The Option Investor Newsletter Tuesday 11-14-2000 Copyright 2000, All rights reserved. 1 of 2 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/111400_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 11-14-2000 High Low Volume Advance/Decline DJIA 10681.10 +163.80 10728.40 10528.30 1.12 bln 1839/ 976 NASDAQ 3138.27 +171.55 3145.30 3059.88 1.79 bln 2581/1373 S&P 100 729.67 + 17.51 734.67 718.62 totals 4420/2349 S&P 500 1382.95 + 31.69 1390.06 1361.66 65.3%/34.7% RUS 2000 486.91 + 10.36 486.93 476.53 DJ TRANS 2823.08 + 49.87 2826.19 2773.21 VIX 30.24 - 1.65 31.09 29.09 Put/Call Ratio 0.68 ****************************************************************** The shorts covered but the election is not over! It looks good on paper but how do you play a +100 point gap open? You don't. Many of the big gains today were only made by those who speculated on the dip to 2860 on Monday. If you did you profited well but if you did not buy the dip then you probably sat on the sidelines wondering if the bounce was real or just another election trap. With the Nasdaq down -620 points on Monday's bottom from last weeks high there was a really good chance for a relief rally even if the judge today had called for a "do over election." We were just too over sold. The bounce on Monday scared the shorts and they bought the open today trying to cover. This is not a new event. The decision by the Florida judge today was not earth shaking but the Dow soared to an over +220 point gain while it was being announced. Sorry folks but saying "the deadline for votes is 5:PM unless you have a good reason for not getting them done by then" is not a decision. In any event we will not know the final outcome until all the absentee votes are tallied and announced on Saturday. With one county's recount taking 90+ votes off the Bush lead it puts the difference at only about +300 out of six million votes. With multiple counties now claiming they will also recount, there is not a winner and we are not close to a winner, period. Still we will take any market bounce and put it into the winning column and contrary to the election status, nobody can take it back. I was encouraged by the renewed focus on actual stock news today with upgrades, downgrades and earnings taking center stage. Wow, a breath of fresh air! Retail Sales came in stronger than expected showing that consumers are shaking off the higher oil prices and the lower stock market and still spending their wages. Wal-Mart announced earnings of $.31 and met analyst estimates and Home Depot also met analyst's reduced estimates. Not exactly barn burners but the sector is definitely not dead on arrival at the fourth quarter. There is significant expectations that the 4Q will be a shot in the arm for many. If you are in need of a sugar high you could run out and pick up a dozen Krispy Kreme donuts and help fuel not only your sugar fix but also the dueling analysts war. Merrill Lynch initiated coverage on KREM today with an "intermediate term - reduce", "long term accumulate." Calling KREM a fad and poorly managed Merrill suggested trimming holdings. Other analysts came to their defense saying the company had been around 60 years and hardly qualified as a fad and they were on track to open 28 new stores this year. KREM tripled earnings on a +40% increase in revenue last quarter and a Deutsche Bank Alex. Brown analyst said this "fad" has a lot of legs. While not a tech stock much of the investing public can relate to KREM and while they may not own a SUNW server or buy software from BVSN they can really sink their teeth in Krispy Kreme. This has powered the stock to a high of $110 since their IPO at $29. This has caused concern on Wall Street since the business is so simple that even a child or a broker can understand the business plan. Other major news events today included NTAP which announced earnings of $.10 per share which was double the prior years quarter. This beat estimates by a penny with sales that more than doubled. Sounds good to me but one analyst said it appeared their rate of growth was slowing (sound familiar) and NTAP dropped almost -$10 in after hours trading. On the opposite side of the ledger ADI also announced earnings with $.54 per share compared to $.20 last year. Their revenue also soared +87% to $806 million and said next year revenues could be close to $4 billion. ADI gained almost +$6 in after hours. SCMR also announced a profit of $.02 compared to a loss of -$.02 last year. First quarter revenue soared more than +517% and they said they expected it to grow more than 200% again in 2001. SCMR gained more than $8 in after hours. BEAS also announced earnings of $.07 and beat estimates by a penny. The growth comments were not as glowing as SCMR or ADI and BEAS was flat in after hours trading. Other market movers today included Abbey Joseph Cohen who went on record that she was more bullish than ever. Calling the S&P-500 -15% undervalued she said the market was the most attractive it had been all year. She recommended investors boosted their tech holdings to 35% of their total portfolio. Let's see, did she go out on a limb? The Nasdaq hit the low for the year on Monday so "the most attractive it had been all year" was not a major risk statement. With the S&P at 1361 when she made the statement that is -14% under her 1575 target price for "fully valued" that she has been claiming all year. So -15% undervalued appears to be a no brainer also. Abbey, if you are reading this I am not taking aim at you. I actually appreciate you going to bat for us bulls, constantly. I do object to your very carefully scripted interviews with all the catch phrases that allow you to be right if the market moves either way. I guess that comes with being our most visible market bull. With Ralph Acompora and Joe Battaglia getting hammered constantly for wrong calls it is nice to have a bull that picks a target and sticks with it. Just loosen up a little, it will not kill you! The +171 gain on the Nasdaq today was the tenth largest gain in history but given the -620 point drop you would have expected a giant gain as well. It is the first positive day for the Nasdaq since the election which is one week old today. It seems like months since we sat and watched the returns and tried to guess the results. We are still guessing and billions of words have been spent and billions of dollars have been lost in the market waiting for the outcome and we are really no closer. With the outcome in question until after this weekend the odds of any more huge gains may be slim. Volume was anemic on the Nasdaq with only 1.7 billion shares. No conviction there. The NYSE did better with over 1.1 billion. Advance declines finished positive around 2:1 but the light Nasdaq volume bothers me. Until we see 2.2-2.4 billion shares we will not know if it is for real. We have a Fed meeting tomorrow and with the big gains today I don't see any way the Fed will cut rates. I was hoping that a continued market in the tank would cause Alan Greenspan to come out of that meeting with an olive branch rate cut to calm the market and ease the crisis. With the gains today I think that is almost impossible. There is no overwhelming reason for him to do it. The late news from Florida tonight was almost a line in the sand for the Gore campaign. The Secretary of State certified the results reported to her by 5:PM as required by law and there was only an even 300 vote lead for Bush. She said she had issued an ultimatum to the counties trying to recount for the third or fourth time to respond to her by 2:PM EST on Wednesday with a compelling reason of why she should allow them to submit amended returns or those returns would be ignored. By taking a stronger stand than expected the stakes just got higher for the Gore camp. They now have less than 24 hours to press their case. Going to be a lot of midnight oil burned by Democrats tonight. They not only have to find 301 crippled chad votes but enough to overcome the expected Republican lead in the absentee votes as well. With the stalemate crumbling with each passing minute we could actually have a president elect by Monday. That will be freedom day for the market. With no more critical earnings, Fed meetings or election confusion we will only have daylight between us and 2001. We will then be able to rally or fall based solely on the merits of the market and not outside interference. At least that is the way it looks tonight. As long as Murphy's Law is alive and well something unexpected is sure to pop up! Just after I typed that last line it was announced on CNBC that the Bank of America has filed