The Option Investor Newsletter Sunday 11-19-2000 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/111900_1.asp Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 11-17 WE 11-10 WE 11-03 WE 10-27 DOW 10629.87 + 26.92 10602.95 -215.00 10817.95 +227.33 +364.03 Nasdaq 3027.19 - 1.80 3028.99 -422.59 3451.58 +173.22 -204.78 S&P-100 725.09 + 5.98 719.11 - 32.59 751.70 + 25.52 - 11.98 S&P-500 1367.72 + 1.74 1365.98 - 60.71 1426.69 + 47.11 - 17.35 W5000 12659.90 - 28.90 12688.80 -694.10 13382.90 +522.30 -196.80 RUT 482.61 + 1.71 480.90 - 26.85 507.75 + 27.90 - 7.60 TRAN 2817.30 +113.08 2704.22 - 57.53 2761.75 +232.78 + 59.90 VIX 27.85 - 4.65 32.50 + 6.19 26.31 - 3.84 + 2.73 Put/Call .89 .83 .57 .59 ****************************************************************** It is not over until it is over! By Jim Brown Another way to put it, "It is not over until the thin lady sings!" In this case it would be the Florida Secretary of State Kathryn Harris who must sing the certification on national TV after receiving permission from the Florida Supreme Court on Monday. Or maybe Tuesday or Wednesday or New Years eve or Valentines Day or when Gore finally gets enough votes to win, whichever comes first. The markets rallied on the news that the election might be over with the counting of the absentee ballots but then sold off quickly when the Gore camp announced yet another round of court battles that would delay the decision. The Nasdaq rallied +100 points on the good news and then dropped -130 points on the Gore news. The Dow soared +140 points only to drop -190 one hour later. The markets are tired of this constant battle and ready for a winner to be named. Ironically, the Dow is down about -450 points from the election but except for the big drop and recovery from Monday the Dow traded even for the week with a +26.92 gain. The Nasdaq closed the week with a -1.80 loss for the week. Looks like a holding pattern to me. The markets were not kind today to BellSouth after warning yesterday that growth was slowing. BLS lost -$7 today and the race was on by analysts to try and distance the other telecoms from the same type of problem BLS had confessed. AT&T traded down to $20 a low not seen since January of 1991. OUCH! WCOM traded down to $15.50 less than $1 from its lows dating back to April of 1997. Sprint is also trading at 1997 levels as well. If you are looking for beaten up stocks with real value this sector has got to be it but before buying these stocks you need to really check your risk profile. They will probably not go under but it could be a long time before the trend reverses. The only decent telecom is Dow component SBC which lost -2.06 today but is still near a 52 week high. I spoke Thursday night about the margin call on the PSIX CEO for 11 million shares. It appears he is not the only CEO on the chopping block. Bernie Ebbers, CEO of WCOM, borrowed $61.5 million and got a loan guarantee from WCOM for another $100 million to keep from having to liquidate his stock in WCOM to satisfy margin. The Price Line CEO was forced to sell several million shares in PCLN for $3 that he purchased past year for over $60. Now that is painful. And you thought your trading account was hurting. The moral to this story is take small losses instead of big ones and being a CEO does not protect you from the ravages of the markets. The CEOs mentioned above probably could not have simply sold their stock when it started dropping but most traders reading this newsletter can and should. Another fun day for Commerce One. After a memo to their sales force was misinterpreted as an indication of weak sales CMRC dropped from near $55 to a low of $43. The company's head of investor relations denied the rumor categorically saying the memo, sent to motivate salespeople, was routine. Shares began to recover after the denial but were still down -$7 near the close. After the close CMRC felt the need to reiterate their earnings guidance for next quarter and the year in order to stop the bleeding. Still the stock was flat after the close. CMRC rival Ariba was also pulled down by the news hitting a low of $72.88 but closing down only -$2. Does this give you some idea how spooky this market really is? The financial stocks took yet another hit today. The vote of no confidence by the Fed and the continued and increasing fear of a crash landing have investors on the run. Fears of more loan losses yet unannounced like the BAC and FTU revelations this week are also weighing heavily on those stocks. JPM lost -3.88 and was again the leader but FTU, BAC, C and CMB still attended the party. The colder weather spreading across the country is pushing up the prices of oil and natural gas with the October dip on positive OPEC news now just history. The comments recently that production cuts in the spring would be needed to hold the price up has put reality back into the oil market that we are not going back to $20 oil any time soon. Oil prices was one of the key points in the Fed's continued warning on inflation. With energy prices still moving up it is only a matter of time until those prices filter down into almost everything we buy and use. The battle of the David and Goliath of the chip sector moves into another chapter on Monday. Intel will start delivering the new Pentium 4 chips with a 1.4 gigahertz and a 1.5 gigahertz model. Kind of makes your 500 mhz desktop look like a 98 pound weakling in comparison. This brings back bragging rights to Intel since the fastest chip AMD is now claiming is the 1.2 ghz model. Don't expect Intel stock to soar instantly although it may add a dollar or two on Monday anyway. The problem is the scale. Intel is likely to only sell 200,000 of the new models compared to over 30 million of the "classic" Pentium 3 models. The new chips will only be available in computers costing well over $2000 and IF you can find one. If you are just dying to be the fastest trader on the block then wait for the price cuts in December and you should be able to find them cheaper and more plentiful. Expect an announcement from AMD soon to try and steal back the bragging rights for fastest chip. There is a real war going on right now between the bulls and bears. Almost every bullish pundit, led by Abbey Joseph Cohen, is calling for a bottom in this market around 3000, give or take a 100 points, and proclaiming good times ahead. The bears are grinning and shorting with reckless abandon. The bulls are pointing to the next move by the Fed as more than likely a series of rate cuts and an enormous amount of money on the sidelines waiting to be invested. The bulls are literally drooling over the drop in PE for the leading sectors as evidenced by the drop of the Nasdaq Comp PE from 264 to the current 124. While there is a pile of money on the sidelines to be invested in stocks there is also a money crisis building for corporate America with the money supply drying up as the Fed continues to withdraw liquidity out of the market. When the Y2K crisis was looming last year the Fed was literally pouring money into the economy by the hundreds of billions to prevent any crisis from reaching critical mass. Now that the Y2K event is distant memory people forget that the Fed has been pulling that liquidity back out. There is a real and growing fear that the economy is about to accelerate into a crash landing and the Fed is asleep at the wheel. The market wanted some indication from the Fed last week that they were in control and they would not let that happen. Obviously we did not get it and the institutional money is now scared. The short interest is still at record highs on the S&P and there is no indication it is changing. This holding of the line by the big traders is causing many funds to stand aside as well. The big market gurus like Abbey Cohen are still able to push the market around by going public with a timely "market call" whenever the market is extremely oversold but the "bull call" only held for two days before the negative news pushed the market down again. Everyone "knows" that the election indecision is causing the current market weakness. What if it is not the only problem? What if we get a resolution in the election this week and the market rallies for a day or two and then rolls over again? Nobody wants to think about it but that is a real possibility and one that we as traders need to consider. There is nobody more bullish than me but note I said "bullish" not "stupid." (No comments from you Austin, thanks) Not wanting to play the down side does not make you a bad trader. Trying to play the upside when the market is going down does. My point here is this. We need to plan for a post election resolution rally (if it is ever resolved) but keep our eyes open just in case it has no legs. There are more and more whispers of the "R" word and if we are headed into a recession then the bull market is likely hamburger. I mentioned on Thursday that the expected earnings for the next two quarters have been cut in half and still falling. Markets run on earnings and you could make a case that earnings are in real danger of dropping into single digits. That is way down from the 29% growth estimates from six weeks ago. Bullish we may be but you can't create much of a rally on single digit earnings and a coming recession. That is the worst case. I would like to think that the worst is over and the end of the election crisis will bring back sanity? to the markets. The days before and after Thanksgiving are normally up days even in a shortened trading week. (hey, we grasp at any straws we can here!) We got out of options expiration Friday alive and now that volatility is behind us for another four weeks. So here is the concept for next week. With the dueling court cases there is no possibility of forecasting any closure tonight. While I have been writing this on Friday night there has been a new ruling somewhere almost every 20 minutes. With 65 of 67 counties reporting absentee ballots Bush is ahead by only 760 votes. Pundits were claiming he needed over 1,000 to beat the recounts if they are allowed. Regardless of the absentees we are now looking at days of delays as the courts wade through the different cases. It is entirely possible that this could last through Thanksgiving. Sounds like hell week in the markets again. No direction, no decision, short week, low volume, decliners beating advancers, etc. About the only thing in our favor is a very light economic calendar for next week. No news is not good but at least it is not bad news. I still think 3200 looks like a good benchmark entry point. As the recent high it is now resistance and although you can buy now at -150 points cheaper we could still have another failed rally between here and there. There are many technicians calling for another retest of the 2850 lows from this week on Monday or Tuesday. Maybe, maybe not. After every low there are always traders calling for a retest. We had 6 retests of the last lows and it did us no good. I would however be a buyer on any rebound from under 2900 should we see that again. I was encouraged by the slow climb back up to almost positive at the close on Friday. When you consider all the negative news traders should have been running for cover. Instead they were nibbling at stocks before the weekend. This is bullish but the volume was so anemic that you cannot really reach any significant conclusions from the action. So here we sit. Directionless and decisionless. If the Nasdaq does not turn around next week and head north at a high rate of speed this will be the worst year for the Nasdaq since 1974. Think about that. 1974. Still think this is a bull market? Regardless of what label we put on the current market we need to either play what it gives us OR wait until it gives us what we want to play. For some that may mean looking at both calls and puts this weekend and for others it may mean going Christmas shopping instead of trading before Thanksgiving this year. You may not like this train of thought or me for writing it but everyone needs to reevaluate the circumstances and reconsider their trading strategy from time to time. Take some time this weekend to step back and consider your strategy for the rest of the year. We only have six weeks left in Y2K. Only 28 trading days. Whether you lose or profit in those 28 days will probably depend on the trading plan you put in place over the next two weeks. Are you going to be a gunslinger shooting at everything that moves or an investor that carefully plans each play with an eye on the markets and waits for an entry point? 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************************* 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=949 ************************************************************** ************** EDITOR'S PLAYS ************** Now that I have made everybody mad in my market wrap today I will finish the job by showing my concern in my own plays for next week. I was away from my PC on Monday so I missed the big drop and the rest of the week was sideways to down. No plays there for me. Next week being a short week with market direction dependent on the election results it is very difficult to pick plays before the outcome is known. I am strictly going to be a dip buyer or a rally buyer. I am not going to "play" in the sand box with the market makers beating me up for $2 a trade with no direction. There is a time to trade and a time to watch and I think it is a time to watch. Don't get me wrong, we could blowout on Monday morning on an election resolution and post triple digits every day for a week. (I wish!) You can bet I would be in the middle of the run and shooting at everything in sight. Until this happens I will keep looking at charts and trying to decide what stocks I am going to play when the rally finally comes. Those stocks I am looking for are the ones that are not dropping on these weak days. Sure some of them died on the big down days but they rebounded and are silently easing back up again. The ones I am going to chart below are just the most likely targets as of Friday night. This list will change as of the market open on Monday. Stocks moving down will be dropped and stocks moving up will be added. Sounds simple but we do our best to make it hard by applying our preconcieved bias to every chart instead of letting the charts tell us which ones to play. To be very honest there just was not a lot (hardly any) of decent charts on Friday night. We could be in for some rough sailing next week or an explosion off support on good election news. It is a coin toss and the market gets to keep the coins. VRTS - $160 DEC Naked PUT] I like VRTS because it is dead on support at $110 and the news after the close was that Gary Bloom a 14 year veteran at Oracle and EVP was named as the president of Veritas. This is a great deal for VRTS and adds strength to the management side. I think the downside is minimal and we could see a $20 move to the upside very easy. ADIC - DEC $20 Call ADIC is a new play on OptionInvestor this weekend. I like the bullish wedge it is building at $18 and the December $20 call is only $1.19. If it breaks over resistance at $18 it could run to $25 pretty easy. This is strictly a momentum play and has fairly low risk. BRCD - $260 DEC Naked Put I kept going back to BRCD all night. This is one of those stocks I want to play but there is no compelling reason. I could build you a technical case to go up or down but I want to play it up. The big drop on Monday only knocked it back to $200 from support at $215 and it immediately went back to this support. It struggled all week as the Nasdaq waffled and finally gave up -$6 on Friday to $220. I want to think this is an entry point assuming we get some good news next week. I would try to enter on a pull back on Monday and once in if it breaks $215 I would get out. MANU - $150 DEC Naked Put This is purely a technical play. MANU hit a 52 week high on Nov 7th and then tanked on profit taking. It has recovered half of the loss and over the last three days has built a base at $110- $115. If the market turns positive I think MANU could hit a new high of $150 in a matter of days. I would close any play if it fell under $110. Remember: 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. We can't afford to lose either. Jim ************************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=972 ************************************************************** **************** MARKET SENTIMENT **************** South-bound Rally By Austin Passamonte That's what we experienced all week as the markets continued to move south. Most traders and pundits blame this behavior on the presidential fiasco down south as well but Market Sentiment is not so sure after what we saw on Friday. The first piece of real news to give a strong hint on this race's outcome resulted in a furious "retail" rally as traders blew the indexes up over 100 points off the bottom in minutes. It truly was something to behold. Unless one was of the dwindling die-hard bulls left out there. They were forced to watch all those inflated calls wither in a nanosecond as massive waves of eager selling greedily