The Option Investor Newsletter Wednesday 10-04-2000 Copyright 2000, All rights reserved. 1 of 1 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/100400_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 10-04-2000 High Low Volume Advance/Decline DJIA 10784.50 + 64.80 10850.00 10713.60 1.17 bln 1254/1565 NASDAQ 3523.10 + 67.27 3532.43 3382.53 2.13 bln 1874/2140 S&P 100 762.03 + 4.00 765.48 751.17 totals 3128/3705 S&P 500 1434.32 + 7.86 1439.98 1416.31 45.8%/54.2% RUS 2000 507.49 + 2.82 507.79 499.40 DJ TRANS 2560.00 + 61.82 2576.35 2499.08 VIX 23.75 - 0.64 25.80 23.15 Put/Call Ratio .68 ****************************************************************** The Meaning Of Pain This earnings warning season is inflicting cruel and unusual punishment on market participants alike. The major indices finished solidly higher today despite a fresh round of earnings warnings, which spread across several sectors. Although both the DOW and NASDAQ finished well into positive territory today, another broken box maker might bring the bears out again tomorrow. Is this deja vu, or what? The last time I wrote the wrap was the night of the Apple warning. Hopefully the Dell warning won't have the same bearish implications on the markets. We'll know more tomorrow. But, before we expand upon the bearish news, let's focus on the brighter spots in the market today. After the Fed's indications of leaving interest rates alone yesterday, the cyclicals extended their two-day rally, which lead the Dow higher from the opening bell this morning. The leaders of the Dow today included: HD, IP, MO, SBC, INTC, and IBM. Despite the attempts from the bears, the DOW has held up relatively well during the past weeks. After bouncing off support at the 10,600 level last week, the DOW is now positioned to retest resistance at 10,850, again. The 10,850 level has proved to be a significant site of struggle for the DOW over the past three weeks of trading. If the DOW can breakout above the resistance level, we might see the INDU move very quickly to the 11,000 level. However, if the cyclicals lose their steam and another sector doesn't pick up the slack, the DOW could retest support near 10,600. The NASDAQ finished three points better than the DOW, on volume that was reminiscent of days gone by. It was a wild and volatile session with an impressive 2 billion shares trading hands on the NASDAQ today. However, despite the green on the COMPX, breadth on the NASDAQ remained in bearish territory. Decliners outpaced advancers yet again in today's trading by nearly 300 issues. Although, of the advancing issues, the chip sector was by far and away the clear leader on the NASDAQ today. The Philadelphia Semi Index (SOX.X) gained a full 6% today, ahead of several high-profile earnings announcements from chip manufacturers and equipment makers in the coming weeks. The best performing chip stocks on the NASDAQ today included: VTSS (+6.31), XLNX (+4.88), ALTR (+4.63), NVLS (+5.87) and even INTC (+1.69) joined in the chip bull bandwagon. What's more, the beaten down communications equipment makers rebounded with gusto today. Leading the charge was: JDSU (+6.44), SDLI (+20.00), CIEN (+4.31), and QCOM (+5.94). It was definitely nice to see the once market-leading stocks reassert themselves today during the NASDAQ's rally attempt. The NASDAQ's five-week downtrend remains well intact, despite today's rally. The fact is the NASDAQ has yet to find a solid bottom to rally from, and the DELL earnings warning might complicate matters further. On the other hand, the strong performance of the semiconductor sector today might extend into tomorrow's trading, especially after the bullish report from Micron (MU) after the bell. MU posted profits of $1.16 versus estimates of 96 cents. The stock traded up fractionally in the after hours session. The wild trading on the NASDAQ was epitomized by Oracle (ORCL). Trouble began brewing yesterday morning after ORCL concluded its analyst meeting. Apparently, ORCL's CFO and flamboyant CEO did not impress Wall Street analysts with bullish visions. ORCL's presentation created a great deal of controversy which resulted in the stock losing 12% yesterday. The construed comments of ORCL's executives continued to weigh on the stock today, with ORCL trading as low as $60.50. However, late in the day, the company issued a press release which reiterated guidance. Toward the close of trading today, executives said that the company was on track to meet current estimates. The stock paired its losses, which helped the NASDAQ climb well into positive territory on the day. It seems the market is searching for any reason to sell stocks, and unfortunately for the NASDAQ, ORCL fell victim to the bears' evil ways yesterday and again