The Option Investor Newsletter Sunday 10-29-2000 Copyright 2000, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/102900_1.asp Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 10-27 WE 10-20 WE 10-13 WE 10-6 DOW 10590.62 +364.03 10226.59 + 34.41 10192.18 -404.36 - 54.38 Nasdaq 3278.36 -204.78 3483.14 +166.37 3316.77 - 44.27 -311.78 S&P-100 726.18 - 11.98 738.16 + 9.15 729.01 - 21.96 - 8.86 S&P-500 1379.58 - 17.35 1396.93 + 22.76 1374.17 - 34.82 - 27.52 W5000 12860.60 -196.80 13057.40 +253.90 12803.50 -338.60 -471.30 RUT 479.85 - 7.60 487.45 + 7.06 480.39 - 10.63 - 30.35 TRAN 2528.97 + 59.90 2469.07 + 38.89 2430.18 -113.47 + 22.01 VIX 30.15 + 2.73 27.42 - 3.56 30.98 + 5.31 + 1.82 Put/Call .59 .50 .76 .75 ****************************************************************** Everyone Take A Deep Breath The week is finally over. And what a week it was. After CNBC convinced the world that the entire future of the NASDAQ was hinged upon one particular fiber-optic company's earnings, it's nice to just have the event in the past. All eyes were on JDSU and fortunately they didn't disappoint. So what should we make of Friday's market action? Well, putting in a bottom is a process, not an event, and Friday was just another trading day. Traders sorted through earnings and economic numbers as the INDU soared with strong confirmation and the NASDAQ just tried to stay in the green. During the course of the week, the NASDAQ tested the 3520 area twice, establishing a double-top, and then went for a retest of the recent lows. The low this week: 3081. A higher low I might add. This will be an essential level going forward. I don't think anyone will complain if we never see 3081 again, but a break below this level in the near future will be reason for concern. When the NASDAQ hit this level on Thursday ahead of the JDSU earnings after the bell, it performed a miraculous rally that could only be orchestrated by...none other than Dick Arms. Yes, it must be true as Bob Pisani broke the news on CNBC. I actually got a chance to speak to Dick Arms, creator of the ARMS Index and the Equivolume model, this weekend at our Advanced Option Seminar in Denver. "So Mr. Arms, how did you create such a forceful rally?" He was a pleasure to speak with and he chuckled about the sensationalism of it all. What really happened was Mr. Arms advised some of his institutional clientele that his technical analysis said "buy," but not bet the farm. Well, Pisani got wind of that from one of the institutional clients, broke that story and bang! We got ourselves a 180 point rally! Amazing how information and the market work. More importantly, how investors filter information through their minds. But that was Thursday. On Friday, the NASDAQ looked like it just might rally after JDSU's better-than-expected earnings, but it sold off throughout the morning. Yet, it did manage to mount an intraday uptrend before stumbling to the close. Even though the NASDAQ didn't rally hundreds of points on the comfort of JDSU, it did close up 6.18 points to 3276. In fact, a move like this is more welcomed since it indicates an element of consolidation. Especially considering volume was a robust 2 mln shares. Just another leg in the bottoming process. We are now almost out of the notorious month of October and the tax-loss selling that comes along with it. So that's positive number one. Positive number two is that we have, hopefully, endured the most difficult times of the bottoming process. Looking overhead, resistance near the 3520 area will be the breakout point where I'll back up the truck. Until then, we should still see volatile trading as investors determine which stocks will be given the honor of high valuations after this recent shakeout. How about CMTN at $10.75? The VIX.X closed the week at 30.15 as fear lingers in those option premiums. The INDU had a very strong day on Friday with a 210 point gain, further extending its rebound from the sub-10000 levels. Friday's trading activity was a breakout from resistance around 10430, which continued to strengthen throughout the week. The next level of resistance will be 10600, previous support on the way down to 10000. It would be likely that the INDU retraces to test the breakout point of 10430. Leading the INDU was JPM(+12.81). Financials rallied after the GDP data released Friday morning pointed toward a cooling economy with a 2.7% annual growth rate for the 3rd quarter. This is the slowest pace since April 1999. It was expected that this headline number would be lower given that 3rd quarter earnings reports from S&P 500 companies have reflected a slowdown in revenues and profits. Yet, most economists expected a GDP growth rate in the range of 3% and 3.5%. Probably more important to the markets, and Greenspan, was the GDP Deflator. This key measure of inflation tied to the GDP rose at an annual rate of 2.2% in the 3rd quarter, versus 2.1% in the previous quarter. With clear signs of slower growth, it's unlikely that the Fed will move on interest rates at their upcoming November 15th meeting. Helping the INDU was MSFT's breakout over $65. Finally coming back to life after better-than-expected earnings on the 18th, investors find themselves once again looking at the old favorite. Even in the face of a hacker attack on the software giant on Friday, MSFT climbed 5% to close at $67.69. While it is still unclear what intellectual property is at stake here, the company assured investors that the stolen codes are not related to the flagship Windows operating system, or the Office suite. Yet, security experts think that there may be more to this industrial espionage that MSFT isn't speaking about. Namely, the company's recently announced .Net software. Experts expect that any stolen source codes will either show up on the Internet or be sold off to the highest bidder, probably overseas. MSFT officials are still investigating how such a high-profile security breach could have happened. Looking eagerly ahead to November, the economic calendar is full with Personal Consumption Expenditures(PCE) and Personal Income on Monday. Non-Farm Payrolls and the Unemployment numbers will follow on Thursday and Friday, respectively. Earnings are winding down next week, highlighted by PG on Tuesday and QCOM on Thursday. Once again, traders will be watching for 4th quarter guidance. Global concerns with the Euro continue to linger and traders will be watching to see the next move by the ECB. With the bottoming process in full swing, the NASDAQ will be in a volatile consolidating mode. If we take out Thursday's low of 3081, watch out. Otherwise, buying the dips can provide profitable opportunities as we have seen many high fliers bounce 30 or 40 points. It was nice meeting some of you this weekend at the Seminar and I wish you continued good luck. Matt Russ Editor ******************** FREE LUNCH IN PHILADELPHIA NOVEMBER-8TH ********************* OptionInvestor.com, Preferred Trade and E-Signal will hold a FREE seminar complete with handouts, freebies, door prizes and over six hours of solid information which can improve your trading results. Lightning trades, real time quotes, the best option strategies and a FREE BREAKFAST and LUNCH! How can you go wrong? It is free but you have to register so we can order food. http://www.OptionInvestor.com/seminar/free ************************Advertisement************************* 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=779 ************************************************************** **************** MARKET SENTIMENT **************** The Eternal Question By Austin Passamonte No we don't mean why are you here; the question we're referring to is, "Do we have a bottom in place?" Our honest answer at this point would be yes and no. Yes is the answer for "is the worst behind us"? First let's define worst. The recent intraday low set two Wednesday's ago should hold any retest and failure to do so will find strong arms not far below. That means we are closer to the bottom than top. Most of the pain from recent highs on September 1st until now has been endured, absorbed and survived. That being said, Market Sentiment is pretty sure a retest will unfold and it will happen soon if this is the case. Analysts and people on the street are all polarized in opinion and plenty of facts could bolster either case. Here's our unbiased view of the highest probability. First of all, these markets remain quite weak and need to stabilize before launching forward with follow through. If the Dow didn't have several key components exhibiting strength each day we would be at much lower market levels across the board right now. It single-handedly is keeping a finger in the dike to staunch unabashed selling. NASDAQ charts are very weak and turning more bearish by the minute. This of course is subject to change, but daily stochastic and MACD values have stalled near 80% overbought zones and have begun to roll over. In addition to weak charts signals, two other big-money factors have us on alert. A huge block trade of 17,000+ QQQ Nov 81 Calls were in the market by someone betting $6+ million in collected premium we will see lower prices before higher. It takes solid information to move money like that into risk. Another player purchased 950 S&P 500 1350 puts @ 14.5 on Friday for a multi-million $$ wager as well. Should we heed this action or trade against it? Friday's latest COT report shows S&P 500 commercial traders still holding 10-year extreme net short positions in the futures arena. The small spec players have added greatly to their net-longs while the big boys haven't backed off a bit. We've been talking about this for months now and many type-A traders long ago dismissed its significance. Big mistake. These traders are the giants in our game and they push the pile. Apparently they feel odds are highest we will see lower prices yet and we refuse to bet against them, ever! Their track record is extremely good and one only need to look back at October 1997 and 1998 for a refresher. These were the last two times they sat nearly this net-short, and one look at a weekly chart of any index will tell you where the market was when they covered in early November each time. They are short to a greater degree now than either of those times. What are they waiting for? Lower prices. When will they cover and switch to the accumulation phase? When they feel a bottom is in place and not a moment sooner. Neither should we. Yes, all our raging bulls are pawing the ground and raring to go but what will that get you? Try to hold calls too soon for too long and the starting gate in front of you will turn to a squeeze chute into the burger factory. It's our opinion the highest-percentage likelihood is for the major indexes to sell down at least once more before our next really significant rally, which should be considered a strong buy opportunity for bullish strategies of all types Get ready for another profitable week of trading opportunity and please be prepared to buy calls or puts with equal aplomb. ***** VIX Friday 10/27 close; 30.91 30-yr Bonds Friday 10/27 close; 5.74% Support/Resistance Indicator The Index Support/Resistance(S/R)Ratio is a formula used to gauge possible support or resistance based on open-interest disparity. Ratio listed is percentage of calls to puts or puts to calls respectively. Support is factored from dividing puts by calls at strike levels beneath index closing price. Resistance is factored from dividing calls by puts at strike levels above current closing price. (Saturday 10/28) (Open Interest) Calls Puts Ratio S&P 100 Index (OEX) Resistance: 765 - 750 8,304 4,478 1.85 745 - 730 11,601 7,031 1.65 OEX close: 726.18 Support: 720 - 705 2,698 8,789 3.26 700 - 685 189 6,728 35.60*** Maximum calls: 740/5,891 Maximum puts : 720/4,306 Moving Averages 10 DMA 725 20 DMA 734 50 DMA 774 200 DMA 778 NASDAQ 100 Index (NDX/QQQ) Resistance: 88 - 86 19,597 17,121 1.14 85 - 83 28,273 40,899 .69 82 - 80 40,970 24,851 1.65 QQQ(NDX)close: 79.90 Support: 78 - 76 9,928 32,334 3.26 75 - 73 4,921 43,123 8.76 72 - 70 1,643 21,919 13.34*** Maximum calls: 80/14,975 Maximum puts: 73/23,849 Moving Averages 10 DMA 81 20 DMA 81 50 DMA 89 200 DMA 94 S&P 500 (SPX) Resistance: 1450 10,479 8,674 1.21 1425 9,449 10,880 .87 1400 25,833 23,353 1.11 SPX close: 1379.58 Support: 1350 8,335 22,671 2.72 1325 1,998 10,193 5.10 1300 1,213 16,737 13.80*** Maximum calls: 1400/25,833 Maximum puts : 1400/23,353 Moving Averages 10 DMA 1375 20 DMA 1387 50 DMA 1443 200 DMA 1442 ***** CBOT Commitment Of Traders Report: Friday 10/27 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts on the Chicago Board Of Trade. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs are not. Extreme divergence between each signals a possible market turn in favor of the commercial trader's direction. Small Specs Commercials DJIA futures Open Interest Net Value +89 -483 Total Open Interest % (1.07% net-long) (2.34% net-short) NASDAQ 100 Open Interest Net Value -262 +85 Total Open Interest % (1.48 net-short) (.21% net-long) S&P 500 Open Interest Net Value +57,031 -66,429 Total Open Interest % (31.05% net-long) (10.72% net-short) What COT Data Tells Us: Commercial positions in S&P 500 have held their ten-year extreme short levels while small specs increased their net-long positions as compiled Tuesday 10/24 by the CFTC. Friday's data should give a clearer picture to Commercials either covering some profitable shorts or holding fast into next week. Bullish: Fed's finished Benign government reports Oversold market levels Disparity in overhead call/put ratios VIX above 30 Certain market leaders(MSFT,JDSU) showing strength Bearish: Oil Prices COT reports Recent pre-warnings, downgrades and shortfalls Broad market's break of critical M/A support Market leaders breakdown Daily technical chart indicators ************************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=811 ************************************************************** ************** MARKET POSTURE ************** As of Market Close - Sunday, 10/29/2000 Key Benchmarks Broad Market Last Support/Resistance Alert **************************************************************** DOW Industrials 10,590 10,000 10,600 SPX S&P 500 1,379 1,305 1,420 COMPX NASD Composite 3,278 3,000 3,550 OEX S&P 100 726 700 750 RUT Russell 2000 479 455 500 NDX NASD 100 3,175 2,950 3,550 MSH High Tech 896 835 975 BTK Biotech 710 640 780 XCI Hardware 1,231 1,130 1,310 GSO.X Software 409 360 440 SOX Semiconductor 685 600 805 NWX Networking 982 925 1,180 INX Internet 336 275 370 BIX Banking 568 525 575 XBD Brokerage 596 550 625 IUX Insurance 782 720 805 RLX Retail 740 715 775 DRG Drug 421 395 440 HCX Healthcare 873 840 900 XAL Airline 138 124 140 OIX Oil & Gas 298 296 320 No alerts were triggered on Friday, indicating a trading range is beginning to develop. Raising support (DOW, MSH, XCI, BIX,). Lowering resistance (COMPX, MSH, INX, XBD, OIX). We're starting to see some strength from select indexes and sectors, but there has been a tendency for the first test of resistance to be met with selling. Be patient, but not complacent. ********************************Advertisement******************** American Express. Cardmembers are buying online Find out more! http://www.sungrp.com/tracking.asp?campaignid=826 ***************************************************************** *************** ASK THE ANALYST *************** Has The Tech Sector Come Asunder? By Eric Utley What ever happened to the New Economy dream? You know the one, with endlessly rising market caps and infinite earnings growth for the likes of Cisco, Nortel, and JDS Uniphase. A week ago, I wrote of the market bottom characteristics the NASDAQ had displayed. Last week's action in the broader markets seemed to refute my claims. Moreover, several readers chimed in to say I was, well, quite wrong about the NASDAQ's behavior two week's ago. This upcoming week is sure to reveal more about whether or not the market has actually reached a bottom. As my colleagues continue to remind me, putting in a bottom is a process. My discussion with Dick Arms at the Denver Advanced Options Seminar over the weekend kept a glimmer of, dare I say, hope alive in that the markets have seen the worst. Mr. Arms explained that he felt the bottom was in place judging by the climatic selling he witnessed last Thursday. I hope he's right! Please send any stock request or general questions to Contact Support. As always, please put the symbol of your stock requests in the subject line of the e-mail ---------------------------- General Electric - GE Could you please give your long-term outlook on GE. It is down around its 200 day MA and looks to have