock price is above the sold striking price. Comments: It is that time again to re-evaluate your outlook on those stocks that were not called away and act accordingly. Larry McMillan's book, "Options: As a Strategic Investment," is an excellent resource, detailing several different options. Positions Closed Early: Rostelecom (ROS) - at break-even, SpeedFam-IPEC (SFAM) 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 EFCX 11.88 OCT 10.00 FUS JB 2.63 135 9.25 35 7.0% GSTRF 11.50 OCT 10.00 YVQ JB 2.25 2280 9.25 35 7.0% IMGN 26.19 OCT 22.50 GMU JX 5.50 256 20.69 35 7.6% NTOP 33.81 OCT 30.00 UPT JF 5.88 539 27.93 35 6.4% PRST 20.13 OCT 17.50 PQK JW 3.63 333 16.51 35 5.2% SYNM 20.75 OCT 17.50 QSH JW 4.38 62 16.37 35 6.0% WPZ 5.19 OCT 5.00 WPZ JA 0.94 470 4.25 35 15.3% Sequenced by Return ***** Stock Last Call Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return WPZ 5.19 OCT 5.00 WPZ JA 0.94 470 4.25 35 15.3% IMGN 26.19 OCT 22.50 GMU JX 5.50 256 20.69 35 7.6% EFCX 11.88 OCT 10.00 FUS JB 2.63 135 9.25 35 7.0% GSTRF 11.50 OCT 10.00 YVQ JB 2.25 2280 9.25 35 7.0% NTOP 33.81 OCT 30.00 UPT JF 5.88 539 27.93 35 6.4% SYNM 20.75 OCT 17.50 QSH JW 4.38 62 16.37 35 6.0% PRST 20.13 OCT 17.50 PQK JW 3.63 333 16.51 35 5.2% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** EFCX - Electric Fuel $11.88 *** The Next Mania! *** Electric Fuel with corporate and sales offices in New Jersey, and manufacturing and R&D facilities in Israel and Alabama, is a world leader in the application of primary and refuelable zinc-air battery technology to innovative energy solutions. The company's popular line of Instant Power disposable batteries for cellular telephones is available through selected outlets in the U.S., Europe, South America and Israel. Electric Fuel also recently announced plans to sell a new Instant Power universal powerpack for cellphones and PDAs that will let wireless users keep talking or working, even as their rechargeable battery runs down. With the price of Oil skyrocketing...alternative fuel stocks are fast becoming the next investment mania. It seems somebody was anticipating Electric Fuel's announcement Friday, that the German Government has issued a contract to undertake a cooperative all- electric hybrid vehicle development and demonstration program. Electric Fuel's Electrical Vehicle Division will help implement the program. We simply favor the bullish breakout above a short-term technical base. OCT 10.00 FUS JB LB=2.63 OI=135 CB=9.25 DE=35 MR=7.0% ***** GSTRF - Globalstar Telecom $11.50 *** Speculation! *** Globalstar Telecommunications provides global mobile telephone service. Their satellites form a global telecommunications network which can reach virtually every populated area of the world. Globalstar uses Qualcomm's patented CDMA technology, and Qualcomm has agreed that they will be the only provider of mobile satellite services to which it will license this technology. Funding has been a problem for satellite communications companies but in mid-July, Globalstar exercised an option giving them access to $250 million in corporate loans. The company said it expects to end the year with a cash balance in excess of $100 million and now they can pursue current business plans, working to establish themselves as a potential competitor in the communications market. The company also recently launched commercial service in Peru and Russia, and roaming service in South America as well as advanced coverage in the Caribbean. Just in time for the Summer Olympics, Globalstar announced international roaming service in Australia. OCT 10.00 YVQ JB LB=2.25 OI=2280 CB=9.25 DE=35 MR=7.0% ***** IMGN - ImmunoGen $26.19 *** 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 last 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 22.50 GMU JX LB=5.50 OI=256 CB=20.69 DE=35 MR=7.6% ***** NTOP - Net2Phone $33.81 *** Change of Character? *** Net2Phone provides services that enable high-quality, low-cost telephone calls over the Internet. This service enables customers to call individuals and businesses worldwide using their personal computers or traditional telephones. They are leveraging their telephony expertise to integrate real-time voice communication capabilities into the Web. Net2Phone distributes its Software free of charge through the Internet and through agreements to include its software with products sold by its strategic partners. In August, AT&T paid $1.4 billion for a 32% stake in Net2Phone. That was followed by a rumor that Net2Phone plans to form a new company with Cisco Systems. This Friday, the rumor appears to have become fact! The stock has rallied strongly off its August low (successfully testing the May low) and the current technical picture suggests the downtrend has ended. OCT 30.00 UPT JF LB=5.88 OI=539 CB=27.93 DE=35 MR=6.4% ***** PRST - Presstek $20.13 *** Technical Breakout! *** Presstek is engaged in the development, manufacture and sale of its proprietary PEARL direct imaging technology. This direct imaging technology is currently being used in a variety of