Option Investor

Daily Newsletter, Monday, 10/16/2000

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The Option Investor Newsletter                   Monday 10-16-2000
Copyright 2000, All rights reserved.                        1 of 1
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MARKET WRAP  (view in courier font for table alignment)
        10-16-2000        High      Low     Volume Advance/Decline
DJIA    10238.80 + 46.60 10272.10 10177.80 1.00 bln   1375/1484
NASDAQ   3290.28 - 26.49  3339.85  3262.37 1.79 bln   1933/2068
S&P 100   725.48 -  3.53   729.87   720.57   totals   3308/3552
S&P 500  1374.62 +  0.45  1379.48  1365.06           48.2%/51.8%
RUS 2000  481.75 +  1.36   485.65   479.50
DJ TRANS 2438.14 +  7.96  2445.53  2424.21
VIX        29.50 -  1.48    31.08    29.27
Put/Call Ratio       .64

Are We Back Yet?

Today was thought to be the essential day of confirmation, but we
wouldn't be so lucky.  The trading session was characterized by
a very narrow range for both the NASDAQ and the INDU.  But, the
follow-through that we wanted and needed would not materialize
today.  A downgrade of INTC and one on the wireless sector impeded
the NASDAQ's momentum after Friday's massive gains.  Major
NASDAQ general MSFT continued to fall from its ranks, breaking
the key $50 level intraday.  However, the INDU held tight.  The
earnings season is now in full swing, but jitters abound,
investors remain cautious and we ask ourselves, are we back yet?

In last Wednesday's Wrap, the question was are we there yet?  The
very next day the market tanked, and then with a little luck on
Friday the 13th, it came roaring back to close at the day highs.
Market watchers greatly anticipated today's session to help
confirm what appeared to be capitulation from last week.  Yet,
the NASDAQ couldn't finish the day with a gain, which would have
been the first back-to-back gains for the tech index since
September 19th and 20th.  Falling 26 points, the NASDAQ gave up
the key 3300 level, closing at 3291.

In the chart below, notice how the NASDAQ put in a double top on
an intraday basis at 3340.  This will continue to pose as
resistance as sellers step in.  With a low of 3262, the NASDAQ
range was only 80 points today, far less volatile than sessions of
late.  As a result, the VIX.X dropped below 30 since breaking out
last Wednesday with a close of 29.50.  Investors' fears eased a
bit even as many of the talking heads on CNBC continue to caution
that retests of the recent lows are probable before moving higher.
Sound bites like "sell into strength" and "still need to shake
out" were heard all day.  Looking at the technicals, support at
3250 will be essential, as it represented resistance multiple
times last week.  A break through this level would most likely
take the NASDAQ back for a retest.

While I'm not bearish on the market, I do remain cautiously
bullish, acknowledging the longer term potential and the short
term concerns.  Volume today wasn't spectacular, coming in at
1.75 bln shares with breadth about even.  Strong volume is going
to be the indicator to confirm a follow-through from Friday's
gains.  While the NASDAQ will likely remain volatile throughout
the week, especially considering option expiration on Friday, we
have begun the process of putting in this elusive bottom.  A
retest of Friday's lows would not be far-fetched in these market

Dragging down the NASDAQ and the INDU were INTC and MSFT.  Both
of these "generals" have seen their market caps halved during
the past year, and the carnage continued today.  INTC's woes just
don't seem to end, neither does Jonathan Joseph apparent distain
for the chip giant.  The Salomon Smith Barney analyst, who made
himself infamous with his summer call of a semi cycle slowdown,
came out today and said that INTC is facing slower demand due to
sluggish demand in Europe.  He added that an anticipated rebound
this month doesn't appear to be materializing and lowered his
3rd quarter earnings estimate from $0.38 to $0.37.  Joseph also
hacked INTC's 2001 estimate by 20 cents to $1.55 and lowered his
price target to $50 from $75.  INTC is slated to post 3rd quarter
earnings tomorrow after the close.  It would be quite a statement
if INTC missed downward revised estimates, indicating that the Semi
and PC markets may have bigger troubles ahead.  Yet, the 4th
quarter will be the decisive report, given holiday sales will be
incorporated into these numbers.  CS First Boston's Charlie Galvin
also expressed caution today going into the earnings announcement
tomorrow.  Only time will tell.

