The Option Investor Newsletter Wednesday 11-08-2000 Copyright 2000, All rights reserved. 1 of 1 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/110800_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 11-08-2000 High Low Volume Advance/Decline DJIA 10907.10 - 45.10 11002.20 10903.30 897 bln 1299/1478 NASDAQ 3231.70 -184.09 3429.12 3231.28 1.68 bln 1310/2512 S&P 100 743.32 - 12.98 760.45 742.98 totals 2609/3990 S&P 500 1409.28 - 22.59 1437.28 1408.78 39.5%/60.5% RUS 2000 500.68 - 5.33 506.88 500.55 DJ TRANS 2777.07 - 16.15 2793.94 2746.72 VIX 28.28 + 1.47 28.44 27.30 Put/Call Ratio 0.68 ****************************************************************** What election results? When I spoke yesterday about a "buy the rumor, sell the fact" event on Wednesday, I was not expecting it to be so drastic. Of course I was expecting a new president elect by now as well. With the election still in doubt and allegations of fraud, errors and just plain confusion the markets expressed concern that the results could be in doubt for days to come. Investors moved to the sidelines on all but some energy and drug stocks which were still up slightly on the hopes of a Bush victory. The Nasdaq traders wasted no time in running for cover with the index selling off from shortly after the open until closing at the low of the day. The Dow bounced off resistance at 11000 again and traded lower but still in a narrow range. Instead of an election it looks more like a bloody overthrow if you gauge the election by the market results. Traders are concerned about many different possible outcomes. Tech traders expecting a post election bounce were caught off guard by the possibility of a Gore reversal and further worries that the tech sector growth is slowing. The concern over CSCO comments about order growth slowdown and increased inventory levels took another huge bite out of the chips and networkers. Traders unsure about growth targets and the election results dumped these stocks and moved back into cash. There is nothing investors like less than uncertainty and we had a serious bout of that today. One analyst estimated that 30% of the market had been trading up based on the expectation of a Bush win. He pointed to the +1000 point gain in the Dow when Bush was pulling away from Gore in the polls and then the flat line since Nov-1st as the DUI news broke. Whether you believe him or not the markets do have more to gain from a Bush win with Drugs, Defense, Energy, Health Maintenance Organizations as well as the infrastructure necessary to support these sectors were expected to do well. These sectors have been strong over the last three weeks and could give back some gains if it appears the recount is going badly. I kept hearing all day that we were going to have another retest of the 3000 bottom on the Nasdaq. I am having a hard time believing it but I would not complain in the least. I was flat for the CSCO earnings, (glad I was), and I remained flat over the election due to the possibility of a "sell the news" event. If you followed my lead then we are faced with a really good buying opportunity and from the news after the close today it may get better. After the close ICGE announced earnings and warned that future prospects would be grim with a -35% layoff. The stock dropped 35% in after hours trading. Engage Technology (ENGA) also warned that there would be an earnings shortfall going forward and they dropped -1.22 to $2.69 in after hours. 24/7 media also lost more than expected and got a serious haircut after the close. DoubleClick, guilty by association, dropped -$3 in after hours after the negative news from the other Internets. All major Internet stocks are likely to fall at the open as the Internet sector comes under pressure yet again. Even after saying positive things in their earnings conference call CSCO was dropped by Morgan Stanley from their new Global Cash recommendation list. The continued weakness in long term outlook by investors in CSCO is rippling through the other tech companies that feed off CSCO. The contract manufacturers like FLEX, JBL, SLR and CLS took another hit as well as chip manufacturers BRCM, AMCC, PMCS, AMAT, ATML, IDTI, ALTR and HIFN. This was not a good day to hear Dan Niles say chip inventory was building. With the life cycle of some of these chips measured in 2-3 month periods any inventory oversupply can be critical. Brokers and financial stocks also took hits on downgrades and uncertainty. Bear Stearns took aim at Morgan Stanley as over valued with mentions about GS and LEH as well. Sector after sector experienced rotation as investors worried that the results could go against them after the recount. There are so many things I could write about tonight. The number of stories which impacted the market today and will impact the market tomorrow is more than I could write about over two days. The major problems I see are these. The Internet incubator stocks and advertising stocks are getting crushed in after hours trading due to increased losses and earnings warnings. This is sure to stop the Internet rally we have seen over the last week dead in its tracks. Secondly, the chips and networkers have been absolutely killed, over killed in my opinion, and there is a point where no amount of negativity will push them any lower. JNPR for instance has dropped -35 and