The Option Investor Newsletter Wednesday 10-11-2000 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/101100_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 10-11-2000 High Low Volume Advance/Decline DJIA 10413.80 -110.60 10566.60 10350.90 1.39 bln 895/1984 NASDAQ 3168.49 - 72.05 3258.24 3103.53 2.34 bln 1237/2793 S&P 100 724.02 - 13.66 734.73 714.48 totals 2132/4777 S&P 500 1364.59 - 21.35 1381.97 1349.67 30.9%/69.1% RUS 2000 474.74 - 6.89 481.63 469.19 DJ TRANS 2445.49 - 51.74 2497.48 2425.83 VIX 30.95 + 3.51 32.64 29.06 Put/Call Ratio .91 ****************************************************************** Are We There Yet? The question of whether we have put in a bottom goes unanswered for another day. It has become frustrating for investors as the markets bounce all over the map, giving head fake after head fake. This bottom seems so close that you can taste it. We are all waiting attentively, but in the meantime, trading has been dizzying. Why couldn't we have just blown through 3100 on the NASDAQ and gone for the gusto with massive capitulation? I wish I had the answer. The continued waning of the market is making me wonder if we will get the capitulation that everyone is talking about. Ever since the Summer, everything that market watchers expected, never really materialized. Remember that post-Labor Day rally? Not all is gloom and doom on the market front. Today is most likely a precursor to a bottom in some way, shape, or form. There were many developments in today's session that went on behind the scenes that indicates that we are, indeed, getting closer. Most notably, the VIX.X traded above the 30 level for the first time since May 24th. Now what's interesting about this is that May 24th was the capitulatory bottom when the NASDAQ hit 3042. The catch about the May 24th bottom is that it was the last day in a period of about a month when the VIX.X was maintaining a level above 30. During that period from mid-April to mid-May, the NASDAQ actually had several mini-bottoms that resulted in minor rebounds and subsequent bull traps. There was an April 17th low that provide a bounce and looked like a bottom, yet the true bottom would come until May 24th. In relation to the current market trend, this means that we are getting very close, but it may take a series of volatile moves up and down to increase the VIX.X and create the selling panic that is evident in capitulation. Given the month of October, the search for a bottom may not take as long as the one found in May. The VIX.X spiked up to close at 30.95, hitting an intraday high of 32.64. Another development is the ever-increasing OEX Put-Call Ratio. The more bearish people get, the more puts they buy for downside protection. And as more puts are bought for every call, this contrarian indicator begins to tell us that the panic bearishness will result in bullish conditions. This ratio is continuing to increase each day, pointing toward a bottom in the near future. While we all are wishing for a fast and furious, spike down and back type of capitulation, finding a bottom is far more painful and time-consuming than thought. Did it really seem to linger this long back in the Spring? Probably. It's amazing how quick we forget. The process has commenced. Now, we must wait until all the indicators point in the right direction at the right time. The action on the NASDAQ certainly was volatile today. The index opened lower today, accounting for the YHOO's post-earnings sell-off in after-hours yesterday and the LU warning. Within the first hours, the NASDAQ ran into resistance at 3200, and then found strong support at 3100 shortly thereafter. This support level kicked off a 150 point rebound, a combination of buying and short covering. Volume today was robust, coming in at 2.3 bln shares, the fourth heaviest day on the NASDAQ. But, the true conviction of this rebound certainly is questionable, especially considering the selling into the close and the failure to close above 3200. With the downtrend still very much intact, a retest of 3100 is almost guaranteed. The question is will we see a rebound like we saw after April 19th, coaxing in a few more bulls before the market capitulates? It is a distinct possibility. We will be watching 3100 on the downside, and a break through to challenge 3042 will be welcomed. While this sounds bearish, it is merely a necessity that we get it out of the way in order to move on with the long term uptrend which we are so accustomed to. On the upside, 3200 and 3250 will pose as resistance, as sellers have appeared at those levels to take the NASDAQ lower. Breadth continues to be a concern on the NASDAQ as Decliners outpaced Advancers 