The Option Investor Newsletter Sunday 09-24-2000 Copyright 2000, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/092400_1.asp Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 9-22 WE 9-15 WE 9-8 WE 9-1 DOW 10847.37 - 79.63 10927.00 -293.65 11220.65 - 18.13 + 46.15 NASDAQ 3803.76 - 31.47 3835.23 -143.18 3978.41 -255.92 +191.65 S&P-100 774.08 - 15.69 789.77 - 23.13 812.90 - 16.93 + 6.28 S&P-500 1448.72 - 17.09 1465.81 - 28.69 1494.50 - 26.27 + 14.31 W5000 13678.20 -135.50 13813.70 -236.50 14050.20 -279.70 +238.70 RUT 518.82 - 12.06 530.88 - 4.82 535.70 - 6.21 + 16.80 TRAN 2597.14 - 74.32 2671.46 - 61.32 2732.78 + 19.86 - 77.25 VIX 24.17 + 2.24 21.93 + 1.24 20.69 + 1.24 + .35 Put/Call .56 .65 .52 .53 ****************************************************************** Wow! Can We Repeat Friday At Least Once A Week? By Jim Brown Just another Fall Friday? Not hardly! Futures lock limit down, media pundits calling for an end to civilization as we know it and bulls huddling together for protection from the bears. This was BEFORE the open. After the opening minutes, with record volume delaying the opening of hundreds of stocks, the market reverberated with shock waves of capitulation selling. When the smoke cleared and floor traders and market makers came out from hiding they were greeted by buyers. Waves of buyers. Bargain hunters galore. The NASDAQ hit -214 at the open but never looked back. The second dip came at 10:00 as the index bounced off 3700 but just minutes later the day traders phoned home for more money to take advantage of the bargains and the NASDAQ rallied over 3700 and held. Considering the Dow was not having the same rebound as the NASDAQ this was good news. It was not until almost noon that the Dow shook off the -13 point Intel driven slump and charged ahead. Once the Dow took off the NASDAQ buyers opened the gates and the stampede began. The rebound off 3700 was strong and caught all the market naysayers off guard. Even noted bear Barton Biggs was amazed at the strength of the rebound in the face of Intel's news. So what happened to "black Friday?" There were several factors and all combined together to bring traders off the sidelines and back into the fray. First, a surprise G7 central bank intervention to bolster the falling Euro. Do you think Greenspan called in a favor to head off a market disaster? Would not surprise me at all. In a move aimed at halting a brewing global recession, most of the G7, participated in the intervention. While experts are split on the effectiveness of this type of move the markets took this as a sign that things would be better soon. Dow consumer multinationals like MCD, KO, BA, PG and JNJ rallied on the news. Financials firmed and C, JPM and GE helped power the Dow to positive ground. Second, almost every major tech company came out with affirmation of profit targets on track. HWP, TXN, EMC, DELL, CPQ all said they were on track in Europe and sales were fine. HWP said they were on track to hit their +15% growth estimates and announced a $1 billion stock buy back. Bullish buy backs in times of trouble never hurt and have been known to reverse bear markets. IBM has done it in the face of certain market crashes and helped stabilize the moment. HWP soared +9.19 from the after hours low of $94 for +45 Dow points. National Semi. (NSM) also announced an 8 million share buyback. Compaq said their worldwide momentum was continuing and Europe was on track. This circling of the wagons by the major tech stocks led analysts and investors alike to believe that the problem was with Intel and not the PC market. Third, President Clinton decided to release 30 million barrels of oil from the U.S. strategic stockpile. Is this an election year? For whatever the reason the announcement knocked over -$1.40 off the price of oil and added fuel to the rally. Higher oil was depressing economies worldwide with over 1300 bankruptcies of trucking firms in the U.S. and over 35,000 owner operators have turned in their keys. The situation was becoming grim with $50 oil now being mentioned. 30 million barrels of the 570 million in the stockpile is only a drop in the bucket considering the 600 million the U.S. consumes each month but to investors but it must be the thought that counts. Intervention in the Euro, intervention in oil prices and a joint declaration of solidarity by the major tech stocks all led investors to jump back into the market. There is a possible fall rally in the future and everyone thought this would be a good entry point. Intel captured a first place record today. No, not the biggest one day drop ever but the most shares traded on one day. Over 308 million shares were traded and the -13 drop removed over -$88 billion in market cap. The top three largest companies are now GE, CSCO, MSFT with Intel falling into fourth place. The previous daily volume record holders were JDSU 200 million, Comparator 180 million and ORCL 171 million. Intel has moved so far into the lead that they are not likely to lose the top spot anytime soon. The problems for Intel are only just beginning. Credibility with analysts has taken a serious setback. Just two weeks ago when Ashok Kumar announced his downgrade Intel went on record with analysts that the third quarter was on track. It is unthinkable that they did not know at that time that trouble was brewing. Just like it is not nice to fool Mother Nature it is very fool hardy to lie to analysts. If they will misrepresent the facts to investors about something so simple as increased expenses and weak European sales then what other more serious problems might they have that no one has tripped over yet. Some possibles would include design flaws in P4, memory interface problems or exaggerated performance claims of the new products not yet delivered. Once you open the Pandora's box of questions some will not return unanswered and those answers could cause even more problems for Intel investors. The PE for Intel dropped a whopping 11 points (-20%) on Friday from 53 to 42 and if any other problems come to light it could drop even further. Analysts were speculating privately that the drop in the NASDAQ over the last two weeks was what prompted Intel to warn. Recently they have been pumping up their earnings by selling stock they own in other companies. With the NASDAQ off -500 points from the September highs they may have elected to hold off on those sales until better times or they were not able to generate as much profit from those sales as in the past. We will not know the answer until Intel posts earnings in October. The rush of analysts to the spotlight to brag on the market rebound is almost scary. When even Barton Biggs speaks glowing words about the NASDAQ and the coming rally it is enough to make you sell short. Barton Biggs bullish has got to be a contrarian indicator. Al Goldman at AG Edwards put it in pure English. "The correction is over, investors will spend the weekend deciding where they want to put their money and next week should be the start of the Fall rally." Pretty far out on the limb there Al! Actually he is in good company. About the only market spokesman I did not hear Friday was Ralph Acompora. The fix is in if you believe stocks follow money. AMG Data said today that the week ended Sept 20th had the largest inflow of cash into growth funds in the last 14 weeks. Over $7.6 billion in new cash was deposited and over $16 billion was moved from money market funds into equity funds. This $20+ billion moving into stock funds through Wednesday should have been put to work Friday. The rebound was incredible and the very short time we spent at the 3614 bottom Friday should be seen as a preview of things to come. With the very successful retest of the August 3rd lows under very negative conditions today it is hard to imagine a sell off any time soon. The Dow, which could have really fallen with the tech leaders INTC, MSFT, HWP, CPQ all losing multiple dollars, did not even get close to the 10567 low from Wednesday. The low from Friday of 10621 is not likely to be seen again soon. The volume on both indexes was huge with the NASDAQ posting 2.1 billion shares and the NYSE almost 1.2 billion. Strong recoveries on strong volume are always a welcome sign. Given that most traders will see Friday as a bottom and mutual funds putting all their cash to work before the end of the quarter next Friday we could have a pretty good week. The key word here is "could." The knee jerk rebounds like we saw Friday catch the shorts by surprise and everybody runs for cover. You have to imagine that anyone short at the open on Friday was celebrating all night Thursday night and when the market started rebounding from the opening bell they ran to place their orders to cover. This only accelerated the rebound causing an age old short squeeze. Just look at some of the huge gains. GLW +27, BRCD +20, HGSI +20, EXTR +19, ARBA +16, JNPR +15. JNPR was rolling over on Thursday and ARBA has flat lined for two weeks. There was no positive trend and no indication of pending $20 moves. Companies that could have benefited from all the positive earnings press like SUNW only gained +1.56. Other NASDAQ big caps which should have joined the party but didn't included CSCO -.81, Dell -2, MSFT -.94. If the rally was so strong why didn't CSCO bounce off its support at $60 for a huge run? I am betting on a short squeeze as the primary mover. Whatever the reason we will take a trading day like Friday every week. Just let us know a day in advance please! We do not care what lit the fire under this rocket we only care about how far it will fly. The positive impact of the cash moving into position for an expected October rally and the quarter end window dressing by the mutual funds should help us maintain positive momentum next week. With no major economic reports next week other than the GDP traders will have one eye focused on the rear view mirror at the 3600 retest and the other on the road ahead looking out for the next earnings warning. The readers poll yesterday picked IBM almost 2:1 as the next warning target. IBM has huge exposure to Europe and they have been struggling with earnings for some time. They have been aggressively buying back stock to increase their EPS and many analysts fear they will miss estimates. We don't know if IBM will be the next one to confess but you can be sure there are more to come. I wonder who had planned to warn on Friday afternoon but held off because of the market reaction to Intel? We will know next week. If the GDP report confirms the slowing economy then the Fed should be done for the rest of the year and traders would have just one more reason to celebrate. The NASDAQ recovered +189 of the -214 point drop at the open and the Dow rebounded +229 points off its lows. Triple digit rebounds on both major indexes, does that bring back memories of last year? The VIX soared to 27 briefly before falling back to neutral at 24. The Dow closed over its 200 dma and back above the ascending support dating back to March. At 3800 the NASDAQ is back above ascending support dating back to May. If you had scripted the rebound you would have been hard pressed to wish for numbers this good. The second dip came just as expected and 3700 acted as an intraday floor just like we wanted. It does not get any better than this. That may be the problem. This was too easy, too perfect. The big intraday moves from the capitulation selling at the open to the big spikes at the close were $10, $20, $30 on some stocks and if the rally stalls on Monday or Tuesday the profit taking will come immediately. Strong momentum moves go a long way to convince traders the rally is for real but any slowing and stalling will bring back the paranoia in spades. 3900 is still the real confirming number we must reach. Any failure before then will bring the October bears back in force. One new challenge to the market next week will be the huge slate of 22 IPOs. These will soak up plenty of the cash that is currently flowing into the general market. September is not the month I would choose to IPO and I am sure there were many Maalox moments on Thursday night after the Intel warning. With every analyst on the street calling for a rally this week there seems to be nothing left to do but go long. But do you remember the last time this happened? Right, the week before Labor Day and everyone was lined up on the same side of the boat shouting rally. Lets hope this week works out better than that disaster. The key is still earnings warnings. If there are no big cap confessions this week then we might get out of September alive. Should IBM or MSFT feel the need to clear their conscience then things could get a little choppy! The Intel problem may remain a cloud over the market for another week as investors have a little more time to think about it. Keep those life preservers handy until we dock. Trade smart, sell too soon. Jim Brown Editor ************************* ADVANCED OPTIONS WORKSHOP DENVER - Oct 27-30th ************************* The Advanced Options Workshop in Denver is coming fast. The last weekend in October is going to be power packed and full of the finest option education you can get. This is not your standard seminar. We start by putting you up in a luxury hotel and feeding you five times a day. We feed your mind from a fire hose as well with over a dozen speakers and special guests to educate you on every option strategy. We will teach high profit strategies from how to safely buy calls to the even less risk associated with spreads and straddles. Do you want to maximize your returns by selling put? Learn Jim's Deep In The Money strategy for maximum returns. Want to protect your portfolio from the next market downturn without having to sell your stock positions? Want to go beyond Delta Neutral an obtain Delta Zero? We will show you how. How about selling calls against your leaps in an IRA? Day trading Options? How about Trend Trading using multiple time frames or Swing Trading with retracement/expansion tools. Sound like Greek? We will even teach you all the greeks you need to know to be a better option trader. Did you know Index options offer a lower tax rate? How about disaster recovery? What should you do when a position turns against you when you are not watching? How can you tell when the market is ready to run instead of a bear trap rally? There is something for everybody. Just mingling with over a dozen professional option traders for four days is worth the price of admission. We even pay for the entire room, all meals and you will get a professionally produced set of videos of the entire weekend. If you have not been to one of our Denver Expo seminars before here are some comments from previous attendees: The words herein are totally inadequate to express what I am feeling about you and all the OptionInvestor organization. But this medium is all I have. Thank you more than these few simple words can say. Wow, what a seminar! In my 25 years of investing I have attended many instructional conferences, but I have never, never experienced one like your Options Expo. The instructors were absolutely tops. Subjects, generally were on target. Especially for me, the Skybox, index funds/options and the early morning strategies and trading were particularly great. The attention to the many details and nuances were especially evident, and I guess most of the credit that area goes to your great support team. Now, the real challenge is to apply and implement the powerful knowledge I was exposed to. Sincerely and warmly, Kevin Hughes, Denver ********* Jim & Staff, I am sitting in the hotel room after a great 3 days in your seminar. I can't tell you how pleased I am and want to thank each of you for a job well done. Having been responsible for events like this, albeit on a much smaller scale, I can recognize all the hard work that went into the seminar. Each member of the staff is to be congratulated!! The seminar confirmed my belief that the OIN staff really cares about the success of their subscribers. Jim, you all should be proud of the work you do to enrich the lives of so many people. It is one thing to amass a personal wealth. It is a much higher calling to help others meet their goals in life. I was very impressed that you were emotional in your closing remarks. You have so much to be proud of -- helping people fish all over the world! Thanks again and I look forward to attending another seminar in the future. My best reagrds, Jim Boettcher Austin, Texas ********** I must say, that your seminar was outstanding!!! Sign me up for next year. It is rare that a person of your position would share so generously your knowledge of his trade. I hope that I will be able to put into place much of what you taught. Every aspect of the seminar was first class, from the hotel, to the food, the instructors and the luncheon speakers. One of the biggest surprises was your generosity in handing out material, and gifts. Two weeks ago I attended a competing option seminar in Chicago and all I got from the was coffee at the morning break, No handouts, no food and half of the final day was promoting their web site and additional classes. I must say your seminar far exceeds what I got from them. Sincerely yours, Mike Lillis ************ Please pass on my thanks to the entire OIN group for a fabulous EXPO. The seminar far surpassed any expectation that I would have fathomed, had I attempted to! OIN has the right attitude and the obvious ability to be a leader and I look forward to many years of positive experiences with you folks. Kind regards, Gwen Richardson ************* GREAT JOB TO EVERYONE! I described this event to my friends as a life changing event! (options aside) ,the quality of people, dedication, sacrifice of their time (the second 40+ hours a week they don't have to work but do) they do this because they care, wanting to help others change their life dramatically (My wife thinks I was oxygen deprived up there !) I came back a different person for those who know me that says a lot. now for the options side I have to admit there was so much info to absorb, most of it came to me on the 2000+- mile ride home it all started to fall into place I feel Very confident (yes Jim this can be bad but I know this now!) Notice the patience here guys! that's one change I have a plan to stick to ! THANK YOU !!! Allan O'Neill ************* Wow what a week! It has taken me this long to recover. I cannot begin to tell you how much I appreciate all the effort that was put forth to make the OPTIONS EXPO 2000 seminar a success, but, I'm sure to no ones surprise, I'll try. Chris Verhaegh - You could not have found a better person to set the tone for the entire seminar. I went to the options boot camp with the idea in mind that it would help me get ready for the "real" learning in the seminar. Boy, was I wrong! I learned enough in the boot camp alone to justify what I paid for the whole seminar. Austin Tanner - What a perfect foil for Jim! I swear if one of them would have said the sun would come up tomorrow the other would have shown statistics indicating the likelihood of an eclipse. And this was exactly what I needed. I was one of the many that went from a raging bull to market neutral in the process of three days. I am now more inclined to let the market tell me where it is going rather than me telling it where to go. Lynda Schuepp - She truly surprised me. I expected to get nothing out of this section. Covered calls seemed too boring and with my physique any strategy with NAKED in its title is an immediate turn-off. I don't plan on starting a new workout physically, but I have become more comfortable with naked puts thanks to Lynda's presentation. James Brown - It is said of James Brown the singer, that he is the hardest working man in show business. That must mean that James Brown the investor is the hardest working man in dough(money) business. Whenever I got to the seminar room it seemed like the first person I saw was James. And it seemed like he was always the last one out of the room in the evening. I will never forget looking over at James while he was helping Chris go over the XAU index with us and see how tired he looked. But he never complained about it or got short with us because of it. An example for all of us on how to deal with adversity with dignity. Jim Brown - It is said that those who can do and those who can't teach. It is also said that there are exceptions to every rule, and Jim is certainly the exception to the rule. Nowhere else will you see how an instructor performs the tasks he is telling you to do. The live planning and trading sessions were just great! And the chalk talks were a great way to wrap up the day. This group of speakers and instructors could not have been gathered by anyone else. Just as birds of a feather flock together, quality people are drawn to quality people. The love and concern for his fellowman that Jim so readily displays, radiates throughout the OptionInvestor.com family. And that brings me to my final clichi. Behind every great man is a great woman. And this was never more true than with Sondra Brown. She worked tirelessly and thanklessly not only to insure that the seminar was a success but also that all attendees were made as comfortable as possible. So from the silent majority please accept our humble thanks for all you did. To all those who attended the seminar thanks for making it a pleasure to be with you. I met a lot of new friends and fellow investors who have already enriched my life with their kindness and hopefully will do the same in the future for my portfolio with their guidance and advice. To those who did not attend either of the seminars I will simply say, "You were missed" and ask why you chose not to come. If you could not afford the cost of the seminar how can you justify the cost of trading? If you feel like you know it all already please give Jim a call so he can teach it to the rest of us! Whatever the case I hope to see you at OPTIONS EXPO 2001. Sincerely, Pat Robertson ************** Need we say more? If you want to learn how to be a better trader, making more and losing less then you should come to this seminar. We guarantee you will not be disappointed! For more info: http://www.OptionInvestor.com/workshop *********************** FREE LUNCH IN CHARLOTTE Charlotte - Wednesday - September-27th. *********************** OptionInvestor.com, Preferred Trade and A-T Attitude will hold a FREE seminar complete with handouts, freebies, door prizes and over six hours of solid information which can improve your trading results. Lightning trades, real time quotes, the best option strategies and a FREE BREAKFAST and LUNCH! How can you go wrong? It is free but you have to register so we can order food. http://www.OptionInvestor.com/seminar/dtn ************************* REGIONAL SEMINAR SCHEDULE ************************* The Boston seminar is September 28/30th. Options expiration is over and earnings still a week away. Here is your chance to learn from the pros. The three day Technical Analysis Stock and Option Fall Seminar Series. Three days of in-depth education. Don't miss it! Some comments from recent attendees: I want to thank Chris, Steve and Scott for the excellent workshop held in Detroit last week. Having been to the Expo in Denver in March (which was fabulous), I was ready for a smaller, hands-on approach to hone my less-than-perfect skills. I was not disappointed. One can never get too much education in options investing, and Chris and Steve offer terrific, unique approaches. Laurie Chris & Steve, I would like to thank both of you for a great experience at the Atlanta Workshop. I learned more in the three days of the workshop about investing and trading than all of my undergraduate and graduate courses combined. It was a lot of information in a short time and I hope to put it to use very soon. Mike I attended the Atlanta seminar and wanted to forward my positive comments. The seminar "really lit my fire". I have been a trader for 20 years and often go to seminars and this was the first one that really taught me the most. Dr Lloyd Jim, I had the good fortune of attending the meeting in Orlando. Like your newsletter, it was a CLASS ACT. Chris and the others did a great job. Chris was by far the best performer but the gentlemen beside me