is close to weak support at $184. Real support is much stronger at $165 and buyers will come off the sidelines in volume should we get anywhere close. This same scenario is true for BRCD, EXTR, PMCS and all of the fast movers mentioned above. There are billions in cash on the sidelines and it is just waiting for the right opportunity. The election results are being touted as the reason for the drop in the market but we feel it is just an excuse. I agree it is a once in a lifetime event but we will survive. Gridlock is still in force regardless who eventually wins. Some are saying now that it could take days before the recount is over and as many as nine days before the overseas absentee votes are counted. Suits have been filed and will further complicate the process. It is still just an excuse. Regardless of who wins the economy is still in good shape, Greenspan is still in control and money is still piling up on the sidelines. Actually it will start piling up faster the closer we get to year end. Our consensus of opinion tonight is not that there was an over abundance of sellers, there was just no buyers today. The market makers pulled in their bids because they did not know what was happening and when the results would be known. Volume was light with only 897 million on the NYSE and 1.68 billion on the Nasdaq. The NYSE advance decline line was not bad with only a 13:15 ratio in favor of the declines. The Nasdaq was slightly worse at almost 1:2 but we think it was artificial. With the economy slowing the next rate move is likely to be up and that is not a bad environment for the market. Bush is expected to have two major bills on his desk the day he is sworn in and both are tax cut measures. The death tax and the marriage penalty will go the way of the dinosaurs. Some will say that this will cut into the surplus but it will also give voters more money in their pocket to put to work in businesses or spend as they see fit. We could argue over the impact depending on your economic views but consumers with more money in their pocket is not a bad thing in my book. It is my opinion that we could see some more volatility tomorrow as market makers try to find a bottom and cooler heads prevail in the election result scenario. The drop today was the result of many factors many of which were exaggerated more than usual. I said on Sunday that an election dip would be a buying opportunity and I still believe it. We are only 150 points away from the last bottom test at 3085 on the Nasdaq. This was back on October 26th. We could easily plunge to that level in the morning depending on the overnight news. Futures are actually up as I write this but only slightly. With support at 3100 and even stronger support at 3000 the downside is minimal from here. Those institutional traders who have been short for months will be deciding soon if the next dip is the last one and that could coincide with the PPI in the morning the anticipated 5:PM recount release on Thursday, and Dell's earnings on Thursday night. With this triple threat on Thursday the volatility could be huge but once all three events have passed the glow on the horizon may be a market sunrise not a sunset. I am going to be looking at charts and not redundant election news tonight and I suggest you do the same. There are some real bargains out there today and target shooting these stocks on any further weakness on Thursday is my game plan. I have already planned for our fall rally party on New Years Eve and I am not ready to start changing my plans yet. Get those party hats ready and let's get this market moving in the right direction! As always, wait for the bounce! Good luck and don't buy too soon. Jim Brown Editor ************************* REGIONAL SEMINAR SCHEDULE ************************* Only one seminar 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! Date City 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 ***************************************************************** ************** NEW CALL PLAYS ************** New Long Term Call Play GE - General Electric $54.56 -0.38 (+1.25) GE is a diversified services, technology and manufacturing company with a commitment to achieving customer success and worldwide leadership in each of its businesses. GE operates in more than 100 countries and employs nearly 340,000 people worldwide, including 197,000 in the United States. John F. Welch has been Chairman and Chief Executive Officer of GE since 1981. It is GE's ability to survive and thrive on its diversified businesses that makes it one of the great companies of the American economy. No matter how big the conglomerate, this Old Economy beast has proven that it can adapt to the environment of the New Economy. The recent HON merger announcement is just another opportunity that GE CEO Jack Welch sees as a strategic fit. What attracted us to this long term play is its stability in uncertain markets and their fair valued options. Since dipping below $50 on October 23rd, GE has put together a nice recovery. Its pattern of higher lows and the ceiling at $55 is creating an ascending wedge that is narrowing. There are a couple of ways to get into some of these low priced options. A breakout over $55 would warrant entry, otherwise buying on the dips would provide a good long term entry. A close below our stop at $50 would make