The Option Investor Newsletter Sunday 10-01-2000 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/100100_1.asp Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 9-29 WE 9-22 WE 9-15 WE 9-8 DOW 10650.92 -196.45 10847.37 - 79.63 10927.00 -293.65 - 18.13 NASDAQ 3672.82 -130.94 3803.76 - 31.47 3835.23 -143.18 -255.92 S&P-100 759.83 - 14.25 774.08 - 15.69 789.77 - 23.13 - 16.93 S&P-500 1436.51 - 12.21 1448.72 - 17.09 1465.81 - 28.69 - 26.27 W5000 13613.40 - 64.80 13678.20 -135.50 13813.70 -236.50 -279.70 RUT 521.37 + 2.55 518.82 - 12.06 530.88 - 4.82 - 6.21 TRAN 2521.64 - 75.50 2597.14 - 74.32 2671.46 - 61.32 + 19.86 VIX 23.85 - .32 24.17 + 2.24 21.93 + 1.24 + 1.24 Put/Call .59 .56 .65 .52 ****************************************************************** The New Trend Continues Its Terror Three days down, one day up for the Nasdaq seems to be the new trend in the market. It's the theme that has haunted the Nasdaq all September and has now effectively wiped out the gains for the month of August. There's nothing like a perfect reversal to put you right back where you started. You may recall, the Nasdaq started the month of August at 3686 before making a monstrous run up to 4250, only to get dumped back to a close today at 3672. And, although the market has already suffered some degree of pain, it may have a little more to go in the short-term. Today's QQQ close right near the day low doesn't bode well for Monday morning. The DJIA didn't fare much better either with the index giving back three-fourths of Thursday's gain and also closing right at the day low. The blue chips settled at 10,650, down a mere 173. Volume was heavy once again at 1.13 bln shares, while the ADV/DEC line remained even. The typical defensive plays were up on the day, stuff like Drugs, Utilities, etc. Most of the damage was in the tech sector, thanks again to the Apple Computer warning. The S&P 500 closed down over 21 points and the Russell 2000 finished down a modest 2.44. As was mentioned all over the news today, AAPL was the stock that really put the pressure on the Nasdaq today. This wasn't just an average earnings warning, but a biggie. Business will be down across all geographics according to Apple. This just gives more credence to the words of Intel from a week earlier that said demand was slowing. Fortunately, the Nasdaq didn't have a major gap down, which allowed for trades to be put on before the real sell-off got underway. It was one of those slow, bleeding types that squelched all the buyers. The final numbers on the Nasdaq showed a loss of 105.50 to 3672.82 on volume of 1.97 bln. That is another high volume day this week. Now if we could only get this thing to turn around with the recent return of volume, we would be ready for take-off! Like I have been saying all summer, show me a couple days in a row of 2 bln share days, and I will be ready to actively trade again. In fact, now that the VIX is starting to act more lively, I have seen more traders returning to work. More economic numbers sent up a red flag this morning. Spending rose in the month of August by a rate of 0.6% versus an estimate of 0.5%. And incomes did not keep pace. They rose by only 0.3% versus an estimate of 0.4%. "It's just a continuation of what we've seen since Labor Day," said John Shaughnessy, chief investment strategist at Advest. "This is a combination of the concerns about third-quarter earnings reports, the implications of rising oil prices for the economy and corporate profit and the implications of the weak euro." Couldn't have said it better myself. These are some typical concerns that keep markets down. Now are you ready for the post-market news on Friday? Yep, you guessed it. Another earnings warning, and from a company that calls the Dow 30 its home. Caterpillar said it expects third- quarter results will miss Wall Street's current estimates, but says it remains on track to meet projections for the year. They expect the third quarter profits to be about 15 percent below analysts' consensus estimate of 68 cents per share. The company cited a number of factors for the reduced outlook, including weakness in the euro and British pound, continued softness in the North American construction and global mining industries, weakness in the market for truck engines, high energy costs and competitive price pressures. CAT also said it is redoubling its efforts to aggressively reduce costs this year, although that isn't likely to help ward off sellers on Monday. CAT closed the regular session at $33.81, down fractionally, but is trading $31.25 in after-hours. Did you know there was a FOMC meeting on Tuesday? As the least talked about Fed meeting in years approaches, we have yet to hear even a peep out of the Fed governors. It is easy to deduce the reasoning as the Presidential election nears, but some are still interested in the comments that will be released. Notice how I skipped right to the comments as the verdict on rates seems to be fixed in stone. No one expects a move on Tuesday. But with the soaring Euro, high oil prices, and a wobbly market, the directive of the Fed will be of interest. Many would like to see the committee step back down to a neutral stance from a hawkish one. That outcome wouldn't surprise me at all and could help stabilize the equity markets. Now let's get to what is really important. You are likely reading this on the first day of October. The most exciting and potentially disastrous month of the year. Ask anyone. Even someone with little stock market knowledge may be able to point out the big crashes that have occurred in October. I think everyone keeps something in the back of their minds where they are suspicious of such an event. That is why the fear level is high and the bottom is typically put in during this month. Let's take a closer look here at the evidence. Ok, we had a bullish winter of 1999-2000 where volume and optimism hit extreme highs. This was followed by a summer of extreme retracements and sluggish volume. Now we have entered the 3Q warnings season where we are getting bombarded with talk of slowing PC and, thus, semiconductor sales. High tech is taking it on the chin and investors are wondering it we will retest the lows of earlier in the year. This sounds familiar you say? That is because it is the same story all the time. In fact, this is the classic scenario for this time of year. For example, just last year the Nasdaq moved up 100% from the October lows to the March highs. The year before that it was 86% from the October lows to the April highs. And from October 1997 to April 1998, the Nasdaq cruised up 32%. And back then that was considered a mammoth move! Funny how times are a changing. Anyway, back to the short-term. It's hard to say when exactly we may get a bottom in October. They have come early in the month to late in the month and everywhere in between. With the Fed speaking on Tuesday, you are best to wait for a trend to start to develop. I say this because if you would have traded in August based on the movement of July, you would have gotten slaughtered. The same goes for September as it was an antonym for August. Let's see what direction it wants to take. Also, I will be watching the volume carefully. Some may say that the high volume during this down week is not a good sign, but I disagree. We've watched the market whipsaw around for the past six months on weak volume. I want to see some more conviction, either way. But again, if we are going on data from previous years, the return of volume is what sets off the big rallies. Therefore, start warming up that index finger for a winter of clicking the trade button on your online broker. I have begun the journey back, trading more in the past week than I did for all of June. I still sense that money managers and the like will be back in the saddle to move these stocks for us soon. Ryan Nelson Editor ***************************** OCTOBER OPTIONS WORKSHOP EXPO DENVER - Oct 27-30th ***************************** Here is the list you have been waiting for. The guest speakers and the course outline for the October Workshop Expo. The list of guest speakers is outstanding. Here they are: Steve Nison - Steve Nison is not only the world's foremost expert on Candlestick Charting techniques, he's the author of the two top selling, definitive books on the topic: Japanese Candlestick Charting Techniques and Beyond Candlesticks. He has trained and lectured investors and investment firms around the world on how to integrate these methods into their investment strategies. Steve will be speaking on "Spotting Early Reversal Signals." ************** Gregory Spears - Author of the Spear Report. Gregory developed a unique "consensus" concept for picking stocks in the early 90's while trying to make sense of the myriad of financial newsletters in his mailbox. His unique "consensus" system has developed an average gain of 100% for his recommendations over the normal holding period which is about six months. The Spear Report is quoted or featured in dozens of financial publications and Greg's financial workshops are "standing room only." Greg will be speaking on the top market gurus, "What they are saying and why they are wrong." **************** Dick Arms - Richard Arms is the inventor of the Arms Index, otherwise known as the TRIN. He has been analyzing the market for over 35 years and is a constant visitor to CNBC as a market commentator. His work in technical analysis is older than most of the brokers now trading with his tools. His newest invention is the Equivolume charting system, the first new charting system since the 1930s. Dick will be explaining the TRIN and how we should use it to trade as well as his new Equivolume charting system. This will be an interactive session with plenty of attendee questions that Dick will answer. ***************** Stan Kim - Stan has a MBA from UCLA and worked for IBM for many years. He realized he did not want to work for anybody else and did not want anybody working for him. He has been a full time trader ever since. He is the founder of the Snail Trader system of trading and is currently working on a new book. Stan consults and mentors traders and investment firms. His topic will be, "How to Trade for a Living When You Are Not a Stock Guru." ***************** Jim Crimmins - Jim is president of TradersAccounting.com and a noted authority on tax issues for traders. Jim is an expert on gaining Trader Status and puts on seminars on "Tax Free Trading" around the country. If you have been to a money show you have probably seen Jim with flocks of people around him. Jim IS the authority on tax accounting for traders! Jim will be speaking on Trader Status, Mark to Market and IRS do's and don'ts for traders. ***************** Add to this distinguished list above the fifteen plus speakers from OptionInvestor and you have an event you cannot afford to miss. 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 For a course outline click here: Http://www.OptionInvestor.com/workshop/outline 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. The entire weekend for the low price of $2995 plus your room. All meals, snacks and favors are provided 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******************** Option trades starting at only $15.50, stock trades as low as $9.95! Mr. Stock provides key advantages to the serious option investor. Along with complex option trading online, fast executions, advanced charting capabilities and the ability to trade from any screen, we now offer some of the best commissions on the Internet. Our staff understands the sense of urgency required in today's market and will respond quickly to your most important trading needs. http://www.sungrp.com/tracking.asp?campaignid=575 ***************************************************************** ************** EDITOR'S PLAYS ************** Well, a volatile week it was! After three days of selling on high volume, the NASDAQ managed a nice recovery on Thursday, only to slide to a triple digit loss on Friday. Quite honestly, I have stayed away from my favorite QQQ trades this week for a couple of reasons. First, window dressing by funds, indicative of high volume, is an extraordinary event that happens four times a year and results in wider, more unpredictable swings. When will they buy, when will they sell? Who are they dumping, who are they accumulating? The other reason is that the NASDAQ just gave up last Monday, after the previous Friday's impressive recovery on the gap down from INTC's warning. That was what convinced me that we had not put in a bottom that Friday, as many market pundits chattered about. But, don't get me wrong, the QQQs were tradable, I just opted to sit back and watch, sticking to more conservative, value oriented plays. Here is a chart of the QQQs last week. It was significantly rangebound and offered many good entry and exit points. My psychology for staying out, whether right or wrong, was as follows. Obviously, the market rebounded from the INTC warning, but I felt that it was a much more significant macro-concern that shouldn't be dismissed and overlooked by a one-day rally. (AAPL's warning later confirmed this.) So I skeptically challenged the market to prove to me on Monday that we could shake off the bad news. But as soon as the market gapped up on Monday morning, traders sold into the strength for three days straight. Breaks of $90 were okay to buy puts on, yet the $88 level has provided support and buyers. You can take those two points on a day trade, but I want to get that breakdown to $84 for a big clip. I learned my lesson in rangebound trading this past summer, and making those quick intraday trades require constant attention. I will be watching the QQQs on Monday for a break of $88. If this occurs, I will be ready to play those QQQ puts. ********* NEW PLAYS ********* COMS - Long Call Play $19.19 (+4.38 last week) I have been watching 3Com closely for the past couple weeks in anticipation of their earnings announcement last Tuesday. What attracted me to COMS was the limited downside and the potential for great upside. After their spin-off of PALM, investors left COMS to die. At $14 a share, COMS approximate market cap was $5.25 bln, with a cash hoard around $3 bln! Talk about undervalued! With a PE of 15 and a restructuring in the making, COMS couldn't be kept down for long. Tuesday's report of a lower-than-expected loss of 12 cents versus estimates of -$0.33 and positive comments from the company were confirmation that the company has restructured and re-focused their business. Institutions certainly liked the news, and the value. They have been piling into the issue for three days, accumulating the stock. One more quarter like this, and COMS could be gone as investor interest picks up. I am playing it both short term and long term. ***** SEBL - Long Call Play $111.31 (+6.31 last week) Siebel Systems has long been one of my favorite stocks to play. Great volatility and a overall long term uptrend. I have this on my call list for this coming week and will be looking for an entry point. SEBL has continued to push higher even after its recent split. Now, I was eyeing SEBL that past Friday after the INTC warning. As it jumped over the $100 level that morning after the gap down, I was a fraction of a micro-impulse from pulling the trigger on the OCT-105 calls. AHHHHHH! Shoulda woulda coulda! Well, I am kicking myself, no doubt. But, I didn't want to chase the stock throughout last week, even though it was breaking to new highs. I just didn't like the overall market. What I like about the chart is the normal profit taking that takes the stock back to support and then more buying. Tuesday, SEBL managed to close back above $105, and then late on Friday it bounced from $110. I will be looking for a bounce from $110 to gain an entry, or another strong move over $115, if I'm not so lucky to get a pullback. It is worth noting that the 10-dma is at $105.88, and a pullback on profit taking to that level, with a bounce, would be a dream entry. SEBL has remained extremely resilient and relatively stable during last week's NASDAQ turbulence. **** In closing, this coming week will be very telling as to where we might be headed next. Last week's window dressing gave an added twist to the market. I will feel more confident in placing trades now knowing that the massive institutional positioning for quarter end is over. But, don't expect it to be any less volatile as we enter the notorious month of October and earnings begin to flow. Be smart and attentive, as these markets like to turn on a dime. Good luck! Matt Russ Editor *********************** FREE ONE DAY TRADING SEMINAR Miami - Tuesday - October-10th. Phoenix/Scottsdale - Tuesday - October 17th *********************** OptionInvestor.com, Preferred Trade and E-Signal 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/free/ ***********************ADVERTISEMENT************************ DirectAccessTrader, an international firm and division of InvestIN Securities Corp. (Member: NASD, SIPC), announces the EXP Trader. The EXP Trader is an advanced, next generation trading platform featuring: unparalleled speed via a direct connection to the Exchanges, SMART ORDER routing, stop orders, and direct access to the Island ECN book. Trade Faster. Trade Smarter. The EXP Trader. Call 1-800-327-1883. Speak directly with our trader support team. Open an account today and trade as low as $9.95. http://www.exptrader.com ************************************************************ **************** MARKET SENTIMENT **************** Bullish? Bearish? Seasick? By Austin Passamonte The correct answer is C: all the above. Depending on which day we're talking about here of course. Did you mean Wednesday's sell off, Thursday's monster rally or Friday's plunge? Our job could be pretty easy if we flipped a coin and it landed right on any given day. But that's not how we work. There must be some method to all this madness! There are times when technical signals are screaming at us that the market is about to rally or plunge. This isn't one of them. We have more mixed metaphors in front of us than that last party conversation eight Tangueray & sevens later. Let's try to clear the blur. Forget major indexes and moving averages. These marks don't hold for more than one session and practically all of them are now overhead to boot. Oscillators? Every time they peak their heads above oversold it gets tromped down by another wave of earning's-miss selling. Trendlines? We've drawn enough of those on our charts to grid out the search for Blackbeard's gold and nothing appears that we'd gamble a second mortgage on. Gut instinct? Let's not do that, unless you want the ultimate contrarian indicator. VIX? Riding in it's neutral zone closer to the upper Bollinger band than lower, a good sign for market bulls. Option S/R disparity? The entire free world is loaded with puts at or below recent market lows and the volume of overhead calls is creeping up. We may see a near-term trading range develop at least until expiration. Recent market lows? They have bounced forcefully off support and bulls can only hope this continues to hold. COT report? We'll see this Friday, Oct 6th when latest figures are released. A return towards flat or long for the S&P 500 commercials will all but guarantee rising prices from the point which that happens. Has it begun? Stay tuned. Inside trading? On Wednesday this week a block of 1,000 OEX Oct 770/765 put credit-spreads were sold in the market place. At least one major player out there is gambling we will close at or above the OEX 770 mark by expiration in three weeks. A rising tide lifts all boats. Earnings warnings? We saw some late ones last quarter and cannot blame anyone this time for balking at their trip to the woodshed. Traders aren't armed with willow switches these days, they are toting .45/70 govt. lever actions and plenty of spare ammo as well. Earnings run? We could see our surprise rally rise from the depths of depravity any day now. It happened like this in May, July and August. The markets can't sell out forever. Can they? Our crystal ball got swapped for a Brunswick by mistake. Hefty reward offered for safe return of our Market Insight. Paid in cash, no questions asked. As always be prepared to buy calls or puts as market conditions dictate. Each of them can make you rich or break your heart in equal fashion! ***** VIX Friday 9/29 close; 23.85 CBOE Equity Put/Call Ratio The CBOE equity put/call ratio is a contrarian-sentiment indicator. Small traders are majority of equity-option players. Numbers above .75 are considered bullish, .75 to .40 neutral and bearish below .40 ************************************************************* Thurs Sat Strike/Contracts (9/28) (9/30) ************************************************************* CBOE Total P/C Ratio .48 .59 Equity P/C Ratio .44 .54 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 ************************************************************** Thurs Sat Strike/Contracts (9/28) (9/30) ************************************************************** All index options .85 1.38 OEX Put/Call Ratio .86 .84 30-yr Bonds Friday 9/29 close; 5.87% 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: 800 - 785 14,366 5,140 2.79 780 - 765 7,972 11,078 .72 OEX close: 759.83 Support: 755 - 740 1,523 17,873 11.74 735 - 720 31 11,958 385.74*** Maximum calls: 800/6,893 Maximum puts : 750/8,453 Moving Averages 10 DMA 771 20 DMA 790 50 DMA 800 200 DMA 783 NASDAQ 100 Index (NDX/QQQ) Resistance: 97 - 95 24,148 22,950 1.05 94 - 92 24,234 18,303 1.32 91 - 89 20,846 37,334 .56*** QQQ(NDX)close: 88.3/4 Support: 87 - 85 1,849 20,346 11.00 84 - 82 266 10,073 37.87*** 81 - 79 472 14,029 29.72 Maximum calls: 95/12,349 Maximum puts : 90/17,257 Moving Averages 10 DMA 90 20 DMA 93 50 DMA 93 200 DMA 95 S&P 500 (SPX) Resistance: 1500 18,882 17,859 1.05 1475 19,147 14,393 1.33 1450 8,909 12,446 .72 SPX close: 1436.51 Support: 1425 7,535 18,889 2.51 1400 1,268 11,677 9.21 1375 1,043 10,015 9.60 Maximum calls: 1475/19,147 Maximum puts : 1425/18,889 Moving Averages 10 DMA 1444 20 DMA 1467 50 DMA 1473 200 DMA 1447 ***** CBOT Commitment Of Traders Report: Friday 9/22 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 % 13.37% net-long 11.78% net-short NASDAQ 100 Total Open Interest % .04% net-long 8.90% net-short S&P 500 Total Open Interest % 29.07% net-long 10.57% net-short What COT Data Tells Us: Commercial positions in S&P 500 and DJIA remain at or above five-year extreme short levels. NDX commercials continue to go shorter. Small specs continue to build net-long extremes in SP00S but have given ground in DJIA and switched over to heavily net- short in NDX. Weak hands are shaking out, only a matter of time in our opinion before they crumble. (Not Shown) Commercial positions in 10-Year Note and 30-Year Bond markets at or near five-year extreme net-short levels. Small specs build net-long. Summary: "Smart money" insiders expect stock market to decline and interest rates to rise. Small traders directly opposite, creating diverse set up favoring commercial sentiment for future market direction. *Update on 10/6 by COT release Bullish: Fed's finished Benign government reports Disparity in overhead call/put ratios Bearish: Oil Prices (falling) COT reports (changing?) Recent pre-warnings, downgrades (crushing) Broad market's break of critical M/A support Market leaders breakdown ************** MARKET POSTURE ************** As of Market Close - Sunday, 10/01/2000 Key Benchmarks Broad Market Last Support/Resistance Alert **************************************************************** DOW Industrials 10,650 10,550 10,850 SPX S&P 500 1,436 1,415 1,465 COMPX NASD Composite 3,672 3,600 3,950 OEX S&P 100 759 754 780 RUT Russell 2000 521 500 525 NDX NASD 100 3,570 3,500 3,800 MSH High Tech 951 945 1,020 BTK Biotech 769 740 820 XCI Hardware 1,296 1,240 1,380 ** GSO.X Software 449 440 470 SOX Semiconductor 851 850 1,000 NWX Networking 1,164 1,140 1,250 INX Internet 490 475 545 BIX Banking 617 585 635 XBD Brokerage 657 620 665 ** IUX Insurance 775 720 790 ** RLX Retail 812 800 875 DRG Drug 412 370 425 ** HCX Healthcare 850 805 860 ** XAL Airline 140 136 152 ** OIX Oil & Gas 310 296 332 Six alarms were triggered on Friday. Believe it or not, four were at resistance and just two (XCI, XAL) were at support. Six support alarms have been triggered on the XCI in September, so it wasn’t a surprise when AAPL warned yesterday. Lowering support (XCI, XAL) Lowering resistance (XCI) Raising support (DRG) Raising resistance (XBD, IUX, DRG, HCX). ************************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=550 ************************************************************** *************** ASK THE ANALYST *************** Get Out A Pencil And Paper By Eric Utley Traders quiz number two awaits you. There's a lot to cover today, so I'll keep the chit chat to a minimum. I've thought up a second trading problem to help you learn what drives your decision making when putting on, and closing out trades. At first read, the following problem might sound simple. But, beware, the following conundrum is one of the traders biggest enemies. Feel free to send an e-mail with your answers. You've been watching your favorite fiber optic stock, Bull Fiber Optic Company (BFOC), climb for the past two months to one record high after another. Amazingly, BFOC has not fallen below its 10-dma during the last two months. You decide that it's finally time to reap the sweet rewards of the fiber optic sector and purchase calls on BFOC. In your search for the ideal entry point, you decide to buy BFOC the next time the stock bounces off its 10-dma...After a weak opening on the NASDAQ, due to a profit warning from some fruit-related computer company, BFOC gaps down, and like clockwork finds support at its 10-dma. You notice the buyers are stepping in near the 10-dma with good volume, and BFOC begins to drift higher. And like that, you're in for 10 front- month, at-the-money calls... After returning from your usual hour- long lunch break, you flip on your computer screen to discover that after bouncing off its 10-dma, BFOC ran into resistance and headed southward in a big way, following a major sell-off in the NASDAQ. Upon closer inspection, you discover BFOC has fallen nearly two points below its 10-dma for the first time in two months. As a result of the market dip and BFOC's trip, your calls are now worth 30% less than you paid for them earlier in the day. Do you: A) Cut your losses and get out of town B) Double up your position in hopes of a quick rebound C) Hold tight and see what happens In an attempt to make up some lost ground in moving this column to the weekend, I covered six stocks, mostly winners but one loser, and desperately tried to fill each review with useful, and hopefully profitable, information. If you have suggestions for this column, or would like to read about something I have not yet covered, please feel free to send an e-mail. Along with any questions or comments, make sure to send some stock requests to Contact Support. Don't forget to put the symbol of your request in the subject line of the e-mail. ---------------------------- EMC Corp - EMC Thank you for a very informed column. I am inquiring about both EMC and JNPR, both have had excellent runs thus far. Could you please comment, and would you take positions at these levels? - Thanks, Larry First off, Larry, thank you for your kind comments. I work hard to put together an informed and useful column. JNPR has been acting very well lately, hence its inclusion in the OIN call list. In the two stock requests to follow below, I reviewed competitors of JNPR's in the Networking Equipment space. I urge you to read the review of EXTR as it pertains to JNPR. Similar to JNPR's recent performance, EMC has also been acting very, very well despite the turmoil in the Tech sector. In fact, EMC's largest two competitors, Network Appliance (NTAP) and Seagate (SEG), have also been rallying in the face of the Tech bears. The reason behind NTAP's, SEG's, and of course EMC's recent strength is demand for data storage is not letting up. The equipment required to perpetuate the growth of the new economy is built by EMC. And, the growth of the Internet is STILL exploding, which is driving EMC's business and its stock price higher. On a side note, I think the reason that the NTs, LUs, and SCMRs of the market have been knocked down lately is their respective markets have become saturated with competition, thus oversupplied, leading to lower prices and margins. However, demand is still outpacing supply in the Data Storage arena because it's such a specialty product and there exists little competition; a market, by the way, in which EMC is the clear leader. Moreover, as I have stated in previous reviews of EMC, the company has one of the best management teams in all of the Tech world. Simply put, EMC's CEO, Mike Ruettgers, knows how to execute a business strategy. Now you know how I feel about EMC, and its prospects going forward, let's talk about the chart. EMC has run nearly 100% since its bottom during the correction last spring. The stock has been bumping around $100 for the past month, which doesn't surprise me because a little consolidation was due. The simple fact that EMC has been able to hold its ground during the bearish month of September presents a bullish case for the stock. I think once EMC substantially clears the ever-important $100 level the stock will go to $150 within a year, with cooperation from the broader Tech sector, of course. I've provided a few possibilities to gain entry into the stock on the chart below. ---------------------------- 3Com - COMS I've noticed the volume has picked up in COMS. After a good earnings, where do you see the stock going? - John After the infamous Palm spin-off, COMS, in a way, had to reinvent itself. And, judging by the company's earnings report and conference call last week, the transformation is going much better than previously expected. Several bold and bullish statements flowed from COMS' conference call. Interestingly, COMS' CEO said, "Our view of the market does not reflect what was reported, or what was assumed to be reported, by Intel." That's good! Also, COMS reported 70% quarter-over-quarter growth in its new business lines of wireless and broadband equipment. That's very good! Most importantly, COMS told analysts to raise revenue estimates by $200 million for its fiscal 2001 year. That's what I like to hear! Furthermore, a few days after issuing such a gleaming earnings report, COMS CEO, Eric Benhamou, said he would step down by year's end and be replaced by COMS current COO. While others may argue with the claim, management shakeups are almost always good for a stock price. Do you remember a week back when rumors circulated that AT&T's chief, Michael Armstrong, was going to be ousted? Do you think it was a coincidence the stock rose on the rumors? I don't! For COMS, which is now post PALM, new management, growing margins, and an upward revisions of revenues should lead to bullish tidings ahead. Since conveying such a bullish message in last week's earnings report, COMS has fallen under heavy institutional accumulation, which explains the increase in volume you mentioned, John. We can confirm such a speculation by noting the significant increase in volume in conjunction with COMS' recent, and substantial, rally. When monitoring COMS' volume on the weekly chart I have provided below, we must also take into account the PALM spin-off, which generated a great deal of trading activity through arbitrage efforts. Although it's hard to see on the weekly chart because of the PALM-related trading, you can view the spike in volume last week. Keep in mind that COMS' 30-day average daily volume is around 10 million shares; the three days after its earnings announcement, COMS traded roughly 37, 16, and 18 million shares, respectively. That, my friends, is institutional accumulation. And, where the big players are buying, the retail investors are wise to follow. ---------------------------- Extreme Networks - EXTR Please advise what are the reasons behind EXTR strength and the steady rise. - Regards, Sunil Although I reviewed EXTR in my last column, for you, Sunil, I'll do it again. EXTR's recent and extraordinary performance gives us an opportunity to study two market phenomena that I have written about. The first is end-of-the-quarter window dressing by portfolio managers. In the Market Wrap last Monday, I wrote, "As fund managers load up on the quarter's biggest winners, their buying will most likely drive the market's recent leaders higher." Much of EXTR's roughly 20% rise over the last two weeks has to do with window dressing. Portfolio managers report their holdings to their biggest investors at the end of each quarter. Those managers don't like to explain why they own the LUs, Ts, WCOMs, and other market dogs. As such, money managers like to make their funds look attractive as possible through owning recent market leaders such as EXTR. Even though their fund is down for the year because they owned the LUs and Ts, they still like to spruce things up at the end of a quarter to appease their big investors. It's a stupid game that Wall Street plays, I know! But, retail investors, like you and I, can capitalize on the phenomenon by attempting to pick recent market leaders about two weeks before the end of a quarter. I failed to mention the window dressing- effect in my review of EXTR two Wednesdays ago, and regret not doing so. I'm sorry. Believe me, I'll remember to mention it in the second week of December in an attempt to help OIN readers make money. Enough with the apologies! Since you're a regular reader of this column, Sunil, I bet you remember a while back when I wrote of the importance of buying stocks in leading sectors of the market. The recent performance of EXTR, and its networking brethren, qualifies as market leading. Check the charts of JNPR, CFLO, JNIC, and BRCD. The aforementioned have two things in common: they're specialty network equipment makers and their prices are near 52-week highs. For some time now, the market has really, really liked EXTR, JNPR, CFLO, JNIC, and BRCD. We could analyze each company and find reasons for their respective advances. We could even blame it on window dressing. But, more importantly, we need to focus on the bigger picture, i.e. what the market is telling us. And since early September, the market has been telling us to buy certain networking stocks such as EXTR, not the old favorites such as CSCO, NT, or LU, they're all having their own problems. The market wanted the new, young networkers who were capturing market share from the giants. I know that might sound...well, goofy. But, what I'm trying to convey is that sometimes we don't know why a stock, or a sector, advances until after the fact. All we have, as traders and investors, is what the market tells us. And when the market tells us to buy, we have to buy! So, let's take a look at the chart of EXTR and see what the market is telling us now. ---------------------------- Sun Mircrosystems - SUNW Please comment on Sun Microsystems if you could. - Thanks, Scott Will Sun Microsystems (SUNW) test 110? - Anonymous SUNW is one of the last NASDAQ leaders standing after September. CSCO, MSFT, DELL, WCOM, and of course INTC have all felt the wrath of the bears. The aforementioned are all facing very real and significant threats in their respective market places. And, SUNW is not! The differences between SUNW and its fallen NASDAQ brethren are: the network server market is still growing, SUNW has very little competition in that server market, and SUNW continues to innovate with new products and services, which is a reflection of the company's brilliant CEO, Scott McNealy. SUNW not only continues to fend-off competitors such as Hewlett Packard and IBM, but also continues to take market share from those very companies. SUWN is, by far and away, the clear leader in network servers. Moreover, SUNW edged a little further ahead of its competitors last week when the company introduced its UltraSparc III microprocessor, for use in high-end network servers. The fundamentals for SUNW's business have never looked better. I think that might explain why the stock has been able to hold up so well during the past month, despite the terrible performance in nearly every other Tech general. Let us not forget that SUNW had a nice 30% run from the middle of July to the beginning of September. So, I think four weeks of consolidation is perfectly normal after a 30% run. The fact that SUNW has held well above its mid-July pivot point of $100 argues a strong bullish case for the stock. SUNW's chart is very similar to EMC's, in that both stocks are trading near their all-time highs and have been consolidating for the past month. Similar to how I feel about EMC, I think SUNW will continue to march higher, especially when the NASDAQ bulls return for an extended period of time. ---------------------------- Genzyme General - GENZ Missed an opportunity to buy below $60. Short term charts look good, but possibly overbought? Safest play to wait for breakout over $76??? - George Genzyme is a rather interesting company that actually has four separate business segments that are publicly traded with four separate stocks. They are: Genzyme General (GENZ), Genzyme Tissue Repair (GZTR), Genzyme Molecular Oncology (GZMO), and Genzyme Surgical Products (GZSP). I didn't know that! Anyway, George, your request was for a review of Genzyme General, so let us get to it. But, before I review the chart of GENZ, I wanted to briefly touch on the company's background. Because of its broad range of product offerings and services, GENZ is one of the most diversified Biotech stocks on the market. GENZ is also one of the oldest Biotech concerns; the company was founded in 1981. Because of its broad presence in virtually all aspects of the Biotech arena and nearly 600 products and services on the market, GENZ is a great way to gauge the broader Biotech sector. So it follows that GENZ has been on a steady climb since the bear market bottom last spring, and is trading near its 52-week high, just like the Amex Biotech Index ($BTK). Furthermore, GENZ is a unique Biotech company in that it actually makes money. Earnings have been on steady rise recently, just like GENZ's stock price, and EPS is expected to grow by 20% over the next several years. With all the developments and new technology in the Biotech space, I think investors will be well served by investing in the area. GENZ is a great way to play the Biotech boom because the company is profitable and in an explosive growth sector. Now for your question about the chart, George. To be quite honest, it's hard to say whether GENZ is overbought at current levels. I wouldn't use a Stochastic reading to gauge whether GENZ is overbought because I think the stock is in a definite upward trend. And, Stochastics are NOT meant to be used in trending markets, only in bracketed markets, i.e. trading ranges. Like many stocks in today's column, GENZ is forming a series of higher relative lows, yet continually finding resistance at the $70 level. The ensuing ascending wedge is generally a bullish chart formation. With that said, a solid breakout above overhead resistance at $70 might provide a quick trade up to the $76 level. But, $76 is the only resistance left, after that, it's blue sky! ---------------------------- CMGI Inc - CMGI Could you please comment on CMGI? 11 analysts recommend it as Buy or Strong Buy, the weekly charts turned positive recently, they're reorganizing towards profitability, but the trend is still down? Is this just a day traders play or is there something I'm missing? Thanks so much for your analysis. - Spencer I'm going to touch on the importance of listening to the market, again, in reviewing CMGI. The sell-side of Wall Street (the 11 analysts) have been telling investors to buy CMGI through their ratings. The omniscient market is telling investors to sell! I'm listening to the market! Analyst ratings and comments impact stock prices over the short-term, that's why you read about Buy ratings and higher price targets in the OIN plays. But, in the end, the market, and only the market, will dictate future prices of stocks. And lately, the market has been dictating that it doesn't like CMGI. You bring up a good point, Spencer, about CMGI announcing it would reorganize to focus on profitability, but the market didn't buy the announcement. As I have said before about CMGI, if you're a long-term believer in the growth of the Internet and perpetuation of the Web-based products and services, CMGI is a good stock to own for years to come. What's more, CMGI's CEO is one heck of an innovator. However, if CMGI does flourish over the long-term, you will have to endure plenty of volatility like we have witnessed recently. The volatility that CMGI, and most Web stocks, is notorious for does make it a day trader delight. However, for the time being, and given the market's distaste for CMGI, I think it might be wise to stay away from the stock. Like you said, Spencer, the trend is still down. ---------------------------- DISCLAIMER: This column is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The Ask the Analyst picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable, but is not guaranteed as to its accuracy. ************* COMING EVENTS ************* For the week of October 2, 2000 Monday ====== Auto Sales Sep Forecast: 6.7M Previous: 6.8M Truck Sales Sep Forecast: 7.6M Previous: 7.8M NAPM Index Sep Forecast: 50.00% Previous: 49.50% Construction Spending Aug Forecast: 0.50% Previous: -1.60% Tuesday ======= FOMC Meeting --- Forecast: --- Previous: --- New Home Sales Aug Forecast: 895K Previous: 944K Leading Indicators Aug Forecast: -0.10% Previous: -0.10% Wednesday ========= NAPM Services Sep Forecast: 60.50% Previous: 60.00% Factory Orders Aug Forecast: 1.70% Previous: -7.90% Thursday ======== Initial Claims 30-Sep Forecast: 300K Previous: 287K FOMC Minutes 22-Aug Forecast: --- Previous: --- Friday ====== Nonfarm Payrolls Sep Forecast: 225K Previous: -105K Unemployment Rate Sep Forecast: 4.10% Previous: 4.10% Hourly Earnings Sep Forecast: 0.30% Previous: 0.30% Average Workweek Sep Forecast: 34.4 Previous: 34.3 Consumer Credit Aug Forecast: $10.0B Previous: $9.4B Week of October 9th 11-Oct Wholesale Inventories 12-Oct Initial Claims 12-Oct Export Prices ex-ag. 12-Oct Import Prices ex-oil 13-Oct Retail Sales 13-Oct Retail Sales ex-auto 13-Oct PPI 13-Oct Core PPI 13-Oct Michigan Sentiment ***********************ADVERTISEMENT************************ DirectAccessTrader, an international firm and division of InvestIN Securities Corp. 