was an option trader with several seminars under his belt and almost freaked out when Chris finished his Index Presentation. JC I am writing this note to compliment you and your staff on the great job they did in Atlanta. But more importantly I would like to single out Steve Rhoades as one of the finest speaker/teacher on technical analysis that I have ever had the pleasure of hearing. I am doing my best to persuade other members of the two investment clubs that I belong to, to attend the Detroit seminar. Sincerely, ML We guarantee you will not be disappointed. The class size is small so you will get plenty of individual attention from Chris Verhaegh, Steve Rhoads and staff. At less than the cost of a bad trade you can learn how to analyze stocks and trade options like the pros. Don't wait, do it now. Date City Sep 28-30 Boston Oct 12-14 Charlotte NC Oct 19-21 San Francisco Nov 02-04 Phoenix Nov 09-11 Miami FL Nov 20-23 Dubai, UAE (Special 4 day seminar) Dec 07-09 Philadelphia Dec 14-16 San Antonio Australia coming soon! Has the market been beating you up? Did you give back your gains from April? Would you like to understand all the technical indicators our writers use? Does the alphabet soup of technical terms like RSI, DMA, MACD, ROC, Stochastics, Bollinger bands, sound like Greek to you? You can learn from the experts how to interpret all these indicators, read charts, pick stocks and which option strategies to use on those stocks for less than the cost of one bad trade. Reserve your seat now for one of our regional seminars. Click here for more info: http://www.OptionInvestor.com/seminar/seminar.asp ************************Advertisement************************* 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=497 ************************************************************** ************** EDITOR'S PLAYS ************** What a week! The big drop on Monday gave us an ideal entry point on just about anything we wanted to play. The naked put candidate list from last Sunday was almost a 100% winner. The SNWL play was a no go from my stand point. When I was screening charts I did not look at the individual news on each company and SNWL had a 2:1 split on Monday. Still, had you sold puts at the bottom on Monday you would be up about $5 today. This was a screening error on my part. Here is the table of possibles from last week showing the lows at the bottom on Monday (high premiums) and the close on Friday. Holding these on Thursday night would have caused serious heartburn but almost all would still have been profitable even if the market had not rebounded as much. Stock Price Strike Premium SNWL $60 $90 $32 no play CMRC $70 $100 $30 - $40 Monday, $25 today, $15 move VRTX $80 $90 $17 - $20 Monday, $10 today, $10 move VRTS $122 $140 $22 - $25 Monday, $ 9 today, $16 move IDTI $90 $105 $17 - $17 Monday, $ 9 Wed, 12 today INKT $120 $150 $31 - $31 Monday, $20 Wed, 25 today VRSN $180 $210 $38 - $46 Monday, $25 today, $21 move MUSE $170 $200 $36 - $35 Monday, $27 today, $ 8 move ITWO $172 $200 $31 - $40 Monday, $27 today, $13 move SDLI $328 $400 $76 -$100 Monday, $76 today, $24 move GLW $297 $350 $55 - $70 Monday, $47 today, $23 move BRCM $233 $280 $53 - $63 Monday, $38 today, $25 move JNPR $201 $240 $43 - $53 Monday, $26 today, $27 move The only one I played, simply because of a busy work schedule, was BRCM. I sold the OCT-280 put @ $56 on Monday and closed it on Friday for $41 after a rather panic filled day. ************ Yahoo was one of the stocks that got the stuffing knocked out of it on Friday. With earnings only three weeks away and no earnings run yet I thought the dip would be a good time to buy calls. I was not around a PC at the opening dip but I was able to pick up some OCT-100 calls @ $12.50 at midday. With the big dip the premiums were deflated and made calls a fairly safe play. JNPR - Oct-200 calls Same story with JNPR. I was not around a PC when the morning drop made it a real bargain and had to jump in midday when the market started moving at lunch time. When JNPR pulled back over $215 I bought the deep in the money $200 October calls for $26.50. When I do play calls I only play deep in the money to minimize premium deflation on a stalled stock. A falling stock will hurt me worse with almost 100% delta but that is what stop losses are for. ******************* NEW PLAYS NEXT WEEK ******************* My plays this week will be confined to the first three days. I will be be speaking at a John Dessauer Investor Conference in Switzerland next week and I need to clear the table before I leave. My plan will be to sell some more naked puts on Monday, assuming the market continues to rally. Call premiums have inflated again with expectation of the rally. I have narrowed my target list to only six and I should be able to get a couple that will move. Stk Price Strike Premium BRCD 254 300 $47 NTAP 147 160 $26 BRCM 248 300 $61 ABGX 85 105 $26 CIEN 120 160 $45 VRSN 194 250 $58 The main reason I use this strategy is the premium decay. I want the decay woring for me not against me as in buying calls. With the volatile market any direction change or stalling with cause call premiums to deflate at a rapid rate. Put premiums tend to move slower. They should not move any different than calls but they do. If the stock is moving up even slightly or even just standing still the premiums start shrinking. The margin required with my broker is 25% of the stock price. That means to sell one contract on a stock that is $100 requires $25000 in margin. However you get immediate cash into your account which draws interest while you are holding it. You can't use it but you do get the interest. If you sold a $120 put with the stock at $100 you would likely receive a $25 premium or $25,000. If you have a large account you can sell a lot of premium with very little risk if you do it right. The concept is to wait for a stock to bounce off support before selling the put. (I know, my targets above are not exactly at support. Do as I say, not as I do.) This support is your life preserver. If the stock runs up a few dollars and something terrible happens to the market then it will likely fall back to support which is where you started the play. No harm, no foul. If you are agressive like me then look for the high flyers that are moving $10 a day and just watch them closely. The key to the "deep in the money" method is delta. The deeper in the money the greater the delta. If you are $40 in the money and the stock moves +$20 then your option premium will shrik by almost $20. It is the reverse of a deep in the money call that suffers a catastrophic -20 drop and all the intrinsic premium evaporates in minutes. Only when selling naked puts you want the premium to evaporate. There are many different factors that go into this strategy such as when to sell and how to manage stop losses. This is a strategy I will teach at the Denver Workshop in October and it is the closest thing I can think of to free money. Really! I think those of you who saw me teach this in March would agree. I don't know why anybody would go back to just plain calls again. ************ Try to maintain a market neutral outlook and react to what the market gives us instead of trying to force plays to fit your market view. Jim Brown ************************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=505 ************************************************************** **************** MARKET SENTIMENT **************** Technically Speaking By Austin Passamonte Friday's session didn't bode well for bulls. Shades of April's meltdown loomed large. We honestly expected the sell off to last all day and worsen into the close. Listening to media hype from 5:00pm onward surely fueled our fear. Our guess now? We just saw the near-term bottom form right before our eyes. News of titanic proportion couldn't do any worse damage than one spike down and gradual recovery from there. Divergence in any manner within market action is a strong harbinger of things to come. Markets failing to tank on bad news are poised to rally soon. Technical indicators we chronicled in Thursday's article told a clearer picture than all the flashy media combined. Our data suggested than open-interest disparity on underlying put-option contracts was huge, offering firm support below. Long-term ascending trend lines dating back to February and March lows had repeatedly held all of the market dips from then on. The VIX had twice spiked through its daily upper Bollinger Band as the OEX hit a bottom. Technically, things really didn't look too bad. I guess that's not how the post and pre-market "sell-the-farm at any price" crowd saw things. Wonder if they would like to have those bailed-out positions back just a few hours later? Hindsight, of course. At this point, the Dow remains above its 200 DMA at 10,821 and the long-term ascending trendline. Possibly the healthiest looking index of the four majors right now. The NASDAQ 100 closed Friday resting smack-dab on it's ascending support line dating back from intraday lows in late-May. All major moving averages lie overhead and it will be a struggle when each one is met, but open interest S/R disparity on the QQQs shows solid support and scant immediate overhead resistance. A move to 98 in the QQQs has plenty of room to fly. The SPX closed two index points above its 200 DMA. That in itself is a major victory considering how tech-heavy it has become. Immediate support is very solid with overhead resistance almost nil is demonstrated in S/R option values. The OEX made a picture-perfect touch and bounce from it's long term ascending trendline dating from mid-April as well. The 200 DMA is three points above at 783 and the 20 & 40 DMAs are touching near 805. Still far better than what was projected. S/R disparity overhead on the OEX is extremely light to 790+ while underlying support below 770 is solid to impenetrable from 750 down. Its next big move prior to option expiration now greatly favors the upside. Do we notice a pattern here? Our sentiment indicator VIX spiked above 27 for a high on Friday, early on we might add. This very well could be the panic release we've long awaited. Its close above 24 has us out of worry-mode for awhile. Isn't that refreshing? Also, the bi-weekly COT report showed commercial S&P 500 traders at new 10-year high net short positions as of Tuesday 9/19 when the data is compiled for release on Friday. Commercial DJIA were also at five-year net short holdings as well. We think it's safe to assume many of these shorts were covered by now as panic stricken small specs dumped their massive longs to lose the battle once again. We'll be interested to see the next report in two weeks. Incidentally, this data will be released by the COT every Friday beginning in October due to high demand from traders in all markets. For the sake of clarity and brevity, Market Sentiment will cease to compile exact data but continue to update the bottom line of net positions each Friday instead. Traders who wish to compile the entire stats are welcome to visit a free information-only site at www.commitmentsoftraders.com (By the way, a major short squeeze in live cattle is about to begin for our meat & grain traders out there.) Everything we see points to pending strength in the market. Straight up from here? Not likely. Volatility will prevent that but this factor is what makes trading the finest vehicle of all in potential. Execution is up to us. Everything we discussed is the data used by floor traders and institutions. If we want to win like them, we must think & trade like them. Until our facts tell us otherwise, Market Sentiment is now knee-deep in lush green pastures of bullishness. Move it back into the cave for all those bears! As always, trade carefully and prepare to play either direction, your primary strength as an Option Investor! ***** VIX Sat 9/23 close: 24.17 CBOE Equity Put/Call Ratio The CBOE equity put/call ratio is a contraire-sentiment indicator. Small traders are majority of equity-option players. Numbers above .75 are considered bullish, .75 to .40 neutral and bearish below .40 ************************************************************* Tues Wed Sat Strike/Contracts (9/26) (9/28) (9/23) ************************************************************* CBOE Total P/C Ratio .56 Equity P/C Ratio .48 Peak Volume (Index & OEX) CBOE Index & OEX put/call ratio is now a "smart money" sentiment indicator, as majority of buying done by institutional traders. Numbers above 1.5 are considered bearish, 1.5 to .75 neutral and bullish below .75 ************************************************************** Tues Wed Sat Strike/Contracts (9/26) (9/28) (9/23) ************************************************************** All index options 1.36 OEX Put/Call Ratio 1.45 30-yr Bonds Friday 9/22 close; 5.90% Support/Resistance Indicator The Index Support/Resistance(S/R)Ratio is a formula used to gauge possible support or resistance based on open-interest disparity. Ratio listed is percentage of calls to puts or puts to calls respectively. Support is factored from dividing puts by calls at strike levels beneath index closing price. Resistance is factored from dividing calls by puts at strike levels above current closing price. (Open Interest) Calls Puts Ratio S&P 100 Index (OEX) Resistance: 810 - 795 12,456 5,358 2.32 790 - 775 6,201 6,885 .90 OEX close: 774.08 Support: 770 - 755 210 8,236 40.98 *** 750 - 730 66 16,026 242.82 *** Maximum calls: 810/4,903 Maximum puts : 740/6,010 Moving Averages 10 DMA 790 20 DMA 806 50 DMA 805 200 DMA 783 NASDAQ 100 Index (NDX/QQQ) Resistance: 101 - 99 12,794 3,535 3.62 98 - 96 13,686 16,924 .81 95 - 93 14,737 24,324 .61 *** QQQ(NDX)close: 92.15/16 Support: 92 - 90 15,471 29,940 1.94 89 - 87 2,912 19,075 6.55 86 - 84 482 15,946 5.18 Maximum calls: 100/9,360 Maximum puts : 90/16,551 Moving Averages 10 DMA 91 20 DMA 92 50 DMA 92 200 DMA 95 S&P 500 (SPX) Resistance: 1500 20,276 18,551 1.01 1475 11,855 10,971 1.08 1450 6,080 13,068 .47 SPX close: 1448.72 Support: 1440 105 2,839 27.04 *** 1425 1,669 18,529 11.10 1400 1,262 8,593 6.81 Maximum calls: 1500/20,276 Maximum puts : 1500/18,551 Moving Averages 10 DMA 1465 20 DMA 1486 50 DMA 1480 200 DMA 1446 ***** CBOT Commitment Of Traders Report: Friday 9/08 Biweekly COT report discloses positions held by small specs and commercial traders of index futures contracts on the Chicago Board Of Trade. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs are not. Extreme divergence between each signals a possible market turn in favor of the commercial trader's direction. Small Specs Commercials DJIA futures Total Open Interest % + 13.4% (long) - 11.8% (short) NASDAQ 100 Total Open Interest % - 8.9% (short) + 0.4% (flat) S&P 500 Total Open Interest % + 29.1% (Long) - 11.8% (short) What COT Data Tells Us: Commercial traders built bigger net-short positions while small specs continued their bullish ways as of last data compilation Tuesday 9/19 market close. Plenty may have changed since then and we await the next COT release with anticipation. Bullish: Feed's finished Benign government reports Oversold market levels right now Disparity in overhead call/put ratios VIX above 24 Friday's major bounce Technical chart pictures Bearish: Oil Prices (falling?) COT reports (easing?) Recent pre-warnings, downgrades (INTC!) Market leaders breakdown ************** MARKET POSTURE ************** As of Market Close - Sunday, 09/24/2000 Key Benchmarks Broad Market Last Support/Resistance Alert **************************************************************** DOW Industrials 10,847 10,600 11,150 SPX S&P 500 1,448 1,420 1,495 ** COMPX NASD Composite 3,803 3,600 4,000 ** OEX S&P 100 774 758 790 ** RUT Russell 2000 518 500 550 ** NDX NASD 100 3,701 3,500 3,850 MSH High Tech 997 950 1,055 ** BTK Biotech 772 690 780 XCI Hardware 1,401 1,350 1,520 ** GSO.X Software 465 430 470 SOX Semiconductor 926 880 1,060 ** NWX Networking 1,202 1,160 1,250 ** INX Internet 539 510 580 ** BIX Banking 601 580 635 XBD Brokerage 642 610 685 ** IUX Insurance 750 720 760 RLX Retail 852 815 890 DRG Drug 410 365 415 ** HCX Healthcare 848 785 855 ** XAL Airline 145 140 152 OIX Oil & Gas 305 296 332 Twelve alarms were triggered on Friday, with the DRG and HCX hitting resistance alerts. "Momentum" traders should keep an eye on the BTK, GSO.X and IUX, while "support" traders may want to be alert on the BIX. Lowering support (SPX, COMPX, OEX, RUT, MSH, XCI, SOX, NWX, INX, XBD) Lowering resistance (SPX, OEX, NWX) Raising support (DOW, IUX, RLX, HCX) Raising resistance (DRG, HCX) ***********************ADVERTISEMENT************************ Up To 60% Off At EverythingWireless.com The online super-store for your active lifestyle. Select from the largest range of accessories and products you use every day including Cellular and PCS phones, batteries, chargers, hands-free kits, wireless data products and more. http://www.everythingwireless.com/wireless/homepage?id=1601002 ************************************************************ ************* SECTOR TRADER ************* Intel Thunderstorm Followed by Clearing Skies By Buzz Lynn Contact Support If today's Intel-based selloff wasn't the mother of all capitulation and recovery, it was at least the eldest daughter. The strength of the recovery is better than just a ray of sunshine going forward. It's a blue sky opening up. Under the worst possible circumstances, The NASDAQ rallied up over 185 points from its low of the day at 3614 to close at its high of the day at 3803. From the big gap down this morning, we didn't even see continued selling through amateur hour. It was straight uphill from the open where the NAZ hovered around the 3725 level for most of the morning. Then late in the afternoon, bullish horns really got sharp to poke the NAZ back to 3801 by the close. For a pessimistic market concerned about faltering demand for technology, the price of oil, currency risk, rising production costs, etc., it blew it all off in fine style. In short, the market tested 3600 support and held, 3700 resistance, which it cleared easily, and 3800 resistance where it stands now. When a market is oversold and can stage a nearly 200 point vertical rebound in one day on over 2 bln shares (yes, INTC accounted for over 300 mln, but that's another story), this is one instance where we feel comfortable calling a bottom. It wasn't just the NASDAQ either. The Dow rallied back almost 230 points from an opening low of 10,621 to close at resistance of 10,850, while the OEX found support at 760 from the starting line and moved up to close at 772, a support level well-tested over the last three months. The only nagging little question remaining is will these former levels of support act as support again, or become points of resistance from which to roll? Like a good pilot, we'll let the instruments be our guide. The short term stochastic has crossed the long one and also crossed above the oversold 20% line in each of the three indices. That is our standard buy signal. The MACD too has crossed to positive figures on the 60-min charts to confirm the move. Frankly, the 60-min chart isn't as reliable as the daily. However, with all three indices making the same move, those factor in our favor to tempt us to jump the gun rather than wait for a daily chart confirmation. That's the technical part and the whole reason we were not willing to play index puts in Thursday's update. Trust your instruments. They'll be right a higher percentage of the time when looking for a long-term trend. The fundamentals too show that sellers have run their course and despite the lingering profit pessimism, buyers are ready to support all three indices at these levels. We don't know how long it will last, and dark clouds have been known to show up over the weekend. Remember that the Federal Reserve came to the rescue of the Euro Friday and President Clinton authorized release of 30 mln barrels of oil from our strategic oil reserve, which may have put some optimism in Friday's gains. What the government giveth, it can take away quicker, which has the potential to fog the trading atmosphere. But for now, the skies are opening up. Economic reports are abundant next week but not as critical as the PPI/CPI (early October). Monday - Existing home sales. Tuesday - Consumer Confidence. Wednesday - Durable Orders. Thursday - GDP and Initial Claims. Friday - Personal Income. Fundamentally and technically, it looks like the markets are ready to move up. Enjoy the ride while it lasts! ***note we have the MACD set at 8,18,6 and the stochastic set at 10(3),5 for all our technical references in this section.*** ************** QQQ ************** QQQ - NASDAQ 100 $93.06 (+1.81 last week) Like nothing ever happened last week, right? Whew what a ride. Following INTC's warning, the whole tech market sold off on a gap down open Friday morning. The good news is that it opened at the low and proceeded to move up from the starting gun. Yes, nearly 2.2 bln shares traded in what looked like a major capitulation and rebound - that is until you notice that INTC accounted for 308 mln shares. Subtracting that out, and adding back 150% of the ADV, we get an adjusted volume under 1.9 bln shares - still respectable, but not very many people jumping from windows or unloading their wallets on everything in site. That's what makes it the eldest daughter and not the mother of all selloffs/recoveries. It will suffice. While the NASDAQ was holding 3600 and 3700, QQQ bounced immediately from $88 and held $90 until the afternoon where it moved up to close at almost $93. The short stochastic has turned bullish by crossing over the long stochastic and the 20% oversold line. Hourly MACD confirms the entry and hopefully the daily will follow that movement on Monday. Support is still at $90-91, then $88. 50 and 200-dma resistance are nearly equal around $94.69. $94.50-$95.50 provides historical support, the $97, then $99-$101. Barring the daily market ups, downs, and surprises, we think QQQ could have a pretty good week. Still be on the lookout for earnings warnings. Calendar Spread: Finally, a bottom to buy the long leg of our spread. If you were brave enough to pull the trigger at $88 support this morning, you have a beautiful entry. Two ways to play here. First, you can day trade the short position at support and resistance from a 30 or 60-min chart. From above, support is still at $90-91, then $88. 