The Option Investor Newsletter Wednesday 11-01-2000 Copyright 2000, All rights reserved. 1 of 1 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/110100_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 11-01-2000 High Low Volume Advance/Decline DJIA 10899.50 - 71.60 10993.50 10838.00 1.20 bln 1411/1466 NASDAQ 3333.39 - 36.24 3396.72 3289.46 2.02 bln 1829/2115 S&P 100 748.39 - 2.54 753.46 741.91 totals 3240/3581 S&P 500 1421.22 - 8.18 1429.60 1410.45 47.5%/52.5% RUS 2000 495.18 - 2.50 497.68 493.20 DJ TRANS 2752.77 + 8.15 2787.73 2727.22 VIX 26.56 + 0.57 27.09 25.89 Put/Call Ratio 0.50 ****************************************************************** Profit Taking Today Normal and Expected With all things considered, today wasn't that bad at all. In fact, it was another encouraging day for both the major indices. After such huge gains on Monday, profit taking was bound to happen. Considering today's minimal losses in the INDU versus the previous four days' gains, its chart looks technically sound. Over at the NASDAQ, bad news out of the Telecom and the Semi sector was potentially disastrous but the bleeding was minimal and contained. Today's action, although red, is most encouraging. The tech index has been the source of pain for most traders and investors, myself included. With the INDU holding its own lately, the concerns are on the NASDAQ's technical health. Is it a bottom? Is it the bottom? Is there a difference? Who knows, but one thing is apparent: today's 36 points of profit taking on lower volume is just another step in the bottoming process, and honestly it is starting to feel like the real deal. For the NASDAQ to shake off a major telecom player's profit warning and Semi downgrades, it makes even a skeptic like myself feel more comfortable with its prospects. My thinking after yesterday's 5.5% rally was that the NASDAQ needs to show that it can take the heat of profit takers by maintaining 3300 and not giving up the ground that it gained. And in doing so on slightly lighter volume, it gives much more merit to yesterday's rally. In the chart above, you can see that bottoming process continues on. It is likely that the NASDAQ remains somewhat range bound during this process as it builds to break the triple top near 3520. This breakout would effectively take the NASDAQ to a new range. The end all be all pivot point of this recent trendline is 3081. A NASDAQ recovery, which is already underway, is hinged up on this October 26th low, a relatively higher low from the October 18th low at 3026. The next level that the NASDAQ will encounter resistance is 3400, as sellers stepped in at 3396 today. Yet, this is just the technical aspect of the NASDAQ's recovery. To strengthen these technical developments is the fact that the NASDAQ was able to contain and digest the two following pieces of bad news: WCOM's profit warning and ALTR's lowered revenue guidance. WCOM came out today and warned investors that their 4th quarter earnings would be in the range of 34 to 37 cents versus previous estimates of $0.49. They cited intense pricing pressure, (sound familiar? AT&T), and also an unfavorable exchange rate, in secret analyst code: the Euro. But somewhat surprisingly, WCOM also unveiled a restructuring plan, a la AT&T, in which it would split into two publicly traded tracking stocks, WCOM and MCIT. The latter would reflect the MCI arm of the behemoth. By further separating the two, it is evident that the MCI acquisition of 1998 hasn't been integrated like it was probably envisioned. WCOM lost 20% today, falling to $19 as the Telecom sector continues to slide into the abyss. The second piece of bad news that the NASDAQ shook off was the profit warning of ALTR. With the Semi sector plagued with earnings and revenue slowdowns recently, it isn't extremely surprising that ALTR sees 4th quarter sequential revenue growth at the low end of its previous guidance. As a result, WR Hambrecht & Co. lowered the stock to a Neutral from a Strong Buy on the grounds that it sees a potential inventory correction for ALTR taking place in the March 2001 quarter. Merrill Lynch decreased its 2000 EPS estimates as they feel ALTR is losing market share to XLNX. The only brokerage firm to defend ALTR was Bear Stearns. The SOX.X index lost almost 4% but it closely mirrors the NASDAQ and looks to be processing a bottom as well. With the worst of the bad news already priced into the market, it is that much more likely that downside is limited in the Semi sector. ALTR fell 20%, or $8.38 to $32.56. The loss for XLNX was less damaging at -7% to $67.44. In the rocky Fiber Optic sector, NT again played the spoiler less than a week after it was hammered for revenue concerns. Today, the company north of the border said that although it will match expectations in the 4th quarter, its EPS for the 1st quarter 2001 will fall short by a penny. NT was only down $1.50, but that represents over 3%, closing at $44. The company has seen its share price drop 30% in the last week. Fiber Optic stocks, which have been some of the last to