The Option Investor Newsletter Sunday 11-12-2000 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/111200_1.asp Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 11-10 WE 11-03 WE 10-27 WE 10-20 DOW 10602.95 -215.00 10817.95 +227.33 10590.62 +364.03 + 34.41 Nasdaq 3028.99 -422.59 3451.58 +173.22 3278.36 -204.78 +166.37 S&P-100 719.11 - 32.59 751.70 + 25.52 726.18 - 11.98 + 9.15 S&P-500 1365.98 - 60.71 1426.69 + 47.11 1379.58 - 17.35 + 22.76 W5000 12688.80 -694.10 13382.90 +522.30 12860.60 -196.80 +253.90 RUT 480.90 - 26.85 507.75 + 27.90 479.85 - 7.60 + 7.06 TRAN 2704.22 - 57.53 2761.75 +232.78 2528.97 + 59.90 + 38.89 VIX 32.50 + 6.19 26.31 - 3.84 30.15 + 2.73 - 3.56 Put/Call .83 .57 .59 .50 ****************************************************************** Election limbo, earnings hell! By Jim Brown Chomp, chomp. That is the sound of me eating my words from last night. While my prediction came true it appears that it was only a minor victory in a major war. We may have dodged the CSCO bullet only to step on an election landmine. The smoke cleared just in time for us to be flattened by the aftershocks from the Dell earnings warning. Just another fun week in the markets as we absorbed a -422 point Nasdaq drop. Yes, there was support at 3100 but sellers finally over powered buyers after several attempts to rally and the fear of weekend darkness drove the index to the low of the day. Dead on support from the October 18th low and only +2 points above the low for the year. The bad news is the negative sentiment resulting from the Dell aftershocks. The charts are not pretty and could get worse. Where do I start? Yes, the election is still in the news and the ultimate reason for the sell off at the close but the main culprit is still Dell. By guiding growth estimates lower AND saying that they see PC demand slowing they sent ripples through the sector that looked more like shock waves. There were multiple downgrades Friday morning with the worst going all the way to neutral which is a polite way of saying "sell" in analyst speak. Dell has fallen -54% YTD and closed the day at $23, down -$10 from Tuesday's high. Dell's estimate of +20% growth is not that bad except for their astronomical growth in the past. This is the same problem analysts had feared from CSCO on Monday. CSCO came through, Dell did not. The between the lines comments from Dell sent almost every sector that even remotely touches the PC business into free fall. They indicated that margins would be falling as competition heated up for a smaller market. What a mouth full! Why not just say Michael Dell is going to work moonlighting for somebody else because Dell will lose money soon and needs more capital? A price war may be good for consumers but it is terrible for stock investors. Component prices are already about as low as they can go with packing and shipping sometimes more than the price of the component. Unfortunately the PC makers will be unable to profit from this trend now that the PC itself is becoming a commodity and box makers have no pricing power. Once demand slows to far less than capacity the profits evaporate. Remember just two years ago there was a shortage of components and top line computers were on allocation and price did not matter? That bubble has now burst and the major players are undoubtedly in fear of the months ahead. Intel was a major recipient of the bad sentiment. With demand slowing the need for chips will slow and with Pentium III chips available in quantity the P4 may not soar off into the record books. Intel dropped more than -10% to $37 and Morgan Stanley downgraded them to neutral. Intel may be suffering from the death of 1000 cuts. They have many products, great profits and great expectations BUT every time a broker, analyst, reporter or talking head says something about slowing PC demand or slowing economy they endure the equivalent another paper cut. After today investors feel the Intel era may be fading. Remember as little as six years ago very few people had a home PC and the Internet was something you heard about on TV. Granted the Internet era is far from over and it is not likely to go the way of the CB radio but as evidenced by the bursting advertising bubble and Internet incubator stocks like CMGI heading toward penny stock status, times are changing. The major chip, computer, networking, software and Internet stocks fell steeply and the bad news is they could continue falling. Gateway, which deals mostly with consumers in the U.S. and has few business sales, dropped -6.50 to a 52 week low of $39.75. Compaq, with a large business sales effort, only dropped -1.41 and was seen as finally gaining ground against Dell after years of fierce competition. Several analysts said they felt Dell was failing in the enterprise server area with major competition from CPQ and SUNW. Somebody forgot to tell SUNW investors as the stock dropped -8.38 to a four month low of $89.25. This is confusing since SUNW has been posting stronger sales and should also benefit from the IBM announcement today. IBM announced they can not make large scale systems fast enough to meet demand and the stock dropped -6.44 to 93.31. There appears to be computing demand for big business and the right vendor. The PC sector was not the only sector under pressure. JPM warned that Target and Wal-Mart have a tough quarter in front of them and their margins will come under pressure from competition. TGT fell only -1.44 to $26 but WMT got hammered for almost a -$10 loss in the last two days. The problem here is the slowing economy and the growth of the niche players like Abercrombie & Fitch (ANF). With all the bad news in the markets at least I can report that the election crisis is over. Well, maybe by next Sunday I can report that but not today. If it is possible it is getting worse. In case you do not have a TV, radio or newspaper subscription the votes in Florida seem to have stabilized at +327 for Bush. However there are now multiple counties (democratic) which are going to do a hand recount of millions of ballots. Sounds like fun to me. Any volunteers? Add to this the fact that New Mexico has moved back into the "too close too call" category and Oregon now has gone into the Gore column AND so on and so on and so on. The absentee ballots from Florida do not have to be received until next Friday to still be valid. We will be faced with more hours of TV sound bites over the next week than anyone should have to endure. Both sides have claimed the majority of absentee ballots will be in their favor. In theory we will not know the final result in Florida until 5:PM on Friday the 17th. This means an entire week of even more market uncertainty. In reality I think this recount rule may be a good thing. If you don't like the results of something just demand a recount until the results come out the way you want. In that vein I hereby demand a recount of the market from Friday. I think it should have stopped at 3100 and I should not have been stopped out of my trades. Anyone else that feels that way should sign our investor rights petition. We are thinking about suing the market makers, class action of course, and injuncting them from lowering prices more than $.25 in any trading day. Our constitutional rights to profit have been infringed. Oops! Sorry, I guess real life doesn't work that way. I paid my money and took my chances and was proven wrong yet again. I am sure I am the only one that ever has that happen. I am thinking about creating a new indicator, the Jim Brown Contrarian Indicator. You know the one. I will put my trades up on the website in real time and you will know which stocks to short and which ones to buy based on me doing the opposite. You can see a prime example of capitulation in BRCM today. The low of $156 at 11:45 on Friday was exactly when I closed my naked put position for a loss. BRCM ran for +20 immediately afterwards. Enough sour grapes from me because I am sure you have plenty of your own. Next week should be real exciting. That I can guarantee. That is about all I can guarantee about next week. I keep hearing bearish targets of 2850 give or take a hundred points for the Nasdaq. Based on what? We are only -40 points below where we were on November 8th last year. We are only +2 points over the low for the year. As I said last night, this election event has not happened before and nobody knows what the eventual impact will be. If you are looking at the purely technical indicators you will either be scared to death of borrowing money to invest next week depending on your bias on the market. If you are bullish you are looking at the May low of 3042 and the October low of 3026 and screaming retest, retest! If you are bearish you are looking at the same data and screaming "look out below." Funny how your bias will color your interpretation of "purely technical" indicators. If you have been reading our newsletter for long you know we are news and event players. Technical indicators can be pointing entirely in one direction but if we have a news event which is coloring the picture then we try to consider that in our recommendations. Thursday this was just an election event. Friday it became an earnings event. One only wonders what Monday will bring. Rumors are surfacing that OPEC is going to cut back on oil again soon. The Fed meets on Wednesday this week. If the market does not like uncertainty then we are in for trouble. Still greed is alive and well and tech stocks are starting to look really cheap once again. After a news filled weekend we are very likely to see them even cheaper. When do the commercial traders finally cover their extreme short positions Austin has been writing about? 2900, 2800, 2700? When does extreme oversold become too much for buyers to bear? Soon we hope. Does -422 points in one week guarantee an oversold bounce? No, but the odds are good we are very close. When things look their worst it is time to buy. Ask any long time investor. It takes guts to jump in the gap but there are billions of dollars on the sidelines that will be put to work soon. With the Nasdaq over -900 points below its 200 DMA there are some really good deals. With the purely technical groupies by the bushel calling for 2850 next week it should not take much in the way of news over the weekend to make it a self fulfilling prophecy. With 2850 the target we will have dropped -2300 points or -44% from the high of the year. Once we break 3026 on the downside we will start another entirely new series of technical problems. That will be a lower low and confirm the longer term down trend which started back in March. Can it get any blacker? Sure. Will it? I doubt it. Are we going back to 1000? Not hardly. What should we do? I am sitting on the sidelines licking my wounds from today and deciding what stocks I want to buy next week. I am still bullish. It is like those analysts that put a strong buy on some stock at $100 with a target of $150. The stock drops to $75 and they maintain a strong buy. $50, $40, $30, $20, and they drop it to a neutral. If the business did not change between $100 and $20 and you liked it at $100 then you should love it at $20. I liked BRCM at $260, at $160 I love it. If you liked CIEN at $150 you should love it at $85. JNPR $240 or $170. Before you fall into the trap of "if it was good at $300 then $100 should be a great deal" you should consider CMGI $325 to $15, ICGE $212 to $10. Cheap is not always good but if you do your research and pick some good stocks over the next couple days you could be well rewarded before November is over. Next week is going to be financial quicksand. There will be strong volatility. The VIX closed Friday at 32.50 and the put/call ratio at .83. Both signs of near market bottoms. The VIX has only been this high eight times this year. I can't tell you what to do but my wounds will heal by Monday and I will be ready to lock and load. Art Cashin said today something I thought was very simple yet profound. "Buyers have the luxury of time, Sellers have the urgency of losing money." As buyers, and you should all be buyers after being stopped out today, we have the luxury of waiting until the absolute darkest moment before executing that trade. Those who have better sense and don't have to try and buy the absolute bottom can wait even longer for post election result daylight and clarity of thought before opening that new trade. Trust me, we are not going up +2300 points next week. You will have plenty of time when the Fall rally begins. Who knows, we could get a market stabilizing rate cut from the Fed meeting on Wednesday. Now where are those Band-Aids? Trade smart, don't buy too soon. Jim Brown Editor ***************** REGIONAL SEMINAR ***************** Here is your chance to learn from the pros. Three days of Technical Analysis, Stock and Option 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 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 ************** What is it they say about the best laid plans of mice and men? They sometimes go astray. This was definitely an "astray" week. Almost all the stocks I was looking at last week positively blew up after the CSCO earnings, election crisis and finally the Dell warning. I should have stayed in bed this week! Fortunately I did stay flat until Thursday and after the dip below 3100 on Thursday I felt that "retest" would hold and I went long on SDLI, BRCM, JNPR, BRCD and PMCS. Now this is where you should be saying "but what about Dell earnings on Thursday night?" And, I would like to know, where the hell were you! I had thought in late afternoon that I would close those plays before the close but I found myself on a conference call the last 30 minutes of the market day. I watched them move higher into the close while I talked and thought "Dell probably will not miss estimates and these are not PC stocks" I will just hold them and continued my call. Bad choice. You know the answer. All gapped down at the open. Actually I was laying in bed watching the premarket on CNBC when I got a wakeup call from Preferred telling me I had been PUT my entire position on PMCS at $170. That will wake you up and get your adrenaline flowing. What a way to start the trading day. I launched all the plays on the Thursday dip and closed them all when the Nasdaq rolled over the second time on Friday. Since they were all the same I am not going to explain each. The wild card was the PUT to me on the PMCS. Since it closed at $125 on Thursday, +$5 over where I sold it I was not expecting any exercise. It did drop -$7 in after hours and I can only think the market maker was clearing up loose ends and figured he could make $2 and eliminate the open interest on the strike. I sold the $170 put for $50 with the stock at $120. The wild card was the PUT to me on the PMCS. Since it closed at $125 on Thursday, +$5 over where I sold it I was not expecting any exercise. It did drop -$7 in after hours and I can only think the market maker was clearing up loose ends and figured he could make $2 and eliminate the open interest on the strike. I sold the $170 put for $50 with the stock at $120. Just because I had to close these plays under less than ideal circumstances does not mean I would change the plays. The odds of success when selling puts on a major dip are almost 80% in your favor. This was just not my day. I am going to repeat this next week on any major dip and recovery. I still like BRCM, SDLI, CIEN and any other high dollar stock I can find that is rebounding after the dip. Unfortunately it is getting increasingly harder to find high dollar stocks. There is serious bloodshed and many of my previous favorites are under $50 now with no trend. I am going to write an Option 101 tonight about selling DITM naked puts so I will cut this short. If you want to learn more about this strategy read that article. My caution for the week, WAIT FOR THE BOUNCE ON GOOD NEWS! We are in no hurry and we could wait all week on the sidelines. Every time you jump into a play that busts out it costs you capital and confidence. You can't afford to lose either. Jim ************************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=906 ************************************************************** **************** MARKET SENTIMENT **************** It's In There By Austin Passamonte Remember that old Ragu spaghetti sauce commercial from years ago? Back when we had more muscle & hair (on a personal note) before market stress did away with both? Best we recall someone asked what was needed besides the contents of that jar for a complete spaghetti dish. The answer was "nothing else, it's all in there". Reality is our family would've died at the thought of bottled sauce for any holiday gathering but let's stay on track here, o.k.? Oops ... we're the ones tripping down memory lane. Sorry. Back to the point. Dick Arms, inventor of Arms Index (Trin) made an enlightening statement out in Denver not long ago. When speaking to our group at lunch he made reference to this very commercial as an analogy to technical analysis. Dick said he has no interest in company info, p.e. ratios or any other fundamental news. Everything known to the markets at this point in time is reflected in their charts. We agree. Not only that, everything known AND the next best guess is included there as well. Mastering technical analysis may not be easy but it sure can be financially rewarding. There is no better way to consistently predict market behavior more than 50% of the time under