The Option Investor Newsletter Wednesday 12-27-2000 Copyright 2000, All rights reserved. 1 of 1 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/122700_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 12-27-2000 High Low Volume Advance/Decline DJIA 10803.20 +110.80 10828.90 10645.00 1.06 bln 2121/ 849 NASDAQ 2539.35 + 45.83 2539.52 2450.22 2.00 bln 2195/1817 S&P 100 691.18 + 4.18 693.38 683.78 totals 4316/2666 S&P 500 1328.92 + 13.73 1332.03 1310.96 61.8%/38.2% RUS 2000 479.30 + 12.67 479.30 463.42 DJ TRANS 2899.61 + 60.02 2899.83 2828.08 VIX 32.31 - 0.23 33.41 31.95 Put/Call Ratio 0.72 ****************************************************************** The Battle Between Window Dressing and Tax-Loss Selling These two year-end phenomena have been in full effect the past two weeks as institutions and retail investors reflect on a difficult year. Window dressing involves mutual funds and hedge funds purchasing strong performing stocks to make the books look better and generally creates an upside bias. Its counterpart is tax-loss selling in which investors dump some of their losers to take the loss against taxable gains for the year 2000. Put both of these market activities together and you have yourself a recipe for volatility. If you look at the tape today, all indicators point to a lack of selling and accumulation in many issues. The INDU has been hitting on all cylinders for the past four sessions, covering an amazing 500 points in that time. Technically speaking, the INDU is much healthier than the NASDAQ after putting in a convincing bottom on October 18th. On that day, the INDU broke below 10000 and briefly touched 9654. Since then, it has consolidated and many components were sought after as defensive plays, including drug stocks and cyclicals. BA, DD, KO, JNJ, MMM, MRK, PG, MO, IP and UTX have had fantastic runs as investor fled the tech sector. Naturally, fund managers will chase these names into the end of the year to "dress" their books. Notice there's no four lettered symbols. In fact, a year ago most investors wouldn't have even thought about adding these issues to their portfolios. What a year it has been. As a result of these INDU components performance and their attractiveness, the index has sustained a 12% rally since bottoming in October. Looking at the chart below, we can see that the INDU has rallied itself right into resistance at 10800. Yet, today the INDU broke the trend of lower highs in December. In addition, last Thursday's bounce from 10300 establishes a solid double bottom support for the INDU. It may very well be due for some profit taking but with these aforementioned forces in the market, strong performing issues may continue to have momentum into the end of the year(this Friday). This will likely drive the INDU in the customary Santa Claus rally, and it may test resistance at 11000. Watch some of these stocks for possible trading opportunities in the next two days; MO, C, and UTX are current call plays. Just as the window dressing enhances the winners for the year, tax-loss selling perpetuates downward momentum in many of the fallen angels of the NASDAQ. It certainly has been a rough year for the tech sector, and much technical damage has been inflicted. Tax-loss selling creates volatility in the market because of the downside pressure. An example of this can be seen in the VIX.X, the CBOE Volatility Index, which spiked up to 37.72 last Thursday when the NASDAQ dipped below 2300 briefly. Strong selling like this causes investors' fears to increase, as well as demand for downside protection, i.e. buying puts. Market makers don't want to sell a ton of puts to the public if the market is going to tank, but as their job title states, they must make markets. The result is higher volatility priced into those puts. Higher premium in return for taking a higher risk. If you look at the NASDAQ chart since that encounter with sub-2300 levels, it has managed a 250 point rally, albeit over the holiday season. This time of year is typically characterized by lighter volume, but volume has been nothing to scoff at. Last Friday was a strong 2+ bln share day and today was just shy of 2 bln. So don't discount this week's action. But, don't forget that those short players had a heck of a year and are probably enjoying extended vacations. Looking at the technical picture below, the NASDAQ has sold off considerably since hitting 3000 in the second week of December. Given the recovery in the NASDAQ over the past three sessions, much of the tax-loss selling appears to have been done already by institutions. The NASDAQ will find a challenge with 2600, yet it has some room to recover with the downtrend line near 2800. On an intraday basis, the NASDAQ bounced nicely from support at 2450 this morning and staged a rally to close at the day high. Tomorrow's bias is positive. Set up for entries on pullbacks to support and watch for continued buying interest. Technically oversold, the NASDAQ could be setting up for a nice move in early January with expectations of a rate