27 to 12. However, the upside of this is that once an extreme is met, a turnaround is imminent. There was plenty of news today for the markets to digest, even though the focus was on the selling itself. Old favorite MSFT got word that the Court of Appeals has set the schedule for the preceding. MSFT's briefs in the case will be due by November 27th. The oral arguments will begin February 26th, after a series of briefs are exchanged between the government and the software giant. Although this timetable is not as extended as MSFT would have liked, it is by no means the fast-track schedule that the government desired. MSFT spokesman Jim Cullinan was pleased, stating that it "is a fair and reasonable schedule." MSFT bucked the trend today and added $1.19 to $55.75. Earnings continued to flow in today, with a couple notables being AMD and AMCC, both Semi stocks. AMD posted better-than-expected earnings of $0.64 per share, beating the Street by two cents. This was a great report compared to a loss of $0.36 for last year's 3rd quarter. AMD has been under pressure lately as the concerns over the Semi cycle and growth rates in the sector have been debated by analysts. The stock was up in after-hours, trading at $23.44, up $1.63 from the NY close. Not to be outdone, AMCC reported a 156% jump in year-over-year revenue on its way to beating the Street by three cents with earnings of $0.26 per share. The company said that demand for their high-bandwidth silicon products remains "strong and robust" going forward. In addition, AMCC sweetened the report with a 2-1 split announcement that will be ex-div "on or about October 30th." AMCC was up $10 in after-hours at $176.69. The SOX.X was up 4.2% at one point during the day, but sold off to close unchanged after Tuesday's decimation. Over on the NYSE, the INDU lost 110 points in a volatile session in part due to GE. GE lost $1.44 to close at $56.63 even though the market bellwether delivered in-line earnings of $0.32. The massive conglomerate's profits rose 20% which can be attributed to double-digit growth in most of its businesses. CEO Jack Welch even said that the company is "comfortable" with projected earnings estimates of $1.27 for fiscal year 2000. GE has earned $0.92 per share in the first three quarters. Yet, investors sold GE, evidence of the turbulent markets. Also dragging down the INDU were HWP(-3.88), IBM(-2.88), AA(-2.44), INTC(-2.19), and C(-1.50), sparing few sectors. You can see from the chart below that the INDU has broken down after failing at 10850. Today's trade found support at 10350, about the same time that the NASDAQ bounced at 3100. However, the INDU rolled over late in the day, managing to hold 10400. We will be watching the 10350 support level established today. Below this, 10250 will be the next major support level, which is the lows from May. Motorola's(MOT) conference call this morning didn't help the sentiment at the NYSE. They lowered their guidance for the 4th quarter, 2000, and 2001 estimates as the management cited problems in their cell phone business. Their cautious outlook for handset sales paints a gloomy picture for the major cell phone players, namely NOK and ERICY. MOT cut its handset margins going forward to 6.5% from 10%, foreseeing lower demand in 2001. Shares of MOT lost a whopping 18%, or $4.81, to close at $21.44. Looking ahead, volatility will be the name of the game. Traders will be watching as the contrarian indicators continue to move toward extremes, indicating that the bottom is drawing near. A VIX.X remaining above 30 and increasing will tell the markets that fear is approaching the breaking point. This capitulation may take longer than we think or would like, but given the historically exaggerated moves in October, it may be right around the corner. Tomorrow after the bell, we will hear from JNPR and VRTS on the earnings front. On Friday we have the PPI report. Any sort of news that is perceived as negative could be the catalyst that takes us to that breaking point. All eyes will be on 3100 for the NASDAQ, as it was established as intraday support. The wild swings will continue so stay on top of those trades. Today was a perfect example as I went into a meeting this morning with a short position, only to return and see the NASDAQ near 3250. Ouch. Trade only what you can stomach and keep your eyes open for that anticipated capitulation, whether it's tomorrow or next week. I might be asking next week, are we there yet? Or maybe not. Good luck. Matt Russ Editor ***************************** OCTOBER OPTIONS WORKSHOP EXPO DENVER - Oct 27-30th ***************************** Top Economist Predicts NASDAQ reaching 40,000 by 2008!