The Option Investor Newsletter Wednesday 09-27-2000 Copyright 2000, All rights reserved. 1 of 1 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/092700_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 09-27-2000 High Low Volume Advance/Decline DJIA 10628.40 - 2.90 10678.70 10579.50 1.17 bln 1500/1332 NASDAQ 3656.30 - 32.80 3750.61 3622.66 1.95 bln 1543/2452 S&P 100 758.63 + 1.76 763.68 754.84 totals 3043/3784 S&P 500 1426.57 - 0.64 1437.22 1419.44 44.6%/55.4% RUS 2000 508.13 - 1.76 513.65 506.71 DJ TRANS 2514.53 - 3.54 2523.75 2498.90 VIX 24.36 - 0.72 25.65 24.06 Put/Call Ratio .67 ****************************************************************** I Can't Do It Captain, I Need More Power More power? Shatner and company, Priceline.com(PCLN), need more revenue! Taking the honors today, PCLN was the next in line to warn about 3rd quarter revenue. Their reason: lower-than-expected airline ticket sales. While the company expected September to be their strongest airline ticket sales month, it actually turned out worse than both July and August. We can deduce that the indirect culprit is...you guessed it...higher oil prices. Now, who would have thought that oil prices could catch up with a dot.com? Captain Kirk? As a result, PCLN gapped down and lost an astounding 42% on the day, closing at $10.75. That was enough to spark a sell-off in the Internet Sector. No one was spared and it was a burden on the NASDAQ. EBAY was down $7.19(-10%), CMGI fell $3.81(-12.5%), AOL lost $2.21(-4%), and YHOO broke down to levels not seen since last November, chalking up a 12% loss. Merrill Lynch analyst Henry Blodget downgraded his intermediate rating on PCLN from a Buy to an Accumulate. Jefferies also downgraded the stock as a result of the lower revenue estimates. It has gotten very ugly out there on the NASDAQ as traders have continually sold into strength. Ryan mentioned in last night's Wrap that it has been a steady bleed for the tech index. On the chart below, you can clearly see that every time the NASDAQ gaps up on positive news, traders take advantage of the opportunity and sell positions. After the INTC disappointment, many market pundits said that the gap down and recovery to 3800 was reason to buy, especially after a 2 bln share day last Friday. Yet, I would caution putting too much merit in these gaps down because they really don't sell-off to that level, rather simply open lower as supply takes over. It is evident that Friday's euphoria didn't carry over to this week. The NASDAQ gapped right up into the downtrend line on Monday and we've bled since then. Trading continues to be choppy, unpredictable, and like I mentioned last week, volatile. The bad news seems to be outweighing the good news. Sellers are in control despite the massive amounts of cash that lie on the sidelines. Looking ahead to the rest of the week, we can expect it to be volatile. The recent selling that has hit the NASDAQ has managed to give a little pop to the VIX.X. Today was the fifth session in a row that the NASDAQ was in the red. It is the third time this has occurred this year. On a short term basis, the markets look oversold. A bounce tomorrow and into the weekend would seem logical and probable. Ralph Bloch of Raymond James was on CNBC this afternoon and commented that the markets appear to be the most oversold he has seen, even more so than March. Yet, with the NASDAQ at 3656, it is dangerously close to 3600. If that support is violated, the tech index may retest early August's lows of 3521. On top of that, based on the past trading range, a buy signal isn't triggered until the 30 area on the VIX.X. The NASDAQ Advance-Decline line continues to be concerning for technicians as decliners outpaced advancers today by a margin of 6-4. Volume has been coming back, coming in at 1.9 bln share at the NASDAQ. This indicates that there is a real battle going on between buyers and sellers, resulting in increasing volatility. As for the INDU, it continues to be volatile as well. The trading range today was 100 points and the INDU managed to close above the key support level of 10600. It was the same scenario at the NYSE, traders selling into strength and taking the index right back to support. Although trading in a 100 point range, the INDU closed down only 2.96 at 10628. Market watchers will be keeping their eyes on that support of 10600, since a clean break from there will likely attract sellers to 10500. Over at the NYSE, advancers actually outpaced decliners by a narrow margin of 15 to 13, on 1.17 bln shares. Driving most of the choppy trading this week has been window dressing before the end of the quarter, which is this Friday. As fund managers unload their losers and add to their winners, the markets tend to experience more volatile conditions. Given that the past three days have resulted in much selling, we can speculate that a bounce may be imminent as fund managers put some of that sideline cash to work. Typically, mutual fund investors don't like to see their fund managers holding too much cash, but rather be fully invested, and we know that fund managers aim to please. This may give an added boost technically to the