cut and money market funds becoming flush with IRA contributions and Holiday bonuses. Most of today's high profile movers indeed were tech stocks. AOL and TWX came under selling pressure as news circulated that the FCC is still reviewing the merger, basically delaying the closing of the deal until next year. The company and investors were hoping the merger was completed in 2000 for tax and accounting purposes. As a result, traders sold both stocks with conviction: AOL(-2.75), TWX(-4.75). The disaster du jour was Network Associates(NETA). The company warned last night that it will report a loss compared to expectations of a 31 cent per share profit. They also expect a dramatic shortfall in revenues from $250 mln to only $55-65 mln in the 4th quarter. To make matters worse, the CEO and COO will step down effective Friday, and the CFO will also step down once a new one is appointed. The company attributes the poor performance to the slowing economy and not the general competitiveness of its products. NETA, an antivirus and internet security company, lost 61% today to close at $4.50. Strength today was find in the SOX.X, which added almost 5%. Having been sold off dramatically with the NASDAQ, the Semi stocks showed some life today, indicating some buyers nibbling on the beaten down sector. AMCC led the charge with a 12% gain of $8. RFMD, an OI call play picked last Friday, also had a 12% gain today, adding $3.25 to $29. Watch for continued interest in the Semi sector to help buoy the NASDAQ. Looking forward, the markets look poised to finish the week relatively well, all things considered. The INDU looks very strong as window dressing bids hot stocks higher. While the heaviest of tax-loss selling appears to be over, be aware that Friday will likely be a busy day for year-end positioning. Don't write off the possibility of both retail and institutional investors dumping some of those losers at the last minute. Or adding to those winners. There will be plenty of trading opportunities in the next two days so take a look at the OI play lists and narrow down your choices. Tomorrow morning is Consumer Confidence, expected to be 128. This could move the market early on. So choose your entry points well and best of luck in 2001. Matt Russ 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 at IndexSkybox.com: http://www.sungrp.com/tracking.asp?campaignid=1239 ************************************************************ ************* NEW CALL PLAY ************* UTX - United Technologies Corp $79.75 +2.06 (+3.75 this week) United Technologies Corporation provides high-technology products and support services to customers in the aerospace and building industries worldwide. The Company's business segments include Pratt & Whitney aircraft engines, Otis elevators and escalators, Carrier heating and air conditioning, Sikorsky helicopters, Hamilton Sundstrand aerospace systems, and International Fuel Cell systems. United Technologies, which failed in a bid for Honeywell International, is however acquiring Specialty Equipment Companies. The UTX conglomerate made significant headway last week as the DOW resurfaced from testing its lows at 10,300. The strengthening marketplace and company-specific news, delivered after-hours on Friday, were catalysts for UTX to move through the tough resistance line at $76 and $77 this week. On Friday evening, Metrologic Instruments, a maker of bar-code scanners, agreed to pay a total of $19 million in a stock purchase agreement to acquire 100% of the common stock of Adaptive Optics Associates, a unit of United Technologies that produces laser vision systems used by shippers and semiconductor-equipment makers. The acquisition is expected to close on 12-29. Company officials couldn't immediately be reached to comment; although there's no question the deal pleased the Street. Shares of UTX were set in motion on Tuesday and bullishly moved off the developing near-term support at $76. UTX made a strong show at $78.25 before settling to $77.69 at the close. Today's action was also promising. The $76 mark served as a launching platform following amateur hour and UTX saw an impressive 4.9% advance in active trading. Today's peak of $79.75 established the stock's second consecutive 52-week high, after almost a month of steadfast consolidation. We're anticipating a breakout above the next level of opposition at $80 as UTX gains momentum in an advancing market and approaches its earnings' release this month. Mark your calendars. United Technologies Corp is confirmed to announce in just a few weeks on January 18th, BEFORE the opening bell. The more enterprising entries can be found on strong bounces off the rising 5-dma ($76.35), which is just above our $76 stop loss. If you take this course of action, be sure there's enough buyers to drive UTX through the $80 resistance. Others may want to wait for another breakout and buy into strength as UTX shatters its recent 52-week records. Keep your eye on other conglomerates such as EMR, TYC, HON, and GY, who are also currently moving