us cautious. BUY CALL DEC-55 GE-LK OI=13617 at $2.56 SL=1.25 BUY CALL DEC-60 GE-WLL OI=19015 at $0.69 SL=0.00 BUY CALL JAN-60 GE-WAL OI=12761 at $1.44 SL=0.75 BUY CALL MAR-60*GE-WCL OI= 4288 at $2.69 SL=1.25 BUY CALL MAR-65 GE-WCM OI= 3182 at $1.38 SL=0.50 Average Daily Volume = 14 mln New Low Volatility Call Play CMTO - Com 21, Inc. $13.56 -0.19 (+1.69) Com21, Inc. is a leading global supplier of system solutions for the broadband access market. The Company's DOCSIS, DVB, and ATM-based products enable cable operators and service providers to deliver high-speed, cost-effective Internet and telephony applications to corporate telecommuters, small businesses, home offices, and residential users. To date, Com21 has shipped over 700,000 cable modems worldwide, along with over 1,200 headend controllers. Com21 systems offer commercial service in cable systems passing 16 million households worldwide. Even as the tech growth model is being questioned by investors, ultimately the demand will be there in the future in some way, shape or form. The demand for worldwide, high speed Internet will not disappear, and CMTO is a key supplier to the broadband market. We like this play for its low volatility and lower price. The fact that CMTO has recovered with a smooth saucer bottom during the NASDAQ flux shows us that this play has limited downside risk with nice upside potential. The past two days taken CMTO higher by about $2 on stronger-than-average volume. To play this low volatility play, look for pullbacks to the $12 area, or any bounces above that level. Resistance may lie at the most recent top of $14. A breakout above that will likely leave clearance to $17, the local top from late August. The stop loss is at $10, so a close under will result in drop of the play. ***November contracts expire next week*** BUY CALL NOV-15 CQH-KC OI=532 at $0.63 SL=0.00 High Risk! BUY CALL DEC-12.50 CQH-LV OI=385 at $2.50 SL=1.25 BUY CALL JAN-12.50*CQH-AV OI=852 at $3.25 SL=1.75 BUY CALL JAN-15 CQH-AC OI=304 at $2.19 SL=1.00 Average Daily Volume = 400 K *********** DAILY DROPS *********** Dropped Calls ELNT $92.25 -15.56 (-23.63) The uncertainty over the presidential election kept buyers sitting on their hands today, leaving the fate of the Technology market in the hands (or paws) of the bears. ELNT was mauled for the second day in a row, as the stock continued to pull back from its upper channel line. We were looking for a continued recovery from yesterday's low near $103, but it wasn't meant to be. After less than an hour, the indecision had given way to rampant selling and the stock plunged though our $99 pain threshold shortly after the end of amateur hour. Support finally materialized near $87, but by that time the damage was done. Thankfully, we never got an entry point for our call play, so given the decisive violation of our stop, we have no choice but to drop it tonight. ITWO $157.00 -19.19 (-13.44) Roiling with the NASDAQ, ITWO got hit hard by the sellers today. The uncertainty of who will be the next leader of the Free World kept the buyers away as investors would rather be on the sidelines. Uncertainty is the market's worst enemy. While the selling very well may be overdone, the constant decline throughout the day took out our stop at $160, forcing us to drop this call play. There is a good chance that a relief rally props up ITWO tomorrow, allowing a better exit. This is a good example of the importance of stop loss orders for option positions in a shaky market. BRCD $231.00 -25.50 (-22.75) Losing almost 10% today, BRCD finally stopped bleeding at the site of its 50-dma. The story is the same for most of the tech stocks which fell victim to the uncertainty of the Election. It felt more like investors were looking for an excuse to sell. At any rate, this play that looked healthy until today blew through support levels and our stop at $235 on higher volume. Therefore, we are dropping BRCD tonight, so look for a relief bounce tomorrow for an exit. CMVT $107.63 -9.88 (-10.19) Same story, different tech stock. CMVT was sold off today on slightly higher volume, sliding through its previously reliable 10-dma support and also our stop loss at at $110. While the play provided some profitable trades up to the $120 area, we must drop it tonight after our stop was taken out. Dropped Puts MNMD $62.00 -0.75 (-5.69) This put play performed well for the three days that it was on our list. It gave us a great entry on Monday morning and dropped since. We did not get stopped out of this play, rather we are taking the quick profits. We expect MNMD and other Biotechs to rebound if and when Bush is confirmed President-elect. Technically, MNMD bottomed around the $60 level in mid-October so it may be near support. A break of $60 would be encouraging for put holders but we are taking the money and running tonight. ***************** STOP-LOSS UPDATES ***************** RIMM - call play Adjust from $99 up to $102 SLR - put play Adjust from $48 down to $44 IDTI - put play Adjust from $49 down to $44 ADI - put play Adjust from $58 down to $56 ************** TRADERS CORNER ************** The Uncertain Market Environment By Mary Redmond It is important to monitor the interest rate environment and the money flows, as they are key to the action in the market. The current spread between high yield corporate bonds and 30 