engulfed this opportunity. We had heard from sources in the pits that floor traders and institutions were waiting on such a rally to go short with a vengeance. To be honest we were skeptical but that's precisely what took place. Hope for a sustained rally taking shape anytime soon might need to be rethought. This is a classic last-stage, bear-market bottom where earnings are poor across the board, leadership stocks are sold off and negative sentiment prevails. Seen anything like that around here lately? We haven't found the bottom yet. It lies below us somewhere at numbers most thought would never be revisited again. The COT report shows big boys holding all of their shorts and adding a few in the Dow besides. This is looking like a better idea each & every session. Technical indicators on our charts can't catch a break either. Every hint of bullish momentum building gets snuffed out quickly. We still see signs of a pending rally and keep in mind these are exactly the conditions our next upside surprise will come from. When that happens we need to treat it as a short-term tradable event until proof of duration is in our hands. Let's visit the fundamental side for a change. What is happening and what needs to take shape for the next bull market move to resume? Earnings. Interest rates. Economy. Earnings will likely suffer in the next quarter as well. Oil prices haven't dropped, winter expenses are just ahead and the economy is already soft. The retail sector and all attached began the Christmas season at Labor Day. This ridiculous ploy is intended to boost fourth-quarter earnings, but do you think it will work? Shoppers have a finite amount of money to spend regardless how long the season becomes, which in our opinion is just one day on Dec 23rd. We don't wait until the last minute around here! That is not a recipe for blowout results across the board in what is traditionally a leading sector. Economic pressure and lack of wealth effect may be a drag this time around. Earnings will improve when interest rates change and that will come before long. A soft landing is in question and a harder landing will be met swiftly by the FOMC as it has before. Perhaps not swift as we'd like it but relief will come. Our robust economy will resume after catching its breath and the markets have built another solid base. The main core of traders will remain to hone their skills and position themselves for the next incredible leg of this historic bull-run. Peripheral day traders and call buyers who never took time to learn the trading game will return to give their money to those who stayed. This cycle has repeated long before our time and will likely continue far beyond. Some will stick & stay to earn great pay. Others will drift in and out to provide that great pay for others. Which will you choose to be? Market Sentiment will see you in the winner's circle for a long time to come! ***** VIX Friday 11/17 close; 28.38 30-yr Bonds Friday 11/17 close; 5.75% 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 (11/17/2000) (Open Interest) Calls Puts Ratio S&P 100 Index (OEX) Resistance: 765 - 750 6,677 2,480 2.69 745 - 730 7,061 3,644 1.94 OEX close: 725.09 Support: 720 - 705 1,376 4,127 3.00 700 - 685 195 4,414 22.64*** Maximum calls: 770/3,881 Maximum puts : 700/3,045 Moving Averages 10 DMA 733 20 DMA 735 50 DMA 749 200 DMA 776 ** NASDAQ 100 Index (NDX/QQQ) Resistance: 82 - 80 32,833 42,897 .77 79 - 77 10,512 7,019 1.50 76 - 74 16,111 41,602 .39 QQQ(NDX)close: 72.82 Support: 71 - 69 5,181 22,149 4.28 68 - 66 487 11,146 22.89*** 65 - 63 831 16,797 20.21*** Maximum calls: 80/25,445 Maximum puts : 80/35,348 Moving Averages 10 DMA 75 20 DMA 78 50 DMA 83 200 DMA 93 ** S&P 500 (SPX) Resistance: 1425 29,110 15,408 1.89 1400 58,601 59,241 .99 1375 30,750 24,848 1.24 SPX close: 1367.71 Support: 1350 11,836 28,585 2.42 1325 3,983 18,513 1.56 1300 6,466 20,846 3.22 Maximum calls: 1400/58,601 Maximum puts : 1400/59,241 Moving Averages 10 DMA 1390 20 DMA 1395 50 DMA 1412 200 DMA 1440 ***** CBOT Commitment Of Traders Report: Friday 11/17 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 +100 -1105 -2436 -792 Total Open Interest % (+1.42%) (-14.39%) (-9.60) (-3.33%) net-long net-short net-short net-short NASDAQ 100 (Current) (Previous) (Current) (Previous) Open Interest Net Value -733 -1999 -77 -293 Total Open Interest % (-3.58%) (-11.37%) (-.16%) (-.60%) net-short net-short net-short net-short S&P 500 (Current) (Previous) (Current) (Previous) Open Interest Net Value +61563 +58260 -72376 -67783 Total Open Interest % (32.17%) (+30.75%) (-10.91%) (-10.52%) 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 and have increased their net-short DOW positions. Small specs held their net-long S&P positions while changing from net-short to net-long in DOW positions as compiled Tuesday 11/14 by the CFTC. ************** MARKET POSTURE ************** Please visit this link for Market Posture: http://members.OptionInvestor.com/marketposture/111900_1.asp ***********************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=986 ************************************************************ *************** ASK THE ANALYST *************** Preventative Medicine And Apologies As the faithful readers of this column know, I came down with a nasty cold last week, which painfully prevented me from reviewing a full load of charts. I was REALLY sick! One of our subservient readers, Larry, sent in a recipe to prevent future illness. Larry wrote, "It is hard to believe but there is a way to prevent colds." According to Larry, the secret to preventing the common cold is by taking large doses of antioxidants, which are found in a variety of multivitamin products sold at health stores. Larry testified, "I never get colds or the flu as long as I have had the vitamins in me for several months. Hope it works for you." I'd like to thank Larry for his time and effort. Antioxidants are now a regular part of my diet. Additionally, I must apologize for my horrendous error last week. The title of last week's column read, "Enough Already, One Of You Needs To Conceit." I was referring to the everlasting election and pleading to Governor Bush or Vice President Gore to concede, not conceit. My apologies and thanks to the many readers who pointed out my error. Send your stock requests, and health tips like that of Larry's, to Contact Support. Please put the symbol of your requests in the subject line of the e-mail. ---------------------------- Krispy Kreme Doughnuts - KREM Do you think it's time to buy puts on KREM? - Thanks, Ruben In this game we call the market, I find it perplexing that a doughnut maker can trade with a near triple digit multiple while the bears bash the valuation of such stalwarts as Cisco Systems. Since coming public at $29 per share, the stock of Krispy Kreme Doughnuts now trades nearly three-fold higher. Is that efficient? I don't think so. Now, don't get me wrong, I'm not bashing the company that makes such tasty doughnuts. In fact, Krispy Kreme is expected to grow earnings by 25% over the next five years. Plus, the company is not as adversely afflicted by such events as slowing economic growth, nor a pullback in capital expenditures from customers. They sell doughnuts! But, the question remains if Krispy Kreme Doughnuts are just a fad, which presents a compelling case that its stock is overvalued, if the fad accusation is true. Merrill Lynch downgraded the stock last week on concerns of poor execution by the company and the question of whether or not Krispy Kreme is a lasting brand. If Merrill's concerns are realized by the market, shares of Krispy Kreme have a long way to fall after such a meteoric post-IPO rise. Of course, my valuation argument and Merrill's case could prove false and Krispy Kreme could become the next Starbucks. Only time and the market will tell... ---------------------------- NVIDIA - NVDA I bought NVDA November 7th at $73 based on fundamentals and technical analysis. It looked poised to go to the mid 80's. It dropped substantially since then. Can I have your opinion on this one? - Thank you, Jay All things considered, Jay, shares of NVIDIA have held up very well recently. Like many things tech, the stock ran up from $10 in early 1999 to its current trading range between support around the $60 level to resistance around the $80 area. The stock is simply consolidating those massive gains experienced over the last two years. The company makes 3D graphics chips used to power computer graphics. NVIDIA's chips are used by nearly every PC manufacturer, including Compaq, Dell, and IBM. The fact that shares of NVIDIA have held up relatively well during the recent drubbing of the box makers bodes very well. In fact, I'm a little surprised the stock hasn't sold off more in sympathy with the likes of Dell and Apple. Maybe it stems from the fact that NVIDIA recently overcame rival ATI Technologies as the leading graphics chip maker. NVIDIA's newfound market leading role has apparently helped insulate the company from the slowdown in the broader PC sector. Since shares of NVIDIA have held up so well during tough times for box makers, I'd expect the stock to take off once we see an uptick in the PC business. As long as support around the $60 level continues to prop up shares of NVIDIA, I'd expect the stock to trade well beyond your initial purchase price, Jay, once the PC market improves. ---------------------------- Citrix Systems - CTXS This stock looks like its shaping up - some pretty good news. How do you see it? - Thanks, Ed The fate of Citrix is closely tied to that of Microsoft. Through licensing agreements and strategic alliance, Citrix makes software that adapts computer networks of all types to run Microsoft's Windows operating system. For its part, Citrix fell under the control of the bears back in June after it was realized that Microsoft's business was slowing. Sales of Citrix's key products, MetaFrame and WinFrame, slowed as a result. However, business is turning up for Citrix as sales of Micrsoft's Windows 2000 are accelerating. In fact, Lehman Brothers commented on that very fact two weeks ago in a research report, and upgraded shares of Citrix to a buy from a neutral rating. Along with the fundamental picture improving for Citrix, there's also the fact the stock has been heavily shorted since its shortfall last June. According to the most recent numbers, there are approximately 10 millions shares sold short of Citrix. I bet they've been covering recently. Citrix's improving fundamentals along with the short covering taking place landed the stock on our call play list this weekend. The two aforementioned facts are combining to add some much needed repair to Citrix's chart. There's still an unfilled gap all the way up to the $41 level. I don't know if there are enough shorts left in the stock to induce a squeeze, which could cause a big and swift run back up to that level. Nonetheless, I think Citrix has the business momentum and price momentum to carry its stock higher into the end of the year. ---------------------------- Digital Lightwave - DIGL First let me say that I find each of your Sunday columns a veritable education in technical analysis and they are much valued and appreciated. May I have your comments on DIGL. They seem to have excellent fundamentals with good earnings and a phenomenal 5-year earnings growth of about 350%. And to borrow a page from your own recent analysis of RIMM, there is an apparent "head and shoulders" formation on the DIGL daily chart, with the head forming in July and the two shoulders in June and August. Top of the head is at 120 and the neckline about 80 for a difference of 40. Subtracting this from the neckline, we arrive at 40, which is quite close to the [recent] closing price. This may very well be the bottom for the stock. - Thank you, Dan First let me say that I very much appreciate your kind comments, Dan. And, you're absolutely correct about Digital. The company has a solid balance sheet (debt free), and an equally solid history of growing earnings, plus a very healthy outlook - earnings are expected to grow north of 40% in the next five years. At current levels, Digital's future earnings growth rate gives the stock a price-to-earnings growth ratio (PEG) around 1. As I've stated before, a PEG around 1 is considered fairly cheap for a tech stock - especially with the kind of growth Digital is expected to experience. The recent poor performance of Digital can be attributed to the uncertainties in the telecom sector. The company makes testing equipment for fiber optic networks, and we all know what's been happening to leading fiber optic stocks. But, shares of Digital might be worth a close look right now, not only for the company's fundamentals, but also for the stock's technical position. As you eloquently wrote, Dan, shares of Digital traced a bearish head-and-shoulders back in the summer, and have recently bounced off the bearish price objective from that very technical formation. Depending on which technical analyst you asked, the bearish price objective extrapolated from the head-and-shoulders last summer should be around $35 or $40. Not by coincidence, shares of Digital bounced traced an intraday low at $34 5/16 last Monday, and subsequently rebounded back above $40. I think Digital presents a compelling trade right now because the risk to reward characteristics are clearly defined, with the reward outweighing the potential risk. One strategy might be to enter the stock at current levels, and set a hard stop at $34 - the low from last week. If the tech and telecom sectors rebound in the coming weeks, shares of Digital could sail back up to fill the gap at $56, and even trade back around the $65 value area. Of course, if the stock falls below $34, the theory of a rebound goes out the window. ---------------------------- Corning - GLW I would appreciate your comments about GLW. I know the entire optical fiber sector was hit with NT woes but GLW hasn't recovered as some of the others in the sector have. I'm aware of the 30 million shares sold by the company at 71 1/4 [two weeks ago]. Was this the reason and do you see a recovery short term (one to three months). - Maureen You are correct, Maureen, in that the entire optical fiber sector has been whacked recently. I'm also aware of the stock and debt offering issued by Corning on November 3rd, but I don't think that afflicted the stock as much as the worries over demand in the optical space did. Two weeks ago, I reviewed JDS Uniphase and Nortel and wrote of the concerns over supply in the optical business finally catching up with demand from the telecom carriers. That current flux in the optical business will likely lead to nervous trading in shares of Corning. I wouldn't be surprised to see the leading optical makers such as Corning, Ciena, and JDS Uniphase pullback even further from their current levels. However, most of the concerns over slowing demand have already been factored into their stock prices. That said, sentiment could shift rather quickly with a few bullish forecasts. One such forecast was provided by Alcatel, the French telecom equipment maker, in late October, who reported blowout third-quarter results and provided bullish guidance going forward. A few more reports such as the one from Alcatel could get Corning rolling higher. I don't think Corning will return to its all-time highs in the next one to three months, Maureen, barring a major shift in sentiment. The fact is, the broader telecom space is experiencing a hiccup, which could last a while longer. However, according to many tech gurus and industry analysts, the future of telecom is optical. And, Corning is the largest supplier of optical cable that is needed to build the millions of miles of networks over the next ten years. Furthermore, of the major optical players, Corning is the most reasonably valued stock in the group. Its shares trade with a forward-looking PE of around 45. Plus, the company is expected to grow earnings by more than 30% in the coming years. For the long-term players with a time horizon of at least two or three years, shares of Corning might be trading at an attractive level. Although the stock might drift downward until the sentiment in the telecom arena shifts, I'd be willing to bet shares of Corning will be trading much higher a few years out. ---------------------------- DISCLAIMER: This column is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The Ask the Analyst picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable, but is not guaranteed as to its accuracy. ************* COMING EVENTS ************* For the week of November 20, 2000 Monday ====== None Scheduled Tuesday ======= Trade Balance Sep Forecast:-$30.6B Previous:-$29.4B Treasury Budget Oct Forecast:-$13.9B Previous:-$26.7B Wednesday ========= Initial Claims 18-Nov Forecast: NA Previous: 326K Thursday ======== None Scheduled Friday ====== Michigan Sentiment Nov Forecast: 106.3 Previous: 107.7 Week of November 27th ==================== 27-Nov Existing Home Sales 28-Nov Durable Orders 28-Nov Consumer Confidence 29-Nov GDP-Revised 29-Nov GDP Chain Deflator 30-Nov Personal Income 30-Nov PCE 30-Nov Initial