higher with the DOW. BUY CALL JAN-70 UTX-AN OI=1125 at $10.50 SL=7.50 BUY CALL JAN-75*UTX-AO OI=1767 at $ 6.38 SL=4.25 BUY CALL JAN-80 UTX-AP OI=1967 at $ 3.00 SL=1.50 BUY CALL FEB-75 UTX-BO OI= 735 at $ 7.75 SL=5.50 BUY CALL FEB-80 UTX-BP OI= 273 at $ 4.88 SL=3.00 http://www.OptionInvestor.com/oi/profile.asp?ticker=UTX ************ NEW PUT PLAY ************ No new puts today. ***************** STOP-LOSS UPDATES ***************** USB - call play Adjust from $27.50 up to $29 NKE - call play Adjust from $50 up to $53 JNJ - call play Adjust from $100 up to $102 CIEN - call play Adjust from $65 up to $70 LVLT - call play Adjust from $27 up to $30 COST - call play Adjust from $34 up to $35 IVGN - call play Adjust from $75 up to $79 TXN - call play Adjust from $42 up to $46 RFMD - call play Adjust from $22 up to $25 LH - call play Adjust from $163 up to $168 COF - call play Adjust from $59 up to $60 ************* DROPPED CALLS ************* No dropped calls today. ************ DROPPED PUTS ************ PMCS $84.50 +9.50 (+7.50) The Philadelphia semiconductor sector staged a dramatic rally today of over 4%, or 24.77 points. Whether this is the start of a new recovery in the sector, or simply an oversold bounce remains to be seen. Our PMCS put has provided us with excellent profits since we picked it at $87.50, however, today the stock exhibited bullish behavior, and closed above our stop level of $79. The stock has a long way to go before it establishes a true up trend, however, at this time, we want to take our profits and continue to reassess the situation before taking additional positions in puts. INTU $37.94 +3.00 (+2.44) Following Monday's intraday low of $33.25, our decision to set a lower protective stop at $37 turned out to be a wise move. Today the PC and software sector did, in fact, trade lower across the board; but unfortunately, INTU was an exception. A Strong Buy recommendation from analyst Michael Wallace at UBS Warburg and the stock's attractive price set off a robust buying spree. INTU quickly surged to the $37 and $38 levels by late morning. The steadfast trading activity through the day kept the share price above the 5-dma ($37.26), kicking put players to the curb. The violation of our stop loss and the 8.6% bullish upswing clearly warrants an exit from INTU this evening. AFCI $18.19 +1.31 (+0.69) While the NASDAQ volatility has subsided a bit with the holiday season, it appears that AFCI has found itself a temporary bottom. The day after we added this put play, the stock spiked down to $12.75 and rebounded. This low volatility put play very well may have rolled over, but selling in AFCI and the broader market has slowed. Today's close above our stop of $18 is causing us to drop it tonight. VZ $50.56 +0.81 (+2.44) This put play was short lived as the stock has made a low volume advance during the past two sessions. If the sellers return to the market, VZ very well may retreat to test lows of last Friday. Although VZ did not close above our stop of $51, the trading this week has dictated that we drop this low volatility put in favor of better plays. CELG $30.56 -1.50 (-5.69) We are dropping this top-performing put play tonight and taking our profits. Capitalizing on $14 points of downside, or 46%, in two weeks isn't bad at all. Today, volume was stronger than average and CELG recovered throughout the day to close near the high. Buyers stepped in around $27.50 - $28 and accumulated the stock into the afternoon. If the sellers return, CELG may retest that area, however, we will gladly book our profits and close this position. HAND $41.63 +5.75 (+5.63) Unfortunately, today's light volume rally in HAND stopped us out of this put play. HAND put in a higher low today from yesterday as buyers showed up a bit earlier. They stepped in at the $30 level yesterday and held $33 today. HAND could end up rolling over if sellers return to the market, but given our $40 stop, we're out. Look for HAND to rollover from its 10-dma at $43.66 if still in the position. Otherwise, use stops. DGX $137.13 +6.25 (-0.88) Buyers piled into this issue from the start of trading on Wednesday. Opening at $128, the stock never looked back. The premise of this aggressive put was to take advantage of the profit taking pullback after Friday's huge gains. After yesterday's flatlining at $130, we lowered our stop to $138. Although DGX closed fractionally below that, the fact that buyers showed up from the get-go has resulted in closing this play. Resistance will remain at $142 with support at $133 and $130. ************** TRADERS CORNER ************** Watching Market Capitalization And Liquidity Trends By Mary Redmond Market capitalization and liquidity trends are two one of the most important factors to consider when evaluating stock and option trading candidates. At this juncture, we need to pay attention to the specific sectors, and market capitalization of the stocks which are likely to outperform the markets, if the Federal Reserve lowers interest rates, as they are expected to. Market capitalization