fetch sky-high valuations, like JDSU(-2.94), SDLI(-12.75), GLW(-2.88), have all felt NT's pain. But once again, the NASDAQ was able to localize the damage and hang onto the majority of yesterday's gains. For the INDU, it has remained technically sound and the V bottom since dipping below 10000 is firmly in place. It has been quite impressive. Although its four consecutive days of rallying was broken today, the profit taking was very minimal and expected. The INDU was down 71 points, not even one percent! Consider this: those four days to the upside accounted for 645 points, over 6%! It really looks great. You don't hear anyone questioning that bottom now, do you? With the previous downtrend on broken, the INDU is technically poised to continue higher into the end of the year. The 11000 area will be tough resistance but if the INDU backfills and consolidates these four day gains, it's new trend will be that much stronger. Looking forward, we can be encouraged by the past two days of trading for both indices. As for the NASDAQ, today was the most convincing day that we are strengthening this base at 3000. Instead of simple profit taking, the NASDAQ very well could have fallen hard and fast today, wiping out yesterday's 178 point gain. Especially given the slew of bad news that the tech index had to digest today. On the brighter side, after the bell, a senior executive at CSCO said that he sees no decrease in demand of Internet products by its Latin American customers. CSCO was up slightly in after hours, and this may be a positive precursor to their earnings due out on Monday, November 6th. There's no doubt that this will set the tone for year-end trading. Tomorrow we have Initial Jobless Claims(expected 305K) and Productivity (expected 3.5%). Ralph Acampora of Prudential Securities said today he believes that the INDU has a rally coming into year-end and that the NASDAQ will likely remain rangebound. He also stated some interesting facts about the markets and elections. I will leave you with them as we quickly approach Election Day. In 23 of the last 33 elections, stocks rallied about 9% prior to the vote, and afterwards, they typically have a honeymoon rally of up to 20%. Take it for what it's worth but things are beginning to feel better everyday as the markets continue their turnarounds. 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******************** Option trades starting at only $15.50, stock trades as low as $9.95! Mr. Stock provides key advantages to the serious option investor. Along with complex option trading online, fast executions, advanced charting capabilities and the ability to trade from any screen, we now offer some of the best commissions on the Internet. Our staff understands the sense of urgency required in today's market and will respond quickly to your most important trading needs. http://mojofarm.mediaplex.com/adserver/click_thru_request/565-58-1875-3 ***************************************************************** ************** TRADERS CORNER ************** If You Survived This Year, You Deserve Some Credit By Mary Redmond If you survived this year, congratulate yourself. It has not been easy. In fact, we had the worst market in many years. However, it is very reasonable to predict that next year will be better. History has shown that the worst environment for the stock market is one of rising interest rates. In fact, during each rate hike cycle of the last twenty years, the market has been flat to down. All interest rates rose this year except the 30 year bond yield, which was kept down by the Treasury's buy back program. In addition, there is not always a direct correlation between the earnings growth of the S&P 500 companies and overall stock market performance. In fact, over the last 50 years, the S&P 500 has rallied on average in double digits when we had earnings growth rates of under 5% or less. For example, in 1991, the earnings growth rate of the stocks of the S&P 500 declined over 8%, and the market rallied over 19%. 1996, 1997, and 1998 were years in which the S&P 500 had single digit earnings growth and double digit market growth. No one knows why this is true. It may be correlated to low or decreasing interest rates, which can stimulate economic expansion, and low inflation. High inflation decreases the value of a dollar, since each dollar gives less purchasing power. The stock market usually rallies or declines on the expectation of future earnings growth rather than present earnings growth. If XYZ stock reported that their earnings increased 5% last quarter, but would probably increase 10% next quarter the stock would most likely take off. If the opposite happened, it would probably tank. We also need to consider that the Dow was 4000 in 1995. It has increased 150% since then, and it is possible that the index just needed a long period of consolidation before moving higher. Over the past several years, there has been a correlation between the market performance and the cash flows to equity funds minus initial public offerings. For example, in 