MSFT's downtrend continues to get worse with every tick.  This is
disheartening for many investors to see the once prominent tech
leader going nowhere but down.  The continued selling in the
software giant's stock has been fueled recently by earnings
concerns, which are due out on Wednesday.  MSFT spent much of
the afternoon trading below the $50 level, considered to be a
psychological support for the stock.  It is amazing to see stocks
like MSFT and INTC at their current levels.  Earnings estimates
for MSFT's Wednesday report is $0.41 per share.

On the wireless front, concerns came from both a brokerage house
and a company.  Verizon Communications(VZ) and Vodafone(VOD),
parent companies of the Verizon Wireless, decided to delay their
IPO launch of the wireless entity.  This is due to the current
volatile market conditions that have not been kind to wireless and
mobile phone companies.  To echo this sentiment, Prudential lowered
its rating on the wireless sector, downgrading AT&T Wireless(AWE),
Nextel Communications(NXTL), and Voicestream(VSTR) to Accumulates
from Strong Buys.  These comments were amid concerns over the
ability to maintain average revenues per unit over the near term,
which is six to nine months.  Prudential does, however, remain
positive on the stocks in the long haul.

Over at the NYSE, big news other than the Middle East conflict hit
the oil sector.  In a deal of mega-proportations, Chevron(CHV)
agreed to buy Texaco(TX) to form the second largest U.S. oil
company valued at $35.7 bln.  Under terms of the deal, TX
shareholders will receive 0.77 shares of CHV, valuing shares of
TX at $64.87 based on CHV's Friday close.  This represents an 18%
premium for TX.  The merged company, ChevronTexaco is expected to
realize $1.2 bln in annual savings and will create synergies that
should greatly enhance shareholder value, at the expense of 4000
employees being laid-off.  TX added $3.88 to $59 while CHV lost
$2.25, closing at $82.

Investors quickly forgot about the Middle East crisis and came
back buying the NY stocks, sending the INDU higher by 46 points
and giving a nice follow-through day.  Clocking in at one bln
shares at the NYSE, buyers returned from the weekend to pick up
the likes of WMT(+2.31), HWP(+2.06), and IBM(+2.06).  Traders
bid up shares of IBM ahead of their earnings scheduled
tomorrow.  Also encouraging investors of Big Blue was the
company's unveiling of its newest product, boasted as the
fastest UNIX web server.  IBM's performance helped the INDU
maintain a very nice, steady intraday trend which was far less
dramatic than Friday's parabolic move.  The +46 points brought
the INDU above 10200 which was intraday resistance on Friday.
Now, this level will be important support going forward.  On
the upside, 10375 will likely be the next major resistance level
given the rapid decline on Thurday, indicative of panic selling.
Yet, trading should be volatile as earnings numbers continue
streaming in, either encouraging or disappointing investors.

Looking forward, earnings will be the driver.  We have some big
time companies reporting during this option expiration week, so
expect some volatiliy and some extremely profitable trading
opportunities.  Lottery plays all week:  cheap premiums and huge
news events to move stocks.  TLAB kicks off earnings tomorrow
before the bell, followed by MERQ, IBM, INTC, and XLNX to name a
few.  Wednesday is another big day for earnings with MSFT, ARBA,
SUNW, EMC, AAPL, and AOL all reporting.  This high profile earnings
slate could very well move the markets in a big way, giving us
option traders those high percentage trades.  On top of those
Wednesday reports, the CPI is due out.  It should be a fantastic
week for trading.  As for the market, it looks as if volatility
will reign as king, as the NASDAQ tries to find direction.  While
we might not be entirely back yet, we do know that the process has
begun and now we must weather that final storm.  Good luck this
week as it should be an exciting one!

