The Option Investor Newsletter Sunday 11-05-2000 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/110500_1.asp ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 11-03 WE 10-27 WE 10-20 WE 10-13 DOW 10817.95 +227.33 10590.62 +364.03 10226.59 + 34.41 -404.36 Nasdaq 3451.58 +173.22 3278.36 -204.78 3483.14 +166.37 - 44.27 S&P-100 751.70 + 25.52 726.18 - 11.98 738.16 + 9.15 - 21.96 S&P-500 1426.69 + 47.11 1379.58 - 17.35 1396.93 + 22.76 - 34.82 W5000 13382.90 +522.30 12860.60 -196.80 13057.40 +253.90 -338.60 RUT 507.75 + 27.90 479.85 - 7.60 487.45 + 7.06 - 10.63 TRAN 2761.75 +232.78 2528.97 + 59.90 2469.07 + 38.89 -113.47 VIX 26.31 - 3.84 30.15 + 2.73 27.42 - 3.56 + 5.31 Put/Call .57 .59 .50 .76 ****************************************************************** Running in place or just marking time? By Jim Brown Another day, another +22 points. Or -62 if you own old economy stocks. Not to beat a dead horse but nobody expected any major moves until after the CSCO earnings and the election results. Looks like we got what we expected Friday. No surprises showed up in the lackluster trading as neither major exchange broke their respective billion share marks with the NYSE trading 992 mil and the Nasdaq 1.8 bil. Advances and declines were almost dead even and the market excitement was about the equivalent of a nine hour plane ride. You are locked into being there and nothing makes the time go faster. It is hard to complain however about a week that posted gains of +227 for the Dow and +173 for the Nasdaq. We are just spoiled and a +22 point day is like watching paint dry. There was some really exciting earnings news out if telecom stocks are what turns you on. Sprint (FON) called in with lower than expected profits for 2001 making it the third long-distance telephone company in the last 10 days to warn. FON actually gained +1.38 on the news while their wireless telephone arm Sprint PCS dropped over -$8 after growth estimates were cut in half for next year. Are you excited yet? Even more titillating was the Non-farm payroll or Jobs report Friday morning. The economy created only 137,000 new jobs in October and failed to meet expectations of almost 200,000 net additions. Sept was revised downwards by -50,000 jobs to an average of 140,000 which would be consistent with a soft landing. The unemployment rate held steady at the April low of 3.9% which was less than expected and kept the Fed squarely in our future. While the report was basically a yawner it does raise the worry that a 3.9% unemployment rate will not provide enough workers to handle the seasonal crush of holiday job needs. The number of jobs created over the next two months will soar but qualified employees will be scarce and bidding for these employees could provide an inflationary factor to the employee wages which the Fed watches. Are you bored yet? That last paragraph almost put me to sleep as well. When you consider I just covered the two most important events of Friday's trading day you can imagine there is not much to look forward to below. I will try to keep your interest but I must warn you I have to talk about the election and CSCO earnings again. I will try to keep both brief. The election is Tuesday in case you live in a vacuum and nothing of importance is likely to happen in the markets until after the winner is known. I will not even go into the drinking issue even though I have heard some pretty good jokes today. About the only visible evidence of election impact was in the drug and healthcare stocks which pulled back some on profit taking from the run up into the expected Bush win. With the DUI news yesterday many traders became not quite so sure of that win and took profits just in case. The other major market cloud remains CSCO and their earnings on Monday. Analysts are battling in the media with conflicting estimates of revenue growth going forward with some warning about a Nortel like slow growth warning and others claiming a 50% growth rate into the next millennium. Obviously the prospect of either are slim but that difference of opinion is what makes horse races and stock markets. Several big players loaded up on insurance today with a block of 10,000 QQQ 80 PUTS crossed this morning and several other 1000 lot or bigger trades cleared as well. There was a block of 17,000 short 81 CALLS sold earlier this week. Looks like someone has inside info or a really big position to cover and wanted insurance against the unexpected. These types of trades put the market "on notice" that some big money is betting against a favorable report. Needless to say nobody wanted to invest heavily in tech stocks before the weekend. CSCO is expected to announce +.17 cents earnings and they have a long term history of beating estimates by a penny. They are not likely to have a blowout and they are just as likely not to miss. It is all in the call and traders will be holding their breath until the guidance going forward is made public. In spite of the two major clouds over the market the Nasdaq did manage to post another gain and edge ever closer to resistance at 3525. While +22 points may not be exciting it is much more preferable in my book than the alternating +100/-100 point swings from last week. Look at the bright side, every day the Nasdaq moves up slowly the volatility is bleeding premium out of those calls you want to buy on Wednesday. Lower volatility equals lower premiums and a better opportunity to profit when the big swings return. I still think we saw a bottom on October 18th and any pullback a negative earnings report or election result gives us is just another buying opportunity. We are likely to see a run to 3525 this week and then fall back on profit taking but once over 3525 we should be good to go. Once the CSCO news is out and traders decide the election winner is not as bad as they previously thought then we will start looking at the Dell earnings on Thursday along with the PPI report. Neither should be a major problem. I suggest you take a long look this weekend at some long plays and be prepared to buy any non-CSCO related Tuesday dip. Here at OIN we are going to be busy doing a face lift and giving you more choices for your option selections. We are responding to reader requests to be more reactive to the market and provide different plays of all types. Since this is a slow market news day I am going to tell you what to look for next week. First, we are going to a daily play picking schedule. Each evening we will add new plays and drop old ones based on that days market action. Since entry points don't always correspond with a three day a week publishing schedule we will now be able to suggest plays when they look the best. Second, we are adding three categories of plays. Long Term, Low Volatility (less risk) and Lottery Plays. They will have their own section in the recommended calls area. The Long Term plays will not be LEAPs, although there may be some LEAPs mentioned if we think they apply, but will be plays based on longer term technicals, bases, news events, value plays and sometimes just plain speculation. These will not be current month but 4-6 months or longer. The Low Volatility plays will be just that. You will not find a JNPR, ITWO or SDLI but you will not find double digit premium prices either. These plays will focus on lower volatility stocks but stocks with good potential and established trends. Some of these plays may be stocks under $30 which we have avoided in the past. An example of a low volatility play would be a $20 call on WIN. Check it out. The last category we are adding is the Lottery Play. This is a high risk play for very little money but the payoff can be large. An example would be a NOV 25 call on BMCS for $.31 or the DEC $25 call for $1.13. These should not be a large portion of your play list but two or three contracts here and there will add some spice to someone with normally a low risk tolerance. Third, we are adding a real time market commentary and stock watch produced by Jeff Bailey. This is not a one or two paragraph "market went up, market went down" fluff piece. This is real meat and will be posted on the site and emailed four times daily. (yes you can opt in or out of this email) What is moving the markets, winners, sinners and even intraday plays when the situation warrants. Fourth, we are adding a Watch List for stocks we are thinking about playing and why. This will let you make your own decision as the market moves and possibly get a better entry point than waiting for the end of day recommendation. We will try and keep 20-30 stocks on this "pre-pick" list and you can watch the plays develop. Next week we should have our Option Quote Montage ready with real time quotes from all five option exchanges. You can't get that anywhere else! With the market doldrums hopefully over and yearly fortunes to be made we are trying to make your stock selection easier and more plentiful. We welcome your comments as our changes take place. It should take most of the week as we migrate into the new formats so pay close attention as it changes each day. We will try and update you daily with the changes for that day and show you what is different and how to use it. We are excited about the changes and hope you will be also. So here is the game plan for next week. Be careful buying tech stocks before the CSCO earnings. If CSCO says good things about the future use any weakness on election Tuesday to ease into new positions. The next bump in the road is Dell earnings on Thursday. They have already warned so expectations are light but again negative talk about future prospects could impact the market. If Dell does not miss numbers or whine again about the future then we should move up again. 3525 is resistance on the Nasdaq but if CSCO and DELL are positive it should not be a problem. The following Wednesday, Nov 15th is a Fed meeting and many analysts are already factoring in a rate cut. Don't hold your breath. The good news is that very few think the next move will be another rise. With the economic news mostly positive the Fed is likely to wait until January before releasing the interest rate pressure. As traders our course is much clearer. Plan for a continued rally and any surprise rate cut will be icing on the cake. You have my permission to take Monday off from trading and rest up for the coming marathon. Everybody else is, why not us? Trade smart, don't buy too soon. Jim Brown Editor *********************** FREE LUNCH IN PHILADELPHIA - Last one this year! 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 ************************* REGIONAL SEMINAR SCHEDULE !! Only two left !! ************************* Here is your chance to learn from the pros. The three day Technical Analysis Stock and Option Fall Seminar Series. Three days of in-depth education. Don't miss it! At less than the cost of a bad trade you can learn how to analyze stocks and trade options like the pros. Don't wait, do it now. Date City Nov 09-11 Miami FL Dec 07-09 Philadelphia Has the market been beating you up? Did you give back your gains from April/August? Would you like to understand all the technical indicators our writers use? Does the alphabet soup of technical terms like RSI, DMA, MACD, ROC, Stochastics, Bollinger bands, sound like Greek to you? You can learn from the experts how to interpret all these indicators, read charts, pick stocks and which option strategies to use on those stocks for less than the cost of one bad trade. Reserve your seat now for one of our regional seminars. Click here for more info: http://www.OptionInvestor.com/seminar/seminar.asp ********************************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 ***************************************************************** ************** EDITOR'S PLAYS ************** I am really excited about the coming week. Once we get the CSCO earnings out of the way and all the election distraction is over traders will go back to the market and hopefully in large numbers. There are so many good looking plays that it is going to be hard just picking a few. With the Denver Options Workshop last week I was flat in the market and ready to trade live in class on Monday morning. The market did not cooperate and we ran out of time before making any trades. Three of the trades we had picked included calls on YHOO and naked puts on SDLI and BRCD. I was fortunate to get the SDLI and BRCD plays off on Tuesday but completely forgot about YHOO. Of course it soared right off the bottom from Monday for about +16 points. I am flat going into the CSCO earnings because I have vivid memories and lasting scars from when Dell was facing the same challenge two years ago. Trees don't grow to the sky and CSCO will eventually have to admit growth is slowing. It may not be this month but it will happen. I don't want to be in the market when it does. So where am I going on Tuesday, assuming CSCO does not spoil the party? I am going to list some plays that I think have a better than average chance of success. These are just samples and are not meant to be an all encompassing list. You should spend Monday doing your own research and planning your week. Many stocks I have been watching have blown out in the last couple days and in my mind are unplayable. These include JNIC, EMLX, QLGC, AETH and JNPR to name a few. We need to see some profit taking in stocks like these before we can jump in again. I would be a buyer of JNPR around 200, JNIC 100, EMLX 160 and QLGC 110. AETH needs to pull back $5-$10 or break out over $110 resistance. This same trend is common in most fast moving Nasdaq stocks from last week. The CSCO earnings hurdle could give us this pull back on Monday. Current stocks I like include BRCD, SDLI, DIGL, SCMR, EXTR, FDRY, DITC, SWCM, SEBL, CIEN, CMRC, CELG, AKAM, TQNT, ANAD. The problem with SDLI, CIEN, DIGL, EXTR and SCMR to some extent is their reaction to the CSCO earnings. We need to wait for those earnings before making any new plays. I am going to list a few of these and plays and how I would play them on Tuesday if we do not get a CSCO meltdown. Most investors will not play the strikes I play because of different risk-reward profiles. I like current month ITM strikes when I am playing calls. This gives me almost 100% Delta and less risk. I would recommend December strikes for those not comfortable with very short term plays. ANAD - Anadigics ANAD has a good recovery trend in place and I think we it move back up to previous resistance at $40 over the next several weeks. I like the NOV-22.50 calls @ 3.88 which is already $3 ITM. A longer term play would be the DEC-20 call @ $6.75 which is $5.50 ITM. I would not be a naked put player on ANAD because the premium decays too slow and the stock is not a fast mover. AKAM - Akamai AKAM has been decimated from a high of $350 to the current $54 level. It has been slowly gaining speed as it recovers from the beating. The last resistance is at $60 and it is getting close. AKAM is in the content delivery business and that is the real growth area of the Internet. I heard that AKAM could easily grow well over 100% per year over the next several years. If we take a position now before the breakout over $60 we can position ourselves for the explosion. I like a longer term position here in case we encounter a hurdle at $60. The DEC-60 Call @ $5.50 should double with a $10 move and give us upside for the next five weeks. Strikes in Feb are very expensive which confirms the expectation for this stock. The NOV-$70 naked put is $16 and has two weeks to go. I would bet on it expiring worthless. The DEC-90 put is $36 and I would also bet on it expiring worthless. Any gamblers out there? BRCD - Brocade BRCD had a huge run last week but finished at the high of the day on Friday. I think it is ready to blow and the previous high of $267 may be history next week. The problem with BRCD is the high option prices. The NOV-240 ($13 ITM) is $22 but I think it is the best deal. Any OTM strike will deflate instantly if the stock stalls. The possibility of a stall in front of CSCO earnings is a very good possibility. I am thinking about target shooting the $230 call around $22-25 on any weakness. If the stock pulls back I want to take advantage of it by buying deeper ITM. Most of you know I am a DITM (deep in the money) naked put gambler. The NOV $320 put at $66 looks really good and on any pullback I think target shooting it at $70 looks like a good plan. SDLI - SDI Inc SDLI is really a play on JDSU. With a 3.8:1 share exchange any move on JDSU will result in 3.8 x that move in SDLI. If CSCO is positive the fiber optic market could explode. SDLI is exactly at resistance at $265 and could pull back in front of CSCO. I think the calls are unplayable due to the extreme premiums. The Dec-$270 call for instance is $30 and is still $17 OTM. If you want to play calls on SDLI let your conscience be your guide. I think selling the NOV $350 naked put makes more since if CSCO does not disappoint. The current premium is $86 and you could probably get $90 on any pull back on Monday. For those who are even more conservative I would buy the stock on a pullback and sell the covered calls about $20 OTM on the rebound. Picking up the stock at $250, selling a strike about $20 OTM for $30 as quoted above would provide a $50 profit if called out on margin of $125 or a 40% return for five weeks. Just another way to profit. Keep a stop loss on the stock at $250. *********** Space prevents me from writing on every stock I like but I think you see the trend. Wait for CSCO and go long on positive results. I am going to rewrite my DITM naked put concept for the newsletter next Sunday. It was the most requested lesson from the seminar. It is not for everyone but it works for me. Be patient Monday. Trade the known