The Option Investor Newsletter Sunday 12-10-2000 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/121000_1.asp Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 12-8 WE 12-01 WE 11-24 WE 11-17 DOW 10712.91 +339.37 10373.54 - 96.69 10470.23 -159.64 + 26.92 Nasdaq 2917.43 +272.14 2645.29 -259.09 2904.38 -122.81 - 1.80 S&P-100 727.06 + 31.07 695.99 - 15.17 711.16 - 13.93 + 5.98 S&P-500 1369.89 + 54.66 1315.23 - 26.54 1341.77 - 25.95 + 1.74 W5000 12666.50 +629.10 12037.40 -316.20 12353.60 -306.30 - 28.90 RUT 479.07 + 22.23 456.84 - 15.03 471.87 - 10.74 + 1.71 TRAN 2879.95 +116.80 2763.15 - 86.74 2849.89 + 32.59 +113.08 VIX 26.13 - 5.46 31.59 + 2.01 29.58 + 1.73 - 4.65 Put/Call .59 .61 .59 .89 ****************************************************************** I would like to use my lifeline please! By Jim Brown What a terrible way to end a really good week! Just when everything appeared to be turning up roses for the markets the Florida Supreme court elected not to use their lifeline and, in an opinion from hell, turned our market world upside down again. Why such strong wording? Because the dissenting opinions will almost guarantee another review and remand from the U.S. Supreme Court and three more wasted days. The Florida Supremes appeared to the world like kids in a sandbox fighting over control. The bad news is the market will suffer three more days until the final dust settles. At this point it does not matter who wins the race, other than the market had already factored in a Bush win, but just that the race NEEDS TO BE OVER! The grave words on international news on Friday night will echo worldwide. The terms "constitutional crisis", "cannot be justified under any law" and "kangaroo courts" could start a crisis of confidence among foreign investors. International investors are used to shoddy or rigged elections in most of the world and they invest in the U.S. for safety as well as returns. Several very well placed talking heads like Bill Seidman and Lawrence Kudlow were expressing serious concern over the possible fall out from the election brinkmanship. I personally think the greed motive will prevent this! Sorry, that is enough venting for one day but I, like you are getting tired of trying to invest in this yoyo market for over a month now. I will get off my soapbox now! Regardless of who you want to win the election the markets voted with an instant rally at 2:30 when Bush was named the winner of the absentee cases. When the news came that the Supreme Court was going to rule the rally on the Nasdaq dropped -70 points from the high of the day. After struggling back to close at 2917 the bottom fell out immediately when the ruling was announced. The only yardstick we have to gauge the reaction is in the futures. The S&P Futures closed at 1393 and dropped to 1350 when they reopened, a -43 point drop. The Nasdaq futures were even worse closing at 2950 and reopening at 2769 for a drop of -181 points. The Dow futures dropped from 10880 to 10600, a -280 point loss! The QQQs dropped from a close over 72 to 67.63 for almost a $5 drop. Like I said, regardless of your choice for candidate the market has a one candidate it prefers over the other. What will happen on Monday after a weekend of head clearing and hundreds of hours of sound bites has yet to be seen. Doubtless there will be those who will view it just another buying opportunity now that the "bottom" appears to have passed and others that will be wringing their hands in agony over the problem. I never cease to be amazed by the market reaction and lack of reaction to major events. For the last three weeks major and minor stocks have been hammered for even hinting at earnings problems. Thursday after the close investors finally said enough is enough and bought the Intel warning as though they had raised estimates instead of lowered them! A true market bottom appears when investors are not moved by bad news. It is truly factored in when there are no more sellers on bad earnings or soft economy news. That was the message of the markets today and investors expecting another buying opportunity dip at the open were met with a strong gap up and no look back. Now let the short covering begin! With 646 pre-earnings announcements so far this quarter, 46% have been negative warnings. This is +50% ahead of last year according to First Call. Now unless you live in a cave it would be hard not to already understand that the Goldilocks economy has a serious case of the earnings flu. The Nasdaq has dropped -50% from the year's high as investors learned the bitter earnings decompression lesson the hard way. Now, finally, the worm has turned. There is light at the end of the Fed tunnel and we have the head cheerleader on our side. What more could we ask for? Today Ed Kelly joined Greenspan in singing the Christmas carol of Fed easing. Ed said the Fed must remain vigilant that they do not allow the economy to fall too far or too fast. Don't you love it when all the elves start singing the same tune? Up until 4:PM the markets had put in a miraculous recovery for the week with the Dow gaining +339 points, the Nasdaq +272 points and the Wilshire-5000 a stunning +629 points. The Santa Claus rally was alive and well! Just when fund managers were actually starting to plan buys for Monday the bottom fell out. Well at least the bottom in after hours trading for Friday. Now here is where the sentiment changes. Yes, it was bad. The futures dropped very dramatically and scared the heck out of anybody not yet at the malls Christmas shopping. But I think traders are going to wake up Monday morning and say, "what is the big deal?" Gore has been there for eight years, there is gridlock in the houses, nothing is really going to change and WE HAVE A MARKET BOTTOM! Party on! They will get the election resolved eventually. There will be a president. While they sort it out there are stocks to buy and stocks to sell. Why worry, be happy! At least that is one scenario and when you compare the strength of the greed emotion to the emotion of politics, greed will win whenever there is lots of money at stake. It is very easy to be very politically reactionary and take stands on principle if principle is all you have.Put a few hundred thousand dollars in a trading account with retirement looming several years ahead and I will bet on greed every time. There are exceptions to this rule of course. You can be politically active and still invest in the markets. You just have to be smarter about your investments. Gore wins, sell MSFT, tobacco and drugs, buy techs and stocks that will do better in a strong environmentalist economy. Stocks are stocks, buy the ones that will do well based on the future president. So where is the beef? I think the entire deal has taken on a life of its own and the last month it has helped wring every last dollar out of many of our favorite stocks while we waited for resolution. Now traders are ready to take control of the market again. The Fed is on our side and should the election situation turn even more serious then the Fed may choose to step in the gap and cut rates in December to hold up the markets. This looks like a win-win situation. The market is at or near a value bottom. The risk is minimal. Money is still piling up on the sidelines in record amounts. Last week almost $19 billion in new cash came into money market and equity funds. This is a huge amount compared with the drought we have been seeing the last two months. Investors are not stupid. They saw the bottom forming and saw the election winding down. They were preparing to vote with cash for the Fed induced Santa Claus rally. With cash on the sidelines burning a whole in their accounts and more coming in from year end retirement contributions every day, what do you think is going to happen? Do you think investors that are still in cash are kicking themselves that they did not buy the dips this week? You bet. Do you think they saw the Nasdaq close at 2918 at 4:PM and then saw the futures fall back to 2769 and they are thinking, please, please let it open at 2700 just one more time on Monday so I can get in? Of course they are. They saw JNPR close at the high of the day up +15 at over $166 only to see it drop back -10 points to $155 and change in after hours. A last buying opportunity? BRCM dropped from $128 +17 back to only $119. BRCD from $223 back to $213. A pure knee jerk reaction and nobody knows when it will stop. The news over the weekend will determine the follow through or lack of it on Monday. Did the U.S. Supreme Court take the case? Did the Florida legislature overrule the court? We will not know the answers until Monday but rest assured capitalism is still alive and well. Earnings warnings will continue. Analysts will continue to downgrade Internets.Fiber optic companies are still leading the way. Networkers and B2B companies are showing promising uptrends again. Oil is falling again. Chip stocks are in rally mode only one day after the biggest chip warns. But best of all the Fed is finally on our side. The employment report was benign and did not show any smoking inflation gun. My bet for next week? Buy the dip and hold on for the ride. Fund managers are just like individual investors. The next dip makes sense. There is no guarantee of anything in life but the risk at Nasdaq 2700 is very small and after the bounce this week they will be throwing money at any weakness. We could still see a very choppy week but stocks are cheap and everybody knows it. If your bank was having a -50% off sale on $100 bills on Monday would you stay home and watch the election on MSNBC and whine or be the first in line at the bank with hands full of money? That is a no brainer! Get in line, the market will open Monday, ready or not! If you have been reading OIN all week then you should have been very profitable. We have had some incredible winners this week. By spotting the bottoms on many of the fast movers we were able to reap some serious rewards. Look at these gains from this weeks leaders! Company Symbol Date Picked Price Friday Change Percent Brocade Comm. (NASDAQ:BRCD) 11/30/00 $167.94 $219.75 $51.81 31% Juniper Netw. (NASDAQ:JNPR) 11/30/00 $124.63 $166.13 $41.50 33% Micromuse (NASDAQ:MUSE) 12/03/00 $ 94.13 $135.63 $41.50 44% Network Appl. (NASDAQ:NTAP) 12/03/00 $ 53.94 $ 87.19 $33.25 62% Broadcom (NASDAQ:BRCM) 11/30/00 $ 97.50 $128.19 $30.69 31% How much you made depended on which options you played but +$30 to +$50 moves are very profitable. If you liked these returns then you won't want to miss our annual December renewal offer which begins this weekend. We have gone overboard this year and are offering even more than before in the way of added value and free gifts if you renew by December 31st. Two OIN Option Expiration Mousepads, the expanded 2001 Stock Traders Almanac and free subscriptions to two of our other top newsletters. Check it out, renew today, you will be glad you did! Click here for more info: http://secure.sungrp.com/01renewal.asp Trade smart, don't buy too soon. Jim Brown Editor *************************ADVERTISEMENT********************* Why put all your risk into one stock when you can play the index instead? Learn how to invest in the OEX, QQQ, and SPX. Get intraday market updates, plays, education and daily commentaries by those who know. Sign up for a two week free trial and see for yourself: http://www.sungrp.com/tracking.asp?campaignid=1093 ************************************************************ ************** EDITOR'S PLAYS ************** I am going to deviate from the regular game plan today because I think we are going to get our last chance to catch the Nasdaq this coming week. The verdict is in and not in election terms. The bottom has been found at 2500 or so and it is not likely we will see it again this year. The cash is piled so high on the sidelines that fund managers and individual investors alike are on the verge of buying Lilly stock just to capitalize on the Prozac surge. They are like gamblers walking through a casino with pockets full of thousand dollar bills. Eventually the urge to play will overcome the earnings worry and the real rally will begin. Add in the fact that the Fed FOMC meeting is now only seven trading days away and the urge to load up before the now 50/50 chance of a rate cut is growing. The election hysteria will take a backseat to the markets next week as traders hyped to a climax a dozen times by a handful of networks and hundreds of talking heads, only to have their hopes dashed over and over again, are going to ignore the election and buy stocks. Period! The rally on the Intel warning was the start and the momentum is building. Our problem is now deciding what to buy and when. Some of the fast gainers have now added +$50 in the last week. Does that mean they are now over valued? Should we chase them? Will they pull back on profit taking on the election news? No, yes, maybe! With the Nasdaq poised to breakout over resistance at 2900 at the close the prospect of a drop back to 2700 as indicated by the futures would be an early Christmas present. Remember the Fed is the controlling market influence next week, not the election. With history proving that the week before any FOMC meeting with the possibility of a rate cut being very bullish investors will be opening new positions. While we may be drooling over the prospect of another dip on the Nasdaq the drops on individual stocks may be less easy to come by. Take BRCM, anything under $120 would be an entry point for me. Sure it is up strong since the $85 low from two weeks ago but BRCM has the potential to be $160 if not $200 within the next two weeks. The concept here is not pinching pennies but grabbing rockets before they take off. How many times have you looked at a stock that was up +$20 or +$30 and said that is really spikey and I will wait for it to pull back? Did it? Maybe some did but I am sure we have all watched as those same stocks continued on up for another +$20, +$40, +$60 while we sat on the sidelines or picked some other stock that may not have moved so fast. I am not a chaser. If you have been reading this newsletter for very long you know I am a dip buyer and a quick seller. Normally that is a winning combination. Low risk, quick profits, wait for the next cycle. Using that concept will also cost you money in some situations. Take the monster market rally on the Nasdaq last winter. The Nasdaq gained over +2000 points in only ten weeks and only had two real pull backs in the entire run. Many traders were making millions while others were sitting on the sidelines waiting for the pull back that never came. I believe, and it is just my opinion, that we are near another monster rally. I do not think it will be as big as last year because the earnings are not there to propel prices. However with the Fed obviously going to change the rate environment soon and with stocks already -50% off their highs there is no real reason not to buy. Risk is low, reward could be high. The election news may be a wild card but the Fed is our trump card. Very seldom do I come out with a strong buy on the market. I can only remember a dozen or so recommendations in the last four years. This is one of those times. However, my risk profile is much higher than many of our readers. You must decide what your risk profile is before buying any Monday dip. Conservative investors would still be advised to wait for the Nasdaq to move back over 2900 on strong volume before opening new long positions. You might enter the same stocks +$10 to +$12 higher than more aggressive traders but that may be a small price to pay for the comparative safety of a rally confirmation. Remember, it does not matter how long it stays under 2900. It does not cost any money to wait. It can cost money to buy the first dip and then have another appear on negative news. My point here is that the market has already digested almost all the bad news possible short of a blowout of some economic report that would change the Fed bias back to tighten. The big reports for next week are Import/Export Prices and Retail Sales on Wednesday, PPI on Thursday and CPI on Friday. Not exactly a light week but if the reports come in weak like everyone expects then the Fed will be pressured to stop the bleeding the following Tuesday. The qualifier here is BENIGN reports. If the reports surprise to the upside then all bets are off. If you are going to buy calls next week then you need to be prepared to ride the rapids because volatility could still be very high. There is no such thing as risk free investing but I think we are within a day or two of very high profit potential. Contrary to my normal conservative suggestions of buying on a dip, I am suggesting that you may actually benefit from chasing some of these high flyers on any bounce next week. These options are not going to be cheap but then again sometimes you get what you pay for. Don't get me wrong. You do not have to buy calls on BRCD, BRCM, JNPR, EMLX, SDLI to profit on the expected rally. Almost every stock we looked at this weekend was showing a rally trend. There are cheap stocks like VIGN, GILD and RE that have good trends but the options are not $20 either. Check out the low volatility call plays in Sunday's newsletter for possibilities. Granted there are not a lot of cheap plays when the market bias has changed so dramatically in only a week. Still the change in bias is what is producing the profit opportunity. Now that earnings results for the 4Q have pretty much hit bottom analysts are taking a guess for 2001. Guess what? They are coming in very cautious. Music to my ears. Low earnings estimates makes it easy for companies to beat the estimates and then recreate the 1999 rally all over again. No one expects the magnitude of 1999 since the Internet bubble has burst but there will always be a hot sector or two to go for a ride. Biotech, fiber, B2B are not dead and cancer cures will eventually be worth much more than a PCLN or CMGI. In a nutshell, buy the dip if we get one. The weekend news will govern how much we will dip, if at all, and then how quickly we rebound. It is entirely possible that the entire futures drop will disappear before the open on Monday and any dip will only be wish full thinking. You simply need to focus on the fact that it is not the election that will eventually control our fate next week but the Fed and the economic reports. I think it will be worth your while this weekend to spend a few extra minutes planning some entry points for Monday. Pick a lower price than the close as a target for a dip entry but also pick a higher price than the close should the dip turn into a figment of our imagination. Plan your trade then execute your trade. Right or wrong, do something. Even if you are not comfortable enough to make a big bet you can always scale into each play. Try to buy 25% of what you would normally spend on a play by target shooting the dip. If you get filled then great! Fill the next 25% as the play starts to turn profitable or average down once if it goes against you. Don't add to the position at this point until you are profitable then add another 25%. The final 25% can be added on any pullback after you are profitable or used on another play. Using this strategy you can profit from a dip but risk less than normal by scaling in as news and market movements dictate your play. Spread this out over multiple stocks and your risk is reduced substantially but your profits are not restricted. There is no such thing as risk free trading but next week may be as close as we can get. Next Friday is a triple witching option expiration event. This almost always guarantees volatility as well as a bullish bias. With millions of options contracts needing to be settled and many of these possibly deep in the