1994, the cash flows to funds were approximately equal to the amount of money raised in IPOs, and the markets stayed flat. In 1995, the amount of money raised in IPOs equaled about 75% of the cash which was deposited into equity funds, and the market rallied over 35%. In 1996, 1997, and 1998 the amount of cash which was deposited to equity funds exceeded the dollar amount of money raised in IPOs by between 30 to 50% each year, and the markets experienced double digit gains. However, from June of 1999 to June of 2000, the amount of money raised in IPOs dwarfed the amount of money which went into equity funds. Last week AMG Data reported that equity funds took in over $6 billion, and the Investment Company Institute reported that money market funds experienced a net outflow of over $10 bln. In addition, the IPO schedule has been light, and will probably continue to stay light for the foreseeable future. Profitable companies are able to raise money, but technology companies with no earnings are in the dog house. It is difficult to estimate the impact the tight corporate finance markets have had on the GDP, but it seems unlikely the situation will change in the immediate future. Despite the fact that we have not been in a bull market for over a year, we have had a plethora of trading opportunities. Intra day volatility is higher than it ever has been, and day traders have had an appetizing menu of stocks which moved up and down in double digits almost every day. It is important to fine tune your trading skills for better periods. One of the best ways to do this is determine the best time frame for each trade. Before you enter a trade, consider if you want to exit the trade in a few minutes, a few hours, or several months. We are fortunate enough to have many highly accurate technical indicators as well as liquid short term options, and LEAPs with time frames as long as three years. For example, the week before last I bought Jan 03 GE 50 LEAPs when GE dropped below the 200 DMA for the first time in years. This trade has been profitable. However, I have held onto the LEAPs. The time decay is almost negligible for the next couple of months. In addition, GE has shown such a consistent pattern for many years that it is realistic to think it can continue along the same trend line for the next year. In contrast, I have found Ciena to be an excellent day trading stock with liquid short term options which have small spreads. This stock also responds well to the stochastic indicator, as well as the MACD indicator. I have found it is best for me to use 10-3 settings on the stochastic and a 5 minute time chart for tight analysis. Ciena has presented many day trading opportunities for 10 - 20% profit in less than an hour. If you day trade, you avoid the risk of some analyst downgrading a stock and destroying the entire sector, or some company reporting earnings one tenth of one percent lower than expected and tanking the entire market. It is entirely possible that daylight savings affects the market. This year, daylight savings occurred on April 2. The Nasdaq was over 4200, and dropped to 3300 by April 15. The Dow was 11,221 on March 31, and dropped to 10,305 by April 15. The S&P 500 was 1505 on April 3, and dropped to 1356 on April 15. This spring may have been difficult because we were in the midst of a cycle of rate hikes, but the pattern of rallying from November through April has held for 50 years. People feel uncomfortable and anxious when their body rhythms are thrown out of whack, and this can show up in the market's nervousness. ************************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=842 ************************************************************** ********************** PLAY OF THE DAY - CALL ********************** CMVT - Comverse Technology $117.13 +5.50 (+7.44 this week) Comverse Technology Inc. is the world leader in multimedia telecommunications applications. Founded in 1984 and publicly-traded since 1986, Comverse Technology Inc. is based in Woodbury, Long Island, New York and is a NASDAQ-100 Index company. Through its Comverse Network Systems division, the market leader, the Company markets its Access NP and TRILOGUE Infinity Enhanced Services Platforms, which enable wireless, wireline, and internet companies to offer, to their residential and business customers, a growing range of revenue-generating enhanced services. Most Recent Write-Up Pundits are still debating about whether or not the NASDAQ has found its bottom. Investors in CMVT are already wondering when the stock will take out its all-time highs. Having found its bottom in mid-October at the $85 level and successfully testing its 200-dma (now at $90), the stock has since moved higher. With today's close, CMVT is one of the few Tech stocks to end the dreaded month of October in the positive. One of the factors contributing to CMVT's performance is the appreciation of its holdings in wireless networking software maker Ulticom Inc. (ULCM). Since going public in April at $20 a share, ULCM has gone up over 150%. As