today. ORCL's wild gyrations over the past two days could have been the result of two earnings warnings in the software sector. After the market closed last night, Computer Associates (CA) warned that its second-quarter profits would fail to meet analysts previous estimates. BMC Software (BMCS) also warned of weakness in its mainframe software business. BMCS expects to report earnings nearly 50% lower than previously anticipated. CA and BMCS are competitors of ORCL, which makes their respective warnings significant. The ramifications of the CA and BMCS warnings were felt by other software makers today, with none other than Mr Softee (MSFT) falling (-1.13), and finishing at a new 52-week low. As much as I dislike writing about earnings warnings, I must mention one other profit problem in the brokerage sector. The leading market maker in NASDAQ stocks, Knight Trading Group (NITE), warned of lower-than-expected third-quarter earnings due to a slowdown in trading activity last summer and less volatility in the capital markets. It's somewhat ironic that the very things we have been missing in the markets, i.e. volatility and volume, have been detrimental to the brokerages. NITE told analysts it expected to record earnings of 13 to 16 cents per share versus consensus estimates of 31 cents. That's a pretty significant miss! As such, the brokers took it on the chin today, lead lower by NITE (-3.69), MER (-2.06), AMTD (-1.25), and GS (-4.44). Away from stocks and into the commodities market, the American Petroleum Institute reported crude oil supplies rose by 3.4 million barrels last week. The Department of Energy confirmed the rise in oil supplies last week. The market responded to the news by taking crude oil below $32 a barrel, again. The easing oil prices continue to pressure the energy sector with refiners and drillers taking the brunt of the selling. However, the lower oil prices are providing much-needed relief to several other sectors of the market including cyclicals and the transportation sector. More economic news in the form of the Nonfarm payrolls number will be released Friday. Although the market expects the Fed to remain on hold for some time, the payrolls number is significant because it could influence the Fed's bias. The consensus estimate for the Nonfarm payrolls number is around 225 K. If the number comes in lower than expected, the Fed might adopt a neutral bias, which could relieve the equity markets. Also reported on Friday is the Jobless rate for September, which is expected to come in at 4.1%. Today's high-profile earnings warning came from Dell Computer (DELL), who pointed to weakness in the European markets and slowing demand from small-businesses on their failure to meet revenue growth targets. DELL told analysts that revenues were trending toward a shortfall for its third-quarter, and the company might fall one or two pennies short of EPS estimates in its fourth-quarter. DELL lost (-2.69) in after hours trading, and could weigh on the Tech sector tomorrow. Over the past three weeks, every time the NASDAQ has attempted to find a bottom and rally, a high-profile tech company warns of lower-than-expected profits. Today's rally might be quickly erased tomorrow, depending upon how the market receives the DELL earnings warning. In the case of the bulls, the NASDAQ is well into oversold territory and due for an extended bounce. Moreover, market participants have been expecting bad news from DELL given the stock closed at another new 52-week low today, so the company's warning might not be that unexpected nor have much impact on the markets. Finally, the bullish report from Micron might clear the case for the once-beloved semis, which could very well lead a rebound on the NASDAQ. On the other hand, the bears still have a stronghold on the market, which is evident in the NASDAQ's five-week trend of lower lows. If the market shrugs off Dell's warning, we might be trading at near-term lows on the NASDAQ. However, if the bears show up with strength again tomorrow, lower lows on the NASDAQ are not out of question. Eric Utley Research Analyst ***************************** OCTOBER OPTIONS WORKSHOP EXPO DENVER - Oct 27-30th ***************************** Just a few spaces left. Don’t miss this spectacular event. Sign up today! http://www.OptionInvestor.com/workshop Have you taken the time to see what you will be missing? This is a power packed event from morning till night. Check out the outline: http://www.OptionInvestor.com/workshop/outline Here is the quest speaker list: 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 $3795. 