* There are always predictions and with enough time, many prognosticators may become the next great GURU! The projections for the NASDAQ and Dow may have some strong validity. Demographic studies have shown that the economic cycles of BOOM and BUST periods mirror demographic patterns. If the economy's growth is based on spending and migration patterns of population segments, then we can become better traders by entering industries on strong trends allowing us benefit from these patterns. The key is to enter before the masses and exit profitably when the masses enter! There will be many ebbs and flows to the markets over the coming years, however the more educated you are as a trader, the better you will be at profiting from the ups and downs! The leading forecasters are calling for a strong upward channel in both the NASDAQ and DOW over the next 7-9 years. Let's face it, the market has been brutal to the Bulls since March. We could be close to a bottom, but regardless we need to be prepared for any market direction. Professional traders continually educate themselves and treat the market like a business. Amateur traders treat the market like a hobby. The difference is in the RESULTS! We believe that you, our subscribers, are serious traders and therefore we want to provide all the resources we can to educate & equip you with the tools to succeed over both the Long and Short run! The Denver Options Expo is just one of these tools. We are providing diverse and intense training on options, charting, volatility and other NEED TO KNOW areas to help you grow your portfolio. If you have not made plans to attend do so quickly as we are in the final stretch!! To sign up click here: http://www.OptionInvestor.com/workshop The seminar will cost you some out of pocket money like any business does, but how much will it cost you not to know vital techniques and strategies to protect capital and profit in any market? Out of pocket cost will never be as much as the costs for lost OPPORTUNITY or lack of proper education. Don't miss this event! *OptionInvestor makes no claims that the Nasdaq will reach any specific level. The projections are made by economists outside of OptionInvestor. To register click here: http://www.OptionInvestor.com/workshop Check out an outline of events here: http://www.OptionInvestor.com/workshop/outline ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.nextcard.com/index6.html?ref=aff0049911 ************************************************************ ************** TRADERS CORNER ************** Lottery Week By Austin Passamonte Trading option contracts with a life expectancy best measured in days or hours. Gunslingers only need apply? Better to buy all the time one needs instead? Not so fast to dismiss, Sparky! What is your time expectancy to hold a play you might purchase tomorrow or Friday? If the answer is weeks, this ain't for you. If the answer is "not long," "sell too soon" or "same-day sales," you need to be aware of our game. I read somewhere not long ago that a Japanese option trader ran his account from $100,000 to $4.2+ mln in less than two years with a disciplined system. Purportedly he only played options during expiration week, and bought near-money calls and puts on stocks likely to move. Simple, isn't it? We hear many of these fantastic riches stories and I'm waiting for people to repeat legends like that about me. Are you waiting for them to do the same about you? Cripes, what are we waiting for? Anyways, the theory is sound. I have been trading front-month contracts up to the afternoon they expire on since my option career began and to be honest, if I only had one week per month to trade this would be it. Why? If I'm a short-term trader (and I am), what's the need for useless time premium when I wish to buy today and sell tomorrow or sooner? I'd rather pick up some cheap options in a market that's moving and sell them several-hundred percent higher in value within hours. Said easy, done not so easy. There are a few pesky catches between us and such lofty gains. Isn't there always? Gosh I hate that. First of all, we have little time in which to be right. The way markets are moving these days, just how much time do we need? Could you have made some money yesterday & today on numerous stock and index options? I would say the time-movement factor is not a big problem. Common mantra is to switch into November contracts and buy yourself plenty of time premium to be right. That's great advice on slow-moving issues. Are those the ones you target? Me neither. How risky are front-month contracts about to expire? Risky as you make them. We need to begin by determining how much capital to risk on short-life