with the SEC a form that shows they had significant loan losses in the last quarter from a weakening economy. OOPS! Depending on how the market interprets that on Wednesday the financial sector could come under pressure which could hurt the Dow. First Union had already taken a hit today for the same thing. If it becomes an epidemic then look out below. Good luck and don't buy too soon. Jim Brown Editor ************************* REGIONAL SEMINAR SCHEDULE ************************* Only one seminar left. Here is your chance to learn from the pros. The three day Technical Analysis Stock and Option Fall Seminar Series. Three days of in-depth education. Don't miss it! Date City Dec 07-09 Philadelphia Has the market been beating you up? Did you give back your gains from April/August? Would you like to understand all the technical indicators our writers use? Does the alphabet soup of technical terms like RSI, DMA, MACD, ROC, Stochastics, Bollinger bands, sound like Greek to you? You can learn from the experts how to interpret all these indicators, read charts, pick stocks and which option strategies to use on those stocks for less than the cost of one bad trade. Reserve your seat now for one of our regional seminars. Click here for more info: http://www.OptionInvestor.com/seminar/seminar.asp ************************Advertisement************************* 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=946 ************************************************************** **************** MARKET SENTIMENT **************** Abbey Said So By Austin Passamonte A quick phone call from Europe (MCI or GBLX lines?) by the fifth most powerful figure on Wall Street sure had the pre-market futures jumping this morning. "Dear Abbey" to market bulls reiterated her projection of 1575 on the SPX this year before we roll '01 and said everything now looked cheap. It should, considering we're at new yearly lows... how else would it seem in comparison? Like manna from on high the buy orders poured in on numerous issues treated like final-stage leprosy victims mere hours before. The fall rally has begun. Sounds good to us: that would be one powerful move 200 SPX index points up the chart in seven weeks. Play that right and we can take the rest of next year off! By her own admission Abbey is not a market technician but a fundamentalist who makes projections based on logic & reasoning. Let's apply some technical tools to her (and our) favorite index. Weekly/Daily Chart, SPX) Weekly chart signals were in the midst of turning positive before the latest big rally south. Neither of these chart signals would have us loading up on long plays to hold until New Year's at this point, personally speaking. (Weekly/Daily charts: NDX) The NASDAQs show signs of upside life here. We have the makings of bullish stochastic/price divergence in both long-term views with recent prices suffering lower-lows while stochastic signals held higher-lows. This portends an upside move above previous highs from the last extreme which are slightly over 4,000 level on the weekly chart. Daily signals are beginning to turn positive but no clear confirmation yet. A close above 3,200 would be very bullish from here. Market Sentiment still believes we could see a powerful year-end rally as well but highs may wait until Feb-March for the Dow and SPX. New highs for the NASDAQ markets don't look favorable anytime soon, to be kind for our bulls. No surprise, the S&P 500 commercials held their record net-shorts into last Tuesday. They held through lower prices than this before but could begin to scale out any time now. This saga has carried on for months now and with good reason. They stubbornly held into two decent rallies and paid a price for rolling into next-month contracts. By now massive profits have accrued and it will soon be time to liquidate. This is a process, not an event. We may not see such an occurrence again for many years to come. For the legions who've emailed asking where our source of data is, rest assured you will receive it in plenty of time (and no extra charge) to act upon it. Tapping into the data at 4:00pm on the dot every Friday will not let one catch the bottom tick of this market. We will all know in plenty of time when any change occurs. Keep in mind the vast majority of equity traders don't even know this situation exists and never will. It is our little secret shared amongst futures traders and a few outside the pits as well. Nice to be in the loop spying on the big boys, isn't it? VIX is above 30 and backed off upper extreme, put/call ratio soared and traders are raring to rally this thing once & for all. Will it stick & stay? Someone traded blocks of 2,000 and 5,000 QQQ Nov 75 Calls this afternoon. They cleared between the bid/ask @ 2.5 and we cannot find evidence that they were long or short so can't be sure which way it went but they traded ATM. This could be a short sale as most long plays happen in-the-money to capture delta or out-of- money for gamma. ATM contracts are always the most inflated and usually favored for selling short. We don't know but $1.75 million changed hands on the trade and they expect action soon. So does Market Sentiment. Pick your directional trades with care, take profits and cut losses as always. There's a small fortune to be made or lost each day, depending on which direction you choose! ***** VIX Tuesday 11/14 close; 30.10 30-yr Bonds Tuesday 11/14 close; 5.86% 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. Tuesday (11/14/2000) (Open Interest) Calls Puts Ratio S&P 100 Index (OEX) Resistance: 770 - 755 13,806 9,563 1.44 750 - 735 19,262 7,226 2.57 OEX close: 729.67 Support: 725 - 710 5,489 13,783 2.51 705 - 690 2,040 26,235 12.86 Maximum calls: 740/6,662 Maximum puts : 700/13,377 Moving Averages 10 DMA 740 20 DMA 735 50 DMA 755 200 DMA 776 NASDAQ 100 Index (NDX/QQQ) Resistance: 85 - 83 49,317 30,971 1.59 82 - 80 61,806 42,936 1.44 79 - 77 15,532 55,895 .28 QQQ(NDX)close: 75.84 Support: 74 - 72 30,410 56,186 1.85 71 - 69 7,769 27,866 3.58 68 - 66 657 8,542 13.00 Maximum calls: 82/25,298 Maximum puts : 77/27,317 Moving Averages 10 DMA 77 20 DMA 79 50 DMA 84 200 DMA 93 S&P 500 (SPX) Resistance: 1450 23,436 8,634 2.71 1425 11,646 14,210 .82 1400 32,114 31,499 1.02 SPX close: 1382.95 Support: 1375 13,773 16,761 1.22 1350 10,238 22,175 2.17 1325 2,704 9,514 3.52 Maximum calls: 1400/32,114 Maximum puts : 1400/31,499 Moving Averages 10 DMA 1404 20 DMA 1395 50 DMA 1419 200 DMA 1441 ***** CBOT Commitment Of Traders Report: Monday 11/13 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts on the Chicago Board Of Trade. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs are not. Extreme divergence between each signals a possible market turn in favor of the commercial trader’s direction. Small Specs Commercials DJIA futures (Current) (Previous) (Current) (Previous) Open Interest Net Value -1105 -1066 -792 +657 Total Open Interest % (-14.39%) (-11.56%) (-3.33%) (+2.84%) net-short net-short net-short net-long NASDAQ 100 (Current) (Previous) (Current) (Previous) Open Interest Net Value -1999 -448 -293 -927 Total Open Interest % (-11.37%) (-2.40%) (-.60%) (-1.89%) net-short net-short net-short net-short S&P 500 (Current) (Previous) (Current) (Previous) Open Interest Net Value +58,260 +60,112 -67,783 -70,603 Total Open Interest % (+30.75%) (+31.64%) (-10.52%) (-11.10%) net-long net-long net-short net-short What COT Data Tells Us: Commercial positions in S&P 500 remain at their ten-year extreme short levels while small specs held their net-long positions as compiled Tuesday 11/07 by the CFTC. Commercials have gone to a net-short position on the DOW, while the small specs have increased their net-short positions on the NASDAQ 100. ************** MARKET POSTURE ************** Please visit this link for Market Posture: http://members.OptionInvestor.com/marketposture/111400_1.asp *********** OPTIONS 101 *********** Here We Go Again! By Lee Lowell Arrgggg!!!!!!!! Is anyone else feeling the same as me? Angry, frustrated, ticked off, etc., etc. Why can't this market just go up and keep going up? We've endured these downmoves, now let's see the reward. I was really excited to see the presidential race so close, but enough already! It's wreaking havoc on the markets and facilitating this bear move. I guess the numbers from Dell and HWP hasn't helped much either but... Last week I got into some deep-in-the-money LEAP calls on stocks that I've wanted for awhile and sold some near-term ATM calls against them. Some of the near-term calls were even slightly ITM. Even so, I'm already in the red. Jeez, at least give me a chance to