a majority shareholder of ULCM, this is good news indeed for CMVT. Most recently, CMVT has been in a trading range, between $100 and $115. Connecting the lows since mid-October however, reveals that the stock has been making higher lows, and having conquered resistance at $110, appears poised to take out even stronger resistance at $115. A break above $115 will set CMVT up for its next hurdle, at $120. From there, the stock would be poised to challenge its all-time highs. For aggressive traders, an ideal entry point can be found on a bounce off $107, where the 5 and 10-dmas are currently converged. Support can also be found in increments of $5 at $110 and $105. In managing this play, consider using a stop around the $105 level. A break below this point would end CMVT's string of higher lows and signal a possible break of its current up-trend. For conservative traders who want to enter on strength, a break above resistance at $115, back by high volume would be the ideal entry point. Comments On a profit taking day for the NASDAQ, CMVT bucked the trend and added almost 5% to its price. Volume was stronger than the previous three days to back up the move. There certainly is momentum in this play. Big buyers stepped in about 10:30am EDT this morning bidding up CMVT. To play this tomorrow, first, be watchful of profit takers. The NASDAQ feels positive, so look for buyers to support CMVT at $115. Bounces from there would be nice entries. Below, look at $114. If profit takers reign tomorrow, the 10-dma has provided support at $109.35, but we wouldn't expect such dramatic selling. Resistance lies at $119. BUY CALL NOV-110*CQZ-KB OI=1076 at $12.38 SL=10.00 BUY CALL NOV-115 CQZ-KC OI= 994 at $ 9.38 SL= 7.00 BUY CALL NOV-120 CQZ-KD OI= 436 at $ 7.00 SL= 5.25 BUY CALL DEC-110 CQZ-LB OI= 23 at $17.50 SL=13.50 BUY CALL DEC-115 CQZ-LC OI= 82 at $14.88 SL=11.75 SELL PUT NOV-100 CQZ-WT OI=1249 at $ 1.75 SL= 3.50 (See risks of selling puts in play legend) Picked on Oct 31st at $111.75 P/E = 90 Change since picked +5.50 52-week high=$123.88 Analysts Ratings 12-4-0-0-0 52-week low =$ 54.56 Last earnings 08/00 est= 0.34 actual= 0.36 Next earnings 11-28 est= 0.36 versus= 0.28 Average Daily Volume = 2.43 mln ***************************************** BIG CAP COVERED CALLS & NAKED PUT SECTION ***************************************** Profit-taking and an earnings warning make for a jittery market... The stock market retreated today, as investors took profits after a four-day rally in blue-chip issues. The industrial group fell back on selling in financial stocks, with brokerage shares leading the way after Goldman Sachs cut its profit estimates for a number of companies in the sector. In technology issues, an unexpected profit warning from WorldCom (WCOM) battered the telecom industry and a slew of bearish analyst comments hammered the semiconductor group. Altera (ALTR) was the big loser, falling $8 to $32.69 on news that fourth-quarter revenue growth will be at the low end of previous estimates. Amid the turmoil, Morgan Stanley Dean Witter downgraded its ratings on almost every major company in the chip equipment sector including, Applied Materials (AMAT), Lam Research (LRCX), Advanced Energy (AEIS) and KLA-Tencor (KLAC). Adding to the fray, J.P. Morgan lowered its opinion of the semiconductor industry overall. The beleaguered networking group ended mixed after Nortel Networks (NT), a recent catalyst for selling, said it'll match Wall Street's earnings-per-share expectations in the fourth quarter but will miss first-quarter estimates by a penny. The only upside activity in technology shares came in Internet issues as bellwether stocks Yahoo! (YHOO), CMG Inc. (CMGI) and EBay (EBAY), enjoyed excellent gains. In the broader market, biotechnology and utility shares edged higher, and oil service issues rallied in the wake of an American Petroleum Institute report that showed crude inventories fell more than expected in the last week of October. Summary of Previous Picks: Covered Calls: (Margin would double the listed Monthly Return) Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return None - Waiting for favorable premiums... Naked Puts: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return PCYC NOV 45 43.62 55.38 $1.38 14.2% APWR NOV 40 38.56 46.88 $1.44 10.8% AVCT NOV 60 58.50 69.63 $1.50 9.6% DCTM NOV 50 48.44 84.25 $1.56 9.0% VRTX NOV 70 68.81 94.81 $1.19 7.7% HAND NOV 50 48.75 71.81 $1.25 6.5% KREM NOV 65 64.06 102.56 $0.94 6.4% VRTS NOV 110 108.13 143.13 $1.88 5.9% HGSI NOV 70 68.94 96.00 $1.06 5.1% Sell Straddles: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return EXAR NOV 42.5 40.50 44.00 $2.00 15.4% Adj 2-1 Split EXAR NOV 63 65.19 44.00 $2.69 20.5% Adj 2-1 Split Naked Calls: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return NEWP NOV 190 191.69 106.06 $1.69 8.9% BRCM NOV 280 282.19 215.31 $2.19 6.3% JNPR NOV 280 281.56 183.38 $1.56 5.1% New Candidates: This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any strategy or technique in which you are not completely comfortable with