all conditions for years and decades to come. The easy part is seeing these clear signs in front of us. The hard part is buying into that with cash when the masses are touting just the opposite. ***** VIX Friday 11/10 close; 32.50 30-yr Bonds Friday 11/10 close; 5.88% 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 (11/10/2000) (Open Interest) Calls Puts Ratio S&P 100 Index (OEX) Resistance: 755 - 740 18,562 10,337 1.80 735 - 720 6,695 11,119 .60 OEX close: 719.11 Support: 715 - 700 1,540 15,137 9.83 695 - 680 117 9,738 83.23*** Maximum calls: 780/5,764 Maximum puts : 700/7,295 Moving Averages 10 DMA 728 20 DMA 735 50 DMA 746 200 DMA 737 NASDAQ 100 Index (NDX/QQQ) Resistance: 81 - 78 41,303 44,116 .94 77 - 76 17,240 66,614 .26 75 - 73 10,424 62,303 .17 QQQ(NDX)close: 71.89 Support: 70 - 68 1,268 16,759 13.22 67 - 65 272 5,508 20.25*** Maximum calls: 82/25,455 Maximum puts : 77/29,312 Moving Averages 10 DMA 74 20 DMA 75 50 DMA 79 200 DMA 80 S&P 500 (SPX) Resistance: 1425 10,383 13,199 .79 1400 29,096 31,178 .93 1375 13,353 19,271 .69 SPX close: 1365.97 Support: 1350 9,440 22,652 2.40 1325 2,461 9,678 3.93 1300 1,230 17,277 14.05*** Maximum calls: 1400/29,096 Maximum puts : 1400/31,178 Moving Averages 10 DMA 1382 20 DMA 1395 50 DMA 1415 200 DMA 1395 ***** Special Note: New COT Data will not be available until Monday 11/13 (Austin's comment: data was unavailable at the time of article publication. However, we can be sure the S&P 500 Commercials held their historical net-short position beyond Tuesday 11/7 close when most recent data was compiled. Next Friday (11/17) will tell more as the market now tests the low range once again.) ************** MARKET POSTURE ************** Please visit this link for Market Posture: http://members.OptionInvestor.com/marketposture/111200_1.asp ************************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=918 ************************************************************** *************** ASK THE ANALYST *************** Enough Already, One Of You Needs To Conceit! By Eric Utley The market can't take it anymore. The uncertainty surrounding the presidential election is wreaking havoc on US capital markets, and I'm starting to get mad! Few people realize that somewhere around 15% of the capital in the US stock market is owned by foreign investors. And, those foreign investors have been taking their capital out (along with domestic investors) of US markets since last Wednesday morning. I don't blame them, though. If I owned a mutual fund that invested solely in a foreign country such, I'd want to know that their political system is running smoothly. If I read of voter fraud allegations and saw protests on the television, I would liquidate, too! So, Vice President Gore or Governor Bush, if you're reading this, please, for the sake of our beloved market, conceit already! I don't care who wins, either of you will work fine as far as myself and the market are concerned. I have to apologize for the scarcity of charts in today's column, but the drama in the markets last week brought about a terrible, terrible cold. I'll be back next week, healthy as ever so make sure to fill my e-mail with stock requests. Send them to Contact Support. Please put the symbol of your requests in the subject line of the e-mail. ---------------------------- JNIC - JNI Corporation Last week, I detailed an operation in shares of Palm, which went a little too smoothly. This week, I decided to detail a trade (make that a missed traded) in which I missed the boat big time! My trading buddy and I collectively formed a bearish bias after witnessing the ominous trading on the NASDAQ last Wednesday and again Thursday. Going into Friday's session, we were looking for stocks to put (short). A list was formed, which happened to include JNIC. After the gap down Friday morning, I was a little hesitant to jump right into some puts, because I figured a lot of risk had been taken out of the market right at the opening. Oh, how I was wrong! Shares of JNI proceeded to fill the gap and then rollover shortly after the opening. The stock subsequently slipped below the $100 level, which was the first entry point I considered. Why I didn't pull the trigger at $100, I'll never know. My second thought was to buy some puts if the stock fell below $95 - it did. But, something was clouding my judgment and I couldn't figure out what was preventing me from entering the trade. Needless to say, I walked away from my trading terminal after the stock bounced up to the $100 level - which happened to present yet another favorable entry point. I was so close!!! ---------------------------- Paychex - PAYX I have not seen this stock on OIN lists. But heard great news about this company. Please comment. - Regards, Sunil Paychex is an interesting company that has carved out a profitable niche. The company caters to small businesses, who need assistance in deciphering US tax laws along with other accounting services. Paychex's main service is to prepare paychecks (hence the name) and internal accounting records. The company has a long history of growing earnings at a respectable rate. Analysts expect that growth to continue by over 25% in the next several years. Furthermore, the company is essentially debt free with a good position in cash on its balance sheet. Those type of fundamentals make Paychex a good long-term investment, like so many others we've reviewed in this column. While the company's prospects over the long-term warrant reasons to own the stock, it may be due for a pullback in the near-term. In fact, Morgan Stanley recently downgraded the stock on valuation concerns. Although the stock is still acting strongly, and I don't usually heed analyst comments, the current market environment is not necessarily conducive to high valuations. Furthermore, the stock has not endured a long period of consolidation for over a year now. While the chart looks good, especially in light of the recent market behavior, it's hard to pick a good entry point after such an extended run. However, shares of Paychex may continue along their path of higher highs, only the market will decide. ---------------------------- Research In Motion - RIMM RIMM issued a truckload of stock last week. What is the money going to do to assist in a return on the stock? Is the money positioned to accelerate sales? Are there too many players in that hand-held area? Are all of these queries just noise and of no value because price dictates? - Thank You, Debra Excellent queries, Debra. You bring up a good point about noise and the value of price. But, before we get into that idea, let's examine your questions. Rim placed 6 million shares for approximately $585 million. According to a press release last week, the company said it would use the proceeds for general corporate uses, which includes research and development costs, expansion of manufacturing capacity, and expansion of the company's sales force. That capital will definitely help to accelerate Rim's sales should it be used for product development and marketing efforts. The hand-held space is predominantly represented by three players: Handspring (HAND), Palm (PALM), and Rim. Since the wireless electronic devices each company manufactures are such a niche product for consumers, the market may be a little crowded. However, I've read several industry reports which suggest the future of computing will take place in the palm of our hands, pardon the pun. If the market does grow as many analyst expect, the hand-held sector is going to be a good long-term investment and big enough for the three main companies. But, in the short-term, does any of this matter? Is it all noise? I reviewed Rim a short while ago, and discussed the stock's impressive momentum and the company's unbelievable revenue growth rate. But, since that time the market's perception of Rim has changed. The bears have brought the valuation question to the forefront recently, which has snuffed out the stock's momentum. Despite the company's bullish future and exponential growth, the stock got ahead of itself and now looks poised for an extended pullback. How do we know a big pullback is in order? Take a look at the chart below and notice the peculiar pattern formed over the past two months. The big head-and-shoulders top indicates lower prices. And, in my opinion, Debra, price dictates in the near-term! ---------------------------- 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 ************* With the election stealing the show, investors have forgotten that the Fed meets on Wednesday. The tone of this meeting will be very important. The CPI report will follow on Thursday. For the week of November 13, 2000 Monday ====== None Scheduled Tuesday ======= Retail Sales Oct Forecast: -0.10% Previous: 0.90% Retail Sales ex-auto Oct Forecast: 0.30% Previous: 0.70% Wednesday ========= Business Inventories Sep Forecast: 0.30% Previous: 0.70% Industrial Production Oct Forecast: 0.10% Previous: 0.20% Capacity Utilization Oct Forecast: 82.00% Previous: 82.20% Thursday ======== CPI Oct Forecast: 0.20% Previous: 0.50% Core CPI Oct Forecast: 0.20% Previous: 0.30% Initial Claims 11-Nov Forecast: NA Previous: 344K Philadelphia Fed Nov Forecast: -1.00% Previous: -3.80% Friday ====== Housing Starts Oct Forecast: 1.550M Previous: 1.530M Building Permits Oct Forecast: NA Previous: 1.506M Week of November 20th ==================== 21-Nov Trade Balance 21-Nov Treasury Budget 22-Nov Initial Claims 24-Nov Michigan Sentiment ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. 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The Option Investor Newsletter Sunday 11-12-2000 Sunday 2 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/111200_2.asp ************** TRADERS CORNER ************** Calling a Bottom is Like Calling A Winner of This Election By Lynda Schuepp Maybe it's just wishful thinking, but I think we are close to a bottom. Lets examine the Fibonacci numbers. A definition is in order here. For you high-level guys- simply put, the market does not move in a straight line up or down. Instead, it moves up and then retraces, reverses and then moves up again. Some key numbers for reversals are one-third, one-half and two-thirds. Two-thirds is VERY significant. Prices rarely retrace two-thirds, so when they do, it can be dangerous. If they retrace more that two-thirds it is highly likely that the market for stock, future, commodity, etc. has reversed. For those of you who want to know the nitty gritty: a Fibonacci Cycle is an analytical tool that can be drawn on a chart to identify price cycles which repeat high and low price patterns. Fibonacci uses a specific number sequence called the Fibonacci number series and assumes that you can predict future price levels by identifying historical price patterns. The Fibonacci number series is based on adding the first two numbers of a series to arrive at the third number. For example, 1 + 1 = 2, then 1 + 2 = 3, then 2 + 3 = 5, 3 + 5 = 8, etc. The number sequence is therefore 1, 2, 3, 5, etc. The most commonly used Fibonacci numbers are 1, 2, 3, 5, 8, 13, 21, 34, 55, and 89 and are used is timing cycles. Fibonacci ratios are very important. Each number is approximately 62% of the next, higher number. For example, looking at these numbers, 13 divided by 8 is 6154 or close to 62%. The inverse (1-.62) of these number patterns is 38%. Therefore, 38% and 62% are SIGNIFICANT numbers to technical analysts. Fibonacci numbers are used in Elliott wave analysis, but we'll save that for another day, as I am sure most of you are getting blurry eyed and really don't care at this point. Let’s see how we can use this information for our benefit in trading. If you don’t have a charting package that provides fibonacci ratios just use the one-third, one-half, and two-thirds as possible places where the stock will bounce and reverse or continue in the same direction. These numbers can help you choose good entry and exit points. That is all that is important about them. Now let's look at some examples in charts to see what I mean. Most charting packages allow you to identify retracement levels. First you pick a significant low and then pick a significant high, (assuming prices are headed back down and then set percentage levels to predict how much the entity might retrace. I haven’t been trading the OEX lately because they are overpriced and the spreads are atrocious. With VIX up at the +30 level it’s no wonder. I’m not saying you can’t make money on them, but I don’t like to stack the deck against me. I have found that the options on the QQQ’s have been easier to trade. The QQQ’s, which represents the Nasdaq 100, were created in March 1999. Using the gray box below with the fibonacci numbers on the QQQ’s, a one-third retracement would be approximately 90. A 50% retracement would bring the QQQ's down to 80. A two-thirds retracement would be about 71-3/4. Below are the fibonacci numbers from the monthly chart below: See Monthly Chart Below: In the chart above we see a run-up from about 50 to 110 in one year. That means the QQQ's rose 70 points. Notice that Friday's close was 71-3/4 or 66% retracement. I don’t get hung up on whether to use 62% or 2/3 but either way we are sitting on a bomb. If this number doesn't hold, the long-term up-trend has reversed. In the chart above, we can see that volume is moving up as the price goes up, that is a simple way to confirm that the trend is intact. Volume has been decreasing as prices declined. That means we could be close to a bottom as we run out of sellers. Of course, no one could have foreseen the confusion with the election results so we have a new element of uncertainty in the market. Next, lets move to a shorter time frame. Below is the fibonacci numbers from the weekly chart below: Looking at the weekly chart, we see that prices peaked the middle of March. The QQQ's went from 117 down to 77 and back up to 102 by the end of August, or a 62% retracement. Sound familiar? (The answer is fibonacci, known as fibs). However the bottom in May is suspect. You'd like to see volume to be increasing on the way up and decreasing on the way down. Since the end of May, it has been doing just the opposite. The QQQ's have now retraced over 120% since their high at the beginning of September, not a good sign. The next logical stop on the Fib scale would be -132% or 69. We are very close to that number now and that number has VERY strong significance. I'd like to see a volume reversal and some confirming signs of a true reversal to validate the bottom so we can all get on with the business of making money. However, I feel more confident at calling a bottom at 69 than I do calling the winner of the presidential election. I bought the QQQ’s and QQQ December call options, probably a little prematurely, especially if this election contest gets any nastier and drags on. We’ll have to wait and see what the market gives us, and trade accordingly. ************************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=907 ************************************************************** ***** Going Naked for Fun and Profit By Jim Brown No, this is not a column on streaking. What I am talking about is way more fun and much more profitable. I am talking about selling naked puts. Not just any naked puts but Deep In The Money on aggressive stocks. This is the closest thing you can get to free money in my opinion. Bear with me and read the entire article before making any judgments. The basic naked put concept involves finding a stock that is moving up with a good trend. The basic Naked Put section of the newsletter is probably the most profitable and most consistent section we have. The plays that Ray and Mark pick each week are very safe, if there is any safety in this market, and average 10%-15% profit per month. Multiply that by 12 months and you get a very nice living. The only qualifier is you must have naked option writing capability or spread trading capability in your account. Using the example below you can see the basic strategy in action. There are two different ways to use this. The first strategy would be the very conservative strategy of selling a $60 put on a $80 stock. Your margin requirement is 25% of the $80 or $20. The premium you receive for selling the put is $2.63. This makes your return for the very conservative strategy of 13%. ($2.63/$20=13%) Your risk is that the stock will decline to less than $60 and the stock will be put to you. This is less risk than selling covered calls. You do not own the stock. It can drop -$20 before you are at risk. Your breakeven is $57.38 ($60-2.63) Very safe, very repeatable. The conservative strategy using the same stock is to sell the $70 put for $6.13 and this increases your return to 30.6% because the margin did not change. You still have a $20 margin to make $6.13. ($6.13/$20 = 30.6%) Your risk is now that the stock will drop under $70 and the stock will be put to you at $70. Considering your premium of $6.13 your breakeven is $63.88. If the stock closes at any price over $63.88 on expiration Friday you are profitable. The key to the basic strategies is selling puts under strong support levels. These support levels protect you to some extent from falling prices and market events. You should also use stop losses to take you out of the trade if the option price rises more than +25% over your sales price. This means the stock is falling and your risk is approaching. You can always wait for the stock to bounce and sell another strike