market in the coming days. Today's news that the Labor Department botched its calculation of the CPI over a period from December 1999 to August 2000 didn't seem to command much of a market reaction. The Labor Department issued a slightly upward revision to 2.7% from 2.6% for that period, which appears negligible. These miscalculations were attributed to software erroneously calculating rent components in its index. This was a non-event for the markets, especially now that more global concerns hang over the market, namely oil prices and the Euro. The road ahead looks rocky. What is the catalyst going to be to get this market out of the funk that all of these earnings warnings put us in? We're due for a bounce, yet everyday there's a new company lining up at the confessional booth to tell of its woes. Window dressing the next two days will also be a factor, hopefully to the upside. Expect volatility, tests of key support, and a continuation of the heated, high-volume battles between the bulls and the bears. This type of market is difficult to trade, especially with huge funds positioning themselves for Friday's close, so exercise caution. There will be more answers for the market once we make it to October and earnings announcements begin to come in. With the end of the month and quarter drawing near, October is just around the corner. I wanted to mention that I will be speaking at the Advanced Option Seminar in Denver at the end of the October on how market-makers price options, based on my experience in the IBM pit in Chicago. I look forward to meeting many of you. As time continues to fly on by, it will probably be sooner than later. See you there. Matt Russ Editor ************************* ADVANCED OPTIONS WORKSHOP DENVER - Oct 27-30th ************************* We will be announcing the speaker lineup and the topics they will cover in the Thursday newsletter. The current list includes 16 speakers and the amount of critical option education will be incredible. The guest speakers are going to blow you away. You will not want to miss this event. The current roster of staff instructors includes: Ryan Nelson - Managing Editor, OptionInvestor.com Chris Verhaegh - Options 101/102 Writer and Option Strategist Steve Rhoads - Technical Analysis Instructor Molly Evans - OIN Staff writer Lee Lowell - OIN Staff writer Austin Passamonte - Editor IS, Staff Writer Buzz Lynn - Editor, Sector Trader, Staff Writer Mark Phillips - Leaps Editor, OIN Vince Dowd - Spreads Specialist Louis Horkan - Managing Editor, Premier Investor Steve Pekarek - Editor, SplitTrader.com Jeff Bailey - Editor, Premier Briefing Matt Russ - Editor, OptionInvestor.com Jim Brown - Head Option guy This is not the complete list. We still have several topics and sessions in the race for the final cut. Add in a roster of guest speakers, names you will recognize from routine appearances on CNBC and CNN, and you will have a weekend to remember. In March we had John Dessauer, Mark Leibovit, Harry Browne, Howard Ruff. We are going to do even better in October! The workshop is scheduled for the last weekend in October. Four days of intense, power packed option education. 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 more than 15 speakers and special guests to educate you on every option strategy. There is something for everybody. Just mingling with over 15 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. 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 ************************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=535 ************************************************************** ************** TRADERS CORNER ************** Oscillators vs S/R Trading Models By Austin Passamonte A concern many traders have is fear of developing a trading system that burns out. We've all seen numerous times where trading systems or methods are offered for sale to a "limited number" of lucky recipients in order to prevent the secret system from being overused. That my friends is simply a huckster's call-to-action sales ploy, nothing more. It is literally impossible to have any particular trading method "saturate" an equity financial market. Why? Liquidity is the answer. First of all, the vast majority of small traders do not use any disciplined system to trade with. That's one reason why so many fall by the wayside. The cliché of chat-room tips, rumors and news moving traders to buy & sell are based on fact. That is precisely how most stocks and options are bought & sold, purely through gut instinct. Secondly, astute traders who use technical tools or trade chart breakout patterns use a wide array of signal values, time frame settings, subjective trend lines of resistance and support, etc. Even if millions of traders are using stochastics for example, the extremes between each end of signals given by different value settings create a wide span of entries as the next market move occurs. The secret to success seems to be getting in "early", well before the buying or selling crowd arrives. Well, define early enough. Too early is bad as too late and both are worse than no entry at all. The easiest way to consistently take profits is buy