play awhile! If I'm going to lose money in this market, at least let me bleed for a few months instead of whacking all of me in 2 days time! You can see by all the exclamation marks that I'm really in a mood. It's not like I just haphazardly picked any random stock to buy LEAPs on and then threw some darts to see which near-term calls to sell against them. These were well thought-out plays, with research done on support and resistance points, implied volatility analysis and probability calculations to boot. I guess we just hit one of those times where all the research in the world won't help with your selections. There are lots of unnerving factors at play here and they all spell uncertainty, which is something that the markets don't like. I need to remember that buying LEAPs gives you the comfort of time working in your favor. But what should you do when you come very close to hitting your stop-loss or even through your stop-loss level in 2 days time? I have over 2 years to play with but I'm very close to losing as much money as I care to on these trades. This is the hardest part of options trading. When you need to make tough decisions. I truly believe the stocks that I just purchased were based on solid research, and knowing that there's lots of time left, I'm going to ride it out a little longer. I have to believe that once the presidential fiasco is rectified, we'll sense the stability and see the market stand on some solid footing. Emotions are running high and that's what causes these extreme moves. I know you set your stop-losses and stick to them, but for me, I believe this is a special case of irrational selling and I'm going to hold for a little longer. Every trader reserves the right to make these decisions. We'll see how it plays out. Look it, the Nasdaq has basically made a 100% retracement, there are many individual stocks that have made 100% or more retracements from last October's lows when we started the last bull run. The sentiment indicators that I use are at extremes for a reversal - put/call ratios and VIX. You have to believe something. As for newer picks right now, I'm staying on the sidelines and will just try to manage what I've got so far. What's there to do in the meantime? Not much that we haven't done already. If you're here to trade, and by that I mean getting in and getting out for a quick turn, then you must place your stops and stick to them. If you're here to trade long-term calls, then I believe sticking it out a little longer is probably the right move. That's where I am right now. I'm just going to keep selling the near-term calls against my LEAPs to decrease my cost basis. Mind you, these are my long-term holds. I can take a little down- side pain because I believe it will run up in the long-term. But to try to make back some of my recent hits, I'm going to sell some front-month credit spreads on high implied volatility stocks. As I finish writing this today 11/14, the Nasdaq has made quite a nice comeback from yesterday's low of 2860. We're trading right around 3100. Have we hit the bottom? Maybe. Some people were saying that last week when we retraced the previous lows of 3087. We're right at the level of last Oct/Nov when we started the last good move. I guess many of the stocks I bought late last year which are basically at the same price now as they were then are still a good buy? Maybe. If I still feel the same about the company's prospects, then yes, they are still good buys. I don't think we'll see that incredible run-up as we did late last year only because people are wiser now. Investors who got in at the top and got burned on the downdraft, will not bid prices up like that again. Or that don't have the money anymore even if they wanted to try again. I'm wiser now too. From now on I won't trade any stock that doesn't have options available. Remember, options are a great protection against existing positions. You've heard this one before - you buy life, car, home insurance, why not buy stock insurance. We pretty much accept life, car, home insurance as a given and something that's done automatically. After all, these are the most precious assets. If you don't insure yourself, you risk the chance of losing everything in an unexpected event. But if you lose all your money in the market, you'll also end up with nothing too, so why not use all available resources? Buy some puts and sell covered calls. It's a few extra dollars spent in the case of the puts and a few dollars brought in, in the case of the calls. You'll sleep a lot better at night knowing you're protected. I've gone into pretty good detail in previous articles on various strategies you can create to hedge yourself on the downside. Remember to check the volatility levels before applying any of the methods. Selling a covered call might be the better play than buying the put if implied volatility is high. Collars and debit put spreads are also good candidates for protection. Your choices are almost limitless on the kinds of strategies you can construct. Remember the key word - options! Good luck. ************** TRADERS CORNER ************** What Now? By Scott Martindale Maria was sure chipper today. But what a bummer we had last week. Miraculously, I guess I spoke too soon last Tuesday in saying that the election was over and at least one uncertainty was behind us. Who could have predicted in advance what actually happened? In fact, the uncertainty got so bad that institutions, foreign investors and even conservative buy-and-hold types have been frantically pulling out their money in fear of political instability in the formerly rock-solid U.S.A. Of course, clearer heads (i.e., those with their money in T-bills) dismiss the idea of long-term instability in Washington. Unfortunately, my strategy of loading up in anticipation of a post-election rally hasn’t worked out very well so far. Kudos to those of you who bought puts. [But did you sell them yesterday?] I've been using this week's rally to buy back some November naked puts I sold prior to the election. Has the dearth of buyers been attributable to the Florida election crisis? If you will indulge me for a moment, I’d like to comment on the crazy happenings down there. First, there are always many reasons why the "true" intentions of individual voters might not be realized. They might forget to re-register, be called out of town for business, lose their absentee ballot, vote multiple times, get sick, encounter bad weather, and so on. Buying the votes of the homeless and indigent also skews true voter sentiment. The issues of mis-punched ballots and Palm Beach voter confusion that have received so much attention are just examples of many problems inherent in a large-scale election. Thus, to suggest that by scrutinizing each ballot over and over again you can ever get a truly "fair and accurate count" of overall voter sentiment in order to "maintain the integrity of our democracy" is ridiculous. Except for a situation of widespread fraud, the initial count using the established procedure should always be upheld without compromise. But instead Florida decided to open up Pandora’s Box. I believe the country can find a way to prosper with either candidate as President, but we are in scary territory when this chaos is allowed to gain a foothold. In fact, the political uncertainty resulted in institutions, foreign investors and even conservative buy-and-hold types frantically pulling their money from the stock markets due to fear of instability in the normally rock-solid U.S.A. Capital spending, new projects and hiring get put on hold. Everyone suffers. No one likes to see one candidate win the popular vote and the other win in the Electoral College. But when the vote is this close it is evident that there is sufficient support for both candidates such that either could perform the job acceptably. So, here’s a radical proposal to address these crazy situations, although it will sound sacrilegious to many including my fellow Republicans. Let's ask both parties to agree that whenever they fail to get a "clear mandate" in a Presidential election, e.g., a margin of more than, say, 1% (or perhaps even a majority), then they will concede the election to the party currently in office. Why? Because if the public is generally happy with the status quo with no clear demand for change (and the vote is so tight that we find ourselves holding individual ballots up to the light to try to read a voter's mind), then just let it ride. Do I really think a political party would do such a thing? No, not after spending so much money and effort. So what's my point? Take this year