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The Option Investor Newsletter Sunday 10-01-2000 Sunday 2 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/100100_2.asp ************** TRADERS CORNER ************** Using Window Dressing To Our Advantage By Mary Redmond The IPO market was robust this week, with 16 new issues raising over $3 bln. Seven IPOs raised over $500 mln on Friday. It is worth noting that several IPOs were also withdrawn. The majority of the new issues scheduled to debut this Fall are technology issues. The public's appetite for technology stocks and issues has become more subdued, so it is difficult to judge how many companies will be brought public each week. A healthy IPO market can indicate institutional bullishness. However, too many new issues can cause serious liquidity problems, as they drain cash away from other stocks in the indexes. A chart of the S&P on top of a chart of dollars raised in new issues had an inverse relationship to a startling degree last year. However, we may be able to support a large IPO calendar and a market rally this fall, as circumstances have changed. We have ended a cycle of Federal Reserve interest rate hikes. In addition, the Nasdaq and internet stock crash we had this Spring is likely to increase investor scrutiny of new issues for a very long time to come. Certainly the amount of cash in money market funds can easily support a market rally and a heavy new issue schedule, if investors decide to devote these funds to the equity market. We will also have significantly less newly unrestricted stock coming unlocked in October and November than we did in September. We also need to consider that over $350 bln was raised in IPOs and secondaries from June of 1999 to June of 2000. Many of these companies were internet stocks which have fared poorly since April. While insiders can generally sell their shares after six months, it can take far longer than that for weaker company stocks to be completely sold after becoming unlocked. This can put a drag on the market for months. If we have a light IPO schedule in 2000, this is likely to benefit the market in 2001. AMG Data reported that equity funds had a net outflow of $3.1 bln last week. Most of the outflow came from the international sector, where investors redeemed $1.8 bln. The four week moving average of cash to equity funds is more indicative of investor sentiment. The four week moving average of cash flows to equity funds is approximately $2.1 bln. We may need to see a higher weekly moving average of cash to equity funds to have a strong rally. The Investment Company Institute reported that retail money market funds had a net outflow of $24 mln, and institutional money market funds had a net outflow of $4.51 bln. This is the second week of outflows of money market funds, which can indicate that some investors are starting to move into the market. It is interesting to note that GE has maintained support over $57 while the markets sold off in September. GE is considered a bellwether for the S&P 500 index and an indicator of broad market strength. If GE breaks down, it can be interpreted as bad news for the market. Some market analysts have been saying that several large cap tech stocks are below their 50 and 200 DMA. This can be interpreted as an indicator of Nasdaq weakness. However, look at some of the mid cap tech stocks and you will see a different picture. For example, PMCS, NTAP, JNPR and CIEN are all strongly above the 50 and 200 DMA and showing a high level of technical strength. Maybe the Nasdaq is not showing weakness. Maybe new leadership is emerging, as impatient investors grow tired of the $500 bln market cap giants and look for newer, faster growing stocks. As traders, we may sometimes be able to use the window dressing phenomenon to our advantage. This can cause extreme high and low volatility in certain stocks. Fund managers who want to remove certain stocks from their portfolio may need to execute the trades before the settlement date of the quarter. Sometimes the trading pattern of certain stocks may indicate that heavy selling is occurring. In addition, if a stock has had poor performance for a quarter, it is likely that it will be a candidate to be thrown out like garbage by funds. How can you tell if heavy institutional selling is occurring? There is no way to be absolutely certain, but some technical indicators may give clues. For example, Lucent has a large percentage of its shares held by institutions, and has had abysmal performance this year. Many fund managers might think it is better to dump the stock than to have their shareholders think they are daft. The chart shows that the on balance volume indicated heavy selling. Lucent would have been an excellent put candidate early in the week, particularly after it broke through support at $30. If you were quick Thursday morning, you could have made several points as it looked as if the selling had abated, and Lucent jumped several points from a severely oversold condition. One clue occurred Wednesday near the close when the on balance volume started to turn positive. Also, Thursday morning the MACD histogram started to move strongly to the upside after being nearly flat for several days. This indicated that the buying was stronger than the selling at that point. The VIX.X can be used as a short term trading tool as well as a signal of a possible oversold or overbought market. The chart below shows two points at which the VIX deviated from its normal trading range and spiked to the upside, which would have been good buying opportunities. However, it can be dangerous to use this alone, as the VIX could spike a lot higher if earnings warnings or economic news was released which could impact the market. It is possible that upside volatility scares investors into depositing money into money market funds almost as much as downside volatility. It has really been since 1998 that stocks started gaining and losing billions in market value overnight as a relatively frequent occurrence. Money market funds currently hold nearly $1.8 trln in cash. This is 24% of the total mutual fund holdings including bond funds, and approximately 40% of the total equity fund holdings. We will be watching these money flow numbers very closely as we head into the most volatile month historically. ****** Reflections of Canobie Lake By Lynda Schuepp These past two month reminds me of one of my fondest memories growing up in New Hampshire--riding the wooden roller coaster at Canobie Lake. Maybe that's why I like to trade. August was like going up the first big hill on the roller coaster--climbing up so steeply that you can't see the top and then whiplash once you crested the hill for the ride down. September has been the thrilling downside of that ride. Like riding the coaster, we are cautious on the way up, not knowing where the top is and scared all the way down. The rest of the ride isn't usually as thrilling. My bet is after an October correction, we should be off to the races to the end of the year. I was at a seminar this week in Las Vegas so I didn't trade until I got back on Thursday. Thanks to my new friends out in Vegas for all the warm kudos, I'm glad you are reading OIN. It's kind of ironic that the seminar was held in the "city of gamblers." It is also ironic that I stayed at the New York, New York because my room had a view of the roller coaster, hence the inspiration for this article. Quite frankly, the town has a little too much glitter, tinsel and cosmetic surgery for my tastes. When I got back on Thursday, after flying on the red eye, I couldn't believe Thursday's nice run-up. I felt out of touch after not looking at a computer screen for almost a week so I didn't want to make any directional moves until I could get a good grasp of the market. So I decided to do a butterfly with a little twist on Rite Aid (RAD). Rite Aid had been flat lining since April and I had been looking at the premiums before I left, but didn't enter the trade. RAD looked like it might be ready to make a move, but I decided to wait until I got back. RAD made a nice move up on Thursday (up 17%) so the shorter month premiums got a little juiced. Normally, a butterfly spread consists of one long contract of a lower strike plus two short contracts of a higher strike and one long contract of an even higher strike, using all calls or all puts all expiring in the same month. Here is my variation on a typical butterfly spread. I bought ten contracts of the Jan'03 5 put for $2.38 and ten contracts of the Jan'03 10 put for $6.63. Normally, I would sell 20 contracts of the middle strike (Jan '03 7-1/2). The Jan '03 7-1/2 puts were selling for $4.25. Instead, I sold the Jan '02 7-1/2 puts. The Jan'02 puts could be sold for $4.13 and the Jan '03 puts were selling for $4.25! Only 1/8 of point difference for 1 more year of time value. Since the 7-1/2 strike was the short leg, you want faster theta decay that occurs in the closer time frame. The cost of time value was proportionately much higher in the Jan'02 which is an advantage to the seller. At the time I put on the trade, RAD was selling for about 4. The whole spread cost me a whopping $75 a contract. My breakevens are $5.75 on the bottom and $9.25 to the topside. Breakevens in butterflies are calculated as follows: LOWER BREAKEVEN =debit plus the lowest strike HIGHER BREAKEVEN =highest strike minus debit That means, that if RAD is trading anywhere between $5.75 and $9.25 by Jan '02, I make money. Maximum profit on a normal butterfly is calculated as follows: Difference between two consecutive strikes less the debit paid. In this case, it would be $1.75 (7-1/2 strike less 5 strike less debit of 3/4). That's a 233% potential profit. Not bad, but not real exciting for 2 years. However, the twist is that I can buy back the Jan '02 puts at any time and sell the Jan '03 puts if there are changes in volatility. The other possibility, which is more exciting, is that the Jan '03 puts will not erode as quickly and they too will have value. If RAD is at $7.50 at expiration of the short leg, I could additionally sell the Jan '03 puts that I am still long. To calculate the potential profit of my butterfly you have to estimate the value of the '03 puts at expiration in '02. Let's make some assumptions. If RAD is at $7.50 we know the Jan '02 puts expire worthless. The Jan '03 10 put would have 2-1/2 points of intrinsic value and 1 year left of time value. By looking at the current Jan '02 puts, you can determine that the value would be somewhere between $3.50 and $4. The Jan'03 put would be worth somewhere between a 1/2 and 1 point. So if the spread was closed out at expiration in Jan '02, I would get somewhere between $4 on the low end and $5 on the high end. That's a return of between 500% and 600%. I haven't found anything written on this variation of a butterfly, so I'm going to copyright the name "Butterfly Twist," unless someone has a better suggestion or has seen anything written on this before. Enjoy the ride. ************************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=537 ************************************************************** ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* VRSN - VeriSign Inc $202.63 (+7.75 last week) See details in sector list Put Play of the Day: ******************** CMOS - Credence Systems $30.00 (-5.88 last week) See details in sector list ************************Advertisement************************* Attention Online Traders: NobleTrading.com has become the first online trading firm to offer both Direct Access Trading, and web based trading to its customers. Trade Direct using any ECN, SOES, and SelectNet, or trade right through your browser using our web based trading application. FREE DSL service for active traders. Visit our website and sign up for a Free real-time demonstration! http://www.sungrp.com/tracking.asp?campaignid=551 ************************************************************** ************* DAILY RESULTS ************* Index Last Week Dow 10650.92 -196.45 Nasdaq 3672.82 -130.94 $OEX 759.83 -14.25 $SPX 1436.51 -12.21 $RUT 521.37 2.55 $TRAN 2521.64 -75.50 $VIX 23.85 -0.32 Calls AGIL 89.94 9.94 Moving higher without NASDAQ or news MUSE 200.94 9.31 New, inspiring, close to breakout MERQ 156.75 7.81 New highs- blue sky lay ahead VRSN 202.56 7.69 Broke above $200, earnings run??? SEBL 111.31 6.31 New highs are coming frequently to SEBL CFLO 143.00 5.81 Old resistance at $140 is new support CHKP 157.50 5.06 Good-bye SEP, hello OCT, breakout??? RATL 69.38 2.94 New, market rewarding certain Techs CIEN 122.81 2.06 CIEN prevails over the bears, again AFL 64.63 1.81 Dropped, taking a breather ITWO 187.06 0.88 Fought off the bears last week QCOM 71.25 -1.75 Testing our patience, waiting for break VRTS 142.00 -1.75 New, data storage sector on fire PEB 116.50 -2.50 Rough trading last week, breakout ahead? FRX 114.69 -4.75 Dropped, failed to break above $121 BRCM 243.75 -5.00 Day trade delight with $15 price swings ENZN 66.00 -5.06 Dropped, surrendered $68 support level IDTI 90.50 -5.44 Dropped, chip bears took control JNPR 218.94 -6.69 Faired better than most Tech last week Puts DIGX 46.88 -14.56 New, no mercy for Web hosting CPTH 60.75 -9.06 Rebounded Friday, possible entry point MU 46.00 -6.44 Still falling, earnings Wednesday!!! CMOS 30.00 -5.88 $30 support level is pivotal to our put OMC 73.00 -3.81 Auspicious October date approaching AFCI 37.88 0.25 Dropped, stabilized price last Friday ************************** 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 IDTI $90.50 (-5.44) Chase H&Q previewed IDTI's fiscal second- quarter earnings report last week with a bullish bias. The Chip analysts at Chase reiterated their Strong Buy rating on IDTI and said the company is likely to exceed consensus estimates when IDTI reports on October 18th, which is a confirmed date. Despite the bullish remarks, IDTI continued lower after topping out two weeks ago at the $104 level. Although IDTI can move very quickly in the matter of days, we're dropping our profitable play given the current condition of the Semi sector. The Chip bears finally caught up with our long and profitable play, and alas, we are no longer initiating new positions. However, aggressive traders might continue to hold IDTI to its earnings announcement, if the Chip sector rebounds next week. On the other hand, if IDTI falls below its near-term low at $86.44 and succumbs to the bears, traders might do well to take profits and run. AFL $64.63 (+1.81) The goose is gone. After picking up this play up on a breakout over $60, this steady mover climbed to an all- time high of $67.50. Now, let's see, those OCT 65 must have swelled! Since its volume-backed move to new highs, AFL has come under normal profit taking pressure that it typically encounters after large gains. This has been on lighter volume as well. In fact, buyers stepped in at $64 Friday. AFL may be taking a little breather to allow its 10-dma, currently at $63.01, to catch up a bit and offer some technical support. We are opting to drop this from our play list to make room for more volatile issues; yet don't be mistaken, this play is still technically healthy and looks to be taking some time to consolidate. The goose has done us well in a turbulent market so we will take our profits and go. FRX $114.69 (-4.75) Having failed four times now to break through the $121 resistance level, FRX is looking weaker by the day. As the week progressed, the daily lows kept creeping lower, while the highs remained below resistance, and our play consistently failed to close above last Friday's $119.44 close. The technicals are starting to deteriorate, with Stochastics, MACD and RSI all rolling over, and to make matters worse, volume is on the rise. We think the stage is set for FRX to have a technical failure, and we don't want to be around to witness it firsthand. We are dropping FRX until we see the buyers return, and push the stock through resistance. Given the carnage in select issues in this market, it's safer to watch the show from a distance. ENZN $66.00 (-5.06) The selling hit hard late in Friday's session and ENZN cracked under the pressure. Near the close, ENZN surrendered its position at the $68 support level on a high-volume downward spike. Previously, buyers stepped in at the price level, but this time it appears the bargain hunters had other stocks on their shopping list. The weakness and slide under the intersecting 5 and 10 DMAs clearly indicates upward momentum is fizzling. We're giving ENZN the boot this weekend for its failure to maintain strength amid adversity. PUTS AFCI $37.88 (+0.25) Our suspicions of stabilized price action in AFCI last Thursday were confirmed during Friday's massacre in the NASDAQ. Despite the triple digit losses on the NASDAQ, AFCI held its own around the $38 level Friday. Part of AFCI's stabilizing price could be attributed to the rebound in the Telecom sector. The major carriers showed improvement last Friday, which might signal a turnaround for the equipment makers such as AFCI. If AFCI does fall from the $38 level next week, traders might look to the $37 area for an exit point from the trade. However, we are now longer initiating new positions in AFCI given the stock's relatively strong performance last Friday. *********** 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 ************** VRTS - Veritas Software $142.00 (-1.77 last week) As an independent supplier of storage management software, VRTS develops and sells products that protect against data loss and file corruption, allowing rapid recovery after disk or computer system failure. The company's products provide continuous data availability in clustered computer systems with shared resources. This enables IT managers to work efficiently with large file systems, making it possible to manage data distributed on large computer network systems without harming productivity or interrupting users. VRTS provides products for most popular operating systems, including UNIX and Windows NT, as well as a full range of services to assist its customers in planning and implementing their storage management solutions. Benefiting from continued strength in the enterprise storage arena, VRTS looks poised to run strongly as October earnings approach. Scheduled early in the cycle, the maker of software solutions for the network attached storage (NAS) and storage attached network (SAN) is expected to post 14 cents vs. 9 cents in the year ago period. VRTS' release date is confirmed as October 12th, after the close. With revenue growth consistently in the 70-80% range, expectations are high, and the consensus calls for more than 50% growth in earnings over the year-ago period. Storage needs are still growing at a phenomenal rate, making it clear that Internet-related growth is still alive and well. While much of the demand is in the enterprise market, rather than the dot.com world, this is an arena where VRTS shines. With strong management, excellent products and insatiable demand for those products, this looks like a solid candidate for a run into earnings. Looking at the chart, you can see that it is common for the stock to run $8-10 in a day, providing numerous target shooting opportunities. After bottoming near $110, our play has enjoyed a steady rise, stepping higher and then consolidating before repeating the process. While the past week has been more volatile, the string of higher lows is still intact, providing some decent levels of support to work with. While mild intraday support exists at $140, we think a stronger level to target shoot new entries is $137, as this is also the site of the 10-dma. For more cautious investors, the $149 level will be your focus point. VRTS is finding resistance at this level, but once it breaks through, it could be a quick run to the next level of resistance at $155. Busy on the news front last week, VRTS started off on Monday by announcing that Larry Kubo will take over as VP and general manager for the company's new Appliance Software division. Kubo, a veteran marketer with experience in storage and desktop appliances from both Network Appliance and Sun Microsystems' Network Computer Systems group will oversee the new VERITAS Software division. Then on Wednesday, VRTS announced that Digital Island has selected VRTS' Volume Manager, File System, and File Server Edition products as the primary data availability solution for its Footprint Content Delivery Network. BUY CALL OCT-140 VUQ-JH OI=2943 at $11.88 SL= 9.00 BUY CALL OCT-145*VUQ-JI OI=4483 at $ 9.25 SL= 6.25 BUY CALL OCT-150 VUQ-JJ OI=4347 at $ 7.13 SL= 5.00 BUY CALL NOV-145 VUQ-KI OI=1552 at $15.25 SL=11.00 BUY CALL NOV-150 VUQ-KJ OI=2114 at $13.25 SL=10.00 SELL PUT OCT-130 VUQ-VF OI=8820 at $ 5.13 SL= 7.25 (See risks of selling puts in play legend) Picked on Oct 1st at $142.00 P/E = N/A Change since picked +0.00 52-week high=$174.00 Analysts Ratings 10-11-1-0-0 52-week low =$ 32.39 Last earnings 07/00 est= 0.12 actual= 0.13 Next earnings 10-12 est= 0.14 versus= 0.09 Average Daily Volume = 5.66 mln MUSE - Micromuse, Inc. $200.94 (+9.31 last week) Founded as a network management solutions reseller, Micromuse has become the leading provider of real-time fault and service-level management software. It is one of the fastest-growing companies in the software industry. Micromuse's Netcool suite helps telecommunications and Internet service providers ensure the uptime of network-based customer services and applications. Managing these service levels is important in environments where business services are provided over a network infrastructure. It was an inspiring week for MUSE last week, as a flood of good news lifted the stock in spite of a soft NASDAQ. After breaking through resistance at $190 last Friday, the stock managed to successfully test that support to end the week near its new all- time highs. Monday saw MUSE break through the psychologically important $200 level, helped by an expanded agreement with America Online, who uses the company's Netcool/Impact software for the management of real-time network events. Hitting resistance at $205, the next couple of days were spent consolidating, as the stock digested its newfound gains. On Thursday, a dip to support at $180 was quickly bought up as the stock not only erased the day's losses, but moved strongly higher to close at a new all time high. On Friday, MUSE succumbed to the weight of the NASDAQ, giving back $7.69 or 3.68% on 156% of ADV. Connecting the highs and lows since early August, MUSE's up-trend remains firmly intact. Thursday's action put MUSE at the top of its channel but Friday's profit taking gave the stock some breathing room. There is strong support at $190, reinforced by the 10-dma. A pullback to that level could be an ideal entry point. There is also support at $200, with the 5-dma close by. An aggressive entry could be had at this level. Intra-day, the stock has also found support at $197.50 but make sure it bounces before entering. Resistance can be found in increments of $5 at $205 and $210. In a volatile market such as this one, make sure you know your entry point and keep your stops tight. Tuesday saw the company announcing the launch of its Netcool/Precision v2.0 software. On Wednesday, MUSE announced A new customer in Prodigy Communications Corporation. This past week saw companies in the software infrastructure sector such as CFLO and VRTS move higher in spite of a down market. Keep an eye on sector-wide movements when considering a play. BUY CALL OCT-195 UZQ-JS OI=100 at $18.50 SL=13.25 BUY CALL OCT-200*UZQ-JT OI=111 at $15.75 SL=11.25 BUY CALL OCT-210 UZQ-JB OI=206 at $10.88 SL= 8.25 BUY CALL NOV-200 UZQ-KT OI= 15 at $26.63 SL=20.00 BUY CALL JAN-200 UZQ-AT OI= 1 at $39.25 SL=29.50 SELL PUT OCT-190 UZQ-VR OI= 12 at $ 9.25 SL=12.00 (See risks of selling puts in play legend) Picked on Oct 1st at $200.94 P/E = 695 Change since picked +0.00 52-week high=$210.00 Analysts Ratings 9-3-0-0-0 52-week low =$ 29.75 Last earnings 06/00 est= 0.09 actual= 0.10 Next earnings 10-24 est= 0.11 versus= 0.06 Average Daily Volume = 597 K RATL - Rational Software Corp. $69.38 (+2.94 last week) Rational Software Corporation, the e-development company, helps organizations develop and deploy software for e-business, e-infrastructure, and e-devices through a combination of tools, services and software engineering best practices. Rational's e-development solution helps organizations overcome the e-software paradox by accelerating time to market while improving quality. Rational's integrated solution simplifies the process of acquiring, deploying and supporting a comprehensive software development platform, reducing total cost of ownership. While demand for computers and networking hardware has been called into question recently, it appears the market has been rewarding certain segments of the enterprise-level software sector. With most Tech issues down across the board, stocks such as RATL have been quietly making gains. With volume edging higher, the stealth rally in these issues may not be a secret for long. After a 2-for-1 stock split in early September, RATL traded in a narrow range between $55 and $60. With the 50-dma moving up fast, the stock took off, breaking through not only $60 resistance, but $65 as well. This past week saw RATL digesting last Friday's gains. Once again we find RATL trading in a narrow range between $65 support and $70 resistance. On Friday, the stock gained $2.75 or 4.13% on healthy volume. A continuation of that range next week would see a bounce off $65 with volume to be an aggressive entry point. Bounces off the 5-dma at $68 or the 10-dma at $64 are also possible targets to shoot for. Intra-day, the stock has also found support at $66. Overhead, the only resistance point can be found at $70. A break through that level with conviction would put RATL at a new all-time high, providing conservative traders with the confirmation necessary to make an entry. In playing a bounce off support, make sure that RATL's peers are confirming the direction before jumping in. RATL's second-quarter earnings announcement is scheduled for October 11th. With just 10 days left before earnings, we are looking for continued momentum to carry us into a possible earnings run. Mark this date on your calendar, as we will look to exit, selling into the strength before the company announces its quarterly results. BUY CALL OCT-65 RAZ-JM OI=147 at $7.38 SL=5.25 BUY CALL OCT-70*RAZ-JN OI=193 at $4.63 SL=2.75 BUY CALL OCT-75 RAZ-JO OI=131 at $2.75 SL=1.25 BUY CALL NOV-70 RAZ-KN OI= 45 at $7.50 SL=5.25 BUY CALL NOV-75 RAZ-KO OI= 54 at $5.38 SL=3.50 Picked on Oct 1st at $69.38 P/E = 145 Change since picked +0.00 52-week high=$70.63 Analysts Ratings 9-1-1-0-0 52-week low =$13.94 Last earnings 07/12 est= 0.11 actual= 0.14 Next earnings 10-11 est= 0.14 versus= 0.10 Average Daily Volume = 1.25 mln ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. 