50 and 200-dma resistance are nearly equal around $94.69. $94.50-$95.50 provides historical support, then $97, then $99- $101. We favor a longer term approach and would choose to wait until the daily stochastics gets to oversold territory (above 80%) then look for the short to cross the long and descend back under 80%. Confirm that with the MACD rolling negative. That may be a few days and patience will pay off here. Heck, even if you jump the gun at resistance, time decay will still work in your favor as the time component evaporates on the buyer right into your pocket. Remember to cover when the time value approaches zero or expiration nears. You don't want to get called out of this unlike a covered call. BUY CALL JAN- 95 QVQ-AQ OI= 3282 at $ 9.38 SELL CALL OCT- 95 QVQ-JQ OI= 7611 at $ 3.38, ND = 6.00 or less SELL CALL OCT- 97 QVQ-JS OI= 7500 at $ 2.69, ND = 6.69 or less SELL CALL OCT-100 QVO-JV OI= 9360 at $ 1.69, ND = 7.69 or less Long Call: Dij` vu all over again. Based on a turn-up in the stochastic and MACD, we have a technical entry. We hope you got a piece of the spectacular recovery. Support is at $88, then $90-$91, followed by $93. Resistance is at $94.50-$95.50, then $97.50, and roughly $100. Pick your favorite level to target shoot, then enjoy the ride to resistance. At that point you'll make your decision to stay in for more on strength of get out on a rollover. Remember to use those stops that can protect you if the play doesn't go your way. For now, it looks like we'll get a nice rise until the stochastic reach overbought and rollover. It will be like our buy signal only in reverse. BUY CALL OCT- 90 QVQ-JL OI= 7551 at $6.38 SL=4.25 BUY CALL OCT- 95 QVQ-JQ OI= 7611 at $3.63 SL=2.00 BUY CALL NOV- 95 QVQ-KQ OI= 251 at $6.00 SL=4.00 BUY CALL NOV-100 QVO-KV OI= 341 at $4.00 SL=2.50 Bullish Put Credit Spread: It's back! That was fast. Recall we dropped this play until we found a bottom following INTC's warning. This play is a bit advanced and is similar to a naked call. Only a credit spread has limited loss potential in exchange for giving up some of the reward. Be sure you understand the entry and the exit before you trade it. Here's the deal. First, we need to be convinced that QQQ will rise from here and that it will close at over $90 on expiration day. Then we want to sell an OTM put to collect a premium. Simultaneously, we'll buy an even lower price strike for less money just in case the market falls apart. In this case, we might sell a $90 put and buy an $85 put for a credit in our account. The loss potential is limited to the difference between the strike prices minus our credit. Still, we must remember to use at least a mental stop to take us out of the trade if the value of the spread gets too high for our risk tolerance level. Ideally, we want both strikes to expire worthless. SELL PUT OCT-90 QVQ-VL OI=16551 at $2.94 BUY PUT OCT-85 YQQ-VG OI= 9258 at $1.88 NET DEBIT = $1.06 or more Average Daily Volume = 19.5 mln ************** OEX ************** OEX - S&P 100 $774.08 (-15.69 last week) Ouch! This index definitely felt the pain, especially when it reached just a few ticks below 760 on Friday. The good news is the rebound was steady and solid and financials participated. How were they helped? Greenspan to the rescue to prop up the Euro! Not widely reported is that that may have been the cause of strength in the financials, which in turn helped out the OEX. If the FED discontinues its support, that may trigger losses in the financials and thus the OEX. That's a possible gotcha. Other than that, the recovery gains were broad based, lending much support to the fundamental picture. Technically, OEX looks great too. Like the QQQ, our buy signal was finally triggered when the slow stochastic crossed through the fast line and the 20% oversold line on a daily chart. MACD confirmed the move on the 60-min chart and should confirm too Monday on the daily. Support is strong at 760, and previously at 775-780. OEX is a shade below it now. Cautious traders may want to see the OEX trade back over 775 before opening any trades. But otherwise the instruments tell us we ought to be bullish for now after Friday's reversal and as long as the charts cooperate. Resistance comes again at 782, 790, 795 and 800. Long Call: OEX movement couldn't have been scripted better - gap down open immediately followed by steady gains through the day. On a technical basis, the daily stochastic and MACD charts are saying that the market has turned bullish. How do we know? The short stochastic has crossed the long stochastic and moved up through the 20% oversold line. MACD has yet to cross positive on a daily chart, but looks great on the 60-min. Since the recovery worked equally well on all indices, we feel comfortable in not waiting for the daily to confirm the signal. That said, we're looking for a nice run. You can target shoot for support at a lower level, but don't quibble over pennies when earnable dollars are at stake. Resistance is at 782, 790, 795, and 800. We think waiting for a move over 775 after amateur hour is sufficient given the chart pattern. Enjoy the ride while it lasts. But please don't be complacent. Stop orders are still important to take us out of a trade when it moves against us. BUY CALL OCT-770 OEZ-JN OI= 112 at $23.00 SL=16.00 BUY CALL OCT-780 OEZ-JP OI=1544 at $16.75 SL=12.00 BUY CALL NOV-780 OEZ-KP OI= 35 at $27.13 SL=19.00 BUY CALL NOV-790 OEZ-KR OI= 50 at $20.50 SL=14.75 Bullish Calendar Spread: Once again, a stellar recovery from Friday's INTC induced selloff has led the technical recovery on the daily chart and given us an entry signal. As above, that happened when the slow stochastic crossed the fast stochastic line and penetrated the 20% oversold line back into bullish territory. A 60-min MACD chart confirms it. Now that OEX seems ready to run with the bulls, today would have made a great day to enter the long call leg of the trade. Our objective now is sell a short call leg at resistance and let time decay work on the other guy who bought it! Of course, you could day trade the short leg based on the 30 and 60-min charts using MACD and stochastic, but we favor a longer-term trade to catch the major trend. Our short sell signal will be generated once the daily chart stochastics (both lines) cross over the 80% oversold line, then cross over each other with the fast stochastic falling under 80%, and confirmed with the MACD turning negative. Remember to buy back you short position just prior to expiration or when the time value approaches zero (whichever first). You do not want to be called out of this unlike a covered call. BUY CALL MAR-800 OEX-CT OI= 16 at $44.25 SELL CALL OCT-800 OEX-JT OI=4602 at $ 7.38, ND = 36.88 SELL CALL OCT-810 OEX-JB OI=4903 at $ 4.50, ND = 39.75 Bullish Put Credit Spread: Once again, this play is a bit more advance, but it's a bit like selling naked puts, only with protection to limit the downside. Don't play this until you fully understand how this trade works. Here we go! First, we must have a general belief that that OEX has bottomed. Our intent to get both positions to expire worthless. To accomplish this, we sell say a 765P and take in a premium. We then use part of that premium to simultaneously buy a lower strike, say a 760P. That gives us a credit that goes straight into our account and will be ours to keep as long as the OEX closes above 765 on October 20th. (We choose this combination because it yields the highest disparity and thus the highest credit.) Your loss is limited to the difference in strike prices minus the credit. Of course you will want to cover if the OEX drops such that the sold strike is ITM or when value of the credit exceeds your threshold of pain. SELL PUT OCT-765 OEZ-VM OI= 495 at $12.25 BUY PUT OCT-760 OEZ-VL OI=2031 at $10.75 NET DEBIT = $1.50 or more Average Daily Volume = 1266 ************* COMING EVENTS ************* For the week of September 25, 2000 Monday ====== Existing Home Sales Aug Forecast: 4.95M Previous: 4.79M Tuesday ======= Consumer Confidence Sep Forecast: 141.2 Previous: 141.1 Wednesday ========= Durable Orders Aug Forecast: 2.00% Previous:-12.40% Thursday ======== GDP-Final Q2 Forecast: 5.30% Previous: 5.30% GDP Chain Deflator Q2 Forecast: 2.60% Previous: 2.60% Initial Claims 23-Sep Forecast: 315K Previous: 308K Help-Wanted Index Aug Forecast: NA Previous: 82 Friday ====== Personal Income Aug Forecast: 0.30% Previous: 0.30% PCE Aug Forecast: 0.50% Previous: 0.60% Chicago PMI Sep Forecast: 48.50% Previous: 46.50% Michigan Sentiment Sep Forecast: 108.8 Previous: 108.8 Week of October 2nd Oct 02 Auto Sales Oct 02 Truck Sales Oct 02 NAPM Index Oct 02 Construction Spending Oct 03 FOMC Meeting Oct 03 New Home Sales Oct 03 Leading Indicators Oct 04 NAPM Services Oct 04 Factory Orders Oct 05 Initial Claims Oct 05 FOMC Minutes FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. 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The Option Investor Newsletter Sunday 09-24-2000 Sunday 2 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/092400_2.asp ************** TRADERS CORNER ************** Is There A Light At The End of The Tunnel? By Mary Redmond The bright light at the end of the tunnel this week seemed to be high cash flows into the market from equity funds and cash moving out of money market funds. AMG Data reported that over $7.6 bln in cash was deposited to growth funds during the week ending September 20th, which was the largest flow in 14 weeks. In addition, the Investment Company Institute reported a very large flow of cash out of money market funds last week for the first time in several weeks. Retail money market funds reported a net outflow of $6.75 bln, and institutional money market funds reported a net outflow of $9.96 bln. There are two possible explanations for the outflow of cash from money market funds, margin related selling and retail and institutional investors moving into the market. It seems unlikely that margin selling is as prevalent as it was in April. If investors deposit money into equity funds, then the fund managers are obligated to spend the money. Even last April, the Investment Company Institute reported that equity funds kept only 4.9% of their assets in cash. This can indicate that while the retail investors were selling, there was still institutional buying taking place. Ultimately, this can be a strong boost to the market, as approximately $24.31 bln flowed into the market this week. If we see these flows continuously, then it will be difficult for the market to stay flat. It is interesting to note that we have heard very little about initial public offerings in the last few weeks. While there are hundreds of companies which have filed to go public, it seems that the institutional and retail demand for IPOs has changed dramatically from six to nine months ago, when we saw between $20 and $30 bln dollars raised every month in new stock. While this may be having little effect on the market this month, it may be highly beneficial to the market six to twelve months from now. Ultimately, the fewer IPOs are issued, the more cash is available to enter the stocks in the indexes. In addition, toward the end of October the schedule for unrestricted stock coming on the market will lighten up. In November, the IPO lockup expirations are less significant. This week we had seven IPOs, OMNY, TTMI, ZNGN, VRYA, COD, CURN, and IRNG, raising $642 mln in total. It is particularly impressive that two IPOs started trading on Friday, a day in which several analysts expected to see major selling. Many people may not realize that we have been in a range bound market for over a year now. In addition, the correction we experienced this Spring was worse in percentages than 1987, and will go down as one of the worst market corrections in two decades. The only difference is that it recuperated more quickly. In a way, quick daily trades may even be safer in this highly volatile environment. If you want to hold a company long term, meaning many years, you can weather out the mania which rules the markets day by day. However, if you are doing position trading, meaning holding positions overnight you are subjecting yourself to unprecedented levels of risk. It is almost impossible to predict which company will warn of lower-than-expected earnings these days, as the analysts' estimates vary widely. It is also impossible to predict the market's reaction to analysts' reports and company reports. There are many stocks which make sufficient daily moves to make day trading profitable. If you follow certain highly accurate technical indicators, you can often make trades which have a high probability of success. Stocks which have a market cap in the range of $20 to $100 bln, a high earnings growth rate, and a consistently high daily volume tend to respond better to technical indicators. For example, Friday morning there were many stocks which had entry points for quick trades, as the bad news from Intel was largely discounted by the positive news that the U.S. Treasury, EU and Bank of Japan had intervened to boost the Euro. The NASDAQ opened down over 200, and within minutes NTAP, PMCS and several others bounced from the severely oversold level to their normal trading range. It is important to recognize that without the Treasury's intervention into the currency markets, the markets might not have recovered. Ultimately, investors' greed may draw money into the market again. While Intel warned of earnings which would be lower than the previous expectations, many other companies have stated that they expect their earnings to be above expectations. At some point, people will get tired of earning 5.5% from their money market funds and move to the market. During the last several months we have seen significant moves in many networking and other high tech companies with market capitalizations in the range of $25 to $100 bln. This may indicate that investors may be growing tired of the giants and looking for new leadership. For example, Cisco has been range bound for months now around $60. GE and Intel also hit a sticking point at around $500 bln and retreated. It seems that $550 bln is a hard market capitalization to cross. Even if Cisco can increase its earnings 50% annually ad infinitum, it may be difficult for the stock to show the level of gains it has in the past. It is really related more to market mechanics than the performance of the company. On the other hand, it is relatively easy for a company to lose $100 bln in market value overnight, as we saw on Friday. This is one of the reasons Wall Street loves spin-offs. It is often easier for several companies to grow at a rate that one company might not be able to. Remember when AT&T, Lucent and the Baby Bells were one company? (Most of us are too young to remember but the AT&T monopoly was broken up and the Baby Bells like Bell Atlantic were distributed to shareholders.) This separation unlocked more market value than AT&T probably would ever have been able to deliver on its own. ************************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=498 ************************************************************** ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* ITWO - I2 Technologies $186.19 (+14.00 last week) See details in sector list Put Play of the Day: ******************** MU - Micron Technology $52.00 (-7.13 last week) See details in sector list ************************Advertisement************************* Attention Online Traders: NobleTrading.com has become the first online trading firm to offer both Direct Access Trading, and web based trading to its customers. Trade Direct using any ECN, SOES, and SelectNet, or trade right through your browser using our web based trading application. FREE DSL service for active traders. Visit our website and sign up for a Free real-time demonstration! http://www.sungrp.com/tracking.asp?campaignid=506 ************************************************************** ************* DAILY RESULTS ************* Index Last Week Dow 10847.37 -161.48 Nasdaq 3803.76 -31.47 $OEX 774.08 -15.69 $SPX 1448.72 -17.09 $RUT 518.82 -12.06 $TRAN 2597.14 -84.01 $VIX 24.17 2.24 Calls MERQ 148.94 24.44 New, all-time high Friday, Impressive! BRCM 248.75 16.69 New, what slowdown in Chip demand? CFLO 137.19 14.81 Defying gravity in the Tech space ITWO 186.19 14.00 Bullishness mounting for ITWO's Q3 EPS CIEN 120.75 13.53 New, exploring potential in optic land PEB 119.00 12.50 Bulls back into the Biotech sector FRX 119.44 9.75 New, bulls love the generic drug makers QCOM 73.00 6.75 Comeback not quite yet complete SEBL 105.00 6.00 Bullish news carries stock to new highs YHOO 111.44 5.56 On the verge of breakout above $112 IDTI 95.94 4.94 No split, but bounced back big Friday AGIL 80.00 4.75 Uptrend intact despite Tech volatility CAH 92.38 4.38 Momentum reigns supreme and CAH climbs ENZN 71.06 2.19 New, safe haven of the Drug sector AFL 62.81 1.94 Insurance sector bulled by Wall Street PALM 51.81 1.69 Dropped, earnings after bell Monday CHKP 152.44 1.19 CHKP buyers regain confidence CORR 59.44 -1.00 Dropped, wandered aimlessly all week CDWC 79.09 -4.41 Dropped, momentum dwindled last week Puts PCS 28.00 -16.81 Sliding down the hill to its 52-week low CMOS 35.88 -8.00 New, bears growling in Chip Equipment AFCI 37.63 -7.44 Tough week in Telecoms, again MU 52.00 -7.13 New, vulnerable to Chip turmoil DITC 39.50 -6.25 DITC just doesn't have 'it' DIGL 69.06 -3.81 Back as square one, before breakdown PWAV 33.63 -3.44 Bad for PWAV, good for us EPNY 82.19 -1.81 Riding its 5-dma downward LVLT 72.88 -1.69 Dropped, we hear the bulls UK 37.13 0.53 Euro up, oil down... UK stabilizes CMTN 46.19 3.19 Dropped, found bottom Friday SCMR 117.69 12.19 Dropped, stock recovery continued ************************** 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 CDWC $79.09 (-4.41) The powerful momentum that recently carried CDWC to new heights dwindled last week. The $77 bottom appeared to be holding firm during consolidation, but Friday's bearish performance indicates the momentum may not rekindle anytime soon. A weak opening below the $75 mark and a feeble attempt to regain position back above the converged 5 & 10 DMAs just didn't happen. While we'd like to see CDWC challenge Monday's all-time record at $86.13, we don't want to hang around with our fingers crossed. It's time to exit and move on to more favorable plays. CORR $59.44 (-1.00) Reaching its zenith just as we initiated our play last weekend, CORR ran out of gas and wandered aimlessly all week. After just falling shy of a new high a week ago Friday, the stock has struggled with weak volume and a lack of enthusiasm - all in the midst of a solid Biotech recovery. It appears that as soon as the Biotech sector came back into favor, the defensive nature of this specialty pharmaceutical company was no longer able to attract more investor dollars to continue its rise. Given CORR's inability to participate in the strong recovery that took place on Friday, we think it is a sign of relative weakness. With so many great momentum plays emerging on Friday, we are dropping CORR and putting our money to work elsewhere. PALM $51.81 (+1.69) After briefly moving above $55 on Thursday, PALM's earnings run fell sick and the stock drifted lower ahead of Monday's quarterly results. Oddly enough, it appears that the INTC warning was not the culprit in this stock's weakness. The first virus targeting Palm users was discovered by antivirus researchers at McAfee.com and Finland-based F-Secure on Thursday night. A real, replicating virus, Phage.936 erases third-party applications on infected Palm systems, filling the display screen with a dark gray box. The news struck just in time to sideline PALM, preventing it from having one more run before Monday's announcement. Even as the broad markets continued to rebound Friday afternoon, PALM shares were unable to move higher and declined into the close. While the news may turn out to be inconsequential and no technical levels were broken, we are simply out of time on our play. We are dropping PALM this weekend, so make sure you close any open positions before the earnings report Monday after the close. PUTS CMTN $46.19 (+3.19) The monumental gap down on the NASDAQ Friday morning provided a solid exit point for our CMTN put play. After the Tech bulls stepped in near CMTN's bottom around the $44 level early Friday, they carried the stock past several key resistance levels going into the weekend. Although CMTN finished the day slightly lower last Friday, the buyers showed up in a big way near the close of trading, which could present further problems to those us on the short side going forward. CMTN has established solid support just below at the $45 level, and again at $44 shortly thereafter. Use a pullback to the aforementioned levels as an exit point. SCMR $117.69 (+12.19) We held SCMR over Thursday night in anticipation that INTC's warning would drag down the Networking sector. But, INTC's warning didn't pack the punch we were anticipating. Unfortunately, the negative sentiment plaguing INTC didn't extend to SCMR on Friday. So instead of a freefall, SCMR's share price continued to recover. Recall that on Thursday, Salomon SB annihilated our play on SCMR. The firm started SCMR with a Buy recommendation and a $165 target price. The bullish comments put the cherry on the sundae. The profitable decline was dramatically reversed. The play is over; there's no longer any ifs, ands, nor buts about it LVLT $74.56 (-1.69) Even the INTC-induced selloff on Friday was unable to crater LVLT, as the stock once again found support at $68. If LVLT was truly weak, then the market selloff should have been able to break the back of this support level, and its inability to do so tells us that LVLT is not as weak as it appears on the surface. With market sentiment becoming significantly more positive throughout the day on Friday, LVLT moved up into the close, ending right at the resistance created by the converged 30-dma and 50-dma. The faint rumble we heard as the week drew to a close sounds like distant stampeding bulls, and we will take this opportunity to drop LVLT and get out of the way. *********** 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 ************** BRCM - Broadcom Corporation $248.75 (+16.69 last week) Sitting in the sweet spot between the Broadband and Semiconductor sectors, BRCM is a provider of highly integrated silicon solutions that enable broadband digital transmission of voice, video and data to and throughout the home and within the business enterprise. These integrated circuits permit the cost-effective delivery of high-speed, high-bandwidth networking using existing communications infrastructures that were not originally designed for the transmission of broadband digital content. Using proprietary technologies, the company designs, develops and supplies integrated circuits for several markets including digital cable set top boxes, cable modems, high-speed office networks, home networking, and digital subscriber lines. Pulled down from its late August highs, BRCM looks like it is on the road to recovery. Not only that, but it looks like it is in the fast lane. Regardless of the saga of the dueling Semiconductor analysts, there is clearly no slowdown in the demand for BRCM's semiconductor products, which make possible the miracle of high-speed Internet access for individuals and businesses. If you haven't experienced high speed Internet access, then you are missing out. It is the difference between a skateboard and a brand new Ferrari. Once you get a taste of the good life, you'd fight pretty hard to keep the new high-speed link to the electronic world we know as the Internet. BRCM knows this because the demand for their products is insatiable, prompting the company to continue to forge alliances (see news below) to expand its manufacturing capacity. The NASDAQ weakness in recent weeks helped to bring the stock back down to support near $220 before buyers with itchy mouse fingers couldn't stand it any more and started clicking the buy button. The rise over the past week and a half has been choppy, but Friday's action fairly screamed "Buy Me". Dropping with the rest of the market on the INTC earnings warning, BRCM retested support at $229-230 and then shot back to $240 in the next 2 hours. After a brief rest to allow the stragglers to get on board, BRCM ran strong and hard for the rest of the day, clearing the 50-dma at $238.83 and the 30-dma at $242.63, on its way to a close just below the $250 resistance level. While below the ADV, buying volume looked strong on the intraday chart, and if the market continues to recover next week, resistance at $250 could be quick to fall. With mild support at $244 and stronger support at $240, bargain hunters may want to try target shooting intraday dips near these levels. The more conservative entry strategy will be to wait for the buying volume to continue to increase next week, propelling BRCM through resistance. Once this happens, jump on board for what is likely to be an impressive ride into earnings, currently scheduled (but unconfirmed) for October 17th. As a sign of the growing demand for its products, BRCD inked a multi-year supply agreement with Singapore-based Chartered Semiconductor Manufacturing on Tuesday. Under the agreement, Chartered will provide semiconductor products for cable set-top boxes, cable modems, high-speed office networks and home networking products to BRCM. This gives BRCM the increased manufacturing capacity it needs to meet its customers' growing demand. BUY CALL OCT-240 RDU-JH OI100 at $23.38 SL=.50 BUY CALL OCT-250*RDU-JJ OI=83 at $18.00 SL=.00 BUY CALL OCT-260 YRL-JL OI=02 at $13.00 SL= 9.75 BUY CALL NOV-250 RDU-KJ OI= 710 at $27.63 SL .75 BUY CALL NOV-260 YRL-KL OI= 798 at $23.13 SL=.25 BUY CALL NOV-270 YRL-KN OI= 241 at $19.63 SL=.25 SELL PUT OCT-230 RDU-VF OI= 665 at $ 8.13 SL=.75 (See risks of selling puts in play legend) Picked on Sep 24th at $248.75 P/E = 379 Change since picked +0.00 52-week high=$297.94 Analysts Ratings 9-11-0-0-0 52-week low =$ 52.50 Last earnings 07/00 est= 0.19 actual= 0.23 Next earnings 10-17 est= 0.24 versus= 0.13 Average Daily Volume = 5.34 mln MERQ - Mercury