The Option Investor Newsletter Wednesday 01-24-2001 Copyright 2001, 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/012401_1.asp Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 01-24-2001 High Low Volume Advance/Decline DJIA 10647.00 - 2.80 10680.30 10619.70 1.29 bln 1439/1407 NASDAQ 2859.15 + 18.76 2892.36 2828.32 2.57 bln 2072/1742 S&P 100 714.33 + 2.29 717.20 710.71 totals 3511/3149 S&P 500 1364.30 + 3.90 1369.75 1357.28 52.7%/47.3% RUS 2000 502.25 + 0.19 505.15 501.34 DJ TRANS 2942.18 - 59.82 3003.01 2935.33 VIX 24.56 + 0.70 25.54 24.33 Put/Call Ratio 0.53 ************************************************************* Waiting for Greenspeak? Investors spent the day running in place while waiting for the green light from the Fed chief. The markets got mixed news from the various earnings reports but with the Employment Cost Index and with words coming down from the mountain expected tomorrow there was no rush to buy. The good news? There was no rush to sell either. Just another sign in a long line of bullish signs. Unfortunately the news after the bell was not as bullish as we would have hoped. The earnings monster rose from its slumber and took a bite out of the fiber optic sector. Corning (NYSE:GLW) announced earnings that beat the street by a whopping six cents but then warned that sales going forward would be weaker due to slowing telecom spending. The slow down in orders was expected to pickup in the fall but that did not pick up the stock. GLW was down -$5 in after hours. SDLI also announced earnings that beat the street by four cents. They also announced that they were delaying the JDSU merger due to anti-trust scrutiny. After the merger the combined company would control up to 80% of the pump laser market. This would not pass the trust concerns and they are expected to sell that business to Furukawa Electric Co from Japan. The merger is still expected to take place by the end of February but investors did not like the news and dropped Nasdaq:SDLI for a -$13 loss in after hours trading. Nasdaq:AMGN also announced earnings and missed street estimates by one to three cents depending on how analysts decide to apply a one time $25 million contribution. AMGN dropped -$2 in after hours trading and analysts came to their rescue quickly. They said you don't want to own AMGN for their current products but for the products in the pipeline which should increase earnings considerably in the future. Some products were weaker however as some customers are switching to other cheaper drugs. Etrade (Nasdaq:EGRP), announced earnings that doubled the analysts expectations of a penny. The bright side was account growth. With over 3.6 million accounts Etrade is now the second largest online broker. They added +244,000 accounts last quarter which was more accounts than most online brokers have in total. They have almost doubled their accounts since the two million reported last year at this time. Lucent, failed again. What is a quarter without a Lucent warning and earnings miss? Nyse:LU posted a larger than expected -$.30 loss and announced they are laying off 10,000 employees or 8% of their work force. They are planning to reduce costs by $2 billion for 2001 by contracting their products instead of doing their own manufacturing. This is a plus for companies like NYSE:CLS and NYSE:JBL which already have contracts with Lucent to produce a wide range of products. NYSE:MCD suffered from mad cow disease and for the first time in its 34 year history posted lower earnings than the prior period. McDonalds said that fear of Europe's mad cow disease had slowed hamburger consumption and raised the cost of beef. In reality it is the greasy French fries you die from not the hamburger! Bypass anyone? Nasdaq:SNDK also reported earnings that missed street estimates and SNDK got hammered with a -$11 loss in after hours. Claiming higher inventory and slower sales could impact the next two quarters investors were not happy. NYSE:AOL gained +1.60 after announcing another 2000 job cuts in an effort to streamline the merged AOL/TWX companies. All the earnings listed above are nothing more than market noise and the real event is still the Greenspan Humphrey-Hawkins testimony on Thursday and the ECI report. The markets are slowly backing off the 50 basis point cut theory and they will be dissecting every word and inflection of Thursday's Greenspeak to decide if even a 25 point cut is still in the cards. It is a proven fact that Greenspan wants to continue using the huge budget surplus to pay down the national debt instead of a tax cut. Manufacturing is in a recession and other sectors are close but a tax cut would help stimulate a new expansion by giving investors a reason to spend. With existing housing sales expected to come in at -2.3%, a number protected by lower interest rates, the slow down is apparent but still not critical. The market rebound from Jan lows may have already doomed another rate cut and with the junk bond market thriving again Greenspan may decide to take a more passive policy instead of the aggressive moves everyone wants. Tune in tomorrow and read between the lines for hints, clues, guesses or even out right obfusca-speak. (Art Cashin for plain English, structured in such a way to confuse and misdirect the listener.) The Employment Cost Index will be announced before the Greenspan speech and is expected to be up +1.1%. A higher number could raise fears of inflation from a too tight job market and temper his "all is well" direction. As you can tell by the markets lack of direction today, nobody wanted to take any serious positions before the Greenspeak event and the ECI. If Greenspan accidentally says something that analysts take as confirmation of another 50 basis point cut then expect the market to react positively for the next three days. Conversely, if he creates a feeling of "the economy is okay but we will keep watching" then the market is likely to retreat and regroup until after the meeting. Plan accordingly! On Monday the NYSE makes a major change. All 3,522 stocks will be going