Claims 30-Nov Chicago PMI 30-Nov Help-Wanted Index 1-Dec Nonfarm Payrolls 1-Dec Unemployment Rate 1-Dec Hourly Earnings 1-Dec Average Workweek 1-Dec Auto Sales 1-Dec Truck Sales 1-Dec NAPM Index 1-Dec Construction Spending ************************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=958 ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "Contact Support" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 11-19-2000 Sunday 2 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/111900_2.asp ************** TRADERS CORNER ************** Butterfly With An Insurance Policy By Lynda Schuepp Using a calendar spread is a cheap way to protect yourself when you have any kind of spread that caps your upside. Thursday, I was looking to put on some long-term bullish positions with little risk. I have had very good luck with butterflies on GE, because it is not that volatile a stock but has an up-trend that keeps on running like the Energizer bunny. Let's take a look at a long-term chart on GE to see what I mean. Monthly Chart of GE: From the chart above, you can see that GE has plodded from $12.75 in the beginning of 1996 to about $50 on Friday. That's about a 300% increase in four years. Now I know that's not too exciting for you dot.com traders, but these type of stocks should be a part of everyone's portfolio. Using the leverage of options turns that 300% increase to about a 3000% return. To review a butterfly for those who are not familiar, it a trade that consists of one long option, two short options with a higher strike and one option with an even higher strike, using all calls or puts. Butterflies can be used for an intermediate sideways trend or they can be used for a long-term bullish position such as the butterfly I put on GE by using strikes 10-30 points higher than what the stock is currently trading for. The goal is to have the stock close at the middle range at expiration to maximize your profits. You must understand your break-evens and your profit potential and your total risk of any trade BEFORE you initiate the trade. For the sake of brevity, the example I'll use is the trade I actually selected on Thursday. I bought 10 contracts of the Jan '02 60 calls, sold 20 contracts of the Jan '02 70 calls and bought 10 contracts of the Jan'02 80 calls for a total cost of $1.63. The assumption with a butterfly is that the stock will close within the range of the butterfly. You have to look at prices on the call and the put side to determine which will cost you less. It turned out that the calls were cheaper to use than the puts. There are two break-evens on a butterfly. The lower break-even is the lower strike plus the cost of the trade and the upper break-even is the highest strike minus the cost of the trade. In this case, the lower break-even would be $61.63(60 + 1.63) and the upper break-even would be $78.38(80 - 1.63). I will make money if GE closes between $61.63 and $78.38 on Jan '02 or before. That leaves me a lot of wiggle room to be right. The maximum profit I can make is the spread from the middle to the outer strike less the cost of the spread or $8.38 in this case (70 minus 60 minus 1.63). The maximum loss would be the cost of the trade or 1-5/8. You lose everything ($1.63) if the stock trades outside of the range (below $61.63 or above $78.38). Monthly Chart of GE with channel Extensions: Above is a chart of GE that I have drawn support and resistance lines and extended them in order to make projections where GE might be trading before expiration. Generally, I look to close out the position a couple of months before expiration. Using the trendlines shown on the chart above we can project that GE should close somewhere between 65 and 80 by mid-year. My profit is capped to the upside. What happens if GE makes a bigger run and closes at 85? I'd be out $1.63 even though I was right about the direction of the stock. Here's the new twist--insurance using a Calendar spread. Because GE's volatility is relatively stable, day in, day out and month in and month out, I am very comfortable legging into these transactions, taking advantage of price variations from exchange to exchange. The calendar spread I took, was 10 contracts (long) on the Jan '03 80 puts and short 10 contracts of the Jan '02 80 puts. My risk is the cost of the transaction, in this case a measly 1/4 point but my reward could be 2 or more. On Thursday, I bought the Jan'03 80 puts for $27.38 on one exchange and then sold the Jan '02 80 puts for $27.63 on a different exchange taking advantage of the price discrepancies on the various exchanges. Look at the quotes below from Friday's close to see what I mean. Fridays quotes show the best ask (the price you'd have to pay) on the Jan 03' 80 puts was $28.38 on the Philadelphia exchange (X) and the best bid (the price you would have to sell) the January '02 80 puts was 28 on the Chicago exchange (C). The net difference, your cost, would have been 5/8 at the close on Friday. I try to squeeze a little bit out of each side, so I was able to actually do the trade for 1/4 debit. Now here's how to make the projections of what the profit might be from this calendar spread. If GE closes at 82 on expiration in January '02, you would have a put that is close to being "at the money", one short '02 and one long '03. To project what the values of those would be, lets look at current "at the money" puts to determine what the value of those puts would be worth at January expiration. First of all, we know that the January '02 puts would expire worthless, allowing us to keep the $27.63 (the price I sold the put for). Now let's determine the value of the January '03 80 put. The January '03 put would have 1 year left, so for that we could look at the current prices on the December puts as a close approximation. From the prices below, we see that the December 51-5/8 is very close to being at the money. The best bid (the price we could sell our long put) is $2.25 on the CBOE (C). That's a 900% return. Granted you won't get rich with so few contracts, but it is merely a trading style you can incorporate into your trading. If you want to kick it up a notch, you can buy back the short leg when GE hits the upper band of the trading channel and starts to turn back down and then sell the long leg when GE bounces off the bottom of the channel. Oh well, that's enough for today. These strategies provide very good returns with little risk particularly is you have little capital to invest or no time to watch the market daily. ************************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=950 ************************************************************** ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* CIEN - Ciena Corporation $104.44 (+16.44 last week) See details in sector list Put Play of the Day: ******************** FCEL - Fuel Cell Energy $54.25 (-7.25 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=973 ************************************************************** ************************** 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 IDPH $170.50 (-29.18) The rolling corrections of late hit IDPH like a tidal wave in Friday's session. In spite of the biotechs recent resiliency, IDPH failed to recover in the shaky markets. The buyers just didn't flock back in to the group. The decline following amateur hour was swift. If you were one of the more aggressive traders who took a riskier entries on Thursday, your stop losses should have taken you out of the play at no lower than the $170 level. CMTO $11.00 -0.63 (-0.56) While this low volatility play has provide good quick trades from support at $12 and $11, this week's trading established a relatively lower high at $12.75. The first bounce from $12 ran for a buck and stopped at $13. A subsequent rollover found a springboard at $11, offering another entry. But since CMTO topped out at $12.75, it has steadily declined during the week, closing smack dab at $11. Although we set our stop at $10, we are dropping this low volatility play tonight due to the concern over that failure to reach a higher high. PUTS LVLT $32.88 (-3.19) The play on LVLT was advantageous to gains while we had it on our list, but now it's time to reassess our position. It's true that the telecom sector is still plagued with bad news, the most recent being BellSouth's announcement of its reduction in 2001 profit estimates. Many of the stocks in the group are indeed seeing new 52-week lows; however recent trading indicates that LVLT may have found a comfortable zone at $32 and $33. In light of this stock-specific development, we've decided to take our profits and moved onward. *********** 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 ************** SUNW - Sun Microsystems $89.31 (+0.13 last week) Incorporated in February 1982, Sun Microsystems, Inc. has long been synonymous with leading edge technology. Now, after 18 years of telling the world "The Network is the Computer," Sun is poised to become the leader in the emerging network-driven economy. Forward thinking organizations are looking to Sun to lead them into the dot com future. Sun was founded with one driving vision. A vision of computers that talk to each other no matter who built them. A vision in which technology works for you, not the other way around. Having picked SUNW as a November options expiry lottery call pick on Tuesday, we are segueing this play from the lottery list to the aggressive call list. There are a number of reasons to be bullish on SUNW, and many analysts agree. In the conference call on Thursday, the theme was no change in guidance. This was taken as good news, since it would mean that the company would meet earnings estimates going forward. Lehman Brothers reiterated their Buy rating, citing the company's plans to reduce its backlog as a positive sign. Banc of America Securities reiterated their Strong Buy rating, raising their first year second quarter estimates by a penny. Credit Suisse First Boston and UBS Warburg also came out with positive comments. This helped the stock to move up $2.06 or 2.36% on Friday, on almost 180% of ADV. There is also a 2-for-1 stock split, set on December 5th to keep the momentum fires burning. At this point, we think SUNW is a low risk/high-reward play because the stock has solid support at the $85 level. If not for weakness in the Tech sector last week, SUNW may well have already rallied. For now, upside could be to at least $100 if the NASDAQ rebounds next week. But first it must break through resistance from the 5-dma at $90. This would allow conservative traders to take a position but confirm the breakthrough with buying volume. After $90, SUNW may also encounter resistance at $95, reinforced by the 10-dma, currently at $95.92. For more aggressive traders, a bounce off support and our stop price at $85 could allow for an ideal entry point but a close below this level would likely see us closing out this play. As a large cap Tech stock, the movements of SUNW can in part be attributed to those of NASDAQ. As such, confirm a bounce or break through resistance with the NASDSAQ when initiating a play. BUY CALL DEC-85 SUX-LQ OI= 687 at $10.50 SL=7.50 BUY CALL DEC-90*SUX-LR OI=2629 at $ 7.50 SL=5.25 BUY CALL DEC-95 SUX-LS OI=2698 at $ 5.25 SL=3.25 BUY CALL JAN-90 SUX-AR OI=4640 at $11.50 SL=8.50 BUY CALL JAN-95 SUX-AS OI=3448 at $ 9.38 SL=6.50 SELL PUT DEC-80 SUX-XP OI=5567 at $ 3.63 SL=5.50 (See risk of selling put in play legend) http://www.premierinvestor.com/oi/profile.asp?ticker=SUNW CTXS - Citrix Systems, Inc. $30.88 (+6.81 last week) Founded in 1989, Citrix Systems is a global leader in application server software and services that offer "Digital Independence," the ability to run any application on any device over any connection, wireless to Web, so that now, everything can compute. Citrix technology enables organizations to provide access to server-based applications from a wide variety of client devices and platforms. Since these applications are installed, updated and maintained on central servers instead of each client, the cost and complexity of administration are significantly reduced. It may have been a down week for most Tech stocks but for CTXS, it's been a five-day winning streak. Since bouncing off support at $15 in mid-October, shares of CTXS have doubled in value. In fact, the day its ascent began was the day after its third-quarter earnings report. Beating Street estimates by two cents, the report was nothing spectacular but analysts and institutions alike were impressed with the conference call, as management laid out increasing growth numbers going forward. As well, sales of electronic licensing for their software accounted for 20 percent of their revenues for the quarter. This is good news indeed, since this part of their business sports the highest profit margins. Since then, an alliance with Sequoia Software has helped CTXS to position itself more firmly in the XML space. As well, Lehman Brothers upgraded the stock from a Neutral to a Buy rating, saying that the company is well positioned to benefit from the migration of corporations to Windows 2000. Already above its 50 and 100-dma, both in the low-20's area, the last line of moving average resistance is from the 200-dma at $43. But CTXS will likely find resistance in increments of $5 all the way up, at $35 and $40. Strength in a weak market is a good sign, as improving market conditions could bring in more buyers, bidding the stock higher. All the same, nothing moves up in a straight line. A bounce off $30 could allow for an aggressive entry. There is also support at our stop price of $27, near the 5-dma at $27.41, but confirm with volume. For conservative traders, look for a break above $32 with conviction as a target to shoot for. BUY CALL DEC-25 XSQ-LE OI=6440 at $6.63 SL=4.50 BUY CALL DEC-30*XSQ-LF OI=9478 at $3.50 SL=1.75 BUY CALL DEC-35 XSQ-LG OI=4832 at $1.50 SL=0.75 BUY CALL MAR-30 XSQ-CF OI=2600 at $6.75 SL=4.75 BUY CALL MAR-35 XSQ-CG OI=1124 at $4.88 SL=3.00 http://www.premierinvestor.com/oi/profile.asp?ticker=CTXS CLS - Celestica, Inc. $63.44 (+8.69 last week) Celestica is a provider of electronics manufacturing services (EMS) to original equipment manufacturers worldwide. The company provides a wide variety of products and services to its customers, including manufacture, assembly and test of complex printed circuit assemblies. The company's broad range of EMS services includes design, procurement, product assurance, assembly, full supply chain management, worldwide distribution and after sales support. CLS complements its EMS services by providing memory and power products to its customers. Finally succumbing to the decline in the broader Semiconductor sector, contract manufacturers like CLS have declined sharply in recent weeks. Concerns about a bearish shift in the supply/demand for semiconductor products combined with valuation concerns and a clearly slowing economy are all having their effect on these stocks. CLS ran up to challenge its highs near $85 prior to its earnings report on October 19th, but then the stock sold off sharply, despite an earnings report that beat estimates by a nickel. The company posted revenue growth of 92% and made bullish comments about the outsourcing industry going forward. Dragged lower with the broader Technology sector, CLS seems to have found solid support at $53, and investor nervousness seems to be giving way to the strong fundamentals of the industry and the stock. CLS rallied sharply on Monday and Tuesday, recovering above the 200-dma (currently $58.75), before consolidating for the remainder of the week between $61-64. Daily stochastics have turned up, indicating the stock is likely to continue its recovery, with the first upside target sitting at the $70-71 resistance level. Support at $59 is reinforced by the 200-dma, so this is where we are setting our stop. Aggressive investors can shoot for new entries on a bounce from this level, or milder support at $61. The more conservative approach will be to enter on continued strength, marked by a rally above $65. In either case, keep an eye on the volume, and be suspect of any rally that is not accompanied by strong buying. BUY CALL DEC-60 CLS-LL OI= 295 at $ 7.50 SL=5.25 BUY CALL DEC-65*CLS-LM OI=1669 at $ 4.88 SL=3.00 BUY CALL DEC-70 CLS-LN OI=1032 at $ 3.13 SL=1.50 BUY CALL MAR-65 CLS-CM OI= 155 at $10.50 SL=7.50 BUY CALL MAR-70 CLS-CN OI=1165 at $ 8.50 SL=6.00 SELL PUT DEC-55 CLS-XK OI= 598 at $1.88 SL=3.50 (See risks of selling puts in play legend) http://www.premierinvestor.com/oi/profile.asp?ticker=CLS **************************** NEW LOW VOLATILITY CALL PLAY **************************** ADIC - Advanced Digital Information $18.13 (+1.83 last week) Advanced Digital makes automated tape libraries. The company buys tape drives from other manufacturers and outfits them with robotic arms. These arms select a tape from a multitape unit, then add or access data. About a third of the company's are international, generated primarily in Europe. With its low valuation and improving outlook, investors have been moving back into shares of Advanced Digital. Company officials recently guided analysts to