Interactive $148.94 (+24.44 last week) As a provider of integrated performance management solutions that enable businesses to test and monitor their Internet applications, MERQ is looking for growing e-commerce demand to continue to fuel its business. The company's products perform such tasks as analyzing and eliminating Web site performance bottlenecks and automating quality assurance testing. MERQ's client base spans a wide range of industries including Internet companies such as Amazon.com and America Online, infrastructure companies Ariba and Oracle, as well as Apple Computer, Cisco Systems and Ford Motor Company. In a market such as the one we've had this past week, stocks that ended the week higher are few and far in between, let alone ones that that have managed to make new all-time highs. That is exactly what MERQ has done. Resistance at $130 this month has been formidable but on Tuesday, MERQ managed to break through this level to close above its previous all-time high at $134.50. From there, it was blue-sky territory as the stock continued higher, clearing $135 and $140 with ease. Thursday saw a bit of profit taking on a weak market day but on Friday, a successful test of support at $130, reinforced by the 10-dma, brought in the buyers, who bid the stock up strongly to make yet another new all-time high. Closing up $8.63 or 6.15% on 156% of ADV was impressive indeed. For the week, MERQ gained 19.63% while most stocks would have been content to end the week flat. Volume has been increasing in conjunction to the stock price, which is a sign that interest in the stock is on the rise. Look for volume to be a key factor if the stock is to continue higher. Bounces off the 5- and 10-dma (currently at $138.14 and $129.27) are aggressive entries while a break through $150 on strong volume would be a buy signal for the more risk averse. Support can be found at $140, $135 and lower near $130. A break above $150 would once again put MERQ in blue-sky territory. Good news last week may have played a key role in MERQ's rise. On Tuesday, MERQ announced its partnership with ARBA has so far been successful, with ARBA integrating MERQ's web performance management solutions into its Ariba Buyer 7.0 eCommerce system. DELL gave MERQ's LoadRunner system the thumbs-up on Friday, as it was featured in Michael Dell's keynote at the DirectConnect Conference. BUY CALL OCT-140 RBF-JH OI&0 at $19.75 SL=.50 BUY CALL OCT-145 RBF-JI OI18 at $17.13 SL=.25 BUY CALL OCT-150*RBF-JJ OIb3 at $14.50 SL=.00 BUY CALL NOV-145 RBF-KI OI= 1 at $23.25 SL=.50 BUY CALL NOV-150 RBF-KJ OI14 at $20.63 SL=.50 SELL PUT OCT-140 RBF-VH OI= 27 at $ 9.00 SL'.00 (See risks of selling puts in play legend) Picked on Sep 24th at $148.94 P/E = 286 Change since picked +0.00 52-week high=$151.94 Analysts Ratings 9-3-1-0-0 52-week low =$ 26.25 Last earnings 07/00 est= 0.12 actual= 0.14 Next earnings 10-17 est= 0.16 versus= 0.11 Average Daily Volume = 1.83 mln FRX - Forest Laboratories $119.44 (+9.75 last week) One of many specialty pharmaceutical companies, Forest Laboratories develops, manufactures and sells both branded and generic forms of ethical prescription and non-prescription drug products. . Some of the company's more notable products are Celexa (for depression), Tiazac (for hypertension and angina), and respiratory products Aerobid, Aerochamber and Tessalon. Additionally, the company produces Infasurf, a lung surfacant for the treatment and prevention of respiratory distress syndrome in premature infants. FRX markets its products directly to physicians using the company's own specialized sales force. Finally emerging from the shadow of the early August LLY-induced drug stock selloff, FRX is once again charging to new highs. It took nearly a month for investors to shake off the lingering jitters, but they started nibbling at FRX again a little over 2 weeks ago. After consolidating between $93-102, the buyers pushed through the $102 resistance level and they haven't looked back since then. Well, there was a bit of indecision near the $111 resistance level, prompting a quick intraday test of the $102 level, but then the stock really got moving. After trading as low as $102.63 on Tuesday, FRX tacked on some impressive back-to-back gains, closing out the week by posting another all-time high and closing just below $120. Volume, while still below the ADV is steadily climbing, and this looks like the beginning of a decent run. Even the sharp intraday declines last week failed to induce a violation of the 10-dma (at least on a closing basis), and it looks like it should continue to support the price going forward. Earnings are currently scheduled (and confirmed) for October 17th, giving us plenty of time to get positioned for the expected run. The expectations are for a strong quarter, as the company continues to push forward with nearly 50% year-over-year revenue growth. While we would love to see an intraday decline to the $111 support level to provide a more attractive entry point, we think the more prudent strategy is to buy the breakout over $121. Use the intraday volume picture to gauge the strength of the stock's movement, as it frequently is a leading indicator of significant price movement. Pullbacks will occur, so make sure to use stops. Chase H&Q, who upgraded FRX from Buy to Strong Buy in the week after the LLY-induced drug selloff in early August, took a step back on September 15th. After shares of the specialty pharmaceutical company had recovered from $93 to $110, Chase dropped their rating back to a Buy. BUY CALL OCT-120*FRX-JD OI= at $7.00 SL=5.00 BUY CALL OCT-125 FRX-JE OI= at $5.00 SL=3.00 BUY CALL OCT-130 FRX-JZ OI= at $3.50 SL=1.75 BUY CALL NOV-125 FRX-KE OIR at $7.88 SL=5.50 BUY CALL NOV-130 FRX-KZ OI= 1 at $6.25 SL=4.25 SELL PUT OCT-110 FRX-VB OI= at $2.75 SL=4.50 (See risks of selling puts in play legend) Picked on Sep 24th at $119.44 P/E = 88 Change since picked +0.00 52-week high=$121.00 Analysts Ratings 9-5-4-0-0 52-week low =$ 41.75 Last earnings 07/00 est= 0.27 actual= 0.31 Next earnings 10-17 est= 0.49 versus= 0.32 Average Daily Volume = 886 K CIEN - Ciena Corp $120.75 (+13.53 last week, split adjusted) CIENA Corporation's market-leading optical networking systems form the core for the new era of networks and services worldwide. CIENA's LightWork architecture enables next-generation optical services to transmit signals simultaneously over the same circuit. This multiplexing system changes the fundamental economics of service-provider networks by simplifying the network and reducing the cost to operate it. About 45% of sales comes from outside the US markets. It's true, we never recommend holding over a split date because of the high probability of post-split depression. But now that CIEN is trading ex-div and the pitfall is behind us, we're free to explore future potential. Following 2:1 stock split on September 19th, CIEN bucked the typical trend. Being one of the "bullet proof" stocks in the Fiber Optic sector, CIEN powered upwards during regular trading hours. Basically, investors are once again taking a look at these optical stocks for their upward potential. After getting slammed into oblivion by the Telecom scare, the current price is very attractive because it leaves room for lucrative profits. And from an investor's perspective, it's wise to invest in a sector whose sales growth outpaces nearly every other industry. As the week progressed, CIEN consistently set new all-time highs, three to be exact. The record stands at Friday's peak of $121.06. The robust volume levels also indicate that the momentum is snowballing. If the share price is going to move through the immediate resistance, this buying spree needs to maintain its intensity. Currently the 5-dma, in the proximity of $113 and $114, is serving as near-term support. Consider taking entries on strong bounces off this technical line on intraday dips. The more cautious should only buy into strength as CIEN rallies through $120 and $121 on respectable volume. Salomon SB started coverage on CIEN with a Buy recommendation on Thursday. Looking ahead, we see CIEN as a split candidate again at $100. BUY CALL OCT-115 UEE-JC OI907 at $13.88 SL=.50 BUY CALL OCT-120*UEZ-JD OI(52 at $11.00 SL= 8.25 BUY CALL OCT-125 UEZ-JE OIH51 at $ 9.00 SL= 6.25 BUY CALL NOV-120 UEZ-KD OI#73 at $15.25 SL=.00 BUY CALL NOV-125 UEZ-KE OI=92 at $13.00 SL= 9.75 Picked on Sep 24th at $120.75 P/E = 595 Change since picked +0.00 52-week high=$121.06 Analysts Ratings 11-9-2-0-0 52-week low =$ 14.69 Last earnings 06/00 est= 0.17 actual= 0.19 Next earnings 12-07 est= 0.24 versus= 0.03 Average Daily Volume = 5.87 mln ENZN - Enzon Inc $71.06 (+2.19 last week) Enzon is a biopharmaceutical company that specializes in developing, manufacturing, and marketing enhanced therapeutics for life-threatening diseases. The application of its proprietary PEG (polyethelene glycol) technology modifies existing pharmaceuticals by attaching a non-reactive polymer, which essentially wards off the immune system's radar and prolongs the drug's life in the blood. Current FDA-approved products are treating leukemia and the rare "Bubble Boy Disease". Their pipeline is full of possible treatments for cancer, heart disease, and AIDS. A gradual, but distinct uptrend developed after ENZN announced earnings on September 6th. They posted a 4Q net loss of $1.2 mln, or -$0.03 per share versus a net loss of $1.5 mln, or -0.04 per share from the same quarter last year. The improvement was a direct effect of the increased sales of Enzon's approved products and increased interest income, resulting from its recently completed public offering. Although, ENZN's rise isn't based on this alone. In the broadest sense, the price levels amid the industry were beaten down in the wake of stiff competition from the generic drug makers and politicians rallying against the high cost of pharmaceuticals. As it stands now, the drug stocks are a great value. Investors are taking more notice of this under-appreciated industry as the market struggles for direction. And Intel's (INTC) warning on Thursday literally scared more investors towards the safe haven of the drug and other health-related stocks. More specifically, for our purposes, ENZN's strong break through $70 prompted us to add it to our call list. On almost double normal trading volume, ENZN crack the above-mentioned resistance on Thursday and powered to another all-time high in Friday's session. Short-term support is at $70 and $71. A more stable foundation is found lower at the $65 mark. Depending on your risk portfolio, consider taking entries on pullbacks off the 10-dma ($67.46) or higher at the 5-dma ($68.61). If ENZN shoots higher without taking a breather, take positions as it moves through $72. Set stop losses for protection. On the analyst front, ENZN is faring well. UBS Warburg recently upgraded the stock to a Buy from Hold and raised the target price to $80 from $60. Evolution Capital matched the $80 target price set by UBS Warburg and also reiterated their Strong Buy recommendation on September 13th. BUY CALL OCT-65 QYZ-JM OI= 483 at $ 8.88 SL=6.25 BUY CALL OCT-70*QYZ-JN OI= 687 at $ 5.13 SL=3.00 BUY CALL OCT-75 QYZ-JO OI= 446 at $ 3.63 SL=2.00 BUY CALL NOV-65 QYZ-KM OI= 59 at $11.13 SL=8.25 BUY CALL NOV-70 QYZ-KN OI= 434 at $ 7.88 SL=5.75 BUY CALL NOV-75 QYZ-KO OI= 124 at $ 5.63 SL=3.50 Picked on Sep 24th at $71.06 P/E = N/A Change since picked +0.00 52-week high=$72.75 Analysts Ratings 7-0-3-0-0 52-week low =$22.75 Last earnings 06/00 est= -0.04 actual= -0.03 Next earnings 11-10 est= -0.01 versus= -0.05 Average Daily Volume = 550 K ***********************ADVERTISEMENT************************ Up To 60% Off At EverythingWireless.com The online super-store for your active lifestyle. 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The Option Investor Newsletter Sunday 09-24-2000 Sunday 3 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/092400_3.asp ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.sungrp.com/tracking.asp?campaignid=499 ************************************************************** ****************** CURRENT CALL PLAYS ****************** IDTI - Integrated Device Technology $95.94 (+4.94 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). The split announcement we had been speculating over never transpired Friday. Although, IDTI shareholders did approve the proposal to increase authorized shares, the Board decided not to declare. It is quite possible the Intel warning prevented our dreams of stock splits from turning into reality. However, now with enough shares to authorize a split, IDTI directors could very well decide to declare in the coming weeks after the tremor from Intel dissipates. Along with the potential for a split announcement, we're very impressed with IDTI's relatively strong finish in the wake of the Intel warning last Friday. The stock did gap down, which was expected, but steadily rose throughout the day, nearly closing its gap. IDTI finished the day near its highs, which left the stock pinned on its crucial $96 level. The fact that IDTI managed to hold above $96 bodes extremely well for our play. The $96 level is a pivotal point for IDTI and marks the stock's most recent breakout early last week. With that said, aggressive traders might look to enter new positions in IDTI early Monday if the stock looks strong, as there is little resistance immediately overhead after last Friday's gap down. Make sure to wait for positive direction in the NASDAQ and confirm direction in the $SOX before entering the play. If IDTI sails smoothly back above the $100 level, the more risk averse traders might consider entering the play. Make sure to confirm any rally with volume as a sign the IDTI bulls are still in control. If however, IDTI pulls back on light selling pressure, an aggressive entry might be found on a bounce off the 10-dma near $95, or lower near the support level at $92. The reaction to the Intel warning was mixed across the Semi sector Friday. However, the Semi makers specializing in communications chips held up relatively well. IDTI's competitors ADI and AMCC quickly rebounded last Friday after the big gap down, which might signal higher prices early next week. BUY CALL OCT- 90 ITQ-JR OI= 615 at $12.88 SL= 9.75 BUY CALL OCT- 95*ITQ-JS OI=1239 at $10.25 SL= 7.00 BUY CALL OCT-100 ITQ-JT OI=1244 at $ 8.00 SL= 5.75 BUY CALL NOV- 95 ITQ-KS OI= 940 at $14.00 SL=10.50 BUY CALL NOV-100 ITQ-KT OI= 537 at $11.63 SL= 8.75 Picked on August 15th at $66.88 P/E = 54 Change since picked +29.06 52-week high=$104.00 Analysts Ratings 7-1-0-0-0 52-week low =$ 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 = 3.38 mln ITWO - I2 Technologies $186.19 (+14.00 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 press releases and media announcements were filled with bullish grandeur last week as the Fall investor conference season officially opened. The bullish buzz among analysts last week might have helped to lift ITWO, but, the report from Manugistics (MANU) certainly solidified the bulls' case. MANU, who is ITWO's closest competitor, reported second-quarter results late last Thursday that were stellar, to say the least. Analysts consensus estimate was for MANU to break-even; the company earned three cents per share. The report from MANU was great news for ITWO shareholders. Earlier in the week, ITWO announced that it had captured 72% market share in the Tech marketplace for supply-chain software. So, if business is blockbuster for MANU, it should be as equally bullish for the dominant market leader in ITWO. For that very line of logic, Robinson Humphrey reiterated their Buy rating on ITWO last Friday morning and raised their fiscal 2000 earnings estimates. Analysts for Robinson Humphrey said they expected ITWO to have a blowout quarter when the company reports later in October. JP Morgan followed suit and initiated coverage on the stock with a Buy rating. The analyst comments helped ITWO to shrug off the Intel warning last Friday and ultimately positioned the stock for a major breakout. A rally above the $188 level would mark a breakout for ITWO from its six-month long consolidation. With that said, watch closely for a momentum-based move above $188 early Monday, and make sure to confirm a breakout attempt with relatively strong volume. A profit taking pullback on light volume to support at $180 might also provide a profitable entry point. If the broader Tech sector weakens next week and drags ITWO lower, watch for the stock's string of higher lows to continue and consider looking for entry near the 10-dma, which is currently located at $176. In between the analyst comments and media releases last Friday, ITWO announced it had teamed with answerthink (ANSR) to build an online B-2-B marketplace. The announcement of new contracts next week might be the catalyst we need to boost ITWO into breakout territory. BUY CALL OCT-180 QYI-JP OI=404 at $19.38 SL=14.25 BUY CALL OCT-185*QYI-JQ OI=288 at $17.00 SL=12.25 BUY CALL OCT-190 QYI-JR OI=360 at $14.75 SL=11.00 BUY CALL NOV-185 QYI-KQ OI=105 at $23.75 SL=17.75 BUY CALL NOV-190 QYI-KR OI=965 at $21.38 SL=16.00 Picked on August 27th at $166.50 P/E = 500 Change since picked +19.69 52-week high=$223.50 Analysts Ratings 12-20-3-0-0 52-week low =$ 18.56 Last earnings 06/00 est= 0.08 actual= 0.10 Next earnings 10-20 est= 0.10 versus= 0.06 Average Daily Volume = 3.68 mln AFL - Aflac Inc. $62.81 (+1.94 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. Last week, Banc of America analysts Jason Zucker and Brian Meredith stated that after a couple of tough years of lagging the overall market, life insurance and commercial and property casualty insurance stocks are turning around. Aflac, on Thursday, said that they were filing a shelf registration statement with the Japanese authorities for the issuance of up to Y100 billion of yen-denominated bonds. Aflac said they anticipate using the proceeds of any issuance to repurchase common shares or for general corporate purposes. Like water off a duck's back, this stock remained steady all week, posting a positive gain for the week and a new closing high on Friday, using the converged 5-dma and 10-dma from Thursday (then $60.50) as a springboard to new highs. Volume Friday was a robust 1.31 mln shares (1.21 times ADV) and we are now in breakout territory. There is no resistance overhead, so, aggressive traders could use a continued move up from here backed by strong volume as a way to get involved in the play. The conservative approach might be to look for a small pullback to the 5-dma or 10-dma (currently $61.20 and $60.90), along with a nice bounce supported by volume, as an ideal entry point. Keep a watchful eye out for profit taking as this play develops. BUY CALL OCT-55 AFL-JK OI= 19 at $8.63 SL=6.00 BUY CALL OCT-60*AFL-JL OI=319 at $4.75 SL=3.00 BUY CALL NOV-55 AFL-KK OI=948 at $9.75 SL=7.00 BUY CALL NOV-60 AFL-KL OI=364 at $6.63 SL=4.50 BUY CALL FEB-60 AFL-BL OI=581 at $8.75 SL=6.25 Picked on Sep 10th at $60.25 P/E = 27 Change since picked +2.56 52-week high=$62.81 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= 1.08 mln CHKP - Check Point Software Tech Ltd. $152.48 (+1.19 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. On Monday, Check Point unveiled VPN-1/FireWall-1(R) SmallOffice, a software solution that extends the company's Secure Virtual Network (SVN) architecture to bring comprehensive Internet security to enterprise small remote offices and small businesses. "Companies of all sizes connecting to the Internet are looking for world-class robust Internet security," said Asheem Chandna, vice president of business development and product management for Check Point. The trading week was choppy to say the least, with 3 up days and 2 down days, as the movement in the stock somewhat paralleled the Nasdaq market. However, by week's end, CHKP was in positive territory, using the 10-dma at $150.00 as wonderful support, and closing above that level every day last week. Friday, CHKP got pummeled early on, as the Tech market sold off due to Intel's pre-announcement. But, by day's end, the Tech sector had bounced off the lower levels and that helped Check Point buyers regain confidence. They pushed CHKP up by $1.38 Friday, to close at $152.48 on strong volume of 4.23 mln shares (1.94 times ADV). There is overhead resistance at the current 5-dma of $154.10 and all the rest of the way up to CHKP's old high of $163.38. Traders will want to use intraday pullbacks to the 10-dma (currently $150.60), as entry points. Let volume confirm the bounces and subsequent moves off of these support levels as you consider entry and keep an eye on Nasdaq sentiment this coming week. Activis, a global provider of managed security services, will integrate Check Point's Provider-1(TM) into its extensive managed Internet security service offering. Furthermore, Enstar, a leading e-Security Monitoring firm will integrate Check Point's FireWall-1 software into their new eSM service. BUY CALL OCT-145 KGE-JI OI= 346 at $16.88 SL=12.25 BUY CALL OCT-150*KGE-JJ OI=1912 at $14.25 SL=10.50 BUY CALL OCT-155 KGE-JK OI= 219 at $11.88 SL= 9.00 BUY CALL NOV-150 KGE-KJ OI= 8 at $20.75 SL=14.75 BUY CALL NOV-155 KGE-KK OI= 0 at $18.00 SL=13.00 Wait for OI! SELL PUT OCT-140 KGE-VH OI= 692 at $ 5.63 SL= 7.00 (see risks of selling puts in play legend) Picked on Sep 3rd at $149.44 P/E = 198 Change since picked +3.04 52-week high=$163.37 Analysts Ratings 13-4-0-0-0 52-week low =$ 19.31 Last earnings 06/00 est= 0.21 actual= 0.25 Next earnings 10-20 est= 0.25 versus= 0.15 Average Daily Volume = 2.18 mln SEBL - Siebel Systems Inc. $105.00 (+6.00 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. A news-filled week for SEBL and a solid showing for the stock to boot. They announced a number of new alliances this week, beginning with an expanded relationship/partnership with Great Plains, an e-business solutions provider and announced a decision by Fujifilm France to standardize its customer-facing activities in France on Siebel eBusiness Applications. Late in the week, they disclosed that Berkeley Enterprise Partners joined the Siebel Alliance Program as a Premier Partner while Interactive Intelligence joined the Alliance Program as a Siebel Software Partner. Sounds like a good news week for a company that grew revenues in the 2nd quarter of this year at 119% over the same quarter last year. That being said, it should be of no surprise that SEBL tacked on a $6 gain for the week, in a rough Tech market and closed at a new high on Friday. SEBL had only one down day this week, Wednesday, and it was only down $0.88. Friday, Siebel did sell down piercing through the 5-dma and 10-dma ($101.90 and $97.40) in the morning as the Nasdaq gapped down over 200 points, but, it recovered by day's end along with many of the Tech sector leaders. The final tally for Friday showed SEBL up $2.25 at $105, a new closing high, on average volume of 8.14 mln shares. There is no overhead resistance on the chart, so, traders may want to look for a continued climb supported by strong volume as an aggressive way to enter the play. However, a more conservative approach would be to watch for an orderly pullback to the support levels between $102 and $103, the site of former resistance. Alternatively, you could use a move back to the 5-dma or the 10-dma (currently $101.90 and $97.40) along with a volume-supported bounce as an ideal entry point. Watch for profit taking and Nasdaq sentiment before establishing a play. Siebel Systems has formed a strategic partnership and provided an investment in the Everdream(TM) Corporation, a provider of outsourced information technology (IT) services to small and medium offices. BUY CALL OCT- 95 EZG-JS OI=1425 at $14.00 SL=10.50 BUY CALL OCT-100 EZG-JT OI=2024 at $10.25 SL= 7.00 BUY CALL OCT-105*EZG-JA OI=5106 at $ 7.50 SL= 5.25 BUY CALL JAN-105 EZG-AA OI= 909 at $18.13 SL=13.00 SELL PUT OCT- 95 EZG-VS OI=2539 at $3.00 SL= 4.00 (see risks of selling puts in play legend) Picked on Sep 17th at $99.00 P/E = 901 Change since picked +6.00 52-week high=$105.00 Analysts Ratings 15-4-0-0-0 52-week low =$ 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 = 8.40 mln CAH - Cardinal Health Inc 92.38 (+4.38 last week) Cardinal Health is the nation's leading provider of products and services that