year Treasuries is very high by historical standards. High yield debt rates went over 13% last month, and the spread between Treasuries and high yield corporates has widened to over 800 basis points. This can be attributed to a lot of factors. One is the fact that the 30 year yield was over 6.5% in January before the Treasury began a buy back program. The treasury yield has dropped at the same time as the Federal Reserve raised the Fed Funds rate and short term yields. Another factor could be the stock market's dramatic rise and collapse this year, and the actions of the internet stocks. For example, in 1999 and early 2000, the institutional and retail public was highly enthusiastic about providing financing to developmental stage internet companies, through both stock and bond offerings. Many fortunes had been made in such a fast period of time that fund managers, creditors and investment bankers were almost obligated to participate. And, similarly, the collapse was so severe and intense that borrowers and creditors have now raised the cost of financing to the same type of companies which are now perceived as high risk for default. In the past, this type of credit spread scenario has predicted a recession. Most high yield analysts now feel that the current situation is not necessarily indicative of an impending recession yet, as there are many other factors involved. However, it may be difficult for the market to rally strongly with very high short term bond rates and a light flow of cash to equity funds. Despite the massive speculation we saw in internet stocks last year, and the booming IPO market, most investors were surprisingly cautious and conservative, and actually deposited more money into money market funds than into equity funds. From June of 1999 to June of 2000, over $350 bln went into money market funds. During the first ten months of 2000, an average of $20 to $50 bln per month was deposited into money market funds. During October, the cash flows to equity funds were very light. Last week it was estimated that between $5.5 and $7 bln was deposited into equity funds. In addition, the Investment Company Institute reported that the net inflow to money market funds was slightly over $1 bln net. Retail money market funds decreased by $7.26 bln, and institutional money market funds increased by $8.41 bln. The high liquidity flows to the U.S. stock market from U.S. and overseas investors has helped to fuel the bull market of the 1990s. It is important that this trend continue. The money flow probably will not dry up unless we were to have a recession, or a high unemployment rate. High employment and a growing economy means people have money to deposit. If last week is an indication, it can mean that the boom and bust cycle of shoveling cash into equity funds, and then shoveling it into money market funds may be shifting to more regular deposits of roughly equal amounts of cash into both equity and money funds. It will be equally important to monitor interest rates over the coming months. Interest rates can be impacted by the actions of the Treasury Dept. We don't know what programs a new Treasury secretary would implement. It is also unclear what tax legislation will be passed in the House Ways and Means committee in Congress. Most analysts think that the tight balance between parties indicates that few drastic changes will be implemented. We have to be extra careful when using technical indicators on uncertain days. It is usually best to go with the trend of the index and sector you are trading. It is sometimes possible to make money from technology calls when the Nasdaq is falling, but it is more difficult. The chart below show that the stochastic indicator gave some false buy signals today. A day like today is rare, and it might take the markets some time to adjust to the situation before a new trend develops. The worst case scenario might be if the process were to drag on for a period of time and cause continued uncertainty. In the meantime, we need to be careful to monitor the macro economic indicators like interest rates, and the technical indicators which guide our trading. ************************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=905 ************************************************************** ********************** PLAY OF THE DAY - CALL ********************** IMCL - Imclone Systems $62.00 -0.31 (-5.32 this 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. Most Recent Write-Up Consistent with its recent pattern, IMCL ran up to its upper Bollinger band on Friday, only to pull back for some consolidation early in the week. Volume on the pullback has dropped off considerably, clocking in right at the ADV over the past two sessions. Recall that it had risen to more than triple the ADV in Friday's session as the stock hit $68.38, its highest level since early March. Conservative traders will want to wait for the buyers to return, propelling the stock back above Friday's high. The stock has pulled back to our expected support level ($61-62). The highs from late September and late October formed a double-top at $61, which the stock broke through last Thursday, and a bounce from this level looks like a good aggressive entry point. Consistent with this support level, our stop level remains $59, and a close below there will be cause for