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 and to sign up: 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://mojofarm.mediaplex.com/adserver/click_thru_request/565-58-1875-3 ***************************************************************** ************** TRADERS CORNER ************** Trading The NDX/QQQs Austin Passamonte I'm always willing to trade anything with a symbol. Show me the right things on a chart and I'm clicking up the broker. Know anyone like that around your house? That being said, most of us have our pet favorites we tend to focus on. Mine happen to be indexes as well-documented within this forum. The OEX usually gets my attention first simply out of habit. I've traded it long enough to develop that certain "feel" one gets after following a market over time. Infallible? I wish. Higher-odds is about the best I could hope for. So it goes with the QQQs as well. These little gems are my next favorite symbol to play. I'm certainly not alone as open-interest volume on this market is one of the highest of all "indexes", only surpassed by the SPX which we'll discuss soon as well. Right from square one, QQQ contracts are actual sector HOLDR "shares" and option contracts on the HOLDR which mirror the NASDAQ 100. To my knowledge, they are subject to 100% short- term tax rates instead of 60/40 long term/short term rates taxable on true index options and commodity futures contracts. Please don't take my word for it; your accountant or tax advisor is the authority on this sensitive matter. QQQ contracts are listed on and traded exclusively through the AMEX exchange. Not to be outdone, the CBOE recently created a new mini-NDX index option contract from the big one listed there for years. The mini-NDX or MNX is 1/10th the size of its parent and has a cost basis similar to OEX option contracts as a mirror index on the same CBOE exchange. The MNX does not yet enjoy massive volume like the QQQs but I expect that to improve greatly as time goes on. One plus to these contracts are the feature of 60/40 long term/short term capital gains, again as confirmed by your accountant or tax professional. Tax basis aside, QQQs have several strong advantages that make them wonderful trading vehicles for beginners and pros alike. They are incredibly liquid which makes entry and exit a snap. Orders placed at or near the bid and ask to sell or buy respectively are quick fills in most markets. Because of this great liquidity, market makers cannot easily push the bid/ask spread very wide and we can use relatively tight stops. Also, our stops are usually hit right on or close to placement as the market fills with such massive trading action. This keeps slippage to a minimum on strikes near or at the money. Contract prices are relatively cheap. Depending on where we are in the expiration cycle, near-money options are 2 - 5 points cost. Its underlying index is not a sleepy one; the NDX can and does move 100+ points per session on a regular basis. Today for example. It isn't unusual for option prices to reach 50 100+% above purchase price in a session or two. When big moves and reversals are underway it can be several times your money. Now, I know many equity option traders just stifled a yawn and hit the "back" button on their tool bar. Doesn't everyone prefer PDLI and RMBS where profits like these are on the table within one session rather than several? Prefer yes, captured no. These high-flyers can make you rich or broke within an hour and guess which is easier to accomplish? Yes, I love trading these two myself but the risk is high as any reward. Premium volatility at or above 100% and two-point bid/ask spreads are the norm, not exception. Pin-point entries are paramount and a bit of luck doesn't hurt at all either. Nothing wrong with this for the nimble fingered traders but not for everyone, although more may try than actually should. Personally I like predictable, methodical trade vehicles. The heart-stoppers are fun to take for a spin but it's tough to get down in the trenches and eke out a long-term career with them. Just when you get to know one of those stocks with great intimacy, it all changes on us. Just like that ex-boyfriend or girlfriend you last dumped, life has changed but memories die hard. ORCL, MSFT, DELL, INTC, CSCO and a cast of hundreds all had their glorious days in the sun. Care to make a living trading any of them these days? Better go start the dating process all over again or face financial ruin trying to relive history. Here's a little exercise for you; keep track of all the live analysts (forget the dead ones) you see on CNBC or CNN media shows that don't get asked about one or more of the old war horses listed above. Don't worry about running short of fingers here unless you clean your lawnmower's deck with blades engaged. Why is this? Because most of the people who bought into these wrinkled