See you at the Seminar in a couple of weeks!

Matt Russ

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Trading As A Business
By Austin Passamonte

It is my great privilege to share space within OIN here together
with all my fellow trading peers. I sure hope no one has the
mistaken impression that I am some mystical trading "guru" who can
do no wrong. Wendy will be more than happy to straighten you out
on that one.

I have managed to survive shark-infested rough waters of the
natural learning curve to become a successful trader. By
successful I define that as able to subsist on trading income
alone while enjoying a lifestyle at or above a level prior to
trading "full time."

It's an incredible lifestyle for those who love the game like I do
and a fantasy come true, but certainly not without a price.

Trading successfully over the long-term is not the most difficult
things I've ever attempted but it certainly ranks right up there.

Not because it's physically strenuous: I've never made such money
sitting on my butt. The only thing that hurts on my body these
days are the three fingers I type with. But that the other seven
knew enough to join in.

Not because it's mentally strenuous: there are some incredibly
simple strategies to trading options that can make anyone rich
over time. Buy & hold LEAPs and covered-calls are two that come to
mind. Pick markets bottoms like we might be near now, scale into
your positions (cost-average) and let time take over. Simple as

Trading is emotionally strenuous. It will tax every fiber in your
spiritual-being to succeed in this venture, make no mistake!

It literally sickens me to open my snail-mail and read those
"secret method" hype offers to instant wealth by trading. I know
this rubbish will reach masses of innocent targets who'll pour
hard-earned money they cannot afford to lose into these
"programs", suffering pain beyond description.

I was one of those victims for years. Bought every over-priced
method that came down the pike. This gave me just enough info to
be dangerous.

Every now & then, market conditions will favor neophytes and
ignorant efforts will return massive rewards. That's what happened
to me trading futures over a decade ago. I got started when meats
& grains were making big moves and I caught a couple of them by

My trading account swelled just the same. Markets don't care who
you are or what you know. They only care which way you placed your
bet today. And again tomorrow.

There were some ugly lessons waiting for me down the road after
that but I was hooked. I hold fast to one truth in life above all
else; if one person can succeed at something - anyone can. The
fact that I made money once meant it could be done repeatedly once
I learned how.

Therein lies the problem; too few people are willing to commit
themselves to success in any venture or pursuit. This is why the
failure rate is so huge for any endeavor humans attempt. New
Year's resolutions are a prime example, wouldn't you agree?

Think about all the stock and option traders just getting started
since October 1998. How painful was the learning curve from then
until February 2000? Not very. Matter of fact, just about everyone
who tried their hand bought calls on any four-symbol contract and
won. Many of them won big... really big!

Can't argue with success, now can we? These instant success
stories are living proof that option trading is really an easy
game. Just wait for the markets to pull back and buy dips on all
our favorite targets. Massive wealth was proof enough this worked.

That was pretty hard to dispute up until two weeks after Ralph
Acampora (remember him?) called for the NASDAQ to hit 6,000+. Then
POOF! Away went much, most, all or more than those mega-riches
made during the great bull-run. Accounts that grew 1,000s of
percent higher in months and years literally evaporated in weeks,
days and even hours in some cases. Ouch!

What does this tell us? Is it possible to actually win trading
options? Why of course! Just don't expect instant success to fall
in your lap.

At this point I want to congratulate you for reading through so
far with me. Be assured plenty of others clicked away to search
out the next new "hot play" to mindlessly enter tomorrow. They
don't have time for self-education or personal growth. Just give
them the trades and they will win without effort.

I'm here to tell you that won't happen. It is far easier to get in
a winning trade than exit one. It is far easier to sell a small
winner than a small loser. It is far easier to hold a small loser
until it's gigantic than cut that loss short. It is far easier to
blow up a trading account than grow it over time.