good support in the low 50's. Could this be a good long-term entry point? - Thanks, Jeff General Electric is one of the most widely held and diverse public corporations in the world. GE's stock is considered a bellwether for the broader financial markets because of the company's diverse operations. And, its operations became a little more diverse last week with the acquisition of Honeywell. GE is expected to grow earnings by a 15% clip over the next several years, which is a little better than the average for the S&P 500 (13%). GE's earnings growth should actually be a little higher given the Honeywell acquisition should add 10 cents in profits next year. You mentioned that shares of General Electric are trading down around the 200-dma, Jeff, which is a rare event indeed. The current level of GE's stock could present a compelling buying opportunity for the long-term investor. GE's stock fell victim to the typical acquisition arbitrage selling last week, which pushed shares below the 200-dma. To put into perspective, shares of GE have traded below the 200-dma, for a sustained period of time, only once in the past two years. With that said, GE is probably a pretty good buy at current levels. ---------------------------- Aether Systems - AETH I've been watching AETH for quite some time - after its recent rebound and the fact that earnings are coming out shortly, could this be a momentum play depending on the market? - Thanks for your thoughts and insights, Mike You bring up an excellent point, Mike, in that the market is likely to dictate the future direction of Aether. The company is especially vulnerable due to its lack of earnings. The third- quarter earnings report you referred to, Mike, revealed that Aether's losses continue to mount. However, the company did report a 1000% increase in sales over its third-quarter in 1999. With those kind of numbers there's no denying the fact that Aether is growing by leaps and bounds. What's more, the company's recent acquisitions have positioned Aether to capitalize on government contracts for wireless applications. Although Aether's prospects appear promising, the lack of an E in the P/E ratio could continue to hinder the stock, especially if the Tech sector continues to stumble. Aether's stock has drastically fallen from its loftly $300 levels seen back in the spring, like nearly every other high-flying new economy name. The stock did spike up about two weeks ago, but has since fallen back to its descending ways. Moreover, volume continues to remain robust during the stock's slide. We can conclude the institutions have been selling the stock. And, it's extremely difficult to trade against the prevailing downtrend, unless, of course, you're shorting the stock. Until the wireless sector, and the broader Tech sector, stabilize it might be prudent to sit on the sidelines and wait for a better buying opportunity. For now, I don't see any upside momentum in shares of Aether. However, that can change quickly. Monitor the action in telecom equipment leaders such as Redback, Juniper, and Cisco for upward momentum in gaming Aether. ---------------------------- ImmunoGen - IMGN A good stock - nice looking chart with fantastic products under development in stage two trials - any hope that these products will be on the market soon - what do you think of the technicals? - Thanks for your considered opinions, Richard The technicals for ImmunoGen look great, Richard. The stock broke out from its seven-month base in early September, and hasn't looked back since. ImmunoGen's recent outperformance is a reflection of the viability of the company's cancer-fighting products. ImmunoGen is creating a cancerous cell-killing antibody, which has had promising results thus far. The company has collaborated with biotech heavyweights Genentech and Abgenix in an attempt to roll out its tumor-activated prodrug technology. The introduction of the aforementioned should continue to bring in revenues in the form of licensing agreements. Although ImmunoGen's cancer fighting products have yet to receive regulatory approval, many analyst agree the FDA will give the company the go-ahead because of the promising clinical trials thus far. The fact that IMGN will reach profitability before any of its products have been approved bodes very well for its stock. The company is expected to earn 25 cents per share next year; over 100% earnings growth. ImmunoGen's stock is up by over 1000% in the last year alone. Such an incredible run will inevitably bring the bears' argument of valuation concerns into the forefront. However, if the valuation concerns don't arise in this fickle market, shares could keep on climbing. The stock has recently stalled around the $35 level, which may prove to be the next base to propel IMGN higher. Volume has been on the rise since early September, when ImmunoGen received favorable comments from several brokerages. Noting the increase in volume and share price, it's safe to say institutions have been accumulating the stock with fervor. With that said, there are a lot of big players in IMGN ready to defend the stock around the $25 to $30 levels. ---------------------------- Harmonic - HLIT Please evaluate HLIT. It seems like the stock has finished descending, at least for now. Time for leaps? Two earnings warnings killed the stock and I'm wondering if there is any hope this one will ever come back? Please comment on the gap from $15 to $23. - Thanks, Brian Harmonic is engaged in the broadband business. The company is a provider of technologies that enable communications providers to deliver voice, video, and data to customers. Harmonic provides three distinct services to communications providers, which include data products, digital video, and optical networking services. The company did have an enviable earnings growth rate for the past couple of years until the warnings surfaced, which you alluded to, Brian. The most recent warning came to light in early October, when Harmonic warned of a loss from third-quarter operations. Analysts had been expecting the company to earn 12 cents per share for its third-quarter. The company reported a 8 cent loss last week, which was blamed on a slowdown in its Broadband Access Networks (BAN) division. Harmonic's losses are a reflection of the slowdown in capital spending by the likes of AT&T, among other major telecom carriers. What's even more disconcerting is the fact that several other broadband cable equipment makers have warned of slower earnings and sales growth for the next several quarters. The huge gap down, which you referred to, Brian, was a result of Harmonic's earnings warning in early October. Judging by the volume that accompanied the plunge in price, it's safe to say a lot of longs jumped ship along with several shorts entering new positions. Although shares of Harmonic have stabilized around the $10 level, the chart still looks pretty ugly. I don't like the stock's overwhelming downtrend, which has lasted for since early March. Buying leaps down here at such low levels might provide a good long-term trade if Harmonic shares ever recover. However, as I've stated before, I don't like bottom fishing. If Harmonic's business doesn't improve very soon, the stock could head a lot lower. Judging by the stock's historical levels, as noted on the weekly chart below, shares of Harmonic could continue falling towards the $5 area. To make it clear, Harmonic's earnings are contracting, which makes it hard to justify owning the stock. ---------------------------- DISCLAIMER: This column is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The Ask the Analyst picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable, but is not guaranteed as to its accuracy. ************* COMING EVENTS ************* For the week of October 30, 2000 Monday ====== Personal Income Sep Forecast: 0.60% Previous: 0.40% PCE Sep Forecast: 0.60% Previous: 0.60% Tuesday ======= New Home Sales Sep Forecast: 900K Previous: 893K Chicago PMI Oct Forecast: 51.00% Previous: 51.40% Consumer Confidence Oct Forecast: 140 Previous: 141.9 Wednesday ========= Auto Sales Oct Forecast: 6.8M Previous: 6.8M Truck Sales Oct Forecast: 7.9M Previous: 8.0M NAPM Index Oct Forecast: 49.50% Previous: 49.90% Construction Spending Sep Forecast: 0.50% Previous: 1.40% Fed Beige Book --- Forecast: --- Previous: --- Thursday ======== Productivity Q3 Forecast: 3.50% Previous: 5.70% Initial Claims 28-Oct Forecast: 305K Previous: 305K Leading Indicators Sep Forecast: 0.00% Previous: -0.10% Friday ====== Nonfarm Payrolls Oct Forecast: 190K Previous: 252K Unemployment Rate Oct Forecast: 4.00% Previous: 3.90% Hourly Earnings Oct Forecast: 0.30% Previous: 0.20% Average Workweek Oct Forecast: 34.4 Previous: 34.4 Factory Orders Sep Forecast: 0.40% Previous: 2.00% NAPM Services Oct Forecast: 61.00% Previous: 62.00% Week of November 6th ==================== 7-Nov Consumer Credit 8-Nov Export Prices ex-ag. 8-Nov Import Prices ex-oil 8-Nov Wholesale Inventories 9-Nov PPI 9-Nov Core PPI 9-Nov Initial Claims 10-Nov Michigan Sentiment ************************Advertisement************************* Tired of waiting on trades to execute? 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The Option Investor Newsletter Sunday 10-29-2000 Sunday 2 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/102900_2.asp ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.sungrp.com/tracking.asp?campaignid=780 ************************************************************** ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* MSFT - Microsoft Corp $67.68 (+2.50 last week) See details in sector list Put Play of the Day: ******************** PVN - Providian Financial $94.56 (-8.50 last week) See details in sector list ************************Advertisement************************* Attention Online Traders: NobleTrading.com has become the first online trading firm to offer both Direct Access Trading, and web based trading to its customers. Trade Direct using any ECN, SOES, and SelectNet, or trade right through your browser using our web based trading application. FREE DSL service for active traders. Visit our website and sign up for a Free real-time demonstration! http://www.sungrp.com/tracking.asp?campaignid=812 ************************************************************** ************* DAILY RESULTS ************* Index Last Week Dow 10590.62 153.53 Nasdaq 3278.36 -204.78 $OEX 726.18 -11.98 $SPX 1379.58 -17.38 $RUT 479.85 -7.60 $TRAN 2528.97 22.83 $VIX 30.91 3.49 Calls ADBE 74.81 4.78 New, continues to buck weakness in Tech MSFT 67.69 2.50 Institutions stepping in and buying LEH 62.00 -0.75 New, light shining in Financial shares IDPH 184.88 -5.38 Dropped, sentiment in Biotech shifting HAND 79.00 -10.31 Dropped, collapsed in last half-hour EMC 88.81 -11.19 Back on the right side of the 50-dma BRCM 227.06 -15.13 Upcoming addition to the NASDAQ 100 RIMM 99.94 -17.44 Dragged down by weak Canadian Tech NTAP 123.00 -25.63 Stability at the $120 and $125 levels BRCD 226.50 -25.94 Buyers stepped in and scooped up shares CIEN 104.38 -45.13 Dropped, bruised fiber optics JNPR 181.00 -51.00 All over the map last week Puts DGX 90.50 -22.44 New, sell the earnings news VTSS 63.50 -13.38 Dropped, the one that got away SNDK 52.13 -9.88 New, lawsuit keeping shares down PVN 94.56 -8.50 Investors listened to the downgrade TIBX 64.94 -5.13 Path of least resistance is downward FCEL 70.75 -4.63 Change in sentiment for energy stocks PHCC 50.25 1.88 Profit taking subsided, ready to roll? ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS IDPH $184.88 (-5.37) It appears now that sentiment in the Biotech sector has turned for the negative. On Thursday, Biotech giant Amgen posted its third-quarter earnings. While the report was good, it guided analysts lower for the coming year on its blockbuster drug Epogen. Along with this, Gilead Sciences also posted earnings, missing Street estimates, resulting in a rout in Biotech issues on Friday. The first signs of a rollover in IDPH's chart are already apparent, with resistance from the 5 and now 10-dma. For candlestick analysts, the failed hammer reversal is not a good sign. Along with the Amex Biotech Index, now below the 50-dma, and the Merrill Lynch Biotech HOLDR perched precipitously on its 200-dma, we are no longer recommending this play. CIEN $104.38 (-45.13) The sizzling earnings report from JDS Uniphase provided some relief to the bruised fiber optics on Friday. CIEN opened strong at $112, but failed to rally much higher during the session. If you were aggressively target shooting, there were a couple opportunities for an entry off the $100 level; although it was frustrating that CIEN continually bumped into resistance around $110 and the 50-dma line ($112.87). Due to the recent freefall within the sector and more importantly, CIEN's inability to recover with any real spunk on Friday, we're exiting the play this weekend. The strong momentum that we saw earlier in the month may return as CIEN approaches its own earnings date. HAND $79.00 (-10.31) HAND collapsed in the last half-hour of trading on Friday. The stock came out of the gate with a bang and quickly tagged $98.94, just missing the 52-week record high by a fraction. It then settled in for rather flat day of trading at the $88 and $90 levels. Then with no warning, HAND started to sink fast on accelerating volume. On the day, the stock lost 17%, or $16.47. Volume in these devastating 30 minutes reached 250 K, or about 25% of the ADV! Since there was no bad news or other earth-shattering event to explain the crash, it's possible that an institutional seller was taking profits. While it was fun to trade the recent volatility, it's now time to find other lucrative plays. HAND's sharp backslide and the resurfacing concerns about stock valuations have, without a doubt, killed the play. PUTS VTSS $63.50 (-13.38) We'll have to chalk up VTSS as the one that got away. When we added the play on Tuesday, we were looking for a decline through $66 to trigger new entries. The impact of NT's earnings report was more pronounced throughout the technology sector than we could have guessed, pushing our play below $60 at the open on Wednesday. Although it declined from there, tagging $52.56 on Thursday, most of the potential profit in the trade was lost to the opening gap. The late day recovery on Thursday continued into the open this morning and VTSS rallied to tag $67.50 before fear of darkness set in, pulling the stock down a bit at the end of the day. Both this high and the close for the day were above 5-dma ($64), and with VTSS holding above its opening price at the close, it looks like we have seen the bottom. Weakness on Monday should be used as an opportunity to close out any positions that were initiated on today's afternoon weakness, as it looks like the bulls may have control of the stock going forward. *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************** NEW CALL PLAYS ************** ADBE - Adobe Systems $74.81 (+4.78 last week, split adjusted) A long-time leader in desktop publishing software, ADBE provides graphic design, publishing, and imaging software for Web and print production. Offering a line of application software products for creating, distributing, and managing information of all types, the company generates nearly 75% of sales through publishing software products such as Photoshop, Illustrator, and PageMaker. Its Acrobat Reader, which uses portable document format (PDF) is popping up all over the Internet, as businesses shift from print to digital Communications. Adobe, it's not just about Photoshop anymore. Many software companies have made their name on just one or two "killer apps", only to rest on their laurels and wake up one day to find themselves with declining market share and an aging product, but not so with ADBE. While still catering to the high-end graphic design crowd with products such as Illustrator and PageMaker, they have been quietly positioning themselves to take advantage of future trends in information technology. The key to their strategy is the PDF format, a multi-platform standard that was designed originally so that desktop publishers could transport their documents from one computer system to another, while preserving all aspects of the original file. The PDF format has since become a highly popular choice for scaleable web-based document transport. More than that, ADBE has started licensing its PDF technology, as Apple Computers' next-generation operating system, Mac OS X, will base their Quartz graphics-rendering engine on the PDF format. This week, ADBE announced that it would integrate PDF technology into its FirePublisher server application