darlings did so near or at their all-time highs. Hey, stocks breaking out above all-time highs are purported to go much higher and swarms of anxious buyers believe that hook, line & sinker. Witness the volume on INTC above $70 just a few weeks ago. Think anyone still holds INTC shares they greedily grabbed above $70? Worse yet, any call options in September or October open above $70 with high hopes for further gain? Ouch. Old memories do die hard. Back to the Qs. We went on that tangent for a reason. We only need to familiarize ourselves with the index once and it really doesn't change that much. At least when it does change the action is more deliberate and foreseeable. Isn't that a beautiful thing? (Hourly chart; NDX) Remember, a shuffle occurs within this and every index to keep things more or less balanced & smooth. Worn, tattered stocks are replaced by new studs that keep pushing things the way it was before. Meteoric rise and fall is replaced by steady ascent instead. So we've made our case for the QQQs, now what? Time to figure out how we can turn this rambling into cash. Pick a strategy and it fits the QQQs. Straight calls and puts, debit spreads, credit spreads, calendar spreads, naked writes... it all works here. Buying calls & puts at resistance & support and/or trading oscillator signals to enter either direction are equally effective. Lots of help narrowing things down, aren't we? One of the first things to keep in mind is the propensity for this market to become range-bound each month. Save for major moves every little while, we can clearly identify firm points of overhead and underlying congestion. If we patiently wait for either of these ranges to be tested and repel prices, our entry is fairly simple. Managing stops properly and asking for just less than probable profits is the approach I encourage. (Hourly chart, QQQ) We'll save specific trade strategies for our time together next Monday where proper space permits. Meanwhile, a few more tips on index-market timing. The NASDAQ-100 is led by a few of its heavyweight components as most indexes are. This sympathetic relationship occurs as traders watch how MSFT, INTC, CSCO, WCOM and a few others behave. Perceived strength or weakness here leads to further buying or selling spread throughout the sector. Plenty of traders track the pulse of this market through the action of it's big horses, and rightly so. Whether it be fundamental or psychological action that moves a market, the move occurs regardless. Knowing what causes this is of more importance to us than why it works. My approach varies from this a bit. If I aim to track the NDX market I choose not to keep an eye on its components myself. I prefer to simply watch the chart signals for the NDX itself, confident that all price action taking place within the index is reflected by the chart signals I rely on. (Hourly chart, QQQ) Either method is fine and both approaches work. I'd suggest you become adept at judging near-term market action in one of these ways before entering the fray if this is all new to you. Monday next we will move into specific trading methods and strategies for short and long-term plays on the NDX index. Feel free to visit us at OIN's newest sister site; www.IndexSkybox.com to see how we currently trade this market live and a view our diverse approach. In either case I look forward to our time spent together real soon! Best Trading Wishes, Contact Support ************************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=593 ************************************************************** ********************** PLAY OF THE DAY - CALL ********************** AETH - Aether Systems Inc $90.00 -3.63 (-15.50 this week) Aether Systems is the company that offers information in the palm of your hand. They provide wireless data services and systems enabling people to use wireless handheld devices for real-time data communications and transactions. The company also designs and develops wireless data systems and software engineered exclusively for healthcare, education and government. AETH is based in Owings Mills, MD and has branch offices in New York and Florida. Most Recent Write-Up Here's a company that puts wireless Internet in the palm of your Hand, yet it's losing its connection with shareholders. If you take a 52-week journey back in time, there's no doubt AETH's taken its investors on a wild and wholly ride. The stock's price rallied as high as $345 and has sunk as low as $41.13. Since September 1999, it's acquired seven companies and raised $1.1 bln via a secondary offering last March. Our play on AETH is that the stock may come under more short-term pressure as a result of the staged release of 24 million shares (about 63% of total shares) into