You don't have to take my word for any of that; the markets will
teach this to you soon enough. You will learn from our mistakes as
shared here within these forums or you will learn by suffering
real money loss in your own account. One way or the other you will

Enough fear & doom. The upside is you have the chance to succeed
financially in ways you cannot begin to imagine today. Your fiscal
future can explode far beyond your wildest dreams. The markets
will slay you or make you filthy rich regardless of who you are.
The end result is completely up to you.

Success comes at a price but it ain't much to pay, considering.

You need to devote plenty of time and effort studying facets of
this vocation. There's no alternative to becoming an expert within
your chosen approach. That means time carved out of your full
life. Let's face it, we all use our allotted 24 hours each day as
it is. "Free time" is a myth; it doesn't exist. You need to create
free time by sacrificing other things now for massive rewards

You need to invest money now in order to preserve capital and earn
profits later, as with any business. No one ever opened a fast-
food franchise by selling burgers first and paying start-up fees
afterwards. That's not how it works.

You need knowledge. You need to know what is contained within
books, videos, seminars and websites. If what you need can be
gleaned from one website in a short period of time than that's
what you need. If it takes two sites to shorten your learning
curve time-frame, that's what you need. If you must invest $4,000
for an intensive seminar, that's what you need.

Failure will cost much, much more than education. One or two
losing trades will easily pay for a decade of website
subscriptions with knowledge to avoid such disasters inside. You
will pay your dues for expertise; the only question is to whom and
how much. Trust me, countless market pros will welcome you into
their lair betting against their vastly-superior knowledge,
experience and ability. Best of luck surviving the school of hard

You will need to be flexible, humble and open-minded. What worked
so well in the past won't last forever. Playing straight calls for
earnings runs will not work forever. A time will come when puts
are better. Credit spreads and other strategies have their place
in your approach as well.

A one-trick pony will starve to death over time in our world.

You need to realize we exist in a different world. Let me share
with you an example of what I mean.

The Thursday prior to June's Friday expiration I was seated for
dinner in a nice Italian restaurant with Wendy. She was chatting
away about Lord knows what while I silently fumed to myself over
SPX credit spreads expiring worthless for $4,800 that day. My
whole meal was just a blur while this insignificant loss ate at

Then I watched our waitress. A young girl with plenty of hustle,
she expertly managed several busy tables without neglect and kept
a permanent smile on her face. And for what? Minimum wage plus

Yes, I lost $4,800 that day but made $8,200 Monday prior and was
still up overall. Up more money for staring at some squiggly lines
on charts and punching a few keys on my computer, nothing more.
How long & hard did she have to work for the same profits I
dismissed in my week?

I instantly felt like a heel, sitting there feeling sorry for
myself when I have everything in the world to be grateful about.
Our bill came to $24 and I threw a $50 on the tab and told our
waitress to keep the change. You'd thought she won the lottery by
the look on her face. Did I do this because I'm rich? Not hardly.
The lesson she taught me by her simple actions was worth far more
than the tip I left.

Folks, we play in a big-money world. We need to prepare our minds
to make and lose sums of money most people could not stomach. We
must learn to keep more than we lose in order to last the game
over time. That takes massive investment of time, money and
personal growth. Failure to do any of those will not achieve the
results we seek.

I've received countless letters from fellow OIN and IS peers in my
short time here but none that I value more than this. As follows:

Austin - I want to say thanks for your comments on finding our
way to success in option trading. I am forty years old, never
finished high school but through hard work and perseverance I have
built a business that now provides a six figure income. My wife
has the degree in the family but says the reason I am successful
in my endeavors is my drive to "figure things out". my one fault
is I always try to do it by myself. I started my trading several
years ago and promptly lost it all. I tried it again and lost it
all again. All this did was make me want to figure it out even

About this time I found OIN. My wife was amused that I was
actually looking for help. I started paper trading based on what I
was learning and it started to click. Three to four nights a week
I was going to bed at 3 to 4 in the morning. Three months ago I
started a new account with six thousand, it now stands at twelve.
It was done trading only the OEX on thirty min charts. I know that
ain't much but I'm "darn" proud of it and I credit OIN and you in