money there will be a lot of stock trading. Add to this flurry the dozen or so stocks added to the S&P-500 and volume should remain high. All of these factors should combine for a week we will not soon forget. Hopefully we will be counting profits for weeks to come. I for one am planning on it! Good Luck, good trading Jim Brown ************************Advertisement************************* Try Investor's Business Daily today! Click here for 10 FREE issues. No obligation. Nothing to cancel. http://www.sungrp.com/tracking.asp?campaignid=1123 ************************************************************** **************** MARKET SENTIMENT **************** Justice? By Austin Passamonte Can U.S. constitutional and regional laws be such an interwoven mess that clear decision lies undecipherable? How many verdicts must be issued before a final decision stands? These are questions non-U.S. citizens and foreign traders ask as their confused dollars continue to leave our markets with a giant sucking sound. Yes, record levels of cash have poured onto the "sidelines" waiting for the annual fall rally to ensue. And that's where it just may sit, stagnant & growing mold for the week to come. No one can give hard dates when a president-elect will prevail. Nor can we tell what the markets will do if Gore pulls off an 11th hour surprise upset. Early indications are it might not spawn the Christmas rally if recent market reactions carry forth. These markets would like to rally but timing is everything. The same court verdict from 2:30pm Friday would have likely spurred another record intraday session read at 10:30am instead. By the time 2:30 rolled around, retail buying momentum had already waned. No president-elect, more tax-loss selling ahead, fringe traders walking away from the non-rally table in frustration, foreign money scared, triple-witch expiration Friday - another volatile week lies ahead. When the favorable Gore verdict was read, S&P futures plunged 30 points straight down. Is this due to mere uncertainty or market bias towards Bush instead? Market Sentiment poses nor holds any political or market bias. We merely attempt to quantify what we see. MSFT, MO, MRK and others have rallied in the hopes of a favorable political climate. What could a surprise disappointment do to them and the Dow, OEX and SPX in the process? We will find out soon enough. COT SP00S continue to go shorter as they smell blood, further weakness and high-odds decline. We will heed their sentiment and favor the downside for now. As always we stand ready to trade calls or puts with equal amplitude but suggest that an eye kept on short-term rallies and long-term weakness may be a profitable market view! ***** VIX Friday 12/08 close: 26.13 30-yr Bonds Friday 12/08 close: 5.57% 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. Saturday (12/09/2000) (Open Interest) Calls Puts Ratio S&P 100 Index (OEX) Resistance: 765 - 750 13,234 915 14.46*** 745 - 730 20,201 3,036 6.65 OEX close: 727.06 Support: 725 - 710 14,975 15,875 1.06 705 - 690 3,499 10,115 2.89 Maximum calls: 730/7,872 Maximum puts : 710/6,593 Moving Averages 10 DMA 711 20 DMA 714 50 DMA 729 200 DMA 773 NASDAQ 100 Index (NDX/QQQ) Resistance: 77 - 75 40,305 34,361 1.17 74 - 72 41,535 23,319 1.78 71 - 69 117,753 34,512 3.41 QQQ(NDX)close: 68.00 Support: 67 - 65 30,215 49,830 1.65 64 - 62 15,987 21,317 1.33 61 - 59 9,653 28,950 3.00 Maximum calls: 70/57,061 Maximum puts : 80/33,498 Moving Averages 10 DMA 66 20 DMA 68 50 DMA 76 200 DMA 90 S&P 500 (SPX) Resistance: 1425 28,842 14,837 1.93 1400 52,369 50,154 1.04 1375 22,086 23,316 .95 SPX close: 1369.89 Support: 1350 35,762 44,750 1.25 1325 6,545 15,877 2.43 1300 7,082 17,087 2.41 Maximum calls: 1400/52,369 Maximum puts : 1400/50,154 Moving Averages 10 DMA 1342 20 DMA 1350 50 DMA 1379 200 DMA 1437 ***** CBOT Commitment Of Traders Report: Friday 12/08 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 -283 +103 -770 -3136 Total Open Interest % (-3.13%) (+1.14%) (-2.64%) (-11.59%) net-short net-long net-short net-short NASDAQ 100 Open Interest Net Value -3324 -1888 +2120 +673 Total Open Interest % (-13.52%) (-8.21%) (+3.23%) (+1.17%) net-short net-short net-long net-long S&P 500 Open Interest Net Value +76502 +70473 -86468 -81,194 Total Open Interest % (+42.45%) (+31.99) (-12.36) (-12.00%) net-long net-long net-short net-short What COT Data Tells Us: The disparity remains between Commercial positions and Small Specs on the S&P 500. The Commercials are showing a gradual increase in their net-long positions on the NASDAQ 100 while Small Specs have advanced their net-short positions. Data compiled as of Tuesday 12/05 by the CFTC. ************** MARKET POSTURE ************** Please visit this link for Market Posture: http://members.OptionInvestor.com/marketposture/121000_1.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=1107 ************************************************************** *************** ASK THE ANALYST *************** Pretty Windows By Eric Utley Tis the season for retailers to garnish their windows for the conspicuous consumer and Wall Street to dress its windows with salient motives. The posturing by portfolio managers at the end of the year offers traders opportunities to profit. The Wall Street phenomenon known as "window dressing" takes place at the end of each quarter (March, June, September, December) and is especially blatant at the end of the year. The philosophy behind the money managers motives is to make their portfolios look as good as possible when they send out their end-of-year performance reports and holdings to institutional clients and sophisticated individual investors. These money managers dress their portfolios with the recent quarter's big winners in an attempt to make their funds look better positioned. At the same time, the fund managers clean their portfolios by unloading their worst performers for the quarter. The posturing by these portfolio managers results in extended and artificial gains by the quarter's recent winners. Savvy traders can get ahead of the big institutional money managers and reap profits from their bulky buying. As the faithful readers of this column know, I failed to mention the window dressing-effect during the end of the third-quarter in late September. My pathetic response in late September was the following: "I failed to mention the window dressing-effect... and regret not doing so. I'm sorry. Believe me, I'll remember to mention it in the second week of December in an attempt to help OIN readers make money." Well, I've delivered on my promise and have compiled a list of the fourth-quarter's best performing stocks, which are likely targets of window dressing. But before you jump into any positions in the following names, remember, there's no free lunch on Wall Street. The end-of-quarter window dressing phenomenon is just one of infinite possibilities to take money out of the market. It's by no means a secret, and the usual risks associated with any market operation are still very real. Past performance is never a guarantee of future results and I'm NOT recommending a purchase of any of the following stocks. Overall market direction is still the most important variable, along with changing fundamentals, and monetary policy. The following list of names is merely a place to start looking for potential beneficiaries of window dressing. In researching the fourth-quarter winners, I tried to stick with liquid and familiar names. The stocks are in no particular order. IGT GENZ GELX MYGN HAND RFMD UHS OSIP SAWS EMLX LNCR SCIO DNB QCOM SEIC NTIQ GPSI FILE Send your stock requests to Contact Support. Please put the symbol of your requests in the subject line of the e-mail. ---------------------------- QLogic - QLGC It looks like this stock may break to the downside and a price of 60 or less is in the works. Please let me know what you think. - Christine I think I would have agreed with your premise two weeks ago, Christine. However, the action in the tech sector last week definitely rattled the bears and shifted sentiment more to the bulls. Shares of QLGC opened last week at $83, dipped down to touch their long-term support line at $76, and subsequently exploded to the upside to finish the week with a 40% gain! That's the type of move that can shift sentiment rather quickly. What's more, QLogic has operations in one of the sexiest and fastest growing segments of technology - storage area networks (SAN). QLogic is an infrastructure play on the SAN market as the company makes components and chips used by the likes of Brocade. In the SAN area, the company competes with the likes of Emulex and Agilent, whose shares rallied in tandem last week. Also worth noting is that shares of QLogic will be added to the S&P 500 after the close of trading this Monday, December 11th. As I've written before, gaming the S&P additions can be tricky but highly profitable with momentum favorites such as QLogic. Index fund managers will have to purchase shares of the stock before, or after the close of trading Monday in order to mirror the performance of the S&P 500, which they desperately strive to do. QLogic will be a stock to watch on Monday as it enters the S&P 500 club. Sorry for the distraction, back to the chart. You'll notice on the chart below that shares of QLogic have traced a bullish wedge since getting whacked last spring. There are several ways to play such a pattern as I've detailed on the chart below. All things considered, I'd opine that shares of QLogic have held up very well this year - shares are up almost 48% in 2000. ---------------------------- Integrated Device Technology - IDTI Could this be a long term value play with a single digit PE or is it just filling a gap? IDTI held up quite well during the Apr - May fall and then rallied nicely. Could it be one of the last to fall first to rise if it doesn't get killed by TAX LOSS selling? As always your opinion is greatly valued. - Thanks, Bill Thank you, Bill, for the words of encouragement and support! Last week, I wrote without any mention of the underlying fundamentals for the companies I reviewed. At the risk of destroying any credibility I might have, I cannot review Integrated Device without writing about the company's underlying situation. It's just too compelling. Integrated Device serves major networkes such as Cisco Systems with its high- performance semiconductors. The company has an enviably earnings growth history and an equally promising outlook. Integrated Device grew its profits by over 200% during its three fiscal quarters thus far in 2000, and is expected to grow the bottom-line by at least 30% over the next several years. The company has about $850 million in cash, or $8 per share, and zero debt! The stock trades with a trailing PE ratio of around 10, and a forward-looking PE in single digits. Those fundamentals are the making of a long-term winner. In the short-term, though, shares of Integrated Device have run into trouble in the form of inventory buildups among its key customers, including the aforementioned Cisco, who accounts for about 15% of sales. The concern is that Cisco, among others, won't need to purchase as much product from Integrated Device as they have over the previous year. However, officials from Integrated Device recently publicly stated that they weren't seeing a slowdown in orders and were very comfortable with future earnings estimates. If that's the case, then shares of Integrated Device are trading at a deep discount relative to future earnings. However, whether or not the stock rebounds in the near-term depends a lot on the sentiment surrounding the chip sector. And, last week's action in the semis, in spite of the Intel warning, and preceding Xilinx and Motorola warnings, may very well indicate we've reached a bottom in that sector. But, the semi sector has displayed similar patterns recently as was witnessed in late 1996, when the group enjoyed a sharp rally for a few weeks but later fell apart in the following months. In short, the chip sector and Integrated Device are hard to game, and may be difficult to trade in the short-term. I still think it's a little too early to tell if the semis have turned the corner. For the long-term investor, who doesn't mind riding out the bumps and bruises in the chip sector, I do think Integrated Device warrants a close look. Once this inventory glut is absorbed, as they always are, the stock should rebound rather nicely. The tax-loss selling that Bill mentioned may come into play in the coming weeks, in which case it would be prudent to stand aside until the new year begins. ---------------------------- Nortel Networks - NT Please provide your technical analysis of these three techs (NT, INTC, HWP) which have all suffered recent drops. - Thank you, Barry I know it's somewhat old hat, but I'm looking for an update on your view of Nortel. - Thanks, Mike Of your three requests, Barry, I thought it relevant to review Nortel in light of the fact OI added it to the call list this weekend. And, Mike, an old hat is better than no hat, so I'd be happy to revisit Nortel. Since we last reviewed Nortel, several of its rivals have announced quarterly profits. Most notably and recently, Nortel's nemesis, Ciena, reported quarterly numbers last week that were rather bullish. Although Ciena fell a little short of revenue estimates, the overall tone of its report was just what the tech bulls needed. For Nortel's part, the company may still be seeing some weakness in sales of the older telecom equipment it sells to the major carriers, but I think its stock has seen the worst and is in the process of rebounding. A glance over the chart below reveals the bottoming process. With cooperation from the NASDAQ, shares of Nortel trade higher into year's end. ---------------------------- 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 December 11, 2000 Monday ====== Wholesale Inventories Oct Forecast: 0.50% Previous: 0.20% Tuesday ======= None Scheduled Wednesday ========= Retail Sales Nov Forecast: 0.20% Previous: 0.10% Retail Sales ex-auto Nov Forecast: 0.30% Previous: 0.40% Export Prices ex-ag. Nov Forecast: NA Previous: -0.20% Import Prices ex-oil Nov Forecast: NA Previous: 0.00% Thursday ======== PPI Nov Forecast: 0.10% Previous: 0.40% Core PPI Nov Forecast: 0.10% Previous: -0.10% Initial Claims 9-Dec Forecast: NA Previous: 352K Business Inventories Oct Forecast: 0.30% Previous: 0.10% Current Account Q3 Forecast:-$113.7B Previous:-$106.1B Friday ====== CPI Nov Forecast: 0.20% Previous: 0.20% Core CPI Nov Forecast: 0.20% Previous: 0.20% Industrial Production Nov Forecast: 0.20% Previous: -0.10% Capacity Utilization Nov Forecast: 81.90% Previous: 82.10% Week of December 25th ==================== Dec 19 Trade Balance Dec 20 Housing Starts Dec 20 Building Permits Dec 20 Treasury Budget Dec 21 GDP-Final Dec 21 GDP Chain Deflator Dec 21 Initial Claims Dec 21 Philadelphia Fed Dec 22 Durable Orders Dec 22 Personal Income Dec 22 PCE ************************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=1113 ************************************************************** 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. 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The Option Investor Newsletter Sunday 12-10-2000 2 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/121000_2.asp ************************Advertisement************************* Try Investor's Business Daily today! Click here for 10 FREE issues. No obligation. Nothing to cancel. http://www.sungrp.com/tracking.asp?campaignid=1124 ************************************************************** ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* NT - Nortel Networks $42.94 (+5.69 last week) See details in sector list Put Play of the Day: ******************** ABT - Abbott Laboratories $49.69 (-3.19 last week) See details in sector list ************************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=1108 ************************************************************** ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS No dropped calls this weekend PUTS PAYX $46.88 (-5.69) While PAYX offered day traders a few opportunities to profit on Wednesday and Thursday, the stock exhibited enough strength on Friday to break the short-term descending trend. PAYX closed above the 5-dma of $45.23, and held its strength toward the end of the day, which does not bode well for put players. Despite the fact that it closed below our stop of $48, buyers responded to positive news released from the company, as well as a strong market. While it may very well rollover again next week, PAYX did not exhibit heavy enough selling to merit our continuing the play. AES $48.25 (-3.44) AES wasn't on our put list for very long, but it no doubt provided the opportunity for aggressive traders to lock in some quick profits. However, after Thursday's slide to $45, our concern was an impending bottom. As it turned out, the advancing market on Friday and AES's bargain price attracted the buyers. The bulls swept AES upward to $49.25 on almost double the normal volume, clearly warning of a reversal. And as it was, we weren't rewarded with a rollover at this higher price level. AES maintained a firm stance above the $48 mark into the late afternoon trading. This discouraging predicament warrants us to remove AES from our put list this weekend. Keep in mind that another bullish move could easily take AES through the critical level at the 200-dma ($50.55). So if by chance stop losses didn't take you out of the play, exit on any intraday weakness in Monday's session. RMBS $54.53 (+11.09) In a strange twist of fate, INTC led a Semiconductor recovery immediately after releasing its much expected earnings warning. It appears that investors felt the news in the Semiconductor sector couldn't possibly get any worse as they went on a buying spree. Friday's session began with RMBS following the technology sector higher, and gapping open at $51.50. The gains continued throughout the day, as the bulls pushed right through our stop at $52, ending the regular session at the high of the day. It appears the bulls may have gotten ahead of themselves though, as the election news after the close dropped RMBS as low as $48.75 in the after hours session. We never got an entry point on our play, so we will abide by our violated stop and drop RMBS from the play list this weekend CTIC $38.75 (-4.63) Sometimes we get caught on the wrong side of a trade, and this was a perfect example. The relief bounce in shares of CTIC that began late on Thursday ended up being a preview of more to come. Closely mirroring the Biotech Index (BTK.X), CTIC gapped up at the open on Friday, consolidated until the noon hour and then rallied strongly right through our $37 stop. Closing at the high of the day with volume more than double the ADV is not what we want to see in a healthy put play. The only bright spot is that the rally kept us from getting a decent entry signal, so at least we don't have to worry about closing out a losing position as we drop CTIC this weekend. INTC $33.88 (-0.25) The highly anticipated and telegraphed Intel profit warning we had been gaming came to light late last week when the chip giant announced that its fourth-quarter results would fall short of previous expectations. Intel said sales would come in unchanged from its previous quarter, making its fourth-quarter one its worst in history. The weakness seen in shares of Intel early last week offered traders with plenty of profit opportunities. However, the fact that Intel warned and its shares actually traded higher reveals that all the bad news has already been discounted into the stock. As such, we're dropping coverage on Intel and would exit positions on any weakness provided early next week as a result of the election