both on-press and off-press applications. PRST has also recently developed its next-generation DI technology, the ProFire imaging system, a highly advanced laser imaging technology combining all the components of a thermal imager in one compact package. No news explains the August reversal nor the current breakout above Presstek's 150 dma on high volume. But, as I like to say, the "tape tells all," and it is saying somebody wants this stock so much that they keep bidding the price higher! A reasonable cost basis for those who wish to speculate conservatively. OCT 17.50 PQK JW LB=3.63 OI=333 CB=16.51 DE=35 MR=5.2% ***** SYNM - Syntroleum $20.75 *** Guilty by Association! *** SYNM developed and owns a proprietary process (the Syntroleum Process) designed to catalytically convert natural gas into synthetic liquid hydrocarbons (GTL). The Syntroleum Process is a simplification of traditional GTL technologies aimed at substantially reducing both the capital cost and the minimum economical size of a GTL plant, as well as plant operating costs. They have license agreements with ARCO (now part of BP), Enron, Kerr-Mcgee, Marathon, Texaco, and several other companies. Another example of the high price of Oil driving investors towards the alternate fuel stocks as they speculate on the next Cinderella story. How long will this current wave of Euphoria last? Who knows?!? We simply favor the current technical strength and a conservative entry point. OCT 17.50 QSH JW LB=4.38 OI=62 CB=16.37 DE=35 MR=6.0% ***** WPZ - WorldPages.com $5.19 *** Cheap Speculation! *** WorldPages is a leading Internet infrastructure services and Yellow Pages directory company, providing online and print directory advertising and electronic commerce solutions to small- and medium-sized businesses. WorldPages facilitates transactions between consumers and businesses worldwide through Internet and print directory advertising, Web site production and e-commerce. They are the fourth largest independent print Yellow Pages publisher in the US, publishing approximately 7 million directories in 42 markets. The recent rally started after WorldPages announced that AltaVista has selected them to be the exclusive content provider for co-branded online People Search directories on the AltaVista Network. Earlier this year, AltaVista selected WorldPages as its exclusive content provider for co-branded online Yellow Pages. WorldPages, through an agreement with Network Solutions, also announced plans to offer domain names to its customers. Investors appear to be pleased with these recent bullish developments. Cheap speculation for the investor who believes WorldPages is turning the corner. OCT 5.00 WPZ JA LB=0.94 OI=470 CB=4.25 DE=35 MR=15.3% ************************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.sungrp.com/tracking.asp?campaignid=483 ************************************************************** ************************* NAKED PUT PERCENTAGE LIST ************************* Naked Put Percentage List By Matt Russ Stock Stock Strike Option Option Margin Percent Support Symbol Price Price Symbol Price At 25% Return Level ABGX 79.63 75 AXY-VO 5.88 1991 30% 75 ADBE 132.63 125 AXX-VE 7.38 3316 22% 125 ATON 131.94 120 UAO-VD 5.00 3299 15% 120 BRCM 232.06 220 RDU-VD 12.63 5802 22% 220 CDWC 83.50 75 DWQ-VO 3.88 2088 19% 75 CFLO 122.38 115 FUJ-VC 7.38 3060 24% 115 CHKP 151.19 145 KGE-VI 10.00 3780 26% 145 CIEN 215.00 200 UEE-VT 11.50 5375 21% 200 CPN 99.63 95 CPN-VS 4.38 2491 18% 95 DNA 162.00 155 DNA-VK 7.75 4050 19% 155 GLW 297.00 280 GWD-VP 13.00 7425 18% 280 GSPN 115.25 110 GHY-VB 10.13 2881 35% 110 IMCL 109.06 100 QCI-VT 5.50 2727 20% 100 ITWO 172.19 165 QYI-VM 12.00 4305 28% 165 JNIC 81.00 75 JOQ-VO 6.25 2025 31% 75 JNPR 201.69 190 JUD-VR 11.88 5042 24% 190 MUSE 170.88 160 UZQ-VL 12.38 4272 29% 150 NT 72.94 65 NTV-VM 2.44 1824 13% 65 NTAP 118.00 110 ULM-VB 7.13 2950 24% 110 PDLI 111.69 95 RPV-VS 7.88 2792 28% 95 PMCS 202.69 200 SZI-VT 16.25 5067 32% 200 QCOM 66.25 60 AAO-VL 2.50 1656 15% 60 SDLI 328.19 300 QJV-VT 16.00 8205 20% 300 SEBL 98.75 90 EZG-VR 4.63 2469 19% 95 VRSN 180.63 170 QVZ-VN 9.38 4516 21% 170 *********************** CONSERVATIVE NAKED PUTS *********************** System Trading: Rules are NOT made to be broken... By Ray Cummins Developing a reliable and effective trading system is the first step in becoming successful in the stock market. Managing a winning portfolio requires planning, patience and good judgment. In addition, you must use proven trading techniques and consistent methods for realizing profits and limiting losses. The first step in constructing a profitable system is to identify the proper risk/reward perspective and select a favorable trading strategy. Next, you must develop a technique for managing the position that fits your experience level and portfolio outlook. There are a number of factors necessary for a successful trading plan but the most important components are: planning the trade, entering the position, and establishing the exit points. Each of these phases should be created (and modified) to fit the needs of a particular situation, and they must all be present in order to achieve consistent results. A successful system is one that will identify the most appropriate time to enter the market, when the potential for profit is favorable, and exploit winning trades for maximum return while at the same time, limiting losses in those positions that don't progress as expected. Learning when to enter and exit specific issues requires a solid understanding of technical analysis and market trends. The setup for a specific trade should indicate that market conditions have become favorable for entering a new position. It should also help determine what actions to consider, based on the character of the selected issue or instrument: trending or consolidating, stagnant or volatile. The appropriate trading strategy will profit from a correct forecast of the issue's future price action thus, it is crucial to initiate new positions only in those situations where the probability of success is highest. A precise, detailed plan for identifying these conditions will save money, time, and most importantly, it will prevent you from participating in the market when circumstances are less than ideal. The target entry point is based on criteria identified in the planning stages of a potential trade. It is usually determined through a combination of technical analysis and an assessment of current market trends. The profit/loss targets (exit points) are also based on criteria established in pre-trade objectives and in many cases, they are determined prior to initiating the position. Defining the correct exit points is generally the most important part of preparing to execute a profitable trade but new investors rarely devote much effort to completing this task. Most rely on spontaneous profit targets and the casual placement of trailing stops. For those of you who are unfamiliar with this technique, a trailing stop (sell order) is placed a fixed distance below the current price of a (long) stock or option position. As the issue moves higher, the trailing stop is raised, locking in potential profits. This type of (sell) order closes out the position when the price of the issue falls to the level of the stop. There is an alternative to exiting positions with a trailing stop. Some traders use a profit target, exiting the trade when the issue's price reaches a specified objective. A favorite combination involves selling half of the position at a specified target and when that order is executed, using a conservative trailing stop to maximize profits in the remaining portion of the position. There is of course, the need to follow the rules once they have been established. It doesn't matter how well your system works if you can't follow the rules with perfect discipline on a daily basis. Most traders do not like to take losses, even small ones but the fact is, every investor, professional or novice will, at one time or another, participate in positions that turn out to be losers. It is very important to realize that anyone who trades, in any type of financial market, will end up with a percentage of losing positions. The difference between successful traders and those who eventually fail, is how they react to unfavorable plays and the manner in which they manage losses. For most of us, (and I am included) that aspect of trading is usually learned the hard way... 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 25.50 SEP 20.00 0.63 *$ 0.63 23.1% CYTO 9.03 7.50 SEP 7.50 0.31 $ 0.31 18.8% GSTRF 7.63 11.50 SEP 5.00 0.31 *$ 0.31 14.6% MSTR 31.38 29.31 SEP 25.00 0.38 *$ 0.38 14.5% CTIC 39.25 42.19 SEP 30.00 1.38 *$ 1.38 13.0% ADVP 27.38 30.88 SEP 25.00 0.44 *$ 0.44 12.4% IMAX 28.06 25.00 SEP 22.50 0.94 *$ 0.94 12.4% FNSR 29.00 41.94 SEP 22.50 0.94 *$ 0.94 12.1% ICIX 20.88 28.88 SEP 15.00 0.38 *$ 0.38 12.1% JDEC 21.88 26.50 SEP 17.50 0.69 *$ 0.69 11.8% LPTH 41.13 44.81 SEP 30.00 1.00 *$ 1.00 11.8% MSTR 26.88 29.31 SEP 20.00 0.44 *$ 0.44 11.0% FNSR 37.50 41.94 SEP 30.00 0.81 *$ 0.81 10.6% RHAT 23.44 21.19 SEP 17.50 0.50 *$ 0.50 10.5% GZTC 38.00 31.69 SEP 30.00 0.81 *$ 0.81 10.5% SIPX 37.50 49.66 SEP 30.00 0.75 *$ 0.75 9.9% DCLK 41.81 38.00 SEP 35.00 0.69 *$ 0.69 9.4% PL 28.19 30.38 SEP 25.00 0.50 *$ 0.50 8.4% SIMG 32.06 32.00 SEP 25.00 0.38 *$ 0.38 8.1% CLTR 26.56 36.75 SEP 22.50 0.38 *$ 0.38 7.9% TLXN 19.88 17.31 SEP 15.00 0.44 *$ 0.44 7.2% CRUS 27.44 32.88 SEP 22.50 0.50 *$ 0.50 6.6% CS 34.75 33.00 SEP 27.50 0.44 *$ 0.44 6.5% REGN 33.13 36.00 SEP 25.00 0.38 *$ 0.38 5.9% NDC 30.06 29.94 SEP 22.50 0.38 *$ 0.38 5.2% VNTR 17.00 14.38 SEP 15.00 0.38 $ -0.24 0.0% TIVO 26.88 20.50 SEP 22.50 0.56 $ -1.44 0.0% PLNR 19.75 18.44 OCT 15.00 0.69 *$ 0.69 10.8% ALLP 16.50 17.00 OCT 12.50 0.50 *$ 0.50 8.5% WAVX 24.06 20.38 OCT 17.50 0.63 *$ 0.63 8.4% CMNT 21.00 20.75 OCT 17.50 0.56 *$ 0.56 7.4% GOTO 22.75 18.69 OCT 17.50 0.50 *$ 0.50 7.2% DRXR 19.06 19.69 OCT 15.00 0.38 *$ 0.38 6.6% STAT 20.00 20.25 OCT 15.00 0.44 *$ 0.44 6.4% SCUR 26.25 26.25 OCT 17.50 0.50 *$ 0.50 6.3% VITR 48.94 49.25 OCT 30.00 