contracts. We're assuming you expect to be out before expiration day. Here's how I figure things: pick your selected market and determine how much November options would cost for the trade you want to place. Then, what amount would you risk on a stop? That amount willing to be risked is what you can spend on near-death options without increasing downside risk. Example: you believe XYZ stock is about to rally or tank. A November call or put option would cost you 10 points and you're willing to risk 2 points on a stop. Very sensible. Do you expect that trade to last more than the next seven full sessions? If not, I suggest you buy the call or put nearest the current resting price for the same 2 points instead. What did we accomplish? Several things. You now have more staying power. If the market moved against your November option and stopped you out at 8, you are out. End of story. A move against your 2 October contract and who cares, you're willing to risk the entire 2 points to expire worthless same as if it stopped out. You still have a chance for the market to move in your desired direction where the point is moot with a stopped out November option. This gives you much greater buying-power as well. Aggressive traders can press things a bit and stretch their accounts and its return to far greater measures. Example: we have a modest account of $5,000. We are willing to risk 10% of that on any given high-odds play, confident we can do better than go 0 for 10 in the long-run. $1,000 can buy several near-money October contracts compared to one or two (if that) November contracts inflated with excess time. Remember, time premium is only an asset if you plan to use it. Too many traders think they can ride a $20 distant-month contract through greater market declines because time is on their side. Trust me, there are oodles of November call contracts purchased weeks ago that have shriveled to a pittance of their original cost. This has to be one of the top-five misconceptions option traders have. Extra time is handy to have but used wrong, can send us to broke in a big hurry. Needless to say, we must choose our potential targets wisely. Markets that move far enough to profit from are a must, as you might guess. I prefer index options for this approach myself. The inherently have much less vega or volatility premium built-in, allowing for using the same amount of money to get closer within striking distance. Of course, each month there are examples of several stocks that really pop or drop on Thursday & Friday of expiration. Buy options for $0.25 one day and they're valued at 20 the next. Great if you're able to catch one but I've not been able to do so enough to offset those that sputter. Doesn't mean I've quit trying...every now & then I buy lotto tickets too. Perhaps one or the other will pay off for the effort someday. Meanwhile, back at the screens I'll take my chances with the OEX, SPX & QQQs. Lower implied volatility coupled with excellent movement and markets I am quite familiar with give me the best odds for success. Can equity traders win with their options? Of course! RMBS, PDLI, SDLI, JNPR and a string of hundreds can cover plenty of ground in no time flat. Options bought for 2 points this week can soar to incredible heights by this time next week or sooner. Worst they can do is expire worthless, no different than your stop being hit on a wayward spike or wrong market guess. Let's not talk about trading without stops! Does this mean we can just go out and buy options willy-nilly to hit the big time? Certainly not. This isn't throwing mud against the wall to paint our house. We are talking about careful market study, solid chance for market movement to inflate our options with value enough to offset risk of loss. If we're willing to risk the entire 2 points on a loss in short- life options we either have to ask for 6 points or better that the sale or 4 points at the sale or better and win/loss ratio average at least 2/1 for long term profit success. We'll follow this topic up next Monday in time to target one or two possible moves before Friday spoils the fun. Meanwhile, feel free to join us over at www.indexskybox.com for a nightly discussion on the topic of short-term trades and daily live trade examples of this approach at work. See you 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=642 ************************************************************** ********************** PLAY OF THE DAY - CALL ********************** LLY - Eli Lilly & Co. $87.44 +2.94 (+4.50 this week) Lilly is a leading innovation-driven pharmaceutical corporation. They are developing best-in-class pharmaceutical products by applying the latest