is a measure of the total size of the company. It is calculated by multiplying the number of shares outstanding by the price per share. Market cap is important to traders for a number of reasons. Most stocks tend to trade in tandem with their industry sector, and many trade in tandem with stocks with a similar market cap. For example, within the technology sector, large cap software, networking, and semiconductor stocks usually rally or decline as sectors. Within the financial sector, the major regional banks tend to trade in tandem, often separately from the brokerage and investment banking sector, and the small regional banking sector. It is best to be as specific as possible when monitoring sectors. For example, there have been times in the last few months when the small regional savings and loan bank stocks rallied, while the large commercial and money center banks did not. The most blatant example of this type of sector and market cap movement occurred during late 1999 and early 2000, when the Nasdaq 100 outperformed every other index by a huge margin. The Nasdaq 100 is the index of the 100 largest technology stocks on the Nasdaq, measured in market capitalization. This phenomena was driven by both earnings and liquidity trends. Last January, February, and March the Investment Company Institute reported that, large cap technology growth stock funds received between $20 to $40 billion per month in new cash. At the same time, non tech equity funds actually experienced net redemption. The impact of this was seen in the performance of the Nasdaq, and the large cap growth stocks, like CSCO, MSFT, and INTC, which rallied beyond their shareholders' dreams, while the Dow simultaneously fell to 9800, and small cap stocks performed poorly as a sector. This became a self perpetuating trend, in which investors continued to send money only to the large cap technology growth stock funds, because they were the only ones which showed consistent performance. One lesson to glean from this is the fact that company earnings and valuations drive growth in stock prices over the long term, but it is very difficult to fight liquidity trends over the short term. Despite the tumultuous year we have had in 2000, investors continued to deposit cash into equity funds. During August, September and October, equity funds received between $17 and $24 billion per month, with about half of the money going to growth funds and half to aggressive growth funds. However, in the last six months, the average weekly cash flow to technology funds has declined significantly. Technology funds are now taking in an average of $500 million per week, which is down from a peak average of $2.5 billion per week last winter. In a way, there may be a silver lining to the cloud of market despair we experienced this year. Investors seem to be starting to deposit money to a wide range of sector funds, including financials, health care, and others. In order to see a healthy, sustainable long term market rally, we need to see all of the major sectors rallying. In addition, the level of cash deposited to money market funds was almost as high as that deposited to equity funds, which indicates that there is plenty of money left over to enter the market. The Investment Company Institute has reported that money market funds have over $1.86 trillion in deposits, and have been receiving between $20 to $50 billion per month. People are flush with cash, but it may take a little time before they feel safe committing money to the market the way they have in the past. Another important point to consider when evaluating market capitalization is the type of stocks which funds tend to buy. Some popular funds receive millions of dollars a day in deposits. Some mutual fund companies have reported that certain funds have taken in over $20 million per day during very active months. A fund, which receives this much cash is somewhat restricted in the type of stocks it can buy and sell. It is not very realistic for large funds to buy micro cap or small cap stocks, with market values of $500 million or less. A very large buy or sell order could cause distortion in the company's stock price. For example, if a fund purchased $10 million of a $200 million company, it could distort the price of the stock to such a large degree that the purchase would be impractical. In addition, it is difficult to execute block trades in very small stocks. This is one of the reasons it is generally best to stick with large cap or very large cap stocks when performing fast trading. Stocks with a market cap in the range of $5 billion or more are usually very liquid, which gives short term traders better execution. However, keep in mind that stocks which have a very large market capitalization usually tend to move more slowly than smaller stocks. For example, GE is the largest stock traded on the exchanges at present. GE has a market cap of over $488 billion. It takes a much larger amount of money to move GE up 2 or 3 points than it does to move a company like TQNT, with a