as an example. The Republicans are proposing change, particularly a scaling down of governmental intrusion in our lives. But if more than half the people aren't quite ready for sweeping change, or if the candidate put forth doesn't command sufficient public confidence, then perhaps it's best to wait until a majority of the public is begging for a change. It’s a better outcome than allowing chaos to reign. It’s just a thought. Broadening the discussion a bit, was yesterday’s Nasdaq selloff to 2859 THE final capitulation? Or could we be seeing confirmation of a sustained bear market? I hope not. It’s certainly not the basis for my current trading and investing strategies. We all know of some fear-mongers who have been shrieking for a long time that we are on the verge of a monumental economic collapse due to Y2K, inflation, recession, P/E bubble, oil prices, excessive investment in derivatives, and/or excessive leveraging within mutual funds. To them, this is only the beginning of the slide, and they claim that this would be occurring even with no election mess. However, most of the more rational heads have viewed the "worst case scenario" as a test of the 1999 mid-year highs of roughly 2750-2900. The good news is that we may have had a successful test of it yesterday. The bad news is that there is no guarantee that this level will in fact hold. I also might mention that my charting service now views the "worst case scenario" as the 1998 high of about 2200. Some analysts believe that we might have a modest post-election rally followed by more weakness next year. Questions continue to run rampant. Will we have a final election result this weekend, after the absentee ballots are counted in Florida? Will other states begin more exhaustive recounts? Is the economy in for a hard landing after all? What will the Fed do on Wednesday to help calm the markets? What’s going to happen in the Middle East? Will the Asian recovery continue? Can Europe begin to recover? Will earnings misses among the technology "generals" continue? Has anything really changed among the upstart Nasdaq companies that only recently were deemed to have outstanding business models and growth prospects? Given the lack of profitability of many new-technology companies, what will investors ultimately decide is a fair valuation for them today? Yes, there are lots of questions and few solid answers to build upon. But the scale of this week’s recovery indicates to me that if a year-end rally is imminent, it could be explosive. ************************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=969 ************************************************************** PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** BRCM $158.88 -4.56 (-7.38) BRCM was purely a recovery play. Last Tuesday and Wednesday, the stock fell over 30.6%, or $67.19 from a lofty price of $219 per share on news of $2+ bln stock acquisition and concerns that its #2 customer, Cisco Systems (CSCO) would order fewer chips. Before this fall from grace, BRCM had surged more that 36-fold since its 1998 IPO and our intention was to gains as the share price recouped its previous value. Friday's action was encouraging - wary investors were reevaluating the harsh sell-off and coming back around. BRCM saw $174.50 intraday and found some stability at the $159 and $160 level - the lower of which we had set as our exit point. Unfortunately, BRCM struggled at the short-term support and transgressed amid its controversial earnings' projections. The violation of our $159 Stop under rallying conditions foreshadows weakness. We are exiting the play this evening. The more adventurous might buy into strength if BRCM bounces off the current level and the trailing 5-dma ($160.60), but we'd rather move on to more advantageous plays. PUTS: ***** IDTI $39.88 +4.75 (+7.38) On Monday, IDTI managed to buck the negative market trend. Bouncing off support at $30, the stock rallied from its oversold conditions to close up $2.63 or over 8 percent on 160% of ADV. This was largely a sympathy move with the chip sector, thanks to a rallying Philadelphia Semiconductor Index (SOX). Today the stock continued higher, lifted by improving sentiment in the NASDAQ. Moving up over 13.5 percent, volume came in at 190% of ADV. While IDTI found resistance today, it did settle above our stop at $38 and we can not ignore the strongly positive price/volume action indicating more potential upside. As such, we are closing out this play. BLDP $91.50 +6.50 (+2.00) The broad weakness on Monday extended BLDP's losses. The share price quickly violated $85 and tagged $81.75 as it challenged the next level of support at $80. Today however, the strength across the board prompted a resurgence and BLDP finished on the topside of $90. The bullish 7.6% increase on respectable volume is not a good sign. On one hand, the 5- dma ($93.63) line is declining and is now converged with the 200-dma ($92.49), which is providing a line of upper resistance. But nevertheless, we're not ignoring the bullish rebound. The bargain price and the longer-term recommendations on the stock obviously attracted buyers as the marketplace rallied into the positive today. With BLDP at this precarious price level, we're dropping the play this evening. If you have open positions, look for exits on any intraday weakness. Take no chances if BLDP moves through the $93 level. PLCM $52.19 +4.34 (+4.88) Stopped out by a fraction, PLCM moved up steadily all day, ending fractionally above our $52 stop. The rally that commenced after yesterday's lunch hour, continued this morning with PLCM gapping higher and quickly clearing the $52 level. Although the uptrend throughout today's session was barely perceptible, the fact that the stock managed to stay above our stop level forces us to move this one to the sidelines. PLCM seems to be moving with the broader markets, and went along with their bullish trend today. Now it is back above the 200-dma and the day's gains came on more than double the ADV. With the technical pattern improving and a violated stop, PLCM no longer fits our criteria for a healthy put play. ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. 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The Option Investor Newsletter Tuesday 11-14-2000 Copyright 2000, All rights reserved. 2 of 2 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/111400_2.asp ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at Preferred Capital Markets Stop Losses based on the option price or the stock price. Move your trading into the next millennium with Preferred Capital Anything else is too slow! http://www.sungrp.com/tracking.asp?campaignid=947 ************************************************************** ******************** PLAY UPDATES - CALLS ******************** TLAB $55.56 +2.06 (+2.31) The respectable volume and recent upgrades are promising, but the staunch resistance at $56 is proving frustrating and quite honestly, putting a damper on the play. On the brighter side, TLAB received a Buy recommendation for the second time this month. Josephthal & Co issued the rating and also attached a price target of $80. On Wednesday, Tellabs will participate in the UBS Warburg 5th Annual Global Telecom Conference at 1:55 EST. Perhaps some good will come out this live presentation and launch TLAB out of the trading range ($52-$56). Intraday, the 5-dma ($54.23) is towing the first line of support, bolstered by the trailing 10-dma ($53.40). An entry off these technical marks might bode well for a more aggressive trader AFTER TLAB demonstrates some conviction above $56. If you tend to enter with a more conservative approach, wait for more upside confirmation. SDLI $248.81 +30.94 (+28.25) SDLI started the week off with a buying opportunity for aggressive traders. Faced with a soft NASDAQ and for Tech stocks, shares of SDLI dipped as low as $207.50 on Monday. Traders, sensing a bargain, eagerly bid up the shares and while the stock closed down $2.69 or 1.22% on over 150% of ADV, most of that volume was to the buy side. Today SDLI continued to add to its gains, thanks to a bouncing Telecom sector, starting the day above its 5-dma (now at $229.22) to close up over 14 percent on 145% of ADV. Aggressive traders looking to buy a bounce off support can look to the 5-dma as well as the 10-dma at $240 but make sure there are buyers to back the bounce. For conservative traders, a break through $250 with conviction should allow for a safer entry. In order to protect our profits, we are moving our stop price up from $216 to $230. CIEN $104.00 +13.19 (+12.13) Ciena moved down with the overall