support the health-care industry. They operate under four distinct business segments: Pharmaceutical Distribution and Provider Services, Medical-Surgical Products and Services, Pharmaceutical Technologies and Services, and Automation and Information Services. Clients include independent and chain drugstores, hospitals, alternate care centers, and the pharmacy departments of supermarkets and mass merchandisers. Give it some gas and get out of the way! The stellar performance this week gives credence to the power of momentum. Let's count the ways..6, 7, 8! Yes, eight days of new records for this drug wholesaler. The fuel that ignited this hotrod came from a succession of bullish comments and upgrades earlier in the month. On September 12th, the convincing gains first appeared. It was Lehman Brothers who first issued a Buy recommendation and upgraded price target of $98. Then, as the week progressed, First Union Securities and MSDW restated Strong Buy and Outperform ratings, respectively, along with higher price targets. The influential remarks propelled the share price through the oppressive resistance at $85. Although at this point in the run, it's pure dynamism driving CAH to new heights. Pay attention to the trading activity. During the run up, volume levels have reached upwards of 1.5 times the ADV. Therefore, look for high-volume moves to precipitate a breakout. Near-term support is now higher at $91 and $92, which is following the rising 5-dma line. There is better support at $89 and $90, but be careful of taking a position below the 10-dma ($88.50). CAH is a steady climber, yet at the same time doesn’t move with the volatility or intensity of an Internet stock. In other words, it might not be able to recover quick enough to elicit profit. Still some profit taking should be expected. The 5-dma support level should hold on a pullback. If not, wait for upward confirmation. Conservative traders may consider buying into strength as CAH climbs past $93 and rallies through the all-time at $93.88. In the news last week, Cardinal Health filed with the SEC to sell $1 bln of common stock and unsecured debt securities, including $250 mln of unsold debt and securities previously registered. The company will use the proceeds for general corporate purposes or acquisitions. BUY CALL OCT-85 CAH-JQ OI=718 at $8.50 SL=6.00 BUY CALL OCT-90*CAH-JR OI=215 at $5.63 SL=3.50 BUY CALL OCT-95 CAH-JS OI=752 at $2.94 SL=1.50 BUY CALL NOV-90 CAH-KR OI= 3 at $6.75 SL=4.75 BUY CALL NOV-95 CAH-KS OI= 12 at $4.38 SL=2.75 Picked on Sep 19th at $92.31 P/E = 39 Change since picked +0.07 52-week high=$93.88 Analysts Ratings 12-7-1-0-0 52-week low =$37.00 Last earnings 06/00 est= 0.71 actual= 0.72 Next earnings 10-26 est= 0.65 versus= 0.53 Average Daily Volume = 987 K QCOM - Qualcomm Inc $73.00 (+6.75 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 called 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. Where's the crystal ball when you need one? Will QCOM break to the upside of $80 and jump into the limelight once again? That's the ultimate question. Since the beginning of the year, QCOM's share price shrunk from $200 to a base line of $60 in recent months. Now there's talk of a comeback. First there was money manager Graham Tanaka, who heads Tanaka Capital management, citing China's long-awaited decision to use CDMA technology for wireless phones coupled with the rising sales of wireless products in Korea as positive signs. And now, the 83- 15 Senate vote to give China permanent access to US markets, which opens the door for vast opportunities for sales and growth in Asia, seals the fate. There's seven mln existing customers plus the world's most populous market to target. Pretty good odds for success. And in the pipeline is the next generation of CDMA technology, which will provide full Internet access in 2001. Qualcomm is also in talks with Via Technologies of Taiwan to design chipsets with high-speed wireless access that eliminates the need for separate Ethernet chips. But quite honestly, this news concerns the company's long-term agenda. So what's the play? Simple. This scuttlebutt entices traders to take a good look at QCOM and its bare-bottom price. And if they like what they see, then the momentum starts to snowball. And that's just what happened. QCOM re-emerged as a Tech favorite among market participants this week and hurdled through several key resistance areas. The major opposition is however at the near-term high of $78.75 and above, at the $80 mark. While this play is considered a potential gold-mine, QCOM hasn't seen the upside of $80 since June. Therefore, it's essential that QCOM break above this level very soon. The more conservative traders might consider waiting until QCOM moves through this formidable opposition. Others who want a more aggressive entry should look for opportunities on strong bounces off the trailing 5-dma ($73.46) and the current level. Near-term support is firm at $69 and $70. It's confirmed. Qualcomm will report earnings on November 2nd, after the market. In other news, Mark Roberts at First Union Securities gave QCOM a nice boost this week with a Strong Buy recommendation. BUY CALL OCT-65 AAO-JM OI=17774 at $10.63 SL=7.75 BUY CALL OCT-70 AAO-JN OI=21960 at $ 7.25 SL=5.00 BUY CALL OCT-75*AAF-JO OI=14507 at $ 4.75 SL=2.75 BUY CALL OCT-80 AAF-JP OI=13898 at $ 3.00 SL=1.50 BUY CALL NOV-75 AAF-KO OI= 2954 at $ 7.50 SL=5.25 BUY CALL NOV-80 AAF-KP OI= 1495 at $ 5.75 SL=3.75 Picked on Sep 17th at $66.25 P/E = 86 Change since picked +6.75 52-week high=$200.00 Analysts Ratings 10-9-4-0-0 52-week low =$ 45.33 Last earnings 06/00 est= 0.27 actual= 0.27 Next earnings 11-02 est= 0.24 versus= 0.23 Average Daily Volume = 15.2 mln AGIL - Agile Software Corp. $80.00 (+4.75 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. In the face of a shaky market this week, AGIL managed to hold up well and in the process, even made some progress. The first half of the week saw the stock move steadily higher, using its 5-dma for support. With formidable resistance at $75 cleared, the next to go was $77. On Wednesday, AGIL attempted to break out strongly. Clearing $80 in early morning trading, the stock moved higher. Encountering resistance at the $83 level brought in the profit-takers. Thursday saw AGIL make another attempt to break above $83. Unable to do so, the sellers managed to get the stock to close in the red, breaking its 6-day winning streak. Friday saw AGIL gap down at the open. Successfully bouncing off support at $75 provided aggressive traders with an ideal entry point. From there, AGIL spent most of the day trading sideways until the last half-hour when the stock took off to close the day up fractionally. This was no easy feat considering the recovery necessary to end the day in the positive. Volume came in at 125% of ADV. Depending on the market next week, AGIL at its current level could be a solid entry point. The $75 mark continues to be a key support level. There is also support from the 10-dma at $76 as well as light support at $77. Above that the 5-dma rests at $79.28. A confirmed bounce off a support level could provide for an aggressive entry point. For those who want to make sure, a break above $83 with conviction would be the target to shoot for. There was no news for AGIL this week, leaving momentum as the driving force behind the stock's advance. While the stock looks poised to continue higher, volume has been tapering off so in making a play, make sure that the volume returns to support a move up. BUY CALL OCT-75 AUG-JO OI=140 at $11.63 SL= 8.50 BUY CALL OCT-80*AUG-JP OI=582 at $ 8.75 SL= 6.25 BUY CALL OCT-85 AUG-JQ OI= 90 at $ 6.63 SL= 4.50 BUY CALL NOV-80 AUG-KP OI= 5 at $12.50 SL= 9.25 BUY CALL NOV-85 AUG-KQ OI= 4 at $10.25 SL= 7.00 SELL PUT OCT-70 AUG-VN OI= 50 at $ 3.88 SL= 6.00 (See risks of selling puts in play legend) Picked on Sep 5th at $74.06 P/E = N/A Change since picked +5.94 52-week high=$112.50 Analysts Ratings 2-6-0-0-0 52-week low =$ 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 = 608 K CFLO - CacheFlow Inc. $137.19 (+14.81 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. There is a certain art to defying gravity, and it appears that CFLO has mastered it, at least for last week. While Monday was a day of rest, the stock spent the rest of the week moving ever higher, despite weakness in all things Tech. The $117 level proved to be the launching pad as a successful test of that point on Monday and Tuesday morning set the stock up to rocket higher. Resistance at $130 encountered on Tuesday was easily cleared by Wednesday afternoon. Thursday was yet another up day for CFLO as It attempted to blast off. Getting as high as $144.75 brought in the sellers to close the stock at $135. On Friday, CFLO bucked the trend of a strong down market and continued its advance to close up 1.62% on 114% of ADV. Last week we mentioned that CFLO's trading channel suggested the possibility of great upside potential. While the stock made some impressive gains this week, CFLO is just in the middle of its trading channel. While this is no guarantee that it will continue higher, the strong up-trend in the stock is difficult to ignore. Aggressive traders will note that bounces off the 5- or 10-dma (at $130.67 and $122.80) have proven to be ideal entry points. Conservative traders may want to wait for CFLO to clear resistance at $140 before entering. Support can be found in increments of $5 at $135 and $130. Resistance can also be found in increments of $5 at $140 and $145. In the news last week, CFLO introduced the Server Accelerator family of products allowing Web sites to use their current infrastructure to serve 5-10 times more content. Tuesday saw Internet marketer Crystal Ball Inc. join CFLO's Adaptive Content Exchange (ACE). On Thursday, CFLO added yet another member to the ACE, this time, Internet traffic management device maker HydraWEB. BUY CALL OCT-135 FUJ-JU OI=20 at $13.25 SL=10.00 BUY CALL OCT-140*FUJ-JV OI=20 at $10.75 SL= 8.25 BUY CALL OCT-145 FUJ-JW OI=14 at $ 8.63 SL= 6.25 BUY CALL NOV-140 FUJ-KV OI= 5 at $16.75 SL=12.25 BUY CALL NOV-145 FUJ-KW OI=00 at $14.88 SL=11.00 SELL PUT OCT-125 FUJ-VE OI=46 at $ 5.38 SL= 7.50 (See risks of selling puts in play legend) Picked on Sep 7th at $113.00 P/E = N/A Change since picked +24.19 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 = 663 K PEB - PE Biosystems Group. $119.00 (+12.50 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. Renewed life in the Biotechs got PEB moving again this week, as investors have pushed the price higher over the past 4 days. Regardless of who makes the discoveries in the Biotech arena, PEB is poised to profit handsomely as the company makes many of the tools and supplies needed for Genomics and Proteomics research. As long as the research continues, PEB will continue to sell its products and increase its profits. The Oxford Glycosciences deal (see news below) is just the most recent in a series of supply deals the company has entered into over recent weeks. Analysts are helping to fuel enthusiasm for the stock as CSFB and Robert W. Baird have issued Strong Buy ratings and Dain Rasuscher Wessels chimed in with a Buy - all in the past month. The effect can be seen clearly on the chart, as PEB has marched nearly 20% higher since the first of the month. Buying volume is on the rise again, confirming the price action, which now shows PEB above the $112 resistance level. Riding the 5-dma (currently $110.25) higher for more than 2 weeks now, the stock is being propelled by the anticipated demand for its products. The 10-dma (currently $105.75) sits just above the $105 support level, but it appears unlikely this level will be tested in the near future. We consider a pullback to $112 or $110 to be an attractive entry point, and would look to open new positions as buying volume increases near these levels. Of course, given PEB's increasing strength, the stock could be headed further up the charts before any weakness emerges. If $120 appears in the rear-view mirror next week and the volume is still strong, feel free to buy on strength and join the bulls. Just remember that nothing moves in a straight line, so keep your stops in place to protect your gains. Perhaps helping the move in PEB over the past few days was Tuesday's announcement that Oxford Glycosciences will become an early access customer for PEB's next generation MALDI TOF/TOF mass spectrometer. This system is intended to enable higher throughput with enhanced informational content for researchers pursuing a better understanding of proteins and their role in the onset and treatment of disease BUY CALL OCT-115 BVE-JC OI=644 at $10.38 SL= 7.50 BUY CALL OCT-120*BVE-JD OI=555 at $ 7.75 SL= 5.50 BUY CALL NOV-115 BVE-KC OI= 40 at $15.25 SL=11.00 BUY CALL NOV-120 BVE-KD OI= 45 at $12.63 SL= 9.50 BUY CALL DEC-115 BVE-LC OI= 66 at $17.88 SL=13.00 BUY CALL DEC-120 BVE-LD OI=317 at $15.13 SL=11.00 SELL PUT OCT-110 BVE-VB OI= 19 at $ 3.63 SL= 5.50 (See risks of selling puts in play legend) Picked on Sep 17th at $106.50 P/E = 132 Change since picked +12.50 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 = 1.42 mln YHOO - Yahoo! Inc. $111.44 (+5.56 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. Well, YHOO gapped down in the morning and continued higher throughout the day, like most NASDAQ stocks. It was an ideal entry point off the open at $103.88, which also happened to be the low for the day. The NASDAQ soared higher out of the gates as both short covers and bargain hunters flooded the market with volume. As a result of today's trading, YHOO covered the entire span of its range, from the $104 area to $112. The stock met intraday resistance at $112 once again, and backed off to close slightly lower. Today's move is very encouraging, especially considering YHOO closed near the highs. Given the INTC warnings and a slew of downgrades, many other NASDAQ "generals," including YHOO, fell and recovered, setting up a bullish scenario. With YHOO earnings less than three weeks away, the stage is being set. A strong recovery, a little bit of volatility, and a boatload of money on the sidelines, and we've got ourselves an earnings run. If you're looking to play YHOO, a strong break through $112 would offer a conservative entry and a bullish confirmation. This would indicate that momentum is behind our play. Traders can also look for pullbacks to intraday support at $110 and $108. Below that, $106 should provide a bounce. Look for strong volume bounces from these support levels for entry. Overhead, continue to monitor the trading at $112. Today, YHOO filed for a shelf offering that would allow the company to sell on occasion up to $1 bln in common and preferred stock, depositary shares, debt securities and warrants. Funds would be used for general corporate purposes, including debt repayment, acquisitions, and capital spending. On a separate note, some Wall Street analysts are estimating that the recent Barnesandnoble.com deal could be worth up to $20 mln a year for Yahoo. That's quite an increase from the $6.3 mln per year that Amazon was paying YHOO to be the "premier" bookseller on the portal. BUY CALL OCT-105 YMM-JA OI=4084 at $12.13 SL= 9.50 BUY CALL OCT-110*YMM-JB OI=4887 at $ 9.25 SL= 6.75 BUY CALL OCT-115 YMM-JC OI=5062 at $ 6.88 SL= 5.00 BUY CALL NOV-120 YMM-KD OI= 105 at $ 8.75 SL= 6.50 BUY CALL JAN-125 YMM-AE OI=6830 at $12.88 SL=10.25 SELL PUT OCT-100 YHV-VT OI=8800 at $ 3.25 SL= 4.50 (See risks of selling puts in play legend) Picked on Sep 6th at $107.88 PE = 281 Change since picked +3.56 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 ************************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. 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The Option Investor Newsletter Sunday 09-24-2000 Sunday 4 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/092400_4.asp ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.sungrp.com/tracking.asp?campaignid=500 ************************************************************** ************* NEW PUT PLAYS ************* MU - Micron Technology $52.00 (-7.13 last week) Micron is one of the world's leading makers of semiconductor memory components. Two-thirds of the companies revenues come from dynamic random-access memory (DRAM), flash memory, and other chips. MU has added the newer Rambus DRAM and Synchronous DRAM products to its line, and it is developing embedded memory for the digital video and other markets. The other third of the company's sales come from Micron Electronics (61% owned by MU), which makes PCs and laptop computers and offers Internet related business services. Unfortunately for MU, the INTC warning wasn't the only bad news. Not only did INTC's demise bring down other Tech and Semi brethren, various brokerages came out and whacked MU. With speculation and concerns over the Semi cycle slowing, INTC's earnings warning was the evidence that quiets the debates and seals the Semi's fate. When the 800 lbs Semi gorilla becomes vulnerable, then the other monkeys in the Semi canopy certainly will too. A softening in the PC market will, without fail, lead to a softer DRAM market. This has come to light in the DRAM spot market recently, falling from $8.50 to $6. Major questions linger: where's the demand? who will be hurt by this? MU will. As a result, Salomon Smith Barney cut its rating on MU from a Buy to an Outperform, and lowered its 12-month price target to $75 from $125. Prudential took MU down to an Accumulate from a Strong Buy and more than halved its price target from $150 to $68. Well, you get the picture. Hard times are upon MU and we don't think the stock has settled down yet. Any price recovery should meet resistance at $53 and $54. To play this put, look for a rollover at these levels as sellers step in. With the global outlook for Semis rather grim, a drastic recovery appears doubtful. Therefore, take advantage of spikes up for entry points. On an intraday basis Friday, MU traded to a low of $50.25. Watch this level for support. A break to the downside of $50 could create a scenario in which shorts will feel more comfortable stepping in. Sub-$50s would merit entry even for conservative traders as downward momentum builds. From there, the next stop could easily be $45. MU will likely offer plenty of trading opportunities given the uncertainty of the Semi sector. BUY PUT OCT-55 MU-VK OI=3006 at $7.25 SL=5.50 BUY PUT OCT-50*MU-VJ OI=1962 at $4.50 SL=2.75 Average Daily Volume = 7.30 mln CMOS - Credence Systems $35.88 (-8.00 last week) Credence's automatic test equipment and testing software are used in the high-volume production of semiconductors. Marketed under several names, Credence's products test digital logic, mixed signal, analog, and nonvolatile memory integrated circuits used in such products as televisions, cars, PCs, telephones, and cameras. Using a direct sales staff in the US and global distributors, the company sells its products primarily to chip manufacturers. The Tech bears staked claim to the Chip Equipment sector long before the Intel warning last Friday. Since hitting an all-time high last Spring, CMOS has successively traced a pattern of lower highs and lows. Remarkably, the stock has not been able to break from its six-month long descending channel. All the while, business for the capital equipment makers appeared to be flourishing as the case has been for the past two years. However, the market has been anticipating a slowdown in spending on capital equipment for some time now. It's the market's anticipation that has been the bears' catalyst to short the Chip Equipment sector, and also on which we'll attempt to capitalize upon. The warning from Intel late last week, followed by a host of downgrades, pushed CMOS below several key support levels. We're looking for a carryover move early next week to take CMOS even lower. The stock has minor technical support and psychological help below at the $30 level. Below $30, CMOS will find major support near $25, which is the stock's pivotal breakout point from last Fall. As such, If the bears circle their wagons around CMOS, the stock could be headed a lot lower that its current levels. There are several possibilities to gain entry into the play. If the Chip sector bounces back early Monday, an aggressive traders might look for CMOS to rollover near resistance at $36.50. Be careful though, thereafter the stock has an unfilled gap up to $40. If, on the other hand, the bears Monday morning, consider entering the new positions if CMOS falls below support at $35. The more conservative traders might wait for CMOS to fall below its near-term low at $34 before entering the play. Wait for the sentiment in the Chip Equipment sector to turn bearish and use CMOS's competitors TER and KLAC as references. BUY PUT OCT-40*CQS-VH OI=40 at $6.13 SL=4.00 BUY PUT OCT-35 CQS-VG OI= 0 at $3.00 SL=1.50 Wait for OI! Average Daily Volume = 1.51 mln ***************** CURRENT PUT PLAYS ***************** UK - Union Carbide $37.13 (+0.53 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. Investors sought refuge in the defensive sectors last Friday after the Intel profit warning shook the Tech and Telecom sectors. UK was the beneficiary of the 'flight to safety' buying that lead market participants back into the Chemicals sector. Furthermore, the government intervention in the sliding euro last Friday in conjunction with easing prices in the oil market combined to bring relief to the Chemicals sector and boost UK from its yearly lows. However,we haven't heard the last about the falling euro nor the sky high prices in the oil market. The action in UK next week will greatly depend upon the euro's direction and the price of oil. If the euro starts sliding again, and the price of oil resumes its climb, we'll want to be on red alert for entry points. Additionally, many analysts have speculated Dow Chemical (DOW) could have taken an earnings hit from the sliding euro. Of course it's purely speculation, but another warning in the Chemicals sector could be the catalyst that carries UK lower. If UK does continue to inch higher early next week, the stock is likely to find major resistance near its breakdown point at $37.75 from two weeks ago. The aggressive traders might consider entering new put plays if UK rolls over at resistance near $37.75. Alternatively, if the macro economic conditions fall into place, traders might consider buying puts if starts sliding UK. First, consider entering new positions if UK falls back below its support at the $37 level. The more conservative traders might wait for UK's slide to accelerate and look to enter the play if the stock falls past its 52-week low at $35.75. BUY PUT OCT-40*UK-VH OI= 93 at $3.75 SL=2.25 BUY PUT OCT-35 UK-VG OI=525 at $1.31 SL=0.75 Average Daily Volume = 816 K AFCI - Advanced Fibre Comm. Inc. $37.63 (-7.44 last week) Advanced Fibre takes care of what's known as the "local loop." That means they design and manufacture end-to-end distributed multi-service access solutions for the portion of the telecomm network between the carrier's central office and you at home. They also design and manufacture environmentally hardened outside plant cabinets and technology and indoor cabinets. They compete with the likes of ADC Telecom, Cisco, Lucent and Northern Telecom. Last week was kind of tough for AFCI, down over $7 for the week, possibly due, in part, to Sprint's recent pre-announcement of a bad quarter, Telecomm spending concerns and the general Nasdaq deterioration. AFCI had been trying to hold onto support at the 5-dma (then $45.40) early in the week, but, Thursday the sellers came out in force and drove it down by $6.50 to finish the day at $38.69. There was strong support at the $43 level, which was pierced Thursday as volume picked up to 5.79 mln shares or two- and-a-half times ADV. There is currently support down near the $35-$37 range. Friday's action was volatile, offering a low of $36.94 and a high for the day of $39.88, but, as the day finished up, AFCI closed down $1.06 at $37.63, on volume of 3.84 mln shares (1.65 times ADV), just above support. Aggressive traders may try to catch this one on an intraday bounce, such as the short covering rally that occurred during trading Friday morning. The more conservative approach would be to watch for a failed rally up