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The Option Investor Newsletter Sunday 10-01-2000 Sunday 3 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/100100_3.asp ***********************ADVERTISEMENT************************ DirectAccessTrader, an international firm and division of InvestIN Securities Corp. (Member: NASD, SIPC), announces the EXP Trader. The EXP Trader is an advanced, next generation trading platform featuring: unparalleled speed via a direct connection to the Exchanges, SMART ORDER routing, stop orders, and direct access to the Island ECN book. Trade Faster. Trade Smarter. The EXP Trader. Call 1-800-327-1883. Speak directly with our trader support team. Open an account today and trade as low as $9.95. http://www.sungrp.com/tracking.asp?campaignid=573 ************************************************************ ****************** CURRENT CALL PLAYS ****************** ITWO - I2 Technologies $187.06 (+0.88 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. Last Thursday morning, analysts at Robert W Baird initiated coverage on ITWO with a Market Outperform rating, and set a $215 price target. The following day, First Union initiated coverage on ITWO with a Buy rating after setting a $230 price target. What's more, Lehman Brothers issued a report late last week that highlighted the likely candidates to be added to the S&P 500. You guessed it, ITWO was on the list, along with JNPR, VRSN, and CIEN. Whether ITWO is added to the S&P is purely speculation, however, the inclusion of ITWO into the index would greatly add to our profits in ITWO. With or without the S&P speculation, it's quite obvious that Wall Street is bullish on ITWO, noting the recent rash of analyst actions and comments just last week. Volume continues to clock in at high levels, which confirms Wall Street's bullishness in the form of institutional accumulation. As long as ITWO continues to garner big buying from Wall Street the stock will continue higher. The steady buying we have benefited from since the inception of our play has set ITWO to retest the psychological $200 level, and possibly position the stock to retest its 52-week high. Despite the waning action in the NASDAQ over the past month, ITWO's steady ascending action bodes well for our play going into October. The NASDAQ's weakness last Friday did, however, catch up with ITWO and carried the stock lower into the close of trading on a surge in volume. We want to make sure the bears have retreated before entering any new positions in ITWO. Although the stock's long-term trend is very bullish, our goal is to find the most profitable entry point, thus the concern over last Friday's sell-off. If the bears return early next week, watch for ITWO to find support just below at $185, around its 10-dma at $182.50, or lower near the $180 level. Wait for the stock to bounce, and consider entering the play if the bulls return. If, on the other hand, the NASDAQ rallies early next week, aggressive traders might enter new ITWO plays on a pop back above $190, or a momentum-based move above $195. The more conservative traders might wait for ITWO to rally above $197, its near-term high, which would position the stock for another breakout. As ITWO approaches its all-time high, the stock, once again, is trending into split territory. The last time ITWO split its stock was back in January, when it was trading at $215. The company has plenty of authorized shares for another 2-for-1 and might decide to declare if the stock continues climbing. At this point, a split announcement could be the catalyst to take our play to the next level, and our profits higher too! BUY CALL OCT-185 QYI-JQ OI= 300 at $15.50 SL=11.25 BUY CALL OCT-190*QYI-JR OI= 538 at $13.00 SL= 9.75 BUY CALL OCT-195 QYI-JS OI= 255 at $10.88 SL= 8.25 BUY CALL NOV-190 QYI-KR OI=1006 at $20.38 SL=14.75 BUY CALL NOV-195 QYI-KS OI= 154 at $18.13 SL=13.00 Picked on August 27th at $166.50 P/E = 585 Change since picked +20.56 52-week high=$223.50 Analysts Ratings 13-20-3-0-0 52-week low =$ 18.63 Last earnings 06/00 est= 0.08 actual= 0.10 Next earnings 10-20 est= 0.10 versus= 0.06 Average Daily Volume = 3.69 mln CHKP - Check Point Software $157.56 (+5.06 last week) Check Point Software 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. Despite the meltdown in the NASDAQ during the month of September, CHKP has managed to hold its ground. In fact, after looking over CHKP's chart, it's safe to say the stock spent last month in consolidation mode. Now that September is behind, and CHKP has spent time resting, the stock might once again be ready to run. CHKP spent most of September churning between support at the $140 level and resistance near the $160 level. While CHKP's range bound trading provided many profit opportunities (and may continue to do just that), we're looking for the stock to breakout from its four-week base and move onto to new highs. CHKP's market defying direction last Thursday and Friday might foreshadow higher prices ahead. The stock bounced from a low at $141 last Thursday, and quickly rebounded to retest its trading range high at $160, before pulling back on profit taking. The fact that CHKP was able to muster a modest advance last Friday and hold onto its gains into the close gave reason to take notice of the stock's potential. If the NASDAQ sides with the bulls early next week and marches higher, CHKP could breakout into new territory. The aggressive traders who wish to take on a little more risk might consider entering new positions if CHKP to rallies above the $160 level, the upper-bounds of CHKP's trading range. Those traders seeking less risk and more confirmation might wait for CHKP to move above its 52-week high at $163.38. Make sure to confirm bullish sentiment in the NASDAQ and wait for heavy buying volume before jumping into CHKP's on a breakout. If the NASDAQ continues its woeful ways early next week and pulls CHKP down, look for the play to find support first at $155, and lower near the $150 level. Before entering new call plays on a CHKP pullback, make sure the stock bounces off one of the aforementioned support levels on strong volume. CHKP's appearances at several conferences next week might be the catalyst to boost our play into breakout territory. CHKP will present at IBM's SecureWorld event Monday, the company will also be speaking at Compaq's ETS 2000 conference later in the week. We will be listening for an upgrade or bullish comments of any type on CHKP early next week. BUY CALL OCT-150 KGE-JJ OI=1905 at $15.50 SL=11.25 BUY CALL OCT-155*KGE-JK OI= 215 at $12.38 SL= 9.25 BUY CALL OCT-160 KGE-JL OI= 644 at $ 9.75 SL= 6.75 BUY CALL NOV-155 KGE-KK OI= 6 at $19.13 SL=13.75 BUY CALL NOV-160 KGE-KL OI= 155 at $16.75 SL=12.00 Picked on Sep 3rd at $149.44 P/E = 198 Change since picked +8.13 52-week high=$163.38 Analysts Ratings 13-5-0-0-0 52-week low =$ 20.13 Last earnings 06/00 est= 0.21 actual= 0.25 Next earnings 10-20 est= 0.26 versus= 0.15 Average Daily Volume = 2.00 mln SEBL - Siebel Systems Inc. $111.31 (+6.31 last week) Siebel Systems 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. SEBL has been dominant in overcoming resistance from the Tech bears during the last three weeks, which was epitomized Friday morning with a new all-time high over $118. Of course, the Strong Buy reiteration by Wit SoundView helped SEBL to its new 52-week high. But, try as it might, SEBL finally succumbed to the weakness in the Tech sector. SEBL was not along in its battle with the bears last week. Several counterparts, including ITWO, MSFT, and ORCL, felt the bears fury. However, despite the heavy selling that dragged SEBL lower last week, the stock is still in a clearly defined up-trend and should continue to rally as long as the NASDAQ cooperates. As such, SEBL's pull back last Friday could prove to be a profitable entry point as third-quarter earnings season approaches. If SEBL's month-long pattern of relatively higher lows continues, the lowest the stock should fall is right at its 10-dma, currently located at $106.44, which also happens to be the site of SEBL's last low. With that said, aggressive traders could look for a bounce off support just below at $110, of if that fails, watch for SEBL to bounce off the pivotal $106.44 area. A more conservative entry might be found if the NASDAQ strengthens early next week and SEBL rallies back above the $114 level. It might be worth monitoring the direction of SEBL's sector before entering new long plays. Watch the action in MSFT, ORCL, and ITWO before entering new positions. Over the course of the next two weeks, SEBL officials will be busy on the road presenting to customers, investors, and analysts. The company is scheduled as a headline presenter at the National Defense Transportation Association meeting next week, the Banking Solutions 2000 Conference, the Financial Technology Expo, and also the I2 Planet 2000 gathering. If SEBL delivers a bullish message during its appearances in the coming weeks, the stock could very easily continue on its path to higher highs, with or without the NASDAQ. BUY CALL OCT-105 EZG-JA OI=4365 at $11.13 SL=8.25 BUY CALL OCT-110*EZG-JB OI=4489 at $ 7.88 SL=5.75 BUY CALL OCT-115 EZG-JC OI=2067 at $ 5.50 SL=3.50 BUY CALL NOV-110 EZG-KB OI=1627 at $12.63 SL=9.50 BUY CALL NOV-115 EZG-KC OI=1177 at $10.25 SL=7.25 Picked on Sep 17th at $99.00 P/E = 506 Change since picked +12.31 52-week high=$118.44 Analysts Ratings 17-5-0-0-0 52-week low =$ 15.88 Last earnings 06/00 est= 0.09 actual= 0.11 Next earnings 10-17 est= 0.11 versus= 0.07 Average Daily Volume = 4.78 mln PEB - PE Biosystems Group. $116.52 (-2.48 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. After surging over the $125 mark at the open on Monday, PEB had a rough go of things last week. The broader markets were definitely not cooperating with those that wanted to enter new directional plays, but day-traders were once again rewarded with large intraday price swings. Did you take profits on Monday morning in anticipation of the decline that was coming? At a minimum, your stops should have taken you out of the play making it possible to re-enter for the next move up. While it couldn't really make any headway last week, neither did our play suffer any kind of technical breakdown. As a matter of fact, the intraday lows are gradually moving higher, and with the highs topping out near $120, we can see that this resistance level is still intact. As evidence that the trading in PEB last week was little more than a consolidation of recent gains, we can see that the daily trading volume steadily declined all week, posting a measly 1 million shares on Friday. Old resistance levels have been transformed into support, first at $112, reinforced by the 10-dma at $112.83. Then we have the $108-109 support level which was confirmed by the Tuesday bounce, right on the 10-dma. Going forward, consider renewed bounces from support to be attractive entry points, but make sure that volume is coming back into the stock before playing. More conservative players will want to wait for PEB to break back above $120 on solid volume before jumping into the play. With analyst upgrades (see news below), and earnings warning season officially over, PEB should have a much better week, market permitting. With some help from analysts, PEB got a boost early last week. Salomon Smith Barney analyst Meirav Chovav initiated coverage with a Buy rating and a $135 price target on Tuesday, and UBS Warburg added their vote of confidence with a new Buy rating on Wednesday. Citing a strong management team, few formidable competitors, and robust growth, Chovav believes Applied Biosystems (formerly PE Biosystems) is well positioned to capitalize on the genomics revolution. BUY CALL OCT-115 BVE-JC OI= 696 at $ 8.13 SL= 5.75 BUY CALL OCT-120*BVE-JD OI=1145 at $ 5.63 SL= 3.50 BUY CALL OCT-125 BVE-JE OI= 195 at $ 3.63 SL= 2.25 BUY CALL NOV-120 BVE-KD OI= 69 at $11.13 SL= 8.25 BUY CALL NOV-125 BVE-KE OI= 127 at $ 8.75 SL= 6.00 SELL PUT OCT-110 BVE-VB OI= 40 at $ 4.00 SL= 6.00 (See risks of selling puts in play legend) Picked on Sep 17th at $106.50 P/E = 140 Change since picked +10.02 52-week high=$160.00 Analysts Ratings 9-6-1-0-0 52-week low =$ 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 = 1.36 mln JNPR - Juniper Networks $218.94 (-6.70 last week) As a provider of Internet infrastructure solutions, JNPR serves Internet service providers and other telecommunications service providers, helping them to meet the demands resulting from the rapid growth of the Internet. The company delivers next generation Internet backbone routers that are specifically designed for service provider networks. JNPR's flagship product is the M40 Internet backbone router, which complements the recently-introduced M20, which is a router built specifically for emerging service providers. The routers provided by the company combine the features of the JUNOS Internet Software, high performance ASIC-based packet forwarding technology and Internet-optimized architecture into a purpose-built solution for service providers. It may not sound impressive, but hooray for our play in not getting killed last week. Prominent companies continued to warn about disappointing results for the third quarter, and each that did was promptly taken out behind the woodshed and beaten severely. Each of these confessions had the effect of keeping investors jittery, and it is hard to find a stock that was able to completely ignore the effect and just march steadily higher last week. The real measure last week seemed to be whether a stock could hold important technical levels. JNPR pulled this off nicely, closing out the week just above the 10-dma (currently $218.83). While this still represents a loss for the week, given the unsettled nature of the markets we'll take advantage of the overall weakness to land a better entry point. So what do we owe this impressive strength to? Look no further than the analyst community, with glowing comments coming from Lehman Brothers and Salomon Smith Barney (see news below). Some analysts see JNPR as a CSCO-beater, and some of their router products are arguably superior to the wares being hawked by CSCO. If true, this is the kind of thing that will drive JNPR's profits strongly upward, and we won't have long to wait for the company's results. They are early in the cycle and their release date is confirmed for October 12th, after the close. Large intraday moves are the norm for JNPR, so needless to say, this play is not for the faint of heart. Below current levels, JNPR has support near $215, and then $208. Target shoot new entries according to your risk tolerance, but make sure strong buying volume confirms the bounce. In the wake of the Intel earnings warning, investors have moved their money into technology stocks with strong analyst ratings, adding fuel to JNPR's meteoric rise. Despite a PE north of 2600, all 18 analysts following the stock rate it either a Buy or a Strong Buy. Then last Monday, Salomon Smith Barney analyst, B. Alexander Henderson raised his price target from $245 to $310, citing extremely strong demand for the company's router products. He also expects the company to post extremely strong earnings in October and sees the company grabbing even more of CSCO's high-end market share. Lehman Brothers confirmed the bullish sentiment on Friday, stating that they expect JNPR to beat current earnings estimates for the third quarter due to strong sales momentum and improved margins. BUY CALL OCT-220*JUD-JD OI=2472 at $16.75 SL=12.00 BUY CALL OCT-230 JUD-JF OI=3967 at $12.00 SL= 9.00 BUY CALL OCT-240 JUD-JH OI=2352 at $ 8.75 SL= 6.25 BUY CALL NOV-230 JUD-KF OI= 416 at $21.38 SL=16.00 BUY CALL NOV-240 JUD-KH OI= 511 at $17.25 SL=12.50 SELL PUT OCT-200 JUD-VT OI=2411 at $ 8.75 SL=11.75 (See risks of selling puts in play legend) Picked on Sep 26th at $230.50 P/E = 2682 Change since picked -11.56 52-week high=$240.00 Analysts Ratings 15-3-0-0-0 52-week low =$ 30.00 Last earnings 07/00 est= 0.04 actual= 0.08 Next earnings 10-12 est= 0.09 versus=-0.01 Average Daily Volume = 7.71 mln BRCM - Broadcom Corporation $243.75 (-5.00 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. A day-trader's delight, BRCM has returned to its habit of moving $10-15 per day. While it is certainly exciting, position traders are tearing their hair out in huge clumps; thankfully that September is over, and hopefully October will bring more stability. Things were looking encouraging on Monday morning, as our play opened above the $250 resistance level, but selling over the next three sessions proved that it was going to be a tough level to hold. Much like the broader markets over the past week, BRCM has had trouble moving up for more than one day at a time. While the bounce late on Wednesday afternoon at the $242-243 support level looked like a decent entry, after a one-day run, the bears came out with a vengeance on Friday, pushing our play back down to close just above support again. Further support can be seen at $238 and $235 on an intraday chart, so consider target shooting dips to your level of comfort. Numerous attempts to break through the $260 resistance level have all been turned back, and now we have technicals like MACD and Stochastics turning south. On top of that, Friday's close was below the 30-dma ($244.56) for the first time since breaking above it a week ago. The $250 level has turned into a no-man's land as it is being criss-crossed on a daily basis. So why is it still on our play list, you ask? Simple, relative strength. While the markets have been far from healthy as earnings warning season has wound down, our play has managed to hold its ground, rather than sell off like so many other technology stocks. Earnings are less than 3 weeks away, with expectations for BRCM to nearly double the year-ago number. Those with cast-iron stomachs can continue to target shoot new entries near support, but we would recommend waiting for volume to approach healthier levels first. Although you will give up the early part of the move, waiting for BRCM to push through resistance should provide for a lower risk entry. In its latest salvo against Intel on Monday, BRCM asked a California Superior court for a preliminary injunction to stop Intel (INTC) from selling products that are allegedly the result of stolen trade secrets. Demonstrating why it commands such a high valuation on Tuesday, BRCM delivered its newest product, the world's lowest power, dual-port Gigabit Ethernet-over-copper transceiver. Complete with intelligent network functions, the new product doubles port density while reducing the power and size of Gigabit transceivers by 50%. BUY CALL OCT-240 RDU-JH OI=2976 at $18.25 SL=13.25 BUY CALL OCT-250*RDU-JJ OI=1464 at $13.13 SL= 9.75 BUY CALL OCT-260 YRL-JL OI=1743 at $ 9.13 SL= 6.25 BUY CALL NOV-250 RDU-KJ OI= 735 at $22.75 SL=17.00 BUY