research from their own worldwide laboratories and from collaborations with well-known scientific organizations. As their products save and improve lives, they also save overall health care costs: they are often less expensive than other forms of health care, such as surgery and hospitalization. Lilly employs more than 31,000 people worldwide and markets their medicines in 179 countries. Lilly has major research and development facilities in 9 countries and conducts clinical trials in more than 30 countries. Most Recent Write-Up Traders and investors alike are running to the drug stocks for shelter, and for good reason. This is one of the few sectors which analysts are maintaining a positive outlook for earnings. Analysts are bullish on the sector, with Parker Hunter analyst Richard Lawrence recently noting that pharmaceuticals have a good probability of achieving high growth objectives. Merrill Lynch also came out with positive comments, saying that it expects drug companies to report earnings above Wall Street estimates. Add to that a stellar earnings report from Abbott Labs today as well as comments from Chase H&Q analyst Alex Zisson on drug stocks as a "safe place to be" and it's no wonder why drug stocks continue bucking the downtrend. At this point, conservative traders will be watching for LLY to break above $85 on strong volume for an entry. Aggressive traders looking to enter on a pullback could target shoot a bounce off the 5- or 10-dma (at $83.47 and $82.45). Comments What a breakout today! LLY has been in an ascending wedge as its 10-dma converged upon its 100-dma at $84.73. The stock broke above the 100-dma and did so on the strongest volume it has seen since September 22nd when it broke out over $80. Look for pullbacks and bounces from $86 or the basing area at $85. Under this, the 100-dma should offer a bounce and an entry. ***October contracts expire next week*** BUY CALL OCT-80 LLY-JP OI=4767 at $8.00 SL=6.25 BUY CALL OCT-85 LLY-JQ OI=4420 at $3.63 SL=1.75 BUY CALL NOV-85*LLY-KQ OI= 636 at $5.63 SL=3.75 BUY CALL NOV-90 LLY-KR OI=1358 at $3.13 SL=1.50 Picked on Oct 5th at $84.56 P/E = 31 Change since picked +2.88 52-week high=$109.00 Analysts Ratings 6-11-13-0-0 52-week low =$ 54.00 Last earnings 06/00 est= 0.60 actual= 0.61 Next earnings 10-19 est= 0.71 versus= 0.62 Average Daily Volume = 3.81 mln ***************************************** BIG CAP COVERED CALLS & NAKED PUT SECTION ***************************************** One of the OIN's new readers asked why we focus on "in the money" options in our covered-writing strategy. Each week we receive a number of questions regarding the various approaches to the investment strategy of selling covered-calls. In our personal portfolios, we utilize the "in-the-money" covered write as a primary technique for consistent profits. This method is easy to master and works in harmony with a low maintenance, low risk investing style. The underlying philosophy behind the strategy is to be "aggressively conservative." This tactic is in contrast to the more popular "conservatively aggressive" outlook used by many traders, where the underlying position is bullish, (based on OTM calls) and requires an upward movement from the stock for profit. In general we are conservative, long-term investors with contempt for excessive risk and the potential for large losses. Studies suggest (and our results confirm) that the average investor will make substantially greater returns through the consistent profits from "in-the-money" covered writing than he/she would using the high risk, high reward approach of more aggressive positions. Most traders think that this technique is far too conservative to yield favorable returns however, the "magic" ingredient of the strategy is the power of compound interest. Covered call writing allows investors to potentially compound their returns on stock ownership each month of the year. Unfortunately, while most investors begin writing covered calls with the goal of compounding their money on a monthly basis, many lose focus of the fundamental outlook of the technique (consistent, low risk profits) and start to concentrate on higher, single transaction returns. This is a common mistake and it can substantially increase risk and the probability of loss. Those who have endured the recent decline in share values know this fact far too well. The market historically offers a 2-4% monthly (annualized) return for this conservative strategy but with diligent research and analysis, and proper money management, the profit margin can be increased. In our personal portfolios, we try to establish positions that offer, on average, a 4-6% (8-12% on margin) monthly