picking out chunks from the middle of a move. Let's assume thousands of traders are watching our exact same signal settings. Are they all trying to trade our markets? Sometimes it may seem that way but I promise you it's not. I focus most of my attention on the OEX, SPX and QQQ markets with my system. Do I care if a few hundred or thousand other traders attempt the same? Of course not! Each of us will make our reads when to enter differently. We will select different strike prices or even straight calls and puts or spread strategies as well. I might be in the OEX while others hit the SPX or vice-versa. Trust me, we will not move the markets as institutions enter their 1,000 and 2,000 contract block orders. Unless that's you buying 1,000 SPX calls @ 25 apiece, we will not push the pile. (If that is you buying those multi-million $$ blocks, why are you reading this? Please give us your advice!) Reality is, tens of thousands individual traders could use our exact same setup and never affect us one bit. With all the different individual stocks, sectors and indexes to target this remains flat impossible to happen. If we were trading an illiquid market like feeder cattle that has very little volume and hundreds of traders focused on the exact same thing, now there's a problem. That's why I'm in the equity world instead of meats & grains. One of my favorite stocks to swing trade is PDLI. This one has some frightening premiums and bid/ask spreads but I love the way it behaves within my chosen tools. How many traders you figure target that symbol with the exact same setup I do versus buy at support/sell at resistance? A paltry few, I'm willing to wager. Which brings up the topic of trading support & resistance. This is an excellent, simple method that has worked forever and will continue to do so from here. That being said, how many buy-stop and sell-stop orders do you think CSCO had sitting near the $60 strike range this week? I would guess many thousands of traders played the exact same stop-order points on this baby. Can you remember any guest analysts on CNBC take questions from callers who don't ask about CSCO, QCOM or JDSU? What does that tell us about level of interest there? Think any of them draw the exact same trend lines to buy or sell with? And yet this system still performs very well, the key being massive liquidity. Far more "traders" simply buy in because it's cheap or sell because of market panic. Our charting tools actually quantify this sentiment as it develops. The act of trading chart patterns and buying support & selling resistance differs from our oscillator approach, but each work equally well. The beauty is that one catches the beginning of a move while the other catches its end. If you're really good and become proficient at each, it's the best of both worlds. Oscillator systems are designed to show us price reversals at the time they occur or shortly after. This means we are trying to buy somewhere near the bottom of a current price movement. Seldom does the action go straight up or down. Once we are in, the first change of direction that goes against us is an exit we should heed. No telling if it's just a slight pause before the move resumes or a reversal. Cash out and hitch the next ride is my motto. Support/Resistance trading is designed to catch moves other than the first. Think about it. Prices bounce off support and ascend on strong volume before we buy. By the time our confirmation occurs here we should already be in with an oscillator system. However, we will probably ride this trade a bit further up with the next resistance level as our target. Same size chunk of profit, just different sections from the middle. Support/Resistance shines when price action stalls around resistance as oscillators are buried in overbought range and then break resistance to the upside. Oscillators give us no upside entry signals, but prices breaking resistance on good volume is our cue to go long again or stay in if we didn't sell. Meanwhile, oscillators still register overbought and we wait for the market to reverse. We may wait for quite some time, as witnessed these days with markets grossly oversold but continuing their decline. Just when you think S/R trading is superior, along comes the final market action. Prices keep rising or flatten out while oscillator signals reverse from overbought and begin to turn down. Chartists following this action are early again to the party as they close longs and play the downside well before the S/R crew catches wind of any change. The ultimate solution? Don't know that there is one but I think it pays to be aware of both approaches. As I write these words my oscillator charts are all oversold and still turning down from here. It looks like we'll rally soon but define soon? Meanwhile, different markets have been breaking key levels of support on accelerating volume, a sign that doesn't bode well for a turn today. Such behavior could have us try a few more put plays or stay with those already open until oscillator signals begin to advance upward once again. It pains me to say there is no one ultimate trading system or method to buy & sell market tops and