events not the unknowns. CSCO is an unknown risk. Jim Brown ************************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=843 ************************************************************** **************** MARKET SENTIMENT **************** CSCO's Leverage, A Few Too Many Forever Ago, Etc. By Austin Passamonte "Give me a lever long enough and I can move the world". That's what many trader's thought pyramiding their margin accounts would accomplish but let's leave that sad subject for another time. This one is about CSCO, seasonals, big-money and where we go from here. It's apparent that everyone and Maria's makeup artist want to rally this market bad. Real bad. Massive volumes of cash lining up at the starting blocks is virtual proof of high expectations. It's November, the tough times are over...let's get rich from the certainty of our fall market rally's arrival. This just might happen. Market Sentiment can plainly see long- term strength emerging in weekly charts of every major equity index that matters; the SPX, NDX, OEX, Dow and Comp in order of significance. It is very hard for us to believe we will not test all-time highs in the SPX and possibly the Dow prior to this New Year's celebration. That being said, we still harbor great concern over a few vital fundamentals between here and our curdled eggnog poured down the drain. First and foremost is the perplexing saga of Commercial traders in the S&P 500 futures arena continuing to build a historical ten-year net short position. For those who long since tired of hearing about this and decided to buy calls with abandon, that might be like building a retirement home on the slopes of Mt. St Helen not too many decades ago. The warnings went dismissed for many years until one fateful moment in time. Commercial traders in the futures arena are mostly financial institutions who hedge and speculate against cash positions with more zeros than the digital code that makes these words visible to you. Unseen billions at work. It is a certainty they have much better information about global economics than we do, for sure. They have held this net position longer and larger than any we can find going back through historical charts. Not during the worst of October 1998 and 1999 was it even close to this extreme. What gives? An informal study revealed that four-year net extremes they held were 67% accurate in winning. Five-plus year extremes have been 100% accurate so far. We have nothing to compare this one to, but we wouldn't bet against the outcome regardless. This ominous leviathan holds much more magnitude than CSCO beating estimates by X-number of cents, how high Governor Bush' B.A.C. was twenty-some years ago, etc. That is all just noise which fades away quickly. What will move us up or down from here? One last note to bear in mind was a heavy volume of block-trade put buying in the SPX and QQQ November contracts on Friday. A number of multi-million dollar positions were taken by the big boys in our option world and most of them were bearish in nature. Some traders with massive accounts and presumably better market info than we have are betting on a downside move this week. Our guess is a market breather is in order before the next major assault up the charts with staying power ensues. There have been strong rallies and dips since this commercial activity began and we expect to see much more of the same. It remains our opinion that the markets will continue to move in volatile extremes in continued sideways fashion with further tests of market highs and lows in the process. As stated before, we will announce long, hard, loud and clear that the last bottom is in place when S&P 500 commercials cover shorts and return to net-flat or long. Not a moment sooner. If we miss the year's long bottom prior to this occurring it will be nice to err on the side of conservancy. We may not see one prolonged move in either direction and that should suit option traders just fine. This is called a trader's market and last time we checked, that is us! Calls on the way up, puts on the way down and credit-spreads at each end spell massive wealth waiting in the wings for those who desire to capture their share. Are you one who is willing to try? Market Sentiment is truly excited about your prosepcts to prosper and win using the right approach! You should be too. ***** VIX Friday 11/03 close; 26.31 30-yr Bonds Friday 11/03 close; 5.85% 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. Friday (11/03/2000) (Open Interest) Calls Puts Ratio S&P 100 Index (OEX) Resistance: 790 - 775 10,639 294 36.19*** 770 - 755 8,805 3,004 2.93 OEX close: 751.70 Support: 745 - 730 16,308 9,523 .58 725 - 710 3,268 10,120 3.10 Maximum calls: 745/5,967 Maximum puts : 700/4,856 Moving Averages 10 DMA 737 20 DMA 731 50 DMA 767 200 DMA 777 NASDAQ 100 Index (NDX/QQQ) Resistance: 92 - 90 27,309 10,737 2.54 89 - 87 21,013 15,881 1.32 86 - 84 43,313 28,618 1.51 QQQ(NDX)close: 83.06 Support: 82 - 80 49,424 45,746 .93 79 - 77 5,312 40,283 7.58 76 - 74 11,257 40,164 3.57 Maximum calls: 84/25,416 Maximum puts : 80/29,752 Moving Averages 10 DMA 81 20 DMA 80 50 DMA 87 200 DMA 93 S&P 500 (SPX) Resistance: 1500 11,598 3,995 2.90 1475 15,396 4,771 3.23 1450 11,296 8,751 1.29 SPX close: 1426.69 Support: 1400 27,475 29,282 1.07 1375 13,363 18,636 1.39 1350 8,413 23,716 2.82 Maximum calls: 1400/27,475 Maximum puts : 1400/29,282 Moving Averages 10 DMA 1400 20 DMA 1385 50 DMA 1435 200 DMA 1441 ***** CBOT Commitment Of Traders Report: Friday 11/03 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 (Current) (Previous) (Current) (Previous) Open Interest Net Value -1066 +89 +657 -483 Total Open Interest % (11.56%) (1.07%) (2.84%) (2.34%) net-short net-long net-long net-short NASDAQ 100 (Current) (Previous) (Current) (Previous) Open Interest Net Value -448 -262 -927 +85 Total Open Interest % (2.40%) (1.48) (1.89%) (.21%) net-short net-short net-short net-long S&P 500 (Current) (Previous) (Current) (Previous) Open Interest Net Value +60112 +57,031 -70603 -66,429 Total Open Interest % (31.64%) (31.05%) (11.10%) (10.72%) net-long net-long net-short net-short What COT Data Tells Us: Commercial positions in S&P 500 remain at their ten-year extreme short levels while small specs held their net-long positions as compiled Tuesday 10/31 by the CFTC. Commercials have reversed position albeit modestly on the DOW, and have now gone to a net-long position while the small specs have turned net-short positions ************** MARKET POSTURE ************** As of Market Close - Sunday, 11/05/2000 Key Benchmarks Broad Market Last Support/Resistance Alert **************************************************************** DOW Industrials 10,817 10,250 11,100 SPX S&P 500 1,426 1,385 1,445 COMPX NASD Composite 3,451 3,150 3,550 OEX S&P 100 751 700 775 RUT Russell 2000 507 465 520 NDX NASD 100 3,321 2,950 3,550 MSH High Tech 954 870 975 BTK Biotech 775 680 820 XCI Hardware 1,293 1,230 1,310 GSO.X Software 431 385 440 SOX Semiconductor 740 640 805 NWX Networking 1,098 925 1,180 INX Internet 382 315 400 BIX Banking 607 560 630 XBD Brokerage 634 600 655 IUX Insurance 782 760 830 RLX Retail 803 730 860 DRG Drug 419 400 440 HCX Healthcare 880 865 900 XAL Airline 149 138 160 OIX Oil & Gas 300 296 320 No alerts were triggered in the last session. Raising support (SOX, BIX, XAL). Lowering resistance (DOW, INX). Watch the INX, if they break above 400 be on alert, as they could be key to a NASDAQ advance. ************************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=860 ************************************************************** *************** ASK THE ANALYST *************** Profits In The Palm Of My Hand By Eric Utley Who let the hand-held sector out last week? In case you missed it, shares of Palm staged an impressive rally in the latter part of last week's trading. Fortunately, I had purchased calls on Palm a few days prior to the rally. And, I've elaborated on the details below. But, before we get to the charts, just one more thing. Has anybody heard from Tim Luke recently? The Lehman analyst lowered his price target on shares of Cisco Systems last Monday, which caused the stock to fall as low as $45. Four days later, shares of Cisco traded as high as $57. But enough of my ranting, let's move on. I've never been arrested for a DWI nor claim to have invented the Internet. That stuff is all nonsense! Not this column, though. We're all about business, baby. Send your stock requests to Contact Support. Please put the symbol of your requests in the subject line of the e-mail. ---------------------------- Palm - PALM Over the past two weeks, shares of Palm formed a very bullish ascending wedge. The stock broke out above the upper resistance at $56 last Thursday, which lead to an awesome rally Friday. I entered the play because of the stock's strong technical position and the fact Palm is going to be added to the NASDAQ 100 index on Monday. I figured the index buying that had to take place would scare some shorts into covering their positions - Palm has a decent amount of short interest. The trade went according to plan as shares of Palm exploded in the final moments of trading last Friday. ---------------------------- CMG Information - CMGI I have heavy losses in CMGI. Yes, it's my fault!! I failed to put stop loss orders as the stock continued to slide lower and lower. I simply refused to think it would go lower yet. How wrong have I been!!! What is your analysis? Will CMGI ever assume the role it once had in the Internet sector? - Thanks for your [help], Enzo We all make mistakes, Enzo - we trade and learn. I'd like to take a minute to analyze something you wrote, Enzo, which was, "I simply refused to think [CMGI] would go lower yet." The market continually defies logic and conventional wisdom. I wrote three weeks ago that, in my opinion, capital markets are not efficient in the near-term. And, the activity in CMGI over the past year illustrates my belief. Shares of CMGI traded to a high of $163, and recently a low of $17 - all in the year 2000! That's not very efficient. My point is that nothing prevents a stock from further declines, or continued advances, other than the market itself. That's why it's SO critical to heed the market's warnings when stocks are falling. Who's to say CMGI couldn't fall lower yet? The market - that's who! I don't mean to make an example of you, Enzo. There is so much in the game we call trading that I find fascinating, and I desperately try to convey different ideas to readers. But, enough with that, let's get on with the request by examining this question, "Will CMGI ever assume the role it once had in the Internet sector?" At its peak, shares of CMGI traded around $160. I don't think it's reasonable to expect shares of CMGI to trade near $160 any time soon. The main reason is expectations for the Internet companies won't reach the same frothy and inefficient levels enjoyed just one short year ago. Another reason is CMGI is not a profitable company. Profits matter, it's just that simple. Recently, CMGI shifted its business model to further itself along the path to profitability, which is definitely a plus. Furthermore, I feel the worst is over in the Internet sector in the way of selling. The Internet sector as a whole is acting like it has found bottom, judging by the recent action in shares of DoubleClick, Yahoo, and of course CMGI. It wouldn't be surprising to see shares of CMGI gravitate back towards the $40 level in the next three to six months, maybe sooner. But, with a stock such as CMGI's, it's important to watch how the market perceives the company's future prospects in the way of price action. ---------------------------- Emulex - EMLX Please comment on [EMLX] as CALL/PUT play in NOV/DEC - Thanks, Anonymous While I cannot comment on specific strategies, I will say this on shares of Emulex: WHOA! About one month ago, I reviewed Emulex in this very column and told readers to watch for a breakout above $130. At the time, $130 represented a significant retracement level from the stock's spring bear market lows. With the aid of a blowout earnings report, shares of Emulex now trade $40 higher since our last review. What an earnings report it was! For its third-quarter, Emulex reported a 92% increase in revenues over the year-ago period, which helped the company fly past the consensus 26 cent estimate to report 33 cents in profits per share. Since reporting such great numbers two weeks ago, Emulex has been giving bullish guidance at several investor conferences and its stock has been bestowed with myriad upgrades. The company is expected to grow earnings by 45% next year. If Emulex continues to accelerate earnings and surprise to the upside its stock will continue advancing. But with such quality earnings growth, shares of Emulex don't come cheap. The stock carries a forward-looking multiple slightly over 100. If you don't mind the volatility that accompanies highly valued stocks, shares of Emulex are worth considering for both an investment and near-term trade. As long as the broader tech sector continues to make strides, Emulex should advance into the end of the year. I don't think it's unimaginable to expect shares of Emulex to trade above $200 before the year's end. ---------------------------- Nortel Networks - NT, JDS Uniphase - JDSU I really look forward to Ask the Analyst, it is like a technical school every week. Can you advise your view of the two following NT and JDSU. - Nick Given your gracious comments, Nick, I must oblige in reviewing both of your requests. Thank you! Your compliment means a great deal to me! Plus, the charts for your two requests are very similar, which makes our technical reviews easy stuff. But, before we get to the charts, let's examine the fundamental factors that caused shares of Nortel and JDS Uniphase to plummet. Several months ago, when I reviewed companies such as Nortel and JDS Uniphase, I wrote about the exceeding demand for optical networking gear. As Nortel revealed a short while ago, supply for optical networking equipment has finally caught up with demand. That's why Nortel's slight revenue miss had such a massive impact on its stock. Before its shortfall, investors were willing to pay exorbitant prices for shares of Nortel because demand for its products seemed infinite at the time. But because of the weak euro, a slowing economy, and/or turmoil among telecom carriers, demand for Nortel's networking gear has slowed all the while the market has been flooded with networking equipment, which takes away pricing power from the company. Nortel's revenue miss sent a bearish shockwave through the rest of the optical sector, which pushed shares of JDS Uniphase lower. But, according to JDS Uniphase, the slowdown in demand is yet to be seen. The company reported exceptional third-quarter results two weeks ago and even guided analysts higher for next year sales figures. Despite blowing away third-quarter estimates though, shares of JDS Uniphase have not advanced as expected. The concern on Wall Street is that the slowdown afflicting Nortel has yet to reach JDS Uniphase, because the company supplies its products to the former. Some analysts feel the slowdown will eventually reach JDS Uniphase. However, through acquisitions of competitors, JDS Uniphase has grown into THE optical component manufacturer and suppliers. I won't use the M-word, but it's safe to say JDS Uniphase has pricing power. That fact might somewhat insulate the company from any slowdown in orders from its customers including Nortel, Alcatel, Ciena, and Lucent. Although Nortel fell short of estimates, the underlying fundamentals of the networking business remain strong, as Alcatel reported last week. In Nortel's case, the company could be facing no more than a one or two-quarter hiccup. After all, this isn't the first occasion the networking sector has fallen under the scrutiny of the bears. Fears of a slowdown in the telecom sector induced widespread selling in the networking sector back in 1997, when shares of Nortel traded around $11. ---------------------------- VA Linux - LNUX Would you please [provide] a simple analysis for LNUX, for both short-term and long-term. - Thank you, Tom Wall Street loves themes. One of the latest themes endorsed by the bulls has been the hand-held computer area. Shares of Palm, Research in Motion, and Handspring have been acting particularly well as of late, as I detailed above. Unfortunately, VA Linux does not operate in the hand-hand computer arena. VA Linux (along with other Linux-related companies) has seen its stock price plummet since its IPO peak at $320. The stock has been a short-sellers dream. The cause for VA Linux's stock price surge last December was Wall Street's short-lived fascination with the Linux operating system. There's just one problem, though. The guts of the Linux operating system is open, unlike that of competitor Microsoft's. Instead of selling software, VA Linux provides services around the core operating system. Its service orientated business model has not yet been able to produce profits. As soon as the theme effect wore off, investors focused on the fact VA Linux was not a profitable company, which resulted in a crash in its stock price. However, Tom, VA Linux's short and long-term prospects are looking more promising, despite its stock's poor year-to-date performance. For starters, the company recently inked a deal with IBM, which calls for the installation of VA Linux's software in Internet terminals in some 7,000 Japanese convenience stores. The deal is significant because it will open the Linux operating system to consumers more than has already been seen. While still lagging in the consumer markets, the Linux operating system has actually caught on with the corporate market because of its low cost and reliability. In fact, nearly 25% of new corporate servers use the Linux operating system. With growth in corporate applications expected to accelerate and increased consumer exposure, VA Linux's long-term prospects look rosy, especially given the stock's current depressed price. The company is expected to turn a profit next year - albeit a small profit. But, earnings are expected to accelerate as the Linux operating system is more widely adopted. VA Linux is expected to grow earnings by 40% over the next several years. That 40% gives VA Linux's stock a very attractive 0.75 price-to-earnings growth (PEG) ratio. A PEG below 1.0 is generally considered attractive. The company is slated to announce quarterly profits on November 16th. VA Linux has a history of beating consensus estimates by a respectable margin, which could ultimately lead to the company becoming profitable ahead of schedule. Listen closely to the guidance VA Linux gives during its conference call. ---------------------------- 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 November 6, 2000 Monday ====== None Scheduled Tuesday ======= Consumer Credit Sep Forecast: $10.8B Previous: $13.4B Wednesday ========= Export Prices ex-ag. Oct Forecast: NA Previous: 0.30% Import Prices ex-oil Oct Forecast: NA Previous: -0.30% Wholesale Inventories Sep Forecast: 0.50% Previous: 0.60% Thursday ======== PPI Oct Forecast: 0.10% Previous: 0.90% Core PPI Oct Forecast: 0.10% Previous: 0.30% Initial Claims 4-Nov Forecast: 310K Previous: 308K Friday ====== Michigan Sentiment Nov Forecast: NA Previous: 105.8 Week of November 13th ==================== 14-Nov Retail Sales 14-Nov Retail Sales ex-auto 15-Nov Business Inventories 15-Nov Industrial Production 15-Nov Capacity Utilization 16-Nov CPI 16-Nov Core CPI 16-Nov Initial Claims 16-Nov Philadelphia Fed 17-Nov Housing Starts 17-Nov Building Permits ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.nextcard.com/index6.html?ref=aff0049911 ************************************************************ FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "Contact Support" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. 