uncertainty. MMM $116.94 (+17.31) The simple fact that a highly-coveted General Electric (GE) executive will be joining 3M led to an explosive rally in shares of the latter's stock last week. We felt MMM was overbought, and our suspicions came to light when the stock pulled back after the GE executive announcement was made early last week. However, MMM managed to gain ground Friday amid a broad market rally. Although MMM may encounter weakness in the coming sessions as the news-related effects wear off, we're dropping coverage on the lottery put play this weekend. Consider exiting existing positions on any further weakness early next week. IMGN $25.44 (-0.56) IMGN's weak technical position improved late last week when the stock gained over 15% on strong volume. The gap higher Friday morning and subsequent heavy accumulation should have prevented any new short positions from being entered, not to mention the strong showing of the overall biotech sector. Although IMGN closed right at the top of its range and could very well rollover early next week, we're dropping coverage on the play as shares closed above our protective upside stop at $25. If the violation of the stop didn't trigger an exit, use any weakness early next week to close existing positions. *********** 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 ************** NT - Nortel Networks $42.94 (+5.69 last week) Nortel Networks is a global internet and communications leader with capabilities spanning Optical, Wireless, Local Internet, and eBusiness. Today, Nortel Networks is creating a high performance internet that is more reliable and faster than ever before. It is redefining the economics and quality of networking and the Internet, promising a new era of collaboration, communications, and commerce. Nortel Networks serves the existing and emerging needs of service providers, carriers, dot coms, small and medium sized businesses, and large corporations in more than 100 territories and countries around the world with more than 75,000 employees worldwide. It appears that one of Wall Street's downtrodden stars is coming back with a vengeance. After falling out of favor after its last earnings report, which just met analysts expectations, NT exhibited strength last week, as the networking sector rebounded from an oversold level. After dropping from over $70 in late October, the stock has been consolidating in the last month and a half. NT hit a 52-week low of $31 on November 17th, and since then, a bullish wedge pattern has been developing with a series of higher lows, and resistance at $40. On Friday, NT broke above resistance, and closed at its high of the day. The bullish behavior of the networking sector was helped by an excellent earnings report from Ciena on Thursday, as well as bullish guidance from the CEO of Cisco. NT generally moves more slowly than the other stocks in this sector, and one or two point daily moves are the normal pattern. The company has stated that their earnings should be on target with analysts expectations for the coming quarter, and that their earnings should grow in the range of 35% for 2001. An aggressive entry point would be taken on a bounce off support at the 10-dma of $38.60, particularly if it's accompanied by a positive move in the networking sector (NWX.X) and an upward trending market. A more conservative entry could be found at a breakout above resistance at $45, which could easily lead NT above its 50-dma of $47.13. Watch NT's competitors for strength before initiating positions. If CSCO is above $50, and JDSU, CIEN, and GLW are moving up, NT will most likely move up in tandem. As a precautionary step, we've set our stop at $36 and would close positions if NT settled below that level. BUY CALL JAN-40 NT-AH OI=13668 at $6.00 SL=4.00 BUY CALL JAN-45*NT-AI OI=14339 at $3.50 SL=1.75 BUY CALL JAN-50 NT-AJ OI=11824 at $2.00 SL=1.00 BUY CALL MAR-40 NT-CH OI= 5000 at $8.38 SL=6.00 BUY CALL MAR-45 NT-CI OI= 3782 at $6.00 SL=4.00 http://www.premierinvestor.net/oi/profile.asp?ticker=NT ARBA - Ariba Inc $82.50 (+21.56 last week) Ariba is a leading provider of business-to-business (B2B) e- commerce network solutions for operating resources. Their Web- based procurement software helps manufacturers, retailers, and distributors to track and manage supply purchases over the Internet. Blue chip clients include Dupont, Federal Express, and Hewlett-Packard. The mammoth move in the NASDAQ last Tuesday lit the B2B stocks on fire. The sector, battered in recent weeks, showed some of the strongest gains during the broad market rally that day. ARBA catapulted off the $60 level and finished up a whopping $17.75, or 29% on heavy trade. B2B competitors like Commerce One (+29%), FreeMarket (+25%), and PurchasePro.com (+22%) made significant gains that day and importantly, stretched higher throughout the week. Although Wednesday's triple digit pullback threatened the sector's resurgence, the B2Bs demonstrated amazing strength amid the adversity. While it's true that profit takers took a big bite out of ARBA's stellar gains on Wednesday, the share price stabilized at $70. The $70 level has since served as a solid support during the market's recent tribulations. Therefore, we've set our protective stop at that $70 mark, too. Friday's big jump through the $80 resistance, and subsequent flirting with $85, attracted our attention. The advancing market (a key factor) and new coverage from analyst Thomas Berquist at Goldman Sachs the previous day surely incited the breakout. We're looking for ARBA's share price to maintain a respectable level (above $70) in the midst of a declining market and to move through the next point of contention at the $90 mark and the corresponding 30-dma line ($90.88) in an advancing market. If profit taking does resume in coming sessions, aggressive entries might be found if ARBA bounces off $70 or the rising 5-dma, which is currently at $73.69, but make sure the buyers step in with volume before entering on a pullback. If you like to enter on a high-volume breakout, then wait for ARBA to build momentum and move through $85 before taking new positions. Don’t fight the NASDAQ's direction, play the trend. BUY CALL JAN-80 IUR-AP OI=655 at $14.38 SL=10.75 BUY CALL JAN-85*IUR-AQ OI=696 at $12.25 SL= 9.00 BUY CALL JAN-90 IUR-AR OI=894 at $10.38 SL= 7.50 BUY CALL FEB-85 IUR-BQ OI=134 at $14.88 SL=11.00 BUY CALL FEB-90 IUR-BR OI=274 at $13.13 SL= 9.75 http://www.premierinvestor.net/oi/profile.asp?ticker=ARBA PALM - Palm, Inc. $54.19 (+13.50 last week) Known for its ubiquitous Palm-branded handheld devices, PALM brought handheld computing to the masses. Although Apple pioneered the concept of the Personal Digital Assistant (PDA) with its ill-fated Newton series, PALM, which was spun off from 3Com (COMS) in March, has managed to convince consumers they can't live without these little electronic gadgets. These pocket-sized PDAs allow users to use pen-based input and to copy and synchronize information between the device and a personal computer. It's no secret that there has been a dramatic slowdown in PC sales, with AAPL, DELL, HWP and GTW all either warning or guiding estimates lower. Most likely, there will be a lot less PCs under the tree this holiday season. But it appears that portable computing devices have been on the wish lists of people everywhere. More than just mere stocking-stuffers, portable computing is where the growth is. In fact, PALM can't make them fast enough, as their PDAs are flying off the shelves. People no longer want to be bound by their PCs and even laptops are considered too bulky. While consumer sales have accounted for most of market, the prospect of enterprise computing on a Palm device has traders excited. PALM will be hosting its annual developer conference starting this Monday, which could add further interest in the stock. This combined with a strong NASDAQ on Friday helped PALM to break through its 50-dma near $50, closing up $7.31 or over 15 percent on over 120% of ADV. With earnings set for December 20th, this could further drive the stock to higher levels. In entering this play, we would only do so with a strong NASDAQ, confirming sector sympathy with HAND and RIMM. With Election worries a possible theme for Monday trading, a bounce off support from the 50-dma as well as the 5-dma at $48 could allow aggressive traders to enter this play. We have set our stop price at $47, so make sure that PALM closes above this point. Continued strength in PALM and the handheld sector leading to a break through $55 is another possible entry point but confirm with volume before taking a position. BUY CALL JAN-50 UPY-AJ OI=3517 at $9.88 SL=7.00 BUY CALL JAN-55*UPY-AK OI=1075 at $7.50 SL=5.25 BUY CALL JAN-60 UPY-AL OI= 876 at $5.38 SL=3.50 BUY CALL FEB-55 UPY-BK OI=2581 at $8.88 SL=6.25 BUY CALL FEB-60 UPY-BL OI=3884 at $6.88 SL=5.00 SELL PUT JAN-45 UPY-MI OI= 526 at $3.00 SL=5.00 (See risks of selling puts in play legend) http://www.premierinvestor.net/oi/profile.asp?ticker=PALM ************************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=1114 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 12-10-2000 3 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/121000_3.asp *************************ADVERTISEMENT********************* Why put all your risk into one stock when you can play the index instead? Learn how to invest in the OEX, QQQ, and SPX. Get intraday market updates, plays, education and daily commentaries by those who know. Sign up for a two week free trial and see for yourself: http://www.sungrp.com/tracking.asp?campaignid=1094 ************************************************************ ****************** CURRENT CALL PLAYS ****************** IDPH - IDEC Pharmaceuticals $213.31 (+34.31 this week) IDEC Pharmaceuticals focuses on the commercialization and development of targeted therapies for the treatment of cancer and autoimmune diseases. IDEC's antibody products act chiefly through immune system mechanisms, exerting their effect by binding to specific, readily targeted immune cells in the patient's blood or lymphatic systems. Right on cue, IDPH continued its rally on Friday. Granted, it does help when the Nasdaq soars to triple-digit gains, but IDPH has been resilient in all types of markets. This should continue as IDPH approaches their 3-for-1 split on Jan 17th. The other catalyst for IDPH is the number of positive press releases concerning trial drugs. They have many in the pipeline and all seem to be cruising through the clinical trial phase. It is always appropriate to keep on eye on the IDPH news wire to stay current on such fundamental news as it typically has a big impact on the stock. But until such announcements, we will focus on the technical pattern occurring. The stock's move up from $195 support late Thursday continued into Friday and right up to resistance near $220. This was the level we noted for some profit-taking. IDPH did back off from this level, but still closed up over $10 on the day. IDPH now has a strong pattern of higher-lows in place and volume is rising. Even the DEC-230 through 250 call strikes saw an unusually high level of buying interest. Cautious investors may want to wait for a close over resistance at $220 before entering. More aggressive buyers may want to target-shoot any dip to about $205. Any price action lower than that would be worrisome so we will move our stop up to $200 on a closing basis. ***December contracts expire this week*** BUY CALL DEC-210 IHD-LB OI=1501 at $12.13 SL= 9.00 High Risk! BUY CALL DEC-220 IHD-LD OI=1965 at $ 6.88 SL= 5.00 High Risk! BUY CALL JAN-210*IHD-AB OI= 628 at $26.50 SL=20.00 BUY CALL JAN-220 IHD-AD OI= 498 at $21.38 SL=15.75 BUY CALL JAN-230 IHD-AE OI= 543 at $17.25 SL=13.00 SELL PUT DEC-200 IHD-XT OI=259 at $ 4.38 SL=6.75 (See risk of selling put in play legend) http://www.premierinvestor.net/oi/profile.asp?ticker=IDPH MEDX - Medarex Inc $48.25 (+5.63 last week) Medarex is a human monoclonal antibody-based company with integrated discovery, development and manufacturing capabilities, utilizing the Company's genetically engineered mice to create fully human monoclonal antibodies. Several of their therapeutic products, which target cancers, tumors, and leukemia, are in clinical trials. Major clients include Centacor, Merck, and Aventis Behring. MEDX opened the week's trading with news that its experimental drug, MDX-33, was found to boost levels of key blood cells in a small trial of patients suffering from a life threatening blood disorder called Idiopathic Thrombocytopenia Purpura, or ITP. MEDX initially peaked at $43.88 during Monday's amateur hour, but the glum market conditions kept MEDX in check under the $40 resistance. Our bearish radar went on full-alert Tuesday when the stock continued to consolidate amid the stellar rally of the broad markets. In hindsight, our concerns were uncalled- for, but nevertheless, profitable trading requires keeping those rose-colored glasses in our pockets. On Wednesday, a positive conference call and a new Buy rating coupled with a lofty $81 price target by CSFB initiated a breakout through the first line of opposition at $40. The building momentum and the advancing marketplace resulted in a significant technical development on Friday. MEDX made a clean break of the ascending wedge, capped by the formidable 200-dma ($44.48), and is currently poised to move higher with the rest of the biotech sector. Keep an eye on the other biotech companies like Biogen (BGEN), Human Genome Sciences (HGSI), and Immunex (IMNX), who also saw significant moves in this week's volatile marketplace. It's essential to not only play the trend of the specific stock, but also to keep close tabs on the corresponding sector's sentiment, which can forecast gloom and doom or bullish intentions. In coming sessions, we're looking for more volatile trading and uncertainty to rock the Street in light of Florida's pivotal decision to have an immediate manual recount of "undervotes" ballots. The turmoil in after-hours trading following the news flash on Friday warns of what next week may have in store for traders. If you're more risk-adverse, then wait for a bullish charge to move MEDX through the overhead resistance at the 30 and 50-dmas at $49.34 and $51.51, respectively, before beginning a new momentum play. If the biotechs pull back, watch for the converged 5 & 10-dmas, just below our raised stop at $41, to buoy the share price. If your trading style is more aggressive, consider an entry at the lower end of trading channel, but only if the overall disposition portends an advancing market. BUY CALL JAN-45 MZU-AI OI= 65 at $10.63 SL=7.75 BUY CALL JAN-50*MZU-AJ OI=217 at $ 7.38 SL=5.25 BUY CALL JAN-55 MZU-AK OI= 77 at $ 5.75 SL=3.75 BUY CALL FEB-50 MZU-BJ OI=328 at $ 9.38 SL=6.25 BUY CALL FEB-55 MZU-BK OI=312 at $ 7.75 SL=5.50 BUY CALL FEB-60 MZU-BL OI=446 at $ 6.38 SL=4.50 http://www.premierinvestor.net/oi/profile.asp?ticker=MEDX MUSE - Micromuse Inc $135.63 (+41.50 last week) Founded as a network management solutions reseller, Micromuse today is a leading provider of real-time fault and service- level management software. Its Netcool suite helps telecommunications and Internet service providers ensure the uptime of network-based customer services and applications. The company's software is used in the OSS and NOC centers of many of the world's leading service providers such as AOL, Cellular One, and Charles Schwab. What a week! The phrase, "the early bird caught the worm", clearly defines the rewards many aggressive traders reaped playing this combustible stock play. The tech explosion on Tuesday incited this networker to shoot up 38% as well as its comrades Agile Software (AGIL), TIBCO Software (TIBX), Interwoven (IWOV), and Macromedia (MACR) to move through major technical obstacles. While the sector is running strong and geared up to make additional advances, Friday's election drama signals a downward bias going into next week. This can be good if you're adventurous and preening for a lower entry point, however, let's keep our heads on straight. The huge gains MUSE recently accumulated lend for a big bout of profit taking, particularly in a descending market. Although MUSE demonstrated credible soundness during the NASDAQ's pullback midweek, the issue typically swings violently with the overall market. While volatility makes for great option trading and we want to leave enough room for MUSE to operate during turbulent times, we've decided to raise our stop to $118 from $105. The higher exit point reflects the elevated near-term support level at $118 and $120, which is currently bolstered by the advancing 5-dma line, now at $115.34. In another positive turn of events, the BoD finalized the dates for Micromuse's previously announced 2:1 stock dividend. MUSE will begin trading on a split-adjusted basis on December 20th. So mark your calendars! We're anticipating lots of investor excitement to generate more momentum as the split date approaches; however, it'll take an advancing market to back the climb. At this point in the play, the more prudent traders should look for MUSE to break the overhead shackles at the $140 level on strong volume and to develop strength above the 200-dma ($139.92) before jumping into the momentum. BUY CALL JAN-130 UZQ-AF OI= 19 at $27.00 SL=21.00 BUY CALL JAN-135 UZQ-AG OI= 31 at $24.63 SL=19.25 BUY CALL JAN-140*UZQ-AH OI= 37 at $22.63 SL=17.75 BUY CALL JAN-145 UZQ-AI OI= 0 at $20.38 SL=16.00 Wait for OI! BUY CALL JAN-150 UZQ-AJ OI=146 at $18.88 SL=13.75 http://www.premierinvestor.net/oi/profile.asp?ticker=MUSE QCOM - Qualcomm Inc. $103.25 (+20.25 this week) Qualcomm Incorporated is a leader in developing, delivering, and enabling innovative digital wireless communications products and services based on the Company's digital technologies. As the pioneer of Code Division Multiple Access (CDMA), the technology of choice for next-generation wireless communications, Qualcomm continues to lead the industry in the development of voice, data, and wireless Internet products and solutions. Qualcomm is also transforming industries through its various satellite businesses and technology partnerships. Ever since news that the China's Ministry of Information Industry had signed a Memorandum of Understanding to partner with QCOM in developing CDMA-based technologies as well as the deployment of a nation-wide CDMA network, shares of the wireless giant have moved sharply higher. Add to that news of a cross-licensing deal with Texas Instruments and positive comments from First Union Securities and its no wonder traders are excited. Bouncing off its 50-dma ($78.16) recently, shares of the CDMA giant have been in demand as trading volume has increased during QCOM's rise. Starting the week off with a break through its 200-dma ($85.90), the stock proceeded to rally above strong resistance at $90, advancing on the back of the 5-dma. From there, it was a quick trip to the psychologically important $100 level. On Friday, QCOM succumbed to some profit taking, as the stock eased back $1.19 or 1.14 percent. While trading volume was higher than the ADV, it was considerably lower than the recent volume on up days. The bounce off the 5-dma, now at $99.33 was a good sign as well. In light of the Florida Supreme Court's judgment on Friday's close, QCOM pulled back in after-hours trading. This suggests that aggressive traders could get a buying opportunity on Monday but in doing so, we would recommend only doing so if strength returns to the NASDAQ. Support at the psychological $100, the 5-dma and our stop price at $95 are possible targets to shoot for, but confirm the bounce with volume. A more conservative strategy would be to wait for buying momentum to carry QCOM above $105 resistance before making a play. BUY CALL JAN-100 AAF-AT