decimal. Currently there are only 159 stocks trading in the test group but with no major problems the exchange has decided to go all the way. Do you even remember the CNBC ticker in fractions? How quickly we adapt to change. Enter passively, exit aggressively! Jim Brown Editor www.OptionInvestor.com ************************************ Spring Options Workshop and Bootcamp April 5th-9th, Denver Colorado ************************************ OptionInvestor is proud to announce our third annual Spring option workshop in Denver Colorado. This power packed five-day event is structured to fully educate you on advanced option strategies and will make you a better and more profitable trader. If you attended the March Denver Expo last year and thought it was the best function you had ever attended... You haven't seen anything yet! Great food, entertainment, education and just plain fun in sunny Denver. The biggest complaint in March was the massive weight gain experienced by the attendees from the gourmet menu. We know how to put on a function. Ask anyone who came last March! We guarantee the speaker lineup to be second to none. In the October seminar not only did we have Jim Brown and over 15 of the OIN staff but Steve Nison, the father of modern candlestick charting. Also, Dick Arms, creator of the Arms Index or the Trin Indicator, Gregory Spear, author of the Spear Report, Stan Kim, founder of the Snail Trader System and Jim Crimmins, president of TradersAcounting.com. We promise the lineup this April will exceed your expectations again! This is not a beginner seminar but if you feel the need to brush up on the basic trading strategies then we have an optional boot camp the day before the four day seminar begins. If you have traded options before and you are comfortable with the basic strategies then this seminar will take you to a new trading level. If you have been trading options for sometime and are ready to broaden your knowledge and improve your trading results in all kinds of markets then this is for you. Meet and interact in a small group setting with the writers you have seen in OptionInvestor for the last four years. We are starting the seminar with an optional one day boot camp which will cover all the basic strategies, calls, puts, leaps, covered calls, naked puts, spreads, straddles, etc. This will help investors not familiar with all the basic strategies get up to speed before the intensive education and the advanced material in the main seminar. The boot camp will be 8 hrs of personal instruction by the OIN staff. The main seminar will begin with a reception, dinner and entertainment on Thursday night and continue non-stop until noon on Monday. We mean non-stop. We don't quit until you do and many optional sessions last until 10:PM or later. The detailed schedule will be posted in about two weeks. There will not be individual breakout sessions during the day. Each topic will be covered in 1-2 hr general sessions taught by one or more OptionInvestor staff and presented on three giant screens. In the evening we will offer five of our popular chalk talk sessions for that personal question and answer interaction. The list of instructors is led by Jim Brown and will include many OIN staff with outstanding guest speakers during lunch and dinner each day. The Spring Denver Expo seminars fill up fast and seating is limited! SIGN UP NOW or risk missing out on this opportunity. Unlike other seminars with only two or three instructors, you will get in-depth knowledge from many different instructors who are experts in their field. The cost for the four-day workshop, April 6th to 9th is only $2995 (spouse only $1495). This includes breakfast, lunch and supper each day. All course materials, a CD of all the presentations and a professional video package of the entire seminar so you can review the material at home in the comfort of your living room. There is also a $500 discount if you have attended a prior OIN seminar. This is not a prepackaged presentation that gets repeated over and over with stale information. This is a one-time production and everything is fresh, live and as current as we can make it. The videos will have your real time questions and answers and not some from a prior class. Where else can you get intensive yet personalized options education like this? Do not delay as seating is very limited. We guarantee you will not be disappointed! You can pay for your education one bad trade at a time or you can invest less money one time to learn how to do it right. Click here for more info: https://secure.sungrp.com/workshop/april01/index.asp If you have not been to one of our Denver Expo seminars before here are some comments from previous attendees: The words herein are totally inadequate to express what I am feeling about you and all the OptionInvestor organization. But this medium is all I have. Thank you more than these few simple words can say. Wow, what a seminar! In my 25 years of investing I have attended many instructional conferences, but I have never, never experienced one like your Options Expo. The instructors were absolutely tops. Subjects, generally were on target. Especially for me, the Skybox, index funds/options and the early morning strategies and trading were particularly great. The attention to the many details and nuances were especially evident, and I guess most of the credit that area goes to your great support team. Now, the real challenge is to apply and implement the powerful knowledge I was exposed to. Sincerely and warmly, Kevin Hughes, Denver ************ Jim & Staff, I am sitting in the hotel room after a great 3 days in your seminar. I can't tell you how pleased I am and want to thank each of you for a job well done. Having been responsible for events like this, albeit on a much smaller scale, I can recognize all the hard work that went into the seminar. Each member of the staff is to be congratulated!! The seminar confirmed my belief that the OIN staff really cares about the success of their subscribers. Jim, you all should be proud of the work you do to