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The Option Investor Newsletter Sunday 11-05-2000 Sunday 2 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/110500_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=844 ************************************************************** ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* EMC - EMC Corporation $97.75 (+8.94 last week) See details in sector list Put Play of the Day: ******************** MNMD - MiniMed Inc. $67.69 (-4.31 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=861 ************************************************************** ************************** 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 No dropped calls today PUTS TIBX $70.88 (+5.94) Sure enough, Wednesday's downward spike was the bears' last ditch attempt to drive TIBX lower, and in the end, the bulls won the battle. Despite the apparent lack of conviction in the broad technology market on Friday, there was enough buying interest to push TIBX through resistance and off the put list this weekend. Continuing its fledgling recovery on Friday, TIBX broke out above the $68 resistance level, defined by its descending trendline. Although the $4 gain came on volume less than half the ADV, it was enough to clear the 30-dma, and trigger our stop at the $68 level. *********** 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 ************** IMCL - Imclone Systems $67.63 (+12.88 last week) Engaged in the research and development of novel cancer treatments, IMCL focuses on growth factor inhibitors, therapeutic cancer vaccines and angiogenesis inhibitors. The company's lead product candidate, IMC-C225, is a therapeutic monoclonal antibody that inhibits stimulation of a receptor for growth factors upon which certain tumors depend. Phase I/II clinical trials have been promising. The lead candidate for angiogenesis inhibition, IMC-1C11 is an antibody that binds selectively and with high affinity to KDR, a principal Vascular Endothelial Growth Factor (VEGF) receptor, thus inhibiting angiogenesis. Proving that the third time is a charm, IMCL punched through the $60 resistance level on Thursday and continued its rise into the ozone on Friday. This level had stopped the bulls in late September and mid-October, but this time IMCL had the support of a positive market to keep it going. After splitting its shares 2-for-1 on October 16th, it was natural to expect some profit taking. True to form for a healthy stock, our play found support right at its ascending trendline (then $52), and headed higher on Monday, keeping alive its string of higher lows. Underscoring the strength of the breakout is the nice smooth upward volume trend, culminating on Friday with a cool 1.54 million shares, double the ADV. The stock is now at its highest point since early March when the entire Biotech sector sold off, leading the NASDAQ into the doldrums. The last 4 days have seen IMCL increase by 28% without stopping for breath, so be on the lookout for profit taking. We would expect the stock to find support in the $60-61 range on any serious pullback, so if it closes below $59, our stop will be triggered and we will need to let the play go. Any volume backed bounce from support is buyable, but a more cautious approach would be to wait for the profit taking to run its course and then take a new position as IMCL to pushes above the $68 level enroute to new highs. Of course, with the technicals like Stochastics and MACD moving into ascent mode, IMCL could very well head higher before seeing any weakness, particularly if the markets rally after the election. If you decide to buy continued strength, make sure to keep your stops in place. ***November contracts expire in 2 weeks*** BUY CALL NOV-65 QCI-KM OI=1471 at $5.00 SL=3.00 BUY CALL NOV-70*QCI-KN OI= 138 at $2.63 SL=1.25 BUY CALL NOV-75 QCI-KO OI= 70 at $1.19 SL=0.00 BUY CALL DEC-70 QCI-LN OI= 55 at $6.25 SL=4.25 BUY CALL DEC-75 QCI-LO OI= 32 at $4.50 SL=2.75 Picked on Nov 5th at $67.63 P/E = N/A Change since picked +0.00 52-week high=$85.99 Analysts Ratings 2-6-0-0-0 52-week low =$13.22 Last earnings 08/00 est= -0.43 actual= -0.46 Next earnings 11-14 est= -0.16 versus= -0.22 Average Daily Volume = 769 K VRTS - VERITAS Software $153.94 (+13.19 last week) VERITAS Software is the industry's leading enterprise-class application storage management software provider. They furnish storage management software for protection against data loss and file corruption, efficient file processing and networks back-up. VERITAS (Latin for "truth") has made its name by partnering with such technological heavyweights as Hewlett-Packard, Microsoft, and Sun Microsystems, all of which have licensed and embedded VERITAS products in their operating systems. Its purchase of the network and storage management software group of disk drives maker, Seagate Technology, doubled VERITAS's size and gave Seagate approximately a 33% stake in the company. VRTS made a nice run into earnings with a breakout price of $166.81 on October 20th before investors locked in the recent gains following the announcement. The company beat consensus estimates of $0.14 p/s by two pennies, as compared to earnings of $0.09 p/s a year ago. After the substantial rollover that followed its earnings' release, VRTS found support at its 50-dma ($130). On October 27th, VRTS changed direction and surged with the NASDAQ for a bullish close above $140. This week shares were once again on the move and VRTS saw a 9.4% increase in value. Analysts and investors alike are bullish on the stock. VERITAS Software, whose products help keep Web sites running, should continue to prosper as it's likely that there won't be "a decrease in corporate spending on Internet projects" according to Mark Leslie, CEO. Volume is strong and VRTS is maintaining a strong stance above recent resistance levels and the near-term DMAs. We're looking for shares to continue making advances going forward. Aggressive traders might consider buying into strength off the current level or target shooting for an entry around the $145 mark. Take profits after any major surge to the upside, you can always jump back in on a pullback. If however, VRTS violates the 30-dma and demonstrates weakness with a close below the $139 level, we will exit the play. In recent news, hardware and software giant Sun Microsystems has teamed up with VRTS to help data centers improve their storage management. ***November contracts expire in two weeks*** BUY CALL NOV-150 VUQ-KJ OI=2158 at $12.25 SL= 9.25 BUY CALL NOV-155*VUQ-KK OI= 663 at $ 9.63 SL= 6.50 BUY CALL NOV-160 VUQ-KL OI=1462 at $ 7.50 SL= 5.25 BUY CALL DEC-155 VUQ-LK OI=2710 at $17.63 SL=12.75 BUY CALL DEC-160 VUQ-LL OI= 293 at $15.13 SL=11.00 Picked on Nov 5th at $153.94 P/E = N/A Change since picked +0.00 52-week high=$174.00 Analysts Ratings 10-10-1-0-0 52-week low =$ 47.11 Last earnings 09/00 est= 0.14 actual= 0.16 Next earnings 01-11 est= 0.16 versus= 0.12 Average Daily Volume = 5.95 mln /charts/charts?symbol=VRTS ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.nextcard.com/index6.html?ref=aff0049911 ************************************************************ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 11-05-2000 Sunday 3 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/110500_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=845 ************************************************************** ****************** CURRENT CALL PLAYS ****************** MSFT - Microsoft $68.31 -2.00 (+0.75 last week) MSFT is a software powerhouse. The company is the world leader in the design, manufacture and support services for personal and business computing software. Their products are almost ubiquitous, as the majority of the computers in the US and international countries use Microsoft software. The company's financials are enviable, with a profit margin of over 40%, a return on equity of 25%, annual sales over $23 billion, and a moderate P/E by today's standards of 38. Most analysts feel that the famous monopoly trial is no longer considered to be a major issue in valuing the company, as the chief prosecutor for the case resigned weeks ago. MSFT has had a great ride up for the last three weeks. MSFT has risen almost twenty points from a low of $50 in mid October, to a high of over $70 last week. Consolidation has occurred last week, with the stock trading from $68.50 to $70.50 On Thursday, MSFT opened strong and traded above $70 for most of the day, but couldn't clear $71. On Friday, the stock gapped down at the open to $69.25, and found support at $68.75. MSFT remains above the 5-dma at $66, and the 10-dma at $67.63, and the 50-dma at $63.41. Considering that the Dow dropped Friday, and that profit taking was inevitable, this is a sign of continuing strength. The high number of Nov 70 calls has provided tough resistance, but MSFT is becoming a fund manager's favorite again after almost a year of being out of favor. Consider taking new positions if the stock bounces off its 10-dma at $66. If MSFT can push above $70 and stay there on strong volume, the stock may have a shot at clearing the 200-dma of $73.75, which would provide a more conservative entry point. However, should MSFT fall below $64 on an extended pullback, we would no longer initiate new plays. ***November contracts expire in 2 weeks*** BUY CALL NOV-65 MSQ-KM OI=34933 at $4.63 SL=$2.75 BUY CALL NOV-70*MSQ-KN OI=38621 at $2.63 SL=$1.38 BUY CALL DEC-65 MSQ-LM OI= 3866 at $6.13 SL=$4.13 BUY CALL DEC-70 MSQ-LN OI= 8831 at $3.38 SL=$1.88 BUY CALL DEC-75 MSQ-LO OI=22617 at $1.63 SL=$0.75 SELL PUT NOV 65 MSQ-WM OI=21264 at $1.19 SL=$0.68 (See risk of selling put in play legend) Picked on Oct 26 at $64.44 P/E = 38 Change since picked +3.81 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 = 38 mln ADBE - Adobe Systems $80.69 (+5.88 last week) 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. In addition, ADBE licenses its industry standard technologies to major hardware manufacturers, software developers, and service providers, as well as offering integrated software solutions to businesses of all sizes. Sun Microsystems' visionary CEO Scott McNealy once proclaimed, "The network is the computer." Thinking along those lines, Adobe has been taking steps to load itself not only on users' hard drives, but installing itself directly on the Internet. The company has done so in a number of ways, by creating standards such as the PDF format, providing a suite of integrated web tools such as GoLive, by leveraging its traditional customer base of core applications such as Illustrator, Pagemaker and PhotoShop, and through strategic alliances with companies such as IWOV, NOK and RNWK. Not content with being the leading desktop publishing software company, Adobe wants to dominate the web-publishing domain as well. The Street has clearly liked what the company has done, as the stock is trading near its all-time highs, while competitors such as Macromedia are trading at much lower levels. This week, Adobe continued to move upward. With support from its 5, 10 and 50-dmas, the stock spent the week putting itself in a position to challenge its high of $85.06, set in early October. Already moving along nicely in an upward trending regression, ADBE broke that channel to the upside on Thursday, suggesting it has moved into an even steeper trading channel, and is finding support on the upper line of its previous range. For aggressive traders looking to enter on a pullback, there is strong support at the $76-77 area, reinforced by the 5-dma. There is additional support at the 10-dma ($73.81), but if the stock closes below $72, we would no longer recommend the play. Those looking to enter on strength will be waiting for ADBE to make a new all-time high, confirmed by strong buying volume before initiating a play. ***November contracts expire in 2 weeks*** BUY CALL NOV-75 AXX-KO OI=1398 at $8.63 SL=6.00 BUY CALL NOV-80*AXX-KP OI=1384 at $5.75 SL=3.75 BUY CALL NOV-85 AXX-KQ OI=5427 at $3.50 SL=1.75 BUY CALL DEC-80 AXX-LP OI= 231 at $9.75 SL=6.75 BUY CALL DEC-85 AXX-LQ OI= 0 at $7.50 SL=5.25 Wait for OI!! Picked on Oct 29th at $74.81 P/E = 68 Change since picked +5.88 52-week high=$85.06 Analysts Ratings 4-9-2-0-0 52-week low =$26.69 Last earnings 09/14 est= 0.52 actual= 0.57 Next earnings 12-14 est= 0.29 versus= 0.46 Average Daily Volume = 2.13 mln BRCD - Brocade Communications $253.75 (+27.25 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). Anyone who initiated a play this past week on BRCD has much to be happy about. Starting the week off with the holy grail of buying opportunities on a dip to support at $200, the stock has since moved straight up to finish at its highs of the week. In doing so, BRCD is once again back above all its major moving averages. What's more, it is now in striking distance of its all-time high. The stock has been blessed by a number of positive developments. Coverage initiated by Merrill Lynch on Tuesday certainly helped, rating BRCD at a Buy and a 12-month price target of $250, commenting, "We believe investors will bid the shares back up to our price target as they realize Brocade's barriers to entry should help it maintain its 100 percent revenue and EPS growth rates over the next several quarters; thereby enabling it to meet or exceed (Wall) Street estimates." True to form, traders and investors have already taken the stock above these levels. As well, BRCD further solidified its leadership position in the Storage Area Networking (SAN) space in an OEM deal with Dot Hill Systems Corp., which will see Dot Hill using BRCD's fabric switches in their SANnet e-business and carrier-class solutions. As nothing moves up in a straight line, a bounce off moving average support from the 5 and 10-dma (at $237.03 and $232.32, respectively) may provide opportunities for aggressive entries. There is also support at $228.88 from the 50-dma and support in increments of $5, from $250 all the way down to $215. While BRCD is a volatile stock that trades up and down in wide intra-day ranges, a break below $215 may signal a loss of upward momentum so be aware of this key support level. If BRCD decides to continue its ascent in a strengthening market without taking a breather, a break through $258 on volume would allow conservative traders to enter on strength. From there BRCD would likely attempt to take out its all-time high. ***November contracts expire in 2 weeks*** BUY CALL NOV-240 GUF-KH OI= 271 at $23.50 SL=17.00 BUY CALL NOV-250*GUF-KJ OI=1813 at $15.00 SL=11.00 BUY CALL NOV-260 ULF-KL OI= 854 at $10.25 SL= 7.00 BUY CALL DEC-250 GUF-LJ OI= 357 at $28.13 SL=20.50 BUY CALL DEC-260 ULF-LL OI= 295 at $22.00 SL=16.00 SELL PUT NOV-240 GUF-WH OI= 917 at $ 7.25 SL=10.00 (See risks of selling puts in play legend) Picked on Oct 15th at $239.53 P/E = 657 Change since picked +14.13 52-week high=$267.44 Analysts Ratings 10-6-2-0-0 52-week low =$ 55.06 Last earnings 08/16 est= 0.13 actual= 0.16 Next earnings 11-29 est= 0.20 versus= 0.03 Average Daily Volume = 3.07 mln CMVT - Comverse Technology $118.13 (+8.31 last 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. As one of a select few Tech stocks to finish in the green for the month of October, investors have found it hard to ignore the strong fundamentals in CMVT. With 19 consecutive quarters where the company has met or exceeded analyst expectations, CMVT has established a track record of consistency and excellence in earnings and execution. A $200-million backlog of orders, its largest yet, for the remainder of the year and $900 million in cash and marketable securities, gives CMVT a