CALL NOV-260 YRL-KL OI= 812 at $18.38 SL=13.25 SELL PUT OCT-230 RDU-VF OI=1457 at $ 8.50 SL=11.25 (See risks of selling puts in play legend) Picked on Sep 24th at $248.75 P/E = 405 Change since picked -5.00 52-week high=$297.94 Analysts Ratings 8-11-1-0-0 52-week low =$ 53.00 Last earnings 07/00 est= 0.19 actual= 0.23 Next earnings 10-17 est= 0.24 versus= 0.13 Average Daily Volume = 5.29 mln AGIL - Agile Software Corp. $89.94 (+9.94 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. Lack of news and a weak NASDAQ didn't stop AGIL from moving higher, thanks to its strong technicals. Last week we mentioned that volume had been tapering off and that in order for AGIL to continue higher, the buyers would have to return in large numbers. Spending the first half of the week in consolidation mode, the stock found support from a rising 10-dma while attempting to break through formidable resistance at $85. A quick glance at AGIL's chart reveals that it had been forming an ascending triangle pattern. On Thursday, AGIL blasted though $85 resistance, closing up $10.19 or 12.45%. With volume coming in at 230% of ADV, the buyers were back in force. Friday saw some end of month profit-taking and general market weakness. Spending the first 90 minutes of trading heading lower, the stock found support at $87 and made an attempt to recover, closing down $2.06 on 263% of ADV. While volume for the down day was high, the intra-day chart on AGIL reveals that the morning dip was on light volume while the end of day recovery attempt was backed by strong volume. Connecting the highs and lows since early August shows that AGIL has been trading in an upward sloping regression channel. With the stock near the top of its channel, a little consolidation may be necessary for the stock to move higher, providing traders with possible entry points. With support at $87 and $85, a bounce off these levels could be a target to shoot for. As long as the current up-trend holds, bounces off the 5- or 10-dma (at $86.19 and $82.65) will continue to be aggressive entry points. Conservative traders will want to see AGIL clear $92 with conviction before entering new positions. Friday saw AGIL break its news drought as First Union Securities initiated coverage on the stock with a Buy rating. With buying volume outnumbering selling volume and strong support a $85, a little good news could provide the catalyst for another breakout. BUY CALL OCT-85 AUG-JQ OI=137 at $11.38 SL= 8.50 BUY CALL OCT-90*AUG-JR OI=254 at $ 8.38 SL= 6.00 BUY CALL NOV-85 AUG-KQ OI= 20 at $15.38 SL=11.25 BUY CALL NOV-90 AUG-KR OI=348 at $13.00 SL= 9.75 BUY CALL JAN-90 AUG-AR OI= 36 at $18.75 SL=13.50 SELL PUT OCT-80 AUG-VP OI= 7 at $ 3.63 SL= 5.50 (See risks of selling puts in play legend) Picked on Sep 5th at $74.06 P/E = N/A Change since picked +15.88 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 = 630 K CFLO - CacheFlow Inc. $143.00 (+5.81 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. CFLO's action last week is a textbook example of how resistance becomes support. The previous week saw CFLO struggling to break through resistance at $140. Attempting to do so unsuccessfully three times, the fourth time turned out to be a charm as the stock started this week with a bang. CFLO gapped up above $140 at Monday's open to close up $13.84 on three times the ADV, thanks to Credit Suisse First Boston analyst Amit Chopra, who boosted the 12-month target price from $125 to $190. Tuesday saw Robertson Stephens analyst Dane Lewis reiterate a Strong Buy rating, helping the stock gain another $5.97 on strong volume. Encountering resistance at $160 brought in the profit takers who took the stock down on Thursday. CFLO bounced strongly when it got near $140 and managed to do so again on Friday. Overhead, there is resistance at $150, which is reinforced by the 5-dma, and also at $153. A break above $150 with conviction would be the target for conservative traders. Past $153, CFLO will find itself once again challenging formidable resistance at $160. Looking at CFLO's upward sloping regression channel since early August shows that the bounce off resistance at $160 on Tuesday happened at the top of that channel. The pullback of the past couple of days has put the stock closer to the lower-middle of the channel. A strong bounce off key support at $140, now reinforced by the 10-dma, could be a rare buying opportunity, but make sure that level holds before entering. On Friday, CFLO announced an alliance with ATON and AKAM. The three companies will be hosting seminars to e-commerce companies, enterprises, and service providers to demonstrate how their products can cost-effectively manage and deliver content on a relevant and timely basis. BUY CALL OCT-140 FUJ-JV OI=149 at $12.88 SL= 9.75 BUY CALL OCT-145*FUJ-JW OI= 34 at $10.13 SL= 7.00 BUY CALL OCT-150 FUJ-JX OI=357 at $ 8.13 SL= 5.75 BUY CALL NOV-145 FUJ-KW OI= 0 at $16.88 SL=12.25 Wait for OI!! BUY CALL NOV-150 FUJ-KX OI= 4 at $14.88 SL=11.00 SELL PUT OCT-135 FUJ-VU OI= 34 at $ 7.13 SL=10.00 (See risks of selling puts in play legend) Picked on Sep 7th at $113.00 P/E = N/A Change since picked +30.00 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 = 743 K MERQ - Mercury Interactive $156.75 (+7.81 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. The blue-sky territory we mentioned last week turned into green for traders as MERQ continued to make new all time highs. Traders who paid close attention to the stock last week were rewarded with the most beautiful of entry points. Last week also saw MERQ hop into a steeper and sleeker upward trending regression channel. On Monday and Tuesday, the stock edged higher but with volume decreasing, it seemed to lack conviction. This led to some profit taking on Wednesday, which gave investors a slight scare, but MERQ more than made up for it. On Thursday, the stock bounced off strong support at $140, giving aggressive traders a rare visit to its 10-dma. Buyers eagerly accumulated the stock, which more than wiped out the previous day's losses. After such a volatile week, Friday was a relatively quiet day as MERQ bucked the actions of a weak market to close up fractionally on low volume. Connecting the highs and lows since the beginning of August Reveals the upward sloping regression channel which MERQ had been trading in. Connecting the highs and lows since early September, we see the action in MERQ has picked up as it has moved to a steeper channel. At this point, the only resistance for MERQ is at $160. A break above that point would confirm upward momentum and provide conservative traders with an entry point. Aggressive traders looking to buy off a bounce can find support at $150, the 5-dma at $153.47, and the 10-dma at $145.62. With little news to drive the stock last week, it's been all about momentum, and MERQ has plenty of it. While the top of the new steeper channel is well north of $160 resistance, keep in mind that at this point MERQ is closer to the top of the channel than the bottom. As nothing goes straight up, a slight pullback would not be a surprise, offering a buying opportunity. Volume this week has been easing off so make sure there is buying pressure to support a bounce before making an entry. BUY CALL OCT-150 RBF-JJ OI=641 at $17.25 SL=12.25 BUY CALL OCT-155*RBF-JK OI=118 at $14.50 SL=10.75 BUY CALL OCT-160 RBF-JL OI=216 at $12.00 SL= 9.00 BUY CALL NOV-155 RBF-KK OI= 13 at $21.38 SL=15.50 BUY CALL NOV-160 RBF-KL OI=383 at $19.00 SL=13.75 SELL PUT OCT-145 RBF-VI OI= 36 at $ 7.25 SL=10.00 (See risks of selling puts in play legend) Picked on Sep 24th at $148.94 P/E = 319 Change since picked +7.81 52-week high=$157.94 Analysts Ratings 9-3-1-0-0 52-week low =$ 28.38 Last earnings 07/00 est= 0.12 actual= 0.14 Next earnings 10-17 est= 0.16 versus= 0.11 Average Daily Volume = 1.82 mln VRSN - VeriSign Inc $202.63 (+7.75 last week) VeriSign provides Internet-based trust services that authenticate and protect data so secure transactions and communications can be conducted over the Internet, intranet, and extranets. Websites, enterprises, government agencies, and even individuals use VeriSign's digital ID's (digital certificates) with the encrypted information as cybersafeguards for such activities as e-mail, home banking, and credit card transactions. Visa represents 14% of total sales. Verisign's tailor-made e-commerce solutions become increasingly indispensable as consumers purchase more goods and services online. With a strong business model and an anticipated revenue growth of 55% over the next 3 years, VRSN is considered a favorite among market participants. The bullish sentiment has kept the share price at the higher trading range of $150 to $200. But it was Thursday's big rally that broke the stock out of its trappings. The strong momentum launched VRSN through the upper resistance and it steadily climbed to $209.56. The bullish close, at a mere fraction from its intraday peak, hinted that VRSN was destined for more advances. On Friday, VRSN broke the immediate resistance at the opening bell and stretched upward to $214.38 before settling down. The subsequent trading had a strong show primarily between $205 and $210. The expected profit taking left VRSN in a good position by the late afternoon. The close above $200 demonstrated strength; yet provided an opportunity to take reasonable positions. Consider taking entries on bounces off the current level, just above the former resistance, or buying into strength as VRSN moves through the $210 level. On aggressive pullbacks, $188 and $190 mark solid support, bolstered by the rising 10-dma at $193.13. Look for respectable volume at 4+ mln shares or better to move the stock higher. Keep in mind, VRSN is a split- candidate above $200. The company presently has 1 bln shares authorized and 194 mln outstanding, which is more than enough to pay a stock dividend. Sometimes this reality can incite momentum of its own. Look too for positive statements, like CSFB's Strong Buy recommendation this week, to encourage more upside action. The law that makes your digital "John Hancock" legally binding goes into effect on Sunday. Most industry watches agree that companies may be slow to adopt the use of virtual signatures, but its application is inevitable. BUY CALL OCT-200 QVZ-JT OI=3763 at $17.00 SL=12.25 BUY CALL OCT-210*QVZ-JB OI=1272 at $12.75 SL= 9.75 BUY CALL OCT-220 QVZ-JD OI=1028 at $ 8.75 SL= 6.25 BUY CALL NOV-210 QVZ-KB OI= 359 at $21.38 SL=16.75 BUY CALL NOV-220 QVZ-KD OI= 233 at $17.75 SL=12.75 Picked on Sep 28th at $208.38 P/E = N/A Change since picked -5.75 52-week high=$258.50 Analysts Ratings 13-11-1-0-0 52-week low =$ 48.81 Last earnings 06/00 est=-0.01 actual= 0.07 Next earnings 10-23 est= 0.06 versus= 0.02 Average Daily Volume = 3.96 mln CIEN - Ciena Corp $122.81 (+2.06 last week) 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 come from outside the US markets. The optical-related stocks prevailed in this week's wobbly marketplace; although it was CIEN that took the gold! On Monday, Ciena announced a huge deal with Korea Telecom to supply it with fiber-optic gear for networks in seven cities, including Seoul. CIEN advanced a whopping 12.8%, or $15.50 and set a new 52-week record on the news. The volume was exceptional at almost three times the ADV. Consequently, the near-term support level was elevated from $113-114 to $124-$128. However, the safety net is lower at $120-$122, just above the 10-dma ($119.65). Resistance is developing at the $130 mark, so conservatively, look for a break through here on strong volume to confirm the momentum. Otherwise, take more aggressive positions on intraday dips near the 5-dma line, which is now at $126.11, or off the current level. Tuesday's intraday peak at $134 and the new 52-week high at $136.25 represent the next line of opposition on an upswing. The play on CIEN is pretty basic. There's the strong sentiment within the fiber-optic sector and it's expected that many of the companies will beat the earnings estimates. Plus, many investors are very bullish on a sector that, so far, continues to outpace sales growth in nearly every other industry. But remember, not even the sexy stocks can stay on top forever. After the WSJ's recent article on this hot sector, some investors may believe they've seen their run and cash in. The bears are always looming, so keep stops in place. Analysts speculated this week that Ciena and its rival, Juniper Networks, were leading candidates to join the S&P 500 Index. Both companies have market values greater than most of the current members and less than 50% of their respective outstanding shares are owned by insiders, which are two important criteria for the index. BUY CALL OCT-120 UEZ-JD OI=2782 at $11.75 SL= 9.00 BUY CALL OCT-125*UEZ-JE OI=3841 at $ 9.38 SL= 6.50 BUY CALL OCT-130 UEZ-JF OI=1527 at $ 7.38 SL= 5.25 BUY CALL NOV-125 UEZ-KE OI=1562 at $14.00 SL=10.50 BUY CALL NOV-130 UEZ-KF OI= 678 at $11.88 SL= 9.00 Picked on Sep 24th at $120.75 P/E = 605 Change since picked +2.06 52-week high=$136.25 Analysts Ratings 11-9-2-0-0 52-week low =$ 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 = 6.69 mln QCOM - Qualcomm Inc $71.25 (-1.75 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. Qualcomm is testing our patience; yet we're not ready to exit this potential gold mine. For those readers who've been following this play, you know QCOM got our attention after it spiked up on news of a comeback. However, after clearing the resistance at $75, it stopped short at $78.75. The snag? An unyielding line of opposition at $80. Take a look at a chart for visual confirmation. It's been five months since QCOM traded successfully above this level. Our objective is to play QCOM on a strong move through $80 and ride the momentum up. If the stock breaks this barrier then the run could extend into earnings, which are confirmed for November 2nd, after the market. For the cautious type, wait for QCOM to move to the upside of this formidable resistance before taking a stake. If you'd rather position yourself more offensively, consider shooting for entries off near-term support at the converged 5 and 10 DMAs at $72.51 and $72.98, respectively. Look for volume levels of three to four mln intraday to signal another breakout. On the Asian front, China United Telecommunications Corp, China's 2nd largest mobile phone company, said it will take over and upgrade a handful of cellular networks that use Qualcomm's technology. While this is a good sign that things are moving forward in Asia, the company's CEO, Yang Xianzu, declined to comment about reviving plans for a large-scale network potentially worth billions of dollars to Qualcomm. In other news, Agilent Technologies (A), a test and measurement equipment maker, announced they entered into a multi-million dollar deal with Qualcomm. Under the terms of the agreement, it will allow Agilent to use patents, software and chipsets to expand its line of Code Division Multiple Access (CDMA) test equipment. BUY CALL OCT-65 AAO-JM OI=17662 at $8.63 SL=6.25 BUY CALL OCT-70*AAO-JN OI=22700 at $5.38 SL=3.50 BUY CALL OCT-75 AAF-JO OI=16179 at $3.13 SL=1.50 BUY CALL NOV-75 AAF-KO OI= 3628 at $6.25 SL=4.25 BUY CALL NOV-80 AAF-KP OI= 3417 at $4.50 SL=2.75 Picked on Sep 17th at $66.25 P/E = 84 Change since picked +5.00 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 = 14.4 mln ************************Advertisement************************* Attention Online Traders: NobleTrading.com has become the first online trading firm to offer both Direct Access Trading, and web based trading to its customers. Trade Direct using any ECN, SOES, and SelectNet, or trade right through your browser using our web based trading application. FREE DSL service for active traders. Visit our website and sign up for a Free real-time demonstration! http://www.sungrp.com/tracking.asp?campaignid=552 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 10-01-2000 Sunday 4 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/100100_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=539 ************************************************************** ************* NEW PUT PLAYS ************* DIGX - Digex Inc $46.88 (-14.56 last week) DIGX is a leading provider of hosting services to businesses and organizations operating mission critical, multi-functional Web sites and Web-based applications. Their hosting services are used by some of the leading Internet companies. The company also offers value-added enterprise and professional services, including performance and security testing, monitoring, reporting and networking services. They operate two data centers in the US and one in the UK that house more than 2,300 company-owned and managed servers. Digex clients include Forbes, J. Crew, and Nissan. DIGX's vitality was zapped as news of WorldCom's (WCOM) successful bid for it and its parent, Intermedia Communications on September 5th. There was no mercy. DIGX investors sold off the issue on incredible volume. Trading activity was ten times the ADV at 11.46 mln shares. The share price was cut down 19.7%, or $16.63 by the time all was said and done. Since then, DIGX has progressively stepped lower. The last-minute, $6 bln bid for Digex was great for WCOM, who prevailed over other Web- hosting rivals attempts to acquire DIGX's global voice and data network. In response, Exodus (EXDS) recently acquired Global Crossing's (GBLX) GlobeCenter for $6.53 mln dollars to strengthen its position as the world's biggest operator of companies' Web sites. The resulting announcement on Thursday sent DIGX through the last technical line, the 5-dma ($52.99) and its historical support of $50. The volume was heavy at 3.9 mln shares exchanging hands. DIGX even received a Buy reiteration by Gerard Klauer Mattison & Co, but it was to no avail. The downward momentum continued into Friday's session. The high-volume and losses extended amid a moderate trading spread. Consider buying into the weakness as DIGX slides under the $45 mark and challenges $42.50, the site of Thursday's intraday low. There is light support around $35 and $40, so be prepared for buyers coming in off the sidelines. In this wobbly market it's a good idea to set stops. BUY PUT OCT-55 UOM-VK OI=235 at $11.00 SL=8.25 BUY PUT OCT-50*UOM-VJ OI= 85 at $ 7.25 SL=5.00 BUY PUT OCT-45 UOM-VI OI= 37 at $ 4.25 SL=2.50 Average Daily Volume = 1.14 mln ***************** CURRENT PUT PLAYS ***************** CMOS - Credence Systems $30.00 (-5.88 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. Our CMOS put plan played out with near perfection last week. The post Intel warning-effect we were gaming carried over and dragged the Chip Manufacturers lower. Sure enough, CMOS closed at exactly the target price of $30 last Friday, giving us a healthy one-week gain. However, in light of the Apple (AAPL) warning late last Thursday and subsequent bear raid in the PC and Semi sectors, we think CMOS could be headed even lower. What's more, CMOS continues to trace lower lows on increasingly heavier volume, which suggests we're trading in the direction of the institutions. However, even though CMOS looks very weak at its current levels, we must be cognizant of the $30 level. Last week, we touched upon the fact that CMOS' pivot point is the $30 level; the site of the stock's major breakout last fall. The strength of the $30 level was reiterated Friday as bulls defended their long positions by pinning CMOS at $30. If CMOS falls below the $30 level, the stock could easily retest support at $25. But, the first sign of CMOS stabilizing or even rebounding off $30 might give reason to run with profits. Although, aggressive traders might consider entering new positions if shorts cover and CMOS edges higher up to resistance at $31, or higher near the $32 level. Confirm a short covering rally with light volume, and wait for CMOS to rollover at one of the aforementioned resistance levels before entering new put plays. The more conservative traders will obviously wait for CMOS to fall below $30 on heavy volume before entering the play. Look to enter new put positions if CMOS falls below its near-term low at $29.56. Confirm bearish sentiment in the both the NASDAQ and $SOX before entering new put positions and consider confirming direction in CMOS' competitors such as AMAT, TER, and LRCX. BUY PUT OCT-40 CQS-VH OI= 40 at $10.13 SL=7.00 BUY PUT OCT-35*CQS-VG OI=471 at $ 6.38 SL=4.50 BUY PUT OCT-30 CQS-VF OI= 10 at $ 3.13 SL=1.50 Average Daily Volume = 1.61 mln MU - Micron Technology $46.00 (-6.00 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. We've read this play like a book. All week long, intraday spikes above the $50 level have given great entry points into this put play. Fundamentally, the Semi sector has a dark cloud that doesn't appear to be clearing. The AAPL warning is making waves in the box maker market, weighing on component providers like MU. Thursday's close at $50.94 and the AAPL warning after the bell combined to give us a perfect Play of the Day on Friday. With a gap down to open at $48.25, the break below $50 was indication to jump on in, as we mentioned in the Thursday update. MU didn't think about stopping at $47, and went right for a low of $44.50, a level not seen since February 29th. Now this play has become somewhat interesting. MU has earnings on October 4th, which is Wednesday after the bell. After Friday's drop, MU slowly recovered and held the $45 - $46 area in a tight range for the rest of the day. Now, as the NASDAQ accelerated to the downside at the close, MU held that range. Volume was strong as MU lost another 7% on Friday. Therefore, given that earnings are Wednesday, the way to play this going forward is to look for entries on rollovers from intraday resistance at $49 and $50. If MU breaks $45 again with good volume, look for the sellers to take MU lower, and an entry point. But, if MU looks positive on Monday and breaks above $50 convincingly, use caution. It may rollover at $51 or $52 resistance, but high volume buying at these levels without a rollover may indicate some preemptive earnings euphoria. Without a rollover at resistance levels over $50, we would not initiate new