enrich the lives of so many people. It is one thing to amass a personal wealth. It is a much higher calling to help others meet their goals in life. I was very impressed that you were emotional in your closing remarks. You have so much to be proud of -- helping people fish all over the world! Thanks again and I look forward to attending another seminar in the future. My best regards, Jim Boettcher Austin, Texas ************** I must say, that your seminar was outstanding!!! Sign me up for next year. It is rare that a person of your position would share so generously your knowledge of his trade. I hope that I will be able to put into place much of what you taught. Every aspect of the seminar was first class, from the hotel, to the food, the instructors and the luncheon speakers. One of the biggest surprises was your generosity in handing out material, and gifts. Two weeks ago I attended a competing option seminar in Chicago and all I got from the was coffee at the morning break, No handouts, no food and half of the final day was promoting their web site and additional classes. I must say your seminar far exceeds what I got from them. Sincerely yours, Mike Lillis *************** Please pass on my thanks to the entire OIN group for a fabulous EXPO. The seminar far surpassed any expectation that I would have fathomed, had I attempted to! OIN has the right attitude and the obvious ability to be a leader and I look forward to many years of positive experiences with you folks. Kind regards, Gwen Richardson **************** GREAT JOB TO EVERYONE! I described this event to my friends as a life changing event! (options aside) ,the quality of people, dedication, sacrifice of their time (the second 40+ hours a week they don't have to work but do) they do this because they care, wanting to help others change their life dramatically (My wife thinks I was oxygen deprived up there !) I came back a different person for those who know me that says a lot. Now for the options side I have to admit there was so much info to absorb, most of it came to me on the 2000+- mile ride home it all started to fall into place I feel Very confident (yes Jim this can be bad but I know this now!) Notice the patience here guys! that's one change I have a plan to stick to ! THANK YOU !!! Allan O'Neill ************** Need we say more? If you want to learn how to be a better trader, making more and losing less then you should come to this seminar. We guarantee you will not be disappointed! For more info: https://secure.sungrp.com/workshop/april01/index.asp ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.sungrp.com/tracking.asp?campaignid=1468 ************************************************************** ************* NEW CALL PLAY ************* GS - Goldman Sachs Group $117.88 +1.88 (+6.94 this week) The Goldman Sachs Group is a global investment banking and securities firm that provides a wide range of services worldwide to a substantial and diversified client base that includes corporations, financial institutions, governments and high net-worth individuals. The company provides investment banking, which includes financial advisory and underwriting, and trading and principal investments, which includes fixed income, currency and commodities, equities and principal investments. GS recently completed the acquisition of Spear, Leeds & Kellog, which is engaged in securities clearing, execution and market making, both floor-based and off-floor. So you've been watching the Brokerage sector, looking for a way to profit from the optimism leading up to next week's FOMC meeting, right? Well, look no further than GS, as it is leading the sector higher. After reporting solid earnings on December 19th, GS helped the Brokerage index (XBD.X) put in a higher low, and it has been in a nice solid uptrend ever since. Merrill Lynch (MER) and Wit SoundView (WITC) certainly helped the bulls' cause yesterday by posting strong earnings, beating the street by 5 cents and 4 cents respectively. Apparently investors liked the news, as they helped to boost shares of GS up to touch the upper Bollinger band again today, and the stock closed at its highest level since mid-September. Although stochastics have now reached overbought territory, there is no sign of weakness, and this is underscored by volume that more than doubled the ADV in today's session. No matter how you slice it GS is in a healthy uptrend, but the question is, "How do I get on board?" Well, if you're looking for the conservative approach, wait for the bulls to prove they are serious about pushing the stock higher. If they can clear today's high ($120) on continued robust volume, that will be your all clear signal. For those of you that like a little more spice in your life, aggressive entries can be had on a bounce from intraday support between $114-115. Our stop at $113 is rather tight, because we are looking for a continuation of the rally between now and the middle of next week. Any selling that penetrates our stop will be a strong signal that the bulls lost control, and the bears have been awakened from their slumber. Keep an eye on the XBD.X, as continued strength in the broader index will confirm our bullish bias on GS. BUY CALL FEB-115 GS-BC OI= 742 at $8.00 SL=5.75 BUY CALL FEB-120*GS-BD OI=2800 at $5.00 SL=3.00 BUY CALL FEB-125 GS-BE OI=1863 at $3.00 SL=1.50 BUY CALL MAR-120 GS-CD OI= 32 at $8.38 SL=6.00 BUY CALL APR-125 GS-DE OI= 569 at $9.38 SL=6.50 SELL PUT FEB-110 GS-NB OI= 530 at $2.63 SL=4.25 (See risks of selling puts in play legend) http://www.premierinvestor.com/oi/profile.asp?ticker=GS ITWO - I2 Technologies Inc. $60.44 +4.03 (-11.31 this week) ITWO is a global provider of intelligent eBusiness solutions for supply chain management and enhanced business applications. On June 12, 2000 ITWO merged with Aspect Development (ASDV) to create one of the largest software providers for eBusiness and eMarketplace solutions. TradeMatrix, its Internet marketplace, provides an open digital community powered by i2's advanced optimization and execution capabilities that help