to allow support for Palm devices. The idea of Adobe's PDF technology inside any and every web-enabled device is an exciting prospect indeed, which likely helped the company survive this week's onslaught on Tech stocks. ADBE was able to successfully test its 100-dma support, now at $66.09 and is now above all its major moving averages. In fact, with the 5, 10 and 50-dmas all sitting in the $69-70 area, support there is strong indeed. Aggressive traders will be watching for a bounce off this area as an ideal entry point while conservative traders will want to see a strong market bringing out the buyers to carry the stock above $75 before initiating a play. On Friday, Merrill Lynch mentioned ADBE in its new technology strategy report as one of the top 10 stocks that are expected to outperform over the next six to twelve months, naming the company as one of the architects of the new "Knowledge Economy". BUY CALL NOV-70 AXX-KN OI= 828 at $8.75 SL=6.00 BUY CALL NOV-75*AXX-KO OI=1477 at $6.00 SL=4.00 BUY CALL NOV-80 AXX-KP OI= 629 at $4.00 SL=2.50 BUY CALL DEC-75 AXX-LO OI= 25 at $9.13 SL=6.25 BUY CALL DEC-80 AXX-LP OI= 19 at $7.13 SL=5.00 Picked on Oct 29th at $74.81 P/E = 61 Change since picked +0.00 52-week high=$85.06 Analysts Ratings 4-7-2-0-0 52-week low =$26.69 Last earnings 09/14 est= 0.52 actual= 0.57 Next earnings N/A est= 0.29 versus= 0.46 Average Daily Volume = 2.01 mln LEH - Lehman Brothers $62.00 (-0.75 last week, split-adjusted) Lehman Brothers is a global investment firm that services high- net-worth institutional investors. They provide a vast array of trading and financing services and are the lead underwriter of global equity and fixed-income securities. The firm is also leading the charge into online bond offerings in the US. They're regionally headquartered in New York, London, and Tokyo. Is that a light shining at the end of the tunnel? The DOW cracked the longer term down trend line and closed above 10500! This technical accomplishment coupled with decent economic data, which may appease the Feds for another month, should bode well for LEH. Recently the company split its stock 2:1 on October 23rd and solid earnings are expected in mid-December. In this week's volatile marketplace, LEH didn't show any signs of post- split depression or weakness. Instead there was lots of activity as it firmed a bottom at the $56 level and pushed its resistance ceiling higher to $64 and $65. With most of the big caps showing signs of recovery and the rocky month of October coming to a close, we're looking for buyers to take this financial stock back to its previous highs. The clean break on Friday through the intersecting 5 and 10 DMAs at $60.11 and $59.82, respectively, is a bullish sign. It's reasonable to consider taking entries on pullbacks to this level. If your style is not to buy on the dips, but instead to buy into strength, then consider target shooting as LEH moves through the upper resistance at $65 and challenges the $70 level. Lehman Brothers received tops honors from the Institutional Investor magazine. The global investment bank's technology research team ranked 2nd in the magazine's survey for equity analysts covering the technology sector. Within the industry, there's a bit of poaching going on amongst the major players. Deutsche Bank announced it lured 13 employees from Lehman last week; meanwhile Lehman snatched one from Goldman Sachs. This is somewhat unusual this time of year because it's a time when bankers and analysts receive their colossal annual bonuses. BUY CALL NOV-55 LEH-KK OI= 70 at $8.75 SL=6.25 BUY CALL NOV-60*LEH-KL OI=409 at $5.38 SL=3.25 BUY CALL NOV-65 LEH-KM OI=923 at $3.00 SL=1.50 BUY CALL DEC-60 LEH-LL OI= 30 at $7.38 SL=5.25 BUY CALL DEC-65 LEH-LM OI= 25 at $2.88 SL=1.50 Picked on Oct 29th at $62.00 P/E = 10 Change since picked +0.00 52-week high=$80.50 Analysts Ratings 4-4-1-0-0 52-week low =$30.31 Last earnings 09/00 est= 2.69 actual= 3.37 Next earnings 12-20 est= 1.44 versus= 2.28 Average Daily Volume = 1.69 mln ********************************Advertisement******************** American Express. Cardmembers are buying online Find out more! http://www.sungrp.com/tracking.asp?campaignid=827 ***************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 10-29-2000 Sunday 3 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/102900_3.asp ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.sungrp.com/tracking.asp?campaignid=781 ************************************************************** ****************** CURRENT CALL PLAYS ****************** MSFT - Microsoft Corp $67.68 (+2.50 last week) Microsoft is the largest and most successful software company traded on the U.S. stock exchanges. They develop, license, manufacture and support many different software products for various client applications. Their best known products include the widely successful Windows 2000 and Windows NT. Their business has three main divisions: sales, marketing and support, and business operations. They also provide financing to their customers. MSFT continued to demonstrate their ability to innovate last week with the introduction of new database software for handheld devices. Microsoft traded over 62 million shares on Friday, which is more than double its average daily volume. In addition, Reuters reported that over 23 million shares were institutional orders. Funds are taking in cash, and Microsoft is once again likely to become a core holding, now that the trial seems to have become a less significant issue. MSFT's P/E was reduced to 37 from the lofty levels it had last January. This is a stock which seems to have everything going for it. On October 18th, Microsoft reported their first fiscal quarter profits rose 18% to $2.5 billion, or 46 cents per share. Their Windows 2000 software is more turned out to be more successful than anticipated, and MSFT actually reduced their operating expenses for the quarter. The company has no debt, and over $24 billion in cash. They have a strong return on equity of over 25%, and a profit margin of over 42%. The market turbulence of this year has left investors and fund managers looking for growth, stability, predictable earnings, and profitability. With a market cap of $340 billion and annual revenues of over $23 billion, MSFT is a fund manager's dream, at a price down almost 40% from its high of the year. Microsoft is now strongly above the 50 DMA of $57.26 and the 10 dma at $59.6. Microsoft opened to the upside, and remained strong throughout the day, stopping to rest after lunch at $66. The stock cleared $68, but couldn't hold and ended closing at $67.6. Traders might wait for a pullback to the support level at $66, or to the 5 dma at $63.38, for a possible entry point. A strong rally above $69 might provide an additional entry point. News sources reported early Friday that computer hackers were able to break into MSFT's systems. CEO Steven Ballmer stated the hackers had not obtained access to any key programs, and that their source codes remained intact. The FBI is investigating the attack. BUY CALL NOV-60 MSQ-KL OI=26202 at $8.50 SL=$6.00 BUY CALL NOV-65*MSQ-KM OI=34387 at $4.75 SL=$2.88 BUY CALL NOV-70 MSQ-KN OI=36802 at $2.06 SL=$1.00 BUY CALL DEC-60 MSQ-LL OI= 549 at $9.63 SL=$6.50 BUY CALL DEC-65 MSQ-LM OI= 2809 at $6.13 SL=$4.00 SELL PUT NOV-65 MSQ-WM OI=11745 at $1.75 SL=$3.50 (see risk of selling puts in play legend) Picked on Oct 26th at $64.44 P/E = 38 Change since picked +3.24 52-week high=$119.94 Analyst Ratings 6-10-2-5-0 52-week low= $ 48.43 Last earnings 10/18 est= 0.40 actual= 0.46 Next earnings 01-18 est= 0.49 actual= 0.47 Average daily volume = 28.6 mln JNPR - Juniper Networks $181.00 (-51.00 last week) As a provider of Internet infrastructure solutions, JNPR serves Internet service providers and other telecommunications service providers, helping them to meet the demands resulting from the rapid growth of the Internet. The company delivers next generation Internet backbone routers that are specifically designed for service provider networks. JNPR's flagship product is the M40 Internet backbone router, which complements the recently-introduced M20, which is a router built specifically for emerging service providers. The routers provided by the company combine the features of the JUNOS Internet Software, high performance ASIC-based packet forwarding technology and Internet-optimized architecture into a purpose-built solution for service providers. A day-trader's delight, JNPR has been all over the map in the past week. It appears that the aftershocks of the NT earnings report are beginning to diminish in the wake of a strong earnings report by JDSU. The entire Optical sector has been whipsawed in recent days, and in the absence of any company-related news, JNPR has just been going along for the ride. And what a wild ride it has been! Unless you were eating antacid tablets like they were candy, this was a tough week to be position trading anything in the Optical group. But for those gun-slinging swing traders, there has been profit galore in our play. There was more than a $40 range between Thursday's low ($159.38) and Friday's high ($201.69) and even with the excessive volatility (and hence increased premiums) there was money to be made in this trade. However, our play is still skating on thin ice. JNPR gave up over $20 on Friday after briefly scaling the $200 price barrier and unless it can hold above its long-term ascending trendline (currently $176) next week, we will have to cut it loose. A strong bounce from this area is buyable but only by those traders that can watch the stock throughout the day. Conservative traders should think twice about entering this play at all, but the more conservative entry strategy will be to look for a solid breakout above the $200 level. If it comes on heavy volume, it will be a good sign that our play is on the mend. The primary news of the week (NT and JDSU earnings) is covered above, but there was a bright spot Friday morning as Banc of America Securities initiated coverage on JNPR with a Buy rating. While this alone won't stem the tide of selling in the sector, it was a good start, and likely a principal catalyst for JNPR's mid-day 20 point rally. BUY CALL NOV-180 JUD-KQ OI= 347 at $21.00 SL=15.75 BUY CALL NOV-185 JUD-KP OI= 613 at $18.50 SL=13.50 BUY CALL NOV-190*JUD-KR OI=2109 at $16.00 SL=11.50 BUY CALL NOV-195 JUD-KS OI= 174 at $14.13 SL=10.50 BUY CALL DEC-195 JUD-LS OI= 57 at $22.50 SL=16.75 SELL PUT NOV-160 JUD-WL OI= 631 at $10.50 SL=14.00 (See risks of selling puts in play legend) Picked on Oct 22nd at $232.00 P/E = 740 Change since picked -51.00 52-week high=$244.50 Analysts Ratings 16-4-0-0-0 52-week low =$ 42.17 Last earnings 10/00 est= 0.09 actual= 0.17 Next earnings 01-11 est= 0.15 versus= 0.01 Average Daily Volume = 9.79 mln RIMM - Research In Motion Ltd. $99.94 (-17.44 last week) Based in Waterloo, Ontario, Canada, Research In Motion Limited is a leading designer, manufacturer and marketer of innovative wireless solutions for the mobile communications market. Through development and integration of hardware, software and services, RIMM provides solutions for seamless access to time-sensitive information including email, messaging, Internet and intranet-based applications. RIMM technology also enables a broad array of third party developers and manufacturers in North America and around the world to enhance their products and services with wireless connectivity. Is this the next wave of the computer revolution? While shares of traditional PC makers such as Apple and Dell have been languishing near their 52-week lows, shares of mobile computing device makers such as Handspring, Palm, and RIMM have flourished. With the trend towards portable net-ready handheld devices, people no longer need to be chained to their beige boxes or bulky laptops to browse the Internet or receive their email. The ability to conduct eCommerce transactions anytime and anywhere is also an exciting prospect. Add to that the high growth rate of these next-generation net appliance makers, at 90-100% compared to the 28-30% growth rate of traditional PC makers and it is no surprise that there has been so much excitement surrounding these stocks. One of the aspects of RIMM that make it especially attractive however, is that the company derives revenue from two sources. First, they realize revenue from the sale of the actual units, the Blackberry line of wireless handheld products as well as a host of other wireless cards and adapters. Second, they charge a monthly fee to users, bringing in a steady stream of cash flows. To use the Superhighway analogy, not only does RIMM build the cars, it also owns the tollbooth. While the stock got as high as $132.69 on Tuesday, weakness in Canadian Tech issues has attracted sellers, but there is strong support from the 50-dma near $90. A pullback to support at $95 or $90 would provide aggressive traders with possible entry points but make sure there are willing buyers to back the bounce before jumping in. A less aggressive play can be had if RIMM can move above $100 but again, make sure there is serious buying volume before initiating a play. Overhead, resistance can be found at the 5- and 10-dma at $110.21 and $113.06. As one of the larger cap stocks in the Toronto Stock Exchange (TSE), RIMM fell victim to the Nortel effect this week, putting it right on its five month trend-line. As a result, caution is recommended on this play, with the increased risk profile. Confirm direction with sentiment in the TSE before making a play and keep your stops tight. BUY CALL NOV- 95 RUL-KS OI= 44 at $13.75 SL=10.00 BUY CALL NOV-100*RUL-KT OI=396 at $10.63 SL= 7.50 BUY CALL NOV-105 RUL-KA OI=218 at $ 8.63 SL= 6.00 BUY CALL DEC-100 RUL-LT OI=306 at $16.13 SL=11.50 BUY CALL DEC-105 RUP-LA OI= 86 at $14.13 SL=10.50 SELL PUT NOV- 90 RUL-WR OI=264 at $ 6.13 SL= 8.50 (See risks of selling puts in play legend) Picked on Oct 19th at $122.44 P/E = 1708 Change since picked -22.50 52-week high=$175.75 Analysts Ratings 6-6-1-0-0 52-week low =$ 23.25 Last earnings 09/28 est= -0.03 actual= -0.02 Next earnings N/A est= -0.02 versus= 0.05 Average Daily Volume = 1.66 mln BRCD - Brocade Communications $226.50 (-25.94 last week) Brocade is leading the way in a new category of networking: providing a scalable, reliable foundation for storage environments. They are the market leader in Fibre Channel Fabric switches-the essential framework for networking servers and storage systems. Brocade switches deliver the flexible and secure "Fabric" that supports the tremendous information and storage demands of today's leading companies. Brocade Fibre Channel fabric switches and software provide a networking foundation for storage area networks (SANs). BRCD started the week by making a new all-time high. Things were going fine and well until Nortel Networks, a leader in the equally fast-growing Networking sector, came in with their earnings report. While the report for the most part was stellar, analysts expected more, as NT was about $300 million short on their revenue numbers. Fearing that this was a sign of slowing demand, stocks in the Networking sector were punished on Tuesday, taking the Storage sector along for the ride. The damage was all across the board, with EMC, MCDT, NTAP and VRTS all experiencing a painful and severe price-to-earnings multiple compression. This continued into Wednesday but something interesting happened on Thursday. At one point, down as low as $190, buyers stepped in and heartily scooped up shares, and while BRCD did finish the day down, the dramatic recovery on three and a half times the ADV suggested that the worst was over. While candlestick analysts would note that Thursday's pattern was not a hammer reversal, signaling a change in trend, BRCD obliged them with one on Friday as the stock finished up $10.50 or 4.86% on over 155% of ADV. It goes without saying that this is a volatile and high-risk play, making it an aggressive trader's dream. At this point, support can be found in increments of $5 at $225, $220, $215 and $210. There is also support from the 100-dma, currently at $204.19. When buying a bounce off of support, confirm with volume and direction of the NASDAQ. Conservative traders will want to wait for BRCD to break through resistance from the 50-dma at $227.02 before making a play. After a conference call on Thursday to deliver an update on the state of the Storage Area Networking (SAN) space, they were given a thumbs up on Friday by CE Unterberg. This in conjunction with the announcement of a new product, a 64-Port Integrated Fabric as well as a roadmap on products for the next quarter will likely bring the