1.00 *$ 1.00 6.0% *$ = Stock price is above the sold striking price. Comments: The question, if you now own Cytogen (CYTO), is will it bounce off its 150 dma and offer a rally to exit? Not an easy decision! The October 20 call for Tivo (TIVO) offers a new cost basis near $19.32 - not much protection. Ventro (VNTR) is testing support and there is a reasonable October 12.50 call which will provide a new cost basis near $11.38. Time to evaluate your long term outlook for the stock, the sector, and the market. Positions Closed: None 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 AND 8.88 OCT 7.50 AND VU 0.31 10 7.19 35 10.9% CDN 27.13 OCT 25.00 CDN VE 0.81 38 24.19 35 7.4% CLTR 36.75 OCT 30.00 QCE VF 1.13 469 28.88 35 10.8% NIKU 24.88 OCT 17.50 NFU VW 0.38 10 17.12 35 6.2% NITE 37.00 OCT 30.00 QTN VF 0.88 12361 29.13 35 8.8% WGR 26.25 OCT 22.50 WGR VX 0.56 85 21.94 35 6.7% XRX 17.75 OCT 15.00 XRX VC 0.31 2816 14.69 35 5.8% Sequenced by Return ****** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return AND 8.88 OCT 7.50 AND VU 0.31 10 7.19 35 10.9% CLTR 36.75 OCT 30.00 QCE VF 1.13 469 28.88 35 10.8% NITE 37.00 OCT 30.00 QTN VF 0.88 12361 29.13 35 8.8% CDN 27.13 OCT 25.00 CDN VE 0.81 38 24.19 35 7.4% WGR 26.25 OCT 22.50 WGR VX 0.56 85 21.94 35 6.7% NIKU 24.88 OCT 17.50 NFU VW 0.38 10 17.12 35 6.2% XRX 17.75 OCT 15.00 XRX VC 0.31 2816 14.69 35 5.8% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** AND - Andrea Electronics $8.88 *** Own This One! *** Andrea Electronics develops audio input equipment and speech enhancement software for speech-enabled communications. Their line of embeddable and scalable microphone software, utilizing state-of-the-art audio techniques through DSP and USB processing, allows users to operate applications such as such as desktop speech recognition, in-vehicle communications, voice-enabled web browsing and Internet telephony, while at a distance from the microphone. Their PureAudio and EchoStop products help to eliminate background noise while enhancing the user's voice signal. Andrea has worked to develop active noise reduction technologies that benefit and enhance the audio quality for both commercial and consumer applications, such as aircraft in-flight headsets, portable audio devices and mobile communication devices. In late August, the company was rewarded with a major patent for their Active Noise Reduction technology. Andrea has been issued a new patent with broader claims than preceding endorsements, further validating the significance of the company's existing property covering its ANR-Ready system and calibration methods. Investors appear to favor the outlook for the company and with the bullish technical indications, this issue may be ready for further upside activity. OCT 7.50 AND VU LB=0.31 OI=10 CB=7.19 DE=35 MR=10.9% ***** CDN - Cadence Design $27.13 *** Entry Point! *** Cadence provides comprehensive software and other technology and offers design and methodology services for the product development requirements of the world's leading electronics companies. CDN licenses its leading-edge electronic design automation software and hardware technology and provides a range of services to help its customers optimize their product development processes. The Company is a supplier of end-to-end products and services used by others to design and develop complex chips and electronic systems. Cadence is on the move and analysts have jumped on the bandwagon, boosting the share value last week with bullish recommendations. On Wednesday, Cadence was reiterated a "buy" by Garo Toomajanian at Dain Rauscher Wessels with a price target of $29. Friday, the outlook was bolstered as Cadence was raised to the "recommended" list by analyst Jessica Kourakos at Goldman Sachs. Based on the technical indications, the issue is slightly overextended and we expect to lower the cost basis (higher premium) in this position as the stock consolidates from its recent rally. OCT 25.00 CDN VE LB=0.81 OI=38 CB=24.19 DE=35 MR=7.4% ***** CLTR - Coulter Pharmaceutical $36.75 *** Drug Sector *** Coulter Pharmaceutical is engaged in the development of novel drugs and therapies for the treatment of cancer and autoimmune diseases. The company currently is developing a family of therapeutics based upon two drug development programs: therapeutic antibodies and targeted oncologics. The company's most advanced product candidate is Bexxar(TM), a monoclonal antibody conjugated to a radioisotope. The company's therapeutic antibodies program also includes an interferon receptor antagonist. Initial efforts in the targeted oncologics program are based on tumor activated prodrug and tumor-specific targeting technologies. Coulter intends to seek expedited Biologics License Application ("BLA") review and marketing approval for Bexxar while simultaneously pursuing clinical trials to expand the potential use of Bexxar to other indications. CLTR and SmithKline Beecham announced recently the start of Phase II multicenter investigational trial of Bexxar in combination with CHOP