market cap of just over $3 billion. A slower moving stock may have lower volatility, which is an advantage for option buyers, however, GE traders need more patience, as it can take weeks for the stock to move up 5 to 10 points. GE is not usually a good day trading candidate. It is worth noting that the week ending December 20th showed the largest net redemption of cash from equity funds on record, according to AMG Data Services. Including capital gains distributions, equity funds experienced a net outflow of over $19 billion. The four week moving average of cash out of equity funds is in the range of $8 billion. The significance of this is the fact that investors are showing a higher level of fear than they have in an entire decade. People seem to be terrified of a recession, which may mean that any economic situation other than a recession might cause a massive rally. Not surprisingly, the net redemption corresponded to a very high VIX.X. ************************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=1245 ************************************************************** ********************** PLAY OF THE DAY - CALL ********************** CIEN - Ciena Corp $79.88 +5.69 (+2.88 this week) CIENA Corporation's market-leading optical networking systems form the core for the new era of networks and services worldwide. CIENA's LightWork architecture enables next- generation optical services to transmit signals simultaneously over the same circuit. This multiplexing system changes the fundamental economics of service-provider networks by simplifying the network and reducing the cost to operate it. About 45% of sales come from outside the US markets. Most Recent Write-Up Any one interested in high-risk recovery potential? Last week CIEN fell a whopping 38% after announcing its agreement to buy closely held Cyras Systems for $2.13 bln in stock and assumed debt. CIEN hit a lower bottom of $59.56 while taking its beating amid the resigning NASDAQ. Not even new BUY coverage from ING Barings could keep CIEN afloat. But then Santa Claus came to town on Friday. This large equipment stock rocketed $17.13, or 28.6% to $77 on the heels of a rallying marketplace. The momentum was solid and CIEN traded on 1.4 times its normal volume. The dynamic breakout pushed the stock through the 5-dma ($69.63) resistance ceiling. Today the share price consolidated at $70-$71 and then broke to the upside for a strong showing in the $72 and $74 range. Near-term support is established at $70, but firmer support is near the $65 level. If CIEN retraces to $65 for a weak close, we'll the exit the play that evening, so consider setting stops. Aggressive traders might consider taking entries off the supportive $70 mark on strong bounces, or better yet, buy into strength as CIEN moves above the next level of opposition at $80. Look for other optical stocks like JDSU, GLW, and SCMR to help move the sector higher over the short- term. Comments CIEN performed well today as buyers jumped into the stock from the opening bell, albeit on light volume. Support appears to be solid at $70 with resistance overhead at $80. With buyers typically waiting in the wings for CIEN, it makes CIEN a very tradable stock. Look to enter this call play on any bounces from intraday support at $73, or on a high volume breakout from $80. BUY CALL JAN-75 UEE-AO OI=2236 at $12.63 SL= 6.25 BUY CALL JAN-80*UEE-AP OI=2968 at $10.00 SL= 5.00 BUY CALL JAN-85 UEE-AQ OI=2438 at $ 8.00 SL= 8.75 BUY CALL FEB-75 UEE-BO OI= 624 at $16.75 SL=10.25 BUY CALL FEB-80 UEE-BP OI= 138 at $14.50 SL= 8.50 http://www.premierinvestor.com/oi/profile.asp?ticker=CIEN ***************************************** BIG CAP COVERED CALLS & NAKED PUT SECTION ***************************************** A Christmas solar eclipse and now a market rally...coincidence? Stocks moved higher today as bargain-hunting investors emerged in a number of recently downtrodden sectors. Industrial issues were the driving force behind the rally and the top performers on the blue-chip barometer included Wal-Mart (WMT), Hewlett-Packard (HWP), Home Depot (HD), Procter & Gamble (PG), Walt Disney (DIS) and 3M (MMM). Retail companies was particularly active as analysts began reviewing new sales reports from the holiday season. UBS Warburg said retail sales during the fourth week of December showed mixed results. In fact, despite a pickup in demand, they weren't strong enough to offset the poor results that occurred in the second and third week of December. At the same time, Goldman Sachs lowered its 2000 and 2001 earnings estimates on many of the major issues in the group based on continued top-line margin pressure. Among technology issues, traders quickly shrugged off news that computer security products maker Network Associates will post a substantial fourth quarter loss, instead of a profit. After the short-lived slump, the Nasdaq managed respectable gains on strength in chip, hardware and networking issues. Internet shares were also popular after SG Cowen reported that it's bullish on business-to-business