OI=33337 at $13.38 SL= 9.75 BUY CALL JAN-105*AAF-AA OI= 3566 at $11.13 SL= 8.25 BUY CALL JAN-110 AAF-AB OI= 8188 at $ 8.75 SL= 6.25 BUY CALL APR-105 AAF-DA OI= 751 at $20.00 SL=14.50 BUY CALL APR-110 AAF-DB OI= 1694 at $18.00 SL=13.00 SELL PUT JAN- 95 AAF-MS OI= 1837 at $ 6.50 SL= 9.50 (See risks of selling puts in play legend) http://www.premierinvestor.net/oi/profile.asp?ticker=QCOM RSAS - RSA Security Inc. $49.88 (+3.75 last week) RSA Security Inc. helps organizations build secure, trusted foundations for e-businesses through its RSA SecurID two-factor authentication, RSA BSAFE encryption and RSA Keon public key management systems. With nearly a half billion RSA BSAFE-enabled applications in use worldwide, more than seven million RSA SecurID users and almost 20 years of industry experience, RSA Security has the proven leadership and innovative technology to address the changing security needs of e-business and bring trust to the new, online economy. Slow and steady has been the theme this past week for shares of RSAS, as the stock has been digesting its most recent gains. Trading volume has been light as of late but good news has helped the stock to drift higher. News that SAGA Software would use RSAS' security systems in their e-commerce solution and EZOS' inclusion of the RSA BSAFE encryption technology into their browser for wireless handheld devices was well-received, further extending the company's reach in the network security domain. What's more, the company announced on Wednesday that NOK had selected their RSA SecurID authentication software to be used in their Nokia 9210 Communicator platform, which will be shipped with every Nokia-branded phone. On Friday, thanks to a rallying NASDAQ, RSAS closed the day up $1.63 or 3.37 percent on higher than average volume. While the stock closed just below the psychological $50 level, it managed to stay above the 50-dma. Over the past few trading sessions, it appears that RSAS has been trading in a narrow range, with support at $49 and resistance at $52. With the 5-dma (now at $48.66) moving higher and the 50-dma at $49.13, we are tightening our stop price, moving it up from $46 to $48. Monday's trading will be important, in light of Election concerns from Friday's Florida Supreme Court decision. While RSAS held up well after-hours, peers CHKP and VRSN fell sharply. For aggressive traders looking for a bounce off support, make sure that there is buying volume to support a bounce and confirm sentiment with RSAS' peers and a rebounding NASDAQ. A safer bet would be to wait for upward momentum to carry the stock over $52 before scaling in. BUY CALL JAN-45 QSD-AI OI=325 at $7.88 SL=5.57 BUY CALL JAN-50*QSD-AJ OI=403 at $5.00 SL=3.00 BUY CALL JAN-55 QSD-AK OI= 93 at $3.00 SL=1.50 BUY CALL APR-50 QSD-DJ OI= 75 at $8.88 SL=6.25 BUY CALL APR-55 QSD-DK OI= 21 at $6.88 SL=5.00 http://www.premierinvestor.net/oi/profile.asp?ticker=RSAS BRCM - Broadcom Corporation $128.19 (+23.44 last week) Broadcom Corporation is a provider of highly integrated silicon solutions that enable broadband digital transmission of voice, video and data to and throughout the home and within the business enterprise. These integrated circuits permit the cost-effective delivery of high-speed, high-bandwidth networking using existing communications infrastructures that were not originally designed for the transmission of broadband digital content. Using unique proprietary technologies and advanced design methodologies, the company designs, develops and supplies integrated circuits for a number of the most significant broadband communications markets. Despite warnings from Intel, Motorola and Xilinx this past week, Chip stocks for the most part have traded higher, suggesting the possibility that the Semiconductor sector may have found a bottom. With that, BRCM continued to rally, closing near its highs for the week. There has been heavy buying volume in the stock recently, as advances have been backed by as much as twice the ADV while any pullbacks have been on light volume, with support holding firmly at the 5 and 10-dma. Even a downgrade by Prudential, from a Strong Buy rating to Accumulate, did little to halt the stock's advance. With the next moving average, the 50-dma, all the way up at $180, and light resistance in increments of $5 overhead, there is plenty of room for a sustained intermediate-term rally. Support can be also found in increments of $5 at $125, $120 and our stop price, adjusted from $108 up to $115. This level is reinforced by the 5-dma, now at $116.87. A bounce off the 10-dma, currently at $106.42 is also possible, but make sure BRCM closes above our stop price. After Friday's close, the Florida Supreme Court's ruling brought new uncertainty to the Election situation, causing shares of many NASDAQ companies to fall in after-hours trading. As a large cap NASDAQ 100 (QQQ) stock, we would recommend entering this play only with an advancing NASDAQ, confirmed by positive sentiment in the Chip sector (SOX). A pullback on Monday morning is quite possible but if sentiment changes from now until the opening bell, look for a break through $130 with conviction as a conservative entry point. BUY CALL JAN-125 RDW-AE OI=484 at $22.75 SL=16.50 BUY CALL JAN-130*RDW-AF OI=435 at $20.13 SL=14.50 BUY CALL JAN-135 RDW-AG OI=567 at $18.13 SL=13.00 BUY CALL FEB-130 RDW-BF OI=261 at $24.50 SL=17.75 BUY CALL FEB-135 RDW-BG OI=136 at $22.63 SL=16.50 SELL PUT JAN-120 RDW-MD OI= 174 at $15.00 SL=20.75 (See risk of selling put in play legend) http://www.premierinvestor.net/oi/profile.asp?ticker=BRCM NTAP - Network Appliance, Inc. $87.19 (+33.25 last week) The idea was inspired, yet simple. Separate storage from an application server and put all that data on a special "appliance" tasked with serving data at high speeds. In 1992, Network Appliance originated this high-performance network appliance concept. Today, they are a recognized leader in data storage and access. Corporations and ISPs use their solutions to reduce the cost and complexity of managing their mission-critical data. With a network-centric economy pushing along expanding volumes of information, an easily scaleable appliance solution couldn't have come at a better time. Anyone who initiated a play this past week on NTAP has much to be happy about. Closing near its highs of the week, shares of the Network Attached Storage (NAS) leader have rebounded over 60 percent in the past five trading sessions. There were a number of factors that helped the stock to trade higher. When we started this play, we mentioned that a strong NASDAQ would likely see shares of NTAP leading the way. That is exactly what happened, thanks to a gentle Fed speech earlier in the week as well news that perhaps Election uncertainties were finally coming to an end. As well, it appears that fears of competition with the introduction of EMC's Chameleon were largely overdone, with a number of analysts coming to the defense of NTAP, suggesting that the fear of competition was greater than the competition itself, especially since EMC's new product won't be as cost-effective as NTAP's solutions. The addition of Oracle as a customer also brought investor dollars to NTAP's stock. Looking ahead, there are some major moving averages that NTAP will need to overcome, with the 200-dma at $91.10 and the 50 and 100-dma near the psychological $100. A break through the 200-dma on volume would allow conservative traders to make an entry but considering the Florida Supreme Court ruling on Friday after the bell, a pullback is quite likely. We have moved our stop up, from $65 to $75 (near the 5-dma) to protect our substantial profits in this play. There is also support at $85 and $80 but when entering on a pullback, make sure that buying volume supports the bounce. We would suggest entering only on strength in the NASDAQ as well as with peers such as BRCD, EMC and VRTS. BUY CALL JAN-85 NUL-AQ OI=217 at $14.13 SL=10.50 BUY CALL JAN-90*ULM-AR OI=779 at $12.38 SL= 9.00 BUY CALL JAN-95 ULM-AS OI=516 at $10.38 SL= 7.50 BUY CALL MAR-90 NUL-CQ OI=365 at $19.88 SL=14.50 BUY CALL MAR-95 ULM-CR OI=906 at $17.63 SL=12.75 SELL PUT JAN-75 NUL-MO OI= 80 at $ 6.38 SL= 8.75 (See risk of selling put in play legend) http://www.premierinvestor.net/oi/profile.asp?ticker=NTAP A - Agilent Technologies Inc $59.44 (+6.44 last week) Agilent is a diversified technology company that provides solutions to high growth markets within the communications, electronics, healthcare and life sciences industries. They're a leading maker of analysis equipment with 51% of sales deriving from its Test and Measurement Unit. Recently Philips Electronics agreed to buy Agilent's Healthcare Solutions for $1.7 bln. Customers include AT&T, Cisco, and Pharmacia. Rising steadily and building a stream of steadfast momentum amid a shaky marketplace is no easy feat! Agilent Technologies' recent stock behavior champions the "Little Engine That Could" mentality. After releasing a solid earnings report on November 16th, A attracted lots of investor and analyst attention. The successive announcements of acquisitions and deals revolving around Objective Systems integrated, privately-held Verano, and most recently, ATN Microwave further encouraged investors to take a stake in this diversified technology company. The respectable volume continued to drive A higher this week, but it wasn't until Friday's dramatic 10% move that A surpassed Wednesday's early morning crown of $56.94. And despite of the DOW's inability to crack 10800 on Friday, the market's positive sentiment and the stock's improving technical conditions propelled it to $59.88 - just shy of the $60 objective! The unwavering accumulation of shares coupled with the strong upward chart pattern indicate a likelihood of more upside action over the short-term. With the exception of Solectron (SLR), who recently hit a new 52-week low as a result revenue issues linked to Cisco and UBS Warburg's downgrade, the rest of the sector is faring well and showing signs of recovery. For example, Ballard Power Systems (BLDP), Sanima (SANM), and Plexus (PLXS) all made headway this week. All looks good for continued advances, but a couple of factors are nonetheless pertinent for continued success. First, the stock needs to break through the crucial $60 level with conviction (lots of volume) and second, a rallying marketplace is essential to make profits on calls. Without further ado, let's talk entry points. A conservative approach is for traders to stay on the sidelines while the election saga unfolds next week. The more enterprising and risk-oriented traders might target shoot amidst the volatility and find entries on solid bounces off our new protective stop at $53 or the correlating 10-dma ($53.18). If there's only a mild pullback, then consider entries at the 5-dma ($54.30) or Friday's intraday support around $57 and $58, but remember to expect resistance at the $60 level. Keep stops tight in these uncertain times. BUY CALL JAN-55 A-AK OI=2135 at $8.63 SL=6.00 BUY CALL JAN-60*A-AL OI=3896 at $6.00 SL=4.00 BUY CALL JAN-65 A-AM OI=2162 at $4.00 SL=2.50 BUY CALL FEB-60 A-BL OI= 821 at $7.88 SL=5.75 BUY CALL FEB-65 A-BM OI= 382 at $5.88 SL=4.00 http://www.OptionInvestor.com/oi/profile.asp?ticker=A BRCD - Brocade Communications $219.75 (+51.87 last week) Brocade Communications Systems is a supplier of open Fibre Channel Fabric solutions that provide the intelligent backbone for Storage Area Networks (SANs). Brocade's family of SilkWorm switches enables a company to manage growth of its data storage requirements, improve the data transfer performance, and increase the size of its SAN. Brocade's products are primarily sold in the US with 70% of sales derived from Compaq, Data General, Dell, McDATA, and Sequent. How many ways can you say "Huge Profits?" Our play on BRCD is producing tremendous gains in view of the volatile nature of the broader markets. BRCD led the charge among the networking infrastructure stocks this week with rivals Network Appliance (NTAP) and CacheFlow (CFLO) also setting a fervent pace upward. The stock's rather impressive performance during the NASDAQ's triple digit losses on Wednesday further validated BRCD's relative strength. In an effort to remain competitive in the expanding Internet world, BRCD was pleased to announce it added 23 new partners to sell and support its switches and software as well as a master reseller partnership with Bell Microproducts (BELM). The monumental move through the $200 level on Friday however, marked a critical point of passage for BRCD. The forecast for more bullish action is indeed welcoming, however we must respect the overall market direction. Plain and simple, play calls in an ascending market and puts in a descending market. Of course your entry strategy will vary depending on your risk portfolio, but you get the general gist of things -- don’t' fight the market, the sector, or the stock's trend line! Now let's get back to BRCD and what's forthcoming next week. From the choppy and downward bias exhibited in after-hours trading amongst the techs, it appears the Election drama may put a bit of a damper on trading. But who knows, perhaps Santa Greenspan will touch down his sleigh and offer some uplifting affirmations. Whatever transpires, one thing's a given - the markets are expected to be unsettled and potentially, eruptive. Plus, Brocade has a 2:1 stock split approaching and this event may create some excitement of its own. The stock will begin trading on a split-adjusted basis on December 22nd, so keep that date in mind when planning your strategies. Our current stop is now set higher at the former resistance mark of $200. Although, taking entries off this level on a pullback are considered quite risky; especially if all hell breaks loose next week! A more cautious approach to playing the momentum is to have some patience and see where the markets take BRCD next week BEFORE beginning new plays. If we're blessed with a rallying NASDAQ and BRCD's gains extend, then consider taking entries on intraday pullbacks at the 50-dma ($218.10) or buying into strength as BRCD moves through the $225 mark. BUY CALL JAN-200 GUF-AT OI=10523 at $36.63 SL=28.50 BUY CALL JAN-210 GUF-AB OI= 6050 at $30.63 SL=24.00 BUY CALL JAN-220*GUF-AD OI= 5099 at $25.88 SL=20.25 BUY CALL JAN-230 GUF-AF OI= 263 at $21.13 SL=16.25 BUY CALL JAN-240 GUF-AH OI= 873 at $17.00 SL=12.25 http://www.premierinvestor.net/oi/profile.asp?ticker=BRCD *********************************** LOW VOLATILITY CALL PLAYS - UPDATES *********************************** RE - Everest Re Group $66.69 (+5.38 last week) Everest Re group is engaged in the underwriting of property and casualty reinsurance on a treaty basis. The company's products include the full range of property and casualty coverage, including marine, aviation, surety, errors & omissions liability, medical malpractice, and other specialty lines. The company operates extensively in both international and domestic markets. Since we initially started coverage on RE as a low volatility call play the stock has continued to trace one new all-time high after another. In fact, shares of RE settled at a new all-time high last Friday at $66.69. We like the relative strength and momentum the stock has displayed over the past two weeks since breaking out its base around the $59 area. As the fundamental picture remains rosy for the major insurance players, we're looking for shares of RE to continue to steadily climb into the coming month. Since the stock has put together a string of four consecutive winning sessions a little pullback may be in order. If RE does come in, watch for a bounce off the pivotal point at $62, which is the site of its 10-dma and also the location of our protective stop. If RE settles below $62 we'd drop coverage and take profits. On the other hand, if the insurance sector continues to trade higher new positions in RE can be taken at current levels or on a breakout above its intraday high last Friday at $67.44. Before entering on strength confirm direction in RE's counterparts by monitoring CB, AFC, BRK.A. Although RE is a slow moving stock, if it continues to steadily climb like it has all year, it will produce profits for options traders. BUY CALL JAN-60 RE-AL OI=159 at $ 8.50 SL=6.00 BUY CALL JAN-65*RE-AM OI=152 at $ 4.25 SL=2.50 BUY CALL APR-60 RE-DL OI= 10 at $11.38 SL=8.50 BUY CALL APR-65 RE-DM OI= 0 at $ 8.38 SL=6.00 AIG - American International Group $103.69 (+6.25 last week) AIG is the largest underwriter of commercial and industrial insurance in the United States. Its member companies write a wide range of commercial and personal insurance products through a variety of distribution channels in approximately 130 countries. AIG's global businesses also include financial services and asset management. Akin to its counterpart, RE, AIG continues to trace new highs as investors buy into the insurance sector with fervor. Add to the fact the likelihood of the Fed easing its bias and possibly lowering interest rates in the near future, and AIG, with its financial services unit, is positioned to continue trading higher. What's more, trading at all-time highs, AIG is also a candidate for a 2-for-1 stock split, which could add additional profits and momentum to our low volatility call play. New positions can be added if AIG breaks out above the $104 level, en route to new highs. Additional entries can be had on pullbacks to support levels. First look for the buyers to step in at $101, next near the $100 level, or lower near the 10-dma at $99. Make note that we have move our protective stop up to $96 and would exit positions upon a close below that level. BUY CALL JAN-100 AIG-AT OI=4214 at $7.00 SL=5.00 BUY CALL JAN-105*AIG-AA OI=1372 at $4.00 SL=2.50 BUY CALL JAN-110 AIG-AB OI= 555 at $1.94 SL=1.00 BUY CALL FEB-100 AIG-BT OI=2103 at $8.75 SL=6.25 BUY CALL FEB-105 AIG-BA OI=1144 at $6.00 SL=4.00 BUY CALL FEB-110 AIG-BB OI= 796 at $3.25 SL=1.75 http://www.premierinvestor.net/oi/profile.asp?ticker=AIG TERN - Terayon Communications $16.25 (+2.75 last week) Terayon Communications provides innovative broadband systems and solutions for the delivery of advanced, carrier-class voice, data and video services, which are deployed by the world's leading cable, telco and satellite network operators and carriers. With telecom stocks and telecom-related companies as beaten down as they are, a bottom may be near. TERN is a broadband play that is one of those related companies. The stock has spent the past week climbing from its recently traced 52-week low at $11, and has appeared to built a solid base. We're looking for TERN to emerge from its base, with help from the broader networking sector. New positions could be initiated if TERN breaks out above the $17 level on strong volume, which proved to be resistance again on Friday. But before entering on a breakout, make sure to confirm direction in the NASDAQ and other networkers including CIEN, CMVT, and LVLT. TERN's aforementioned bottom will be strengthened as the NASDAQ solidifies its own. If TERN pulls back, consider entering on a bounce off intraday support at $15 or lower near $14, which is a stronger level. We are upping our stop on this Low Volatility call play from $13 to $14. A close below $14 and we would not initiate any new positions. BUY CALL JAN-15 TUN-AC OI= 607 at $4.00 SL=2.50 BUY CALL JAN-17.5*TUN-AM OI= 333 at $3.00 SL=1.50 BUY CALL JAN-20 TUN-AD OI= 907 at $1.50 SL=0.75 BUY CALL APR-17.5 TUN-DM OI= 37 at $5.13 SL=3.00 BUY CALL APR-20 TUN-DD OI=1382 at $4.25 SL=2.75 http://www.premierinvestor.net/oi/profile.asp?ticker=TERN ****************************** LONG TERM CALL PLAYS - UPDATES ****************************** ORCL - Oracle $30.06 (+3.63 last week) Oracle is the world's leading supplier of software for