to recover your stopped out price. This is very easy to do. Aggressive strategy: This is one of my most requested classes at our seminars. I use a Deep In The Money strategy for selling naked puts that maximizes returns by fully utilizing the high delta of in the money options. Consider this example: The stock is at $225 and the three strikes available are $220, $230 and $240. The premium for the $240 strike is $45.38. The margin for the trade is $56 or 25% of the stock price. If you sold this put and it expired worthless you would have an 81% return. ($45.38/$56 = 81%) This equates to an 81% return for a $16 move. The reason for the big returns is the difference in Margin and the high premiums from being deep in the money. It requires the stock to move up from where you sold the put but relatively speaking they do not have to move far to increase the returns. Consider the chart above. The premium you receive for the difference between the strike price and the stock price is Intrinsic value. Or stock value. This is exactly like a call that is $40 ITM. Every dollar the stock goes up you get almost $1 in premium increase. If the stock goes down you get almost a $1 decrease in the value of that call. Same with the Put. For every dollar above the stock price you sell a put it is "in the money" and the value is totally intrinsic. Every dollar that stock moves up reduces the value of your put and increases your profits. Once the stock price passes the strike price the premium decays slower because it is all time value. Consider this, if you sold a $250 put on a $100 stock how much would the stock have to go up for you to make money? Using this example and assuming the put premium was $175 for a $250 put on a $100 stock the stock would not have to move at all for you to be profitable. The time value would decay and you would have to give back the premium you did not use or $150. In reality you would sell a current month put with little or no time value but ANY movement over $100 would be a $1 for $1 profit for you. If the stock finished anywhere between $100 and $250 you would be profitable. The margin on this trade is $25 to start, (it is 25% of the stock price and will go up as the stock goes up). If your margin was $25 and the premium was $175 your return would be 600%. This would be extreme and I am only using it as an example. Still it is factual. Now, using this example, if you sold a put $100 over the current stock price of any stock that was moving up, would you care where the stock finished the month? Your only care is that it does not go below the price it was when you sold it. That means if you sold a $250 put on a $100 stock you should close the trade if the stock moves under $100. That puts you at risk for being put the stock or having to buy back the put at a higher price. If you sell a naked put on a stock that is moving up and then set your stop loss at a dollar or two below the stock price where you started the play then your loss will be that dollar or two that is not covered by your stop loss. Once your put is profitable you can move up your stop and then be stopped out for a profit if the trade goes against you. Normally you are only at risk during the first two days of the play. If you sell on a serious dip then you have to have a more serious dip to cause you problems. The drawback of course is you must be able to own this stock unexpectedly. An after hours drop can cause the put holder to exercise your put and you will own the stock. As long as you close the play whenever it drops below the opening price you should almost never see this problem. A major drawback to this strategy in this market is the gap down on the open on negative news. Everything is fine the day before but somebody warns and the entire sector drops -$20 before the open the next day. The way to protect against this is to buy an "insurance put". If you are selling $50 ITM on the upside and taking in a $55 premium then before the day is over go about $20 OTM or under the stock price and buy a put. The price that far out of the money is normally $4-$8 depending on the volatility of the stock. Now if you get a gap down your naked put increases in value but so does your protective put. You will not get a $1 to $1 move in each but you protect yourself against more than a $3-$5 loss. You are effectively turning the play into a spread and limiting your maximum risk. If this strategy interests you I suggest you go look at some charts for some fast moving stocks. Pick a strike price $30 to $50 away from the stock price and do the math on the margin and premium. You will be amazed at the return possibilities. Fine tuning this strategy. First, you do not want to hold the plays to expiration. I like to sell $50 to $100 DITM and then close them after a run of $20 to $30. Take your profits after any 3-5 day run. Nothing goes up forever and the longer you are in a play the greater the possibility of a drop in the stock. Repeat the play on another stock. You can normally do this about three times per month. You wait for a dip in the market and stock, sell the put, wait 3-5 days and close the play. Then wait for the next market/stock dip and repeat. It does not have to be the same stock. There are hundreds of choices. You can vary this strategy and use less volatile stocks, nice steady growers. You still get $1 for $1 profits and your margin is only 25% not 50% like buying the stock. We publish a list of high premium, high volatility stocks in the newsletter each week for this strategy. Find the list and paper trade several for a week or two and you will see why I like this strategy better than any other. Jim Brown ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* CIEN - Ciena corporation $90.56 (-23.81 last week) See details in sector list Put Play of the Day: ******************** RSAS - RSA Security $46.00 (-11.44 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=919 ************************************************************** ************************** 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 TWX $76.35 (-3.08) With the FTC seeking stiffer conditions from AOL and TWX for approval of their proposed merger, TWX investors took a little heat. The commission announced on Friday that they voted to postpone any legal action against the deal for three weeks. Add that to the heavy selling of tech stocks, and TWX got sold off below our stop of $77. This Long Term play may work out well as the deal gets closer to being done, but we must take what the market gives us and drop this play. KANA $20.63 (-5.13) Closing near the low of the day on Friday, KANA lost its steam and rolled over. There didn't seem to be any buyers in the market on Friday and tech stocks got whacked. As a result of the lack of buyers and heavy selling, KANA broke down below our stop of $23. This short lived Long Term play is being dropped from the play list. MLNM $71.88 (-13.19) More downside action in Friday's session brought MLNM back to the low $70s. There was no late-day upswing on the NASDAQ to give it a boost back above our Stop at $75. OIN is exiting MLNM this weekend as a result of the stock's transgression. A more positive environment might provide the catalyst to move MLNM through the upper resistance at $89.81, the 52-week high just set on Wednesday, but time is money so let's move on to more opportune plays. By the end of Friday's session MLNM was sitting on the supportive 30 and 50 DMAs. If your stop losses didn't take you out of the play, then look for an intraday bounce off the current level to exit. MANU $103.50 (-17.00) The strong momentum in recent weeks that resulted in new 52-week records coupled with a 2:1 stock split next month leaves no doubt of the high expectations we have on this issue. However, we can't fight the current trend or ignore the serious infraction of our $110 Stop. We held MANU over on Thursday evening in hopes of a swift recovery, but the negative pressure of the broad markets took its toll on the share price in Friday's session. With much regret, MANU is a drop this weekend. Look for this stock to return to our call list if it shows signs of challenging $126.25 in the near future. The company will split its stock 2:1 on December 7th and its earnings release is expected around December 21st. ADBE $77.44 (-3.25) It appears that despite positive comments from Montauk Securities and Robertson Stephens on Wednesday, uncertainty in the markets and negative sentiment in the Tech sector is dragging ADBE down. On Friday, the stock was affected by Dell's outlook going forward, as they lowered revenue estimates for next year. With a possible slowdown in computer sales, it appears that the market may be pricing in a slowdown in software sales as well. Whether or not that line of thinking has any merit, ADBE fell below its 10-dma support (at $79.16) as well as our stop at $79. With that, we are taking our money off the table for better opportunities ahead. EMC $70.88 (-15.44) On Thursday, we mentioned that EMC had formed two-thirds of a doji morning star reversal pattern. As well, the high volume on the doji candlestick pattern and the bounce off support at $80 had us thinking that perhaps it was ready for a rebound. However, this was not to be. The Dell Effect was the theme on Friday, as large cap Tech stocks dropped across the board on the PC maker's lower guidance for next year. Falling $2.69 or 3.16% on over 150% of ADV and now well below our stop price of $86, we are closing out this play. PSFT $42.81 (-3.94) PSFT has had a nice run recently but it appears that resistance at $50 was too formidable. Since touching that level twice on Tuesday and Wednesday, the stock has traded lower. A strong bounce on Thursday off our stop price and firm support at $42 was a good sign but PSFT found resistance from its 5-dma, currently at $47.29. On Friday, with negative sentiment in the NASDAQ, PSFT fell $3.13 or 6.8%. While the volume was low, less than 55% of ADV, the close below the 10-dma at $45.74 suggests the first signs of a rollover. With the stock perched precipitously near our stop price, we are ending this play before it falls below that level. IMCL $57.06 (-10.56) Making the issue of its earnings date irrelevant on Friday, IMCL finally gave in to the selling pressure and fell below our stop at $59. Not that it really matters at this point, but the drop in price seemed to be a lack of buyers more than a rush of sellers, as volume barely reached the ADV. Fortunately we never got a decent opportunity to enter the play as the stock hasn't had a decent day since we added it last weekend. IMCL got caught in the sights of the bears, and in addition to falling out of its bullish trend, the stock also falls off the playlist this weekend. PUTS No dropped puts today *********** 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 ************** CIEN - Ciena corporation $90.56 (-23.81 last week) Ciena corporation's market leading optical networking systems form the core for the new era of networks and services worldwide. Ciena's lightworks architecture enables next generation optical services and changes the fundamental economics of service provider networks by simplifying the networks and reducing the cost to operate it. Ciena is one of the few companies in the dynamic field of optical networking equipment manufacturers which is strongly above its 200-dma at $82.19. Ciena was able to post a gain on Friday which was one of the worst days for the market in several weeks. There was an unconfirmed rumor on an Internet news reporting service that Cisco was considering a possible takeover of Ciena. Neither company has commented on this. Regardless, Ciena has an earnings growth rate which is almost unrivaled, and the company has not warned of slowing growth. Ciena made a high of over $140 in mid October, and experienced a free fall with the technology sector correction. However, a longer trend line can be drawn from a low of $50 in July, which confirms a solid uptrend. Ciena is due to report earnings on December 7th, although the date may change closer to reporting time. The lowest price Ciena dropped to in the last several weeks was $84, and a strong rebound followed. On Friday, Ciena found solid support at $85.81 and promtly rebounded, as technical buy signals indicated a move to the upside. Ciena tried to push through the 5-dma of $95.50 on Friday, but the market environment was too weak. Consider taking new positions on a move through the 5-dma of $95.50, or the 10-dma of $100 on strong volume. The 50-dma is a long way off at $109. Remember that anything can happen in this unprecedented election year, and close all positions if Ciena closes below $84. BUY CALL DEC- 90 UEE-LR OI= 530 at $14.75 SL=$11.00 BUY CALL DEC- 95*UEE-LS OI=2396 at $12.50 SL=$ 9.50 BUY CALL DEC-100 UEE-LT OI= 669 at $10.38 SL=$ 7.25 BUY CALL JAN- 95 UEE-AS OI= 897 at $15.75 SL=$11.50 BUY CALL JAN-100 UEE-AT OI=7098 at $13.75 SL=$10.25 http://www.premierinvestor.com/oi/profile.asp?ticker=CIEN LH - Laboratory Corporation of America $147.00 (+14.13 last week) As one of the largest independent clinical laboratories in the United States, LabCorp, is a silent, but full, partner in the physician/patient relationship. By getting physicians and hospitals the accurate, reliable data they need in a timely fashion and by pioneering new, cutting-edge testing procedures, LabCorp plays a critical role in the process of patient diagnosis, treatment, and monitoring. LabCorp's versatility and expertise are best illustrated by the Company's ability to conduct more than 2,000 different tests ranging from simple blood analyses to sophisticated techniques involving the replication of highly complex DNA. It's been a great year so far for stocks in the Healthcare sector. While many Tech stocks are attempting to find a bottom, investors in LH have been wondering where the top is. So far, it appears that the sky's the limit, with the stock this Friday making a new all-time high, in the face of political uncertainty. Starting the year off with low institutional ownership, the stock has edged ever higher, as large investors have been buying up LH's shares. In fact, net institutional buying last quarter was up almost 20 percent. Recently, LH's stock has continued its ascent while the share price of competitor Quest Diagnostics (DGX) has gone the opposite way. It appears that the market, acting as a long term weighing machine, is in the process of giving the heavyweight title to LH. On Friday, the stock made a new all-time high, closing up $5.13 or 3.61%. LH was likely helped by good news, as Standard and Poor's raised the company's credit rating two levels, from BB+ to BBB. This puts LH's credit rating in the Investment Grade category. What this means is that because LH's credit rating is more secure, default risk is lower, leading to a decrease in interest rates going forward. Lower interest charges mean lower expenses leading to higher net income. It is likely that the full impact of this good news has not been felt, suggesting more possible upside. For aggressive traders, there is support at $145 and $140, near the 5-dma, making them possible targets for entry. Conservative traders may want to wait for LH to make a new high, backed by strong buying volume before making a play. We have set out stop at $138, just above the 10-dma. A close below this level could be a signal to exit this play. BUY CALL DEC-140*LH-LH OI=32 at $15.63 SL=11.25 BUY CALL DEC-145 LH-LI OI= 0 at $13.00 SL= 9.75 Wait for OI!! BUY CALL DEC-150 LH-LJ OI= 2 at $10.50 SL= 7.50 BUY CALL FEB-145 LH-BI OI= 5 at $21.88 SL=15.75 BUY CALL FEB-150 LH-BJ OI= 0 at $19.00 SL=13.75 Wait for OI!! SELL PUT DEC-135 LH-XG OI= 50 at $ 5.38 SL= 7.75 (See risk of selling put in play legend) http://www.premierinvestor.com/oi/profile.asp?ticker=LH BRCM - Broadcom Corporation $166.25 (-56.13 last week) Broadcom. is a developer of highly integrated silicon solutions that enable broadband digital data transmissions to the home and within the business enterprise. BRCM's products enable the high- speed transmission of data over existing communications infrastructures. Customers include Cisco, Samsung, and Scientific-Atlanta; along with Motorola and 3Com, who account for 28% and 18% of sales, respectively. They say timing is everything. Last Tuesday, the Presidential Election zapped the markets as more money moved to the security of the side-lines and BRCM announced a $2+ bln stock acquisition of SiByte, a start-up processor maker. Investors sold off the issue at five times the ADV when details of the purchase revealed it would reduce Broadcom's profits by a hefty $0.03 a share in each quarter of 2001! The deal is expected to close in 60 days; and although it shouldn't have a significant impact on 4Q earnings, it didn't make one bit of difference to the traders as the news traveled throughout the panicky marketplace. 