market indexes on mid day Monday to $83.75, one point above its 200-dma. Aggressive traders who dared to buy at this level were very well rewarded, as the subsequent rally from the market lows, coupled with Ciena's underlying strength boosted the stock over 10 points to $95. Overall market weakness and uncertainty pulled Ciena down to close at $90.81 on Monday. On Tuesday, the stock gapped up over 6 points at the open, and proceeded to climb to $102.50 by mid day. Ciena tried twice on Tuesday to clear $103, and finally ended the day with a very bullish candlestick pattern at $104. Ciena reports earnings Dec 7, so we could have the start of an earnings run developing. Some profit taking is a possibility, particularly considering overall market conditions, and investors impatience with the continuing election saga. It may be possible to take positions on a bounce off the 5-dma of $93. If Ciena can clear the 50- dma of $107 on strong volume, it may be on its way to its prior lofty levels of the year. Remain cognizant of overall market conditions, and close positions if Ciena closes below $90, the site of our upwardly revised stop. MSFT opened lower on Monday, and fell to support at the 50-dma of $64.50 when both market indexes collapsed. This would have been a good entry point for short-term traders, as the stock rebounded to $68 by mid day, and closed at $66.44. On Tuesday, MSFT rallied with the market, but was unable to penetrate resistance at $70. MSFT is now resting on support between the 5-dma of $68.50 and the 10-dma of $69. The 200-dma is $73, and has provided tough resistance in the last few weeks. However, MSFT has a good chance at passing this if the markets continue to rally. Another intra day bounce off the 50-dma might provide a good entry point. Otherwise, continue to watch for a breakout above $70 when looking for new entry points. But, be sure to exit positions if MSFT closes below our stop at $64. ******************* PLAY UPDATES - PUTS ******************* NEWP $87.25 +7.25 (+1.50) Yesterday, NEWP declined on continued weakness in Tech and especially Networking stocks. Gapping down at the open, the stock continued deeper into the red until mid-day when it bounced off support at $75. From there, NEWP attempted a comeback, closing the morning gap, but end of day selling had NEWP closing down $5.75 or 6.71% on 137% of ADV. Today, lifted by Telecom sector bouncing from oversold conditions, NEWP gained over 9 percent. Despite the rally today, volume was light, coming in at less than 90% of ADV. As well, NEWP found strong resistance at the $89-90 level and close below its 5-dma at $88.34. A failed rally above these resistance levels tomorrow could allow for an aggressive entry point. For the more risk adverse, a break below support at $83.75, confirmed by negative sector sympathy would be the target to shoot for. We are maintaining our stop price at $94. A close above this level will be a signal to exit this play. LVLT $34.50 +4.25 (-1.56) The $35 level failed to buoy LVLT yesterday after news that George Gilder's Technology Report removed it from a list of companies poised to benefit from the growth of the Internet. The initial shock wave took LVLT to $28.75 before it resurfaced. On the day, the share price finished down $5.81, or 16% at $30.25. Volume was exceptional at 3.5 times the ADV. Today's volume was still heavy at almost twice the norm, but the market action took LVLT to its upper spectrum of resistance at the $35 mark. Extended gains coupled with a close above $36 and we'll quickly exit this put play. If the downside bias is to continue, we should see LVLT rollover tomorrow. Enterprising traders might consider buying into the downward momentum if LVLT moves back through $33 and $34. Else, wait for further weakness to develop below the $32 level. No matter how you strategize your entry, keep stops in place. SLR $35.13 -0.56 (-0.87) Solectron fell to support just above $35 on Monday, and rallied with the market to $37 in the afternoon. Fortunately for put buyers, the stock was unable to clear $37, and fell back to close at $35.63. On Tuesday, SLR dropped as low as $34.50 in the morning, and failed at another rally attempt in the afternoon. The stock is making a consistent pattern of lower highs and failed rallies. Volume is heavier on the downside. Strong support seems to be at $34.50, however, if sellers continue to persist, support may be found at $28. Consider taking positions on a failed rally attempt at $36 on weak volume. However, consider exiting all positions if the stock closes above $37, as we have move our stop down to that level. RSAS $46.94 +1.63 (+0.94) Floated by the rising tide of the relief rally on the NASDAQ, RSAS managed to extend its gains today, but couldn't even get close to our $50 stop. As a matter of fact, $48 was as far as the buyers could push the stock, before the return of sellers pressured RSAS into the close. The rollover this afternoon took place right at the 5-dma ($47.69), and further selling could easily push the stock down to fill the gap between $39.50-43.50, which was left in early October. The Internet security stocks (VRSN, CHKP, RSAS, ENTU) have a lot of work to do to break out of their bearish trend, and we are more than happy to participate in the weakness. Aggressive traders can consider new positions on any rally that runs out of steam below our stop. Once the rollover commences, more conservative traders will get their chance as RSAS falls below $46. Although the stock found solid support at $44 last Friday, further weakness in Internet Security stocks could open the door to fill the gap mentioned above. VRSN $119.06 +10.56 (+5.88) Going along for the ride as the broader markets rallied throughout the day, VRSN managed to extend yesterday afternoon's relief rally. The stock has now moved up to rest just below the $120 resistance level. As has been the case for the past week, VRSN will likely be subject to the whims of the broader Internet sector, which seems to be following the ups and downs of the election tug-of-war. While it is far from over, investors seem to think the light can be seen at the end of the tunnel, which helped our play to rally right into the close on average volume. Tomorrow will give us the answer to whether this is an entry point or the end of our put play. Our stop is still sitting at $123, and a move over this level will be a clear sign that our play is at an end. If the stock rolls over near this level however, consider it an attractive level from which to launch new plays. More conservative players will want to wait for selling pressure to drop the price below $114, indicating the stock is likely headed back for a retest of the $108 level. ************************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=970 ************************************************************** ************** NEW CALL PLAYS ************** AGGRESSIVE: QCOM - Qualcomm $80.38 +5.31 (+6.44 this week) Qualcomm Incorporated is a leader in developing, delivering, and enabling innovative digital wireless communications products and services based on the Company's digital technologies. As the pioneer of Code Division Multiple Access (CDMA), the technology of choice for next-generation wireless communications, Qualcomm continues to lead the industry in the development of voice, data, and wireless Internet products and solutions. Qualcomm is also transforming industries through its various satellite businesses and technology partnerships. To paraphrase Mark Twain, the reports of QCOM's demise have been greatly exaggerated. While shares of the CDMA giant have languished over the summer months, hitting a low of $51.50 in early July, the stock has since been making a comeback, with higher lows and higher highs. A number of factors have helped QCOM to rebound, especially in the month of November. A well-received earnings report, a bright outlook from company executives, positive comments from Deutsche Bank, a Buy rating from Lehman Brothers and a Strong Buy from First Union Securities all have helped the stock to push ever higher. Today, QCOM shot up over 7 percent on news that the company will form a venture capital fund of $500 million. The money will be used to buy stakes in startup companies that use QCOM's patented CDMA technology. This has proven to be a highly profitable venture in the past, as some of the companies QCOM has funded include Handspring, RF Micro and Phone.com. Because QCOM's main source of revenue is through royalties generated from the sales of chips and royalties from its CDMA patents, this move will likely generate as well