excitement back to the BRCD and the Storage sector. BUY CALL NOV-220 GUF-KD OI= 364 at $21.50 SL=15.50 BUY CALL NOV-230*GUF-KF OI= 724 at $16.38 SL=12.00 BUY CALL NOV-240 GUF-KH OI= 171 at $12.00 SL= 9.00 BUY CALL DEC-230 GUF-LF OI= 88 at $24.25 SL=17.50 BUY CALL DEC-240 GUF-LH OI= 60 at $19.50 SL=14.00 SELL PUT NOV-210 GUF-WT OI=4377 at $ 4.88 SL= 7.00 (See risks of selling puts in play legend) Picked on Oct 15th at $239.53 P/E = 584 Change since picked -13.13 52-week high=$267.44 Analysts Ratings 9-6-2-0-0 52-week low =$ 55.06 Last earnings 08/16 est= 0.13 actual= 0.16 Next earnings 11-15 est= 0.20 versus= 0.03 Average Daily Volume = 3.06 mln EMC - EMC Corporation $88.81 (-11.19 last week) EMC is the leading builder of the world's most robust, secure and trusted information storage infrastructures. Their storage systems, software, networks and services ensure fast, round-the-clock access to all of the information businesses and individuals must have to prosper in the Information Economy. EMC's wide range of hardware and software products Enable organizations to create an electronic information Infrastructure which EMC calls an E-Infostructure. To EMC's customers, EMC is the caretaker of the world's information. The list of mega cap Tech stocks which have disappointed investors this summer is long indeed. With AAPL, DELL, INTC, ORCL and MSFT all well below their all-time highs, where is an investor to turn to? Throughout this time, stocks such as EMC and NT have held up well, relative to their downtrodden peers. Nestled safely in high growth areas, these stalwarts were considered immune to a slowing economy. But with their high stock prices presenting a tempting target to the bears, all they needed was an excuse. Despite posting a fantastic earnings report on Monday evening, NT gave the bears exactly what they wanted. Pouncing on the revenue number, $300 million lower than the high-end analyst estimate, the sellers accused the Networking and Storage stocks of being priced to perfection, leading to three straight days of selling. On Thursday, EMC broke below support at $85, a level that had been strong for the greater part of the month. But bouncing off the $80 level, the stock made a dramatic comeback and while it ended the day below it's 50-dma (now at $87.82), the high volume suggested that the selling had reached a climax. On Friday, EMC put itself back on the right side of the 50-dma, with the $85 level once again providing support. At this point, we feel that the worst is over and with improving sentiment in the NASDAQ and weak hands shaken out, EMC appears poised to continue on its ascent. Aggressive traders looking for a pullback can target shoot a bounce off support at the 50-dma, $85 and $80. Conservative traders will be watching the $90 level for a buy signal. A break above that mark on strong volume will be the green light to initiate a play. On Thursday, Interstate Batteries, a recent high-profile customer, sang its praises of EMC, calling the company a vital infrastructure supplier to of eCommerce solutions, since secure storage is a critical part of a successful Internet-driven business model. BUY CALL NOV-85 EMC-KQ OI=3666 at $8.38 SL=6.00 BUY CALL NOV-90*EMC-KR OI=4203 at $5.63 SL=3.50 BUY CALL NOV-95 EMC-KS OI=6114 at $3.50 SL=1.75 BUY CALL DEC-90 EMC-LR OI= 545 at $8.50 SL=6.00 BUY CALL DEC-95 EMC-LS OI= 495 at $6.25 SL=4.25 SELL PUT NOV-80 EMC-WP OI=4741 at $ 2.63 SL= 4.00 (See risks of selling puts in play legend) Picked on Oct 22nd at $100.00 P/E = 137 Change since picked -11.19 52-week high=$104.94 Analysts Ratings 15-10-1-0-0 52-week low =$ 32.31 Last earnings 10/18 est= 0.19 actual= 0.20 Next earnings N/A est= 0.23 versus= 0.17 Average Daily Volume = 8.80 mln BRCM - Broadcom Corp $227.06 (-15.13 last week) Broad essentially means wide, and that's exactly what BRCM is involved in. A wide array of products that help customers stream vast amounts of data online at high speeds. BRCM is the company that provides the integrated circuitry that allows cable, DSL, and satellite broadband communication to occur. Now with a fast growing broadband wireless market, things continue to look promising for BRCM and their position. Customers include Motorola, 3Com, Cisco, and SFA just to name a few. With a highly motivated management team, and aggressive acquisition policy, BRCM looks to continue its wide approach to this dynamic broadband market. It appears a little safer to get back into the water with BRCM. Signs of the stock's upcoming addition to the NASDAQ-100 index are really starting to come in now. Remember that this is one of the fundamental reasons that we are currently playing the stock. Volume is one of the key indicators of a change in current, and BRCM closed the session Friday with a whopping 12 million shares trading! Compare this to its ADV of 4.7 million, and you'll see why we can officially call this climatic volume. Climatic volume of this magnitude can indicate BRCM could head significantly higher in a new trend, all due to its new position in the index. The stock's stochastic cross-over and MACD bounce off the target line also support this opinion. Intraday you'll notice that a majority of this volume also occurred in the last hour of trading. This indicates that we have a good deal of smart money support on the play. We had also mentioned in our last update, to look for BRCM to trade above the $225-mark, to confirm that our 200-dma bounce was valid. This event occurred on a good daily trend, so we consider this now a triple bottom and look for a strong trend off this mark. Expect continued positive momentum as BRCM should climb to its upper channel at $260. With continued positive market support, the play should easily surpass this upper target. Investors can continue a momentum entry with trades above the current 10-dma at $228 now. The momentum on the play that we have outlined could continue to carry BRCM higher. Just an example of the smart money interest that occurred in the late day trading last week. BUY CALL NOV-220 RDU-KD OI=1258 at $23.25 SL=$15.00 BUY CALL NOV-230*RDU-KF OI=1244 at $18.38 SL=$13.00 BUY CALL NOV-240 RDU-KH OI=3088 at $14.00 SL=$10.50 BUY CALL NOV-250 RDU-KJ OI=2693 at $10.50 SL=$ 7.50 SELL PUT NOV-220 RDU-WD OI=1080 at $14.25 SL=$20.00 (See risks of selling puts in play legend) Picked on Oct 22nd at $242.19 P/E = 412 Change since picked -15.13 52-week high=$274.75 Analysts Ratings 8-11-1-0-0 52-week low =$ 54.25 Last earnings 10/00 est= 0.24 actual= 0.30 Next earnings 01-17 est= 0.27 versus= 0.16 Average Daily Volume = 4.77 mln NTAP - Network Appliance $123.00 (-25.63 last week) The idea was inspired. Yet simple. Separate storage from an application server and put all that data on a special "appliance" tasked with serving data at high speeds. In 1992, NETP originated this high-performance network appliance concept. Today they're a recognized leader in data storage and access. Corporations and ISPs, including 3Com, Adobe Systems, Tripod, John Deere, NationsBanc, and GTE use NTAP's solutions to reduce the cost and complexity of managing their mission-critical data. With a network-centric economy pushing along expanding volumes of information, an easily scaleable appliance solution couldn't have come at a better time. It's been one of those weeks in the market for NTAP. Right from the get-go on Monday, NTAP got blind-sided by Robertson Stephens with a downgrade from Strong Buy to Buy. While the analyst noted it wasn't due to any weakness in the current quarter or future growth concerns, but rather rich valuation limiting upside potential, the damage was done. Profit taking was expected early in the week due to the recent new 52-week record ($152.75) set on the previous Friday, October 20th, but let's get real. NTAP experienced some major destruction as a result of Nortel's (NT) earnings' report and concerns about its own valuation. Storage companies got truly hammered on Thursday amid worries that the stocks have gained too much given their real prospects. NTAP hit $102.38 before the tide turned and it rebounded back into the vicinity of the 50-dma line ($120.16). We held NTAP over despite the rough trading in light of JDS Uniphase's strong earnings' report. Now granted Friday's performance wasn't exactly stellar, but the share price demonstrated stability at the $120 and $125 levels. Plus, October is almost over and there's lots of money just sitting on the sidelines. If the NASDAQ rallies in November, NTAP should undergo a profitable recovery. Aggressive entries could be found on strong bounces off $120 or even of deep dips at $115. If you'd rather buy into an uptrend, target shoot for entries on high-volume moves through $128 and $130. Mark your earnings calendar. Network Appliance is confirmed to report in just a couple weeks on November 14th, after the market. BUY CALL NOV-120 ULM-KD OI= 400 at $14.25 SL=10.50 BUY CALL NOV-125*ULM-KE OI= 278 at $11.75 SL= 9.00 BUY CALL NOV-130 ULM-KF OI= 704 at $ 9.50 SL= 6.50 BUY CALL DEC-125 ULM-LE OI= 860 at $16.88 SL=12.25 BUY CALL DEC-130 ULM-LF OI= 536 at $14.75 SL=10.75 Picked on Oct 22nd at $148.63 P/E = 658 Change since picked -25.63 52-week high=$152.75 Analysts Ratings 15-7-0-0-0 52-week low =$ 15.92 Last earnings 06/00 est= 0.07 actual= 0.09 Next earnings 11-14 est= 0.09 versus= 0.05 Average Daily Volume = 7.00 mln ************************Advertisement************************* Attention Online Traders: NobleTrading.com has become the first online trading firm to offer both Direct Access Trading, and web based trading to its customers. Trade Direct using any ECN, SOES, and SelectNet, or trade right through your browser using our web based trading application. FREE DSL service for active traders. Visit our website and sign up for a Free real-time demonstration! http://www.sungrp.com/tracking.asp?campaignid=813 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 10-29-2000 Sunday 4 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/102900_4.asp ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.sungrp.com/tracking.asp?campaignid=782 ************************************************************** ************* NEW PUT PLAYS ************* SNDK - SanDisk Corporation $52.13 (-9.88 last week) Founded in 1988, SanDisk pioneered industry development of flash memory cards for data storage and played a key role in setting many flash industry standards. It was the first company to introduce a removable flash MultiMediaCard, an ultra-small size form factor memory card. SanDisk embedded flash data storage devices also are widely used for numerous commercial and industrial applications in various markets. Market research firms have concluded that SanDisk is the flash card market leader with approximately 28% share of the market. There's nothing like a lawsuit to keep a stock down. On September 7th, Lexar Media (LEXR) filed a patent infringement complaint against SNDK, alleging that SNDK had violated one of Lexar's key patents. In a statement by Lexar's President, "Lexar has core technology on flash products that we have to protect. We tried to resolve our disputes with SanDisk outside of Court, but as those efforts have failed, we are forced to defend our intellectual property. We are currently looking closely at a number of other SanDisk products as well." In defense, SNDK retorted, calling the lawsuit unfounded and lacking in merit. This past Monday, SanDisk issued a statement in regards to a separate patent infringement lawsuit filed by SanDisk against Lexar. In it, SanDisk charges Lexar with misrepresentation of findings by the judge on October 17th. Needless to say, the battle has been going on back and forth, much to the detriment of both companies. So far, it appears that the only winners have been the lawyers and those who have sold their shares. Coincidentally, it was in early September that shares in SNDK topped out, at the $95 level. Since then, the stock has traded lower in a downward sloping regression channel, and now well below its 50, 100 and 200-dma. SNDK was not helped by recent weakness in the Semiconductor sector either. At this point, aggressive entries can be found on failed rallies above the 5- and 10-dma, currently at $55.38 and $58.27 respectively. For conservative traders, a break below $50 back by strong selling pressure will be the signal to enter. Before making a play, make sure to confirm with sentiment in the Semiconductor sector. BUY PUT NOV-55 SWQ-WK OI=162 at $6.88 SL=5.00 BUY PUT NOV-50*SWQ-WJ OI=478 at $4.00 SL=2.50 Average Daily Volume = 2.38 mln DGX - Quest Diagnostics $90.50 (-22.44 last week) Quest Diagnostics is the nation's leading provider of diagnostic testing, information and services. The testing performed on human specimens helps doctors diagnose, treat and monitor disease; enables employers to detect workplace drug abuse; and supports pharmaceutical and biotechnology companies in clinical trials of new therapeutics worldwide. Quest Informatics analyzes laboratory and other medical data to help health care providers improve the care of patients. We've seen it time and time again. A company reports strong revenue and earnings growth only to be thrown to the wolves following the announcement. Adding insult to injury, DGX was without a doubt a strong split candidate too. It was trading significantly higher than its historical split-level of $90 and had plenty of shares to execute a 2:1 stock dividend. While investors shouted "sell, sell" on the news, the analysts were at the other end hooting upgrades for DGX. Deutsche Banc Alex Brown started with new Buy coverage and a $165 price target. USB Piper Jaffray and UBS Warburg together chimed in with Strong Buy recommendations and price targets at $145 and $138, respectively. So what's the deal? Simply put, it's profit taking gone overboard. The momentum took DGX down a whopping $23.81, or 17% on Friday, October 20th and it the losses resumed full-throttle going into last week. On Monday, DGX saw another session of devastation. On the day, it lost $13.38, or 11.8% to close at $99.56. The rest of the week DGX failed to stabilize and attempts to regain it previous highs found $109 a tough line to penetrate. DGX diverged from the DOW's upward path and sunk lower on almost twice the ADV. There was no company-specific news to explain the extended sell-off. No matter, the downtrend line is intact and we want to capture profits if DGX breakdown further. As it is, there's no bottom support until the $80 level, which marks last July's resistance. More conservatively, you might take an entry and buy into weakness from the current level if there's volume to back the decline. Otherwise, consider the more aggressive approach and look for entries on a high-volume rollover at the century mark. BUY PUT NOV-95 DGX-WS OI= 12 at $12.75 SL=9.50 BUY PUT NOV-90*DGX-WR OI=261 at $ 9.38 SL=6.50 BUY PUT NOV-85 DGX-WQ OI= 8 at $ 6.88 SL=5.00 Average Daily Volume = 591 K ***************** CURRENT PUT PLAYS ***************** PVN - Providian Financial $94.56 (-8.50 last week) As one of the top ten US credit card companies, PVN issues mainly secured credit cards to more than 12 million customers, many of whom have spotty credit histories. The company also offers standard and premium credit cards to those with better credit. In addition to credit card products, the company also offers a suite of loan products and membership services. Soliciting new customers via direct mail, phone calls, and online advertising, PVN has more than $27 billion in assets under management and over 14 million customers. Remember the old E.F. Hutton commercials with the line, "When E.F. Hutton talks, people listen." It seems that Kenneth Posner, an analyst with Morgan Stanley Dean Witter has a similar level of respect. When he cut his ratings on the Consumer Finance sector from Overweight to Market Weight (whatever that means), PVN got hit for more than a 10% loss, plunging below both the 200-dma ($93.50) and the $92 support level. After hitting a low of $86.75, shares of the credit card issuer rebounded sharply, managing to eke out a close fractionally above the 200-dma. The bears took another run at the stock on Friday, but were only able to drive the price down to $90.81, giving the appearance that Thursday's low may be all the stock is willing to give up. But resistance is holding firm at the 5-dma (now at $97.19), which still gives a nice tradable range from which to profit. Selling volume has been strong the past 2 days, with 4.2 million shares trading hands on Thursday and 2.4 million on Friday. Aggressive traders can use a volume-backed rollover from the 5-dma as their trigger to enter new positions, with another