the market at the end of the lock-up period. Couple this event with the nasty market environment and there's a recipe for a lucrative put play. Last Tuesday, AETH came off higher support above $120 and for a dramatic close at $106.69, down nearly 15% on the day. This week proved fatalistic too. AETH slithered below the century mark and set an intraday bottom at $88.06 in today's session. The downtrend line is intact and the clear pattern of lower-highs and lower-lows indicates further weakness in the share price. Consider target shooting the intraday spikes for entries. The 5-dma, currently at $100.90, is offering upper resistance amid the descent. Use this technical line as an entry/exit gauge. It's imperative that you be aware of the positive sentiment regarding AETH over the long-term. Robinson Humphrey, Wedbush Morgan, and JP Morgan have all recently gone to the podium for this stock. Remember, our play is short-term: get in, take your profit, and get out while the negative conditions govern. Comments Since breaking $100, AETH has serious potential downside. Today's trading looked good for the stock as it bounced at $90 and headed up toward $100. Fortunately for us, this gave a prime entry. AETH came up shy of $100, at $98.44, and turned on a dime in the final 45 minutes to plummet $9 on heavier volume. If a break of $90 happens with strong volume, it would be a sign to jump on board. Bounces toward $100 accompanied with a rollover could also provide entry. Traders ran for the exits at the close so look for more pressure tomorrow. BUY PUT OCT-100 HEX-VZ OI=217 at $16.25 SL=12.75 BUY PUT OCT- 95*HIZ-VS OI= 10 at $12.63 SL= 9.75 BUY PUT OCT- 90 HIZ-VR OI= 9 at $ 8.25 SL= 6.50 Average Daily Volume = 1.10 mln ***************************************** BIG CAP COVERED CALLS & NAKED PUT SECTION ***************************************** Industrial stocks make a stand...but for how long? The Dow advanced today as strength in cyclical issues boosted the recovery in the blue chip average. Meanwhile, a brisk rally in semiconductor stocks helped the Nasdaq close positive for the first time in almost a week. The old economy leaders included DuPont (DD), Boeing (BA), Alcoa (AA), International Paper (IP), Wal-Mart (WMT), and SBC Communications (SBC). In the technology group, Intel (INTC) led the recovery, adding to gains in the chip sector and Internet stocks rebounded following a recent slump in business-to-business shares. Software companies survived a profit warning from Computer Associates (CA) and networking stocks edged higher as bargain hunting investors scoured the group for oversold issues. The biotechnology sector was the only dissenter, failing to extend Tuesday's gains amid profit-taking. The broader market saw advances in airline, retail, paper, and chemical shares while utility and financial issues slumped. Oil and oil service stocks retreated as crude futures declined on news of increasing supply from the American Petroleum Institute. Analysts suggested that concerns surrounding the valuations of tech companies have caused investors to rethink their portfolio outlook and a classic sector rotation was the inevitable result. Now the question is whether the market can sustain today's momentum and a begin a recovery in earnest as the earnings season approaches. Summary of Previous Picks: Covered Calls: (Margin would double the listed Monthly Return) Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return OSIP OCT 45 42.06 62.56 $2.94 5.7% ALXN OCT 85 80.25 99.69 $4.75 4.9% NMSS OCT 65 59.75 50.56 -$9.19 0.0% Exit on Rally? Naked Puts: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return ALXN OCT 80 76.75 99.69 $3.25 11.4% OSIP OCT 40 38.56 62.56 $1.44 10.0% ELNT OCT 80 78.62 100.88 $1.38 8.5% CTIC OCT 45 44.19 64.13 $0.81 8.4% AGIL OCT 60 58.56 76.50 $1.44 8.3% VRTS OCT 110 108.31 137.00 $1.69 7.5% VRTS OCT 110 107.94 137.00 $2.06 7.0% EXTR OCT 85 83.75 107.75 $1.25 7.0% NTAP OCT 115 112.81 118.78 $2.19 6.8% MEDX OCT 95 93.62 110.13 $1.38 6.8% RMBS OCT 60 58.50 83.25 $1.50 6.7% PDLI OCT 73 70.87 112.63 $1.63 6.6% RIMM OCT 60 58.37 106.00 $1.63 6.4% EXTR OCT 83 81.06 107.75 $1.44 6.2% BLDP OCT 90 88.50 100.00 $1.50 6.2% PALM OCT 40 39.12 45.44 $0.88 6.1% Testing 50 dma RBAK OCT 125 123.63 139.56 $1.38 5.2% Looking bearish METHA OCT 45 43.06 42.69 -$0.37 0.0% Key moment NMSS OCT 55 53.00 50.56 -$2.44 0.0% Key moment AVNX OCT 115 111.50 99.00 -$12.50 0.0% Exit on Rally? Naked Calls: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return TUTS OCT 120 122.31 68.25 $2.31 9.8% MRVC OCT 85 86.00 44.81 $1.00 8.2% AETH OCT 145 146.31 90.00 $1.31 7.8% New Candidates: This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any strategy or technique in which you are not