the potential loss, the necessary adjustments and the common entry-exit strategies. (We monitor the positions marked with ***). *************** BULLISH PLAYS - Covered Calls & Naked Puts *************** ELNT - Elantec Semiconductor $105.25 *** Sector Leader! *** Elantec Semiconductor designs, manufactures and markets high performance analog integrated circuits primarily for the video, optical storage, integrated DC:DC, and xDSL markets. The offer around 150 items, including amplifiers, drivers, faders, transceivers and multiplexers, most of which are available in multiple packaging configurations. Elantec targets high growth commercial markets in which advances in digital technology are driving increasing demand for high speed, high precision and low power consumption analog circuits. Elantec is an industry leader in the design of high performance analog integrated circuits and today they debuted a number of new products for video signal processing. These unique high-speed amplifiers complete the company's new current feedback families. With high bandwidths and slew rates, modest power consumption and competitive prices, the products are ideal for next-generation video designs as well as other high-bandwidth applications. Another recently offered product is their new DSL line driver for high-density, low power, central office line card designs. The unique miniature design is a testament to the company's focus to provide a wide range of innovative products with high capacity manufacturing for the line driver needs of the xDSL technologies. In other news, Elantec soared past analysts' estimates in its fourth quarter results released earlier this month. ELNT earned $8.1 million, or $0.33 a share, on sales of $36.9 million. First Call expected the chipmaker to earn $0.27 a share in the quarter. The $36 million in sales is a 158% improvement from the year-ago quarter and the company's CEO said he expects ELNT to experience significant revenue and profit growth in the coming year. Traders who favor the bullish fundamental outlook for Elantec can use this position to establish an acceptable cost basis in the underlying issue. ELNT - Elantec Semiconductor $105.25 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put NOV 75 UET WO 16 0.75 74.25 6.5% *** Sell Put NOV 80 UET WP 43 1.13 78.87 9.7% Sell Put NOV 85 UET WQ 14 1.81 83.19 14.5% ****** EPNY - E.piphany $96.31 *** Split Rally! *** E.piphany is a provider of unique analytic campaign management personalization software solutions. E.piphany's E.4 system creates a single, view of each customer, enabling insight and personalized action across all points of interaction. The E.4 system combines data extraction, data warehousing, reporting, data mining, campaign management and personalization into an integrated, Web-based platform that eliminates the need to maintain multiple software tools from various vendors. Using the system, companies can analyze customer characteristics and preferences, generate marketing campaigns and improve each customer interaction with personalization and product recommendations. The rally in EPNY shares began earlier this month when analysts upgraded the stock after the company posted smaller-than-expected losses in the quarterly report. E.piphany said it lost $0.17 per share in the third quarter, substantially less than the consensus analyst forecast for a $0.32 loss. After the announcement, both US Bancorp Piper Jaffray and Banc of America Securities upgraded the stock to a "strong buy." In its report, Banc of America said the company's third quarter results were outstanding and promptly lowered its forecast operating loss for the fiscal year 2000. The company also announced a three-for-two stock split, payable on November 13, to shareholders of record on October 30. The split will be effected in the form of a stock dividend. Investors who favor the outlook for the company can speculate on the outcome of the pre-split rally with these relatively low risk positions. EPNY - E.piphany $96.31 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put NOV 60 PEY WL 101 0.69 59.31 6.6% *** Sell Put NOV 65 PEY WM 23 1.25 63.75 11.6% Sell Put NOV 70 PEY WN 75 2.13 67.87 18.9% ****** HGSI - Human Genome Sciences $96.00 *** On The Move! *** Human Genome Sciences researches and develops novel compounds for treating and diagnosing human diseases based on the discovery and understanding of the medical usefulness of genes. The unique company has used automated, high speed technology to discover the sequences of chemicals in genes and generate a large collection of partial human gene sequences. The company believes that its collection includes most of the genes responsible for producing proteins in the human body. Human Genome possesses one of the largest databases of the genes of humans and microbes, which the company refers to as its genomic database. It has created a base of product opportunities based on its genomic technology. The company is now focused primarily on the research and development of proteins for the treatment of