penetration of the 200-dma being their confirmation of more weakness ahead. A more cautious entry strategy will be to wait for a violation of the $92 support level before initiating new positions. In either case, tighten up your stops as PVN approaches Thursday's lows, especially if the selling volume begins to diminish. If we get the good fortune to see the stock decline to those levels again, there is no sense in giving the profits back if the bulls step in to support the price. BUY PUT NOV-95*PVN-WS OI= 31 at $7.38 SL=5.25 BUY PUT NOV-90 PVN-WR OI=958 at $5.13 SL=3.00 Average Daily Volume = 1.12 mln TIBX - Tibco Software $64.94 (-5.13 last week) Tibco Software helps companies get a ride on The Information Bus (TIB). Tibco's software products enable businesses to link internal operations, business partners and customer channels in real-time. The Company's software products allow multiple distinct applications, Web sites, databases and other content sources to be integrated and managed within a common framework. By licensing their software, TIBX enables enterprises to extend their information technology infrastructures and business processes across the Internet to conduct all forms of electronic business. Tibco's customers include companies in the Telecom (Vodaphone, Airtouch), Technology (NEC), Energy (Mobil), Financial Services (Nasdaq), and Internet (Yahoo!) sectors. Running out of gas late in the day Friday, TIBX could be giving us a nice entry point. But, we won't know until the opening bell rings on Monday. The bounce from the lower edge of the 4-month descending channel on Thursday afternoon continued right through the majority of Friday's session, adding nearly $8 to the stock price before the bulls ran out of enthusiasm in the final 90 minutes. It is particularly interesting that the rally paused right at the 10-dma ($66.94), also the location of the center line on the regression channel (which has been acting as resistance all month) and the site of significant historical resistance. If our play is going to head south, it will have to do so from very near this level. Breaking through this level will be a strong indication that TIBX is on the mend, and will probably open the door for a run at the next resistance levels of $70 and then $75. At this point, down appears to be the path of least resistance, with the chain of lower peaks on the daily Stochastics and MACD charts. Look to initiate new positions on a rollover from resistance, or if you prefer a more cautious entry strategy, wait for selling volume to push our play back below $64. More selling in the technology sector could very well push TIBX down to fill Friday's opening gap between $57-59. Since the lower end of this gap may provide support, consider tightening up your stops as the price approaches this level. BUY PUT NOV-65*PAV-WM OI= 80 at $6.75 SL=4.75 BUY PUT NOV-60 PAV-WL OI=122 at $4.25 SL=2.50 Average Daily Volume = 1.72 mln FCEL - FuelCell Energy, Inc. $70.75 (-4.63 last week) FuelCell Energy, Inc. is headquartered in Danbury, Connecticut. The Company employs more than 150 people with scientific, engineering and manufacturing backgrounds. FuelCell is a developer and manufacturer of fuel cells. A fuel cell is a device that electrochemically converts the chemical energy of a fossil fuel into electricity without the combustion of fuel. FuelCell's fuel cells are clean, efficient electric power generators that operate on a variety of fuels including natural gas, coal-gas, ethanol and landfill gas. FuelCell has developed this technology and is now focused on commercialization. A change in season usually leads to a change in sentiment for energy stocks. The prevailing mantra has always been, buy the energy stocks in the summer and sell them in the fall. It appears that with Halloween just around the corner, FCEL is poised to take a fall. But it's not giving up without a fight. When we started this play, we mentioned the head and shoulders formation in FCEL's chart, with the shoulders at the $94 level and the head at the $108-109 area. With the neckline at the $70 level, that was the area to watch for. This week, FCEL did indeed drop below the neckline but it is has become a more news-driven issue, providing it with a stay of execution. With tensions in the Middle East continuing to be a factor, oil prices have inched higher this week. What's more, supply has remained tight. The market was expecting a big build-up, as OPEC began producing an extra 800,000 barrels a day since October 1st. However, the build so far has been half of what was expected. As if that weren't enough, Iraq came out with their sabers rattling, and stirred fear into the oil market. However, there is news on Monday that should help out put play. Friday marked the 20th straight day that oil prices have held above the $28 per barrel level. As a result, OPEC President Ali Rodriguez reiterated that the cartel is ready and willing to raise its daily production by 500,000 barrels as early as Monday. The extra production could help relieve pricing pressure in oil and let the technicals take over. For aggressive traders, a failed rally above resistance at the 10 and 50-dma at $77.26 and $75 are possible targets to shoot for. Conservative traders will be watching for a move below $70, backed by strong selling volume before jumping in. BUY PUT NOV-75 FQG-WO OI=257 at $12.13 SL=9.00 BUY PUT NOV-70*FQG-WN OI=157 at $ 9.13 SL=6.25 BUY PUT NOV-65 FQG-WM OI= 40 at $ 6.75 SL=4.75 Average Daily Volume = 790 K PHCC - Priority Healthcare Corp $50.25 (+1.88 last week) Priority Healthcare distributes specialty pharmaceuticals and other medical supplies to healthcare industry. They also offer disease treatment programs and self-injectable pharmaceuticals to the individual. The company's Priority Distribution process serves over 2,000 customers across the US and Puerto Rico. The profit taking that ensued following PHCC's recent earnings report subsided a bit last week. Currently, PHCC is channeling between $50 and $52 with pressure building at the lower end of the trading spectrum. The $52 mark served as a strong level of resistance on attempted breakouts, but the rollovers just didn't generate enough downside momentum to take the share price lower. This pattern is frustrating. To play this put play in a modest fashion, wait for PHCC to shatter its near-term bottom at $50 and make a definitive move towards the recent intraday low of $47.50. If your strategy is jump in on intraday spikes in anticipation of money moving into the techs next week, look for the rollover at $52 and $53. Keep the stops tight for protection. However, if you decide to play PHCC, it's imperative that you wait for the open interest to build on the new at and out-of-money November contracts before taking positions. BUY PUT NOV-60 UHP-WL OI= 2 at $10.25 SL=7.25 BUY PUT NOV-55 UHP-WK OI= 0 at $ 6.63 SL=4.75 Wait for OI!! BUY PUT NOV-50*UHP-WJ OI=12 at $ 4.00 SL=2.50 Average Daily Volume = 258 K ************************Advertisement************************* Attention Online Traders: NobleTrading.com has become the first online trading firm to offer both Direct Access Trading, and web based trading to its customers. Trade Direct using any ECN, SOES, and SelectNet, or trade right through your browser using our web based trading application. FREE DSL service for active traders. Visit our website and sign up for a Free real-time demonstration! http://www.sungrp.com/tracking.asp?campaignid=814 ************************************************************** ***** LEAPS ***** Will The Real Bottom Please Stand Up? By Mark Phillips Contact Support Thanks to disappointing earnings reports this week from NSM and NT this week, volatility spiked and the NASDAQ retested the 3000 level again. The bulk of the blood-letting this week was confined to the Optical Networking sector (and any stock affiliated with it). Considering the fact that NT beat earnings estimates and shifted their forward-looking guidance upwards, the loss of market capitalization in the sector was stunning. This was the one sector that had managed to dance between the raindrops as one sector after another (Semiconductors, PCs, Biotechs, Drugs, and Financials) have taken their respective turns in the penalty box. Perhaps it was necessary to shake out this last refuge of the terminally bullish before there is enough conviction to power the next leg of the long-term bull market. Fortunately JDSU came to the rescue on Thursday after the market closed and their stellar earnings report seems to have stemmed the tide of selling seen in the Optical stocks. Whether Thursday's lows will hold remains to be seen, but if JDSU is to be believed, there is no slowdown in the demand for optical products. Due to their positive report and bullish outlook, JDSU makes into as the Spotlight play this weekend. You'll notice that even with the large drop this week that was prompted by their earnings report, NT still remains on our playlist. The primary reason is that the "problem" of growing optical revenues at "only" 90% looks to be a temporary situation due to an inventory buildup and the company (and several analysts) expect it to be resolved in the near future. Although more severe than we have seen in quite some time, the selling of quality stocks on seemingly minor news happens every year at this time. We have been anticipating a market bottom sometime in the month of October, and as painful as it has been, it is encouraging to see the bottoming formation. In the past week, market pundits have become bolder, stating that the bottom IS in, instead of saying that it MAY be in, but we need to come back and retest the lows. After testing 3000 on the NASDAQ three times in less than two weeks, conviction is building that this level will provide the springboard for a solid rally into the fall. This isn't to say that there won't be more volatility ahead, but now that the VIX has spent some serious time north of 30 (and didn't drop off nearly as sharply this last time), and the last of the holdout sectors (Opticals) have been shaken up, it looks like we are finally there. What really gave me conviction on Thursday was watching the old NASDAQ generals. While the high-flyers were being cut off at the knees, stocks like MSFT, INTC, DELL and CSCO cooperated to help support the tech index. With selling primarily confined to the last remaining unpunished stocks, it was encouraging to see the rest of the market hold up fairly well. Did you notice the DJIA all last week? Don't look now, but it is up nearly 1000 points since the panic selloff on October 18th. You'll notice that there are three more stocks on our drop list this weekend as we continue to purge the non-performing plays to make room for those we think will soar in the year ahead. Aside from those that got the axe this weekend, there is one more that is skating on thin ice. That's right, VRSN has had a nasty technical breakdown, violating the long-term support at $135-140. What keeps the stock on our list is the stellar earnings report from the company. Clearly there is nothing wrong with their business, and we are betting on a nice recovery as the markets get healthy again. However, if the next level of support at $108 fails to hold, it will be hard to make a case for keeping it on the playlist. The VIX is right where we want it, closing out the week at 30.53, providing yet one more indication that the market is putting in a bottom. Now is the time to find those plays with the solid bottoming formations and put your action plan into motion. This is the buying opportunity we have been waiting for these past several months, and it is unlikely to get much better until this time next year. Congratulations to those of you sitting on cash in anticipation of the recent market events. Your biggest challenge has become which LEAPS to buy, as many of them are looking very attractive at current levels. Keep your wits about you and put that money to work wisely. Have a Happy Halloween! Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN EMC 11/07/99 JAN-2002 $ 45 WUE-AI $ 9.50 $50.50 431.58% 09/17/00 JAN-2003 $100 VUE-AT $32.75 $28.25 -13.74% CSCO 11/14/99 JAN-2002 $ 45 WIV-AI $11.00 $17.25 56.82% NT 11/28/99 JAN-2002 $37.5 WNT-AU $15.13 $16.38 8.23% 09/10/00 JAN-2003 $ 75 ODT-AO $27.50 $ 9.75 -64.55% SUNW 12/19/99 JAN-2002 $ 90 WJX-AR $22.00 $35.38 60.80% NSM 02/27/00 JAN-2002 $ 70 WUN-AN $24.25 $ 1.69 -93.04% AOL 03/12/00 JAN-2002 $ 65 WAN-AM $18.63 $ 6.20 -66.72% 08/13/00 JAN-2003 $ 55 VAN-AK $17.50 $13.40 -23.43% AXP 03/12/00 JAN-2002 $46.6 WXP-AQ $ 9.33 $16.63 78.19% WM 03/19/00 JAN-2002 $ 30 WWI-AF $ 5.38 $17.38 222.96% 10/22/00 JAN-2003 $ 45 VWI-AI $ 7.88 $11.13 41.27% JDSU 04/16/00 JAN-2002 $ 80 YJU-AP $39.63 $26.63 -32.82% 08/27/00 JAN-2003 $130 VEQ-AF $55.25 $21.75 -60.63% NOK 05/21/00 JAN-2002 $ 50 IWX-AJ $17.25 $ 7.25 -57.97% 07/30/00 JAN-2003 $ 50 VOK-AJ $17.75 $10.75 -39.44% C 06/18/00 JAN-2002 $48.8 YSV-AW $10.31 $11.38 10.33% 10/01/00 JAN-2003 $ 60 VRN-AL $12.25 $ 9.88 -19.39% AMGN 07/02/00 JAN-2002 $ 75 WQY-AO $20.75 $10.88 -47.59% JAN-2003 $ 70 VAM-AN $28.75 $19.00 -33.91% VRSN 07/02/00 JAN-2002 $190 YVS-AR $66.25 $29.13 -56.04% 09/03/00 JAN-2003 $190 OVS-AR $86.63 $44.00 -49.21% GENZ 07/16/00 JAN-2002 $ 70 YGZ-AN $17.13 $22.00 28.43% JAN-2003 $ 70 OZG-AN $23.13 $28.13 21.60% HWP 07/30/00 JAN-2002 $110 WPW-AB $28.25 $15.25 -46.02% JAN-2003 $120 VHP-AD $32.63 $19.50 -40.24% EXDS 08/06/00 JAN-2002 $ 55 WZZ-AK $20.75 $ 6.00 -71.08% JAN-2003 $ 60 VTQ-AL $25.38 $ 9.38 -63.06% MFNX 08/06/00 JAN-2002 $ 40 WOF-AH $13.75 $ 3.63 -73.64% JAN-2003 $ 45 VKW-AI $15.63 $ 5.13 -67.21% FRX 08/13/00 JAN-2002 $ 95 WRT-AS $31.38 $52.88 68.50% JAN-2003 $100 VFB-AT $37.38 $58.00 55.16% BRCD 08/27/00 JAN-2002 $220 YNU-AD $65.38 $72.88 11.46% JAN-2003 $220 OMW-AD $86.50 $94.63 9.39% CMRC 09/10/00 JAN-2002 $ 80 YCU-AP $30.13 $22.75 -24.49% JAN-2003 $ 80 OCU-AP $38.75 $31.38 -19.03% QCOM 09/17/00 JAN-2002 $ 70 WBI-AN $22.50 $27.13 20.56% JAN-2003 $ 70 VLM-AN $29.63 $35.38 19.39% COMS 10/01/00 JAN-2002 $ 20 WTH-AD $ 6.38 $ 5.13 -19.61% JAN-2003 $ 25 VTH-AE $ 7.13 $ 6.13 -14.04% WCOM 10/01/00 JAN-2002 $ 35 WQM-AG $ 6.75 $ 3.00 -55.56% JAN-2003 $ 35 VQM-AG $ 9.88 $ 5.38 -45.57% INTC 10/15/00 JAN-2002 $ 45 WNL-AI $ 9.50 $13.00 36.84% JAN-2003 $ 45 VNL-AI $13.38 $17.00 27.10% TXN 10/22/00 JAN-2002 $ 50 WTN-AJ $13.75 $11.88 -13.64% JAN-2003 $ 50 VXT-AJ $18.38 $16.38 -10.88% Spotlight Play JDSU - JDS Uniphase $77.25 Thanks to cautionary comments from NT in their earnings report Tuesday night, any stock that was even remotely tied to the Optical Networking sector was taken out and severely whipped this week. JDSU was no exception, dropping from the $94 area to as low as $62, simply because of guilt by association. Part of the problem was the strong business relationship between JDSU and NT, and investors assumed any problem that affected the latter, would also impact the former. JDSU's own stellar earnings report on Thursday diminished those fears somewhat, allowing the stock to trade as high as $84.50 on Friday. It is hard to imagine such a drastic affect on an entire sector from a single company failing to hit its top-end revenue target, but it seems the Optical stocks are just the latest group to get hit by concerns about slowing growth. That's the bad news. The good news is that JDSU's earnings were stellar and the company raised their estimates for revenue and earnings growth for 2001. The stock managed to recover today to close above the $73 support level (formed by the spring lows), but not until after the panic selling on Thursday that managed to test the $60-62 support level (not seen since last December). What this tells us is that the lower level is likely very strong support, and short of more panic selling, we are unlikely to visit it again. Target shooters will want to look for an intraday dip to the $71-73 level to provide attractive entries, while more conservative traders will want to wait for JDSU to move above $86 and hold its gains before playing. In either case, volatility will likely be the name of the game - make sure any positive move is accompanied by strong volume and improving sentiment in the Optical sector before putting your cash to work. BUY LEAP JAN-2002 $80.00 YJU-AP at $26.63 BUY LEAP JAN-2003 $80.00 OVU-AP at $34.38 New Plays ADBE - Adobe Systems $74.81 A long-time leader in desktop publishing software, ADBE provides graphic design, publishing, and imaging software for Web and print production. Offering a line of application software products for creating, distributing, and managing information of all types, the company generates nearly 75% of sales through publishing software