plays. Use stop orders to protect profits accrued in this play and to limit any losses. BUY PUT OCT-50*MU-VJ OI=4839 at $7.00 SL=5.25 BUY PUT OCT-45 MU-VI OI=2977 at $4.00 SL=2.50 Average Daily Volume = 7.30 mln CPTH - Critical Path, Inc. $60.75 (-9.06 last week) Critical Path, Inc. is the dominant global provider of business-to-business Internet messaging and collaboration solutions for the wireless, Internet-centric, telecommunication and corporate markets. Critical Path, founded in 1997, helps businesses maximize the communication and revenue potentials of messaging while minimizing costs. Critical Path has built an industry-leading global infrastructure with mail centers connected to key Internet exchange points around the world. Critical Path’s technology currently reaches more than 125 million end-users through its customer relationships and more than 25 million wireless devices. Ever since encountering resistance at $80 in late August, CPTH has been making lower lows. Until recently, the stock had also been making higher lows. Connecting the highs and lows since the middle of August, we see a symmetrical triangle pattern, which we saw CPTH breaking to the downside on Tuesday. This led to further weakness on accelerating volume as on Wednesday, the stock broke below both the 50- and 200-dma (now at $63 and $65.51). The break below $63 was especially important since that area had previously provided support in the earlier part of September. Thursday saw this level act as resistance as CPTH continued lower. On Friday, the stock got a slight reprieve as it managed to bounce off of the $57 support level we mentioned in Thursday's write-up. Considering the oversold condition of the stock at the time, this bounce could be temporary and provide traders with an ideal entry point. There are many levels of overhead resistance to choose from, the 50-dma at $63, the 200- dma at $65.51, then at $67 and finally the 10-dma at $67.68. A failure to rally above one of these levels could be the target to shoot for but make sure the rollover is confirmed before jumping in. Conservative traders will continue to wait and see if CPTH can break below $57 with conviction before making a play. The next level of support below that is the 100-dma at $56.15. In the news this week, CPTH completed its acquisition of software company PeerLogic on Tuesday and followed it up with an alliance with Elron Software on Thursday. With weak technicals and its parent company CMGI near its all-time lows, we are looking for negative momentum to continue. Look for sector sympathy to confirm direction when considering a move. BUY PUT OCT-60*UPA-VL OI=228 at $6.13 SL=4.00 BUY PUT OCT-55 UPA-VK OI=100 at $4.13 SL=2.50 BUY PUT OCT-50 UPA-VJ OI=104 at $2.31 SL=1.25 Average Daily Volume = 1.01 mln OMC - Omnicom Group Inc $72.94 (-4.06 last week) Omnicom Group is one of the world's largest advertising organizations. Its companies create and produce world-class advertising campaigns for high-profile clients like PepsiCo, Anheuser-Busch, and Nissan. The company also offers marketing consultation and research services through its Diversified Agency Services unit, which includes Communications Consulting Worldwide, the world's largest public relations organization. Early in the week, strong losses dominated the scene. By Wednesday morning, OMC shed a total of 11.5%, or $8.88 on accelerating volume. Trading activity reached levels of 2.7 times the norm on the decline. Wednesday's intraday low of $68.13 marks OMC's bottom support. It's likely the NT Buy recommendation by analyst Lauren Rich Fine at Merrill Lynch influenced trading and enticed some buyers to take a nibble on Thursday. Despite the positive analysis, the subsequent rise found tough resistance at $74, reinforced by the trailing 10-dma ($74.94). OMC currently appears to be finding light support at $72, just below the 5-dma ($73.16). Our objective is to play the downtrend as the auspicious October 6th approaches. Recall OMC and True North (TNO) are either to be fierce competitors for the previously shared DaimlerChrysler ad account or as some speculate, join forces and increase their scale. It's anticipated that this uncertainty and the floundering market will continue to put negative pressure on the share price. However, err on the side of caution. Consider waiting for OMC to demonstrate more conclusive weakness under the $72 mark before planning an entry. BUY PUT OCT-80 OMC-VP OI=309 at $ 7.88 SL=5.75 BUY PUT OCT-75*OMC-VO OI= 79 at $ 4.50 SL=2.75 BUY PUT OCT-70 OMC-VN OI= 66 at $ 2.13 SL=1.00 Average Daily Volume = 799 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=553 ************************************************************** ***** LEAPS ***** Apple Warns and Heaps More Misery on the NASDAQ By Mark Phillips Contact Support By now you've already heard that Apple Computer (AAPL) warned that they would fail to achieve earnings projections for the current quarter. This was just the latest in a long string of reminders that September is a tough month for the bulls. Now that the month is over, how should we view the next one? October normally conjures up fears of market crashes, but we've had a tremendous amount of negative activity in the market over the past month. Could it be that the beginnings of actual earnings announcements in a little over a week could be just the catalyst to kick this market back into ascent mode? We'd like to hope so, but those of you that have ever had a worthless expiration know that 'hope' is a four-letter word. I didn't do any trading this past week, due to other commitments and my travel schedule, and in retrospect, I'm glad I was too busy. The level of pain being inflicted on certain stocks is staggering. AAPL warns and gets more than a 50% haircut. YHOO plunges through the $100 support level, giving the stock the distinction of the making the quickest trip of any LEAPS play from the New Play list to the Drop list. See below for details. How about DELL? It is now trading fractionally above $30, and it hasn't been there since late 1998. If support at $30 can't hold, look for that stock to get the boot in the near future. ERICY is another out of favor play, losing ground to both NOK and MOT in terms of relative strength. It is also being placed on a short leash this weekend, and if it fails to hold above $14, we'll be cutting it loose next week. I've spent the past 3 days at the Boston seminar cramming all the new information that I could into my already overloaded brain. What wouldn't fit, had to be scribbled in the margins of the course manual. Now I consider myself to be a primarily technical trader, and pride myself on my understanding of a wide assortment of indicators and their use, but I was amazed at all I didn't know. Here's a sample of some of the "Ah-Ha" moments that were particularly valuable to me. I now know which duration intraday charts to use and which ones NOT to use, and why. Do you know the reasons behind the settings on the technical indicators like MACD or Bollinger Bands? I do now, and will spend a good part of the evening tonight changing all my settings in Qcharts. Speaking of Qcharts, Chris covered aspects of the application that I never knew existed...you know, the type of features that you didn't know you needed, but once they have been pointed out, you have no idea how you lived without them. And this was all before Chris launched into any of his clever option strategies. If you have read his columns in Options 101 or Options 201, you know that he comes up with some interesting and provocative trades. Well, I can tell you that I was far from disappointed in this respect! How about a strategy that allow you to buy LEAPS on volatile stocks, and the more volatile they are, the cheaper the trade gets. Ditto for time to expiration - doing the trade with 2003 LEAPS is actually cheaper than doing the trade with 2002 LEAPS. How have you been doing with entry points on your favorite plays? How about trimming your losses and taking profits? Would you like to be able to put on positions that you can literally walk away from and not look at for a year? If you've been considering going to one of Chris' seminars, get off the fence. You won't be disappointed, and you can easily pay for the course with one or two trades; either good ones after the course, or bad ones without it. The VIX spent most of the week north of 22, and closed out Friday's session at 23.85. We've lately looked at the VIX and wondered if it was broken as an indicator, but clearly, based on recent action, it appears to be just fine. The real key is not just the value of the VIX, but where it is in its historical range. Sure, it is unusual for it to be below 20, but it has only been below 26 for about 4 months. Look back to 1998, and you can see that it spent fully 6 months below 25, before the huge volatility expansion that accompanied the selloff in August and September. If there is one thing that remains true, it is that cycles repeat. Unfortunately, chaos theory is alive and well, so the repeating cycles do not do so in an orderly fashion. That is why we must watch a variety of factors from technical indicators to money flow to the VIX to economic reports to try and determine which way the market is headed. While we are now officially out of the earnings warning season, that doesn't mean the danger has passed. Right now, we know which companies have been forthright in admitting their shortcomings. There will likely be others in the weeks ahead, who fail to impress investors and they will be likely be summarily dismissed along with a fat portion of their market capitalizations. Now, in all honesty, I am growing more bullish by the day. As I watch chart after chart, I see good bottom formations on many of those that I follow. Barring an unforeseen event like the Euro going to 70 cents basis the dollar, I think the bottom is near, and will be looking for opportunities to add to my long-term LEAPS holdings. Keep your eyes peeled for entry points on the plays you want, and then be ready to take the plunge when everything lines up. Just make sure you don't jump the gun, trying to force entries that aren't quite ready yet. Have a great week! Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN EMC 11/07/99 JAN-2002 $ 45 WUE-AI $ 9.50 $59.75 528.95% 09/17/00 JAN-2003 $100 VUE-AT $32.75 $35.38 8.02% CSCO 11/14/99 JAN-2002 $ 45 WIV-AI $11.00 $20.50 86.36% NT 11/28/99 JAN-2002 $37.5 WNT-AU $15.13 $30.75 103.24% 09/10/00 JAN-2003 $ 75 ODT-AO $27.50 $20.25 -26.36% SUNW 12/19/99 JAN-2002 $ 90 WJX-AR $22.00 $46.75 112.50% ERICY 01/30/00 JAN-2002 $16.3 WRY-AO $ 6.75 $ 3.75 -44.44% 07/23/00 JAN-2003 $ 25 VYD-AE $ 6.88 $ 3.13 -54.58% NSM 02/27/00 JAN-2002 $ 70 WUN-AN $24.25 $ 7.88 -67.53% AOL 03/12/00 JAN-2002 $ 65 WAN-AM $18.63 $ 8.50 -54.37% 08/13/00 JAN-2003 $ 55 VAN-AK $17.50 $17.30 1.14% AXP 03/12/00 JAN-2002 $46.6 WXP-AQ $ 9.33 $21.00 125.08% WM 03/19/00 JAN-2002 $ 30 WWI-AF $ 5.38 $12.88 139.31% JDSU 04/16/00 JAN-2002 $ 80 YJU-AP $39.63 $38.25 3.48% 08/27/00 JAN-2003 $130 VEQ-AF $55.25 $31.63 -42.76% MOT 05/14/00 JAN-2002 $36.6 WMA-AZ $ 9.54 $ 4.75 -50.21% NOK 05/21/00 JAN-2002 $ 50 IWX-AJ $17.25 $ 7.75 -55.07% 07/30/00 JAN-2003 $ 50 VOK-AJ $17.75 $11.25 -36.62% C 06/18/00 JAN-2002 $48.8 YSV-AW $10.31 $13.75 33.37% 10/01/00 JAN-2003 $ 60 VRN-AL $12.25 $12.25 0.00% AMGN 07/02/00 JAN-2002 $ 75 WQY-AO $20.75 $17.13 -17.47% JAN-2003 $ 70 VAM-AN $28.75 $26.38 - 8.26% VRSN 07/02/00 JAN-2002 $190 YVS-AR $66.25 $78.50 18.49% 09/03/00 JAN-2003 $190 OVS-AR $86.63 $97.63 12.70% DELL 07/09/00 JAN-2002 $ 55 WDQ-AK $12.63 $ 2.25 -82.19% JAN-2003 $ 60 VDL-AL $15.38 $ 4.25 -72.37% GENZ 07/16/00 JAN-2002 $ 70 YGZ-AN $17.13 $19.75 15.29% JAN-2003 $ 70 OZG-AN $23.13 $25.75 11.33% HWP 07/30/00 JAN-2002 $110 WPW-AB $28.25 $21.13 -25.22% JAN-2003 $120 VHP-AD $32.63 $25.88 -20.70% EXDS 08/06/00 JAN-2002 $ 55 WZZ-AK $20.75 $16.00 -22.89% JAN-2003 $ 60 VTQ-AL $25.38 $20.50 -19.23% MFNX 08/06/00 JAN-2002 $ 40 WOF-AH $13.75 $ 5.38 -60.91% JAN-2003 $ 45 VKW-AI $15.63 $ 7.38 -52.82% GM 08/06/00 JAN-2002 $ 65 WGM-AM $ 9.88 $12.50 26.52% JAN-2003 $ 65 VGN-AM $13.25 $16.13 21.70% FRX 08/13/00 JAN-2002 $ 95 WRT-AS $31.38 $39.63 26.27% JAN-2003 $100 VFB-AT $37.38 $44.63 19.38% BRCD 08/27/00 JAN-2002 $220 YNU-AD $65.38 $80.38 22.94% JAN-2003 $220 OMW-AD $86.50 $102.25 18.21% INKT 08/27/00 JAN-2002 $130 XOR-AF $50.13 $39.50 -21.20% JAN-2003 $140 VFR-AH $60.88 $50.38 -17.26% VERT 09/03/00 JAN-2002 $ 60 YER-AL $22.13 $ 9.00 -59.32% JAN-2003 $ 60 OER-AL $28.88 $13.63 -52.81% CMRC 09/10/00 JAN-2002 $ 80 YCU-AP $30.13 $33.25 10.36% JAN-2003 $ 80 OCU-AP $38.75 $43.00 10.97% PHCM 09/10/00 JAN-2002 $ 90 YPH-AR $45.75 $57.38 25.41% JAN-2003 $ 90 OFO-AR $52.50 $63.63 21.19% QCOM 09/17/00 JAN-2002 $ 70 WBI-AN $22.50 $25.63 13.89% JAN-2003 $ 70 VLM-AN $29.63 $33.75 13.90% BRCM 09/24/00 JAN-2002 $250 YRR-AJ $77.13 $74.63 - 3.25% JAN-2003 $260 OYG-AL $95.63 $93.75 - 1.97% Spotlight Play C - Citigroup $54.06 After giving us a stellar run into its 4-for-3 split a month ago, it was natural that C would have to face some profit taking. Following its historical pattern, the stock looks like it is finding good support right at the 100-dma (currently $51.31), and just above the $50 historical support. Financial stocks needed to come down a little, and now that they have, it looks like it may be time for them to run again. With its impressive financials and strong management team, C looks like it has plenty of room to run. We aren't alone in this opinion, as Banc of America Securities initiated coverage with a Buy rating 2 weeks ago, while ING Barings began coverage on Friday with a Strong Buy. There seems to be some decent support at $52 as well, giving us a couple good levels to target shoot new entries. More conservatively, wait for buying volume to propel C through the 30-dma ($55.63) and the 50-dma ($54.91) before initiating new positions. BUY LEAP JAN-2002 $60.00 WRV-AL at $ 8.25 BUY LEAP JAN-2003 $60.00 VRN-AL at $12.25 New Plays COMS - 3com Corporation $19.19 3Com received a lot of investor attention back in March when it spun off the PALM handheld computing division. Since then, the company has refocused on home-networking, high-speed modems and wireless and Internet telephony. After the hype that surrounded COMS' spinoff of the PALM division in March, the stock had two factors to overcome - the typical post-spinoff depression and the weakness in the technology sector as a whole. Gradually recovering throughout the summer, the string of higher lows and higher highs got snapped with the post-Labor day selloff. Plunging back to support at $14, our new play had new life breathed into it in the form of a stellar earnings report last Tuesday. Posting a loss of only 12 cents vs. estimates in the 19-25 cent range, galvanized buyers, and prompted an upgrade from Morgan Stanley Dean Witter. In their conference call, the company stated that they have turned the corner and are headed back towards profitability. With volume still clocking in at more than double the ADV on Friday, COMS has seen nearly a 50% surge in its share price in the past 3 days, which puts it above the early August highs. This definitely puts our play into rally mode, and we would be looking for attractive entry points in the near future. Continued strong moves over the $20 level are definitely buyable, as are dips to support at $18 or $17, followed by a resumption of the uptrend. BUY LEAP JAN-2002 $20.00 WTH-AD at $6.38 BUY LEAP JAN-2003 $25.00 VTH-AE at $7.13 WCOM - Worldcom Inc. $30.38 We've been watching WCOM for months now, waiting for a bottom to form, and it looks like we got the perfect setup late this week. Telecom stocks have been utterly decimated in recent months, and select stocks like WCOM seem to have been excessively punished. After tracing a low of $25.25 in the middle of last week, the bulls couldn't take it any more and rushed in to take advantage of the bargain. Volume was strong throughout Thursday and Friday, as we witnessed the stock gain 20% from its extremely oversold position. WCOM is a telecommunications powerhouse, with the right attitude about the market in which they operate. Unlike AT&T, WCOM has embraced the paradigm that voice traffic is declining and the future of any Telecom provider will depend on their ability to serve up data and other forms of rich-media content to their subscribers. By Friday afternoon, everything on the chart was looking rosy, with Stochastics and MACD turning positive, the price moving back up through the $30 support level, and volume well above the daily average. We need to see the $30 level hold as support, and would consider any upward move off of this level as an attractive buying opportunity. The options are so cheap that with only a $10 move in the stock, the 2002 LEAP will be sitting at 100% profit. Those of you with more modest trading accounts will really appreciate the beauty of this play. BUY LEAP JAN-2002 $35.00 WQM-AG at $6.75 BUY LEAP JAN-2003 $35.00 VQM-AG at $9.88 Drops YHOO $91.00 Making the round trip from New to Drop in record time, we are throwing YHOO off the list for misbehaving. While we thought the $100 level looked like a support level that would hold, the bears had other ideas in mind and promptly violated it on Wednesday morning. Far from being a short trip, YHOO spent the remainder of the week underwater, closing out the month of September at its lowest point in nearly a year. We didn't get anything approaching a decent entry on our play, and rather than look for a new level of support that might hold up better, we are cutting the strings on a clearly busted play. *********** SPLIT PLAYS *********** "A Gentle Rapping At My Door" By Ryan Nelson Straight out of the Raven by Edgar Allen Poe, many are hoping to avoid an unwelcome visit of a market debacle. The only momentum currently in the market is to the downside as warnings have bruised market sentiment. That has made it difficult for split plays to gain their footing. I mentioned GLW and AVNX as possible plays last week, but they disappointed. I guess this will have to be one of those "if you liked them at that price, you'll love them at this price" deals. But, I would wait for strong signs of a reversal in all stocks that have a similar trend as the Nasdaq. No point in jumping the gun though or your portfolio will be "nevermore". Current Split Run Plays None Current Split Candidate Plays ITWO CHKP PEB SEBL MERQ CFLO BRCM MUSE JNPR VRTS VRSN Candidates That Are Not Current Plays BRCD NEWP ARBA DNA 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 = 23 LSCC PRHC AVT MLNM AUDC NUHC MEDX AZA ASF UTI ADBE ORCL HGSI IMCL EXAR RNBO LEH PPRO BSYS TEK BVF DST SLOT For our complete stock split calendar, click here... http://members.OptionInvestor.com/splits/index.asp Symbol Company Name Splits Payable Executable 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 BVF - Biovail Corporation 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 DST - DST Systems, Inc. 2:1 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************************* Tired of waiting on trades to execute? 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The Option Investor Newsletter Sunday 10-01-2000 Sunday 5 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/100100_5.asp ************* COVERED CALLS ************* Conservative Option Trading: A Simple Strategy... By Mark Wnetrzak Success in the stock market depends on many things and those who have learned how to consistently profit in this game are few and far between. There are numerous approaches to determining market direction including: charting with technical trend or momentum indicators, contrarian systems that use sentiment indexes or put and call ratios, and valuation techniques such as fundamental analysis. One of the most important issues that new investors overlook is, regardless of the method, the stock market is very difficult to predict and the value of time spent trying can often outweigh the gains from the outcome. We all use different systems to determine when to buy and sell specific issues (most of them based on technical analysis) but to profit with directional option trading, a trader must correctly predict the movement of the underlying issues as well as the time frame in which the move will occur. A successful trader must also have a solid understanding of implied volatility in order to enter the position at a fair price and determine a reasonable goal for the outcome of the play. Even with the best techniques, this type of trading involves above average skill and timing, including the initial selection of the position (and its size) along with risk management in identifying target exit points and the correct use of stops to preserve capital. To complicate matters, some experts suggest that success from directional strategies can be virtually impossible on a regular basis and the inconsistency of returns will prevent all but the most wealthy traders from surviving the short-term losses. With all of the difficulties involved in directional trading, are there any techniques that offer the average investor a reasonable opportunity to profit in a comfortable, low maintenance strategy? We believe that writing covered-calls fits this description quite successfully. A strategy based on stock ownership is much easier to manage on a day to day basis than directional trading and it offers a favorable balance of risk versus profit potential for those who attempt to predict stock movement and magnitude. The strategy is more conservative than just buying stock, due to the fact that a premium is collected, lowering the break-even price on the stock position and the concept is attractive to the investor who is willing to limit his upside potential in exchange for some downside protection. In addition, the technique is well suited for individual retirement and Keogh accounts. Investors that hold large positions in a specific stock can choose a form of risk/reward diversification by spreading the sold calls over time as well as different strike prices. A trader can gain several benefits by writing a portion of the calls near-term and the remaining calls further in the future. In the event of large stock price fluctuations, all of the various positions will not need to be adjusted at the same time. This activity may include either having the stock called away, or buying back a particular written call and selling another. Another advantage is that the level of option premiums may become more favorable than when the original series of calls were written. At worst, only one group of options would be sold when the premiums are low and hopefully they would increase in value before the next expiration period. This type of diversification will also allow an investor to own various positions at different prices, smoothing the portfolio balance as the market fluctuates cyclically. This also prevents all of one's stock from being committed at a single price. With these unique combination positions, the covered write offers an excellent balance between potential return and favorable downside protection. Although this approach might not be suitable for everyone, many investors will find the technique fits their comfort level and lifestyle much better than other stock option strategies. 