human disease. HGSI was one of the high fliers of last year and also the first quarter of this year. Then the Nasdaq crashed and with it came HGSI, all the way down to the mid $20 range. After several months of consolidation and forming a Stage I base, it resumed its upward trend. The most recent bullish move occurred after the unexpected announcement that pharmaceutical giant SmithKline Beecham exercised an option to jointly develop and commercialize Repifermin, a wound-healing agent. Repifermin is currently the subject of phase II clinical trials and it has the potential to treat a number of afflictions, including diabetic ulcers and inflammatory bowel diseases. The companies have agreed to share the costs of phase III as well as development costs beyond those studies and a US Bancorp Piper Jaffray analyst estimated that potential revenues for Repifermin could reach $1 billion. Last week, HGSI said it plans to begin clinical trials next year of an antibody therapy which could be an effective treatment for lupus and rheumatoid arthritis. The company, which raised $825 million in a recent stock offering, said its scientists found that the blood of people with those diseases had abnormally high levels of a certain protein. The findings suggest that reducing the higher than normal BLyS levels may be an effective way to treat the autoimmune diseases and HGSI believes a solution can eventually be developed. The current technical outlook is favorable and our conservative position offers a great way to participate in the volatile issue with relatively low risk. HGSI - Human Genome Sciences $96.00 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put NOV 75 HHA WO 327 0.75 74.25 7.1% *** Sell Put NOV 77.5 HHA WW 39 1.13 76.38 10.2% Sell Put NOV 80 HBW WP 1564 1.44 78.56 11.5% Sell Put NOV 82.5 HBW WX 19 1.75 80.75 12.5% ****** MANU - Manugistics $115.97 *** Still Going Up! *** Manugistics Group is a global provider of intelligent supply chain optimization solutions for businesses and eBusiness trading networks. Its solutions include client assessment, software products, and consulting services, all of which can be customized for a clients specific requirements. Their newest generation of solutions help businesses to improve their logistics and trading with their partners by utilizing the Internet. Manugistics has been one of the application software industry's great recovery issues and since the turnaround began in late 1998, the company's stock has increased over 1000%, and Manugistics has won deals with key companies such as Cisco Systems (CSCO), Texas Instruments (TXN), and 3Com Corp. (COMS). The company's earnings have been instrumental in the rebound and during the most recent quarter, Manugistics achieved revenues of $58.2 million, a 72% increase over the same period last year. The company also posted a profit of $1 million, or $0.03 per share, when analysts had been expecting a small loss. It's easy to see why investors favor the fundamental outlook for MANU and now that the company is starting to generate a recurring stream of revenue, we think there is a bullish future in store for its share value. MANU - Manugistics $115.97 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put NOV 60 ZUQ WL 103 0.94 59.06 7.4% *** Sell Put NOV 65 ZUQ WM 70 1.13 63.88 8.8% Sell Put NOV 70 ZUQ WN 331 1.38 68.63 10.6% ****** PDLI - Protein Design Labs $140.03 *** Sector Leader! *** Protein Design Labs, a member of the S&P 600 Small Cap Index, is a leader in the development of humanized monoclonal antibodies for the prevention and treatment of disease. They have licensed rights to their first humanized antibody product, Zenapax (daclizumab) to Hoffmann-La Roche Inc. and its affiliates, which markets it in the U.S., Europe and other countries for the prevention of kidney transplant rejection. They have seven other humanized antibodies in clinical development for autoimmune and inflammatory conditions, transplantation and cancer. There is general realization that new medicines being made by leading biotechnology companies have the promise of helping control the cost of healthcare by providing better results than current therapies. PDLI is one of the top candidates in this group and the company's stock has been "on the move" since the announcement that it will adapt a murine antibody for human use under an agreement with pharmaceutical giant Eli Lilly. Lilly will develop it as a pharmaceutical product, and Protein Design will be compensated by Lilly with a non-refundable upfront fee of $1.7 million, milestone payments upon completion of specified objectives, annual maintenance fees and royalties on sales of the humanised antibody. That news was followed by a second agreement with Lilly for another humanized antibody, with terms similar to the first, except the upfront signing fee for this agreement was $1.36 million. Most recently, Protein Design announced positive Phase I clinical results with its development-stage drug SMART Anti-Gamma Interferon Antibody. Even as biotech stocks slumped during the past