bottoms. Lord knows I've wasted enough money on over-priced hype methods to learn that fact the hard way. There do exist numerous simple methods to pick off chunks of profit from the midst of price moves more often than not. From there, proper account money-management is the key to long-term success. Personally, I like to focus primarily on one approach and be the best I can at that. Superstar traders we hear about might be able to juggle complex strategies and multiple approaches but not me. I pretty much have one short-term trading approach and another for longer term positions. The type of trade I choose can vary widely but the setup is all the same. There are so many different trading methods and markets to play in that it quickly becomes overwhelming. Focus your attention on a few with laser-like clarity and I believe success is inevitable. Try to catch every rabbit that runs past and your tongue will hang lower any market levels we've seen in years. See you next week & best trading wishes, Contact Support ************************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=549 ************************************************************** ********************** PLAY OF THE DAY - CALL ********************** SEBL - Siebel Systems Inc. $108.56 +3.31 (+3.56 this week) Siebel Systems, Inc., is a provider of eBusiness applications. Their products are used by organizations that wish to enhance their ability to sell to, market to and service their customers across multiple channels such as the Web, call centers, resellers, retail and dealer networks. The unique thing about these applications is that they are designed in and available in industry-specific versions. The founder and CEO, Mr. Siebel got his start as a salesman for the Oracle Corporation. Most Recent Write-Up SEBL got caught up in the selling in the latter-half of trading yesterday and finished well off its highs at $107.75, up $2.75 for the day. Tuesday morning, SEBL announced an agreement with Nokia to offer Wireless eBusiness Solutions through an alliance that will include worldwide joint marketing, collaborative selling, and the extensive development of mobile eBusiness applications. SEBL also announced that LookTrade, a leading developer of B-to-B Web sites, had signed on as a reseller for the Siebel Dynamic Commerce solutions. On the brokerage front, UBS Warburg started coverage of SEBL with a Buy rating and a 12 month target of $135. The Nasdaq weakness caught up SEBL as some profit taking took place in early trading Tuesday and by the half way point SEBL was down $2.25 to $105.50 on light volume. As we progressed to the end of the day, SEBL did pullback to an intraday low of $103.13 before bouncing to close at $105.25, down $2.50 for the day, on lighter than normal volume of 5.6 mln shares. An ideal entry point would be a pullback to the 5-dma at $103.30 followed by a bounce from there on strong volume. Be aware, there is minor resistance between here and the old intraday high of $114.25. Watch for profit taking and Tech sector sentiment before opening new trades. Comments As traders sold into NASDAQ strength today, SEBL stood tall and bucked the trend, finishing at a closing high. With no news out today as a catalyst for SEBL's gains, we are very pleased. On an intraday basis, SEBL found support at $106, and entries can be attained on bounces from that level. Yet, if profit takers step in tomorrow, a pullback to $104 along with a bounce could provide a good entry. With five straight sessions of selling, the NASDAQ is due for a bounce and this could send SEBL above resistance at $111. BUY CALL OCT-100 EZG-JT OI=1839 at $12.25 SL= 9.50 BUY CALL OCT-105*EZG-JA OI=4807 at $ 9.00 SL= 6.75 BUY CALL OCT-110 EZG-JB OI=4904 at $ 6.38 SL= 4.50 BUY CALL NOV-115 EZG-KC OI=1179 at $ 9.00 SL= 6.75 SELL PUT OCT-100 EZG-VT OI=2877 at $ 2.88 SL= 4.00 (See risks of selling puts in play legend) Picked on Sep 17th at $99.00 P/E = 901 Change since picked +9.56 52-week high=$114.25 Analysts Ratings 15-4-0-0-0 52-week low =$ 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 ***************************************** BIG CAP COVERED CALLS & NAKED PUT SECTION ***************************************** Do you hear singing? "...ashes, ashes, we all fall down!" Stocks slumped today in a volatile session characterized by a rotation to favored sectors. Concerns over future revenue shortfalls spurred selling pressure in a number of bellwether issues as investors tried to sort out their profit worries. Third-quarter earnings are likely to fall short of Wall Street's expectations in almost every major industry and there is little conviction that the outlook will improve in the near future. Both major indices edged higher in early trading but eventually turned negative as reports of additional profit warnings began to dominate the news. Pacing the decline in technology stocks were shares of Priceline.com (PCLN), which revealed that third quarter revenues would come in below expectations. At the same time, Kodak (EK), whose profit warning sent the market tumbling Tuesday, slumped another $4, extending its recent decline. Dow industrial components