manufacturers plan production and other related operations. Clients include 3M, Compaq, Ford and Nokia. While still a relatively young industry, investors are becoming more sophisticated when it comes to picking stocks in the B2B space. It used to be that B2B issues all moved in unison, as traders bid up shares of any company that provided e-products and e-services to businesses on the hope on a bright (albeit uncertain) future. However, over the past year, analysts and shareholders alike have been casting a more discriminating eye towards the sector. Now, it appears that they are in the process of separating the flowers from the weeds. Former leader ARBA has seen its stock price languish, as the perceived value in procurement software has waned. The intermediary model has also taken damage, as can been seen in the stock prices of ICGE and FMKT. However, it seems that supply chain management has found favor in attracting investor dollars. This has helped shares of ITWO to rally recently, putting the stock back above 50-dma resistance. A strong earnings report helped to ignite investor interest while bullish comments from JP Morgan H&Q and a Buy rating from Bear Stearns added fuel to the buying frenzy. Looking ahead, moving average resistance may be encountered at the 200-dma ($65) and the 100-dma ($70). Sustained buying momentum, taking ITWO above today's high of $61, could allow for an entry on strength, if Merrill Lynch's B2B HOLDR (BHH) and rival MANU confirms upward direction. For a more aggressive play, entries on pullbacks could be had at $60, $58, and $56.50, with moving average support from the 5-dma ($55.60) and the 50-dma ($53.42). Just make sure ITWO closes above our stop price at $55. BUY CALL FEB-55 QYJ-BK OI=1691 at $ 9.63 SL=6.50 BUY CALL FEB-60*QYJ-BL OI=2631 at $ 6.50 SL=4.50 BUY CALL FEB-65 QYJ-BM OI=1932 at $ 4.50 SL=2.75 BUY CALL MAR-60 QYJ-CL OI= 43 at $10.00 SL=7.00 BUY CALL MAR-65 QYJ-CM OI= 123 at $ 8.00 SL=5.75 http://www.premierinvestor.com/oi/profile.asp?ticker=ITWO ************ NEW PUT PLAY ************ AT - Alltel Corporation $67.75 -0.50 (-0.18 this week) Alltel, with more than 10 million communications customers, almost $7 billion in annual revenues, and more than 26,000 employees, is a leader in the communication and information services industries. Alltel has communication customers in 24 states, and provides information services to telecommunications, financial and mortgage clients in 55 countries and territories. Alltel reached a 52-week high of $80.81 a year ago today, on January 24, 2000, and a 52-week low of $47.75 last September. The last three months' trading pattern for AT have been characterized by sharp volatile moves from the $58 level to heavy resistance at $68.56. An inability to penetrate $68.56 would lead Alltel to establish a long term pattern of lower highs dating back to impenetrable resistance at $80.81 last January, and $70.31 last March. It appears that this pattern is now established, as demonstrated by AT's close today. While Alltel was downgraded by AG Edwards two weeks ago, and released additional news this week regarding a new contract with Cullen/Frost Bankers, the stock seems to be shrugging off good and bad news, as AT struggled valiantly to close above $68 this week with no success. The next support level is $67, and a drop below this would most likely lead AT to $66.38 and then to $64.75. The 50-dma is at $63.20, and a drop below this would be a very bearish indicator. Conservative traders might want to wait for a drop below $66.38 to initiate positions. Set stops at $70, as a close above this level would indicate a reversal of the long term downward trend. Keep an eye on the telecom sector (TTH) for signs of weakness. BUY PUT FEB-70*AT-NN OI= 4 at $4.38 SL=2.50 BUY PUT FEB-65 AT-NM OI=20 at $1.94 SL=1.00 http://www.premierinvestor.com/oi/profile.asp?ticker=AT ***************** STOP-LOSS UPDATES ***************** SUNW - call play Adjust from $28 up to $30 CNC - call play Adjust from $13 up to $15 ACF - call play Adjust from $31 up to $33 ASYT - call play Adjust from $15.50 up to $17.50 EBAY - call play Adjust from $46 up to $50 RMBS - call play Adjust from $43 up to $48 SLR - call play Adjust from $37 up to $39 IDTI - put play Adjust from $51 down to $49 ************* DROPPED CALLS ************* SCMR $46.06 -5.31 (-4.06) Sycamore disappointed us today by selling off. While the stock remains in an upward channel, the after hours market's reaction to Corning's earnings report does not bode well for the networking stocks tomorrow. While Sycamore may come back if the Nasdaq stays strong, to be on the safe side, we are dropping it tonight. A $58.00 -4.75 (-7.56) Agilent had a very rough day today as intraday support at $62 failed. Volume increased throughout the day, taking A through its 10-dma at $60.58 and finishing at the low of the day. While there was no news driving trading in A, it appears that today's action was pure profit taking. With our stop set at $60, the failure to bounce from that level has resulted in a drop of our Agilent call tonight. ************ DROPPED PUTS ************ TEVA $56.38 +4.44 (+2.81) Put players had several opportunities to profit from Teva over the last few days, as the stock rolled over from $56 and $53 to a low of $48.50 on Tuesday. However, today's move on heavy volume indicates that strength is returning to Teva, and thus we are dropping the put play tonight. CCU $61.88 +1.19 (+0.13) Conditions which made CCU a recommended put play have now changed and with that, we are adjusting our strategy. When we initiated coverage, the stock had been in the process of rolling over, breaking its uptrend line since the New Year, after an unsuccessful rally above its 200-dma ($64.69). Falling below the 5-dma line ($61.33), the stock managed to find support from the 10-dma ($60.79) and since then, has put itself back above the 5-dma. It appears that CCU may attempt to again test its last line of moving average resistance. What's more, movement in peers such as INF and ETM confirm sector strength on news from the