week, PDLI managed to lead the group and today the issue closed up almost $5, near an all-time high at $140, on almost twice its normal volume. That's a good indication of its strength, relative to other companies in the sector. PDLI - Protein Design Labs $140.03 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put NOV 105 RPV WA 24 0.88 104.12 5.8% *** Sell Put NOV 110 RPV WB 60 1.31 108.69 8.5% Sell Put NOV 115 RPV WC 13 2.00 113.00 11.5% *************** BEARISH PLAYS - Naked Calls The issues are excellent candidates in the premium-selling category of options trading. Based on analysis of historical option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for profitable naked-calls. Each issue has robust option premiums, a well defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. Many traders may favor a more aggressive approach, selling options that are closer to the current price of the issue, to produce a higher initial return. While that technique may be more attractive, it also increases the theoretical risk of loss. Only you can know what plays are suitable for your personal risk-reward tolerance and portfolio outlook. ****** JNPR - Juniper Networks $183.38 *** Sector Slump! *** Juniper is a provider of Internet infrastructure solutions that enable Internet service providers and other telecommunications service providers, to meet the demands resulting from the rapid growth of the Internet. The company delivers next generation Internet backbone routers that are specifically designed, or purpose-built, for service provider networks. The company's flagship product is the M40 Internet backbone router, and it recently introduced the M20, a new Internet backbone router purpose-built for emerging service providers. The company's Internet backbone routers combine the features of the JUNOS Internet Software, high performance ASIC-based packet forwarding technology and Internet-optimized architecture into a solution for service providers. Technology investors ran for the exits last week after Nortel Networks (NT) crushed the notion that fiber-optic networking stocks would lead the rally higher. Investors believed optical equipment makers like Nortel wouldn't be able to keep pace with demand and would escape the slowdown plaguing personal computer makers and semiconductor manufacturers. Instead, Nortel proved that industries which were once considered bulletproof are now showing that they can be affected by the economy, and the recent slowdown in spending patterns. The weakness spread to many of the leading companies in the technology group, especially within optical manufacturing. Juniper was just one of the many issues hurt by the news and the company's share value has drifted lower over the past week. Analysts say that the optical market is still healthy, but with the valuations for these companies as high as they were, a brief correction was necessary. Tuesday's bullish report from Alcatel (ALA) not only lifted the price of its own shares, and that of other downtrodden optics companies, it helped to launch a broad Nasdaq rally. Now investors are speculating on the future upside potential of many of the networking issues and we will use that interest (and the overpriced option premiums) to our advantage with these relatively conservative, bearish positions. JNPR - Juniper Networks $183.38 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call NOV 240 JUD KH 1775 2.88 242.88 13.8% Sell Call NOV 250 JUD KJ 2104 2.06 252.06 10.1% Sell Call NOV 260 JUP KL 938 1.56 261.56 7.8% *** ****** NEWP - Newport $106.06 *** Technicals Only! *** Newport Corporation is a global supplier of high-precision test, measurement and automation systems and subsystems that enable manufacturers of fiber optic components, semiconductor capital equipment, industrial metrology, aerospace and other precision products to automate their manufacturing processes, enhance product performance, and improve manufacturing efficiencies and yields. Newport's high precision products enhance productivity and capabilities of test and measurement and automated assembly for precision manufacturing, engineering and research applications. This play is simply based on the current price or trading range of the underlying stock and its recent technical history. The near-term NEWP price trend is bearish and reflects a pronounced negative divergence from an intermediate-period moving average. In addition, the decline has come on increasing selling pressure and a major support level has been violated. With the failure at $165, a short-term "head-n-shoulders" formation is in place and it appears the share value has little chance of reaching our sold positions in two weeks. NEWP - Newport $106.06 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call NOV 150 NOQ KJ 371 2.06 152.06 16.8% Sell Call NOV 155 NOQ KK 107 1.56 156.56 13.0% Sell Call NOV 160 NOQ KL 376 1.13 161.13 9.6% Sell Call NOV 165 NOQ KM 309 1.00 166.00 8.6% *** ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. 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