chemotherapy as a first-line treatment of patients with intermediate- grade non-Hodgkin's lymphoma. The U.S. Patent office also issued another patent relating to CD20 antibody therapy for the treatment of lymphoma. With the recent bullish activity, this position offers a relatively conservative entry point in a volatile issue. OCT 30.00 QCE VF LB=1.13 OI=469 CB=28.88 DE=35 MR=10.8% ***** NIKU - Niku Corporation $24.88 *** Bracing For A Rally? *** Niku Corp. provides Internet software products and an online marketplace for the sourcing, management and delivery of professional services. These services include consulting, financial services, medicine, law, advertising and other industries in which intellectual capital is an important element. Their Internet software products are designed to automate the business processes of professional services organizations, small businesses and individual professionals. The broad professional services industry, estimated at more than $2 trillion, includes such verticals as information technology, management consulting, advertising, media, public relations, architecture, construction, engineering, financial services, law, tax, audit, and health care. Niku is targeting the unique area of collaborative and customer-facing applications and the company has seen its operations thrive as that customer base looks for tools to optimize resources and reduce costs. We believe the outlook for the company is excellent and now that the issue has built a technical base, the risk of a large downside movement is worth the potential reward in this position. OCT 17.50 NFU VW LB=0.38 OI=10 CB=17.12 DE=35 MR=6.2% ***** NITE - Knight Trading Group $37.00 *** Merger Speculation! *** Knight Trading Group is one of the leading market maker in Nasdaq securities and in the Third Market, which is the over-the-counter market in exchange-listed equity securities, primarily those on the New York Stock Exchange and the American Stock Exchange. The company has attained its leadership position as a market maker by providing best execution services to brokers and institutional customers through its proprietary trading methodology and systems. The company makes markets in thousands of equity securities on the Nasdaq and through Trimark, it makes markets in all NYSE and AMEX securities in the Third Market. Knight has received expressions of interest from several potential buyers, including the Salomon Smith Barney unit of Citigroup (C) and Morgan Stanley Dean Witter (MWD), but a formal offer isn't on the table yet. Speculators say the top suitors are willing to pay $45 to $55 per share for the company, or about $5.7 billion to $7 billion. Use this play to speculate conservatively on the outcome of the merger rumors. OCT 30.00 QTN VF LB=0.88 OI=12361 CB=29.13 DE=35 MR=8.8% ***** WGR - Western Gas Resources $26.25 *** Oil Sector *** Western Gas gathers, processes, treats, develops and produces, transports, and markets natural gas and natural gas liquids. WGR operates in major gas-producing basins in the US. They design, construct, own, and operate natural gas gathering systems and processing and treating facilities in order to provide customers with a broad range of services from the wellhead to delivery point. Dain Rauscher Wessels analysts are expecting optimistic comments at the firm's energy conference next week as high commodity prices are turning oil and gas companies into cash cows. Analysts say that business has never been better, that pricing of oil is moving up faster than in previous cycles, and the outlook is going to be very strong. Companies will be talking about the strength in oil prices, although that's likely to take a back seat to natural gas and Western stands to benefit from the positive outlook for the industry. We simply favor the recent bullish technicals. OCT 22.50 WGR VX LB=0.56 OI=85 CB=21.94 DE=35 MR=6.7% ***** XRX - Xerox $17.75 *** More Merger Speculation! *** Xerox is a leader in the global document market, providing document solutions that enhance business productivity. The Company's Document Processing activities encompass developing, manufacturing, marketing, servicing and financing a complete range of document processing products and solutions designed increase organizational efficiency for businesses worldwide. Shares of Xerox jumped on Friday after a BusinessWeek story pegged the colossal copy-machine seller as a takeover target. Given Xerox's stock weakness, the company has been considered vulnerable to a takeover and it has been said that Japan's Canon wouldn't mind getting its hands on technology developed by the joint venture between Xerox and Fuji Film. Another article cited one industry expert as saying talks have brought no conclusive results but Investor group Silverlake could also be in the mix. Speculators say Xerox could get $30-$35 per share, or the company could split itself up and sell its assets. Based on the volume during the rally, the issue has further upside potential. Target a slightly higher premium to open the position. OCT 