to the intraday support levels at $40 or to the stronger support level at $43 as a way to gain entry. Alternatively, you may wish to enter the play only after AFCI drops through the $35 support level on strong volume. Continue to watch the Nasdaq sentiment and specifically, the sentiment within the Telecomm sector before entering new trades. BUY PUT OCT-40*AQF-VH OI=301 at $5.63 SL=3.50 BUY PUT OCT-35 AQF-VG OI=267 at $3.13 SL=1.50 Average Daily Volume = 2.33 mln PCS - Sprint PCS Corp. $28.00 (-17.44 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. From a ski slope to a cliff! That best describes PCS's recent chart action. Spurred on by a pre-announcement from the parent company, Sprint, earlier this week, PCS, Wall Street's wireless darling, got hammered for $17. The pre-announcement stated that PCS's net new subscribers would be about 800,000 for the quarter, instead of 900,000 as originally projected. The current sentiment around the Telecomm sector in general sure didn't help matters either. The stock was down every day last week, but, the real drubbing came on Wednesday, (pre-announcement day) as PCS plummeted $7.31 on 33.1 mln shares (3.6 times ADV). Thursday it was down $4.50 on over 27 mln shares and Friday the volume lightened up to just over 15 mln shares as it finished at $28, down $1. The last day PCS was near a moving average was on September 13th, the day it closed at $47.52 right above the 5-dma (then at $47.10). Looking at a daily chart now, it is hard to find any sort of support, however, on a weekly chart you can find support down around the $20-$22 range. Having just endured a 38% haircut this week, albeit due to fundamental concerns within its business, it is likely that PCS may experience a short covering rally and/or a dead-cat bounce soon. Traders should use this type of a bounce, accompanied by light volume, as a potential opportunity to enter into a trade in PCS. BUY PUT OCT-35 PCS-VG OI=2043 at $7.38 SL=5.25 BUY PUT OCT-30*PCS-VF OI= 251 at $3.25 SL=1.50 Average Daily Volume = 9.16 mln DIGL - Digital Lightwave $69.06 (-3.81 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. By now, most of you know the play on DIGL, but let's reiterate for our new readers. Back in August, DIGL diverged from the NASDAQ trail and headed south. The already downcast stock then got kicked the curb on news of a spending slowdown by the major Telecoms. The forecast that capital spending would drop to the single digits from about 30% this year caused a ripple effect throughout the sector. DIGL was brought to the brink of destruction and succumbed to the pressure. The ensuing action offered entry opportunities above the $75 mark followed by significant downdrafts from which to take profits. The stock's disposition is, however, becoming a concern. With the exception of Friday's session, DIGL was churning in a narrow channel between the upper resistance at the 10-dma ($71.96) and a floor around $67. Monday's intraday low of $66.50 appeared impenetrable. On Friday, we got the break. DIGL opened lower at $63.53, but to our dismay, the share price quickly returned to a comfy zone ($67 to $69). So, in essence we're back at square one. Granted, the pattern of lower highs is promising, but DIGL needs to make a definitive break to the downside of $67. Let's continue to keep a tight rein on DIGL until we see the confirmation. Digital Lightwave is expected to report earnings around October 17th. BUY PUT OCT-75 DGU-VO OI=130 at $10.75 SL=8.00 BUY PUT OCT-70*DGU-VN OI=166 at $ 7.63 SL=5.50 BUY PUT OCT-65 DGU-VM OI= 81 at $ 5.00 SL=3.00 Average Daily Volume = 868 K EPNY - E.piphany, Inc. $82.19 (-1.81 last week) E.piphany is a leading provider of intelligent customer interaction software for the customer economy. E.piphany serves more than 250 industry-leading enterprises in ecommerce, financial services, communications, consumer-packaged goods, and technology. Delivering an integrated solution combining insight and action software products, E.piphany's web-based analytic and operational CRM portfolio provides global business with a single, enterprise-wide view of each customer, to better understand and proactively respond in real-time to customer and market opportunities. The 5-dma has been formidable resistance for EPNY. Since breaking below that line in early September, it has been riding the moving average down through numerous support levels. After the strong break below its 100-dma last Friday (now at $94.45), EPNY has continued ever lower on accelerating volume to the downside. Monday saw EPNY start the week with a minor bounce off oversold conditions. The next two days saw the stock head lower during the open until midday when it would attempt and fail to make a late-day recovery. Finding support at $75 on Wednesday, the stock attempted to rally above its 5-dma but was unsuccessful. On Friday, EPNY once again bounced off support at $75 and from there, rallied strongly to close up a dollar on 234% of ADV. In doing so, the stock finally managed to close above its 5-dma (now at $82.11). This week for the most part was spent in a trading range with the bottom at $75 and the top at $85. A rollover on a failure to break $85 could be a signal for entry but confirm with volume. A break below its 5-dma is another possible entry. A break below support at $75 on volume would see the next strong support at $63. News was abundant for EPNY this week as the company announced a partnership on Tuesday with eAssist.com. Wednesday was another alliance, this time with marketer Maritz Inc. Friday's positive action was likely helped by bullish comments from CEO Roger Siboni, who is looking to target Europe in the next two quarters. BUY PUT OCT-85*PEY-VQ OI=346 at $12.63 SL=9.25 BUY PUT OCT-80 PEY-VP OI=290 at $ 9.13 SL=6.25 BUY PUT OCT-75 PEY-VO OI= 32 at $ 6.75 SL=4.75 Average Daily Volume = 659 K PWAV - Powerwave Technologies $33.63 (-3.44 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. It's been a rough week for PWAV, which means it's been a great week for our put play. After breaking below its 50-dma at $40 last Friday, the stock attempted unsuccessfully to rally above this point on Monday. On Tuesday the 50-dma was cleared but it hit resistance at the 200-dma (now at $42.66). This brought in the sellers who sold the stock down and in doing so, pushed it back below the $40 mark. From there, the stock continued lower. On Friday, PWAV shed $3.75 or over 10% on 2.3x the ADV. This put the stock below a key support level at $35. Look for this point to serve as resistance and a failed rally above this level as a possible entry point. PWAV has been unable to break the 10-dma, now all the way up at $40.80. Failures to make it above this point as well as the 5-dma at $38.52 are also possible entry points. With $35 now broken, the next level of strong support is at $30. There has been no news this week and as a result, the stock has moved down, largely due to a weak NASDAQ, especially in the Wireless and Semiconductor sectors, which PWAV is a part of. Look for sector sympathy to be a key factor in the movement of PWAV's stock price. With strong overhead resistance above, PWAV will have a difficult time moving up. But just as nothing goes up in a straight line, so goes the same for stocks on the way down, though it is likely that bounces from oversold could be opportunities for entry. Just make sure that sector sympathy is on your side and volume confirms the rollover before jumping in. BUY PUT OCT-40 VFQ-VH OI=400 at $8.00 SL=5.75 BUY PUT OCT-35*VFQ-VG OI=271 at $4.63 SL=2.75 BUY PUT OCT-30 VFQ-VF OI= 73 at $2.13 SL=1.00 Average Daily Volume = 2.01 mln DITC - Ditech Communications $39.50 (-6.25 last week) Making it easier to be heard, DITC's echo-cancellation products eliminate the problem of echo in emerging and existing voice networks. With six standalone products in this arena, the company provides solutions ranging from the third generation 18T1 and 18E1, all the way up to the system level Broadband Echo Cancellation System, which employs the company's fourth generation Quad T1 echo cancellation product. The company's optical communications networking products enable telephone companies to expand network capacity quickly, and in a cost-effective manner. Included in the company's optical offerings are optical amplifiers, wavelength division multiplexers and demultiplexers, and a dense wavelength division multiplexing monitor. Relative strength is the name of the game in an unsettled market, and DITC clearly doesn't have it. While the rest of the market dropped at the start of Friday's session on INTC's earnings warning and then recovered through the afternoon, DITC followed suit, but in a more subdued fashion. Dropping more than $2 at the open and an additional $3 before finding support (that's more than 12%), DITC finally found its legs with the rest of the NASDAQ and managed to claw its way back above $39 at the end of the day. While the recovery came on solid volume, the stock couldn't get back over $40, a level the stock hasn't seen since last October. Positive news this past week didn't even begin to arrest DITC's decline as the stock fell through support at $45, and then $40. On Wednesday, the company announced a new 10 gigabit per second (OC-192) optical amplifier. This product will enable service providers to significantly increase the distance between optical to electrical signal regeneration points (up to 300 miles). In addition, these new amplifiers allow service providers to replace intermediate electrical regenerators that are priced in excess of $200,000 with DITC amplifiers at one-tenth the price. The Optical sector was one of the strongest on Friday, but DITC was left in the dark, and this would seem to indicate further weakness ahead. Downside pressure is continuing to mount in the form of the 5-dma (currently $43) and the 10-dma (now at $45.31), just above the $45 resistance (old support) level. A positive market next week could help lift shares of DITC, but we expect the rise to be short-lived. Wait for weakness to appear near resistance and then enter the play as selling volume picks up, plunging DITC back into darkness. BUY PUT OCT-45 DUI-VI OI=145 at $8.38 SL=6.00 BUY PUT OCT-40 DUI-VH*OI= 82 at $5.13 SL=3.00 Average Daily Volume = 823 K ************************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=508 ************************************************************** ***** LEAPS ***** INTC Kicks the VIX Out Of The Danger Zone By Mark Phillips Contact Support Ah, what a relief it was to see something move the VIX out of the low 20's. Rather than having to wait for another month to drag by, INTC got the party started early by issuing an earnings warning on Thursday after the close. While the entire market sold off at the open on Friday, it looked like a convincing bottom for the NASDAQ as it opened at its low of the day (just above 3600) and recovered steadily right into the close, which just happened to be the high of the day. The nearly 200 point range kicked the VIX into gear, and it hit an intraday high of 27.04 before dropping back to end the week at 24.20. While this is not in the "screaming buy" zone (above 30), it is definitely a lot better than watching it stubbornly remain below 20. Those that had been patiently sitting on cash were able to take advantage of the buying opportunity and grab their favorite plays at a bargain. As the day rushed past, many of our favorites like EMC, NT, JDSU, BRCD, and FRX posted impressive recoveries, while many others put in convincing bottom formations. Volume was strong, and by the end of the day, sentiment seemed to have improved remarkably in the space of 24 hours. I am encouraged by the strength shown throughout the technology sector on Friday, and unless you have suddenly gone blind, you can see my bullish horns starting to show. I think the bottom on Friday could be the retest of support we have been so patiently (yeah, right) waiting for. Before you run off to spend your remaining cash on every play in sight though, let's review where we are. The NASDAQ is still trading below every one of its moving averages, which are spread out overhead between the 5-dma (3824) to the 200-dma (4028). We are still in the midst of earnings warning season and the list of confessors is growing by the day. Crude oil is still trading at its highest level in a decade, despite Friday's announcement that the government will start releasing some of its strategic petroleum reserves to alleviate shortages. The Euro finally got a bit of relief on Friday from the Fed, but we need to remember that what the Fed giveth, it can also take away. And finally, we are still in the month of September, which is historically an unpleasant month for the bulls. Despite all of that, I think it may be safe to poke our heads out and start nibbling at our favorite plays. While it is not the time to buy with abandon, my bias has turned cautiously bullish and I think the worst may actually be behind us. The market's resilience on Friday was very encouraging, but I want to see it follow through in the coming week. String together a few more days of strong gains that are accompanied by volume over 2 billion shares on the NASDAQ, and I'll be making a run to the store for the party hats and horns! In the meantime, start putting your action plan into motion and take advantage of the entry points on your favorite plays as they present themselves. Stay away from those out of favor sectors and stick with the leaders. Telecom and Semiconductors are still having a rough go of things, hence our decision to drop both NXTL and AMD this weekend. Both our spotlight play (JDSU) and one of our new plays (BRCM) are in much more favorable sectors, Optical and Broadband respectively. Finalize your target selection this weekend and get ready to profit as we move steadily towards the most profitable part of the year. By next weekend, my head will be full of new ideas I expect to receive at the Boston seminar. Who knows, I may find some nuggets of wisdom that can improve our LEAPS plays. Now wouldn't that be a lovely way to usher in the holiday season? Have a profitable week. Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN EMC 11/07/99 JAN-2002 $ 45 WUE-AI $ 9.50 $62.13 553.95% 09/17/00 JAN-2003 $100 VUE-AT $32.75 $37.13 13.36% CSCO 11/14/99 JAN-2002 $ 45 WIV-AI $11.00 $24.63 123.86% NT 11/28/99 JAN-2002 $37.5 WNT-AU $15.13 $37.00 144.55% 09/10/00 JAN-2003 $ 75 ODT-AO $27.50 $24.24 -11.82% SUNW 12/19/99 JAN-2002 $ 90 WJX-AR $22.00 $47.25 114.77% ERICY 01/30/00 JAN-2002 $16.3 WRY-AO $ 6.75 $ 5.38 -20.37% 07/23/00 JAN-2003 $ 25 VYD-AE $ 6.88 $ 4.25 -38.23% NSM 02/27/00 JAN-2002 $ 70 WUN-AN $24.25 $ 8.88 -63.40% AOL 03/12/00 JAN-2002 $ 65 WAN-AM $18.63 $ 9.13 -50.99% 08/13/00 JAN-2003 $ 55 VAN-AK $17.50 $18.00 2.86% AXP 03/12/00 JAN-2002 $46.6 WXP-AQ $ 9.33 $19.38 107.66% WM 03/19/00 JAN-2002 $ 30 WWI-AF $ 5.38 $10.25 90.52% AMD 04/16/00 JAN-2002 $ 35 WVV-AG $13.00 $ 6.63 -49.04% JDSU 04/16/00 JAN-2002 $ 80 YJU-AP $39.63 $48.38 22.07% 08/27/00 JAN-2003 $130 VEQ-AF $55.25 $40.00 -27.60% MOT 05/14/00 JAN-2002 $36.6 WMA-AZ $ 9.54 $ 6.50 -31.87% NOK 05/21/00 JAN-2002 $ 50 IWX-AJ $17.25 $ 9.50 -44.93% 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 $10.25 -46.75% C 06/18/00 JAN-2002 $48.8 YSV-AW $10.31 $12.75 23.67% AMGN 07/02/00 JAN-2002 $ 75 WQY-AO $20.75 $19.50 - 6.02% JAN-2003 $ 70 VAM-AN $28.75 $28.50 - 0.87% VRSN 07/02/00 JAN-2002 $190 YVS-AR $66.25 $73.38 10.75% 09/03/00 JAN-2003 $190 OVS-AR $86.63 $90.88 4.91% DELL 07/09/00 JAN-2002 $ 55 WDQ-AK $12.63 $ 3.75 -70.31% JAN-2003 $ 60 VDL-AL $15.38 $ 6.13 -60.18% GENZ 07/16/00 JAN-2002 $ 70 YGZ-AN $17.13 $18.13 5.81% JAN-2003 $ 70 OZG-AN $23.13 $24.13 4.30% HWP 07/30/00 JAN-2002 $110 WPW-AB $28.25 $25.38 -10.18% JAN-2003 $120 VHP-AD $32.63 $30.13 - 7.68% EXDS 08/06/00 JAN-2002 $ 55 WZZ-AK $20.75 $23.50 13.25% JAN-2003 $ 60 VTQ-AL $25.38 $27.75 9.34% MFNX 08/06/00 JAN-2002 $ 40 WOF-AH $13.75 $ 5.50 -60.00% JAN-2003 $ 45 VKW-AI $15.63 $ 7.50 -52.02% GM 08/06/00 JAN-2002 $ 65 WGM-AM $ 9.88 $14.75 49.29% JAN-2003 $ 65 VGN-AM $13.25 $18.63 40.57% FRX 08/13/00 JAN-2002 $ 95 WRT-AS $31.38 $43.63 39.02% JAN-2003 $100 VFB-AT $37.38 $48.38 29.41% BRCD 08/27/00 JAN-2002 $220 YNU-AD $65.38 $92.38 41.29% JAN-2003 $220 OMW-AD $86.50 $113.88 31.65% INKT 08/27/00 JAN-2002 $130 XOR-AF $50.13 $47.63 - 5.00% JAN-2003 $140 VFR-AH $60.88 $58.88 - 3.29% VERT 09/03/00 JAN-2002 $ 60 YER-AL $22.13 $11.38 -48.59% JAN-2003 $ 60 OER-AL $28.88 $16.00 -44.59% CMRC 09/10/00 JAN-2002 $ 80 YCU-AP $30.13 $32.00 6.21% JAN-2003 $ 80 OCU-AP $38.75 $41.38 6.77% PHCM 09/10/00 JAN-2002 $ 90 YPH-AR $45.75 $52.00 13.66% JAN-2003 $ 90 OFO-AR $52.50 $58.75 11.90% QCOM 09/17/00 JAN-2002 $ 70 WBI-AN $22.50 $27.13 20.56% JAN-2003 $ 70 VLM-AN $29.63 $35.00 18.12% Spotlight Play JDSU - JDS Uniphase $107.00 It has been less than a month since we last visited JDSU, and it has been a rough month at that. Rather than holding the $107 support level, the stock needed to come down one more notch and test the $95-97 level before getting ready to run again. Our Optical hero tested this level twice last week, first on Monday and then again on Friday during the INTC-induced tech selloff. Support held, and strength in the Optical sector propelled JDSU up from its lows to close right at its high of the day. Friday's close puts the stock fractionally below the 200-dma (currently $107.25), and conservative traders will want to wait for buying volume to push through this level before playing. Target shooters can look for intraday dips near the $100-102 level to initiate positions, but we may not get that lucky again. As long as the market and sector can remain positive going forward, it looks like JDSU may be ready to run into October earnings, which are set for October 26th. BUY LEAP JAN-2002 $110.00 YJU-AB at $35.13 BUY LEAP JAN-2003 $120.00 VEQ-AD at $43.75 New Plays BRCM - Broadcom Corporation $248.75 It isn't often that we add a play to the LEAPS portfolio at the same time that play is added to the list of Call plays, but BRCM has such a distinction this weekend. Sitting in the sweet spot between the Broadband and Semiconductor sectors, BRCM is a provider of highly integrated silicon solutions that enable broadband digital transmission of voice, video and data to and throughout the home and within the business enterprise. These integrated circuits permit the cost-effective delivery of high-speed, high-bandwidth networking using existing communications infrastructures that were not originally designed for the transmission of broadband digital content. Sounds like a bunch of techno-jargon to me too, but here is the simple version. BRCM makes the stuff that makes the miracle of high-speed Internet access possible. Saying that demand for the company's products is strong, would be like saying the Internet is growing. Sure, it is a true statement, but the rate at which it is growing boggles the mind. BRCM is at the forefront of speeding it up and making it more accessible to people like you and me. This was one of the darlings of the tech stock bonanza of last fall, gaining more than 400% from November-March. Can the stock do a repeat performance this year? Maybe, maybe not. But the stock is looking like it is on the cusp of a strong move, which will likely take it to new all time highs. The September decline on the NASDAQ dragged BRCM down to test support at $220, but it has been slowly recovering over the past week, and Friday's action was downright impressive - gaining nearly $20 from its low of the day to close just below the $250 resistance level. In the process, the stock cleared the 30-dma ($242.63) and the 50-dma ($238.83), putting the stock back above all its moving averages. Good historical support exists at $238, right at the 50-dma. As long as the markets can stay healthy, consider target shooting intraday dips to support to get a better entry. The $250 level may present some formidable resistance, but a solid breakout will open the door for BRCM to take a run at its all time highs near $275. Such a breakout would also make for an excellent entry point, so long as it is confirmed by strong volume. BUY LEAP JAN-2002 $250.00 YRR-AJ at $77.13 BUY LEAP JAN-2003 $260.00 OYG-AL at $95.63 YHOO - Yahoo! Inc. $111.44 An old OIN favorite, YHOO has had a rough time over the past 9 months. After tagging a high of $221 back in early January, it has been a long, and at times, rapid decline. Each time the stock appears to have built a new base from which to stage a recovery, something happens to pull the rug out from under it. Those that have been with us awhile will remember a few months ago when we played the stock, using the support at $120 as our floor as we looked for a breakout over $150. Well, lo and behold, there was still more downside in the stock and in July we watched it fall to tag the $100 level for the first time since last November. Then earlier this month, we saw that level tested again, and when it held, it got us thinking that maybe this time the support will really hold. The big concern for Internet stocks is that declining online advertising revenue from all the dot.coms that got zapped by the spring selloff will affect the bottom line of those stocks that are still healthy on the surface. YHOO's management claims this isn't the case. Rather, due to the size of the Yahoo! audience (read that as number of eyeballs), the company will have an even stronger bargaining position with advertisers. If correct, it looks like the Internet shakeout from earlier in the year could leave YHOO sitting pretty and in a stronger position than ever before. Even the selloff on Friday, prompted by Intel's earnings warning couldn't crater the stock of the leading Internet portal, and we watched with amazement as it recovered from its low ($103.88) to close just below the high of the day. Support is looking solid at $103-104, and nearly impenetrable below $100. Unless the market goes into a nosedive, a bounce at either of these support levels looks like an ideal entry for a recovery that is overdue. Resistance sits firmly entrenched near the $120 level, but if YHOO can get through that, another run into the $140's seems entirely possible in the months ahead. BUY LEAP JAN-2002 $120.00 WYH-AD at $31.88 BUY LEAP JAN-2003 $120.00 VYH-AD at $43.00 Drops AMD $26.00 The other shoe fell Thursday night as INTC warned that they would fail to meet earnings estimates for the current quarter. Although the company cited weakness in Europe as the principal cause for the shortfall, we think the problems may run deeper. Fear that it could be an industry-wide problem sent many Semiconductor stocks sharply lower on Friday, and AMD, which is INTC's primary competitor, felt the pain as well. Unable to get a sustainable rally going since Jonathan Joseph's bearish comments on the Semiconductors in mid-July, AMD has been sliding sharply lower for the past 3 weeks, and Thursday's low of $23 represents the stock's lowest level since early March. While INTC's stumble could spell opportunity for AMD, we think it is more likely that with declining PC demand these two companies will be left behind as investors turn their attention elsewhere. While we had a couple nice runs between April and July, the situation does not look favorable in the near term and we can no longer advocate opening new positions at this time. There are too many other great LEAPS plays out there to wait and hope for a recovery in a sector (and stock) that has fallen out of favor. NXTL $47.94 Probation revoked! As we have mentioned recently, we've become increasingly concerned with NXTL's performance and the health of the Telecom sector as a whole. Our "uncle" point was the $50 support level, which got shattered on Monday morning. While support did emerge mid-week near $41, we can't help but think our play is technically broken. Since picking it in mid-June, NXTL gave us only one decent run, and that was only from $60 to $70 in early July. Since then, sector weakness and unsettled markets have dragged our play ever lower, and the prospects do not look bright. Lower highs and lower lows do not make for a profitable play, so NXTL gets booted out of the play list this weekend to make room for plays with brighter prospects. *********** SPLIT PLAYS *********** The Truth Is Out There By Ryan Nelson Despite an Intel disaster, the markets were able to avoid a massive sell-off. Part of the "Plunge Protection Team" ahead of the election as one of my paranoid friends would say. My guess includes less "conspiracy theory" and more historical information. What I mean is, many investors and traders share the same bullish view that we will see a bottom in this market in the coming four to five weeks. If so, all dips should be considered for potential buying opportunities. Thus, Friday's open was a gift. We singled out Ciena last week as a split run play and it didn't disappoint. Staying in Fiberoptics, Corning is due to split on Oct. 4th and is looking healthy. Plus AVNX may be a good split candidate with a meeting to increase shares later in October. Current Split Run Plays None Current Split Candidate Plays ITWO CHKP IDTI PEB SEBL CAH MERQ CFLO BRCM FRX Candidates That Are Not Current Plays BRCD NEWP ARBA DNA VRSN MUSE EXTR MANU RIMM 10 Most Recent Announcements We Predicted LEH - 09/20 (most recent announcement) ORCL - 09/14 SUNW - 08/17 GLW - 08/16 HWP - 08/16 CIEN - 08/15 SEBL - 08/08 SAPE - 08/01 AMD - 07/19 PDLI - 07/11 Major Announcements So Far This Month = 20 LSCC PRHC AVT MLNM AUDC NUHC MEDX AZA ASF UTI ADBE ORCL HGSI IMCL EXAR RNBO LEH PPRO BSYS TEK For our complete stock split calendar, click here... http://members.OptionInvestor.com/splits/index.asp Symbol Company Name Splits Payable Executable 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 HGSI - Human Genome Sciences 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 PPRO - PurchasePro.com, Inc. 2:1 10/12/2000 10/13/2000 IMCL - Imclone Systems, Inc. 2:1 10/13/2000 10/16/2000 FLEX - Flextronics International Ltd. 