Caterpillar (CAT), AT&T (T), and Honeywell (HON) also fell as investors braced for lower earnings. On the Nasdaq, bargain-hunting traders were unable to stem the losses in the semiconductor group and the sector's early gains quickly eroded. In the broader market, utility, retail and biotechnology stocks edged their way into the positive column while airline and financial issues slid lower. Oil shares advanced as crude prices rebounded after four straight days of declines. Analysts say the current economic outlook, along with concerns over the Euro, is significantly affecting the market's valuation, and this weakness will likely continue until the upcoming earnings reports start to provide a positive perspective for investors. With volatile and divergent moves expected in the coming weeks, we will focus on high probability positions and conservative entry points in our quest for consistent, low risk monthly returns. Summary of Previous Picks: Covered Calls: (Margin would double the listed Monthly Return) Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return OSIP OCT 45 42.06 67.75 $2.94 5.7% ALXN OCT 85 80.25 106.38 $4.75 4.9% NMSS OCT 65 59.75 58.31 -$1.44 0.0% Naked Puts: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return ALXN OCT 80 76.75 106.38 $3.25 11.4% OSIP OCT 40 38.56 67.75 $1.44 10.0% NMSS OCT 55 53.00 58.31 $2.00 8.4% AGIL OCT 60 58.56 81.81 $1.44 8.3% METHA OCT 45 43.06 44.69 $1.63 8.1% VRTS OCT 110 107.94 141.25 $2.06 7.0% NTAP OCT 115 112.81 128.13 $2.19 6.8% RMBS OCT 60 58.50 79.50 $1.50 6.7% PDLI OCT 72.5 70.87 119.13 $1.63 6.6% RIMM OCT 60 58.37 85.03 $1.63 6.4% EXTR OCT 82.5 81.06 112.25 $1.44 6.2% BLDP OCT 90 88.50 109.06 $1.50 6.2% PALM OCT 40 39.12 48.88 $0.88 6.1% AVNX OCT 115 111.50 105.00 -$6.50 0.0% Naked Calls: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return TUTS OCT 120 122.31 74.88 $2.31 9.8% MRVC OCT 85 86.00 49.06 $1.00 8.2% New Candidates: This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any strategy or technique in which you are not completely comfortable with the potential loss, the necessary adjustments and the common entry-exit strategies. (We monitor the positions marked with ***). *************** BULLISH PLAYS - Covered Calls & Naked Puts *************** CTIC - Cell Therapeutics $59.38 *** Entry Point! *** 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. Earlier this year, the company announced that the FDA had accepted its application for its lead drug candidate, Arsenic TriOxide (ATO), for acute promyelocytic leukemia, and had granted priority review for the application. PG-TXL, in clinical trials in the United Kingdom, links paclitaxel, the active ingredient found in Taxol, to a polyglutamate polymer. Taxol is the world's most widely used cancer drug. Phase II clinical trials are expected to start in the United States and United Kingdom later this year. Shares of Cell Therapeutics soared this week after the company's new drug, Trisenox, which is used to treat a severe form of leukemia, received approval from the U.S. FDA. The drug benefits patients who have a recurrence of acute promyelocytic leukemia or who have failed to respond to common treatment. APL, a malignant disorder of the white blood cells, is found in 10% to 15% of the more than 10,000 patients diagnosed with acute myeloid leukemia every year. CTIC is a HOT stock in favorable sector and based on the recent bullish activity, investors favor the outlook for the company. CTIC - Cell Therapeutics $59.38 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put OCT 45 CUC VI 25 0.81 44.19 8.5% *** Sell Put OCT 50 CUC VJ 12 2.00 48.00 16.2% ****** ELNT - Elantec Semiconductor $99.81 *** New High! *** Elantec Semiconductor designs, manufactures and markets high performance analog integrated circuits primarily for the video, optical storage, integrated DC:DC, and xDSL markets. The offer around 150 items, including amplifiers, drivers, faders, transceivers and multiplexers, most of which are available in multiple packaging configurations. Elantec targets high growth commercial markets in which advances in digital technology are driving increasing demand for high speed, high precision and low power consumption analog circuits. Elantec is an industry leader in the design of high performance analog integrated circuits and today they debuted a number of new products for video signal processing. These unique high-speed amplifiers complete the company's new current feedback families. With high bandwidths and slew rates, modest power consumption and competitive prices, the products are ideal for next-generation video designs as well as other high-bandwidth applications. Another recently offered product is their new DSL line driver for high-density, low power, central office line card designs. The unique miniature design is a testament to the company's focus to provide a wide range of innovative products with high capacity manufacturing for the line driver needs of the xDSL technologies. In other news, Elantec recently announced a public offering of 1,600,000 shares of its common stock at $81.25 per share on the Nasdaq National Market. Of this amount, 1,520,000 shares were