information management, and the world's second largest independent software company. With annual revenues of more than $10 billion, the company offers its database, tools and application products, along with related consulting, education, and support services, in more than 145 countries around the world. ORCL's recent V-bottom rebound has created plenty of opportunities from which to profit. Last week's 13% rebound in shares of Oracle might portend higher prices ahead for the database software giant as it's slated to report fiscal first-quarter results on Thursday, December 14th. The First Call consensus estimate is for Oracle to earn 10 cents per share. The earnings announcement is key for both Oracle (obviously) and the tech sector as a whole. As such, Oracle's profit report will be widely anticipated and could provide for further profits in our long-term call play. New positions can be entered ahead of the announcement at current levels on bounces off support at $30. If ORCL pulls back early next week, watch for buyers to step in at support near the $28 level, with the 10-dma at $27.94 providing backup. Make note, we have raised our stop up to $26 and would close all positions if ORCL violated that level. Conservative traders might wait for the NASDAQ to rally and look to enter new call positions if ORCL trades above resistance at $31, or higher above its near-term high at $31.50. OI normally doesn't suggest holding over an earnings announcement, but considering that ORCL is a long-term trade, we will continue coverage on the play over the profit report. However, consider risk tolerance and use discretion as news related events can cause for volatile moves in share price. BUY CALL JAN-25 ORQ-AE OI=23409 at $7.00 SL=5.00 BUY CALL JAN-30 ORY-AF OI=17542 at $3.75 SL=2.25 BUY CALL JAN-35 ORY-AG OI=33928 at $1.94 SL=1.00 BUY CALL MAR-30 ORY-CF OI= 7179 at $5.63 SL=3.50 BUY CALL MAR-35 ORY-CG OI= 8639 at $3.63 SL=1.75 BUY CALL MAR-40 ORY-CH OI= 7527 at $2.25 SL=1.25 High Risk! http://www.premierinvestor.net/oi/profile.asp?ticker=ORCL QQQ - NASDAQ 100 Index Trust $68.00 (+4.00 last week) The NASDAQ 100 Index reflects NASDAQ's largest companies across major industry groups, including computer hardware and software, telecommunications, retail/wholesale and biotechnology. Launched in January 1985, the NASDAQ 100 represents the largest and most active non-financial domestic and international issues listed on The NASDAQ Stock Market based on market capitalization. The NASDAQ showed great resilience this past week. We are beginning to be more optimistic about its bottoming process, encouraged by INTC's ability to withstand is second earnings warning in a row. It even managed to post a gain on Friday after the news. XLNX and MOT also fared well in the wake of their own warnings. The QQQ had a spectacular week, fueled by pro-Bush rulings in the lower courts and Greenspan's acknowledgement of the slowing economy. They appreciated 6.25% this week and trading in the NASDAQ is giving traders hope. However, the QQQs sold off in after-hours Friday, along with many NASDAQ stocks, when the Florida Supreme Court overturned the Leon Cty Court decision to not recount the undervote. Then, Saturday afternoon, the U.S. Supreme Court issued a stay, blocking the recount temporarily. Be aware that the Election mayhem will continue to affect the markets. Remember though that this is a Long Term call play designed to take advantage of the recovering NASDAQ. To gain entry into the QQQs, look for bounces from $66 which has provided intraday support throughout the week. Below, support can be found at $65. Also, a break above resistance at $73 would warrant entry as well. Watch the NASDAQ for guidance in this play, especially near the key resistance level of 3000. Our stop remains at $65. BUY CALL JAN-67 QUE-AO OI= 1086 at $6.38 SL=4.50 BUY CALL JAN-68 QUE-AP OI= 8569 at $5.88 SL=4.00 BUY CALL JAN-69*QUE-AQ OI= 5330 at $5.38 SL=3.50 BUY CALL JAN-70 QUE-AR OI=29768 at $4.88 SL=3.00 BUY CALL MAR-70 QUE-CR OI= 7908 at $7.75 SL=5.50 http://www.premierinvestor.net/oi/profile.asp?ticker=QQQ AOL - America Online $46.90 (+5.39 last week) Founded in 1985, America Online is the world's leader in interactive services, Web brands, Internet technologies, and e-commerce services. Through its strategic alliance with Sun Microsystems, the company develops and offers easy-to-deploy, end-to-end e-commerce and enterprise solutions for companies operating in the Net Economy. We initiated AOL as a Lottery Play based on an anticipated recovery in the Internet sector. Today we are migrating this play to the Long Term category due to the longevity potential of AOL once the merger with TWX is completed. The AOL-TWX mega-merger is expected to be completed either late this month or in early 2001. We believe that as the deal draws closer to being completed, AOL's share price has the ability to move back to $50, where it traded Friday Nov. 17th. AOL had a nice trend throughout this past week, climbing consistently from $41 on Monday to a high near $47 on Friday. Like we mentioned in the initial write-up, this AOL play had a good chance of success. And this week proved just that. As a result, we have increased the stop loss to $42 from $39. Look to gain entry into this call play on bounces from intraday support at $44. Below, support lies at $43 and $42. Overhead, resistance will be encountered at $48 and $50. A break of these levels with strong volume could also provide a nice entry point. Options on AOL are relatively low priced, making the play more attractive. BUY CALL JAN-45 AOE-AI OI=10676 at $5.60 SL=3.50 BUY CALL JAN-50*AOO-AJ OI=32165 at $3.00 SL=1.50 BUY CALL JAN-55 AOO-AK OI=22335 at $1.65 SL=0.75 BUY CALL APR-50 AOO-DJ OI= 5937 at $5.80 SL=4.00 BUY CALL APR-55 AOO-DK OI= 6268 at $4.20 SL=2.50 http://www.premierinvestor.net/oi/profile.asp?ticker=AOL ************************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=1109 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 12-10-2000 4 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/121000_4.asp *************************ADVERTISEMENT********************* Why put all your risk into one stock when you can play the index instead? Learn how to invest in the OEX, QQQ, and SPX. Get intraday market updates, plays, education and daily commentaries by those who know. Sign up for a two week free trial and see for yourself: http://www.sungrp.com/tracking.asp?campaignid=1095 ************************************************************ ************* NEW PUT PLAYS ************* SBC - SBC Communications $51.69 (-0.50 this week) BellSouth Corporation is an integrated communications services company headquartered in Atlanta, GA serving more than 41 million customers in the United States and 16 other countries. BellSouth, consistently recognized for customer satisfaction, provides residential, business and wholesale customers with integrated voice, video and data services to meet their communications needs. BellSouth is a Fortune 100 company with total revenues exceeding $26 billion. When a struggling stock meets a struggling sector, it typically winds up on our put list. That is the case for SBC. If you throw in a Presidential election that will now remain unresolved for a little while longer and you now have an environment to play puts. After a decent rise for SBC from July to October, SBC has clearly rolled over. This should come as no surprise given the weakness in Telecom. All aspects of this group have suffered, from the regional bells to national long distance carriers to equipment suppliers. Price competition is the culprit and there are little signs that relief is coming. This is no longer a hidden fact to investors either and they are quick to sell on any weakness. SBC had already begun to trade lower after-hours on Friday based on the Florida Supreme Court decision. That may just be a consequence of all stocks trading lower on the decision, but it will make for losses early in the week for the major averages, barring any new developments. One interesting note is that SBC is still trending lower even after reiterating their earnings guidance for the fourth quarter. Warnings have not been uncommon in this group during recent quarters and they had been floating over SBC's head. The Texas- based SBC said it still expects its fourth-quarter profits to be in the range of 56 cents to 58 cents a share. Wall Street analysts expect the company to earn 58 cents a share, according to research firm First Call/Thomson Financial. So what may be happening is a lack of interest now that investors essentially know what the number will be. The old sell-on-the-news trick. We would expect this recent downtrend to continue until SBC hits support at $48. At that time we will reevaluate the play and adjust our stop lower. Right now our stop loss will be set at $55. BUY PUT JAN-55 SBC-MK OI=7635 at $5.25 SL=3.50 BUY PUT JAN-50*SBC-MJ OI=7204 at $2.56 SL=1.25 BUY PUT JAN-45 SBC-MI OI=7004 at $1.25 SL=0.00 http://www.premierinvestor.net/oi/profile.asp?ticker=SBC BBOX - Black Box Corporation $52.69 (-2.17 last week) In April 1976, Black Box was started with a gem of an idea. The company began selling connectivity devices, the "little black boxes" that customers need to connect their primary data communications products. The idea was to sell a range of products from a single source and to provide the technical help needed to solve customers' interface problems. Today, Black Box is a leading worldwide provider of network services and related products to businesses of all sizes in 132 countries. Tough times appear to be in store for BBOX, as the continuing slowdown in the economy and capital expenditures could mean weakness for revenues going forward. When the company posted record earnings in mid-October, the stock rallied on the news, leaving in its wake a gap between $44 to $47. Failing to break through resistance from the 200-dma (now at $65.32), the stock has been trading sideways until recently. On Friday, counter to a strong day for the NASDAQ, the stock fell $6.06 or over 10 percent on almost 400% of ADV. The news to explain the sell-off, was counterpart CDWC's earnings warning the night prior. While the stock closed above the $52.50 level, a support level that has held up a number of times previously, the intra-day dip below this point suggests that a weak NASDAQ could lead to support being taken out. From there, it could be a quick trip to $44, as the stock attempts to fill its post-earnings gap. At this point, there is heavy resistance in the $57-58 area, with the 5, 10 and 50-dmas all sitting at that level. We are placing our stop price at $58. A failed attempt to break through resistance could allow aggressive traders to take a position but make sure that selling volume supports the rollover. For the more risk adverse, wait for the bears to take out $52.50 support on volume. For the even more conservative, look for a break through $50. In entering this play, make sure to confirm direction of the stock with the NASDAQ, entering only on weakness in the tech-heavy index. BUY PUT JAN-55 QBX-MK OI= 0 at $6.75 SL=4.75 Wait for OI! BUY PUT JAN-50*QBX-MJ OI=10 at $4.13 SL=2.50 http://www.premierinvestor.net/oi/profile.asp?ticker=BBOX EMC - EMC Corporation $86.94 (+8.69 last week) EMC wants to be your storage solution. The company designs, manufactures and markets a wide range of enterprise storage systems, software, networks, and services. The company’s products store, retrieve, manage, protect and share information from all major computing environments including mainframe, UNIX, and Windows NT. With offices around the world and a 35% growth rate for the first 9 months of the year, EMC is effectively filling its role as the worldwide storage leader. Widely accepted as the leader in enterprise storage systems, EMC has recently taken aim at the Network Attached Storage (NAS) market. With more competition emerging in the storage field, EMC has to find new ways to maintain its hefty 57% margins. With higher margins on the software side of its business, EMC has committed to spending 80% of its $1 billion research budget in this arena next year. At a press conference last Tuesday, the company unveiled its newest product, a software package called HighRoad. The software, which costs about $10,000 per server, gives users greater file-sharing capabilities in bandwith-intensive environments by automatically selecting the fastest route to the data. Enthusiasm for the positive development, along with assertions from the company that sales will nearly double to $12 billion next year, enabled the stock to bounce $11 from its recent bout of selling, ending the day back at the $90 resistance level. The excitement didn't last though, and EMC fell lower for the rest of the week, pushing it back into the descending channel that has been in place since the stock traced new all-time highs in mid-September. The 200-dma (currently $79) has been a sacred cow, untouched for over 2 years, but the selling pressure at the end of November violated it big time, as EMC fell as low as $69.25. While the recovery was swift, the stock appears to be rolling over from the top of the channel again, and with the negative election news Friday night, it looks likely that the 200-dma will fail again. The unsettling election news that broke after the close on Friday caused heavy selling in the stock and we expect this to continue on Monday. Consider new positions as the stock falls through resistance near $85, provided the NASDAQ continues to be under pressure. More aggressive traders may want to wait for a rollover from the top of the channel (near $87) before playing. We have set our stop at $92, near the top of the stock's range from last week. Any close above that level will break EMC out of its bearish trend and move the stock to our drop list faster than you can say "recount". BUY PUT JAN-90 EMC-MR OI= 4492 at $9.25 SL=6.50 BUY PUT JAN-85*EMC-MQ OI=27680 at $7.00 SL=5.00 BUY PUT JAN-80 EMC-MP OI= 6017 at $5.00 SL=3.00 BUY PUT JAN-75 EMB-MO OI= 4803 at $3.63 SL=2.00 http://www.premierinvestor.net/oi/profile.asp?ticker=EMC ABT - Abbott Laboratories $49.69 (-3.19 last week) Abbott Laboratories is engaged in the discovery, development, manufacture and sale of healthcare products and services. ABT's pharmaceuticals and hospital products (accounting for more than 40% of sales) include antibiotics, synthetic hormones, and drugs such as Norvir, which is used to treat HIV. Its products are sold directly to retailers, wholesalers, healthcare facilities, laboratories, and government agencies throughout the world. Unless you have had your head buried in the sand, you couldn't help noticing the dramatic rally in Drug and Healthcare stocks since Labor Day. ABT has been on a tear along with the Drug Index (DRG.X), gaining over 35% by the end of November, and trading as high as $55. This rally in defensive stocks began to show signs of weakening by early December, and since then, the stock has fallen through the 10-dma ($53.13), 30-dma ($52.81) and 50-dma ($51.38). Closing the week below $50 for the first time since mid-October, ABT is now poking through the lower Bollinger band, making it possible that the stock will have a short-term bounce in the next few days. Daily Stochastics have now entered the oversold range, but the weekly Stochastics have just barely started to fall out of the overbought range. With the strong rise over the last 4 months, there isn't any strong support until $44, with much stronger support at $40. There is some mild support near $48, but unless both the sector and the broader market can firm in the near future, it is unlikely to serve as anything more than a brief resting point as ABT retraces its recent gains. With strong overhead resistance at $52, this is a logical level to place our stop. While aggressive traders can target shoot new entries on a failed rally near this level, any close above $52 will be cause for expulsion from the play list. More conservative traders will want to enter on continued weakness, specifically, falling below $49 with further declines on the Drug Index. BUY PUT JAN-50*ABT-MJ OI=1922 at $2.63 SL=1.25 BUY PUT JAN-45 ABT-MI OI=1545 at $0.81 SL=0.00 http://www.premierinvestor.net/oi/profile.asp?ticker=ABT ***************** CURRENT PUT PLAYS ***************** No current put updates this weekend ************************ LOW VOLATILITY PUT PLAYS ************************ KMB - Kimberly Clark $66.46 (-4.35 last week) Kimberly Clark is a leading consumer and medical products company. Its global tissue, personal care and health care brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex, Scott, Safeskin, and Kimwipes, among others. Other brands well known outside the U.S. include Andrex, Scottex, Page, Popee, and Kimbies. Kimberly Clark also is a major producer of premium business, correspondence and technical papers. After adding KMB as a low volatility put play after the stock's precipitous decline last Tuesday, we noted that short covering and an ensuing relief rally were likely. Sure enough, KMB rebounded in the two consecutive sessions following its sell-off and subsequently rolled over near resistance at $69. The stock's rollover and subsequent weakness can be directly linked to the rebound in the NASDAQ. Going forward, we'll want to see continued strength in the tech-sector before entering any new put positions in KMB. As long as the NASDAQ continues to recover, capital will leave the defensive names such as KMB and cause weakness from which we can profit. New positions can be entered in KMB if the stock falls below support at $66 on heavy volume. The aggressive traders might continue to target shoot failed rally attempts. Look for KMB to rollover near resistance at $68 if any additional short covering takes place. Our upside stop is still in place at $70, and we would drop coverage on KMB if it closed above that level. BUY PUT JAN-70 KMB-MN OI= 97 at $5.10 SL=3.00 BUY PUT JAN-65*KMB-MM OI=271 at $2.50 SL=1.25 BUY PUT JAN-60 KMB-ML OI=689 at $1.20 SL=0.50 http://www.premierinvestor.net/oi/profile.asp?ticker=KMB ************************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=1110 ************************************************************** ***** LEAPS ***** It's Time For A Change Of Pace! By Mark Phillips Contact Support If you are a bull at heart, I know you can relate to that statement after the last 3 months of consistent market declines. The bears are still being well fed by the never-ending election saga, a continuous stream of high-profile earnings warnings and indications of economic weakness around the globe. It does look like we are approaching a bottom on the NASDAQ, but we need the clouds to clear before we can say it is clear for the bulls to come charging back onto the stage. The late-breaking election news on Friday is almost certain to result in a negative open in the markets on Monday, but investors are getting tired of the seemingly never-ending election battle and are likely to begin focusing on more important issues like earnings and interest rates. While earnings warnings are rampant, it is beginning to appear that the bad news has already been factored into stock prices. INTC gave us our first peek at this as the stock rebounded immediately after the company issued their earnings warning. This seems like a great time to review where we are and what we think the future holds for the residents of our LEAPS playlist. Rather than take up space rehashing the fundamental factors that are affecting the broader markets, I want to revisit each of our plays and make some brief comments as to what our expectations are for each of them. Due to space limitations, I can't go into specific entry strategies for each play. Use