expect sales to meet previous estimates for its fiscal fourth quarter. Although it may not sound like much, the fact that ADIC didn't warn had many investors pleased and buying. We're looking to capitalize on ADIC's recent momentum by entering positions in its low cost options. Entries could be had on bounces off current levels at $18 or lower around the $17.50 level. However, a close below $17 would effect our stop at that level. Additionally, entries could be taken on a volume-backed breakout above ADIC's historical resistance level at $19. BUY CALL DEC-15 QXG-LC OI=1104 at $3.88 SL=2.50 BUY CALL DEC-20*QXG-LD OI=1770 at $1.19 SL=0.25 BUY CALL MAR-20 QXG-CD OI= 365 at $2.88 SL=1.50 BUY CALL JUN-20 QXG-FD OI= 40 at $4.25 SL=2.75 http://www.premierinvestor.com/oi/profile.asp?ticker=ADIC ***********************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=987 ************************************************************ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 11-19-2000 Sunday 3 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/111900_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=951 ************************************************************** ****************** CURRENT CALL PLAYS ****************** CIEN - Ciena Corporation $104.44 (+16.44 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 had a successful week in a down market. The low point of the week for Ciena was Monday, when the stock dipped below $85, but did not drop below the 200-dma of $82. This is impressive, considering the fact that the Nasdaq dropped below 3000. The Federal Reserve’s decision not to change their bias to neutral weighed heavily on the markets on Thursday and Friday. Ciena has been moving between the 10-dma of $97.44 and Friday's high of $105.63 consistently for the last couple of days. Since Ciena reports earnings the first week in December, the next couple of weeks should be strong ones, market conditions permitting. Volume continues to be about 30% higher on the up days. In order for a really strong upward trend to continue, we want to see Ciena close above the 50-dma of $107 on strong volume. This would put CIEN above all of its major moving averages, and en route to resume the stronger up trend of September and October. In the news Friday, Bank of America analyst Chris Crespi was reported to have told clients that Nortel was losing a significant amount of business to Ciena. Nortel denied this, however, the news may have helped to boost Ciena’s price to the expense of Nortel. Consider taking new positions on a bounce off the 10-dma of $97.44 or the 5-dma of $99.44. Additionally, watch for the breakout above the $107 level. We'll keep our stop set at $90, and exit positions should CIEN close below that level. BUY CALL DEC-100 UEE-LT OI= 814 at $16.13 SL=11.50 BUY CALL DEC-105*UEE-LA OI=1046 at $13.87 SL=10.50 BUY CALL DEC-110 UEE-LB OI=2172 at $11.50 SL= 8.75 BUY CALL JAN-100 UEE-AT OI=7524 at $20.00 SL=14.50 BUY CALL JAN-105 UEE-AA OI=2825 at $17.87 SL=13.00 http://www.premierinvestor.net/oi/profile.asp?ticker=CIEN MSFT - Microsoft $69.06 (+2.38 last week) Microsoft is a software powerhouse. 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. Microsoft has been acting like the little engine who could, as the stock tries to push its way through resistance at $70, despite the weak market conditions and election uncertainty. The low point of the week for Microsoft was Monday morning, when the stock touched its 50-dma of $64.44 briefly as the Nasdaq dipped below 3000. From that point, Microsoft hasn’t looked back, and held support at the 5-dma of $68.63 even after the hawkish Federal Reserve statements. Microsoft is currently at the 10-dma of $69, and would almost certainly be higher if it were not for the continuing election suspense. Volume is slightly higher on up days, and many institutional block trades are taking place. Ultimately, Microsoft’s underlying fundamental strength and superb financials may win, even while we are waiting for an end to the litigation and worries. Retail and institutional investors are looking for strength and profitability in this market environment, as non profitable start up companies are dropping by the dozens. With a P/E of 38, Microsoft may be more fairly valued than it has been in many years. Consider taking positions off a move through $70 on strong volume, or a bounce off the 5-dma of $68.63 in an up market. Watch the market’s reaction to the election, and set stops at $64 - a close below $64 would bring an end to our play. BUY CALL DEC-65 MSQ-LM OI=11036 at $6.50 SL=4.50 BUY CALL DEC-70*MSQ-LN OI=14855 at $3.25 SL=1.75 BUY CALL DEC-75 MSQ-LO OI=34833 at $1.56 SL=0.75 BUY CALL JAN-65 MSQ-AM OI=19505 at $8.13 SL=5.50 BUY CALL JAN-70 MSQ-AN OI=54441 at $5.25 SL=3.25 http://www.premierinvestor.net/oi/profile.asp?ticker=MSFT QCOM - Qualcomm Inc. $88.81 (+14.88 last 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. Shares of the wireless giant QCOM have continued to climb higher. Despite uncertain conditions in the market, traders and investors have certainly been bullish on the CDMA gatekeeper this month, and for good reason. The launch of a $500 million venture capital unit, a successful judgment in QCOM's favor in Europe in which the court upheld QCOM's patents and higher than expected demand from upgrading by wireless companies worldwide have all factored into the company's phoenix-like ascent from the ashes of a five month base. On Friday, First Union Securities reiterated their Strong Buy rating on QCOM, with a 52-week target price range of $200 to $220. This was based on fundamental factors affecting the company’s position in India. A contract signed with Hyundai Electronics could finally get QCOM's foot in the door of that country. While the contract at face value is worth $120 million, if plans from the Indian government based on Hyundai's estimates come to pass, it could generate business of over $150 billion. This is a large amount of revenue that if factored into the stock price, could produce significant upside potential. Starting the month below all its major moving averages, the stock has already left its 50 and 100-dma (now at $72.79 and $67.20) far behind the rear-view mirror. Now positioned just below its last line of moving average resistance, the 200-dma at $89.06, a break above this important moving average resistance point, backed by strong buying volume could allow for a conservative entry point. If QCOM decides to take a breather before moving higher, a pullback to support at $85 and the 5-dma at $83.26 could give aggressive traders a target to shoot for. There is also support at $80 but be aware of our stop price of $81. A close below this point could be a signal to step aside. BUY CALL DEC-85 AAF-LQ OI=4132 at $ 9.75 SL=6.75 BUY CALL DEC-90*AAF-LR OI=4884 at $ 7.13 SL=5.00 BUY CALL DEC-95 AAF-LS OI=2652 at $ 5.00 SL=3.00 BUY CALL JAN-90 AAF-AR OI=8383 at $11.13 SL=8.25 BUY CALL JAN-95 AAF-AS OI=6214 at $ 8.88 SL=6.25 SELL PUT DEC-80 AAF-XP OI= 922 at $ 3.25 SL=5.25 (See risk of selling put in play legend) http://www.premierinvestor.net/oi/profile.asp?ticker=QCOM AMGN - Amgen, Inc. $65.13 (+0.56 last week) The biggest of the Biotech big guns, AMGN makes and markets therapeutic products for hematology, oncology, bone and inflammatory disorders, as well as neuroendocrine and neurodegenerative diseases. Anti-anemia drug Epogen and immune system stimulator Neupogen account for about 95% of sales. Its Infergen has been commercialized as a treatment for hepatitis C, and Stemgen is approved for stem cell therapy in Australia, Canada, and New Zealand. The company has a strong pipeline of new drugs in various stages of development as well as research and marketing alliances with Hoffman-La-Roche and Johnson & Johnson. Tossed about by the continuing election uncertainty, AMGN weakened a bit more on Friday. As the political situation roiled the major indices, AMGN fell to $63.50 before finding buying support. The afternoon recovery helped our play recover to close right on the ascending trendline (now at $65) that has been in place for the past 3 weeks. The strength seen in the middle of the week has now faded, putting the Biotech giant below both its 50-dma ($65.75) and 200-dma (65.38). Below Friday's low, our $62 stop is still intact, but getting closer to being challenged. Volume paints a rosier picture though. Despite volume that has been less than the ADV, it was encouraging to see buying volume pick up sharply at the end of the day on Friday, as the price recovered into the close. The Biotechnology and Pharmaceutical sectors will likely be affected by the outcome of the election process, so conservative investors will want to wait for some sort of resolution to the situation in Florida before initiating new positions. Then look for a decisive move through $67 resistance to trigger your entry. More aggressive traders can consider target shooting intraday dips to the $63-64 area, but must remember to keep their stops in place, should the market take a turn for the worse. BUY CALL DEC-65 YAA-LM OI=9195 at $5.38 SL=3.50 BUY CALL DEC-70*YAA-LN OI=2655 at $3.13 SL=1.50 BUY CALL DEC-75 YAA-LO OI=2824 at $1.63 SL=0.75 BUY CALL JAN-65 YAA-AM OI=3535 at $7.63 SL=5.25 BUY CALL JAN-70 YAA-AN OI=8535 at $5.25 SL=3.25 SELL PUT DEC-60 YAA-XL OI=4130 at $2.88 SL=4.75 (See risks of selling puts in play legend) http://www.premierinvestor.net/oi/profile.asp?ticker=AMGN JBL - Jabil Circuit $48.31 (+4.06 last 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. Despite the NASDAQ's continuing weakness on Friday, JBL managed to overcome the negative sentiment and rally from the $45 level, back above the 200-dma (currently $46.94). Adding pressure on Thursday were bearish comments about the Communications IC stocks from Joe Osha at Merrill Lynch. Citing concerns about increasing inventory, he downgraded the entire basket of stocks including BRCM, PMCS, AMCC, and TXCC. The selloff was sharp and severe, creating significant downside pressure in the Semiconductor sector, with the SOX index giving up 5.5% on Thursday. The selling on contract manufacturing stocks like JBL was short-lived however, even in light of the continuing election uncertainty. Our stop at $44 held up nicely this week, and aggressive investors were handed an attractive entry point as the stock bounced mid-day on Friday, confirming intraday support at $46. Volume continues to be anemic (running about two-thirds of the ADV) in the face of the ongoing election uncertainty. Until the election is resolved, we are unlikely to see convincing volume to propel the stock out of its consolidation pattern. Intraday rallies have been turned back at $50 twice in the past week, so conservative investors will want to wait for a convincing move through this level before initiating new positions. Aggressive investors can continue to target shoot new entries at intraday support, but make sure you keep your stops in place in this volatile and nervous market. BUY CALL DEC-45 JBL-LI OI=1006 at $6.75 SL=4.75 BUY CALL DEC-50*JBL-LJ OI=2090 at $4.00 SL=2.50 BUY CALL DEC-55 JBL-LK OI=1439 at $2.31 SL=1.25 BUY CALL MAR-50 JBL-CJ OI= 367 at $8.50 SL=6.00 BUY CALL MAR-55 JBL-CK OI= 503 at $6.63 SL=4.50 SELL PUT DEC-40 JBL-XH OI= 916 at $1.38 SL=2.50 (See risks of selling puts in play legend) http://www.premierinvestor.net/oi/profile.asp?ticker=JBL TLAB - Tellabs Inc $55.88 (+2.63 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. News events, company announcements, and a jittery marketplace all contributed to the mixed trading TLAB experienced last week. The climax was TLAB's decisive break out of the narrow trading range during Wednesday's session. After a relatively long period of consolidation between $52 and $56, TLAB shot up to $57.06 and closed strong at $56.69. The 2pm explosion corresponded with the start of USB Warburg's 5th Annual Global Telcom Conference, which Tellabs was a participant. The bullish move through the $56 resistance also came ahead of the company's announcement that it had signed a multi-year agreement with Beijing Bell Telecommunications Equipment Manufacturing to sell its latest switching technology in China. The deal was well received by the Street on Thursday. Gains immediately extended and TLAB pushed through the $58 level on robust volume. Although the break through the 200-dma ($57.48) was a technical achievement, it was short-lived. The uncertainty hanging over the broader markets dragged TLAB backed down to shorter-term support at the $54 level and the 10-dma line ($54.46). More bad news continued to hit the industry as Nortel (NT) set another 52-week low when Bank of America implied that it could lose market share to rivals in the optical networking arena. Overall, TLAB faired well throughout the week and presented a variety of entry points, depending on your risk portfolio. Currently, the $53 mark is serving as a safety net on the deeper intraday dips, but consider taking a more conservative approach. Cautious types might wait for momentum traders to take TLAB back through the $56 and $58 levels on strong volume before beginning new plays. While the prospects for additional gains look good, nevertheless, keep stops tight. A close at $52 and we'll exit the play for better opportunities. BUY CALL DEC-50 TEQ-LJ OI= 725 at $7.63 SL=5.25 BUY CALL DEC-55*TEQ-LK OI=1570 at $4.50 SL=2.75 BUY CALL DEC-60 TEQ-LL OI=4196 at $2.38 SL=1.00 BUY CALL JAN-55 TEQ-AK OI=2474 at $6.63 SL=4.75 BUY CALL JAN-60 TEQ-AL OI=2618 at $4.38 SL=2.75 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=974 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 11-19-2000 Sunday 4 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/111900_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=952 ************************************************************** ************* NEW PUT PLAYS ************* FCEL - Fuel Cell Energy $54.25 (-7.25 last week) Fuel Cell Energy, formerly Energy Research Corporation, is a world class leader in the development and commercialization of clean, efficient fuel cell power plants for electric power generation. Fuel Cell Energy is headquartered in Danbury Connecticut, and employs more than 150 people with scientific, engineering, and manufacturing backgrounds. Fuel Cell Energy had a superb ride up the charts from a low of $19.41 in May to over $100 in October. The market correction in October helped to reverse the trend in FCEL, and in the last few weeks, the stock has suffered what looks like a severe reversal. After dropping below the 50-dma of $73.69 on November 6th, FCEL has continued to drop precipitously on heavy volume. This may simply be a correction in a stock which moved too far too fast and became overvalued. FCEL is not profitable, and filed a shelf registration on November 1st with the SEC to offer up to $250 million in debt securities and preferred and common stock. The market did not like this news, and FCEL dropped from $80 to its current level in two weeks. Companies which are not profitable are having a very difficult time in the current market conditions. The cost of financing is increasing, and it may be a few months before we see a rate cut by the Federal Reserve. In the mean time, it’s a long way down for FCEL, and a key support level of $60 was broken Friday. The 200-dma of $48.75 is the next major support level. The 5-dma of $60.88 is sharply below the 10-dma of $67, and the stock does not appear to have the strength to reach either level and stay there. Consider taking positions on a rollover at $55. Otherwise, consider entering new posiions on a failure of support at $53. Set stops at $61, as this could indicate a reversal of the down trend. BUY PUT DEC-60*FQG-XL OI=41 at $11.87 SL=8.87 BUY PUT DEC-55 FQG-XK OI= 0 at $ 8.63 SL=6.13 Wait for OI!! http://www.premierinvestor.net/oi/profile.asp?ticker=FCEL HAND - Handspring Inc $62.44 (-12.69 last week) Handspring manufactures the Visor handheld computer. The Visor is a personal organizer that is enhanced by an expansion slot for extra memory. This unique design accommodates such add-ons like wireless modems, books, games and digital cameras. The co- founders of Palm Computers created Handspring in 1998. Currently, Hawkins and Dubinsky retain a 51% stake in the company. With the exception of a short-lived bit of fame above $80, the $80 resistance has stymied HAND's upside potential. This is good considering our plan is to play HAND on the downside. As $80 limited the upside action, the $70 level buoyed the stock during the hard times. But this week, the share price transgressed and showed signs of weakness. A foreshadow of the stock's ultimate breakdown came early on Monday as HAND saw the $65 level before the bulls stepped in. The BUY reiteration at CSFB likely encouraged some of the buying. A mild recovery ensued until, once again, the $80 mark stopped the run short. The cycling pattern followed true to the end, almost. As the NASDAQ bounced off its immediate opposition (3200) on Wednesday, HAND followed with a decline of its own. But this time, the $70 level fail to buoy the share price in the jittery market. There also were no buyers for