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 GBBK - Greater Bay Bancorp, Inc. 2:1 10/18/2000 10/19/2000 ADX - Adams Express Company 3:2 10/19/2000 10/20/2000 EXAR - Exar Corporation 2:1 10/19/2000 10/20/2000 PEO - Petroleum & Resource Fund 3:2 10/19/2000 10/20/2000 MSS - Measurement Specialties, Inc. 2:1 10/20/2000 10/23/2000 LEH - Lehman Brothers Holdings, Inc. 2:1 10/20/2000 10/23/2000 BSYS - Bisys Group, Inc. 2:1 10/20/2000 10/23/2000 NUHC - Nu Horizons Electronics 3:2 10/23/2000 10/24/2000 RNBO - Rainbow Technologies, Inc. 2:1 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 TEK - Tektronix, Inc. 2:1 10/31/2000 11/01/2000 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************************ Up To 60% Off At EverythingWireless.com The online super-store for your active lifestyle. Select from the largest range of accessories and products you use every day including Cellular and PCS phones, batteries, chargers, hands-free kits, wireless data products and more. http://www.everythingwireless.com/wireless/homepage?id=1601002 ************************************************************ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 09-24-2000 Sunday 5 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/092400_5.asp ************* COVERED CALLS ************* Position Exit Guidelines: When to close a play early... By Mark Wnetrzak One of the most common questions we receive from new readers concerns the correct timing of early exits for Naked Put and Covered Call positions. While there is no perfect answer or solution to this dilemma, one of the most practical closing strategies is based on the target ROI for the position. If a play originates with a 15% monthly return target and a slightly smaller but reasonable profit becomes available at an earlier time (based on a lower yield and shorter time period), the play is a candidate for early closure. Of course, most positions that meet this criteria will appear to be so successful they can't possibly lose before expiration. That aspect, along with commission considerations and the overwhelming effects of human nature - which urges you to simply hold the play and hope for maximum profit - will prevent most traders from closing the position early. As many of you know, even when the underlying issue moves in the forecast direction, an option position is always at risk from a variety of unexpected events or changes or in the market. These effects are reduced with hedged positions or limited risk strategies but the end result can still be very unfavorable. If the market conditions worsen and become bearish, the early-exit concept may become more important in the coming sessions. There may be a number of examples in this month's portfolio, that while currently at maximum profit, could likely have been closed early in the interest of sound money management. That brings us to an important question concerning the section summaries (weekly profit/loss results) and portfolio management. That is, how to determine when to exit a play (or identify when one should have been closed) without the added mental baggage that comes with the potential for financial failure. It's easy to trade successfully, based on unemotional technical analysis, when your actions are not affected by the possibility of monetary loss. Without actually trading the positions, the best we can do is follow the basic rules (Jim's "Top-Ten" trading axioms on the OIN web-site are ageless!) and try to manage the plays just as we would if they were in our own portfolio. I mention this because each week we receive numerous requests for advice or assistance with various positions and unfortunately, the answer we must give is simple: "Deciding when to enter and exit a play is a matter of personal preference." Fortunately, there is one secret to winning in this game. You must trade on your own terms and according to your personal level of knowledge and experience! You must not allow the effects of outside opinion or extraneous information influence your judgment! You are the only one who can decide how YOU will trade. While professional traders generally strive for consistent monthly returns of 10% to 15%, your specific style or risk/reward attitude may require a less aggressive approach. If you can not afford the potential loss associated with a position, don't make the trade! It's difficult to foresee initially, but success will come when you create a favorable balance of proven strategies and sound money-management techniques. As with any worthwhile endeavor, the task requires patience and hard work, and the fact is, many traders give up after only a few losing plays, long before they have time to learn (and understand) the various methods required for profitable trading. It's easy to fall into that trap but fortunately, there is a way out. Read the newsletter, including articles in the back-issues on the web site, especially Jim's commentary. Subscribe only to worthy publications and study all you can about option trading. Review the current bibles: Options as a Strategic Investment, by Lawrence McMillan; Option Volatility and Pricing Techniques, by Sheldon Natenburg; Secrets for Profiting in Bull and Bear Markets, by Stan Weinstein; and Trading for a Living, by Dr. Alex Elder. Learn the rules and live by them, and repeat the things that you do best. Don't use complicated strategies just because they are unique or intriguing. Often the best course of action is the simplest and it is important to remember that the objectives are more important than the merits of the technique itself. If the strategy is not suitable for your portfolio, then it should not be used, no matter how attractive it appears! The complex subject of "exit strategies" certainly warrants further discussion and we will review the most common approaches to successful position management in future narratives. 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 WPZ 5.19 4.88 OCT 5.00 0.94 $ 0.63 12.9% IMGN 26.19 34.25 OCT 22.50 5.50 *$ 1.81 7.6% NETS 6.25 5.25 OCT 5.00 1.75 *$ 0.50 7.2% EFCX 11.88 11.63 OCT 10.00 2.63 *$ 0.75 7.0% GLGC 24.75 22.50 OCT 20.00 6.38 *$ 1.63 6.4% EPTO 14.00 13.06 OCT 12.50 2.50 *$ 1.00 6.3% WDC 5.75 5.63 OCT 5.00 1.19 *$ 0.44 6.2% SYNM 20.75 18.63 OCT 17.50 4.38 *$ 1.13 6.0% LBRT 30.00 32.44 OCT 22.50 9.13 *$ 1.63 5.7% IMGN 21.81 34.25 OCT 17.50 5.50 *$ 1.19 5.3% PRST 20.13 20.00 OCT 17.50 3.63 *$ 1.00 5.3% MSTR 31.38 26.38 OCT 25.00 8.25 *$ 1.87 5.2% WGAT 22.88 23.31 OCT 17.50 6.63 *$ 1.25 5.0% GSTRF 11.50 9.69 OCT 10.00 2.25 $ 0.44 4.1% NEOF 5.81 4.03 OCT 5.00 1.94 $ 0.16 3.0% VNTR 17.00 13.44 OCT 15.00 3.75 $ 0.19 1.0% WAVX 24.06 17.63 OCT 20.00 5.63 $ -0.80 0.0% RHAT 26.69 19.50 OCT 22.50 6.00 $ -1.19 0.0% TIVO 26.88 18.31 OCT 22.50 6.13 $ -2.44 0.0% *$ = Stock price is above the sold striking price. Comments: The pre-market drop in Net2Phone (NTOP) on Monday, followed by a continued slide after the opening bell, closing near $26, ruined any entry into the position. Many of the above issues are testing technical support or previous lows. Depending on your long-term outlook and risk-reward tolerance, a violation of these support areas could (should?) be used for an exit (or adjustment) signal. 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 AAS 42.28 OCT 40.00 AAS JH 4.00 64 38.28 28 4.9% BCGI 20.00 OCT 17.50 QGB JW 3.38 88 16.63 28 5.7% CTIC 50.13 OCT 40.00 CUC JH 12.50 322 37.63 28 6.8% CYBS 12.69 OCT 10.00 CAQ JB 3.13 133 9.56 28 5.0% GNSS 19.31 OCT 17.50 QFE JW 2.63 31 16.68 28 5.3% NIKU 23.69 OCT 20.00 NFU JD 4.63 36 19.06 28 5.4% TRIH 32.38 OCT 30.00 RIU JF 3.50 171 28.88 28 4.2% Sequenced by Return ***** Stock Last Call Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return CTIC 50.13 OCT 40.00 CUC JH 12.50 322 37.63 28 6.8% BCGI 20.00 OCT 17.50 QGB JW 3.38 88 16.63 28 5.7% NIKU 23.69 OCT 20.00 NFU JD 4.63 36 19.06 28 5.4% GNSS 19.31 OCT 17.50 QFE JW 2.63 31 16.68 28 5.3% CYBS 12.69 OCT 10.00 CAQ JB 3.13 133 9.56 28 5.0% AAS 42.28 OCT 40.00 AAS JH 4.00 64 38.28 28 4.9% TRIH 32.38 OCT 30.00 RIU JF 3.50 171 28.88 28 4.2% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** AAS - AmeriSource Health $42.28 *** Stage II *** AmeriSource Health is a full-service wholesale distributor of pharmaceutical products and related services. They have 21 drug distribution facilities and three specialty products distribution facilities nationwide. They have a diverse customer base that includes hospitals and managed care facilities (accounting for 48% of operating revenue in fiscal 1999), independent community pharmacies (39%) and chain drug stores. A recent nationwide survey of hospital executives conducted by The Healthcare Equity Research Team at Goldman Sachs, listed AAS with the highest category ratings among pharmaceutical distributors. Lehman Brothers has now raised its 12-month price target on AmeriSource to $42. We favor the bullish breakout on heavy volume to a new all time high (Blue Sky territory!). OCT 40.00 AAS JH LB=4.00 OI=64 CB=38.28 DE=28 MR=4.9% ***** BCGI - Boston Communications $20.00 *** Entry Point! *** Boston Communications is a provider of prepaid services to wireless carriers in America. BCGI provides telecommunications carriers with a range of resources, support services, and cutting edge technology targeted to address the unique needs of the growing prepaid, electronic, and mobile commerce industries. BCGI provides one or more of its services to the top five wireless carriers in the United States, plus more than 80 additional carriers worldwide. BCGI has upgraded its technological infrastructure by purchasing two EMC 8730 Symmetrix storage units, which should help position itself as an essential partner to companies interested in entering the m-commerce arena, specifically in micro transactions. We favor the bullish technical outlook now that BCGI has reached a new all-time high on heavy volume. OCT 17.50 QGB JW LB=3.38 OI=88 CB=16.63 DE=28 MR=5.7% ***** CTIC - Cell Therapeutics $50.13 *** Big Day! *** Cell Therapeutics is focused on developing and commercializing novel treatments for cancer. Their research and in-licensing activities are concentrated on identifying new, less toxic and more effective ways to treat cancer. Among some of their more promising candidates is CT-2584 (Apra), a novel anti-cancer drug in Phase II clinical trials for cancers which have become resistant to conventional chemotherapy. CTIC is simply a HOT stock in favorable sector and last week the company announced a public offering of 3,130,435 shares of common stock at a price of $38 per share. CIBC World Markets is acting as lead manager for the offering, and due to increased demand for the issue, the underwriter has exercised their over-allotment option. The total proceeds from the offering will exceed $136 million and the funds will be used for new research and development, clinical trials, expansion of their manufacturing facilities and to supplement working capital. Based on Friday's bullish activity, investors favor the outlook for the company. OCT 40.00 CUC JH LB=12.50 OI=322 CB=37.63 DE=28 MR=6.8% ***** CYBS - CyberSource $12.69 *** On the Mend? *** CyberSource is a leading developer and provider of enterprise eCommerce transaction services, and a pioneer in the area of Internet fraud detection. More than 2,200 businesses throughout the world have chosen to use the CyberSource eCommerce Transaction Suite. The CyberSource eCommerce Transaction Suite(SM) offers customer-controlled, real-time services including, Payment, Tax Calculation, Stored Value, Risk and Fulfillment Management. CyberSource Global Professional Services develops comprehensive eCommerce solutions that are built upon CyberSource's mission- critical transaction services and tailored to each customer environment to provide security, reliability, and extensibility for rapid growth. CyberSource has acquired privately held PaylinX Corporation, a leading provider of enterprise payment software, which should broaden CyberSource's market reach. Earlier this month, Pacific Crest initiated coverage with a "strong buy." The near-term technical picture is improving as CyberSource forges a stage I base. OCT 10.00 CAQ JB LB=3.13 OI=133 CB=9.56 DE=28 MR=5.0% ***** GNSS - Genesis Microchip $19.31 *** Stage I Speculation *** Genesis Microchip designs, develops and markets integrated circuits that process digital video and graphic images. They also supply reference boards and designs that incorporate their proprietary integrated circuits. Recently Genesis has targeted the flat panel computer monitor market and other potential mass markets. Panasonic, Sony and Toshiba all use Genesis' microchips in their DVD players, which should bode well for the next quarter as the GNSS continues to target high-volume market opportunities. We simply favor the improving technical picture as Genesis forms a stage I base, and we believe a cost basis below its current trading range offers a conservative entry point. OCT 17.50 QFE JW LB=2.63 OI=31 CB=16.68 DE=28 MR=5.3% ***** NIKU - Niku Corporation $23.69 *** 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 downside movement is worth the potential reward in this position. OCT 20.00 NFU JD LB=4.63 OI=36 CB=19.06 DE=28 MR=5.4% ***** TRIH - Triad Hospitals $32.38 *** Technicals Only! *** Triad Hospitals provides health care services through hospitals and ambulatory surgery centers located in small cities and selected high growth urban markets in the southwestern, western and south-central United States. Their facilities include 30 general, acute care hospitals and 14 ambulatory surgery centers. This stock has been in a stage II climb since March and the recent pullback in August only provided a buying opportunity. The healthcare sector has been heating up as investors seek safety, and Triad Hospitals isn't slowing down. We still choose to remain conservative and favor some downside protection with reasonable return potential. OCT 30.00 RIU JF LB=3.50 OI=171 CB=28.88 DE=28 MR=4.2% ************************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=501 ************************************************************** ************************* 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 85.00 75 AXY-VO 5.38 2125 25% 75 AFFX 66.25 60 FIQ-VL 3.50 1656 21% 60 AGIL 80.00 70 AUG-VN 3.88 2000 19% 70 AMCC 198.50 190 AZV-VR 10.38 4963 21% 190 ATON 121.19 115 UAO-VC 6.13 3030 20% 100 BRCM 248.75 240 RDU-VH 12.88 6219 21% 235 CFLO 137.19 130 FUJ-VF 8.63 3430 25% 115 CHKP 152.75 145 KGE-VI 5.63 3819 15% 145 CIEN 120.81 110 UEE-VB 5.00 3020 17% 110 DNA 176.56 170 DNA-VZ 10.00 4414 23% 165 EXTR 123.88 110 EXR-VB 5.25 3097 17% 110 GLW 314.75 300 GWD-VT 14.00 7869 18% 300 GSPN 132.25 120 GHY-VD 6.88 3306 21% 120 IDTI 96.00 90 ITQ-VR 5.88 2400 25% 90 IMCL 120.38 110 QCI-VB 3.88 3010 13% 110 ITWO 186.19 180 QYI-VP 11.75 4655 25% 180 JNPR 225.56 210 JUD-VB 10.13 5639 18% 215 MEDX 106.00 100 MZU-VT 6.38 2650 24% 100 MERQ 148.94 140 RBF-VH 9.00 3724 24% 140 MRVC 57.94 50 VQX-VJ 2.88 1449 20% 50 MUSE 192.00 180 UZQ-VP 11.38 4800 24% 180 NEWP 189.00 170 NOQ-VN 7.25 4725 15% 160 NT 66.75 60 NTV-VL 2.13 1669 13% 60 NTAP 147.06 135 ULM-VG 5.75 3677 16% 135 PDLI 124.94 115 RPV-VC 9.25 3124 30% 115 PLXS 69.31 65 QUA-VM 5.13 1733 30% 60 PMCS 221.94 210 SZI-VB 9.75 5549 18% 215 QCOM 72.94 70 AAO-VN 3.50 1824 19% 70 RMBS 85.44 75 BYQ-VN 3.00 2136 14% 75 SDLI 344.38 320 QJV-VD 14.13 8610 16% 315 SEBL 105.00 100 EZG-VT 4.50 2625 17% 100 SWCM 167.44 165 BSW-VM 12.00 4186 29% 165 TIBX 78.44 70 PAV-VN 3.88 1961 20% 70 VRSN 194.88 185 QVZ-VQ 7.88 4872 16% 185 *********************** CONSERVATIVE NAKED PUTS *********************** Option Trading Strategies: Covered-Puts By Ray Cummins One of our readers requested an explanation of this seldom-used but occasionally necessary technique. Put writing is an option trading strategy that involves selling downside insurance for a premium, on an issue that the investor expects to remain above the sold strike price. The technique is commonly known as "selling (naked) puts" and in most cases, puts sold "out-of-the-money" expire worthless, allowing the investor to keep the premium and receive a reasonable profit without ever having to buy the underlying stock. The strategy is used with neutral to bullish issues and can generate consistent, low-risk returns when applied correctly. There is, of course, a margin requirement but this commitment of funds is generally less than the purchase price of an equivalent number of shares of the underlying stock. To ensure that the short position is covered against a loss in value of the underlying issue, the broker requires this collateral, usually about 40% of the value of the security, to be posted in the form of equities or cash deposits in the trader's account. A put writer is also "covered" if there is a corresponding short position in the underlying security, or its equivalent, in his account. Recall that a "short" sale is the sale of a security that is not owned, with the intention of repurchasing it later, at a lower price. An investor borrows the stock from another investor through a broker and then sells it in the open market. Subsequently, the investor repurchases the stock and returns it to the broker, replacing the borrowed position. The use of a short (stock) sale in conjunction with a sold put is a common technique. If a sold (short) put is exercised, and the stock is delivered, it can be further assigned to replace the previously borrowed equity. The strategy of writing covered puts is a bearish technique that profits when the underlying issue remains below the strike price of the sold position. A covered put writer's profit potential is limited to the premium received from the sold option minus the difference between the exercise price of the put and initial price of the shorted stock. The potential loss in this strategy can be substantial when the share value of the underlying issue increases significantly above the initial short price and remains above the strike price of the sold put. In this case, the short position will generate losses offset only by the initial premium received. The covered put writing strategy is not used regularly in bullish markets because the risk of upside loss far outweighs the potential for limited gains. However, in a predominantly bearish market, deep-in-the-money covered puts are a potentially favorable approach if the underlying issue has little chance of finishing above the strike price of the sold put. *** THIS IS AN EXAMPLE - NOT A RECOMMENDATION! *** Strategy: Covered Put Outlook: A neutral-to-bearish underlying issue with above average volatility and subsequently overpriced option premiums. Example: Cell Pathways (CLPA) Sell (short) stock CLPA Bid = $30.00 Sell (short) option OCT-40 Put Bid = $12.00 Position cost basis (30 + 12) = $42.00 Maximum position profit 12 - (40 - 30) = $2.00 Collateral requirement = $34 per share (approx.) Return on investment = 6% (approx.) Outcome: If the value of the underlying issue is below $40 at expiration, maximum profit occurs. The stock will be assigned through the short put. It can then be used to replace the outstanding (borrowed) shares. If the value of the underlying issue is between $40 and $42, partial profit occurs. The stock will not be assigned through the short put. It must be bought at market value and then used to replace the outstanding (borrowed) shares. The initial premium from the sold put is used to offset the additional cost of the stock. If the value of the underlying issue is above $42, the position incurs a loss and that loss increases with the price of the underlying issue. The stock will not be assigned through the short put. It must be bought at market value and then used to replace the outstanding (borrowed) shares. The absolute necessary use of protective stops is obvious with this strategy. With a BUY-STOP on the stock, the chance of a potential loss on the position is substantially reduced when the price of the stock finishes significantly higher than the strike price of the sold put. It is recommended that the investor place a "buy-to-cover" STOP on the sold stock no higher than the break even basis (the underlying issues' initial short price plus the original premium received from the sold put) to protect against unexpected rallies or events such as mergers and takeovers. This strategy is also frequently initiated to exit (or cover) losing positions that involve short put options such as credit spreads. In fact, covering the short position (with the sale of stock) as the underlying issue moves through the sold options' strike is a common method for offsetting potential losses in naked put positions. For more information on basic option trading strategies, review Options as a Strategic Investment, by Lawrence McMillan and Option Volatility and Pricing Techniques, by Sheldon Natenburg, both available in the OIN bookstore. 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 AND 8.88 7.63 OCT 7.50 0.31 *$ 0.31 10.9% CLTR 36.75 33.88 OCT 30.00 1.13 *$ 1.13 10.8% NITE 37.00 37.25 OCT 30.00 0.88 *$ 0.88 8.8% ALLP 16.50 16.50 OCT 12.50 0.50 *$ 0.50 8.5% WAVX 24.06 17.63 OCT 17.50 0.63 *$ 0.63 8.4% CMNT 21.00 27.00 OCT 17.50 0.56 *$ 0.56 7.4% WGR 26.25 23.94 OCT 22.50 0.56 *$ 0.56 6.7% DRXR 19.06 16.75 OCT 15.00 0.38 *$ 0.38 6.6% STAT 20.00 20.75 OCT 15.00 0.44 *$ 0.44 6.4% SCUR 26.25 24.03 OCT 17.50 0.50 *$ 0.50 6.3% NIKU 24.88 23.69 OCT 17.50 0.38 *$ 0.38 6.2% VITR 48.94 48.25 OCT 30.00 1.00 *$ 1.00 6.0% XRX 17.75 16.56 OCT 15.00 0.31 *$ 0.31 5.8% CDN 27.13 24.75 OCT 25.00 0.81 $ 0.56 5.1% PLNR 19.75 14.50 OCT 15.00 0.69 $ 0.19 3.0% GOTO 22.75 16.69 OCT 17.50 0.50 $ -0.31 0.0% *$ = Stock price is above the sold striking price. Comments: Several of the above issues are testing support areas. Time to evaluate your goals (stock ownership?) and risk-reward tolerance. Issues that act weaker than expected or fall through technical support levels become candidates for an early exit. 