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 IMGN 26.19 34.19 OCT 22.50 5.50 *$ 1.81 7.6% EFCX 11.88 10.75 OCT 10.00 2.63 *$ 0.75 7.0% CTIC 50.13 66.69 OCT 40.00 12.50 *$ 2.37 6.8% GLGC 24.75 23.00 OCT 20.00 6.38 *$ 1.63 6.4% EPTO 14.00 13.19 OCT 12.50 2.50 *$ 1.00 6.3% WDC 5.75 5.88 OCT 5.00 1.19 *$ 0.44 6.2% SYNM 20.75 20.38 OCT 17.50 4.38 *$ 1.13 6.0% BCGI 20.00 19.25 OCT 17.50 3.38 *$ 0.88 5.8% LBRT 30.00 28.94 OCT 22.50 9.13 *$ 1.63 5.7% NIKU 23.69 24.38 OCT 20.00 4.63 *$ 0.94 5.4% GNSS 19.31 18.25 OCT 17.50 2.63 *$ 0.82 5.3% IMGN 21.81 34.19 OCT 17.50 5.50 *$ 1.19 5.3% PRST 20.13 19.19 OCT 17.50 3.63 *$ 1.00 5.3% MSTR 31.38 27.31 OCT 25.00 8.25 *$ 1.87 5.2% CYBS 12.69 11.31 OCT 10.00 3.13 *$ 0.44 5.0% WGAT 22.88 21.00 OCT 17.50 6.63 *$ 1.25 5.0% AAS 42.28 47.00 OCT 40.00 4.00 *$ 1.72 4.9% TRIH 32.38 29.38 OCT 30.00 3.50 $ 0.50 1.9% WPZ 5.19 4.25 OCT 5.00 0.94 $ 0.00 0.0% NEOF 5.81 3.72 OCT 5.00 1.94 $ -0.15 0.0% GSTRF 11.50 8.63 OCT 10.00 2.25 $ -0.62 0.0% NETS 6.25 3.81 OCT 5.00 1.75 $ -0.69 0.0% TIVO 26.88 19.38 OCT 22.50 6.13 $ -1.37 0.0% WAVX 24.06 16.75 OCT 20.00 5.63 $ -1.68 0.0% VNTR 17.00 11.00 OCT 15.00 3.75 $ -2.25 0.0% RHAT 26.69 17.06 OCT 22.50 6.00 $ -3.63 0.0% *$ = Stock price is above the sold striking price. Comments: The current bearish conditions may exaggerate normal corrections, but money management (and capital preservation) dictates exiting issues that have failed technically. Red Hat (RHAT) has broken below the July low as well as the May-July trend-line: we will show the issue closed. Ventro (VNTR) has broken recent support, closing at a new low. We would use the current rally to adjust the cost basis or obtain a less painful exit. Wave Systems (WAVX) appears to have made a successful test of the August low but has broken through a major trend-line starting with the May low; an early exit may be the best remedy. Tivo (TIVO) has yet to move below the August low or the April-August trend-line; maintain a daily vigil on the issue and evaluate rolling down/forward. The key to financial success is stemming the outflow of capital - a lesson we all must frequently relearn! 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 ASPX 12.38 OCT 10.00 XUM JB 2.75 813 9.63 21 5.6% CCUR 19.00 OCT 17.50 URC JW 2.38 662 16.63 21 7.6% ISIP 11.50 OCT 10.00 QIS JB 1.81 123 9.69 21 4.7% KOSP 19.75 OCT 17.50 KQW JW 2.81 190 16.94 21 4.8% NIKU 24.38 OCT 17.50 NFU JW 7.50 0 16.88 21 5.3% RCOT 15.81 OCT 15.00 ROQ JC 1.44 152 14.37 21 6.4% SVGI 26.31 OCT 20.00 VQQ JD 7.38 0 18.93 21 8.2% Sequenced by Return ***** Stock Last Call Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return SVGI 26.31 OCT 20.00 VQQ JD 7.38 0 18.93 21 8.2% CCUR 19.00 OCT 17.50 URC JW 2.38 662 16.63 21 7.6% RCOT 15.81 OCT 15.00 ROQ JC 1.44 152 14.37 21 6.4% ASPX 12.38 OCT 10.00 XUM JB 2.75 813 9.63 21 5.6% NIKU 24.38 OCT 17.50 NFU JW 7.50 0 16.88 21 5.3% KOSP 19.75 OCT 17.50 KQW JW 2.81 190 16.94 21 4.8% ISIP 11.50 OCT 10.00 QIS JB 1.81 123 9.69 21 4.7% 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 $12.38 *** Entry Point! *** 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. Recently, 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. The company just completed a private placement of its common stock realizing gross proceeds of $90.1 million and that should help fund future growth. OCT 10.00 XUM JB LB=2.75 OI=813 CB=9.63 DE=21 MR=5.6% ***** CCUR - Concurrent Computer $19.00 *** Video-On-Demand *** Concurrent Computer is a leading provider of high-performance computer systems, software, and servers. Concurrent Computer's XSTREME Division is a leading supplier in the emerging digital video server marketplace. Concurrent is also a leading provider of high-performance, real-time computer systems, solutions, and software for commercial and government markets. The company provides sales and support from offices throughout the world. Concurrent has reported seven consecutive quarters of growth in Video-On-Demand (VOD) revenue from its XSTREME Division. The future for this division looks bright with the commercial launch of VOD service in the Tampa Bay region by Time Warner and the preliminary deployment with Cox Communications in San Diego. Recently, Lufthansa Flight Training has purchased a Concurrent MediaHawk Video Server, a leading VOD system, for use in emergency training for crews. Jefferies & Co. rated Concurrent a "buy" in new coverage with a $25 price target. OCT 17.50 URC JW LB=2.38 OI=662 CB=16.63 DE=21 MR=7.6% ***** ISIP - Isis Pharma $11.50 *** Biotech Speculation! *** Isis Pharma is exploiting its expertise in RNA to discover and develop novel human therapeutic drugs. Isis has commercialized its first product, Vitravene(TM) (fomivirsen), to treat CMV induced retinitis in AIDS patients. In addition, Isis has 11 products in its development pipeline, 6 of which are in Phase II human clinical trials. Isis has a broad and proprietary patent estate of over 700 issued and allowed patents worldwide. Isis recently announced the licensing of its 3rd generation antisense chemistry, Peptide Nucleic Acid (PNA), to Pantheco A/S, a Danish biotechnology company. Isis will receive 9 million DKK, or $1.1 million, payable in Pantheco shares, on approval and completion of Pantheco's financing. On Thursday, Isis announced that Coley Pharmaceutical will pay a total of $10.7 million for the sale of patents concerning the use of phosphorothioate oligonucleotides for activating the immune system. The potential for near-term revenue generation from Isis' intellectual property portfolio is a key component of their financial strategy as they continue to realize substantial funds from their investment in a wide range of antisense biological discoveries and chemistry inventions. OCT 10.00 QIS JB LB=1.81 OI=123 CB=9.69 DE=21 MR=4.7% ***** KOSP - Kos Pharma $19.75 *** New Drug Application *** Kos Pharmaceuticals is a fully integrated specialty pharmaceutical company engaged in developing and commercializing proprietary prescription pharmaceutical products, primarily for the treatment of chronic cardiovascular and respiratory diseases. Kos has drug delivery capabilities in both solid and aerosolized formulation technologies. Currently, the company's success depends primarily upon its ability to successfully market and sell its Niaspan. product, with last quarter showing a growth of $6.1 million in net sales. The stock rallied after reporting favorable earnings in August and has recently moved to a new six-month high on heavy volume. On Tuesday, Kos and DuPont Pharma finally submitted the anticipated NDA for a new cholesterol product (formerly called Nicostatin) combining Kos' Niaspan and Lovastatin, with an expected commercial release by the end of 2001, assuming FDA approval. Due diligence is a must! OCT 17.50 KQW JW LB=2.81 OI=190 CB=16.94 DE=21 MR=4.8% ***** NIKU - Niku $24.38 *** Bracing For A Rally? *** Niku Corporation provides Internet software products as well as an online marketplace for the sourcing, management and delivery of professional services. These services include consulting, financial, medicine, law, advertising and other industries. 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. The Niku 2000 Users Conference, which was booked to capacity, kicks off on Sunday, October 1. OCT 17.50 NFU JW LB=7.50 OI=0 CB=16.88 DE=21 MR=5.3% ***** RCOT - Recoton $15.81 *** Stealth Rally? **** Recoton is a global leader in the development, manufacturing and marketing of consumer electronic accessories, loudspeakers and car audio products. Recoton's more than 4,000 products feature highly functional accessories for audio, video, car audio, camcorder, multi-media/computer, home office, cellular and standard telephone, music and video game products and 900 MHz wireless technology headphones and speakers. The Company also produces and markets audio components, high fidelity loudspeakers, home theater speakers, and car audio speakers and components. No news since reporting favorable earnings on August 9, yet the stock has doubled in price. Even the message boards are rather quiet. This week's jump of $1.56 also remains unexplained, but it moved the stock above last February's resistance. The tape tells all, and somebody appears to be listening. OCT 15.00 ROQ JC LB=1.44 OI=152 CB=14.37 DE=21 MR=6.4% ***** SVGI - Silicon Valley $26.31 *** Big Rally! *** Silicon Valley Group is a leading manufacturer of automated wafer processing equipment for the worldwide semiconductor industry. The company designs, manufactures and markets sophisticated equipment used in the early stages of semiconductor manufacturing. Its products include photolithography exposure tools; photoresist processing equipment; oxidation, diffusion and low-pressure chemical vapor deposition processing systems; atmospheric pressure chemical vapor deposition systems and precision optical components and systems. In early September, Silicon Valley announced that its 157 nm lithography program received an order for its Micrascan 157 full-field step-and-scan lithography system from the leading Taiwanese pure-play foundry. That's it for September; no other news! So what's up with the high volume rally on Thursday and Friday? Maybe a "non-warning" relief rally or mutual-fund markup? There was heavy call volume on Friday for many of the strikes, with 200 contracts opening up on the October $20 series. This position takes advantage of the overpriced option to speculate conservatively on Silicon Valley's move. OCT 20.00 VQQ JD LB=7.38 OI=0 CB=18.93 DE=21 MR=8.2% ************************Advertisement************************* Live Stock Picks --- Two Week Free Trial Real-Time AOL Instant Messenger alerts on every Buy/Sell opportunity from our Top Trader. Over 834% return since Feb 1997 (Day Trading) Over 172% return since April 2000 (Swing Trading) Click the link below for a FREE TRIAL.1-800-776-7966 http://www.sungrp.com/tracking.asp?campaignid=579 Full risk disclosure on website. ************************************************************** ************************* 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 80.81 75 AXY-VO 4.63 2020 23% 75 AGIL 89.94 80 AUG-VP 3.63 2249 16% 80 AMCC 207.06 200 AZV-VT 10.25 5177 20% 190 ARBA 143.25 135 RBU-VG 8.63 3581 24% 135 ARTG 94.75 90 ARY-VR 5.25 2369 22% 85 BRCM 243.75 240 RDU-VH 12.13 6094 20% 240 CFLO 143.00 140 FUJ-VV 8.38 3575 23% 140 CHKP 157.56 150 KGE-VJ 6.63 3939 17% 150 CIEN 122.81 120 UEZ-VD 7.63 3070 25% 118 CREE 116.25 110 CQR-VB 4.25 2906 15% 110 EMLX 122.50 115 UMQ-VC 5.75 3063 19% 115 EXTR 114.50 110 EXR-VB 7.25 2863 25% 110 GILD 109.69 105 GDQ-VA 5.75 2742 21% 105 GLW 298.00 290 GWD-VR 16.00 7450 21% 290 GSPN 122.00 110 GHY-VB 5.75 3050 19% 110 HGSI 173.13 165 HBW-VM 8.75 4328 20% 165 ITWO 187.06 180 QYI-VP 10.00 4677 21% 180 JNPR 219.06 210 JUD-VB 12.13 5477 22% 210 MEDX 117.31 110 MZU-VB 4.63 2933 16% 110 MERQ 156.75 145 RBF-VI 7.25 3919 19% 145 MLNM 146.06 140 QMR-VH 7.50 3652 21% 140 MUSE 200.88 190 UZQ-VR 9.25 5022 18% 190 PDLI 120.50 115 RPV-VC 8.13 3013 27% 115 PMCS 215.44 210 SZI-VB 10.88 5386 20% 215 QCOM 71.50 70 AAO-VN 3.50 1788 20% 70 RBAK 163.94 160 BKK-VL 9.38 4099 23% 160 SCMR 108.00 100 QSM-VT 4.75 2700 18% 100 SDLI 309.31 300 QJV-VT 16.25 7733 21% 300 SEBL 111.31 105 EZG-VA 3.88 2783 14% 105 VRTS 142.00 135 VUQ-VG 6.88 3550 19% 135 WEBM 115.13 110 OUW-VB 6.75 2878 23% 110 XLNX 85.63 80 XLQ-VP 3.25 2141 15% 80 *********************** CONSERVATIVE NAKED PUTS *********************** Stock Buying Basics: A Balanced Perspective... By Ray Cummins Determining when to enter the market is one of the most difficult tasks that new investors encounter in their quest for success. A thorough grasp of technical analysis is only one aspect of the knowledge and skill required to prevail in the current volatile environment. For any trader, the end objective is profit and the most effective method to achieving this result is to form a view that eventually proves to be accurate. At the same time, one must also be positioned to obtain the greatest return from the correct forecast of future market trends. That step requires a complete mastery of trading techniques and the ability to correctly apply a specific strategy to any particular situation. With this simple approach, the route to consistent profits is simply a matter of identifying the trend and using a proven trading system to exploit each position for maximum potential. Before an investor can successfully initiate a position, there are a number of factors to consider. The most important being the overall condition of the market and the economy in general. What types of indications are bonds, basic commodities and currencies offering in relation to the outlook for equities? Is the market falling in expectation of higher interest rates or has the Fed's prolonged attack on inflation expended its maximum effect? Will the influence of the weakening Euro significantly reduce profits in the leading American corporations over the long-term and more importantly, how will their bottom line growth be affected by the rising cost of energy? Finally, is all of the available economic information reflected in the current share values or is the recent market slump simply due to the majority's present interpretation of the most popular news items. In all cases, an investor must possess a basic understanding of market fundamentals to interpret and act upon the numerous statistical releases and daily analysis of financial trends. Technical and sentimental analyses are also very effective means to determine the future direction of the market. The key is to identify situations in which the trend is really "your friend" and conversely, when it is more appropriate for a contrarian approach. Some questions that should be answered include: Is the underlying market currently in a strong trend and if so, how far can it go? Has the ideal opportunity already passed or is it viable to enter a new position at this time? In short, how many traders have the same outlook and have they previously acted on that assessment or is there additional potential for favorable activity in the issue? A common a rule of thumb is that when all the retail participants finally begin to support the movement, it is generally a good time to think about exiting the position. One concept that can not be overlooked is the value of historical indicators. Professional traders pay serious attention to them and they have too great an impact on equity markets to be disregarded. All investors should understand at least the basic chart patterns, such as support and resistance and simple moving averages. Complex indicators such as Stochastics and Moving Average Convergence/Divergence (MACD) can be used as a trader gains experience, to help identify overbought and oversold situations. In addition, information sources need to be studied as part of the process of market awareness. Analysis from well known gurus, screening services, charting products and statistics and other related data can provide valuable assistance. Stocks and their respective industries, and the overall condition of the market are so intertwined that in most cases, the need to remain in tune with current attitudes is paramount to success. Determining the future direction of the market is only the first step in profiting from a particular position. Investors need to consider a variety of issues that will affect the strategy used to achieve the highest return from an accurate forecast of market trends. First, what is the time frame of the expected movement and is it critical to enter the trade at specific point or can the position be initiated gradually as the activity progresses? What constitutes the ideal "buy" or "sell" signal and is there a chance the indications will be incorrect? What is the likely size of the movement, and is the market expected to gap or move slowly in the predicted direction? Is there any limitation to the magnitude of the movement (resistance/support) and are there any upcoming events or circumstances that might cause a reversal in the market? If the position is based on technical analysis, where should the stop-loss limits and profit targets be placed? Will it be practical to exit the trade incrementally, achieving some profit from future favorable movement, or will quick actions and minimal exposure be more successful overall? Finally, how convinced are you that the outlook for the position is correct and that the risk is worth the potential reward? 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 ASPX 12.25 12.38 OCT 10.00 0.50 *$ 0.50 17.2% WGAT 23.31 21.00 OCT 17.50 0.56 *$ 0.56 11.7% AND 8.88 7.65 OCT 7.50 0.31 *$ 0.31 10.9% PLNR 19.75 18.63 OCT 15.00 0.69 *$ 0.69 10.8% LBRT 32.44 28.94 OCT 22.50 0.63 *$ 0.63 9.6% NITE 37.00 36.00 OCT 30.00 0.88 *$ 0.88 8.8% ALLP 16.50 15.25 OCT 12.50 0.50 *$ 0.50 8.5% UNM 25.00 27.25 OCT 22.50 0.63 *$ 0.63 8.4% NERX 23.00 24.50 OCT 17.50 0.38 *$ 0.38 8.3% CMNT 21.00 34.38 OCT 17.50 0.56 *$ 0.56 7.4% CDN 27.13 25.69 OCT 25.00 0.81 *$ 0.81 7.4% PRBZ 29.44 30.25 OCT 25.00 0.50 *$ 0.50 6.9% WGR 26.25 25.06 OCT 22.50 0.56 *$ 0.56 6.7% DRXR 19.06 19.06 OCT 15.00 0.38 *$ 0.38 6.6% STAT 20.00 22.63 OCT 15.00 0.44 *$ 0.44 6.4% SCUR 26.25 26.06 OCT 17.50 0.50 *$ 0.50 6.3% NIKU 24.88 24.38 OCT 17.50 0.38 *$ 0.38 6.2% VITR 48.94 46.63 OCT 30.00 1.00 *$ 1.00 6.0% XRX 17.75 15.00 OCT 15.00 0.31 $ 0.31 5.8% CTIC 50.13 66.69 OCT 35.00 0.56 *$ 0.56 5.7% CLTR 36.75 28.88 OCT 30.00 1.13 $ 0.01 0.1% WAVX 24.06 16.75 OCT 17.50 0.63 $ -0.12 0.0% GOTO 22.75 16.50 OCT 17.50 0.50 $ -0.50 0.0% *$ = Stock price is above the sold striking price. Comments: Goto.Com (GOTO) appears to have made a successful test of the August low though exiting on any rally is the only sure way to avoid owning the issue. Wave Systems (WAVX) appears to have made a successful test of the August low but has broken through a major trend-line starting with the May low; another candidate for an early exit. Coulter Pharma (CLTR) is testing its 50 dma; a key moment. Closing below this technical support should be considered a bearish indication. Xerox (XRX) has lost momentum quickly and is now testing the August low; another one to watch closely. Monitor Cadence Design (CDN) and Andrea Electronics (AND) for signs of technical failure. 