IMCL's expulsion from the call list. We are still playing IMCL for a run into earnings, but we need to convey caution. While the best information from the company indicates the report SHOULD be out next week, they have not provided a firm date. The prudent approach will be to keep those stops in place as we continue to endeavor to extract a firm earnings date as the week continues. Comments We're looking for a confirmation of a Bush victory in FL and the Presidency to give the biotechs a boost. After heavy selling on the NASDAQ today, a relief rally is expected. Look to enter on bounces from $60 or a break above $64. The current stop is at $59, so a breakdown below $60 without a bounce would raise a red flag. BUY CALL NOV-60 QCI-KL OI= 383 at $4.25 SL=2.75 BUY CALL NOV-65 QCI-KM OI=1521 at $1.88 SL=1.00 BUY CALL NOV-70 QCI-KN OI= 138 at $0.69 SL=0.00 High Risk! BUY CALL DEC-70 QCI-LN OI= 158 at $3.38 SL=1.75 Average Daily Volume = 769 K ***************************************** BIG CAP COVERED CALLS & NAKED PUT SECTION ***************************************** Who will be the next President of the United States? The stock market ended lower today as investors awaited the final results of Tuesday's election. Bush supporters helped the Dow Industrials limit session losses with heavy buying interest in many of the old-economy issues. At the same time, technology stocks were pummeled, and the Nasdaq extended its retreat as the day progressed. Merck (MRK) and Philip Morris (MO) topped the industrial group on the upside amid strength in sectors that might benefit from a George W. Bush Presidency. Energy and drug stocks also moved higher as investors bet that the Republican from Texas would win the undecided election. Bush has said he would back a strictly private-sector plan for prescription drug insurance for the elderly, a key campaign issue backed by large pharmaceutical companies. A Republican-controlled congress is also expected to benefit major oil companies but trading activity was muted as investors remained hesitant in the absence of a solid outcome. On the downside, financial issues such as American Express (AXP), Citigroup, (C) and J.P. Morgan (JPM) added to the Dow's demise. Technology stocks suffered from a bout of profit-taking and every major group slumped, with hardware, Internet and semiconductor issues seeing the greatest selling pressure. The index suffered additional losses in the high-speed network chip makers that were hammered earlier in the week after Cisco Systems (CSCO) warned of a massive parts build-up. Concerned investors see the inventory problems as mounting evidence of a future slowdown in spending by telecommunications carriers and an unavoidable slump in the chip industry. In the computer software sector, the perception that a Bush regime would support a more hand-offs approach with major corporations benefited Microsoft (MSFT) shares in early trading. But, the belief that the software giant might receive more lenient treatment from the new President could not hold back the flood of supply, and the issue eventually retreated. Inside the broader market, tobacco, paper, biotech, and retail consumer shares were the most productive stocks while brokerage, precious metals and defense industry issues consolidated. Summary of Previous Picks: Covered Calls: (Margin would double the listed Monthly Return) Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return None - Waiting for favorable premiums... Naked Puts: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return PCYC NOV 45 43.62 57.88 $1.38 14.2% APWR NOV 40 38.56 40.19 $1.44 10.8% DCTM NOV 50 48.44 77.06 $1.56 9.0% Splits 2-1 Nov 14 VRTX NOV 70 68.81 93.25 $1.19 7.7% MANU NOV 60 59.06 110.00 $0.94 7.4% HGSI NOV 75 74.25 90.38 $0.75 7.1% EPNY NOV 60 59.31 82.06 $0.69 6.6% Splits 3-2 Nov 14 ELNT NOV 75 74.25 92.25 $0.75 6.5% HAND NOV 50 48.75 83.31 $1.25 6.5% KREM NOV 65 64.06 96.56 $0.94 6.4% AVCT NOV 60 58.50 59.50 $1.00 6.4% VRTS NOV 110 108.13 144.50 $1.88 5.9% PDLI NOV 105 104.12 132.38 $0.88 5.8% HGSI NOV 70 68.94 90.38 $1.06 5.1% Sell Straddles: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return EXAR NOV 42.5 40.50 35.13 -$5.37 0.0% Adj 2-1 Split EXAR NOV 62.5 65.19 35.13 $2.69 20.5% Adj 2-1 Split Naked Calls: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return NEWP NOV 190 191.69 94.50 $1.69 8.9% NEWP NOV 165 166.00 94.50 $1.00 8.6% JNPR NOV 260 261.56 188.19 $1.56 7.8% BRCM NOV 280 282.19 151.81 $2.19 6.3% JNPR NOV 280 281.56 188.19 $1.56 5.1% New Candidates: This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any strategy or technique in which you are not completely comfortable with the potential loss, the necessary adjustments and the common entry-exit strategies. (We monitor the positions marked with ***). *************** BULLISH PLAYS - Covered Calls & Naked Puts *************** AFFX - Affymetrix $87.25 *** Successful Patent Appeal! *** Affymetrix is engaged in the field of DNA chip technology. The company has developed and plans to establish its GeneChip system as the platform of choice for acquiring, analyzing and managing complex genetic information in order to improve the diagnosis, monitoring and treatment of disease. The GeneChip process consists of disposable DNA probe arrays containing gene sequences on a chip, certain reagents for use with the probe