the issue at $65. HAND slipped to $61.13 at its low on Friday, closing down $8.00, or 11.4%. If HAND experiences an intraday move to the upside, the very aggressive might enter on a rollover at the 50-day line ($69.02), but be aware of the higher risk. On the other hand (no pun intended), expect some immediate opposition if HAND challenges $60. The more cautious might want to wait for a decisive breakdown before buying into the weakness. If the share price falls victim to the sellers at the $60 level, there's essential no real support until the $50 level. The outlook next week is indeed bearish and HAND's volume was respectable on the recent decline, but we're keeping our Stop tight at $69. Take a look at a chart and it's easy to see how this issue is a rather "spikey" mover. BUY PUT DEC-70 HQA-XN OI= 88 at $14.25 SL=10.50 BUY PUT DEC-65 HQA-XM OI= 80 at $11.00 SL= 8.25 BUY PUT DEC-60*HQA-XL OI=134 at $ 8.25 SL= 5.75 http://www.premierinvestor.net/oi/profile.asp?ticker=HAND ***************** CURRENT PUT PLAYS ***************** SLR - Solectron $34.44 (-1.56 last week) Solectron 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. Solectron continues to make its pattern of lower highs. After holding support at the 5-dma of $35 on Thursday, Solectron made a valiant attempt to rally above $35.50 on Friday morning, but it was not to be. By mid morning, support at $35 failed, and the stock dropped below $34.50, its lowest level in several months. The sell-off started a couple of weeks ago when Solectron announced that they would be purchasing NatSteel for over $2 billion. Since that time, all support levels have slowly eroded, as SLR is now firmly below the 200-dma of $41.69, the 50-dma of $44, and the 10-dma of $37.81, and the 5-dma of $35. To compound Solectron’s problems, the investment community did not respond well to news that they raised $1.2 billion in a secondary stock offering priced at $34.25, and planned to raise an additional $1.5 billion in liquid yield option notes. Solectron is a weak stock in a weak market, and could conceivably drop to the 52-week low of $28. Consider taking positions on a failed rally attempt past the 5-dma of $35, or on a breakdown below its intraday low Friday at $34. Continue to use the $37 level as a stop and close positions should SLR settle above that level. BUY PUT DEC-40 SLR-XH OI=2835 at $6.75 SL=4.75 BUY PUT DEC-35*SLR-XG OI= 640 at $3.25 SL=1.75 http://www.premierinvestor.net/oi/profile.asp?ticker=SLR NEWP - Newport Corporation $69.56 (-16.19 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. It appears that what goes down is likely to continue heading down. That was the theme for NEWP this past week as it continued deeper into negative territory. Continued weakness in Tech stocks and especially optical equipment manufacturers has made this a highly profitable put play. Trading lower in a downward-trending regression channel since its highs in late September, the stock has been more than cut in half. Having broken below its last line of moving average support last week, the 200-dma at $90.50, the stock attempted to rally above this point in the first half of the week but failing to do so, gave up as the buyers were no match for the strong selling volume. In fact, NEWP's stock price has been falling so fast that the lowest strike for December options is in the money at $75. With the 5- and 10-dma (now at $80.15 and $87.96 respectively) continuing to weigh on the issue, the downtrend appears to be solidly intact. On Friday, the selling continued unabated, with NEWP dropping another $6.19 or 8.17% on over twice the ADV. The continued selling on strengthening volume is disconcerting for the stock indeed. But what is disconcerting in this case is great news for us. The stock did however, find support at the $60 level. A failed rally above $70 and our stop price at $75 could allow aggressive traders to take a position but confirm the rollover with volume. For conservative traders, a break below $65 with the continuation of increased selling could be the signal to enter this play. BUY PUT DEC-80 NZZ-XP OI= 8 at $18.25 SL=13.00 BUY PUT DEC-75*NZZ-XO OI=33 at $15.13 SL=11.00 http://www.premierinvestor.net/oi/profile.asp?ticker=NEWP ARBA - Ariba, Inc. $76.06 (-24.44 last week) As a leading provider of B2B solutions and services to leading companies around the world, including more than 20 of the FORTUNE 100, Ariba helps companies cut through the complexity of opportunities presented by the new economy. Ariba provides the most comprehensive and open commerce platform to build B2B marketplaces, manage corporate purchasing, and electronically enable suppliers and commerce service providers on the Internet. Made up of a complete set of integrated commerce solutions and open network-based commerce services, the Ariba B2B Commerce Platform offers a single system for managing buying, selling, and marketplace eCommerce processes. As mentioned on Thursday when we started this put play, there are a number of concerns that have conspired to lead ARBA lower. We mentioned the unfulfilled potential of EDS CoNext, ARBA's joint venture with Electronic Data Systems. We also mentioned the subtle (or not so subtle) shift that has been occurring in the ever-changing B2B space, as the trend appears now to be leaning towards supply-chain management. This is bad news for ARBA since its core competency is in the more narrow e-procurement space. In addition to this, there are fears that the company's highly publicized alliance with IBM and i2 Technologies may be failing. There are also concerns that Andersen Consulting and ICG Commerce may provide an electronic procurement package for free. A no cost product from two highly-respected companies with a large corporate customer base could likely cut into ARBA's market share and currently fat profit margins. Add to all this valuation concerns and rumors of weak sales from rival Commerce One (CMRC) and its no wonder why ARBA has been adding to its losses. On Friday, ARBA was upgraded by First Analysis Securities from Accumulate to a Strong Buy rating. This did little to stop the bleeding, as the stock dropped another $1.81 or 2.33% on almost 4 times the ADV. Now well below all its moving averages, a failure to rally above the 5-dma at $87.27 as well as resistance at $85 and $80 could allow for an aggressive entry while a break below $75 on continued selling would make for a more conservative target. We have moved our stop down to $84 so make sure ARBA continues to close below this level. BUY PUT DEC-80 IUR-XP OI=251 at $13.88 SL=10.50 BUY PUT DEC-75*IUR-XO OI=414 at $11.50 SL= 8.50 BUY PUT DEC-70 IUR-XN OI=347 at $ 9.00 SL= 6.25 http://www.premierinvestor.net/oi/profile.asp?ticker=ARBA VRSN - VeriSign, Inc. $113.75 (-0.56 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. Continuing its 7-week bearish trend, VRSN put in another lower high this week, providing agile day traders with plenty of opportunities. Monday saw the sellers come out in force, driving the stock below $100 before buyers stepped in to help the stock recover over the next two days. Pushing the price up to $124 several times mid-week was all the bulls could accomplish before the bears retaliated, driving the price back down to $102.50 Friday morning. The bounce back was swift, as buyers pushed up to $120 before the stock declined to close at $113.75. Needless to say, the stock has been volatile over the past week, providing numerous entry points for aggressive traders. Driving the drop Friday morning was a dual threat to the monopoly that VRSN's Network Solutions subsidiary currently holds on domain name registrations. First the Internet Corporation for Assigned Names and Numbers (ICANN) ruled on creating new top level domain names, with new extensions like biz, .info, .name, .pro, and even .museum being issued by 2001. Then China lobbed a grenade at VRSN, mandating that only a handful of domestic firms may assign Chinese-language Internet addresses, striking a blow to the registration service launched last week by VRSN. This calls the company's revenue stream into question, an occurrence that is not being taken kindly by the investing public. New positions can still be considered as VRSN rolls over from the $120 level, as long as volume continues to favor the sellers over the buyers. Our stop is still waiting at $123, but unless market sentiment improves, it will be tough for buyers to break the stock out of this bearish trend. BUY PUT DEC-115 XVR-XC OI=383 at $16.25 SL=11.75 BUY PUT DEC-110*XVR-XB OI=532 at $13.63 SL=10.25 BUY PUT DEC-105 XVR-XA OI=114 at $10.88 SL= 8.00 http://www.premierinvestor.net/oi/profile.asp?ticker=VRSN RATL - Rational Software Corp $35.75 (-10.81 last 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. The technical break through the 200-dma ($46.03) and the $45 level this week coupled with the eventful market environment, provided the perfect synergy for RATL's downward momentum to accelerate. The share price quickly saw the underside of $45. But once it fell through the more chronicled support at $40, it was curtains for RATL. The NASDAQ's continuing struggle at 3200 added more fuel to RATL's devastating breakdown this week. While the stock received a vote of confidence from CSFB on Monday, who reiterated a strong buy and issued a $69 price target, it was Wit Soundview's downgrade that effected trading later in the week. With good volume taking RATL lower, it's possible the issue could see the light support of $30, which it hit during the March/April correction. We have however, not made any adjustments to our $44 Stop - that level still provides a 2+ point cushion before LVT would challenge the 200-dma line on a strong upswing. But take heed, even an entry on a high- volume rollover at the 5-dma ($39.99) is more risky than buying into continued weakness. In this wobbly market, we're looking for RATL heads toward its historical lows at the $30 level. BUY PUT DEC-45 RAQ-XI OI=315 at $10.63 SL=7.50 BUY PUT DEC-40 RAQ-XH OI=150 at $ 6.63 SL=4.75 BUY PUT DEC-35*RAQ-HG OI= 28 at $ 3.63 SL=1.75 http://www.premierinvestor.net/oi/profile.asp?ticker=RATL ************************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=975 ************************************************************** ***** LEAPS ***** Don't Tell Me the Election Mess Isn't Hurting the Markets! By Mark Phillips Contact Support It doesn't matter whether you are a Republican or Democrat, you've got to be getting frustrated with the stalemate in Florida. Politicians are telling us that the current litigious process isn't affecting our financial markets, but we know better. Just look at the behavior of the major indices on Friday morning. A sharp 100+ point rally on the DJIA and an 85 point rally on the NASDAQ were quickly reversed in the first 90 minutes of the session. The culprit wasn't an economic report or a surprise speech from Mr. Greenspan. No, the rally and subsequent decline both began within minutes of major political developments in the Florida election. As nice as it was to see the NASDAQ recover from its lows to close back over 3000, the index is getting far too chummy with this level for my comfort. The slowing economy is having its effect on even the most stellar technology companies, and this week Communications chipmakers like BRCM, PMCS, and AMCC felt the pinch. Their losses bled into the broader Networking stocks with continuing pressure being applied to our plays on NT, CSCO and JDSU. NT is causing us particular heartburn, as it is now down more than 60% from its late-July high of $89. The next level of support sits at $30, and if the Canadian networker can't hold this level, it will find itself on the Drop list faster than you can say "recount". There are a couple of other plays on the playlist that have been put on probation this weekend. CMRC broke its 6-month ascending trendline Friday on a false rumor that the company was circulating an internal memo pertaining to missing their revenue targets for the current quarter. The company refuted the rumors and the stock put in a solid bounce at $43, but wasn't able to recover all of the day's losses. We are drawing our threshold of pain at $40, and if CMRC falls below that, we'll drop it in a hurry. The other play that is skating on thin ice is COMS, which has continued to deteriorate in this bearish Technology market. It has solid support at $14 and is sitting just above its 200-dma ($13.81), and needs to bounce soon to prevent being ejected from the play list. Any close below the 200-dma and COMS will be added to the casualty list. Starting the week above 30 again, the VIX declined steadily throughout the week, ending at 27.85, as investors continued to move to the sidelines as they await some sort of political resolution. Speculation surfaced this week that the Fed would have liked to change their bias to Neutral, but in the absence of an election decision, chose to leave well enough alone until the dust settles. This disappointed investors as well, as they watch the parade of daily earnings disappointments caused by the slowing economy. Don’t forget about Austin's pesky Commercial traders. They are still sitting on 10-year record net short positions in the S&P 500 and it is unlikely the markets will be able to rally without participation from this group of heavyweights. Many of our plays are at values we never dreamed we would see again, and the temptation to buy has been almost overwhelming in recent weeks. Just remember that a stock that has declined to amazingly cheap prices CAN go lower. Until the election is resolved and there is some sign that serious buying is returning to the markets (stay tuned to Austin's Market Sentiment), be very selective about initiating new positions. Better to miss an entry point, than enter a play before it is through shaking out the sellers. Take the time to enjoy the holiday-shortened week, and 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 $47.50 400.00% 09/17/00 JAN-2003 $100 VUE-AT $32.75 $27.63 -15.65% CSCO 11/14/99 JAN-2002 $ 45 WIV-AI $11.00 $18.38 67.05% NT 11/28/99 JAN-2002 $37.5 WNT-AU $15.13 $10.25 -32.25% 09/10/00 JAN-2003 $ 75 ODT-AO $27.50 $ 5.13 -81.36% 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 $24.25 -38.61% AOL 03/12/00 JAN-2002 $ 65 WAN-AM $18.63 $ 6.40 -65.65% 08/13/00 JAN-2003 $ 55 VAN-AK $17.50 $13.90 -20.57% AXP 03/12/00 JAN-2002 $46.6 WXP-AQ $ 9.33 $16.63 78.19% WM 03/19/00 JAN-2002 $ 30 WWI-AF $ 5.38 $15.75 192.75% 10/22/00 JAN-2003 $ 45 VWI-AI $ 7.88 $10.00 26.98% JDSU 04/16/00 JAN-2002 $ 80 YJU-AP $39.63 $20.63 -47.96% 08/27/00 JAN-2003 $130 VEQ-AF $55.25 $17.75 -67.87% NOK 05/21/00 JAN-2002 $ 50 IWX-AJ $17.25 $ 8.13 -52.90% 07/30/00 JAN-2003 $ 50 VOK-AJ $17.75 $11.88 -33.10% C 06/18/00 JAN-2002 $48.8 YSV-AW $10.31 $11.75 13.97% 10/01/00 JAN-2003 $ 60 VRN-AL $12.25 $10.38 -15.31% GENZ 07/16/00 JAN-2002 $ 70 YGZ-AN $17.13 $27.25 59.08% JAN-2003 $ 70 OZG-AN $23.13 $34.13 47.54% EXDS 08/06/00 JAN-2002 $ 55 WZZ-AK $20.75 $ 5.50 -73.49% JAN-2003 $ 60 VTQ-AL $25.38 $ 8.38 -67.00% MFNX 08/06/00 JAN-2002 $ 40 WOF-AH $13.75 $ 3.13 -77.27% JAN-2003 $ 45 VKW-AI $15.63 $ 4.75 -69.61% FRX 08/13/00 JAN-2002 $ 95 WRT-AS $31.38 $52.63 67.70% JAN-2003 $100 VFB-AT $37.38 $58.75 57.17% BRCD 08/27/00 JAN-2002 $220 YNU-AD $65.38 $69.25 5.92% JAN-2003 $220 OMW-AD $86.50 $90.25 4.34% CMRC 09/10/00 JAN-2002 $ 80 YCU-AP $30.13 $13.38 -55.61% JAN-2003 $ 80 OCU-AP $38.75 $21.00 -45.81% QCOM 09/17/00 JAN-2002 $ 70 WBI-AN $22.50 $37.38 66.11% JAN-2003 $ 70 VLM-AN $29.63 $45.50 53.56% COMS 10/01/00 JAN-2002 $ 20 WTH-AD $ 6.38 $ 3.38 -47.06% JAN-2003 $ 25 VTH-AE $ 7.13 $ 4.25 -40.35% INTC 10/15/00 JAN-2002 $ 45 WNL-AI $ 9.50 $ 9.75 2.63% JAN-2003 $ 45 VNL-AI $13.38 $13.75 2.80% TXN 10/22/00 JAN-2002 $ 50 WTN-AJ $13.75 $11.13 -19.09% JAN-2003 $ 50 VXT-AJ $18.38 $15.50 -15.65% ADBE 10/29/00 JAN-2002 $ 80 YEJ-AP $23.50 $28.13 19.68% JAN-2003 $ 80 VAE-AP $30.75 $36.63 19.11% BGEN 11/05/00 JAN-2002 $ 70 WGN-AN $17.25 $13.63 -21.01% JAN-2003 $ 70 VNG-AN $25.00 $20.63 -17.50% Spotlight Play ADBE - Adobe Systems $133.50 It's not often that we feature a play in our Spotlight less than a month after adding it to the playlist, but ADBE has that distinction this week. As the Technology sector has continued to melt down in the face of the election crisis and a slowing economy, the Internet software company has continued to impress. Adapting itself to the Internet economy over the past 2 years, ADBE has managed to dodge the rampant selling by continuing to accelerate its revenue growth. The uptrend that has been in place since the beginning of the year is still going strong, and the trendline is now sitting at $71. Major historical support sits at this level as well, making it an ideal level to place our stop for the play. Even with the current election uncertainty, ADBE recovered from Monday's tech slide and managed to test the $85 resistance level on Friday. The company is currently scheduled to release its earnings report on December 14th, and in light of the current investor nervousness, prudent investors will tighten up their stops before the announcement. Milder support exists between $78-80, followed by $76. As