19.4%, or $42.50 was skimmed off BRCM before the bloodshed came to a close at the bell on Tuesday. The extraordinary events surrounding our Presidential Election continued to effect BRCM's trading and the losses extended into Wednesday's session. Investors regained some of their senses amid the continuing chaos. It helped that Robertson Stephens also came to BRCM's defense. The firm commented that "despite the dilutive impact, the acquisition of SiByte, we believe, is a step in the right direction for Broadcom as the trend towards outsourcing higher layer line card functionality to standard component manufacturers is likely to accelerate. We continue to rate the stock of Broadcom as a Buy". On Thursday, investors realized the profit potential and took BRCM off the $150 level. The $159 and $160 marks are currently buoying BRCM intraday and thus, we've set our Stop at $159 for a clean exit. It was promising to see BRCM rise above $175 in late day trading on Friday. We're anticipating a strong rebound going into next week. Whether you're considering taking an aggressive entry on intraday dips off short-term support or buying into strength as BRCM reclaims its position above the $200 level, make no mistake. This is a HIGH-RISK Internet play. Keep stops in place to protect capital. BUY CALL DEC-165 RDU-LM OI= 129 at $20.63 SL=15.25 BUY CALL DEC-170*RDU-LN OI= 349 at $18.00 SL=13.00 BUY CALL DEC-175 RDU-LO OI= 195 at $15.63 SL=11.25 BUY CALL JAN-170 RDU-AN OI= 224 at $26.25 SL=20.50 BUY CALL JAN-175 RDU-AO OI= 270 at $24.13 SL=18.75 http://www.premierinvestor.com/oi/profile.asp?ticker=BRCM ************* LOTTERY PLAYS ************* SGI - Silicon Graphics $4.44 (-0.13 last week) Silicon Graphics manufactures high-end servers as well as the advanced graphics computers used to create some of Hollywood's most striking special effects. It also makes modeling and animation software, and microprocessors. Struggling in a workstation market encroached upon by increased PC power, the company is refocusing on servers. Once the darling of Silicon Valley, SGI has fallen out of favor with investors over the last several years. However, the stock has appeared to found bottom at current levels. Furthermore, we've noticed peculiar options activity in the December contracts, which makes SGI a candidate for our lottery play list. Add to that the fact the stock has an unfilled gap up to the $7.50 level. This play is not for everyone, though. As the name suggests, it's a lottery play with high risk to reward characteristics and should only be played by those willing to risk capital. A small move in the stock could produce big profits, because of its low price and low volatility in options contracts. Look to enter the play at current levels around $4.50. A more conservative entry might be found if SGI rallies above the $5 level on strong volume. However, a close below $4 would trigger a stop and a drop of the play. BUY CALL DEC-5*SGI-LA OI=30431 at $0.63 SL=0.00 BUY CALL FEB-5 SGI-BA OI= 1193 at $0.81 SL=0.00 BUY CALL MAY-5 SGI-EA OI= 621 at $1.19 SL=0.50 http://www.premierinvestor.com/oi/profile.asp?ticker=SGI ***********************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 11-12-2000 Sunday 3 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/111200_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=908 ************************************************************** ****************** CURRENT CALL PLAYS ****************** MSFT - Microsoft $67.38 (-1.31 last week) Microsoft's vision is to empower people through great software-any time, any place, and on any device. As the worldwide leader for software in personal and business computing, Microsoft strives to produce innovative products and services that meet our customer's evolving needs. At the same time, Microsoft realizes that success is about more than just making great products. Considering the extraordinarily weak market environment, MSFT held up surprisingly well on Friday. The stock has had a strong run for the last three weeks, and some consolidation was to be expected. The market has showed no tolerance for non profitable companies in the last few weeks, and MSFT's strong profits make it a fund manager's favorite. MSFT is currently nestled between the 50-dma of $64, and the 200-dma at $73.44. MSFT tried three times on Friday to clear $68, but was unable to, and found support at $67. If MSFT can clear the converged 5 and 10-dma of $69.50 on strong volume, consider taking new positions. However, consider that we are in uncharted territory with the election uncertainty, which may persist for a longer period of time than anticipated. This can weigh heavily on all stocks, but particularly on MSFT, since the company rallied partly on the anticipation of possible relief from the monopoly trial remedial action. For this reason, close the position if the stock closes below $66, as this would signify a move out of the ascending channel. BUY CALL DEC-65 MSQ-LM OI= 4411 at $5.63 SL $3.63 BUY CALL DEC-70*MSQ-LN OI=11286 at $2.94 SL $1.50 BUY CALL DEC-75 MSQ-LO OI=29619 at $1.44 SL $0.75 BUY CALL DEC-70 MSQ-AN OI=38617 at $4.38 SL $2.75 BUY CALL DEC-75 MSQ-AO OI=37978 at $2.56 SL $1.25 http://www.premierinvestor.net/oi/profile.asp?ticker=MSFT IMGN - Immunogen $39.25 (+1.19 last week) Founded in 1981, ImmunoGen develops products that deliver chemotherapy directly to cancer cells. Called Tumor-Activated Prodrugs (TAPs), ImmunoGen’s products are small-molecule-based anti-cancer agents with high potency and reduced toxicity. They are produced by combining extremely potent chemicals with monoclonal antibodies that recognize and bind directly to tumor cells. ImmunoGen’s product portfolio is focused on TAPs for colorectal cancer, small-cell lung cancer and other aggressive malignancies. In preclinical studies, all of ImmunoGen’s products have proven to be more potent and less toxic in animals than existing chemotherapeutics. IMGN has been investing its dollars in research and development and so far, it has been paying off. Good news and on the pipeline front helped IMGN stay in the green this past week, as many stocks of the four-letter variety were sold with abandon. On Thursday the company announced that initial testing results of their Tumor-Activated Prodrug (TAP), used to treat small-cell lung cancer, had been well tolerated in mice as well as monkeys. In fact, the drug produced better than expected results, as even small amounts of it were noticeably effective. Not only that, but the scope of testing has expanded to treatment of other major internal organs. While the drug is far from ready for Phase III clinical trials, initial results are promising indeed. Friday yielded even more good news, as another drug further along in its pipeline, was reported to be in preliminary Phase I/II. In layman's terms, these are the first human trials. This drug, also a TAP, is intended for treating non-small-cell lung cancer. The results so far are encouraging. With the stock currently just below the $40 mark, a break through that level on strong volume could allow conservative traders to take a position, but be aware of resistance just ahead from the 5-dma, now at $41.11. For aggressive traders, a bounce off the 10-dma, currently at $38.82, is a possible entry point. There is additional support near our stop price at $37. A close below this point could suggest that it the stock may need to head lower before resuming its upward climb. Also note that on Monday IMGN will be pricing its secondary offering of 4 million shares. How the stock reacts could be an good indicator of future strength (or weakness). BUY CALL DEC-30 GMU-LF OI= 52 at $11.38 SL=8.50 BUY CALL DEC-35*GMU-LG OI= 59 at $ 8.00 SL=5.75 BUY CALL DEC-40 GMU-LH OI= 110 at $ 5.38 SL=3.50 BUY CALL JAN-40 GMU-AH OI=1057 at $ 7.00 SL=5.00 BUY CALL JAN-45 GMU-AI OI= 775 at $ 5.38 SL=3.50 http://www.premierinvestor.net/oi/profile.asp?ticker=IMGN SDLI - SDL, Inc. $220.56 (-41.94 last week) SDLI was the first company in the world to successfully commercialize the integration of multiple lasers on a single semiconductor chip and ever since, has been a leader in integrating lasers with other optical or optoelectronic elements such as lenses, mirrors and light amplifiers. Their technological leadership is illustrated by the more than 125 patents held, backed by an emphasis on continued research and development. Their goal is to replace both electronic-based systems and conventional optics with more powerful and efficient semiconductor laser solutions. Simply put, SDLI is a leveraged play on Fiber Optics leader JDSU. As Jim Brown mentioned last week, with a 3.8-to-1 share exchange, any move on JDSU will result in 3.8 times that move in SDLI. This has given SDLI a high volatility, making large intra-day swings on a daily basis, making this stock a traders' dream. Taking the closing prices of both stocks, there appears to be an arbitrage spread of about $40. This spread reflects the risk premium going forward of the proposed merger. Positive news could narrow the spread, leading to a further increase in SDLI's share price. On Friday, Tech stocks all across the board headed lower, with continuing controversy surrounding the Federal election as well as in sympathy with Dell's comments of slower sales going forward. Dropping $17.75 or 7.45% on 90% of ADV, SDLI closed right above strong support at $220. This coming week will be a busy one for JDSU, with a busy conference schedule. On Monday, the company will be at the Deutsche Banc Alex. Brown Tech 2000 Conference. Tuesday will be Wit SoundView's Fourth Annual Technology Outlook Conference. Wednesday JDSU will do double duty, presenting at the UBS Warburg Fifth Annual Global Telecom Conference and Credit Suisse First Boston's Annual Technology Conference. With the stocks in oversold territory, positive news going forward could ignite a strong rebound in the shares of both companies. For aggressive traders, there is support in increments of $5 from $200 to $220. A bounce off support, confirmed with volume could allow for an entry, but make sure SDLI closes above our stop price of $216 as anything lower could mean more downside and force us out of this play. For a safer entry, wait for SDLI to break through $225 on volume, where upward momentum should quickly take the stock to its next resistance level at $230. BUY CALL DEC-215 QZL-LC OI= 22 at $30.88 SL=22.50 BUY CALL DEC-220*QZL-LD OI= 148 at $28.13 SL=20.50 BUY CALL DEC-230 QJV-LF OI=1417 at $23.50 SL=17.00 BUY CALL MAR-220 QZL-CD OI= 17 at $47.00 SL=34.00 BUY CALL MAR-230 QJV-CF OI= 110 at $43.00 SL=31.00 SELL PUT DEC-210 QZL-XB OI= 140 at $18.75 SL=25.50 (See risk of selling put in play legend) http://www.premierinvestor.net/oi/profile.asp?ticker=SDLI TLAB - Tellabs $53.25 (-0.31 last week) Tellabs is an optical networking firm. Its equipment is used throughout the world to manage and transmit data, voice, and voice signals. Customers include telecommunication companies, cable operators, corporations and government agencies. Baby Bells account for nearly one-third of sales with another third generated outside the US. Many stocks in the communications equipment market, like Ciena (CIEN) for instance, were bullet proof amid the summer doldrums. TLAB, on the other hand, just wasn't considered one of those sexy stocks. Without the favorable conditions to buffer a seasonal correction, TLAB quickly tumbled from its July peak of $77.25. When the scuttlebutt hit the Street that the networking equipment market showed signs of slowing, the relentless punishment continued. Finally last month, TLAB hit a relative bottom of $37-$38. As the dust settled following the harsh sector sell-off, investors took notice of this undervalued stock. Many investors seized the opportunity to buy the issue at a bargain price. The resulting momentum of the past couple weeks took shares of TLAB through the $50 resistance. Currently, TLAB is channeling between $52 and $56 on respectable volume - we will use the low end of that channel at $52 for our stop. If you're more risk oriented, you might consider taking entries off the converged 5 and 10 DMAs at $53.55 and $52.31, respectively. A more conservative approach is to wait for a break above $56 and the 200-dma ($57.54) before beginning new plays. Recently on November 2nd, the brokerage firm Robinson- Humphrey reiterated a Buy recommendation on TLAB and issued an $85 price target. Although the steady action this week points to another move to the upside, trade smart and confirm the uptrend. BUY CALL DEC-50 TEQ-LJ OI= 685 at $6.13 SL=4.00 BUY CALL DEC-55*TEQ-LK OI=1365 at $3.50 SL=1.75 BUY CALL DEC-60 TEQ-LL OI=3984 at $1.88 SL=1.00 BUY CALL JAN-55 TEQ-AK OI=2522 at $5.63 SL=3.50 BUY CALL JAN-60 TEQ-AL OI=2618 at $3.75 SL=2.25 http://www.premierinvestor.net/oi/profile.asp?ticker=TLAB ************************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=920 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 11-12-2000 Sunday 4 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/111200_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=909 ************************************************************** ************* NEW PUT PLAYS ************* NEWP - Newport Corporation $85.75 (-23.69 last week) In research laboratories, product development departments and on production lines around the world, scientists and engineers depend on Newport Corporation. The company is the leading worldwide manufacturer and distributor of precision components and systems used for development and application of laser and optical technologies, supporting not only advanced research, but also sophisticated new technology and industrial applications. Its products and expertise are increasingly used in semiconductor manufacturing and testing, fiber optic communications and other commercial applications that require ever increasing higher-precision and tighter tolerances. This once high-flyer has seen better days. Ever since hitting a high of $192.06 in late September, NEWP has had over half its market cap erode in the space of less than two months. Connecting the highs and lows since its peak reveals a downward-trending regression channel. There are a number of factors leading to NEWP's decline but the most devastating blow to the stock has been its position in the Fiber Optics food chain. Earnings reports from leaders Cisco and Nortel gave the bears plenty of ammunition to work with. Nortel's revenue miss of high-end projections had them crying, "Slowdown!" while Cisco's build-up of inventory had investors concerned that sales going forward for equipment makers such as NEWP would be substantially lower. October was an especially brutal month, with the stock crashing through its 50 and 100-dma support (now at $142.84 and $130 respectively). A downgrade late in the month by UBS Warburg from a Buy to a Hold rating did not help NEWP in November either. On Friday, the stock fell below its last line of moving average support, the 200-dma at $88.44. Ending the day down $9 or 9.5% on higher than average volume, the stock has also been having trouble with the 5 and 10-dma (currently at $95.84 and $101.10). A failure to rally above moving average resistance as well as the psychological $100 could provide aggressive traders with an ideal entry point, but make sure NEWP closes below our stop, set at $94. A close above this level could indicate a possible halt to its downward momentum. Just to make sure, a break through resistance at $85, backed by selling strength could allow for a safer entry. BUY PUT DEC-90*NZZ-XR OI=36 at $16.88 SL=12.25 BUY PUT DEC-85 NZZ-XQ OI= 0 at $14.63 SL=10.75 Wait for OI!! http://www.premierinvestor.net/oi/profile.asp?ticker=NEWP PLCM - Polycom, Inc. $47.31 (-17.63 last week) Polycom manufactures and markets a full range of high quality, media-rich communications tools and network solutions, which enable business users to immediately realize the benefits of video, voice and data over rapidly growing converged networks. Although the company is primarily a video conferencing and voice conferencing product provider, it has recently entered the DSL access market, particularly in the area of integrated voice appliances and broadband access devices. Like Wile Coyote, PLCM stepped off a cliff on Thursday, falling victim to the market weakness that drove the NASDAQ to its lowest close of the year. Proceeding to fall through several levels of support, the stock gave up 29% in three days, joining the long list of technology companies that have fallen from grace. Even the 200-dma ($48.19) was insufficient to halt the stock's decline as selling volume continued to increase right up to the closing bell, with the closing tally coming in at double the ADV. Since there was no stock-specific news that would prompt such a sharp move, it seems logical that PLCM finally fell victim to the valuation concerns that have tripped up one technology stock after another. Although below the 200-dma, the stock did manage to end the week right on a significant support level ($47-48), so the conservative strategy will be to wait for further weakness before opening new positions. Falling below $47 on continued strong volume looks like a good entry, as it will open the door for a drop to the next major support at $40. Aggressive traders can target shoot their entries if the stock bounces and rolls over. Previous support at $50-52 will likely provide solid resistance, so use a rollover near this level as your entry trigger. Any substantial recovery that clears $52 will be a clear signal that PLCM has found help from buyers and will be our signal to exit the play. BUY PUT DEC-55 QHD-XK OI=12 at $10.50 SL=7.50 BUY PUT DEC-50 QHD-XJ OI= 0 at $ 7.13 SL=5.00 Wait for OI!! BUY PUT DEC-45*QHD-XI OI= 2 at $ 4.38 SL=2.75 http://www.premierinvestor.net/oi/profile.asp?ticker=PLCM VRSN - VeriSign, Inc. $113.19 (-29.19 last week) VeriSign is the leading provider of Internet trust services and digital certificate solutions needed by Web sites, enterprises and individuals in order to conduct secure electronic commerce and communications over