This has been the hardest but most exciting endeavor I have ever
undertaken. What have I learned? Find one strategy and stick to
it. And just like the words you used that brought this weird salty
discharge to my eyes, You gotta try before you can be bad. You
gotta be bad before you can be good. I'll stop there because
that's where I THINK I'm at. I hope you get to read this - it was
typed with one finger. keep up the good work. There are a lot of
us out here that you may never meet that are very thankful for
what you are doing. Thanks, J

Well J, that pretty-much describes myself and most others as well.
You have just shared with us the formula for success and we thank
you for it.

The only thing I disagree on is the credit you give me for this
process. I can tell you for sure that without Jim Brown and OIN I
would have washed out of option trading last spring. Would have
never survived the extreme volatility of March & April let alone
profited from it and that's a fact. I would have no forum and
wouldn't be here without my inadvertent discovery of OIN either.

I consider you all teammates of mine in our quest to harvest our
fair share (or more) of profits from the sea of money that flows
by us at warp speed each & every day.

If you haven't already done so, prepare yourself for the journey
of your life and financial welfare of your children's children's
children. See you in the winner's circle soon!

Contact Support

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CRA - Celera Genomics $63.63 -2.81 (-2.81 this week)

Celera was formed to usher in the digital age of medical science
through the development, analysis, and interpretation of genomic,
proteomic, and related biological and medical information.  By
combining its definitive information with proprietary
technologies in computer science, software, mathematical
algorithms, and molecular biology, Celera will help to accelerate
the drug discovery process, elucidate pathways of disease, and
transform molecular diagnostics and therapeutics into practices
that have a more personal and direct impact on our lives.

Most Recent Write-Up

It's been a highly profitable week for our put play.  Investors
have been eschewing the higher risk Biotech stocks for safe haven
Pharmaceutical issues, trading in blockbuster potential for a
slow and steady proven track record.  As the fate of the NASDAQ
depends largely on the direction of the Semiconductors and
Biotechs, it's no wonder the Tech index continued lower for most
of the week.  While earnings reports from old school Biotechs DNA
and BGEN last week were able to meet or barely beat Street
estimates, analysts have been sending mixed signals, with high
expectations for the sector, yet expressing disappointment in
revenue growth from the reports.  The reason for buying at the
moment, according to analysts, appears to be based on valuation.
But just because a stock or sector has fallen sharply does not
mean it will not fall even more.  Merrill Lynch's Biotech HOLDR
(BBH), a basket of leading Biotech stocks, fell below its 200-dma
last week, reflecting the negative sentiment in the sector.  CRA
has been well below that point for quite some time now and while
Friday's gain of $3.06 or 4.84% was a step in the right direction
(at least as far as shareholders are concerned), the lower than
average volume on the move lacked conviction.  As well, CRA has
been unable to close above its 5-dma, now at $66.50, since
September.  With strong resistance at $70 and intra-day
resistance just above $67, a failure to rally above these levels
could be a signal for aggressive traders to take a position.
Conservative traders who want to make sure the technicals are
weak will be watching for a break below $62 backed by strong
selling volume before entering.


With a mixed day for stocks, CRA was both up and down today.  The
stock actually moved higher in the morning, but by closing time
sellers hammered the stock.  Strong volume came in during the final
hour to take CRA down by over $4.  We are looking for this negative
momentum to continue tomorrow.  Look for entries on a break below
support at $62.50.  More aggressively, look for a rollover on
bounces to resistance at $66, $67, and then $68.

BUY PUT NOV-70 CRA-WN OI= 54 at $12.63 SL=10.00
BUY PUT NOV-65*CRA-WM OI=111 at $ 9.13 SL= 6.75
BUY PUT NOV-60 CRA-WL OI=  0 at $ 6.63 SL= 4.75  Wait for OI

Average Daily Volume = 1.17 mln

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