support/resistance levels and your favorite oscillators (Stochastics, MACD, RSI, etc.) to select entry points and enter new plays ONLY AFTER seeing a return of buying interest. Get a cup of coffee and find a comfortable chair, because here we go... EMC - Still the undisputed enterprise storage leader, the recent weakness has been a result of weakness in the broader market. Recent comments by the company have been unequivocally bullish, and with revenue growing at greater than 30%, the future is bright. Any near term weakness looks like an opportunity to pick up LEAPS at a bargain. CSCO - Still a Networking powerhouse, CSCO is one of the most consistent economic machines in the Technology sector and it is amazing to see revenue growth continuing to grow, hitting 66% in the most recent quarter. After rangebound trading throughout the summer, CSCO has come under renewed selling pressure in recent months. Now the bulls and bears are battling over the $50 support/resistance level. Last week saw a new low at $45, and as long as this level is not violated, the stock should have a great year in 2001. NT - See Spotlight Play below. SUNW - We have been disappointed by SUNW's inability to sustain any upward moves recently, but that criticism can be levied at just about any large cap Technology stock in recent weeks. Part of the weakness this past week may be due to the execution of the company's 2-for-1 split on December 6th. Earnings and revenue growth continue to be stellar and once the broader market kicks back into rally mode, SUNW should benefit nicely from the rising tide. We would look for long-term support at $35-37 to halt any further declines and provide attractive entry points as the buyers return. AOL - AOL has been beaten up lately with the other Internet stocks, but we are still hanging tough on this play. We think the merger with Time Warner (TWX) will be a positive for both companies, and once the market comes to the same conclusion, we expect to see the stock run at least to the $65 level. It has been encouraging to see the stock begin to rally off the $40 level twice in as many months. Just look out for the major support level of $40, which looks like a great aggressive entry point. If for some reason, it fails to hold, we will likely drop AOL from our play list. AXP - Although it isn't known for daily double-digit gains, AXP is a consistent performer, providing conservative players with attractive entry points on pullbacks to support. AXP has a nice looking chart with a consistent pattern of higher highs and higher lows since the bottom that was put in place this past spring. With a decrease in interest rates almost a certainty in the coming months, the bias for Financial stocks looks positive. Use support at $55, as a good support level for target shooting new entries for the next leg of the stock's run. WM - This has been a stellar play, returning more than 300% as the Financial stocks have rallied over recent months. With falling interest rates on the horizon, it looks like the picture could get even rosier. Even after an increase of more than 100% since the March lows, WM only sports a PE ratio of 14.5, and earnings continue to be strong. The stairstep pattern has been amazingly consistent. Use pullbacks to support (prior highs) as an opportunity to enter the play as the stock continues to charge to new highs. JDSU - Despite the short-term arguments of the bears, JDSU is growing like a weed and that growth is likely to accelerate once the SDLI merger is completed. Earnings continue to beat consensus estimates, and revenue growth is accelerating, if anything. The recent weakness has been a byproduct of the bearish sentiment in the NASDAQ and the Telecom Equipment (Networking) sector. With a solid bottom in place near $50, JDSU looks primed to charge higher with its Networking brethren in the year ahead. NOK - See the Spotlight Play from 12/03. C - Our outlook for C is similar to that of AXP, where we are expecting falling interest rates in coming months to propel Financial stocks higher. C has held up rather well during the recent market turmoil, refusing to spend any time below the $47 support level. The bulls repeatedly push the stock back up above the 200-dma (currently $49.19), and once this congestion zone is cleared to the upside, C should lead the rally in Financial stocks. GENZ - If you have been looking for a solid Biotech play, it has been hard to argue with the stellar performance of GENZ. It is currently charging to new highs...again. The uptrend has been virtually unbroken since the spring lows, and it is showing now signs of slowing its ascent. Use pullbacks to support (near $87) or the ascending trendline (near $82) to initiate new positions, as this Biotech winner continues to run. EXDS - Anything Internet related has come under significant selling pressure, as the valuation compression hit companies without profits the hardest. EXDS is the leader in Web-hosting and with their acquisition of Global Crossing's (GX) Web-hosting unit, they have further solidified their leadership position. Support seems to have solidified near $20-22, but any violation of this level will be cause for expulsion of the play from the LEAPS section. A bounce at the $25 support level looks attractive for new long term entries as we expect the strongest players in the Internet space to profit handsomely in the year ahead. FRX - While we have been entirely pleased with the performance of FRX in the recent market environment, we cannot advocate new positions at this time. There doesn't appear to be anything wrong with the stock, but apparently the LEAPS do not have a lot of support from the trading community. Use the ascending trendline, in place since early September to keep you in the play during minor retracements. When the stock fails to bounce at this trendline, we will drop FRX from the playlist. QCOM - The first 10 months of the year were not kind to the darling stock of 1999, but the tide has turned again with QCOM charging through one resistance level after another. Prompting recent gains has been China's official adoption of CDMA technology for the China Unicom network build out. Like they really had a choice? Use near-term weakness as an opportunity to get back into this play on bounces at support near $90, backed up by the 200-dma at $$86. TXN - As we referred to in the NOK Spotlight Play last weekend, concerns about a slowdown in the Wireless Handset market appear to have been overblown. The weakness experienced by MOT and ERICY has resulted in captured growth opportunity for NOK. TXN doesn't care who it sells its DSP chips to, as long as demand is strong, and that appears to be the case. The stock seems to have put in a solid bottom near $35, and the recovery seems to be well underway. ADBE - Since I am running out of time, I will cheat a little bit on this one. Let me refer you to the Call play write-up in the newsletter this weekend. Since I wrote it, it seems silly to give you a trimmed down version here. BGEN - Of all the stocks in our playlist, this Biotech is having the hardest time getting moving in either direction. Earnings have been solid, slowing revenue GROWTH has made it hard for the bulls to get excited. $50 looks like solid support, with resistance being created by the descending 5-month trendline (bearish wedge formation). Aggressive traders can target shoot new entries on bounces from support at either $52 or $50, while a more conservative approach will be to wait for a volume-backed move through the descending trendline (currently $60). A failure to hold support at $50 will move BGEN to our drop list, so keep that in mind when playing. MU - See the New Play write-up from 11/26/00. A - See the New Play write-up from 12/3/00. Whew!! Now that's a mouthful! I know it was a lot, but hopefully this gives you a starting point for planning out your strategy for the entry points that undoubtedly lie in the weeks ahead. Have a Profitable Week! Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN EMC 11/07/99 JAN-2002 $ 45 WUE-AI $ 9.50 $49.00 415.79% 09/17/00 JAN-2003 $100 VUE-AT $32.75 $28.00 -14.50% CSCO 11/14/99 JAN-2002 $ 45 WIV-AI $11.00 $16.88 53.41% 11/26/00 JAN-2003 $ 60 VYC-AL $16.63 $15.63 - 6.02% NT 11/28/99 JAN-2002 $37.5 WNT-AU $15.13 $15.50 2.45% 09/10/00 JAN-2003 $ 75 ODT-AO $27.50 $ 8.63 -68.64% SUNW 12/19/99 JAN-2002 $ 90 WJX-AR $22.00 $15.38 -30.11% 11/05/00 JAN-2003 $120 VSU-AD $39.50 $ 7.88 -80.06% AOL 03/12/00 JAN-2002 $ 65 WAN-AM $18.63 $ 5.50 -70.48% 08/13/00 JAN-2003 $ 55 VAN-AK $17.50 $11.80 -32.57% AXP 03/12/00 JAN-2002 $46.6 WXP-AQ $ 9.33 $15.63 67.47% WM 03/19/00 JAN-2002 $ 30 WWI-AF $ 5.38 $21.75 304.28% 10/22/00 JAN-2003 $ 45 VWI-AI $ 7.88 $14.00 77.78% 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 $18.50 -66.52% NOK 05/21/00 JAN-2002 $ 50 IWX-AJ $17.25 $13.00 -24.64% 07/30/00 JAN-2003 $ 50 VOK-AJ $17.75 $17.50 - 1.41% C 06/18/00 JAN-2002 $48.8 YSV-AW $10.31 $11.88 15.18% 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 $45.75 167.08% JAN-2003 $ 70 OZG-AN $23.13 $52.75 128.06% EXDS 08/06/00 JAN-2002 $ 55 WZZ-AK $20.75 $ 6.25 -69.88% JAN-2003 $ 60 VTQ-AL $25.38 $ 9.13 -64.05% FRX 08/13/00 JAN-2002 $ 95 WRT-AS $31.38 $52.38 68.50% JAN-2003 $100 VFB-AT $37.38 $57.88 56.50% QCOM 09/17/00 JAN-2002 $ 70 WBI-AN $22.50 $47.63 111.67% JAN-2003 $ 70 VLM-AN $29.63 $56.63 91.11% COMS 10/01/00 JAN-2002 $ 20 WTH-AD $ 6.38 $ 1.38 -78.43% JAN-2003 $ 25 VTH-AE $ 7.13 $ 1.94 -72.81% TXN 10/22/00 JAN-2002 $ 50 WTN-AJ $13.75 $14.50 5.45% JAN-2003 $ 50 VXT-AJ $18.38 $19.63 6.80% ADBE 10/29/00 JAN-2002 $ 80 YEJ-AP $23.50 $19.00 -19.15% JAN-2003 $ 80 VAE-AP $30.75 $26.63 -13.41% BGEN 11/05/00 JAN-2002 $ 70 WGN-AN $17.25 $14.38 -16.67% JAN-2003 $ 70 VNG-AN $25.00 $21.13 -15.50% MU 11/26/00 JAN-2002 $ 45 WGY-AI $13.13 $ 9.25 -29.52% JAN-2003 $ 45 VGY-AI $17.25 $13.25 -23.19% A 12/03/00 JAN-2002 $ 55 YA -AK $16.88 $21.13 25.19% JAN-2003 $ 60 OAE-AL $19.88 $24.50 23.27% Spotlight Play NT - Nortel Networks $42.94 After kicking off the decline in Networking stocks in late October, the situation has improved significantly for NT. In all fairness, the comments made in the companies conference call came in an environment that was ripe for a sell off. Despite reporting earnings a penny ahead of consensus estimates and revenue growth above 40%, NT provided a catalyst for the bears, by reporting growth in the Optical business of "only" 90%, which was less than investor expectations. Fear of a dramatic downturn in future business led analysts to downgrade shares of the Canadian Networking powerhouse, and this prompted a sell off that didn't really come to an end until NT traced a low of $31.38 on November 17th. Since then, the buyers have been coming back, sensing a rare buying opportunity, and the effect can be clearly seen on the daily chart. A series of higher highs and higher lows is emerging and on Friday the stock cleared the $40 resistance level. Market weakness on Monday is likely to provide aggressive investors with their last chance to enter new positions with the stock trading in the $30s. Support also exists between $37-38, and then $34; target shoot new entries to your level of risk tolerance, but wait for the stock, and the Networking Index (NWK.X) to turn positive before jumping into the fray. BUY LEAP JAN-2002 $45.00 WNT-AI at $12.50 BUY LEAP JAN-2003 $45.00 ODT-AJ at $14.75 New Plays ORCL - Oracle $30.06 We almost added ORCL as a new play last weekend, but due to the sharp upward move on the prior Thursday, decided to wait for some consolidation, before taking the leap (pun intended). As a supplier of software for information management, ORCL is a major player in both the systems software and the business applications software markets. Systems software is a complete Internet platform to develop and deploy applications for computing on the Internet and corporate Intranets. Business applications software automates the performance of specific business data processing functions for customer relationship management, supply chain management, financial management, procurement, project management, and human resources management. The stock has been under pressure since Labor Day, falling under the relentless selling targeted at any stock remotely tied to the Technology sector. This selling intensified as executive VP Gary Bloom left the company to take the helm at Veritas Software. CEO Larry Ellison downplayed the significance of the departure, and refuted rumors that he had met with an early demise flying his Marchetti jet airplane. Beginning with the sharp upward move a little over a week ago, it appears that investors are beginning to focus on the company's business, which looks very strong. We'll get a good idea of how strong it really is when the company announces its earnings on December 14th after the close. With the negative bias expected in the markets on Monday due to the continuing election crisis, we would look to initiate new positions on any bounce at either the $28 or $26 support levels. There is much stronger support at $22, but we would be surprised to see such an attractive entry point materialize, and if it were to be violated would call into question the validity of our new play. More conservative players may want to wait until after the earnings results are released and ORCL trades solidly above the $30 resistance level before initiating new positions. BUY LEAP JAN-2002 $35.00 WOK-AG at $ 7.75 BUY LEAP JAN-2003 $35.00 VOR-AG at $11.13 QQQ - NASDAQ 100 Trust $68.00 Have you been looking for a way to profit from the inevitable recovery in Technology stocks without having to pick the right stock or sector? The QQQ may just be the solution you are looking for. Representing the NASDAQ 100 (NDX.X), QQQ will capture gains in the overall Technology sector, without subjecting you to the inordinate risk of a single company releasing negative news, dropping the value of your position 30-50% overnight. With major tech bellwethers like MSFT, CSCO, DELL, INTC, ORCL, JDSU, and SUNW (making up over 30% of the index) trading at or near 52-week lows, the upside potential is huge. Once the election uncertainty comes to an end, the NASDAQ is poised for a strong recovery in the year ahead, and the next major catalyst will be the FOMC meeting on December 19th. The Fed is widely expected to relax its bias, and speculation is increasing that they will cut interest rates at the end of January, if not at the December meeting. Major support on the QQQ is found at $60, with near-term support between $65-66. The NDX.X weekly chart shows the Stochastics on the verge of turning up out of its most oversold condition since late 1995, underscoring the magnitude of the long-term upside potential of the QQQ. Target shoot new entries on a bounce at support, as we await the inevitable return of the Technology bulls. BUY LEAP JAN-2002 $70.00 WNQ-AR at $15.13 BUY LEAP JAN-2003 $75.00 VZQ-AW at $19.25 Drops COMS $9.63 Ok, I dropped the ball on this one. There should have been a drop written on COMS 2 weeks ago when it fell below the $14 support level and violated the 200-dma ($13.81). Recall my comments from November 19th, "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." The company confirmed the bearish investor sentiment early last week, when they issued their earnings warning, more than doubling their expected loss for the current quarter. Goldman Sachs and Lehman Brothers led the exodus by downgrading the stock on Tuesday, resulting in a drop below the critical $10 level. The future does not look bright, and although belated, I think you can see that we have no choice but to eject COMS from the playlist this weekend. *********** SPLIT PLAYS *********** Stocks Heating Up To Split Levels Again By Matt Russ After the Split list got a spark from BRCD's announcement in late November, the market has started to show life once again. This past week's unprecedented Election developments and a little Greenspan talk gave the market reason to rally. Current OI plays that are on Split Runs posted incredible weekly gains: BRCD(+51.88), MUSE(+41.50), and IDPH(+34.31). Both splits for BRCD and MUSE are just around the corner, and closer than we think. MUSE trades ex-div on 12/20, and BRCD on 12/22. With less than two weeks to go before that time, we are expecting nice runs for both stocks. Sentiment has improved in the market throughout the week, yet the Florida Supreme Court's ruling in favor of Gore after Friday's close just might loom overhead. Current Split Run Plays BRCD MUSE IDPH Current Split Candidate Plays JNPR BRCM QCOM Candidates That Are Not Current Plays ALXN CHKP CMVT GENZ PMCS VRTS FRX LH 10 Most Recent Announcements We Predicted BRCD - 11/29 (most recent announcement) MANU - 11/08 MUSE - 10/25 AMCC - 10/11 DNA - 10/05 LEH - 09/20 ORCL - 09/14 SUNW - 08/17 GLW - 08/16 HWP - 08/16 Major Announcements So Far This Month = 6 HWEN GMCR GGG EAT FSCR HOTT For our complete stock split calendar, click here... http://members.OptionInvestor.com/splits/index.asp Symbol Company Name Splits Payable Executable 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 MUSE - Micromuse, Inc. 2:1 12/19/2000 12/20/2000 ILI - Interlott Technologies 2:1 12/20/2000 12/21/2000 BRCD - Brocade Comm 2:1 12/21/2000 12/22/2000 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 CRY - CryoLife 3:2 12/27/2000 12/28/2000 HOTT - Hot Topic Inc. 2:1 12/27/2000 12/28/2000 HWEN - Home Financial Bancorp 2:1 01/10/2001 01/11/2001 GMCR - Green Mountain Coffee 2:1 01/11/2001 01/12/2001 EAT - Brinker International 3:2 01/16/2001 01/17/2001 IDPH - IDEC Phamaceuticals 3:1 01/17/2001 01/18/2001 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 GGG - Graco Inc. 3:2 02/06/2001 02/07/2001 ************************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=1115 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 12-10-2000 5 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/121000_5.asp ************* COVERED CALLS ************* Success Basics: Rules to live by... By Mark Wnetrzak We often receive requests for a list of rules or guidelines that new traders can follow to make their venture in the market more profitable. While it is impractical to provide every possible idea or methodology that might be beneficial, we have listed a number of the most common principles used by successful traders. We can't take credit for these rules, but it's important to use this knowledge to improve your mastery in this vicious game that is "The Stock Market." First, you should always be mentally and physically prepared to participate. The decision-making ability and emotional control necessary to be successful is so great that it is impossible to manage a portfolio during periods of serious health or personal problems. Having achieved a keen and enthusiastic state of mind, the next step is to assume full responsibility for all actions. A well-known characteristic of professional money managers is their willingness to assume personal accountability for any and all trading decisions. Those who habitually blame their losses on unexpected events or failures by other entities, such as the broker for bad fills, are never successful. It's also important to have realistic expectations. When one anticipates results that are far too optimistic, objective decision-making becomes impossible, eventually resulting in emotionally driven "reaction" trading. If it seems like that might be a problem, ask yourself what you really want. Is your goal well defined and achievable and are you serious about devoting the necessary time and effort to become a successful trader? Can you overcome the urgency to always be "in the market" and totally eliminate the destructive compulsion that that dooms novice players long before they have time to learn (and absorb!) the various techniques required for profitable trading. Once you begin to explore trading strategies, keep it simple and consistent. Be sure that you clearly understand the risk/reward ratio of any potential position and use only those methods that conform to your portfolio outlook and personal trading style. Always check the overall market indicators for primary direction. Analyze the sector and industry in which your issue resides and study the performance of similar groups to make sure it coincides with your forecast. Before making any trade, check the trend and character of the issue against other time periods. In some cases, this extra step will identify areas of support or resistance that were not previously apparent, substantially changing the outlook for the position. Understand that new investors often study too many indicators and they listen to such a variety of differing opinions that "information overload" ultimately paralyses their judgment. The incessant deluge of facts and figures (financial fodder) by the media, whose true goals are to simultaneously hype, shock, and entertain, often leave traders unable to make sensible and unbiased decisions. In fact, few people realize that most of the top fund managers focus primarily on two or three fundamental indicators and they rarely listen to the opinions of the popular market "gurus." Timing is everything and there is much to be said for the ability to wait for the correct entry opportunity. For most investors, profit comes from the successful participation in specific plays and as with any investment or speculative venture, the key is to remain alert for signs of changes in character or direction, and respond promptly and decisively, when and if such events occur. Professional traders know they will encounter very few clear-cut opportunities in a lifetime and yet they train themselves to wait for the absolute best conditions before committing any funds to a prospective position. In this manner, they can identify the most important elements of technical analysis and market signals that afford the highest possible probability of a successful outcome. When it comes to specific trading axioms, one important guideline that new traders should adhere to is the need to outline an exit strategy, before initiating any position, to eliminate emotional decisions. Using predetermined targets for profit (and potential loss) addresses a number of problems. First, it eliminates the need for "judgment under fire." Second, it keeps one from selling too soon, thus eliminating potential upside profits. Finally, an sound exit strategy will help you lock-in previous gains, rather than exposing the position to a possible loss. Next week, we will focus on position management and recovering from losing plays; when to "add-to" and when to "average down." 