solid cash flow position. In the past four years, CMVT has grown its market share from 25% to 40%, and now with competitors Lucent and Ericksson recently falling into disgrace, the company is well positioned to take advantage and further expand its customer base. Uncertainly surrounding the merger between competitors PHCM and SWCM have also brought investors' dollars into CMVT's stock. New products are also on the horizon, with an impending release of voice-activated software for features such as wireless dialing. CMVT's instant wireless messaging software is already a leader in Europe, and will soon be making its way to the United States. The company has also found institutional support, with all 16 analysts covering the stock rating it as either a Strong Buy or a Buy. With 55 percent of its employees and operations based in Israel, news this week that tensions in the Middle East appear to be subsiding will help in its continuing ascent. Currently, CMVT has support at $115 and $110, which are strengthened by the 5 and 10-dma, at $114.18 and $110.28 respectively. A bounce off these levels on volume would provide an aggressive entry but make sure CMVT does not fall below $110, as it could head lower from that point. A failure at that level would end the play. For conservative traders, a break through $120 resistance with conviction will provide for a solid entry, with the next stop its all-time high of $123.88. ***November contracts expire in 2 weeks*** BUY CALL NOV-115 CQZ-KC OI=1064 at $ 9.13 SL=6.25 BUY CALL NOV-120*CQZ-KD OI= 510 at $ 6.63 SL=4.50 BUY CALL NOV-125 CQZ-KE OI= 714 at $ 4.75 SL=3.00 BUY CALL DEC-120 CQZ-LD OI= 370 at $13.25 SL=9.75 BUY CALL DEC-125 CQZ-LE OI= 124 at $11.38 SL=8.50 SELL PUT NOV-110 CQZ-WB OI= 311 at $ 3.38 SL= 5.50 (See risks of selling puts in play legend) Picked on Oct 31st at $111.75 P/E = 97 Change since picked +6.38 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 = 2.42 mln EMC - EMC Corporation $97.75 (+8.94 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. According to recent estimates, 75% of all information technology hardware budgets will consist of storage hardware by the year 2003. As the "Cisco" of the Storage sector, investing in EMC has been seen by investors as a great way to take advantage of this possible trend. This was a busy week for EMC, as it not only bounced strongly to put itself back above all its major moving averages, but also made what could be a monumental acquisition that could pay dividends for many years to come. When a gorilla beats its chest, the jungle listens. This week, EMC acquired server software company CrosStor Software for $300 million in stock. This move not only puts EMC in a position to take advantage of the higher margins of the software part of the Storage sector, but also puts the company in a position to enter the Network Attached Storage (NAS) space, which Network Appliance (NTAP) is currently the leader. Considering that NTAP has been growing year-over-year at a rate of over 120 percent, this is a lucrative space indeed. Investors in NTAP are already feeling the pressure, as their stock has headed lower in light of this uncertainty. Some of this money has likely headed to other storage companies such as BRCD, EMC and VRTS. At this point, EMC appears poised to break through the psychological $100 barrier. A move above this level on strong volume would be the green light for conservative traders to step in. For aggressive traders, a test of the 50-dma at $94, or the converged 5 and 10-dma at $91.64 are possible targets to shoot for. In buying off a bounce, make sure that EMC stays above key support at $86. A break below could lead to more weakness, though currently conditions suggest that this is highly unlikely, as EMC plans to grow 20 percent of its revenues from the software side of its business. This additional stream of income appears to be in the process of being factored into the stock price. ***November contracts expire in 2 weeks*** BUY CALL NOV- 90 EMC-KR OI= 4248 at $9.50 SL=6.50 BUY CALL NOV- 95*EMC-KS OI= 6589 at $6.00 SL=4.00 BUY CALL NOV-100 EMC-KT OI=11873 at $3.25 SL=1.75 BUY CALL DEC- 95 EMC-LS OI= 3593 at $9.50 SL=6.50 BUY CALL DEC-100 EMC-LT OI= 2065 at $7.13 SL=5.00 Picked on Oct 22nd at $100.00 P/E = 151 Change since picked -2.25 52-week high=$104.94 Analysts Ratings 16-10-1-0-0 52-week low =$ 35.06 Last earnings 10/18 est= 0.19 actual= 0.20 Next earnings N/A est= 0.23 versus= 0.17 Average Daily Volume = 9.03 mln PSFT - PeopleSoft $46.75 (+1.75 last week) PeopleSoft's mission is to provide innovative software solutions that meet the changing business demands of organizations worldwide. Founded in 1987, PeopleSoft is a market-leading provider of eBusiness application software for Fortune 1000-class corporations. From an early focus on the enterprise applications of human resources and finance, PeopleSoft expanded its tools and application portfolio to support these core business processes: materials management, project performance analysis, supply chain planning, manufacturing operations, and eBusiness. It's no secret that people love PeopleSoft, as it's stock price has soared since its early summer lows. So much so that PSFT is now the number one performing stock in the S&P 500 over the past six months. In the past 30 days, it is number three and over the past year, is in tenth place. To outperform so many of the leading companies in the market over an extended period of time is no accident, nor is it a one-hit wonder. The company's recent shift in focus, from a lower growth (15 percent per year) intra-company software market to a higher growth (45 to 50 percent) customer management software market is paying off, much to the delight of investors. PSFT spent the first half of this past week in consolidation mode, digesting its recent gains. As mentioned in Thursday's write-up, PSFT not only got through the dreaded month of October in one piece, but gained an astounding 38% during that time. With volume to the downside low, it has continued to dry up as traders banked some of the large gains in this stock. It appears now, however, that PSFT is ready to head higher. Successfully testing its 10-dma, now at $44.73, PSFT now has strong support from that moving average as well as the 5-dma near the $45 level. A bounce off support confirmed with buying volume would allow for an aggressive entry. There is also support at $43 and $42 but in entering this play on a pullback, make sure that the $42 level holds, as a break below this point would no longer make this a recommended play. As strong supporters of using stop loss orders to limit downside risk, we are placing a stop at this level. For a safer entry, look for a break through its all-time high of $48, backed by strong buying pressure, before entering. Breaking through $50 will put PSFT into brand new territory. ***November contracts expire in 2 weeks*** BUY CALL NOV-40 PQO-KH OI=1428 at $7.75 SL=5.50 BUY CALL NOV-45*PQO-KI OI=3086 at $3.88 SL=2.50 BUY CALL NOV-50 PQO-KJ OI=1440 at $1.50 SL=0.75 BUY CALL DEC-45 PQO-LI OI= 179 at $6.00 SL=4.00 BUY CALL DEC-50 PQO-LJ OI=3395 at $3.75 SL=2.25 Picked on Nov 1st at $46.13 P/E = 136 Change since picked +0.62 52-week high=$48.00 Analysts Ratings 2-8-9-0-0 52-week low =$12.00 Last earnings 10/17 est= 0.07 actual= 0.08 Next earnings 01-16 est= 0.09 versus= 0.04 Average Daily Volume= 6.37 mln RIMM - Research In Motion Ltd. $109.25 (+9.31 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. The handheld computing sector got a nod from the market this week, as PALM was added to the NASDAQ 100 (QQQ) as of Friday's close. With other recent additions Ariba (business-to-business) and Broadcom (broadband semiconductors), it appears that the Internet appliance industry is gaining some well-deserved recognition. Considering that the NASDAQ 100 committee bypassed the criteria of having to be listed for a minimum of one year (PALM went public this past March), PALM's addition becomes an even greater compliment. As one of the three leading companies in this sector, RIMM finds itself in the center of what could turn out to be an all-out bidding war. It's a simple case of supply and demand, really, with many investor dollars chasing so few stocks. But there are unique characteristics to RIMM's business model, which make this stock an especially attractive one. Like PALM, which generates revenue from the sale of its handheld devices as well as royalties from licensing its PalmOS, RIMM has a dual income stream. Along with making profit from selling its Blackberry line of portable devices, RIMM generates a steady monthly cash flow from subscription fees. The law of discounting in Finance dictates that the more predictable the revenue stream, the higher the premium afforded. What this means is, RIMM's revenue stream from monthly subscription fees can be more highly valued because there is less risk, which if the math is done right, means a higher stock price. This is just what we want to hear about our call play. Aggressive entries can be had on a bounce off the 5-dma near the psychological $100 as well as the 10-dma near $105. We would however, recommend setting a stop at $95 as a break below this key level would no longer make this an attractive play. An entry on strength is a better bet, with a break through $110 with conviction, confirmed by a strong market (in this case, we would recommend watching the Toronto Stock Exchange, which RIMM trades on under the symbol RIM) for a conservative entry point. ***November contracts expire in 2 weeks*** BUY CALL NOV-105 RUL-KA OI=345 at $11.75 SL= 9.00 BUY CALL NOV-110*RUL-KB OI=563 at $ 8.75 SL= 6.00 BUY CALL NOV-115 RUL-KC OI=595 at $ 6.63 SL= 4.50 BUY CALL DEC-110 RUL-LB OI=278 at $16.00 SL=11.50 BUY CALL DEC-115 RUP-LC OI=149 at $13.75 SL=10.25 SELL PUT NOV-100 RUL-WT OI=311 at $ 4.63 SL= 2.75 (See risks of selling puts in play legend) Picked on Oct 19th at $122.44 P/E = 1775 Change since picked -13.19 52-week high=$175.75 Analysts Ratings 6-8-0-0-0 52-week low =$ 23.25 Last earnings 09/28 est= -0.03 actual= -0.02 Next earnings 12-28 est= -0.02 versus= 0.05 Average Daily Volume = 2.00 mln PKI - PerkinElmer Inc. $115.94 (+4.56 last week) PerkinElmer is a global technology company, which provides products and systems to the Telecom, Medical, Pharmaceutical, Chemical, and Semiconductor markets. The company's Life Sciences unit provides chemical reagents, sample handling and measuring instruments, and computer software to bio-screening and population screening laboratories. PKI's Optoelectronics unit produces products such as high volume and high performance specialty lighting sources, detectors, optical fiber communications components, and imaging devices. The company's Instruments division makes sophisticated analytical instruments and imaging detection systems. Providing products to a broad spectrum of technology-related industries, one would expect PKI to be subject to the whims of the broader technology market. While a case could be made for that position over the past couple days while both the NASDAQ and our play consolidated, it doesn't explain how PK was able to charge to new highs earlier in the week. The simple explanation would seem to be that the stock is more closely related to the DJIA, but even that doesn't entirely explain buyers' interest in the stock over the past 3 months while the major indices languished. With the broader markets getting healthy again, PKI could very easily catch the wave and charge to new highs, especially once the election is behind us. Resistance is intake between $120-121, and conservative players will want to wait for a solid push through this level before initiating new positions. Volume on Friday remained near the ADV as our play fell for most of the day, finally finding support near $114.50. This was rather encouraging as it coincided with the 10-dma (currently $114.88), and the bulls stepped up near the close to tack on more than $1. A recovery from this level is definitely buyable, but just keep in mind that our stop is placed at $113. If PKI falls victim to heavy selling that drops it through $113 on a closing basis, it will be grounds for expulsion from the playlist. ***November contracts expire in 2 weeks*** BUY CALL NOV-115*PKI-KC OI=198 at $6.63 SL=4.50 BUY CALL NOV-120 PKI-KD OI=505 at $4.38 SL=2.75 BUY CALL NOV-125 PKI-KE OI=277 at $2.19 SL=1.00 BUY CALL DEC-120 PKI-LD OI= 13 at $8.75 SL=6.00 BUY CALL DEC-125 PKI-LE OI= 0 at $6.50 SL=4.50 Wait for OI!! SELL PUT NOV-110 PKI-WB OI= 17 at $3.00 SL=5.00 (See risks of selling puts in play legend) Picked on Oct 31st at $119.50 P/E = 58 Change since picked -3.56 52-week high=$121.00 Analysts Ratings 4-0-1-0-0 52-week low =$ 37.81 Last earnings 10/00 est= 0.45 actual= 0.66 Next earnings 01-18 est= 0.57 versus= 0.61 Average Daily Volume = 644 K MEDX - Medarex, Inc. $68.81 (+5.81 last week) One of several Biotechnology companies that is using genetically engineered mice to create human monoclonal antibodies and develop therapeutic products, MEDX calls its invention the HuMAb-Mouse. Several treatments are in clinical trials; some target cancers (prostate, colon, kidney) tumors (head, neck, breast), and others are designed to fight forms of anemia and acute leukemia. The company's lead product, MDX-RA, may prevent secondary cataracts. Spreading its influence, MEDX currently has deals with more than a dozen firms, including Centacor, Merck, and Aventis Behring. Like many Biotech companies, MEDX is being tight-lipped about its earnings release date. When we called on Friday, we were told the date has not been set, but to expect the announcement 45 days after the end of the last quarter. Hmmm...sounds like November 14th to me, but we'll keep checking until we get a more definitive answer. Shares of the company have seen a pretty nice run in the wake of the company's 2-for-1 split, which took place on October 18th. Two days later the buyers were back in force, bidding the price higher, possibly on news of the alliance formed with ZymoGenetics. The combination of MEDX's fully human monoclonal antibody development technology with ZymoGenetics' expertise in the field of genomics and protein therapeutics bodes well for bringing additional products to market, and driving MEDX towards profitability. The consolidation early last week near $60 provided a nice springboard and the share price subsequently shot up to temporarily top the $70 level, posting another higher high. Friday's consolidation may continue until after the election, and then MEDX should be off to the races again. Intraday support is found near $66, and a bounce near this level looks like a good entry point for aggressive players. Wait for the bounce before jumping into the play though, as a close below $64 would trigger our stop, as it would be a sign that our play is losing its upward momentum. More conservative investors will wait for continuing strong buying volume to propel MEDX through the $71 level before initiating new positions. ***November contracts expire in 2 weeks*** BUY CALL NOV-60 MZU-KL OI=260 at $11.00 SL=8.25 BUY CALL NOV-65 MZU-KM OI=270 at $ 7.63 SL=5.25 BUY CALL NOV-70*MZU-KN OI=849 at $ 5.00 SL=3.00 BUY CALL DEC-65 MZU-LM OI= 6 at $10.75 SL=8.00 BUY CALL DEC-70 MZU-LN OI=334 at $ 8.38 SL=6.00 Picked on Nov 2nd at $70.25 P/E = N/A Change since picked -1.44 52-week high=$103.00 Analysts Ratings 3-3-0-0-0 52-week low =$ 3.78 Last earnings 08/00 est= -0.05 actual= -0.08 Next earnings 11-09 est= -0.05 versus= -0.08 Average Daily Volume = 601 K ITWO - I2 Technologies Inc $170.44 (+2.94 last week) ITWO is a global provider of intelligent eBusiness solutions for supply chain management and enhanced business applications. On June 12, 2000 ITWO merged with Aspect Development (ASDV) to create one of the largest software providers for eBusiness and eMarketplace solutions. TradeMatrix, its Internet marketplace, provides an open digital community powered by i2's advanced optimization and execution capabilities that help manufacturers plan production and other related operations. Clients include 3M, Compaq, Ford and Nokia. I2 Technologies is a solid performer and a company that forms the backbone of the electronic marketplace. It's strategically positioned to survive any Internet controversy. Last month the company reported blow out 3Q earnings, coming in two pennies ahead of the consensus estimates at $0.12. The top line revenues rose a substantial 118% to $319.5 mln from $146.3 mln a year ago and easily surpassed the expected $264 mln to $285 mln range. The BoD also announced a 2:1 stock split payable on or around December 5th, pending shareholders' approval. A shareholder vote is scheduled for November 28th. It also hit the press last week that ITWO, along with 12 other equity partners, are merging two purchasing exchanges: AirNewco and MyAircraft and creating a single enterprise for the $500 bln aviation industry. In recent times, ITWO mounted a steadfast recovery following the tech carnage. Coming off the October 26th low of $145.70, ITWO has since captured $24.69, or 17% in gains. Going forward, look for ITWO to stretch higher ahead of the proposed stock dividend. As we saw during Wednesday's session, there is resistance at the $180 level. Modest traders may want to buy into strength as ITWO moves through this resistance level. The 5 and 10 DMA lines at $168 also serve as solid launching points on the climb. If you choose to take entry on a downdraft, keep it above the $160 mark as we'll exit the play on any close below that level. ***November contracts expire in two weeks*** BUY CALL NOV-165 QYI-KM OI= 471 at $14.00 SL=10.50 BUY CALL NOV-170*QYI-KN OI= 485 at $11.50 SL= 8.75 BUY CALL NOV-175 QYI-KO OI= 297 at $ 9.13 SL= 6.25 BUY CALL DEC-175 QYI-LO OI= 20 at $17.50 SL=12.50 BUY CALL DEC-180 QYI-LP OI= 86 at $15.50 SL=11.25 Picked on Oct 31st at $170.00 P/E = N/A Change since picked +0.44 52-week high=$223.50 Analysts Ratings 13-20-4-0-0 52-week low =$ 34.75 Last earnings 09/00 est= 0.10 actual= 0.12 Next earnings 01-16 est= 0.15 versus= 0.10 Average Daily Volume = 4.46 mln MANU - Manugistics Group $120.50 (+10.53 last week) Manugistics Group provides a suite of strategic, tactical, and operational supply chain planning software products. However nearly 60% of its sales is derived from consulting and other related customer support services. Their blue-chip clients are in the automotive, chemical, electronics, food, pharmaceutical, and retail markets. MANU has seen an astonishing recovery in the past few weeks. Going into October, the share price took a beating and lost almost 50% of its value. The downward momentum took MANU from a recent pinnacle of $109.44, reached on September 22nd, to $61.75 where it found support above the 200-dma line. On the rebound, its quick climb to the topside of $100 was encouraging. However it was the recent rotation back into the tech sector that acted as the catalyst for the upward momentum to really take hold. MANU is currently above the resistance levels of $110 and $115 and is developing strength above $120 on good volume. We're looking for the current momentum to move MANU higher as the markets rally into the end of the year and the company approaches earnings in December. If MANU explodes into next week, high-volume moves off $120 are reasonable. Look for MANU to make a convincing break through $126.25, Thursday's intraday high; although, it isn't out of the question for some profit taking to surface in the coming sessions. If investors do lock in some gains, you might instead want to take entry off the 5- dma ($115.49) and short-term support at $115 and ride up a rebound. But take heed, don't begin new plays if MANU demonstrates too much weakness and closes under $110. If that happens, we'll quickly exit and move on to more opportune plays. Good financial news surrounded Manugistics this week. The company announced that it will receive total net proceeds of approximately $242 mln from its recent private placement, which ender November 2nd. ***November contracts expire in two weeks*** BUY CALL NOV-115 ZUQ-KC OI=16 at $15.88 SL=11.50 BUY CALL NOV-120*ZUQ-KD OI=57 at $13.25 SL=10.00 BUY CALL NOV-125 ZUQ-KU OI=70 at $10.88 SL= 8.25 BUY CALL DEC-120 ZUQ-LD OI=16 at $21.00 SL=15.25 BUY CALL DEC-125 ZUQ-LU OI=53 at $18.75 SL=13.75 Picked on Nov 2nd at $123.63 P/E = N/A Change since picked -3.13 52-week high=$126.25 Analysts Ratings 3-8-1-0-0 52-week low =$ 12.50 Last earnings 09/00 est= 0.00 actual= 0.03 Next earnings 12-21 est= 0.06 versus= -0.17 Average Daily Volume = 985 K MLNM - Millennium Pharmaceuticals $84.06 (+10.25 last week) Millennium Pharmaceuticals is engaged in the commercial application of genetics, genomics & bioinformatics for treatment and diagnostics of such diseases as asthma, stroke, colitis, and Crohn's disease. It derives revenues from research and development alliances with the major drug companies. Currently Millennium's LeukoSite subsidiary has developed CAMPATH, a potential leukemia treatment that has received FDA fast-track status. Strong upside action through historical resistance at $80 and a favorable light on the biotech sector put MLNM on our call list last week. The stock exploded on Thursday with a $7.19, or 9.4% advance for a bullish close at the $84 mark. Volume was grand at almost twice the ADV. Friday's session saw modest overall gains, but MLNM went center stage with another 52-week high. The record to beat now stands at $87.50. Momentum is building quickly and the technical DMAs are now dots in the rear-view mirror. Aggressive traders could take entry on deep intraday pullbacks to the 5-dma, currently at $77.78. However, it'd be wise to consider closing out positions if MLNM closes below $75. At that level, we would deem it necessary to drop the play on account of the downside bias. However, we're going into next week with a positive outlook. With the company's recent earnings release and 2:1 stock split now history, the calendar is clear for a pure momentum run into the holiday season. We're looking for momentum players to move MLNM through the $90 level. Volume should remain robust on the climb. Recent news too reminded investors that Millennium Pharmaceuticals and Bayer AG's five-year research alliance is producing results. Their collaboration to streamline the drug discovery process is a great success. So far the collaboration resulted in more than 70 disease-relevant drug targets moving into high-throughput screening or lead identification, a key step in drug discovery. ***November contracts expire in two weeks*** BUY CALL NOV-80 UMY-KP OI= 694 at $ 9.00 SL=6.25 BUY CALL NOV-85*UMY-KQ OI= 648 at $ 6.13 SL=4.00 BUY CALL NOV-90 UMY-KR OI=1153 at $ 4.00 SL=2.50 BUY CALL DEC-85 UMY-LQ OI= 516 at $10.25 SL=7.00 BUY CALL DEC-90 UMY-LR OI= 300 at $ 8.25 SL=5.75 Picked on Nov 2nd at $84.00 P/E = N/A Change since picked +0.06 52-week high=$84.25 Analysts Ratings 6-6-2-0-0 52-week low =$17.56 Last earnings 09/00 est=-0.11 actual=-0.13 Next earnings 01-16 est=-0.06 versus= 0.01 Average Daily Volume = 2.18 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. 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The Option Investor Newsletter Sunday 11-05-2000 Sunday 4 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/110500_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=846 ************************************************************** ************* NEW PUT PLAYS ************* GSPN - GlobeSpan $73.47 (+5.72 last week) GlobeSpan is a worldwide developer of advanced digital subscriber line (DSL) integrated circuits, which enable high-speed data transmission over the existing network of copper telephone wires at rates over 100 times faster than today's 56 Kilobit modems. The company's innovations make it possible to do the things that technology companies have been promising for years; real-time video conferencing, telecommuting, high-speed Internet surfing, and video-on-demand. GSPN is the result of Lucent's 1996 spin-off of AT&T Paradyne, and still outsources most of its production to Lucent. Since completing a triple top at the $140 level in late September, shares of GSPN have been in a painful downward trend, giving up nearly 50% of their value since then. The top of the channel containing the decline is now positioned at $80, and it looks like the stock is heading south again, having failed to break through earlier this week. Even the announcement of strong earnings on October 23rd was insufficient to kick the stock out of its funk, and the decline resumed after a one day respite. Stopping the post-earnings rally attempt dead in its tracks was the 200-dma, then sitting at $97.88. The string of lower highs and lower lows remains intact and the most recent relative high defines our stop at $82. While a test of this resistance level would provide a very attractive entry for aggressive players, it looks like the more likely near-term direction is down. Instead of looking for a move to the top of the descending channel, we would recommend looking for a rollover from intraday resistance at $77 to initiate new plays. Mild support seemed to materialize on Friday near $71, and more conservative players will want to enter on weakness, opening new positions as GSPN dips below this level with the assistance of increased selling volume. ***November contracts expire in 2 weeks*** BUY PUT NOV-75*GHY-WO OI=400 at $8.00 SL=5.75 BUY PUT NOV-70 GHY-WN OI=177 at $5.88 SL=3.75 Average Daily Volume = 2.31 mln MNMD - MiniMed Inc. $67.69 (-4.31 last week) Minimed designs, develops, manufactures, markets, and sells advanced microinfusion systems and continuous glucose monitoring systems for the intensive management of diabetes. Its pumps deliver hundreds of tiny infusions of insulin, thus replacing the need for injections; MNMD's implantable insulin pump is approved for sale in Europe. Using its drug delivery expertise, the company is also developing infusion devices for the treatment of other chronic medical conditions such as high blood pressure. Caught in the crosshairs by speculation that the weak Euro would impact revenues of the medical device makers, MNMD fell out of its uptrending channel in early October and never recovered. As it turned out, the worries about profits were justified, but misplaced. The company failed to meet analysts' estimates when it reported its quarterly results on October 18th, but the culprit was that a larger than expected portion of the company's business went to Medicare, which strings payments out over time. Although the company's fundamentals remain strong, the damage had been done, and the stock dropped by more than 16% the day of the announcement. Even an upgrade by Wedbush Morgan from LT Attractive to Buy was only sufficient to push the share price up to resistance (the top of the gap from the 18th), before the selling resumed. Adam Harkness started coverage with an Accumulate rating last week, but that isn't exactly a glowing recommendation, and it went largely ignored by investors. Adding insult to injury, selling volume began increasing towards the end of the week, hitting 150% of the ADV on Friday, as the share price fell 5%. It now looks like the bottom of the earnings-related gap down ($72) will contain any upward moves in the near-term. Accordingly, a move above this level will stop us out of the play, as it will likely presage a more sustained recovery. Look for new entries to materialize as MNMD continues its decline. A fall through $66 (Friday's low and historical support) looks like a good point to initiate conservative plays. Those looking for a more aggressive entry will want to look for an attempted rally to fail near resistance before jumping into the play. Tighten up your stops as MNMD approaches its 200-dma (currently $61.44), as it sits right at significant historical support. ***November contracts expire in 2 weeks*** BUY PUT NOV-70*MAQ-WN OI= 155 at $5.00 SL=3.00 BUY PUT NOV-65 MAQ-WM OI=1809 at $2.38 SL=1.25 Average Daily Volume = 631 K ***************** CURRENT PUT PLAYS ***************** SLR - Solectron $44.13 -0.88 (-3.88 last week) Solectron is an electronics manufacturing service provider. The company’s clients are primarily original equipment manufacturers, which design and sell computers, workstations, electronics equipment, and telecommunications equipment. Solectron provides outsourcing solutions along the entire product life cycle, from design, circuit board assembly, product distribution and repair. Solectron also has New Product Introduction centers in several countries, which offer new product development services. Anyone who bought a SLR put earlier in the week could have taken a nice profit on Friday morning, as it dropped as low as $42.25 on strong selling. And it was very strong, as over four million shares traded by 10:30 AM, knocking the stock below its 50-dma of $45. While SLR managed to recover from the oversold position by midday, it did not have the strength to keep its head above water. Towards the end of the day, SLR rolled over, and fell below the previous day’s close and support level at $45. SLR is solidly below the 10-dma of $46.81 and the 5-dma of $44.89. The company issued a press release stating that their earnings for the fiscal year ending August 2001 would be $.99 to $1.02 per share, down from their previously released expectations of $1.12 to $1.15 per share, due to the dilutive effect of the $2.4 billion NatSteel purchase. In addition, the electronics components sector lacks strength. SLR appears to have hit a double top at $45 and retreated. There is no near-term bullish factor driving momentum, and heavy institutional selling is occurring. Friday’s volume was 6.3 million shares, more than double the average daily volume. Consider entering new positions on a failed attempt to clear $45, and exit all positions if the stock should clear $48. ***November contracts expire in 2 weeks*** BUY PUT NOV-50 SLR-WJ OI=1726 at $6.50 SL=$4.50 BUY PUT NOV-45*SLR-WI OI=4103 at $2.81 SL=$1.50 Average daily volume = 2.88 million MERQ - Mercury Interactive $112.44 (-4.38 last week) As a provider of integrated performance management solutions that enable businesses to test and monitor their Internet applications, MERQ is looking for growing e-commerce demand to continue to fuel its business. The company's products perform such tasks as analyzing and eliminating Web site performance bottlenecks and automating quality assurance testing. MERQ's client base spans a wide range of industries including Internet companies such as Amazon.com and America Online, infrastructure companies Ariba and Oracle, as well as Apple Computer, Cisco Systems and Ford Motor Company. When we started this play on Thursday, we cited a number of reasons for weakness in this stock. Valuation concerns, large debt load, high interest charges acting as a lodestone to the company's growth, sexier and more reasonably valued prospects for investor dollars, fear over decreases in capital spending in an slowing economy, all of these factors have contributed in the stock's downtrend. A downgrade in mid-October from Prudential from Strong Buy all the way down to Accumulate only added fuel to the fire sale. Ever since it hit a high in early October, MERQ has been trading lower in a downward trending regression channel. Connecting its highs and lows since late September, it appears that the stock is currently close to the top of this channel. Along with strong resistance from the 10-dma, the stock appears headed to its 200-dma, just below the psychological support level of $100. The 100-dma has provided especially formidable resistance, as MERQ has failed to rally above this moving average all week long. In entering this play, aggressive traders may want to consider a failed rally off this moving average, currently sitting near $115, as a possible entry point. But make sure that MERQ does not close above this point, as this would be a signal that the downtrend may be broken, and we would no longer recommend this play. The 10-dma, currently at $114.85, only serves to emphasize the importance of $115 as a key support level. For conservative traders, a break below $110 on volume is a target to shoot for but just to make sure, you may want to wait for MERQ the fall through its 5-dma at $109.17 before entering. ***November contracts expire in 2 weeks*** BUY PUT NOV-115 RBF-WC OI=839 at $11.88 SL=$9.00 BUY PUT NOV-110*RBF-WB OI=316 at $ 9.13 SL=$6.25 BUY PUT NOV-105 RBF-WA OI=241 at $ 6.88 SL=$5.00 Average daily volume = 1.76 mln LVLT - Level 3 Communications Inc $39.81 (-4.56 last week) Level3 Communications is a global telecommunications and information services company that is building an international fiber-optic network based on internet protocol (IP). Their focus is primarily on the business market. Services include local, long distance, and data transmission as well as other enhanced services. Currently they serve 20 cities in the US and Europe. LVLT also has its hands in the coal mining business. Three years ago, this Colorado company went public and wooed the Street with its plan to build a global fiber optics network that would rival the major players. Investors poured billions of dollars into Level 3 Communications, which ultimately have allowed it to fund its five-year construction project to build a 16,000-mile US fiber optic highway connecting 56 metro networks. With that said, it sounds like LVLT should be gilded in gold and untouchable. But the Street is harsh and investors want nothing less than perfection. News of Nortel's (NT) woes and WorldCom's (WCOM) 4Q concerns and restructuring plans put the pressure on LVLT. The current downtrend line is intact with the price level now below $40. If you're aggressive and are anticipating taking an entry on a high-volume rollover, you might consider $48 your cutoff point. We will exit the play if LVLT demonstrates strength about this level. We want to avoid getting caught in a buying spree. Remember these prices haven't been seen in almost two years! More conservative entries can be found on downward bounces from the 5-dma ($43) or on further weakness from the current price. The nearest thing to support is Friday's new 52- week low at $37.25. Expect some opposition moving through this level. ***November contracts expire in two weeks*** BUY PUT NOV-40*HGY-WH OI=629 at $ 3.75 SL=2.00 BUY PUT NOV-35 HGY-WG OI=210 at $ 1.63 SL=0.75 Average Daily Volume = 3.49 mln DGX - Quest Diagnostics $96.75 (+6.25 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. A solid earnings report that beat estimates certainly shouldn't have agitated investors. But, as we've seen in the past, traders took chips off the table following the announcement. the sharp sell-off on October 20th brought DGX to its historical support level at the century mark. It proceeded to trade sideways amid the fickle marketplace, despite the array of analysts tagging it with buy recommendations. There was no other company-specific news to explain the sell-off. The immediate downtrend was more the result of profit taking gone overboard. This Monday's low at $86.75 marked a bottom for the week's trading, but subsequent intraday gyrations provided the chance to aggressively target shoot. The peaks and valleys pattern were at significantly higher levels, but nevertheless tradable. As the week progressed, DGX couldn't move lower than $88 and found shorter-term support at $96 and $97 by Friday. A move to the upside of the 10-dma line ($97.41) would be critical. If the stock fails to rollover and manages to close