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 CERN 46.44 OCT 40.00 CQN VH 0.50 77 39.50 21 5.7% CSTR 13.56 OCT 12.50 QLR VV 0.56 0 11.94 21 16.5% ECLP 16.00 OCT 12.50 IQV VV 0.38 40 12.13 21 15.2% FNSR 48.38 OCT 40.00 FQY VH 0.69 993 39.31 21 8.5% GLGC 23.00 OCT 17.50 CYV VW 0.31 26 17.19 21 9.1% NIKU 24.38 OCT 15.00 NFU VC 0.38 0 14.63 21 10.3% NITE 36.00 OCT 30.00 QTN VF 0.63 8546 29.38 21 10.0% Sequenced by Return ****** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return CSTR 13.56 OCT 12.50 QLR VV 0.56 0 11.94 21 16.5% ECLP 16.00 OCT 12.50 IQV VV 0.38 40 12.13 21 15.2% NIKU 24.38 OCT 15.00 NFU VC 0.38 0 14.63 21 10.3% NITE 36.00 OCT 30.00 QTN VF 0.63 8546 29.38 21 10.0% GLGC 23.00 OCT 17.50 CYV VW 0.31 26 17.19 21 9.1% FNSR 48.38 OCT 40.00 FQY VH 0.69 993 39.31 21 8.5% CERN 46.44 OCT 40.00 CQN VH 0.50 77 39.50 21 5.7% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** CERN - Cerner Corporation $46.44 *** New Trading Range? *** Cerner designs, develops, markets, and supports information technology, and content solutions for healthcare organizations and consumers. These solutions are implemented on individual, combined or enterprise-wide systems and are accessible on the Internet by consumers, physicians and healthcare providers. The company's integrated suite of solutions enable providers to improve operating effectiveness, reduce costs, and improve the quality of care as measured by clinical outcomes. Cerner's solutions are designed to provide the appropriate information and knowledge to care givers, clinicians, and consumers the correct management information to healthcare administration on a real-time basis, allowing secure access to data by clinical and administrative users in organized settings of care and by consumers from their home. Some bullish forecasts have boosted this issue to a new trading range and we favor the opportunity to own the stock at a lower cost basis. Target a higher premium initially to allow for a short-term consolidation. OCT 40.00 CQN VH LB=0.50 OI=77 CB=39.50 DE=21 MR=5.7% ***** CSTR - Coinstar $13.56 *** Ching! Ching! ($$$) *** Coinstar develops, owns and operates a network of self-service coin counting machines in the United States, the United Kingdom and Canada. The company's Coinstar coin counting units provide consumers with a fun, accurate and convenient means of converting accumulated change into cash. With almost 200 retail partners, primarily supermarket chains, the company currently operates more than 7,000 Coinstar units in 85 regional markets across the U.S. Coinstar is also conducting trials of eight Coinstar units in the United Kingdom and 26 units in Canada. Since its inception, the Coinstar network has processed almost over 50 billion coins with in more than 69 million customer transactions. Not much activity in the news but we like the bullish technical indications and the current momentum should eventually propel the issue to a 52-week high near $15. OCT 12.50 QLR VV LB=0.56 OI=0 CB=11.94 DE=21 MR=16.5% ***** ECLP - Eclipsys Corporation $16.00 *** Big Reversal! *** Eclipsys is a leading healthcare information technology provider. The company provides, on an integrated basis, enterprise-wide, clinical management, access management, patient financial management, health information management, strategic decision support, resource planning management and enterprise application integration solutions to healthcare organizations. Additionally, the company provides other information solutions including remote hosting, outsourcing, networking technologies and other related services. Last week, Jefferies and Co. initiated coverage on the issue with a favorable rating and just one day later, Eclipsys and Mediware Information Systems, the leader in pharmacy information management systems, announced they have signed an agreement for Eclipsys to market Mediware's WORx Drug Therapy Management System. The alignment of these healthcare information solutions vendors will bring their customers improved clinical decision-making and enable them to enhance the quality of care delivery throughout a number of organizations. We simply favor the recent technical recovery in the issue. OCT 12.50 IQV VV LB=0.38 OI=40 CB=12.13 DE=21 MR=15.2% ***** FNSR - Finisar Corporation $48.38 *** New Entry Point! *** Finisar is a leading provider of fiber optic subsystems and network performance test systems that enable high-speed data communications over Gigabit Ethernet-based local area networks, and Fibre Channel-based storage area networks. Finisar also provides unique network performance test systems which assist networking and storage equipment manufacturers in the design of reliable, high-speed networking systems and the monitoring of of these systems. In early August, Finisar announced that it had delivered the first SONET OC-48 Small Form Factor optical transceiver units, opening another important market sector as telecom companies begin the process of upgrading metropolitan networks to handle the ever-increasing demand for bandwidth. In addition, the provider of fiber optics for high-speed networks said it expects revenues for its most recent quarter to be up about 95% over last year's results. The fundamental outlook for the company is great but we simply favor the bullish technical condition of the issue and the chance to own it at a slightly lower price. OCT 40.00 FQY VH LB=0.69 OI=993 CB=39.31 DE=21 MR=8.5% ***** GLGC - Gene Logic $23.00 *** Stage I Base *** Gene Logic provides a variety of products and services in the areas of gene information, data management and bio-informatic software, and pharmacogenomics. These products and services are all designed to improve the efficiency and effectiveness of the drug discovery and development process. They may also be applied to research and development in other sectors, such as diagnostics, animal health, and agriculture. The company's products combine software tools with large-scale gene expression information, which specifies the degree to which genes are active in a broad range of normal, diseased, and treated conditions. This unique combination enables scientists to produce new biological knowledge by integrating this proprietary expression information with a growing array of biological information available on the Internet. Early in September, Dain Rauscher Wessels initiated coverage on Gene Logic with a "buy" rating and a 12-month price target of $40. Tuesday, an alliance was announced with the Japanese subsidiary of Amersham Pharmacia Biotech, granting Amersham distribution rights to market and sell Gene Logic's products. This should provide a powerful platform for creating potential opportunities in the Japanese pharmaceutical and biotechnology communities. OCT 17.50 CYV VW LB=0.31 OI=26 CB=17.19 DE=21 MR=9.1% ***** NIKU - Niku $24.38 *** Excellent OTM Premium! *** Niku Corporation provides Internet software products as well as an online marketplace for the sourcing, management and delivery of professional services. These services include consulting, financial, medicine, law, advertising and other industries. 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 15.00 NFU VC LB=0.38 OI=0 CB=14.63 DE=21 MR=10.3% ***** NITE - Knight Trading Group $36.00 *** Merger Speculation! *** Knight Trading Group is one of the leading market maker in Nasdaq securities and in the Third Market, which is the over-the-counter market in exchange-listed equity securities, primarily those on the New York Stock Exchange and the American Stock Exchange. The company has attained its leadership position as a market maker by providing best execution services to brokers and institutional customers through its proprietary trading methodology and systems. The company makes markets in thousands of equity securities on the Nasdaq and through Trimark, it makes markets in all NYSE and AMEX securities in the Third Market. Knight has received expressions of interest from several potential buyers, but no formal offers have been made. Speculators say the likely suitors are willing to pay $45 to $55 per share for the company and Friday's rumors of a possible Bear Stearns (BSC) takeover have refueled the fire. Use this play to speculate on the outcome of the merger rumors in the volatile Brokerage group. OCT 30.00 QTN VF LB=0.63 OI=8546 CB=29.38 DE=21 MR=10.0% ************************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=554 ************************************************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Just when things were looking up... The stock market tumbled today after a profit warning from Apple Computer (AAPL) added to the recent barrage of negative earnings forecasts. ****************************************************************** - MARKET RECAP - ****************************************************************** Friday, September 29 The stock market tumbled today after a profit warning from Apple Computer (AAPL) added to the recent barrage of negative earnings forecasts. The Nasdaq ended down 105 points at 3,672 while the Dow finished 173 points lower at 10,650. The S&P 500 index ended down 21 points at 1,436. Trading volume on the Nasdaq was heavy at 1.98 billion shares exchanged, with declines beating advances 2,170 to 1,906. Activity on the NYSE was brisk with 1.13 billion shares traded. Strangely enough, broad market advances outpaced declines 1,458 to 1,411. In currency trade, the Euro was higher against the dollar, despite Denmark's decision to reject the Euro zone entry. In the bond market, the 30-year Treasury was flat at 105 1/32, yielding 5.88%. Thursday’s new plays (positions/opening prices/strategy): Mattel MAT APR12C/OCT12C $1.19 debit diagonal Ariba ARBA OCT195C/OCT110P $3.25 credit strangle Sepracor SEPR OCT95P/OCT100P $0.43 credit bull-put Mattel threw a wrench into our plans, announcing before the open that it would sell its Learning Company software unit for just a fraction of the $3.5 billion paid for the firm just over a year ago. Mattel also reported it would cut 350 jobs and slash its dividend as part of a comprehensive financial realignment plan designed to generate substantial cost savings and improve the company's profitability and cash flow. There were a number of contracts traded in the spread position but we did not observe a simultaneous transaction at the target price. It is difficult to imagine that a $0.06 discount could not have been achieved with a combination order. The Sepracor spread fared no better and the best observed credit was $0.43. Ariba traded at our target and higher as the stock slumped near the end of the session. Portfolio Plays: Just when it appeared there was light at the end of the tunnel, personal computer company Apple (APPL) issued a profit warning, effectively ending the momentum from Thursday’s bullish session. Today, Apple's stock plunged over 50% after the company reported that their fourth quarter earnings will be well below analysts' consensus estimates. The news caused all of the major averages to give back most of their recent gains and initiated a sell-off in other industry leaders such as Compaq (CPQ), Gateway (GTW), Dell (DELL), and Hewlett-Packard (HWP). On the Dow, bellwether technology issues Microsoft (MSFT) and Intel (INTC) also slumped amid weakness in the computer group. Analysts say the slowdown in PC sales is going to affect earnings in a number of companies and the negative forecasts are expected to continue. The rising cost of energy is also becoming a threat to revenues and today’s profit warning from United Airlines (UAL) clearly demonstrated the affect of higher fuel costs on the transportation industry. UAL said it expects to post a loss for the quarter, an unusual occurrence for companies in that group. Alaska Airlines (ALK), Delta (DAL) and America West (AWA) were all downgraded after the announcement, dragging the transport index to recent lows. In spite of the precipitous decline, there was some bullish activity during the session with oil and oil service, chemicals, brokerage and major drug stocks edging higher. The Spreads/Combos portfolio enjoyed a few standout performances and the most exciting issue was Research In Motion (RIMM). The company’s share value jumped $15 to a recent closing high at $98 after the maker of the popular Blackberry two-way wireless pager demonstrated that costly marketing programs can produce results. RIMM reported that its revenues in the second quarter rose 57%, well above analysts' estimates, as 25,000 new wireless customers were connected to corporate-based servers and the number of new companies deploying the pagers rose 25%. In addition, the firm announced that America Online is scheduled to launch its version of the Blackberry later this year and that will mark RIMM's first major foray into the consumer market. HNC Software (HNCS) was another big mover, up almost $6 to $82 on continued momentum from the recent distribution of Retek (RETK) common stock. In the finance and brokerage group, Knight Trading (NITE) experienced a solid rebound, climbing back to the $36 range amid speculation of new mergers in the sector. In the small-cap category, Maxtor (MXTR) rose $1.62 to $10.50 after Business Week reported that a major data-storage company is preparing a $20 per share bid for Maxtor’s common stock. Our bullish calendar spread returned a favorable early-exit profit as the issue moved through the sold strike price. Traders who expect further upside movement in the issue can roll to a NOV-$12 call in the short position. Another surprise move occurred as Ventro (VNTR) came bouncing back, up almost $2 to end near $11 as new coverage was initiated on the company by UBS Warburg. The unexpected rally provided a great opportunity to adjust the position forward and down to a lower cost basis. One of our recent credit-spread issues is testing the bottom of a current trading range and the outcome will likely determine a new trend for the issue. Plug Power (PLUG) has reached a key technical moment and if the issue falls through support at $35, we will roll out of the bullish spread or transition to a lower strike price position in a future month. Enzo Biochem (ENZ) is another issue with similar characteristics and we will monitor the stock’s technical character as it approaches the lower end of a trading range in the next few sessions. "Bull-put" credit spreads are one of the most popular limited-risk strategies and there are ways to reduce potential losses or even capitalize on a reversal or transition to a downward trend. There are three common methods to exit or cover a losing credit spread and the alternatives include "legging-out," rolling down and out to a longer-term spread or "shorting" the underlying issue. First, you can simply close the position at a debit and register the loss. There is also Jim's popular technique; covering the short position as the stock moves through the sold strike. This is a great method for bailing out on an issue that has unexpectedly reversed course but you must also be prepared to buy it back in the event of a recovery. Another option is to "leg-out" of the spread for profit (or at least a break-even basis). To leg out of a credit spread, place an order to close the short position anytime the stock trades (and preferably closes) below technical support or an established trend line (or moving average) on heavy volume. There are other, more precise exit signals that can be used to initiate the trade but this technique is based on the historical probability that once a primary trend is reversed, the issue will continue to move in the new direction for at least a short period. After the sold (short) position is repurchased, wait for the stock to lose momentum and sell the long position to close the entire play. It is a difficult technique to perform when emotion enters the formula but it works well once you become experienced with it. The key to success is using the method at known support levels or after obvious reversal signals. Otherwise, you are simply speculating about the stock's next move. Remember, in all cases where an attempt to recover a losing play is made, you must be prepared for further draw-downs and have thorough knowledge of the strategy. As with any technique, it must also be evaluated for portfolio suitability and reviewed with regard to your specific experience level and trading style. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** MXTR - Maxtor $10.50 *** Takeover Play? *** Maxtor is a supplier of hard disk drive storage products for desktop computer systems. The company's DiamondMax product family consists of 3.5-inch hard disk drives with storage capacities that range from 4.3 gigabytes to 60 gigabytes. Some of Maxtor's most popular products are the DiamondMax VL 30 and Diamond Max 60, both 5,400 rpm products. The DiamondMax VL 30 provides capacity of 7.5 gigabytes up to 30 gigabytes and provides cost-optimized storage for the Entry and Mainstream segments of the market. The DiamondMax 60 provides up to 60 gigabytes of storage for high-end applications. The tape data storage sector is HOT and Maxtor shares soared on Friday after BusinessWeek's "Inside Wall Street" column reported that a major computer data-storage company plans to bid $2.3 billion, or $20 per share, for the company. Maxtor officials did not comment but some traders speculated that Hewlett-Packard (HWP) could be the buyer. The BusinessWeek story said Maxtor is seen as an attractive target because of its file serving and data storage products. We like the bullish technical breakout and the favorable option premiums. PLAY (conservative - bullish/diagonal spread): BUY CALL NOV-7.50 MQL-KU OI= A=$3.88 SELL CALL OCT-10.00 MQL-JB OI= B=$2.00 INITIAL NET DEBIT TARGET=$1.68-1.75 INITIAL TARGET ROI(max)=42% ****************************************************************** BBC - Bergen Brunswig $11.69 *** New Trading Range! *** Bergen Brunswig is a diversified drug & health care distribution organization. The company is a wholesaler of pharmaceuticals, medical-surgical supplies and specialty healthcare products to the managed care and retail pharmacy markets, and also markets pharmaceuticals to long-term care and seriously ill patients. The company provides product distribution, logistics, pharmacy management programs, consulting services and Internet fulfillment services designed to reduce costs and improve patient outcomes across the entire healthcare spectrum. Bergen Brunswig rallied last week as Goldman Sachs raised its investment rating on the company to "market out-performer" and boosted its earnings estimates for the coming year. Now the issue is in a new trading range and after a brief period of consolidation, it should continue to drift higher. There are favorable disparities in the front-month option premiums and we will use this small advantage to open a bullish position in the issue. We offer this play for traders who are aware of the potential adjustments necessary in a calendar spread and favor active participation in longer-term positions. PLAY (conservative - bullish/calendar spread): BUY CALL DEC-12.50 BBC-LV OI=248 A=$0.88 SELL CALL OCT-12.50 BBC-JV OI=212 B=$0.31 INITIAL NET DEBIT TARGET=$0.43 TARGET ROI=25% ****************************************************************** ADVP - Advance Paradigm $42.19 *** Entry Point! *** Advance Paradigm is a provider of health improvement services, offering its clients a comprehensive array of pharmacy benefit management, disease management, clinical trials and research, web-based marketing support and other health-related programs. The company generates revenues from providing services to two primary customer groups -- health benefit plan sponsors and pharmaceutical manufacturers. The broad range of health plan sponsors the company markets to includes Blue Cross Blue Shield and other managed care organizations, third-party administrators of health plans, insurance companies, government agencies, employer groups and labor union-based trusts. The company provides its clinical research services primarily to pharmaceutical manufacturers. The company also works closely with pharmaceutical manufacturers in negotiating lower drug prices for its health plan sponsor customers. Advance Paradigm is striving to become the #1 company in its niche industry and the upcoming acquisition of Rite Aid's PCS Health Systems is expected to catapult ADVP to the top of the heap in the highly competitive business. In addition, Advance Paradigm recently signed a multi-year agreement to provide services to Empire BlueCross BlueShield. The company will offer enhanced capabilities through its unique solutions, generating a better quality of care and improved costs to customers. Their long-term focus on quality, along with an ongoing commitment to health improvement makes the company a true leader in the small group of health service management providers. Based on the recent bullish activity in the stock, investors are confident about the future of the company. We also have a positive outlook for the stock but there will likely be a period of consolidation as the issue faces profit-taking in the coming sessions. Target a higher premium initially, to enter the play. PLAY (conservative - bullish/credit spread): BUY PUT OCT-30 QVD-VF OI=2 A=$0.38 SELL PUT OCT-35 QVD-VG OI=17 B=$1.06 INITIAL NET CREDIT TARGET=$0.88-$1.00 ROI(max)=25% ****************************************************************** WCOM - WorldCom $30.38 *** Reader's Request! *** WorldCom provides a broad range of communications, outsourcing, and managed network services to both U.S. and non-U.S. based corporations. WorldCom is a global communications company utilizing a facilities-based, on-net strategy throughout the world. The company's core business is communications services, which includes voice, data, Internet and international services. From private networking (frame relay and asynchronous transfer mode (ATM)) to high capacity Internet and related services, to hosting for complex, high-volume mega-sites, to turn-key network management and outsourcing, WorldCom provides one of the broadest range of Internet and traditional, private networking services available from any provider. One of our subscribers noticed the increased buying activity in the Telecom group and specifically in WordldCom. He requested that we identify some favorable spread positions in the issue and based on the recovering technical outlook and increased option interest, the easiest way to profit from future upside activity may involve one of the most common forms of bullish option positions. PLAY (speculative - bullish/synthetic position): BUY CALL OCT-32.50 LDQ-JZ OI=14967 A=$0.50 SELL PUT OCT-27.50 LDQ-VY OI=10737 B=$1.00 INITIAL NET DEBIT TARGET=$0.25-$0.31 ROI TARGET=20% Note: Using options, the position is equivalent to being long on the stock. The collateral requirement for the naked put is approximately $500 per contract. ****************************************************************** - 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. ****************************************************************** IBM - International Business Machines $112.63 ** Going Down? ** International Business Machines Corporation uses advanced information technology to provide customer solutions. The company operates primarily in a single industry using several segments that create value by offering a variety of solutions that include, either singularly or in some combination, technologies, systems, products, services, software and financing. Organizationally, the company's major operations comprise three hardware product segments, Technology, Personal Systems and Server; a Global Services segment; a Software segment; a Global Financing segment and an Enterprise Investment segment. Computer hardware companies have slumped in recent sessions as earnings warnings from the industry leaders continued to plague the group. Investors have also moved away from these issues in search of stocks that offer a safe haven from the effects of high oil prices and the falling Euro. IBM has not fared very in the past few weeks and it now appears that a major downtrend is well established. We will use the current slump in buying pressure and the overpriced option premiums to profit from this relatively conservative, bearish position. The probability of the share value reaching our target strike appears rather low but there is always the possibility of a recovery rally. Monitor the issue daily for any changes in technical character. PLAY (conservative - bearish/credit spread): BUY CALL OCT-130 IBM-JF OI=20407 A=$0.81 SELL CALL OCT-125 IBM-JE OI=10528 B=$1.38 INITIAL NET CREDIT TARGET=$0.69-$0.75 ROI(max)=17% ****************************************************************** ************************Advertisement************************* Tired of waiting on trades to execute? 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