investors search for technology stocks that have not cratered, ADBE has seen heavy trading volume over the past two months, a sure sign that there is plenty of interest for the stock. While target shooting intraday bounces at support can provide attractive entry points for aggressive investors, those with a more conservative approach will wait for a convincing move over $85 before initiating new positions. BUY LEAP JAN-2002 $85.00 YEJ-AQ at $26.25 BUY LEAP JAN-2003 $90.00 ODJ-AR at $33.50 New Plays MSFT - Microsoft $69.06 Yes, that's right! Mr. Softee is back, after visiting the sub-$50 range and posting a 2-year low a last month. Under continuous pressure over the past year from the Justice Department's antitrust case against the software giant, MSFT fell sharply from its spring highs near $120. Adding to the downside pressure has been concern over a downturn in the PC market, and the effect that would have on the company's profitability. MSFT took a big step towards allaying investor concerns with its most recent earnings report, beating estimates by a nickel. The strong earnings were powered by shrinking expenses, growing investment gains, and momentum in its flagship product, the Windows 2000 operating system. Based on expected sequential revenue growth in the high teens, several major brokerages came forward the next day, (among them CIBC World Markets, Robertson Stephens, Chase H&Q and JP Morgan) reiterating their Buy ratings on the stock. After the sharp post-earnings rise, MSFT has been consolidating between $67-70, as investors await the outcome of the presidential election. The best entry strategy will be to target shoot new entries on a bounce from the $65-67 support level, as long as the bounce comes on strong volume. One word of caution though - wait for the election results to be finalized before initiating new positions. Until that event comes to pass, it is unlikely that the Technology market will be capable of supporting any significant upside moves. BUY LEAP JAN-2002 $75.00 WMF-AO at $12.63 BUY LEAP JAN-2003 $75.00 VMF-AO at $17.88 Drops BRCD $220.19 Although it is one of the few Technology stocks that has failed to sell off, it is looking particularly vulnerable. Unless you have been living in a cave lately, you have seen one high-flying stock after another sell off, frequently after forming either a double-top or a head-and-shoulders formation. BRCD has just completed its own head-and-shoulders formation, and if it follows the pattern of its high-valuation technology brethren, BRCD could have a dramatic breakdown in the near future. Support sits right at the neckline of the formation ($214), and if our play violates that level, it looks like an easy trip to $200, with a strong possibility of falling to the 200-dma at $174.38. Although our play is still profitable, the risk associated with holding such a high-premium LEAP in this bear market far outweighs the potential reward. We no longer feel comfortable adding new positions in BRCD, and strongly recommend tightening up your stops, and then exiting open positions on any strength. MFNX $17.44 Despite continuing to accelerate its revenue growth, MFNX is continuing to come under pressure. Investors have been merciless in their selling of any stock related to the Telecom sector. After falling below the $25 level, it has become clear that the stock will have a hard time recovering in the current market environment. Although growing rapidly, the company is still unprofitable, and investors have become exceedingly intolerant of a lack of profits in their portfolio. Resistance has now formed near $22, and it looks increasingly likely that MFNX will fall below its October low of $15.06. Rather than play the contrarian roll, we are dropping it this weekend. *********** SPLIT PLAYS *********** The Election's Split, But What About Stocks? By Matt Russ Well, stocks prices have dropped to levels resembling split prices but the shares haven't increased. As a result, many previous candidates have fallen from the list. The election tug-o-war and the legal maneuvering all over the media has crippled the market into a call and response mode, where the Presidential camps speak and the market ripples. Today was a perfect example. Early this morning, a Florida court ruled that the Secretary of State did not act arbitrarily in denying late recounted votes. The market spikes on the pro-Bush news, and quickly crumbles within an hour. So until we can get a certified Presidential-Elect, and more important, an end the legal wrangling, splits candidates look few and far between. On an upbeat note, MANU announced a 2-1 split as predicted, so we're chalking it up to the Top 10 list. Current Split Run Plays None Current Split Candidate Plays None Candidates That Are Not Current Plays BRCD CFLO CMVT PMCS SEBL VSTR 10 Most Recent Announcements We Predicted MANU - 11/08 (most recent announcement) MUSE - 10/25 AMCC - 10/11 DNA - 10/05 LEH - 09/20 ORCL - 09/14 SUNW - 08/17 GLW - 08/16 HWP - 08/16 CIEN - 08/15 Major Announcements So Far This Month = 19 ARXX ANEN MANU SKYW INOD INFA COCO TECH PENG SRDX SWWC BARZ TALX SONC AREA AJG SYY ILI SGR For our complete stock split calendar, click here... http://members.OptionInvestor.com/splits/index.asp Symbol Company Name Splits Payable Executable 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 SONC - Sonic Corp 3:2 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 Technology 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 SRDX - SurModics, Inc. 2:1 12/06/2000 12/07/2000 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 Research 2:1 12/08/2000 12/11/2000 AREA - Area Bancshares Corp. 3:2 12/10/2000 12/11/2000 PENG - Prima Energy Corporation 3:2 12/11/2000 12/12/2000 ABK - Ambac Financial 3:2 12/12/2000 12/13/2000 INFA - Informatica Corp. 2:1 12/13/2000 12/14/2000 SYY - SYSCO Corporation 2:1 12/15/2000 12/18/2000 SGR - Shaw Group 2:1 12/15/2000 12/18/2000 COCO - Corinthian Colleges, Inc. 2:1 12/15/2000 12/17/2000 EMLX - Emulex Corp. 2:1 12/15/2000 12/18/2000 SKYW - SkyWest, Inc. 2:1 12/15/2000 12/18/2000 BARZ - BARRA, Inc. 2:1 12/18/2000 12/19/2000 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 AJG - Arthur J. Gallagher & Co. 2:1 01/18/2001 01/19/2001 SWWC - Southwest Water 5:4 01/19/2001 01/22/2000 TALX - TALX Corp. 3:2 01/19/2001 01/22/2001 ***********************ADVERTISEMENT************************ Get a NextCard Visa, in 30 seconds! 1. Fill in the brief application 2. Receive approval decision within 30 seconds 3. Get rates as low as 2.9% Intro or 9.9% Fixed APR http://www.sungrp.com/tracking.asp?campaignid=988 ************************************************************ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 11-19-2000 Sunday 5 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/111900_5.asp ************* COVERED CALLS ************* Market Mentality: The Emotional Cycle of Investing By Mark Wnetrzak Over the past few weeks, we have received a number of questions regarding a relatively new activity: buying and selling stocks in a bearish market environment. Successful investing requires observation, comprehension and action. Experienced traders learn to understand the facts, and the reasons behind market-moving events, observe the trends, and identify the early stages of a rally or decline. But, it is not enough to merely observe the activity and discern the movements. You must also develop a sense of market emotion and learn to put a range of indicators together in context, including the ability to perceive when a trend is approaching an extreme. Of course, all that aptitude will be worthless if you take no useful action. Acting upon your observations is without doubt the most difficult skill to master, and when the market is overwhelmed by rampant selling pressure, the task can be all the more daunting. Unless you are a seasoned investor, it is difficult to evaluate the market's unusual behavior for lack of past experience. However, there is one condition that is easy to observe: the opinion of the masses. For example, when the majority of participants are in agreement on the current outlook, there is a high probability that a move in the opposite direction is forthcoming. In simple terms, stocks will rally when every seller has been accommodated. In contrast, when everyone who wants to buy is fully invested, there is little potential for further upside activity. You have all heard the phrase, "In the stock market, the public is right during the trends but wrong at both ends," and that statement was never more correct than in a bearish environment. When the market is in a bullish trend, the emotion of the moment generally dictates the issue, causing the majority of typical traders to enter new positions near the top, when most stocks are finishing the rally. At that point, everybody who is bullish on the issue already has it and there is no one left to support the price. The professionals are the first to exit, quietly closing out their positions while the public is overwhelmed by glowing earnings reports and bullish forecasts. As the stock struggles to hold its gains, trading volume drifts lower and the primary groups trading the issue; the technicians, the fundamentalists and the general public compete to determine the next trend. When the historical pattern exhibits the first signs of failure, the technical traders begin to sell in earnest. Analysts raise the company's targets to support the inflated share value, but when the issue no longer responds to good news, the outcome is clear. Soon the public becomes nervous and as the correction takes shape, closing orders increase in number. The fundamentalist is the last to go, generally after a full-scale downtrend is in effect. With this type of psychological analysis, it obvious how human nature determines our actions in the stock market. Hope leads to fear, and then to panic, and the few that remain through it all (the amateurs), eventually unload their positions for significant losses. After the market has endured a substantial decline, it's hard to overcome the public's fear and loathing, and the widespread disbelief that any recovery is forthcoming. The general panic propagated by dour doomsayers and the media's sensationalistic coverage of every negative event often creates an apparently insurmountable obstacle. The act of buying into weakness, in opposition of the crowd, will always feel uncomfortable and when the time comes to make the trade, its unlikely you'll have all the necessary information. With that in mind, it's easy to see why anticipating a change in the direction of the market is more an art than a science. In addition, those who hear your opposing views and witness your contra-intuitive behavior will likely voice their opinions, and they may eventually convince you to abandon your independent line of thinking, at precisely the wrong time. The important issue is to always consider the contrarian viewpoint, even if the perspective leaves you alone in your outlook, without confirmation from the masses. Remember, the stock market moves quickly from one extreme to the next, and success in investing requires that you act as an individual during those times when being part of the crowd simply contributes to the current market behavior. 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 20.63 NOV 7.50 2.81 *$ 0.93 15.4% MTSI 12.00 20.63 NOV 10.00 2.50 *$ 0.50 11.4% AVID 14.75 15.94 NOV 12.50 3.63 *$ 1.38 10.8% TSIX 16.75 13.06 NOV 12.50 5.00 *$ 0.75 9.2% SNWL 17.94 22.94 NOV 15.00 3.25 *$ 0.31 9.2% FFD 12.00 14.13 NOV 10.00 2.75 *$ 0.75 8.8% ANSR 17.00 14.13 NOV 12.50 5.13 *$ 0.63 7.7% ANSR 18.31 14.13 NOV 12.50 6.63 *$ 0.82 7.6% BCGI 23.13 25.94 NOV 20.00 4.00 *$ 0.87 6.6% ARDM 24.63 19.16 NOV 17.50 7.63 *$ 0.50 6.4% CTXS 21.44 30.88 NOV 17.50 4.88 *$ 0.94 6.2% GALT 28.13 22.56 NOV 22.50 6.25 *$ 0.62 6.2% VMSI 25.63 30.69 NOV 22.50 4.00 *$ 0.87 5.8% RDRT 7.94 5.81 NOV 5.00 3.25 *$ 0.31 5.7% FIBR 32.50 24.81 NOV 20.00 13.50 *$ 1.00 5.7% ACXM 40.75 39.81 NOV 35.00 6.63 *$ 0.88 5.6% BPUR 17.38 28.00 NOV 15.00 3.25 *$ 0.87 5.4% PROX 58.75 59.50 NOV 50.00 10.50 *$ 1.75 5.3% UAXS 15.31 13.13 NOV 12.50 3.38 *$ 0.57 5.2% ECLP 21.38 27.00 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 27.13 NOV 25.00 8.25 *$ 0.69 4.1% ENTU 29.25 23.69 NOV 25.00 5.50 $ -0.06 0.0% GOAM 11.63 8.56 NOV 10.00 2.06 $ -1.01 0.0% HWP 46.25 35.63 NOV 40.00 7.25 $ -3.37 0.0% MTIC 6.00 8.13 DEC 5.00 1.44 *$ 0.44 7.0% SUPG 21.47 19.56 DEC 17.50 5.25 *$ 1.28 6.9% BCGI 26.31 25.94 DEC 22.50 5.38 *$ 1.57 6.5% MME 17.75 20.63 DEC 17.50 1.31 *$ 1.06 5.6% MTSI 17.38 20.63 DEC 12.50 5.63 *$ 0.75 5.5% HPC 18.44 18.88 DEC 17.50 1.88 *$ 0.94 4.9% *$ = Stock price is above the sold striking price. Comments: If you think the old support area in 1999 will hold, you may consider rolling forward on Entrust(ENTU) - that is, if you didn't already exit the position. The end-of-September high may yet hold for Goamerica (GOAM) - a key moment. Hewlett- Packard (HWP) disappointed investors with lower earnings and the company's share value suffered the consequences. Now you must re-evaluate the long-term potential for the stock and decide if it should remain in your portfolio. 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 MTIC 8.13 DEC 7.50 QTX LU 1.38 333 6.75 28 12.1% AVID 15.94 DEC 15.00 AQI LC 2.19 223 13.75 28 9.9% ISIP 11.56 DEC 10.00 QIS LB 2.31 17 9.25 28 8.8% LGTO 11.88 DEC 10.00 EQN LB 2.38 1086 9.51 28 5.7% MU 33.75 DEC 27.50 MU LR 7.50 61 26.25 28 5.2% TTN 20.94 DEC 17.50 TTN LW 4.13 57 16.81 28 4.5% PLNR 24.00 DEC 20.00 PNQ LD 4.75 143 19.25 28 4.2% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** AVID - Avid Technology $15.94 *** Pending Breakout? *** 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 its share value and this position offers a reasonable entry point for investors who want to own the stock. DEC 15.00 AQI LC LB=2.19 OI=223 CB=13.75 DE=28 MR=9.9% ***** ISIP - Isis Pharmaceuticals $11.56 *** Drug Speculation *** Isis Pharmaceuticals is exploiting its expertise in RNA to discover and develop novel human therapeutic drugs. Isis has commercialized its first product, Vitravene(TM) (fomivirsen), to treat CMV-induced retinitis in patients with AIDS. In addition, Isis has 11 products in its development pipeline, with two in late-stage development and four in Phase II human clinical trials. Isis' stock surged a few weeks ago when the company announced the FDA has granted fast track review status to ISIS 3521, the company's anti-sense drug to treat non-small cell lung cancer. The FDA's "fast track" reviews are typically completed within 6 months, instead of the usual 10 to 12 months, to address needs for life-threatening diseases. Except for last January's volatility, Isis has traded in a very narrow range near $10. This position offers a reasonable cost basis for those wishing to speculate on the future results of Isis' drug trials. DEC 10.00 QIS LB LB=2.31 OI=17 CB=9.25 DE=28 MR=8.8% ***** LGTO - Legato Systems $11.88 *** Buyout Candidate? *** Legato is a worldwide leader in enterprise storage management and application availability. Legato has become the recognized industry standard for storage management software products, currently shipping to 30 of the 50 Fortune "e-50" top businesses. In late October, Legato disappointed investors after the company missed analysts' 3rd-quarter estimates, which was attributed to new licensing terms introduced at the beginning of the quarter. The stock dropped quickly but appears to have made a successful test of the August low as the company forges a Stage I base. The recent rally appears to be on merger or buyout rumors with VRTS as the likely target. We believe in the bullish move (the "tape doesn't lie" theory) and a cost basis near proven support offers a reasonable entry point for speculators. DEC 10.00 EQN LB LB=2.38 OI=1086 CB=9.51 DE=28 MR=5.7% ***** MTIC - MTI Technology $8.13 *** Data Storage Systems! *** MTI Technology provides Continuous Access to Online Information through fault-tolerant, cross-platform Vivant data storage systems. MTI develops, manufactures, sells and services open systems data server solutions for Global 2000 companies on a worldwide basis. MTI Tech has been in a Stage I base since July as the company has had to focus on replacing business that had been lost as a result of the dramatic slowdown in the dot.com market. As MTI works on rebuilding and diversifying its customer base, the growth in the storage industry should help the company accomplish its goals. MTI Tech is moving forward with product development and recently introduced the new MTI Vivant S200, a Fibre Channel SAN based storage appliance designed for use in UNIX and Windows NT/2000 environments. The breakout above the August high is bullish and this position establishes a conservative cost basis in the issue. DEC 7.50 QTX LU LB=1.38 OI=333 CB=6.75 DE=28 MR=12.1% ***** MU - Micron $33.75 *** Chip Sector Bottom Fishing! *** Micron, and its subsidiaries manufacture and market DRAMs, very fast SRAMs, Flash, other semiconductor components, memory modules, graphic accelerators, and personal computer systems. The battle continues in the