return on investment. Even with this meager profit, the long-term portfolio growth is excellent, based on the simple mathematics of compounding. Earning just 3% per month in a personal portfolio, without compounding or margin trading, equates to a 36% yearly return. Obviously, most retail option traders regard a 3% monthly return as far too low. In fact, why would anyone want such a paltry reward when the market offers such great potential for wealth. There is answer is quite simple: RISK. Any strategy that yields 10% will be riskier (on a purely theoretical basis) than one offering a 3% return. You know the old adage, "The greater the risk, the greater the reward," and with the recent market slump, the saying couldn't be more accurate. Good Luck! 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 60.81 $2.94 5.7% ALXN OCT 85 80.25 94.00 $4.75 4.9% VECO OCT 85 82.75 73.88 -$8.87 0.0% Warned - Closing Positions Closed: NMSS Naked Puts: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return RIMM OCT 85 83.63 95.81 $1.38 11.5% ALXN OCT 80 76.75 94.00 $3.25 11.4% OSIP OCT 40 38.56 60.81 $1.44 10.0% EXTR OCT 82.5 81.38 102.00 $1.13 9.5% PPRO OCT 60 59.19 61.94 $0.81 8.7% CTIC OCT 45 44.19 57.50 $0.81 8.4% AGIL OCT 60 58.56 71.25 $1.44 8.3% VRTS OCT 110 108.31 138.06 $1.69 7.5% VRTS OCT 110 107.94 138.06 $2.06 7.0% EXTR OCT 85 83.75 102.00 $1.25 7.0% NTAP OCT 115 112.81 121.69 $2.19 6.8% MEDX OCT 95 93.62 99.00 $1.38 6.8% PDLI OCT 72.5 70.87 100.38 $1.63 6.6% RIMM OCT 60 58.37 95.81 $1.63 6.4% EXTR OCT 82.5 81.06 102.00 $1.44 6.2% PALM OCT 40 39.12 46.94 $0.88 6.1% Strength! RMBS OCT 60 58.50 59.81 $1.31 5.9% Breaking down JNPR OCT 145 143.69 206.00 $1.31 5.8% ELNT OCT 80 78.62 79.50 $0.88 5.4% Key moment? NMSS OCT 55 53.00 52.38 -$0.62 0.0% Key moment? BLDP OCT 90 88.50 86.94 -$1.56 0.0% Time to go? VECO OCT 80 78.19 73.88 -$4.31 0.0% Warned - Closing Positions Closed: METHA, RBAK, AVNX Sell Straddles: PMCS OCT 165p 163.31 157.69 -$5.62 0.0% Did you cover? PMCS OCT 260c 261.38 157.69 $1.38 6.0% Naked Calls: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return TUTS OCT 120 122.31 49.69 $2.31 9.8% MRVC OCT 85 86.00 43.38 $1.00 8.2% AETH OCT 145 146.31 83.19 $1.31 7.8% RBAK OCT 180 181.00 112.56 $1.00 6.6% 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 *************** CMRC - Commerce One $61.00 *** Entry Point! *** Commerce One is a provider of global e-commerce solutions for business. Its solutions are designed to create a network of interoperable marketplaces, trading communities and commerce portals called the Global Trading Web. The company has also developed the Commerce One Solution to automate the procurement cycle between multiple buyers and suppliers. The Commerce One Solution is comprised of enterprise e-procurement applications consisting of BuySite Enterprise Edition and BuySite Portal Edition, and the MarketSite Portal Solution. Within CMRC's MarketSite Portal Solution, business services such as auctions and enhanced content solutions are offered, with others to be added in the future. The company also directs Commerce One Ventures, which accelerates global participation in e-business through strategic investments. Commerce One and other leaders in B2B community have slumped in recent sessions amid concerns over high valuations and worries that slowing sales may lie ahead in the industry. In spite of that pessimistic outlook, investors in Commerce One have tried to remain upbeat, reveling in the news that the company recently announced three new marketplace customers and a new consulting alliance. Of course, the reports that Oracle beat out Commerce One in a new online marketplace project for the medical-supply industry didn't help matters. Our opinion is simply that the company is an industry leader and a great E-commerce stock to have in our long-term growth portfolio. This position provides a perfect opportunity to own the issue at a reduced cost basis. CMRC - Commerce One $61.00 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put OCT 45 RJC VI 517 0.56 44.44 14.9% *** Sell Put OCT 47.5 RJC VW 242 0.75 46.75 19.6% Sell Put OCT 50 RJC VJ 1569 1.19 48.81 27.5% ****** DCTM - Documentum $71.75 *** Bracing For A Rally? *** Documentum develops, markets and supports an open, scalable, standards-based content management platform and application suite for managing the content organizations rely on for global operations and to bring their businesses online. Documentum's Internet-scale content management solutions facilitate e-business connections with customers, business partners and employees. These solutions enable customers to create, deliver, manage and personalize all content from contributors