IP networks. VRSN has used its secure online infrastructure to issue over 100,000 of its Website digital certificates and over 3.5 million of its digital certificates for individuals. The company also offers the VeriSign Onsite service, which allows an organization to leverage the company's trusted service infrastructure to develop and deploy customized digital certificate services for use by an organization's employees, customers and business partners. To date, over 300 enterprises have subscribed to the OnSite service and VRSN has strategic relationships with industry leaders including Cisco, Microsoft ,RSA, Security Dynamics, and VISA. After failing to hold above the $200 level in early October, it has been a painful downhill slide for VRSN investors. Over the past 6 weeks, the stock has continued to trace a series of lower highs and lower lows, as the technicals continue to deteriorate. The abuse this week was not confined to VRSN, as other players in the Internet security space like CHKP and RSAS took severe haircuts on election related jitters and continued concerns about slowing revenue growth. The bounce from the $120 level two weeks ago gave the bulls hope, but that level was shattered on Friday, with the stock trading as low as $108.50 before recovering slightly in the afternoon. Don't look for any help from the moving averages, as even the converged 5-dma and 10-dma are sitting near $130, a level not likely to be seen in the near future. In line with the previous support equals new resistance theory, aggressive traders can target-shoot new entries near $120, if the stock begins to roll over after any kind of oversold bounce. We have placed our stop just above this level ($123), and a rise through that level would indicate that the buyers are starting to come back. Given the heavy volume (40% over the ADV) on Friday, we don't think that is the most likely course of events though. It looks like more weakness to come, and the more conservative strategy will be to pile on as VRSN falls below $111. Although there is some support near $108, the odds favor a drop to the $100 support level before things begin to improve. If the NASDAQ fails to hold support at 3000, it is entirely reasonable to think that VRSN will challenge its spring low at $91, before buyers reappear with cash in hand. BUY PUT DEC-115 XVR-XC OI=104 at $16.63 SL=12.00 BUY PUT DEC-110*XVR-XB OI=209 at $14.38 SL=10.75 BUY PUT DEC-105 XVR-XA OI= 73 at $11.63 SL= 8.75 http://www.premierinvestor.net/oi/profile.asp?ticker=VRSN BLDP - Ballard Power Systems $89.50 (-21.50 last week) Ballard Power Systems is engaged in the development and commercialization of proton exchange membrane (PEM) fuel cells and related power generation systems for stationary units and transportation vehicles. Other usage includes portable applications for emergency and recreational use. DaimlerChrysler and Ford own 19% and 14% of Ballard, respectively. The confusion and turmoil surrounding the Presidential Election has certainly taken its toll on the markets - and we still don't have a certifiable winner! In the case with BLDP, it would be to the company's benefit for a Gore win. In a Democratic White House, environmentally friendly companies like Ballard Power Systems would fare well since Gore is known to be concerned about conservation and environmental issues. But if BLDP's chart is any indication of who'll be inaugurated, then we could be looking at a Republican White House in 2001. BLDP's chart for is unmistakably bearish! Starting on pre-election Monday, BLDP began its descent. By Wednesday it slipped under its historical split-candidate level of $100 and crashed through all the near-term DMA lines. On Thursday, BLDP attempted to rally late afternoon, but failed to breakthrough the psychological century mark - it hit a wall at $99. Friday's action took BLDP down for the count. The technical violation of the 200-dma ($92.26) and the potential for more uncertainty in the markets next week prompted us to add BLDP to our put list. Volume remains average to strong, so look for increased trading on the decline to foreshadow further weakness below $90. First expect some light support at Friday's near-term bottom of $89.25, then lower at the $80 if BLDP went into a downward spiral. Be cautious if it starts to look like Gore may take the Presidency. This event could send shares upward. We've set a firm Stop at $96 to minimize any positive impact. More enterprising traders might take entries on a rollover at this level, if the market and world events are supportive to the downtrend. BUY PUT DEC-90 DFQ-XS OI=23 at $10.38 SL=7.50 BUY PUT DEC-85*DFQ-XR OI=50 at $ 7.25 SL=5.00 BUY PUT DEC-80 DFQ-XQ OI=66 at $ 5.13 SL=3.00 http://www.premierinvestor.net/oi/profile.asp?ticker=BLDP ******************** LOW VOLATILITY PLAYS ******************** DGIN - Digital Insight $13.50 (-5.50 last week) Digital Insight makes Internet banking software that lets users check balances, view transactions, transfer funds, and pay bills over the Web. The company's cash management software caters to business users. Digital Insight also offers Web site creation, hosting, and maintenance services. Its AXIS Lending provides Internet-based loan services to both consumer and business customers. The path to profitability is growing longer for several Internet oriented businesses. That fact is prevalent in the Internet banking sector, in which DGIN operates. Profits are still a long way off for the company, and investors are growing impatient. That impatience culminated in DGIN losing $5.50 last week - nearly 30%. DGIN's steady downtrend and low price have put in on the low volatility put play list, and we're looking to profit on those very characteristics. DGIN continues to trace new 52-week lows; as such, there's no support below - the stock's in uncharted territory. Look to enter new positions on a break below the $13.50 level. A rollover near the $14.50 level might provide a more aggressive entry upon a failed rally attempt. We'll use the $15 mark as our stopping point, should DGIN rebound. Confirm sector weakness with CORI and SONE before entering new plays. BUY PUT DEC-17 UGU-XW OI=0 at $4.63 SL=2.75 BUY PUT DEC-15*UGU-XC OI=0 at $2.56 SL=1.25 BUY PUT FEB-15 UGU-NC OI=0 at $3.38 SL=1.75 http://www.premierinvestor.net/oi/profile.asp?ticker=DGIN ***************** CURRENT PUT PLAYS ***************** SLR - Solectron $36.06 (-8.13 last week) Solectron Corp. is one of the world's largest supply chain facilitators for customized electronics technology, manufacturing and service solutions. Founded in 1977, Solectron's integrated technology solutions, materials, manufacturing and operations, and global services offer customers competitive outsourcing advantages, such as access to advanced manufacturing technologies, shortened product time to market, and more effective asset utilization. Their customers are primarily original equipment manufacturers. Solectron has had a bad week. While the company was able to stay just under the 50-dma at $44.51 on Monday, the news that Cisco had an oversupply of inventory in certain electronics components, combined with election uncertainty, was too much for the stock. SLR crumbled slowly and steadily, losing on average one point a day. On Wednesday, the stock fell below its 200-dma of $41.69 in the morning, made one more futile attempt to rally to this level again, and collapsed. On Friday the selling intensified, as SLR plunged to $36, losing 10% of its market value by mid afternoon. The volume was over 14 million shares, nearly five times the average daily volume of 2.8 million shares. SLR has a long way to go before it can think about reaching the 5-dma of $40.63, or the 10-dma of $42.88. In the meantime, consider adding new positions on a failed attempt to rally above $37, and exit all positions if the stock closes above $39. BUY PUT DEC-45 SLR-XI OI=1120 at $9.50 SL=$6.50 BUY PUT DEC-40*SLR-XH OI= 364 at $5.63 SL=$3.63 http://www.premierinvestor.net/oi/profile.asp?ticker=SLR IDTI - Integrated Device Technology $32.50 (-17.88 last week) The company's high-performance semiconductor products and modules are found in computers, peripherals, and communications and networking devices. About 70% of sales are from communications and high-performance logic components, specialty memory, clock management circuits, and networking devices. IDTI also makes static random-access memories (SRAMs). The story goes something like this... Cisco's earnings report on Monday had the Networking giant as usual beating Street estimates by a penny. Going into the report, many feared that Cisco would not be able to match its previous growth rate of 60%. But the company came through, growing revenues by 66%. As impressive as it was, analysts looked for the proverbial dark cloud in the silver lining focused on the inventory numbers. With raw materials inventory up 59% to almost $2 billion dollars, this is a large increase indeed. Noting the increased inventory levels of Nortel and Lucent as well, there was much concern over a possible slowdown in demand for various optical components going forward. With Cisco as a large customer, IDTI has clearly been impacted by the news. Negative sentiment in the Semiconductor sector and the NASDAQ for that matter have also conspired to lead the stock lower. With its once-beautiful chart now broken and the stock well below all its major moving averages, IDTI has continued to head deeper into negative territory, backed by resistance from the 5 and 10-dma (currently at $40.75 and $46.33 respectively). Support levels can be found in increments of $5 at $30 and $25 as can resistance at $35, and $40. A failed rally above resistance could be aggressive targets to shoot for but make sure volume confirms the rollover. A break below $30 on volume would be a more conservative entry. In either case, we have lowered our stop to $38 so make sure IDTI continues to close below this level when considering a play. BUY PUT DEC-35*ITQ-XG OI=115 at $7.25 SL=5.00 BUY PUT DEC-30 ITQ-XF OI= 42 at $4.25 SL=2.50 http://www.premierinvestor.net/oi/profile.asp?ticker=IDTI ADI - Analog Devices $44.50 (-17.81 last week) Analog Devices is a leading maker of analog (linear and mixed-signal) and digital integrated circuits (ICs), including digital signal processors. The company's broad line of ICs incorporate analog, mixed-signal and digital signal processing technologies that translate real-world phenomena such as pressure, temperature, and sound into digital signals. ADI's products are used in communications equipment (40% of sales), computers and peripherals, and medical and scientific instruments. Among ADI's more notable customers are Motorola, Dell, Lucent, and Sony. This week was not kind to the Semiconductor sector, as it fell to its lowest close of the year in Friday's selloff. Between the negative comments made in earnings reports from DELL and CSCO, and the continuing election uncertainty, there was simply a shortage of buyers willing to step up to the plate and buy anything technology-related. Caught in the rapidly descending elevator, ADI had no choice but to drop with the broader markets, giving up more than 28% on the week to close at its lowest point since early January. Adding insult to injury, Morgan Stanley downgraded INTC from Outperform to Neutral, further increasing the pressure in the already beleaguered sector. With all that negative pressure, we would have expected ADI to plunge further on Friday, but amazingly it seemed to actually find support near $43 and recover slightly throughout the day. Volume dropped off to the daily average on Friday, and the stock's refusal to sell off further prompts us to lower our stop to $48, to protect against a possible recovery. One possible cause for the apparent strength could be the fact that the company is set to report its earnings on Tuesday after the close. With our play coming to an end on Tuesday due to this event, we would only recommend new entries on the play if continuing technology weakness pushes ADI below the $43 level. BUY PUT DEC-50 ADI-XJ OI=482 at $9.88 SL=7.00 BUY PUT DEC-45*ADI-XI OI=301 at $6.63 SL=4.50 http://www.premierinvestor.net/oi/profile.asp?ticker=ADI RSAS - RSA Security $46.00 (-11.44 last week) RSA Security Inc. is a trusted name in e-security, helping organizations build secure, trusted foundations for e-business through its two-factor authentication, encryption and public key management systems. As the global integration of Security Dynamics and RSA Data Security, RSA Security has the market reach, proven leadership and unrivaled technical and systems experience to address the changing security needs of e-business and bring trust to the new, online economy. A global company with more than 5,000 customers, RSA Security is renowned for providing technologies that help organizations conduct e-business with confidence. Leading the NASDAQ to a new low for the year on Friday was the Internet sector, as the continuing election debacle combined with persistent valuation and revenue growth concerns, keeping buyers firmly planted on the sidelines. RSAS saw its sub-sector, Internet Security, come under renewed selling pressure as well with other players like VRSN and CHKP selling off sharply right up to the closing bell. Volume came in at the ADV again, and unless the NASDAQ halts its slide at the 3000 level, it looks like our play could easily retest support at $39-40. This would make the technicians happy, as it would serve to close the unfilled early October gap between $39.50-43.50. The selloff over the past week has been severe, pushing the stock well outside its lower Bollinger band, so it would not be out of the question to see an oversold bounce materialize in the next couple days. If such a bounce appears and runs out of steam near the $50 level, consider it to be an attractive, yet aggressive entry point. To protect against the possibility of giving back our profits, we have moved our stop down to $50. More conservative entries can be had as RSAS falls through tentative support at $46, on its way to fill the gap mentioned above. BUY PUT DEC-55*QSD-XK OI= 605 at $10.38 SL=7.50 BUY PUT DEC-50 QSD-XJ OI= 0 at $ 6.63 SL=4.50 Wait for OI!! http://www.premierinvestor.net/oi/profile.asp?ticker=RSAS LVLT - Level3 Communications $36.06 (-3.75 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. While some investors are seeing their portfolios take a beating, many traders are playing individual trends. The negative bias on the NASDAQ continues ice our cake when it comes to the put play on LVLT. In both Monday and Tuesday's session, LVLT saw a 52-week low at $34.25 on unusually high volume. Our play did get side-tracked when Kaufman Brothers and Level3 Communication's CEO incited a buying spree. The brokerage firm upgraded LVLT to a Buy and issued a $59 price target. That same day, CEO James Q. Crowe responded to shareholders' recent concerns about the stock's weakness with a reassuring press release. He pledged that the company would meet estimates despite the growing concerns in the telecommunications industry. But the sincere sentiment wasn't enough to drive LVLT over the top of $41.38 in subsequent trading. Yes, it's true that hindsight is always 20-20 - the buying spree was indeed a premium entry point! As it stands now, the ceiling is getting lowered again. LVLT couldn't penetrate the $38 level by Friday; however we have maintained our $41 Stop loss. We want to have enough leeway to take an aggressive entry on a high-volume rollover, yet have that distinct exit point near the 10-dma ($40.20). Take a look at a daily chart and you can visually confirm how this technical line has served as upper resistance on the decline. Take entries according to your risk tolerance. A conclusive slide through the new low at $34.25 would confirm further weakness, but keep stops tight if you enter at these lower price levels. BUY PUT DEC-40 HGY-XH OI=2028 at $7.25 SL=5.00 BUY PUT DEC-35*HGY-XG OI= 320 at $4.38 SL=2.75 BUY PUT DEC-30 HGY-XF OI= 269 at $2.50 SL=1.25 http://www.premierinvestor.net/oi/profile.asp?ticker=LVLT ************************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=921 ************************************************************** ***** LEAPS ***** Wow! Did Anyone Get the Number of That Truck? By Mark Phillips Contact Support If there was ever a time to employ stop losses, this week was it. With very few exceptions, our playlist took a beating this week as fears of slowing growth in technology were amplified by the fiasco known as "Decision 2000". The presidential election has become almost surreal, and I won't bore you with a rehash of what has become a tedious and embarrassing affair. The important point is that it has created significant uncertainty in the markets. As we all know, the markets do not like uncertainty, and the effects can be seen across all the major indices, with the bulk of the pain being felt in the technology sector. Over the past 3 days, the NASDAQ has given up 11.3% to post its lowest close this year, as volatility has increased yet again. Still an accurate barometer of fear, the VIX moved as high as 33.45 on Friday, before dropping a bit to close out this volatile week at 32.63. While readings above 30 usually provide attractive entry opportunities for longer-term investors, it isn't clear that the selling has come to an end yet. The impact of a slowdown in the economy and its effect on the growth rates of leading technology companies