products such as Photoshop, Illustrator, and PageMaker. Its Acrobat Reader, which uses portable document format (PDF) is popping up all over the Internet, as businesses shift from print to digital communications. The stock has been a stellar performer all year, virtually ignoring the broad market weakness we have seen since March. It hasn't touched its 200-dma (currently $57.63) in over 18 months and it looks unlikely that it will do so anytime soon. The bears have a hard time keeping ADBE below the 50-dma (currently $69.81), but even if they do manage it in the short term, $65 support looks rock solid. Having just completed its most recent 2-for-1 split, some near term weakness could emerge, especially if we see more investor nervousness. Use any such weakness as a buying opportunity and target the afore-mentioned support levels for new entries. Don't jump the gun though - make sure that strong buying volume accompanies the bounce. BUY LEAP JAN-2002 $80.00 YEJ-AP at $23.50 BUY LEAP JAN-2003 $80.00 VAE-AP at $30.75 Drops AMGN $59.31 Enthusiasm for Drug stocks over the past few months has been insufficient to help AMGN through the $76 resistance level. Although our play peeked it's head above there in late July, that appears to have been the bulls last desperate rally attempt. Since then, our play has been putting in lower highs and lower lows, and the normal October weakness allowed the bears to smash through the 200-dma ($65.75). Although there was a short recovery from the $60 support level, the stock rolled over again to retest the 200-dma yesterday. AMGN tipped the scales in the bears favor by posting a disappointing earnings report after the close. Although beating estimates by 2 cents, the company made the cardinal sin of guiding growth rates downwards and the stock suffered this morning. The culprit behind the lowered growth rates was slowing sales of the company's flagship drugs Epogen and Neupogen. With declining technicals and fundamentals, we can no longer recommend new positions on this unhealthy stock. NSM $22.31 Dashing the bulls hopes last Monday after the close, NSM warned of lower sales and earnings for the next 2 quarters. In this volatile and nervous market, investors shoot first and ask questions later, and NSM promptly gave up 35% as it fell through the $31 and $27 support levels. For the remainder of the week, our play continued to deteriorate, ending the week at levels not seen since June of 1999. Plays initiated near the lows from early August had yielded a nice profit when NSM rolled over in early September, and the subsequent decline should have stopped out any open plays before this week's negative news. While the downside going forward is limited, the negative sector sentiment combined with bearish comments from the company leaves dim hopes for any kind of upside move in the near future. WCOM $22.06 Negative sentiment continues to dominate the Telecom sector as investors worry about declining voice revenues. Reporting earnings on Thursday that only met estimates was not what investors wanted to hear, and even news that WCOM and T will be restructuring their companies could not assuage investor fears. Add in downgrades from the likes of ING Barings and AG Edwards, and investors are not enthusiastic about holding the stock. Even after declining more than 50% from its July highs, there is a dearth of value investors willing to support the stock at current levels. Since we added the play in early October, the stock has been unable to clear the $30 resistance level, the trigger for our conservative entry strategy, and it looks highly unlikely that it will do so in the near future. With the technicals continuing to weaken, and selling volume on the rise, it is time to kick WCOM off our list of plays. *********** SPLIT PLAYS *********** The Jury Is Still Out By Ryan Nelson The markets decided not to settle down this week after all. Fortunately, there are only two October days left. Maybe November will be more kind to the split plays. Right now you would be hard pressed to find momentum among this group as even the announcements have done little to spur buyers. At this point, it would be wise to stay away from split plays until the upside momentum returns. Hopefully, the market can gain its footing without any Halloween scare next week. Current Split Run Plays None Current Split Candidate Plays BRCD JNPR BRCM NTAP Candidates That Are Not Current Plays ARBA RIMM CFLO VRTS VRSN PMCS SEBL VRTX 10 Most Recent Announcements We Predicted MUSE - 10/25 (most recent announcement) AMCC - 10/11 DNA - 10/05 LEH - 09/20 ORCL - 09/14 SUNW - 08/17 GLW - 08/16 HWP - 08/16 CIEN - 08/15 SEBL - 08/08 Major Announcements So Far This Month = 18 DNA BEC EMLX AMCC IWOV TLB ITWO CDIS ABK PHCC PVN DCTM EPNY CHRW MUSE UNH CPN SHFL Please check out the split calendar on the left margin under Research ********************************Advertisement******************** American Express. Cardmembers are buying online Find out more! http://www.sungrp.com/tracking.asp?campaignid=828 ***************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 10-29-2000 Sunday 5 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/102900_5.asp ************* COVERED CALLS ************* Option Pricing Basics: Pricing and Volatility By Mark Wnetrzak Each week we receive a number of emails concerning the basics of pricing theory and how we determine which options are favorable. Most new traders that enter the derivatives market are quickly overwhelmed by the incredible number of choices to be made when selecting a position for a specific strategy. Even when we limit the candidates to short-term positions (90-days or less), there are still a large assortment of contracts from which to choose. The choices are so numerous that many beginning traders give up long before they learn how to select the correct position (with the highest probability of profit) for the underlying instrument. The successful option trader must be able to identify potentially profitable strategies given the current market conditions. Before he can accurately assess a position's value, a trader must fully understand the components of theoretical option pricing. Two of the most common statistical measurements; implied and historical volatility, can help a trader determine if an option is cheap or expensive. The volatility component of option valuation is a measure of the range the underlying security is expected to change over a given period of time. The measurement of volatility is the standard deviation of the daily price changes in the security. In simpler terms, the more volatile the stock, the greater the price of the option. Historical volatility estimates volatility based on past prices. Because it can be so erratic from one day to the next, moving averages are generally used in pricing models to determine the fair value of an option. Once again, the larger the statistical volatility, the more an option is worth. Implied volatility starts with the current option price and works backward to calculate the theoretical value of volatility that is equal to the market price minus intrinsic value. It is a computed value that has more to do with the option price rather than the underlying asset. The simple definition: Implied volatility is the volatility value that makes an option's fair value equal to its actual market price. Most traders refer to implied volatility as "premium" even though the word premium refers to the option price relative to the price of the underlying security. What the trader is really referring to is the implied volatility. The moral of the story: when the implied volatility is low, options are effectively under-priced. When the implied volatility is high, options are effectively overpriced. Next week, we will discuss how to select the correct time frame when assessing volatility. Good Luck! SUMMARY OF PREVIOUS PICKS ***** NOTE: Using Margin doubles the listed Monthly Return! Stock Price Last Call Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return MTSI 9.38 8.88 NOV 7.50 2.81 *$ 0.93 15.4% AVID 14.75 14.00 NOV 12.50 3.63 *$ 1.38 10.8% FFD 12.00 12.50 NOV 10.00 2.75 *$ 0.75 8.8% ANSR 18.31 17.00 NOV 12.50 6.63 *$ 0.82 7.6% CTXS 21.44 20.94 NOV 17.50 4.88 *$ 0.94 6.2% RDRT 7.94 6.63 NOV 5.00 3.25 *$ 0.31 5.7% FIBR 32.50 30.69 NOV 20.00 13.50 *$ 1.00 5.7% BPUR 17.38 22.50 NOV 15.00 3.25 *$ 0.87 5.4% UAXS 15.31 14.88 NOV 12.50 3.38 *$ 0.57 5.2% ECLP 21.38 25.31 NOV 17.50 4.63 *$ 0.75 4.9% WDC 6.13 6.00 NOV 5.00 1.44 *$ 0.31 4.8% *$ = Stock price is above the sold striking price. Comments: So far so good! The technicals are weakening on Read-Rite (RDRT) but for now, the issue appears to be holding above its 150 dma. Monitor closely in the coming sessions. NEW PICKS ********* Sequenced by Return ***** Stock Last Call Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return TSIX 16.75 NOV 12.50 IXQ KV 5.00 5 11.75 21 9.2% ANSR 17.00 NOV 12.50 QRA KV 5.13 1550 11.87 21 7.7% ENTU 29.25 NOV 25.00 QYE KE 5.50 672 23.75 21 7.6% BCGI 23.13 NOV 20.00 QGB KD 4.00 343 19.13 21 6.6% VMSI 25.63 NOV 22.50 QMP KX 4.00 9 21.63 21 5.8% PROX 58.75 NOV 50.00 WQG KJ 10.50 170 48.25 21 5.3% ENMD 32.56 NOV 25.00 QMA KE 8.25 92 24.31 21 4.1% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** ANSR - answerthink $17.00 *** IBM Buyout Target? *** answerthink provides comprehensive eBusiness strategy, marketing and technology-enabled solutions focused on the emerging digital marketplace. As an eBusiness leader, the company offers a range of integrated solutions, including best practices benchmarking, eBusiness strategy and architecture, interactive marketing and design, business applications and technology integration. ANSR recently reported that net revenues for the third quarter were up 22% to $84.1 million from $69.0 million last year. Net income increased to $6 million, or $0.15 per share, from $4 million, or $0.10 per share, in the third quarter of 1999. ANSR's earnings demonstrate that the company continues to strengthen and recent alliances should enhance their ability to deliver strategic technology-enabled solutions to new clients. In addition, IBM is rumored to be buying the company and traders say an announcement may be forthcoming in the next week. NOV 12.50 QRA KV LB=5.13 OI=1550 CB=11.87 DE=21 MR=7.7% ***** BCGI - Boston Communications $23.13 *** Solid Earnings! *** Boston Communications Group operates in the following segments: Prepaid Wireless Services, Teleservices, Roaming Services, and Systems Divisions. The Prepaid Wireless Services Division offers prepaid wireless service that allows carriers to access BCGI's prepaid C2C platform. The Teleservices segment provides customer support teleservices to wireless carrier's customers. Their Roaming Services Division provides services that give carriers the ability to generate revenues from subscribers who are not covered under traditional roaming agreements by arranging payment for roaming calls. The Systems Division manufactures and markets voice processing platforms to wireless and wire-line carriers; sells prepaid systems to international carriers; and manufactures the voice nodes used to support BCGI's C2C network. Quarterly earnings were reported last week and the numbers were favorable. In addition, the technical breakout above $21 suggests the issue has additional upside potential. No change in the outlook since we featured this candidate last week. NOV 20.00 QGB KD LB=4.00 OI=343 CB=19.13 DE=21 MR=6.6% ***** ENMD - EntreMed $32.56 *** Symposium on the Silver Bullet! *** EntreMed is a clinical-stage biopharmaceutical company emphasizing antiangiogenesis therapeutics that inhibit abnormal blood vessel growth associated with a broad range of diseases such as cancer, blindness and arteriosclerosis. EntreMed's strategy is to quicken development of its core technologies through collaborations and sponsored research programs with university medical departments, research companies and government laboratories. EntreMed gained the spotlight when a preliminary research report showed that the growth of the small blood vessel network feeding coronary artery plaques in mice could be reduced by giving them an angiogenesis inhibitor (Endostatin). EntreMed plans to present the first public presentation of the data from the on-going Phase I clinical trials of Endostatin in the U.S at a symposium in Amsterdam that is scheduled the week of November 7th. This was announced at the same time the company started its fourth Phase I clinical trial to explore the continuous infusion and subcutaneous administration of Endostatin. This week, market-makers at the CBOE commented on the recent spike in implied volatility of EntreMed's options as speculators moved in ahead of the symposium. We favor taking advantage of the high option premiums to speculate conservatively with a cost basis near technical support. It appears, based on the recent spike in price, somebody knows something. NOV 25.00 QMA KE LB=8.25 OI=92 CB=24.31 DE=21 MR=4.1% ***** ENTU - Entrust Technologies $29.25 *** On The Rebound! *** Entrust is a global provider of public-key infrastructure (PKI) products and services to e-businesses and other organizations. Their solution is a comprehensive, end-to-end PKI framework designed to assure the security of electronic transactions and communications over advanced networks, including the Internet. Its open, scalable software solution operates across multiple platforms, network devices and applications. The products that constitute the core of the company's PKI solution are unique alternatives to current industry offerings. Two weeks ago, ENTU reported that its third-quarter results beat analysts' estimates by two cents a share while showing a turnaround from a loss the previous period. Analysts agree with the company's new outlook and Merrill Lynch recently upgraded the stock. We favor a cost basis near technical support as ENTU forges a Stage I base. NOV 25.00 QYE KE LB=5.50 OI=672 CB=23.75 DE=21 MR=7.6% ***** PROX - Proxim $58.75 *** Earnings Rally? *** Proxim designs, manufactures and sells high performance wireless local area networking and building-to-building network products based on radio frequency technology. Proxim's highly integrated wireless client adapters and network infrastructure systems seamlessly extend existing enterprise LANs to enable mobility driven applications in a variety of in-building, campus area and building-to-building network environments. Their wireless LAN technology has been adopted by a number of major mobile computer system and handheld data terminal manufacturers and many leading wireless solution providers for data collection applications in manufacturing, warehousing, transportation and retailing, as well as for point-of-service networks in healthcare, hospitality, education and financial services. Proxim reported favorable earnings this quarter with an EPS of $0.13 on revenue of $29.3 million, a 19% increase from last quarter. Investors appear to be pleased as the share value has rallied from it's October low. Technically, Proxim has been consolidating in a trading range from $40 to $62, and this position offers a conservative entry point from which to speculate on a potential upside breakout. NOV 50.00 WQG KJ LB=10.50 OI=170 CB=48.25 DE=21 MR=5.3% ***** TSIX - 360networks $16.75 *** Bottom Fishing! *** 360networks offers broadband network and co-location services to telecommunications and data-centric organizations. 