within and outside the enterprise, for key business process, in a targeted manner. Documentum is another E-business leader that appears to be well positioned to profit from the current Internet-based demand for software. Analysts say the company is transforming from a document management vendor to a leading provider of Web content management products. Their rapidly maturing 4i product line is scalable, technically solid and fully Web-based and as the Web content management market expands to include B2E and B2B, the company will leverage its enterprise document management skills and customer base to emerge as one of the top vendors. Earnings are due on or about October 19 and third quarter results are expected to meet or exceed consensus. Technically, the issue appears to be successfully completing a consolidation phase and we expect the share value to benefit significantly from the next market rally. DCTM - Documentum $71.75 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put OCT 45 QDC VI 68 0.69 44.31 15.5% *** Sell Put OCT 50 QDC VJ 668 1.50 48.50 32.0% Sell Put OCT 55 QDC VK 350 2.13 52.87 43.7% ****** HAND - Handspring $68.25 *** Earnings Play! *** Handspring is a provider of handheld computers. The company's first product, the Visor handheld computer, is a personal organizer that is enhanced by its Springboard platform, an open expansion slot. Since the Visor's introduction, more than 2,500 developers have registered with Handspring's developer program to receive support in developing modules. Examples of modules commercially available or in development include a digital camera, an MP3 player, a two-way pager, a global positioning system and content such as books and games. Handspring is set to capitalize on the emerging wireless market, producing a unique, hand-held wireless device. The company has moved to the forefront of the PDA industry this quarter and the introduction of its GSM module in mid-September, which enables voice telephony on the Visor, has made the convergence of data and wireless voice a reality. The company has also aggressively expanded its international exposure in recent months, introducing the Visor in Europe, Hong Kong, Taiwan and Singapore. As the company continues to increase production, the Visor is expected to be launched in other foreign markets later in the year. Earnings are due next week and most of the other companies in the small group have exceeded analysts' consensus estimates. Our conservative position offers a method to participate in the outcome of the report with relatively low risk. HAND - Handspring $68.25 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call OCT 55 HQA JK 21 14.63 53.62 8.7% *** Sell Call OCT 60 HQA JL 185 10.75 57.50 14.7% Sell Put OCT 45 HQA VI 25 0.69 44.31 16.3% *** Sell Put OCT 50 HQA VJ 156 1.06 48.94 24.4% Sell Put OCT 55 HQA VK 8 1.81 53.19 38.6% ****** ITWO - i2 Technologies $176.00 *** Rebound In Progress! *** i2 Technologies is a provider of intelligent eBusiness solutions that help enterprises optimize business processes both internally and among trading partners. Its solutions enable enterprises to operate more efficiently, more effectively collaborate with suppliers and customers, and conduct business transactions over the Internet. They recently launched TradeMatrix, a robust platform of business-to-business solutions, services and marketplaces, which will allow customers, partners, suppliers and service providers to do business together in real time. Its services include procurement, commerce, customer care, strategic sourcing, product development, and more. i2 Technologies is one of the leaders in the Internet B2B sector and investors, as well as industry experts, are bullish on the company's outlook. i2 Technologies recently hosted a successful analysts' day and user conference with over 7,000 attendees. The seminar included upbeat management and customer presentations, and momentous announcements on the customer, partnership and product front. Most significantly, the company announced three major customer wins, including the largest contract in i2's history with Siemens, an expansion of the Ariba relationship announced in March, and a range of partnership and new product previews. The current technical outlook is favorable and our position offers an excellent reward potential at the risk of owning this leading issue at a favorable cost basis. ITWO - i2 Technologies $176.00 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put OCT 135 QYJ VG 398 1.13 133.88 10.5% *** Sell Put OCT 140 QYJ VH 502 1.44 138.56 13.3% Sell Put OCT 145 QYJ VI 340 1.81 143.19 14.9% ****** PWER - Power-One $68.75 *** On The Rebound! *** Power-One