arrays, a scanner and other instruments to process the probe arrays, and software to analyze and manage genetic information from the probe arrays. Last week, Affymetrix won an appeal in a patent dispute with a rival biotechnology firm, Oxford Gene Technology, concerning the manufacture and use of specialized chips that analyze genes. Both companies supply scientists with micro-arrays that are used to determine which genes in DNA samples are active and which are dormant. The United Kingdom Court of Appeal overturned a lower court ruling that held Affymetrix hadn't properly licensed the technology for the chips. The decision affirmed Affymetrix's patent position for chip technology and removes uncertainty about its ability to sell its gene chips world-wide. In addition, the decision means that Affymetrix has a better chance at winning a similar patent dispute currently being tried by the U.S. District Court in Delaware. Based on the favorable reaction to the announcement and the positive technical outlook for the issue, this play provides an excellent opportunity to speculate on the outcome of future litigation. AFFX - Affymetrix $87.25 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put NOV 70 FIQ WN 414 0.44 69.56 8.2% *** Sell Put NOV 72.5 FIQ WV 59 0.81 71.69 13.1% Sell Put NOV 75 FIQ WO 666 1.25 73.75 17.7% - COMBINATION PLAY - PLAY (conservative - bullish/credit spread): BUY PUT DEC-50 FIQ-XJ OI= A=$0.62 SELL PUT DEC-60 FIQ-XL OI= B=$1.62 INITIAL NET CREDIT TARGET=$1.12 ROI(max)=12% B/E=$58.88 ****** AGN - Allergan $90.75 *** All-Time High! *** Allergan is a provider of eye care and specialty pharmaceutical products throughout the world with products in the eye care pharmaceutical, ophthalmic surgical device, over-the-counter contact lens care, movement disorder, and dermatological markets. Allergan's worldwide-consolidated revenues are mostly generated by prescription and non-prescription pharmaceutical products in the unique areas of ophthalmology and skin care, neurotoxins, intraocular lenses and other ophthalmic surgical products, and contact lens care products. Pharmaceutical and Biotechnology stocks moved higher Tuesday as investors bet Republican George W. Bush would win the undecided U.S. presidential election. Allergan shares rallied $2.38 to an all-time high near $90 and the optimism for the industry suggests the trend will continue. In addition, the previous trading range top near $85 should provide adequate support for any future corrections. With favorable premiums in the December options, this position offers an excellent speculation play for traders who are bullish on the issue. However, the stock is slightly over-extended and a brief consolidation is expected. Target a higher premium in the spread initially, and make adjustments as necessary to enter the position. AGN - Allergan $90.75 - COMBINATION PLAY - PLAY (conservative - bullish/credit spread): BUY PUT DEC-70 AGN-XN OI=250 A=$0.88 SELL PUT DEC-75 AGN-XO OI=2 B=$1.50 INITIAL NET CREDIT TARGET=$0.75 ROI(max)=17% B/E=$74.25 *************** CRGN - Curagen $63.25 *** Own this One! *** CuraGen is primarily a genomics drug discovery and development company. Curagen, in collaboration with other companies and through its own internal programs, researches, develops and uses technologies based on the discovery of genes and their functions and relationships. The use of genomics technologies is intended to accelerate the discovery and development of consumer products to improve human and animal health, and agricultural products. The company's genomics technology and information systems have three primary systems, each of which is fully operational and has been commercialized. These are SeqCalling for gene sequencing and discovery of variations in gene sequences; GeneCalling, a patented technology for gene discovery and comprehensive gene expression analysis; and PathCalling for analyzing the function and relationships between genes (and the proteins these genes encode) in biological pathways. Early in October, CuraGen announced it will combine efforts with Gemini Genomics, an English biotech firm, on a new drug target discovery collaboration, which includes the application of the company's "PathCalling" technology. During the same week, CRGN officials announced they had licensed five new drug targets to Biogen, completing the research portion of the two companies' collaboration. This follows a long-term agreement with Abgenix, in which the two companies have selected a number of antibody drug targets for further evaluation and possible development as therapeutics for cancer and inflammatory diseases. As part of the five-year collaboration, CuraGen and Abgenix are planning to identify and develop up to 120 antibody drug candidates against cancer, inflammation and autoimmune diseases. Analysts say the speed at which these targets were identified validates the company's ability to rapidly deliver high-quality, novel drug targets and Lehman Bros. recently characterized the company as a "premier" genomics-based drug company with a broad range of technologies relating to genetic interpretation. The company's drug discovery partnerships are cost beneficial and CuraGen's revenue strategy, a program focused on discovering complex genetic diseases in oncology, inflammation and metabolic areas, is expected to provide