360networks is developing one of the largest and most technologically advanced fiber optic mesh networks in the world. By mid-2002, the planned network will span 131,500 kilometers (81,530 miles) and link more than 100 major cities with terrestrial routes and undersea cables in North America, South America, Europe, and Asia. 360networks reversed a severe downtrend this month after reporting a five-year agreement with FiberNet Telecom. This will allow 360networks to interconnect its global network with other major carriers and is expected to generate revenues of $20 million. This week, a new agreement with T-Cubed paved the way for 360networks to expand its existing North American network along high demand routes in the eastern U.S. We simply favor the strong technical reversal and the move back above historical support. NOV 12.50 IXQ KV LB=5.00 OI=5 CB=11.75 DE=21 MR=9.2% ***** VMSI - Ventana $25.63 *** Catfish Anyone? *** Ventana develops, manufactures and markets instrument/reagent systems that automate tissue preparation and slide staining in clinical histology and drug discovery laboratories worldwide. Ventana's clinical systems used in the diagnosis and treatment of cancer and infectious diseases. Ventana's drug discovery systems are used to accelerate the discovery of new drug targets and evaluate the safety of new drug compounds. Ventana reported 3rd quarter results last week which were in line with consensus expectations, but noted that the manufacturing issues that adversely impacted their 2nd and early 3rd quarter results are now resolved. Ventana is also expecting to receive final FDA approval for their Her-2/neu breast cancer diagnostic late in the 4th quarter. We favor the improving technical signals on a Stage I stock and the reasonable cost basis. NOV 22.50 QMP KX LB=4.00 OI=9 CB=21.63 DE=21 MR=5.8% ************************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=783 ************************************************************** *********************** CONSERVATIVE NAKED PUTS *********************** Option Trading Basics: Limit risk with position trading By Ray Cummins Option pricing is a complex and often misunderstood subject that usually requires a great deal of study to understand completely. The trader who perseveres will find there is a simple logic to most of the concepts. These knowledgeable traders earn the right to have less money at risk and greater potential for profits. As one becomes familiar with the components of pricing theory, he can he begin to formulate potentially profitable strategies. One of the primary considerations for most traders is risk versus reward. In the derivatives market, buyers of options have limited risk and unlimited reward while sellers of options have limited reward and unlimited risk. With this single perspective in mind, it's obvious why most retail traders simply 'buy' options. Most investors would never consider a position with unlimited risk and yet few understand that almost any trade that isn't fully hedged entails enormous speculation. A violent adverse move, which does not allow for timely adjustments, can quickly reduce any position to a fraction of its initial value. With this in mind, it's hard to understand why traders would take outright long or short positions under any circumstances. The only possible explanation is that they believe the probability of catastrophic loss is very small and the potential for profit is worth the risk. The average investor will normally do well with a position that has limited risk and the potential for large profits because one successful trade can easily overcome a series of limited losses. An aggressive investor who is willing to take larger risks for the opportunity of making greater profits might buy and sell index or equity options. The conservative investor would not want to be an outright buyer of options. For him, a covered-call position with moderate profit potential and reduced risk would be more appealing. The wealthy investor may be attracted to methods that offer the opportunity to earn regular income against portfolio collateral. Writing out-of-the-money naked puts may solve his needs. Some investors just want low maintenance plays with the chance to make reasonable profits without risking excessive amounts of money. Conservative combination positions would probably appeal to this group. The most important issue successful option traders understand is that the risk/reward characteristics of a position are not the only considerations. Equally important is the probability of profit or loss. When one evaluates a prospective position, the likelihood of each possible outcome must be factored into the assessment. Is the reward, even a limited one, sufficient to offset the risk? In option trading, risk comes in many forms. Luckily, there are also many ways to trade. To increase the probability of profit, the majority of successful option traders engage in some form of combination, position or spread trading. These methods are simply a way of enabling an option trader to take advantage of miss-priced options, while at the same time reducing the effects of short-term changes in market conditions so that he can safely hold an option position to maturity. While there is no perfect position for the option trader, successful investors learn to hedge their risk in as many different ways as possible, thereby minimizing the effects of short-term bad luck. You may not be able completely eliminate risk, but you can reduce it to much less than that of a novice trader who does not utilize all of the available strategies. Good Luck! *** WARNING *** Occasionally a company will experience catastrophic news causing a severe drop in the stock price. This may cause a devastatingly large loss which may wipe out all of your smaller gains. There is one very important rule; Don't sell naked puts on stocks that you don't want to own! It is also important that you consider using trading STOPS on naked option positions to help limit losses when the stock price drops. Many professional traders suggest closing the position when the stock price falls below the sold strike or using a buy-to-close STOP at a price that is no more than twice the original premium from the sold option. SUMMARY OF PREVIOUS PICKS ***** Stock Price Last Put Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return BCGI 23.94 23.13 NOV 17.50 0.56 *$ 0.56 11.4% CYTC 50.25 59.25 NOV 40.00 1.13 *$ 1.13 11.0% STAT 22.72 20.38 NOV 20.00 0.69 *$ 0.69 10.6% RNBO 23.50 24.88 NOV 17.50 0.44 *$ 0.44 9.3% 2-1 Split ENTU 29.00 29.25 NOV 20.00 0.50 *$ 0.50 8.6% PATH 17.63 17.81 NOV 15.00 0.38 *$ 0.38 8.6% OCR 16.88 16.38 NOV 15.00 0.63 *$ 0.63 8.3% CHTR 19.38 18.56 NOV 17.50 0.63 *$ 0.63 7.0% VICR 49.38 47.69 NOV 40.00 0.88 *$ 0.88 6.8% ICN 40.19 36.81 NOV 35.00 0.56 *$ 0.56 5.3% HSIC 22.56 20.63 NOV 20.00 0.50 *$ 0.50 5.2% VPI 25.50 20.56 NOV 22.50 0.50 $ -1.44 0.0% *$ = Stock price is above the sold striking price. Comments: Cytyc's (CYTC) downward move early in the week provided a great put-selling opportunity. I-Stat (STAT) is a bit worrisome though it did make a successful test of its 150 dma. Keep an eye on that issue! Charter Communications (CHTR) gave us a scare on Wednesday, and though it has since recovered, it warrants close attention. Oil stocks are fading and Vintage Petroleum (VPI), our oil sector hedge, is a candidate for early exit - especially if the issue breaks below its 150 dma on a closing basis. NEW PICKS ********* Sequenced by Return ****** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return ANSR 17.00 NOV 12.50 QRA WV 0.63 55 11.88 21 22.5% ECLP 25.31 NOV 20.00 IQV WD 0.50 5 19.50 21 13.0% APWR 55.63 NOV 35.00 PUW WG 1.06 11 33.94 21 12.6% CERN 60.31 NOV 50.00 CQN WJ 0.75 20 49.25 21 7.5% AMZN 35.63 NOV 22.50 ZQN WS 0.38 3250 22.13 21 7.2% ACXM 40.25 NOV 35.00 UQA WG 0.56 25 34.44 21 7.1% PLMD 57.50 NOV 45.00 PM WI 0.50 11 44.50 21 6.0% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** ACXM - Acxiom $40.25 *** New Trading Range! *** Acxiom is engaged in customer data integration in support of customer relationship management and they have three primary business lines: Services, Data Products and IT Management. The Services segment provides solutions that integrate and manage customer, consumer and business data using its information management skills and technology. The InfoBase data products include both business and consumer data. The IT Management division offers technology services in such areas as mainframe computing operations, client server management, network Web hosting and content change management, help desks and others. Acxiom recently reported that its second-quarter earnings rose a higher-than-expected 33% and that it expects the rest of the fiscal year to beat year-earlier results by at least 25%. The results were boosted by sales of Acxiom's new database software and the completion of 15 new contracts totaling $40 million. Our position is based solely on the move to a new trading range. NOV 35.00 UQA WG LB=0.56 OI=25 CB=34.44 DE=21 MR=7.1% ***** AMZN - Amazon.com $35.63 *** Cheap Speculation! *** Amazon.com is an online retailer that serves over millions of customer accounts in over 150 countries. The company directly offers for sale millions of distinct items in categories such as books, music, DVDs, videos, toys, electronics, software, video games and home improvement products. Amazon also has invested in and developed strategic commercial relationships with many e-commerce companies. Amazon.com recently surprised Wall Street by saying it lost less and sold more than expected in its third quarter. But, Lehman Brothers warned investors that the company's cash level is low and there is a potential for a cash squeeze from its vendors. Lehman also said it is concerned about the outcome of an SEC review of the company's accounting matters relating to the ACN. In response, the company's CEO said he is very confident that the accounting disclosure is correct and AMZN has about $900 million in cash and marketable securities. Jeetil Patel, an equities analyst with Deutsche Banc Alex. Brown, said Amazon.com's business is improving and it looks fairly solid. We will speculate on the company's future with a deep-OTM position. NOV 22.50 ZQN WS LB=0.38 OI=3250 CB=22.13 DE=21 MR=7.2% ***** ANSR - answerthink $17.00 *** IBM Buyout Target? *** answerthink provides comprehensive eBusiness strategy, marketing and technology-enabled solutions focused on the emerging digital marketplace. As an eBusiness leader, the company offers a range of integrated solutions, including best practices benchmarking, eBusiness strategy and architecture, interactive marketing and design, business applications and technology integration. ANSR recently reported that net revenues for the third quarter were up 22% to $84.1 million from $69.0 million last year. Net income increased to $6 million, or $0.15 per share, from $4 million, or $0.10 per share, in the third quarter of 1999. ANSR's earnings demonstrate that the company continues to strengthen and recent alliances should enhance their ability to deliver strategic technology-enabled solutions to new clients. In addition, IBM is rumored to be buying the company and traders say an announcement may be forthcoming in the next week. NOV 12.50 QRA WV LB=0.63 OI=55 CB=11.88 DE=21 MR=22.5% ***** APWR - AstroPower $55.63 *** Earnings Play! *** AstroPower develops, manufactures, markets and sells a range of solar electric power products for the global marketplace. The company currently sells five classes of products: solar cells, modules, panels, systems and solar electricity. The company's products are used to generate electricity for users not connected to the utility grid. The company also recently expanded a joint venture agreement with GPU International to generate wholesale solar electric power. Lots of news on the issue in recent weeks, including a lawsuit by the Fed over past R&D funding. However, the most important event in the near future is APWR's earnings report, due out next Tuesday. Our conservative position offers a favorable way to speculate on the outcome of the announcement. NOV 35.00 PUW WG LB=1.06 OI=11 CB=33.94 DE=21 MR=12.6% ***** CERN - Cerner Corporation $60.31 *** New Trading Range? *** Cerner designs, develops, markets, and supports information technology, and content solutions for healthcare organizations and consumers. These solutions are implemented on individual, combined or enterprise-wide systems and are accessible on the Internet by consumers, physicians and healthcare providers. The company's integrated suite of solutions enable providers to improve operating effectiveness, reduce costs, and improve the quality of care as measured by clinical outcomes. Cerner's solutions are designed to provide the appropriate information and knowledge to care givers, clinicians, and consumers the correct management information to healthcare administration on a real-time basis, allowing secure access to data by clinical and administrative users in organized settings of care and by consumers from their home. Some bullish forecasts have boosted this issue to a new trading range and we favor the opportunity to own the stock at a lower cost basis. NOV 50.00 CQN WJ LB=0.75 OI=20 CB=49.25 DE=21 MR=7.5% ***** ECLP - Eclipsys $25.31 *** Post-earnings Rally! ** Eclipsys is a leading healthcare information technology provider. The company provides, on an integrated basis, enterprise-wide, clinical management, access management, patient financial management, health information management, strategic decision support, resource planning management and enterprise application integration solutions to healthcare organizations. Additionally, the company provides other information solutions including remote hosting, outsourcing, networking technologies and other related services. The company's quarterly earnings results included a return to operational profitability one quarter earlier than expectations, nearly 30-percent sequential bookings growth and a sales funnel above $1 billion for the first time in the company's history. Banc of America and Merrill Lynch commented favorably on the report and now the issue is continuing its recent Stage II breakout on heavy volume. NOV 20.00 IQV WD LB=0.50 OI=5 CB=19.50 DE=21 MR=13.0% ***** PLMD - PolyMedica $57.50 *** Up, Up and Away! *** PolyMedica is a provider of direct-to-consumer specialty medical products and services, conducting business in the Chronic Care, Professional Products and Consumer Healthcare markets. The company markets diabetes supplies and adult nutrition supplies through its Chronic Care segment. The company's AZO brand participates in the over-the-counter urinary health market and it distributes a broad range of other medical products, including digital thermometers and compliance products, primarily to food and drug retailers and mass merchandisers nationwide, through its Consumer Healthcare segment. PolyMedica also manufactures and distributes a line of prescription urological and suppository products and provide direct-to-consumer prescription respiratory supplies and services to Medicare-eligible seniors suffering from chronic obstructive pulmonary disease through its Professional Products segment. PolyMedica recently reported third quarter net income that more than doubled last year's results and the issue responded favorably, climbing to the $50 range as traders speculated on the future of the company. Based on the technical indications, the share value may soon achieve an all-time high. NOV 45.00 PM WI LB=0.50 OI=11 CB=44.50 DE=21 MR=6.0% ************************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=815 ************************************************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Industrial Stocks Surge Amid Cautious Optimism... Friday, October 27 The Dow Jones industrial average rallied Friday on news of benign economic data and bullish earnings reports. The blue-chip gauge ended 210 points higher at 10,590. In contrast, the Nasdaq closed almost unchanged at 3,278 as investors continued to be wary of the technology sector after recent weakness. The S&P 500 index was up 15 points to 1,379. Trading volume was moderate on the NYSE with 1.08 billion shares exchanged. Broad market advances led declines 1,809 to 1,025. Trading volume on the Nasdaq was slightly above 2 billion shares, with advances beating declines 2,063 to 1,843. In currency trade, the Euro rose against the dollar amid new signs of moderation in U.S. economic growth. In the U.S. bond market, the 30-year Treasury fell 5/32, pushing its yield up to 5.74%. Portfolio Plays: Blue-chips stocks led the Dow to a substantial rally Friday as benign economic news boosted investor optimism concerning the Fed's upcoming meeting. U.S. economic growth slowed markedly in the third quarter, falling to a 2.7% annual rate, the lowest in five quarters, and below analysts' expectations of a 3.6% rise. With inflation under control, the Fed will likely leave interest rates unchanged and that could bode well for the stock market in the first quarter of 2001. Traders expressed confidence that the FOMC may be more upbeat in their bias for the U.S. economy after today's report and the bullish attitude was evident in companies that are interest-rate sensitive. J.P. Morgan (JPM) led the Dow, soaring almost $13 to $158 after analysts commented that a "soft landing" may be in store for the market. Procter & Gamble (PG), General Motors (GM) and Microsoft (MSFT) also participated in the upside activity. At the same time, technology issues edged lower as investors avoided the group amid fears of another sharp sell-off. A positive earnings report from JDS Uniphase (JDSU) was one of the few favorable events and the announcement gave the networking sector a boost. The company posted profits that more than doubled