stocks for 2001 as the sector should continue to see strong growth despite the economic backdrop. More importantly, the B2B segment will be less affected by the IT spending slowdown and that bodes well for the battered group. Among broader market sectors, major drugs, transportation and consumer products shares advanced while biotechnology, precious metals, paper, banking and utility stocks retreated. Energy and oil service issues also consolidated after Tuesday's rally. Analysts say that investors can now take comfort in the fact that although there may be additional downside in the future, public sentiment has swung from a positive extreme, moving well into negative territory. For those who view the market from a contrarian perspective, that's the best Christmas present we could hope to receive. Summary of Previous Picks: Covered Calls: (Margin would double the listed Monthly Return) Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return IMPH JAN 45 42.69 64.81 $2.31 5.5% Naked Puts: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return IMPH JAN 40 38.87 64.81 $1.13 9.2% IVGN JAN 60 58.50 80.63 $1.50 7.0% DCTM JAN 40 38.94 49.00 $1.06 6.8% IDPH JAN 120 117.50 199.94 $2.50 6.4% EMLX JAN 45 43.69 81.63 $1.32 6.3% Adj 2-1 Split NOK JAN 40 39.25 44.00 $0.75 4.7% Sell Strangles: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return IMPH JAN 35p 33.25 64.81 $1.75 11.7% IMPH JAN 80c 82.75 64.81 $2.75 17.0% CEPH JAN 40p 39.06 56.94 $0.94 8.2% CEPH JAN 70c 71.19 56.94 $1.19 10.1% GMST JAN 25p 24.37 46.50 $0.63 5.8% GMST JAN 65c 65.75 46.50 $0.75 6.8% Naked Calls: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return QLGC JAN 130 131.50 78.81 $1.50 10.1% BEAS JAN 85 86.25 74.63 $1.25 10.1% ADBE JAN 80 81.00 65.50 $1.00 8.1% VRTS JAN 160 161.69 93.00 $1.69 6.1% Credit Spreads: Stock Pick Last Position Credit C/B G/L Status ESRX $88.88 $104.50 JAN65p/70p $0.50 $69.50 $0.50 Open AFFX $63.63 $75.75 JAN40p/45p $0.69 $44.31 $0.69 Open VAR $62.00 $66.50 JAN50p/55p $0.50 $54.50 $0.50 Open New Candidates: This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any strategy or technique in which you are not completely comfortable with the potential loss, the necessary adjustments and the common entry-exit strategies. (We monitor the positions marked with ***). *************** BULLISH PLAYS - Covered Calls, Naked Puts, & Combinations *************** AFFX - Affymetrix $75.75 *** Rally Underway! *** Affymetrix is engaged in the field of DNA chip technology. The company has developed and intends to establish its GeneChip system as the platform of choice for acquiring, analyzing and managing complex genetic information in order to improve the diagnosis, monitoring and treatment of disease. The GeneChip system consists of disposable DNA probe arrays containing gene sequences on a chip, certain reagents for use with the probe arrays, a scanner and other instruments to process the probe arrays, and software to analyze and manage genetic information from the probe arrays. Affymetrix is one of the leaders in the field of Genomics and investors, as well as industry experts, are bullish on the company's outlook. Analysts say that Affymetrixs' GeneChip probe arrays could significantly reduce the cost and time required for high-volume polymorphism analysis, which is currently performed through more labor intensive sequencing techniques. The GeneChip probe array technology and systems integrate chip fabrication techniques, solid phase chemistry, molecular biology, software and robotics. Affymetrix currently is selling a portfolio of custom and standard expression monitoring GeneChip arrays including some unique products that monitor the expression of the majority of full length and partial gene sequences contained in publicly available sequence databases that correspond to human, mouse, rat and yeast organisms. The current pattern of consolidation has produced a relatively stable trading range and today's move above a recent resistance area suggests there is excellent potential for further upside movement. AFFX - Affymetrix $75.75 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put JAN 55 FIQ MK 122 1.19 53.81 9.6% *** Sell Put JAN 60 FIQ ML 205 2.13 57.87 16.3% ****** BGEN - Biogen $62.50 *** Entry Point! *** Biogen is a biopharmaceutical company principally engaged in the business of developing, manufacturing and marketing drugs for human health care. Biogen currently derives revenues from sales of its AVONEX product for the treatment of relapsing forms of multiple sclerosis, and from royalties on worldwide sales by the company's licensees of several products covered under patents controlled by Biogen. Such products include certain forms of alpha interferon, hepatitis B vaccines and hepatitis B diagnostic test kits, among others. In addition, through collaborations, the company is involved in the clinical developments of the other products, including AMEVIVE, adenosine antagonists, ANTOVA, the LT-Beta Receptor, VLA-4 Inhibitors, Hedgehog Proteins, and gene therapy products as