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 MPPP 6.13 6.28 DEC 5.00 1.44 *$ 0.31 14.4% BSTE 40.00 36.06 DEC 35.00 6.75 *$ 1.75 11.4% AVID 15.94 19.06 DEC 15.00 2.19 *$ 1.25 9.9% DZTK 8.13 7.63 DEC 7.50 1.06 *$ 0.43 8.8% ISIP 11.56 10.06 DEC 10.00 2.31 *$ 0.75 8.8% CPRT 18.00 17.50 DEC 17.50 1.06 $ 0.56 7.2% MTIC 6.00 6.25 DEC 5.00 1.44 *$ 0.44 7.0% MRVT 16.88 17.94 DEC 15.00 2.56 *$ 0.68 6.9% SUPG 21.47 20.13 DEC 17.50 5.25 *$ 1.28 6.9% BCGI 26.31 25.88 DEC 22.50 5.38 *$ 1.57 6.5% PSUN 20.94 25.38 DEC 17.50 4.13 *$ 0.69 5.9% LNCR 45.25 49.63 DEC 42.50 3.88 *$ 1.13 5.9% LGTO 11.88 11.38 DEC 10.00 2.38 *$ 0.50 5.7% ADSK 27.00 28.06 DEC 25.00 2.63 *$ 0.63 5.6% MME 17.75 20.63 DEC 17.50 1.31 *$ 1.06 5.6% MTSI 17.38 20.81 DEC 12.50 5.63 *$ 0.75 5.5% MU 33.75 34.69 DEC 27.50 7.50 *$ 1.25 5.2% JDEC 29.00 26.38 DEC 22.50 7.25 *$ 0.75 5.0% HPC 18.44 19.13 DEC 17.50 1.88 *$ 0.94 4.9% PLNR 24.00 27.88 DEC 20.00 4.75 *$ 0.75 4.2% TTN 20.94 17.25 DEC 17.50 4.13 $ 0.44 2.8% WATR 36.31 30.06 DEC 35.00 2.56 $ -3.69 0.0% MRVT 17.94 17.94 JAN 15.00 4.13 *$ 1.19 5.3% *$ = Stock price is above the sold striking price. Comments: Tetra Tech (WATR) has dropped mysteriously this week on no news though it did hold up at its long-term trend line; a key moment. With one week left until expiration, it is time to re-evaluate the long-term potential for any stock that may not be called away and decide if it should remain in your portfolio. Positions Closed: VRTA, MU (DEC-$35 Call), SNWL, MTIC Murphy's Law is alive and well as all but one of the previously closed positions have rallied into profitable territory. 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 GLGC 21.25 JAN 17.50 CYV AW 5.25 30 16.00 42 6.8% EXFO 32.00 JAN 22.50 FQO AX 11.25 0 20.75 42 6.1% EDGW 5.63 JAN 5.00 FVQ AA 1.00 576 4.63 42 5.8% RFMD 36.38 JAN 30.00 RFZ AF 8.50 1468 27.88 42 5.5% QTRN 18.38 JAN 17.50 QRT AW 2.06 393 16.32 42 5.2% CVD 11.38 JAN 10.00 CVD AB 2.00 55 9.38 42 4.8% ARQL 33.75 JAN 25.00 ARQ AE 10.00 5 23.75 42 3.8% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** ARQL - ArQule $33.75 *** Conservative Entry Point! *** ArQule designs and produces molecules for the medicines of the future. ArQule offers chemistry-based products and services that improve the efficiency and effectiveness of the discovery process including accelerated lead optimization services, novel, diverse screening libraries and access to its high-throughput parallel synthesis platform technology. In addition, ArQule ArQule seeks to bridge the gap between genomic and clinical development by applying its proprietary technology platform and world class chemistry capabilities to drug discovery. ArQule recently announced that it has entered into a drug discovery collaboration with SmithKline Beecham which will utilize certain technologies of ArQule's new Parallel Track (TM) Drug Discovery program. UBS Warburg and Legg Mason have started coverage on ArQule with "Strong Buy" recommendations. With a $10 rally in seven days we prefer to remain conservative and desire a cost basis within proven support. Target shoot a lower net-debit (cost basis) for a higher return. JAN 25.00 ARQ AE LB=10.00 OI=5 CB=23.75 DE=42 MR=3.8% ***** CVD - Covance $11.38 *** What's Up? *** Covance is a leading contract research organization providing a wide range of integrated product development services on a worldwide basis to the pharmaceutical, biotechnology and medical device industries. Covance also provides services such as health economics and outcomes for managed care organizations, hospitals and other health care providers and laboratory testing to the chemical, agrochemical and food industries. No news to explain Covance's recent rally, which has broken a 2-year trend line. Speculation on a possible change of character as the "Tape" rarely lies. The next test is the July high near $13. JAN 10.00 CVD AB LB=2.00 OI=55 CB=9.38 DE=42 MR=4.8% ***** EDGW - Edgewater Technology $5.63 *** Cheap Speculation! *** Edgewater is an award-winning e-business consulting and systems integration firm that specializes in providing middle-market companies with tailored solutions for today's Internet-centric environment. Edgewater services its client base by leveraging a combination of leading-edge technologies and proven reengineering techniques provided by its network of national solutions centers strategically positioned across the U.S. A recent alliance with Marten Transport, a premium supplier of time-and-temperature sensitive transportation services, should bode well for future revenue. EDGW will also develop an Interactive Voice Response system for Marten's fleet of drivers. We simply favor the improving technical picture. JAN 5.00 FVQ AA LB=1.00 OI=576 CB=4.63 DE=42 MR=5.8% ***** EXFO - Electro-Optical Engineering $32.00 *** Rally Mode! *** EXFO, which derives its name from expertise in fiber optics, is a leading designer, manufacturer and marketer of fiber-optic test, measurement and monitoring instruments for the telecommunications industry. EXFO has recently announced it is acquiring Burleigh Instruments, a leading supplier of DWDM wavelength measurement instruments and precision positioning equipment. This should help EXFO increase the breadth and scope of their industrial and scientific product line as well as expand the capabilities of their automated test systems. Several new contracts should bolster future earnings and analysts predict growth of 42% in 2001 and an average gain of 40% per year over the next three to five years. The technicals suggest a change of character as EXFO has rallied above the end-of-November high. Reasonable speculation for those investors with a bullish outlook on the issue. JAN 22.50 FQO AX LB=11.25 OI=0 CB=20.75 DE=42 MR=6.1% ***** GLGC - Gene Logic $21.25 *** Stage I Base *** Gene Logic is a leading provider of genomic information, enabling the discovery and development of pharmaceutical, biotechnology, health care, and life science products through the systematic and industrialized application of genomics and bioinformatics. The Company has built and is commercializing a comprehensive survey of gene expression in human and animal tissues. GLGC markets two types of gene expression database products to the global pharmaceutical, biotechnology, health care and life science industries: its custom databases and related software products and the GeneExpress. Suite of databases. LG Chemical Ltd., the largest chemical company in Korea, has subscribed to a segment of Gene Logic's GeneExpress. database for use in their drug discovery and development programs and has entered into a partnership to develop a custom gene expression database. Gene Logic's revenues were up 25% last quarter and this new agreement should help the company "beat the street" once again. The stock continues to forge a Stage I base and has now made a bullish move above its 50 dma. JAN 17.50 CYV AW LB=5.25 OI=30 CB=16.00 DE=42 MR=6.8% ***** QTRN - Quintiles Transnational $18.38 *** Healthcare Sector *** Quintiles Transnational provides full-service contract research, sales, marketing and healthcare policy consulting and health information management services to the global pharmaceutical, biotechnology, medical device and healthcare industries. QTRN provides a broad range of contract services to help its clients reduce the length of time from the beginning of development to peak sales of a new drug or medical device. Quintiles said it is experiencing strong demand for its services from mid-size pharmaceutical companies, biotechnology companies, and emerging markets. In addition, Quintiles recently agreed to purchase a Swedish clinical development unit from Pharmacia, that includes a contract with the company for a specified number of services over a multi-year period, guaranteeing more than four years of revenues to Quintiles. The new company is expected to enhance Quintiles expertise in pharmacology, research, bio-statistics and data management, with a particular focus in the areas of ophthalmology, growth hormones, cardiovascular medicine, and urology. JAN 17.50 QRT AW LB=2.06 OI=393 CB=16.32 DE=42 MR=5.2% ***** RFMD - RF Micro Devices $36.38 *** New Amplifier *** RF Micro Devices, an ISO 9001-certified manufacturer, designs, develops, manufactures and markets proprietary RFICs for wireless communications applications such as cellular and PCS phones, cordless phones, wireless LANs, wireless local loop handsets, industrial radios, wireless security systems and remote meter readers. The company offers a broad array of products (amplifiers, mixers, modulators/demodulators, and single-chip receivers, transmitters and transceivers) representing a substantial majority of the RFICs required in wireless subscriber equipment. RFMD rallied strongly early this month after being added to the Standard and Poor's MidCap 400 Index, but showed real strength on the news that it had completed the second series of power amplifier modules with partner Qualcomm. Investors cheered this proof of the fruitful collaboration with Qualcomm. We favor the rally above the 150 dma and the possible change in character for RF Micro Devices. JAN 30.00 RFZ AF LB=8.50 OI=1468 CB=27.88 DE=42 MR=5.5% ***** ************************** 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 VICL 20.13 JAN 17.50 VAQ AW 4.13 17 16.00 42 6.8% PPDI 41.56 JAN 40.00 PJQ AH 4.63 106 36.93 42 6.0% TVLY 11.50 JAN 10.00 QUT AB 2.25 21 9.25 42 5.9% WIND 45.13 JAN 40.00 QWV AH 7.75 232 37.38 42 5.1% HNT 23.00 JAN 22.50 HNT AX 1.81 27 21.19 42 4.5% ADIC 21.56 JAN 17.50 QXG AS 4.88 160 16.68 42 3.6% ************************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=1111 ************************************************************** ************************* 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 AETH 68.06 60 HIZ-XL 2.06 1702 12% 60 ALXN 80.50 75 XQN-XO 2.13 2013 11% 75 ARBA 82.56 75 IUR-XO 2.81 2064 14% 70 BRCD 219.88 210 GUF-XB 4.88 5497 9% 200 BRCM 128.25 120 RDW-XD 4.25 3206 13% 120 CIEN 114.00 105 UEE-XA 3.63 2850 13% 100 CRA 49.31 45 CRA-XI 1.19 1233 10% 45 DGX 123.19 115 DGX-XC 2.19 3080 7% 118 EMLX 179.94 160 UEL-XL 4.13 4499 9% 155 GLW 76.56 70 GRJ-XN 0.81 1914 4% 70 IDPH 213.31 200 IHD-XT 4.38 5333 8% 200 IWOV 85.19 75 ICG-XO 3.00 2130 14% 73 JDSU 73.38 65 UQD-XM 1.44 1835 8% 65 JNPR 166.19 150 JUY-XJ 4.13 4155 10% 150 NTAP 87.19 75 NUL-XO 1.25 2180 6% 75 PMCS 137.00 125 SZI-XE 2.94 3425 9% 120 QCOM 103.25 95 AAF-XS 1.94 2581 8% 95 RBAK 93.69 85 BUK-XQ 2.50 2342 11% 85 SANM 92.19 85 SQN-XQ 1.69 2305 7% 87 SCMR 63.38 55 SMZ-XK 1.00 1585 6% 55 SDLI 270.63 250 QJV-XJ 5.00 6766 7% 240 SEBL 101.00 90 EZG-XR 1.69 2525 7% 90 SEPR 79.94 75 ERQ-XO 1.94 1999 10% 75 TLGD 62.75 55 TQK-XK 1.38 1569 9% 50 ***These December contracts expire on Friday*** *********************** CONSERVATIVE NAKED PUTS *********************** Position Management: Roll-outs and Adjustments... By Ray Cummins With the recent sell-off in technology issues, the number of requests for portfolio management techniques has increased substantially. This week's discussion focuses on the most common adjustment strategy for a sold (short) put when the underlying issue has experienced a severe decline. There are two basic strategies that traders use to profit from the sale of naked puts. The first technique involves writing "at-the-money" puts to take advantage of a bullish movement in the underlying stock for large, short-term profits. The less aggressive method involves writing "out-of-the-money" puts, hoping that the sold position will expire worthless. Either technique can be used to take a position in a specific issue but in most cases, our approach to naked put writing is applied as a "deep-out-of-the-money" strategy in which the trader uses the collateral value of his portfolio to return a consistent, limited profit. The strategy of selling out-of-the-money naked puts on bullish issues is a relatively conservative technique but occasionally, you will be faced with a position that is in-the-money as the expiration date approaches. One of the most common methods for preventing a potential loss in this situation is the "roll-out" and it is used when the underlying issue falls to (or below) the strike price of the sold option. Remember, selling a Put obligates the writer to purchase the underlying issue at the sold strike price. If the stock remains above the sold strike, the writer retains the premium for the sold option. However, if the stock price falls, the writer may need to roll out and forward in his position, to avoid potential assignment of the stock. He can repurchase the puts that were sold initially and sell new longer-term options. Generally, the new options are written at the next lower strike price, or in greater quantity so as to generate a credit. In this simple recovery method, no debits are incurred but a realized loss is taken in the short term. If the stock price continues to decline, the process is repeated. Eventually, the issue stock should stop falling and the last set of written options will expire worthless. At that time, the traders' overall profit will consist of the sum of all the previous credits. There are two requirements for success in this strategy. The first prerequisite is that the underlying stock must eventually rebound and the second condition is that the trader have enough portfolio collateral to stay with the strategy even if the issue falls significantly. A large stock portfolio is best for this type of trading because the collateral required for naked option writing may be in the form of cash or securities. There are no margin interest charges and the positions in the portfolio are unaffected unless there is a need for additional funds to close the play prematurely. This simple exit strategy offers a high degree of (eventual) success although in some cases, there may be an accumulation of losses before a profit is achieved. 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 QTRN 17.00 18.38 DEC 15.00 0.50 *$ 0.50 20.5% AMZN 28.94 23.44 DEC 17.50 0.63 *$ 0.63 14.2% AEOS 40.94 40.25 DEC 35.00 1.06 *$ 1.06 13.4% ARQL 25.38 33.75 DEC 17.50 0.50 *$ 0.50 13.0% AVID 15.31 19.06 DEC 12.50 0.56 *$ 0.56 12.6% CMOS 20.88 24.81 DEC 15.00 0.38 *$ 0.38 12.1% ECLP 22.75 23.19 DEC 17.50 0.63 *$ 0.63 10.6% IDXC 29.38 30.13 DEC 22.50 0.75 *$ 0.75 9.8% CTXS 30.88 28.88 DEC 25.00 0.63 *$ 0.63 9.6% QCOM 83.00 103.25 DEC 65.00 0.75 *$ 0.75 9.4% PSUN 22.19 25.38 DEC 17.50 0.38 *$ 0.38 8.6% PWAV 56.38 73.81 DEC 40.00 0.44 *$ 0.44 8.2% MTON 18.94 18.44 DEC 15.00 0.38 *$ 0.38 7.9% HNT 22.25 23.00 DEC 20.00 0.50 *$ 0.50 7.6% CAR 30.06 30.19 DEC 25.00 0.38 *$ 0.38 7.5% WGR 25.69 24.13 DEC 22.50 0.31 *$ 0.31 6.1% OXHP 37.38 40.88 DEC 30.00 0.56 *$ 0.56 6.0% WLL 49.38 49.88 DEC 45.00 0.38 *$ 0.38 5.2% TLB 49.81 46.00 DEC 40.00 0.50 *$ 0.50 5.1% KMI 43.25 45.69 DEC 40.00 0.56 *$ 0.56 4.2% VLNC 17.31 12.06 DEC 12.50 0.31 $ -0.13 0.0% NEM 16.25 16.63 JAN 15.00 0.88 *$ 0.88 8.9% SNPS 42.13 50.06 JAN 35.00 0.88 *$ 0.88 5.2% OXY 22.56 21.38 JAN 20.00 0.56 *$ 0.56 4.9% *$ = Stock price is above the sold striking price. Comments: Valence Technology (VLNC) continues to weaken and an early exit may be a prudent move. Monitor your positions closely as this last week before December option expiration will be volatile. Positions Closed: BVSN, ANF, IMG, SMSC 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 AEIS 24.38 JAN 20.00 OEQ MD 0.69 275 19.31 42 8.2% SPF 25.44 JAN 22.50 SPF MX 0.69 0 21.81 42 6.3% CORR 48.94 JAN 32.50 CHQ MZ 0.81 55 31.69 42 5.5% KLAC 35.94 JAN 22.50 KCQ MS 0.56 1191 21.94 42 5.3% TXCC 47.88 JAN 25.00 TZQ ME 0.75 64 24.25 42 5.3% CCR 41.69 JAN 35.00 CCR MG 0.75 224 34.25 42 5.1% FNSR 37.50 JAN 22.50 FQY MN 0.56 0 21.94 42 5.1% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** AEIS - Advanced Energy $24.38 *** On The Rebound! *** Advanced Energy Industries is a global company that provides the development, marketing and support of integrated technology solutions that are central in the manufacture of semiconductors, data storage products and flat panel displays, as well as other mission-critical power applications. OEM's and others end-users depend on the company's products when plasma-based technology plays a vital role in their manufacturing process. The company offers a comprehensive suite of key subsystems for vacuum process systems including power conversion and control solutions, process monitoring and machine control tools, ion-beam sources, dynamic temperature control products and plasma abatement technologies. AEIS is on the road to recovery and the recent technical trends suggest that our cost basis is a favorable price at which to own the issue. JAN 20.00 OEQ MD LB=0.69 OI=275 CB=19.31 DE=42 MR=8.2% ***** CCR - Countrywide Credit $41.69 *** On The Move! *** Countrywide Credit is a holding company through which Countrywide Home Loans is engaged primarily in the mortgage banking business, and as such originates, purchases, sells and services mortgage loans. The company's mortgage loans