completely comfortable with the potential loss, the necessary adjustments and the common entry-exit strategies. (We monitor the positions marked with ***). *************** BULLISH PLAYS - Covered Calls & Naked Puts *************** EXTR - Extreme Networks $107.75 *** A Big Day! *** Extreme Networks is engaged primarily in the design, development, manufacture and sale of high performance networking products based on Gigabit Ethernet technology. They provide end-to-end switching solutions that meet the requirements of enterprise LANs, ISPs and content providers. Their flagship products, Summit and Black-Diamond, share a common ASIC, software and management architecture that allow a relatively short product design and development cycle, thereby reducing the time-to-market for new products and features. Extreme has been one of the best performing Nasdaq issues over the last year and this unique company, which ended the quarter up 117%, also posted strong revenues as its growth continued. Extreme reported fourth-quarter revenue of $92.4 million, up 142% over the year ago results. The company has been hailed as a technology leader, receiving a number of major industry awards. Extreme was named the "Fastest Growing Company in Silicon Valley" based on three-year revenue growth by the Silicon Valley Business Journal, and EXTR is the only company to win the Networld+InterOp "Best of Show" Award back-to-back for four years. In addition, Extreme was ranked #2 in Deloitte & Touche's most prestigious "Rising Star" category for its "Fast 50" Program for the Silicon Valley, a listing of the 50 fastest growing technology companies in the area. Rankings are based on the percentage of growth in revenues from the last five years and Extreme's sales have grown from $300,000 in fiscal 1997 to $262 million in the most recent quarter. The tremendous growth is based on the industry's wide acceptance of the company's vision of " Ethernet Everywhere" for next generation networks delivering broadband communications. With the recent bullish activity in the issue, it's obvious that investors believe EXTR is destined to be one of the top companies in the industry and we favor the recent technical support near the target cost basis. EXTR - Extreme Networks $107.75 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put OCT 82.5 EXR VX 40 1.13 81.38 9.4% *** Sell Put OCT 85 EXR VQ 197 1.63 83.38 13.3% Sell Put OCT 87.5 EXR VY 51 1.94 85.56 14.9% ****** JNPR - Juniper Networks $207.94 *** Solid Recovery! *** Juniper Networks is a provider of unique Internet infrastructure solutions that enable Internet service providers and other telecommunications service companies, to meet the critical demands resulting from the rapid growth of the Internet. The company delivers next generation Internet backbone routers that are specifically designed, or purpose-built, for service provider networks. The company's flagship product is the M40 Internet backbone router, and it recently introduced the M20, an Internet backbone router purpose-built for emerging service providers. The company's Internet backbone routers combine the features of the JUNOS Internet Software, a new high performance ASIC-based packet forwarding technology and Internet-optimized architecture into a purpose-built solution for service providers. Technology stocks rebounded today from the recent earnings blues, thanks to strength in discounted network-equipment shares. The tech-heavy Nasdaq, which closed higher for the first time since late last week, was boosted by the surging prices in industry giants like Juniper Networks. Juniper is considered one of the new bellwether companies in leading-edge technology because of its outstanding growth. The company's revenue grew nearly 100% in the latest quarter, and the trend is expected to continue in step with the demand for Internet infrastructure. Investors are still treading lightly ahead of the earnings season but the trend for technology issues has been a flight to high growth stocks and we believe Juniper Networks is one of the few issues that will remain relatively bullish, even in a negative market. With favorable disparities in the front-month option premiums, this position offers an excellent speculation play for those who agree with our outlook for the issue. JNPR - Juniper Networks $207.94 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put OCT 145 JUY VI 606 1.31 143.69 5.8% *** Sell Put OCT 150 JUY VJ 1771 1.69 148.31 7.4% Sell Put OCT 155 JUD VK 1079 2.13 152.88 9.2% Sell Put OCT 160 JUD VL 838 2.50 157.50 10.8% ****** PPRO - Purchasepro.com $84.81 *** Entry Point! *** PurchasePro.com is a provider of Internet business-to-business electronic commerce services. The company's e-commerce solution is