above the critical $100 level, we'll exit the play. Wait for conclusive downside action before beginning new positions. ***November contracts expire in two weeks*** BUY PUT NOV-95*DGX-WS OI= 50 at $6.13 SL=4.00 BUY PUT NOV-90 DGX-WR OI=103 at $3.75 SL=2.50 Average Daily Volume = 618 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=863 ************************************************************** ***** LEAPS ***** October: In Like A Bear, Out Like A Bull By Mark Phillips Contact Support Living up to its reputation, October put fear into the hearts of the die-hard bulls, sending the DJIA down for an intraday test of 9650, and forcing the NASDAQ to endure 3 tests of the 3000 level. Finally getting a clean bill of health, the bulls began coming timidly back to the market, resuscitating the old economy stocks first and then moving back to their favorite technology stocks. By the end of the week, the DJIA had settled in nicely above 10800 (more than 1000 points above its October low), while the NASDAQ managed to creep gradually higher, settling above the 3400 support/resistance level. Fortunately, this selloff and subsequent recovery came with the requisite swings on the VIX. Corresponding to the extremes in the broader markets, our favorite fear index put in a nice double top at 36.74, and a lower high at 34.00, before giving the markets the all-clear, diminishing fear signal. Falling back into the middle of its historical range in a more sedate fashion than we saw 2 weeks ago, the VIX settled nicely on Friday at 26.34. This is solidly out of the danger zone, and the corresponding recoveries in the broader market, make a strong case for the worst being behind us now. The sigh of relief was almost audible as CSCO moved back above the $50 level, and we saw the week close out with solid gains in the Networking stocks. Even NT, the instigator of the selloff in the sector less than 2 weeks ago, managed to post a gain for the week, closing back above the $45 level. The effects of the rally can be seen in the playlist, with virtually every play looking better than it did a week ago. Sharp gains visited most sectors with AXP, EMC, NOK and GENZ among the notable winners for the week. Crude Oil seems to be settling into the $30-35 per barrel range, partially due to reduced tensions in the Middle East. The presidential election is almost upon us, the economy still seems to be humming along in fine fashion, and we feel fairly comfortable saying the fall correction is now in the rear view mirror. Combine all of these factors and you get a pretty healthy upside bias to the markets. We know there is a lot of cash sitting on the sidelines,...all we need to do now is convince investors and fund managers to put it to work. So it looks like the stage is set for a solid fall rally. I wouldn't look for it to rival the kind of mania we saw last year, but positions entered over the past week (and over the next couple weeks) should profit handsomely between now and the REAL beginning of the New Millennium. Happy Trading, and don't forget to vote. Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN EMC 11/07/99 JAN-2002 $ 45 WUE-AI $ 9.50 $58.75 518.42% 09/17/00 JAN-2003 $100 VUE-AT $32.75 $34.38 4.96% CSCO 11/14/99 JAN-2002 $ 45 WIV-AI $11.00 $21.88 98.86% NT 11/28/99 JAN-2002 $37.5 WNT-AU $15.13 $17.88 18.14% 09/10/00 JAN-2003 $ 75 ODT-AO $27.50 $10.75 -60.91% SUNW 12/19/99 JAN-2002 $ 90 WJX-AR $22.00 $42.88 94.89% 11/05/00 JAN-2003 $120 VSU-AD $39.50 $39.50 0.00% AOL 03/12/00 JAN-2002 $ 65 WAN-AM $18.63 $ 8.30 -55.45% 08/13/00 JAN-2003 $ 55 VAN-AK $17.50 $17.10 - 2.29% AXP 03/12/00 JAN-2002 $46.6 WXP-AQ $ 9.33 $19.75 111.68% WM 03/19/00 JAN-2002 $ 30 WWI-AF $ 5.38 $15.75 192.75% 10/22/00 JAN-2003 $ 45 VWI-AI $ 7.88 $10.00 26.98% JDSU 04/16/00 JAN-2002 $ 80 YJU-AP $39.63 $28.75 -27.45% 08/27/00 JAN-2003 $130 VEQ-AF $55.25 $24.00 -56.56% NOK 05/21/00 JAN-2002 $ 50 IWX-AJ $17.25 $ 9.63 -44.20% 07/30/00 JAN-2003 $ 50 VOK-AJ $17.75 $13.38 -24.65% C 06/18/00 JAN-2002 $48.8 YSV-AW $10.31 $13.88 34.58% 10/01/00 JAN-2003 $ 60 VRN-AL $12.25 $12.13 - 1.02% VRSN 07/02/00 JAN-2002 $190 YVS-AR $66.25 $37.00 -44.15% 09/03/00 JAN-2003 $190 OVS-AR $86.63 $52.88 -38.96% GENZ 07/16/00 JAN-2002 $ 70 YGZ-AN $17.13 $32.38 89.00% JAN-2003 $ 70 OZG-AN $23.13 $39.38 70.23% HWP 07/30/00 JAN-2002 $ 55 WPW-AK $14.13 $ 8.50 -38.96% JAN-2003 $ 60 VHP-AL $16.25 $10.50 -36.92% EXDS 08/06/00 JAN-2002 $ 55 WZZ-AK $20.75 $ 7.63 -63.25% JAN-2003 $ 60 VTQ-AL $25.38 $10.38 -59.12% MFNX 08/06/00 JAN-2002 $ 40 WOF-AH $13.75 $ 5.25 -61.82% JAN-2003 $ 45 VKW-AI $15.63 $ 7.25 -53.61% FRX 08/13/00 JAN-2002 $ 95 WRT-AS $31.38 $53.13 61.82% JAN-2003 $100 VFB-AT $37.38 $58.75 53.61% BRCD 08/27/00 JAN-2002 $220 YNU-AD $65.38 $90.88 39.00% JAN-2003 $220 OMW-AD $86.50 $115.13 33.09% CMRC 09/10/00 JAN-2002 $ 80 YCU-AP $30.13 $29.38 - 2.51% JAN-2003 $ 80 OCU-AP $38.75 $38.88 0.32% QCOM 09/17/00 JAN-2002 $ 70 WBI-AN $22.50 $24.38 8.33% JAN-2003 $ 70 VLM-AN $29.63 $32.38 9.26% COMS 10/01/00 JAN-2002 $ 20 WTH-AD $ 6.38 $ 5.00 -21.57% JAN-2003 $ 25 VTH-AE $ 7.13 $ 5.88 -17.54% INTC 10/15/00 JAN-2002 $ 45 WNL-AI $ 9.50 $12.38 30.26% JAN-2003 $ 45 VNL-AI $13.38 $16.50 23.36% TXN 10/22/00 JAN-2002 $ 50 WTN-AJ $13.75 $13.13 - 4.55% JAN-2003 $ 50 VXT-AJ $18.38 $17.75 - 3.40% ADBE 10/29/00 JAN-2002 $ 80 YEJ-AP $23.50 $26.88 14.36% JAN-2003 $ 80 VAE-AP $30.75 $35.13 14.23% Spotlight Play SUNW - Sun Microsystems $113.06 Although coming in fits and starts, the dawn of the NASDAQ's fledgling recovery was marked by the inadvertent early release of SUNW's earnings results on October 18th. Fortunately for the bulls, the company handily beat analyst estimates and posted better than 60% revenue growth, allaying investor fears about the entire technology sector moving into a period of slower growth. After rebounding off the 200-dma (then at $95.88) a week earlier, the positive news propelled our play up to resistance at the $120 level before more technology fears prompted one more test of the lows on the NASDAQ. With one final bounce at the 200-dma on October 26th, SUNW has been steadily marching higher, clearing the 30-dma ($111) on Friday. Even though the 50-dma ($114.94) provided some resistance towards the close, the improving technicals and steady upward trend give the impression that this time the recovery has legs. Consistent with the theory that old resistance becomes new support, look for new entries to materialize on a pullback to support in the $110-112 range. Stronger support is found at $105, and a close below this level would be a strong signal to stand aside from the play. More conservative players will want to wait for a push through resistance before playing, and a close over $120 will be just the sign we need that SUNW is serious about moving to new highs.. BUY LEAP JAN-2002 $120.00 WJX-AD at $28.63 BUY LEAP JAN-2003 $120.00 VSU-AD at $39.50 New Plays BGEN - Biogen, Inc. $62.63 After surging up north of $120 in the Biotech frenzy this past spring, BGEN has had a rough time, failing to participate in the recent recovery in the sector. After missing its earnings estimate by 2 cents in early April, nobody wanted the stock and it languished between $50-60 for nearly 2 months before showing any signs of life. On its two most recent rallies, BGEN was turned back at the 200-dma (currently resting at $69), before heading back to test its lows near $50. With the Biotech index testing its highs near 800, it looks like the sector could head higher, dragging our new play along with it. Additionally, BGEN has managed to meet or beat its earnings estimates the past 2 quarters and if the company can manage to light a fire under its revenue growth, the stock has plenty of room to run. The company's flagship Multiple Sclerosis drug, AVONEX, has recently been shown to be the most potent drug currently on the market for combating the debilitating disease. The most recent recovery in BGEN's stock price began the same day that story broke. It looks like the sentiment in the marketplace may be changing for the better, when beaten down stocks respond positively to good news. Mild support sits at $60, with $55-56 being a much stronger level. Use a pullback to either of these levels as an opportunity to get into the play at a bargain, but don't try to catch a falling knife. If $55 can't contain the profit takers, stand aside from the play, because the stock will likely be headed back for a retest of the $50 level. At this point, entering on strength may be the best plan of action - if that fits your style, wait for strong volume to propel the price through resistance, currently situated at $65. Due to the fact that the 200-dma has proved so difficult to crack recently, tighten up your stops as BGEN approaches that level. There's no sense in giving back your profits if the bears unexpectedly return. BUY LEAP JAN-2002 $70.00 WGN-AN at $17.25 BUY LEAP JAN-2003 $70.00 VNG-AN at $25.00 Drops None *********** SPLIT PLAYS *********** Thanksgiving For November By Ryan Nelson I think it is safe to say that we are all happy that October is over and November has begun. The month has begun on a positive note and investors are now looking for a seasonal rally. This should help the momentum return to the split plays. Unfortunately, there isn't a whole lot to choose from. Almost everything that has an ex-dividend date in the coming weeks can be considered since we have an upside bias to the markets, but as always, narrow it down to the best potential play. While most analysts do see the market going higher to year-end, many have relatively low estimates compared to what we became used to in 1999. Current Split Run Plays None Current Split Candidate Plays BRCD ITWO MANU CMVT PKI RIMM VRTS Candidates That Are Not Current Plays ARBA CFLO VRSN PMCS SEBL VSTR 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 = 3 ARXX ANEN SYY For our complete stock split calendar, click here... http://members.OptionInvestor.com/splits/index.asp Symbol Company Name Splits Payable Executable TLB - Talbots, Inc. 2:1 11/07/2000 11/08/2000 PKE - Park Electrochemical Corp. 3:2 11/08/2000 11/09/2000 CDIS - Cal Dive Intl Inc 2:1 11/13/2000 11/14/2000 EPNY - E.piphany, Inc. 3:2 11/13/2000 10/31/2000 DCTM - DOCUMENTUM 2:1 11/13/2000 11/16/2000 EV - Eaton Vance Corp 2:1 11/13/2000 11/14/2000 CPN - Calpine Corp. 2:1 11/14/2000 11/15/2000 AZA - ALZA Corporation 2:1 11/15/2000 11/16/2000 BEIQ - BEI Technologies, Inc. 2:1 11/21/2000 11/22/2000 ARXX - Aeroflex 2:1 11/22/2000 11/24/2000 PHCC - Priority Healthcare Corp. 2:1 11/22/2000 11/24/2000 TNL - Technitrol, Inc. 2:1 11/27/2000 11/28/2000 ANEN - Anaren Microwave 2:1 11/27/2000 11/28/2000 MXC - MATEC Corporation 3:2 11/27/2000 11/28/2000 ATK - Alliant Techsystems 3:2 11/27/2000 11/28/2000 MWAV - M-Wave, Inc 2:1 11/28/2000 11/29/2000 PVN - Providian Financial Corp 2:1 11/30/2000 12/01/2000 SHFL - Shuffle Master, Inc. 3:2 11/30/2000 12/01/2000 CHRW - C.H. Robinson 2:1 12/01/2000 12/04/2000 PSC - Philadelphia Suburban 5:4 12/01/2000 12/04/2000 ITWO - i2 Tech 2:1 12/04/2000 12/05/2000 SUNW - Sun Microsystems 2:1 12/05/2000 12/06/2000 BEC - Beckman Coulter, Inc. 2:1 12/07/2000 12/08/2000 CREE - Cree 2:1 12/08/2000 12/11/2000 ABK - Ambac Financial 3:2 12/12/2000 12/13/2000 SYY - SYSCO Corporation 2:1 12/15/2000 12/18/2000 UNH - UnitedHeath Group Inc. 2:1 12/22/2000 12/26/2000 SPIR - Spire Corporation 2:1 12/22/2000 12/26/2000 IWOV - Interwoven 2:1 12/29/2000 01/02/2001 ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.nextcard.com/index6.html?ref=aff0049911 ************************************************************ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 11-05-2000 Sunday 5 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/110500_5.asp ************* COVERED CALLS ************* Volatility in Option Pricing By Mark Wnetrzak The first requirement for successful option trading is to understand the basic laws of pricing theory. 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. With so many different options available, how can one hope to select the correct position for the underlying instrument with the highest probability of profit? The choices are so numerous that many beginning traders give up long before they have time to learn (and absorb) the various components of option pricing. These are the four major factors that determine the price of an option: 1. The price of the underlying stock 2. The strike price of the option itself 3. The time remaining until the option expires 4. The volatility of the underlying stock There are two, less important factors that also affect the price of an option: 5. The current risk free interest rate (usually the 90 day T-Bill is used for this calculation) 6. The dividend rate of the underlying stock Volatility is the most important variable in valuing an option. All other factors are known; share value, option strike price, dividends, interest rates, and time remaining until expiration. The volatility of the underlying issue is also the most difficult value to accurately determine. Professional traders use several different timeframes to assess a stock's potential movement. In most cases, the 20-day historical volatility provides a reasonable projection of the short-term volatility of any instrument. But, for longer-term strategies, the 50-day and/or 100-day historical volatility values should be compared with the near-term numbers to identify any disparities in the recent character of the issue. A significant move in the underlying instrument, due to an earnings report or other major event, can cause an artificial change in volatility, thus skewing the short-term data. In general, 20-day, 50-day, 90-day and 1-year periods are the most common timeframes used to reflect the magnitude of future movement that can be expected over the life of an option. Comparing historic volatility to implied volatility helps a trader determine whether options are cheap or expensive. The most common way to use implied volatility is to observe an average of some past period of time, such as a 100 DMA. Experienced traders also use an adverse volatility estimate, based on historical volatility, in order to provide a more conservative appraisal of an option's true value. By definition, implied volatility is a mathematical measure of the relative cost of an option, and it is largely based on the historical volatility of the underlying issue. In reality, the implied volatility of an option is mostly determined by market expectations of the underlying security. When evaluating historical and implied volatility for specific option trades, it is best to use the most conservative values in pricing calculations. For example, if you are going to sell an an option, use a high estimate, perhaps the maximum value of the most common (20, 50 and 100 DMA) short-term volatility data. With that approach, the current price of the option will have to be inflated for the premium to appear "overpriced." In contrast, if you plan to engage in a strategy where you expect the underlying issue to be active, then a low volatility estimate (the minimum of the 20, 50, or 100 DMA) would be more appropriate. Using that technique, the option will look "cheap" only when it is relatively inexpensive, based on historical stock movement. For more information, read the appropriate chapters in McMillan's "Options as a Strategic Investment" and Sheldon Natenburg's "Option Volatility and Pricing." These are the bibles of floor traders and they will help you understand the complex subject of volatility and theoretical derivatives pricing. 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 12.00 NOV 7.50 2.81 *$ 0.93 15.4% AVID 14.75 14.50 NOV 12.50 3.63 *$ 1.38 10.8% TSIX 16.75 18.75 NOV 12.50 5.00 *$ 0.75 9.2% FFD 12.00 14.13 NOV 10.00 2.75 *$ 0.75 8.8% ANSR 17.00 16.88 NOV 12.50 5.13 *$ 0.63 7.7% ANSR 18.31 16.88 NOV 12.50 6.63 *$ 0.82 7.6% ENTU 29.25 32.56 NOV 25.00 5.50 *$ 1.25 7.6% BCGI 23.13 25.00 NOV 20.00 4.00 *$ 0.87 6.6% CTXS 21.44 23.94 NOV 17.50 4.88 *$ 0.94 6.2% VMSI 25.63 30.56 NOV 22.50 4.00 *$ 0.87 5.8% RDRT 7.94 7.06 NOV 5.00 3.25 *$ 0.31 5.7% FIBR 32.50 41.00 NOV 20.00 13.50 *$ 1.00 5.7% BPUR 17.38 23.94 NOV 15.00 3.25 *$ 0.87 5.4% PROX 58.75 65.94 NOV 50.00 10.50 *$ 1.75 5.3% UAXS 15.31 15.00 NOV 12.50 3.38 *$ 0.57 5.2% ECLP 21.38 23.50 NOV 17.50 4.63 *$ 0.75 4.9% WDC 6.13 5.94 NOV 5.00 1.44 *$ 0.31 4.8% ENMD 32.56 38.00 NOV 25.00 8.25 *$ 0.69 4.1% *$ = Stock price is above the sold striking price. 