is still being sorted out by the market participants. Given the action near the close on Friday, it is looking increasingly likely that the 3000 level on the NASDAQ will fail to hold, with a likely downside target of 2800-2850. Obviously, we need to wait for the current decline to play itself out before jumping in to new positions, especially in the volatility sector. While technology has been under pressure, we have seen impressive strength in the Pharmaceutical and Financial sectors. Although there have not been large gains in these groups, due to their lower valuations, they have not succumbed to the severe selling pressure that has been evident in the recent high flyers like Networking and Internet stocks. Diversification, anyone? I had some questions at the Denver seminar and by email recently concerning the issue of volatility, the VIX, and option premiums that I'd like to address briefly. The question goes like this. "If we buy LEAPS when the VIX is high, doesn't that mean that LEAP premiums will be inflated, and when volatility drops off, the premiums will too?" The short answer is yes, even LEAP premiums are affected by volatility, but to a lesser degree than short-term options. So while a given short-term option premium may jump by 30%, the corresponding increase in the LEAP premium may only be 10%. This is due to the longer lifespan of the LEAP. Since we are looking to buy LEAPS and hold them for a longer period of time, we can target attractive plays when the VIX is high (indicating a market bottom is near), and hold them through the market recovery without suffering the penalty of rapid time decay. So, while buying LEAPS when the VIX is high will mean a higher LEAP premium, you are doing so when the deck is stacked in your favor, and over the long run, the increase in premium due to a rising stock price will more than overtake the decrease caused by declining volatility. The absolute best case scenario is to find a stock you want to buy LEAPS on, and buy it when the stock specific volatility is low, but the VIX is high. A perfect example of this relationship is our play on WM. Although we have seen large fluctuations in the broader markets and the VIX, the LEAP premiums have increased very little due to the volatility over the past few months. When we first selected the play back in March, a 2002 LEAP that was one strike OTM cost a little over $5. Currently, a 2002 LEAP that is one strike OTM is going for $5. To be fair, we should probably look at the 2003 LEAP, as the time horizon is more comparable, but even that strike is only a little more than $6. This shouldn't be construed as a recommendation to go out on Monday and snatch up LEAPS on WM, as you still need to look for the right entry point, but it is a good example of how to dance between the raindrops and make volatility work for you. Until next week, tread (and trade) carefully and carry a big cash reserve. Or as Jim frequently reminds us, "Don't Buy Too Soon". Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN EMC 11/07/99 JAN-2002 $ 45 WUE-AI $ 9.50 $44.88 372.37% 09/17/00 JAN-2003 $100 VUE-AT $32.75 $24.63 -24.81% CSCO 11/14/99 JAN-2002 $ 45 WIV-AI $11.00 $16.38 48.86% NT 11/28/99 JAN-2002 $37.5 WNT-AU $15.13 $13.25 -12.43% 09/10/00 JAN-2003 $ 75 ODT-AO $27.50 $ 6.50 -76.36% SUNW 12/19/99 JAN-2002 $ 90 WJX-AR $22.00 $25.63 16.48% 11/05/00 JAN-2003 $120 VSU-AD $39.50 $24.63 -37.66% AOL 03/12/00 JAN-2002 $ 65 WAN-AM $18.63 $ 6.70 -64.05% 08/13/00 JAN-2003 $ 55 VAN-AK $17.50 $14.80 -15.43% AXP 03/12/00 JAN-2002 $46.6 WXP-AQ $ 9.33 $17.50 87.57% WM 03/19/00 JAN-2002 $ 30 WWI-AF $ 5.38 $16.50 206.69% 10/22/00 JAN-2003 $ 45 VWI-AI $ 7.88 $10.63 34.92% JDSU 04/16/00 JAN-2002 $ 80 YJU-AP $39.63 $19.88 -49.85% 08/27/00 JAN-2003 $130 VEQ-AF $55.25 $17.13 -69.00% NOK 05/21/00 JAN-2002 $ 50 IWX-AJ $17.25 $ 6.38 -63.04% 07/30/00 JAN-2003 $ 50 VOK-AJ $17.75 $ 9.75 -45.07% C 06/18/00 JAN-2002 $48.8 YSV-AW $10.31 $12.13 17.60% 10/01/00 JAN-2003 $ 60 VRN-AL $12.25 $10.88 -11.22% VRSN 07/02/00 JAN-2002 $190 YVS-AR $66.25 $22.13 -66.60% 09/03/00 JAN-2003 $190 OVS-AR $86.63 $34.38 -60.32% GENZ 07/16/00 JAN-2002 $ 70 YGZ-AN $17.13 $28.25 64.92% JAN-2003 $ 70 OZG-AN $23.13 $35.13 51.86% HWP 07/30/00 JAN-2002 $ 55 WPW-AK $14.13 $ 5.13 -63.73% JAN-2003 $ 60 VHP-AL $16.25 $ 6.75 -58.46% EXDS 08/06/00 JAN-2002 $ 55 WZZ-AK $20.75 $ 6.13 -70.48% JAN-2003 $ 60 VTQ-AL $25.38 $ 8.88 -65.03% MFNX 08/06/00 JAN-2002 $ 40 WOF-AH $13.75 $ 3.63 -73.64% JAN-2003 $ 45 VKW-AI $15.63 $ 5.38 -65.61% FRX 08/13/00 JAN-2002 $ 95 WRT-AS $31.38 $49.75 58.54% JAN-2003 $100 VFB-AT $37.38 $55.88 49.48% BRCD 08/27/00 JAN-2002 $220 YNU-AD $65.38 $63.88 - 2.30% JAN-2003 $220 OMW-AD $86.50 $86.63 0.14% CMRC 09/10/00 JAN-2002 $ 80 YCU-AP $30.13 $19.63 -34.87% JAN-2003 $ 80 OCU-AP $38.75 $27.63 -28.71% QCOM 09/17/00 JAN-2002 $ 70 WBI-AN $22.50 $26.38 17.22% JAN-2003 $ 70 VLM-AN $29.63 $34.38 16.01% COMS 10/01/00 JAN-2002 $ 20 WTH-AD $ 6.38 $ 3.88 -39.22% JAN-2003 $ 25 VTH-AE $ 7.13 $ 4.63 -35.09% INTC 10/15/00 JAN-2002 $ 45 WNL-AI $ 9.50 $ 7.25 -23.68% JAN-2003 $ 45 VNL-AI $13.38 $10.88 -18.69% TXN 10/22/00 JAN-2002 $ 50 WTN-AJ $13.75 $ 8.38 -39.09% JAN-2003 $ 50 VXT-AJ $18.38 $12.50 -31.97% ADBE 10/29/00 JAN-2002 $ 80 YEJ-AP $23.50 $24.63 4.79% JAN-2003 $ 80 VAE-AP $30.75 $32.75 6.50% BGEN 11/05/00 JAN-2002 $ 70 WGN-AN $17.25 $14.38 -16.67% JAN-2003 $ 70 VNG-AN $25.00 $21.38 -14.50% Spotlight Play QCOM - QUALCOMM $73.94 What's this? A Technology stock that actually moved up this week? Believe it or not, QCOM looks to be on the mend after spending the last 6 months with scant buying interest, the CDMA king looks like it is on the mend. While the change of attitude in China and Korea is encouraging, this seems like a longer term factor. The real mover this week was the growing evidence that many TDMA carriers are considering upgrading to QCOM's 1X-CDMA technology, as they migrate to data enabled networks. Couple that with the fact that the company had its European patents upheld, and the revenue stream seems to be solidifying. Lehman Brothers seems to agree, as they reiterated their Buy rating on the stock Friday. That's the easy part. The hard part is trying to pin down an entry strategy. With the NASDAQ threatening to break below 3000, we would recommend extreme caution in initiating new positions in anything technology related until we see evidence that the tech index has found a bottom. No matter how compelling the individual stock is, broad market weakness can overwhelm that strength and drag it lower. Conservative players will wait for the stock to break above the $80 level and hold before taking a position. For you risk takers, feel free to take advantage of any near-term weakness to target shoot a better entry. While $68 looks like an attractive level for new positions, the wild card is the NASDAQ. We need to see it quit bleeding before jumping into any new positions. BUY LEAP JAN-2002 $75.00 WIJ-AO at $24.63 BUY LEAP JAN-2003 $80.00 VLM-AP at $31.38 New Plays None Drops HWP $39.13 No matter how you slice it, if you were holding tech stocks this week, it hurt. We had been getting concerned as HWP languished leading up to their 2-for-1 split, which occurred two weeks ago. It finally found some support in the low $40s, but that support was no match for the nervous state investors found themselves in this week. First CSCO spooked investors on Monday with some negative comments, which accompanied an otherwise stellar earnings report. Then we got a huge dose of uncertainty from the lack of election results, and finally DELL reported earnings on Thursday, guiding future estimates lower, re-igniting fears about the slowing PC sector and valuations of companies in that space. That was too much for poor HWP and it spent the past 2 days selling off on very heavy volume (nearly 4 times the ADV on Friday). What had appeared to be solid support at $40, is now looking like overhead resistance, and it looks like sentiment has gotten even worse. Despite Carly's impressive performance at the helm since she took over, things do not look positive for the stock at this point, and we have no choice but to drop HWP from the playlist. VRSN $113.19 Although it has been one of the last sub-sectors of the Internet sector to get hit full force with valuation concerns, Internet security stocks appear to be taking their turn out behind the woodshed. Long a favorite call play, VRSN has really been beaten up lately, giving up nearly 50% of its value over the past 6 weeks. The stock has continued tracing a series of lower highs and lower lows, and even a stellar earnings report was only good enough to temporarily halt the decline. Whether it is the real cause or just an excuse, the election debacle marked the beginning of the most recent downward slide. Support had looked solid at $120, but sellers sliced through that like a hot knife through butter, and the stock actually tested the $108 level before finding any kind of support on Friday. And it doesn't look like the bears are done yet, with a retest of the spring lows at $91 looking entirely possible. Notice that VRSN made it onto the Put list this weekend, indicating that things are not looking good. Until things improve significantly, we can't continue to keep it on the LEAPS list. *********** SPLIT PLAYS *********** 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 INOD - Innodata Corporation 2:1 12/01/2000 12/04/2000 TECH - Techne Corporation 2:1 12/01/2000 12/04/2000 SUNW - Sun Microsystems 2:1 12/05/2000 12/06/2000 MANU - Manugistics Group 2:1 12/07/2000 12/08/2000 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 SKYW - SkyWest, Inc. 2:1 12/15/2000 12/18/2000 ILI - Interlott Technologies 2:1 12/20/2000 12/21/2000 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. 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The Option Investor Newsletter Sunday 11-12-2000 Sunday 5 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/111200_5.asp ************* COVERED CALLS ************* Managing Market Declines: Know when to hold and when to fold! By Mark Wnetrzak Share values are constantly changing because stocks trade in a market where humans make most of the decisions. The gyrations always include both upward and downward fluctuations in price and although the movements often appear to be random, there is a method to the madness. Underlying fundamentals such as cash flows, asset values and growth rates determine security values over the long-term but in the present, emotion drives prices and the difference between cost and fair value can occasionally become extreme. Hope and greed are the primary reasons for inflated prices and fear, a much stronger emotion, can create intense, short-lived periods of opportunity for adept traders. Buy low and sell high! That's the key to successful trading. In reality, the concept is far more difficult than it appears. Anyone who trades for an extended period will endure a number of market declines and how one reacts during those extraordinary periods will have a substantial influence on their total wealth. Although brief market corrections rarely have a lasting financial affect on long-term portfolios, a bruised ego generally prevents one from recovering quickly. Once a trader has sold in a panic, it's unlikely they will think clearly enough in the short-term to buy back in near the market bottom. The withdrawn investor will remain on the sidelines, slowly regaining the courage to participate again, while the market hastily recovers it losses. The healing process is accelerated by rising prices but in most cases, traders who sell near the bottom fail to re-enter the market until the recovery rally is almost over. New traders fail to understand why selling near the low of sharp market decline can be costly in more ways than one. First, the shares are often sold at the worst possible time, generally below the cost basis, and certainly at loss when compared with earlier prices. Unloading portfolio holdings in a panic also causes an emotional letdown, leaving most traders unable to partake in the ensuing bullish phase. This missed opportunity, every bit as important as selling for a loss, is simply a gain not realized. Of course, understanding the potential extent of a market decline can help one pre-plan a strategy for timely exits. In addition, knowing how substantial a correction is likely to be will provide a trader with a better perspective than those who can conceive of nothing but catastrophic losses and endless financial suffering. The word "crash" is often used to identify precipitous market declines caused by specific events such as bankruptcies by major financial institutions, credit defaults by foreign governments or failures of their currencies. Another practical and descriptive phrase is "market correction," and this usually describes a sharp drop that although distressing, does not carry the significance or historical implications of a widespread crash. Stock market corrections occur frequently and in some instances, they become severe enough to cause a brief panic among the general public before the upward trend resumes. Some traders favor the abstract term "retracement" when describing a short-term market pullback, because it captures the unemotional aspect of a mathematically measurable decline in prices. The severity of the movement and its duration are the most important components in any analysis of a falling market. The severity of the event can be characterized by the relative amount of damage in a specific time period. Most analysts identify a 10%-15% drop over a span of a few weeks as a "correction" whereas a decline of 20% or more in less than a few months would be considered a "crash." This type of extensive deterioration, far out of proportion to the market's underlying fundamentals, generally does not exist for long because bargain hunters eventually intervene with renewed buying pressure. During a severe decline in the market, it is important to look at each issue in your portfolio individually. When a company's share value is falling, there is not always a fundamental reason for the drop. Sometimes the stock price will simply be dragged down by traders who are selling in conjunction with a slump in the broader indices. However, there are also occasions when a problem with other companies in the sector, or in its suppliers can significantly affect the perspective for an entire industry. A recent example is Cisco Systems (CSCO), the networking giant that changed the fundamental outlook for companies that provide telecommunications equipment, specialized semiconductors, and diversified electronics. Traders must also evaluate the overall condition of the market when reviewing portfolio positions. The reasons for widespread declines in share values are generally obvious. Rising interest rates and consumer debt ratios, weak leading indicators, and flagging corporate earnings are signs of an impending economic setback, and the prudent trader may decide to pair his long-term holdings until a determination can be made about the primary direction of the market. At the same time, a wise investor also develops perspective. Imagine you could look back to the current date from some point in the distant future. Would the recent downtrend be viewed as significant or would it simply be another of those periodic corrections? Is the bearish environment we are experiencing now likely to prove historically important? If not, unloading many of those long-term portfolio positions is probably unwarranted. Instead, you might consider selling some covered-calls and adding to those issues that have proven earnings and superior growth potential. 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 17.38 NOV 7.50 2.81 *$ 0.93 15.4% MTSI 12.00 17.38 NOV 10.00 2.50 *$ 0.50 11.4% AVID 14.75 15.31 NOV 12.50 3.63 *$ 1.38 10.8% TSIX 16.75 16.06 NOV 12.50 5.00 *$ 0.75 9.2% FFD 12.00 14.44 NOV 10.00 2.75 *$ 0.75 8.8% ANSR 17.00 13.50 NOV 12.50 5.13 *$ 0.63 7.7% ANSR 18.31 13.50 NOV 12.50 6.63 *$ 0.82 7.6% ENTU 29.25 26.00 NOV 25.00 5.50 *$ 1.25 7.6% BCGI 23.13 26.31 NOV 20.00 4.00 *$ 0.87 6.6% ARDM 24.63 19.81 NOV 17.50 7.63 *$ 0.50 6.4% CTXS 21.44 24.06 NOV 17.50 4.88 *$ 0.94 6.2% GALT 28.13 22.81 NOV 22.50 6.25 *$ 0.62 6.2% VMSI 25.63 28.00 NOV 22.50 4.00 *$ 0.87 5.8% RDRT 7.94 6.59 NOV 5.00 3.25 *$ 0.31 5.7% FIBR 32.50 28.25 NOV 20.00 13.50 *$ 1.00 5.7% ACXM 40.75 43.56 NOV 35.00 6.63 *$ 0.88 5.6% BPUR 17.38 26.56 NOV 15.00 3.25 *$ 0.87 5.4% PROX 58.75 55.75 NOV 50.00 10.50 *$ 1.75 5.3% UAXS 15.31 13.44 NOV 12.50 3.38 *$ 0.57 5.2% ECLP 21.38 22.75 NOV 17.50 4.63 *$ 0.75 4.9% WDC 6.13 5.56 NOV 5.00 1.44 *$ 0.31 4.8% ENMD 32.56 34.75 NOV 25.00 8.25 *$ 0.69 4.1% HWP 46.25 39.13 NOV 40.00 7.25 $ 0.13 0.7% GOAM 11.63 9.00 NOV 10.00 2.06 $ -0.57 0.0% MTIC 6.00 6.97 DEC 5.00 1.44 *$ 0.44 7.0% *$ = Stock price is above the sold striking price. Comments: MicroTouch Systems (MTIC) is making me wish I had just bought some calls. Keep a close watch on Answerthink (ANSR) as it is testing the October low - a key moment. Pick a stop-loss exit on Entrust (ENTU) and stick to it - maybe breaking the September low or at greater risk, the October low. Galileo (GALT) is one to watch as Marvell (MRVL) is at a key moment. Hewlett-Packard (HWP), which reports earnings Wednesday, is not only being dragged down by the "DELL" effect, but has the added weight of an uncertain market due to the indecisive election results (who knew nobody would know?). The probability of owning the issue is now fairly high, unless of course you choose an early exit. The next support level is just below $37.00. Goamerica (GOAM) is also at a key moment within its trading channel. A move below the current range should signal an early exit as a drop towards $6.00 becomes highly probable. 