Radio Advertising Bureau that radio ad spending should be strong going forward. In light of this, we do not recommend taking on any new positions. ******************************************** Do you like OptionInvestor? Then vote for us as a favorite site: http://www.investorlinks.com/vote.html Thanks for your support! ******************************************** ************** TRADERS CORNER ************** A New Volatility Measuring Tool For Us By Mary Redmond On January 23rd, the CBOE introduced a new volatility index, the VXN.X. I found the information while I was browsing on their web site today, and this new tool may prove to be even more valuable for options traders than the VIX.X. The VXN.X tracks the volatility of options on the Nasdaq 100 index, the NDX.X. The VXN.X will be calculated using the implied volatility of options on the Nasdaq 100 index. The CBOE developed the VXN.X as it became apparent that there was divergence between the volatility in the Nasdaq market and the broad market. The CBOE has calculated the historical prices of the VXN.X dating back to January 1995. At any moment, the VXN.X calculates the implied volatility of an in the money NDX.X option with thirty days left to expiration. The current VXN.X quote is 60. This means that the market thinks that one at the money NDX option will move by plus or minus 60% of its current value prior to expiration. It is not surprising that the VIX.X and the VXN.X have moved roughly in tandem over the years, and that the volatility of the Nasdaq is far greater at almost any point in time than the volatility of the S & P 100. The following is a chart of the two indexes. Options traders have used the VIX.X as a valuable tool to gauge market sentiment in combination with other technical tools. We have found that a low VIX.X, of 20 or under can indicate that the markets are dangerously overbought and likely to correct. In addition, a VIX.X of over 30 can indicate an oversold market which is likely to rally on good news. All of this depends on what the market is to you. Is the market the Dow, the Nasdaq or the S & P 500? Options traders who concentrate on high technology stocks traded on the Nasdaq may want to track both the VIX.X and the VXN.X. At this point, we might want to start tracking the past VNX.X levels to ascertain what a high level is, and what a low level is, to determine the levels at which we may consider buying and selling. The CBOE has prepared a text file of the VXN.X, which can be downloaded from their web site. It seems that, over the last few years, the VXN.X has ranged from a low of 21.80 in 1995, to a high of over 90 this year. We need to consider that the Nasdaq has been particularly volatile since 1998, and that the last two years readings may give us more accurate interpretation. The chart above shows that the VXN.X has oscillated from a range of approximately 30 to 90, with the mean level somewhere between 45 and 65. In particular, there were several key turning points over the last few years in which the VIX.X was a particularly accurate indicator. Let's take a look at what the VXN.X was doing at those points. In October of 1998, the VIX.X spiked to an all time high of 60, which correlated to a market bottom, as the Federal Reserve cut interest rates shortly thereafter. The VXN.X was 73 the same week. Similarly, last April during one of the first sharp sell offs the VIX.X spiked to 35, and the VXN.X spiked to 70. Last September, before the horrible fall sell off, the VIX.X sent us a warning signal with a low reading of 19. The VXN.X was 47 at that point. More recently, the VXN.X spiked to 89 last December, and 83.78 on January 8th. Both of these would have been good buying levels for the NDX.X, particularly because the Fed had cut rates. We might conclude from this that a level of 85 or higher in the NDX.X is a very high level, and might be used as an indication of an oversold Nasdaq, in combination with other technical indicators. In addition, it seems that a VXN.X of under 50 can indicate a Nasdaq that may be tending toward overbought. Going forward, it will be interesting to watch this new indicator, and to determine how it oscillates with the market in order to gain a better trading advantage. Traders need to use as many technical indicators as possible in order to gain an advantage in the market. The volatility level of the indexes, as well as that of individual options, can be used in conjunction with company earnings, expected future Federal Reserve action, economic indicators, and other technical tools to gain insight into the market. www.OptionInvestor.com *************************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=1469 ************************************************************ ********************** PLAY OF THE DAY - CALL ********************** SLR - Solectron Corporation $40.65 +0.24 (-1.30 this week) Founded in 1977, Solectron Corporation is the world's largest electronics manufacturing services company offering a full range of integrated supply-chain solutions for the world's leading electronics original equipment manufacturers. Solectron's integrated technology solutions, materials, manufacturing and operations, and global services offer customers competitive outsourcing advantages, such as access to advanced manufacturing technologies, shortened product time-to-market, reduced total cost of ownership and more effective asset utilization. Most Recent Write-Up On a flat day for the market yesterday, shares of Solectron drifted lower, retreating $1.21 or 2.88 percent on 90% of ADV. Despite the pullback, the stock found support from its 5-dma line though it appears that it also encountered resistance at the $42 level. Today, the company announced that it would acquire an OEM manufacturer Centennial Technologies for about $108 million in stock. This caused the stock to gap down at the open but SLR spent the rest of the day moving higher, closing down fractionally on average volume. At this point, what we would like to see is buying volume carry SLR back above its 5-dma at $40.63, allowing conservative traders to take a position. For higher risk players, a bounce off the 10-dma at $38.94 could allow for an entry point with additional support at $38 and our stop price of $37. Considering the light volume these past couple of sessions, we would recommend waiting for volume and sector sympathy to confirm direction before making a play. So keep an eye on CLS, FLEX, JBL to gauge sector sentiment. Comments With the 10-, 100-, and 200-dma converging just below the $40 level, SLR has found support there the past two sessions. Today's trading was particularly choppy, whipping between $40 and $41.75. Look for bounces from support at $40 on any pullbacks for entry. On the upside, a break through $41.75 accompanied by strong volume would warrant entry. BUY CALL FEB-35 SLR-BG OI= 706 at $6.60 SL=4.75 BUY CALL FEB-40*SLR-BH OI=4517 at $3.20 SL=1.50 BUY CALL FEB-45 SLR-BI OI=1143 at $1.15 SL=0.00 High Risk! BUY CALL MAR-40 SLR-CH OI= 34 at $4.50 SL=2.75 BUY CALL APR-45 SLR-DI OI=3951 at $3.50 SL=1.75 http://www.premierinvestor.com/oi/profile.asp?ticker=SLR ***************************************** BIG CAP COVERED CALLS & NAKED PUT SECTION ***************************************** The Markets hit a wall of worry: What will the FED do next week? Stocks ended mixed today as industrial shares consolidated and technology issues rose on optimism that lower interest rates may boost the slowing economy. Trading volume was relatively light and the activity was choppy as investors digested another round of quarterly profit reports. A number of technology analysts were encouraged by positive news from Compaq Computer (NYSE:CPQ) and Siebel Systems (NASDAQ:SEBL) but blue-chip stocks struggled following some earnings disappointments. McDonald's (NYSE:MCD) slumped after reporting revenues that were well below consensus estimates and Minnesota Mining (NYSE:MMM) fell after warning that challenging conditions would continue into the first half of 2001. Among technology groups, Internet, computer software and semiconductor shares were the best performers while networking issues retreated on weakness in Network Appliance (NASDAQ:NTAP). Shares of the computer data storage provider dropped 20% after Salomon Smith Barney and Goldman Sachs slashed their ratings on concerns about the firm's market and valuation. On the Dow, blue-chip technology stocks and financial issues supported the industrial average, helping it to recover from midday losses despite lackluster announcements from Old Economy bellwethers. Inside the broader market groups, utility, online brokerage and biotechnology shares generally advanced while airline and paper stocks consolidated. Defensive issues such as gold, consumer products and major drugs also retreated during the session. As the market awaits next week's FOMC policy meeting, analysts are scrutinizing economic data and key congressional testimony for clues about the interest-rate outlook. The fourth-quarter employment cost index is due Thursday morning and Federal Reserve Chairman Alan Greenspan will speak later that day to the Senate Budget Committee. A widespread belief that interest rates will be lowered, as well as a desire not to be left behind, has fueled the rally over the past few sessions but a continued decline in quarterly revenues could temper investor's enthusiasm despite the bullish long-term outlook. In addition, another rate cut isn't guaranteed and even if it occurs as expected, that won't end the market's current woes. Because stock selection is so critical in uncertain market conditions, we will focus on top performing issues with strong technical charts. Our goal in this section is simple; to achieve consistent monthly returns with relatively low risk positions. Summary of Previous Picks: NOTE: January prices as of Friday's Expiration Covered Calls: (Margin would double the listed Monthly Return) Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return NEWP JAN 65 62.56 105.13 $2.44 7.4% IMPH JAN 45 42.69 43.63 $0.94 2.2% EMLX FEB 70 66.94 103.06 $3.06 4.6% Naked Puts: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return XLNX JAN 30 29.62 53.94 $0.38 11.9% NEWP JAN 55 53.88 105.13 $1.13 11.2% JNPR JAN 70 69.25 134.31 $0.75 10.3% QCOM JAN 70 68.50 70.38 $1.50 10.2% DPMI JAN 40 39.62 72.56 $0.38 9.7% AFFX JAN 55 53.81 58.63 $1.19 9.6% IMPH JAN 40 38.87 43.63 $1.13 9.2% LEH JAN 55 54.12 79.94 $0.88 7.8% JNPR JAN 70 68.94 134.31 $1.06 7.3% IVGN JAN 60 58.50 68.88 $1.50 7.0% DCTM JAN 40 38.94 44.88 $1.06 6.8% IDPH JAN 40 39.17 56.88 $0.83 6.4% Adj 3-1 Split EMLX JAN 45 43.69 101.13 $1.32 6.3% Adj 2-1 Split BGEN JAN 50 49.37 59.44 $0.63 6.3% MWD JAN 65 64.44 84.38 $0.56 6.2% NOK JAN 40 39.25 39.13 -$0.12 0.0% Own it? EMLX FEB 60 57.94 103.06 $2.06 9.7% VSTR FEB 105 102.75 122.13 $2.25 7.7% IDTI FEB 35 34.44 46.25 $0.56 5.1% Sell Strangles: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return BRCM JAN 45p 43.75 130.06 $1.25 8.6% BRCM JAN 160c 161.06 130.06 $1.06 7.4% CEPH JAN 40p 39.06 56.00 $0.94 8.2% CEPH JAN 70c 71.19 56.00 $1.19 10.1% CMVT JAN 75p 74.37 113.69 $0.63 10.2% CMVT JAN 125c 125.63 113.69 $0.63 10.2% EMLX JAN 55p 54.44 101.13 $0.56 11.8% EMLX JAN 98c 98.06 101.13 -$3.07 0.0% Covered? GMST JAN 25p 24.37 48.81 $0.63 5.8% GMST JAN 65c 65.75 48.81 $0.75 6.8% IMPH JAN 35p 33.25 43.63 $1.75 11.7% IMPH JAN 80c 82.75 43.63 $2.75 17.0% ITWO JAN 30p 29.50 53.69 $0.50 16.7% ITWO JAN 70c 70.56 53.69 $0.56 18.6% MERQ JAN 60p 59.31 95.38 $0.69 6.7% MERQ JAN 140c 141.00 95.38 $1.00 9.6% NTIQ JAN 50p 49.44 69.94 $0.56 12.6% NTIQ JAN 105c 105.56 69.94 $0.56 12.6% RIMM JAN 50p 48.44 59.94 $1.56 12.1% RIMM JAN 115c 115.94 59.94 $0.94 7.6% VECO FEB 30p 29.06 61.59 $0.94 7.3% VECO FEB 95c 96.13 61.59 $1.13 8.7% Naked Calls: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return RIMM JAN 110 111.06 59.94 $1.06 13.4% QLGC JAN 130 131.50 83.75 $1.50 10.1% BEAS JAN 85 86.25 63.38 $1.25 10.1% ADBE JAN 80 81.00 58.25 $1.00 8.1% IVGN JAN 100 100.63 68.88 $0.63 7.7% VRTS JAN 160 161.69 99.25 $1.69 6.1% OSIP FEB 85 86.13 63.38 $1.13 8.6% MYGN FEB 100 100.69 