comprised of public and private communities or "procurement networks," where businesses can buy and sell a range of products and services over the Internet in a competitive and cost-effective manner. Subscribers to the company's procurement networks need only an Internet connection, a Web browser and a PurchasePro.com membership in order to participate in interactive communities. The procurement networks are customizable and scalable, utilizing an open-architecture platform that can be integrated with members' existing enterprise resource planning and accounting systems. The company's solution leverages the growth, pervasiveness, low costs and community building nature of the Internet as a unique basis for e-commerce for the broad business-to-business market. Internet stocks rallied today as investors acquired the leading issues at reduced prices, in the wake of the recent technology sell-off. In the business-to-business sector, traders filled their baskets with a number of popular stocks and PPRO was one of the HOT commodities. Based on the strength in the issue, investors believe the company is one track to become an industry leader and our position offers an excellent reward potential at the risk of owning this unique stock at a favorable cost basis. PPRO - Purchasepro.com $84.81 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put OCT 60 PXZ VL 606 0.81 59.19 8.7% *** Sell Put OCT 65 PXZ VM 688 1.50 63.50 15.4% Sell Put OCT 70 PPU VN 1137 2.31 67.69 20.5% ****** RIMM - Research In Motion $106.00 *** On The Move, Again! *** Research in Motion Limited is a designer, manufacturer and marketer of innovative wireless solutions for the mobile communications market. Through development and integration of hardware, software and services, they provide solutions for access to e-mail, messaging, Internet and intranet-based applications. Research in Motion's technology also enables a third party developers and manufacturers worldwide to improve their products and services with wireless access. RIMM has been on the move in recent weeks and last Friday, 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. Research in Motion is set to capitalize on the emerging wireless market, producing a hand-held wireless device, the 957, that allows wireless access to corporate e-mail, along with their Inter@ctive Pager product line and the BlackBerry wireless e-mail solution. RIMM recently announced a deal with private software firm Brience to expand enterprise applications to their devices. Brience specializes in adapting and delivering unique proprietary corporate information to any handheld in customized form, and the potential for applications for RIMM's devices is significant. In addition, MODCOMP, a subsidiary of CSP (CSPI) and a top developer of E-commerce and M-Business solutions, also announced that its integration software, ViewMax, now supports wireless access to mainframe, midrange, and UNIX applications via the BlackBerry wireless email solution. The ViewMax solution will seamlessly connect any enterprise system, or "green screen," application to the popular handheld, which recently won the 2000 PC World Class Award for best wireless communication device. From a technical viewpoint, the issue has excellent support near our cost basis and the over-priced option premiums will allow us to open a new position at a favorable entry point. RIMM - Research In Motion $106.00 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put OCT 85 RUL VQ 419 1.38 83.63 11.5% *** Sell Put OCT 90 RUL VR 323 2.19 87.81 14.5% ****** VECO - Veeco Instruments $102.00 *** Entry Point! *** Veeco Instruments designs, manufactures, markets and services a broad line of equipment primarily used by manufacturers in the data storage, optical telecommunications and semiconductor industries. These industries help create and distribute a wide range of information age products for today and tomorrow, such as personal computers, network servers, fiber optic networks, digital cameras, TV set-top boxes and personal digital assistants. Veeco offers two principal product lines: Metrology and Process Equipment. CVC, a subsidiary of the company, provides cluster tool manufacturing equipment used in the production of evolving tape and disk drive recording head fabrication, optical components, passive components, MRAM, bump metallization, and next generation logic devices. Veeco Instruments rallied big in late September, closing at new all-time high on momentum from an upgrade earlier in the month. Banc of America offered the most recent opinion of the provider of equipment for the manufacture of optical telecom components and they initiated coverage with a "strong buy" rating and a $190 price target. The analyst noted that VECO is