as increase demand for QCOM's goods and services. At one point well below all its major moving averages, QCOM has been hard at work this month, putting itself back on the right side of the 50 and 100-dma (now at $71 and $66.36 respectively). With the 200-dma at $89.86 its last line of moving average resistance, a break through $83 resistance on volume could allow conservative traders to enter this play. For the more aggressive, an entry on a bounce off $80 is one possibility. Another entry possibility would be on a bounce off the 5-dma at $74. There is strong support at $70, with the 10 and 50-dma converged at that point but make sure QCOM closes above our stop price of $75. BUY CALL DEC-75 AAF-LO OI=6518 at $10.75 SL=8.25 BUY CALL DEC-80*AAF-LP OI=2632 at $ 7.88 SL=5.75 BUY CALL DEC-85 AAF-LQ OI=2117 at $ 5.50 SL=3.50 BUY CALL JAN-80 AAF-AP OI=8182 at $11.13 SL=8.25 BUY CALL JAN-85 AAF-AQ OI=6680 at $ 9.00 SL=6.25 SELL PUT DEC-70 AAO-XN OI=1867 at $ 2.75 SL=4.50 (See risk of selling put in play legend) http://www.premierinvestor.net/oi/profile.asp?ticker=QCOM JBL - Jabil Circuit $48.19 +2.50 (-8.06 this week) Commonly referred to as a contract manufacturer, JBL is a worldwide independent provider of electronic manufacturing services (EMS). The company designs and manufactures electronic circuit board assemblies and systems for major original equipment manufacturers in the communications, computer peripherals, personal computer and consumer products industries. Its work cell business units are capable of providing integrated design and engineering services, component selection, sourcing and procurement, automated assembly, product testing, parallel global production, and direct order fulfillment services. While everything was looking dark in the Technology sector yesterday morning, Semiconductor stocks provided a ray of hope and led the afternoon recovery. This positive move continued throughout today's session, with the SOX index gaining an impressive 13.7% from its Monday low. Most stocks in the sector posted gains during the same period of time, but are so beaten down that their moves look like the classic dead-cat bounce. While most Semiconductor companies can see their stock prices far below their respective 200-dmas, contract manufacturers like JBL and CLS actually managed to move smartly above this important technical level today. Adding to the stock's strength yesterday was Robertson Stevens, which upgraded the stock from LT Attractive to Buy. After putting in a nice double-bottom near $42, it looks like the stock is ready to recover with the broader markets. While yesterday's gain came on nearly double the ADV, today's volume dropped off to below the ADV, and any sustained upward move will need the conviction of strong buying volume. The 200-dma is sitting at $46.75, with stronger support resting at $44. Aggressive traders can consider new positions on a volume-backed bounce from either of these support levels, but only if the Semiconductor sector is looking positive as well. With the fragile state of the technology market, conservative investors will be best served by waiting for a continuation of the rally before initiating new positions. The next level of resistance is sitting at $50, and a rally through this level would be a good entry trigger for the cautious bulls. Our stop is sitting at $44, and a close below there would be a strong indication that the stock is likely to test its lows again. BUY CALL DEC-45 JBL-LI OI= 973 at $7.00 SL=5.00 BUY CALL DEC-50*JBL-LJ OI=2404 at $4.50 SL=2.75 BUY CALL DEC-55 JBL-LK OI=1415 at $2.75 SL=1.50 BUY CALL MAR-50 JBL-CJ OI= 351 at $8.88 SL=6.25 BUY CALL MAR-55 JBL-CK OI= 503 at $7.00 SL=5.00 SELL PUT DEC-40 JBL-XH OI= 915 at $1.88 SL=3.50 (See risks of selling puts in play legend) http://www.premierinvestor.net/oi/profile.asp?ticker=JBL LOW VOLATILITY: LUV - Southwest Airlines $29.88 +0.25 (+0.63 this week) Southwest has expanded its low-cost, no-frills, no-reserved seats approach to air travel to serve more than 55 cities in 29 US states. To curb maintenance and training costs, the airline uses only Boeing 737s; the company operates about 320 planes. The airline boasts a highly participative corporate culture and a strike-free string of 27 profitable years. Amid the recent market turbulence, select airline issues continue to fly high. Ongoing consolidation in the airline industry and easing fuel prices sent LUV to a new 52-week high in Tuesday's trading. We're looking for the stock to breakout above the $30 level on strong volume as a sign of lift-off and capitalize on such a move with LUV's low cost options. With that said, consider entering new positions if LUV clears the $30 level with conviction. Additionally, entries might be taken on pullbacks to support at $29.50, or lower near the $29 level. We'll use the $28 mark as our stop price, and exit all positions should LUV close below that level. BUY CALL DEC-25 LUV-LE OI=4214 at $5.38 SL=$3.50 BUY CALL DEC-30*LUV-LF OI=3340 at $1.50 SL=$0.75 BUY CALL JAN-30 LUV-AF OI=1386 at $2.50 SL=$1.25 BUY CALL MAR-30 LUV-CF OI= 924 at $3.50 SL=$1.75 http://www.premierinvestor.net/oi/profile.asp?ticker=LUV LOTTERY: SUNW - Sun Microsystems $94.00 +8.69 (+4.75 this week) Sun Microsystems is a leading maker of UNIX-based, number crunching workstation computers, storage devices, and servers for powering corporate networks and Web sites. The company is the largest to make computers that use its own chips and operating systems. Sun's most talked about product is Java, a programming language intended to create software that can run unchanged on any kind of computer. An extension of the NASDAQ's recent rebound could send SUNW into orbit. With November options expiration just three days away, we're adding SUNW as a lottery play in an attempt to profit from its cheap front-month options and potential for an extended rebound from its oversold conditions. This is an aggressive play, and intended for those willing to risk capital. Look to enter new positions if SUNW rallies above resistance at $95 early tomorrow. Make sure to confirm strength in the NASDAQ before entering new positions. BUY CALL NOV- 95*SUX-KS OI= 4372 at $2.38 SL=$1.25 BUY CALL NOV-100 SUX-KJ OI=13111 at $1.00 SL=$0.00 High Risk!! http://www.premierinvestor.net/oi/profile.asp?ticker=SUNW ************* NEW PUT PLAYS ************* RATL - Rational Software Corp $39.88 -5.00 (-6.69 this week) Rational Software develops, markets and supports a comprehensive suite of solutions that automate the software development process. The Company's global products and services help organizations develop and deploy Web, e-business, enterprise- wide, technical, and mission-critical software. It serves customers in three principal categories: e-business, e- infrastructure, and e-devices. Blue chip clients include Merrill Lynch, Microsoft, and Nokia. RATL was a true and faithful disciple of the NASDAQ's recent downtrend line, but its failure to rebound amid the rallying conditions was what caught our attention. A critical break of the $45 level and the corresponding 200-dma proved detrimental to RATL this week. This technical breach appears to be a catalyst for the extended weakness. Once RATL slid under $45, the momentum picked up paced and the share price dipped to $42.56 on Monday. Further evidence of its downward momentum was its failure to generate any enthusiasm amid a slew of product announcements and the NASDAQ's late afternoon upswing. A subsequent test and breakthrough of the historical support at $40 today impelled us to add RATL to our put list. We're playing RATL on its technical weakness alone. The analysts have mixed reviews about the company. For instance, CSFB just reiterated a Strong Buy and $69 price target on Monday; while today, Wit Soundview downgraded RATL to a Buy from Strong Buy. Neither firm offered additional comments. Again, we're playing RATL's current downtrend despite the positive long-term outlook for this company. Look for today's strong volume on the decline to extend into tomorrow's session. Further weakness below $40 would warrant an entry for those that like buying into the decline. More aggressive positions might be taken if there's a high-volume roller near the $43 level. Whatever method you choose, consider keeping stops set at our $44 for protection against a reversal. BUY PUT DEC-50 RAQ-XJ OI=166 at $11.75 SL=8.75 BUY PUT DEC-45 RAQ-XI OI=286 at $ 7.88 SL=5.75 BUY PUT DEC-40*RAQ-XH OI= 72 at $ 4.75 SL=2.75 http://www.premierinvestor.net/oi/profile.asp?ticker=RATL ********************** PLAY OF THE DAY - CALL ********************** SDLI - SDL, Inc. $248.81 +30.94 (+28.25 this 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. Most Recent Write-Up SDLI started the week off with a buying opportunity for aggressive traders. Faced with a soft NASDAQ and for Tech stocks, shares of SDLI dipped as low as $207.50 on Monday. Traders, sensing a bargain, eagerly bid up the shares and while the stock closed down $2.69 or 1.22% on over 150% of ADV, most of that volume was to the buy side. Today SDLI continued to add to its gains, thanks to a bouncing Telecom sector, starting the day above its 5-dma (now at $229.22) to close up over 14 percent on 145% of ADV. Aggressive traders looking to buy a bounce off support can look to the 5-dma as well as the 10-dma at $240 but make sure there are buyers to back the bounce. For conservative traders, a break through $250 with conviction should allow for a safer entry. In order to protect our profits, we are moving our stop price up from $216 to $230. Comments We're making SDLI the Play of the Day based on the solid performance of JDSU, the acquirer of SDLI. JDSU finished at its high as increasing volume drove the stock into the close. The $230 level looks like good support. If the momentum carries into tomorrow, look for entries on a move through $250, or from a bounce at $230. Remember that the Fed meets tomorrow afternoon and its tone in the statement(bias) will be essential to the markets. BUY CALL DEC-240 QJV-LH OI=2829 at $33.13 SL=22.50 BUY CALL DEC-250*QJV-LJ OI= 598 at $28.38 SL=20.50 BUY CALL DEC-260 QJV-LL OI= 527 at $23.75 SL=17.00 BUY CALL MAR-260 QJV-CL OI= 192 at $47.00 SL=34.00 BUY CALL MAR-280 QJV-CP OI= 317 at $39.75 SL=31.00 http://www.premierinvestor.net/oi/profile.asp?ticker=SDLI ***********************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.sungrp.com/tracking.asp?campaignid=984 ************************************************************ ************************ COMBOS/SPREADS/STRADDLES ************************ Investors anticipate a decision! Stocks rallied today amid optimism of a final resolution in the presidential election. Monday, November 13 The stock market slumped today as shares of Hewlett-Packard (HWP) plummeted after a disappointing earnings report. However, both the Nasdaq and the Dow ended well off the worst levels for the day as bargain hunters emerged late in the session. The Nasdaq closed down 62 points at 2,966 and the Dow ended down 85 points at 10,517. The S&P 500 index finished down 14 points at 1,351. Trading volume on the NYSE hit 1.12 billion shares, with losers beating winners 1,655 to 1,209. Activity on the Nasdaq exchange was heavy at 2 billion shares traded, with declines outpacing advances 2,569 to 1,394. In the bond market, the U.S. 30-year Treasury rose 15/32, pushing its yield down to 5.83%. Sunday's new plays (positions/opening prices/strategy): Safeway SWY JAN65C/JAN50P $0.25 credit synthetic Johnson&Johnson JNJ DEC85P/DEC90P $1.00 credit bull-put Sepracor SEPR NOV80C/NOV60P $2.38 credit strangle British Telecom BTY APR100C/A100P $23.00 debit straddle Our new plays offered relatively favorable entry opportunities, considering today's precipitous slump. Sepracor was the only position that didn't help with the initial price, as the issue fell at the open, limiting the credit in the sold call. Portfolio Plays: The market tumbled sharply Monday, but bargain-hunting buyers brought the major indices back from the gloomy depths in late trading. The slide occurred after disappointing earnings from Hewlett-Packard (HWP) surprised investors already consumed by uncertainty over who will become the next president of the U.S. Almost every technology sector was affected by the announcement and the early going looked rough as the Nasdaq Composite Index plunged below 3,000 points, to levels not seen since late 1999. In the wake of Dell Computer's weak forecast, Hewlett-Packard's lower than expected earnings heightened concerns that the days of exponential growth in the computer hardware industry may be at an end. Other leading sectors also slumped on the news and biotech issues plunged after an article in Barron's suggested that the group could suffer the same cruel fate as the dot-coms. On the Dow, J.P. Morgan (JPM) fell $4 to $153 after Wasserstein Perella cut its rating on the company and industrial bellwethers Honeywell (HON) and General Electric (GE) also moved lower. The upside leaders were International Business Machines (IBM), Intel (INTC), Wal-Mart (WMT), and Home Depot (HD). Among broad market issues, semiconductors, retail and transportation shares were some of the stronger groups while pharmaceutical stocks slumped after recent gains as traders speculated on a victory by George W. Bush. Healthcare and major drug issues have rallied lately amid the belief that Republicans are less likely to pursue new legislation to collar these industries, thus curtailing their potential for future expansion. Our portfolio looked somewhat similar to a battlefield, with a crimson stain scattered over a vast amount of wreckage. Most of the carnage came in the technology group, but there was also a trail of bloodshed in the pharmaceutical sector. Analysts said that uncertainty surrounding the political election amplified Monday's bearish activity and evidence of that affect was seen in the selling of Bush-friendly issues. The losers included a number of major drug development stocks including Curagen (CRGN) and Vertex Pharmaceuticals (VRTX), and our bullish positions in those two issues are now in need of a downside adjustment. If you agree with most experts that a Republican victory is still the likely outcome, you might consider a transition to December options at a lower strike price. In the case of CRGN and VRTX, we will target a roll-out to the DEC-$40 Puts and DEC-$65 Puts respectively, for a credit in each position. In the technology sector, Hewlett Packard (HWP) was the most active issue, down $5 to $34, and it is now a negative position in our portfolio. The original diagonal spread was based on earnings speculation and the company's revenues fell far short of the most pessimistic outlook, one that would have provided at least a break-even exit in the JAN-$40 call option. Our choices at this point are very limited because the issue gapped down at the open. However, as a new trading range is established during the next few sessions, we may be able to offset a portion of the loss with the sale of call options in December, possibly at the $37.50 or $40 strike. Tomorrow's activity will allow us to evaluate the situation more accurately. Thankfully, many investors funneled their money into old economy companies that offer good long-term growth potential and some of that buying was evident in the Spreads section. BellSouth (BLS), Delta Airlines (DAL), Intel (INTC), Home Depot (HD) and Mattel (MAT) were among the leaders in that category and our positions in those issues have provided favorable profits. Tuesday, November 14 Stocks rallied today amid optimism of a final resolution in the presidential election. In addition, traders noted indications that suggest a near-term technical bottom has been established. The Nasdaq closed up 171 points at 3,138 on widespread strength in technology issues. The Dow also rebounded, ending 163 points higher at 10,681. Bullish speculation on retail companies gave the broad market a boost, with the S&P 500 index up 31 points to 1,382. Trading volume on the NYSE hit 1.1 billion shares, with advances beating declines 1,846 to 976. Activity on the Nasdaq was moderate with 1.77 billion shares exchanged, and technology advances beat declines 2,587 to 1,376. In the bond market, the 30-year Treasury rose 9/32, pushing its yield down to 5.81%. Portfolio Plays: The market rallied Tuesday, with industrial and technology stocks enjoying sizable gains as investors viewed the recent decline as a buying opportunity. The bullish activity continued through the entire session, helping the Nasdaq end its recent losing streak as Computer-related and Internet issues led the recovery. Oracle (ORCL) was one of the technology group's biggest movers, climbing over $3 to $28 after Goldman Sachs announced the company's sales pipeline is reported to be very robust. Cisco Systems (CSCO) and Sun Microsystems (SUNW) were also among the bellwether companies supporting the recovery, and the heavy trading volume during the upside activity was seen as positive confirmation of a genuine rebound. Biotechnology shares recovered after Monday's sell-off on optimism from SG Cowen. The brokerage said it doesn't believe the group will unravel anytime soon. On the blue-chip