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 SNWL 17.94 NOV 15.00 UWL KC 3.25 117 14.69 7 9.2% SUPG 21.47 DEC 17.50 UQG LW 5.25 26 16.22 35 6.9% BCGI 26.31 DEC 22.50 QGB LX 5.38 15 20.94 35 6.5% MME 17.75 DEC 17.50 MME LW 1.31 27 16.44 35 5.6% MTSI 17.38 DEC 12.50 TQM LV 5.63 590 11.75 35 5.5% HPC 18.44 DEC 17.50 HPC LW 1.88 2139 16.56 35 4.9% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** SNWL - SonicWALL $17.94 *** Short-term Speculation! *** SonicWALL is the leading provider of Internet security solutions for broadband customers in the small to medium size enterprise, branch office, telecommuter and education markets. The SonicWALL Internet security appliance is a high-performance, solid-state product that provides a reliable, easy-to-use and affordable Internet security solution. In October, SonicWALL reported record revenues and profits for its third quarter. Revenues for the quarter increased 254% to $18.4 million and net income increased 708% to $6.1 million. SonicWALL continues to expand, adding new products and recently acquiring privately held Phobos. The stock appears to be forming a Stage I base with improving technical signals. This position offers reasonable one-week speculation for those investors with a bullish outlook. NOV 15.00 UWL KC LB=3.25 OI=117 CB=14.69 DE=7 MR=9.2% ***** BCGI - Boston Communications $26.31 *** Solid Earnings! *** Boston Communications Group operates in the following segments: Prepaid Wireless Services, Teleservices, Roaming Services, and Systems Divisions. Quarterly earnings were reported in October and the numbers were favorable. This week, TeleTech purchased the customer care division of BCGI in a cash transaction valued at $15 million. Under the terms of the agreement, BCGI could receive additional cash payments, totaling up to an additional $20 million over 4 years, based upon fulfillment of arranged revenue targets for its customer care division. The technical outlook remains bullish as BCGI continues to rally higher with technical support near our cost basis. DEC 22.50 QGB LX LB=5.38 OI=15 CB=20.94 DE=35 MR=6.5% ***** HPC - Hercules $18.44 *** Take-Over Candidate! *** Hercules manufactures chemical specialties used in making a variety of products for home, office and industrial markets. At the end of October, Hercules announced that it has retained Goldman, Sachs & Co. to evaluate various strategic alternatives, including the possible sale of the company. There have been rumors that BASF is interested in Hercules, but the company has declined to comment. We simply favor the technical breakout above the May high on heavy volume, which should now provide support near our cost basis. Speculation on the possible future of Hercules should continue to drive the stock higher. DEC 17.50 HPC LW LB=1.88 OI=2139 CB=16.56 DE=35 MR=4.9% ***** MME - Mid-Atlantic Medical Services $17.75 *** Hot Sector! *** Mid-Atlantic Medical Services is a regional holding company for health care organizations that provides comprehensive health insurance products and services. MME reported solid earnings this week with a net income increase of 54%, demonstrating that the company is well positioned to maintain its revenue and membership growth. On Friday, Deutsche Banc AB raised MME to a "buy" and First Union Securities reiterated their "buy" rating and raised the share price target to $21. We favor the bullish chart and heavy volume support on Friday's rally during a rather ugly session. DEC 17.50 MME LW LB=1.31 OI=27 CB=16.44 DE=35 MR=5.6% ***** MTSI - MicroTouch Systems $17.38 *** Now We Know Why! *** 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. This week MTSI announced that it is involved in negotiations which could lead to the sale of the company. No wonder Edward W. Rose III acquired a 7.1 percent stake in MicroTouch a few weeks ago. We have recommended this candidate twice in the recent past; after noticing a technical change in character and again after favorable earnings. This position offers a fairly conservative entry point for those wishing to speculate on the outcome of the buyout rumors. DEC 12.50 TQM LV LB=5.63 OI=590 CB=11.75 DE=35 MR=5.5% ***** SUPG - SuperGen $21.47 *** Favorable Test Results! *** SuperGen is dedicated to the development and commercialization of products to treat life-threatening diseases, particularly cancer. The current rally started a few weeks ago when SuperGen reported that all of the sickle cell anemia patients treated with its anti-cancer compound decitabine responded to the drug in an early-stage clinical study. This week, SuperGen reported on its anti-cancer compound Nipent, which produced "durable complete responses" in patients with hairy cell leukemia over a 10-year study period. However, after Friday's close, SuperGen reported a $0.30 loss, a penny more than expected (but the results did include a one-time non-cash acquisition charge). This position offers a speculative entry point for those investors who have completed their own due diligence and retain a bullish outlook on the company's future. DEC 17.50 UQG LW LB=5.25 OI=26 CB=16.22 DE=35 MR=6.9% ************************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=910 ************************************************************** *********************** CONSERVATIVE NAKED PUTS *********************** Successful Stock Ownership: Back to the basics! By Ray Cummins One of our new subscribers requested some guidelines for buying and selling stocks in the current market environment. When most professional traders discuss their common traits, you will often hear how important it is to understand the elements of technical analysis and basic market timing. At the same time, many of the older investors are more comfortable with fundamental analysis. That is the process where one attempts to forecast the future profits of a company by analyzing their market share, revenue, pricing structure, and other components regarding the operation of the company's business. Most of the positions that we offer are of a short-term nature and thus we favor technical analysis as the primary means for stock selection. The study of pricing trends and chart patterns has nothing at all to do with the daily operations of the company. Instead, technical analysis of price patterns is a technique used to predict the future direction and magnitude of a stock's movement. Although each style is often viewed as less than adequate by the opposing group, there is an inherent value in both methods and either system can produce favorable results. Technical analysis is generally more suitable to markets with extreme volatility and unusual conditions, since it offers the best method for timing entries and exits. Unfortunately, new investors are so overwhelmed by the incredible number of chart patterns and indicators, they overlook the most common rule for consistent profits; buy low and sell high! Fundamental analysis provides an accurate picture of the long-range outlook, but it is miserably late in predicting the actual movement of stock prices. However, analyzing the value of a company can help to forecast potential profits (or losses) and in the end, earnings usually determine share value. Quarterly reports will also affect the short-term outlook for a stock and the most significant changes occur when a company reports earnings that are different from the analysts' consensus estimates. As we have seen in recent weeks, even a "met expectations" earnings report will inevitably cause a company's share value to fall as soon as the information become public news. When this happens, brokerages are often first to change their opinions on the company, downgrading the issue and causing further damage to the stock price. This is one of the best occasions when fundamental analysis might be helpful in a short-term trading scenario. The dilemma facing many investors is simple; they want to own good stocks but yet they are afraid to buy amid bearish market conditions. The key to success is to become proficient with the various types of stock analysis and use the one that best suits your skill level, risk tolerance and portfolio outlook. While strategy is important, it is also imperative to approach investment activities with the right attitude and expectations. Trying to achieve too much from a portfolio can put the account in the red quickly (greed can lead to terrible decisions), and accepting returns that barely surpass current inflation rates will prevent a portfolio from growing. While most investors who make the effort to learn about the stock market are not satisfied to achieve the same return as the Dow or the S&P 500, others will actively seek mediocrity. Just look at the number of index funds that are sold to investors who then are relegated to losing what the market loses and gaining no more than what the market gains. So how do you determine a reasonable expectation? Most investors who participate in historically profitable strategies will easily average 15%-20% return on an annual basis. In the long-term, 10% a year is the typical return for broad market stocks in general. Here are just a few of the most common guidelines that may help you avoid the pitfalls of stock ownership. While we can't take credit for these rules (many are as old as the market itself), it's important to use this knowledge to improve your success in this vicious game that is the stock market. Before opening any position: Check the overall market indicators for direction. Analyze the sector and industry in which your issue resides. Study the performance of similar groups and make sure it coincides with your outlook. Choose only those stocks with the most favorable technical formations. Once you have a candidate in mind, do your homework! Know the company and the calendar; upcoming events, earnings dates, and scheduled announcements. Before entering an order: Double-check the chart! Make sure you are absolutely ready to own the issue at the target price. Don't buy a stock that's in a downtrend (Stage IV) and never open a position right after good news, especially if the chart shows a significant advance prior to the announcement. Never buy a stock just because it appears cheap after a big sell-off. Always use simple, proven techniques and develop target prices for potential plays. Take the human factor out of trading by using LIMIT and GTC orders. When news or events change the character of the play, make the necessary adjustments. After you have established the position: The #1 rule: Know your exit and use a mental or mechanical stop. Stay informed by monitoring all the news and announcements affecting your position. Never hold a stock in an established downtrend no matter how fundamentally sound the company appears to be. Hope is an expensive emotion! Closing the position: Determining when to exit a play is a matter of personal preference and you are the only one who can decide how you will trade. The best advice is, be consistent! If you find that you're frequently buying and selling in similar situations, something is wrong with your system. There are a number of proven techniques for managing portfolio positions, and maximizing gains while limiting losses is an important aspect of successful investing. The most difficult lesson is learning to close losing positions. It can be painful but the simple fact is: There is no reason to hang on to a losing position when there are so many other profitable positions that deserve your time and money. Accept your losses, learn from your mistakes (evaluate each one critically) and move on! 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 13.50 NOV 12.50 0.63 *$ 0.63 22.6% JDEC 28.00 25.00 NOV 22.50 0.50 *$ 0.50 17.5% BVSN 35.75 31.63 NOV 30.00 0.69 *$ 0.69 16.2% ARQL 28.50 24.00 NOV 22.50 0.38 *$ 0.38 13.6% ECLP 25.31 22.75 NOV 20.00 0.50 *$ 0.50 13.0% APWR 55.63 35.94 NOV 35.00 1.06 *$ 1.06 12.6% CLTR 44.00 35.44 NOV 25.00 0.50 *$ 0.50 11.7% BCGI 23.94 26.31 NOV 17.50 0.56 *$ 0.56 11.4% CYTC 50.25 52.25 NOV 40.00 1.13 *$ 1.13 11.0% STAT 22.72 21.88 NOV 20.00 0.69 *$ 0.69 10.6% RNBO 23.50 20.50 NOV 17.50 0.44 *$ 0.44 9.3% 2-1 Split ENTU 29.00 26.00 NOV 20.00 0.50 *$ 0.50 8.6% PATH 17.63 17.00 NOV 15.00 0.38 *$ 0.38 8.6% OCR 16.88 16.88 NOV 15.00 0.63 *$ 0.63 8.3% CERN 60.31 55.13 NOV 50.00 0.75 *$ 0.75 7.5% AMZN 35.63 30.06 NOV 22.50 0.38 *$ 0.38 7.3% ACXM 40.25 43.56 NOV 35.00 0.56 *$ 0.56 7.1% CHTR 19.38 18.19 NOV 17.50 0.63 *$ 0.63 7.0% ENMD 38.00 34.75 NOV 22.50 0.25 *$ 0.25 6.9% VICR 49.38 42.81 NOV 40.00 0.88 *$ 0.88 6.8% PLMD 57.50 49.50 NOV 45.00 0.50 *$ 0.50 6.0% HSIC 22.56 25.88 NOV 20.00 0.50 *$ 0.50 5.2% ICN 40.19 33.81 NOV 35.00 0.56 $ -0.63 0.0% FIBR 41.00 28.25 NOV 30.00 1.00 $ -0.75 0.0% ATSN 45.38 37.63 NOV 40.00 0.88 $ -1.49 0.0% *$ = Stock price is above the sold striking price. Comments: Keep a close watch on Answerthink (ANSR) as it is testing a recent low - a key moment. J.D. Edwards (JDEC) has weakened and should be watched closely as it tests support. Broadvision (BVSN) may hold at support near the mid-October high and 50 dma, be ready to exit the position if it fails. Astropower (APWR) continues to weaken and conservative investors would have taken the break-even exit offered on last Friday's rally. Those with a higher risk tolerance may wait to see if the 150 dma provides support (near our sold strike). The next support level below $35 is the JUN-AUG highs near $30. Vicor (VICR) is in a bit of a nosedive though a bounce off its 150 dma seems probable. In any case, a close watch should be maintained this week. Hmmmm, ICN Pharma's (ICN) earnings appeared to be favorable, thus that drop last week becomes more mysterious. The issue is currently testing support and any further weakness should be grounds for a quick exit. Osicom's (FIBR) recent rally has failed under the weight of CSCO and a complicated election. Using any rally to exit the play early may be a prudent move. No news on Artesyn Tech (ATSN) appears to be bad news, as it has given a bearish signal on both a daily and a weekly chart. Hopefully, a bounce off the 30 dma will provide a less painful exit next week, if you dare to wait, depending on your risk tolerance. Positions Closed: Vintage Petroleum (VPI) Sequenced by Return ****** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return AFWY 17.50 DEC 15.00 FQD XC 0.81 40 14.19 35 13.3% AVID 15.31 DEC 12.50 AQI XV 0.56 160 11.94 35 12.6% ECLP 22.75 DEC 17.50 IQV XW 0.63 0 16.87 35 10.6% IMG 27.63 DEC 22.50 IMG XX 0.81 101 21.69 35 10.5% IDXC 29.38 DEC 22.50 XQW XX 0.75 0 21.75 35 9.8% MTON 18.94 DEC 15.00 KQM XC 0.38 8 14.62 35 7.9% SMSC 25.00 DEC 20.00 OMQ XD 0.44 10 19.56 35 7.0% OXHP 37.38 DEC 30.00 OQX XF 0.56 153 29.44 35 6.0% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** AFWY - American Freightways $17.50 *** Own A Trucker! *** American Freightways is a scheduled carrier of less-than-truckload shipments of general commodities, serving direct all points in 40 eastern states. The company has a new, extended-reach, scheduled, direct all-points service, which is identified in the market as American Flyer. American Freightways recently announced favorable results for the quarter with net income rising 42% and operating revenue up 19% from the year-ago period. Based on the fundamentals and recent buying interest, this issue is an excellent portfolio position for traders who want to own a transportation stock. DEC 15.00 FQD XC LB=0.81 OI=40 CB=14.19 DE=35 MR=13.3% ***** AVID - Avid Technology $15.31 *** Trading Range? *** Avid Technology is an industry-leading provider of digital media creation and distribution solutions. The company gives customers the power to communicate to multiple audiences with creativity and ease. Avid solutions, which span a wide range of markets and price points, are used for Web, special effects, video, audio, film, television, broadcast news, corporate communications, music, the Internet and games. Avid recently won an Emmy award for pioneering development of full motion broadcast-quality PC video and compression plug-in cards for the manufacture of non-linear editing systems or video servers. Avid recovered from a low in June on increasing technical strength and has recently moved back above a long-term (30 week) moving average. The company's bullish earnings also helped the outlook for the company and this position offers a reasonable entry point for investors who want to own the stock. DEC 12.50 AQI XV LB=0.56 OI=160 CB=11.94 DE=35 MR=12.6% ***** ECLP - Eclipsys $22.75 *** Post-earnings Rally! ** Eclipsys is a leading healthcare information technology provider. The company provides, on an integrated basis, enterprise-wide, clinical management, access management, patient financial management, health information management, strategic decision support, resource planning management and enterprise application integration solutions to healthcare organizations. The company's quarterly earnings results included a return to operational profitability one quarter earlier than expectations, nearly 30% sequential bookings growth and a sales funnel above $1 billion for the first time in ECLP's history. Banc of America and Merrill Lynch commented favorably on the report and Robertson Stephens followed with a bullish recommendation