last year's results and exceeded the Street's estimates by $0.02. Telecom stocks also recovered with Nextel (NXTL) rebounding $6 to $35 after a precipitous drop earlier in the week. Biotechnology issues were a disappointment with the sector retreating after Amgen (AMGN) warned of lower earnings in the coming quarters. In the broader market, bank, brokerage, utility and airline shares lent support while heavy losses in the oil sector reined in additional gains as December crude slid to the $32 range. Bellwether issues led the Combos portfolio in today's session and our recent play in Microsoft (MSFT) is off to a good start. Shares of the software giant rallied over $3 to $67, even after company officials said hackers had broken into the main computer system. Microsoft's Chief Executive Steve Ballmer said that the hackers did not do any damage, nor did they find the source code to any of the company's key programs. Microsoft's shares have recovered significantly since the beleaguered software company posted profits that exceeded consensus expectations and analysts issued an upbeat note on future revenues. The software industry giant, whose Windows operating system powers the vast majority of PC's, said profits rose 18%, handily beating the Wall Street estimates. Although much of the gain came from Microsoft's vast investment portfolio, the company said it also saw strong sales of its flagship product, the Windows 2000 operating system for corporate networks, and of the new Millenium Edition for home users. Intel (INTC) has also been a top performer since we initiated a bullish debit spread, before the company's recent earnings report. Today the upward movement continued after the company's CEO said Intel's long-awaited Pentium 4 microprocessor would be launched in about one month, just ahead of its original year-end target. The Pentium 4 chip will help the company regain bragging rights for the world's fastest microprocessor, running at speeds up to 1.5 ghz. Advanced Micro Devices (AMD) began shipping its 1.2 ghz Athlon chip earlier this month. Human Genome Sciences (HGSI) was another big mover Friday, up over $6 to $88, after officials at the company said they had priced a public offering of 11 million shares at $75 a share and would use the $825 million of proceeds for research and development. The company also announced plans to pursue patent coverage for the firm's genes and other products. Analysts saw the news as favorable and CIBC World Markets started coverage of the genome issue with a "strong buy" rating. On the downside, shares of Handspring (HAND) fell sharply in the last half hour of trading with little news to explain the slide. The stock was trading near $88 with 30 minutes to go before dropping precipitously on accelerating volume to close near $79. Traders said that selling by an institutional holder was behind the move and that might explain fact that more than 250,000 shares changed hands in the last half hour; nearly one-quarter of Handspring's average daily volume. Our big winner in the small-cap category was Globix (GBIX). The stock fell $2.44 to $10 in a third consecutive session of losses and our recent debit straddle achieved an $8.50 credit overall. That's a $2.50 profit on $6.00 originally invested in less than one month. Leaders in the mid-cap group included Allstate (ALL), BellSouth (BLS) and Home Depot (HD) and one of the portfolio's slumping positions, Delta Airlines (DAL) has started to recover after a week of downward movement. The move came amid strength in the airline group and we will use any upcoming rally in DAL's share value to exit the bullish position near break-even, or at a small loss. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** MCLD - McLeodUSA $17.63 ** Reader's Request! *** McLeodUSA provides communications services to business and residential customers in the US Midwestern and Rocky Mountain regions. The company offers local, long distance, Internet access, data and voice mail, all from a single company on a single bill. McLeodUSA derives most of its revenue from its core business of providing competitive local, long distance and related communications services in competition with the existing telephone companies; sale of advertising space in telephone directories; traditional local telephone company services in east central Illinois and southeast South Dakota; and communications facilities and services dedicated for a particular customer's use. MCLD also derives revenue from communications network maintenance services; telephone equipment sales, leasing, service and other installations; video services; telemarketing services; computer networking services; and communications services, including cellular, operator, payphone, and paging services. McLeodUSA, one of the nation's top telecommunications companies, recently reported outstanding earnings for the quarter. Total revenues were a record $366 million, compared to $241 million for the same period one year ago, an increase of 52%. McLeodUSA experienced a surprisingly solid quarter, exceeding expectations for both revenue and EBITDA. Most notably, their revenue total in sequential quarters rose 10% on sales of more than 117,000 new lines. The CEO commented that the company's ability to integrate voice and data networks, along with improvements in their competitive margins, contributed very positively to the results. One of our subscribers was kind enough to point out the recent bullish activity in the Telecom Services Group and in the share value of MCLD. He also requested that we identify a favorable spread position in the issue. Based on the technical outlook and increased option interest, the easiest way to profit from any future upside movement may involve one of the most common forms of debit spreads. PLAY (conservative - bullish/debit spread): BUY CALL DEC-15.00 QMD-LC OI=50 A=$3.62 SELL CALL DEC-17.50 QMD-LP OI=59 B=$2.12 INITIAL NET DEBIT TARGET=$1.38 ROI(max)=81% B/E=$16.38 ****************************************************************** - TECHNICALS ONLY - The healthcare sector has been extremely bullish in recent weeks and Friday's blue-chip rally suggests that investors are going to be very selective in the stocks they choose during the upcoming quarter. Here are two top companies in this powerful group that would certainly be a great addition to any long-term portfolio. These plays are based on the current price or trading range of the underlying issue and the recent technical history or trend. The probability of profit from these positions is also higher than other plays in the same strategy based on disparities in option pricing. Current news and market sentiment will have an effect on these issues. Review each play individually and make your own decision about the future outcome of the position. ****************************************************************** WLP - WellPoint $114.00 *** Up, Up, and Away! *** WellPoint Health Networks is a managed health care company with over 7 million medical members and 32 million specialty members. The company offers a broad spectrum of quality network-based managed care plans, including preferred provider organizations, health maintenance organizations and point-of-service and other hybrid plans and traditional indemnity plans. In addition, the company offers managed care services, including underwriting, actuarial services, network access, medical cost management and claims processing. WellPoint also provides a broad array of specialty and other products, including pharmacy, dental, utilization management, life insurance, preventive care, disability insurance, behavioral health, COBRA and flexible benefits account administration. PLAY (conservative - bullish/credit spread): BUY PUT NOV-95 WLP-WS OI=245 A=$0.75 SELL PUT NOV-100 WLP-WT OI=2 B=$1.25 INITIAL NET CREDIT TARGET=$0.62-$0.69 ROI(max)=14% B/E=$99.38 ****************************************************************** UNH - UnitedHealth Group $109.69 *** Solid Earnings! *** UnitedHealth Group forms and operates markets for the exchange of health and wellbeing services. The company provides a broad spectrum of resources to help people improve their health and well being through all stages of life. The company's Health Care Services segment consists of the UnitedHealthcare and Ovations businesses. UnitedHealthcare coordinates network-based health and well-being services on behalf of local employers and consumers in six broad regional U.S. markets. Ovations is a business dedicated to advancing the health and well-being goals of Americans in the second half of life, age 50 and older. The company's Uniprise business is devoted to serving the needs of large organizations. UNH's Specialized Care Services is a portfolio of specialized health and well-being companies. The company's Ingenix business operates in the field of health care data and information, analysis and application. PLAY (conservative - bullish/credit spread): BUY PUT NOV-95 UNH-WS OI=855 A=$1.00 SELL PUT NOV-100 UNH-WT OI=100 B=$1.69 INITIAL NET CREDIT TARGET=$0.75-$0.88 ROI(max)=17% B/E=$99.25 ****************************************************************** - STRADDLES AND STRANGLES - ****************************************************************** RCOT - Recoton $12.44 *** Volatility Play! *** Recoton is a global leader in the development, manufacturing and marketing of branded home and mobile audio products, video and computer game accessories and consumer electronic accessories for aftermarket use by consumers. The company offers diverse lines of products that include accessories for audio, video, car audio, camcorder, multi-media/computer, home office, cellular and standard telephone, music and video game products and 900 Megahertz (MHz) wireless technology headphones and speakers. Recoton classifies its business into three principal segments: Audio, Video and Computer Game, and Consumer Electronics. Over the past few weeks, we have received a number of requests for candidates in the premium-selling category of options trading. Based on analysis of historical option pricing and technical trading patterns, this position meets our fundamental criteria for a potential credit-strangle. The underlying issue has a relatively well-defined trading range and the recent earnings-related volatility has inflated the near-term option premiums. As with any recommendation, the position should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. PLAY (aggressive - neutral/credit strangle): SELL CALL NOV-17.50 ROQ-KW OI=40 B=$0.75 SELL PUT NOV-10.00 ROQ-WB OI=70 B=$0.88 INITIAL NET CREDIT TARGET=$1.62-$1.75 ROI(max)=38% UPSIDE B/E=$19.12 DOWNSIDE B/E=$8.38 ****************************************************************** - STAFF CONTRIBUTIONS - ****************************************************************** JDSU - JDS Uniphase $77.25 *** Poised to Rise! *** JDS Uniphase is a provider of advanced fiberoptic components and modules. The company's components and modules are basic building blocks for fiberoptic networks and perform both ptical-only (passive) and optoelectronic (active) functions within these networks. The company's products include semiconductor lasers, high-speed external modulators, transmitters, amplifiers, couplers, multiplexers, circulators, tunable filters, optical switches and isolators for fiberoptic applications. The company also supplies its OEM customers with test instruments for both system production applications and network installation. In addition, the company designs, manufactures and markets laser subsystems for a broad range of commercial applications which include biotechnology, industrial process control and measurement, graphics and printing and semiconductor equipment manufactured by its customers. JDS Uniphase is a big player in the optical arena, and it just keeps getting bigger! Via internal growth and a strategy of mergers and acquisitions, the company has propelled its market cap to rival those of the biggest corporations on the Nasdaq and in the S&P 100 index (OEX). However, JDSU is not stopping there as it plans to acquire SDL Inc. (SDLI) in the coming months and there will likely be more surprises down the road. JDSU's growth strategies are often compared to another Wall Street darling, Cisco Systems (CSCO). The recent market turmoil and the extremely harsh reaction to Nortel's earnings (NT) cost JDSU (and the optical sector in general) a large chunk of their market cap. But, JDSU itself reported good earnings and that will bode well for the issue in the coming sessions. If you favor the company and would like to own the stock, now would be a good time to purchase it. However, if you are bullish on the outlook but would like to buy the issue at a discount, a deep-in-the-money bullish (put) spread may be in order. PLAY (speculative - bullish/credit spread): BUY PUT NOV-60 UQD-WL OI=7922 A=$1.88 SELL PUT NOV-90 XXZ-WR OI=6237 B=$14.50 INITIAL NET CREDIT TARGET=$12.25-$12.50 JDSU COST BASIS=77.75 JDSU was trading well above $100 before the October slump but even with the recent woes, it was bullish until Nortel (NT) surprised the street with good earnings and poor forecasts. The idea here is to be "put" the stock and then ride it back north of $90. If the stock remains at its current level, no harm is done, you will be assigned the stock at a cost basis slightly better than Friday's closing price. ****************************************************************** - INDEX OPTION SPREADS - ****************************************************************** As a trader, you may be familiar with options on individual stocks where you have the right to buy (call option) or the right to sell (put option) a particular stock at some predetermined price within some predetermined time. The buyer has the rights and the seller the obligations. With index options the basic ideas are the same. Index options allow you to make investment decisions on a specific market industry or on the market as a whole. Spread strategies can be made with index options similar to those made with individual stock options. Many professional traders employ index spreads as a hedge strategy. We favor debit positions on the SPX for momentum and hedge or longer-term plays and OTM credit spreads on the OEX when the risk/reward is favorable. Low ROI disparity spreads will be listed (when available) for the conservative index trader. ****************************************************************** SPX - S&P 500 Index $1379.58 *** Hedge Your Longs! *** Composed of 500 stocks selected by the analysts at Standard & Poor's, this index represents the best stocks, not necessarily the largest, stocks taken from all the exchanges and the NASDAQ. (The NASDAQ is not technically an exchange because it doesn't have a central clearing floor like the NYSE and the AMEX.) This is the best index to follow larger capitalization stocks. In a turbulent market (like the one we are in today) one needs to hedge long positions. One way to do so is to buy Puts on the stocks you own, or to sell-short others that are poised to fall. There is no shortage of theories on how to best hedge your positions. Since I try to go long only in equities that I am strongly interested in owning (for a long time), I have little inclination to bet against my choices by buying puts against them. Also, I typically sell covered calls against my long positions. For hedging, I like to play a more diversified index or a HOLDR such as the QQQ, OEX, or the SPX. The advantage of using the SPX is that its options are European style, thus they can not be exercised except on expiration. This is important because its options are also cash settled. Instead of buying straight puts, we will buy a put-debit spread. After all, this is a hedge play and not a directional bet. If the market takes off from here, we would like to limit our loss in this position. PLAY (speculative - bearish put spread): BUY PUT NOV-1400 SXZ-WT OI=23354 A=$33.50 SELL PUT NOV-1375 SXY-WO OI=17819 B=$21.63 INITIAL NET DEBIT TARGET=$11.50-$12.00 TARGET ROI=110% B/E=$1388.13 If the market rallies, both options will expire worthless and we will lose the premium initially paid. If the market falters and the SPX closes below 1375 at expiration, our spread will be worth $25; over a 100% return. That is not an unlikely possibility, considering that the SPX spent most of October below 1380. Playing these particular strikes also offers the possibility of making some money even if the market stays flat or makes a slight upward movement. ********************************Advertisement******************** American Express. 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