15.00 XRX VC LB=0.31 OI=2816 CB=14.69 DE=35 MR=5.8% ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.sungrp.com/tracking.asp?campaignid=468 ************************************************************ ************************ SPREADS/STRADDLES/COMBOS ************************ Industrial Stocks Fall Amid Profits Warnings... The Dow average closed below a key technical level on concerns over sagging earnings and soaring oil prices. ****************************************************************** - MARKET RECAP - ****************************************************************** Friday, September 15 The Dow average closed below a key technical level on concerns over sagging earnings and soaring oil prices. The blue-chip standard ended down 160 points at 10,927. Meanwhile, the Nasdaq Composite fell 78 points to 3,835 amid weakness in software and semiconductor stocks. The S&P 500 Index was down 15 points at 1,465. Trading volume on the NYSE reached 1.23 billion shares, with declines beating advances 1,746 to 1,094. Activity on the Nasdaq was heavy at 1.76 billion shares exchanged, with declines beating advances 2,514 to 1,449. The 30-year bond was down over a point, bid at 104 28/32, yielding 5.89%. Friday's new plays (positions/opening prices/strategy): HNC Software HNCS OCT40P/OCT45P $0.50 credit bull-put Manugistics MANU OCT60P/OCT65P $0.50 credit bull-put Research IM RIMM OCT60P/OCT65P $0.88 credit bull-put Our new issues performed relatively well considering the decline in technology stocks. Unfortunately, the bullish activity also limited the initial premiums in two of the positions, HNCS and RIMM. Manugistics slumped during the session and the spread credit was within $0.06 of the target. Portfolio Plays: The stock market dropped precipitously today on concerns over corporate earnings, surging energy costs and rising bond yields. Investors have begun to worry that the leading companies will be unable to maintain the profits and revenue growth they've become accustomed to over the past quarters. On the Dow, J.P. Morgan (JPM), Hewlett-Packard (HWP), and General Motors (GM) topped the losers as a slew of profit warnings weighed heavily on industrial issues. Briggs & Stratton (BGG), Pentair (PNR), and Maytag (MYG) were among the companies warning of a revenue or profit shortfall. The broad weakness in industrial issues was affected by declines in technology components International Business Machines (IBM) and Microsoft (MSFT), and that spilled over to Nasdaq stocks. On the composite index, application software companies slumped in sympathy with Oracle (ORCL), which fell $7 to $78.31 as analysts expressed disappointment with the firm's first-quarter revenues. There were a few sectors that performed well amidst the selling pressure. Exxon-Mobil (XOM) led oil service issues higher amid rising energy prices. Crude oil jumped to 10-year highs on talk that a storm in the Gulf of Mexico could hamper oil production. Consumer products stocks, which fell lower yesterday, also gained ground and utility and alternate energy stocks rallied as well. It was a wild session for the Spreads/Combos portfolio and the "triple-witching" expiration of options on stocks and indexes simply added to the excitement. Stock prices tumbled across the board and there was little positive activity in any particular group. Fortunately, almost all of our large-cap technology positions were deep-in-the-money and nothing short of a market collapse would have prevented a favorable "expiration day." In the Credit Spread section, 14 of 15 positions ended profitably and all of the October plays are performing well. The expiring debit spreads finished 100% successful and Regeneron (REGN) was the standout in that group, climbing $5 to $36 in the last hour of trading on speculation that a significant news announcement is imminent. Whatever the reason, investors were elated and the position was one of our top percentage plays for the month of September. The Straddles and Strangles category was also a portfolio standout with all of the positions expiring profitably. Diagonal spreads closed this month included plays on Ryder (R), Mail.com (MAIL), and Countrywide Credit (CCR), all of which ended with positive returns. The Calendar spread section had only two expiring positions and the top performer was Landry's (LNY), which finished within $0.25 of the sold strike for the third consecutive month. Polaroid (PRD) was the loser in that category, as we closed the position 30 days early for a small ($0.25) loss. We have two new sections in the Spreads/Combos portfolio; Synthetic Positions and Debit Spread Combinations. The top performing issues in those categories were Ameritrade (AMTD), Echostar Comm. (DISH), and Red Hat (RHAT), all of which achieved favorable "early exit" returns during the first week of September. In addition, Transkaryotics (TKTX) performed just as expected, although we were unable to enter the position at the target credit, and Voicestream (VSTR), a carry-over from last month ended above our sold (put) strike, closing the extended play at a small profit. On the downside, there was some bad news in the portfolio today. Appliance-maker Maytag (MYG) dropped another $2 after warning its earnings could be down 8% to 10% in the third and fourth quarters because of significant sales disruptions for retail home appliances. Circuit City (CC) and Heilig Meyers (HMY) are the primary culprits. Circuit City stopped selling appliances and Heilig-Meyers announced recently it would close more than 300 of its 800 stores. That's terrible news for the struggling Maytag and although merger speculation has supported the issue in past weeks, the buyers were nowhere to be found in today's session. Our bullish synthetic position can be closed for a loss or a combination of offsetting spread positions (sell OTM call - buy ITM put) can be initiated to stem the shortfall until the stock recovers. I won't venture to say which way the issue is going in the near future but from a technical perspective, there is little chance the stock will move above $40 without a significant change in character. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** STJ - St. Jude Medical $46.59 *** New, All-Time High! *** St. Jude Medical, together with its subsidiaries, is a global developer, manufacturer, and distributor of medical devices for the cardiac rhythm management, cardiology and vascular access, and heart valve disease management markets. St. Jude has two business segments: Cardiac Rhythm Management (CRM); and Heart Valve Disease Management (HVDM). The CRM segment, which includes the results from the company's Cardiac Rhythm Management Division and Daig Division, develops and manufactures bradycardia pulse generator and tachycardia implantable cardioverter defibrillators (ICD) systems, electrophysiology and interventional cardiology catheters, and vascular closure devices. The HVDM segment develops, manufactures and distributes mechanical and tissue heart valves and valve repair products, and is in the process of developing suture-free devices to facilitate coronary artery bypass graft anastomoses. The Medical Devices sector has performed very well in the last few months and we have decided to continue our search for unique companies that will benefit from the growth of the industry. St Jude is one of the leading developers in the field of heart disease and cardiology and in late August, they received approval to begin a new study of treatment for chronic atrial fibrillation, an abnormal heart rhythm. Atrial fibrillation is the most common significant cardiac arrhythmia, affecting over 2 million people in the U.S. and the study is designed to evaluate treatments for patients who receive an "ablate and pace" procedure. This is the type of research that will keep the company in the forefront of its industry and we that's we why favor the fundamental outlook for its products. Based on the recent bullish activity in the stock, investors are confident about the future of the company. We also have a positive outlook for the stock but there will likely be a period of consolidation as the issue transitions to a new trading range. We offer this play for experienced traders only, who are aware of the potential adjustments necessary in a calendar spread on a relatively volatile issue. PLAY (aggressive - bullish/calendar spread): BUY CALL JAN-50 STJ-AJ OI=311 A=$3.00 SELL CALL OCT-50 STJ-JJ OI=188 B=$1.19 INITIAL NET DEBIT TARGET=$1.62-$1.68 TARGET ROI=50% ****************************************************************** ABT - Abbott Labs $48.00 *** A Big Day! *** Abbott Laboratories is engaged in the discovery, development, manufacture and sale of healthcare products and services. Its products are generally sold directly to retailers, wholesalers, hospitals, healthcare facilities, laboratories, physicians' offices and government agencies throughout the world. The company has five reporting revenue segments: Pharmaceutical Products, Diagnostic Products, Hospital Products, Ross Products and International. It also has a 50% owned joint venture, TAP Holdings. Patients with the AIDS virus are about to get a new option that may help those who have failed standard therapy: a drug called Kaletra. Kaletra is a combination of a new chemical called lopinavir plus a small dose of Abbott's older AIDS drug Norvir. The company mixed the two products to form a chemical than can get to higher levels in the body than other protease inhibitors without causing more side effects than a standard dose would. On Friday, the FDA approved Kaletra for use by both adults as well as HIV-infected infants and children. Abbott officials said the prescription-only medicine should be on pharmacy shelves in the near future and that's the reason for the recent speculation in the issue. Quite simply, new drugs equal more revenues! 