on the issue. We simply favor the opportunity to own the stock at a reasonable cost basis. DEC 17.50 IQV XW LB=0.63 OI=0 CB=16.87 DE=35 MR=10.6% ***** IDXC - IDX Systems $29.38 *** Entry Point! *** IDX Systems provides healthcare information solutions including software, hardware and related services required by physician groups, management services organizations, hospitals and unique integrated delivery networks. IDX solutions use computer and Internet technologies to reengineer clinical, financial and administrative processes to improve healthcare efficiency and quality. IDX also operates a medical dictation and transcription services business segment under the name EdiX, and its Internet services and content business group under the name ChannelHealth. IDX has rallied substantially in the wake of favorable earnings, becoming slightly overbought in the process. This play offers a lower cost basis for investors who want to own the issue. DEC 22.50 XQW XX LB=0.75 OI=0 CB=21.75 DE=35 MR=9.8% ***** IMG - Intermagnetics $27.63 *** Technicals Only! *** IMG is a leading developer and manufacturer of super-conducting materials, radio-frequency coils, magnets and devices utilizing low- and high-temperature super-conducting wire, cable and tape, and related refrigeration equipment. The company derives current revenues primarily from applications within magnetic resonance imaging for medical diagnostics and cryogenic applications for vacuum and related processes. Through its own R&D development and in conjunction with industry partners, IMG is committed to commercialization of applied superconductivity and refrigeration systems. IMG is in a unique niche industry and the technicals suggest that investors favor the outlook for the company. This position allows for future consolidation, in light of the recent market turmoil. DEC 22.50 IMG XX LB=0.81 OI=101 CB=21.69 DE=35 MR=10.5% ***** MTON - Metro One $18.94 *** On The Move! *** Metro One develops and provides enhanced directory assistance and information services for the telecommunications industry. It primarily contracts with wireless carriers to provide services to their subscribers. The company's customers include many of the leading wireless telecommunications and in addition, the Metro One has expanded into the landline telecommunications market and provides services to GST Communications, a regional competitive local exchange carrier. Finnish telecom operator Sonera said on Thursday it would buy a 25% stake in Metro One for $68 million. Sonera said it would subscribe four million newly issued shares in Metro One for $17 per share, and that suggests the issue is worth at least that price in the current market. DEC 15.00 KQM XC LB=0.38 OI=8 CB=14.62 DE=35 MR=7.9% ***** OXHP - Oxford Health Plans $37.38 *** Sector Rally! *** Oxford Health Plans is a health care company currently providing health benefit plans primarily in the Northeast U.S. Oxford's product line includes its point-of-service plans, traditional health maintenance organizations (HMOs), preferred provider organizations, Medicare/Choice plans and employer-funded benefit plans. Even as the stock market took a tumble this week amid uncertainty over the presidential election, shares of HMOs have rallied as investors were relieved by the Republican-dominated Congress. A Republican majority in Congress should help Health Maintenance Organizations secure a more favorable outcome in the ongoing legislation concerning the patients' "bill of rights." We simply favor the outlook for OXHP and the healthcare industry. DEC 30.00 OQX XF LB=0.56 OI=153 CB=29.44 DE=35 MR=6.0% ***** SMSC - Standard Microsystems $25.00 *** Just One Chip! *** Standard Microsystems is a worldwide supplier of MOS/VLSI IC's for the personal computer industry and the broader embedded systems marketplace, specializing in technologically demanding logic control and connectivity. The company's products provide solutions in PC Input/Output, Systems Logic, Connectivity, Local Area Networking and Embedded Control Systems. The company sells its products to a worldwide customer base, which includes most of the leading personal computer manufacturers. SMSC has been an industry leader, manufacturing more than 40% of the I/O circuitry for personal computers, and the company is now trying to leverage this strength into the microprocessor chipset industry. The plan appears to be working as the stock has avoided all of the recent trouble in the chip sector. DEC 20.00 OMQ XD LB=0.44 OI=10 CB=19.56 DE=35 MR=7.0% ************************Advertisement************************* Attention Online Traders: NobleTrading.com has become the first online trading firm to offer both Direct Access Trading, and web based trading to its customers. Trade Direct using any ECN, SOES, and SelectNet, or trade right through your browser using our web based trading application. FREE DSL service for active traders. Visit our website and sign up for a Free real-time demonstration! http://www.sungrp.com/tracking.asp?campaignid=922 ************************************************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Clinton Gets My Vote! The stock market plunged today amid concerns over earnings growth and delays in the outcome of the Presidential election. Friday, November 10 The stock market plunged today amid concerns over earnings growth and delays in the outcome of the Presidential election. The Dow fell sharply, closing 231 points lower at 10,602 on weakness in industrial bellwethers. A profit warning from Dell Computer sent the technology sector into a spin, with the Nasdaq finishing down 171 points at 3,028. The S&P 500 index closed 34 points lower at 1,365. Volume on the NYSE was light at 965 million shares traded, with losers trouncing winners 1,920 to 895. Trading activity on the Nasdaq was moderate at 1.76 billion shares exchanged, with declines tripling advances 2,852 to 1,008. In the bond market, the 30-year Treasury fell 7/32, pushing its yield up to 5.86%. Thursday's new plays (positions/opening prices/strategy): Advanced Fibre AFCI MAR35C/MAR35P $13.50 debit straddle Ralston Purina RAL MAR30C/DEC30C $0.93 debit calendar Bear Stearns BSC DEC50C/NOV60C $7.88 debit diagonal Ralston Purina was the big play of the day and the market-makers took almost 30 minutes to identify the disparity in the MAR-$30 call options. Those of you watching the position probably noticed the option price moving from $2 to $3 near 10:00 A.M., will almost no activity in the stock. The spread was offered at the target debit near 9:45 A.M. and by the end of the day, the position was profitable. The same cannot be said for the Bear Stearns spread, but the drop at the open guaranteed a better than expected entry price. There was little activity in the AFCI straddle. However, one trader bought two contracts at the target debit. Portfolio Plays: The stock market turned ugly today as news that the presidential election could remain unresolved for weeks weighed heavily on investors. Political uncertainty has halted the recent recovery rally, just as America was coming to grips with the effects of slowing corporate earnings. The sell-off in technology stocks continued, and the revenue warning from Dell Computer (DELL) was a major catalyst in the bearish activity. Dell announced that sales growth would slow to 20% in fiscal 2002, below consensus forecasts of 22% to 28%, and although some analysts believe the decline is mostly related to improvements by competitors, others said the demand for personal computers is significantly slowing. The news caused shares of other hardware companies to retreat, with Compaq (CPQ), Hewlett-Packard (HWP), International Business Machines (IBM) and Gateway (GTW) all enduring substantial losses. A Morgan Stanley downgrade of Intel (INTC) added to the Nasdaq's woes and the chip-maker's stock slid to $37 after analysts cited sluggish chip demand in October. On the Dow, retail issues took another hit with Wal-Mart (WMT) and Home Depot (HD) experiencing additional losses, a day after the sector was hit by an earnings warning from Best Buy (BBY). In the broader market, those groups perceived as safe havens such as drug, utility, oil, and consumer companies, enjoyed favorable advances. Tobacco shares also edged higher, adding to recent gains amid speculation that a Republican would win the presidency. Next week, a flurry of economic data including the consumer price index, retail sales, housing starts, building permits, industrial production, capacity utilization and business inventories, will impact the market. In addition, the Federal Reserve will also be meeting on Wednesday and fortunately, analysts are anticipating the central bank will vote to leave the current interest rates unchanged. There was little positive activity in the Combos portfolio today but despite our recent bullish bias, the majority of November's combination positions are expected to expire profitable. The few issues that moved higher during the bearish session were not in danger of a significant decline and companies in consumer related groups such as Food and Beverage, along with the pharmaceutical, healthcare and drug sectors were the top performers. Short-term positions on Curagen (CRGN), Glaxo-Wellcome (GLX), Human Genome Sciences (HGSI) and Pharmacyclics (PCYC) remain "in the black" but at the same time, there are a number of issues that need to be monitored as the technology industry tries to find technical support near the bottom of a recent trading range. Bullish plays in Seagate (SEG) and Juniper Networks (JNPR) are "on the bubble" and many of the positions in the insurance and financial groups have retreated substantially. On the bright side, all of the premium-selling plays are trading at maximum profit and most of the straddle positions have returned favorable gains. A recent winner in that category is Hershey Foods (HSY) and although we did not post an opening position at the target price, the play has already achieved a credit well in excess of its initial cost with three months remaining until expiration. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - One of our readers requested some new positions on companies in the Consumer Products industry and based on the relative strength of many of the issues in that group, these plays offer favorable speculation for traders who agree with the bullish outlook. These positions are based on the current price or trading range of the underlying issue and the recent technical history or trend. The probability of profit from these positions is also higher than other plays in the same strategy based on disparities in option pricing. Current news and market sentiment will have an effect on these issues. Review each play individually and make your own decision about the future outcome of the position. ****************************************************************** SWY - Safeway $56.63 *** On The Move! *** Safeway is a food and drug chain in North America, with almost 1700 full service grocery stores. Its U.S. retail operating areas are located principally in northern California, southern California, Oregon, Washington, Alaska, Colorado, Arizona, Texas, the Chicago metropolitan area and the Mid-Atlantic region. The company's Canadian retail operations are located principally in British Columbia, Alberta and Manitoba/Saskatchewan. In support of its retail operations, the company has an extensive network of distribution, manufacturing and food processing facilities. In addition, the Company has a 49% interest in Casa Ley, which has 86 food and general merchandise stores in Western Mexico. The Food and Beverage group is HOT and retail grocery issues are also performing well in the current market. Shares of Safeway have risen significantly in recent sessions on strength in the industry and numerous sector upgrades. The SWY chart reflects a solid bullish trend with little downside risk and our (potential) cost basis is below the recent trading range. PLAY (speculative - bullish/synthetic position): BUY CALL JAN-65.00 SWY-AM OI=237 A=$1.25 SELL PUT DEC-50.00 SWY-MJ OI=768 B=$1.12 INITIAL NET CREDIT TARGET=$0.00-$0.12 ROI TARGET=50% Note: Using options, the position is equivalent to being long on the stock. The collateral requirement for the naked put is approximately $1700 per contract. ****************************************************************** JNJ - Johnson & Johnson $94.44 *** Trading Range! *** Johnson & Johnson manufactures and markets a range of products in the health care field in many countries of the world. Their worldwide business is divided into three segments: Consumer, Pharmaceutical and Professional. The Consumer segment's products are personal care and hygienic products, nonprescription drugs, adult skin and hair care products, baby care products, oral care products, first aid products and sanitary protection products. The Pharmaceutical segment's worldwide franchises are in the antifungal, anti-infective, cardiovascular, contraceptive, dermatology, gastrointestinal, hematology, immunology, neurology, oncology, pain management and psychotropic fields. The final segment includes suture and mechanical wound closure products, surgical equipment and devices, wound management and infection prevention products, interventional and diagnostic cardiology products, diagnostic equipment and supplies, joint replacements and disposable contact lenses. The trading range in JNJ is very well established and the recent popularity of healthcare product and major drug issues suggests the group will move higher in the coming weeks. With favorable premiums in the December options, this position offers a great speculation play for those who are bullish on the issue. PLAY (conservative - bullish/credit spread): BUY PUT DEC-85 JNJ-XQ OI=1333 A=$1.06 SELL PUT DEC-90 JNJ-XR OI=2080 B=$1.93 INITIAL NET CREDIT TARGET=$1.00 ROI(max)=25% B/E=$89.00 ****************************************************************** - STRADDLES & STRANGLES - ****************************************************************** BTY - British Telecommunications $101.31 *** Breakup! *** British Telecommunications is engaged in providing communication services, including long-distance and international calls. BTY also manages private networks and supplies mobile communication services. British Telecommunications recently announced an aggressive plan to restructure the company, cutting its debt over $14 billion by selling stock in its mobile phone business, network operations and other assets. BTY plans to create three new publicly traded companies; BT Wireless, NetCo., and a phone directory business named Yell, and they will offer about 25% of the stock in each company. BTY also said it is studying a possible stock listing for its Internet business, BT Ignite. By selling stock in its various operations, BTY hopes to reduce its debt load and lower operating costs. The move to divide the company should result in increased volatility and the recent trading activity suggests it will be exciting. This position meets our criteria for a favorable straddle; cheap option premiums, a history of adequate price movement and future events or activities that may generate volatility in the issue or its industry. This selection process provides the foremost combination of low risk and potentially high reward. As with any recommendation, the play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. PLAY (conservative - neutral/debit straddle): BUY CALL APR-100 BVY-DT OI=0 A=$13.50 BUY PUT APR-100 BVY-PT OI=30 A=$10.12 INITIAL NET DEBIT TARGET=$23.00-$23.25 TARGET ROI=50% ****************************************************************** SEPR - Sepracor $69.88 *** Where To Now? *** Sepracor is a specialty pharmaceutical company focused on the cost-effective development of safer, purer and more effective drugs that are improved versions of pharmaceutical compounds. The company develops and markets these drugs by leveraging its expertise in chiral chemistry and pharmacology, and experience in conducting clinical trials and seeking regulatory approvals for new drugs. Sepracor's Chemical Entities pharmaceutical development program has yielded an extensive portfolio of drug candidates intended to treat a broad range of indications in respiratory care, urology, gastroenterology, psychiatry and neurology. The company is also broadening its development focus to include discovery and development of new chemical entities. Recently, Sepracor introduced Xopenex, a single-isomer form of the leading bronchodilator, albuterol. Xopenex is the first pharmaceutical product developed and commercialized by Sepracor. Sepracor is another popular company that has been punished in recent weeks, falling nearly 40% on news that development partner Eli Lilly (LLY) would abandon a program to develop R-fluoxetine, the second-generation version of Eli Lilly's antidepressant drug Prozac. Investors were quick to conclude that Sepracor's entire development methods were in doubt. Of course, Sepracor's primary strategy, science, and technology are still sound but investors are less than excited about the prospects for the company's share value. In any case, the recent news-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-80.00 ERQ-KP OI=2106 B=$1.31 SELL PUT NOV-60.00 ERQ-WL OI=3018 B=$1.81 INITIAL NET CREDIT TARGET=$3.25-$3.38 ROI(max)=18% UPSIDE B/E=$83.25 DOWNSIDE B/E=$56.75 ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. 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