excellent earnings growth in the coming years. CRGN - Curagen $63.25 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put DEC 45 CQX XI 8 1.31 43.69 7.7% *** Sell Put DEC 50 CQX XJ 5 2.25 47.75 12.4% ****** CVTX - Cv Therapeutics $86.56 *** Biotech Binge! *** CV Therapeutics is a biopharmaceutical company engaged in the discovery and development of new small molecule drugs for the treatment of cardiovascular diseases. The company currently is conducting clinical trials for two of its drug candidates, including ranolazine, which is in its second Phase III trial. In addition, the company has several research and pre-clinical development programs designed to bring additional drug candidates into human clinical testing. Consistent with its unique business strategy, the company currently retains United States marketing rights to its two top clinical candidates, ranolazine and CVT-510. Since its inception, substantially all of its resources have been dedicated to research and development. The company expect its sources of revenue, if any, for the next several years to consist of payments under corporate partnerships and interest income. CV Therapeutics is simply one of our favorites for speculative stock portfolios and the demand for new drug applications has helped the issue remain relatively bullish in the midst of the recent downtrend in Nasdaq issues. The current technical trend is favorable and today's slump may offer a potential entry point, based on short-term price/volume indications. Obviously, the issue is prone to volatile activity with the biotechnology group but a reasonable cost basis exists at the previous support area near $80. CVTX - Cv Therapeutics $86.56 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put NOV 70 UXC WN 36 0.50 69.50 9.1% *** Sell Put NOV 75 UXC WO 4 1.13 73.87 15.8% ****** EMLX - Emulex $154.06 *** Own This One! *** Emulex is a designer, developer and supplier of a broad line of Fibre Channel host adapters, hubs, application-specific computer chips (ASICs), and software products that provide connectivity solutions for Fibre Channel storage area networks (SANs), network attached storage (NAS), and redundant array of independent disks (RAID) storage. Its products are based on internally developed ASIC technology, and are deployable across a variety of SAN configurations, system buses and operating systems, enhancing data flow between computers and peripherals. Emulex's products offer customers a combination of critical reliability, scalability, and high performance, and can be customized for mission-critical server and storage system applications. Earnings continue to have a major affect on share value of most companies and in early October, data network equipment producer Emulex reported quarterly net income of $12.85 million, easily surpassing the Street forecasts, due to improved orders for its fiber channel adapters. The company said its net income was $0.33 per share, compared with $6.8 million, or $0.18 per share, in last year's first quarter. Analysts who follow the company had been forecasting a profit of $0.26 per share. Revenues for the company rose to $55.5 million, up 92% from the $28.9 million reported in the year-ago period and sequential revenue growth jumped 31% from the previous quarter. The growing demand for storage systems and the recent shortage of information technology resources has boosted demand for Emulex's products and the trend is expected to continue. In addition, the company is expected to make additional strategic investments in upcoming months to partner with complementary technology leaders which are focusing on storage networking solutions. That bodes well for the future share value of Emulex and these positions offer a low risk cost basis with a reasonable expectation of profit. EMLX - Emulex $154.06 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call DEC 120 UMQ LD 76 40.50 113.56 4.7% *** Sell Call DEC 125 UMQ LE 57 37.13 116.93 5.7% Sell Call DEC 130 UMQ LF 106 32.88 121.18 6.0% Sell Put NOV 120 UMQ WD 326 0.69 119.31 7.4% *** Sell Put NOV 125 UMQ WE 113 1.38 123.62 13.7% Sell Put NOV 130 UMQ WF 490 1.69 128.31 14.6% ****** NTIQ - NetIQ $98.25 ** Entry Point! *** NetIQ is a provider of eBusiness infrastructures management software that enables organizations to optimize the performance and availability of Windows NT and Windows 2000-based systems and applications. The company's Administration, Operations and Network Performance Management product lines are designed to reduce the cost of daily business operations and increase the security, performance and availability of eBusiness applications, directories, servers and networks. NetIQ provides services for a unique area of cyber-space. The Internet and Intranets are best known for providing information and allowing communication. NetIQ's solutions help improve the quality of these activities for networks and their customers. They deliver the most comprehensive solutions for managing both Windows- and non-Windows-based platforms, applications and other devices and their services are utilized by a number of top-tier businesses and communications companies. In addition, they also recently announced a major license, development and marketing agreement with Microsoft, which positions NetIQ as Microsoft's Premier Independent Software Vendor for