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 ASPX 12.25 OCT 10.00 XUM VB 0.50 51 9.50 28 17.2% CTIC 50.13 OCT 35.00 CUC VG 0.56 19 34.44 28 5.8% LBRT 32.44 OCT 22.50 IEY VX 0.63 325 21.88 28 9.5% NERX 23.00 OCT 17.50 XUO VW 0.38 114 17.12 28 8.3% PRBZ 29.44 OCT 25.00 PQU VE 0.50 0 24.50 28 6.9% UNM 25.00 OCT 22.50 UNM VX 0.63 203 21.87 28 8.4% WGAT 23.31 OCT 17.50 WAQ VW 0.56 57 16.94 28 11.7% Sequenced by Return ****** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return ASPX 12.25 OCT 10.00 XUM VB 0.50 51 9.50 28 17.2% WGAT 23.31 OCT 17.50 WAQ VW 0.56 57 16.94 28 11.7% LBRT 32.44 OCT 22.50 IEY VX 0.63 325 21.88 28 9.5% UNM 25.00 OCT 22.50 UNM VX 0.63 203 21.87 28 8.4% NERX 23.00 OCT 17.50 XUO VW 0.38 114 17.12 28 8.3% PRBZ 29.44 OCT 25.00 PQU VE 0.50 0 24.50 28 6.9% CTIC 50.13 OCT 35.00 CUC VG 0.56 19 34.44 28 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. ***** ASPX - Auspex Systems $12.25 *** On The Move! *** Auspex Systems develops, manufactures, and distributes a line of network file servers that include specialized software for storing, serving and managing network data. Two software options can be purchased with their NS200 NAS product. DataGuard allows users to continuously access data in the event of a disruption with the host operating system. NetServices 2.0 provides file sharing between UNIX and Windows NT clients, reducing cost by negating the need to replicate data on separate systems. Data storage is a booming sector and ASPX is one of the up and coming companies in the group. Last week, the stock received an upgrade from Penn Merchant Group with a $30 price target. Analyst Joel Achramowicz said Auspex has bettered its cash position of late and the company is expected to claim more than $100 million in free cash on its balance sheet. Achramowicz was also bullish about the firm's quarterly performance, saying Auspex's revenue could come in as high as $16 million, well above the current estimates. OCT 10.00 XUM VB LB=0.50 OI=51 CB=9.50 DE=28 MR=17.2% ***** CTIC - Cell Therapeutics $50.13 *** Big Day! *** Cell Therapeutics is focused on developing and commercializing novel treatments for cancer. Their research and in-licensing activities are concentrated on identifying new, less toxic and more effective ways to treat cancer. Among some of their more promising candidates is CT-2584 (Apra), a novel anti-cancer drug in Phase II clinical trials for cancers which have become resistant to conventional chemotherapy. CTIC is simply a HOT stock in favorable sector and last week the company announced a public offering of 3,130,435 shares of common stock at a price of $38 per share. CIBC World Markets is acting as lead manager for the offering, and due to increased demand for the issue, the underwriter has exercised their over-allotment option. The total proceeds from the offering will exceed $136 million and the funds will be used for new research and development, clinical trials, expansion of their manufacturing facilities and to supplement working capital. Based on Friday's bullish activity, investors favor the outlook for the company. OCT 35.00 CUC VG LB=0.56 OI=19 CB=34.44 DE=28 MR=5.8% ***** LBRT - Liberate Technologies $32.44 *** Entry Point! *** Liberate Technologies is a leading provider of a complete software platform for delivering Internet-enhanced content and applications to information appliances, such as television set-top boxes and game consoles. LBRT's Internet-based client and server software allows network operators, such as telecommunications companies, cable and satellite television operators and Internet service providers to provide consumers access to network operator-branded applications and services. Lots of news out on Liberate: new partnerships; new coverage by Credit Suisse First Boston and ING Barings as interactive TV companies gain favor; and speculation that several software competitors, including Liberate, may be quietly stealing Microsoft's thunder in the new TV software market. Liberate also posted favorable earnings earlier this month and received positive reviews from a number of analysts. OCT 22.50 IEY VX LB=0.63 OI=325 CB=21.88 DE=28 MR=9.5% ***** NERX - NeoRx $23.00 *** Bracing for a Rally? *** NeoRx is engaged in developing biopharmaceuticals for the treatment of cancer, with an emphasis on improving efficacy and reducing toxicities. The company is developing a radio-labeled small molecule that targets bone very specifically, and can be used in conjunction with bone marrow transplants. NeoRx has also completed enrollment of Phase I and Phase II trials of its Skeletal Targeted Radiation product, combined with chemotherapy in patients with multiple myeloma. In addition, the approval of new patents in August, along with their exclusive license to a patent from Stanford University that broadly covers the primary pre-targeting methods, establishes a strong proprietary position for the company in that area. Technically, the issue appears ready to move into a new trading range and our position offers a conservative way to speculate on its future activity. OCT 17.50 XUO VW LB=0.38 OI=114 CB=17.12 DE=28 MR=8.3% ***** PRBZ - ProBusiness Services $29.44 *** Major Reversal! *** ProBusiness Services is a provider of employee outsourced administrative services for large employers. Their primary service offerings are payroll processing, payroll tax filing, benefits administrative services, human resources software and self-service applications. The company's PC-based payroll system offers the cost-effective benefits of outsourcing while providing the flexibility and control of an in-house system. In early August, ProBusiness Services reported favorable fourth quarter operating results, exceeding the expectations of the primary brokerage tracking the company, Robertson Stephens. The company also announced a major investment initiative aimed at dramatically increasing its addressable market and growth rate, and was promptly upgraded. Based on fundamentals, the company is apparently undervalued compared to its peers in the industry. Target a slightly higher premium to open the play as the issue will likely consolidate in upcoming sessions. OCT 25.00 PQU VE LB=0.50 OI=0 CB=24.50 DE=28 MR=6.9% ***** UNM - UNUMprovident $25.00 *** Hot Sector! *** UNUMProvident Corporation is the parent holding company for a group of insurance companies that operate throughout North America and in the United Kingdom, Japan, and Argentina. With its subsidiaries, it is the largest provider of group and individual disability insurance in North America, the United Kingdom, and Japan. Insurance companies are performing well and the recent technical indications in this issue suggests UNUMProvident is ready to resume its up trend. During its recent consolidation period, the stock has traded in a narrow range from 20 to 24 dollars, and Friday's breakout points to a bullish resolution. OCT 22.50 UNM VX LB=0.63 OI=203 CB=21.87 DE=28 MR=8.4% ***** WGAT - WorldGate Communications $23.31 *** Entry Point! *** WorldGate Communications is the founder of the WORLDGATE Service, a television-based Internet product that delivers convenient, high-speed Internet access through cable television systems. WorldGate combines the cable infrastructure with the television platform so subscribers are able to reach the Internet without a personal computer or any additional phone lines. Viewers receive the Internet, interactive advertising and programming through a set-top box and a remote control or wireless keyboard. The new system is popular because it provides a simple user interface and is targeted at customers without computer experience, as well as net savvy users. In addition, Motorola's SURFview platform costs only $99 for the set-top box, enabling cable operators nationwide to provide Internet access at a very low monthly fee. WorldGate can also convert the user interface to the language and culture required for an international marketplace. Most recently, WGAT was rated a "strong buy" at SG Cowen and a "new buy" at PMG with a 12-to-18 month target price of $75. OCT 17.50 WAQ VW LB=0.56 OI=57 CB=16.94 DE=28 MR=11.7% ************************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=509 ************************************************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Intel's revenue warning provides buying opportunity... Industrial stocks rallied Friday after opening over 100 points lower in a volatile session of trading. Friday, September 22 Industrial stocks rallied Friday after opening over 100 points lower in a volatile session of trading. At the same time, the Nasdaq staged an impressive comeback, recovering from an early 215 point loss to close down only 25 points at 3,803. The Dow ended 81 points higher at 10,847 on strength in Hewlett-Packard (HWP) while the S&P 500 index finished almost unchanged at 1,448. Activity on the Nasdaq was extreme at 2.1 billion shares traded with declines beating advances 2,241 to 1,791. Share swapping on the NYSE reached 1.1 billion transactions with declines ahead of advances 1,514 to 1,344. In the bond market, the U.S. 30-year Treasury fell 6/32, pushing its yield up to 5.91%. Thursday' new plays (positions/opening prices/strategy): Brocade BRCD OCT270C/OCT190P $5.00 credit strangle Knight NITE OCT50C/OCT30P $0.25 credit synthetic Tollgrade TLGD OCT100P/OCT105P $0.62 credit bull-put Brocade surprised everyone with an incredible rally, up $20 to $253 near the closing bell. We anticipated a continuation of the recent rally but nobody expected today's extraordinary activity. Needless to say, the credit strangle was easily initiated at the target price and now we are watching the issue for further upside activity. Knight opened lower and moved in a relatively small range during the session. A number of trades were observed near the target entry price. A 50-contract position was initiated in the Tollgrade "bull-put" spread near 9:45 A.M. Portfolio Plays: The stock market endured heavy selling pressure at the open today after Intel (INTC) warned late Thursday that quarterly revenues would be much smaller than expected due to weak personal computer sales growth in Europe. The news prompted a number of analysts to slash ratings on the company and almost every computer related issue suffered initially from the unexpected announcement. The drama was short-lived however, as industrial stocks rebounded on optimism over falling oil prices and a rejuvenated Euro. Joint intervention by the European Central Bank, the U.S. Treasury, the Bank of Japan and the Bank of Canada buoyed the flagging currency and almost simultaneously, oil futures plunged on reports of an upcoming release of crude from the Strategic Petroleum reserve. On the Dow, Hewlett-Packard (HWP) led the way, up almost $9 after the company approved a $1 billion share buyback and said it is confident of meeting its revenue targets and earnings estimates for the fourth quarter. Shares of J.P. Morgan (JPM), Boeing (BA), and Coca-Cola (KO) also advanced and consumer stocks were boosted by the new outlook for the Euro. In addition, several technology companies reiterated bullish forecasts for the future and trends in the top performing issues appear to support that contention. Internet and computer hardware stocks ended the day in the black and biotech issues also rallied. In the broader market, major drug and healthcare stocks advanced while oil and oil service shares consolidated. Our portfolio enjoyed a number of favorable moves and the leader in today's session was a popular technology issue. Manugistics Group (MANU) soared $21 to a new all-time high at $108 after the company reported stronger-than-expected earnings and said it has agreed to buy Talus Solutions, a privately held maker of pricing and revenue optimization software. Commerce One (CMRC) posted solid gains, up 7$ to a recent high near $75 and Polycom (PLCM) also rallied $6 to close at $62. Our debit-spread combination returns maximum profit with the issue above $60 and we will look for an opportunity to close the play early with favorable gains. HNC Software (HNCS), Qualcomm (QCOM), Qlogic (QLGC) and Virata (VRTA) also participated in the bullish activity. In the drug group, Abbott Labs (ABT), Cell Pathways (CLPA), and Enzo Biochem (ENZ) all moved higher and the unexpected star in finance issues was Franklin Resources (BEN). Our new debit strangle reached a midday high of $5.62, an $0.88 profit on $0.75 invested in less than one week. Among the small-cap issues, Caremark RX (CMX) climbed to a new yearly high near $10.50, and our conservative calendar spread position has reached the profit target. Now we will try to manage the position for maximum gain. Based on the new bullish outlook for the issue, that may involve closing the short option (OCT-10C) in anticipation of future upside activity. Not surprisingly, investors continue to reward leading stocks with additional buying support while punishing those issues that produce less than stellar performances. The margin between winners and losers is increasing and examples of that mentality can be seen in the treatment of previously favored stocks such as Lucent (LU), Loral Space (LOR), and Maytag (MYG). That's why it is so important to adjust (or exit) bullish option positions when the underlying stock closes below technical support or an established trend-line (moving average) on heavy volume. There are other, more precise signals that can be used but the idea is based on the historical probability that the issue will continue to move in the new direction, once the previous trend has ended. One stock that we are watching closely for signs of technical failure is Engage (ENGA). Our bullish position in this issue has yet to be adjusted and now the stock is at a key moment. A close below the August lows (near $7.50) would likely signal a new downward trend for the issue, suggesting an offset or exit in the position. Novell (NOVL) is another waning issue that is approaching a decisive point technically but with any luck, new speculation concerning a buyout or spin-off of some portion of company will revive interest in its beleaguered shares. In a late Friday report, Cell Pathways (CLPA) received preliminary notice that the U.S. Food and Drug Administration (FDA) has completed its initial review of CLPA's New Drug Application (NDA) for Aptosyn (exisulind) for the indication of familial polyposis. The agency is expected to send the company a letter noting the deficiencies in the NDA and indicating that it is not being approved at this time. Those of you that didn't take the quick and easy $1 profit as noted in Thursday's narrative will have to ride this one out! It will be interesting to see where it ends on Monday afternoon. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** SII - Smith International $76.75 *** Oil Sector Hedge *** Smith International is a worldwide supplier of premium products and services to the oil and gas exploration and production industry, the petrochemical industry, and other industrial markets. The company provides a comprehensive line of advanced products and engineering services including drilling and completion fluid systems, control equipment, waste management services, three-cone and diamond drill bits, fishing services, drilling tools, under-reamers, casing exit and multilateral systems, packers and liner hangers. The company also offers supply-chain management solutions through an extensive branch network providing pipe, valves, fittings, mill, safety and other maintenance products. Their operations are classified into two segments: Oilfield Products and Services; and Distribution. This month has seen record levels in the oil industry as crude oil prices closed above $37 a barrel for the first time in ten years. Earlier in the month, concerns over shrinking heating oil supplies produced extreme demand for the commodity and crude futures rallied even higher as tensions increased between two oil-producing nations in the Middle East. Prices climbed to their peak when a key inventory report showed an unexpected drop in supplies. The American Petroleum Institute recently posted its petroleum supply data and the biggest surprise came from crude-oil inventories, which fell 2.03 million barrels to 286,580 million barrels during the week of September 15, almost 3 million barrels shy of analysts' average estimate. However, the trend changed last Thursday when President Clinton ordered an emergency release from the Strategic Petroleum Reserve for only the second time in history. Clinton ordered 30 million barrels of crude oil to be released over the next thirty days, as rising home energy costs came to the heart of the election debate. The event may be more psychological than material but it is currently helping soften prices and that's good for the economy in the short-term. Unfortunately, the decision to release oil from the Strategic Petroleum Reserve has not helped the values of oil stocks and we believe there is additional downside potential in the near future. Traders who agree with that outlook can use this position to speculate on the movement of an issue that is significantly affected by the price of oil. PLAY (moderately aggressive - bearish/credit spread): BUY CALL OCT-90 SII-JR OI=2390 A=$1.00 SELL CALL OCT-85 SII-JQ OI=1079 B=$1.75 INITIAL NET CREDIT TARGET=$0.88-$1.00 ROI(max)=25% ****************************************************************** MCHP - Microchip Technology $59.75 *** Breaking Down! *** Microchip Technology develops and manufactures specialized semiconductor products used by its customers for a wide variety of embedded control applications. Their product portfolio comprises micro-controllers, application-specific standard products (ASSP), and related mixed-signal and memory products. The company markets its products to the consumer, automotive, office automation, communications and industrial markets. The company's embedded control products also offer small size, low voltage operation and ease of development, enabling timely and cost-effective product integration by its customers. Microchip Tecnology's ASSP products include a variety of specialized integrated circuits, including its family of KEELOQ security products for wireless communications. The semiconductor sector has been the subject of much analysis and discussion in recent weeks but there is little news to report on this issue. One upcoming event is a 3-for-2 stock split of the company's common shares. The stock split will be effected on September 26 for shareholders of record after the close of the market on September 5, 2000. The company says the stock split is being implemented to increase trading liquidity and to place the stock in a more attractive trading range for retail investors. In addition, the company's earnings are due to be reported on or about October 12, one week prior to October option expiration. Last month, the firm said it expects second-quarter sales and earnings to come in above Wall Street expectations. The company anticipates earnings of $0.50 a share for the September quarter, $0.02 ahead of the current average estimate of analysts polled by First Call. Revenue is forecast at $176 million, which would be 49% higher than revenues in same period last year. The company attributed the strong results to a favorable pricing environment and robust demand for all of its product lines. That sounds like great news but something must be amiss, based on the recent bearish activity. Those of you who agree with this assessment can utilize the current consolidation period to profit from this relatively conservative, bearish positions. PLAY (very conservative - bearish/credit spread): BUY CALL OCT-80 QMT-JP OI=338 A=$0.43 SELL CALL OCT-75 QMT-JO OI=699 B=$0.88 INITIAL NET CREDIT TARGET=$0.50-$0.56 ROI(max)=11% This position was discovered with one of our primary scan/sort techniques; identifying potentially failed rallies on issues with bullish options activity. In this case, the premiums for the (OTM) call options are slightly inflated and the potential for a successful (technical) recovery is significantly affected by the resistance at the sold strike price; a perfect condition for a bearish credit spread. ****************************************************************** ADBE - Adobe Systems $149.56 *** Reader's Request! *** Adobe Systems is a provider of graphic design, publishing, and imaging software for Web and print production. Adobe offers a line of application software products for creating, distributing, and managing information of all types. The company licenses its industry-standard technologies to major hardware manufacturers, software developers, and service providers, and offer integrated software solutions to businesses of all sizes. Adobe is one of the most popular portfolio issues held by retail investors and analysts are currently focusing on earnings and the upcoming stock split. Adobe just reported an impressive fiscal third quarter and the company sees more of the same ahead. In a presentation last week at the Banc of America Conference, Adobe's senior vice president of marketing said the software maker will see at least 25% revenue growth in fiscal 2001 due to demand for Web content. That's impressive considering the recent revenue warnings and the stock split just makes it better. The company has announced a two-for-one stock split, payable on October 24, to shareholders of record on October 2. The stock split occurs just after the October option expiration and that's a favorable sequence of events. One of our subscribers was kind enough to point out the recent bullish activity in this issue. The reader also requested that we identify a favorable, short-term spread position with a very conservative outlook, that would provide a reasonable profit and yet allow for a pullback in the stock from its current levels. Here is a candidate for your review and based on the technical outlook and heavy OTM option interest, the easiest way to profit conservatively from a neutral to bullish movement may involve the most common form of credit spreads. (Target a higher premium in the position initially.) PLAY (conservative - bullish/credit spread): BUY PUT OCT-120 AXX-VD OI=692 A=$1.19 SELL PUT OCT-125 AXX-VE OI=499 B=$1.62 INITIAL NET CREDIT TARGET=$0.62-$0.68 ROI(max)=14% ****************************************************************** - TECHNICALS ONLY - These plays are based on the current price or trading range of the underlying issue and the recent technical history or trend. The probability of profit from these positions is also higher than other plays in the same strategy based on disparities in option pricing. Current news and market sentiment will have an effect on these issues. Review each play individually and make your own decision about the future outcome of the position. ****************************************************************** DFG - Delphi Financial Group $41.00 *** Stepping Up! *** Delphi Financial Group is a holding company whose subsidiaries provide integrated employee benefit services. Delphi manages all aspects of employee absence to enhance the productivity of its clients and provides the related insurance coverage: both ong-term and short-term disability, excess and primary workers' compensation, group life and travel accident. Their asset accumulation business emphasizes individual annuity products. The company offers its products and services in all fifty states and the District of Columbia. The company's two segments are group employee benefit products and asset accumulation products. The company's operating subsidiaries are Reliance Standard Life Insurance Company, Safety National Casualty Corporation, and Matrix Absence Management. Delphi resides in one of the more preferable groups in the market and investors appear to favor the long-term outlook for the company. Surprisingly, almost all of their faith must be based on the technical indications of the underlying issue because there is very little news to review. In some cases, that's just fine and with favorable disparities in the OTM option premiums, this position offers an excellent speculation play for those who agree with our technical assessment of the issue. PLAY (moderately aggressive - bullish/credit spread): BUY PUT OCT-30 DFG-VF OI=146 A=$0.38 SELL PUT OCT-35 DFG-VG OI=1510 B=$1.12 INITIAL NET CREDIT TARGET=$0.88 ROI(max)=25% ***********************ADVERTISEMENT************************ Up To 60% Off At EverythingWireless.com The online super-store for your active lifestyle. Select from the largest range of accessories and products you use every day including Cellular and PCS phones, batteries, chargers, hands-free kits, wireless data products and more. http://www.everythingwireless.com/wireless/homepage?id=1601002 ************************************************************ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
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