delivering excellent growth in its optics business and the issue trades at a favorable discount to other industry leaders. Investors appear to share the positive outlook and with today's reversal above recent technical support near $95, the issue is poised for further upside activity. If you agree with a bullish view of the stock, these conservative positions offer excellent entry points, considering the recent volatility in the market. Target a higher premium in the position initially, to allow for a brief pullback in the stock from its current levels. VECO - Veeco Instruments $102.00 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call OCT 85 QVC JQ 14 19.25 82.75 5.2% *** Sell Call OCT 90 QVC JR 60 15.62 86.38 8.0% Sell Put OCT 80 QVC VP 13 1.81 78.19 15.5% *** Sell Put OCT 85 QVC VQ 99 2.94 82.06 20.9% Sell Put OCT 90 QVC VR 428 4.25 85.75 24.4% *************** NEUTRAL PLAYS - "SELL STRANGLES" *************** PMCS - PMC Sierra $209.94 *** Premium Selling Play! *** PMC-Sierra designs, develops, markets and supports performance semiconductor networking solutions. The company's products are used in the high-speed transmission and networking systems, which are being used to restructure the global telecommunications and data communications infrastructure. The company provides components for equipment based on Asynchronous Transfer Mode, Synchronized Optical Network, Synchronized Digital Hierarchy, T1/E1/J1 and T3/E3/J2 access transmission, High speed Data Link Control and Ethernet. The company's networking products adhere to international standards and are sold on the merchant market to over 100 customers either directly or through its worldwide distribution channels. This play is simply based on the current price or trading range of the underlying stock and its recent technical history. The probability of profit from these positions is also higher than other plays in the same strategy based on disparities in option pricing. Technically, we favor the issue for a bullish position and have decided to sell premium for credit and use the earned income to offset any losses on the downside, in the event we are required to accept assignment of the stock. If the price of the issue moves through the current resistance area near $245, we will buy the stock to cover our sold options. PMCS - PMC Sierra $209.94 NEUTRAL CREDIT-STRANGLE (sell naked call & sell naked put) Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call OCT 250 SAR JJ 1632 2.44 252.44 10.0% Sell Put OCT 170 SZI VN 414 2.31 167.69 9.5% Sell Call OCT 260 SAR JL 2934 1.38 261.38 6.0% *** Sell Put OCT 165 SZI VM 293 1.69 163.31 7.4% *** *************** BEARISH PLAYS - Naked Calls *************** RBAK - Redback Networks $139.56 *** Technicals Only! *** Redback Networks is a provider of advanced networking systems that enable carriers, cable operators and service providers to rapidly deploy high-speed access to the Internet and corporate networks. Their Subscriber Management System (SMS) connects and manages large numbers of subscribers using any of the major high speed access technologies including digital subscriber line, cable and wireless. Redback sells its products through a direct sales force,resellers and distribution partners. Since the recent sell-off in the technology group began, this company's share value has fallen substantially and today, the issue did not participate in the recovery rally. Redback is a volatile, price-momentum stock and based on the negative short term outlook, we are going to pursue a bearish stance with a conservative risk/reward perspective. We will use the current consolidation period and overpriced option premiums to initiate the position with a favorable premium. The probability of the share value reaching our sold strikes appears rather low, but there is always the possibility of a recovery rally so monitor the position daily for changes in technical character. RBAK - Redback Networks $139.56 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call OCT 170 BKK JN 1938 2.06 172.06 13.1% Sell Call OCT 175 BKK JO 278 1.50 176.50 9.7% Sell Call OCT 180 BKK JP 3081 1.00 181.00 6.6% *** ************************Advertisement************************* PRIVATEBUY.COM(tm). SHOP ONLINE. ANONYMOUSLY. ANYWHERE. You no longer need to submit your real name, credit card number, or sensitive personal information when you shop online! PrivateBuy.com is the first private debit account that allows you to make purchases safely and anonymously at ANY merchant online. Sign up today at http://www.privatebuy.com/signupdisplay.asp?srcid=4E2W ************************************************************** ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. 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