68.25 $0.69 6.1% Credit Spreads: Stock Pick Last Position Credit C/B G/L Status ESRX $88.88 $82.44 JAN65p/70p $0.50 $69.50 $0.50 Final AFFX $63.63 $58.63 JAN40p/45p $0.69 $44.31 $0.69 Final VAR $62.00 $58.50 JAN50p/55p $0.50 $54.50 $0.50 Final FCEL $72.25 $77.19 JAN45p/55p $0.56 $49.44 $0.56 Final MRK $89.13 $82.44 JAN100c/95c $0.62 $95.62 $0.62 Final A $61.88 $58.00 FEB45p/50p $0.56 $49.44 $0.56 Alert 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 *************** CMVT - Comverse Technology $121.63 *** Break-out? *** Comverse Technology (NASDAQ:CMVT) designs, develops, manufactures, markets and supports computer and telecommunications systems and software for multimedia communications and information processing applications. The company's products are used in a broad range of applications by wireless and wireline telephone network operators, government agencies, call centers, financial institutions and many other public and commercial organizations worldwide. They provide unique enhanced services platform products, digital monitoring and recording systems for call centers, a range of customer management applications, public networks and government agencies, network signaling software for wireless, wireline and web communication services known as Signalware, and many other telecommunications hardware and software products and services. The recent rally in Comverse Technology started early in January after analysts at US Bancorp Piper Jaffray initiated coverage on the company with a "strong buy" rating and a short-term target price of $130. The bullish outlook propelled the stock out of an old trading range and today the issue closed at a new all-time high. Our conservative position offers a method to participate in the future movement of the issue with low risk and favorable reward. CMVT - Comverse Technology $121.63 PLAY (aggressive - bullish/credit spread): BUY PUT FEB-95 CQZ-NS OI=416 A=1.25 SELL PUT FEB-100 CQZ-NT OI=748 B=1.75 INITIAL NET CREDIT TARGET=$0.62-$0.75 ROI(max)=14% /charts/jan01/charts.asp?symbol=CMVT ***** EMLX - Emulex $103.06 *** New Trading Range! *** Emulex (NASDAQ:EMLX) is a designer and supplier of a broad line of Fibre Channel host adapters, hubs, application-specific computer chips (ASICs), and software products that provide connectivity solutions for Fibre Channel storage area networks (SANs), network attached storage (NAS), and redundant array of independent disks (RAID) storage. Its products are based on internally developed ASIC technology, and are deployable across a variety of SAN configurations, system buses and operating systems, enhancing data flow between computers and peripherals. Emulex's products offer customers a combination of critical reliability, scalability, and high performance, and can be also customized for mission-critical server and storage system applications. Emulex continues to be one of our favorites for long-term stock portfolios and the demand for data storage technology has helped the issue move up to a new trading range over the past few weeks. The fundamental outlook for Emulex is excellent as revenues are expected to increase exponentially in the coming year and the company should continue to see higher share values in the future. The current technical trend is favorable and we offer the target position as a conservative entry point, based on the new bullish outlook. EMLX - Emulex $103.06 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put FEB 65 UMQ NM 212 1.06 63.94 6.5% *** Sell Put FEB 70 UEL NN 449 1.19 68.81 7.2% Sell Put FEB 75 UEL NO 296 1.44 73.56 8.6% /charts/jan01/charts.asp?symbol=EMLX ***** ITG - Investment Technology Group $45.81 *** Hot Sector! *** Investment Technology Group (NYSE:ITG) provides equity trading services and transaction research to institutional investors and brokers, using technology to increase the effectiveness and lower the cost of trading. Its principal service offerings are POSIT, an electronic stock crossing system; QuantEx, a new Unix-based decision-support, trade management and order routing system; SmartServers, which offers server-based implementation of trading strategies; Electronic Trading Desk, an agency-only trading desk offering clients the ability to efficiently process many sources of liquidity; ITG Platform, a PC-based order routing and trade management system; ACE and TCA, a set of unique trade tools for systematically analyzing and lowering transaction costs; ITG/Opt, a computer-based equity portfolio selection system; and Research, which provides research, development, and a range of consulting services to its clients. The company's revenues are generated on a per transaction basis for all orders executed. Investment Technology Group recently announced quarterly earnings and although fourth-quarter profits dropped due to a downturn in the stock market, the results beat expectations and the company predicted growth ahead. ITG, which runs the POSIT share trading system, said the number of shares traded on its network rose to 4.2 billion shares, up from 3.4 billion a year ago and they also forecast a 20% to 30% increase in profits and revenues this year. The fundamental outlook for ITG is excellent and the recent rally has been on solid volume; both factors that lead us to a bullish position in the issue. The favorable option premiums also help provide a conservative, low risk spread position with a reasonable expectation of profit. ITG - Investment Technology Group $45.81 PLAY (conservative - bullish/credit spread): BUY PUT FEB-35 ITG-NG OI=0 A=0.31 SELL PUT FEB-40 ITG-NH OI=20 B=0.81 INITIAL NET CREDIT TARGET=$0.62-$0.69 ROI(max)=14% /charts/jan01/charts.asp?symbol=ITG *************** Neutral Plays - Straddles & Strangles *************** AC - Alliance Capital $55.44 *** An Old Favorite! *** Alliance Capital (NYSE:AC) is a global investment management firm best known for its growth style of equity investing. AC's assets under management are more than $400 billion including retirement accounts for many of the largest public and private employee benefit plans along with 