Semiconductor Industry with Prudential Securities cutting Micron's fiscal 2001 earnings-per-share estimates from $2.60 to $2.30 on Thursday. The worry continues to be the weak DRAM pricing and high OEM inventories. What is interesting, is when a stock doesn't drop on bad news. It appears that Micron has found support and several technical indicators have begun to show a positive divergence. A favorable cost basis for those investors who have a long-term bullish outlook on the company. DEC 27.50 MU LR LB=7.50 OI=61 CB=26.25 DE=28 MR=5.2% ***** PLNR - Planar Systems $24.00 *** Blue Sky Territory? *** Planar is a worldwide leader in the development and marketing of high performance information display systems currently supplied to more than 1,000 customers. The company is at the leading edge in providing customers in the medical, transportation and industrial markets with value-added products that allow digital and video information to be viewed in a wide range of applications. The company reported a strong 4th quarter with higher-than-expected sales and net income before accounting for non-recurring charges. Sales for the quarter rose to $47 million, up 42%, as Planar benefited from a favorable product mix and improved yield in the company's LCD and CRT operations. Net income, excluding the non- recurring charge, was $4 million or $0.32 per diluted share. The stock has rallied strongly on heavy volume breaking out to a new multi-year high ($0.25 shy of a new all-time high). Some "strong buy" recommendations and a favorable cost basis make for excellent speculation. DEC 20.00 PNQ LD LB=4.75 OI=143 CB=19.25 DE=28 MR=4.2% ***** TTN - Titan $20.94 *** On the Move! *** The Titan Corporation is a leading-edge technology company that creates, builds and launches technology-based businesses, offering innovative technical solutions. Titan markets the leading technology for the electronic pasteurization of food products. The company's three other core businesses develop and deploy communications and information technology solutions and services. Titan reported earnings at the beginning of November, showing a revenue increase of 30%. Its commercial businesses also reported a strong quarter: Wireless revenue up 338%, SureBeam revenue up 164%, and Cayenta revenue up 97%. Investors were pleased as the stock has rebounded strongly off of its October low. Several new contracts, alliances, and new patents should bode well for the future. We simply favor the bullish change of character. DEC 17.50 TTN LW LB=4.13 OI=57 CB=16.81 DE=28 MR=4.5% ***************** SUPPLEMENTAL COVERED CALLS ***************** The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Return ***** Stock Last Call Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return PCTL 6.13 DEC 5.00 PTQ LA 1.69 53 4.44 28 13.7% ELY 17.50 DEC 17.50 ELY LW 0.88 95 16.62 28 5.8% MXTR 8.56 DEC 7.50 MQL LU 1.44 1020 7.12 28 5.8% AEOS 39.31 DEC 35.00 AQU LG 5.75 68 33.56 28 4.7% ROST 16.69 DEC 15.00 REQ LC 2.19 10 14.50 28 3.7% ************************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=953 ************************************************************** ************************* NAKED PUT PERCENTAGE LIST ************************* Naked Put Percentage List By Matt Russ Stock Stock Strike Option Option Margin Percent Support Symbol Price Price Symbol Price At 25% Return Level ADBE 82.75 75 AXX-XO 4.25 2069 21% 80 AETH 103.25 90 HIZ-XR 7.00 2581 27% 100 ALXN 90.25 80 XQN-WS 3.00 2256 13% 80 CIEN 104.50 95 UEE-XS 9.38 2613 36% 95 DGX 106.25 95 DGX-XS 4.25 2656 16% 98 EMLX 149.00 135 UEL-XG 10.75 3725 29% 133 FRX 133.63 125 FRX-XE 5.00 3341 15% 125 IDPH 170.50 160 IDX-XL 10.25 4263 24% 160 ISSX 89.81 85 ISU-XQ 5.75 2245 26% 85 ITWO 126.13 110 QYJ-XB 6.88 3153 22% 110 IWOV 85.38 80 IQG-XP 8.25 2135 39% 80 LH 148.88 135 LH-XG 4.13 3722 11% 135 MANU 115.44 95 ZUQ-XS 6.25 2886 22% 93 PHCM 87.75 80 UGE-XP 6.50 2194 30% 80 PKI 109.38 100 PKI-XT 4.13 2735 15% 100 QCOM 88.81 80 AAF-XP 3.25 2220 15% 80 RBAK 80.75 65 BUK-XM 4.13 2019 20% 65 SANM 97.94 85 SQN-XQ 4.25 2449 17% 85 SCMR 64.06 55 SMZ-XK 4.50 1602 28% 55 SDLI 245.00 210 QZL-XB 8.88 6125 14% 210 SEBL 95.06 80 SGW-XP 3.13 2377 13% 80 SUNW 89.31 80 SUX-XP 3.63 2233 16% 80 VTSS 67.13 60 VQT-XL 5.25 1678 31% 55 WEBM 89.00 80 OUW-XP 4.75 2225 21% 80 *********************** CONSERVATIVE NAKED PUTS *********************** Success Basics: Systematic Trading By Ray Cummins Developing a reliable and effective trading system is the first step in becoming successful in the stock market. A precise, well-defined plan of attack can help inexperienced investors learn proper money management and the correct use of technical analysis in identifying precise entry and exit points. Trading in a systematic manner is far more likely to produce consistent profits than a scheme based on intuition, emotion or the trend of the day. The benefits to this approach are many but most importantly, you can eliminate the guesswork that comes from trying to manage an active position without realistic goals or loss limits. The targets and exit strategies are predefined, leaving no doubt as to when and how to get out of a position if the market moves against you. Potential risk is identified prior to beginning the trade, with a fixed limit on maximum losses and a formula for taking profits. There are no positions initiated without a complete assessment of the capitalization necessary to carry out the entire strategy, even in the worst case scenario. A thorough study of the underlying issue's historical data is used to provide objective goals for future movement, based on expected volatility and technical indications. With all of these elements properly evaluated and arranged, you can develop an effective plan that contains a suitable risk-reward outlook based on appropriate strategies that are compatible with your personal trading style. One of the most important steps in developing a profitable system is identifying the appropriate level of complexity when selecting trading techniques. The simplest approach is most often the best but every strategy has risk and it is impossible to classify any particular technique as the absolute perfect method. In most cases, there is more than one favorable technique and even though each strategy has different attributes, they can all be useful in a trader's arsenal at the proper time. The easiest way to become successful is to completely understand the mechanics of any technique that you are using and try to construct a group of diverse positions based on the correct market outlook. Of course you must remember that the individual investment objectives are far more important than the merits of the technique itself. If a specific strategy is not suitable for you or your trading style then it should not be used, no matter how attractive it appears. In addition to selecting the proper trading techniques, you must also identify the appropriate time frame in which to participate in the market. Most investors are suited to longer-term plays as they require less attention and are easy to manage for those who have full-time commitments to work or family. Traders who have the temperament and resources to follow the markets at all hours should consider short term techniques based on intraday data and momentum-based trends. Using the appropriate strategy when the markets dictates action is the fundamental step in developing the ability to trade in a disciplined manner. After you have identified the characteristics of the market and selected the correct technique to profit from future trends, the next task is to determine specific entry and exit points for the underlying instrument. In most cases, technical analysis should be used to ascertain the correct parameters for risk and reward. With this approach, a simple mechanism for money management is built into the initial position. Entry timing can be based on a number of different indicators and the criteria used to identify a trading opportunity is a personal choice. The great thing is, you don't have to open any position until you are satisfied with the probability of a profitable outcome. You can search through charts for the perfect pattern, perform extensive due-diligence, and wait for the best combination of technical indicators and favorable market conditions. In short, you can forego any trade until the number of reasons to participate becomes overwhelming. Remember, the market does not care whether you play along or sit on the sidelines. In addition, when you trade without a system, it's amazing how confusing the situation can become. Once you open a position, the market is in charge, but that doesn't mean you have to play by its rules. Good Luck! *** WARNING!!! *** Occasionally a company will experience catastrophic news causing a severe drop in the stock price. This may cause a devastatingly large loss which may wipe out all of your smaller gains. There is one very important rule; Don't sell naked puts on stocks that you don't want to own! It is also important that you consider using trading STOPS on naked option positions to help limit losses when the stock price drops. Many professional traders suggest closing the position when the stock price falls below the sold strike or using a buy-to-close STOP at a price that is no more than twice the original premium from the sold option. SUMMARY OF PREVIOUS PICKS ***** Stock Price Last Put Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return ANSR 17.00 14.13 NOV 12.50 0.63 *$ 0.63 22.6% JDEC 28.00 28.06 NOV 22.50 0.50 *$ 0.50 17.5% BVSN 35.75 36.00 NOV 30.00 0.69 *$ 0.69 16.2% ATSN 45.38 42.50 NOV 40.00 0.88 *$ 0.88 14.0% ARQL 28.50 24.25 NOV 22.50 0.38 *$ 0.38 13.6% ECLP 25.31 27.00 NOV 20.00 0.50 *$ 0.50 13.0% CLTR 44.00 38.69 NOV 25.00 0.50 *$ 0.50 11.7% BCGI 23.94 25.94 NOV 17.50 0.56 *$ 0.56 11.4% CYTC 50.25 53.56 NOV 40.00 1.13 *$ 1.13 11.0% STAT 22.72 21.31 NOV 20.00 0.69 *$ 0.69 10.6% RNBO 23.50 20.06 NOV 17.50 0.44 *$ 0.44 9.3% Adj 2-1 Split ENTU 29.00 23.69 NOV 20.00 0.50 *$ 0.50 8.6% PATH 17.63 18.06 NOV 15.00 0.38 *$ 0.38 8.6% OCR 16.88 16.81 NOV 15.00 0.63 *$ 0.63 8.3% CERN 60.31 55.44 NOV 50.00 0.75 *$ 0.75 7.5% AMZN 35.63 27.44 NOV 22.50 0.38 *$ 0.38 7.3% ACXM 40.25 39.81 NOV 35.00 0.56 *$ 0.56 7.1% CHTR 19.38 21.38 NOV 17.50 0.63 *$ 0.63 7.0% ENMD 38.00 27.13 NOV 22.50 0.25 *$ 0.25 6.9% VICR 49.38 40.63 NOV 40.00 0.88 *$ 0.88 6.8% PLMD 57.50 51.16 NOV 45.00 0.50 *$ 0.50 6.0% HSIC 22.56 25.56 NOV 20.00 0.50 *$ 0.50 5.2% ICN 40.19 34.13 NOV 35.00 0.56 $ -0.31 0.0% APWR 55.63 33.25 NOV 35.00 1.06 $ -0.69 0.0% AVID 15.31 15.94 DEC 12.50 0.56 *$ 0.56 12.6% ECLP 22.75 27.00 DEC 17.50 0.63 *$ 0.63 10.6% IMG 27.63 25.25 DEC 22.50 0.81 *$ 0.81 10.5% IDXC 29.38 29.63 DEC 22.50 0.75 *$ 0.75 9.8% MTON 18.94 19.38 DEC 15.00 0.38 *$ 0.38 7.9% SMSC 25.00 23.88 DEC 20.00 0.44 *$ 0.44 7.0% OXHP 37.38 40.06 DEC 30.00 0.56 *$ 0.56 6.0% *$ = Stock price is above the sold striking price. Comments: Unfortunately, there was no play on American Freightways (AFWY) as the FedEx buyout was announced before Monday's open. The technical outlook on Astropower (APWR) is weakening and a move towards $30 or lower seems probable. ICN Pharma's (ICN) will most likely be assigned (if you did not exit the issue), but there may be a post-election rally to help the issue recover. In any case, a retest of its 150 dma appears to be the path of least resistance. Positions Closed: Vintage Petroleum (VPI) - Murphy's Law strikes again as our hedge position rallied this week. The play closed positive for the November expiration period. Osicom (FIBR) fell below the break-even price, but the assignment will include shares of the company's spin-off; Entrada Networks (ESAN). That may help ease the pain for those of you who did not exit the position after last week's bearish comments. NEW PICKS ********* Sequenced by Return ****** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return CTXS 30.88 DEC 25.00 XSQ XE 0.63 1799 24.38 28 9.6% VLNC 17.31 DEC 12.50 VHQ XV 0.31 97 12.19 28 9.0% PSUN 22.19 DEC 17.50 PVQ XW 0.38 7 17.12 28 8.6% HNT 22.25 DEC 20.00 HNT XD 0.50 0 19.50 28 7.6% BVSN 36.00 DEC 25.00 BDV XE 0.50 1043 24.50 28 7.1% TLB 49.81 DEC 40.00 TLB XH 0.50 321 39.50 28 5.1% KMI 43.25 DEC 40.00 KMI XH 0.56 1 39.44 28 4.2% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** BVSN - BroadVision $36.00 *** Entry Point! *** BroadVision develops, markets and supports application software solutions designed for one-to-one relationship management across an extended enterprise. These solutions enable businesses to use the Internet as a platform to conduct electronic commerce, offer online customer self-service, deliver targeted information to constituents, and provide online financial services. Each of the capabilities can be made available to all constituents of the extended enterprise, including customers, suppliers, partners, distributors and employees. The recent rally in BVSN started in mid-October when the company reported favorable earnings with both revenue and EPS ahead of consensus expectations. Highlights of the quarter included the rollout of two new products, several key contracts and the signing of 115 new customers and 27 new partners. Analysts say that BVSN, with its army of consultants and broad product offering, will be one of the big winners in e-commerce. The short-term technical indications agree with that outlook. DEC 25.00 BDV XE LB=0.50 OI=1043 CB=24.50 DE=28 MR=7.1% ***** CTXS - Citrix Systems $30.88 *** On The Move! *** Citrix Systems is a supplier of application server products and technologies that enable the fast and effective enterprise-wide deployment and management of applications designed for Microsoft Windows operating systems. The company's MetaFrame and WinFrame product lines, developed under license and strategic alliance agreements with Microsoft, permit organizations to deploy Windows applications without regard to location, network connection, or type of client hardware platforms. These products utilize CTXS's Independent Computing Architecture, which allows an application's graphical user interface to be displayed to a client while its logic is executed on a server, thereby providing a manageable and bandwidth-efficient solution. CTXS rallied last week after Lehman Brothers raised its price target to $30 a share on the software developer. The analyst reported that Citrix will likely launch a significant upgrade to MetaFrame in the coming quarter and revenue growth may approach 30%. We favor the bullish technical outlook. DEC 25.00 XSQ XE LB=0.63 OI=1799 CB=24.38 DE=28 MR=9.6% ***** HNT - Healthnet $22.25 *** Portfolio Position *** Health Net, formerly known as Foundation Health Systems, is an integrated managed care organization that administers the delivery of managed health care services. The company's health maintenance organizations, preferred provider organizations and government contracts subsidiaries provide health benefits to millions of individuals in 18 states through group, individual, Medicare risk, Medicaid and TRICARE programs. The company's subsidiaries also offer managed health care products related to behavioral health, dental, vision and prescription drugs, and offer managed health care product coordination for multi-region employers and other services for medical groups and self-funded benefits programs. Foundation Health has always been an OIN favorite for long-term stock portfolios and now that the company has a new name, it is appropriate to add the issue to our "recommended" list. DEC 20.00 HNT XD LB=0.50 OI=0 CB=19.50 DE=28 MR=7.6% ***** KMI - Kinder Morgan $43.25 *** Hedge Play! *** Kinder Morgan is a midstream energy company that operating more than 30,000 miles of natural gas and products pipelines in 26 states. It also has significant retail natural gas distribution, electric generation and bulk terminal operations. Kinder Morgan, through a general partner interest, operates Kinder Morgan Energy Partners, a pipeline master limited partnership. Kinder Morgan also holds a significant limited partner interest in Kinder Morgan Energy Partners. KMI Morgan is this week's Energy sector "hedge play" and based on recent analyst's comments and bullish technical indications, this play may be a candidate for all of our readers. DEC 40.00 KMI XH LB=0.56 OI=1 CB=39.44 DE=28 MR=4.2% ***** PSUN - Pacific Sunwear $22.19 *** Retailers Rally! *** Pacific Sunwear of is a specialty retailer of everyday casual apparel, accessories and footwear designed to meet the needs of active teens and young adults. The company operates nationwide, primarily mall-based, chains of retail stores that specialize in board-sport inspired casual-wear. PSUN's Internet site markets merchandise online and provides content and community for its target customers. Pacific Sunwear reported that third quarter earnings increased 1.9% to $0.39 from $0.38 last year, $0.01 ahead of consensus estimates and in line with company guidance. The results were respectable, if not outstanding, and with the recent positive outlook for the industry, this position offers favorable risk/reward potential for one month. DEC 17.50 PVQ XW LB=0.38 OI=7 CB=17.12 DE=28 MR=8.6% ***** TLB - The