offered by the company and 80,000 shares were offered by selling stockholders. Elantec has also granted the underwriters an option to purchase an additional 240,000 shares of its common stock to cover over-allotments. Robertson Stephens is acting as the lead underwriter of the offering. The co-managers are Banc of America Securities, Thomas Weisel Partners, and Adams, Harkness & Hill. ELNT - Elantec Semiconductor $99.81 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put OCT 75 UET VO 0 0.75 74.25 4.8% Sell Put OCT 80 UET VP 13 1.38 78.62 8.5% *** Sell Put OCT 85 UET VQ 40 2.44 82.56 11.7% ****** EXTR - Extreme Networks $112.25 Extreme Networks is engaged in the design, development, manufacture and sale of high performance networking products based on Gigabit Ethernet technology. They provide end-to-end switching solutions that meet the requirements of enterprise LANs, ISPs and content providers. Theirs Summit and BlackDiamond switches share a common ASIC, software and management architecture that allow a relatively short product design and development cycle, thereby reducing the time-to-market for new products and features. Extreme has been one of the best performing Nasdaq issues over the last year and the company has been hailed as a technology leader, receiving an unprecedented number of industry awards. Extreme was named the "Fastest Growing Company in Silicon Valley" based on three-year revenue growth by the Silicon Valley Business Journal, and EXTR is the only company to win the Networld+InterOp "Best of Show" Award back-to-back for four years. In addition, Extreme was ranked #2 in Deloitte & Touche's most prestigious "Rising Star" category for its "Fast 50" Program for the Silicon Valley, a listing of the 50 fastest growing technology companies in the area. Rankings are based on the percentage of growth in revenues from the last five years and Extreme's sales have grown from $300,000 in fiscal 1997 to $262 million in the most recent quarter. The tremendous growth is based on the industry's wide acceptance of the company's vision of " Ethernet Everywhere" for next generation networks delivering broadband communications. With the recent bullish activity in the issue, it's obvious that investors believe EXTR is destined to be one of the top companies in the industry and we favor the recent technical support near the target cost basis. EXTR - Extreme Networks $112.25 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put OCT 82.5 EXR VX 36 0.94 81.56 5.3% Sell Put OCT 85 EXR VQ 166 1.25 83.75 7.0% *** Sell Put OCT 87.5 EXR VY 71 1.63 85.87 9.0% Sell Put OCT 90 EXR VR 344 2.06 87.94 11.0% ****** MEDX - Medarex $115.88 *** Bracing for a Rally! *** Medarex is a biotechnology company that is developing therapeutic products for cancer, autoimmune disease, secondary cataracts and other life-threatening and debilitating diseases based on proprietary technology in the field of immunology. Their products are currently under development and will need approval from the FDA prior to commercial sale. Their technology uses genetically engineered mice to produce fully human monoclonal antibodies. Medarex uses a monoclonal antibody technology to turn genomic discoveries into new treatments for cancer and other life threatening and seriously debilitating diseases. Because their technology is the fastest and the most efficient way to move from genomic discovery to new treatments for disease, their products are very attractive to many companies in the biotech and pharmaceutical industries. They currently have 22 corporate partners working with them on the technology including many of the largest pharmaceutical and biotech companies such as Novartis, Johnson & Johnson, Bristol-Myers, Amgen, and Immunex. They are currently in discussions with a long list of potential partners, and the company expects to be announcing additional partnerships in the future. Genomic discovery is changing medicine the way the Internet changed communications and Medarex is poised to be most efficient developer of new genomic medicine, thanks to its unique human antibody technology. In addition, Medarex announced that its Board of Directors has approved a two-for-one split of the company's outstanding shares of common stock. The stock split will entitle each shareholder of record on September 27, 2000, to receive one additional share of common stock for every share held. The shares are expected to be distributed on October 18, 2000. MEDX - Medarex $115.88 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put OCT 95 MZU VS 94 1.38 93.62 6.8% *** Sell Put OCT 100 MZU VT 100 2.44 97.56 9.8% Sell Put OCT 105 MZU VA 23 3.75 101.25 12.6% ****** RBAK - Redback Networks $168.00 *** On The Move! ** Redback Networks is a provider of advanced networking systems that enable carriers, cable operators and service providers to rapidly deploy high-speed access to the Internet and corporate networks. Their Subscriber Management System and SmartEdge products combine networking hardware with sophisticated software. Redback's product lines are designed to enable customers to create regional networks that support all major broadband access