average, retail components dominated the advance with Home Depot (HD) and Wal-Mart (WMT) rallying to recent highs. Intel Corp. (INTC) and Microsoft (MSFT) also rose and Hewlett-Packard (HWP) rebounded $3 to finish near $37, after Monday's disappointing earnings report. Brokerage stocks paced the advance in the financial group and the sector's winners included Morgan Stanley Dean Witter (MWD) and Lehman Brothers (LEH). In the broader market, most sectors were in the black, with retail, oil and financial issues seeing much of the buying interest. As you might expect, sectors viewed as defensive areas, such as consumer products, utility and precious metals, generally consolidated. Our portfolio relished the bullish activity and issues in almost every category recovered significantly. Most of the big movers were in the technology group and outstanding performances were seen in high growth areas such as networking and wireless telecom. Juniper Networks (JNPR) led the portfolio, recovered $20 to close near $183 as telecommunications equipment makers bounced back from weakness on Monday. Handspring (HAND) jumped $8 to $80, one day after announcing Wal-Mart Stores would begin selling its products, allowing Handspring to expand its customer base. Under the deal with the world's largest retailer, Handspring's handheld computers and accessories will be sold in 500 stores nationwide. Handspring said its products will also be available on Wal-Mart's Web site. Seagate (SEG) led the data storage group, up $5 to $61 as traders returned to the recently beleaguered industry. The company also announced the sale of $400 million of seven-year notes with Chase Securities, Goldman Sachs and Merrill Lynch managing the offering. Today's rally provided a great opportunity to adjust our current bullish in the issue and we decided to move forward and down to the DEC-$50 options (short) for a $1.00 credit. Our new basis in the stock is near $48.50. The activity also provided excellent premiums in a number of calendar spread positions and we used the increased volatility to transition to December options in Biochem Pharmaceuticals (BCHE) and Englehard (EC). Both adjustments were favorable, each providing a credit of $0.50 toward the cost of the long position. Microsoft (MSFT) was also on the move, up over $3 to $68.81 amid strength in computer software shares. Once again, those of you with short positions at $65 (in our LEAPS w/CCs play) will need to monitor the issue closely. One final note; traders in the Glaxo Wellcome (GLX) call-credit spread could have closed the play for a tidy $0.50 profit during the session. Questions & comments on spreads/combos to Contact Support ****************************************************************** - SPECULATION PLAYS - With today's volatile activity and the recent indecision over the Presidential election, it's difficult to determine how the market will perform in the near-term. However, the "January Effect," a trend in which small-cap issues outperform their larger brethren during the early part of the year, is expected to occur as usual. These positions offer a way to speculate on the performance of lower-priced issues in the coming months and hopefully, there is a play that suits your personal risk/reward outlook. ****************************************************************** LNY - Landry's Seafood Restaurants $9.69 *** A Big Day! *** Landry's Seafood Restaurants owns and operates full-service, mid-priced, casual dining seafood restaurants located in 26 states, under the names Joe's Crab Shack, Landry's Seafood House and Crab House. Landry's operates hundreds of full-service restaurants, and in addition, the company operates limited-menu take-out service units. The company's restaurants offer a wide variety of broiled, grilled and fried seafood items at moderate prices, including red snapper, shrimp, crawfish, lump crabmeat, lobster, oysters, scallops, flounder and other seafood items, many with a choice of unique seasonings and toppings. Landry's shares soared today, after the company issued its fiscal 2001 outlook, forecasting favorable revenues with the assumption it will complete the acquisition of Rainforest Cafe in the next few weeks. Landry's is currently the majority shareholder of Rainforest Cafe, and the buyout could be completed as early as December. Landry's said it sees revenue of $710 million to $720 million in the coming year, as long as certain factors are met, and investors appear to favor the outlook. Traders who agree with the bullish potential of the company can use this position to speculate on the movement of its share value. Note: Target a higher premium in the position initially, as the underlying issue will likely consolidate in the coming sessions PLAY (aggressive - bullish/synthetic position): BUY CALL APR-10.00 LNY-DB OI=60 A=$1.31 SELL PUT APR-10.00 LNY-PB OI=27 B=$1.38 INITIAL NET CREDIT TARGET=$0.25-$0.38 TARGET ROI=50% Note: Using options, the position is equivalent to being long on the stock. The collateral requirement for the naked put is approximately $550 per contract. ****************************************************************** MTIC - MTI Technology $7.50 *** Data Storage Speculation! *** MTI provides high-availability, fault-tolerant solutions for the enterprise storage marketplace. The company designs, develops, manufactures, sells and supports a complete line of integrated products and services that provide customers with a full range of hardware, software and networking components, as well as many sophisticated professional services, which it combines into one solution to provide continuous access to online information. Its products include server products consist of RAID storage subsystems, high-performance storage servers and solid state disk database accelerators, tape library systems and data management software. MTI Technology has historically sold its products and services to Global 2000 companies for their data center computing environments. Its markets have expanded to include e-commerce and Internet-related businesses such as content providers, online retailers and Web-based advertisers. MTI Technology is moving forward with product development and anticipates introducing new data storage solutions in the near future. The company has recently focused on replacing business that has been lost as a result of the dramatic slowdown in the dot.com market. As MTI works on rebuilding and diversifying its customer base, the strength in the storage industry should help the company accomplish its goals. Traders who have a bullish outlook for the company can use this position to speculate on the future movement of the issue with a conservative cost basis near technical support. We will begin the play with a limit order of $0.25, to allow for a brief pullback in the underlying issue. PLAY (conservative - bullish/synthetic position): BUY CALL JAN-10.00 QTX-AB OI=114 A=$0.88 SELL PUT JAN-5.00 QTX-MA OI=276 B=$0.38 INITIAL NET DEBIT TARGET=$0.25 TARGET ROI=25% Note: Using options, the position is equivalent to being long on the stock. The collateral requirement for the naked put is approximately $180 per contract. ****************************************************************** CENT - Central Garden & Pet $9.00 *** On The Rebound? *** Central Garden & Pet offers a broadening array of proprietary branded lawn and garden and pet products including Pennington, Four Paws, Zodiac, Kaytee, Nylabone and Grant's. Central also is the leading national distributor of lawn and garden and pet supply products. Central's operations are grouped into three business segments: lawn and garden branded products, product distribution, and branded pet products. In this case, the premiums for the near-term call options are slightly inflated and with the recent rally and earnings due next month, there will be plenty of opportunities to achieve a favorable position entry. In addition, the potential for a continued rally is significantly affected by the resistance just above the sold strike; a great situation for a bullish calendar spread. The company is expected to report quarterly earnings on or about December 15, just before the (short) options expire, and we plan to use the volatility prior to that date to adjust the position, relative the current technical outlook. PLAY (aggressive - bullish/calendar spread): BUY CALL MAY-10.00 EQH-EB OI=50 A=$1.75 SELL CALL DEC-10.00 EQH-LB OI=20 B=$0.43 INITIAL NET DEBIT TARGET=$1.06-$1.12 TARGET ROI=50% ************************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. 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