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 MTSI 12.00 NOV 10.00 TQM KB 2.50 318 9.50 14 11.4% GOAM 11.63 NOV 10.00 GUA KB 2.06 355 9.57 14 9.8% ARDM 24.63 NOV 17.50 QRQ KW 7.63 0 17.00 14 6.4% GALT 28.13 NOV 22.50 QFG KX 6.25 500 21.88 14 6.2% ACXM 40.75 NOV 35.00 UQA KG 6.63 319 34.12 14 5.6% HWP 46.25 NOV 40.00 HWP KH 7.25 1997 39.00 14 5.6% MTIC 6.00 DEC 5.00 QTX LA 1.44 5 4.56 42 7.0% 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 $40.75 *** 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 with a cost basis near technical support. NOV 35.00 UQA KG LB=6.63 OI=319 CB=34.12 DE=14 MR=5.6% ***** ARDM - Aradigm $24.63 *** New Drug Delivery System *** Aradigm is currently developing aerosol-based drug delivery alternatives to injectable therapeutics. The company's advanced pulmonary delivery technologies provide leading pharmaceutical and biotechnology partners with effective drug delivery solutions. Current development programs focus on diabetes, pain management, cystic fibrosis and the pulmonary delivery of emerging protein therapeutics. In September, the company announced initiation of a Phase IIb clinical trial of its AERx. Pulmonary Drug Delivery System, using opioid analgesics, to provide immediate pain relief to patients in the home environment. Aradigm also announced the successful completion of a U.S. Phase IIa clinical trial of the AERx Pulmonary Drug Delivery System which delivers dornase alfa to patients with cystic fibrosis. Aradigm's future looks bright as the company is positioned to benefit from partnerships with pharmaceutical and biotechnology companies seeking less invasive or less cumbersome dosing regimens. We simply favor the bullish move up and out of a recent consolidation area. NOV 17.50 QRQ KW LB=7.63 OI=0 CB=17.00 DE=14 MR=6.4% ***** GALT - Galileo Technology $28.13 *** Marvell Makes a Bid! *** Galileo Technology is one of the semiconductor industry's fastest growing suppliers of complex, high-performance, integrated circuit devices serving the needs of the LAN, MAN, and WAN markets. GALT is organized around two principal product groups: Internetworking Products and Switching Products. Galileo's products form the heart of many advanced communications systems built by leading OEMs, such as Cabletron, Cisco, Ericsson, Intel, Nokia, and Nortel Networks. A couple of weeks ago, Galileo reported favorable earnings with net sales increasing 31% to a record $28.8 million. At the same time, Marvell Tech (MRVL) said it would buy Galileo, swapping 0.674 shares of its stock for each share of Galileo. Marvell's stock dropped on news of the deal but the selling has since abated. Galileo's CEO says the deal will still go through in January or February, and there is plenty of time for Marvell to recover in price. We will speculate conservatively with this position at the risk of owning a company that recently reported outstanding earnings and "beat the Street" by a penny. NOV 22.50 QFG KX LB=6.25 OI=500 CB=21.88 DE=14 MR=6.2% ***** GOAM - GoAmerica $11.63 *** Internet Sector Rally! *** GoAmerica is a nationwide wireless ISP that enables its individual and business subscribers to remotely access the Internet, email and corporate intranets by delivering its proprietary technology through a wide variety of mobile computing and wireless network devices. Through its Wireless Internet Connectivity Center, GOAM offers its subscribers comprehensive and flexible mobile data solutions for wireless Internet access by providing wireless network services, mobile devices, and subscriber service support. GoAmerica reported a strong quarter, significantly beating both subscriber and revenue estimates, though it did report a slightly larger loss than expected. It appears investors are concentrating on the 683% increase in subscribers and 597% increase in revenue. In addition, the company expects to end the year with more than 40,000 subscribers and revenues exceeding $3.8 million. The stock continued to climb on Friday, on extremely heavy volume, and that bodes well for its near-term outlook. NOV 10.00 GUA KB LB=2.06 OI=355 CB=9.57 DE=14 MR=9.8% ***** HWP - Hewlett-Packard $46.25 *** Blue-chip Play! *** Hewlett-Packard Company is a leading global provider of computing and imaging solutions and services. The company is focused on making technology and its benefits accessible to individuals and businesses through simple appliances, useful e-services and an Internet infrastructure that's always on. Hewlett-Packard has 86,000 employees worldwide and had total revenue from continuing operations of $42.4 billion in its 1999 fiscal year. HWP's stock has sagged with the rest of the box-makers after warnings by Dell and the slumping Euro spooked investors. Though the company isn't out of the woods yet, it appears a short-term base is in place for HWP, as well as the sector. We favor speculating for two weeks at the risk of owning a blue-chip favorite at a fire-sale price. NOV 40.00 HWP KH LB=7.25 OI=1997 CB=39.00 DE=14 MR=5.6% ***** MTSI - MicroTouch Systems $12.00 *** What's Up? Earnings! *** MicroTouch Systems is a leader in the manufacture of computer touchscreen display products incorporating the two most popular touch technologies; analog capacitive and resistive membrane. The company applies these technologies in a variety of products, and markets them under the ClearTek and TouchTek brand names. There was no news to explain MicroTouch's recent spike in price though Bloomberg.com stated that Texas investor Edward W. Rose III and his affiliates acquired a 7.1 percent stake in Microtouch, spending $6.2 million to buy 460,300 Microtouch shares from Sept. 27 to Oct. 11. That still didn't account for the surge in price a couple of weeks ago when we first recommended MicroTouch as a candidate. But the sharp rally that started this Thursday was in reaction to a favorable earnings report that showed record Touchscreen revenues in the third quarter. The "Tape" didn't lie and this play offers a second chance to speculate on MTSI's future share value at a reasonable cost basis. NOV 10.00 TQM KB LB=2.50 OI=318 CB=9.50 DE=14 MR=11.4% ***** December Candidates ***** MTIC - MTI Technology $6.00 *** Cheap Speculation! *** MTI Technology provides Continuous Access to Online Information through fault-tolerant, cross-platform Vivant data storage systems. MTI develops, manufactures, sells and services open systems data server solutions for Global 2000 companies on a worldwide basis. MTI Tech has been in a Stage I base since July as the company has had to focus on replacing business that had been lost as a result of the dramatic slowdown in the dot.com market. As MTI works on rebuilding and diversifying its customer base, the strength in the storage industry should help the company accomplish its goals. MTI Tech is moving forward with product development and anticipates introducing new data storage solutions in the near future. Traders who have a bullish outlook for the company can use this position to establish a conservative cost basis in MTIC stock with a cost basis near technical support. DEC 5.00 QTX LA LB=1.44 OI=5 CB=4.56 DE=42 MR=7.0% ************************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=847 ************************************************************** ************************* NAKED PUT PERCENTAGE LIST ************************* Naked Put Percentage List By Matt Russ Stock Stock Strike Option Option Margin Percent Support Symbol Price Price Symbol Price At 25% Return Level ADBE 80.69 75 AXX-WO 2.19 2017 11% 75 AETH 105.75 90 HIZ-WR 4.13 2644 16% 90 ALXN 106.94 95 XQN-WS 3.00 2674 11% 95 AMCC 71.88 60 AZV-WL 1.31 1797 7% 60 ARBA 132.94 120 RBU-WD 4.25 3324 13% 120 BRCD 253.56 240 GUF-WH 6.38 6339 10% 240 CTIC 66.94 60 CUC-WL 2.25 1674 13% 60 CVTX 80.88 75 UXC-WO 3.38 2022 17% 75 DCTM 89.19 80 QDC-WP 3.00 2230 13% 80 DGX 96.75 90 DGX-WR 3.00 2419 12% 90 ELNT 116.00 100 UET-WT 2.31 2900 8% 100 EMC 97.75 90 EXR-WR 1.56 2444 6% 90 EMLX 170.88 155 UEL-WK 5.38 4272 13% 155 EPNY 97.94 85 PEY-WQ 3.75 2449 15% 85 ISSX 89.00 85 IHD-WO 2.63 2225 12% 80 ITWO 170.00 160 QYI-WL 5.75 4250 14% 160 IWOV 112.19 100 IQG-WA 4.75 2805 17% 105 JNPR 216.13 195 JUD-WD 8.13 5403 15% 195 MANU 120.88 100 ZUQ-WT 4.50 3022 15% 100 NEWP 111.88 95 NZZ-WS 4.75 2797 17% 95 NTAP 108.50 100 ULM-WT 6.00 2713 22% 100 PHCM 106.00 90 UMN-WR 2.44 2650 9% 90 QLGC 122.19 100 QLC-WT 1.63 3055 5% 100 VRTS 153.88 140 VUQ-WH 4.25 3847 11% 135 VRTX 93.94 85 VQZ-WQ 3.25 2349 14% 80 DISCLAIMER: Before entering any of the positions listed above, you need to understand your risk tolerance. Selling puts can be a High-Risk endeavor depending on the strike you choose to sell. For a greater return, you run a higher risk of being exercised. Therefore, please consider other strikes than the ones listed below if you aren't comfortable with the one we choose. We are gearing these towards higher-risk players. In any case, you can always select a lower strike with a lower return if it better meets your suitability. *********************** CONSERVATIVE NAKED PUTS *********************** Trends and Cycles... By Ray Cummins Traders are always busy studying what happened in the past but rarely are they capable of accurately predicting what will happen in the near future. In most cases, they use one or another of the more common methods of market analysis. The first approach is backward-looking; it constitutes chart reading, or the study of an issue's historic price behavior. Unfortunately, past performance of the economy, the stock market or of an individual issue is no guarantee of future activity. In addition, while trading on market momentum may seem easier, and even more profitable in the short term, it is difficult for investors to achieve consistent returns in this manner. The reason that short-term trends are so difficult to profit from is that chart formations rarely evolve in a favorable pattern; with a steady rise to the top, where there's an extensive plateau that provides ample opportunity to assess the situation and take profits before starting the trip back down. Instead, stock charts often resemble the contour of the "Rockies," with staggering peaks and precipitous gorges, and ranges that rise sharply towards the tallest mountain, with each one getting higher than the last until reaching the summit. Those of you that have recently participated in the stock market know that in real life, the trip down from the summit is always scarier (and more abrupt) than the climb. Another approach involves forward-looking analysis. This method is based on the economy and fundamental issues. It anticipates interest rate changes and other business and political conditions that might impact future earnings or the public's attitude toward the stock market. Investors who use this method should remember that market cycles usually precede economic cycles. The various facets of our economy, including the virtually limitless range of elements that determine the financial health of the nation as a whole are anticipated by the investing public, and this sentiment is exhibited by the emotion of the market. A common example is when stock prices move higher in expectation of rising profits and down in anticipation of greater losses; an occurrence that we all witnessed in the most recent earnings quarter. In addition, the market can be substantially affected by other circumstances, even those that appear to have little outcome with regard to financial instruments. Any study of a detailed timeline that compares key historical events with the movement of a major stock index will demonstrate how war, recession, or a presidential election can influence the current market cycle. The stock market historically moves in identifiable cycles. To be a successful investor, one must be able to identify the current phase of activity. Many investors will try to spot the top and bottom of each cycle but the truth is, nobody can do this on a regular basis. The key is to have an accurate perception of the overall trend and manage your portfolio with the appropriate strategies. The "January Effect" is now the "November Effect"... Since we are discussing the subject of market rhythms and cycles, it's that time of the year to start thinking about the historical trading relationship between small-cap and large-cap stocks. Some experts refer to this phenomenon as the "January Effect." The change is barely noticeable but generally the big-caps outperform smaller issues from mid-November to mid-December due to profit taking in the lower priced stocks. As we move towards the new year, many investors transition into the small-caps and the trend reverses. The historically strong performance of small stocks in the first few months of the year is well known and easily proven. The less obvious cycle in November and December is probably more profitable as the majority of traders don't use the trend to their advantage, thus leaving the effect intact for those that are aware of it's existence. Some of the analysts that participate in this strategy are debating whether or not the recent market decline has skewed the cycle for this year. Many refer to severe October declines in previous years which did not significantly affect the trend. The impressive performance of big-caps stocks over the last week may support this theory. Regardless of the outcome, a successful trader should be aware of these market tendencies and use that knowledge to his (or her) advantage. Good Luck! SUMMARY OF PREVIOUS PICKS ***** Stock Price Last Put Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return ANSR 17.00 16.88 NOV 12.50 0.63 *$ 0.63 22.6% ECLP 25.31 23.50 NOV 20.00 0.50 *$ 0.50 13.0% APWR 55.63 47.50 NOV 35.00 1.06 *$ 1.06 12.6% BCGI 23.94 25.00 NOV 17.50 0.56 *$ 0.56 11.4% CYTC 50.25 62.50 NOV 40.00 1.13 *$ 1.13 11.0% STAT 22.72 21.00 NOV 20.00 0.69 *$ 0.69 10.6% RNBO 23.50 24.00 NOV 17.50 0.44 *$ 0.44 9.3% Adj 2-1 Split ENTU 29.00 32.56 NOV 20.00 0.50 *$ 0.50 8.6% PATH 17.63 16.75 NOV 15.00 0.38 *$ 0.38 8.6% OCR 16.88 17.06 NOV 15.00 0.63 *$ 0.63 8.3% CERN 60.31 57.00 NOV 50.00 0.75 *$ 0.75 7.5% AMZN 35.63 37.56 NOV 22.50 0.38 *$ 0.38 7.3% ACXM 40.25 40.75 NOV 35.00 0.56 *$ 0.56 7.1% CHTR 19.38 19.59 NOV 17.50 0.63 *$ 0.63 7.0% VICR 49.38 50.50 NOV 40.00 0.88 *$ 0.88 6.8% PLMD 57.50 56.75 NOV 45.00 0.50 *$ 0.50 6.0% HSIC 22.56 25.50 NOV 20.00 0.50 *$ 0.50 5.2% ICN 40.19 34.38 NOV 35.00 0.56 $ -0.06 0.0% VPI 25.50 20.94 NOV 22.50 0.50 $ -1.06 0.0% *$ = Stock price is above the sold striking price. Comments: Astropower's (APWR) earnings disappointed Wall Street this week and the company was subsequently downgraded. The chart reflects a technical breakdown and an early exit may be warranted. On Friday at the close, the bid/ask spread on the NOV-$35 Put was $0.75 X $1.00. I-Stat (STAT) seems to be holding at support though the action this week was horrid. ICN Pharma's (ICN) mysterious drop on Friday is being attributed to pre-earnings jitters, with the company due to report on Monday. It seems like somebody already knows something...very strange. We will show Vintage Petroleum (VPI) closed, as the oil service sector continues to weaken and a favorable "early-exit" debit was attainable on Wednesday. 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 ARQL 28.50 NOV 22.50 ARQ WX 0.38 30 22.12 14 13.6% ATSN 45.38 NOV 40.00 UAT WH 0.88 0 39.13 14 13.9% BVSN 35.75 NOV 30.00 BDV WF 0.69 1916 29.31 14 16.2% CLTR 44.00 NOV 25.00 QCE WE 0.50 79 24.50 14 11.7% ENMD 38.00 NOV 22.50 QMA WX 0.25 272 22.25 14 6.9% FIBR 41.00 NOV 30.00 QFW WF 1.00 85 29.00 14 23.6% JDEC 28.00 NOV 22.50 QJD WX 0.50 510 22.00 14 17.5% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** ARQL - Arqule $28.50 *** New Trading Range? *** ArQule designs and produces molecules for the medicines of the future. ArQule offers chemistry-based products and services that improve the efficiency and effectiveness of the discovery process including accelerated lead optimization services, novel, diverse screening libraries and access to its high-throughput parallel synthesis platform technology. In addition, ArQule ArQule seeks to bridge the gap between genomic and clinical development by applying its proprietary technology platform and world class chemistry capabilities to drug discovery. A recent filing to sell 2.5 million shares of common stock had a brief negative affect on the issue but Friday's move to an all-time high bodes well for the near-term share value of this unique company. NOV 22.50 ARQ WX LB=0.38 OI=30 CB=22.12 DE=14 MR=13.6% ***** ATSN - Artesyn $45.38 *** Blue Sky Territory! *** Artesyn is engaged in the design, development, manufacture, sale and service of electronic products and subsystems for producers of electronic equipment in the computing and telecommunications industry. Artesyn is also a supplier of power supplies to the many other companies in these industries, and they maintain a worldwide network of leading distributors including Arrow, Avnet, EBV/Unique, Sager Electronics and Newark Electronics. Artesyn provides a full range of both custom and standard AC/DC power supplies and DC/DC converters. The company reported favorable earnings in early October and the demand for Artesyn's products remained strong as orders exceeded $196 million in the quarter. Product backlog rose to record levels and strong demand across all lines of business will boost revenues in the coming months. The technical breakout to a new all-time high suggests there is additional upside potential in the issue. NOV 40.00 UAT WH LB=0.88 OI=0 CB=39.13 DE=14 MR=13.9% ***** BVSN - Broadvision $35.75 *** On The Move! *** BroadVision develops, markets and supports application software solutions designed for one-to-one relationship management across an extended enterprise. These solutions enable businesses to use the Internet as a platform to conduct electronic commerce, offer online customer self-service, deliver targeted information to constituents, and provide online financial services. Each of the capabilities can be made available to all constituents of the extended enterprise, including customers, suppliers, partners, distributors and employees. The recent rally in BVSN started in mid-October when the company reported favorable earnings with both revenue and EPS ahead of consensus expectations. Highlights of the quarter included the rollout of two new products, several key contracts and the signing of 115 new customers and 27 new partners. Analysts say that BVSN, with its army of consultants and broad product offering, will be one of the big winners in e-commerce. The short-term technical indications agree with that outlook. NOV 30.00 BDV WF LB=0.69 OI=1916 CB=29.31 DE=14 MR=16.2% ***** CLTR - Coulter Pharma $44.00 *** Corixa Buyout! *** Coulter Pharmaceutical is engaged in the development of novel drugs and therapies for the treatment of people with cancer and autoimmune diseases. Coulter is developing a family of potential therapeutics based upon two drug discovery programs: therapeutic antibodies and targeted oncologics. Seattle-based Corixa (CRXA) recently announced it will purchase Coulter Pharmaceuticals for almost $1 billion