well as other programs. Biogen is one of the oldest blue-chip issues in the biotechnology group and it has enjoyed consistent growth and sound fundamental management. The company has an impressive $659 million of cash on its balance sheet and they recently announced plans to repurchase 4 billion of its outstanding shares, in a move intended to boost BGEN's slumping share value. Biogen also intends to use the extra funds to expand manufacturing and research & development plans, to bolster its pipeline of new products. In addition, the company has announced several deals in the past few months, including a research-development agreement with targeted Genetics (TGEN) to develop five potential gene therapy products, and a deal with Elan to jointly develop Elan's MS drug, Antegren. Biogen's earnings are due in mid-January. Traders who favor the outlook for the company can use one of these positions to establish a favorable cost basis in the issue. BGEN - Biogen $62.50 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put JAN 50 BGQ MJ 3094 0.63 49.37 6.3% *** Sell Put JAN 52.5 BGQ MX 1245 1.00 51.50 8.3% Sell Put JAN 55 BGQ MK 3528 1.56 53.44 10.8% ****** FCEL - FuelCell Energy $72.25 *** Bracing For A Rally? *** FuelCell Energy is a developer of electrochemical technologies for electric power generation and has developed a proprietary patented fuel cell known as the Direct FuelCell. A fuel cell is a device that electrochemically converts the chemical energy of a fossil fuel into electricity without the combustion of fuel. The fuel cell system feeds a fuel, such as natural gas, into the fuel cell where the fuel and air undergo an electrochemical reaction to produce electricity. The company manufactures carbonate fuel cells, generally on a contract basis. With the rising costs of energy and the increasing demand for pollution control, investors have begun to look at companies offering renewable energy sources and environmental services. FuelCell Energy is a leader in this segment and because of the non-combustion, non-mechanical power generation process, their fuel cell is much more efficient than the conventional power plants. Emissions of sulfur and nitrogen oxides are minimal, and other pollutants are almost non-existent. With the only moving parts being the air blower, as opposed to large rotating turbines, fuel cells are extremely quiet. In addition, fuel cells achieve high efficiency at extremely small sizes, allowing fuel cells to satisfy market needs for distributed generation, such as providing electrical power to a residential community or small business district. For traders who agree with a bullish outlook for the company, this conservative position offers a method to participate in the future movement of the underlying issue with relatively low risk and favorable reward potential. FCEL - FuelCell Energy $72.25 PLAY (conservative - bullish/credit spread): BUY PUT JAN-45 FQG-MI OI=26 A=0.81 SELL PUT JAN-50 FQG-MJ OI=181 B=1.25 INITIAL NET CREDIT TARGET=$0.50-$0.56 ROI(max)=11% ****** LEH - Lehman Bros. $70.19 *** On The Move! *** Lehman Brothers Holdings is a global investment bank that serves institutional, corporate, government and high-net-worth individual clients and customers. Lehman is engaged primarily in providing financial services and the company's business includes capital raising for clients through securities underwriting and direct placements, corporate finance and strategic advisory services, private equity investments, securities sales and trading, research and the trading of foreign exchange, derivative products and other commodities. The company acts as a primary market maker in all major equity and fixed income products in both the domestic and international markets. A recent search for bullish issues in the Investment Brokerage group yielded a number of candidates. On Tuesday, we offered a play on Goldman Sachs (GS), but Lehman Brothers (LEH) is another excellent stock in the sector. Analysts say that these financial issues are going to benefit from any future reductions in interest rates and since LEH is considered one of the best in the banking business, their shares will likely see exponential gains when the rally finally occurs. In addition, Lehman Brothers is one of the few mid-size independent firms that has yet to be acquired by an industry giant, and the company would be the most likely candidate to be swallowed up by a larger rival in the coming year. LEH - Lehman Bros. $70.19 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put JAN 55 LEH MK 925 0.88 54.12 7.8% *** Sell Put JAN 57.5 LEH MY 983 1.25 56.25 9.9% Sell Put JAN 60 LEH ML 1593 1.63 58.37 11.0% ****** QCOM - Qualcomm $89.88 *** Still An OIN Favorite! *** Qualcomm is a leader in developing and delivering innovative digital wireless communications products and services based on the company's CDMA digital technology. The company's business areas include integrated CDMA chipsets and system software; technology licensing; Eudora email software for Windows and Macintosh computing