are principally prime credit quality first-lien mortgage loans. The company also offers home equity loans both in conjunction with newly produced prime credit quality first mortgages and as a separate product. In addition, the company offers other products and services complementary to its mortgage banking business. Countrywide's mortgage business rose sharply in November to its highest level in 16 months, as falling interest rates enticed customers into new loans. The company said refinance loans totaled $1.6 billion last month, up from $948 million for the same period last year. Investors were bullish on the news and Goldman Sachs upgraded CCR's shares to a new "trading buy." We will target a higher premium initially to achieve a favorable monthly ROI and allow for a brief pullback in the stock price. JAN 35.00 CCR MG LB=0.75 OI=224 CB=34.25 DE=42 MR=5.1% ***** CORR - COR Therapeutics $48.94 *** Drug Sector *** COR Therapeutics is engaged in the discovery, development and commercialization of novel pharmaceutical products to establish new standards of care for the treatment and prevention of severe cardiovascular diseases. The company's complementary research and development programs seek to address critical needs in cardiovascular diseases, including unstable angina, acute myocardial infarction, venous thrombosis and restenosis. In addition to Integrilin, the company has developed a portfolio of cardiovascular product candidates and programs by combining its expertise with advanced drug discovery techniques. COR's clot inhibitor Integrilin is gaining widespread acceptance in the medical industry and many of their new products have excellent potential. We favor the technical indications and the recent performance of the drug sector. JAN 32.50 CHQ MZ LB=0.81 OI=55 CB=31.69 DE=42 MR=5.5% ***** FNSR - Finisar $37.50 *** A Big Day! *** Finisar is a provider of fiber optic subsystems and network performance test systems that enable high-speed communications over Gigabit Ethernet LANs and Fibre Channel based storage area networks (SANs). FNSR's optical subsystems convert electrical signals into optical signals (light pulses) for high speed, reliable transmission over fiber optic lines. The company sells its optical subsystems to manufacturers of networking and storage equipment that in turn develop and market systems based on Gigabit Ethernet and Fibre Channel technology. FNSR's shares rallied in late November after the fiber-optics systems maker beat analysts' expectations for the second quarter and announced a slew of acquisitions. After a brief consolidation, the stock is once again "on the move" and our cost basis offers favorable speculation with low downside risk. Target a higher premium initially, to allow for a consolidation from Friday's $10 gain. JAN 22.50 FQY MN LB=0.56 OI=0 CB=21.94 DE=42 MR=5.1% ***** KLAC - KLA-Tencor $35.94 *** New Trend? *** KLA-Tencor is the world's leading supplier of process control and yield management solutions for the semiconductor and related microelectronics industries. Their portfolio of products and analysis services is designed to help IC manufacturers manage yield throughout the entire wafer fabrication process, from research and development to final production yield analysis. KLA-Tencor's advanced products, coupled with its yield management consulting practice, allow the company to deliver the complete yield management solutions customers need to accelerate their yield learning rates, reduce their yield excursion risks and adopt industry-leading yield management practices. KLAC rallied $5 on Friday as investors sensed the worst may be over for the beaten-down chip sector. Our position offers a reasonable cost basis for the issue, in the event of further downside movement. JAN 22.50 KCQ MS LB=0.56 OI=1191 CB=21.94 DE=42 MR=5.3% ***** SPF - Standard Pacific $25.44 *** Portfolio Play! *** Standard Pacific operates as a geographically diversified builder of single-family homes for use as primary residences. They have operations throughout metropolitan markets in California, Texas and Arizona. The company also offers mortgage loans to its homebuyers and others through a mortgage banking subsidiary and a joint venture with a leading financial institution. Most of its homes are single-family detached dwellings, although during the past few years some have been townhouses or condominiums. A focused homebuilding and community development business has paid off for Standard Pacific, which has recently been ranked among Fortune Magazine's 100 fastest growing companies in the United States. The company reported record third quarter 2000 revenues of $302 million and record third quarter net income of $25.2 million, a 56% increase over the same period last year. As a result of its consistent growth strategy, Standard Pacific now ranks among the 12 largest public homebuilders in the U.S. and that makes it a great candidate for any long-term portfolio. JAN 22.50 SPF MX LB=0.69 OI=0 CB=21.81 DE=42 MR=6.3% ***** TXCC - TranSwitch $47.88 *** Bottom Fishing! *** TranSwitch designs, develops, markets and supports highly integrated digital and mixed-signal semiconductor solutions for the telecommunications and data communications markets. The company's products are Very Large Scale Integrated semiconductor devices that provide functionality for communications network equipment. The company's VLSI solutions are programmable to provide high levels of functionality for high-speed broadband communication networks. The company's customers serve key market segments including network infrastructure and corporate wide area networks. This position is simply a "bottom fishing" speculation play for traders who favor the semiconductor sector. The recent technical trend suggests that TXCC has excellent upside potential in the near-term and $25 is an acceptable price at which to own the issue. JAN 25.00 TZQ ME LB=0.75 OI=64 CB=24.25 DE=42 MR=5.3% ***** *********************** 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 GETY 28.25 JAN 20.00 QGT MD 0.75 326 19.25 42 8.5% PPDI 41.56 JAN 35.00 PJQ MG 1.13 2 33.87 42 7.3% HMN 20.00 JAN 17.50 HMN MW 0.56 0 16.94 42 6.7% CDN 28.00 JAN 25.00 CDN ME 0.81 0 24.19 42 6.5% IMNX 45.00 JAN 30.00 IUU MF 0.56 3506 29.44 42 4.2% IGT 47.00 JAN 40.00 IGT MH 0.63 427 39.37 42 3.7% ************************Advertisement************************* Try Investor's Business Daily today! Click here for 10 FREE issues. No obligation. Nothing to cancel. http://www.sungrp.com/tracking.asp?campaignid=1125 ************************************************************** ************************ SPREADS/STRADDLES/COMBOS ************************ A great way to end the week! Technology stocks rallied today as investors ignored the revenue warning from Intel (INTC) and focused instead on the favorable employment data. ****************************************************************** - MARKET RECAP - ****************************************************************** Friday, December 8 Technology stocks rallied today as investors ignored the revenue warning from Intel (INTC) and focused instead on the favorable employment data. The report renewed optimism that the Federal Reserve will change its monetary policy bias later this month. The Nasdaq closed up 164 points at 2,917 and the Dow was up 95 points at 10,712. The S&P 500 index closed 26 points higher at 1,369. Trading activity on the Nasdaq was heavy at 2.3 billion shares exchanged, with advances beating declines 2,821 to 1,147. Volume on the NYSE reached 1.34 billion shares, with advances swamping declines 2,087 to 822. In the bond market, the 30-year Treasury fell 7/32, pushing its yield up to 5.51%. Thursday's new plays (positions/opening prices/strategy): Alliance AC JAN50C/JAN50P $4.12 debit straddle Jefferson JP DEC75C/DEC70P $1.00 debit strangle Qualcomm QCOM JAN75P/JAN80P $0.75 credit bull-put All of our new combination positions offered favorable entry opportunities during today's session. The Qualcomm spread was available at the target price during the issue's morning slump and both neutral positions demonstrated that they have the necessary volatility to become profitable. Portfolio Plays: Technology stocks soared today, driving the Nasdaq to its highest close in three weeks, after a smaller-than-expected increase in new employment stirred hopes that the next adjustment in interest rates will be lower. The benign labor report provided additional confirmation that the Fed will switch its policy bias to "neutral" at the December 19 meeting of the FOMC and further underscored expectations that the world's largest economy is slowing enough to warrant lower interest rates. Investors also shrugged off news that Intel (INTC) expects fourth-quarter revenues to be flat with third-quarter revenue of $8.7 billion, below expectations for a 4% to 8% rise. Intel officials cited a slowing economy and analysts cautioned that regardless of today's bullish activity, investors should sell into any strength. Other large-cap technology issues moved higher during the session with Hewlett-Packard (HWP), Oracle (ORCL), Dell Computer (DELL), Cisco Systems (CSCO), and Microsoft (MSFT) enjoying favorable gains. Semiconductor, computer software and Internet companies also enjoyed substantial advances but Sun Microsystems (SUNW) opposed the trend, falling $3.88 to $39.94 on concerns about accounting irregularities at the company. On the Dow, Boeing (BA), Home Depot (HD) and 3M (MMM) led on the upside while SBC Communications (SBC), Procter & Gamble (PG), McDonalds (MCD), Merck (MRK) and Coca-Cola (KO) retreated. Among the broad market groups, almost every sector participated in the rally with biotechnology, airline and financial issues among the top gainers. The slump in oil service shares continued as crude oil fell to a four-month low on expectations that mild weather will soon crimp demand for heating oil and that Iraq will likely resume exports. Our portfolio experienced favorable activity in almost every group but the bullish momentum may be short-lived. After the closing bell, the Florida Supreme Court breathed new life into Al Gore's bid for the U.S. presidency by ordering a recount of about 9,000 disputed ballots in Miami-Dade County. The decision, which came minutes after the end of the session, eliminated the possibility that a resolution to the battle for the U.S. presidency is close at hand. In addition, stocks which are perceived as particularly sensitive to a Gore administration tumbled in after-hours trading. S&P 500 futures also moved lower, demonstrating the broad market's unease with political uncertainty. Still, there were a number of winners in the Spreads section. Juniper Networks (JNPR) was one of the most popular big-cap technology issues, closing up $17 at $166 as investors moved back into high growth companies that make equipment for the Internet infrastructure. Among biotech stocks, Invitrogen (IVGN) was the top dog, closing $10 higher at $82 and Vertex Pharmaceuticals (VRTX) wasn't far behind with an $8 rally to end at $78. In the lower-priced category of stocks, Biochem (BCHE) finally broke out of a recent trading range near $25 and now it's off to the races. Carter Wallace (CAR) also appears to be bracing for another rally and Safeco (SAFC) has exceeded all possible expectations, climbing over 10% in less than one week. The small-cap group has produced some excellent speculation plays and Friday's best performers were Miravant (MRVT), Mattel (MAT), Timken (TKR), and Pioneer Natural Resources (PXD). Also in the black were recent laggards AT&T (T) and Englehard (EC). Traders should consider using the rallies in these issues as potential adjustment opportunities. Unibanco (UBB) was a big mover in the straddles section, jumping $2 to a recent high near $28 and last week's neutral position is already yielding a 20% return. With one week until option expiration, there is little evidence that the recent volatility will diminish, so monitor your plays closely and use the movement to your advantage as we transition to January positions. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** AMR - AMR Corporation $37.63 *** Reader's Request! *** AMR Corporation is the holding company of American Airlines. American Airlines is one of the largest scheduled passenger airlines in the world. American provides scheduled service to hundreds of destinations throughout North America, the Caribbean, Latin America, Europe and the Pacific. American also is one of the largest scheduled airfreight carriers in the world, providing a full range of freight and mail services to shippers throughout its system. In addition, AMR Eagle Holding Corporation, a wholly owned subsidiary of AMR, owns regional airlines that operate as American Eagle: American Eagle Airlines, Executive Airlines, and Business Express Airlines. The American Eagle carriers provide connecting service from American's high-traffic cities to smaller markets throughout the United States, Canada, the Bahamas and the Caribbean. One of our subscribers pointed out Friday's upside activity in AMR shares and suggested that we offer a bullish position in the issue. Strangely enough, the rally came on the heels of a decision by members of the federal mediation board to order an indefinite recess to contract talks between the airlines and its flight attendants' union. The long and involved discussion between the company and its attendants has been at impasse since the union rejected a contract offer from American that included an 8% pay hike, putting the flight attendants at the top of the industry salary scale. The union rejected that proposal, which it said offered only marginally better wages than those in a tentative agreement discarded by members in 1999 and that other components were inferior. Federal law states that workers can't strike until a federal mediator declares an impasse and a 30-day cooling-off period ends without an agreement, so investors may see this move as short-term plus for American. In any case, the technical trend is favorable and those who like the outlook for the issue can speculate on its future with this bullish position. PLAY (speculative - bullish/synthetic position): BUY CALL JAN-40 AMR-AH OI=784 A=$1.38 SELL PUT JAN-35 AMR-MG OI=186 B=$0.88 INITIAL NET DEBIT TARGET=$0.12-$0.25 TARGET ROI=25% Note: Using options, the position is equivalent to being long on the stock. The collateral requirement for the naked put is approximately $1325 per contract. ****************************************************************** PN - Pennaco Energy $14.00 *** Energy Sector Hedge *** Pennaco Energy is an independent energy company entirely focused on the exploration, development, acquisition and production of natural gas from coal bed methane properties located in the Powder River Basin of northeastern Wyoming and southeastern Montana. The company owns oil and gas lease rights with respect to approximately 743,600 gross acres in the Powder River Basin. Of these amounts, 644,000 gross acres represent the company's portion of the acreage contained in the Area of Mutual Interest that it shares with CMS Oil and Gas Company. The Company has leasehold interests covering 99,600 gross acres outside the AMI, the majority of which are located near the town of Gillette, Wyoming. U.S. natural gas futures set new all-time highs last week and shares of many companies in the group are now expected to move higher as conservative investors begin buying into gas-heavy firms. Pennaco is poised to benefit from the recovery in this sector and Friday's bullish activity suggests that traders are anticipating a fairly substantial boost to the company's stock price. This position offers a way to speculate conservatively on the future movement of the issue with low risk and reasonable reward. PLAY (conservative - bullish/collar): BUY STOCK PN LAST=$14.00 SELL CALL JAN-15.00 PN-AC OI=1967 B=$1.12 BUY PUT JAN-12.50 PN-MV OI=369 A=$1.06 TARGET COST BASIS=$13.75-$13.88 ROI=16%(margin) ****************************************************************** - 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. ****************************************************************** PPDI - Pharmaceutical Product Dev. $41.56 *** All Time High! *** Pharmaceutical Product Development and its subsidiaries provide a broad range of research and development and consulting services in the life and discovery sciences segments. PPD Development, the company's life sciences subsidiary, is the fourth largest contract research organization (CRO) in the world, providing integrated product development resources on a global basis to complement the research and development activities of companies in the pharmaceutical and biotechnology industries. The company's discovery sciences subsidiary PPD Discovery, focuses on the discovery segment of the pharmaceutical research and development outsourcing market. PPDI offers innovative technologies, therapeutic expertise and comprehensive resources for drug discovery and pre-clinical programs, clinical studies and post-market support. The company specializes in helping clients maximize their returns on major product developments and they also provide consulting strategies for design and management of customized programs from initial screening to final submission. With the incredible number of new drugs and products being developed, this business model has little chance of failure. Investors apparently see the logic to the company's unique approach as they pushed the issue to a new high during Friday's session. Based on the long-term trend, our outlook for the issue remains cautiously bullish and the recent momentum should propel the share value well clear of our target cost basis. PLAY (conservative - bullish/credit spread): BUY PUT JAN-30 PJQ-MF OI=10 A=$0.50 SELL PUT JAN-35 PJQ-MG OI=2 B=$1.12 INITIAL NET CREDIT TARGET=$0.75 ROI(max)=17% B/E=$34.25 ****************************************************************** HC - Hanover Compressor $34.56 *** Bracing For A Rally? *** Hanover Compressor is a market leader in full-service natural gas compression and a leading provider of contract gas handling service, fabrication and equipment. The company operates a fleet of compression rental units and their compression services are complemented by its compressor and gas equipment fabrication operations. The size, type and geographic diversity of this rental fleet enables the company to provide its customers with a range of compression units that can serve a wide variety of applications, and to select the correct equipment for the job, rather than trying to fit the job to its fleet of equipment. In addition, subsidiary Hanover Smith, designs, engineers, fabricates and either sells or occasionally rents a broad range of oil and gas production equipment designed to heat, separate, dehydrate and measure crude oil and natural gas. In early November, Hanover reported continued strong growth in revenue, cash flow and net income for the third quarter. The noticeable improvement in revenue and earnings reflect the company's outstanding execution of a new business strategy as well as the continued industry-wide growth in outsourcing in a highly favorable operating environment. Analysts are bullish on the company and with the demand for natural gas increasing, it appears that HC's share value is poised to move higher. PLAY (conservative - bullish/credit spread): BUY PUT JAN-25 HC-ME OI=0 A=$0.25 SELL PUT JAN-30 HC-MF OI=100 B=$0.75 INITIAL NET CREDIT TARGET=$0.62 ROI(max)=14% B/E=$29.38 ****************************************************************** ************************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=1116 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
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