in stock, bolstering its portfolio of cancer fighting drugs and creating the foremost immunotherapy company in the world. Corixa gets Bexxar, a cancer drug that could hit the market in 2001, and Coulter gets Corixa's rich drug development pipeline with many products in clinical trials, filling in behind Bexxar and protecting Coulter should the FDA deny its application to market the drug. The deal calls for Corixa to exchange 1.003 of its shares for every Coulter share and based on CRXA's closing price of $50 on Friday, this position offers favorable speculation for traders who wouldn't mind owning shares in the new company. NOV 25.00 QCE WE LB=0.50 OI=79 CB=24.50 DE=14 MR=11.7% ***** ENMD - EntreMed $38.00 *** Silver Bullet Symposium! *** 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. The implied volatility in EntreMed's options has spiked in recent sessions and we will use the inflated premiums to speculate conservatively on the issue's future movement. NOV 22.50 QMA WX LB=0.25 OI=272 CB=22.25 DE=14 MR=6.9% ***** FIBR - Osicom Technologies $41.00 *** Up, Up and Away! *** Osicom Tech is a developer and marketer of metropolitan optical networking systems, through its optical networking subsidiary Sorrento Networks. Sorrento Networks has been a provider of all optical networking solutions that are used in both interoffice and access networks since 1997. In October, Sorrento announced a sweeping agreement with Atlanta-based Cox Communications to provide optical transport solutions nationwide, with immediate installations in Virginia, California, Arizona and Louisiana. They will build a next-generation network with scaleable band- width capabilities allowing Cox to deliver broadband services in these locations more efficiently. The new deal demonstrates how Sorrento is expanding to meet the requirements of its growing customer base and the need to deliver innovative solutions to the marketplace. With the potential infusion of $40 million, Osicom appears to be undergoing a change of character and the move above $35 on heavy volume suggests there is further upside potential in the issue. Our position offers a chance to own FIBR shares at a reasonable cost basis. NOV 30.00 QFW WF LB=1.00 OI=85 CB=29.00 DE=14 MR=23.6% ***** JDEC - J.D. Edwards $28.00 *** Own This One! *** J.D. Edwards develops, markets and supports enterprise software and supply chain computing solutions that enable customers to translate ideas into practical realities quickly and efficiently using the company's software. JDEC's integrated applications deliver e-business solutions that give customers control over their front office, manufacturing, logistics/distribution, human resources, finance and customer service management processes for the consumer products, industrial and services industries. The company recently demonstrated the ground-breaking supply chain management capabilities for discrete manufacturers in their new OneWorld Advanced Planning Solution. The product is an Internet designed system that helps customers streamline processes across supply chains to more effectively collaborate with customers, suppliers and other business partners. Investors appear to be pleased with the recent developments in the company's products and we believe this issue is a favorable holding for long-term stock portfolios. NOV 22.50 QJD WX LB=0.50 OI=510 CB=22.00 DE=14 MR=17.5% ************************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=864 ************************************************************** ************************ SPREADS/STRADDLES/COMBOS ************************ A welcome rest for the weary Dow... The market ended mixed today as technology stocks edged higher while blue chips consolidated after recent gains. Friday, November 3 The market ended mixed today as technology stocks edged higher while blue chips continued to consolidate after recent gains. The Nasdaq closed up 22 points at 3,451 while the Dow ended down 62 points at 10,817. The S&P 500 index was relatively unchanged at 1,426. Trading volume on the NYSE reached 992 million shares, with declines beating advances 1,438 to 1,351. Activity on the Nasdaq was moderate at 1.8 billion shares traded, with advances beating declines 2,065 to 1,832. In currency trading, the Euro rose slightly against the dollar after the European Central Bank intervened to support its value. The 30-year Treasury dropped 1 4/32, pushing its yield up to 5.86%. Thursday's new plays (positions/opening prices/strategy): Englehard EC JAN22C/NOV22C $1.12 debit calendar Seagate SEG NOV55P/NOV60P $0.50 credit bull-put Mercury MERQ NOV145C/NO80P $2.38 credit strangle Our new group of spread candidates experienced favorable activity during today's session. Englehard and Seagate were available at the target entry prices while Mercury Interactive offered a lower than expected opening credit. Portfolio Plays: Industrial stocks took a breather today as investors reveled in the Dow's recent gains. The blue-chip average has been "on the move" over the past two weeks, climbing from 9,950 to the 11,000 mark on strength in old economy issues. Those same stocks were among the day's losers with J.P. Morgan (JPM), Microsoft (MSFT), General Motors (GM), and IBM (IBM) leading the bearish movement. American Express (AXP), Johnson & Johnson (JNJ) and International Paper (IP) opposed the trend, as value players sought positions in safety and cyclical issues. In the technology group, Qualcomm (QCOM) surprised the Street, posting a fourth-quarter profit of $0.25 a share, which beat consensus estimates by a penny. The issue jumped over $7 on the news, and the upside activity spread to other issues in the sector. Internet and semiconductor issues also advanced but wireless telecom stocks declined amid weakness in Sprint PCS (PCS). The company's share value slid $9 to $28 after Sprint (FON) announced a plan to sell $3 billion worth of PCS stock to cover its cash requirements for the upcoming year. The broader market was affected by employment data from the Labor Department that showed the pace of job creation slowed in October, adding to a growing list of evidence indicating that the pace of U.S. economic growth is easing. However, the report offered few indications the tight labor market, which economists have long worried might push up inflation, is loosening. The Spreads portfolio experienced some favorable activity during today's session. Juniper Networks (JNPR) was the big winner, up $21 to $215 as investors moved back into the networking sector. Our bullish position at $175 is expected to expire at maximum profit. Emc Inc (EMC) led the Data Storage group with a $3 move to $98 in a third consecutive day of advances, and United Health (UNH) bounced back from a recent sell-off to finish $2 higher at $106. The bullish credit spread at $100 remains profitable. A number of other top-tier technology issues rallied but the best performances were seen in mid-cap and lower priced companies. Our new position in Curagen (CRGN) is off to a good start and the issue moved up another $3 to $65 today on momentum from a recent technical break-out. Industrial stocks Mead (MEA) and Kellogg (K) have enjoyed bullish activity over the past few sessions and our calendar spreads in those issues are once again profitable. Other time-selling positions in Maxtor (MXTR), Caremark RX (CMX), and Biochem (BCHE) have also performed well. In addition, we enjoyed a new winner in that category this week as Mattel (MAT) moved back into the $12 range. The issue appears to be bracing for a test of past resistance (near $13) and that outcome will determine our adjustment strategy as we move to December options. The long position does not expire until April so there is plenty of time to capitalize on the upward movement. Our new LEAPS/CCs play in Microsoft (MSFT) experienced some favorable activity in Friday's trading. The issue retreated to $68 and the overhead supply near $70 appears to be having some affect on the current rally. If the stock continues to consolidate next week, we will re-evaluate our position and consider the potential adjustments as a new trading range is established. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** HWP - Hewlett Packard $46.25 *** Blue-chip Play! *** Hewlett-Packard is a global provider of computing and imaging solutions and services for business and the home. HWP's major businesses include Imaging and Printing Systems, Computing Systems and Information Technology Services. HWP's Imaging and Printing Systems provides laser and inkjet printers, copiers, scanners, all-in-one devices, personal color copiers and faxes, digital senders, large-format printers, print servers, network management software, networking solutions, digital photography products, imaging and printing supplies, imaging and software solutions, and related professional and consulting services. The company's Computing Systems segment provides solutions for the enterprise, commercial and consumer markets. Information Technology Services provides consulting, education, design and installation services, ongoing support and maintenance, and proactive services like mission-critical support, outsourcing and utility computing capabilities. We discovered this position while researching for covered-calls and although it may be a bit optimistic in the current economic environment, the inflated front-month option premiums provide a small downside margin in the event of a retreat in HWP's share value. Hewlett-Packard is one of the premier companies in the high profile group of Diversified Computer manufactures and a number of analysts are bullish on its long-term outlook. The recent trading range bottom near $40 defines this position as a relatively safe entry into the volatile Computer Hardware sector and the spread offers a low risk cost basis with a reasonable expectation of profit. Note: Earnings are due on November 15. PLAY (conservative - bullish/diagonal spread): BUY CALL JAN-40.00 HWP-AH OI=781 A=$9.12 SELL CALL NOV-47.50 HWP-KW OI=6472 B=$2.38 INITIAL NET DEBIT TARGET=$6.50-$6.62 INITIAL TARGET ROI(max)=13% ****************************************************************** JNIC - JNI Corporation $116.56 *** On the Move! *** JNI is a designer and supplier of unique Fibre Channel hardware and software products that connect servers and data storage devices to form storage area networks (SANs). SANs were made possible by the emergence of Fibre Channel technology, a new generation of server to storage communications technology that improves data communication speeds, connectivity, distance between connections, reliability and accessibility. JNI markets high-performance application specific integrated circuits (ASICs) based on its proprietary technology, a range of Fibre Channel host bus adapters and software that facilitates advanced SAN device integration and management. Its products provide flexibility, scalability and availability, as well as superior performance in network storage systems. JNI reported outstanding results last month, with net revenues coming in at a record $30 million, reflecting growth of 177% over the third quarter of 1999. Sequentially, revenues in the third quarter increased 25% over the previous period. Net income was $5 million or $0.18 per share, compared to $769,000 or $0.03 per share, in the same period last year. The quarterly numbers were well in excess of consensus estimates, reflecting the continued strong demand for JNI's Fibre Channel devices, and the company expects continued growth in revenues from their unique products. Analysts agree with the company's positive future and investors have pushed the issue up $30 in just three days. Our cost basis establishes a conservative position in an industry-leading issue with a bullish technical outlook. PLAY (conservative - bullish/credit spread): BUY PUT NOV-85 JOQ-WQ OI=31 A=$1.43 SELL PUT NOV-90 JOQ-WR OI=65 B=$1.81 INITIAL NET CREDIT TARGET=$0.56-$0.62 ROI(max)=11% ****************************************************************** GLX - Glaxo Wellcome $58.00 *** Trading Range! *** Glaxo Wellcome and its subsidiary and associated undertakings create, discover, develop, manufacture and market prescription and non-prescription medicines. Glaxo Wellcome has 48 principal prescription medicine products grouped into the therapeutic areas of respiratory, bacterial infections, viral infections, neurology and psychiatry, gastrointestinal, oncology/emesis (cancer), cardiovascular, dermatologicals and anesthesia. The company has a number of products in various stages of development and they many products that are pending FDA approval, including drugs for the treatment of gastrointestinal, metabolic and rheumatology diseases, HIV and HIV-related infections, cancer and the side effects of chemotherapy, hypertension and stroke, infectious diseases and hepatitis, neurology and psychiatry and respiratory disease. The company is also developing various devices for delivering medicine for asthma relief. Glaxo is mired in merger details with SmithKline Beecham (SBH) and although company officials recently announced they expect to complete the merger by the end of the year, no precise date has been issued. SmithKline and Glaxo approved merger plans in July, but the closing of the transaction has been repeatedly delayed due to U.S. anti-trust concerns. Analysts say uncertainty about deal has weighed on the share prices of the two companies, and has reportedly resulted in low morale among employees, some of whom could lose their jobs once the merger is complete. Having previously said they were confident the merger would take place by deadlines that have long since passed, SmithKline and Glaxo executives have refrained from making further predictions. Based on the recent pessimistic outlook, there is little chance anything will occur in the next two weeks to significantly alter the technical character of GLX's stock. PLAY (aggressive - bearish/credit spread): BUY CALL NOV-65 GLX-KM OI=1138 A=$0.12 SELL CALL NOV-60 GLX-KL OI=976 B=$0.88 INITIAL NET CREDIT TARGET=$0.81-$0.88 ROI(max)=19% ****************************************************************** - STRADDLES & STRANGLES - ****************************************************************** FLO - Flowers $15.31 *** Keebler Sale! *** Flowers Industries is a holding company that owns all of the outstanding common stock of Flowers Bakeries and Mrs. Smith's Bakeries, and owns a majority of the outstanding common stock of Keebler Foods Company. The company is one of the largest nationally branded producers and marketers of a full line of baked foods in the United States. The products of Flower's three segments include Flowers Bakeries' fresh breads, Mrs. Smith's Bakeries' fresh and frozen baked desserts, snacks, breads and rolls, as well as Keebler's cookies and crackers. Flowers Industries is selling its controlling stake in Keebler Foods to cereal giant Kellogg (K). Kellogg is buying Keebler for $42 a share, or about $3.6 billion and the deal is expected to be completed in early 2001. Flowers officials expect cash proceeds of about $12.50 a share to be paid to its shareholders from the Keebler deal and the holding company will spin-off its remaining businesses to shareholders. The spin-off company, to be called Flowers Foods, will be comprised of Flowers Bakeries fresh bread and Mrs. Smith's Bakeries frozen pies businesses. It's difficult to determine exactly how FLO's stock price will react in the next few weeks but this position meets our basic criteria for a favorable straddle; cheap option premiums, a history of adequate price movement and future events that may generate volatility in the issue or its industry. This process of selection provides the foremost combination of low risk and potentially high reward. PLAY (speculative - neutral/debit straddle): BUY CALL DEC-15.00 FLO-LC OI=88 A=$0.62 BUY PUT DEC-15.00 FLO-XC OI=80 A=$0.62 INITIAL NET DEBIT TARGET=1.00-$1.12 TARGET ROI=25% ****************************************************************** GBLX - Global Crossing $21.44 ** Which Way Now? *** Global Crossing offers voice, data and Internet services in most of North America and Europe. The company provides a variety of integrated telecommunications and Internet-based products to meet the customer's total communications needs. Global Crossing also provides domestic and international voice services, data products, Internet-based services, structured bandwidth services and other communications products, to primarily small to mid-size business customers, Web-centric businesses and other telecommunication carriers. In the coming year, Global Crossing intends to offer similar services in Asia, Mexico, Central America and South America. Global Crossing has endured some tough times over the past few months and no one is quite sure where the company's shares are headed in the short-term. Some analysts say the stock is a bargain at this price but based on the recent technical outlook, there will likely be further selling before a recovery occurs. In any case, the current earnings-related volatility has inflated the near-term option premiums to record levels and those of you who like to speculate can use that to your advantage with this moderately aggressive, neutral position. Note: As with any recommendation, the play 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-30.00 QGV-KF OI=6427 B=$0.31 SELL PUT NOV-15.00 QGV-WC OI=184 B=$0.38 INITIAL NET CREDIT TARGET=$0.75-$0.88 ROI(max)=14% UPSIDE B/E=$30.75 DOWNSIDE B/E=$14.25 ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.nextcard.com/index6.html?ref=aff0049911 ************************************************************ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
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