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 (aggressive - bullish/credit spread): BUY PUT OCT-40.00 ABT-VH OI=164 A=$0.56 SELL PUT OCT-42.50 ABT-VV OI=145 B=$1.19 INITIAL NET CREDIT TARGET=$0.75 ROI(max)=42% ****************************************************************** - STRADDLES AND STRANGLES - ****************************************************************** BEN - Franklin Resources $41.91 *** Which Way Now? *** Franklin Resources provides investment advisory and related services to retail mutual funds, institutional and private accounts, and other investment products globally. Related services include transfer agency, fund administration, custodial, trustee and fiduciary services. This is its primary business activity and operating segment. The mutual funds and other products that the company advises, collectively called its sponsored investment products, are sold to the public under three brand names, Franklin, Templeton and Mutual Series. Its secondary business activity and operating segment is banking and finance. Its banking and finance group offers consumer lending and selected retail-banking services directly to the public. One way investors can attempt to profit from periods of low Implied Volatility in the market is to buy option "premium" on the expectation that the underlying stock might move up or down substantially in the near future. In a debit-strangle, a trader buys an "out-of-the-money" call and an "out-of-the-money" put with the same expiration date. The strangle is initiated with the hopes of a significant move in the underlying issue, where either position, the put or call, rises in value enough to offset the premium originally paid for both options. This position meets our criteria for favorable debit-strangles; cheap option premiums, a history of adequate price movement and future events or activities that may generate volatility in the issue or its industry. This selection process provides the best combination of low risk and potentially high reward. As with any position, it should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. PLAY (aggressive - neutral/debit strangle): BUY CALL JAN-45 BEN-AI OI=81 A=$2.19 BUY PUT JAN-40 BEN-MH OI=16 A=$2.19 MAXIMUM INITIAL NET DEBIT=$4.25 TARGET ROI=25% ****************************************************************** CLPA - Cell Pathways $28.38 *** Drug Speculation! *** Cell Pathways Holdings is a pharmaceutical company focused on the research, development and commercialization of products to prevent cancer and to treat cancer. The company's technology is based upon its discovery of a novel mechanism that it believes, based on its research, can be targeted to induce selective apoptosis, or programmed cell death, in precancerous and cancerous cells without affecting normal cells. CPI has created a new class of selective apoptotic anti-neoplastic drugs (SAANDs) and has synthesized over 500 new chemical compounds in this new class. In screening assays, over 200 of these new compounds display significantly greater apoptotic potency than CPI's lead drug candidate, Aptosyn (exisulind). 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 new developments and mergers in the industry, speculators are sure to keep the premiums high in the OTM options. The theoretical probability of profit from this position is higher (80%-90%) than other plays in the same strategy based on historical 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. Due diligence is mandatory in this position! PLAY (aggressive - neutral/credit strangle): SELL CALL OCT-60.00 QJC-JL OI=343 B=$1.00 SELL PUT OCT-17.50 QJC-VW OI=417 B=$1.19 INITIAL NET CREDIT TARGET=$2.25-$2.38 ROI=28% UPSIDE B/E=$62.25 DOWNSIDE B/E=$15.25 ****************************************************************** GMST - Gemstar - TV Guide $76.31 *** An Old Favorite! *** Gemstar-TV Guide International, formerly Gemstar International Group, develops, markets and licenses proprietary technologies and systems that simplify and enhance consumers' interaction with electronics products and other platforms that deliver video, programming information and other data. The company's first proprietary system, VCR Plus+, introduced in 1990, is currently incorporated into virtually every major brand of VCR sold worldwide. The company has also developed and acquired a large portfolio of technologies and intellectual property necessary to implement interactive program guides (Gemstar Guide Technology), which enable consumers to navigate through, sort, select and record television programming. 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 $90, we will buy the stock to cover our sold options. PLAY (aggressive - neutral/credit strangle): SELL CALL OCT-95 GST-JS OI=285 B=$2.50 SELL PUT OCT-55 GST-VK OI=149 B=$1.19 INITIAL NET CREDIT TARGET=$3.75-$4.00 ROI=20% UPSIDE B/E=$98.75 DOWNSIDE B/E=$51.25 ****************************************************************** ************************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.sungrp.com/tracking.asp?campaignid=475 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.
Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.
To ensure you continue to receive email from Option Investor please add "email@example.com"
Option Investor Inc