Talbots $49.81 ** Hot Sector! *** The Talbots is a national specialty retailer and cataloger of women's and children's classic apparel, accessories and shoes. Talbots offers a distinctive collection of classic sportswear, casual wear, dresses, coats, sweaters, accessories and shoes, consisting almost exclusively of Talbots own private labels in misses, petites and woman sizes. Talbots stores, catalogs and Internet site offer a variety of key basic and fashion items and a complementary assortment of accessories and shoes which enable customers to assemble complete wardrobes. Last week, the company announced outstanding third-quarter results, after a blockbuster year that has seen investors rewarded by growth in both earnings and market value. Talbots' net income climbed 75% to $34.9 million over the past year's $20 million. Earnings per share increased 74% year-over-year and the company saw its sales grow robustly. Based on the sector outlook, there may be further upside potential the issue. DEC 40.00 TLB XH LB=0.50 OI=321 CB=39.50 DE=28 MR=5.1% ***** VLNC - Valence Technology $17.31 *** Entry Point! *** Valence Technology designs, develops, manufactures and markets rechargeable lithium polymer batteries for portable communication devices, also known as mobile communication products, including notebook computers, personal digital assistants or PDAs, handheld personal computers, or HPCs, and cellular telephones. Valence recently entered into an agreement to acquire all of the Bellcore Lithium-Ion Polymer Battery intellectual property rights from Telcordia. The acquisition includes 42 U.S. patents, 15 existing license agreements and the PLiON(TM) Trademark. Valence is now expected to become the dominant global licensor of lithium-ion polymer technology and the company will eventually create separate business units to launch a global technology transfer program. We simply favor the opportunity to own the issue at a favorable cost basis. Target a higher premium initially, to allow for the volatile movement of the underlying issue. DEC 12.50 VHQ XV LB=0.31 OI=97 CB=12.19 DE=28 MR=9.0% ***** ***************** SUPPLEMENTAL NAKED PUTS ***************** The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Return ****** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return BCGI 25.94 DEC 20.00 QGB XD 0.63 0 19.38 28 11.7% ATRX 17.75 DEC 15.00 OQF XC 0.44 50 14.56 28 10.0% SNRZ 28.56 DEC 25.00 QSR XE 0.69 190 24.31 28 8.7% GPSI 49.00 DEC 40.00 QGP XH 0.56 0 39.44 28 5.5% CHCS 40.00 DEC 30.00 HNU XF 0.38 0 29.62 28 4.9% INTC 41.50 DEC 32.50 INQ XZ 0.31 1081 32.19 28 3.9% ************************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=976 ************************************************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Searching for a bottom... By Ray Cummins ****************************************************************** - MARKET RECAP - ****************************************************************** Friday, November 17 The market edged lower Friday amid concerns over the slowdown in corporate earnings. Uncertainty about the Presidential election also weighed heavily on investors during the lackluster session. The Nasdaq closed down 4 points at 3,027 and the Dow finished 26 points lower at 10,629. The S&P 500 index ended down 4 points at 1,367. Trading volume on the NYSE hit 1.06 billion shares, with advances beating declines 1,503 to 1,331. Activity on the Nasdaq was average with 1.75 billion shares traded. Technology declines beat advances 2,089 to 1,731. In the bond market, the 30-year Treasury fell 16/32, pushing its yield up to 5.77%. Thursday's new plays (positions/opening prices/strategy): Cardinal Health CAH DEC85P/DEC90P $0.81 credit bull-put Invitrogen IVGN DEC50P/DEC55P $0.75 credit bull-put Quaker Oats OAT DEC75P/DEC80P $0.50 credit bull-put Our new positions offered mixed opportunities during Friday's volatile session. Cardinal Health and Invitrogen both slumped, providing favorable entry prices, but Quaker Oats survived the market slump preventing any entry at the target credit. Portfolio Plays: The recent decline in equity markets continued today amid worries about future corporate earnings and doubts that a U.S. President would be named this weekend. Stocks rallied early in the session after a Florida judge said he would exclude hand-recounted votes from the final presidential vote tally. The news gave investors new hope for a quick resolution to the election, but the optimism quickly faded as reports that additional legal proceedings would likely delay the outcome until next week. After the market close, a Florida Supreme Court justice blocked officials from certifying the results until further litigation occurs next week, suggesting the counting process is far from over. In other news, a popular economist noted that although earnings growth in the technology sector will decline to roughly 20% next year, the group is still expected to outperform broad-market companies by a 3-to-1 margin. When then, is the Nasdaq testing 52-week lows and struggling to maintain a positive long-term outlook? Analysts say it's simply a natural correction that must occur before the group can return to a bullish bias. Corporate earnings in technology companies will certainly be lower, but a stable interest-rate environment and industrial growth at a manageable 3%-5% are expected to help ease the transition to more favorable rate of expansion; one that ensures the economy will be stronger overall. The market failed to generate much excitement today. On the Dow, J.P. Morgan (JPM), SBC Communications (SBC) and American Express (AXP) led the losers while International Business Machines (IBM), Procter & Gamble (PG) and Intel (INTC) were the strongest issues. On the Nasdaq, classic technology stocks were active with Oracle (ORCL), Cisco Systems (CSCO), and Sun Microsystems (SUNW) among the best performers. On the downside, telecommunications, chip and biotechnology stocks retreated. In broader sectors, drug stocks performed well amid a growing belief that a slowing global economy will undercut earnings in other sectors, including the technology industry. Transportation, utilities and retailers all moved higher but financial stocks retreated, pressured by worries about rising loan losses and bankruptcies, and a gloomy outlook. Our portfolio enjoyed advances in a number of old economy groups with shares in Johnson & Johnson (JNJ), Kellogg (K), and Safeway (SWY) leading the way in consumer products issues. The foremost technology stocks were classic companies like Intel (INTC) and Hewlett Packard (HWP), and Microsoft (MSFT) also finished the day "in the black." In the retail sector, Genesco (GCO) continued to rally after a recent positive earnings report and Visx (EYE) led our list of small-cap, health services stocks. Overall, it was a relatively painless session for "Expiration Friday" and if the Florida legal system can simply make a decision on the outcome of the Presidential election, we may finally begin to see some sustained upside activity in the downtrodden technology group. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** INTC - Intel $41.50 *** Reader's Request! *** Intel Corporation, a semiconductor chip maker, supplies the computing and communications industries with chips, boards, systems and software that are integral in computers, servers and networking and communications products. The company's major products include microprocessors, chipsets, flash memory products, networking and communications products, embedded processors and microcontrollers, and digital imaging and other PC-peripheral products. Intel's major component-level products consist of integrated circuits used to process information. Intel sells its products to original equipment manufacturers, PC and computing appliance users, industrial and communications equipment manufacturers, and businesses, schools and state and local governments. Intel also provides data center services to businesses needing e-Commerce services. One of our readers pointed out that Intel is showing technical signs of bottoming near the current trading range and he asked for some suggestions on how to profit from an eventual recovery in the blue-chip technology issue. In our opinion, Intel is an industry leader and a technology stock we would love to have in our long-term portfolio, at the right price. But, instead of buying the issue outright, we will use LEAPS to participate in any bullish movement in the company's share value. To offset the potential for downside losses, we will initiate the spread as a diagonal position and continue to sell calls against the LEAPS in future months. PLAY (bullish/diagonal spread - Covered-Calls/LEAPS): BUY CALL JAN02-30 WNL-AF OI=16030 A=$17.12 SELL CALL JAN01-45 INQ-AI OI=30878 B=$3.12 INITIAL NET DEBIT TARGET=$14.00 TARGET ROI=100% (14 months) DIAGONAL SPREADS The diagonal spread is a combination of price and time (calendar) spreads. The most common version of this strategy requires the purchase of a long-term call and the sale of a short-term call at a higher strike price. In most cases, the initial debit of the position should be less than the spread between the two options, eliminating the possibility of loss in an upside break-out. The primary advantage of this strategy is the cost basis of the long position is reduced by the sale of the short-term option. The spread achieves maximum profit (at expiration) if the stock price remains above the sold option's strike price. The position can also profit (before expiration) if the underlying issue advances significantly after the play is opened. In most cases, a diagonal position is an improvement over the standard price spread. If the stock price remains relatively unchanged or falls slightly, the long option will retain more value because of its extended maturity. If the near-term (sold) call expires, the position can be reestablished with the sale of a new call. If the long option is current month, the position can be converted to a normal price spread. If the underlying issue rises above the sold strike price, the spread will be profitable. With longer-term options, the character of the spread can be adjusted to match the outlook of the underlying issue. A neutral or bearish position can be established with the sale of an ATM option or the original spread can be duplicated (at a lower cost basis) with the sale of a new OTM option. In either scenario, the long-term diagonal spread benefits from the sale of additional options throughout the life of the (long) position. The majority of advantages in a diagonal spread are obvious but there is one characteristic that most traders overlook. In a debit spread, if the stock advances substantially and the options trade at parity, the maximum potential profit will be limited to the difference between the strike prices. With a diagonal spread, the long option has more time premium. Thus, when the underlying issue trades near the strike price at expiration, the value of the position will grow beyond the theoretical profit range. With that in mind, it's easy to see why the maximum potential for profit (at expiration) occurs at the strike price of the sold option. ****************************************************************** U - U.S. Airways $38.69 *** Merger Outcome Approaching! *** US Airways Group owns the common stock of US Airways, Shuttle, Allegheny Airlines, Piedmont Airlines, PSA Airlines, US Airways Leasing and Sales, Material Services Company, USLM Corporation and Airways Assurance Limited. In addition, US Airways owns all of the common stock of US Airways Investment Management Company. US Airways, the company's principal operating subsidiary is a certificated air carrier engaged primarily in the business of transporting passengers, property and mail. US Airways provides regularly scheduled service at 107 airports in the continental United States, Canada, Mexico, France, Germany, Italy, Spain, the United Kingdom and the Caribbean. Earlier this year, United Airlines proposed to buy US Airways, the sixth-ranked U.S. carrier, for about $4.3 billion. However, some key remaining steps in the merger process still remain, including approvals by the U.S. Department of Justice and the European Commission. Despite involving two U.S. companies, the unification must still be approved by the European Commission, as the group has the power to review all mergers involving companies with combined global turnover of five billion Euros ($4.27 billion) as long as at least two of the firms involved have sales within the EU of at least 250 million Euros. Both companies are optimistic that an approval will eventually occur and upon completion of the merger, US Airways shareholders will receive $60 for each share of US Airways stock. Based on the recent activity in U's shares, investors believe the merger will be approved. This position offers a relatively conservative manner in which to speculate on that outcome. PLAY (speculative - bullish/credit spread): BUY PUT DEC-30 U-XF OI=615 A=$0.93 SELL PUT DEC-35 U-XG OI=2045 B=$1.93 INITIAL NET CREDIT TARGET=$1.00-$1.12 ROI(max)=25% B/E=$34.00 ****************************************************************** - TECHNICALS ONLY - These plays 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. ****************************************************************** MDP - Meridith Corporation $31.19 *** On The Move! *** Meredith Corporation is a diversified media company primarily focused on the home and family marketplace. Based on products and services, the company has two business segments, publishing and broadcasting. The publishing segment includes magazine and book publishing, brand licensing, integrated marketing and other related operations. The broadcasting segment includes the main operations of 12 network-affiliated television stations and the syndicated television program marketing and development group. Media companies have been popular in recent weeks and Meridith appears to be one of the more attractive issues in the unique group. Technically, Meredith's recent breakout above its 150 dma was confirmed by Friday's heavy volume rally beyond the early November high. A test of the June high is now likely as the bullish crossover of the 30 dma above the 150 is a strong "buy" signal and traders who favor the Media group can use this position to speculate on the future movement of the issue. PLAY (aggressive - bullish/credit spread): BUY PUT DEC-25 MDP-XE OI=0 A=$0.31 SELL PUT DEC-30 MDP-XF OI=20 B=$1.25 INITIAL NET CREDIT TARGET=$1.00 ROI(max)=25% B/E=$29.00 ****************************************************************** P - Phillips $61.69 *** Trading Range? *** Phillips Petroleum is engaged in the exploration, production, marketing, and transportation of petroleum products and other petrochemicals. Phillips operates in four business segments: Exploration and Production, which explores for and produces crude oil, natural gas and natural gas liquids on a worldwide basis; Gas Gathering, Processing and Marketing, which gathers and processes both natural gas produced by others and natural gas produced from the company's own reserves, primarily in Oklahoma, Texas and New Mexico; Refining, Marketing and Transportation, which fractionates natural gas liquids and refines, markets and transports crude oil and petroleum products, primarily in the United States; and Chemicals, which manufactures and markets petrochemicals and plastics on a worldwide basis. In addition, the company's support staff provides technical, professional and other services to the business segments. Analysts say companies in the Oil and Gas Refining group are trading at a premium and with difficult conditions expected to continue for the chemicals industry, Philips Petroleum may have a rough road ahead. P's technical strength continues to wane and the failure to rally above the $65 range (several times) raises the probability of a move lower. Friday's action is worrisome as the stock has closed at both its 50 and 30 dma's. The next support area is near the 150 dma and the June highs and that appears to be the direction P is heading. PLAY (aggressive - bearish/credit spread): BUY CALL DEC-70 P-LM OI=61 A=$0.50 SELL CALL DEC-65 P-LN OI=103 B=$1.38 INITIAL NET CREDIT TARGET=$1.00 ROI(max)=25% B/E=$56.00 This position was discovered with one of our primary scan/sort techniques; identifying potentially failed rallies on issues with bullish options activity. In this case, the premiums for the (OTM) call options are slightly inflated and the potential for a successful (technical) recovery is significantly affected by the resistance at the sold strike price; a perfect condition for a bearish credit spread. ****************************************************************** ***********************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=989 ************************************************************ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.
Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.
To ensure you continue to receive email from Option Investor please add "firstname.lastname@example.org"
Option Investor Inc