platforms; satellite-based systems including portions of the Globalstar system and wireless fleet management systems, OmniTRACS and OmniExpress. Qualcomm owns patents which are essential to all of the CDMA wireless telecommunications standards that have been adopted or proposed for adoption by standards-setting bodies worldwide. Qualcomm has licensed its essential patent portfolio to a number of telecommunications equipment manufacturers worldwide. In early December, Qualcomm was listed in almost every bullish play category on the OIN's home page, but over the past few weeks, the issue has suffered from profit-taking and the overall downtrend in technology issues. With today's recovery above a short-term resistance area near $85, the issue appears poised for further gains. Traders who missed the run-up earlier in the month can participate in the future movement of the stock with these conservative positions. QCOM - Qualcomm $89.88 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put JAN 67.5 AAO MU 2004 1.19 66.31 8.2% Sell Put JAN 70 AAO MN 7840 1.50 68.50 10.2% *** Sell Put JAN 72.5 AAF MF 4066 1.88 70.62 12.2% Sell Put JAN 75 AAF MO 6194 2.38 72.62 13.4% *************** Neutral Plays - Straddles & Strangles *************** BRCM - Broadcom $90.00 *** Volatility Shrinking! *** Broadcom Corporation is a provider of highly integrated silicon solutions that enable broadband digital transmission of voice, video and data 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 their proprietary technologies and advanced design methodologies, the company designs, develops and supplies integrated circuits for a number of the most significant broadband communications markets, including the markets for digital set-top boxes, cable modems, high-speed office networks, home networking, direct broadcast satellite and terrestrial digital broadcast, and DSL (digital subscriber lines). The last two months have seen a substantial drop in Broadcom's shares as the technology sector fell to yearly lows. However, the recent volatility has begun to diminish and the technical indications suggest the issue is finally starting to establish a more docile pattern with a reasonable limit to its movements. In this conservative premium-selling position, we will use the recent volatility and the inflated option prices to initiate a neutral play with a favorable premium. The probability of the share value reaching our sold strikes is rather low, but there is always the possibility of a significant change in character, so monitor the position on a regular basis. BRCM - Broadcom $90.00 PLAY (conservative - neutral/credit strangle): Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put JAN 45 RCQ MI 363 1.25 43.75 8.6% *** Sell Call JAN 160 RDU AL 877 1.06 161.06 7.4% *** -or- Sell Put JAN 50 RCQ MJ 848 1.88 48.12 12.5% Sell Call JAN 155 RDU AK 740 1.31 156.31 9.0% ****** RIMM - Research In Motion $77.19 *** Trading Range? *** Research In Motion is a designer, manufacturer and marketer of wireless solutions for the mobile communications market. With the development and integration of hardware, software and other ervices, RIM provides solutions for seamless access to valuable information including e-mail, messaging, Internet and Intranet applications. RIMM's technology also enables an array of third party developers and manufacturers in North America and around the world to enhance their products and services with wireless connectivity. RIMM's portfolio of products includes the RIM Wireless Handheld product line, the BlackBerry wireless email solution, wireless personal computer card adapters, embedded radio modems and software development tools. This play is simply based on the current price or trading range of the underlying stock and its recent technical history. The recent downward movement in RIMM's share value was halted near $50 in late November and after an ensuing recovery rally, the second sell-off found support near $65; a bullish indication. However, the issue has also achieved lower lows in each of its three attempts to reverse the bearish trend; a negative trait that will affect its upward movement in the near-future. With regard to the near-term outlook for technology issues and the relatively well-established trading range for RIMM, these plays offer excellent speculation for traders who participate in premium-selling strategies. RIMM - Research In Motion $77.19 PLAY (conservative - neutral/credit strangle): Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put JAN 50 RUL MJ 734 1.56 48.44 12.1% Sell Call JAN 115 RUL AC 517 0.94 115.94 7.6% -or- Sell Put JAN 55 RUL MK 514 2.25 52.75 16.8% Sell Call JAN 110 RUL AB 218 1.31 111.31 10.3% ************************Advertisement************************* Get 10 FREE Issues of Investor's Business Daily. No obligation. Nothing to cancel. http://www.sungrp.com/tracking.asp?campaignid=1272 ************************************************************** ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. 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