is a leading manufacturer of power conversion products designed primarily for communications applications. Their DC rack power systems are sold directly to Internet service providers and telecom central offices. The company's embedded OEM power products include AC/DC and DC/DC products and are sold to manufacturers of datacom and telecom equipment. Power-One also supports customers in the automated/semiconductor test equipment industry and other high-end industrial markets. The company is comprised of AC&DC Power Systems, High Density-Board Mounted Power, Compact Power Systems, Telecom Systems, and the Powec division. The recovery in Power One began earlier this month after Morgan Stanley Dean Witter raised its rating on the power products maker to a "strong buy" with a $90 price target. The upgrade had a very positive effect on the company's share value and investors appear to be anticipating positive results in the upcoming earnings report. The current technical outlook is favorable and our position offers an excellent reward potential at the risk of owning this unique issue at a favorable cost basis. PWER - Power-One $68.75 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put OCT 55 OGU VK 222 0.56 54.44 13.3% *** Sell Put OCT 57.5 OGU VY 85 0.81 56.69 16.0% Sell Put OCT 60 OGU VL 306 1.25 58.75 21.1% ****** VRTS - Veritas $138.06 *** An OIN Favorite! *** Veritas is an independent supplier of storage management software. Their products help to improve the levels of control, automation and manageability in computing environments. Their products provide protection against data loss and corruption, allow rapid recovery after disk or computer system failure, enable IT managers to work efficiently with large numbers of files, and make it possible to manage data distributed on large networks without harming productivity or interrupting users. Veritas develops and sells products for most popular operating systems, including UNIX and Windows NT. This company is simply one of our favorites for long-term stock portfolios and the demand for Application Software Providers has helped the issue remain relatively bullish in the midst of catastrophic failures of a number of industry-leading stocks. The fundamental outlook is very positive; revenues are expected to grow substantially in the coming year and the company should see higher share values in the future. The current technical trend is favorable and we offer this position as an entry point, based on the chart indications. Obviously, the issue is prone to a correction in the technology group but a reasonable cost basis exists near the previous support area at $115. VRTS - Veritas $138.06 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put OCT 105 VUQ VA 328 0.81 104.19 9.6% *** Sell Put OCT 110 VUQ VB 978 1.31 108.69 15.3% Sell Put OCT 115 VUQ VC 836 1.81 113.19 18.0% *************** BEARISH PLAYS - Naked Calls *************** GMST - Gemstar/TV Guide $62.31 *** Technical Collapse! *** Gemstar-TV Guide International, formerly Gemstar International Group, develops, markets and licenses proprietary technologies and systems that simplify and enhance consumers' interaction with electronics products and other platforms that deliver video, programming information and other data. The company's first proprietary system, VCR Plus+, introduced in 1990, is currently incorporated into virtually every major brand of VCR sold worldwide. The company has also developed and acquired a large portfolio of technologies and intellectual property necessary to implement interactive program guides (Gemstar Guide Technology), which enable consumers to navigate through, sort, select and record television programming. This play is simply based on the current price or trading range of the underlying stock and its recent technical history. The near-term GMST price trend is bearish and reflects a pronounced negative divergence from an intermediate-period moving average. In addition, the decline has come on increasing selling pressure and a major support level has been violated. With the failure at $90, a "double top" formation is in place and it appears the share value has little chance of reaching our sold positions in one week. GMST - Gemstar/TV Guide $62.31 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call OCT 80 GST JP 12726 1.19 81.19 29.5% Sell Call OCT 85 GST JQ 2826 0.75 85.75 19.2% Sell Call OCT 90 GST JR 10726 0.50 90.50 13.0% *** ************************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=650 ************************************************************** ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. 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