solutions built on MSFT's operations management technology. With favorable premiums in the November options, this position offers an excellent speculation play for traders who are bullish on the issue. NTIQ - NetIQ $98.25 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call NOV 85 CQT KQ 8 14.50 83.75 5.0% *** Sell Put NOV 80 CQT WP 27 0.69 79.31 10.7% Sell Put NOV 85 CQT WQ 5 1.50 83.50 18.4% *************** BEARISH PLAYS - Naked Calls The issues are excellent candidates in the premium-selling category of options trading. Based on analysis of historical option pricing and the underlying stock's technical background, these positions meet our fundamental criteria for profitable naked-calls. Each issue has robust option premiums, a well defined resistance area and a high probability of remaining below the target strike prices. As with any recommendations, these positions should be carefully evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. Many traders may favor a more aggressive approach, selling options that are closer to the current price of the issue, to produce a higher initial return. While that technique may be more attractive, it also increases the theoretical risk of loss. Only you can know what plays are suitable for your personal risk-reward tolerance and portfolio outlook. *************** JNPR - Juniper Networks $188.19 *** Sector Slump! *** Juniper is a provider of Internet infrastructure solutions that enable Internet service providers and other telecommunications service providers, to meet the demands resulting from the rapid growth of the Internet. The company delivers next generation Internet backbone routers that are specifically designed, or purpose-built, for service provider networks. The company's flagship product is the M40 Internet backbone router, and it recently introduced the M20, a new Internet backbone router purpose-built for emerging service providers. The company's Internet backbone routers combine the features of the JUNOS Internet Software, high performance ASIC-based packet forwarding technology and Internet-optimized architecture into a solution for service providers. Technology stocks dropped again today, weighed down by some of the same networking chip companies that were slammed Tuesday after Cisco Systems warned of a massive parts build-up. The unexpected announcement re-ignited concerns about slower sales for high-speed Internet access equipment. Juniper's shares moved lower in sympathy with several other high-speed Internet component makers and service providers, which declined when Cisco announced that it planned to reduce its inventory in the coming months. The weakness spread to a number of bellwether companies in the technology group, especially in the networking sector. Juniper was just one of the many stocks affected by the news and the company's share value dropped precipitously during the session. Even with the recent slide, investors are speculating on the future upside potential of many of the networking issues and we will use that interest, and the overpriced option premiums, to our advantage with these relatively conservative, bearish positions. JNPR - Juniper Networks $188.19 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call NOV 220 JUD KD 10808 2.63 222.63 19.3% Sell Call NOV 230 JUD KF 4845 1.50 231.50 13.0% *** Sell Call NOV 240 JUD KH 2951 0.81 240.81 7.1% ****** RBAK - Redback Networks $86.19 *** Technicals Only! *** Redback Networks is a provider of advanced networking systems that enable carriers, cable operators and service providers to rapidly deploy high-speed access to the Internet and corporate networks. Their Subscriber Management System (SMS) connects and manages large numbers of subscribers using any of the major high speed access technologies including digital subscriber line, cable and wireless. Redback sells its products through a direct sales force,resellers and distribution partners. Since the beginning of the recent sell-off in the technology group, this company's share value has fallen substantially and today the issue moved to a 6-month low. Redback is a volatile, price-momentum stock and based on the negative near-term outlook, we are going to initiate a bearish position with a conservative risk/reward perspective. We will use the overpriced premiums to enter the play with a small theoretical edge. The probability of the share value reaching our sold strikes appears rather low, but there is always the possibility of a recovery rally so monitor the position daily for changes in technical character. RBAK - Redback Networks $86.19 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call NOV 115 BUK KC 205 1.00 116.00 18.5% Sell Call NOV 120 BKK KD 959 0.75 120.75 14.1% *** Sell Call NOV 125 BKK KE 1154 0.44 125.44 8.4% ************************************************************** TRADING SECRET - FREE REPORT 1-800-776-7966 OBSCURE IRS RULE GIVES TAX ADVANTAGE TO TRADERS - PLUS - LIVE STOCK PICKS --- TWO WEEK FREE TRIAL Instant Messenger Alerts on Every Buy/Sell Opportunity from our Top Trader. 834% return since 2/97 (Day/Swing Trading) Click on http://www.sungrp.com/tracking.asp?campaignid=927 ************************************************************** ******************* 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. 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