technologies, as well as the new services that these high-speed connections will allow. Earlier in the month, S.G. Cowen analyst Christin Armacost said she was initiating coverage of Redback Networks with a rating of "strong buy" and a price target of $185. Based on the optimistic presentation at a recent technology conference, her outlook was correct. The discussion identified the company's new products, positioning, and growth opportunities and provided an overview of their Subscriber Management System (SMS) platform of broadband aggregation equipment and the SmartEdge optical transport device. Comments after the presentation suggested that Redback is rapidly building its internal infrastructure to support future growth and the company is on track to become profitable by the fourth quarter. Those of you who favor the outlook for the company can speculate on the outcome of the recent bullish activity with this relatively low risk position. RBAK - Redback Networks $168.00 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put OCT 125 BKK VE 334 1.38 123.63 5.2% *** Sell Put OCT 130 BKK VF 113 1.69 128.31 6.3% ****** VRTS - Veritas $141.25 *** Own This One! *** Veritas Software is an independent supplier of storage management software, and is the leading provider of data availability software. Their products offer protection against data loss and file corruption, allow rapid recovery after disk or computer system failure, enable IT managers to work efficiently with large numbers of files, and make it possible to manage data distributed on large networks without harming productivity or interrupting users. Veritas develops and sells products for most popular operating systems, including versions of UNIX and Windows NT. They also provide a full range of services to assist customers with their storage management solutions. Veritas is currently achieving annualized revenue run rates well in excess of $1 billion, and now ranks as one of the top-ten independent software companies in the world by revenue and top-five by market capitalization. Last week, Lehman Brothers initiated coverage on Veritas with a "buy" rating. Perhaps not coincidentally, at an awards ceremony on the same day, Veritas was named one of the fastest growing technology companies by Deloitte & Touche's "Fast 50" Program for the sixth year in a row. Veritas was also honored as the only company to receive the "Fast 50" award for six consecutive years. Mark Leslie, chairman and CEO of Veritas, noted at the ceremony that the company estimates their annual growth to be in excess of 50% per year and based on that incredible expansion, they plan to invest $3.9 billion in new research and development over the next five years. In addition, Veritas has engaged in a number of new collaborative efforts with several companies this month, among them Digital Island, Microsoft, and Hewlett-Packard. All of these agreements are expected to bolster the company's bottom line in the coming quarters. Traders who favor the bullish fundamental outlook for Veritas can use this position to establish an acceptable cost basis in the underlying issue. VRTS - Veritas $141.25 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put OCT 105 VUQ VA 337 1.06 103.94 4.8% Sell Put OCT 110 VUQ VB 905 1.69 108.31 7.5% *** Sell Put OCT 115 VUQ VC 857 2.38 112.62 9.6% *************** BEARISH PLAYS - Naked Calls *************** AETH - Aether Systems $105.00 *** Looking for a Bottom! *** Aether Systems provides wireless data services, systems and software enabling the use of handheld devices for mobile data communications and real-time transactions. Aether operates TradeRunner, a real-time wireless trading and financial information service offered to online customers of Morgan Stanley Dean Witter Online, and the Reuters MarketClip service for financial market price quotes, alerts and information. They are developing wireless trading and financial services for other major financial institutions, including Charles Schwab. Through recent acquisitions, Aether has expanded into the healthcare, sales force automation and transportation logistics and delivery industries. There is no definitive reason for the recent decline in Aether's share value but one thing is for sure, the technical outlook is not favorable. Obviously, the issue has performed well in the past and it will likely recover in the future. However, the current indications are neutral-to-bearish and the company's fundamental situation is less than outstanding. We will utilize the current downward trend and the overpriced option premiums to profit from these relatively conservative, bearish positions. The probability of the share value reaching our target strike appears rather low but there is always the possibility of a recovery rally so monitor the issue daily for any changes in technical character. AETH - Aether Systems $105.00 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call OCT 135 HEX JG 654 2.25 137.25 12.8% Sell Call OCT 140 HEX JH 303 1.50 141.50 8.8% Sell Call OCT 145 HEX JI 96 1.31 146.31 7.8% *** ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. 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