28 of the U.S. Fortune 100 companies. Alliance Capital also manages accounts for employee retirement funds across the United States, and for foundations, endowments, banks, an insurance companies worldwide. Alliance Capital is one of America's largest mutual fund sponsors, with approximately 6 million shareholder accounts and a family of diversified mutual fund portfolios that are distributed globally. Alliance Holding owns approximately 42% of Alliance Capital, the operating private partnership. In addition, AXA Financial owns interests in both Alliance Holding and Alliance Capital, amounting to an almost 57% economic interest in Alliance Capital. Alliance has been one of our favorite straddle stocks over the past few months and today the issue made the candidate list as option premiums dropped to historical lows. Based on AC's recent movement and the upcoming earnings report (due February 2), there is excellent potential for future volatility. In addition, the upcoming meeting of the FOMC should have some affect on financial stocks and the issue has a history of more than adequate price movements necessary to make the position profitable. AC - Alliance Capital $55.44 PLAY (conservative - neutral/debit straddle): BUY CALL FEB-55 AC-BK OI=193 A=$1.88 BUY PUT FEB-55 AC-NK OI=90 A=$1.81 INITIAL NET DEBIT TARGET=$3.50 TARGET ROI=15% /charts/jan01/charts.asp?symbol=AC ***** AFFX - Affymetrix $68.56 *** Range-Bound! *** Affymetrix (NASDAQ:AFFX) 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 probe arrays, and software to analyze and manage genetic information from the probe arrays. The company's earnings are due on This play is based on the current price of the underlying stock and its recent technical history. The pattern of consolidation started early last year and the issue has spent very little time outside the target profit range. The probability of profit in this position is higher than other plays in the same strategy based on inflated option premiums. In addition, the prospect of the share value reaching our sold strikes is rather low, but there is always the possibility of a break-out from the recent trading range, so monitor the position for changes in technical character. AFFX - Affymetrix $68.56 PLAY (aggressive - neutral/credit strangle): Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put FEB 50 FIQ NJ 498 0.81 49.19 7.4% *** Sell Call FEB 97.5 FUE BU 59 0.81 98.31 7.4% *** - or - Sell Put FEB 55 FIQ NK 408 1.75 53.25 14.8% Sell Call FEB 95 FUE BS 123 1.00 96.00 9.0% /charts/jan01/charts.asp?symbol=AFFX *************** BEARISH PLAYS - Naked Calls *************** BRCD - Brocade $105.44 *** Technicals Only! *** Brocade Communications Systems (NASDAQ:BRCD) is a provider of Fibre Channel switching solutions for Storage Area Networks which apply the benefits of a networked approach to the connection of computer storage systems and servers. The company's family of SilkWorm switches enables companies to cost-effectively manage growth in their storage capacity requirements, improve the performance between their servers and storage systems and increase the size and scope of their SAN, while allowing them to operate data-intensive applications, such as data backup and restore, and disaster recovery, on the SAN. Brocade sells its SAN switching solutions through leading storage systems and server original equipment manufacturers and through system integrators. These OEMs and system integrators combine the company's switching solutions with other system elements and services for companies' data processing centers. Technically, the BRCD price trend has improved significantly over the past few sessions and the recent rally has pushed the issue back into a previous trading range near $110. However, overhead supply at this price is substantial and the stock will have to work through a number of resistance levels to undergo a complete change in character. Based on analysis of option pricing and the underlying stock's technical history, the issue meets our basic criteria for a favorable naked-call position and those who agree with a neutral outlook can use this play to profit from further range-bound movement. Brocade's earnings are due on February 8 and in the event of a rally, traders should consider covering the sold (short) position on any future move above $130, accompanied by heavy volume. BRCD - Brocade $105.44 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call FEB 125 GUF BE 563 3.00 128.00 15.5% Sell Call FEB 130 ULF BF 609 2.25 132.25 12.7% Sell Call FEB 135 ULF BG 338 1.25 136.25 7.4% *** /charts/jan01/charts.asp?symbol=BRCD ***** CIEN - Ciena $102.00 *** Premium Selling! *** Ciena (NASDAQ:CIEN) is engaged in providing intelligent optical networking equipment. The company offers a portfolio of products for communications service providers worldwide. Their customers include long-distance carriers, competitive and incumbent local exchange carriers, Internet service providers and other wholesale carriers. Ciena offers optical transport and intelligent optical switching systems that enable service providers to provision, manage and deliver high-bandwidth services to their customers. Ciena is an excellent candidate for a bearish "premium-selling" strategy. The issue has robust option premiums, a well defined resistance area and a high statistical probability of remaining below the target strike prices. However, current news and market sentiment will have an effect on the issue and, as with any of our recommendations, these positions should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and personal trading style. Ciena's earnings are due on February 8. CIEN - Ciena $102.00 Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call FEB 135 UEZ BG 441 1.94 136.94 11.5% Sell Call FEB 140 UEZ BH 452 1.44 141.44 8.7% Sell Call FEB 145 UEZ BI 162 1.00 146.00 6.2% *** /charts/jan01/charts.asp?symbol=CIEN ************************Advertisement************************* Get 10 FREE Issues of Investor's Business Daily. No obligation. 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